U.S. Duty Drawback Essentials | C.H. Robinson Blog

Duty drawback can serve as an effective strategy for mitigating tariffs. Despite its complexity and time-consuming nature, with drawback, it’s possible to reclaim up to 99% of duties, taxes, and specific fees on imported goods that are subsequently exported, used in the manufacture of an exported finished product, or destroyed.

What is U.S. duty drawback?

While U.S. drawback dates back to 1789, Drawback Modernization legislation, which was a part of the Trade Facilitation and Trade Enforcement Act (TFTEA) was signed into law in 2016, with the final rule being published in 2018.

TFTEA drawback regulations were modernized and modified requiring all drawback claims be filed electronically via the Automated Commercial Environment (ACE), eliminating paper filings and expanding eligibility. This modernization happened just in time for the imposition of the Section 301 China tariffs that began in 2018. Overnight, companies paying little to no duty on imported goods were suddenly paying upwards of 25% in duties and taxes. The alignment of these two changes contributed to a significant uptick in the demand for drawback services.

Before the implementation of TFTEA, the annual average of drawback claims reported by CBP data, was approximately $800 million, with a steady growth of 2.5% each year. Following TFTEA changes, CBP data shows drawback claimed amounts are growing at a rate of about 26% annually.

In 2017, the total amount claimed was about $838 million, but by 2023, this figure had increased to an estimated $3.9 billion. Additionally, CBP data suggests that there are still unclaimed funds available to be claimed through drawback.

What are the most common types of drawback?

There are several provisions for duty recovery through drawback. These provisions fall into two common categories:

Unused merchandise: Eligible for imported goods that are unused within the United States and either subsequently exported or destroyed.
Manufacturing: Eligible for imported goods used in the manufacture of a new item and later exported.

These two categories allow companies to file claims to recover duties five years from the date of import. Depending on the drawback provision utilized to file a claim, there are two ways exported merchandise can be linked to imported merchandise.

Direct identification
Merchandise imported and identified by a unique identifier, such as a lot number, serial, or VIN number.

If the product is not serialized, an approved accounting method must be used to process and calculate the claimed amounts. The accounting method used for drawback can differ from the accounting method used for inventory management.
Substitution
This allows for the substitution of imported goods/materials as well as domestic goods that are either exported unused or used in the manufacturing processes of exported goods that fall under the same 8-digit Harmonized Tariff Schedule of the United States (HTSUS) classification.

There are limitations to this method, including the HTSUS description, country the goods are exported to, and the reported value of the import versus the export.

What fees are eligible for drawback?

Claimants that meet eligibility criteria for drawback can recover up to 99% of certain duties, taxes, and fees. The types of duties and fees that can be claimed include, but are not limited to:

Ordinary customs duties
Section 301 and 201 duties
Harbor maintenance fees (HMF)
Merchandise processing fees (MPF)

There are specific duties that are not recoverable through drawback that include, but are not limited to:

Antidumping duties
Countervailing duties
Section 232 duties on aluminum and steel

How much money can be claimed in drawback?

Determining your potential drawback eligibility can be challenging as it requires a clear understanding of what you seek to claim drawback on. However, there is a simple way to estimate the potential amount owed:

Identify the annual duty paid on the applicable imported merchandise.
Identify the percentage of the imported product that is exported.
Multiply the annual duty paid (step 1) by the percentage exported (step 2).
Multiply the result from step 3 by 99%.

An example follows:

$2,000,000 annual duty paid.
25% of that product is then exported.
$2,000,000 x 25% = $500,000.00.
$500,000 x 99% = $495,000.00 is your estimated annual drawback amount.

How can importers and exporters participate in drawback?

Businesses seeking to leverage drawback for cost savings should submit a privilege application to CBP. CBP consistently advises that drawback is a privilege, not an entitlement. Due to the complexity involved, it is recommended businesses work with an experienced drawback provider when taking on this endeavor.

Part of the application process includes applying for an accelerated payment privilege. This privilege allows the advance receipt of refunds before the liquidation of a claim if the payment is secured by a bond.

As part of the application process, companies are required to provide documentation that shows a trace of the product being imported, through to the export. These documents must be obtained and stored for everything drawback is claimed on for three years after the liquidation of each drawback claim.

Required documents include, but are not limited to:

Original import purchase order
Import commercial invoice and packing list
Entry summary (CF7501)
Receipt into inventory
Disbursement from inventory
Export invoice
Export bill of lading
B3 or pedimento, if exporting to Canada or Mexico
Bill of material, if seeking manufacturing drawback

What’s the first step to getting started with duty drawback?

Drawback is one of, if not the most complex program CBP has available, but presents significant advantages for qualifying companies. Working with an experienced provider can make all the difference between successful refunds and leaving money on the table.

C.H. Robinson has a dedicated drawback team ready to assess your eligibility and help address the challenges commonly associated with drawback processes. Our goal is the same as yours—streamline the process and reduce risk while maximizing refunds.