Duty Drawback – Definition

Cite this article as:"Duty Drawback – Definition," in The Business Professor, updated November 23, 2018, last accessed October 27, 2020, https://thebusinessprofessor.com/lesson/duty-drawback-explained/.


Duty Drawback Programs Definition

Duty drawback, also known as simply ‚Äúthe drawback‚ÄĚ, is a trade program established in the U.S. that allows the importers, exporters, and manufacturers to claim a refund of certain duties, internal and revenue taxes and certain fees paid as importation charge. Specifically, if the imported goods are subsequently exported to another country or destroyed under the supervision of U.S. Customs and Border Protection, the importer can claim this refund.

A Little More on What is a Duty Drawback

When a good is imported into the country, certain taxes and tariffs are collected from the company. If those imported goods are then again exported to another country, claims for duty drawback can be made by the company. The goods exported do not necessarily need to be in the same condition as it was imported for claiming this refund. That means, if the imported good is a manufacturing material used for making the exported product, such refund is applicable.

This scheme was introduced for providing a competitive edge to the U.S based importers, exporters, and manufacturers in the global market. It is designed for the businesses who import products from another country and then re-export those either in the same condition or in form of another product made with those materials to the next destination. It helps the U.S. businesses to assume an advantageous position in the competitive market.

Say, for example, a U.S. based manufacturing company makes garments using raw materials imported from India. They pay certain duties and taxes for importing those materials. Then they export the garments made with those materials to Europe. In such cases, the company can claim a refund not exceeding 99 percent of the duties paid on the imported merchandise. When the garments are ready to be shipped, the company needs to pay an export tax for shipping it to the destination. In this case, the company would claim a drawback as they have already paid the import duties. This will reduce the duty payable during shipping the goods to another country.

References for Duty Drawback

Academic Research on What is Duty Drawback Programs

A conceptualisation of direct and indirect impact of export promotion programs on export performance of SMEs and entrepreneurial ventures, Shamsuddoha, A. K., Ali, M. Y., & Ndubisi, N. O. (2009). International Journal of Entrepreneurship, 13, 87. This paper provides a conceptual framework for understanding the direct and indirect impact of government export promotion programs (EPPs) on export performance of small and medium-sized enterprises and entrepreneurial ventures. Using internationalization process theory and resource-based theory, the authors conceptualize the direct role of EPPs on a number of organizational- and management-related factors. The findings will help provide direction for future researchers, executives, and policy-makers.

An institutional analysis of the design and sequence of trade and investment policy reform, Levy, B. (1993). The World Bank Economic Review, 7(2), 247-262.  This article examines the various approaches that different countries use when attempting to dismantle trade barriers and encourage investment. The organizational and political demands are considered, as are economic and political reform movements around the globe.

The rules for foreign investment in NAFTA, Rugman, A. M. (1998). Latin American Business Review, 1(1), 77-94. This article examines the rules regarding foreign direct investment (FDI) under the North American Free Trade Agreement (NAFTA). The author provides a general overview of these new rules and discusses their implication for regional trade within NAFTA as well as the possibility of future investment and trading blocks.

The protectionist bias of duty drawbacks: evidence from Mercosur, Cadot, O., De Melo, J., & Olarreaga, M. (2003). Journal of International Economics, 59(1), 161-182. This article shows how duty drawbacks and tariffs can have significant effects on exporters who use imported intermediates in their production. The effect of drawbacks on lobbying, counter-lobbying and external tariffs is also examined.

Global multiproduct production‚Äďdistribution planning with¬†duty¬†drawbacks, Oh, H. C., & Karimi, I. A. (2006). AIChE Journal,¬†52(2), 595-610. This article seeks to identify a gap in current research by addressing how duty drawbacks play into a firm‚Äôs supply chain. The authors introduce the drawbacks and explain their importance, then follow with a linear model of the chemical industry that incorporates a variety of regulatory factors. Through this model they show the importance of incorporating duty drawbacks into planning and distribution models.

Are¬†duty¬†drawbacks on exports worth the hassle?, Ianchovichina, E. (2007). Canadian Journal of Economics/Revue canadienne d’√©conomique,¬†40(3), 881-913. This paper offers a critical analysis on the use of export drawbacks. As there is no solid consensus about these programs, the author analyzes the pros and cons in regards to welfare effect and the drawbacks relationship to current WTO agreements.

Designing e-commerce cross-border distribution networks for small and medium-size enterprises incorporating Canadian and US trade incentive programs, Gessner, G. H., & Snodgrass, C. R. (2015). Research in Transportation Business & Management, 16, 84-94. This paper explores new incentive programs to help build e-commerce trade for small and medium-sized companies trading between the U.S. and Canada. The author examines the current program that each country has in place to encourage e-commerce. Implications regarding these programs and recommendations for future programs are also discussed.

Duty Drawback and Regional Trade Agreements: Foes or Friends?, Shadikhodjaev, S. (2013). Journal of International Economic Law, 16(3), 587-611. This article offers a legal assessment of the drawback plans that are used to promote the overseas sales of products under regional trade agreements (RTAs). That author concludes that the non-drawback rule in many RTAs can have negative implications for non-parties and lacks WTO justification, and should be liberalized.

Trade Policy Reform, Nash, J., & Takacs, W. (1998). Lessons and Implications, Washington DC, The World Bank Regional and Sectoral Studies. This report from the late 1990s offers a comprehensive look at the status of trade policy reform. The authors discuss the macro view of trade policy reform before examining reform via regionalism, trade expansion, safeguards, labor markets, and agriculture. Proposals for future trade reform are also offered.

Export trade incentives and export growth nexus: Evidence from Ethiopia, Fanta, A. B., & Teshale, G. B. (2014). British Journal of Economics, Management and Trade, 4(1), 111-128. This paper attempts to examine the type and trend of export incentive schemes and their effect on export growth in Ethiopia. Study Design: The authors try to shed light on whether and to what extent financial and fiscal incentives provided by the Ethiopian government have led to export growth in the country. They use time series data on financial incentives, fiscal incentives, export volume, export value, export diversification, GDP growth rate, and real effective exchange rate covering the period 2003 to 2011.

Rules of Origin in East Asia, Kirk, R. (2007). PREFERENTIAL RULES OF ORIGIN, 3. This research report examines the rules of origin (ROO) as they apply to East Asia. ROOs help establish the eligible partners in free trade areas (FTAs). The author offers an individual look at each of the states that make up the East Asia FTA. Profiles, current agreements, and recommendations for future trading positions are offered for each country.

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