Despite the news about the stagnation of the economy in recent months, there has been one bright spot: export profits. With 95 percent of the world's consumers residing outside U.S. borders, a weakened dollar that makes American goods more affordable and a decline in domestic demand, more U.S. companies are boosting their exports to bolster their bottom lines. But there's more profit to be made on shipments abroad than just the margin between selling price and cost.

Since the nation's founding, the federal government has passed laws to promote exports and improve the global competitiveness of U.S. companies. One of these is duty drawback. Drawback is a 99 percent refund of import duties on exports. In other words, if you use imported raw materials, intermediate products or other inputs in the manufacture of products that are then exported, you can get back virtually all the duties you paid on those imports. You don't even have to use the specific products you imported to qualify; in certain cases, you can substitute U.S.-made goods that are substantially the same as the imports and still get a refund of the duties you paid on the foreign goods.

Under U.S. law, three primary types of drawback are allowed: unused, manufacturing and rejected merchandise drawback.

  • Unused merchandise drawback --Merchandise that's imported or substituted for commercially interchangeable merchandise and exported without being used for its intended purpose in the U.S. is eligible for this drawback. Even if the imported or substituted merchandise undergoes certain incidental operations such as repackaging, unused drawback is still available.
  • Manufacturing drawback --This drawback applies to imported merchandise or substituted goods of the same kind and quality used to manufacture a new and different article. If the manufactured article is subsequently exported from the U.S., a drawback claim may be filed on the imported or substituted merchandise that was used to produce the exported article.
  • Rejected merchandise drawback --Finally, if the goods were imported without the consent of the consignee, were defective when imported or did not conform to specifications, the goods may be returned to the foreign supplier and a rejected merchandise drawback claim may be filed upon exportation. As with unused merchandise drawback, the products must not be used for their intended purpose prior to exportation.

Although by law drawback accrues to the exporter, the importer, manufacturer or an intermediate party may claim drawback with the cooperation of the other parties involved. Also, certain documentary evidence is required to transfer both the merchandise and the drawback rights to the company that ultimately makes the drawback claim.

It's important to note, however, that this overview is just that: an overview. The rules and regulations for using drawback are relatively complex and change frequently as new legislation and free-trade agreements come into effect. If you think you may be eligible to claim drawback and want to take advantage of this money-saving tool, it's best to work with a customs broker that specializes in drawback and has a staff dedicated to that function. A good drawback firm can help you estimate your drawback potential, develop and implement a drawback program, obtain the required import/export documentation from third parties and prepare and file drawback claims with U.S. Customs and Border Protection.

Smart exporters know and use the drawback system to maximize their profits and stay competitive in today's international marketplace.