DUTY DRAWBACK BACKGROUND
U.S. Customs & Border Protection’s (CBP) duty drawback program was signed into law in 1789 with intent to increase United States export activities. Drawback allows for a refund of duties paid on imported merchandise that is subsequently exported from the U.S. or destroyed.
There are three main types of duty drawback:
Manufacturing drawback
Unused merchandise drawback
Rejected / defective merchandise drawback
What is manufacturing drawback?
The key word here is manufacturing. This type of drawback presumes that imported merchandise was put through the process of “substantial transformation”, resulting in a new and different article that has a distinctive name, character, and use.
In general, if imported items were used in the manufacturing of a new product that has been exported or destroyed, the duties paid on imported items used may be refunded as a drawback, up to 99% of duties paid.
FOR EXAMPLE...
Company ABC imports a roll of fabric, manufactures t-shirts with it in the U.S. and then exports those t-shirts. In this situation, the exporter would be able to file a drawback claim and seek a refund of the duties paid on the fabric used to make the t-shirts.
For a manufacturing drawback claim, production records are required in addition to the import and export documentation.
Required import & export documentation includes (but is not limited to):
Entry summary (CF7501)
Import commercial invoice & packing list
Import bill of lading
Proof of the receipt of goods
Warehouse withdrawals / transaction log
Export sales invoice & packing list
Proof of export, i.e.: export bill of lading
Production records include (but are not limited to):
Dates of production
Bills of Materials
Documents tracing all articles through manufacturing process
THERE ARE TWO TYPES OF MANUFACTURING DRAWBACK
I. Direct Identification Manufacturing Drawback
This is used when an imported item can be traced through the importation, manufacturing, and exportation/destruction process either by serial number, item ID number, or some other unique identifier, or by the use of the accounting methods provided for in duty drawback regulations.
II. Substitution Manufacturing Drawback
This is used when an imported, duty-paid item OR an item classified under the same 8-digit HTSUS subheading number as the imported item is used in the manufacturing of a new article, which is subsequently exported /destroyed.
To participate in manufacturing duty drawback, the claimant must first secure an approval from CBP’s duty drawback office to operate under a manufacturing drawback ruling.
There are several general manufacturing drawback rulings, which have been designed to simplify drawback procedures. If the manufacturing process is outside of described general manufacturing rulings, the claimant must submit an application for a specific manufacturing ruling to CBP headquarters for review and approval.
Reach out to Green Worldwide’s duty drawback experts today to ensure that your manufacturing duty drawback program is successful by emailing drawback@greenworldwide.com
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