Duty Drawback Explained

Our focus for this webinar was on your ability to reclaim some of the duties paid on imported goods that are either destroyed or re-exported out of the US. 

 

Adam Lees from Alba hosted experts Raphael Shorser and John Christopher from our partner, Dutywise - read more about them below.  They walked us through what duty drawback is, when it applies, and what you can do now to make the process smoother later. They also shared common reasons claims don’t go through and how to avoid those issues.

 

-What is duty drawback?
-When would it apply for me?
-Things you can do now to ensure drawback is easier in the future
-Top reasons drawback programs fail and how to avoid them

 

Watch the discussion and download the presentation using the links above.

 

There were a number of questions we couldn't get to during the event - we're including them along with the responses from our panel here:

 

-Please provide a refresher of how substitution works-what is allowed, what is not allowed, etc. for duty drawback.

The two main restrictions for Unused Substitution are:
(1) export destination and
(2) HTS code.
Exports to Canada or Mexico are not eligible. For HTS, if the description at both the 8-digit and 10-digit levels begins with “other,” the code does not qualify for substitution.

 

-If you returned defective material prior to submitting a request for duty drawback can you still request drawback of duties paid?

Yes. You’ll need to submit a Combined Drawback Privileges Application and specifically request the One-Time Waiver privilege. This allows you to claim drawback on past exports (within 5 years) where a CBP Form 7553 was not filed.

 

-How does the drawback process compare to using a free trade zone when landing product in the USA and forwarding it to Canada in terms of cost reduction?

FTZs offer a duty deferral benefit—you only pay duties when goods enter U.S. commerce. If exported (e.g., to Canada), no U.S. duties are paid. However, FTZs require significant investment in setup, compliance, and staffing, making them more feasible for larger companies. If you want to know more about FTZs, review our recording from our Bonds, FTZs, and Bonded Warehouses webinar here.

Drawback, on the other hand, is more flexible and has no upfront costs. You import/export as usual and recover eligible duties afterward.

Importantly, FTZs and drawback are not mutually exclusive—drawback can apply to goods exiting an FTZ or re-entered under “zone-restricted” status.

 

-Can you apply for duty drawback on rejected goods that were hit with reciprocal duties?

Yes, as long as the export was for a valid commercial reason—not intended to bypass tariffs and re-import under more favorable terms.

 

-If I export low-volume products on a weekly basis, can I request a drawback on a weekly, monthly, or quarterly basis?

Most claimants aggregate all their exports over a set period of time and file many exports per claim. Most clients file annually or semi-annually, even the largest claimants generally only filing quarterly.

 

-If we export under the DDP incoterm, could it still qualify for Drawback? (meaning we would still be the Importer of Record when exporting a product to Canada for example. The product is imported from China to the US)

Yes. In fact, for exports to Canada/Mexico, DDP is ideal because it gives you access to the necessary Canadian import documents—key for USMCA-related drawback claims.

-I'd like to know what pre-application steps and conditions need to be met to apply to drawback.

Start by reviewing your supply chain and recordkeeping, and make a few determinations:

 

Determine Eligibility and Program: Ensure your goods qualify under one of the allowable drawback programs (e.g., unused merchandise, manufacturing, or rejected merchandise). What do you import and export? Do you do any manufacturing?

 

Recordkeeping: You must have detailed documentation of the movement of goods from import through export. This will include purchase orders, entry documentation, inventory records and export documentation.

 

Check Time Limits: Claims must generally be filed within 5 years of the date of importation.

 

Export Destination: What countries do you export to? If USMCA applies, ensure you understand the limitation on Substitution and how the “lesser-of” works.

 

Broker Support: Speak with a customs broker who specializes in drawback to help navigate the process.

-What's the recommended frequency for claiming drawbacks? Are there costs associated per application, what would be their structure?

Most claims are filed annually or semi-annually. There’s no per-claim fee and costs for performing the service provided come from the funds reclaimed – generally a percentage of the refund amount.

 

-Can drawback be claimed when the goods that we export have been consolidated first, OR must the products be directly exported only from my warehouse out of the country?

As long as you remain the exporter, then you can claim drawback. If a consolidator is the exporter, you can still claim drawback if you receive an assignment of rights and export documentation from them.

 

-Is there a minimum requirement of transformation that must take place to be eligible for the drawback? i.e. If I bring in empty plastic bottles from overseas, I fill them up and ship them overseas, can I get drawback on the initial plastic bottle tariff?

