Additional Tariffs Make Duty Drawback Program More Complicated, Flexport Expert Says
As importers seek to comply with the many tariffs that have been introduced or modified in recent months, they will need to be mindful of entry construction if their goods are eligible for duty drawback, according to Tim Vorderstrasse, a licensed customs broker with Flexport, speaking during his company's Aug. 6 webinar on tariffs.
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That's because of potential line splits that might arise as companies seek drawback amid multiple tariff schemes, Vorderstrasse said. "Sometimes one commercial invoice line now relates to entry lines," as evidenced by line splits. "So, a lot of complexity [has been] introduced to drawback."
Importers must know what portion of duties is eligible for drawback and what portion is not, because "enforcement is coming," Vorderstrasse said. While he believes that enforcement may start out with certain tariff numbers, brokers and importers still will need to ensure that they are claiming only what they're allowed to claim and that duties are being apportioned and calculated correctly on the import side and the drawback side.
Adding complexity to this issue is that there are also new companies taking advantage of drawback, which in turn is increasing the amount of time CBP takes to review and approve drawback applicants, let alone CF-28 forms, Vorderstrasse said. "So, be ready. If you are new on the scene [and] you want to claim drawback, I would start as soon as possible, because it's first come, first served, and those resources are going fast."
Vorderstrasse urged companies to review their drawback program, particularly if their program is more than five years old, as new regulations "have opened up opportunities in really transformative ways, and you want to take advantage of that." However, even new companies could stand to rethink their drawback approach to ensure optimal results, he continued.
That review of a drawback program might include looking at the accounting methods used, particularly if a company is importing and exporting to Canada or Mexico or importing and exporting a commodity that hasn't been specifically called out within the Harmonized Tariff Schedule, according to Vorderstrasse.
"If you're not 100% sure of the type of drawback you're claiming, and on top of that, which accounting method you're using, you want to make sure you understand what accounting method you're using, because they could have dramatic implications to your drawback recoveries," Vorderstrasse said. "If you're using one of these easier accounting methods, they're great, but they're not great when you're importing similar merchandise with varying values or varying duties over a period of time."
Furthermore, "we're in a period of volatility," he continued. "There are increased tariffs all over the place, and what you were paying is very different than potentially what you're paying now, and so you want to revisit your accounting method to make sure you're capitalizing on your traction to making the most out of it."
Importers should also review their entry construction to ensure that any reconciliation increases are being captured, he said. They should also look down the supply chain to see what their partners are doing with the merchandise.
"If you're buying imported merchandise, you could be eligible for drawback if that merchandise is later exported or destroyed. Similarly, if you're importing or buying imported merchandise and then turning around, selling to somebody, and that somebody is exporting the merchandise or destroying the merchandise with their cooperation, you can claim that money back," Vorderstrasse said.