TOPIC: EXPORT DUTY DRAWBACKS

INDEX
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What is Export & Export Duty Drawbacks Use of Export Duty Drawback Types of Export Duty Drawbacks Drawback is a Privilege, Not a Right Duties, Taxes & Fees Subject to Drawback Amount of Potential Drawback Available Mode of Payment of Drawback: Assign ability Drawback Rules & Procedures Modes of Drawback Costs/negative effects of Duty Drawbacks Gold jewellery exports to boom on duty drawbacks Other Types of Drawback How to Obtain Drawback
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Completion of Drawback Claims Lessons of Experience How Importers & Exporters can Respond Conclusion

WHAT IS EXPORT AND EXPORT DUTY DRAWBACKS: An export is any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. Export goods or services are provided to foreign consumers by domestic producers.]Export is an important part of international trade. Export of commercial quantities of goods normally requires involvement of the customs authorities in both the country of export and the country of import. The advent of small trades over the internet such as through Amazon and e-Bay has largely bypassed the involvement of Customs in many countries due to the low individual values of these trades. Nonetheless, these small exports are still subject to legal restrictions applied by the country of export. An export's counterpart is an import.

“ Export Duty Drawback” is one of most important Post- Export Incentives. Though, over a period of time its popularity had suffered due to DEPB, yet of late, there has been revival of interest among exporters about this scheme. The process of comparing Drawback and Advance License as also with incentives is not easy one for an established exporter. New exporters with traditional export products, with/without import content, certainly rely only on Duty Drawback. The seminar will give detailed inputs on the subject.

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the exporter presents the goods and appropriate paperwork to the customs inspector. exporters can expect to receive a full refund of the duties and taxes posted at some future point. refunds are generally made 2-6 months after departure. 3 . they will accept credit cards. At the time of departure.USE OF EXPORT DUTY DRAWBACK: Using Duty Drawback an importer registers the goods at the time of entry. In Europe. and deposits the applicable duties and taxes with foreign customs. duties and taxes range from 20-30% of the value of the goods. while maintaining the protection for domestic industries that compete with imports. See the chart outlining which countries accept credit cards and be aware that these procedures and policies can change at any time without warning. Assuming the goods and paperwork are in order. Often this deposit and payment has to be made in cash in the currency of the country being entered. Occasionally. The choice of export drawbacks is reinforced by international regulations. (For Europe. but allows the use of drawbacks.) The Duty drawback schemes are used in highly protected economies as means to provide exporters of manufactured goods with imported inputs at world prices and thus increasing their profitability. namely that GATT rules out the use of direct export subsidies.

Direct Identification Manufacturing Drawback Traditionally. 99 X $50 = $49. each containing one motor.00 per motor). drawback was a refund of duties paid on materials or components which were previously imported into the United States and used here in the manufacture or production of goods for export. After manufacture. The goal of the drawback law was to encourage the production in the United States of articles for export. Example Assume that Acme Corporation imports 100 electric motors. Section 1313(a)]. Section 313(b) 4 .Types of export duty drawbacks: 1. 2. where they are assembled with other components to make 100 winches. New York factory. the Congress has expanded the concept of drawback. It brings the motors to its Albany. Substitution Manufacturing Drawback Over the years. Acme is entitled to claim a drawback equal to 99% of the duties paid on the motors incorporated into the exported winches.50. or . Acme Corporation exports 50 of the winches to customers in various foreign countries. as amended [19 U.S. thereby stimulating United States foreign trade and assisting United States industry and labor. paying United States customs duties of $100 ($1. This traditional type of drawback is provided under Section 313(a) of the Tariff Act of 1930.C. and is known as direct identification manufacturing drawback.

