Refunds of duty drawbacks, “substitution drawbacks”

Refunds of duty drawbacks, “substitution drawbacks”

Importers typically have questions concerning the potential for customs duty drawback refunds.


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“Substitution drawback” is a type of drawback that allows importers to obtain drawback without the cost of maintaining separate inventories for dutiable and non-dutiable merchandise or domestic and foreign merchandise. By claiming substitution drawback, importers may potentially reduce current drawback costs, and obtain refunds for a broader scope of merchandise.

There are two main types of substitution drawback:

  • Substitution manufacturing (19 U.S.C. section 1313(b)) can be used when materials and components are imported into the United States to be used in a manufacturing or production process and the finished product is then exported. Importers can use an accounting method, such as “first in-first out” (FIFO), to substitute fungible goods, whether domestic or foreign, making the tracking process significantly less difficult.
  • Substitution unused merchandise (19 U.S.C. section 1313(j)(2)) can be used when there are goods that are commercially interchangeable with other imported goods that were exported or destroyed before use. An accounting method may be used to substitute the destroyed foreign merchandise with other fungible goods, regardless of whether the merchandise being substituted was foreign or domestic—thereby allowing the importer a drawback refund.

KPMG observation

Prudent importers will consider taking a closer look at the type of drawback they are claiming—as well as whether or not they are claiming drawback at all—so as to identify possible or enhanced refund opportunities.


For more information, contact a professional with KPMG’s Trade & Customs practice:

  • Douglas Zuvich | (312) 665-1022 |
  • Andrew Siciliano | (631) 425-6057 |
  • John L. McLoughlin | (267) 256-2614 |
  • Todd R. Smith | (949) 885-5617 |
  • Luis A. Abad | (212) 954-3094 |
  • Amie Ahanchian | (202) 533-3247 |

Or your local KPMG Trade & Customs professional.


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