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This Week's Trade & Tariff Perspective
May 11, 2022 | Alyson Brinkman Senior Compliance Manager
Is Duty Drawback Right for You?
The duty drawback program is an often-overlooked opportunity for companies who import and export goods out of the United States. Drawback can be an effective tool to recover up to 99% of certain duties, taxes and fees of goods that are exported or destroyed after importation. It is also a complex and time-consuming process that companies must navigate through when determining if it is right for their business.
What is duty drawback?
Duty drawback is a program with U.S. Customs and Border Protection (CBP) that allows for the refund of up to 99% of certain customs duties, taxes and fees that were paid at time of importation, and where the goods have been later exported or destroyed either unused or manufactured into another good.
The duty drawback program was first established in 1789 by the Continental Congress and was initially created to generate jobs, encourage manufacturing and the exportation of goods. Since its inception, the duty drawback program has always evolved. Additional amendments were added throughout its 233 year history and expanded to cover more commodities and opportunities for more companies to take advantage of the program.
The most recent changes to duty drawback came with the Trade Facilitation and Trade Enforcement Act (TFTEA) that was enacted in February 2018. TFTEA drawback regulations were modified to require all drawback claims to be filed electronically via the Automated Commercial Environment (ACE). Paper drawback claims are no longer accepted by CBP. It also worked to simplify the standards around the use of substitution, and to strengthen the compliance requirements around record retention and liability for false claims.
Who can benefit from drawback?
Drawback can be used for one-off situations where duties were paid on goods, but the goods were exported or destroyed for various reasons—as well as for companies who regularly import goods and export them to other countries. The key driver in drawback is the exportation (or destruction) of the imported goods.
Companies who benefit from drawback are often found in these industry sectors:
- Agricultural products
- Alcoholic beverages and tobacco
- Automotive and aviation products
- Consumer goods
- Metals and alloys
- Petroleum and derivatives
- Packing materials
- Pharmaceuticals and medical equipment
- Textiles, apparel, and fabric
What are the most common types of drawback?
There are several different types of drawback that are authorized by CBP for companies to attempt to recover duties depending on commodity, but they can be grouped together into three major categories.
- Rejected merchandise drawback: Imported merchandise that was either defective, non-conforming to specifications, or shipped without consent at the time of importation may be eligible for rejected merchandise drawback. Importers can recover the duties paid on the rejected merchandise if the goods are exported or destroyed under CBP supervision.
- Unused merchandise: Drawback is available on imported goods that were exported or destroyed without being used in the United States.
- Manufacturing drawback: Imported goods used to manufacture a new and different article, that is subsequently exported or destroyed. The claimant must apply for a drawback ruling with CBP that notifies CBP of the manufacturing process used from the time of import to manufacturing through export.
There are two types of manufacturing rulings. CBP has issued general manufacturing rulings for specific commodities that a company can apply for that were designed for drawback. If a company is unable to produce under one of the prescribed rulings without any variation, the company must apply for a specific manufacturing drawback ruling at the time of application for review and approval by CBP.
With both unused and manufacturing drawback types, companies can use two types of methods:
- Direct identification: Imported merchandise that is identifiable by a serial number, SKU number, part or lot number, or an approved accounting method.
- Substitution: Merchandise that is classified at the same eight-digit HTSUS number as the designated imported goods. There are additional requirements that will need to be evaluated before companies can use substitution as a drawback method.
What duties, taxes, and fees are eligible for drawback—and which ones are not?
In effect, 99% of certain duties, taxes, and fees may be recuperated if a claimant is eligible for duty drawback. Duties eligible for drawback include, but are not limited to:
- All ordinary customs duties—including Section 301 duties for Chinese origin goods
- Internal revenue taxes
- Marking duties
- Merchandise processing fees (MPF)
- Harbor maintenance fees (HMF)
Duties not eligible for drawback include, but are not limited to:
- Antidumping and countervailing duties
- Section 232 duties imposed on aluminum and steel products
- Over-quota agricultural products
How much could you potentially get back in drawback?
