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By Kinita Shenoy
PricewaterhouseCoopers Sri Lanka recently held a forum on ‘First Sale for Exporters’ in collaboration with the Sri Lanka Apparel Exporters Association (SLAEA), targeted at CEOs and CFOs of Sri Lanka’s apparel industry.

The forum aimed to provide the regulatory and transactional knowledge on the FSFE scheme. This included valuations, in order to enable exporters to relate its applicability to the Sri Lankan context. The forum also instructed and guided the participants as to the benefits of the FSFE scheme.

First sale for export (FSFE) is a US statutorily provided and judicially upheld valuation concept wherein merchandise imported into the US pursuant to a multi-tiered structure involving at least a manufacturing entity, a middleman and a purchaser/US importer may be valued for customs duty purposes based on the arm’s length price of the sale from the manufacturer to the middleman rather than on the ultimate sales price to the purchaser/US importer. Within the EU, FSFE is also an accepted basis of customs valuation with virtually identical criteria as the US criteria.


The session was facilitated by two experts in the field from PwC New York, Director Maytee Pereira and Senior Associate Tracey Stefanitsis. With significant experience with assisting multinational clients with developing, executing and maintaining successful FSFE programs, both licensed attorneys have assisted judges sitting on the US Court of International Trade, the federal court that attends to US customs and trade law cases.


They have worked with Fortune 500 companies involved in a range of industries in order to realise efficiencies in their global trade movements as well as their regulatory compliance. Both experts have also helped several Sri Lankan apparel manufacturers and their US importing customers implement the FSFE programs acknowledged by the US Customs and Border Protection.

During the forum, the PwC experts mentioned a few drivers for the diversification of sourcing, which range from the continued development of technology, transportation-related costs, infrastructure improvements and shipper preferences. They further added that there are certain elements that could potentially drive sourcing decisions in the next decade or so.


For example, retailers will continue to look to reduce landed costs but will also seek more efficient ways to source products. Another key factor is the debatable competitiveness of China- while it remains a widely used option for apparel manufacturing, the rising labour costs and appreciate of the RMB are eroding the competitive advantages relative to exports to the West. For Pan-Asian distribution, China may remain more attractive due to the ASEAN framework.


There are also key drivers for the exploration of alternative sourcing models, apart from the increased cost of Chinese production, such as consumer outcry against worker conditions in low-cost manufacturing countries, and the “fast fashion” movement which requires rapid production and delivery and increased transportation costs due to the supply chain. Other drivers include duty-advantaged supply chains and the fact that other lesser-developed countries are investing more actively in manufacturing capabilities and infrastructure development.


Peirera and Stefanitsis also covered advantaged sourcing strategies, such as Special Trade Programs, Free Trade Agreement networks and FSFE. Under the most broadly implemented STP, the GSP, Sri Lanka is presently designated as a beneficiary country after losing its GSP Plus status in 2010. STP/FTAs have certain eligibility requirements, such as originating status, non-diversion and affirmative supportability.


Importers are increasingly seeking sourcing options that can achieve lower fully loaded landed costs by qualifying them for import duty preferences. Furthermore, many manufacturers in China and greater Asia are predicating future expansion decisions with a view toward more fully exploiting duty-advantaged sourcing locations to supplement their suite of manufacturing offerings.


The experts then gave the audience a basic overview as to the FSFE, explaining that when there are multi-tiered sales transactions giving rise to the importation of merchandise to the US, the transaction value in an earlier sale transaction may be used as the basis for appraisement, provided that certain requirements are satisfied. The FSFE valuation method is currently accepted by customs authorities in the US and the EU, while most other jurisdictions do not.


The basic legal requirements for the FSFE valuation are that the first sale must be a bona-fide sale conducted at “arm’s length” – free from any non-market influences, and the merchandise must be clearly destined for the US or EU at the time of first sale.

FSFE’s benefits include the reduction of duty expenses, helping to manage the landed cost of imported merchandise, as well as possible combination with other duty savings programs to maximize benefits. Furthermore, FSFE valuation can be used regardless of the origin of the underlying imported product, and suppliers that support FSFE are considered more valuable business partners by US/EU importers.


Pix by Lasantha Kumara

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Sri Lanka Garments

SLAEA Magazine Front Cover 2Journal & Directory of the Sri Lanka Apparel Exporters Association, containing valuable information with regard to the apparel industry.
Issue No. 90


Contact :
Sri Lanka Apparel Exporters Association,
50/1,Rosmead Place, Colombo 7
Tel: +9411 2675050, 2674528 
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