Tag: Trade Adjustment Assistance

Dirty Deal Done Not So Dirt Cheap

Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee,  Rep. Dave Camp (R-MI)*, chairman of the House Ways and Means Committee, and the White House have just announced that they have made a deal to extend Trade Adjustment Assistance (TAA, the program that extends extra unemployment and health care benefits to workers who lose their jobs because of globalization) until 2013, as part of a broader deal that would see passage of the three outstanding preferential trade agreements with Korea, Colombia, and Panama. The extension of TAA would be included in the legislation to implement the US-Korea Free Trade Agreement, “improved” (i.e., made less liberalizing) by the administration in December.

Interestingly and alarmingly, because implementing the FTAs (which will lower tariff revenue) and paying for the billion-dollar-plus TAA extension “requires” offsets, the draft language specifies in Sec. 601 that revenue should be raised by increasing customs user fees.  This solution was first aired publicly last week, and my friend, trade lawyer (and former Cato-ite) Scott Lincicome pointed out then that raising customs user fees is probably against WTO rules (not to mention counterproductive to the goal of liberalizing trade):

“[C]ustoms fees” are simply hidden taxes on import consumers.  A quick review of the US Customs website on “customs users fees” makes this clear.  They’re paid (mainly) by commercial transporters bringing goods (imports) into the United States, thus raising the costs of importation.  And those higher costs, of course, are eventually passed on to American consumers through higher import prices.

Thus, pursuant to the bi-partisan deal outlined above, the FTAs’ great import liberalization benefits will be immediately and tangibly undermined by new taxes on those very same imports (and others)!

…[I]t would [also] probably violate GATT Article VIII, which governs WTO Members’ imposition of “Fees and Formalities connected with Importation and Exportation” (in other words, customs fees).  The key provision of Article VIII reads:

1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.

WTO panels have interpreted this provision narrowly, and an old GATT panel has actually looked into the US system of customs users fees.  In these cases, the panels have ruled that Article VIII’s requirement that a customs fee be “limited in amount to the approximate cost of services rendered” is actually a “dual requirement,” because the charge in question must first involve a “service” rendered, and then the level of the charge must not exceed the approximate cost of that “service.”  They’ve also found that the term “services rendered” means “services rendered to the individual importer in question,” and that the fees cannot be imposed to raise revenue (i.e., for “fiscal purposes”).[emphasis in original]

Raising customs user fees for fiscal purposes may even go against U.S. law (subparagraph 9B of 19 U.S.C. chapter 1 ss58c).

It’s unclear how far this draft will advance at the “mock mark-up,” scheduled for Thursday afternoon in the Senate Finance Committee, as the ranking member of that committee, Sen. Orrin Hatch (R-UT), is one of the leading critics of trade adjustment assistance.  Senator Hatch has already sent out a press release opposing the inclusion of the TAA renewal in the Korea FTA implementing bill:

This highly-partisan decision to include TAA in the South Korean FTA implementing bill risks support for this critical job-creating trade pact in the name of a welfare program of questionable benefit at a time when our nation is broke. This is a clear breach of Trade Promotion Authority and threatens the ability of American exporters and job creators who stand to benefit from the largest bilateral trade agreement in more than a decade.  TAA should move through the Congress on its own merit and should stand up to rigorous Senate debate. President Obama should send up our pending trade agreements with Colombia, Panama, and Korea and allow for a clean vote.

Senate Minority Leader Mitch McConnell (R-KY) is also apparently critical of the decision to include the TAA renewal in the Korea legislation, preferring instead to consider it only in exchange for something new, i.e.,  a deal on fast track (or trade promotion) authority for further trade deals. As the American Enterprise Institute’s Phil Levy points out, “It is problematic to “buy” the [existing] FTAs with an expanded version of TAA, since those were already “purchased” as part of a May 10, 2007 deal.” [link added] The Republican House leadership is also keen to separate TAA from the FTA implementing bills, in contrast to the opinion and efforts of their colleague Representative Camp.  So the fight is far from over.

