Frequently Asked Questions
What about my company’s internal drawback opportunities?
The DL Trading concept in no way interferes with your existing drawback program. The Trading Model applies only to imports and exports that are in excess of what your company can use internally.
Why can’t my company do this on its own?
Although some importers and exporters may be in a position to initiate such programs on their own to a limited extent, the majority of companies have either excess imports or exports that will require DL Trading’s intermediary trade service program to realize the maximum benefits available.
Will the additional need to handle material by DLT disrupt my supply chain?
DL Trading will work with your existing brokers, carriers and other logistics providers. To that end, there should be minimal change in your current operations. You will have full knowledge of all the transactions involved so that you can be aware of the position of your materials at any point in time through DL Trading and your existing providers.
Instead of actually exchanging or doing a purchase/sale on the material, can DL Trading act simply as our agent as the exporter or importer of record?
No. DL Trading must have title to the goods with risk of loss passing to DL Trading in order to satisfy the requirements of the regulations. Such transactions can be established through a purchase and sale or material exchange transactions under the standard commercial incoterms.
What about confidentiality?
DL Trading provides full confidentiality between all importers and exporters and acts as a firewall by not disclosing confidential information. Unless both parties desire and mutually agree to know their counterparty, full confidentiality is maintained. In fact, there may be added confidentiality, especially on the import side, since DL Trading, not our partner company, will now be the importer of record.
Glossary of Drawback Terms
Designated Merchandise Abstract
An abstract is a summary of the manufacturer’s actual production records and shows the total quantity used or appearing in the articles during the period covered by the abstract. The claimant must be able to demonstrate that the abstract accurately reflects the actual production.
Identification by accounting method is used when the actual unit-for-unit identification of fungible merchandise or articles is lost (generally, when such merchandise or articles are commingled or recorded in a common inventory). Thus, identification by accounting method benefits drawback claimants in that, when such a method can be used, merchandise or articles do not have to be physically separated and tracked unit-by-unit. Identification by accounting method is distinguished from substitution. In the case of the latter, the person claiming benefit of the substitution may substitute any unit or lot of merchandise or articles as long as the criteria and conditions for substitution are met. In the case of the former, a unit or lot of merchandise or articles must be identified consistent with the accounting procedure used (e.g., if FIFO is used, the oldest unit of merchandise or articles in the inventory is that identified regardless of whether identification of that unit is favorable or unfavorable to the person claiming the benefit of the accounting method).
A person employed by an owner of the identified merchandise, the designated imported merchandise and/or the substituted other merchandise that is used to produce the exported articles, to do part, or all, of the manufacture or production under direct identification manufacturing drawback or substitution manufacturing drawback.
Certificate of Delivery
A certificate of delivery (Customs Form 7552, Delivery Certificate for Purposes of Drawback) is required to show the transfer of imported duty-paid merchandise, substituted merchandise under substitution unused merchandise drawback, or an article manufactured or produced under direct identification manufacturing drawback or substitution manufacturing drawback by a person other than the manufacturer or producer. A certificate of delivery documents the delivery of, and the assignment of drawback rights for, the merchandise or article. The certificate issuer is responsible for the accuracy of each fact stated in the certificate, and for retaining the evidence supporting the certificate.
Certificate of Manufacture and Delivery
A certificate of manufacture and delivery (Customs Form 7552, Delivery Certificate for Purposes of Drawback) must be prepared and certified by the manufacturer or producer whenever an article or drawback product manufactured or produced under a general or specific manufacturing drawback ruling is transferred from the manufacturer or producer to another party. The certificate is required to be filed with the drawback claim it supports, unless previously filed, in which case the certificate shall be referenced on the claim. The effect of a certificate of manufacture and delivery is to document the delivery of the article, identify the article as being one to which drawback potentially exists, and assign the drawback rights to the transferee. The certificate issuer is responsible for the accuracy of each fact stated in the certificate, and for retaining the evidence supporting the certificate.
Commercially Interchangeable Merchandise
Commercially interchangeable imported and other merchandise may be substituted under substitution unused merchandise drawback instead of requiring fungibility for substitution. This allows substitution of merchandise when it is commercially interchangeable rather than when it is commercially identical. In determining commercial interchangeability, Customs evaluates the critical properties of the merchandise and in that evaluation factors to be considered include, but are not limited to, Governmental and recognized industrial standards, part numbers, tariff classification and value.
