Duty Drawback

By allowing for a refund of import, duty, taxes, and fees for imported products re-exported from the United States, the duty drawback program enhances the ability of US importers, exporters, and manufacturers to compete globally. The Trade Facilitation and Trade Enforcement Act of 2015, referred to as TFTEA drawback, recently liberalized the existing duty drawback laws, thus creating new and unique opportunities for many industries. Alliance can conduct a free analysis of your company’s drawback potential under the new regime.

What is Duty Drawback?

Originally enacted in 1789 as part of the Original Tariff Act, the drawback law allows for the refund of duties, taxes, and fees on imported merchandise that is subsequently exported.

For example: A company imports sunglasses from its factories in China into its US North America distribution facility and pays a 2.1% duty on the imported value. 70% of the frames are sold at its domestic retail stores, while 30% of the sunglass frames are exported to stores in Canada and the Caribbean. The Company is eligible for a refund of the 2.1% it paid in duty when the imported frames are exported to Canada and the Caribbean.

There are four primary drawback legal
provisions found in United States Code Section 1313:
  • Manufacturing Drawback: Drawback on raw materials and component parts used to make a new and different article of commerce. The production process must result in a product with either a new name, character, or use.
  • Unused Merchandise Drawback: Drawback on imported materials or finished products exported in essentially the same condition. This provision allows for an extensive list of incidental operations, such as testing, cleaning, and painting. Essentially any value-added process short of a manufacturer, as defined above, is allowable under unused merchandise drawback. However, the merchandise cannot be used in the United States for its intended purpose prior to exportation.
  • Rejected Merchandise Drawback: Drawback on imported materials that do not meet specifications at the time of importation or are shipped without the consent of the consignee. The imported merchandise can be either returned to the vendor or destroyed under Customs supervision and qualify for drawback. This provision does allow for the use of the merchandise in the US. For example, imported shoes are sold at the retail and returned by the consumer due to a defect. The shoes can be exported with the benefit of drawback.
Methods of matching imports and exports (applies to both manufacturing and unused merchandise drawback):
  • Direct Identification: Using lot number and serial number tracking to match an export with its exact importation. In the absence of lot numbers and serial number tracing, a drawback claimant can instead utilize one of the acceptable drawback accounting methods as a way of complying with the requirements.
  • Substitution: Instead of requiring direct tracing from import to export, the substitution method allows drawback claimants to match “similar” merchandise within very broad time frames. The definition of “similar” products has evolved over the years with the amendment of the drawback law. The most recent change to the law via the Trade Facilitation and Enforcement Act (TFTEA) defines like merchandise as products that fall within the same 8 digit Harmonized Tariff Schedule Number. Note: The ability to use the substitution methods applies to both manufacturing drawback as well as unused, but the rules vary for each.
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Types of Duty Drawback

NAFTA Drawback: Unfortunately, the NAFTA was not friendly to drawback, as it placed a variety of restrictions on claimants filing drawback on US export activity to Canada and Mexico. Many claimants became discouraged by the additional regulatory burden of the process and simply abandoned filing drawback on exports to these destinations. Given that Canada represents one of the primary destinations for US exports, many claimants forfeited significant drawback recovery. The primary restriction on unused drawback (drawback on merchandise exported in essentially the same condition as imported) related to the substitution method of matching exports to imports. Under the substitution provision, a drawback claimant does not need to trace an export back through inventory and match it to its actual entry of importation (this is called the direct identification method). Instead, an export can be matched to any import of like merchandise within three years of the export data.

