Does your company export items that were manufactured from goods that were imported into the U.S? Or has your company simply exported the same items that were previously imported? In either case, your company may be eligible to claim almost a complete refund from the U.S. government for any duties paid when the goods were originally imported—minus a small 1 percent fee charged by the government. Many companies are not aware of this refund possibility—called “duty drawback”—and consequently do not take advantage of a valuable resource available to U.S. exporters.
Drawback is a refund of duties paid on imported goods when the goods—or other items manufactured from the goods—are subsequently exported or destroyed. The government provides drawback refunds as a way to help U.S. companies compete in foreign markets by eliminating some of the costs associated with importing goods into the U.S. There are several types of drawback, but two of the most common ones that apply to exporters are “manufacturing drawback” and “unused merchandise drawback.”
As the saying goes, however, “some restrictions apply.” Under the North American Free Trade Agreement (NAFTA), different drawback rules apply to exports to Canada or Mexico. For example, although “same condition” drawback is available for exports of the exact same goods on which duty was previously paid, exporters cannot substitute interchangeable goods for purposes of a drawback claim. Also, the amount of duties refunded will be the lesser of the total amount of duties paid when the goods were imported into the U.S., or the total amount of duties paid when the goods were subsequently imported into Canada or Mexico. Likewise, if the goods were imported into a “foreign trade zone” (which usually allows companies to avoid paying duty), when the goods are exported to Canada or Mexico, they will be treated as if they were first withdrawn from the foreign trade zone, thus subjecting them to U.S. customs duties. However, customs can then reduce those duties by the amount paid to the NAFTA country to which the goods were exported
Time limits also apply. For drawback to be available, the export must occur within five years of the import for a manufacturing drawback, and within three years of the import for unused merchandise drawback. In both cases, the drawback claim must be filed with Customs within three years of the export. There is also good news for companies just learning about duty drawback: on a one-time basis, Customs will allow a company to go back and make a drawback claim on all exports that occurred up to three years ago, even where no prior notice was given.