This would fall under a Manufacturing Drawback program, as would any operation that falls outside of the approved incidental operations for Unused Merchandise drawback such as testing, repackaging, cleaning and inspection. You can claim recovery on the duties paid for the plastic bottles used in the finished product.

 

-We import raw material and packaging and then we process them in the US to export some to Canada and Mexico. Would this be eligible?

It depends. If the exported goods qualify as USMCA-originating and enter Canada/Mexico duty-free, then there is no drawback under the “lesser-of” rule.

But if duties are paid on the Canadian/Mexican side (i.e., not USMCA-originating), you can recover the lesser of the duties paid in both countries.

 

-Where can I find the list of item restrictions on which HTS codes are not eligible for Substitution (HTS) duty drawback?

The easiest way is to look at the description at the 8 and 10 digit level of the HTS. If the description at BOTH the 8 and 10 digit level starts with “other”, then it would not qualify for substitution. Similarly, if the export destination is CA/MX, substitution would not be allowed.

 

-If an item is imported under one HTS code but exported under a different HTS code erroneously, can you claim drawback?

For Substitution Drawback, you should correct the entry or export declaration.

For Direct Identification, the match is made using your internal SKU on import and export paperwork.

 

-We want to export product from the US to Europe, the loads came from Guatemala and we paid the 10% duties, Can we do a drawback?

Yes, if you are the exporter, the duties are eligible (i.e., the duties are not on the ineligible list) and you have the necessary documentation.

 

-Outside of sec. 232, we are paying sec 301 duties and have been since 2018. That said, the Chinese product we import and then export to Canada DOES qualify for USMCA, therefore we would not be eligible for drawback, is that correct?

The “lesser of” rule applies to this scenario. If these imported goods are used in a manufacturing process that then qualifies for USMCA duty-free treatment upon import into Canada, the exports to Canada would have no drawback. If you have exports to other countries, those would be eligible.

 

-What classifies as a SKU description? Just a company's internal product code for said item and packaging presentation, or does this need to be at UPC level?

For Direct Identification Drawback, an internal SKU that uniquely identifies the item in the inventory and can be tied to commercial documentation is sufficient.

 

-Is duty drawback only for goods that are being imported and exported? In our scenario we're only the importer and once goods are in the US they get shipped out domestically not internationally, can we apply for duty draw back for those goods?

If your customer exports the goods and assigns you the drawback rights (and provides export documentation), you can claim drawback.

 

If the goods are sold domestically for domestic use, no drawback is available as they need to be either exported or destroyed.

 

-If the IEEPA tariff is still contested is there a chance it will become part of Drawback?

Even though they are contested, IEEPA tariffs are currently eligible for drawback and you can claim on them today. That being said, it is important to consider that if they are stuck down and ruled illegal, there is a chance they will get refunded automatically. Given the timeline to apply and get approved for a privilege application, our recommendation would be to get a program started and by the time you are ready to file a claim, we should have more clarity on whether to apply for drawback or not.

 

If you have more questions, simply contact us.

 

 

Adam Lees has been a Licensed Customs Broker since 1997 and has been actively working in the International Logistics industry for 30+ years. Adam began working in the finance department of a Swiss freight forwarder in 1993 and in 1996 passed the broker’s exam. Since then, Adam has held several positions in the logistics industry including Import and Branch Managers, District Manager, and US Customs Product Manager for multiple freight forwarders and customs brokers. He has worked in ports of all sizes – Hartford, CT; Rochester, NY; Orlando, FL, and JFK.

As the VP of Customs Brokerage for Alba Wheels Up, based in Valley Stream, NY, Adam has direct oversight over the company's Customs Brokerage operations. As with his previous roles, he is also the Customs Brokerage liaison with Alba's software vendors.

Adam currently serves as the vice chair of the Regulatory Agency Committee and is a member on multiple NCBFAA committees including the Customs Committee and several sub-committees.

Adam obtained his bachelor’s degree in international business at the University of Vermont.

 

John is the Head of Drawback at Dutywise, having spent over a decade of his career as a trusted leader in drawback. John started in drawback at Stroth and Associates, one of the largest drawback filers in the country. He then started a drawback team at Vandegrift, which was later acquired by Maersk. At Maersk, John grew his team to become the second largest filer of drawback entries in the country. John continues to leverage his deep expertise in drawback to drive innovation that makes drawback accessible for more shippers.