News & Press

August 15, 2024

Rogers & Brown

Written By: Beth Morris, VP of Compliance at Rogers & Brown

What is Manufacturing Drawback?

Manufacturing drawback provides companies with an opportunity to recover certain duties, taxes, and fees paid on imported raw materials or components when those materials or components are manufactured into new articles or made fit for a particular use and later exported.

If you have looked at the requirements for filing manufacturing drawback in the past and didn’t move forward, you might want to look at it again. The Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) made regulatory changes to the duty drawback requirements. On February 24, 2018, Customs and Border Protection (CBP) deployed TFTEA drawback. As of February 24, 2019, all drawback claims must be filed electronically in the Automated Commercial Environment (ACE).

Types of Manufacturing Drawback

1. Direct Identification Manufacturing Drawback 1313(a):

• Articles not used in the United States prior to exportation or destruction, manufactured in the United States with the use of imported, duty-paid merchandise.
• Requires tracking of the imported merchandise through the production process to export using a unique identifier or an approved accounting method.
• Direct identification manufacturing drawback calculations have not changed and continue to be calculated using the import commercial invoice price.

2. Substitution Manufacturing Drawback 1313(b):

• Allows the use of substituted articles or materials classified under the same 8-digit tariff subheading as the designated imported articles or materials.
• Substitution manufacturing drawback calculations under TFTEA changed to per unit averaging. To determine the per unit average for a specific entry summary line, you would divide the entered value for the line on the entry summary by the reporting unit of measure quantity for that line.
• TFTEA implemented a ‘lesser of’ rule limiting drawback claims to the lesser of the duties, taxes, and fees paid on imported merchandise or those that would have been paid on the substituted merchandise if it were imported.

Manufacturing Drawback Rulings

Companies must obtain a drawback ruling to file manufacturing drawback claims. There are two types of rulings.

General Rulings:

• Customs provide these rulings for some common manufacturing operations.
• A company can request to operate under one of these rulings if its manufacturing operations meet the requirements of the ruling without variation.

Specific Manufacturing Ruling:  

• Required if a company can’t use one of the general rulings provided by Customs.

Additional Changes to the Drawback Regulations with TFTEA:

1. Time frame to File: 5 years from the date of importation to claim filing.
2. Recordkeeping: Drawback records must be maintained for three years from the date of liquidation of the claim.
3. Merchandise Processing Fees (MPF) and Harbor Maintenance Fees (HMF): Can now be recovered on manufacturing drawback claims.

Conclusion

This is a general overview of the requirements to file a manufacturing drawback. Navigating the complexities of this drawback program takes time and a company’s commitment. Adherence to the regulations is of the utmost importance to a successful drawback program, which can enhance a company’s profitability.