By Kerry Wang, Senior Associate, and Heather Tschirhart, Law Clerk, Braumiller Law Group
Unused merchandise drawbacks allow a claimant to recover up to 99% of the duties paid on imported goods that are exported, unused, within five years of importation. 19 U.S.C. § 1313(j)(1); 19 C.F.R. § 190.31(a)-(b)(2025). For importers of apparel, footwear, eyewear, and accessories, customer returns complicate that recovery. Once a product has been sold at retail and is returned, United States Customs and Border Protection (CBP) treats it as merchandise that may have been used for its intended purpose, and its new appearance does not prove otherwise. See HQ H263493 (July 25, 2017).
The problem came into focus in a 2017 protest decision involving a footwear and handbag retailer with a “no questions asked” return policy. HQ H263493. CBP held that visual inspection could not establish non-use, because a shoe worn once and returned may look identical to one never worn: “Carefully used and returned footwear or handbags may appear unused for purposes of resale by a retailer but are nevertheless ineligible for unused merchandise drawback.” Id. CBP went further. Because the retailer’s records could not separate returned units from never-sold units in the same inventory, the entire claim failed, including the portion attributable to units never sold. Id.; see also HQ H290868 (Sept. 11, 2019) (same result where customer returns were indistinguishably commingled with unsold apparel and accessories). For importers that restock saleable returns alongside never-sold goods, that treatment can put unused merchandise drawback out of reach.
Exports to Canada and Mexico add another layer. Substitution unused merchandise drawback, which lets a claimant export merchandise classifiable under the same 8-digit subheading rather than the imported unit itself, is not available for USMCA exports. 19 U.S.C. § 1313(j)(4)(A)(i); 19 C.F.R. § 182.42(c) (2025). Direct identification is the only route. The claimant must tie each exported unit to a specific import entry. Where units are commingled in a fungible inventory, that link is made through inventory records rather than physical tracing.
Taken together, these rules make USMCA drawback on commingled inventory difficult to claim. The claimant cannot substitute, and it must identify every exported unit through an approved method. Customer returns compound the problem: when possibly used returns sit in the same inventory as never-sold goods, CBP has denied entire claims. HQ H322158 is instructive. It arose from exports to Canada, so it speaks directly to USMCA claims. It confirms that returns can be carried in a § 190.14 accounting method as zero-drawback units, leaving the never-sold units eligible.
HQ H322158 Ruling
On March 20, 2026, CBP Headquarters issued HQ H322158 to Safilo USA Inc., an importer of non-prescription eyewear. HQ H322158, at 1 (March. 20, 2026). Safilo exports some of its eyewear to Canada in the same condition as imported. The exported units are drawn from a single inventory containing never-sold merchandise together with merchandise returned by retailers and by customers. Returns are inspected, damaged units are destroyed, and saleable units are returned to stock. Safilo tracks everything by SKU and cannot identify which physical units were returned. Id. at 1-2.
Safilo did not argue that its returns were unused. Instead, it proposed to claim direct identification drawback only on the unsold portion of its inventory, using the low-to-high blanket accounting method in § 190.14(c)(3)(iv), with every returned unit assigned a drawback value of zero. Id. at 2. CBP agreed on all three points it was asked to decide. Id. at 3, 8-9.
- Unsold means unused. Eyewear that was never sold to a retailer for prospective sale to a customer has never been employed for its intended purpose and is unused for purposes of § 1313(j)(1). Id. at 4.
- Unsold and returned units of the same SKU are fungible. Because purchase orders for domestic and export sales are placed by SKU without regard to whether a unit was returned, the two categories are commercially interchangeable. Id. at 5. Fungible merchandise is merchandise that “for commercial purposes [is] identical and interchangeable in all situations.” 19 C.F.R. § 190.2 (2025). CBP relied on its 2002 New Balance ruling, which reached the same conclusion for footwear identified by a barcode incorporating a SKU, regardless of differences in origin marking and sizing systems. HQ H322158, at 5 (relying on HQ 229403 (Apr. 15, 2002).
- Low-to-high accounting distinguishes drawback-eligible from drawback-ineligible units. Safilo may use the low-to-high blanket accounting method to identify exports of drawback-eligible unsold units from a fungible inventory, commingled with returned units to which no drawback is attributed. By assigning the returned units a drawback value of zero, the method allows the two categories to be accounted for separately without requiring physical segregation. Id. at 6-9; 19 C.F.R. § 190.14(c)(3)(iv) (2025).
