TradeLane

The “encouragements” that Adam Smith refers to are none other than Duty Drawback. In the United States, drawback has been a fixed part of trade policy since 1789 when the Founding Fathers understood that a thriving domestic economy required robust international trade. 

By allowing exporters of products to draw back duty imposed upon its initial importation, it puts those exporters on an equal footing with their overseas competitors. 

Simply put, better-priced products sell, well, better.

I have had better starts to the New Year. On the first Monday of the year, I don’t know who was tougher to get out of the house and off to school that first day, my wife (a teacher) or my toddler. Already this week, the Stock Market had dropped like a lead balloon, the Middle East was in shambles, China was giving signals of slowing down, North Korea supposedly tested an H-Bomb, and I spilled coffee on the tie I got for Christmas. Let’s hope next week goes much smoother. 

I imagine a lot of people are going to make predictions on Global Trade this year, from volume trends to new Free Trade Agreements, or whether the ACE deployment will be successful. While everyone else is making predictions, I am just going to pay special attention to these five events in 2016: 

Fancy cocktail toothpicks, yoga pants that do not leave much to the imagination, cell phone cases that are no longer in style, and cars that were washed and detailed by Hurricane Sandy while waiting at the port are just some of the items that were imported into the U.S. with the intention of being sold. Instead, they were disposed of and drawback claimed on the duties and fees paid.

People usually think of Duty Drawback as merchandise that is imported duty paid, then exported without entering the commerce of the U.S. However, if the merchandise is not sellable due to damage or defect (or poor taste) the merchandise may be returned to the foreign vendor or destroyed in the U.S. and a claim for drawback of duties paid can be filed. Often it is more cost effective for a foreign supplier to write off the merchandise as a loss and pay for a destruction rather than bear the costs of shipping the items back to the country of origin. This is most common when the items are damaged beyond repair (water-filled automobiles), seasonal (holiday sweaters) or just plain out of date (last years’ cell phone case). 

What do treadmills, party decorations, stereo equipment, and fun, sleeved blankets have in common? 

These are all products that have appeared on duty drawback claims that have been filed with U.S. Customs. Many everyday products that are sold in the U.S. are also sold in other countries. Items that are imported duty-paid into the U.S. prior to moving to their final destination outside the U.S. are eligible for a duty refund. 

If a company wants to import 6,000 fun, sleeved blankets in November the company must pay U.S. duty and fees on all 6,000 blankets. If the company has the intention of only selling 1,000 in the U.S. for holiday family pictures and chooses to send 5,000 to Canada for the start of indoor curling season, the company can get a refund of 99% of the duties and fees paid on the 5,000 blankets exported to Canada to warm those stylish curling fans.