Since 1789, Congress has allowed importers to apply for refunds amounting to 99% of the duties paid on imported goods if those goods are later exported from the United States. This system, known as duty drawback, is intended to advance the interest of domestic production and promote a competitive export trade. The rules for application of certain types of drawback will undergo significant change effective on February 24, 2018. Savvy importers will prepare well in advance for the new drawback regime and resulting refunds.
President Barack Obama signed the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) into law on February 24, 2016. The TFTEA amends Section 313 of the Tariff Act of 1930 (19 USC § 1313), which governs the drawback of customs duties, taxes and fees, upon the export of imported goods under certain circumstances. This amendment significantly expands the scope and ease of substitute drawback. Specifically, it eliminates the subjective “commercially interchangeable” standard for substitution in favor of allowing drawback for any items classified under the same eight-digit tariff code. It also extends the period of time within which drawback may occur from three to five years between import and export.
Substitution drawback is currently permitted only in the event that the goods imported are deemed “commercially interchangeable” with those exported. The TFTEA will apply a new standard that permits substitution drawback where the imported and exported items each share the same eight-digit classification code under the Harmonized Tariff Schedule for imports and the U.S. Census Bureau Foreign Trade Schedule B for exports. This is a greatly simplified and more objective analysis that conceivably expands the availability of substitute drawback. Additionally, the TFTEA changes the period in which importers may pair imports with exports for purposes of drawback. U.S. Customs and Border Protection (CBP) will begin accepting drawbacks under the new regime on February 24, 2018, for imports occurring within the prior five years. The right to claim drawback under the new regime will therefore apply to imports dating back as early as 2013, provided that those imports correspond with the classification numbers for the respective exports on which substitution is claimed.
The Secretary of the Treasury, in cooperation with CBP, is charged with promulgating the applicable regulatory amendments to effectuate TFTEA. Treasury and CBP have not initiated rulemaking to date despite the February 24, 2018, effective date. In fact, the National Customs and Forwarders Association of America (NCBFAA) reported on May 8 that CBP is both underfunded and running out of time to achieve implementation of the changes necessary in the Automated Commercial Environment (ACE) system. NCBFAA reports that CBP likewise does not have a contingency plan in the event that it is unable to accept the new drawback claims upon the effective date.
TFTEA is absolutely a win for domestic industry regardless of the bureaucratic obstacles challenging its implementation. It is time for importers to begin updating import processes and drawback strategies to capture what may be significant cost savings due to new substitute drawbacks available under the TFTEA rules. In general, this analysis will involve tariff-level review of historic import and export data dating back to 2013 in order to pair merchandise based on classification and to determine the value of drawback based upon duties paid. Early preparation for these changes is essential to ensure maximum drawbacks beginning in 2018. Waiting too late may have the consequence of quite literally leaving money on the table.