Top 12 Duty Drawback Q & A

Today, we're going to talk about the most frequently asked questions that we find in regards to duty drawback, which is one of the services that we specialize in. Joining me today for our discussion is Samantha Vallee. Samantha is a tariff manager at ITM and has graciously agreed to join me today and share the top questions people have in regards to duty drawback. Today, we'll answer those questions for you.

We hope you will gain some valuable insight into the world of customs tariffs. With all the supply chain challenges the world is facing, our aim is to maximize your duty drawback dollars and boost your bottom line. We hope you'll subscribe to our podcast to stay current with each new episode in which will unveil numerous ways to improve your international trade profitability. Thanks for listening.

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Welcome to The Duty Drawback podcast from International Tariff Management. Here at ITM, we help our clients secure refunds and reductions of duty burdens on imported and exported goods. With more than 40 years of classification, free trade and compliance experience, in each episode, we explore real life examples of how companies are taking full advantage of numerous programs in place for both importers and exporters, and how these little known programs can yield substantial returns to their bottom lines. If you're engaged in international trade, you can expect to learn actionable tips and strategies that you can implement in your business to become a more profitable importer and or exporter. Thanks for tuning in. Now let's dive into this month's episode. Welcome everyone, to our podcast today. Today, we're going to talk about frequently asked questions that we find in regards to duty drawback, which is one of the services that we specialize in. Joining me today for our discussion is Samantha Vallee. Hi, Samantha. Hello, Jill. Samantha is a tariff manager at ITM and also an Internet guru. She spends a lot of time surfing the net and and doing research and she has graciously agreed to join me today and let me know what questions people have out there in regards to duty drawback. Yeah. So basically we compiled a list of what questions come in most in regards to the industry that we work in and specifically like Jill had mentioned in regards to duty drawback. So we wanted to go ahead and answer those questions for you guys on this month's episode. So we'll get started Jill. Great. Sounds good. So the first one that comes in often, obviously, is what is duty Drawback? Duty drawback is basically a refund from Customs and Border Protection or CBP for the duties that you pay on imported material once those materials are subsequently exported, destroyed or used in the manufacture of exported goods. And you're entitled to claim back 99% of those imported duties once that product is exported. So in a nutshell, that's what duty drawback is. And how is duty drawback calculated? So when we initiate a duty drawback program in order to calculate what is eligible for refund, we take into account what was imported and how much duty was paid on that product. And then when we do the drawback claim, you get 99% of that duty back in the form of a drawback claim when you export the goods. So the 1%, CBP or Customs holds on to because nothing in life is free and you get back 99% of what you paid on the imported product once it's exported. Okay. So once it's exported that you can claim 99%. Exactly. So it's a retroactive process. So you have to wait for the import and then the export before you can claim the drawback. Okay. And how has eligibility for duty drawback determined. If you important paid duty on the imported product or you source that imported duty paid product domestically and you subsequently export those goods out of the country either by you or by your customer or your, you are eligible for the duty drawback. Once you establish that scenario, the clients we work for do a deeper dive in order to determine how much duty was paid and how much of that duty paid merchandise was exported. And you had mentioned that by you or your customer. So is there somebody specifically entitled to claim duty drawback? According to customs regulations, the exporter of record is entitled to claim drawback, but you don't need to be the direct exporter or the direct importer for that matter, in order to manage a very successful duty drawback program. We work with clients who don't import or export and they have a very viable program. If you are not the exporter of record, you can ask the exporter to waive the right to drawback since they are the party who is entitled to it. And you can ask them to waive it by completing a fairly simple waiver and transferring the rights back to you. And likewise, if a drawback claimant is not a direct importer, they will need to obtain the import data from the importer and adequately show the transfer of goods from the importer to them so that they take possession before the products are exported. Okay. And you mentioned destroyed earlier. So if a product comes in and you've paid imports on it and then it was destroyed, are you eligible to get drawback on that? Absolutely. So we work with clients who import just off the top of my head food, which has a perishable date and they imported into the country and it doesn't get bought and they want to destroy it. And you can claim drawback on goods that are destroyed in the United States under customs supervision. Awesome. Another question we had here is what is the difference between duty, drawback and refund? Well, duty drawback, essentially is a refund from U.S. Customs. And it's important to note that drawback is a privilege and not a right. So anyone looking to file duty drawback must first request and be granted permission from CBP before submitting any claims for refunds. And how do I get a refund from duty? Drawback? Well, if you have a viable program and you are importing or sourcing domestically items that are subject to duty and exporting, the best way to do it is to contact a duty drawback specialist. And you want to set up a program and in order to do so, you need to, as I mentioned, ask customs for permission to file drawback. So you would have to do the process would include submitting applications and asking customs if you have the right to claim drawback. And then once you have all those permissions in place, you can obtain all the data that's required, all the data that shows your import information and your export information, and then you generate a drawback claim. And most of that data that's required is the same basic data or documentation that you accumulate in your normal course of business. I was just going to say, can you elaborate a little bit on the data that is required? Sure. So on the import side, you need the information that can be found on the entry summary, which is the customs Form 7501 and the accompanying commercial invoice. So that would show the product according to a SKU number, the quantity, the value, and then the entry summary would link it and would give