While the NAFTA eliminated unused substitution, it does allow for unused drawback under the direct identification approach; However, what if a claimant cannot trace an export back through inventory using a lot number or serial number? Most types of merchandise lose its identity once it entered inventory. The alternative to actual direct tracing is to use one of the accounting methods allowable under the provisions of direct identification. While not as flexible as substitution, these methods allow a claimant to bypass the more onerous task of specifically tracing merchandise. The simplest of the accounting methods is “low to high.” Low to high requires a claimant to designate imports (choosing an import for a drawback claim) according to the one with the lowest amount of duty on a per unit basis. If duty rates and values are relatively constant over time, most claimants will give up a slight amount of recovery in exchange for a significant reduction in the amount of administrative effort. Claimants with significant export volume to Canada should evaluate the viability of filing under this method as means of increasing drawback recovery.

Petrochemical Drawback: (19 USC 1313P): A commodity specific drawback provision for petroleum derivatives was added to the law in 1990. The statute was subsequently amended again in 1999 to further liberalize substitution rules for claiming drawback on products deemed “qualified articles” under 19 USC 1313(p).

Notably, subsection (p) allows for drawback on the export of domestically produced petrochemicals in exchange (substituted) for imported chemicals, so long as they both fall within the same 8-digit HTSUS classification. For example, a company imports a duty-paid PVC compound classified under 3904.22.0000 in the tariff schedule. It also procures domestically produced PVC compounds from a US supplier. The domestic PVC compounds, if theoretically imported, would fall under the same 8-digit classification. The company then exports the domestically produced compounds to an oversees customer and uses these exports to secure a refund on the duty assessed on the imported chemicals. The statute specifically lists these qualifying articles/HTS classifications that allow for substitution at the classification level instead of the part level, as is the case for drawback provisions.

TFTEA Drawback – The New Regime: The drawback statute has been the subject of numerous amendments since 1789, the most recent of which occurred as part of the Trade Facilitation and Enforcement Act of 2015 (know by its acronym of TFTEA). The TFTEA amendments took effect Feb. 24, 2018 and allowed a one-year transition period where claimants could file either under the old or the new rules. This transition period ended on February 24, 2019.

Currently, claimants can only file under the new TFTEA drawback rules. The TFTEA changed the drawback program in certain key areas:

  • Liberalized the drawback substitution standards
  • Changed record keeping time parameters
  • Extended and standardized timelines for filing drawback claims so that a company can claim drawback on import/export activity up to 5 years old
  • Made the electronic filing of drawback claims a requirement

Third 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 company. Example: Company A imports orange juice from Brazil and pays the duty to Customs before selling the juice. 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).

Specifically, the importer can transfer the duty paid imports to the exporter with any record that provides the 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, and HTS number, among others.

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.

Bottom-line: Both the importer and the exporter must cooperate in order to compliantly submit a drawback claim.

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Section 301 Recovery

Under Section 301 of the Trade Act of 1974, the US Trade Representative’s Office, under the direction of the Trump Administration, initiated an investigation to determine whether China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation are unreasonable, unjustifiable, or discriminatory and burden or restrict U.S. commerce. The resulting Section 301 action places a 25% punitive duty on approximately $250 billion of imported goods from China.

The first list that covers 818 harmonized tariff lines became effective on July 6th, 2018. The second proposed list consists of 284 HTS lines and is currently in the public comment phase. The third list covers over 6,000 tariff lines that, if implemented fully, would place an additional 10% duty on approximately $200 billion on US imports from China.

The imposition of the duty will be a significant burden, and the first priority is to see if there are ways to avoid payment, such as to assign another tariff classification, one that is not subject to the duty, or to source from a country other than China.

If there is no way to avoid that additional duty, then you may want to look at recouping the duties on re-exports.

Unlike tariffs on Steel and Aluminum promulgated under the provisions of Section 232, the Administration declared the Section 301 duties drawback eligible in its implementing rules.

Companies claiming drawback must decide whether to 1) Submit claims on Section 301 duties under the provisions of the legacy drawback law referred to as the “core” drawback law by the Trade Community, or 2) File under the amended drawback law passed as part of the Trade Facilitation and Enforcement Act of 2016 known by its acronym as “TFTEA” drawback.

