Mexico and Drug Certification in 1999: Consequences of Decertification

Order Code RL30080

CRS Report for Congress

Received through the CRS Web

Mexico and Drug Certification in 1999:

Consequences of Decertification

March 4, 1999

(name redacted)

Specialist in Latin American Affairs

Foreign Affairs, Defense, and Trade Division

Congressional Research Service ˜ The Library of Congress

ABSTRACT

This report summarizes the drug certification requirements mandated by Congress, and

indicates the types of U.S. assistance that could be suspended if Mexico were to be decertified.

It also indicates the types of assistance that could be exempted from suspension, or be

provided by the President anyway, using special authorities. It also indicates how the negative

votes of U.S. representatives would affect multilateral development bank lending to Mexico.

This report will not be updated regularly, but will be updated if conditions warrant. Related

CRS reports include Narcotics Certification of Drug Producing and Trafficking Nations:

Questions and Answers, CRS Report 98-159, by (name redacted), updated March 1, 1999;

Mexico-U.S. Relations: Issues for Congress, CRS Issue Brief 97028, by (name redacted),

updated March 1, 1999; and Mexican Drug Certification Issues: U.S. Congressional Action,

1986-1999, by (name redacted), updated March 4, 1999.

Mexico and Drug Certification in 1999:

Consequences of Decertification

SUMMARY

President Clinton certified, on February 26, 1999, that Mexico was fully

cooperative in counter-narcotics efforts with the United States, setting in motion a 30calendar-day period in which the Congress may review the President’s decision. In

recent years, congressional resolutions were advanced but not enacted to disapprove

the President’s certifications after President Clinton certified Mexico as a fully

cooperative country. This report summarizes the drug certification procedures and

indicates the types of U.S. assistance that would be suspended or exempted if Mexico

were to be decertified.

Under Sections 489-490 of the Foreign Assistance Act of 1961, as amended, the

President is required to certify that a country has fully cooperated with U.S. counternarcotics efforts to avoid sanctions, including the suspension of certain U.S.

assistance, and the requirement that U.S. representatives vote against loans for the

country in multilateral development banks. The sanctions would also apply if the

Congress, within 30 calendar days, passes a congressional resolution disapproving any

presidential certification. However, any such congressional resolution would have to

be presented to the President and would be subject to veto. Moreover, as indicated

below, some types of assistance are exempted from suspension, and the President has

special authorities to waive sanctions.

With regard to bilateral assistance, the Clinton Administration is planning to

provide $29.85 million in standard foreign assistance and Department of Defense

counter-drug assistance to Mexico in FY1999, including $15.9 million in anti-drug

assistance, and $13.95 million in economic assistance programs. Because of

exclusions for narcotics control assistance and certain economic assistance programs

(some of which require notification to Congress), from $13.50 million to $28.85

million of this assistance could be excluded from suspension if Mexico were

decertified. Mexico may also receive other types of U.S. military and export

assistance in FY1999, including Export-Import Bank financing, which is dependent

upon sales and agreements. Export-Import Bank financing of up to $2 billion per year

is the major category of all types of assistance which would be suspended in the event

of decertification. Since such assistance was developed to finance and guarantee the

sale of U.S. products, these suspensions would be harmful to U.S. exporters and

sellers as well as to Mexican buyers.

With regard to multilateral development bank lending, decertification would

require the United States to vote against pending World Bank and Inter-American

Development Bank loans for Mexico, amounting together to over $5 billion, but such

votes might not affect lending levels significantly because the United States share of

the vote is not sufficient to block approval of loans.

Contents

Summary of the Certification Requirements . . . . . . . . . . . . . . . . . . . . . . . . 1

Consequences of Decertification of Mexico on U.S. Bilateral Assistance . . 2

A. What Assistance Does the United States Provide to Mexico? . . . . 2

B. What Assistance to Mexico Could Be Excluded from Suspension

if Mexico Were Decertified? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

C. What Assistance Could Be Provided Despite Decertification of

Mexico If the President Exercised Special Waiver Authorities? . . 6

Consequences of Decertification of Mexico on Multilateral Development

Bank Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

A. What Amount of Loans Has Mexico Received from Relevant

Multilateral Development Banks (MDBs)? . . . . . . . . . . . . . . . . . 6

B. How Would Current MDB Loans to Mexico Be Affected

if Mexico Were Decertified? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

C. What Would Be the Impact of U.S. Representatives Voting

Against Multilateral Development Bank Loans to Mexico

if Mexico Were Decertified? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

D. Could the President Waive the Requirement for U.S.

Representatives to Vote Against MDB Loans of Decertified

Countries Using Special Waiver Authorities? . . . . . . . . . . . . . . . 8

List of Tables

Table 1. U.S. Foreign Assistance to Mexico in FY1999 . . . . . . . . . . . . . . . . . . 2

