Legal Definitions - drawback

A drawback is a refund of customs duties, taxes, or fees that a government provides to a company that imported goods, but then later exports those same goods (or products made from them) out of the country. This system encourages international trade by ensuring that duties are only paid on goods intended for domestic consumption, not on those merely passing through or being processed for re-export.

Here are some examples to illustrate how drawbacks work:

• Example 1: Manufacturing for Export

  A company based in the United States imports specialized electronic components from Taiwan. These components are crucial parts for the advanced robotics systems the U.S. company manufactures. Once the robots are assembled, they are primarily sold and shipped to industrial clients in Germany and Japan.

  When the electronic components first entered the U.S., the company paid import duties on them. However, since these components were not consumed domestically but were integrated into products (the robots) that were subsequently exported, the company can apply for a drawback. This allows them to recover the duties paid on the imported components, making their exported robotics systems more competitively priced in the global market.

• Example 2: Processing and Re-export

  A large food distributor in Canada imports raw coffee beans in bulk from Colombia. In Canada, these beans are roasted, ground, and packaged into branded coffee products specifically designed for sale in the United Kingdom and Australia. The finished, packaged coffee is then exported to these international markets.

  The distributor initially paid import duties on the raw coffee beans when they arrived in Canada. Because the processed coffee was not sold within Canada but was instead exported, the distributor is eligible for a drawback. This refund of the original import duties on the beans helps reduce the overall cost of their exported coffee products, supporting their international distribution and sales.

• Example 3: Unsold or Returned Goods

  A clothing retailer in France imports a large shipment of seasonal fashion apparel from Italy. After the selling season, a significant portion of the clothing remains unsold. Instead of heavily discounting the items in the French market, the retailer decides to re-export the remaining inventory to an outlet store chain in the Middle East.

  The retailer paid import duties on all the apparel when it first entered France. For the items that were not sold domestically but were instead re-exported to the Middle East, the retailer can claim a drawback. This allows them to recover the duties paid on those specific unsold items, improving the financial viability of re-exporting inventory rather than incurring losses through deep domestic discounts or disposal.