Operationally, filing drawback on duties levied under Section 301 is no different than filing drawback on the regular rate of duty. The same legal and regulatory structure applies. A company should first assess its drawback recovery potential on both Section 301 as well as regular duties.

  1. The first step in the assessment process is to establish a Customs ACE (Automated Commercial Environment) account in order to access automated import data and generate reporting.
  2. A “look up” function can then be used to assign a 25% rate of duty to the HTS numbers on list 1 and 2 and 10% for HTS numbers on proposed list 3 in order to estimate the increase in Customs duties due to Section 310 tariffs.
  3. Next, pull export data for the same time period (the Core drawback law allows for three years of retroactive export history while the TFTEA allows for 5 years from the date of importation) from your Enterprise Resources Planning software.
  4. The last step in the process requires drawback specific software to run preliminary “test” drawback claims to ascertain total potential recovery for “internal” drawback based on a company’s own import and export activity.

However, more potential recovery could exist beyond one’s own export activity by partnering with exporters of US origin merchandise who export product with the same HTS. This scenario is accomplished through the use of a special purpose company referred to as a drawback trading company.

This unique drawback strategy was legally vetted in the early 2000’s by the petrochemical industry that pushed its own drawback provision through Congress as part of the Customs Modernization Act.

This “p” provision of section 1313 of the Tariff Act allows for HTS level matching of imports and exports for chemicals derived primarily from petroleum.

Alliance maintains an exclusive relationship with a drawback trading company that uses data mining to identify potential export partners.

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Duty Drawback Process

Develop Program Procedures – To ensure regulatory compliance and maintain timely filing of drawback claims, we will develop comprehensive program procedures that address the following general areas:

  1. Documents and data needed to prepare and file claims – To capture the needed documents, we typically employ a variety of methods including automated collection of data from import brokers, securing copies of needed import/export documents from brokers and forwarders, data downloads directly from the client, and scanning documents on site if required
  2. Claim filing procedures, frequency, and related drawback specific reporting
  3. Drawback record retention
  4. General information related to the claimant’s business practices and processes
  5. Frequency and objectives for periodic compliance reviews

Review Company Record Retention – During the implementation visit, we will review the types of records routinely required to substantiate claims during a Customs review. We prepare for Customs reviews (either desk reviews, compliance assessments, or complete audits) through continual testing of data integrity and supporting records and through annual internal compliance reviews. As part of the implementation process for each drawback program, Alliance evaluates the veracity of existing record retention systems and will make recommendations as to how to improve retention procedures and ensure the highest degree of regulatory compliance.

Gather Documents and Information needed to Prepare Customs Applications – As part of the implementation process, we try to learn as much as possible regarding our client’s specific business operations and their enterprise management systems. This knowledge assists us in designing a compliant drawback program, helps us identify other potential drawback opportunities, and allows us to accurately prepare the various Customs applications.

Alliance will draft Customs applications for accelerated payment, waiver of prior notice, and draft a manufacturing ruling request, if applicable. To prepare these applications, we will need to gather a variety of company information and sample documentation for the Client’s drawback program.

Drawback Claim Preparation and Submission – Alliance staff will utilize our specialized drawback processing software to prepare drawback claims and the related Customs reports. A portion of each claim is sent electronically via ABI to trigger the accelerated payment of the claim. Both hard and electronic copies of claims are submitted to Customs, maintained at Alliance offices, and backed up continuously to our cloud server.

Alliance can prepare any type of drawback entry including: unused (both direct identification and substitution), same condition to exports NAFTA countries, manufacturing (direct identification or substitution), rejected merchandise, and destruction drawback.

Additional Compliance Support Functions – Alliance serves as liaison between Customs and the client/drawback claimant. Alliance will coordinate the gathering of information and documentation needed for routine Customs desk reviews. Additionally, we will provide assistance in the event of a drawback compliance assessment or a full audit performed by the regulatory audit division of CBP. Any negative liquidation of drawback entries will be thoroughly researched to determine if a basis exists for protest. Alliance will prepare, file, and track a protest until resolved.