To estimate your potential drawback eligibility, multiply the estimated duty paid by the percentage of sales that are exported annually, and then multiply that by 99%. For example, if a company pays five million dollars in duty every year on the imported goods, but 25% of those goods are ultimately manufactured into another commodity and exported, the company could potentially recoup $1,237,500 in duties, taxes, and fees from drawback.
- Annual duty paid: $5,000,000
- Annual export sales: 25%
- $5,000,000 x 25% = $1,250,000
- $1,250,000 x 99% = $1,237,500 in potential drawback
How can you participate in drawback?
Companies must apply for drawback privileges with CBP and provide additional details or waivers depending on the types of drawback that they will be using. It is best to work with an experienced customs broker, trade attorney, or trade partner when navigating the drawback process. CBP has consistently advised that drawback is a privilege, not a right, and applications are not always guaranteed or approved.
Companies can also request accelerated payment when submitting their application for drawback privileges. Accelerated payment of drawback claims allows companies to receive their refunds prior to liquidation, allowing them to receive their funds if approved by CBP. A company must also have a drawback bond that would cover the estimated number of duties, taxes, and fees to be claimed during that period.
Are there any drawbacks to drawback?
Drawback can have a significant revenue savings for companies looking to save duties, but it is also a very complex program that requires an exacting recordkeeping and compliance program. It is a time-consuming process, and it can take years before a company receives their first refund check.
Companies must maintain all records related to the importation of the goods—as well as detailed invoices, proof of duties paid, inventory records, manufacturing records, and proof of exportation. There are also very strict timeframes that companies will need to adhere to when identifying eligible merchandise and filing claims.
TFTEA also increased liabilities regarding false or fraudulent drawback claims, and companies who are found to be submitting false or fraudulent claims could be subject to both criminal and civil penalties. CBP does perform audits on drawback to ensure accuracy and eligibility of the claims filed.
How can C.H. Robinson help?
Drawback is one of the most complex programs CBP has available, but companies could reap the benefits of drawback if they are eligible. C.H. Robinson offers a variety of services to explore potential drawback opportunities for your company. Connect with one of our trade policy experts to learn more.
Resources
Our information is compiled from a number of sources that to the best of our knowledge are accurate and correct. It is always the intent of our company to present accurate information. C.H. Robinson accepts no liability or responsibility for the information published herein.
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USICA resources
The United States Innovation and Competition Act (USICA) was passed by the U.S. Senate in June 2021 to counter China’s growing influence in science, technology, and advanced manufacturing.
What’s included in the bill
Major components of the bill include investments in domestic manufacturing of “strategic sectors” like computer chips and PPE.
Also included is the Trade Act of 2021, which would reinstate certain exclusions to Section 301. Additionally, under USICA, importers of Generalized System of Preferences (GSP) products could be retroactively refunded for certain duties paid and no longer have to pay duties and tariffs on GSP imports until January 1, 2027, when GSP will expire again.
Additionally, USICA would renew the Miscellaneous Tariff Bill (MTB) program through December 31, 2023—and be retroactive for four months before the bill’s enactment—providing temporary tariff reductions and suspensions on certain U.S. imports.
Determine the potential impact to your business
Uncover potential duty refunds if the USICA passes into law* with our U.S. Tariff Search Tool. Instantly search by Harmonized Tariff Schedule (HTS) and estimate your retroactive duty refund amount today.
America COMPETES resources
The U.S. House of Representatives passed the America COMPETES Act in February 2022, in response to the Senate’s USICA.
What’s included in the bill
Under the America COMPETES Act, GSP products would be renewed for a shorter timeframe—until January 1, 2024. The MTB program would be renewed through approximately the same period as under USICA—through December 31, 2023.
One provision only included in this bill is the Importer Security & Fairness Act, which addresses de minimis value shipments and would prohibit certain goods—such as goods that are both non-market economies and on the U.S. Trade Representative’s (USTR) watch list from using de minimis. The current de minimis value in the United States is $800, which means one can import shipments valued at $800 or less without paying duties, taxes, or fees.
