Drawback

Drawback, also known as Duty Drawback is defined by the United States Customs and Border Protection (CBP) as the refund of certain duties, internal and revenue taxes and certain fees collected upon the importation of goods. Such refunds are only allowed upon the exportation or destruction of goods under U.S. Customs and Border Protection supervision.^[1] Duty drawback is an export promotions program sanctioned by the World Trade Organization and allows the refund of certain duties taxes and fees paid upon importation which was established in 1789 in order to promote U.S. innovation and manufacturing across the global market.

Duty drawback is a versatile trade program established in the United States in order to allow US Importers, Manufacturers, and Exporters an opportunity to be more competitive on the global market. While the importers may or may not be the same party as the manufacturer or even the exporter, there may be an opportunity for any party along the supply chain to benefit from duty drawback.

Duty drawback can help a claimant recover the following duties, taxes and fees paid on the imported merchandise:

• Duties paid on an entry, or withdrawal from warehouse, for consumption.
• Voluntary tenders of duties
• Marking duties
• Internal revenue tax
• Harbor maintenance tax (except manufacturing drawback)
• Merchandise processing fees (except manufacturing drawback)

Similar to imports, duty drawback requires claimants to submit their drawback claims under bond, either a continuous or single transaction bond. A drawback claim requires the particulars of the import including CBP Form 7501 and commercial import invoice, the export including the export bills of lading, commercial export invoice, and information regarding the manufacturing (in the case of manufacturing drawback claims). As a new drawback claimant, several applications are needed in order to establish a drawback program including a Waiver of Prior Notice of Intent to Export, Retroactive Waiver, Accelerated Payment Procedure (optional, but often recommended), and specific/general substitution applications as needed. A drawback broker can provide the necessary regulatory compliance and guidance to complete these applications, process drawback claims based on import and export data, and file the drawback claims with CBP on a claimant's behalf.

Types of drawback

• Direct Identification Manufacturing: If articles manufactured in the United States with the use of imported merchandise are subsequently exported or destroyed then drawback not exceeding 99 percent of the duties paid on the imported merchandise may be recoverable. Title 19 (Section 1313(a))^[2]

• Substitution Manufacturing: If both imported merchandise and any other merchandise of the same kind and quality are used to manufacture articles, some of which are exported or destroyed before use, then drawback not exceeding 99 percent of the duty which was paid on the imported merchandise may be payable on the exported or destroyed articles. It is immaterial whether the actual imported merchandise or the domestic merchandise of the same kind and quality was used in the exported or destroyed articles. This provision makes it possible for firms to obtain drawback without the expense of maintaining separate inventories for dutiable and other merchandise. Title 19 (Section 1313(b))^[2]

• Rejected Merchandise: If merchandise is exported or destroyed because it does not conform with samples or specifications, or has been shipped without the consent of the consignee, or has been determined to be defective as of the time of importation, then 99 percent of the duties which were paid on the merchandise may be recovered as drawback. Title 19 (Section 1313(c))^[2]

• Unused Merchandise:If imported merchandise is unused and exported or destroyed under Customs supervision, 99 percent of the duties, taxes or fees paid on the merchandise by reason of importation may be recovered as drawback. Title 19 (Section 1313(j)(1))^[2]

• Substitution Unused Merchandise: If merchandise that is commercially interchangeable with imported merchandise upon which was paid any duty, tax, or fee imposed under Federal law because of its importation, is exported or destroyed under Customs supervision and at the time of exportation or destruction has not been used, 99 percent of the duties, taxes or fees paid on the merchandise may be recovered as drawback. Title 19 Section 1313(j)(2))^[2]

Trade information

• Embassies & Consulates • Export Procedures • Documents Required • Export Incentives • Export Credits • Foreign Trade Policy • International Ports • International Airports • SEZ & EPZ's • Trade Agreements • Trade Articles • Trade Councils & Associations • Trade Publications • Trade Statistics • Trade Terms

In the United States, drawback is a U.S. law that allows exporters to recover duty paid for importations provided that the product is subsequently exported. It is considered a Customs privileged program. It is a cumbersome, time consuming process that requires proof of exportation, and an impeccable audit trail to the original importation. Further, a Foreign-Trade Zone may be used to either expedite or avoid the drawback process. A Foreign-Trade Zone Admission in Zone Restricted status is considered the legal equivalent to an exportation in the eyes of the U.S. Customs & Border Protection.

Under Indian Customs Act, various schemes like EOU, SEZ, Advance Authorization, manufacture under bond etc., are available to obtain inputs without payment of customs duty/excise duty or obtain refund of duty paid on inputs. In case of Central Excise, manufacturers can avail Cenvat credit of duty paid on inputs and service tax paid on input services. They can utilize the same for payment of duty on other goods sold in India or service tax on services provided in India, or can obtain refund. Schemes like manufacture under bond are also available for customs. Manufacturers or processors who are unable to avail any of these schemes can avail ‘duty drawback’. Here, the excise duty and customs duty paid on inputs and service tax paid on input services is given back to the exporter of finished product by way of ‘duty drawbacking’.

Public Law 114-125

On February 24, 2016, the President signed Public Law 114-125, which enacted the new duty drawback law HR 644 “The Trade Facilitation and Trade Enforcement Act of 2015”. This provided massive change to US duty drawback rules.

The enactment of this law marks the successful completion of a nearly 10 year effort by drawback experts Charter Brokerage LLC, and Comstock & Theakston Inc., along with other members of the trade community and Customs, to enact the most sweeping enhancement and expansion of the duty drawback law in our nation’s history.^[3]

The new duty drawback law (HR 644) provides extensive opportunities in nearly every segment of the U.S. economy for refunds on imported goods that are then exported.

References