you the duty rate and how much duty you paid on the item. We obtain a lot of this information through ACE or people's import brokers. They have that data electronically so we can work either in paper format. Unbelievably, we still deal with a lot of paper in this business, as you can attest to. Yes. Or we can get it electronically from the broker or from the ACE data. Which seems like a streamlined, simple process. Yes, it's much, but it's a much easier way to work. And then on the export side, the information is similar but slightly different. We need, of course, the commercial invoice, which shows you again, the SKU or the product being exported and the quantity, and then the bill of lading, which could be an air waybill, an ocean bill or truck bill showing the products leaving the country so you can show that it was exported out of the United States. So for the export data, does that include like the B3s or Pedimentos? Sure. So you when you export to Canada, the entry document into Canada is called a B3, and you can use the bill of leading to Canada or you can use the B3, which shows the entry into Canada. And for Mexico you can use the bill of lading showing it going into Mexico or the Pedimento, which is the entry document into Mexico. And basically those are the two countries where you can use those documents in lieu of bills of lading because they are our partners to the north and south and we export to them all the time and we can claim drawback on goods that are exported. Right. Okay. And when can you claim duty drawback. I think we talked about it a little bit before. It's after the fact. So after you've imported something and paid the duty and thus exported, you go back and you claim retroactively. So the process has to already have taken place. Sometimes we get people who come to us and say, Hey, you know, I imported all this product and I'm going to export it. And, you know, we can file the drawback claims typically after the export takes place. But that's not to say that we can't do what's also called a live drawback claim. So sometimes we have clients that are going to export once and they don't want to go through the rigmarole of getting privileges and dealing with customs to go through that entire process. So if you're going to export once or destroy once, which is more common, you can do a live drawback claim, which means or a live destruction in or export. You can give customs advance notification that you're going to export or destroy. They have the opportunity to witness the exportation or the destruction 99% of the time they will waive that right and then you can file a drawback claim on that export or destruction once it has taken place. Okay. And that leads me to the next question. So if you were to import an item which a lot of companies do, and then they have to turn around and return that item, is that eligible for drawback? Yes, But because it is necessary to obtain approvals in order to claim drawback, consumers do not want to claim drawback on small shipments of goods. If someone wants to order a sweater from Paris and decided to return it, it would be very difficult to file. Drawback. All claims must be submitted to CBP electronically and we use a software in order to do so. And you wouldn't go through all of that for a shipment of one letter? Exactly. But that being said, you know, there are a lot of companies that accept all kinds of returns and then they will send them back to the supplier. Right. And that's an absolute viable drawback program in that scenario. Great. And what are the types specifically of duty drawback? So there are three types of drawback. There's unused merchandise drawback, rejected merchandise and manufacturing drawback. So an unused program allows you to claim drawback on an item that is imported subject to operations in the United States that are considered incidental. Mm hmm. And some of those would include inspecting, testing, cleaning, you know, something that doesn't change the integrity of the product. Right. But it's an operation that you can do in the United States, and then you can reexport it. The second type is rejected merchandise drawback, and that provides for the export or destruction. And I should backpedal a little bit. This all include destruction as well. Mm hmm. Of merchandise that does not conform to sample or specification or has been shipped without the consent of the consignee and has been determined to be defective. And that would be rejected because you don't you didn't get what you ordered. Right? Right. And the third type of drawback is manufacturing drawback, and as it sounds, allows you to claim on an imported material that is used in the manufacture of a new or different article. And when the finished product is done, it is exported or destroyed. But that would be probably the exception rather than the rule. Right, Right. So it seems like there's a lot of benefits to duty drawback. And that's actually one of the questions that people ask most often is what are the benefits of duty drawback? The main benefit of duty drawback is that there is millions of dollars out there, in fact, billions of dollars out there that's eligible. We as importers in the United States pay about $2 billion in duties. And only today, only about 25% of that eligible duty is being recovered. So that means only about $500 million is being claimed back and one and a half billion dollars is still sitting with CBP. And why should they get it right? So in this day and age, when, you know, you're trying to be more competitive and you're trying to lower your prices, and if you establish a drawback program, you're able to do that because it falls to your bottom line and increases, as you know, your revenue internally. So after listening to this episode, if you're wondering if your company is viable for a duty drawback program, you can visit us on tariff management dot com and get yourself a complimentary assessment. Or because we are old school here, give us a call. Yes, we love we love talking to people on the phone and our number here is 203-757-8777. Yes. And I think next month we're talking about 301 tariffs. Is that right? We are, yes. So you when you did this research and pulled these questions for us for drawback, you also found some 4301 tariffs. So that's going to be the next subject. The where people are wanting to find out about the 301 tariffs. That's going to be a really good episode. Yes, because we are paying an exorbitant amount of duty for goods coming in from China. Well, thank you Samantha so much for joining me today. Thank you for having me. And we will see you all next time - or you will hear us all next time- on our podcast about the 301 duties. Thanks. We hope you've gained some valuable insight into the world of customs tariffs. With all the supply chain challenges the world is facing, our aim is to maximize your duty drawback dollars and boost your bottom line. We hope you'll subscribe to our podcast to stay current with each new episode in which will unveil numerous ways to improve your international trade profitability. Thanks for listening.