U.S. Customs and Border Protection (CBP) recently denied Dreamwear’s attempt to apply the First Sale Rule for customs valuation. Dreamwear had purchased garments manufactured in China through Lucky Zone Development, a middleman supplier, and argued that the declared value should come from the earlier sale between Lucky Zone and its related factory in Dongguan. CBP reviewed the evidence but decided that Dreamwear did not prove the transaction was a bona fide, arm’s-length sale.

The dispute involved two apparel shipments imported in August and September 2020. Dreamwear presented purchase orders, organizational charts, and cost-plus profit calculations to show that the sales were genuine and clearly intended for the U.S. market. However, CBP found gaps in the evidence. The agency pointed out that Dreamwear failed to show that Lucky Zone carried ownership and risk of loss between the factory and the port of shipment, or that the two related entities traded independently without outside influence.

CBP cited two landmark cases—Nissho Iwai American Corp. v. United States (1992) and Synergy Sport International, Ltd. v. United States (1993)—to frame its reasoning. These rulings clarify that the First Sale Rule works only when importers demonstrate that:

• The factory-to-middleman sale reflects a real, arm’s-length transaction;
• The goods move clearly toward the U.S. market;
• The buyer assumes risk and takes ownership;
• Related parties or other non-market factors do not influence the price.

Dreamwear did not satisfy these conditions, so CBP rejected its claim.

Key Takeaway for Importers
The case shows that the First Sale Rule can lower customs values and duties, but it demands thorough proof. Importers who use multi-tier supply chains must build strong documentation that clearly demonstrates independent, genuine sales. Without such evidence, CBP will not accept a First Sale valuation.