What is Tariff Duty Drawback and How Does It Work?

Tariff duty drawback is a US Customs program that allows businesses to recover up to 99% of the import duties, taxes, and fees they paid on goods if those goods are later exported or destroyed. In essence, it’s a refund system: when you import products and eventually don’t sell them in the US, the government will give back most of the duties you originally paid. This program has been around since the 18th century, making it one of the oldest trade policies in the US. The goal has always been to encourage American companies to compete globally without being penalized by import tariffs on goods that ultimately leave the country.

Think of it as a “cash-back” on tariffs: you pay duties when goods enter, but if those goods exit the US unused or as part of an export, you can get that money back. The process is detailed and paperwork-intensive, but the payoff can be significant for companies that qualify.

How Duty Drawbacks Help Reduce Import Costs

Duty drawback can dramatically reduce import costs by refunding duties that would otherwise be a sunk expense. For companies that re-export products or use imported inputs in exported goods, this means real money back in their pockets. A mid-sized firm that exports a portion of its imports might reclaim hundreds of thousands of dollars each year, and larger exporters can recover millions in duties that would have otherwise increased their costs. By effectively “canceling out” up to 99% of the tariffs on exported goods, duty drawback lowers the net cost of imports and helps US businesses stay competitive on price internationally.

Still, many companies don’t take advantage of these savings. Industry estimates suggest roughly 70% of eligible duty refunds go unclaimed, amounting to billions of dollars left on the table every year. This may be because some have never heard of the program or assume it’s too complex. But those who do invest the effort (or use expert help) find that duty drawback can significantly boost their bottom line.

Who is Eligible to Claim Duty Drawbacks?

The good news is that multiple parties in the supply chain can qualify for a duty drawback refund, as long as they coordinate properly and have the right documentation. 

US regulations say the importer of record (the entity that originally paid the duties) is eligible to file a drawback claim, and so is the exporter of the goods (even if they weren’t the original importer) provided the exporter obtains the importer’s permission (usually via a signed assignment of drawback rights or a power of attorney). In practical terms, this means if your company imported the goods and later exported them, you can claim the refund directly. If your company only exported goods that someone else imported (for example, you bought products domestically and then shipped them abroad), you can still claim the drawback by working with the original importer to assign you the right to the refund, or by having a legal agreement that designates your company as the drawback claimant.

Other eligible claimants include the manufacturer of an exported product (if imported materials were used in it) and even a third-party broker or agent specialized in drawbacks acting on behalf of the exporter. For instance, a manufacturing company that imports raw materials and produces an item for export can file for a refund on the duties paid for those materials. Alternatively, companies often hire licensed customs brokers or drawback specialists, who can be authorized to file claims on the company’s behalf. The key is that only one party can claim a particular refund, so importers and exporters need to decide who will take the lead. If the exporter is not the importer, they must ensure the importer signs off to avoid duplicate claims.

Types of Duty Drawbacks (Manufacturing, Unused, Rejected)

Not all duty drawbacks are the same. There are several categories of drawback defined by how the goods were used or what happened to them. The main types include:

• Unused merchandise drawback: This applies when imported goods are exported in essentially the same condition they were imported, without significant use or alteration in the US. If you bring in products and simply re-export them (or you end up not selling them domestically and ship them out), you can claim a refund on the duties for the exported portion. (Example: A retailer imports 10,000 shirts, pays import duty, and later exports 4,000 of those shirts to stores abroad unsold. Those 4,000 qualify for a duty refund because they left the country unused.)

• Manufacturing drawback: This covers situations where imported materials are used in the manufacturing of a new article that is then exported. If you import components or raw materials, incorporate them into a finished product in the US, and then export that product, you can get back the duties paid on the inputs proportional to the quantity exported. (Example: A US factory imports steel, uses that steel to make machinery, and exports some of the machines overseas. It can claim drawback on the import duties for the amount of steel that went into the exported machines.)

• Rejected merchandise drawback: This applies when imported goods are defective, damaged, or not as ordered and thus are rejected and subsequently either exported back to the seller or destroyed under customs supervision. In such cases, since the goods couldn’t be used as intended in the US, you can recover the duties paid. (Example: An importer receives a batch of electronics that turn out to be faulty. The items are returned to the foreign supplier (or scrapped domestically with CBP approval). The importer can claim a refund of duties on those rejected units because they essentially didn’t enter US commerce in a usable way.)

All three of these scenarios allow up to a 99% refund of the duties originally paid. There are additional special provisions, but most claims fall under the above categories. Knowing which category your situation fits into is important, because it determines what evidence you need. But overall, whether you export unused goods, export products made from imported inputs, or return defective imports, the duty drawback program likely has a path to get your money back on those import fees.