Table 2. Other U.S. Military, Export, and Investment Assistance,

Most Recent Fiscal Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Table 3. Multilateral Development Bank Lending to Mexico,

Most Recent Fiscal Years, and Pending Loans . . . . . . . . . . . . . . . . . . . . . . 7

Mexico and Drug Certification in 1999:

Consequences of Decertification

1

For many years Congress has monitored presidential certifications of the extent

to which Mexico has cooperated with the United States on counter-narcotics efforts

under requirements that could result in aid and trade sanctions. After providing a

brief summary of the drug certification process, this report discusses the possible

consequences of decertification of Mexico on U.S. bilateral aid to Mexico and on

multilateral development bank lending to Mexico.

Summary of the Certification Requirements

With some modifications in procedure, since the mid-1980s, Congress has

required the President to designate the major illicit drug producing and drug-transit

countries by November 1st of each year. Congress has further required the President

to withhold 50% of certain U.S. assistance for the designated countries for that fiscal

year until he certifies by March 1st of each year that the countries have cooperated

fully with the United States in drug control efforts. In the event the President is

unable to certify that the country is fully cooperative or to determine that the country

should be given a certification in the national interest, non-exempted assistance to the

decertified country is suspended, and U.S. representatives are required to vote against

loans for the country in the multilateral development banks. These sanctions remain

in force until the country is certified.2

The sanctions would also apply if Congress, within 30 calendar days, passes a

congressional resolution disapproving any presidential certification and decertifies a

1

This report draws from and updates Narcotics Certification and Mexico: Questions and

Answers, CRS Report 97-320, March 6, 1997, by (name redacted), Jonathan Sanford, and (n

a me redacted). An earlier version

of this report was prepared for the Senate Foreign Relations

Committee, and it is being released with the permission of the Committee.

2

Congress required reports on drug producing and transit countries in 1981, and gave the

President the authority to suspend assistance to non-cooperative countries in 1984. With the

passage of the Drug Abuse Act of 1986, the Congress required the President to withhold 50%

of assistance to drug producing and transit countries until he could certify that they were

cooperating fully with U.S. counter-narcotics efforts, and it provided for congressional review

of presidential certifications. This legislation has been modified over the years and is now

found in Sections 489-490 of the Foreign Assistance Act of 1961, as amended. Acting

through the Drug Abuse Act of 1986, the Congress also added trade sanctions in Title VIII

(the Narcotics Control Trade Act) of the Trade Act of 1974, as amended. This Act gives the

President the discretion to apply certain trade sanctions to decertified countries, including

denial of preferential trade benefits, increases in tariff duties, curtailment of air transportation,

and withdrawal of U.S. personnel and resources from customs pre-clearance arrangements.

Some other sanctions were added subsequently.

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country. However, any such congressional resolution would be subject to presidential

veto, and some types of assistance are exempted from suspension. Moreover, the

President has specified authority to waive certain sanctions, and Section 614 of the

Foreign Assistance Act of 1961, as amended, gives the President broad authority to

continue to provide any assistance under the Act if he determines and notifies

Congress that to do so is important to the security interests of the United States.3

Consequences of Decertification of Mexico

on U.S. Bilateral Assistance

A. What Assistance Does the United States Provide to Mexico? Section

481(e)(4) of the Foreign Assistance Act of 1961, as amended, specifies that the

following types of assistance would be affected by a decertification: (a) any nonexempted assistance under the Foreign Assistance Act; (b) sales, or financing on any

terms under the Arms Export Control Act; (c) provision of non-food agricultural

commodities under the Agricultural Trade Development and Assistance Act of 1954;

and (d) financing under the Export-Import Bank Act of 1945. Mexico is scheduled

to receive a variety of these types of assistance from the United States in fiscal year

1999, as indicated below in Tables 1 and 2, although much of the assistance may be

excluded from suspension, as explained in the next section.