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Drawback Regulations & Law

Drawback Regulations & Law: Drawback Law: The concept of “drawback” allows for a refund of duty paid on imported merchandise that is subsequently exported from the United States. Originally established by the Continental Congress in 1789, the United States drawback statute has existed in some form for over 200 years. The purpose of allowing drawback refunds is to expand United States export activity, that in turns fuels economic expansion and domestic job growth. This is accomplished by allowing the importer or exporter to recover 99% of the customs duties paid on the imported article, once the imported article or a “commercially interchangeable” domestic article (the concept of drawback substitution) is exported from the United States.

The drawback statute has been the subject of numerous amendments since 1789, the most recent of which occurred as part of the Trade Facilitation and Enforcement Act of 2015 (know by its acronym of TFTEA). The TFTEA amendments took effect Feb. 24, 2018 and allowed a one-year transition period where claimants could file either under the old or the new rules. This transition period ended on February 24, 2019. Currently, drawback claimants can only file under the new regime.

New Drawback Rules under TFTEA: The primary liberalization of the duty drawback law passed as part of the Trade Facilitation and Enforcement Act of 2015 (TFTEA) and involved redefining the substitution provision of the drawback law. The new drawback regulations can be found in Section 191 of the Code of Federal Regulations for Customs Duties contained within Title 19.

While this “game-changing” legislation will inevitably increase drawback recovery dramatically for certain claimants, the devil – as the saying goes – is in the details.

Some background: The substitution method allows a drawback claimant to match “commercially interchangeable,” or like merchandise, within broad time parameters instead of directly tracing an export back to its exact import. The current law and regulatory structure primarily relies upon the part number and quality specifications to determine if an import and export meet the standards of commercial interchangeability.

For example, an export Grade A Orange Juice made from domestic oranges could be substituted or matched with imported Brazilian duty-paid Grade A Orange Juice because they both meet the same basic quality standards and industry specifications. In the case of merchandise identified by a part number or model number, (electronics and retail merchandise, for instance) the imported item and exported item must generally share the same part-number identifier to be considered substitutable for drawback purposes.

As an example, a company imports sunglasses from China into its U.S. distribution facility. The majority of these glasses are sold domestically, but a portion are exported to retail stores in the Caribbean. Under the existing substitution provision, sunglasses with a model number of RB123 could be matched with any import of an RB123 that occurred within three years before the export date.

The new drawback law entirely eliminates the concept of commercial interchangeability and instead relies upon the Harmonized Tariff Schedule Number, or HTS number. The imported and exported merchandise simply needs to fall under the same HTS number at the 8th digit level of the classification number.

Continuing with the sunglasses example, a pair of exported Ray Ban sunglasses could be matched with a pair of imported Oakley sunglasses, assuming they are both classified under the same HTS for sunglasses (HTS Number 9004.10.00). The one huge exception to the HTS substitution rule – if the classification begins with “other” at the 8th digit, then the drawback claimant must match at the 10th digit. If the HTS also begins with “other” at the 10th digit, then substitution drawback is not available, and the claimant must match imports and exports at the part-number level under the provisions of direct identification drawback.

These “other” classifications are catch-all baskets for merchandise without a specific classification. For example, heading 9004 is for “spectacles, goggles and the like, corrective, protective, or other.” 9004.10.00 under this heading is for “Sunglasses.” 9004.90.00 encompasses all spectacles, goggles, and the like corrective protective, OTHER than sunglasses; Consequently, a drawback claimant submitting drawback on protective goggles would need to match imports and exports according to part-number level and file drawback under the provisions of direct identification drawback (at least for the products that fall into the “other” baskets). This rule will require the vast majority of existing drawback claimants to file under both the provisions of substitution drawback and direct identification where many currently file only under substitution. Warning: The regulatory compliance requirements are substantially higher for direct identification drawback claims vs. substitution claims.

