Duty drawback is one of the least understood and most underutilized benefits available to exporters.
The concept of drawback was originally drafted in the U.S. by the Continental Congress of 1789 and was limited in scope to specific articles that were directly imported or exported. The rationale behind the drawback program is to encourage American companies to compete in foreign markets without enduring a price disadvantage from paying duty on imported merchandise.
"American manufacturers and exporters often do not think about the ‘drawback potential’ of goods, materials and components they purchase from foreign and domestic suppliers and do not realize that they may be eligible for drawback," according to Neville Peterson LLP.
The benefits of the duty drawback program are notable for exporters who are aware of its existence and understand how to qualify—all of which we’ll explain in this article.
What Is Duty Drawback on Exports?
Drawback is the refund of certain duties, internal revenue taxes and certain fees collected upon the importation of goods and refunded when the merchandise is exported or destroyed. The refund is administered after the exportation or destruction of either the imported/substituted product or article that has been manufactured from the imported/substituted product.
Drawback is recognized as the most complex commercial program U.S. Customs and Border Protection (CBP) administers, because it involves every aspect of customs business, including both imports and exports.
Types of Drawback
CBP allows various forms of drawback, including the following:
Manufacturing Direct Identification
In the event articles are manufactured in the U.S. with the use of imported merchandise and are ultimately exported or destroyed, the exporter may claim a drawback not to exceed 99% of duties initially paid on imported merchandise.
If imported articles and/or any other articles of the same kind and quality are used to manufacture articles that are later exported or destroyed prior to usage, an exporter may claim a drawback. Substitution is allowed if both the imported and substituted merchandise are classified under the same 8-digit HTS code, provided the imported merchandise's 8-digit HTS code is not described as “other.”
In the event imported merchandise is unused and later exported or destroyed, the exporter may claim a drawback not to exceed 99% of the duties initially paid on the imported merchandise.
In the event merchandise is exported or destroyed because the merchandise does not conform to the same quality as product samples and/or product specifications, the exporter may claim a drawback not to exceed 99% of the duties initially paid on the imported merchandise. This holds true if the merchandise was shipped to the U.S. without the consent of the consignee or was found to be defective at the time of importation.
How to Claim Duty Drawback
Guidelines for completing a drawback claim are provided in the Customs Regulations, 19 CFR 191 Subpart E. In general, a company must file a drawback entry and all associated documentation necessary to complete a drawback claim within three years of when they exported or destroyed the merchandise subject to drawback.
All drawback claims must be filed electronically in ACE and in accordance with the Trade Facilitation Trade Enforcement Act of 2015. You can learn more about how to file electronically in this free CBP webinar.
Who Can Make a Claim
The following individuals can make a claim for duty drawback:
- The president of the firm.
- The vice-president of the firm.
- An authorized employee of the firm who has the legal authority to bind the firm to agreements.
- An employee of the firm who possesses a valid power of attorney.
- An individual who is acting on his/her own behalf.
- An individual who is a customs broker who possesses a valid power of attorney.
One or more of the following documents are required to support a drawback claim:
- Drawback entries.
- Certificates of delivery.
- Certificates of manufacturer.
- Notices of intent to export, destroy or return merchandise for purposes of drawback.
- Certifications of exporters on bills of lading or evidence of exportation.
Once CBP has determined that a claim has been completed and satisfies all applicable drawback requirements, the amount of drawback will be verified and refunded to the claimant. Drawback will be payable to the exporter or the destroyer of the imported articles, unless the right to claim drawback has been legally transferred to a third party through a certificate of delivery and/or manufacture.
Payment of drawback claims varies depending on the type of payment method used—accelerated or manual. The payment of the drawback could take weeks, months or even years depending on the circumstances involved, including the date that the claim was filed and depending on the disposition of the related import entries and other conditions that may affect its liquidation.
For more information regarding duty drawbacks, checkout the CBP publication Drawback: A Refund for Certain Exports.
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