As an international eCommerce trader, importer, exporter, or manufacturing company, you pay custom duty on each shipment. While it may look like a small amount, it quickly adds up to thousands of dollars annually.

But did you know that you could get back your duty on imported items that are later exported or destroyed? Yes, you could! And that's why you need to know about duty drawback.

What is a duty drawback?

A duty drawback is a refund on custom duty and fees paid on imported goods that are later exported as the finished product or destroyed. The refund applies when the item is destroyed or exported as-is or as a component of a finished product.

In simpler terms, suppose you import a vehicle component for manufacturing purposes. Then, after manufacturing the vehicle using that component, you might be eligible for duty drawback if the vehicle is exported or destroyed.

Why most importers/exporters don't take advantage of duty drawback

Interestingly, but not surprisingly, duty drawback is the most under-utilized provision available to international traders because it’s very complicated. Most people don't understand how it works and would rather just let the money go.

But of course, you could be recovering thousands, if not hundreds of thousands, yearly on duty. Therefore, duty drawback consulting may be advisable so you can have experts evaluate your eligibility and ensure recovery.

Types of duty drawback

The US Customs and Border Protection (CBP) recognizes several types of drawbacks, including:

Manufacturing drawback

Manufacturing drawback is a refund administered upon the exportation or destruction of goods manufactured within the US using imported merchandise, provided that the item was not used in the US before the exportation.

Unused merchandise drawback

If an imported item is to be exported or destroyed without being used in the US, the exporter may claim a drawback of up to 99% of the duties paid during importation.

Rejected merchandise drawback

As the name implies, rejected merchandise drawback is a refund on duties for imported products that are exported or destroyed because they do not conform to expectations.

Merchandise that falls under this category includes:

• Defective Items

• Items exported by mistake or without the consent of the consignee

• Items that do not conform to sample, quality requirements, or specifications.

• Goods returned by consumers.

How much is the duty drawback refund?

The value of duty drawback can be up to 99% of the duties paid on importation.

Who can make a drawback claim?

You must be curious already; who can claim a duty drawback?

The party eligible to make a duty drawback claim must be the legal owner of the goods at the time of export. This means any of the following persons may claim a drawback:

• Any individual who does import and export. On exporting merchandise they imported and paid duties on, they may be eligible for a refund.

• An importer who had to destroy or return an item due to a defect or some other qualified reason.

• A manufacturer who destroys merchandise they imported due to a qualified reason.

• A manufacturer who used the merchandise to manufacture a finished product, which is to be exported or destroyed

• Anyone on whose supply chain importing and exporting occurs.

• You must have paid customs duty on the merchandise in all cases to be eligible for a refund.

What if the CEO doesn't have the time to apply for a drawback?

The president of the company mustn't be the one to apply. Any of the following may do so:

• The owner/CEO/president of the company

• The vice-president

• An authorized staff that has the legal power to do so, such as a power of attorney

• An individual acting on their own behalf;

• A customs broker acting on the company's behalf.

How to claim duty drawback

International traders new to duty drawback claims must first refer to the Customs Regulations, 19 CFR 191 Subpart E. All the guidelines for filing a drawback claim are in there.

Typically, you must file a drawback claim within three years of the exportation or destruction of the merchandise, submitting the necessary paperwork.

• The documents required will include one or more of the following:

• Certificate of delivery

• Certificate of manufacturer

• Evidence of exportation

• Drawback entries

• Notice of intent to export, return, or destroy the item.

You file the claim with the CBP. Once they see that your drawback claim satisfies all the required parameters, the amount due you will be refunded. However, the payment could take weeks, even months, depending on the circumstances surrounding the claim.

Wrapping up

Most exporters and importers will be eligible for duty drawback at some point. However, most wouldn't know or wouldn't care to, and it's all blissful ignorance.

The CBP offered the provision to encourage American companies to compete in foreign markets without being at a price disadvantage from paying heavy duty fees on importation. If you could leverage the opportunity, you might realize what you've been missing.