Drawback

Summary of Drawback

A feature of U.S. customs law that permits an American exporter to recover duties paid on foreign components or raw materials later fabricated into American products and exported. Upon exportation of the manufactured article a recovery or drawback, equal to 99 percent of the duties paid on the foreign raw materials is permitted. In addition to recovery of ordinary duties, the exporter is permitted to drawback countervailing duties, marking duties, antidumping duties, and certain Internal Revenue taxes. A domestic manufacturer may also apply for drawback when U.S.- origin components are used on the exported product to the extent that the American raw materials replace like foreign materials used elsewhere or destroyed. This latitude to substitute American for foreign components is authorized so that American manufacturers will not be burdened with the necessity of segregating domestic and foreign parts or raw materials for accounting purposes. Any firm wishing to employ components of foreign manufacture in an American product that is to be exported is obliged to request from the district director of customs a drawback rate, which is an authorization to apply for recovery of duties. Normally, any firm contemplating such action is well advised to consult in advance with the district director to ensure that there is agreement among the parties concerning record keeping and documentary evidence of exportation of the finished product. Drawback is not normally allowed prior to the submission of the American manufacturer's application for a drawback rate.

In 1980, as a provision of the Omnibus Trade Act of that year, drawback was extended to permit recovery of duties paid on imported merchandise that was subsequently re-exported or destroyed without further processing. This new category of drawback, known as same condition drawback, is applicable when the imported merchandise was neither used in the United States nor advanced in value; and the foreign goods were exported, or destroyed under customs supervision, within three years of original importation.

Under current rules, the owner of the foreign merchandise is obliged to inform the customs authorities twelve working days in advance of exportation or destruction if same condition drawback is to be invoked.

(Main Author: William J. Miller)

Drawback and the GATT Policy Negotiations

In relation to the GATT Policy Negotiations, Christopher Mark (1993) provided the following explanation and/or definition of Drawback: Also known as duty drawback. The partial or total reimbursement of import duties by a government when the imported goods are re-exported or used in the manufacture of exported goods. Drawback can also refer to the refund of a domestic tax upon exportation of an article, which has been subjected to it. Drawbacks may be, considered export subsidies. See also duty remission.

Drawback in International Trade

Meaning of Drawback, according to the Dictionary of International Trade (Global Negotiator): The refund by a government, in whole or part, of customs duties assessed on imported goods that are subsequently exported. Drawback may also often be claimed for duty paid on the imported material content of domestically produced goods that are exported. Drawback regulations and procedures vary among countries.