Unlock Cash Refunds through Duty Drawback

Businesses involved in importing goods into the U.S. may not be aware of the significant opportunity for cash refunds the duty drawback program administered by U.S. Customs & Border Protection (CBP) offers. By leveraging this program, businesses can improve landed cost and working capital.

What is Duty Drawback?

Duty drawback is a U.S. manufacturing and export incentive program that offers refunds of up to 99% of customs duties (including China tariffs), taxes, and fees paid on imported goods that are later exported or destroyed, or used in the production of a good that is exported. A drawback claim can be filed within five years from the date the goods were imported into the U.S. There are several types of drawback that businesses can take advantage of, the main ones being Unused Merchandise and Manufacturing.

Examples of Eligible Activities

• Unused Merchandise Drawback: A refund of import duties, taxes, and fees may be available when a business imports goods that are later exported or destroyed unused, even following incidental operations such as testing, cleaning, or painting.
• Manufacturing Drawback: If imported goods are used as materials in the manufacture of another good that is subsequently exported or destroyed, the business can claim refunds on the duties, taxes, and fees paid for the imported materials.

Substitution and Direct Identification Methods

U.S. law sets out two primary methods for identifying and matching imported and exported goods eligible for drawback when preparing a claim: substitution and direct identification.

• Substitution: This method permits the substitution of imported or domestic goods that are like imported duty-paid goods when matching imports to exports. Notably, under substitution drawback, exports of domestic goods or components used in the manufacture of exported or destroyed goods can be substituted and claimed against similar imported duty-paid goods, provided certain requirements are met. The main requirement is that the U.S. harmonized tariff schedule classification (HTS) code of the substituted goods matches that of the imported goods.
• Direct Identification: This method requires the specific identification of imported goods that are subsequently exported, destroyed, or used in the manufacture of articles that are subsequently exported or destroyed. This is most commonly done at the SKU (or product number) level. Detailed records must be maintained to directly link the imported goods to the exported or destroyed goods, using unique identifiers. The direct identification method also requires use of an inventory accounting method to match imports to exports, except when serial numbers are used for matching.

How the Duty Drawback Process Works

1. Determine Feasibility: Identify the scope of imports and exports to be claimed, estimate the cash benefit, and test data and document readiness, especially if the exporter is not the importer of the goods eligible for drawback.
2. Apply for Customs Privileges for Drawback (Optional): While not required, applying for privileges can result in a waiver of the requirement to alert CBP of every planned export shipment or destruction. Privileges also allow for accelerated payment of refunds within 30-45 days from the claim date, as opposed to the standard 314-day liquidation cycle.
3. Prepare Data and Documents for Filing: Gather import, production (if applicable), and export data for the five-year look-back period, define the process for go-forward claim data preparation, and conduct additional data and document testing for compliance.
4. Claim Initial Historic Refunds and Manage Ongoing Program: File the five-year or other historic look-back claims, then execute the process for periodic claims. Conduct ongoing data and document testing for compliance, continue to file claims periodically, and monitor business activity for any changes to the drawback program.

Managing and Optimizing Programs

An effective drawback program is designed and executed to improve business cash flow and profitability while maintaining compliance. Key differentiators for this process include:

• Data Processing and Automation: One of the biggest challenges to any drawback program is data processing, including cleansing, manipulation, and validation. This time-intensive exercise’s labor can be significantly reduced with data automation tools.
• Electronic Records Management: Validating data and documents for drawback compliance purposes is an arduous task. Reducing labor and cash expenditure requires maintaining valid sources of proof for claim data and ensuring that document records (bills of lading, commercial invoices, etc.) match the underlying data used for a claim. Source documents from third parties typically come in PDF format. Using tools such as Optical Character Recognition (OCR) software can help expedite the review and validation of these files, especially when the software is embedded with machine learning.
• Advanced Data Analytics and Visualization: Whether the refund benefit is a result of simple distribution or complex manufacturing operations, leveraging data analytics and visualization tools reveals opportunities that can be missed in the voluminous business and government source data. It is impossible to maximize a benefit without clear visibility of the avenues to expand or improve the drawback claims based on business activity.
• Reporting and Continuous Improvement: Developing a standard and consistent data-driven reporting cadence allows for ongoing monitoring of the program’s benefit and compliance, and helps to identify options to improve the program. 
  
  

Whether a company is just starting its drawback journey or would like to evaluate an existing program for refund optimization or compliance, the process begins with the company’s CBP Automated Commercial Environment (ACE) data. ACE is the operating system that offers the trade community free access to a wealth of historic filing and declaration data of import and export transactions needed to support drawback claims. This resource is the foundation that allows for analysis of program compliance, and opportunities for achieving or expanding cash refunds.