If you are interested in hearing more about the trade deals, and how TAA renewal fits in with their passage, Senator Hatch will be speaking at an event at the American Enterprise Institute on Thursday (just hours before the mock mark-up is scheduled to begin). Howard Rosen of the Peterson Institute for International Economics and yours truly will be debating the merits of TAA after Senator Hatch has spoken. More information on the event, including access to the streaming video, here.

*UPDATE: Contrary to what I suggested in my orginal post, Chairman Camp did not in fact join an announcement with the White House and Chairman Baucus about the trade deal Tuesday. He did issue a statement Tuesday evening indicating that although he finds it “regrettable that the White House has insisted on Trade Adjustment Assistance in return for passage of these job-creating agreements,” he has “been willing to work with the White House to find a bipartisan path forward on TAA in order to secure passage of the trade agreements.” So it appears he has agreed to the deal broadly, even if he was not formally part of the announcement, and is still reviewing the details. Chairman Camp’s full statement is available here.

Downsizing the Department of Labor

The Department of Labor has been added to Cato’s Downsizing Government website. Proposed spending cuts are $143 billion.

The following essays examine the department’s activities:

  • Failures of Unemployment Insurance. The UI system is costly to taxpayers and creates numerous economic distortions. Federal involvement should be ended and the states left free to design their own systems.
  • Employment and Training Programs. Federal programs for unemployed workers have never worked very well, are relatively little used, and are unneeded in today’s economy because private markets provide many alternatives.
  • Reforming Labor Union Laws. Federal union laws that mandate exclusive representation, union security, and prevailing wages are costly to the economy and restrict individual freedom. They should be repealed.
  • Trade Adjustment Assistance. This program provides benefits for certain workers put out of their jobs by foreign trade, but it has no sound basis in economics.

There’s a timeline that details key events in the Department of Labor’s growth, a reading room for suggested background studies, and supporting charts and figures.

The Flawed Logic of Trade Adjustment Assistance

A recently posted article from Reuters contains quotes that are worth sharing, because they perfectly encapsulate what I think is the flawed logic behind trade adjustment assistance, the program that extends enhanced benefits to workers who lose their jobs because of import competition. There are many reasons to oppose this program, as I have outlined before.  And the fact the Obama administration is choosing to hold trade agreements hostage unless a stimulus-enhanced version of TAA is renewed is a strong indication that the grand bargain of trade policy — special benefits in exchance for trade liberalization — has broken down.

But one of the most important reasons to oppose TAA is that its very existence implies that “damage” is done when trade is liberalized:

“In large part, workers who lose jobs because of trade do so because of a policy decision by government. The government decided to allow imports, the government decided to allow a liberal investment policy,” [lobbyist Greg] Mastel said.

“I happen to agree with those policies, but you can’t deny they sometimes disadvantage groups of workers,” he said.

Howard Rosen, a visiting fellow at the Peterson Institute for International Economics and executive director of the TAA Coalition, argued the roughly $1 billion annual cost for the program is tiny compared to large benefits the U.S. economy gets each year from trade liberalization.

Workers displaced by foreign competition have a harder time adjusting than other laid-off workers because they tend to be older and less educated and have higher earnings, Rosen said. [emphasis added]

A few things. First, a “policy decision” is made when government decides to respond to special pleading from domestic industry and protect the market by raising taxes on imports. The innocent consumers foot the bill for this, and the fact the tax is hidden and diffuse does not make it morally acceptable. Second, trade liberalization policies may “disadvantage groups of workers” but so do many other policy decisions — the decision to allow the growth of, say, e-commerce, for example. I happen to agree with those policies, too, but I don’t see Mr. Mastel lobbying for special benefits for bricks-and-mortar retail workers (actually, I shouldn’t give him any ideas). Governments make policy decisions every day about which industries die or survive, sometimes by policy commission, and sometimes by letting certain policies expire. There is nothing special about trade policy in that sense.

Similarly, Mr. Rosen’s objection can be countered by pointing out that perhaps the “higher earnings” trade-displaced workers received were artificially inflated by granting their industry a false, consumer-funded monopoly (in fact, by definition they almost certainly are). Why do we have to compensate them when that monopoly finally expires?

