FEDERAL CIRCUIT COURT OVERTURNS DECISION LINKING “NON-MARKET ECONOMY” STATUS TO CUSTOMS VALUATION RULES

In a much-awaited decision, the United States Court of Appeals for the Federal Circuit (CAFC) has ruled that the application of the Customs valuation laws is not affected by the question of whether imported goods or their components are from a “non-market economy” country.

In Meyer Corporation U.S. v. United States, No. 2021-1932 (Fed. Cir, August 11, 2022), the appellate court overturned a United States Court of International Trade (CIT) decision which held that “first sale” transaction values could not be applied to goods absent a showing that the goods, or the sale thereof, had not been influenced by unspecified “non-market economy effects”. The case raised concerns about whether goods from countries such as China and Vietnam could be appraised on the basis of “transaction value” at all.

The Meyer case involved the sale of cookware from foreign producers to middlemen, and the resale of the cookware from the middlemen to the United States importer, all sales being “for exportation to the United States”. Invoking the rule set out in Nissho-Iwai American Corp. v. United States, 982 F.2d 505 (Fed Cir. 1992), the importer claimed that Customs value could be based on the first “sale for exportation to the United States” which was made at “arms-length”.

However, the CIT held that more was required; because some of the merchandise was made in China, or contained Chinese-origin inputs, the importer was required to show that the goods were free of “nonmarket economy country distortions”, presumably practices such as dumping or subsidization.

The Federal Circuit roundly rejected this view, holding:

The trial court misinterpreted our decision in Nissho Iwai to require any party to show the absence of all “distortive nonmarket influences.” There is no basis in the statute for Customs or the court to consider the effects of a nonmarket economy on the transaction value. The statute requires only that “the relationship between [the] buyer and seller did not influence the price actually paid or payable.” 19 U.S.C. § 1401a(b)(2)(B). This provision concerns effects of the relationship between the buyer and seller, not effects of government intervention, and especially not with government intervention that affects the industry as a whole.

The Court noted that under the rules of the World Trade Organization/General Agreement on Tariffs and Trade [WTO/GATT], all countries are to be given equal treatment. Similarly, the WTO/GATT Customs Valuation Code was intended to be a code for valuation of imported materials regardless of origin. The CIT’s decision could, the appellate court reasoned, have resulted in separate valuation systems for different countries.

The court remanded this aspect of the lower court’s decision back to the CIT, with instructions for that court to determine whether the “first sale” of the goods was statutorily viable as a basis of Customs appraisement.

The decision is a major relief to the importing community, which was concerned that the CIT’s decision could limit the application of the Nissho-Iwai “first sale” rule – or of “transaction value” generally – to goods imported from non-market economy countries, such as China or Vietnam.

For further information on the Meyer Corporation decision and its impact, please contact a Neville Peterson professional.