Notably, the America COMPETES Act does not contain provisions surrounding the Section 301 China tariffs.
*The USICA and America COMPETES are currently bills and have not yet become law. Aspects of the bills can change and amendments can be made. The information provided herein does not guarantee any refund and undue reliance should not be placed on it. Proper review and thorough analysis are required to determine outcome.
U.S. Tariff Search Tool
Section 301: Unfair trade practices
What is it?
Section 301 of the Trade Act of 1974—Allows the United States Trade Representative (USTR) to suspend trade agreement concessions or impose import restrictions if it determines a U.S. trading partner is violating trade agreement commitments or engaging in discriminatory or unreasonable practices that burden or restrict U.S. commerce.
Background Report—Congressional Research Service – Section 301 of the Trade Act of 1974 – August 2020
Update: March 23, 2022
Certain Section 301 duty exclusions reinstated—The Office of the United States Trade Representative (USTR) announced it would reinstate certain previously expired (and extended) product exclusions. Of the initial 549 eligible exclusions announced in October 2021, USTR has reinstated 352 product exclusions, retroactive to October 12, 2021, and extended through December 31, 2022.
What this means for your business—Uncover potential duty refunds using our U.S. Tariff Search Tool. Instantly search by Harmonized Tariff Schedule (HTS) and review the language within the “USTR Exclusion Extension Potential” section to determine your eligibility for retroactive duty recovery and for participation on a go-forward basis, through December 31, 2022.
Update: October 4, 2021
Reinstatement of Targeted Potential Exclusions—Following United States Trade Representative’s (USTR) announcement on October 4, 2021, the USTR has started a targeted tariff exclusion process. The agency invited public comments on whether to reinstate previously extended exclusions. Of the more than 2,200 exclusions granted, 549 were extended. Most previously expired on December 31, 2020. The USTR will evaluate, on a case-by-case basis, the possible reinstatement of each exclusion. If granted, the USTR will reinstate exclusions retroactively to October 12, 2021, and publish them in the Federal Register.
How does it affect trade?
Section 232: National security concerns
What is it?
Section 232 of the Trade Expansion Act of 1962—Allows the president to adjust imports if the Department of Commerce finds certain products are imported in such quantities or under such circumstances as to threaten to impair U.S. national security.
Background Report — Congressional Research Service – Section 232 Investigations: Overview and Issues for Congress – August 2020
How does it affect trade?
Section 201: Cause/threat to domestic industry
What is it?
Section 201 of the Trade Act of 1974—Allows the president to impose temporary duties and other trade measures if the U.S. International Trade Commission (ITC) determines a surge in imports is a substantial cause or threat of serious injury to a U.S. industry.
Background Report—Congressional Research Service – Section 201 of the Trade Act of 1974 – August 2018
How does it affect trade?
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| Date | Title |
|---|---|
| 2022.04.22 | Canada Customs Announces End of COVID-19 Relief May 7th |
| 2022.04.16 | Update on the Texas-Mexico Border Delays |
| 2022.04.15 | Update on Texas-Mexico Border Delays |
| 2022.04.13 | Update to Texas-Mexico Border Delays |
| 2022.04.12 | Texas-Mexico Border Delays |
| 2022.04.08 | CFIA Change of Protocol for Phytosanitary Certificates |
| 2022.04.04 | Section 232 Agreements: Tariff Rate Quota Updates |
| 2022.04.04 | Section 232 Agreements: Tariff Rate Quota Updates |
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How your business can take advantage of Section 301 tariff refunds
Trade & Tariff FAQs
Q: Are products entered under the Section 321 de minimis exemption (under $800) subject to Section 301 duties?