The exported generators are in the same condition as when imported. perhaps Acme cannot identify the source of the motors incorporated into the exported winches. Nonetheless. its maximum drawback recovery would be .e. a refund of 99% of duties. fees and taxes paid on the exported generators. Thus. In direct identification cases.. 3. Perhaps the exported winches all contain domestic SKAQ motors. under Customs supervision. Acme is entitled to a drawback equal to 99% of the duties paid on imported motors. Acme may claim a drawback equal to 99% of the duties. This is known as "direct identification same condition drawback". replacing the "same condition" drawback provisions with new provisions for "unused merchandise" drawback. as if those motors had been used to manufacture the 50 winches for export.50. without having been changed in condition or used in the United States prior to such exportation or destruction. i. i. Congress recently amended the drawback statute to provide for payment of manufacturing drawback upon the destruction. Congress amended the drawback law to provide for "same condition" drawback.99 X $100 = $99. if Acme Corporation imported 100 motors as above. of "drawback merchandise". Direct Identification Same Condition/Unused Merchandise Drawback In 1980. .of the Tariff Act [19 U. and produced 125 winches for export. It brings the motors to its Albany. .C. duty-free SKAQ motors manufactured in a Caribbean Basin Initiative beneficiary country. and exports 50 of these to foreign customers. New York factory. a drawback of duties is payable with respect to imported. the total drawback paid may not exceed 99% of the total duties paid on imported materials. where it also maintains an inventory of domestic-origin motors of the "same kind and quality". Example: Acme Corporation imports 50 generators. fees and taxes paid with respect to imported merchandise which is subsequently exported (or destroyed under Customs supervision) within three years after its date of importation.e. Acme finds that it only needs 30 of these generators.99 X $200 = $198. as well as imported. and expand the list of incidental operations which may be performed without disqualifying a product for drawback.99 X $50 = $49. and exports the remaining 20 to a foreign customer. these changes dispense with the requirement that a product be exported in the "same condition" as when imported. Upon compliance with applicable Customs Regulations.. Acme then manufactures 100 winches.00 per motor). Under this statute. each containing one motor. However. paying Customs duties of $500 ($10 per generator). Example: Acme Corporation imports 100 electric motors. Recently. Congress amended the drawback law. even if goods are produced for export with other foreign or domestic components or materials of the "same kind and quality" ("SKAQ"). and have not been used in the United States. Section 1313(b)] provides for substitution manufacturing drawback.S. duty-paid components or materials. Two years after importation. These changes became effective with respect to claims for drawback filed on and after 5 . paying United States customs duties of $100 ($1.

Acme may claim a drawback equal to 99% of duties paid on the imported transistors. in terms of both transaction volume and dollars. but manufacturing and same-condition drawback are by far the most important. and have not been used in the United States. a company may recover a 99% drawback of duties paid on imported merchandise. and any claims which were filed before that date.99 X $200 = $198. the list of "incidental" operations which may be performed has been expanded. 1993. Under this procedure. and may not have been used within the United States prior to its exportation. Congress again amended the drawback law to provide for "substitution" same condition drawback. Section 313 of the Tariff Act provides for several other types of drawback. but which were not liquidated and final as of December 8. 6 . replacing "same condition" drawback with "unused merchandise" drawback. The exported "fungible" merchandise must be in the same condition as the merchandise which was imported.December 8. 4. Upon compliance with applicable Customs Regulations. Example: Acme Corporation imports 1000 "Type X" transistors. if. The exported transistors are completely fungible with the imported transistors. Substitution Same Condition/Unused Merchandise Drawback In 1984. but which were not final as of that date. paying duties of $200 thereon. "Fungible" merchandise is defined as merchandise which is for all purposes commercially interchangeable with the imported merchandise. it exports "fungible" domestic or foreign merchandise. within three years. i. Customs recently amended the drawback law. Within three years. Here again. 1993. These changes are effective for all drawback claims filed on or after December 8. In addition.. 1993. are in the same condition as the imported transistors. as well as for claims filed before that date. Acme exports 1000 domestically-made "Type X" transistors. The standard of "fungibility" has been replaced with a more liberal standard of "commercial interchangeability".e. .

