USMCA drawback: the lesser of the two duties rule

Usually yes, but often for far less money than you expect. Under 19 CFR Part 182, Subpart E, drawback on a good exported to Canada or Mexico is limited to the lower of two numbers: the total duties you paid or owe in the United States, or the total duties paid on that same good when it was imported into Canada or Mexico (19 CFR 182.44(a)). If the good enters Canada or Mexico duty-free, the lesser amount is zero — and so is your refund.

The exceptions are what make this program workable for most consumer brands. Goods exported to Canada or Mexico in the same condition as imported qualify for full drawback under 19 U.S.C. 1313(j)(1), with no lesser-of limitation at all (19 CFR 182.45). Claims for these exports must be filed separately from ordinary Part 190 claims, flagged with the indicator "USMCA Drawback," and backed by the foreign customs entry showing what duty was actually paid (19 CFR 182.47).

Most drawback runs under 19 CFR Part 190. Exports to Canada and Mexico run under Part 182, Subpart E (19 CFR 182.41–182.55), which implements USMCA Article 2.5 and applies to any good that is a "good subject to USMCA drawback" within the meaning of 19 U.S.C. 4534 (CBP interim final rule, January 17, 2025).

That means separate math, a separate claim and a separate indicator. CBP requires a USMCA drawback claim to be filed separately from any Part 190 claim covering exports to the rest of the world. If your broker is lumping Canadian and Mexican exports into the same filing as your European and Asian exports, that is a problem worth raising this week.

Run the comparison per good. Take the duty attributable to the merchandise on the U.S. import entry. Then take the duty the importer of record actually paid when the good entered Canada or Mexico. Drawback is granted on the lower of the two, and never exceeds 99 percent of the duty paid on the U.S. import (19 CFR 182.44).

CBP's own regulatory example under the NAFTA predecessor makes the outcome blunt: where Canada assessed a free rate of duty, there is no entitlement to drawback, because zero is the lesser amount compared with the $1.00 of U.S. duty attributable to the product (19 CFR Part 181). Many finished consumer goods move into Canada and Mexico at low or zero rates, which is exactly why this rule quietly zeroes out so many claims.

Section 182.45 carves out three categories that are eligible for drawback without regard to the 182.44 limitation. First, same-condition exports: a good imported into the U.S. and then exported to Canada or Mexico in the same condition is eligible under 19 U.S.C. 1313(j)(1).

Second, originating goods: a dutiable Canadian or Mexican originating good — determined under General Note 11, HTSUS and Appendix A — that is imported into the U.S. and then exported to Canada or Mexico, used as a material in a good so exported, or substituted by a good of the same 8-digit HTSUS subheading and so used.

Third, rejected merchandise: goods exported to Canada or Mexico because they fail to conform to sample or specification, or were shipped without the consignee's consent, under 19 U.S.C. 1313(c)(1)(C)(i).

For brands importing finished goods into a U.S. warehouse and then shipping north or south, the same-condition exception is the whole ballgame. Section 182.45(b) treats a good as being in the same condition even after operations that do not materially alter its characteristics: dilution, cleaning, applying preservatives, trimming, slitting or cutting, packing or repacking, and testing, marking, labelling, sorting, grading or inspecting.

Where companies lose the exception is in the value-add. Kitting multiple SKUs into a new sellable unit, assembly, or any processing that changes what the good is pushes you out of same condition and back under the lesser-of cap. If you are unsure, document the operation step by step before you file — the distinction is factual, and CBP will test it against the 182.45(b) list.

One more practical note: section 182.42 states there is no payment of 1313(j)(2) drawback — substitution unused merchandise drawback — on goods exported to Canada or Mexico. Also excluded from refund are antidumping and countervailing duties and premiums on quantitative restrictions, tariff-rate quotas or tariff preference levels (19 CFR 182.42).

A complete USMCA drawback claim consists of the drawback entry, evidence of exportation and supporting documents, with each entry filed using the indicator "USMCA Drawback." Acceptable proof of foreign duty paid is the Canadian entry document with the K-84 Statement or Detailed Coding Statement, or the Mexican pedimento (19 CFR 182.47).

This is where otherwise valid claims die. If you ship DDP, or your 3PL or a Canadian distributor is the importer of record, the entry documents live with someone else — and the obligation to produce them sits with you, the U.S. claimant. Build the document hand-off into the commercial agreement before the first shipment, not after you file.

One open item to raise with your broker: whether merchandise processing fee and harbor maintenance fee count toward "total duties paid or owed" in the 182.44(a) comparison is not something we can state as settled. Confirm the treatment for your specific claim rather than assuming it.

Except for goods covered by section 182.45, a USMCA drawback claim must not be liquidated for three years after the date of entry of the goods into Canada or Mexico — a long wait for cash that may ultimately be capped at zero. Accelerated payment procedures under 19 CFR 190.92 still apply, which is why the accelerated payment privilege is worth securing early. Same-condition claims, which sit outside the 182.45 limitation, generally move through faster.

On the agreement itself: the United States did not agree to extend USMCA at the first joint review on July 1, 2026. The agreement remains in force and now comes up for review annually, with USTR opening a public consultation for the 2027 review on October 5, 2026 (Mayo Law). The rules governing trade under USMCA — including the drawback restriction — are unchanged for now, but rules of origin are on the table, so re-test originating-goods eligibility each year.

Start by splitting your export file by destination. Everything going to Canada and Mexico needs its own eligibility analysis; everything else runs under the normal Part 190 rules and is usually worth more per dollar of duty.

For the North American share, ask one question per shipment: did the goods leave in the same condition they arrived in, allowing for packing, labelling, testing and the other operations listed in 182.45(b)? If yes, you are likely outside the cap. If no, pull the Canadian or Mexican entry documents and run the lesser-of comparison before you spend money preparing a claim.

Then fix the paperwork chain. Write the B3 and K-84 or pedimento hand-off into your DDP and 3PL agreements now, because retrofitting it across a year of past shipments is far harder. If you want a second read on which of your exports clear the cap and which don't, Evana's duty drawback team works on a contingency — no recovery, no bill.