No, not right now. Goods properly entered under Section 321 are not subject to Section 301 duties. Please note that a formal entry is required if a shipment contains merchandise subject to AD/CVD. Goods subject to AD/CVD do not qualify for Section 321. Something to keep an eye on: U.S. Customs and Border Protection (CBP) submitted a proposal in early September 2020 to the Office of Management and Budget that would eliminate the $800 de minimis exemption for goods subject to Section 301 tariffs. Remember, Section 321, 19 USC 1321 is the statute that describes de minimis. De minimis provides admission of articles free of duty and of any tax imposed on or by reason of importation, but the aggregate fair retail value in the country of shipment of articles imported by one person on one day and exempted from the payment of duty shall not exceed $800. The de minimis threshold was previously $200, but increased with the passage of the Trade Facilitation and Trade Enforcement Act (TFTEA).
Q: Can I still apply for exclusions to the Section 301 (China) tariffs?
The time window to submit new exclusion requests is now closed, but the USTR is considering extensions of exclusions granted from Lists 1, 2, 3, and 4. While the USTR approved, on average, 35% of requests under the first two actions, the approval rates under the third and fourth actions were 5% and 7%, respectively.3 Be sure to check in with your trusted trade advisors to see if new comment periods open.
Q: If I previously paid Section 301 (China) duties, but an exclusion was later issued by the United States Trade Representative (USTR), can I get my money back?
Yes. You have the opportunity to potentially recover duties paid on previous entry activity. Your customs broker, trade attorney, or trade consultant can submit a refund request via Post Summary Correction (PSC) or Protest as long as the entry has not exceeded the liquidation date plus 180-day time period (roughly 480 days from the original entry date). Remember, your company doesn’t have to be the one that requested the exclusion in the first place. You qualify as long as your product meets the specific description of the exclusion granted by the USTR.
Q: Are products used to support the fight against COVID-19 subject to the additional Section 301 (China) tariffs?
The USTR announced on March 20, 2020, that, prior to the COVID-19 outbreak, the agency had been working with the U.S. Department of Health and Human Services “to ensure that critical medicines and other essential medical products were not subject to additional Section 301 tariffs.” Consequently, the United States had not imposed tariffs on certain critical products, such as ventilators, oxygen masks, and nebulizers. Moreover, the USTR indicated that, in recent months, it has prioritized the review of requests for exclusions on medical care products, resulting in exclusions granted on basic medical supplies, including gloves, soaps, face masks, surgical drapes, and hospital gowns. Since March 2020, the USTR has exempted certain medical products from Section 301 tariffs in several rounds of exclusions.3
Q: What is the timing of duty calculations on immediate transportation in bond entries subject to Section 301?
Duties are due on goods that are entered for consumption, or withdrawn from warehouse for consumption, on or after the effective date of the provisional tariffs. For entries covered by an entry for immediate transportation, and with a country of origin of China, and a Harmonized Tariff Schedule (HTS) classification covered by Annex A to the FRN, such entries shall be subject to the duty rates in effect when the immediate transportation entry was accepted at the port of original importation, pursuant to 19 CFR 141.69 (b), which states:
Merchandise which is not subject to a quantitative or tariff-rate quota and which is covered by an entry for immediate transportation made at the port of original importation, if entered for consumption at the port designated by the consignee or his agent in such transportation entry without having been taken into custody by the port director for general order under section 490, Tariff Act of 1930, as amended (19 U.S.C. 1490), shall be subject to the rates in effect when the immediate transportation entry was accepted at the port of original importation.
Q: How much has the U.S. government collected from the various trade remedy measures?
U.S. Customs and Border Protection (CBP) assesses and collects duties on U.S. imports, including the additional duties imposed as a result of the president’s tariff actions. As of September 9, 2020, U.S. CBP has reported the following duty assessments.
Q: Are products of Hong Kong subject to the additional Section 301 duties against China?
No. Additional duties imposed by the Section 301 remedy only apply to articles that are products of the People’s Republic of China (ISO Country Code CN). Imported goods that are legitimately the product of Hong Kong (HK) or Macau (MO) are not subject to the additional Section 301 duties. Please note that Section 301 duties are based on country of origin, not country of export.2
Q: What are various types of import restrictions that can be imposed by the government?
