What is drawback?

Drawback is a U.S. law that allows exporters to recover duty paid for importations provided that the product is subsequently exported or destroyed. The object is to let commodities be exported and sold in a foreign country on equitable and competitive terms. Drawback is a complex field with many variants. Some of its key provisions are listed below.

Unused: 19 U.S.C. 1313(j)(1)) provides for drawback upon the exportation or destruction of imported merchandise upon which was paid any duty, tax, or fee imposed under Federal law because of its importation, if the merchandise has not been used within the United States before such exportation or destruction. Similarly 19 U.S.C. 1313(j)(2) provides for drawback on merchandise which is commercially interchangeable with imported merchandise.

Manufactured goods: 19 U.S.C. 1313(a) provides for drawback upon the exportation, or destruction of articles which are not used in the United States prior to their exportation or destruction, and which are manufactured or produced in the United States wholly or in part with the use of particular imported, duty-paid merchandise and/or drawback product(s). Similarly 19 U.S.C. 1313(b) provides for drawback if merchandise (whether imported or domestic) of the same kind and quality are used in the manufacture or production of exported articles.

In essence, merchandise that is exported as imported and unused in the U.S. can be claimed for drawback either by identifying the import or by the substitution provision. Direct identification may be done by standard accounting methods when inventory circumstances dictate it. The substitution provision can be especially useful because merchandise sourced in the U.S. can be exported and drawback claimed on commercially interchangeable imported merchandise on which duties and fees were paid. Furthermore, drawback may be claimed even if the U.S. exporter is not the direct importer.

There are parallel drawback provisions for exports of articles produced in the U.S. There is a direct identification provision for claiming drawback on imported merchandise which can be tracked through production to specific exports. There is also a very beneficial substitution provision which allows claiming drawback on imported merchandise that may not have been used in the production of the exported articles.

Drawback may also be claimed on merchandise produced in foreign trade zones with the use of imported merchandise. Imported merchandise may be claimed for drawback which is in both non-privileged and privileged foreign FTZ status. This can be very useful when finished products are withdrawn for consumption from an FTZ and then subsequently exported.

In addition there is a drawback statute specific to petroleum derivatives which allows for substitution possibilities on an even broader basis and another for merchandise sold at retail and returned.