Multiple Party Drawback
The drawback regulations (found in 19 CFR 190) allow for the transfer of drawback rights when the importer and exporter of record are not the same entity. While either entity can submit the drawback claim to Customs (referred to as the drawback claimant), the drawback regulations grant the exporter the first right to submit the drawback claim to Customs and Border Protection (CBP). However, if the exporter did not import the merchandise directly and pay the duty to Customs, they must then secure the cooperation of the importer of record.
Specifically, the importer can transfer the duty paid imports to the exporter with any record that provide necessary data elements for the exporter to prepare and submit a claim for drawback. Required fields and data elements include the Customs Entry Number, the date of importation, duty paid, HTS, number, among others. Historically, all this information was captured on a Customs Forms CF7552 that also served to formally transfer the drawback potential associated with a duty-paid import transaction to the exporter of record.
Conversely, if the importer wants to retain the drawback rights and thus control the preparation and submission of the drawback claim, the importer needs to secure a waiver of drawback rights from the exporter. Additionally, the importer should also establish a procedure that provides them with a copy of the export bill of lading and commercial invoice for each export transaction included in the drawback entry.
Confidentiality of Proprietary Information: The preparation of a drawback entry requires numerous import/export data elements and documents that contain proprietary information that the importer or exporter may not want to disclose directly to the other party. To protect the confidentiality of both parties, the drawback claimant may want to engage the services of a Customs broker that specializes in drawback matters. The broker can serve as a “firewall” between the importer and export to prevent the disclosure of sensitive information in addition to executing all of the administrative steps necessary to file drawback. The broker will routinely execute a non-disclosure agreement with both entities.
Sharing Drawback Recovery: Typically, if the importer does not perform a manufacture process on the imported duty-paid merchandise prior to delivery to the exporter, the importer will transfer drawback rights to the exporter or record without a share of the recovery. The exporter then submits the claim to CBP. Why? Because the drawback regulations grant the exporter the first right to file for drawback and because the exporter as the buyer can assert its leverage over the importer. Further, the importer passes the duty along with any other costs in the final price. The importer receives its refund of duties when the exporter pays for product. The importer may receive compensation for direct out-of-pocket administrative costs.
There are exceptions to the exporter dictating the terms of the drawback transaction and receiving the vast majority of the financial benefit. The importer may try to negotiate a larger share of the recovery based on the market conditions that reduce the leverage of the exporter. For example, if only a handful of suppliers exist, and/or the product is more of a commodity where the market determines the price more so than negotiations between the buyer and seller, then the importer may attempt to negotiate a more equal split of the drawback.
Conduct and Initial Assessment: Before negotiating any type of arrangement between the parties and proceeding with the gathering of required documents and data, one must first estimate both the potential drawback recovery and the administrative costs to ensure sufficient return on the investments of all the parties – the importer, the exporter, and the drawback specialist. The drawback specialist should conduct the initial assessment and summarize the findings. Note that the drawback regulations allow for a 5 years of retroactive drawback recovery which can result in a significant recovery windfall in the first year after the establishment of a drawback program.
Records Required: If the exporter retains rights as the drawback claimant, the importer would ideally provide the drawback broker with a copy of the import entry documents. Specifically, the Customs Form 7501, commercial invoice, and related packing list. Short of providing the documents, the importer could provide a summary of the required data elements in the form of an Excel spreadsheet, but CBP may require the actual import documents in the event of a CBP review or audit. The exporter must commit to maintain and provide the importer or drawback broker with a copy of the export bill of lading and commercial invoice which serves as proof of export for drawback purposes.
Liability of the Parties: The new drawback regime promulgated by the Trade Facilitation and Enforcement Act of 2016 formally expanded the liability of the importer of record in multiple party drawback scenarios when the importer transfers the right to claim drawback to another party. The wording of the statute makes the import jointly and severally liable for the drawback transactions. Does this mean that the importer shares the same level liability as the drawback recipient even if they do not receive the drawback refunds? No, because in the event of denial of a drawback claim, CBP will always pursue the drawback claimant first. Since all drawback claims filed under accelerated payment privileges require the posting of a drawback bond to protect the revenue of the United States, the next party in line is the surety company that provided the Customs bond. The importer of record would be the party of last resort if both the drawback claimant and the surety were unable to return the disallowed drawback payment – a very unlikely scenario.