Thursday, February 11th, 2016
The Senate approved a compromise version of the Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644) today. The bill would make American manufacturers more competitive globally by streamlining trade flows, reducing paperwork burdens for smaller shipments and, notably, making duty drawback more available to companies of all sizes.
Duty drawback is an oft-overlooked portion of U.S. trade law but it’s a powerful tool, defined as the refund, reduction or waiver of customs duties assessed or collected upon importation of an article or materials which are subsequently exported or destroyed. In English, that translates to, “if the U.S. charges a duty on something you import, but you use that imported item to produce an item that’s eventually exported, the U.S. will refund the duty it originally charged you.”
This is an especially powerful tool for plastics companies, but successfully taking advantage of it can often be too burdensome for many smaller organizations. Here are four reasons why that’s about to change, and why the new duty drawback provisions included in H.R. 644 are good for U.S. plastics.
1. The new statute makes drawback more available to companies of all sizes: successfully claiming drawback often means heavy paperwork; officials must be able to draw a clear line from the goods upon which the duty was first imposed to the exported good they eventually were a part of. Rather than tackle that process, many companies will opt to just pay the duty. The new bill, however, simplifies the process, giving more exporters an opportunity to reduce their costs with drawback.
2. It includes improvements to substitution: Part of drawback for manufacturers is the concept of substitution, which stipulates that when merchandise that’s “commercially interchangeable” with imported merchandise upon which a duty, tax or fee is levied is ultimately exported or destroyed, the exporter can claim drawback on those goods they imported. The issue is that qualifying such goods for drawback to U.S. Customs and Border Protection (CBP) is an extremely onerous, subjective process. The new drawback provisions make the concept of “commercial interchangeability” an objective matter by basing this assessment on where each imported or exported merchandise falls on the globally-accepted Harmonized Tariff Schedule of the U.S., eliminating the need for subjective interpretation on the part of CBP.
3. Shorter time frames: Typically drawback requires rulings and approvals prior to filing claims, but the new statute would eliminate the 6-12 month wait time that usually separates the request for approval for drawback and the date the first claim can be filed. This means companies claiming drawback can get their money quicker.
4. More time to file: Under the new statute, time frames will be simplified so instead of allowing drawback on only imported goods that were exported within three years of importation, companies can expand that time limit to five years. This would take off some of the pressure, and alleviate some of the recordkeeping burden on both CBP and on drawback claimants.
H.R. 644 is a solid bill with lots of pro-export, pro-manufacturing provisions, which is why SPI advocated for it. If the administrative hurdles, confusing time frames and arcane details have kept your company from taking advantage of duty drawback, now might be the time to take a second look.