Rethinking global trade costs: What the proposed Last Sale Valuation Act means for credit professionals

Imagine paying tariffs based on a marked-up price that includes a middleman’s fees, rather than the true purchase price. Since 1992, the First Sale Rule has helped importers avoid exactly that, allowing them to base dutiable value on the original transaction price rather than the final inflated one. But proposed legislation, the Last Sale Valuation Act, could bring that relief to an end. 

Why it matters: The potential law defines “sale for export” as the sale made directly to the U.S. importer. If passed, it would effectively overturn the First Sale Rule and change how dutiable value is calculated for imported goods. 

The First Sale Rule was established following the Nissho Iwai American Corp. v. United States ruling of 1988 and later championed by trade law firm Sandler, Travis & Rosenberg, P.A. (ST&R). It mandates that import duties be paid on the price that a middleman trading company pays the manufacturer instead of the higher price that the importer pays the trading company.  

For more than three decades, the First Sale Rule has helped contain costs for businesses, manufacturers, farmers and consumers. It’s especially useful for those working in industries whose imports have been subject to high U.S. tariff rates. Proper application of the rule ensures compliance under the U.S. Customs and Border Protection (CBP). As a result, importers can gain a deeper understanding of their supply chains, ensuring compliance with forced labor and other trade laws. 

Proposal to override the rule: The Last Sale Valuation Act 

On Feb. 11, Senators Bill Cassidy, R-La., and Sheldon Whitehouse, D-R.I., proposed the Last Sale Valuation Act, a bipartisan bill that would make the First Sale Rule illegal. Under the proposed legislation, importers would be required to shoulder duties on the full price of merchandise, including any fees added by a distributor or middleman, rather than the original transaction price. 

For example, if a manufacturer sold a widget for $100 and a distributor raised that price to $140 after adding service fees, the importer would owe duties on $140 instead of $100. Multiplied across thousands of units, those additional costs would either cut into the importer’s margins or ultimately be passed on to downstream buyers in the form of higher prices. 

The new legislation is intended to streamline CBP operations by simplifying valuation reviews, minimizing disputes over documentation and improving transparency. It also aims to reduce money laundering and the underpricing of imports. As a result, it would significantly increase duties on imported goods.  

If importers are unable or unwilling to absorb those additional costs, the difference would likely be passed on to buyers, ultimately driving up the cost of goods across the supply chain. For trade creditors, these expenses would heighten risk exposure by potentially weakening cash flow, raising costs for credit insurance and increasing the probability of payment default. 

Manufacturers across all industries, particularly those with multi-tiered supply chains, would be the most impacted. “Customers would likely ask for extended payment terms, starting at 90 days,” said Scott Michelsen, CCE, ICCE, director of credit and collections at Pave America (Warrenton, VA). “When you extend terms, you have to give greater credit limits because the money isn’t turning as quickly.” 

Opposition to the legislation 

In the past, legislation like this has met strong resistance. In 2008, the CBP proposed abolishing the “first sale for exportation” method of valuation, which was heavily opposed by importing companies, until it was finally withdrawn. This time around, however, importing companies will have more difficulty opposing the Last Sale Valuation Act as it stands as part of the America First agenda from the White House.  

Currently, ST&R is forming a coalition of companies and stakeholders to educate Congress and the administration on the benefits of First Sale Valuation and its importance to supply chain security and transparency. 

Still, the bill has a long legislative road ahead. Monitoring the progress of this legislation is NACM’s lobbyist Ash Arnett of PACE, LLC. Ash shared, “My quick read is that it is possible the bill will move, but unlikely because it will need to move through the Senate Finance and the House Ways & Means Committees, historically the two most difficult Committees for standalone legislation to advance with. Senators Cassidy and Whitehouse introduced bipartisan legislation, and both are members of the Senate Finance Committee, which increases the chances of a bill hearing.”

Tips to mitigate risk 

Staying proactive is key to mitigating risk. “After doing your own research, I’d advise having conversations with upper management about how this could potentially impact your customers and your company,” said Michelsen. “In the meantime, start looking at alternate supply chains and finding ways to protect your organization’s interests if import prices do increase.” 

According to national law firm Lowenstein Sandler, credit professionals can minimize exposure by consulting their trade associations, ask for their position on the legislation and share with them their own. Reviewing supply chain and tariff mitigation factors can assist further. 

Even if the proposed legislation does not become law, renewed focus on the First Sale Rule may cause CBP to increase audits of First Sale Rule pricing. Revisiting historic transfer pricing analysis, particularly the determination of dutiable versus nondutiable costs, can further mitigate risk. 

Bottom line: The Last Sale Valuation Act has the potential to reshape global trade for years to come. Credit professionals who stay proactive and informed can better position themselves to manage risk effectively if the proposed law takes effect.