The Claim Process: Step-by-Step Guide

Filing a duty drawback claim can seem daunting, but it essentially boils down to a step-by-step process to prove to CBP that you exported (or destroyed) imported goods and deserve a refund. Here’s a simplified guide:

Step 1: Import and Pay Duties

First, your company imports goods into the U.S. and pays any required customs duties, tariffs, and fees at entry. This import event is the start of the drawback timeline. Keep records of what you imported, how much duty you paid, and on which entries, since these will form the basis of your claim.

Step 2: Export or Destroy the Goods

Next, some or all of those imported goods (or products made from them) are exported out of the United States, or officially destroyed if they were unusable. You might export the items as-is to a foreign buyer, incorporate them into a product you ship abroad, or destroy defective/unsold goods under CBP supervision. To qualify, the export or destruction must occur within 5 years of the original import date (that is the legal window for drawback). You should also ensure the goods meet the criteria for one of the drawback types: for example, unused goods haven’t been substantially used or altered in the U.S., and manufacturing goods have indeed been made into an exported product.

Step 3: Identify the Goods for Drawback

This step is critical: you need to match up your exports or destroyed goods with the original imports on which duty was paid. CBP requires a clear linkage to prevent fraudulent claims. Identification can be done by Direct Identification (tracing serial numbers, lot numbers, or other unique identifiers from import to export) or by Substitution, where you show that the exported goods are “commercially interchangeable” with the imports (typically by sharing the same 8-digit Harmonized Tariff code). At this stage, it’s important to have good inventory tracking.

Step 4: Gather Required Documentation

To support your claim, you must compile a document package proving the import, export, and duty payment. Key documents include the import entry summaries (CBP Form 7501) and proof of duties paid (duty payment receipts or account statements), as well as export documents like bills of lading, air waybills, or commercial invoices showing the goods left the US. If it’s a manufacturing drawback, you’ll need production records or a certificate of manufacture to show imported inputs were used in the exported product. For rejected goods, you’ll need evidence of the product issue and possibly a CBP Form 7553 (Notice of Intent to Export, Destroy or Return Merchandise) filed when you destroy or export the rejected items. Essentially, anything that traces the path from import to export (invoices, inventory ledgers, shipping documents, destruction certificates, etc.) should be organized as part of your claim file.

Step 5: Submit Your Claim via ACE

All drawback claims must be filed electronically with US Customs. Today this is done through ACE (Automated Commercial Environment), the online portal for trade filings. You (or your broker) will prepare a CBP Form 7551 (Drawback Entry) summarizing the claim (listing the imports, the corresponding exports, the duties to be refunded, etc.) and transmit it through ACE along with all your supporting documents. It’s crucial to file within the allowed time: claims must be submitted within 5 years of the date of import (and remember, the export/destruction also must occur within that five-year span). 

Once the claim is filed, you may receive an acknowledgement from CBP, and your claim will enter review. Sometimes CBP will ask for additional information or clarification during processing. If you have Accelerated Payment privileges (granted by CBP to experienced filers), you might get an early refund before final verification. Otherwise, expect to wait for approval.

Step 6: Receive Your Refund

After review, if everything is in order, CBP will approve the drawback claim and issue your refund, typically a check or electronic payment for 99% of the duties you claimed. How long does this take? Generally, 3 to 6 months is common for drawback refunds to be processed, though complex claims or large dollar amounts can take longer. In recent years, CBP’s workload for drawbacks grew (especially after 2018’s tariff increases), leading to some backlogs. But once approved, the refund is real cash back to your company.

Important: Even after you receive the refund, you must keep all related records for at least 3 years beyond the refund date, as CBP can audit drawback claims and demand repayment if something was amiss.

Common Mistakes to Avoid When Filing

Duty drawback provides great benefits, but the process is intricate, and it’s easy to make mistakes that delay or derail your refund. The most common issues include:

• Poor documentation: If import and export records don’t match, CBP won’t issue a refund. Mismatched tariff codes, missing entry numbers, or incomplete audit trails are frequent deal breakers.

• Misunderstanding the rules: Many companies miss the five-year filing deadline or overclaim refund amounts, not realizing how exact CBP’s requirements are.

• Lack of expertise or tools: Filing without a broker or robust digital platform often leads to preventable rejections or unclaimed refunds.

Treating drawback like a quick refund is risky. Treating it like a structured compliance process pays off.

Conclusion

Duty drawback isn’t a loophole or a shortcut. It’s a well-established, compliance-driven program that can turn tariff costs into tangible savings when handled carefully. The catch is that it demands precision, patience, and good data. Companies that treat drawback as a strategic financial tool, rather than an afterthought, often recover funds that strengthen their cash flow and boost their global competitiveness.

In a trade landscape defined by volatility, every dollar recovered matters. And in the hands of prepared importers and exporters, duty drawback becomes a competitive advantage hidden in plain sight.