Customs Duty Drawback – General Information
The term “drawback” or “customs duty drawback” refers to the refund of federal duties, taxes and fees paid on imported merchandise that may be recovered when qualified articles are exported.  The drawback law and regulations are complex and arcane (19 U.S.C. § 1313, 19 C.F.R. §§ 191, 181 re NAFTA), especially as they relate to petroleum products.   This section provides a brief background on the various types of duty drawback.

Manufacturing Drawback (19 U.S.C. §§ 1313(a), (b)) is based upon the eligible export of articles produced in the U.S. from imported, duty-paid inputs / feedstocks or similar (“same kind and quality”) domestic substituted inputs/feedstocks (i.e. substitution manufacturing).

Non-Manufacturing / Unused Merchandise Drawback (19 U.S.C. §§ (j)(1), (2)) is based upon the export from the U.S. of imported, duty-paid articles or similar (“commercially interchangeable”) substituted domestic articles.

Petroleum-Specific “p” Drawback (19 U.S.C. § 1313(p)) applies only to petroleum and related products and has both manufacturing and non-manufacturing applications.  A brief history of “p” drawback is provided below.

With NAFTA’s passage, the eligibility of exports to Canada or Mexico for drawback purposes was significantly modified.  Only under certain circumstances will drawback be available for these types of exports (ex:  unused merchandise drawback with specific identification from import to export).

Petroleum Drawback – A Brief History
The provision of the drawback statute that is most significant to Charter and its clients is subsection (p), the so-called petroleum drawback section.  (See 19 U.S.C. 1313(p).)  Subsection (p) permits the recovery of customs duties paid on imported gasoline upon the exportation of jet fuel.  Under 19 U.S.C. § 1309, jet fuel used on international, other qualified flights, or sold to the U.S. military is considered exported for drawback purposes. 

First enacted as a viable law in 1993 with NAFTA and the Customs Modernization Act, which permitted pre-export substitution, 1313(p) was amended in 1999 to permit the substitution of exported jet fuel and imported gasoline.  As amended, 1313(p) allows for substitution at the first 8-digit level of the Harmonized Tariff Schedule of the U.S., (the “HTSUS”) (see 19 U.S.C. § 1202) for enumerated petroleum and related classifications.  Unlimited substitutions are possible, so long as within the 180-day import-to-export period and the sequence of import to domestic sale(s)/ exchange(s) to export is maintained.

At the time the 1313(p) amendment was passed both gasoline and jet fuel were classified as "motor fuel" under the HTSUS.  Jet fuel was classified under HTSUS as 2710.00.1530 at a duty rate of 52.5¢ per barrel ($.0125 per gallon), and gasoline was classified under HTSUS as 2710.00.1514-1518 at the same duty rate.

Most jet fuel consumed in the United States is produced domestically and, before the amendment to the drawback statute in 1999, drawback recoveries were modest.  However, after 1999, when the duties paid on imported gasoline could be recovered against the quantities of jet fuel used on international flights, the change was dramatic.  This amendment significantly expanded the availability of drawback to the petroleum and airline industries, and the principals of Charter were intimately involved in the efforts to enact this legislation and promulgate the regulations governing the filing of drawback claims and recovery of duties.

Drawback became an important element of the price of jet fuel, and all airlines now anticipate sharing in drawback recoveries with their jet fuel suppliers.  Finally, in 2003 U.S. Customs approved an interpretation of the drawback law and regulations that permits the recovery of drawback on jet fuel purchased by the U.S. military. 

To learn more about Charter’s duty drawback services, contact us.