by Elisa Anzolin, Mimosa Spencer and Dominique Patton

Paris/Milan (Reuters) – L’Oréal and an increasing number of European fashion and cosmetics companies explore the use of an American customs clause, known as the “first sale” rule (First Sale), as a potential means of mitigating the impact of customs duties established by the United States.

US President Donald Trump and the president of the European Commission, Ursula von der Leyen, announced on Sunday an agreement providing for US customs duties of 15% on most products imported from the EU. This represents a customs right ten times higher than that imposed before Donald Trump’s return to the White House.

Certain brands of clothing and consumer goods fear having to repercuss the increase in customs duties on American consumers by increasing their prices.

This is why these brands seek to invoke the rule of the “first sale”, which allows companies to pay lower customs duties by applying them to the value of a product when it leaves the factory – a price much lower than the final sales rate.

“This is part of the possibilities,” said Nicolas Hieronimus, Managing Director of L’Oréal, in Reuters on Tuesday. “We will make decisions,” he added, without giving a calendar.

Some brands, such as the Italian manufacturer of high -end sneakers Golden Goose, the specialist in outdoor clothing Moncler and the Ferragamo fashion brand, praised the merits of this customs strategy.

“This is a significant advantage,” said Luciano Santel, executive director of Moncler, during a call with analysts. He estimates the cost of production at around half of the import price.

This strategy, which can only be invoked for goods clearly intended to be sold in the United States and involving multiple transactions abroad, is however not without risk. It requires detailed documentation, good command of supply chains and legal structures to manage the required transactions.

Consulting firms such as KPMG and PWC noted this year an increase in requests for information about how to use this strategy to lighten the cost of American customs duties.

“We have three times more requests than usual,” said Ruth Guerra, associated with KPMG in Paris, about attenuation strategies, including the rule of the first sale. According to her, this rule can be combined with other measures.

“Act with the greatest caution”

In order to benefit from reduced customs duties, a company must prove that products for the United States have been the subject of several transactions. In general, this means that the goods are sold from the factory to an intermediary, then to an American company that imports them. All transactions must be carried out under conditions of full independence by clearly distinct entities.

In general, an American subsidiary is involved in order to avoid revealing confidential information to an external entity, explained Francesco Pizzo, lawyer specializing in customs and tax law at PWC.

“In our case, customs duties of 15% will potentially result in an impact of 3% on the retail price in the United States,” revealed Silvio Campara, Managing Director of Golden Goose.

If several large textile and clothing companies have used the rule of first sales for some time, many of them have neglected it when customs duties were low, said Mark Ludwig, national manager of trade in trade and customs duties within the RSM consulting company in New York.

“Today, the cost-effectiveness report is much higher,” said Lucio Miranda, founder of the extent consulting company, who expects the use of the first sale rule to increase with the interest of companies in other sectors of activity.

There are no public data on goods imported through the rule of the first sale, but a survey conducted in 2009 by the United States International Commerce Commission revealed that 8.5% of importing entities over one year have used this solution. This is equivalent to 2.4% of the total value of American imports. Almost half of this amount was linked to shoes and clothing.

For French cosmetics producers, American customs duties represent a new challenge, the industry having benefited from zero customs duties.

“If this agreement puts an end to uncertainty, he poses a significant threat to the competitiveness of the French cosmetic industry,” said Emmanuel Guichard, general delegate of FEBEA, French cosmetics lobby.

The rule of the first sale is also only accessible to companies which can comply with a strict process, which also includes other risks.

“One of the main problems related to the selection of the rule of the first sale is that only companies with sufficient resources can really afford it – both the costs of compliance and the risks of audit which result from it,” noted Michael T. CONE, American lawyer specializing in customs and commercial issues.

Inappropriate use could also lead to sanctions, he added, noting that the American customs and border protection agency regularly proceeds to audits and refuses to apply this rule.

“Importers must act with the greatest caution,” he warns.

(Report Elisa Anzolin, Ariana Mclymore, Dominique Patton, Mimosa Spencer and Tassilo Hummel; Etienne Breban; edited by Blandine Hénault)

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