Tariffs – A tax on imports of foreign goods paid by the importer. Ad valorem tariffs are assessed as a percentage of the value of the import (e.g., a tax of 25% on the value of an imported truck). Specific tariffs are assessed at a fixed rate based on the quantity of the import (e.g. 7.7% per kilogram of imported almonds), and are most common on agricultural imports.
Quotas – A restriction on the total allowable amount of imports based either on the quantity or value of goods imported. Quotas are in place on a limited number of U.S. imports, mostly agricultural commodities, in part due to past trade agreements to remove and prohibit them.
Tariff-Rate Quota (TRQ) –TRQs involve a two-tiered tariff scheme in which the tariff rate changes depending on the level of imports. Below a specific value or quantity of imports, a lower tariff rate applies. Once this threshold is reached, all additional imports face a higher, sometimes prohibitive, tariff rate.
Q: Does U.S. Customs and Border Protection (CBP) pay interest when refunding duties previously paid?
Yes! CBP does pay interest from the date the original money was deposited. The current interest rates are published in the Federal Register on a quarterly basis. Review the most recent Federal Register Notice for the latest rates.
Q: How do I find out if my product is subject to Section 301 tariff duties?
Enter the product’s harmonized tariff schedule (HTS) classification on the USTR website. In addition, you can refer to our exclusive guide to quickly search both the Section 301 tariff lists but also identify if there are any exclusion opportunities. Talk to your Trusted Advisor® expert at C.H. Robinson to learn more.
Q: Do Section 301 (China) duties still apply if I ship goods to another country, such as Canada or Mexico, and have them packaged there before entering the commerce of the United States?
Yes. Basic changes/processes such as packaging, cleaning, and sorting would not change the country of origin to be declared in most cases. The origin would still be China and therefore the Section 301 duties would still apply.
Q: Are Section 301 duties eligible for drawback?
As noted in CSMS Message 18-000419, Section 301 duties are eligible for duty drawback. Drawback is the refund of certain duties, internal revenue taxes, and certain fees collected upon the importation of goods. Such refunds are only allowed upon the exportation or destruction of goods under U.S. Customs and Border Protection supervision.
Q: Have U.S. trading partners taken or proposed retaliatory trade actions?
Yes. Some U.S. trading partners subject to the additional U.S. import restrictions have taken or announced proposed retaliations against each of the three U.S. actions. Since April 2018, a number of retaliatory tariffs have been imposed on U.S. goods accounting for $126 billion of U.S. annual exports, using 2017 export values.
Q: What is a tariff?
Tariffs or duties are taxes assessed on imports of foreign goods, paid by the importer to the U.S. government, and collected by U.S. Customs and Border Protection (CBP). Current U.S. tariff rates may be found in the Harmonized Tariff Schedule (HTS) maintained by the U.S. International Trade Commission (ITC). The U.S. Constitution grants Congress the sole authority to regulate foreign commerce and therefore impose tariffs, but, through various trade laws, Congress has delegated authority to the president to modify tariffs and other trade restrictions under certain circumstances.1
References
1. Congressional Research Service – Trump Administration Tariff Actions (Sections 201, 232, and 301): FAQs
2. Section 301 Trade Remedies Frequently Asked Questions
3. Congressional Research Service - Section 301: Tariff Exclusions on U.S. Imports from China
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Resources
National Tiles improves supply chain efficiency with onsite resource | C.H. Robinson
How Acme Industries Developed & Executed a U.S. Import/Export Customs Compliance Program | C.H. Robinson
Supporting a Growing Product Line from Lightweight Containers, Inc. | C.H. Robinson
All content and materials discussed herein are for informational purposes only and do not constitute legal advice. You should always independently check the related Code of Federal Regulations (CFR) and, if needed, consult with the applicable Federal Agency (e.g. CBP, USTR) and/or external counsel where any question or doubt exists. Information on this site is the property of C.H. Robinson. Any transmission or use without C.H. Robinson’s permission and approval is not allowed or authorized.