NAFTA and Drawback: What’s Next?

You can’t pick up a newspaper or hear a news report that doesn’t mention President Trump’s dislike of the North American Free Trade Agreement (NAFTA).  This agreement was signed by Mexico, Canada, and the United States in 1994, re-shaping the economic relationships between the United States and our closest neighbors by reducing or eliminating tariffs on most products traded between these countries.

Although often cited as the reason for the significant increase in exports to Canada and Mexico, there is also continuing debate on the Agreement’s impact on the U.S. job market.  According to the Council on Foreign Relations, the lower labor costs in Mexico and the drastic swing in the balance of trade experienced since NAFTA’s enactment may have caused a loss of up to 600,000 U.S. jobs over the last two decades.  The NAFTA agreement also had a detrimental impact on drawback claimants, eliminating a much-used provision that would have greatly benefitted businesses in the United States.

Companies that export products to non-NAFTA destinations have the opportunity to substitute imported merchandise against an export of commercially interchangeable merchandise that have been imported or produced domestically.  The resulting drawback refund enables the exported product to be sold at a more competitive price, resulting in increased sales, increased exports, and increased jobs in the U.S.  This substitution privilege was revoked by NAFTA for exports to Canada and Mexico.

As the political forces look to modify or repeal some or all of the NAFTA agreement, we encourage businesses to examine what such a change could mean to their duty drawback programs.  It is our belief that a reinstatement of the substitution provision would dramatically benefit companies that import and distribute merchandise to NAFTA countries or manufacture products that are exported to these countries.

The goal of this nation’s drawback program has always been to increase manufacturing jobs in the United States and allow U.S. companies to compete more effectively in the global economy.  Repeal of the drawback restrictions within NAFTA would allow this long-standing program to have the intended impact for companies exporting to Canada and Mexico.