European Beauty and Fashion Companies Resort to "First Sale" Clause to Mitigate Tariffs in the U.S.

Leading European cosmetics and fashion firms, such as L'Oréal, Moncler, Ferragamo, and Golden Goose, are considering activating a little-known U.S. customs provision, known as the "First Sale" rule, in response to the entry into force of a 15% tariff on imports from the EU.

What is the "First Sale" rule and how does it work?

This rule, which has been in effect for decades, allows the tax to be calculated on the factory price, generally lower, instead of the final consumer sale price. This significantly reduces the amount of tariffs levied on these exports. For example, Moncler estimates that its production cost is approximately half of the import price, which would allow it to decrease the tariff impact.

Why has this strategy resurfaced now?

• Under the trade agreement between Donald Trump and Ursula von der Leyen, the U.S. imposed a 15% tariff on most European products, a rate much higher than previous levels (generally close to 0%).

• This scenario has led companies to seek ways to avoid passing these costs on to the U.S. consumer, who is already sensitive to any price increase after years of inflation.

Requirements and associated risks

Implementing this option requires a rigorous paper trail and arm's-length transactions between independent entities, including a U.S. subsidiary as the final importer. Otherwise, they could face penalties or audits by U.S. customs authorities.

Companies such as KPMG, PwC, and RSM have already reported a multitude of inquiries regarding mitigation strategies, including the use of this clause. However, some expert lawyers warn that only those companies with solid resources and legal structures can bear the compliance costs and face the potential audit risks.

Impact on the European cosmetic sector

Until now, many European firms have enjoyed zero tariffs for exporting cosmetics to the U.S. Thus, the imposition of the new tariff poses an unprecedented challenge, especially for France, where the sector represents a global export pillar.

From FEBEA, the French cosmetics association, they warn that the new regime may undermine the competitiveness of the European industry, which exports nearly €26 billion in beauty products annually.

What does L'Oréal say?

The CEO of L'Oréal, Nicolas Hieronimus, has acknowledged that they are studying options, such as reducing operating costs or shifting more production to the U.S., although without giving specific deadlines for a final decision. In addition, the company has indicated that the expected financial impact in 2025 may be between 35 and 40 basis points on its global sales, although they have achieved growth in key markets such as the United States and have recorded an increase in sales in Asia. 

What does this scenario mean for consumers and brands?

1. U.S. consumers could face price increases on their favorite European products, unless companies manage to offset the costs with strategies such as First Sale.

2. European brands are refining their logistics chains and exploring localized manufacturing to avoid direct tariff impacts.

3. Small brands and local industries could seize the opportunity if their logistics are more agile and less dependent on high-cost exports.

The "First Sale" clause, although it requires complex procedures, is emerging as a viable tool for European brands to reduce the impact of the new tariffs in the U.S. Only those companies with robust legal structures, the ability to trace their transactions, and the willingness to bear the compliance costs will be able to take advantage of this strategy without running regulatory risks.