Meyer Case Can Still Be Instructive Following CAFC Decision, Lawyers Say
The U.S. Court of Appeals for the Federal Circuit in a recent and highly anticipated opinion ruled that CBP cannot consider a country's non-market economy status when deciding whether to grant first sale treatment to a transaction (see 2208110060). The case, brought by importer Meyer Corp., now heads back to the Court of International Trade, which will hear arguments over how to appraise cookware imported by Meyer. John Peterson, counsel for Meyer, told Trade Law Daily that he is considering two options when the case gets back to the trade court: seek a retrial or mediation.
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In his underlying CIT decision, Judge Thomas Aquilino did not answer the question of how to value the cookware and merely cast on doubt whether goods from non-market economies could clear the standard for being appraised using first sale -- a position not even championed by the U.S. during litigation. The Federal Circuit then clarified that the term "distortive nonmarket influences" does not refer to non-market economies, sending the case back to CIT to settle how actually to value the imports.
Peterson said that he will go back to the judge and see if a decision can be reached without anymore fact finding or an extensive retrial. However, if he decides that more information or considerations should be before the judge, Peterson said, he may ask for the case to be referred to a mediating judge. "My way of thinking, mediation is a good way to handle a complex valuation case," Peterson said. "But the current judges on the court don’t have a lot of experience in valuation cases. So those are really our options at this point: go back and ask for a retrial or try and put it into mediation."
The Meyer case was closely watched by many in the trade community since it carried major implications for any importer seeking to establish first sale valuation. After the Federal Circuit closed the door on the non-market economy question, the prospect of the case still impacting the trade community dimmed. This prospect would erode completely if Peterson seeks mediation, as no judge would offer any legal ruling on the use of first sale.
However, some in the trade bar still believe the case could be instructive for the wider community, particularly on how to value transfer prices between related parties. "Ideally, in deciding this case, the CIT (or the CAFC if the case is appealed again) will provide useful guidance on how multinational companies should set intercompany transfer prices of merchandise that will be acceptable for customs purposes," said Kevin Leonard, partner at Grunfeld Desiderio. "This is currently a confusing area for companies because (1) CBP and the IRS use different rules to determine if a sales price is an acceptable, 'arm’s length' price for dutiable value purposes and for tax purposes and (2) CBP has insisted upon using a 'case by case' approach to determining the acceptability of related party sales prices, leaving companies with a lack of certainty as to how to set prices in manner that will be acceptable to CBP.
"However, it’s possible that the courts will decide the case based on the particulars of Meyer’s transfer pricing without providing much in the way of general guidance that will be helpful to the others in the import community more broadly," Leonard said.
Larry Friedman, partner at Barnes Richardson, said CBP is "largely already done" trying to look for more non-market influences between the related parties. "Meyer probably won’t inject much into that analysis," he said. As a result, Friedman believes a sense of certainty has been injected back into the use of first sale, giving importers more confidence in its use. "I think there was the period between the CIT decision and the Federal Circuit decision where people were concerned," he said. "I think that there was a general consensus that it would be resolved as it happened, but certainly if I was in industry during that time, and I was using first sale, I would at least be concerned about it, but I think this case resolves that."
The Meyer decision was a rare one in that it offered a legal opinion on the use of first sale. Looking beyond this case, Friedman said, the next court case to tackle first sale could offer clarifications on other elements of its use. Such a case could concern "someone who has had first sale denied either on a protest or in an audit because of some factor that Customs believes indicates the lack of a true sale, and the question is whether that evidence would convince a court that there is a true sale," Friedman said. "We haven't had a lot of follow up cases after [Nissho Iwai v. U.S.] and before this one where the court reviewed evidence of whether a sale was a bona fide sale. So more cases from the court would put markers down for what a party needs to be able to show to establish that they've got a true sale. More interpretations from the court showing what is relevant and not relevant always gives guidance to the importers so that they can better structure their transactions."