What is Duty Drawback?
Duty drawback is the refund of 99% of duties paid on goods that are subsequently exported or destroyed. These duties include custom duties, fees, and taxes on imported goods or comparable products that are exported within 5 years.
According to the US Customs Border Protection (CBP), who administers the drawbacks: “Drawback is the refund, reduction or waiver in whole or in part of customs duties assessed or collected upon importation of an article or materials which are subsequently exported.”
Duty drawbacks have been integral to the founding of the United States since the first congress. Passed as the second law by the first congress in 1789, duty drawbacks are intended to protect and encourage US manufacturing as well as exports to form the foundation for US international trade policy.
Types of Duty Drawback
There are 4 main types of duty drawbacks at the moment. Each of these drawbacks have specific requirements and conditions to be met in order for drawbacks to be properly claimed. These 4 and there conditions are:
- Manufacturing Identification Drawback
- Products manufactured with duty-paid imported materials can have the US import duty recovered by tracing the imported material through manufacture and export.
- Manufacturing Substitution Drawback
- Materials of the same kind and quality of imported duty-paid materials that were used to manufacture exported goods can have their US import duty recovered.
- Unused Merchandise Direct Identification Drawback
- Imported duty-paid materials that are then exported unused can have the duties recovered. However, tracing the materials to export is required.
- Unused Merchandise Substitution Drawback
- Unused materials that are interchangeable with imported duty-paid material may have their duty recovered
Process of Duty Drawback
Now that you know the basics of duty drawback, it’s time to learn how to file and claim duty drawbacks. According to government estimates and industry sources, duty drawbacks are quite underutilized with up to 85% of drawbacks unclaimed despite the government providing $3 billion annually for potential drawback refunds. Remember, duty drawback is a privilege, not a right, so following the procedures is crucial to securing this refund.
To claim a duty drawback, there are 3 main steps to be followed:
- Check to see if your goods are eligible for a duty drawback
- Lodge a claim through the CBP’s ACE (Automated Commercial Environment). There, you will need to electronically file the Trade Facilitation and Trade Enforcement Act (TFTA)
- To prepare for a claim, you will need to provide the following information:
- Drawback entry number
- Filing Port Code
- Claimant ID Number
- Drawback Provision
- Drawback Claim Date
- Total drawback claim amount requested
- Import Entry Summary/HTS Data
- Information on Exportation or Destruction
- Notice of Intent to Export or Destroy (if applicable)
Duty drawbacks are meant to help US manufacturers and exporters. With a history tied to the founding of the United States, duty drawbacks have been an enduring legacy of American foreign trade policy.
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