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Customs agency hit by lobbying on 'first sale' doctrine

Controversial rule would result in higher tariffs on products entering the United States.

Wednesday's deadline for comments on a controversial Customs and Border Protection rule that would increase tariffs on products ranging from hiking boots to cheese and fine china has resulted in a flurry of last-minute lobbying.

Announced Jan. 24, the proposed rule would eliminate what is known as the "first sale" doctrine, which sets tariff rates on the value of goods when they first enter the supply chain.

Instead, tariffs would be based on the value of the last sale of a product before it enters the United States, after a series of transactions involving intermediaries have boosted a product's price.

Companies from Abercrombie & Fitch to Wolverine World Wide, which markets Patagonia and Merrell footwear, have joined forces to oppose the rule. Late Friday, a bipartisan group of 17 senators led by Oregon Sens. Gordon Smith, a Republican, and Ron Wyden, a Democrat, wrote to Homeland Security Secretary Michael Chertoff urging him to revoke the rule.

"At a time when we are looking for ways to provide stimulus to our economy, we are concerned that the proposed action could undermine essential elements of that goal by potentially raising consumer prices," the senators wrote.

The Outdoor Industry Association estimates that outdoor recreation contributes almost $6 billion a year to Oregon's economy. On the House side, Rep. Kendrick Meek, D-Fla., is circulating a similar letter.

Other companies arguing against the rule include Boeing Co., Target and Best Buy, as well as major trade associations such as the National Association of Manufacturers and U.S. Chamber of Commerce. Smaller interests have weighed in as well, including the Cheese Importers Association of America and Waterford Wedgwood USA Inc., an importer of fine china and luxury glassware based in Ireland.

"Each year 350,000 American tourists travel to Waterford, Ireland, to visit the factory that formed the basis of the Irish heritage for the designs of crystal that have come to our country for over 200 years," wrote Christopher Kane, the firm's New York-based attorney, in a letter to Customs last week. He warned the new rule "could force [Waterford Wedgwood] to rethink its investment in the U.S."

Not all of the comments have been negative, however. The AFL-CIO wrote last week that current policy results in understated trade imbalances and allows U.S. importers to pay lower duties than countries such as China, South Korea and Japan, which value their duties based on the last-sale price of a product.

AFL-CIO Industrial Union Council executive director Bob Baugh wrote that the new rule would "provide meaningful relief for American workers who disproportionately suffer from this unfair practice." The American Dehydrated Onion and Garlic Association also wrote to Customs last week in support, arguing the rule would level the playing field against cheaper Chinese imports.

Because of geographic distance, language and cultural barriers, the association's counsel Irene Ringwood wrote, it is almost impossible to value the first sale of a garlic transaction in China, which has led to artificially lower duties on imported Chinese garlic and undercut domestic producers.