When an importer whose products are eventually sold for exports seeks to mitigate the impact that duties have on their products, two main options emerge: foreign trade zone or duty drawback. Both function as legal methods to either lessen, eliminate, or refund duties that are paid to bring down the total costs of producing products in the United States, but are often thought of as being in opposition. A prevailing idea exists that if you have an FTZ, drawback isn’t needed.
This notion is incorrect, as many times we have been able to set up thriving drawback programs that work alongside the foreign trade zone to ensure clients can reduce their costs to the fullest.
Foreign trade zones are a special designation by Customs where they see a specific approved site as being not officially part of US commerce, and so products can be brought into them without duty until they officially enter US Customs territory.
The paperwork and approvals to maintain an FTZ are extensive, and considerably more of a burden than what is asked for in duty drawback claims. But drawback can coexist with this FTZ, as there are some situations where it will still apply.
One example is if a manufacturer imports higher-duty parts that are assembled into a finished product that has a lower duty rate. It could then be entered into US commerce at the lower rate, and then when exported would still be eligible for drawback claims.
Another example is if a product is imported into an FTZ and then sold to a domestic customer, it must exit the FTZ and be subject to import duties. If that customer eventually exports the product, it would be eligible for drawback.
One client of ours imports considerable amounts to their FTZ for the initial import to defer the duty, however their product needs to be distributed to their DCs around the country. Following the initial import they will enter the product into US commerce, pay duty, but then often after the product reaches their regional centers they fulfill export orders that are eligible for considerable refunds.
The popular perception that an FTZ and drawback are not compatible will likely persist, but it’s not true. If you would like to discuss your drawback potential, please contact our VP of Sales Andrew Galloway at 973-726-5340 or agalloway@jmrodgers.com.
