Duty drawback is a basic principle of US international trade law. Simply put, the process of drawback allows 99% of import taxes or duties, along with other taxes and fees paid on imported merchandise, to be refunded upon the exportation of those items subject to drawback provisions under the law. This refund is available to you even if another party did the importing. More than $600 million is recovered annually through the US duty drawback program, and companies are reportedly paying 20% of those refunds to service providers to help them get refunds from US Customs and Border Protection (CBP), the agency which administers the program. CBP believes that up to 85% of potential refunds go unclaimed each year.
Duty Drawback Background
The principles of duty drawback date back to the establishment of the US federal government in 1789. Drawback was established to create jobs, increase manufacturing in the US and encourage the export of US goods to foreign countries. However, the concept of drawback today exists in the trade policies of nearly all economically developed countries. In brief, US duty drawback is an export-promotion program, one intended to eliminate or recover the costs of duties, taxes, and fees on goods sold in international, non-domestic markets. Remarkably, drawback is one of the few export incentive programs allowed under the rules of the World Trade Organization (WTO). The US duty drawback law is codified at Title 19 US Code (19 USC) Section 1313.
The US duty drawback program has long been recognized as a powerful means by which importers may reduce the impact of tariff duties on their imported goods, and similarly to the act of importing, drawback is actually a business privilege. It is not a right. For this reason, there are strict compliance and drawback regulations that must be followed.
Drawback And Modernization: What’s New?
On December 18, 2018, CBP published in the Federal Register a Final Rule that modernized duty drawback, something that was required by the Trade Facilitation and Trade Enforcement Act of 2015 (TFTE). President Barack Obama had signed the TFTE Act into law in 2016, which amended 19 USC Section 1313, the duty drawback law. The amended law significantly changed many aspects of drawback, including substitution drawback, a process by which a party is now entitled to a refund of the taxes, fees, and duties paid on imports when other merchandise is exported under the same Harmonized Tariff Schedule of the US (HTSUS) subheading in a one-to-one fashion. How? Well, 19 USC Section 1313 was amended to eliminate the subjective “commercially interchangeable” standard for substitution in favor of allowing drawback for any items classified under the same 8-digit HTSUS number that was used in connection with the corresponding imported merchandise.
The amended drawback law also extended the period of time within which substitution drawback may occur from 3 to 5 years between import and export of the corresponding merchandise. The further extension of time has been of great benefit to those who want to claim substitution drawback. In addition, the amended law has simplified recordkeeping requirements. Those seeking refunds now have much more needed time to pair imported merchandise to that which will be exported, meaning that there is a bit more opportunity and a lot less pressure to provide CBP with the supporting documentary evidence needed to establish solid drawback claims.
CBP’s 2018 “Modernizing Drawback” Final Rule resulted in an addition to Title 19 Code of Federal Regulations (19 CFR) -- Part 190. The new regulations are quite clear about the various instances in which drawback is not permitted. Drawback is prohibited in the following instances:
- On merchandise entered or withdrawn from warehouse for consumption, when the imported merchandise was subjected to antidumping and/or countervailing duties
- When the identified or designated imported merchandise, or the substitute merchandise, consists of an agricultural product which is duty-paid at the over-quota rate of duty established under a tariff-rate quota (TRQ), the exception being that tobacco is eligible for drawback and some agricultural products fitting this description are eligible for drawback under 19 USC Section 1313(j)(1).
Making Drawback Claims Under The TFTE Act
Veteran and prospective drawback claimants must bear in mind that there are powerful incentives in place to dissuade persons from making incomplete or otherwise unsatisfactory claims, whether done intentionally or unintentionally. 19 USC Section 1313 provides that any person who knowingly and willfully files any false or fraudulent entry or claim for the payment of drawback is subject to criminal penalties. Also, any person who seeks, induces, or affects the payment of drawback by fraud or negligence, or attempts to do so, is subject to civil penalties which can be very substantial. CBP regulations mean that the potential civil liabilities are based on the amount of actual or potential loss of revenue in relation to the drawback claim.
Those parties wishing to file drawback claims need be aware that 19 CFR 190 mandates that all claims be filed electronically. This requirement was designed primarily to reduce some significant burdens placed on CBP in connection to its review of paper claims; however, the Agency no longer reviews paper drawback claims, a time-consuming and costly process that agency drawback personnel were delighted to have abandoned. Since February 24, 2019, all drawback claims must be filed electronically in the Automated Commercial Environment (ACE) pursuant to the TFTE Act (Pub. L. 114–125, 130 Stat. 122).
As the CBP website shows, companies that are not ACE-connected have several options for filing electronic drawback claims:
- Hire a licensed US Customs Broker to file a claim on your company’s behalf
- Self-file your company’s claims through a service bureau, which provides both the software and the communications connection to the CBP Data Center
- Establish your company’s own communications connection to the CBP Data Center in order to self-file drawback claims
In brief, the main changes of a TFTE Act drawback claim filing as compared to the former claim process are as follow:
- Electronic drawback claim filing in ACE
- Simplified substitution standards
- Increased access to fees
- Enhanced drawback record retention requirements
- Broader claimant legal liability for false drawback claims
If you are thinking about filing a drawback claim, make certain that you have addressed all the required elements. If the elements are missing or incomplete, you cannot have a drawback claim that will be honored by CBP. Filing an ACE drawback claim will require different data elements than were required in the Automated Commercial Service (ACS), the old system. A complete drawback claim now consists of a successful claim acceptance in ACE. What is also a must is the filing of all applicable documents via the Document Image System (DIS) within 24 hours of the claim’s acceptance in ACE.
Getting More Information And Help
Filing a drawback claim under the TFTE Act can be very worthwhile. You may be able to receive some sizable refunds, but you may not feel comfortable dealing with all the requirements of what may be a very complex claim. For this reason, please contact us and ask to speak with a representative. We can help you with drawback claims and all sorts of other import/export related challenges. It’s what we do – effectively, efficiently, and reasonably. Don’t delay. Contact us right away to claim your share of that up to 85% of potential refunds that go unclaimed each year.