Key Takeaways:
- The new EU-U.S. trade deal is set to impose a 15% tariff on most European exports to the United States. This marks a significant shift for the beauty industry, which previously enjoyed zero-tariff access. L’Oréal CEO Nicolas Hieronimus called it “not good news,” despite the company’s assertion that the impact is “manageable.”
- European beauty and fashion brands are exploring the “First Sale” clause in U.S. customs law as a legal workaround to mitigate the impact of tariffs. This obscure provision allows companies to calculate duties based on a lower, initial factory price rather than the final retail value. While the First Sale clause offers a potential cost-saving solution, its implementation is complex and risky. It requires extensive documentation and auditing to prove legitimacy, and there is no guarantee U.S. Customs will accept the claim, risking fines and investigations.
- The unpredictable tariff landscape is forcing brands to shift from long-term strategy to improvisation, with companies making real-time decisions on supply chain restructuring and logistics. This highlights the urgent need for robust, flexible, and well-documented supply chains to navigate a new era of trade uncertainty.
In a trade climate shaped more by damage control than diplomacy, the EU-U.S. agreement has arrived, and leaders across Europe are aligned in their largely negative sentiment towards it. It was, according to European Commission President Ursula von der Leyen, the “best deal we could get under very difficult circumstances”. But the different nations under the bloc are characterising it in much gloomier terms. German Chancellor Friedrich Merz said the deal would “substantially damage” his nation’s finances, while French Prime Minister Francois Bayrou, writing on X, said “It is a dark day when an alliance of free peoples, brought together to affirm their common value and to defend their common interests, resigns itself to submission.”.
Hardly a glowing assessment, then. But on the other hand there is some relief being expressed that a deal has, at least, been done, and with it should come “much-needed predictability” and the kind of certainty “essential for jobs, growth and investment.” This is similar to the broadly fatalistic feeling around the way the UK (The Interline’s home country) finally secured its own trade deal with the US, which was codified on slightly better terms than its EU counterpart.
While the EU deal has brought with it some strategic exemptions (aircraft and aircraft parts, as well as selected generic pharmaceuticals, will not be subject to additional import duties) the majority of industries around Europe will now be subject to a 15% tariff at the point their products are imported into the United States..
Since tariffs were first unveiled on “liberation day” global businesses have been scrambling to make sense of its ever-shifting parameters. Plans have changed, switched direction, reversed and gone back again, all within a 6 month period. Stable decision-making foundations these are not.
In some cases, as with the recent Japan deal, nations are left arguing over what was actually agreed before the ink is dry, and a lot is left open to interpretation. – with no clear recourse when understandings of wording or intent diverge.
While analysts are still unpacking the long-term winners and losers of the EU-U.S deal, for European powerhouse L’Oréal the short-term view is simple: it’s bad for the seat of the beauty business. In the days since the deal’s announcement, CEO Nicolas Hieronimus made his position clear. “No good news for cosmetics,” he said.
Other beauty and cosmetics companies are arriving at the same conclusion: the calculus is changing, and the challenge is now to formulate a response.
One of the more technical responses being considered is a clause in U.S. customs law called First Sale.If you’ve never heard of it, you’re not alone. Until this year, few outside a niche circle of trade lawyers had. In short: First Sale allows importers to base their duty calculation on the original factory price, rather than the final invoice. Lower declared value and thus a lower tariff bill…at least in theory.
Several high profile European brands (Moncler and Ferragamo to name two) have openly discussed implementing it into their retail strategy to bring costs down, but even among those considering it, it’s seen as a measure for blunting tariffs’ ability to eat into profitability, rather than any kind of meaningful solve for the fundamental issue.
The First Sale strategy, on first analysis, is legal. Butit’s far from simple. To qualify, brands need tight documentation, proof of intent, and supplier pricing audit trails that can stand up to scrutiny, and the titular first sale must be exactly that: a sale. Transferring ownership of products between different arms or subsidiaries would likely not meet that definitional bar, which is intended to enshrine a sale between creator and wholesaler, or an equivalent.
More generally, the amount of paperwork required to demonstrate adherence to a clause that itself is built on a fairly loose accumulation of precedent is lengthy, and even with it, the risk of rejection remains a real possibility: there’s no guarantee that US Customs will read the letter of the law over the spirit. And that’s before we factor in the risks: fines, audits, even fraud investigations if the burden of proof isn’t met, if the clause is applied too loosely, or if it’s simply dispensed with as part of the ongoing shakeup.
Still, even the consideration of something like the First Sale clause tells us something. It shows how quickly trade friction has moved from ill-defined concern to operational challenge (or crisis, depending on your definition), creating an urgent demand for remedy. Brands that once took international trade as stable ground, with customs law treated as a simple line item, are now forced to re-evaluate the legal frameworks for export and import in a way that questions some deep-held assumptions upon which axioms like ‘the US is the major export market for European cosmetics’ are built. .
What’s also being revealed is how well brands know their own supply chains, and how much flexibility is built into their retail channel strategies.
And that’s really the point here: this isn’t a story about First Sale, it’s merely the latest workaround we’ve seen, to be filed next to Apple shifting some of its production from China to India (who, incidentally, are now facing the threat of their own tariff hike over Russian oil). Or Nike diversifying manufacturing away from higher-tariff countries, toward lower-tariff ones like Vietnam …who then saw their own tariffs rise, fall, strike a deal, and get hit again at the last minute.
The landscape makes for an incredibly difficult place to strategise. What’s left is something closer to improvisation. Companies are making decisions mid-stride, mid-quarter, mid-sentence, and those decisions ripple outward, into how goods are shipped, where inventory lands, and eventually the unavoidable maths of who eats the cost.
Trade bodies are still lobbying. L’Oreal themselves are still chasing exemptions, but it’s difficult to bet on a quick reversal, even though we’ve seen it happen before when it comes to the particulars of Trump’s trade deals. In the meantime, brands are stuck choosing between absorbing costs, passing it on, or trying to squeeze relief from technical provisions built for another era.
First Sale might play a role, but it won’t reset the equation, and it certainly won’t erase the sense that the ground is still moving underfoot.