BONDING THE MODERNIZATION OF DRAWBACK
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)