Substitution Drawback: Unused Merchandise Claims Under 1313(j)

Substitution drawback lets an importer recover up to 99% of the duty paid on imported goods when it exports or destroys goods of the same kind, even if they are not the exact units it imported. For unused merchandise it is authorized by 19 U.S.C. 1313(j)(2). It is the reason distributors, brands and e-commerce sellers with mixed inventory can claim drawback at all.

What is unused merchandise drawback?

Unused merchandise drawback, 19 U.S.C. 1313(j), covers imported goods that leave the United States, or are destroyed under CBP supervision, without being used here. It comes in two forms.

• 1313(j)(1), direct identification: The exported unit is the same unit you imported, traced by serial number, lot or inventory records.
• 1313(j)(2), substitution: The exported goods are of the same kind as the imported goods, and the units can differ.

Incidental operations such as testing, cleaning, repacking and inspection are allowed. They do not count as use.

How does substitution work under TFTEA?

• The HTS test: The imported and exported goods generally have to be classifiable under the same 8-digit HTS number.
• The "other" rule: When the 8-digit article description begins with "other," the match has to be at the 10-digit level.
• The lesser-of rule: The refund is limited to the lower of the duty paid on the import and the duty that would apply to the exported goods.

Before TFTEA took effect in February 2018, substitution required goods to be "commercially interchangeable," which was a judgment call. The tariff classification test made substitution predictable, and it is why most high-volume unused merchandise claims today are substitution claims.

Who uses substitution drawback?

• Distributors and wholesalers that import inventory and sell part of it to foreign buyers.
• Consumer brands that ship orders to Canada, the U.K., Australia and other markets, including single-parcel e-commerce orders.
• Companies that destroy imports such as expired or obsolete stock, under CBP supervision.

Deadlines and notices

• Five years: File within five years of the import date of the designated merchandise.
• Notice of intent to export: File CBP Form 7553 at least 5 working days before export, or 7 working days before destruction, unless you hold a waiver. See our Form 7553 guide.
• Waivers: A waiver of prior notice under 19 CFR 190.91 removes the Form 7553 step for covered exports, and a one-time waiver lets a first-time claimant reach exports that already happened.

The data a substitution claim needs

• Imports: Entry summary lines with HTS numbers, quantities and duty paid. ACE holds five years of this.
• Exports: Each export shipment with date, product, quantity and proof of export, including carrier records for parcels.
• The bridge: A product-to-HTS mapping so each export can be matched to imports under the same classification.

The match itself is an optimization problem. Pairing each export with the import that carries the most eligible duty, within the lesser-of rule, can change the size of a claim considerably.

Frequently asked questions

Do I need to track the exact units I exported? No, not for substitution. You need the HTS match and records that tie each export to an eligible import.

Can I claim drawback on e-commerce orders shipped abroad? Yes, when the export is documented. Carrier records can serve as proof for small parcels.

Can I use substitution if someone else imported the goods? Yes, with transfer records under 19 CFR 190.10 and the right waivers in the supply chain.

How Caspian handles substitution drawback

Caspian pulls your ACE import history and your order and shipping data, builds the HTS bridge, and matches every export to the eligible import with the most recoverable duty. Our licensed brokers file the claim and track the refund. See our duty drawback services or the full duty drawback guide.

Works Cited:

• 19 U.S.C. 1313, Drawback and refunds
• 19 CFR Part 190, Modernized drawback
• 19 CFR 190.91, Waiver of prior notice