Purchasing & Procurement
Duty Drawback is a refund of customs duties, taxes, and fees previously paid on imported merchandise that is subsequently exported or destroyed under customs supervision.
Full Definition
Duty Drawback allows CPG brands to reclaim import duties paid on raw materials, components, or finished goods that are later exported. This applies when imported ingredients are incorporated into a new product manufactured domestically and then sold internationally. It also applies if imported goods are simply re-exported in the same condition. This program significantly reduces the effective cost of imported inputs for CPG companies engaged in international trade.
Why It Matters for CPG Brands
For CPG brand operators, Duty Drawback directly impacts your Cost of Goods Sold (COGS) and overall profitability. By recovering duties, you can make your exported products more competitive globally, potentially increasing market reach and revenue. It's a key strategy for optimizing supply chain costs when sourcing ingredients internationally.
In CPG Operations
A snack food brand imports specialty spices from India for a new chip flavor. These spices are blended with other domestic ingredients and manufactured into finished chips. When these chips are then exported to Canada, the brand can claim a drawback on the duties paid for the original imported spices, reducing their ingredient cost.
Example
A gourmet chocolate brand with 8 SKUs imports organic cocoa beans from Ecuador, paying import duties. These beans are processed into chocolate bars in their US facility. If 30% of their annual production of these chocolate bars is sold to distributors in Europe, the brand can apply for Duty Drawback on the duties paid for those specific cocoa beans used in the exported finished goods, leading to significant savings on their raw material costs.
Manage Duty Drawback with Guidance
Guidance is the operations platform built for CPG brands. Replace your spreadsheets with one connected system for purchasing, production, inventory, COGS, and compliance.
Apply as a Design Partner
Frequently Asked Questions
What types of duties or taxes can be recovered through Duty Drawback?
Generally, customs duties, certain internal revenue taxes (like those on alcohol or tobacco), and some fees can be recovered. This primarily applies to duties paid on imported merchandise.
Does Duty Drawback only apply if I export the exact same imported item?
No, it also applies if you import raw materials or components, incorporate them into a new product manufactured in the U.S., and then export that finished product. There are different types of drawback claims for various scenarios.
What kind of records do I need to keep to claim Duty Drawback?
You'll need detailed records of your import entries (e.g., bills of lading, customs entry forms), proof of duty payment, manufacturing records showing how imported materials were used, and proof of export (e.g., export bills of lading, sales invoices to foreign buyers).