Do you import and export? Does your company use imported components in your manufactured goods? Has your company been affected by the Section 301 Tariffs on Chinese imports?
If the answer to any of these questions is yes, then you could be taking advantage of the Duty Drawback program to mitigate the effects of tariffs and the trade war with China and recoup some of your costs.
What is Duty Drawback?
Duty Drawback is a refund of certain duties, fees and taxes paid on goods imported into the U.S. that are subsequently exported from the U.S. or destroyed under CBP (U.S. Customs and Border Protection) supervision. Similar to how you are refunded sales tax when you return an item to a store, you can potentially claim a duty refund when you export an item that was previously imported.
The Many Faces of Duty Drawback
There are many different categories of duty drawback, but the most common are Manufacturing and Unused Merchandise. Though Substitution Drawback, while complicated, can also be very flexible and useful. Drawback is recognized as one of the most complex commercial programs the U.S. Customs and Border Protection administers because it involves multiple facets of the Customs business, including both exports and imports. Even complicated supply chains can take advantage of the program as long as the necessary import and export documentation is maintained.
- Manufacturing Duty Drawback applies when you import an item that is then incorporated into, or further manufactured into, a different item. For example, if you import bicycle tires and export finished bicycles, then you can get the duty you paid for the bicycle tires refunded when you export the finished bicycle.
- Unused Merchandise Duty Drawback applies when you import something, and then export it in the same, unused condition. If you import bicycle tires, and then export them again without changing them, then you can get a refund for the duty you paid when you export the tires.
- Substitution Duty Drawback. If you use both imported and domestically sourced materials, you can potentially take advantage of Substitution Duty Drawback. If the substituted, exported product shares the same first 8 HTS code digitsas the imported product, then it may qualify for duty drawback.
Please remember that there are caveats and exclusions to the above descriptions. NAFTA, or the soon-to-be USMCA, has special exclusions and calculations. Other Free Trade Agreements affect Duty Drawback, but if you import and export—even across a complicated supply chain—Duty Drawback is worth further research.
If you would like to know more, contact Redstone Government Consulting. Our team can provide guidance to help your team reduce the impact of the recent trade war and take advantage of a variety of concessions.
Carolyn Turner is an Export/Import Compliance Consultant at Redstone Government Consulting, Inc., specializing in international trade regulations, includingInternational Traffic in Arms Regulations(ITAR) andExport Administration Regulations(EAR) on the export side. She provides guidance on import compliance matters such as customs clearance, classification, free trade agreements, country of origin requirements, duty drawback, and supply chain analysis. Carolyn advises contractors on regulatory compliance and develops policies and procedures to support effective international trade operations.Since 2002, Carolyn has held roles including International Research Analyst, International Trade Specialist, and Assistant Director or Research and Training at the Alabama International Trade Center, where she conducted market analyses, and provided training and consulting to small and medium-sized businesses across all industry sectors. She also has experience in freight forwarding working as the NVO coordinator for both imports and exports. And she has also served as an Adjunct Professor at the University of Alabama, developing and teaching online International Business courses.Carolyn is a Licensed U.S. Customs Broker and a NASBITE Certified Global Business Professional. She is proficient in Spanish. Her skills include Incoterms, import and export documentation, ITAR/EAR, free trade agreements, compliance program development, and international finance.She holds a B.S. in Commerce and Business Administration and a Master’s in Management with a Global Business Concentration from the University of Alabama. Carolyn serves on the boards of the Japan America Society of Alabama, Destination Hoover International, and BIO Alabama, and is a member of the Export Alabama Alliance.