Flexport
Sign In
US

Glossary

Duty Drawback

Tags: Glossary

The duty drawback program refunds payments that were collected upon U.S. import of foreign goods.

Flexport

What is duty drawback?

Duty drawback is a refund in payments that were initially collected upon importation of foreign-made goods; these payments could have been for Customs duties, sales taxes, or other fees. Customs issues these refunds only when the imported merchandise is either exported or destroyed.

What types of drawback can be applied to goods?

Direct Identification Manufacturing

Any article manufactured in the U.S. with imported foreign-made components and is then exported or destroyed may be accepted for duty drawback. This type of drawback allows for 99% of the duty paid on the foreign imported component to be recovered. To do so, you are required to have a pre-authorization, or to have approval from Customs prior to drawback declaration acceptance.

Substitution Manufacturing

Any article that is manufactured using a mix of imported components or other components of the same type and quality that is in part or in full exported or destroyed may be accepted for duty drawback. This type of drawback allows for recovery of 99% of the duty paid on the foreign imported component. In this case, it doesn’t matter if the actual imported component or the domestic component of the same kind and quality were used in the exported or destroyed product. This provision makes it possible for companies to obtain drawback without having to maintain two separate inventories. This method also requires the pre-authorization or approval from Customs prior to drawback declaration acceptance.

Rejected Merchandise

If merchandise is exported or destroyed because it did not conform to original specifications, is defective, or was shipped without consignee consent, 99% of the duty paid on importation can be recovered as drawback.

Unused Merchandise

If imported merchandise is exported or destroyed prior to being used, drawback of 99% of the original duty paid can be recovered. Note that the exportation or destruction of the merchandise must be done under Customs’ supervision for this to apply.

Substitution Unused Merchandise

This drawback covers unused merchandise that is considered “commercially interchangeable” with imported merchandise and that is exported or destroyed under Customs’ supervision. This “commercially interchangeable” merchandise would be eligible for drawback of 99% of the duties, taxes, and fees paid on the imported merchandise.

A company can determine whether or not its merchandise is commercially interchangeable in one of three ways:

  • Request a non-binding pre-determination of commercial interchangeability from the appropriate drawback center using this list of centers.
  • Request a formal ruling from the Duty and Refund Determination Branch of Customs in Washington D.C.
  • Submit all of the required documentation necessary with each individual drawback claim filed (not recommended).

Drawback entries can be different for each type of drawback as outlined above. Generally claims must be filed within three years after the merchandise is exported or destroyed.

What should I do if I need to file for duty drawback?

Since filing for drawbacks can be very complicated, it may be advisable to work with a customs drawback broker who is well versed in the process and has the software required to facilitate the process. Given that the process is so labor-intensive in terms of paperwork and action items, the cost to set up and file drawbacks is quite high. Getting an expert to guide you or file on your behalf could be worthwhile.


Learn More

Related Help Articles

How Do I Estimate Customs Duties?

What are Anti-Dumping and Countervailing Duties?

Related Glossary Terms

HS / HTS Codes

CBP (Customs and Border Protection)

Resources

Duty Drawback - CBP

Share the Article

More From Flexport

arrowImage

Ready to Get Started?

Sign up for a Flexport account or ask to see our platform in action.

Sign Up for Freight Market Updates

Get weekly insights into all things freight, delivered right to your inbox.

I agree to the storing and processing of my personal data by Flexport as described in the Terms of Service and Privacy Policy.