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Frequently Asked Questions

Drawback is the refund of import duties on imported merchandise that is subsequently re-exported. The drawback law is found in the Tariff Act of 1930, while the regulations can be found in Part 191 of the U.S. Customs Regulations. There are two primary kinds of drawback claims: 1) Unused Merchandise Drawback – Drawback on imported merchandise exported in essentially the same condition. 2) Manufacturer’s Drawback – Drawback on imported merchandise subjected to an assembly or production process prior to export. The imported item is exported as a component of a finished article. Note: A valid export triggers the drawback opportunity, i.e. the severance of goods from the United States with the purpose of transferring them to the commerce of another country. Shipments to all U.S. territories except for Puerto Rico qualify as a valid export destination for drawback purposes.

Customs refunds 99 percent of the duties paid. Claimants can request Accelerated Payment Privileges, which expedites the payment of the claim. Claimants filing under accelerated payment can typically expect a refund within 45 days from the date of filing. Without accelerated payment, a claimant could wait a year or longer. Alliance International will draft and submit the accelerated payment application on behalf of our clients.

The regulations allow a period of three years from the date of export to submit a drawback claim; Consequently, a company can file drawback against the past three years of export history. The first year a company implements a program they can expect a “windfall” of recoveries from the past three years of export shipments. Alliance works in conjunction with each client to ensure that the claims filed encompass the maximum amount of export history allowed.

These types of “third-party” import and export transactions still qualify for drawback, but the various parties must cooperate in order to complete a claim. The regulations grant the exporter the first right to file a claim, but the exporter can waive the rights back to the importer. Additionally, an importer can issue a certificate of delivery to the exporter that will allow the exporter to file a claim against the importer’s duty-paid transactions.

The regulations allow a company to match exports and imports at a part number level within certain regulatory time frames. This method of matching imports to exports is called substitution. Any time a company makes a duty-paid import, think of it as making a deposit into a drawback “bank account.” To make a withdrawal, the company must export merchandise that is essentially the same as the merchandise in the “bank.” The designated import must fall within the three-year period prior to the export date. Additionally, the exported and imported merchandise must be commercially interchangeable in the case of unused substitution drawback and of the same kind and quality in the case of manufacturing drawback. Customs will allow a company to match export to imports only of like product.

The alternative to the substitution methodology of matching imports to exports is called direct identification. The direct ID provision of the regulations requires a company to match an export to its exact import through the use of a serial number, lot number, or by using an acceptable accounting methodology. Direct ID is the only methodology that the NAFTA regulations allow for unused (same condition) exports to Canada and Mexico.

To use an example – assume that a company imports garlic from China and that they also purchase the same garlic from a farm in Gilroy, California. The garlic meets the exact same industry specifications, and it is co-mingled in inventory. When the company exports the garlic to a customer, they cannot determine whether the garlic came from the domestic source or from China. Substitution allows a claimant to match an export from a domestic lot against an import of commercially interchangeable merchandise. The export does not need to be traced to a specific import.

To add another element to the example, assume that the company imports only from China; However, beginning in January of 1999, the imported garlic from China is now free of duty. Any exports after January ’99 will strictly contain duty-free lots of imported material. The substitution provision allows us to continue to file drawback by matching the export containing duty free imports against the older dutiable imports, once again, as long as the export and import are within three years of each other and the two lots of merchandise are commercially interchangeable. Under this scenario, eventually the import bank balance will fall to zero because the company will be making withdrawals from the bank, while it no longer makes any additional deposits from duty paid imports. Once all the imports are exhausted, the company’s import bank will be drawn to zero, and its program will cease to exist since it will no longer have imports on which to drawback the duties.

TFTEA stands for the Trade Facilitation and Enforcement Act of 2016, a major piece of trade legislation that included extensive changes to the various drawback statutory provisions. The new law required a massive revision of the drawback regulations that were published in late 2018.

