Boosting Export Profits and Changes to Drawback Law Nancy Hiromoto N.F. Stroth & Associates VITA Global Networking Breakfast September 28, 2016 © Copyright 2016, NF Stroth & Associates, LLC. All rights reserved

History of Duty Drawback Established in 1789 Regulations made more definitive under the Tariff Act of 1930 Initiated for the purpose of creating jobs and encouraging manufacturing Incentive for U.S. companies to export and be more competitive in the foreign market Still a little-known program; billion of dollars go unclaimed every year

Refund from the Government Upfront costs of importing and exporting are generally hard to avoid, but what better incentive is there than to know a sale outside of the U.S. would include a potential refund from the government? A solution is possible for all importers and exporters – small, medium and large-sized companies – commodities of all types Drawback simply means a better bottom line!

Duty Drawback Program Government offers a refund of 99% of duties, taxes and fees paid for goods imported and then subsequently exported. First time claimants may be entitled to retroactive refund claims for up to three years prior. Refunds are contingent upon required supporting documents. Special care must be taken to ensure a successful program and to avoid government rejection of a claim.

Types of Drawback Unused Merchandise Drawback 19 U.S.C. 1313(j) Manufacturing Drawback 19 U.S.C. 1313(a) and (b) Rejected Merchandise Drawback 19 U.S.C. 1313(c) Direct Identification Direct Identification or Accounting Methodology Substitution When products are commercially interchangeable and there are no exports to Canada or Mexico

Unused Merchandise Drawback When imported merchandise is exported or destroyed within 3 years of import without being used domestically. May also be granted on domestic or other merchandise, which is commercially interchangeable and can be substituted with the imported merchandise.

Manufacturing Drawback For products that have been exported after being altered. Exported finished good must be identified to the imported component(s). 1313 (a) provides for "direct identification“ or use of an accounting methodology, such as FIFO, LIFO, or Low-to-High. 1313 (b) provides for “substitution” manufacturing drawback, in which substitution for the imported merchandise is permitted, subject to certain conditions.

Rejected Merchandise Drawback Imported merchandise does not conform to sample or specifications was shipped without consent was determined to be defective at the time of import may be established by presenting evidence of the agreement between the foreign shipper and the importer. Rejected merchandise must be exported or destroyed within 3 years of the date of import to be eligible for drawback.

Unused Merchandise Drawback Timeline © Copyright 2016, NF Stroth & Associates, LLC. All rights reserved

Manufacturing Drawback Timeline © Copyright 2016, NF Stroth & Associates, LLC. All rights reserved

Drawback Program Applications may be made for: Accelerated Payment Waiver of Prior Notice of Intent to Export (for future exports up to 3 years) One-Time Waiver of Prior Notice of Intent to Export (for retroactive claims up to 3 years)

Drawback Privileges Drawback is a privilege, not a right! Drawback is recognized as the most complex commercial program administered by CBP because it involves every aspect of Customs business. It represents 10% of CBP regulations. Under the Customs Mod Act: Drawback penalty statutes were included. Drawback Compliance Program was created. Record keeping requirements were codified. Compliance to regulations is crucial to avoid losing drawback privileges.

Are You a Candidate for Drawback? A good candidate if you answer “YES “ to these questions: Do you pay duty or merchandise processing fee for your product? Are you or your vendor the importer of record? Are you or your customer the exporter of record?   Do you have good records of your import and export transactions?

Trade Facilitation and Trade Enforcement Act Law was signed by President Obama on February 24, 2016. Included were many changes to drawback law.

Expected Changes under New Drawback Law: Top 10   1. Implementation Effective date applies to drawback claims filed 2 years after enactment of the law. May take two years for CBP to draft regulations. Transition Period - may file under current law for the first year after effective date.

2. Use of 8-Digit HTS 8-Digit HTS may be used for Substitution Manufacturing and Unused Merchandise Drawback. Allows more flexibility for the claimant on the substitution requirements. Generally, the match is made at the item number level or 10-digit HTS level. HTS basket provisions, with term beginning as “Other” will be at 10-digit level. 8-Digit HTS matching allows CBP to more easily automate for ACE.

3. Fee and Tax Recovery for Manufacturing Drawback   Would increase the recovery for manufacturers. Currently, recovery of fees, such as Merchandise Processing Fee, Harbor Maintenance Fee are not recoverable for Manufacturing Drawback.

4. Elimination of Rulings Currently, rulings are required for Manufacturing Drawback. Elimination of rulings will shorten the lead time for application approvals. Submission of Bills of Materials will likely be used to tie imported component to finished good.

5. Proof of Export Requirements   5. Proof of Export Requirements May be records prepared in the normal course of business. Export Bill of Lading or Airway Bill still recommended. AES ITN may also suffice. Acceptable types of records should establish the identity of the exporter and date and fact of exportation.

6. Elimination of Certificate of Delivery Previously, a certificate of delivery was required to prove the transfer of goods from an importer of record to the claimant. Now, records kept in the normal course of business would be acceptable. Invoice Shipping Records May be received directly or indirectly

7. “Lessor Of Two” Concept Calculation of duties, taxes and fees must be claimed under the “lesser of two” concept. Import HTS duty vs. “Substituted” Import HTS duty Lessor of the average duties, taxes, fees on the imported article vs. duties, taxes, fees applicable to the substituted article if substituted article was imported. Clear definition of calculation will need to be identified in the regulations.

8. Joint and Several Liability All parties of the claim will be liable together, including third-party exporters and importers.  If there is an issue, CBP would not just go after the claimant or surety company.

9. Time Frame for Drawback Eligibility Time frame changed from 6 years to 5 years from Import to Claim. May be looked at as an increase or decrease in time, depending on how current one is with the exports claimed.

10. Recordkeeping Currently, it is 3 years from drawback payment date. Change to 3 years from drawback liquidation date.

Drawback in ACE While digesting the changes to drawback law, we must also be prepared to submit claims in ACE. Now about two years into ACE development of drawback. User interface and system integrations. Automation of Forms Some new fields will be required.

Preparing for ACE Draft CATAIR has been issued. Original Time Line for Implementation Software certification May 2016 Certification complete July 2016 Anticipated to go live October 1, 2016.

Drawback Boost Export Profits! With ever-growing efforts to increase exports, the Drawback program continues to be the perfect complement to boosting export profits! © Copyright 2016, NF Stroth & Associates, LLC. All rights reserved