Thus. careful attention to detail and accurate recordkeeping systems are required in establishing and administering corporate duty drawback programs. 7 .DRAWBACK IS A PRIVILEGE. not a right. NOT A RIGHT The courts have uniformly ruled that the allowance of duty drawback is a privilege. Drawback claimants must follow exactly all of the procedural requirements for claiming drawback set forth in the Customs laws and regulations.

antidumping and countervailing duties could also be included in a claim for drawback. These "drawback sunset" provisions result from the terms of the North American Free Trade Agreement (FTA).17% ad valorem "Merchandise Processing User Fee" is not available under manufacturing drawback. In the case of same condition/unused merchandise drawback. a new "NAFTA drawback" regime will be create. as well as special marking duties and internal revenue taxes assessed upon importation.. to permit exporters to 8 . the Trade and Tariff Act of 1988 amended the drawback law to exclude antidumping and countervailing duties from drawback eligibility. TAXES AND FEES SUBJECT TO DRAWBACK In the case of manufacturing drawback. a 99% refund is payable in respect of all ordinary Customs duties paid. duty drawback (except direct identification same condition/unused merchandise drawback) will no longer be payable in respect of goods exported to Canada. However. drawback of the 0. 1996. In addition. 2001. Beginning January 1. as well as special marking duties and internal revenue taxes which are assessed upon importation (e. Federal Excise Taxes imposed on tires). a similar termination of drawback will become effective in respect of goods exported to Mexico. a 99% refund is payable in respect of all ordinary Customs duties paid. Prior to 1988.DUTIES. However. However. a 99% drawback of "Merchandise Processing User Fees may be obtained. Beginning January 1.g.

Government and industry sources estimate that approximately $3 billion in potential drawback refunds are available annually. duty drawback is still relatively underutilized. 1994. one reason for the relative underutilization of drawback is that American manufacturers and exporters often do not think about the "drawback potential" of goods. suggesting that up to $2. and (2) when and how drawback rights are transferable. However. materials and components they purchase from foreign and domestic suppliers. companies should be aware of (1) who is entitled to claim drawback in particular situations. and to avoid double taxation of firms engaged in North American international trade.4 billion in drawbacks go unclaimed. AMOUNT OF POTENTIAL DRAWBACK AVAILABLE While the United States has granted duty drawbacks in various forms since 1789. ceased paying substitution same condition/unused merchandise drawback in respect of goods exported to both Canada and Mexico. it is possible to claim many of these drawbacks using direct identification procedures and NAFTA-approved accounting methods to trace fungible commingled goods. under the terms of NAFTA. In our judgment. and do not realize that they may be eligible for drawback. In order to better evaluate drawback potentials. only about $600 million in drawback refunds are actually paid out each year. effective January 1. Moreover. the United States. However. 9 .continue claiming drawback on a limited basis.

an exporter must furnish Customs with three basic items of information: (1) proof of exportation. which documents the transfer of imported duty paid goods. (2) information concerning any manufacturing conducted in the United States [e. Thus. if Beta Corporation exports a drawback-eligible widget it purchased from Acme Corporation.even though Acme may have paid the duties for which a drawback refund is claimed. An essential document in creating this "paper trail" is the Certificate of Delivery ("CD"). it furnishes a Certificate of Manufacture and Delivery ("CMD") to 1 . and (3) information concerning the import entries in respect of which a drawback refund is claimed. Beta is the party to whom drawback is paid -. or the transfer of "drawback products" to an exporter or other purchaser.MODE OF PAYMENT OF DRAWBACK: ASSIGNABILITY By law. in order to claim drawback. connecting imported duty-paid goods to the exported "drawback product". reference to drawback contracts]. manufacturer and/or exporter are different entities. However.. The law's unspoken assumption is that the price paid by the exporter for the widget is a fully cost price which reimburses the seller for customs duties paid.whether or not the exporter is the person who paid the duties for which a refund is claimed. a certain amount of cooperation is required in order to complete claims for drawback. drawback is payable to the exporter of "drawback products" -. a "paper trail" must be constructed. materials or components.g. In essence. When a firm uses imported duty-paid (or substituted) merchandise to manufacture drawback products. Where the importer.

