Duty Drawback
Drawback is essentially a refund in payments that were initially collected upon importation of foreign-made goods. These payments could have been for Customs duties, sales taxes, or other fees. Customs issues these refunds only when the imported merchandise is either exported or destroyed.
Congress originally established the duty drawback program in 1789 with the intention of creating jobs and encouraging manufacturing and exports. Back then, drawback applied only to duties paid on merchandise if they were exported within one year after the duty was paid.
1. Direct Identification Manufacturing – Any article that is manufactured in the U.S. with imported foreign-made components and is then exported or destroyed may be accepted for duty drawback. This type of drawback allows for 99% of the duty paid on the foreign imported component to be recovered. To do so, you are required to have a pre-authorized or approved by Customs prior to declaring for the drawback.
2. Substitution Manufacturing – Any article that is manufactured using a mix of imported components or other components of the same type and quality that is in part or full exported or destroyed may allow for recovery of 99% of the duty paid on the foreign imported components. In this case, it doesn’t matter if the actual imported component or the domestic component of same kind and quality were used in the exported or destroyed product. This provision makes it possible for companies to obtain drawback without having to maintain two separate inventories. This method also requires the pre-authorization or approval from Customs prior to drawback declaration acceptance.
3. Rejected Merchandise – If merchandise is exported or destroyed because it did not conform to original specifications, is defective, or was shipped without consignee consent, 99% of the duty paid on importation can be recovered as drawback.
4. Unused Merchandise – If imported merchandise is exported or destroyed prior to being used, drawback of 99% of the original duty paid can be recovered. Note that the merchandise’s exportation or destruction must be done under Customs’ supervision for this to apply.
5. Substitution Unused Merchandise – This covers unused merchandise that is considered “commercially interchangeable” with imported merchandise and that is exported or destroyed under customs supervision. This “commercially interchangeable” merchandise would be eligible for drawback of 99% of the duties, taxes, and fees paid on the imported merchandise. There are three ways in which a company can determine whether or not its merchandise is commercially interchangeable:
Drawback entries can be different for each type of drawback as outlined above. Generally claims must be filed within three years after the merchandise is exported or destroyed.
WHAT SHOULD I DO IF I NEED TO FILE FOR DUTY DRAWBACK?
Since filing for drawbacks can be very complicated, it may be advisable to work with a customs drawback broker who is well versed in the process and has the software required to facilitate the process. Given that the process is so labor-intensive in terms of paperwork and action items, the cost to set up and file drawbacks can be quite high. Getting an expert to guide you or file on your behalf could be worthwhile.
