Drawback 

Some Basics

   The rationale behind drawback is to encourage American commerce and/or manufacturing. Drawback permits American manufacturers to compete in foreign markets without having to include the duty paid on imported merchandise in their costs, and consequently in the sales price.

   Several types of drawback are authorized under Section 1313, Title 19, United States Code (19 U.S.C.):

Direct identification manufacturing

   If articles manufactured in the United States with the use of imported merchandise are subsequently exported or destroyed then drawback not exceeding 99 percent of the duties paid on the imported merchandise is recoverable. (Section 1313(a))

Substitution manufacturing

   If both imported merchandise and any other merchandise of the same kind and quality is used to manufacture articles, some of which is exported or destroyed before use, then drawback not exceeding 99 percent of the duty paid on the imported merchandise is payable on the exported/destroyed articles. It is immaterial whether the actual imported merchandise or the domestic merchandise of the same kind and quality was used in the exported/destroyed articles. This provision in the code makes it possible for firms to obtain drawback without the expense of maintaining separate inventories for imported and domestic merchandise. (Section 13131(b))

Rejected merchandise

   If merchandise is exported or destroyed because it does not conform to samples or specifications or has been shipped without the consent of the consignee or has been determined to be defective as of the time of importation, then 99 percent of the duties paid on the merchandise may be recovered as drawback. (Section 1313(c))

Packaging material

   Packaging material used to package merchandise exported or destroyed under section 1313(a), (b), (c), or (j), may recover 99 percent of the duties paid on the packaging material as drawback. (Section 1313(q)(1))

U.S. produced packaging material

   Packaging material produced in the United States, which is used by the manufacturer or any other person on or for articles  which are exported or destroyed under 1313(a) or (b) will be eligible for drawback of 99 percent of any duty, tax or fee imposed on the imported material used to manufacture or produce the packaging material. (Section 1313(q)(2))

   The purpose of drawback is to enable a manufacturer to compete in foreign markets. However, in order to do so, an exporter must know prior to making contractual commitments that they will be entitled to drawback on their exports. The drawback procedure has been designed to give the manufacturer this assurance and protection.

Manufacturing-drawback rulings

   The manufacture drawback process, under 19 USC 1313 (a) and (b), requires the use of the imported merchandise and the export of a new and different article within five years of the importation of the imported article. In addition, under 19 USC 1313 (b), the exported article made with substituted merchandise must be manufactured within three years after the receipt by the manufacturer of the designated imported merchandise and that period must be within the five year import to export period.

General manufacturing drawback ruling

   A manufacturing drawback ruling issued to a manufacturer authorized to operate under a drawback provision is a prerequisite to drawback payment. There are currently several general manufacturing drawback rulings available, (e.g., orange juice, steel, sugar, component parts, and greige (not bleached or dyed; unfinished textile goods) that eliminate the need for submission of an application for a specific manufacturing drawback ruling of certain commodities. Also available is general drawback ruling TD 81-234, which covers all commodities under 19 USC 1313(a) direct identification drawback.

   General manufacturing drawback rulings have been published in the Customs Bulletin and are also contained in Appendix A to Part 191 of the Customs Regulations. Any person who can comply with the conditions of any published ruling may notify a Customs drawback office of its intent to operate under the ruling.

Specific manufacturing drawback ruling

   Unless a manufacturer is operating under a general manufacturing drawback ruling, he must prepare a drawback application for a specific manufacturing drawback ruling and file it with the Duty and Refund Determination Branch, Customs Headquarters, for 19 USC 1313 (b) and a combination 19 USC 1313(a) and (b) drawback.

   Samples of specific manufacturing drawback formats can be found in Appendix B to Part 191 of the Customs Regulations. Approval for a 19 USC 1313 (b) or combination 19 USC 1313(a) and (b) drawback application takes the form of a letter from Headquarters, U.S. Customs Service, to the port director where the applicant will file claims. The applicant receives a copy of this approval letter.

   A synopsis of specific manufacturing drawback rulings approved by Customs Headquarters is published in Customs Bulletin and Decisions. Together, the manufacturing drawback ruling application and approval constitute a manufacturing drawback ruling.

   If a manufacturer desires to have a manufacturing drawback ruling changed, they should file a new application for a manufacturing drawback ruling following the procedure described above.