Sweet-Tooth Soda Company then sells the syrups (providing a CMD) to Sweet-Tooth Bottling Southwest. showing the Customs entry covering the imported yarn. which uses it to manufacture carpets.800. paying duties of $5. [Thus.000.000) X .000 + $3. or $19. paying Customs duties of $100.000. A few examples may help illustrate how these essential paper trails are created. ($100. furnishing a CMD. companies which believe their operations have drawback potential should not only seek a refund of duties which they themselves pay. Example 3: Commodities. Lucky Trading Company is eligible to claim a 99% drawback of duties paid on both the imported sugar and the imported caffeine. It sells this sugar (providing a CD) to Sweet-Tooth Soda Company. which uses the syrup to manufacture sodas. which exports them. which uses it to make syrups for soft drinks. Example 1: Acme Corporation imports a cement mixing machine. Exporters. for which duties of $3. and Beta claims a same condition/unused merchandise drawback equal to 99% of the duties which Acme paid. In addition to the syrup. claiming a drawback equal to 99% of the duties paid by Import Supply Corporation.. Within three years. Sweet Tooth Bottling Southwest then sells the finished sodas (providing a second CMD) to Lucky Trading Company. Acme furnishes a CD to Beta for the cement mixing machine. buyers and sellers enter into agreements whereby the seller reserves the right to claim drawback. In some instances. usually the seller of the drawback products. the sodas incorporate caffeine imported by Sweet-Tooth Bottling Southwest. These can be document through CD and CMD procedures.970]. which exports it. Import Supply Corporation then sells the yarn to Very big Manufacturing Company. Thus. Import Supply Corporation furnishes Very big Manufacturing with a CD. Inc.000 were paid. multiple manufacturing operations and transfers of materials or products may be involved. Very big Manufacturing Company then sells the carpets to Exporters. Ltd.950. Ltd. 1 . Customs has taken the position that the exporter must in all instances be the drawback claimant. imports a shipload of refined sugar. to Beta Corporation.the transferee of the drawback product.000 thereon. or $4. it sells the machine. however. then exports the carpets. Example 2: Import Supply Corporation imports polypropylene yarn. In the case of same-condition drawback. In the case of manufacturing drawback. in its condition as imported and without having been used in the United States.99 = $101. exporters may simply assign their right to claim drawback to another party. paying duties in the amount of $20. or where the parties agree to divide drawback refunds among themselves. but should require their foreign and domestic suppliers to furnish them with Certificates of Delivery (or Certificates of Manufacture and Delivery) wherever applicable. this position has been rejected by the courts. In many instances.

Refining of crude petroleum into motor fuels. it may ask Customs to authorize accelerated payment of drawback.Where a drawback claimant has established a record of filing repeated claims which are free from serious error. or with domestic components. The claimant furnishes a bond to secure Customs against the accelerated payment of excessive drawback. to produce a new and different article. 1. Customs has generally taken a liberal view of what constitutes "manufacturing" for purposes of the drawback law. Customs will pay drawback refunds to claimants shortly after the claim is filed. 1 . and other finished petroleum products. DRAWBACK RULES AND PROCEDURES Having provided a basic outline of drawback benefits. it is appropriate to consider in more detail the rules and procedures applicable to the major forms of duty drawback. and may be required to repay to Customs accelerated drawback payments found to be excessive. without waiting for the import entry or the drawback claim to be "liquidated" and made final. For good order's sake. . Under the "accelerated payment" program. Among the thousands of operations which Customs has deemed to constitute "manufacturing" for drawback purposes are the following: . drawback was traditionally defined as a repayment of duties paid on imported components or materials which are used in the United States to manufacture goods for export. we will consider manufacturing drawback and substitution drawback separately. MANUFACTURING DRAWBACK As noted above.Simple assembly of imported components with each other. heating oils.

