When U.S. companies import goods and later export or destroy them, they may be eligible for a refund of up to 99% of the duties, taxes, and fees paid on those goods. This refund process is made possible through the U.S. Duty Drawback Program, administered by U.S. Customs and Border Protection (CBP).
But not all duty drawback claims are the same. In this article, we’ll break down the three major types of duty drawback—Manufacturing, Unused Merchandise, and Rejected Merchandise—and explain how each works, what documentation is required, and how long it may take to receive a refund.
The Three Major Types of Duty Drawback
1. Manufacturing Drawback
Manufacturing Drawback applies when imported goods are used to produce a finished product in the United States, and that product is later exported or destroyed under CBP supervision.
There are two types:
- Direct Identification: The exact imported components can be traced through production records.
- Substitution: Commercially interchangeable domestic and imported materials are used interchangeably, and the exported product is matched to the import using HTSUS classifications.
Example: A company imports steel and uses it to manufacture parts for export. Whether the exact imported steel or a domestic equivalent is used, the company may qualify for a drawback.
Key Requirements:
- Export must occur within 5 years of import
- Detailed production and bill of material records required
- Proof of export or destruction is mandatory
2. Unused Merchandise Drawback
This type applies when imported merchandise is not used or altered in any way in the U.S. and is later exported or destroyed under CBP supervision.
It also includes:
- Direct Identification: The specific imported items are exported.
- Substitution: A commercially interchangeable item is exported instead.
Example: A retailer imports 5,000 phone chargers but later re-exports 1,000 units that remained unsold.
Key Requirements:
- No processing or modification of the goods
- Export or destruction must occur within 5 years of import
- Documentation to prove condition and compliance
3. Rejected Merchandise Drawback
This applies when imported goods are defective, not as ordered, or returned by customers. These goods must be either exported or destroyed under CBP supervision.
Qualifying Scenarios:
- Items fail to meet buyer specifications or were shipped in error
- Goods arrive damaged or unusable
- Merchandise is returned to the importer after a retail sale
Example: A company receives a shipment of valves that don’t meet safety specs and returns them to the foreign supplier.
Key Requirements:
- Goods must not be used before export or destruction
- Rejection must occur within a reasonable time after import
- Importer must maintain return documentation and CBP proof of destruction/export
How Long Does It Take to Receive a Refund?
Processing times can vary significantly:
- Without Accelerated Payment: Refunds may take 12–24 months or longer.
- With Accelerated Payment Privilege: Approved importers can receive refunds in as little as 4–6 weeks from claim acceptance.
The Accelerated Payment Program is a trusted-trader benefit. Businesses must apply through CBP and demonstrate a strong compliance track record to qualify.
Common Mistakes to Avoid
Filing a duty drawback claim is highly technical. Common pitfalls include:
- Missing the 5-year export/destruction deadline
- Failing to maintain complete and accurate documentation
- Filing under the wrong type of drawback
- Not meeting substitution or identification requirements
- Not having CBP-supervised destruction where required
Pro Tip: Even small errors can delay or invalidate your claim. It’s critical to have experienced drawback professionals involved from the start.
Why Partner with J.M. Rodgers?
Navigating the duty drawback process takes time, technical knowledge, and experience with U.S. Customs regulations. At J.M. Rodgers, we handle the heavy lifting—ensuring that your claims are optimized for accuracy, compliance, and speed.
With over 70 years of experience, our duty drawback services include:
- Full-service drawback program development
- Licensed Customs Brokers and drawback specialists
- In-house technology to automate and accelerate claims
- Accelerated Payment support
- Audit-ready documentation
- Ongoing compliance consulting
Start Your Refund Process Today
If your company imports and exports goods—or destroys them—you could be eligible for substantial duty drawback refunds. Don’t leave that money on the table.
Ready to see if you qualify?
Contact our team today for a free consultation. We’ll review your trade activity and help you determine your eligibility—no commitment required.
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