Duty Drawback USA – FAQ (Frequently Asked Questions)
Many of you may have heard of Duty Drawback from working with Customs in your respective countries.. It is something that can faze even some experienced handlers..
This is FAQ article is about Duty Drawback in the context of USA as written by Bruce Hanson..
1) What is Duty Drawback..??
…it is the refund of Customs duties and fees paid on imported merchandise which is used to manufacture articles which are subsequently exported from the US or…
…a refund of duties paid on imported merchandise which is exported unused*
(* In drawback, unused means “not used for its intended purpose”)
2) In which geographical areas is Duty Drawback valid..??
- Exportations to most international destinations will qualify for drawback
- Due to NAFTA, restrictions apply to Canada and Mexico
3) Can I apply for Duty Drawback on cargo that is destroyed:
Drawback is also allowed on imported merchandise and finished articles which are DESTROYED under Customs supervision.
4) What types of duties are eligible for Duty Drawback..??
- Ad Valorem (% of entered value)
- Specific (duty per unit)
- Marking (incorrect country of origin)
- Voluntary Tender (must link to specific entry)
- Merchandise Processing Fees
- Harbor Maintenance Fees
5) What are the major types of Drawback used in USA
I. MANUFACTURING DRAWBACK
- Substantial transformation of merchandise that results in a new and different article with a new name, character and use.
- Import and pay duty
- Use import in production
- Export (or destroy) the finished article within 5 years of importation
- File for drawback within 3 years from date of export
II. UNUSED MERCHANDISE DRAWBACK
- Imported merchandise exported in an “unused” state (formerly “same condition drawback”)
- Import and Pay Duty
- Export (or destroy) within 3 years of importation
- File for drawback within 3 years of date of export
6) Are there any exceptions..??
Operations not amounting to manufacture such as below are allowed Duty Drawback
7) What are the record keeping requirements
- Claimant – 3 years from date of drawback payment
- Drawback Broker – 5 years from date of drawback filing
8) Who gets the Drawback money..??
By law, it’s the EXPORTER OF RECORD that’s entitled to the drawback. The exporter can, however, endorse the drawback rights to back to the manufacturer or importer.
9) What is a Certificate of Delivery (CD)..??
A CD provides Customs with the traceable link between the importer and the manufacturer and/or exporter
- Customs Form 7552
- The CD must include the duty value of the merchandise
10) What are the possible Drawback scenarios..??
11) What is Certificate of Manufacturing & Delivery (CM&D)
- A CM&D is required when the imported merchandise undergoes a manufacture prior to its delivery.
- “Drawback Product” delivered on CM&D can be exported as is or undergo further manufacture
- Customs Form 7552
12) What are Customs Privileges..??
“Accelerated Payment” is a customs privilege which means
- If approved by Customs, the claimant will receive its duty refund with 3-4 weeks of filing.
- A drawback bond will be required
13) What are other Drawback Considerations
- Fraud – 300% of the loss of revenue
- Negligence :–
- 20% for first violation
- 50% for second violation
- 100% for third violation
- Lesser penalties for prior disclosure & DCP participation
14) What is Manufacturing Drawback
It is “Lesser of the Two” Calculation which means the available drawback is the lesser of the duty paid upon entry into Canada of the finished goods or the duty paid upon entry of the raw material into the US.
Affects Mexican exports after 1/1/01.
15) What does the whole Drawback Process entail
- Designate Drawback Coordinator
- Identify eligible products
- Determine Drawback type (manufactured or unused)
- Conduct feasibility analysis
- Review operations/record keeping
- Decide scope of program (time period/vendor imports, etc.)
- Obtain Customs approvals and privileges
- Develop Drawback SOP’s and establish processing timelines and filing dates
- Transfer data/documentation/BOM to broker to create databases
- Drawback claim processing & filing with US Customs
- Payment to claimant in 3-4 weeks
- Claim “liquidation” in 2 years
16) What are some of the Drawback Compliance Issues
- Where claimants typically have issues…
- Accurate bills of material
- Proving manufacture of exports
- Failure to keep within statutory time frames
- Failure to keep rulings/privileges current
17) What are some of the characteristics of successful Drawback Programs
- Management buy-in, commitment of resources
- Recognition & appreciation of complexity
- Clear understanding of compliance aspects and record-keeping
- Roles of participants clearly defined
- Training/education a priority
- Deadlines are kept
For any further information regarding Duty Drawback relating to USA, contact Bruce Hanson..