(4) the facilities where manufacturing will take place.Electrolytic manufacture of aluminum. Manufacturing operations may be summarized in a schedule. . (3) the manufacturing process to be conducted. the manufacturer must enter into a "drawback contract" with the Customs Service.Manufacture of shotgun cartridges from imported powders. and (4) The manufacturer must retain its records for at least three years after the drawback claim is paid. the imported and the substituted goods must be used in manufacture within three years after receipt of the imported merchandise. and (5) the manufacturing. .. Acceptance of a proposed drawback "contract" is an undertaking that Customs will pay drawback if the claimant follows the procedures outlined in the contract and abides by applicable regulations. In addition. In order for manufacturing duty drawback to be paid. using imported electrodes which are consumed during the manufacturing process. with the permission of Customs. Where there are a large number of individual drawback claims (or a large number of transactions giving rising to drawback rights). as appropriate). Customs has established general drawback contracts. (2) the product(s) to be produced in the United States with the imported merchandise (or "same kind and quality" merchandise). drawback may. . Time constraints for claiming manufacturing drawback are as follows: (1) The claimant must export the completed article within five years after importation of the imported. 1 . . and to make its books and records available for inspection by Customs officials at reasonable times. the manufacturer must agree to abide by the laws and regulations governing drawback. This contract must identify (1) the imported merchandise which will serve as the basis of the drawback claim.Programming of imported EPROMS and PROMS with software. Interested manufacturers may subscribe to these drawback contracts by writing to Customs identifying their proposed operations and agreeing to abide by the terms of the general drawback contract.Manufacture of transistors from imported integrated circuits. For certain common operations (assembly of components. or in a manufacturing abstract. an exporter may file claims for drawback upon the exportation of qualifying goods. petroleum refining). be claimed according to an "Exporter's Summary Procedure".Recording of programs onto blank video or audio cassettes. inventory and other records which the manufacturer will maintain to document its drawback claims. duty-paid merchandise which serves as the basis of the claim. (3) The drawback claim must be filed and completed within three years after exportation of the drawback product. (2) Where "substitution" manufacturing drawback is claimed. After a drawback contract has been approved.Dyeing or printing of fabrics (with drawback claimed as to fabrics and/or dyestuffs. depending upon the nature of the manufacturing operation. .

will be fatal to the drawback claim. to insure that they are in the "same condition" as when imported (or. the drawback claimant must furnish the Customs Service with notice of exportation on Customs Form 7539 (drawback claim). in the case of substitution same condition/unused merchandise claims. notice of exportation must be given to the District Director of Customs on Customs Form 7539. However. or to obtain a waiver of inspection. -. failure to provide such notice.The drawback claim must be completed within three years after exportation 1 . The purpose of this advance notice is to permit Customs to inspect the goods prior to exportation.2. regardless of its merits.The imported goods (or the "commercially interchangeable" goods) must be exported within three years after importation of the goods for which drawback will be claimed. at least five working days prior to the scheduled date of exportation.At least 5 working days prior to exportation. SAME CONDITION/UNUSED MERCHANDISE DRAWBACK unlike manufacturing drawback. However. -. to insure that the exported goods are "commercially interchangeable" with the imported duty paid goods which serve as the basis for drawback). In the case of substitution same-condition/unused merchandise drawback. Critical time periods for claiming same-condition/unused merchandise drawback are as follows: -. it is usually necessary to obtain a ruling from Customs concerning the "commercial interchangeability" of the imported duty-paid and exported "substituted" merchandise. The requirement of giving a notice of exportation may be waived by Customs (or the notification period may be shortened). it is not necessary for a drawback claimant to enter into a "contract" with the Customs Service prior to filing claims.