Rejected merchandise drawback

   Imported merchandise not conforming to sample or specifications, shipped without consent of the consignee, or defective as of the time of importation, may recover the duties paid as drawback if exported or destroyed under Customs supervision within the three-year statutory period.

   Return of merchandise to Customs custody is mandatory and claims will be denied if not returned within three years after the date the merchandise was originally released by Customs. A Customs Form (CF) 7553, Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback, must be filed prior to the intended date of redelivery. The procedure in Section 191.91 of the CFR for a waiver of prior notice for exportation is not applicable to exportations under 19 USC 1313(c).

Unused merchandise drawback

   Any duty, tax, or merchandise-processing fee paid on imported merchandise that is not used prior to exportation or destruction is recoverable as drawback. Unused merchandise drawback can be claimed under direct identification 19 USC 1313(j)(1) or substitution under 19 USC 1313(j)(2). The three-year time limit for imported merchandise to be exported or destroyed under Customs supervision begins on the date of importation.

   Allowable incidental operations such as testing, cleaning, inspecting, etc., on the imported item that do not amount to a manufacture or production is not treated as use of the merchandise. For unused merchandise drawback, no manufacturing drawback ruling is required; however, applicants should contact the local Customs port office for the procedural requirements prior to exportation or destruction.

Commercial interchangeability

   Merchandise that is commercially interchangeable may be substituted under the substitution unused merchandise drawback law, 19 USC 1313(j)(2). In order to establish that the substituted merchandise is commercially interchangeable, a claimant may obtain a determination from Customs in one of three ways, as described below:

   •Request a non-binding predetermination of commercial interchangeability directly from the appropriate drawback center.

   •Request a formal ruling from the Duty and Refund Determination Branch, Office of Regulations and Rulings, Washington , D.C.

   •Submit all of the required documentation necessary to make a commercial interchangeability determination with each individual drawback claim filed.

   Customs will determine commercial interchangeability by evaluating the critical properties of the substituted merchandise. Factors considered include, but are not limited to, governmental and recognized industry standards, part numbers, tariff classification, and value.

   The exporter/destroyer must file, at the port of intended examination, a CF 7553, Notice of Intent to Export, Destroy, or Return Merchandise for Purposes of Drawback, for claims filed under 19 USC 1313(j) unused, and 19 USC 1313(c) rejected, to notify Customs prior to exportation or destruction.

   Under 19 USC 1313(j), the CF 7553 must be filed with Customs at least two working days prior to the date of intended exportation unless Customs approves another filing period. Under 19 USC 1313(c), the CF 7553 must be filed at least five working days prior to the date of intended return to Customs custody.

   For merchandise or manufactured articles that are to be destroyed, the CF 7553 must be filed at the port where the destruction is to take place at least seven working days prior to the intended date of destruction. Prior notification to Customs of the intended destruction is required by law and cannot be waived. Currently destruction means complete destruction of articles or merchandise to the extent that they have no commercial value.

   Exporters failing to give Customs prior notice of intent to export under Section 191.35 of the Customs Regulations may be eligible for unused merchandise drawback under 19 USC 1313(j). The exporter may file a written application with the drawback office where the drawback claims will be filed. The application requirements are listed in Section 191.36 of the Customs Regulations and upon compliance with the conditions of this procedure the exporter will be able to claim drawback on prior export transactions.

   Applicants with prospective exportations of unused merchandise drawback may be eligible for waiver of prior notice under Section 191.91 of the Customs Regulations. The approval is based on the submission of an application and compliance with the above regulations.

   To obtain drawback, first prepare a drawback proposal (statement) and file it with a Customs Port Director for section 1313(a) drawback and with the Duty and Refund Determination Branch, Customs Headquarters, for other types of drawback, including combination 1313 (a) and (b) drawback.

   A sample drawback proposal to serve as a model may be obtained from Customs port directors for section 1313(a) drawback.

   The approval of a section 131 3(a) proposal takes the form of a letter from a port director of Customs to the applicant. The approval of a section 1313(b) drawback proposal takes the form of a letter from Headquarters , U.S. Customs Service to the port director where the applicant will file claims. The applicant receives a copy of this letter. Synopses of all contracts are published in Customs Bulletin and Decisions. The proposal and approval together are called a drawback contract or drawback rate.