Duty drawback is a common term within the logistics industry, but what is duty drawback, and why should your business care? Many companies could bolster their bottom line by claiming duty refunds for various types of freight.
Understanding the complexities of duty drawback is an extra burden on importers and exporters already overwhelmed by supply chain issues and logistics concerns. Thankfully, we have dedicated drawback experts at J.M Rodgers to answer all your drawback refund queries.
Duty Drawback Basics
What is duty drawback? The official definition from U.S. Customs and Border Protection (CBP) states that duty drawback “is the refund of certain duties, internal revenue taxes, and certain fees collected upon the importation of goods and refunded when the merchandise is exported or destroyed.”
The duty drawback journey usually follows these steps:
- Goods are imported into the United States.
- Appropriate import duties are paid.
- The goods, products, or materials are utilized as required, and some become part of products due for export or need to be destroyed.
- All applicable rulings and applications to claim drawback are filed.
- Goods leave the country or are destroyed.
- A duty drawback claim is filed.
- Once the claim is approved, the refund is processed.
Now we’ve answered the key question, “What is duty drawback?” — we move on to the next natural query. How does duty drawback benefit businesses?
Duty Drawback Prevents Wasted Money
Drawback is a concept that’s centuries old and was first enacted as part of the second Act of Congress in 1789. It remains in place to encourage the continuous import and export of goods and the manufacture of goods within the United States. Manufacturers can struggle to make ends meet if importing raw materials is prohibitively expensive. However, the whole process is potentially profitable if they can claim some of those import duties back once goods get exported.
Duty drawback also encourages international trade, helping American businesses achieve globalization without the exorbitant cost of paying full import and export fees on every aspect of every product. Claiming duty drawback rebalances those costs and could ensure businesses aren’t out of pocket for their expansion efforts.
Problems occur when businesses don’t realize they’re potentially wasting money by not claiming the duty drawback they’re due. The CBP gives out around $1 billion a year in duty drawback, but the potential amount available could be much higher. Businesses lose out because they don’t understand the various import situations they can claim for. Duty drawback could claim back up to 99% of the original duties paid, so it makes sense to onboard a partner who understands the intricacies of making these claims.
Duty Drawback for Manufacturers
What is a duty drawback for manufacturers? For those importing goods, products, and materials for use in the manufacturing industry, there are two main types of duty drawback claims:
- Manufacturing Direct Identification duty drawback
- Manufacturing Substitution duty drawback
In both cases, there needs to be a clear administrative trail that traces the goods or materials in question through import, use, and back to export. Also, claims will only apply to goods exported within five years of the original import. Considering that in 2022, the import of industrial materials and supplies increased by $160.9 billion, there’s the potential for a lot of money to be left on the table if claims aren’t handled correctly.
Duty Drawback on Rejected or Returned Goods
Sadly, not everything that gets imported will be up to standard. For goods and materials that aren’t satisfactory, there is the possibility to claim a refund on any duties paid. This applies if:
- The goods aren’t as described/don’t conform to the given specifications or
- The goods were shipped without the consent/knowledge of the consignee or
- The goods are defective and
- The importer rejected these goods within five year
Similar rules apply to goods sold at retail but then returned and exported again. In these instances, the product/part numbers and HTS numbers for the returned goods must match, and the import and export must occur within 12 months.
Duty Drawback for Destroyed Goods
Materials used in manufacturing processes that go wrong or produce defective goods may need to be destroyed. This is frustrating for importers who pay potentially costly duties on those goods. However, if you prove the goods were destroyed, you can claim a duty drawback and recoup some of that cost.
The same applies to finished goods imported for resale but somehow defective. If there’s a barrier to returning the goods, safe destruction could ensure a successful drawback claim. Always check with a duty drawback expert, prior to destroying the goods, to ensure you follow the most cost-effective route when dealing with unwanted imports.
Duty Drawback Audits
Businesses can ensure they’re making the most out of their duty drawback claims by arranging duty drawback audits. At JMR we have a very extensive audit process because we understand the importance of being compliant. We audit 100% of all our drawback claims to ensure that your company is in full compliance with U.S. Customs regulations also ensuring all your drawback claims are filed and liquidated at their full amount.
To accomplish this, we review every single one of your drawback claims. We request sample documents such as the Import Entry, Commercial Invoice, and Packing List on the import side, and Commercial Invoice and Proof of Export Documents (BOL, Shipping Label/POD, B3, Pedimento) on the export side. Our team then compares the information within the data to the printed documents, and makes sure that the data is accurate – key fields include Import Entry, Line Number, HTS, Part Number, Quantity, UOM, Value, Duty, Export Date, etc.
From here, auditors can go on to determine the refund potential and ensure that everything is for the best chance at a positive claim without having to take additional action. This also ensures every claim is compliant with U.S. Customs regulations.
Handling Duty Drawback Changes
Like many aspects of customs, duty drawback compliance isn’t static. Businesses benefit from working with a logistics partner that understands duty drawbacks and how to navigate the various requirements. For example, in 2020, the duty drawback privilege approval policy was updated with changes to how privileges were approved. Without a trusted partner, businesses could miss out on these policy changes and end up filing the wrong claim forms to the wrong office.
Partnering with an expert in duty drawback is about more than just applying for the right type of refunds. It’s about knowing the exact processes to follow for the best business outcomes. For example, J.M. Rodgers works with a vacuum manufacturer that discovered several products qualified for tariff exclusions and refunds. While an alternative broker had quoted a six-month timeline to organize these refunds, our expertise helped expedite that timeline via a customized exclusion process. Our import compliance experts helped implement the new process to ensure all the exclusion refund claims went through correctly and quickly for our client. Without the experience and knowledge of dedicated duty drawback experts, that manufacturer could have lost significant money. In fact, our processes led to the client reclaiming over sixty million dollars.
Duty drawback is available for so many organizations, so rather than wondering, “What is duty drawback, and should I be claiming it?” get in touch with the experts here at J.M. Rodgers. We can assess your current needs and discuss how much money you could claim back from the CBP.
Photo Credit: Anja Bauermann on Unsplash