I was speaking to a trade policy wonk friend last week at a lunch about TAA, and he pointed out that “plenty of innocent people are harmed by trade liberalization.” I said to him, and I will repeat here, that plenty of innocent consumers have had their pockets picked for decades so that certain groups can collect rents. So you’ll excuse me if my sympathies are, to say the least, conflicted.

TAA Reversal on Grand Bargain

On Monday, a group of 41 Senate Democrats, led by Sen. Debbie Stabenow (MI) sent a letter to President Obama, praising his administration’s recent decision to abandon its erstwhile promotion of the three pending trade deals as “job creators” and instead warn Congress it won’t submit the pacts for a vote unless they can be assured that a stimulus-enhanced version of trade adjustment assistance will be renewed.

The letter contains much about the benefits of the program, with little mention of its costs to taxpayers and even less concern shown for the innocent consumers whose pockets have been picked for decades to maintain the jobs lost when trade is allowed to flow more freely. That’s pretty standard fare for protectionists, who rely on the hidden and dispersed nature of the costs to get support for their policies. What’s new about this situation is the ratchet effect – the base TAA program is still in place, so what they are asking for is a renewal of part of the stimulus as a pre-condition for supporting trade liberalization. Note that the stimulus changes included a removal of the requirement that job losses be linked to a trade agreement (a feature, not a bug of the program, according to the Senators).

Wait, did I say a renewal of TAA-plus would be a pre-condition for supporting trade agreements? Not necessarily. Note this telling paragraph of the letter:

While we the undersigned may have differing views on elements of the trade agenda - with some of us looking forward to supporting the pending trade agreements with South Korea, Colombia, and Panama, and others skeptical of the impact of the agreements -we are unified in our belief that the first order of business, before we should consider any FTA, is securing a long-term TAA extension.  [emphasis added]

As I’ve said repeatedly, I understand (even if I don’t support) the political calculation that TAA is necessary – and worth it– if it secures votes for trade liberalization. But reading between the lines, some of the letter signers have no intention voting for the trade agreements, even if the mega-TAA is approved.  What we have here is a reversal of the grand bargain on trade liberalization, that gave extra welfare to workers who lost their job because of freer trade in exchange for support for trade agreements that lowered trade barriers. That ‘grand bargain’ has been tenuous for years now, of course – witness the complete lack of movement on the trade agreements even after the 2009 enhancement of TAA, at least until recent months. But now, rather than using TAA to buy votes for trade liberalization, the administration and their allies appear to using pretty-much-assured votes for trade liberalization to buy TAA. As a Wall Street Journal editorial said on Friday, it’s extortion.

Eternal Vigilance Needed on Trade Carve-Outs

A bill that would have set a troubling precedent indeed was killed in the Senate last week. I’ve written previously about the Trade Adjustment Assistance program, and its fate has been tied up with the Generalized System of Preferences, a scheme by which certain developing countries gain duty-free access to the U.S. market for many of their goods. Congress was trying – and failed – to pass an extension of the programs together, along with the Andean Trade Preference Act.

Well, in an effort to extend for eighteen months the stimulus-enhanced TAA program (they were less fulsome in their enthusiasm for the other part of the bill; the barrier-reducing ATPA), Senators Bob Casey (D-PA) and Sherrod Brown (D-OH) introduced what they deemed to be a legislative “fix” to the thorny problem of how to extend all these programs in the face of Sen. Jeff Sessions (R-AL) opposition to the GSP so long as sleeping bags were included in the program (there just happens to be a sleeping bag manufacturer in his state).  Their solution? Just carve out sleeping bags from the GSP.

Section 202 of the proposed bill was literally titled “Ineligibility of Certain Sleeping Bags for Preferential Treatment Under the Generalized System of Preferences”. The Senators didn’t even go to the trouble of carefully wording and designing the provision so that it – oh, hey, look at that! – just happened to pertain to exactly the product for which a carve-out was being sought. No, in this case all subtleties were thrown to the wind. They even, should any confusion remain, helpfully provided the specific H.S. number (the code used by customs officials to identify a good) for the sleeping bags in question.

