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Trade Tools: Missing Money
Friday, 19 March 2010 10:35
Exporters lose billions by failing to claim drawback

Drawback is one of the more arcane facets of U.S. trade law, but U.S. companies, primarily exporters, lose billions of dollars each year because they fail to take advantage of it.

Companies can obtain refunds of up to 99 percent of import duties if they meet certain standards. Those refunds would allow exporters to be more competitive because it would allow them to sell finished goods in foreign markets at lower prices.

The most common type of drawback allows companies to claim refunds on duties for imported components that they use to make U.S. goods that are then exported. Candy manufacturers, for example, can claim drawback on imported sugar used to make candy that is then exported.

A second form of drawback allows both exporters and importers to claim drawback on imported merchandise that is rejected or goes unused, provided the goods are destroyed under the supervision of Customs and Border Protection officials.

A third type of drawback, known as substitute drawback, is more complicated, but companies that use it can reap substantial rewards. Under this provision, companies can claim refunds if they produce and then export merchandise that is similar or identical to goods they import. If, for example, a manufacturer is experiencing production delays in the U.S. and is therefore unable to export goods made domestically, it could claim drawback on the imported goods that are re-exported, even if there is no domestic processing.

“It’s staggering how many companies have the opportunity to use drawback but who are either ignorant of the opportunity or who are unwilling to invest in the administrative procedures to enable them to file drawback claims,” said Patrick Gill, an attorney with Rode & Qualey, a New York-based firm specializing in customs and international trade law.

Drawback modernization and simplification is the top priority for the American Association of Exporters and Importers, says Marianne Rowden, the association’s executive director. Help may be on the way for companies that have not used drawback because of its complexity. AAEI is working with the Senate Finance Committee to incorporate simplified drawback procedures in the Customs reauthorization bill, rather than as a stand-alone bill. The House is expected to do the same.

The biggest users of drawback are in the petroleum, automotive and pharmaceutical sectors. “By modernizing and simplifying drawback, more companies, particularly small and medium companies, would be able to take advantage of it,” Rowden said.

Drawback is somewhat less important for companies today because import duties in general are substantially lower than in the past, Gill noted. Moreover, import duties have been completely eliminated or sharply reduced through U.S. free-trade agreements with other countries, most notably Canada, still our largest trade partner, and Mexico. However, the U.S. does not have free-trade agreements with China, the European Union, and other major trade partners, so drawback can be quite important in trade with those countries, says Michael Daly, a drawback specialist with Livingston International.

Rejected goods may qualify for drawback if they do not conform to specifications or if they are defective at the time they are imported. This would include cargo that is damaged while it is in transit.

To be eligible for drawback, the rejected goods must be returned to Customs within three years after they were released.

Moreover, companies must be able to document why they rejected the goods, he said.

Cargo Business News, 3/2010