Designated merchandise means either eligible imported duty-paid merchandise or drawback products selected by the drawback claimant as the basis for a drawback claim under substitution manufacturing drawback or substitution unused merchandise drawback, as applicable, or qualified articles selected by the claimant as the basis for drawback under substitution of finished petroleum derivatives drawback.
Direct Identification Drawback
Direct identification drawback means drawback authorized either under direct identification manufacturing drawback on imported merchandise used to manufacture or produce an article which is either exported or destroyed, or under direct identification unused merchandise drawback on imported merchandise exported, or destroyed under Customs supervision, without having been used in the United States. Merchandise or articles may be identified for purposes of direct identification drawback by use of the accounting methods provided for in the Customs Regulations.
Drawback is a refund of duty paid on imported merchandise that is linked to an exportation (or destruction) of an article. In the U.S., drawback dates back practically to the dawn of the Republic. Drawback in the U.S. has changed greatly since its initial enactment, in section 3 of the second Act of Congress, the Act of July 4, 1789. That first drawback law provided for a drawback of 99% of duties paid on merchandise (except distilled spirits) if exported within a year after duty was paid or security given for duty. Changes, or adjustments, continue to be made to the drawback law, making it ever more complicated. There are three categories of drawback: manufacturing drawback, unused merchandise drawback, and rejected merchandise drawback. Within each category, there are variations such as the ability to substitute the imported article, and specific time limits to manufacture or export articles.
Drawback claim means the drawback entry and related documents required by regulation which together constitute the request for drawback payment.
Drawback entry means the document containing a description of, and other required information concerning, the exported or destroyed article on which drawback is claimed. Drawback entries are filed on Customs Form 7551.
Drawback products are finished or partially finished products manufactured or produced in the U.S. under drawback procedures. In addition to being exported or destroyed to qualify for drawback, drawback products may be used in further manufacture or production of other drawback products under drawback procedures. In the latter instance, drawback products may be designated as the basis for drawback or be deemed to be the substituted merchandise. If a drawback product is designated as the basis for drawback in a further manufacture or production, a separate 3-year period for use in manufacture or production of the drawback product and other substituted merchandise is commenced.
Exportation means the severance of goods from the mass of goods belonging to this country, with the intention of uniting them with the mass of goods belonging to some foreign country. An exportation may be deemed to have occurred when goods subject to drawback are admitted into a foreign trade zone in zone-restricted status, or are laden upon qualifying aircraft or vessels as aircraft or vessel supplies.
Exporter means that person who, as the principal party in interest in the export transaction, has the power and responsibility for determining and controlling the sending of the items out of the United States. In the case of deemed exportations (e.g., when goods subject to drawback are admitted into a foreign trade zone in zone-restricted status, or are laden upon qualifying aircraft or vessels as aircraft or vessel supplies), the exporter means that person who, as the principal party in interest in the transaction deemed to be an exportation, has the power and responsibility for determining and controlling the transaction (in the case of aircraft or vessel supplies, the party who has the power and responsibility for lading the vessel supplies on the qualifying aircraft or vessel).
Fungible Merchandise or Articles
Fungible merchandise or articles means merchandise or articles which for commercial purposes are identical and interchangeable in all situations.
General Manufacturing Drawback Ruling
A general manufacturing drawback ruling means a description of a manufacturing or production operation for drawback and the regulatory requirements and interpretations applicable to that operation. A manufacturer or producer may operate under a general ruling by submitting a letter of notification of intent to operate under that general ruling to a drawback office which, if the letter complies with the regulations, the drawback office acknowledges. There are general manufacturing drawback rulings under direct identification manufacturing drawback, under direct identification manufacturing drawback or substitution manufacturing drawback for agents, under direct identification manufacturing drawback for burlap or other textile material, flaxseed, fur skins or fur skin articles, and woven piece goods, and under substitution manufacturing drawback for component parts, orange juice, petroleum or petroleum derivatives, piece goods, raw sugar, steel, and sugar.
