Duty drawback: recover import duties on re-exports (2026)
Duties you paid that are sitting idle
A garment maker in India imports fabric from China, pays the import duty, sews jackets, and exports them to a UK retailer. A US distributor receives a pallet of electronics that turns out to be defective and ships it back to the supplier. In both cases, customs duty was paid on goods that will not stay in the country. Should that money simply vanish? No — that is exactly what duty drawback is designed to fix.
Drawback is one of the most profitable and most overlooked tools in international trade. Many importer-exporters do not realise they can recover almost all of the duty they paid, sometimes years after the fact. This guide maps the mechanisms by country for 2026, separates refunds from suspensions, and gives three worked examples you can apply directly.
What is duty drawback?
Duty drawback is the refund of customs duties already paid on imported goods, when those goods are subsequently re-exported — either in the same state or after processing or incorporation into a finished product.
The economic logic is simple: a country taxes domestic consumption, not transit. If goods merely pass through on their way back out, charging definitive duty would needlessly penalise exporters. Drawback restores neutrality.
Two families of relief are often confused:
- The refund (drawback in the strict sense): you pay duty on import, then claim it back after re-export. Used in the US, Canada and India.
- The suspension (inward processing): duty is never paid up front. This is the UK/EU model under the Union Customs Code, which largely replaced the old drawback system.
US law alone recognises three main drawback types, and knowing which one fits your flow is half the battle. Manufacturing drawback (19 U.S.C. 1313(a) and (b)) covers imported inputs transformed into an exported product. Unused merchandise drawback (1313(j)(1)) covers goods imported and re-exported without being used. Rejected merchandise drawback (1313(c)) covers defective or non-conforming goods returned abroad. Each type has its own evidence requirements, but all are filed electronically through the Automated Commercial Environment (ACE) and all benefit from the same 99% ceiling and 5-year window.
Mechanisms by country (2026)
Overview of the main regimes. The percentages and deadlines are reference values; a specific case may differ.
| Country | Mechanism | Recovery | Filing deadline |
|---|---|---|---|
| United States | Duty Drawback (19 U.S.C. 1313) | up to 99% | 5 years after import (TFTEA 2015) |
| United Kingdom | Inward Processing (suspension) | full suspension | prior authorisation |
| UK / EU (refund) | Repayment/remission, UCC 116-121 | depends on grounds | typically 3 years |
| India | Duty Drawback, s. 75 (AIR) | flat rate per product | at time of export |
| Canada | Duty Drawback (CBSA) | up to 100% | 4 years after import |
| EU (processing) | Inward processing (suspension) | full suspension | prior authorisation |
Key takeaway: in the UK and EU, the winning reflex is up-front suspension (inward processing) rather than after-the-fact refund — you never tie up cash. In the US, India and Canada, claiming a refund afterwards remains the standard route.
Conditions, evidence and deadlines
Whatever the country, three conditions recur.
1. Traceability. You must prove the link between the imported goods (import entry, duty paid) and the re-exported goods (export declaration). In the US, "substitution" lets you match by 8-digit HS code rather than by physical lot, which hugely simplifies high-volume flows.
2. The discharge window. Under suspension (UK/EU inward processing), re-export must occur within the period set by the authorisation (often 6 to 24 months). For a refund (US, Canada), it is the filing of the claim that is capped — 5 years in the US, 4 years in Canada.
3. Prior authorisation for suspension. Inward processing in the UK and EU requires a customs authorisation obtained before import. An Authorised Economic Operator (AEO) status speeds up and secures that authorisation.
Three worked examples
Example 1: US drawback after manufacturing
Components imported to the US = $200,000
Duty paid (3.5%) = $7,000
Finished goods exported to Mexico
Drawback = 99% × $7,000 = $6,930 refunded
Filing window = 5 years after import
On a recurring flow, $6,930 per cycle quickly becomes tens of thousands of dollars a year — money too often abandoned because no drawback file was ever built.
