DEFINITION

Drawback is a refund of 99% of all ordinary Customs duties and internal revenue taxes. Drawback was initially authorized by the first tariff act of the  United States in 1789. Since then it has been a part of the law, although from time to time the conditions under which it is payable have changed.  For example, as a result of the Omnibus Trade & Competitiveness Act of 1988, antidumping and countervailing duties are not refundable on a drawback claim.

PURPOSE

The rationale for drawback has always been to encourage American commerce or manufacturing, or both.  It permits the American manufacturer to complete in foreign markets without the handicap of including in his costs, and consequently in his sales price, the duty paid on imported merchandise.

The Types of drawback are authorized under Title 19, United States Code, Section 1313, and implemented by Title 19, Code of Federal Regulations, Part 191.

TWO TYPES

There are two types of manufacturing drawback:

Direct identification drawback which provides a refund of duties paid on imported merchandise that is partially or totally used in the manufacture of an exported article.  Identification of the imported merchandise from import to export is required by proper record‑keeping procedures.  The imported merchandise must be used in the manufacturing process and exported within 5 years from date of importation of merchandise (19 U.S.C.  131 3(a)).

Substitution drawback provides for a refund of duties paid on designated imported merchandise upon exportation of articles manufactured or produced with use of substituted domestic or imported merchandise that is of the same kind and quality as the designated imported merchandise.  Same kind and quality means merchandise that is interchangeable in a specific manufacturing process. The imported materials must be used in a manufacturing process within three years after receipt by manufacturer, the domestic material of same kind and quality as imported materials must be used in manufacturing process within these years of receipt of the imported material, and the exported products must be manufactured within three years after receipt of imported material by manufacturer, and exported within five years of date of importation of designated material (19 U.S.C. 131 3(b)).

Another type is same condition drawback (19 U.S.C. 131 3(J)).

Duties are refunded on imported material which is subsequently exported in the same condition as when imported, or when destroyed under Customs supervision. The material must not have been used within the U.S..  However, incidental operations such as testing, cleaning, inspecting and repacking are permitted.  The materials must be exported or destroyed within three years of the date of importation.

Substitution same condition drawback allows claimants to file for drawback on imported material even if the imported material is not the exact material which is exported. However, exported material must be fungible with the designated material.  Fungible merchandise is merchandise which is for commercial purposes identical and interchangeable in all situations. 

REJECTED MERCHANDISE

A 99 percent refund of duties is also allowed for any imported merchandise found not to conform to sample or specification, or shipped without the consent of the consignee, if returned to Customs custody within 90 days of its release (unless an extension is granted) for examination and exportation under Customs supervision.