The TFTEA made extensive changes to the drawback law, the most significant being the liberalization of the substitution provision that determines the rules for matching similar imports and exports. Under the old regime, imports and exports were matched at the part number level. Under the new drawback law, exports and imports only need to fall under the same 8th digit Harmonized Tariff Number.

The Customs Regulations, 19 CFR 191, list four primary criteria in determining whether merchandise is commercially interchangeable. Alliance ascertains which of the below categories applies to your organization as part of the full range of services provided. The criteria are as follows:

Industry Specifications – Many commodities are covered by published industry standards utilized by buyers and sellers of the commodity to determine the quality or grade of a particular material. There are a variety of national and global organizations that have established industry wide specifications for numerous products including agricultural, steel, and titanium. Standards and specifications are published by the USDA, ASTM (American Society for Testing Materials), and ANSI.

Classification from the Tariff Schedule of the United States – Both the imported and the exported merchandise must fall within the same HTS classification.

Part Numbers – If both the import and the export carry the same part number, Customs will most likely consider them commercially interchangeable.

Relative Value – The import and export must sell for approximately the same price, allowing for reasonable markup and other costs that are factored into the export sales price.

The drawback regulations require a claimant to obtain a drawback ruling prior to receiving payment on a manufacturing drawback claim. The drawback ruling establishes the parameters for substitution. There are two types of rulings: general and specific. The Office of Regulations and Rulings located in Washington, (Customs Headquarters) issues both types of rulings. The general rulings are available for an industry or a general manufacturing scenario. Any company that can comply with the general ruling’s terms and conditions may declare its intention to operate under the ruling by submitting an application to one of Customs regional drawback offices. Generally, Customs sends an approval letter to a qualifying company within 60 days.

No, exports can be combined into monthly, quarterly, or even annual submissions.

The implementation of NAFTA imposed a variety of restrictions on the drawback programs of all three countries. In the United States, the substitution provision of same condition drawback was no longer available on exports to Canada and Mexico. Under substitution, a claimant could export domestically sourced merchandise and still file a drawback claim if they also imported the same commercially interchangeable merchandise. Substitution also made the drawback filing process much less burdensome in that an export could be matched with any commercially interchangeable import of the same style number imported within three years prior or the export date. NAFTA does still allow same condition drawback on exports on Canada and Mexico under the filing method of direct identification. Under direct ID, the claimant must match exports to imports, either specifically using a lot number, serial number, or using one of the acceptable direct identification accounting methodologies.

Generally, unused drawback claims require import, export, and inventory records along with any other records needed to verify commercial interchangeability, if applicable. Manufacturing drawback requires a more extensive list of records. In addition to the previously mentioned records, a manufacturing drawback claimant must also maintain receiving records, bills of material, and production records.

This depends on a variety of factors including the number and complexity of the import and export transactions, the availability of electronic records, the number of parties involved in the import and export transactions, and the motivation level of the company. Generally, the process takes between four and eight months from startup to receiving the first check.

Generally, the client’s responsibilities fall into two primary categories: record-keeping and providing access to the needed records and data. To prepare a drawback claim, Alliance will minimally require a copy of the import entry summary and related commercial invoice. For exports, we need a copy of the export bill of lading and commercial invoice. If filing manufacturing drawback, we will also need a bill of material to match the export item with the various imported component parts or raw materials. Alliance requests that a client assign a designated program coordinator to assist us in gathering the required records and data elements.

Yes, clients typically can provide us with both export and bill of material data directly from their system that we then load into our drawback processing software. In certain cases, we can automate the transfer of electronic import data to avoid the need to key from import documents. The file can either be in an ASCII, Excel, or Access format. The availability of electronic export and bill of material data can significantly expedite the claim filing process.

The new drawback law allows for a 5 year look-back from the date of importation. The only other time requirement is that the date of the qualifying export needs to be after the import date.