Example 2: India AIR drawback for a textile exporter
Cotton garments exported, FOB value = $80,000
All Industry Rate (illustrative) = 2.5% of FOB
Drawback credited = 0.025 × 80,000 = $2,000
Claimed automatically via the shipping bill
India's All Industry Rates are published per product category by the CBIC and credited to the exporter's account, usually without a separate brand-rate application. The rate is a flat percentage of FOB, so it may not match the exact duty paid — but it removes the paperwork burden entirely.
Example 3: defective goods re-shipped from the UK
Consignment imported into the UK = £30,000
Duty paid (6%) = £1,800
Goods defective, returned to the supplier
Refund for defective goods = £1,800
Claim to file within 3 years
The refund for defective or non-conforming goods (UCC article 118, retained in UK law) is a "drawback" case that is often forgotten: goods re-exported because they did not conform open a right to recover the duty.
Estimate your recoverable duty on the TRADE-COST calculator
Enter origin, value and HS code to find the import duty amount — the basis for any drawback claim or suspension request.
Run calculation →Conclusion: drawback is an asset, not paperwork
Recovering duty on re-exports is not an administrative favour — it is a right written into customs codes, and it can represent several margin points on an export flow. The golden rule: decide up front between suspension (ideal in the UK and EU) and refund (standard in the US, Canada and India), then build airtight import-to-export traceability.
To go further, see our guide to the EU customs procedure 42 (importing without fronting VAT), our briefing on AEO status which streamlines inward-processing authorisations, and our analysis of recoverable import VAT so you never confuse duty with tax.
Frequently asked questions
What is the difference between duty drawback and inward processing?+
Drawback is a refund: you pay duties on import, then claim them back after the goods are re-exported. Inward processing (the relief used in the UK and EU) is a suspension: duties are never paid up front, provided the goods are imported to be processed and re-exported. Drawback ties up working capital for months; suspension preserves it. In the US, India and Canada, 'drawback' means the refund route; in the UK and EU the historic drawback system was largely replaced by inward processing relief.
How long do I have to file a drawback claim?+
Deadlines differ by country. In the US, a duty drawback claim must be filed within 5 years of the import date (under the 2015 TFTEA law). In Canada, the window is 4 years. In the UK and EU, an application for repayment or remission of duty (UCC articles 116-121, retained in UK law post-Brexit for legacy cases) is typically made within 3 years of notification of the customs debt. In India, the drawback claim is filed at the time of export through the shipping bill. Always confirm the deadline in your jurisdiction.
What percentage of duties can I actually recover?+
In the US, drawback refunds up to 99% of the duties, taxes and fees paid (the remaining 1% covers administration). In Canada, recovery can reach 100% of duties. Under EU/UK inward processing the duty is suspended entirely, so there is nothing to claim back if the regime is used correctly. In India, drawback is paid at All Industry Rates (AIR) published by the CBIC per product category, expressed as a percentage of FOB value — these do not always cover 100% of the duty actually paid.
Does drawback also refund import VAT or GST?+
Not through drawback itself, which covers customs duty. Import VAT/GST follows its own route: a registered business recovers it as input tax on its VAT return, independently of any re-export. Under inward processing (UK/EU) or temporary admission, however, import VAT is also suspended while the goods remain under the regime. For the VAT recovery mechanics specifically, see our dedicated guide.
Does drawback apply to goods that were never processed?+
Yes in several countries. In the US, 'unused merchandise drawback' (19 U.S.C. 1313(j)) refunds duty on goods imported and re-exported without being used, and 'rejected merchandise drawback' covers defective or non-conforming goods returned to the supplier. In the UK and EU, returned goods relief and the refund for defective goods (UCC article 118) cover comparable situations. Re-export in the same state is therefore often eligible, not only manufacturing.
Marie Fontaine
Marie leads customs research at TRADE-COST. She spent eight years in tariff classification and post-clearance audits before joining the product team to turn customs expertise into software.
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