Table 1. U.S. Foreign Assistance to Mexico in FY1999

(Millions of U.S. dollars)

Total Foreign Assistance Programmed for Mexico:

3

$29.850

Economic Assistance--Total

Development Assistance (DA)

Economic Support Funds (ESF)

International Narcotics Assistance (INC)

Public Law 480 Food Assistance (Titles I,II,III)

Peace Corps

$13.950

$11.450

$ 1.500

$ 1.000

$ -0$ -0-

International Narcotics Control (INC) Assistance

$ 7.000

Military Assistance--Total

Foreign Military Financing

International Military Education Training (IMET)

$ 1.000

$ -0$ 1.000

Department of Defense Counter-Drug Assistance

$ 7.900

See Narcotics Certification of Drug Producing and Trafficking Nations: Questions and

Answers, CRS Report 98-159F, March 1, 1999, 1998, by (name redacted); andConsequences

of Inadequate Counternarcotics Performance, Memorandum by Jo Brooks of the Department

of State Bureau of Legal Affairs, February 23, 1995.

CRS-3

Under standard foreign assistance and Department of Defense counter-drug

assistance programs the United States is planning to provide a total of $29.85 million

to Mexico in the FY1999 operational budget, including $8 million in State

Department-controlled international narcotics control assistance and training, $7.9

million in Department of Defense counter-drug assistance, $1 million in International

Military Education and Training (IMET), and $13.95 million in economic assistance

programs, including $1 million in AID-administered INC funding.4

Economic assistance funds support programs in the environment, health, and

democracy sectors. Assistance to the environment sector is by far the largest ($9

million, or 65% of economic assistance), and supports programs to conserve and

promote sustainable use of forests and marine ecosystems ($3.18 million), to reduce

greenhouse gas emissions and pollution ($2.82 million), and to prevent wildfires and

restore areas damaged in 1998 ($3 million). Assistance in the health sector ($1.7

million, or 12% of economic assistance) supports programs to curtail the spread of

HIV/AIDS ($1.2 million) and to control tuberculosis in poor and migrant populations

($500,000). Assistance in the democracy sector ($3.25 million, or 23% of economic

assistance) supports programs to modernize the judiciary and the legislature, and to

strengthen local government and citizen participation. Similar amounts have been

provided to Mexico in previous years, with many of the programs carrying over

several years. Similar funding has been requested for FY2000, and would be

suspended under a decertification until Mexico was fully certified under recertification

procedures, although much of the funding might also be exempted from suspension.

Assistance of the type indicated in Table 2 is not programmed in advance, but

is dependent upon the sales, agreements, or investments that are made during the

year. This category includes (1) drawdowns of U.S. military goods and services

under Section 506(a) of the Foreign Assistance Act of 1961, as amended; (2) transfers

of used and excess defense articles; (3) government-to-government foreign military

sales; (4) OPIC loans and guarantees for U.S. investments; and (5) Export-Import

Bank financing and guarantees for U.S. exports. By far the largest program in this

category is Export-Import Bank financing that ranged in the last two fiscal years from

$782 million in FY1997 to $1.58 billion in FY1998. During President Clinton’s visit

to Mexico on February 14-15, 1999, he announced that the United States would

provide up to $4 billion of Export-Import Bank financing in FY1999 and FY2000 to

support the sales of U.S. products in Mexico.

4

Other types of assistance withheld from countries with inadequate counter-narcotics efforts

include sugar quotas, special debt relief, and sharing of forfeited assets. Suspension of the

first two are not triggered by decertification, Mexico is not eligible for special debt relief, and

Mexico is not presently sharing forfeited assets.

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Table 2. Other U.S. Military, Export, and Investment Assistance,

Most Recent Fiscal Years

(Millions of U.S. dollars)

DoD Section 506(a) Drawdowns:

$ 1.100 in FY1998

Excess Defense Articles:

$ 3.023 (grant) in current value in FY1997;

$ 0.232 (sale) in FY1998

Foreign Military Sales:

$ 27.663 in FY1997

$ 1.081 in FY1998

Export-Import Bank Financing:

$ 782.025 in loans and insurance in FY1997;

$ 1,576.490 in loans and insurance in FY1998

$ 2,000.000 in loans and insurance available for FY1999

Overseas Private Investment Corporation (OPIC) loans/guarantees:

-0- in FY1997 and FY1998; no program in Mexico

B. What Assistance to Mexico Could Be Excluded from Suspension if

Mexico Were Decertified? In accordance with provisions in the Foreign Assistance

Act and in Foreign Operations Appropriations Acts, some types of foreign assistance,

including narcotics control, disaster relief, child survival and disease, and conservation

assistance, are excluded from suspension when a country is decertified under the drug

certification requirements. Other types of assistance are excludable upon notification

to Congress. As indicated below, under these exclusions, from $13.50 million to

$28.85 million of standard foreign assistance would be excluded from suspension, and

drawdowns of military equipment and foreign military sales would be excluded as

well. Export-Import Bank financing would not be excluded and would be cut off.

