In a strategic move to soften the financial blow of escalating U.S. tariffs, a growing consortium of European luxury fashion and cosmetics companies are meticulously exploring a lesser-known U.S. customs provision: the “First Sale” rule. This decades-old clause offers a nuanced approach to managing import duties, providing a potential lifeline for brands navigating the complexities of international trade.
The impetus for this pivot stems directly from the recent tariff adjustments imposed by former U.S. President Donald Trump. While an announced deal somewhat mitigated the initial threat, the current 15% tariffs on most imported EU goods remain a significant tenfold increase compared to the average tariffs preceding Trump’s return to the White House, forcing companies to reconsider their operational costs.
Understandably, many apparel and consumer brands are wary of directly passing these elevated duties onto U.S. consumers already grappling with inflation. Such price hikes could dampen demand and erode market share, prompting an urgent search for alternative cost-mitigation strategies that do not burden the end buyer.
This is where the “First Sale” rule emerges as a compelling option. The rule uniquely allows companies to pay lower import duties by calculating tariffs based on the value of a product as it leaves the factory, a figure significantly lower than its eventual retail price. This critical difference can translate into substantial savings for high-volume importers.
Prominent luxury brands have already begun touting this sophisticated strategy. Italy’s high-end sneakers maker Golden Goose, the renowned outerwear specialist Moncler, and the prestigious fashion label Ferragamo are among those actively evaluating or implementing the “First Sale” rule to optimize their supply chains and protect profit margins from these EU Tariffs.
To successfully invoke the First Sale Rule and benefit from reduced Import Duties, companies must meticulously demonstrate that U.S.-bound products have undergone multiple, distinct transactions. Typically, this involves the goods being sold from the factory to an independent middleman, and then subsequently to a U.S.-based entity responsible for handling the imports. Each transaction must demonstrably occur at arm’s length between clearly distinct legal entities.
Experts, such as PwC custom and tax lawyer Francesco Pizzo, highlight that a U.S. subsidiary is frequently involved in these arrangements. This internal structuring helps companies avoid revealing confidential information to external entities while ensuring compliance with US Customs regulations. The direct financial impact can be considerable; Golden Goose CEO Silvio Campara noted that the 15% tariffs could translate into only a 3% impact on their U.S. retail price, a significant saving given the U.S. market accounts for approximately 35% of their revenue.
While the strategy has been available for decades, many Luxury Brands and textile companies overlooked the “First Sale” rule during periods of consistently low tariffs. However, as Mark Ludwig, national leader of trade and tariff advisory services at RSM, points out, the current high-tariff environment has reignited interest in this complex but potentially lucrative approach to Trade Policy management.
Despite its appeal, the “First Sale” rule is not without its challenges. U.S.-based tariff and trade lawyer Michael T. Cone warns that its complexity often makes it affordable only for larger entities due to the considerable compliance costs and the inherent risks of rigorous audits by the U.S. Customs and Border Protection agency. Improper use can lead to severe penalties, as the agency routinely audits and denies claims that do not meet strict criteria, underscoring the need for meticulous adherence to regulatory guidelines.
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