Why It Matters
The third holding is the most significant development. Section 190.14, like its predecessor, §191.14, has long permitted an accounting method to distinguish dutiable units with drawback attributable to them from units “with no drawback attributable to them.” “Merchandise or articles with no drawback attributable to them (for example, domestic merchandise or duty-free merchandise) must be accounted for and are treated as having the lowest drawback attributable to them.” 19 C.F.R. § 190.14(c)(3)(i). The regulation identifies domestic and duty-free merchandise as examples. CBP read those examples as illustrative rather than exhaustive, meaning the no-drawback units in a commingled inventory may also consist of returned merchandise that was, or may have been, used. HQ H322158, at 7.
That conclusion draws on the Court of International Trade’s decision in Toyota Motor Sales, which recognized that a claimant does not need to track merchandise unit-by-unit if it can identify drawback-eligible exports through an approved accounting method. Toyota Motor Sales, U.S.A., Inc. v. United States, 35 Ct. Int’l Trade 1205, 1207–08 (2011). As the court explained, “if an importer maintains fungible inventories consisting of both drawback eligible and ineligible merchandise (e.g., domestically produced products), any merchandise subject to drawback may be identified by inventory accounting methods.” Id. at 1208; see also HQ 229938 (June 3, 2004) (confirming in the protest decision later reviewed in Toyota Motor Sales, that an accounting method may identify goods for 19 U.S.C. § 1313(j)(1) purposes, but denying the protest because the importer’s service parts inventory was not fungible and its records did not support the blanket method). The rulemaking history is consistent. When CBP proposed the accounting-method rule in 1997, it explained that identification “may be made on the basis of a company’s records, rather than on the basis of the actual physical movement of the inventory. Drawback, 62 Fed. Reg. 3082, 3091 (proposed Jan. 21, 1997); see alsoModernized Drawback, 83 Fed. Reg. 37,886, 37,903 (proposed Aug. 2, 2018) (explaining that § 190.14 differs from its Part 191 counterpart “regarding the five-year time period and generally due to minor clarifying edits, as well as grammatical and nomenclature changes”).
In practice, the low-to-high blanket method works by assigning each export withdrawal to inventory receipts with the lowest drawback amount, per unit, for the preceding five-year period. Returned units assigned a drawback value of zero sit at the bottom of the low-to-high ladder and are identified first. 19 C.F.R. § 190.14(c)(3)(i), (iv)(A).
For example, assume an inventory contains 1,000 imported units with $2.00 of drawback attributable to each and 150 returned units with $0.00 drawback attributable to them. If 200 units are exported, the accounting method first identifies 150 of those exports against the $0.00 value returned units. No drawback is claimed on those units. The remaining 50 exported units are then identified against the imported units carrying $2.00 of drawback each, resulting in a $100 drawback claim.
The important point is that the zero-value inventory (returns) must be accounted for before any drawback-bearing units can support a claim. This method prevents drawback from being attributed to the returned merchandise while still allowing drawback-eligible merchandise within the same fungible inventory to support the duty-drawback claim. See 19 C.F.R. § 190.14(c)(3)(iv)(A)–(B).
What It Takes To Qualify
H322158 does not relax the requirements for using an accounting method stipulated in § 190.14(b). The merchandise must be fungible. And records maintained in the ordinary course of business must show that imported merchandise and returns are being received into and withdrawn from the same inventory. The records must account for every receipt and every export withdrawal. Once an accounting method is adopted, the single method must be used exclusively for at least one year. 19 C.F.R. § 190.14(b)(1)–(3), (b)(5). CBP noted that Safilo “is obligated to satisfy the remaining criteria” in § 190.14(b)(2)–(5). HQ H322158, at 5.
All those records are subject to CBP verification. 19 C.F.R. §§ 190.14(B)(4), 190.61(a)-(b) (2025). Drawback is a “statutory privilege” “due only when enumerated conditions are met.” Toyota Motor Sales, 35 Ct. Int’l Trade at 1221 (quoting Guess?, Inc. v. United States, 944 F.2d 855, 858 (Fed. Cir. 1991)); see also HQ H329090 (Oct. 23, 2023) (“Drawback is a privilege that is only secured by strict compliance with the prescribed rules and regulations.”). If CBP cannot verify that a requirement has been met, no drawback is owed to the claimant. HQ H322158, at 8. CBP also noted that an importer may designate retailer returns as “Returned,” or use a similar notation, as part of its recordkeeping, to facilitate verification. Id.
A New Path for Commingled Inventory
For importers that set aside unused merchandise drawback because returns were commingled with never-sold stock, H322158 opens a new path. Its reasoning extends to any direct identification claim drawn from a fungible, commingled inventory. HQ H322158, at 4, 7–8.
If your company has passed on drawback because of commingled returns, now is the time to revisit that decision. We can assess whether your inventory and recordkeeping support an accounting method, whether a ruling request makes sense, and what recovery the approach could realistically produce. Contact us to explore what H322158 may mean for your drawback program.