Exclusion of Narcotics Control, Disaster Relief, Food and Medicine, and

Refugee Assistance. Section 481(e)(4) of the Foreign Assistance Act of 1961, as

amended, provides that the following types of assistance would not be suspended

upon a decertification: (a) narcotics control assistance, (b) narcotics control-related

assistance, (c) disaster relief assistance, (d) food or medicine, and (e) assistance for

refugees. In the case of Mexico, this means that $8 million of the State Department’s

International Narcotics Control (INC) Assistance would be excluded from suspension,

while the $7.9 million of the Department of Defense’s Counter-Drug assistance would

be excluded from suspension because it is not authorized by the Foreign Assistance

Act of 1961 and is for counter-narcotics purposes.

Exclusion of Child Survival and Disease Programs. Section 522 of the

Foreign Operations Appropriations Act for FY1999 provides that funds appropriated

by this Act that are made available for child survival activities or disease programs

including activities relating to research on, and the prevention, treatment and control

CRS-5

of, acquired immune deficiency syndrome may be made available notwithstanding any

provision of law that restricts assistance to foreign countries. In the case of Mexico,

this means that the $1.2 million for HIV/AIDS prevention would be excluded from

suspension.

Exclusion of Conservation Programs and Possible Exclusion of Energy

Programs to Reduce Greenhouse Gas Emissions following Congressional

Notification. Section 540(b) of the Foreign Operations Appropriations Act for

FY1999 provides, with some exceptions, that funds may be used, notwithstanding any

other provision of law, for supporting tropical forestry and biodiversity conservation

activities and, subject to congressional notification, for supporting energy programs

aimed at reducing greenhouse gas emissions. In the case of Mexico, this means that

some, if not all, of the $3.18 million conservation program would be excluded, and

that the $2.82 million program for reducing pollution and greenhouse gas emissions

would be excluded unless Congress put a hold on the program.

Possible Exclusion of Funds Directed to NGOs following Notification to

Congress. Section 543 of the Foreign Operations Appropriations Act for FY1999

provides that any foreign assistance restrictions shall not be construed to restrict

assistance supporting programs of Non-Governmental Organizations (NGOs),

provided the President decides the assistance is in the national interest and Congress

is notified under reprogramming procedures. In the case of Mexico, all of the

remaining economic assistance not excluded above ($6.750 million) might be

excluded if Congress did not object because all the assistance is channeled through

NGOs. However, some parts of the fire prevention/restoration program ($3 million)

and the democracy programs ($3.25 million) might be more doubtful because of the

fact that assistance provides services to the Ministry of Environment, the Judiciary,

and the Congress. Assuming that the assistance that provided services to

governmental agencies did not meet fully the NGO test, $2.15 million would be

excluded from suspension.

Summary of Non-Excludable Foreign Assistance. Taking into account the

exclusions mentioned above, as much as $28.85 million of standard foreign assistance

to Mexico might be excluded from suspension, including all economic assistance and

all narcotics assistance, leaving only $1 million in IMET assistance to be suspended.

Using a more restrictive view of the exclusion of assistance channeled through NGOs,

about $4.6 million in economic assistance and the $1 million in IMET assistance

would be non-excludable and would be cut off.

Other U.S. Military and Export Assistance. While Section 506 drawdowns

of military equipment and Foreign Military Sales would be excluded from suspension

because no obligations and expenditures are involved, Export-Import Bank financing

and transfers of Excess Defense Articles are not excludable, and would be suspended.

Because these programs are not programmed in advance, but depend on the demand

for such programs, it is difficult to judge the effect of a suspension if Mexico were

decertified. Based on the amount of assistance in recent years, the suspended

assistance could amount to a few million dollars in Excess Defense Articles, but could

amount to up to $2 billion in Export-Import Bank financing per year. Since ExportImport Bank programs were developed to support the sales of U.S. products, these

suspensions would be harmful to U.S. exporters as well as to Mexican buyers.

CRS-6

C. What Assistance Could Be Provided Despite Decertification of Mexico

If the President Exercised Special Waiver Authorities? Although the President

might be reluctant to exercise special waiver authorities, he has broad statutory

authority to waive restrictions and to provide foreign assistance. Section 614 of the

Foreign Assistance Act of 1961, as amended, provides that the President may

authorize the furnishing of assistance under the Foreign Assistance Act and the Arms

Export Control Act without regard to any provision of foreign assistance

authorization or appropriation acts when he determines and notifies Congress in

writing that to do so is important to the security interests of the United States.

