Duty drawback

Drawback is the refund of duties, taxes and fees on imported merchandise that is subsequently exported or destroyed. CBP keeps one per cent and returns the rest, which is where the familiar 99 per cent comes from. The paper claim used to be a CBP Form 7551. Since the modernised rules took full effect every claim is transmitted electronically, and the whole exercise is now a records exercise wearing a filing costume.

The situations that qualify

• Unused merchandise. You imported it, you never used it, and it left again in essentially the same condition. Either by direct identification of the exact imported units, or by substitution of commercially interchangeable stock.
• Manufacturing. Imported material went into something else that was then exported. This one needs a manufacturing ruling in place before the claim: either a general ruling you adopt from the published list, or a specific ruling written for your process.
• Rejected merchandise. The goods did not conform to specification, were defective at import, or were shipped without your consent, and you returned or destroyed them.

There is also a petroleum derivatives provision that operates on its own logic. If you refine or blend, say so early and we will look at it separately.

What is actually refundable, and what is not

This is the part most drawback pitches skip, and it is the part that decides whether a programme is worth building. Ordinary duty and the merchandise processing fee are recoverable. Section 301 duties are recoverable. Section 232 duties on steel, aluminium and the derivative articles are not: the proclamations imposing them say drawback is not available. Section 201 safeguard duties are not available either, and the executive orders imposing the IEEPA tariffs state the same thing.

The practical effect is that many importers now pay a much larger duty bill of which a smaller proportion can ever come back. A drawback projection built on your total duty spend is built on a number you cannot collect. We would rather show you the real recoverable figure at the start, even when it is small enough that the honest answer is not to bother.

Substitution, and the lesser-of rule

Substitution no longer turns on a commercial judgement about whether two things are the same. It turns on the tariff: the imported and the exported article have to share an eight-digit HTSUS subheading, or a ten-digit one where the eight-digit description begins with the word other. That is a much easier test to apply and a much harder one to argue with.

The refund on a substitution claim is then calculated on the lesser of the duty paid on the import or the duty that would have applied to the substituted article. Pairing a low-duty import against a high-duty export does not manufacture a refund, and a claim built that way gets adjusted downward on review.

Timing and money

You have five years from the date of importation to file, and the export has to fall inside that window. Records supporting a claim have to be kept for three years after the claim is paid, which in a business that turns over inventory systems every few years is the requirement people quietly fail.

Without the accelerated payment privilege you wait for the claim to liquidate before you see money. With it, and with a drawback bond behind it, payment comes far sooner. There is a companion privilege, waiver of prior notice, that removes the requirement to tell CBP before each export of unused merchandise. Both are applications, and both are worth having before the first claim rather than after the third.

What a claim rests on

• Import entry summaries showing duty actually paid, not estimated
• Proof of export: bill of lading, and the ITN where export information was filed
• The inventory link between the two, by lot or serial number, or through an accounting method such as first-in first-out applied consistently
• For manufacturing, a bill of materials, a yield, and the ruling that covers the process
• A drawback bond if you want accelerated payment

Read that list backwards and you have the real test. If your inventory records cannot connect a specific export to a specific import, there is no claim to file however much duty you paid. That is a warehouse and ERP problem before it is a customs problem, and it is worth fixing in the year before you start claiming rather than during an audit of a claim you already filed.