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While duty drawback isn’t new as it’s been around since 1789, drawback has had a major facelift in recent years. In 2019, Modernized Drawback, 19 CFR 190, changed drawback which has brought about more duty recovery opportunities for U.S. companies who are importing and exporting. 

Prior to Modernized Drawback, drawback was largely done at the part number level, now the regulations allow for imports to be matched to exports that match by 8-digit HTS. While some limitations apply, there are significantly more matching opportunities for companies. This means that companies have not only more flexibility in how they can match their imports to their exports but also there’s the option for exports of domestically sourced merchandise to be used to recover the duties paid on similar merchandise.

While Modernized Drawback already improved the drawback recovery opportunities for companies, the Section 301 tariffs (which goes by many names) introduced higher duties on certain products and duties altogether for others (i.e., electronics). According to the CBP Trade and Travel Report for FY2021, “for Section 301 goods from China, CBP assessed more than $44 billion in duties” which is more than half of the duties collected by CBP during that fiscal year ($85.5B). As these tariffs are eligible for drawback recoveries, companies were realizing much higher drawback refunds per year and new companies who never had the need for drawback entered the scene ($1.2B in drawback filed in 2018 compared to $2.5B filed in 2021).

Refunds are issued at the time of liquidation however Importers can accelerate payment by posting an Activity Code 1A drawback bond. The bond amount is equal to the accelerated payment to be received and may be written as either a single transaction or continuous bond

While higher refund opportunities have created an uptick in high limit drawback bond requests, sureties must be careful when assessing the increased exposure. The risk under this bond is the importer’s ability and willingness to repay Customs if it’s deemed the refund exceeds what the importer is entitled to.

Along with short-staffing and the increase in drawback activity, there are delays in the processing of applications, claims, and other critical responsibilities which then delay liquidations of drawback claims. Additionally, if an import that appears on a drawback claim has not liquidated, the drawback claim cannot liquidate – this means that some drawback claims can remain unliquidated for years after filing and subsequent claims are most assuredly filed in the meantime, layering that liability for sureties.

“As a leading surety in the space, IB&M views these changes as a good opportunity to apply the same sound underwriting practices as we normally do. We are in full support of the drawback modernization movement.” James Reiss - IB&M President

(Content: Tim Vorderstrasse, LCB, CCS & Jason Wieselman)