Possibility of Ending Drawback Restrictions in NAFTA, Chile FTA Seen as Rare Opportunity

Expected reviews of U.S. free trade agreements may offer a "once in a generation" opportunity to fix some restrictions on drawback, said David Corn, vice president of Comstock and Holt, during a recent interview. While changes to the restrictions in NAFTA are a priority, there's also some hope that similar restrictions in the U.S.-Chile Free Trade Agreement could also be revised, he said. A group calling itself the Duty Drawback Coalition, which Corn is involved in, submitted comments to the Commerce Department noting the problems created by the NAFTA drawback restrictions (see 1704170025).

The push for drawback changes will likely increase now that the Senate has confirmed Robert Lighthizer as U.S. trade representative on May 11. A group of lawmakers is expected to lay out the changes sought to drawback restrictions in a letter to Lighthizer following the confirmation, Corn said. While drawback is largely considered obscure on Capitol Hill, some members and staffers are more familiar with it, following the provisions included in the Trade Facilitation and Trade Enforcement Act (see 1603010043), Corn said. That's made initiating conversations somewhat easier on the issue, he said.

The rationale behind the drawback restrictions included in NAFTA and the Chile FTA may have involved concerns for component parts for manufacturing, but the removal of the restriction seems unlikely to be controversial, Corn said. Much of the effort in Washington so far has been educational, he said. "Throwing out a provision that currently restricts drawback rights for American companies" and "will only benefit American companies going forward" is something that has a lot of support among industry, Corn said.

The Chile FTA and NAFTA both include restrictions for companies trying to claim substitution drawback, Corn said. That does "hinder the way we have to look at drawback for those countries" because it requires the use of specific identifiers, he said. That's especially difficult for certain industries, such as apparel or jewelry, that don't have "identifiers that they can trace all the way through the system from import or export," Corn said. Canada and Mexico have used legislation to effectively avoid the substitution drawback restrictions, leaving the U.S at a disadvantage, he said.

While there's been little discussion of revising the Chile FTA, those drawback provisions are considered to be linked with NAFTA's, Corn said. That means if the drawback changes are added to the agenda on NAFTA discussions, changes to the Chile FTA may follow, he said. It's certainly not clear the Chile FTA will be reopened for renegotiation, but if that does happen, those drawback restrictions could be a clear option for updates, he said. Given the other changes to drawback under TFTEA and ACE, the program is "at the hottest point it's maybe been since its inception in 1789" with the "most complex and revolutionary changes since then," he said.