Think Inflation is Bad Now? Just Wait Until this Radical Proposal Takes Effect

Quietly and with scarcely a whisper in the press, the U.S. Customs and Border Protection agency (CBP) has issued a proposed regulation that could lead to huge tax increases on just about everything imported into the United States.

Naturally, importers don’t really pay this tax…they merely pass the increased costs onto consumers, in the form of higher prices.

The proposed regulation would eliminate the so-called “first-sale rule.”  Under the rule, the value of imported goods for customs' purpose is based on the value of the first sale of multiple sales involving multiple parties.   And example might be a sale from a foreign manufacturer to a foreign distributor who then resells the goods to a U.S. buyer.

The CDP wants to change this value to the sale price between the distributor and the U.S. buyer—the last sale.  Naturally, this price is significantly closer to the retail value of whatever goods are eventually sold.  And that translates into much higher import duties.

Blame the World Trade Organization (WTO).  Its “Technical Committee on Customs Valuation” chose last sale over first sale, most likely to appease governments reluctant to join the WTO for fear of decreased customs’ duties.  And the CDP says it’s only doing what it’s obligated to do under U.S. treaty obligations.

Apparently, it’s not enough that Americans are already paying much higher prices for imported oil, and for all goods or services affected by skyrocketing oil prices.  It’s not enough that the collapse of the U.S. dollar has resulted in much higher prices for all imported goods.  If these rules become effective, count on much higher process for imported clothing, shoes, and baggage, among other goods. 

Fortunately, these rules won’t take effect without a fight.  More than 90 business and trade groups have petitioned the CBP to scrap or modify the proposal.  If they’re unable to bring the CDP around to their thinking, a court challenge is likely.

One thing’s for sure: we don’t need more inflation in the U.S. economy.  The CDP proposal is the wrong suggestion at the wrong time.

Copyright © 2008 by Mark Nestmann