Countries using such schedules usually revise them every three to six months.Modes of Drawback: Direct identification of manufacturers Substitution drawback Same condition drawback Shipment-by-shipment based on predetermined input/output standard Pre-agreed schedule (fixed drawback schedule) .. Costs/negative effects of Duty Drawbacks: Loss of government revenue Creates opportunity for cheating and abuse Absorbs administrative resources for its implementation 1 .a list of the fixed money value of duties to be refunded for one unit of an export commodity.

Drawbacks do not offset non-tariff barriers against imported inputs Gold jewellery exports to boom on duty drawbacks The announcement of the India foreign trade policy for 2009-2014 for the gems and jewellery sector comes at the right hour.Drawback on imported articles used to build vessels for foreign owners or registry. They are as follows: -.Drawback of salt used for curing fish. it is appropriate to list them here. The industry is already reveling at the 9 percent growth in the gold jewellery section for the month of July and India's commerce Minister Anand Sharma has decided to neutralize duty incidence on gold jewellery exports so that Duty Drawback on such exports can be allowed. Rajesh Exports Ltd. -. -.Drawback on salt used in curing meats which are exported. -. chairman. a leading gold jewellery exporter from India says: "This is the most welcome step taken for the industry. Rajesh Mehta. The industry had been requesting and demanding to ease the export procedures since long and at last it has been made available. -. a lot of export procedural hassles have been saved and an exporter can heave a sign of relief by exporting anytime he wants. -. -.Drawback of internal revenue taxes paid on alcohol used to make flavoring extracts. 1 .Drawback of internal revenue taxes paid on bottled distilled spirits and wines which are exported. Life has been made easy in a major way". rebuild or overhaul jet engines of foreign origin.Drawback on imported parts and materials used to repair. medicinal or toilet preparations for exportation. Nonetheless.Drawback of duties paid on merchandise not conforming to sample or specifications ("rejected merchandise drawback). By deciding on all these. OTHER TYPES OF DRAWBACK The Customs laws provide other types of duty drawback which are less commonly used than the types described above.

the manufacturer must know. that he will be entitled to drawback on his exports. the time period for exportation is 3 years after importation. however. although no payments will be made until the contract is approved. 1 . To avoid being timebarred by the statute of limitations. To do so. a claim may be filed before a drawback contract (rate) is effective. prior to making contractual commitments. The purpose of drawback is to enable a manufacturer to compete in foreign markets. Export Procedure It is necessary for a drawback claimant to establish that the articles on which manufacturing drawback is being claimed were exported within 5 years after importation of the imported merchandise which is the basis for the drawback. The drawback procedure has been designed to give the manufacturer this assurance and protection. For completion of unused drawback claims. Completion of Drawback Claims Claims must be filed within 3 years after exportation of the articles. In the case of unused drawback. only the procedures for obtaining drawback under these provisions are discussed.How To Obtain Drawback As most manufacturers are interested in sections 131 3(a) and (b). see your local Customs Drawback Branch prior to exportation.

Exportation of articles for drawback purposes must be established by complying with one of the procedures provided for in Section 191. and 191. The implementation of Duty Drawback Programs in developing countries has not fared very well for various reasons. Furthermore.36.1. 2. Supporting documentary evidence must establish fully the date and fact of exportation and the identity of the exporter. Export of qualified U. 1 . poor statistical infrastructure. Export of qualified imported petroleum products may be shown by matching the amount imported with exports of qualified petroleum products of the same kind and quality that occur within 180 days after the import. including: • • • administrative weaknesses in customs administration. Failure of the government to reimburse pre-paid duties because of financial difficulties. which in turn made possible the use of other industry and trade-promotion measures. both economies recognized the disadvantages of protection and undertook to liberalize imports. 191.42.91). Their success is associated with unique set of policies and circumstances not easily replicated in other countries. (Section 1313(p) drawback) Lessons of Experience Korea and Taiwan are the notable examples of economies able to achieve strong export growth with protectionist policies. namely: authoritarian regimes able to suppress rent-seeking behavior.S. 191.72 (in addition to providing prior notice of intent to export if applicable (§§ 191.-made petroleum products may be shown by matching production at a specific refinery with exports of qualified petroleum products of the same kind and quality that occur within 180 days after the refinery produced the designated petroleum product.35.

