Drawback
programs may obtain significant revenue savings, which would otherwise
go untapped as business expenses.
However,
drawback is a complex area with the risk of large penalties due
to improper filings, record management, or transaction structure.
We help minimize such legal risks by structuring and implementing
drawback programs to the maximize benefits to our clients.
What
is drawback?
Historically
the word drawback has denoted a situation in which a duty or tax
that has been lawfully collected is refunded or remitted, wholly
or partially, because of a particular use made of the commodity
on which the duty or tax was collected.
Drawback
was initially authorized by the first tariff act of the United States
in 1789. Since then it has been part of the law, although from time
to time the conditions under which it is payable have changed.
The
rationale for drawback has always been to encourage American commerce
or manufacturing, or both. It permits American businesses
to compete in foreign markets without the handicap of including
in its costs, and consequently in its sales price, the duty paid
on imported merchandise.
Drawback
Resources
Information
on duty drawback can be found by clicking on any of the following
topics:
- Customs
statute for duty drawback:
19
U.S.C. Section 1313
19
U.S.C. Section 1313a
- Customs regulations
for duty drawback:
19
C.F.R. Section 191
Types
of Drawback
Several
types of drawback are authorized under Title 19 United States Code
Section 1313 (19 U.S.C. §1313):
If
articles are exported or destroyed, which were manufactured in the
United States with the use of imported merchandise, then the duties
paid on the imported merchandise used may be refunded as drawback,
less one percent, which is retained by Customs to defray costs.
(19 U.S.C. §1313(a) the direct identification manufacturing drawback
provision)
If
both imported merchandise and any other merchandise of the same
kind and quality are used to manufacture articles, some of which
are exported or destroyed before use, then drawback not exceeding
99 percent of the duty which was paid on the imported merchandise
is payable on the exports.
It is immaterial whether the actual imported merchandise
or the domestic merchandise of the same kind and quality was used
in the exported 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.
(19 U.S.C. §13131(b), the substitution manufacturing drawback
provision)
Some
of the more common transactions to which drawback is applied include:
1. Merchandise
is exported or destroyed because it does not conform with samples
or specifications, or was shipped without the consent of the consignee,
then 99 percent of the duties which were paid on the merchandise
may be recovered as drawback.
(19 U.S.C. §1313(c))
2.
Certain products manufactured with the use of domestic alcohol
are exported or shipped to various island possessions, a drawback
of the internal revenue taxes paid on the domestic alcohol may be
refunded. (19 U.S.C.
§1313(d))
3.
Finished Petroleum derivatives (19 U.S.C. §1313(p))
4.
Packaging material used to package merchandise exported or destroyed
under section 1313(a), (b), (c), or (j), may receive 99 percent
of the duties paid on the packaging material as drawback.
(19 U.S.C. §1313(q))
How
To Obtain Drawback
As
most manufacturers are interested in sections 131 3(a) and (b),
only the procedures for obtaining drawback under these provisions
are discussed.
The purpose of drawback is to enable a manufacturer to
compete in foreign markets.
To do so, however, the manufacturer must know, prior to making
contractual commitments, that he will be entitled to drawback on
his exports. The drawback
procedure has been designed to give the manufacturer this assurance
and protection.
MANUFACTURING
DRAWBACK RULINGS
To
obtain drawback, a manufacturer or producer of articles intended
to be claimed for drawback must first apply for a manufacturing
drawback ruling. There
are two types of manufacturing drawback rulings: (1) General and
(2) Specific.
General
Manufacturing Drawback Ruling
General
manufacturing drawback rulings are provided for in Section 191.7,
of the Customs Regulations (19 C.F.R. §191.7) and are designed to
simplify drawback for certain common manufacturing operations.
These rulings are contained in Appendix A to Part 191, Customs
Regulations 19 C.F.R. Part 191) and include the following:
1.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a)
(T.D. 81-234; T.D. 83-123)
2.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a)
or 1313(b) for Agents (T.D. 81-181)
3.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a)
for Burlap or Other Textile Material (T.D. 83-53)
4.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b)
for Component Parts (T.D. 81-300)
5.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a)
for Flaxseed (T.D. 83-80)
6.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a)
for Fur Skins or Fur Skin Articles (T.D. 83-77)
7.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b)
for Orange Juice (T.D. 85-110)
8.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b)
for Petroleum or Petroleum Derivatives (T.D. 84-49)
9.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b)
for Piece Goods (T.D. 83-73)
10.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for
Raw Sugar (T.D. 83-59)
11.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for
Steel (T.D. 81-74)
12.
General Manufacturing Drawback Ruling Under 19 U.S.C. 1313(b) for
Sugar (T.D. 81-92)
13. General
Manufacturing Drawback Ruling Under 19 U.S.C. 1313(a) for Woven
Piece Goods (T.D. 83-84)
A
manufacturer or producer engaged in an operation that falls within
a published general manufacturing drawback ruling may submit a letter
of notification of intent to operate under that general ruling.
Letters of notification of intent to operate under a general
manufacturing drawback ruling must be submitted to any drawback
office where drawback entries will be filed and liquidated, provided
that the general manufacturing drawback ruling will be followed
without variation. If
there is any variation in the general manufacturing drawback ruling,
the manufacturer or producer shall apply for a specific manufacturing
drawback ruling under Section 191.8.
