Duty drawback is one of the least understood and most underutilized benefits available to exporters.
In general, a duty drawback is the refund of duty, tax and other fees that were collected by U.S. Customs and Border Protection (CBP) when an article was imported into the United States. This refund is available after the importer either destroys or exports the article.
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 concept of drawback is to encourage American companies to compete in foreign markets without enduring a price disadvantage due to the amount of duty that they had to pay on the imported merchandise.
Types of Drawback
CBP allows various forms of drawback:
Direct Identification Manufacturing
In the event that 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 the duties initially paid on the imported merchandise.
In the event that 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, the exporter may claim a drawback not to exceed 99% of the duties initially paid on the imported merchandise. Additionally, this particular methodology requires that no distinction is made between imported merchandise and domestic merchandise of the same kind and quality.
In the event that merchandise is exported or destroyed due to the fact 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 had been shipped to the U.S. without the consent of the consignee or has been found to be defective at the time of importation.
Internal Revenue Tax
In the event that certain articles are manufactured with the use of domestic alcohol and later exported, the exporter may recoup the initial amount of tax paid to the U.S. International Revenue Service.
In the event that 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.
Claiming a Drawback
In general, a company must file a drawback entry and all associated documentation necessary to complete a drawback claim within three years after they have exported or destroyed the merchandise subject to drawback.
Unless otherwise indicated, all claims for drawback should be filed on Customs form 7551, Drawback Entry, along with any applicable supporting documentation such as a certificate of delivery.
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 which 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, or
- 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, or
- 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 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.
It is important to note that payment of drawback claims will vary depending upon the type of payment method utilized—accelerated or manual. In essence, the payment of the drawback could take weeks, months or even years depending upon the circumstances involved in the claim for drawback.
For more information regarding duty drawbacks, reference Title 19, Part 191 of the U.S. Code of Federal Regulations.