A commodity specific drawback provision for petroleum derivatives, codified in 19 U.S.C. § 1313(p), see also 19 C.F.R. Part 191, Subpart Q, was added to the law in 1990, and first amended in 1993, via Title VI of the North American Free Trade Agreement (“NAFTA”) Implementation Act, Pub. L. 103-182, 107 Stat. 2057, also known as the Customs Modernization or “Mod” Act. The statute was subsequently amended again in 1999 to liberalize further the substitution rules for claiming drawback on products deemed “qualified articles”[1] under 19 USC 1313(p).

Notably, subsection (p) allows for drawback on the export of domestically produced petrochemicals in exchange (substituted) for imported chemicals, so long as they both fall within the same 8-digit HTSUS classification. For example, a company imports a duty-paid PVC compound classified under 3904.22.0000 in the tariff schedule. It also procures domestically produced PVC compounds from a US supplier. The domestic PVC compounds, if theoretically imported, would fall under the same 8-digit classification. The company exports the domestically produced compounds to an oversees customer and uses these exports to secure a refund on the duty assessed on the imported chemicals.  The statute specifically lists these qualifying articles/HTS classifications that allow for substitution at the classification level instead of the part number number level, as is the case for drawback commodities/articles other than petrochemicals.

Drawback Glossary

A

Abstract
Summary of the actual production records of the manufacturer. When preparing a manufacturing drawback claim, a claimant can either choose the abstract method, which requires the use of actual production records, or the schedule method, which essentially provides a standard bill of material listing for the exported articles. Any component part manufacturing operation typically uses a bill of materials schedule when preparing its claims, while a manufacturing operation with significant variances from production run to production run (certain petrochemical processes for example).

Accounting Method
Various approved methodologies used to match export transactions with designated import transactions for drawback purposes. Approved drawback accounting methods are used only for the purpose of complying with the direct identification requirements for drawback filed under 1313(j)(1) or 1313(a). A claimant’s selected accounting method does not actually need to reflect their actual accounting method utilized either for inventory or federal income tax purposes.

Agent
An outside entity that performs all, or a portion of, the manufacture process on behalf of the drawback claimant. By definition, the agent does not take title of the merchandise and only adds value during the manufacturing process.

C

Certificate of Delivery
Customs Form 7552. Delivery Certificate for Purposes of Drawback, summarizing information contained in original documents, establishing: The transfer from one party to another; and the identity of such merchandise or article as being that to which a potential drawback exists; and, the assignment of drawback rights for the merchandise or article transferred from the transferor to the transferee, commonly referred to as a “third-party” drawback transaction. The certificate of delivery transfers the potential drawback associated with a specific import transaction from the importer of record to another commercial entity that purchased the imported merchandise.

Certificate of Manufacture and Delivery
Customs Form 7552, Delivery certificate for Purposes of Drawback, summarizing information contained in original documents, establishing: The transfer of an article manufactured or processed from one party to another; and The identity of such article as being that to which a potential right to drawback exists; and the assignment of drawback rights for the article transferred from the transferor to the transferee.

Commercially Interchangeable Merchandise
Merchandise that is the same for the purpose of drawback under the provisions of 1313(j)(2). Customs shall evaluate critical properties of substituted merchandise including but not limited to part number, classification, industry specification, and HTS number.

D

Designated Merchandise
Either eligible imported duty-paid merchandise or drawback products selected by the drawback claimant as the basis for drawback; or qualified articles selected by the claimant as the basis for drawback. Simply put, imports selected for inclusion on a drawback entry.

Destruction
Complete destruction of articles or merchandise to the extent that they have no commercial value.

Direct Identification Drawback
Drawback on imported merchandise used to manufacture or produce an article which is either exported or destroyed without having been used in the United States authorized under 1313(j)(1) or 1313(a). Direct ID is a methodology of matching exports to designated imports exactly, either using lot number or serial number tracing, or through the use of an acceptable accounting method (FIFO, LIFO, LO to HI, etc.)

