What Is Duty Drawback?

When goods are imported into the United States through U.S. Customs, duties are imposed. A Duty Drawback is a monetary rebate if these goods are subsequently exported. Importers, exporters, and manufacturers could be eligible for duty drawbacks.

Five Main Types of Duty Drawback

1. Direct Identification Manufacturing Drawback:

U.S. import duty may be recovered when duty-paid imported material is used to manufacture a product which is subsequently exported from the U.S.

2. Direct Identification Same Condition/Unused Merchandise Drawback:

U.S. import duty may be recovered when material is imported duty-paid and subsequently exported unused.

3. Substitution Manufacturing Drawback:

U.S. import duty may be recovered when imported duty-paid, duty-free or domestic material of the same kind and quality as the imported duty-paid designated material is used to produce the exported product.

4. Substitution Same Condition/Unused Merchandise Drawback:

U.S. import duty may be recovered when unused material, which is commercially interchangeable with the imported duty-paid material, is exported. In this case the imported duty paid material does not have to be exported if the substituted merchandise is.

5. Rejected Merchandise Drawback:

U.S. import duty may be recovered when the rejected merchandise is exported or destroyed within 3 years of the date of import.

New Duty Drawback Regulations

Duty drawback was passed by the United States Congress in 1789. The purpose of duty drawback is to encourage U.S. manufacturing as well as foreign export sales.

On February 24, 2016, the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) was passed into law and signed by former President Obama. In support of CBP efforts, this law meets the demands and complexities of an evolving global supply chain.

TFTEA goes into effect on February 24, 2018. There will be a one year transition period during which you may file drawback claims under either the new or old law. However, beginning February 24, 2019, all drawback claims must be filed using the new law.

TFTEA Highlights:

• 8-digit HTS substitution will be used to match claims opposed to commercial interchangeability; if the 8-digit classification starts with “other”, then the matching will be based on 10-digit HTS classification
• Drawback time frames will be 5 years from import to filing a claim
• Drawback record keeping will be 3 years from liquidation of the claim
• Claims on Merchandise Processing Fee and Harbor Maintenance Fee will be available for manufacturing drawback in addition to unused drawback
• Business records will be used to track transfers rather than the Certificates of Delivery
• The duty claimed for manufacturing substitution will be based on the lesser of: (1) the duties paid on the imported merchandise and (2) the duties paid on the substituted merchandise if it were imported
• The duty claimed for unused substitution will be based on the lesser of: (1) the duties paid on the imported merchandise and (2) the duties paid on the exported article if it were imported

For an in depth look at Duty Drawback using SAP Global Trade Services, register for our webinar co-hosted with SAP.