Duty Drawback

What is duty drawback?

According to U.S. Customs, Drawback is the refund of Customs duties, certain Internal Revenue taxes, and certain fees collected at importation.  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. 

What is the history of it?

Drawback was initially authorized by the first tariff act of the United States in 1789 and was limited to specific articles that were directly imported and exported.   Since then it has been part of the law, although from time to time the conditions under which it is payable have changed.  It still functions, however, essentially as it was first written – drawback provides a refund of 99% of the duties and taxes. 

Why have duty drawback?

The government provides drawback refunds as a way to help U.S. companies compete in foreign markets by eliminating some of the costs associated with importing goods into the U.S.

The rationale for drawback has always been to encourage American commerce or manufacturing, or both. It permits American businesses to compete in foreign markets without the handicap of including in its costs, and consequently in its sales price, the duty paid on imported merchandise.

Types of duty drawback:

There are several, but 3 of most common ones that apply to exporters are “manufacturing drawback”, “unused merchandise drawback” and “Rejected Merchandise”. 

Manufacturing drawback – applies when duties are paid on imported goods and those goods are then used to make an item in the U.S. that is subsequently exported. To take advantage of manufacturing drawback, a company must first obtain a manufacturing drawback ruling from customs. For certain goods, there are general rulings that apply, in which case the company need only submit a letter of intent to customs to comply with the general ruling. Customs maintains a list of the general rulings as an appendix to its drawback regulations.

Unused merchandise drawback - called “same condition” drawback—applies when goods are imported into the U.S. and then exported without being changed. In most cases, the drawback need not be claimed on the exact goods that were imported if the exported goods are commercially interchangeable with the imported goods. Unlike manufacturing drawback, no drawback ruling is required before filing an unused merchandise drawback claim. However, the exporter must provide prior notice to Customs of its intent to export. Depending on the circumstances, customs may waive this prior notice requirement. 

Rejected drawback – Rejected merchandise drawback is available when imported merchandise not conforming to sample or specifications, shipped without consent, or determined to be defective at the time of import is returned to Customs custody within 3 years of the date of import and is exported or destroyed. 

Who may claim duty drawback?

The exporter (or destroyer) shall be entitled to claim the drawback.  The exporter or destroyer may waive the right to claim drawback and assign such right to the importer or any intermediate party.   

NAFTA Provisions on drawback:

NAFTA drawback applies to goods imported into Canada or the United States and subsequently exported to the other country (i.e., Canada or the United States) on or after January 1, 1996.

The NAFTA provisions on drawback and duty deferral applies to goods imported into Canada

or the United States and subsequently exported to Mexico, or imported into Mexico and subsequently exported to Canada or the United States, on or after January 1, 2001.

How to Request It?

Drawback is a benefit that must be applied for via a drawback entry.  The exporter of record has the primary right to claim drawback, however, this right is assignable to the manufacturer.  The manufacturer may also obtain an assignment of import rights from his supplier when necessary.  The filer must be able to establish the facts of import and export and legal right to claim drawback through appropriate records. 

Payment

When a claim has been completed by filing all required documents, the entry will be liquidated by the port director to determine the amount of drawback due. Drawback is payable to the exporter unless the manufacturer reserves to himself the right to claim the drawback.

Star USA will help analyze your current import and export activity to determine if you are eligible for unclaimed refunds from U.S. Customs.  If you qualify for drawback, we will set up your compliance program and manage the entire process for you as necessary.

Contact Star USA to learn more about how to claim duty drawback. Phone us at:  800-230-5554