To: Chair of the Committee of Government Representatives on the Participation of Civil Society
Reference: Free Trade Area of the Americas

Draft Agreement
Chapter on Market Access (The draft texts pertaining to the issue area of the NGMA are included in the Annex.)
Annex
[CHAPTER ON] TARIFFS AND NON-TARIFF MEASURES
Section Two. Tariffs
Article 5. Provisions on special regimes
Paragraphs 5.1.1. through 5.1.5.

Abstract: The subject of duty drawback should not be included in the Free Trade Area of the Americas.

I.The effect of NAFTA on the balance of trade in the United States

• In the 9 years before NAFTA, the U.S. trade deficit with Mexico was 6%.
• In the 8 years since NAFTA started, the U.S. trade deficit with Mexico has been 23%.
• In the 9 years before NAFTA, the U.S. trade deficit with Canada was 16%.
• Since 1998, the deficit with Canada rose from 19% in 1999 to 29% in 2000 to 33% in 2001.
• In 1994, the U.S. had a trade surplus with Mexico of more than $1 billion.

• In 1995, the U.S. had a trade deficit with Mexico of more than $15.8 billion.
• Through January 2002, the deficit with Mexico had increased to more than $32 billion.
• NAFTA-specific transactions with Canada averaged $40.6 billion deficit, 1994-2001.
• Non-NAFTA transactions with Canada averaged $12.8 billion surplus over this period.

II. The effect of NAFTA on labor in the United States

398,089 U.S. manufacturing workers (as of 4/4/2002) have lost jobs or had hours and wages reduced as a direct result of NAFTA (considering only the NAFTA-TAA Program).

III. The Intent and the Result of Restrictions on Duty Drawback in NAFTA

A. The intent of restrictions on duty drawback in NAFTA was to ensure that none of the NAFTA countries could become an "export platform" for materials produced in other regions of the world.

B. However, the pending restrictions on duty drawback prompted major industry and government concerns in Mexico that investment in the maquila sector of the Mexican economy by non-NAFTA countries would fade away as a result of the restrictions on duty drawback and duty deferral.

C. “The Impact of the 2001 NAFTA Changes: Report to the U.S. Customs Service” made the assertion that “The duty waiver provisions that were in place until January 1, 2001 have been a key feature of the growth of the maquiladora program since the mid-1960s, and their elimination will have enormous direct and indirect impact on these firms and on the United States and Mexico.”

D. The Actual Results of Restrictions on Duty Drawback in NAFTA, effective 01/01/2001

Mexico’s Secretary of Economy identified the changes to customs laws in accordance with rule 303 of NAFTA as a factor that had contributed to the contraction of the maquila industry.

The president of The Confederation of Industrial Councils reported that 70 percent of the Mexican workers who lost their jobs in 2001 were from the export manufacturing industry, and that it would take several years before those jobs are replaced.

More than 238,000 positions [20% of the total work force] were eliminated in Mexico’s maquiladora sector as a whole. As a result, some of the maquiladora operators have shifted production to even lower-wage countries such as China, Malaysia, Thailand, Ecuador, Guatemala and Honduras.

Foreign investment - a total of $2.17 billion - was off by almost $1 billion from the previous year. In the last quarter of 2001, foreign investment in maquiladora activities barely reached $500 million.”

IV. The remedial effect of duty drawback

• “The general purpose underlying the drawback law is to assist American business and labor to compete more effectively in foreign markets. U.S. export trade is facilitated; the balance of trade is improved; jobs are created; the general economy thereby benefits. To this end, the drawback law is remedial in character.” [Customs HQ Ruling 216658]

• “Remedial statutes are those which are designed to correct an existing law, redress an existing grievance, or introduce regulations conducive to the public good”. [Customs HQ Ruling 101421]

• “to correct an existing law” (e.g., NAFTA, by removing the section on duty drawback); and

• to “redress an existing grievance” (e.g., the injurious effect of NAFTA on the U.S. balance of trade and on the loss of manufacturing jobs in the U.S.)

• The drawback statute must have its full, unrestricted effect to accomplish its purpose.

V. Conclusions