Specific
Manufacturing Drawback Ruling
Where
a manufacturer or producer cannot follow any one of the prescribed
general manufacturing rulings without variation, the manufacturer
or producer must apply for a specific manufacturing drawback ruling
under Section 191.8. Sample
formats for specific manufacturing drawback rulings are contained
in Appendix B to Part 191, Customs Regulations (19 C.F.R. Part 191).
An
application for a specific manufacturing drawback ruling must be
submitted, in triplicate, to:
U.S.
Customs Service Headquarters
Duty
and Refund Determination Branch
Office
of Regulations and Rulings
Washington,
DC 20229
Unused
Drawback
For
unused drawback, no drawback ruling is required but applicant should
see a local Customs Drawback Branch (addresses listed below) prior
to exportation of the unused articles to be claimed for drawback.
Completion
of Drawback Claims
Claims
must be filed within 3 years after exportation of the articles.
To avoid being time-barred by the statute of limitations, a claim
may be filed before a
drawback contract (rate) is effective, although no payments will
be made until the contract is approved. For completion of unused
drawback claims, see your local Customs Drawback Branch prior to
exportation.
Export
Procedure
It
is necessary for a drawback claimant to establish that the articles
on which manufacturing drawback is being claimed were exported within
5 years after importation of the imported merchandise which is the
basis for the drawback. In
the case of unused drawback, the time period for exportation is
3 years after importation.
Exportation
of articles for drawback purposes must be established by complying
with one of the procedures provided for in Section 191.72 (in addition
to providing prior notice of intent to export if applicable (§§
191.35, 191.36, 191.42, and 191.91).
Supporting documentary evidence must establish fully the
date and fact of exportation and the identity of the exporter.
The procedures for establishing exportation outlined by this
section include, but are not limited to:
1.
Actual evidence of exportation consisting of documentary
evidence, such as an originally
signed bill of lading, air waybill, freight waybill, Canadian
Customs manifest, and/or cargo manifest, or
certified copies thereof, issued by the exporting carrier;
2.
Export summary (§ 191.73);
3.
Certified export invoice for mail shipments (§ 191.74);
4.
Notice of lading for supplies on certain vessels or aircraft
(§ 191.112); or
5.
Notice of transfer for articles manufactured or produced in the
U.S. which are transferred to a foreign trade zone (§ 191.183).
Export
of qualified U.S.-made petroleum products may be shown by matching
production at a specific refinery with exports of qualified petroleum
products of the same kind and quality that occur within 180 days
after the refinery produced the designated petroleum product.
Export
of qualified imported petroleum products may be shown by matching
the amount imported with exports of qualified petroleum products
of the same kind and quality that occur within 180 days after the
import. (Section 1313(p) drawback)
Payment
of Claims
When
a claim has been completed by filing all required documents, the
entry will be liquidated by the port director to determine the amount
of drawback due. Drawback
is payable to the exporter unless the manufacturer reserves to himself
the right to claim the drawback.
Accelerated
Payment
The
privilege to obtain accelerated payment of drawback, under certain
conditions, is authorized by Section 192.72.
Accelerated payment generally will insure that a claimant
will receive his drawback no later than 2 months after he files
a claim. Accelerated
drawback also applies to unused drawback.
Effect
of the North American Free Trade Agreement (NAFTA)
The
NAFTA provisions on drawback will apply to goods imported into the
United States and subsequently exported to Canada on or after January
1, 1996. The NAFTA provisions on drawback will apply to goods imported
into the United States and subsequently exported to Mexico, on or
after January 1, 2001.
Under
the NAFTA, the amount of Customs duties that will be refunded, reduced
or waived is the lesser of the total amount of Customs duties paid
or owed on the goods or materials when imported into the United
States and the total amount of Customs duties paid or owed on the
finished good in the NAFTA country to which it is exported, for
purposes of 19 U.S.C. §§1313(a), (b), (f), (h), and (g).
No
NAFTA country, on condition of export, will refund, reduce or waive
the following: antidumping or countervailing duties, premiums offered
or collected pursuant to any tendering system with respect to the
administration of quantitative import restrictions, tariff rate
quotas or trade preference levels, or a fee pursuant to Section
22 of the U.S. Agricultural Adjustment Act. Moreover, unused substitution
drawback (19 U.S.C. 1313(j)(2)) was eliminated as of January 1,
1994.
Drawback
Centers
Chicago
Drawback Chief: (847)928-8070
U.S. Customs and Border Protection
5600 Pearl Street
Rosemont, IL 60018
|
Houston
Drawback Chief: (281)985-6890
U.S. Customs and Border Protection
2350 N. Sam Houston Parkway East, Suite 1000
Houston, TX 77032
|
New York/Newark
Drawback Chief: (973)368-6950
U.S. Customs and Border Protection
1100 Raymond Boulevard, Room 310
Newark, NJ 07102
|
San Francisco
Drawback Chief: (415)782-9245
U.S. Customs and Border Protection
555 Battery Street, Room 109
San Francisco, CA 94111
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Further Reading:
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