The refund or remission, in whole or part, of customs duty, fee, or internal revenue tax which was imposed on imported merchandise at time of importation, and the refund of internal revenue taxes paid on domestic alcohol. Destruction, transfer to an FTZ under zone-restricted status, or most commonly exportation triggers the opportunity for the refund of import duties via the drawback provision of USC 1313.

Drawback Claim
Drawback entry and required electronic data elements which together constitute the request for drawback payment.

Drawback Entry
The combination of required Customs forms, documents, and summarized reports containing export, import, and production information (if applicable) for the merchandise on which drawback is being claimed. Drawback entries are filed on Customs Form 7551.

Drawback Product
A finished or partially finished product manufactured in the United States that carries with it the potential for drawback filed under the provisions of manufacturing drawback.

E

Exportation
The severance of goods from the mass of goods belonging to this country, with the intention of uniting them with the mass of goods belonging to some foreign country. Or, goods admitted into a foreign trade zone under zone-restricted status, or are laden upon qualifying aircraft or vessel.

Exporter
That person who, as the principal party of interest in the export transaction, has the power and responsibility for determining and controlling the sending of the items out of the United States.

M

Manufacture or Production
A process, including but not limited to, an assembly, by which merchandise is made into a new and different article having a distinct name, character, or use; or is made for a particular use even though it does not meet new and different article definition.

Multiple Products
A manufacture process resulting in multiple products produced from the same raw materials. Typically, this term is associated with the production of petrochemicals or products with similar manufacture process. The refining of a barrel of crude oil produces many products including gasoline, jet fuel, motor oil, etc. The drawback associated with each product must be apportioned according to its relative value as compared against the other products, i.e. higher value finished products receive a greater portion of the duty drawback associated with the imported crude oil.

R

Records
Includes, but is not limited to, statements, declarations, documents, and electronically generated or machine readable data maintained in support of a drawback entry.

Relative Value
The value of a product divided by the total value of all products which are necessarily manufactured or produced concurrently in the same operation. Relative value is based on market value, or other value approved by Customs, of each such product determined as of the time it is first separated in the manufacturing or production process. Market value is generally measured by the selling price, not including any packaging, transportation, or identifiable costs, which accrue after the product itself is processed. Additionally, MPF drawback is assigned to each line on an individual import invoice according to its value, relative to the other lines on an invoice.

S

Schedule
A document filed with Customs showing the quantity of imported or substituted merchandise used in or appearing in each article exported or destroyed. The schedule method of determining the claim quantity typically utilizes a factor that can be applied against numerous exports. Example: an exported cell phone bill of materials that lists (1) battery, (1) motor, (12) integrated circuits, etc. would be applied to the exported articles (a cell phone) to determine the part number and quantity of components to be claimed.

Specific Manufacturing Drawback Ruling
A letter of approval issued by Customs Headquarters in response to a drawback application by a manufacturer or producer for a ruling on a manufacturing or production operation specific to the claimant’s operation. Specific rulings are issued to one claimant where general rulings apply to multiple claimants.

Substituted Merchandise
1. Manufacturing Drawback: Either imported duty paid, duty free, or domestic raw materials used in the production of an exported finished product. Under manufacturing substitution drawback, the duty paid import and the components used in the production of the export only need to fall within the same 8 digit Harmonize Tariff Schedule Number to be considered substitutable for drawback purposes.

2. Unused Drawback: The merchandise that is exported that falls within the same 8 digit Harmonized tariff schedule number as the duty paid import designated for drawback.

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Trade Facilitation and Enforcement Act of 2015 (TFTEA Drawback)
The most recent amendment to the drawback law designed to simplify and expand the drawback program. The TFTEA drawback law amendment was the culmination of a 15 year process between the drawback trade community and Customs and Border Protection to make the drawback program easier to utilize by the drawback community and reduce the administrative resources required of Customs.

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