Low to High Drawback Accounting Method
In the case of the low-to-high accounting method, three alternatives are provided. Under the ordinary low-to-high method, withdrawals from the inventory are from the merchandise or articles in the inventory at the time of withdrawal with the least drawback amount per unit, including merchandise or articles with no drawback attributable to them. Under the low-to-high method with established average inventory turn-over period, withdrawals from the inventory are from the merchandise or articles received into the inventory during the established average inventory turn-over period which have not already been identified. Under the low-to-high blanket method, withdrawals from the inventory are from the merchandise or articles received into the inventory during the period preceding the withdrawal equal to the statutory period for export for the kind of drawback involved (e.g., 3 years for unused and rejected merchandise drawback, 5 years for manufacturing drawback) which have not already been identified. All receipts, whether imported or not, and all withdrawals, whether or not for export, from the inventory must be accounted for in the accounting record in the case of all methods, except for the low-to-high method with established average inventory turnover period and the low-to-high blanket method. In the case of those alternatives of the low-to-high method, domestic withdrawals (not for export) from the inventory need not be accounted for.
Manufacture or Production
Manufacture or production is the process by which merchandise is made into a new and different article having a distinctive name, character or use. Also, it is a process in which, although merchandise is not made into such a new and different article, the merchandise is made fit for a particular use.
Multiple products mean two or more products produced concurrently by a manufacture or production operation or operations.
Possession, for purposes of substitution unused merchandise drawback, means physical or operational control of the merchandise, including ownership while in bailment, in leased facilities, in transit to, or in any other manner under the operational control of the party claiming drawback.
Records include, but are not limited to, statements, declarations, documents and electronically generated or machine readable data which pertain to the filing of a drawback claim, or to the information contained in the required records in connection with the filing of a drawback claim, and which are normally kept in the ordinary course of business. The purpose of drawback recordkeeping is to enable Customs to verify drawback claims. Generally, records are used to follow the flow of goods from one stage to another, and to support certain regulatory requirements at certain points in the flow. These records provide traceability of the drawback merchandise and articles. The main point to keep in mind is that there must be records linking and/or establishing the particulars of importation, manufacture (when applicable), exportation (or destruction under Customs supervision), and other drawback requirements.
Relative value means, except for purposes of calculating the merchandise processing fee, the value of a product divided by the total value of all products which are necessarily manufactured or produced concurrently in the same operation (see MULTIPLE PRODUCTS). Relative value is based on the market value, or other value approved by Customs, of each such product determined as of the time it is first separated in the manufacturing or production process. Market value is generally measured by the selling price, not including any packaging, transportation, or other identifiable costs, which accrue after the product itself is processed. Drawback law requires the apportionment of drawback to each such product based on its relative value at the time of separation.
A schedule is the predicted production from the raw materials and shows the quantity of merchandise per unit of product. For example, a schedule could show that for every 10 pound unit of exports, 4 pounds of imported or substituted merchandise were used in its production, or appear in it. Unless a claimant indicates otherwise in regard to its general or specific manufacturing drawback ruling, the abstract method is used. The claimant must be able to demonstrate that the schedule accurately reflects the actual production.
Specific Manufacturing Drawback Ruling
A specific manufacturing drawback ruling means a letter of approval issued by Customs Headquarters in response to an application by a manufacturer or producer for a ruling on a specific manufacturing or production operation for drawback.
Substituted merchandise or articles means merchandise or articles that may be substituted under substitution manufacturing drawback, substitution unused merchandise drawback, or substitution of finished petroleum derivatives drawback as follows: (1) Under substitution manufacturing drawback, substituted merchandise must be of the same kind and quality as the imported designated merchandise or drawback product, that is, the imported designated merchandise or drawback products and the substituted merchandise must be capable of being used interchangeably in the manufacture or production of the exported or destroyed articles with no substantial change in the manufacturing or production process; (2) Under substitution unused merchandise drawback, substituted merchandise must be commercially interchangeable with the imported designated merchandise; and (3) Under substitution of finished petroleum derivatives drawback, a substituted article must be of the same kind and quality as the qualified article for which it is substituted, that is, the articles must be commercially interchangeable or described in the same 8-digit HTSUS tariff classification.
Third Party Transactions