(I should note here that administrative reviews – processes built into the GSP to avoid what legislators deem undue harm to domestic interests – had already shown that the conditions for GSP ineligibility for sleeping bags were not met. )

While this bill thankfully failed, it serves as a timely reminder that legislators will not allow anything so minor as the rule of law (in this case an administrative review) to prevent them from seeking favors for certain constituents. Thank goodness that effort was thwarted this time: a precedent whereby any Senator (or House member, for that matter) can get a carve out from general trade liberalization for their special interest friends would see the post-war progress on freer trade – imperfect though that may be – quickly unravel.

An additional note: in their press releases, Senators Casey and Brown both alluded to the “fact” that the TAA helps workers “either get back to work or regain some measure of the financial security that has been stripped from them due to unfair foreign trade.” [emphasis mine]  TAA has no such condition attached: workers eligible for the stimulus-enhanced TAA didn’t even have to prove that they lost their job because of a trade agreement, let alone any condition that the trade was “unfair” (i.e.,  a result of dumping or subsidization – and see here why those charges are themselves  canards).  Unless, of course, the Senators consider any trade that threatens domestic producers’ interests to be “unfair”.

Trade Adjustment Assistance Bill Pulled

In the face of a likely loss, the House Republican leadership pulled a trade bill from consideration late yesterday afternoon rather than face yet another embarrassing defeat. CQ has the details [$].

The bill would have reauthorized the Andean Trade Preference Act, which gives specific tariff reductions on certain products from Andean countries, for a further six months. Hardly the sort of significant trade liberalization that would justify passing the other part of the bill – a $2.4 billion per year extention of the Trade Adjustment Assistance program, about which I blogged on Friday. Stay tuned, because unfortunately I doubt we’ve heard the last of this program.

Trade Adjustment Assistance Set to Expire?

James Sherk of the Heritage Foundation has an excellent report out today on Trade Adjustment Assistance, and why Congress should allow the program to expire. Without action, it is set to do so on February 12 [$].

Trade Adjustment Assistance is a collection of programs that have been with us since the mid-1970s. The programs provide taxpayer-funded benefits to workers (and firms, and farmers, and entire “communities”) who are harmed – e.g., by losing their job – from import competition. The main program is the Trade Adjustment Assistance for Workers program, administered by the Department of Labor and the subject of a paper I wrote in 2007

It pains me to say that my 2007 call for its abolishment was instead followed in 2009 by an expansion of the program as part of the ‘stimulus’ package. Some of the extra goodies included allowing government workers access to the benefits, extending TAA to service workers (previously the program was applicable only to manufacturing workers) and weakening the link between trade and job losses (i.e., by removing the requirement that the job loss had to be linked to increased imports following a trade liberalization agreement).

Sherk gives a thorough critique of the program in his report, which I encourage you to read in full, but to my mind the important factors are:

First, very few unemployed people are in their unfortunate predicament because of import competition (you heard it here first, folks!). Why should we discriminate between workers based on the cause of their unemployment?

Second, it costs a bundle, an estimated $2.4 billion in 2011 according to the Department of Labor. Research, including the government’s own studies, has shown the program is poor value for money, even by government standards.

Third, and this is where I put on my free trader hat, TAA was originally sold as a way to get those who are harmed from import competition – or, to put it more accurately, those who have become accustomed to artificially created demand for their services by government intervention and taxing consumers – to go along with trade liberalization. But as recent events have shown, that “deal with the mob” has well and truly broken down. Even though TAA was expanded almost two years ago, Democrats are only now making tentative noises about passing the trade agreement with Colombia (nothing on Panama), and the administration agreed to promote the agreement with South Korea only after renegotiation and “improvement.”

TAA – along with much of current Federal activity – belongs at the state level, where local people can decide which benefits unemployed workers (of all stripes) should receive given state resources and priorities, and how best to deliver them.