Why Duty Drawback is Making a Comeback

The spotlight is certainly on global trade management today, with Brexit and tariffs on the minds of many supply chain professionals — and they are looking for ways to successfully navigate through these risks and uncertainties. One area that is getting renewed attention is duty drawback. What is duty drawback, and why is it making a comeback? What are some of the critical factors for success in implementing and managing duty drawback? Those are the key questions I discussed with Matt Robeson, Software Product Manager at Amber Road, in a recent episode of Talking Logistics.

What is Duty Drawback?

Since many readers may not be familiar with the duty drawback concept, I began our discussion by asking Matt to define what it is and how it’s used. Matt says, “Duty drawback is the refund of duties and fees on goods that were previously imported to the United States. After those goods are re-exported or destroyed, in most cases 99% of those duties and fees can be recovered. It’s similar to an income tax refund.

“Companies using this are typically in the petroleum industry or manufacturing, especially those with high volumes of exports,” continues Matt. “Since there is some complexity and overhead in using duty drawbacks, it tends to be larger companies with significant imports and exports using it.”

Why renewed interest?

Duty drawbacks have been around for a long time, so I asked Matt why there seems to be renewed interest of late. Matt points out that only about 15% to 20% of the total recoverable amount is being recovered. “That’s rather amazing given the intense focus on the bottom line,” Matt notes.

Matt explains, “There are three main factors for renewed interest. First, is the modernization of the duty drawback policy, starting with the 2015 Trade Facilitation and Enforcement Act that streamlined some of the drawback rules to allow more companies to participate. This includes simplifying how products are characterized using 8-digit HTS codes and standardizing drawback timelines to five years from date of import for all products.

“The second factor is putting the duty drawback process into the Automated Commercial Environment (ACE) system. As of early 2019, the drawback process is more automated in this system enabling Customs to process claims much more quickly. It also allowed software vendors to enhance their systems to align with ACE so companies can streamline their filing processes internally.

“The third factor is the retaliatory tariff environment we have right now. The big one is the 301 tariffs. A lot of companies are seeing a 10% tariff on goods from China where none had existed before. That’s creating an ROI for duty drawback that may not have existed before.”

Creating a Duty Drawback program

For companies interested in creating a duty drawback program, I asked Matt what their first steps should be. Matt says to start by estimating potential ROI by comparing duties paid in 2018 to the amount of export sales for the year. Matt says, “You also have to look at whether your company is the exporter of record. If you’re not, you may need to get documentation from the exporter of record to transfer the right to receive the drawback. Similarly, are you the importer of record or do you need documentation from whomever is? You also need to have proof of export of the goods. Once you have the business case and documentation, you need to go to senior management for approval and support.”

Technology support

With the amount of data involved in this kind of process, it’s only natural that technology plays an important role. I asked Matt how technology comes into play

Matt notes that drawback programs often start within a business unit at one warehouse or facility tracking their import and export records and filing manually. He also notes that it is important for manufacturers to track their bills of materials. And he says companies need to archive the data for 5-7 years to support the filings and for audit purposes. These functions don’t scale well without automation. Technology can help collect and maintain the data from many sources and aggregate it for analysis.

Matt says that due to the complexity, many companies outsource the filing process to third parties who have the know-how and systems to handle the filing for them. You’ll need technology to output the data to the third party, or if filing yourself, to format for e-customs filing.

Matt and I discussed other topics related to duty drawback, so I recommend you watch the full video to hear all of Matt’s valuable insights and advice. Then keep the conversation going by posting a comment and sharing with your perspective and experience on the topic.