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[Drawback System of the United States]
Drawback is refund of customs duties, internal taxes, certain fees paid at the time that have been collected at importation, under condition that any imported material is used for manufacture of export product, or merchandise is unused and destroyed in the United States or re-exported for some reason.
The existing of drawback system is for refunding collected duties on the basis of the nature of duty, as duties are imposed on consumption of specific goods in the United States. So if such consumption did not occur in the United States, previously paid duties should be paid back. Drawback system vitalizes the manufacturing industries and exportation in the United States and creates employment opportunities.
As historic system, drawback system on duties existed from founding era of the United States and is applied to throughout the world.
At the Initial stage, application of drawback system is limited situations, which imported raw materials are used for manufacturing another article in the United States and only applied to manufacture of specific articles recognized by law. However, the range of drawback refund become wide gradually.
As time goes by, tariff rate on importation become low and the importance of drawback system become reduced gradually along with the signing FTA agreement between several countries. However drawback system still be left to attract U.S. exporters' attention. Because exporters can be refunded tariff and other duties from U.S. government after exportation, which means exporters can benefit unexpected margin.
A lot of traders don't exactly know whether she/he is eligible for drawback or what is the method for drawback. In order to receive drawback, it is required to pay much attention to compliance to complicated laws and regulations, properly management of manufacture, customs clearance and other fields. It is recommended that drawback business is conducted under the consultation of drawback specialist (e.g. Customs Broker).
■ Basis of regulation, Jurisdiction
☉ Basis of regulation
ㅇ U.S. Federal law (19 USC §1313, 26 USC §5062)
ㅇ U.S. Federal regulations (19 CFR Part 191, Part181)
☉ Control agency
U.S. Customs and Border Protection (CBP) is responsible for management of drawback and only following specific drawback centers handle drawback business. Thus, application should be submitted to one of the following four drawback centers.
ㅇ Chicago Rosemont Drawback Center (IL)
U.S. CBP 5600 Pearl Street Rosemont, IL 60018
ㅇ Houston Drawback Center (TX)
U.S. CBP 2350 N. Sam Houston Parkway East, Suite 1000 Houston, TX 77032
ㅇ Newark Drawback Center (NJ)
U.S. CBP 1100 Raymond, Suite 310 Newark, NJ 07102
ㅇ San Francisco Drawback Center (CA)
U.S. CBP 555 Battery Street, Suite 109 San Francisco, CA 94126
■ Types of drawback
Drawback is divided into three types. ① manufacturing drawback, ② unused merchandise drawback, ③ rejected merchandise drawback. Specific types are as follows.
☉ 99% Drawback
When it is applicable for the following reasons, 99 % drawback can be refunded.
1) Drawback on imported materials used for manufacture of export products in the United States
If imported materials are re-exported within 5 years after importation, or destroyed under supervision of CBP, collected tariff at the importation can be recoverable.
2) On situation that domestic merchandise substitute merchandise manufactured with imported materials, collected tariff for imported materials is refunded (substitution manufacturing drawback)
In substitution manufacturing drawback is available when imported or eligible substitute merchandise is used to manufacture an article which is exported or destroyed under supervision of CBP within 5 years of import. The substituted merchandise must be used in manufacture within 3 years of receipt of imported merchandise.
3) Drawback on sample or returned merchandises that do not meet the specifications
On situation that imported merchandise to the United States is rejected by importer, importer can be refunded by re-export merchandise or destroyed under supervision of CBP within 3 years of import.
① Imported merchandise not conforming to sample or specification.
② Imported merchandise shipped without consent of importer
③ Imported merchandise determined to be defective at the time of import
4) The export of perfumes, cosmetics, and other merchandises manufactured with American alcohol can be refunded collected internal taxes.
5) Imported salt used for export salting fish or meat can be refunded when exporting frozen fish or meat.
6) Imported material that is used in the construction of vessels and aircraft built for foreign ownership can be refunded; export of the vessel or aircraft is not required.
7) Imported merchandise used in the U.S. to overhaul, repair, rebuild or recondition a foreign-made jet aircraft engine can be refunded when leave the United States.
8) On the situation that imported merchandise is unused in the United States.
Unused merchandise exported or destroyed within 3 years after importation can be refunded tariff, internal taxes, certain fee, etc previously paid on import.
9) In addition, there are drawbacks on substituted merchandise for material extracted from crude oil, packaging materials, and so on.
☉ 100% Drawback
When it is applicable for the following reasons, tariff, internal taxes and other fees are 100 % refunded.
1) Imported goods are exported from the bonded area
2) Parts are withdrawn from bonded warehouse for repairing aircraft or vessel
3) Imported merchandise is re-exported or destroyed under the supervision of CBP as prohibited article.
4) Imported merchandise is donated to the U.S. government from Customs Bonded area.
■ Drawback of application and payment procedures
☉ Deadline for drawback application
Drawback must be applied within three years from the merchandise exported or destroyed, and not available to extend application period except for reason attributable from the U.S. Customs. In drawback application, export certificate or destruction certificate provided from customs must be attached together with U.S. Customs form 331.
☉ Validation by materials, drawback recipient
Drawback payment will be refunded only materials validated the fact that importation of the certain merchandise or imported materials used for manufacture of export products or destroyed, other specific requirements by drawback type.
Drawback is payable to the exporter/destroyer unless the right to claim drawback has been transferred to a third party.
☉ Accelerated payment or manual payment
There are two types of evaluation of drawback center.
Under accelerated payment procedure, eligible duties, taxes and certain fees are refunded prior to the final review of a drawback claim and liquidation. Before refunds can be issued under the accelerated payment program, the claimant must first acquire and post a drawback bond type 1A with CBP in an amount that is sufficient to cover the anticipated drawback recovery amount. Payment will be refunded within three weeks after it is electronically filed, otherwise will be refunded within three months after filing.
Manual payment is not required to present bond with CBP and will be paid upon final review and liquidation. Payment of a claim can range from a few months to several years following the data that the claim was filed.
☉ Data Custodian
Drawback certificate will be issued once drawback claim is certified. Claimant is obliged to keep drawback certificate for 3 years from the date of issue.
In addition, claimant is responsible for reserving all the related data for three years from the date of tax refunded.
In the United States, the amount of drawback is approximately up to $ 2 billion yearly, which is available to be funded.
Although procedure of drawback is complicated and tedious, there are several ways to obtain drawback so never give up too easily. Once comprehend procedures, it will get much easier next time.
However, it is recommended to proceed drawback business under consultation of drawback specialist (usually refer to customs broker), as it is not efficient way for company or individual directly involved in the process of drawback.