HOW IMPORTERS AND EXPORTERS CAN RESPOND There are several ways in which United States importers and exporters might be able to minimize the burdens resulting from the NAFTA drawback changes. such as Customs bonded warehouses and Foreign Trade Zones. The use of a bonded warehouse would eliminate potential for double taxation of foreign goods. Customs Bonded Warehouses Foreign goods may be stored in private or public Customs bonded warehouses for up to five (5) years without payment of duty. and would relieve the importer from the burden of keeping a detailed recordkeeping system to comply with NAFTA requirements relating to drawback. Similar benefits would be available as the result of the storage of goods in a Foreign Trade Zone (FTZ) or sub zone. 1. Importers might use bonded warehouses to store commingled goods from several foreign sources. 1 . particularly the elimination of substitution same condition drawbacks/unused merchandise drawbacks. In the long term. withdrawing goods as needed for consumption in the United States (with payment of external tariff) or for exportation to Canada (subject to payment of Canadian tariffs). companies may be able to minimize the adverse impact of CFTA and NAFTA drawback eliminations by utilizing tariff-advantaged facilities. Duties are payable only when and if the goods are withdrawn from warehouse for domestic consumption.

however. If entered directly for consumption into the United States.000. Foreign Trade Zones NAFTA's drawback sunset provisions will prohibit U. secure in the knowledge that it could recoup 99% of those duties as drawback when goods produced there from were exported to Canada. when withdrawn from the FTZ for domestic consumption. As noted above. as well as on goods exported to Canada. United States companies can receive the full range of FTZ benefits in respect of goods exported to Canada or Mexico. Prior to the drawback sunset dates.000 x .000.S. it only means that duties must be assessed as if the goods were withdrawn from the FTZ for United States consumption. FTZs may still be used to effect tariff reductions. however. Thus. the company uses the Japanese component in the FTZ to make a product which. however. that FTZs cannot thereafter be used to obtain United States tariff benefits for goods exported to Canada or Mexico. Once the drawback sunset dates arrive. companies from using Foreign Trade Zones to avoid external tariffs on foreign goods which are subsequently exported to Canada and Mexico.S. if the product qualifies. duty payment of $1. however.03 = $300 duty). Example: A United States company imports into foreign trade zone Japanese components valued at $10. it can enter Canada with benefit of NAFTA reduced-duty or duty free status. for a total U. the U. it might be in this company's interest to convert its manufacturing facility to an FTZ "sub zone". This does not mean. However. When the product withdrawn from the FTZ is exported to Canada. duties paid. such a conversion might help the company save duties on goods which remain in the United States. 2 . Company cannot claim drawback on the $300 in U. these components would be subject to duty at a rate of 10% ad valorem.2. this company might have simply paid the $1000 in duty on the Japanese components.S. Prior to the NAFTA drawback sunset date. is dutiable at a rate of 3% ad valorem. and pays duty on the Japanese components at this lower rate ($10.S. the use of the FTZ saves the company $700 in duty.

regulations and documentary requirements are observed. the cash refund potentials of duty drawback are enormous. Note: This memorandum is intended for general informational purposes only. 2 . Each proposed drawback operation must be considered on its individual merits. and most companies which invest the time and effort needed to set up drawback programs quickly recoup their investment and enjoy substantial cash benefits. and is not given or intended as advice pertaining to any specific case or circumstances.CONCLUSION The above is merely an outline of the duty drawback laws. Still. and careful attention must be given to insuring that all applicable laws. Readers having questions concerning particular situations should consult counsel.

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