Despite the decertification of Colombia in late February 1997, President Clinton

exercised the special authorities of Section 614 in August 1997 to provide $30 million

in Foreign Military Financing (FMF) and $600,000 in IMET assistance to Colombia.

Although the President’s authority under Section 614 is very broad, it does not extend

to all assistance. Since Export-Import Bank financing is not authorized by the

Foreign Assistance Act, the President’s special waiver authorities would not apply in

that case.

Consequences of Decertification of Mexico on Multilateral

Development Bank Lending

A. What Amount of Loans Has Mexico Received from Relevant

Multilateral Development Banks (MDBs)? Section 490(a)(2) of the Foreign

Assistance Act of 1961, as amended, requires the U.S. Executive Director of

multilateral development banks (MDBs) to vote against any loans or other utilizations

for any decertified country. The term “multilateral development bank” is defined in

the same section to mean the International Bank for Reconstruction and Development

(IBRD or World Bank), the Inter-American Development Bank (IDB), the Asian

Development Bank, the African Development Bank, and the European Bank for

Reconstruction and Development. While the International Monetary Fund (IMF) is

an international financial institution, it is not an MDB within the meaning of the drug

certification legislation. The only institutions that are relevant for Mexico in this case

are the World Bank and the Inter-American Development Bank. The amount of

lending that Mexico has received from these banks is indicated below in Table 3,

based on information from the two institutions.

Mexico has been a major borrower from the World Bank and the IDB, with most

of the loans being under the regular loan facilities at the banks’ unsubsidized, quasimarket repayment rates (generally ½ percent more than the banks pay to borrow

money commercially on world markets). These loans have supported programs to

improve health care, reform the social security system, strengthen education,

modernize agriculture, promote energy efficiency, provide water and sanitation in

rural areas, and develop better roads. Pending and proposed loans are generally to

support the same types of activities. Pending World Bank loans would support

education programs, air quality improvement, and financial restructuring and support.

Proposed IDB loans would support improved distribution of electricity, strengthening

of state and municipal governments, protection of social expenditures, and

improvement of labor markets.

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Table 3. Multilateral Development Bank Lending to Mexico,

Most Recent Fiscal Years, and Pending Loans

(Millions of U.S. dollars)

World Bank

1997

1998

1999

Pending Loans

$ 960

$1,767

$ 445 Agricultural Productivity Loan approved

$3,005

IDB

1996

1997

1998

Proposed Loans

$1,315

$ 294

$ 313

$2,150

B. How Would Current MDB Loans to Mexico Be Affected if Mexico Were

Decertified? Multilateral Development Bank loans for Mexico that were approved

previously would not be affected at all by decertification. The drug certification

legislation provides only that the United States representative would oppose future

loans to any decertified country. This means that the still pending loans for Mexico

would be the most immediately effected by the drug certification requirements.

C. What Would Be the Impact of U.S. Representatives Voting Against

Multilateral Development Bank Loans to Mexico if Mexico Were Decertified?

In the event that Mexico were decertified under the drug certification requirements,

the U.S. Executive Directors of the World Bank and the Inter-American Development

Bank would be required to vote against any future loans for Mexico, including the

loans mentioned above as pending or proposed. It is unlikely that a negative vote by

the United States would determine the outcome of the loans, even though voting

rights are determined by contribution and the United States is the single largest

contributor to both banks. On the one hand, bank loans are generally approved by

majority vote, and the United States’ 17.15% share in the World Bank and its 31.10%

share in the Inter-American Development Bank would not be sufficient to block

approval, with various combinations of countries able to outvote the United States.

On the other hand, decisions on MDB loans are generally taken by consensus and

U.S. views might carry considerable weight in delaying or modifying loan proposals.

Some officials suggest that U.S. opposition to loans would carry greater weight if the

opposition was seen as objection to the purposes or terms of the loans, rather than as

compliance to a legislative requirement not directly related to the loans. It should be

noted that Colombia was decertified under the drug certification requirements in 1996

and 1997, but that Colombia received $139.7 million in loans from the World Bank

and at least $214.5 million in loans from the IDB in the two year period when the

U.S. representative voted against loans to Colombia. Comparing these loans to other

periods when the United States did not vote against loans for Colombia is difficult

because lending varies greatly by year.

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D. Could the President Waive the Requirement for U.S. Representatives

to Vote Against MDB Loans of Decertified Countries Using Special Waiver

Authorities? Officials at the General Counsel’s office at the Treasury Department

expressed the preliminary opinion that Section 614 special waiver authorities relating

to the provision of foreign assistance would not apply to the requirement that U.S.

representatives vote against proposed loans for decertified countries.

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