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Trading Places

Wednesday, October 31, 2007

Congress has the wrong priorities on trade policy, writes ALEX M. BRILL.

This week, the House of Representatives will consider reauthorization of Trade Adjustment Assistance (TAA). Despite its name, TAA is not a direct matter of international trade, though it has often been used as a political bribe to achieve a broader free trade agenda. It helps workers who can demonstrate that they lost their jobs due to the consequences of foreign trade. Beneficiaries get job retraining, are eligible for a health insurance tax credit, and receive extended unemployment insurance benefits. TAA began in 1962 and has been modified numerous times. Congress is now debating an expansion that would provide new coverage to services workers, expand coverage among manufacturing workers, double (and eventually triple) funding for job retraining, and extend the maximum duration of benefits from 104 weeks to 130 weeks.

There are several problems with this proposal. For one thing, the TAA retraining programs have been found generally to be ineffective. For another, it seems grossly unfair for Washington to provide over two years of unemployment benefits to those dislocated by trade but only provide several months of assistance to those dislocated by technology. Because of TAA, Ronald Reagan observed in 1981, “we wind up paying greater benefits to those who lose their jobs because of foreign competition than we do to their friends and neighbors who are laid off due to domestic competition. Anyone must agree that this is unfair.” Finally, the basic structure of TAA unemployment benefits also discourages precautionary savings and, in some cases, may even discourage displaced workers from promptly seeking reemployment.

Instead of expanding a program that helps some workers but not equally deserving others, Congress should reexamine the institutions that prepare workers to be competitive in the global economy.

In the legislative arena, TAA is essentially a bribe to organized labor that provides political cover for free trade. And in general, its expansion has aided the cause of trade liberalization. In 2002, for example, TAA expansion was attached to Trade Promotion Authority (TPA), which allows the president to negotiate trade agreements that Congress cannot amend. An earlier expansion of TAA occurred in conjunction with the passage of NAFTA. Indeed, the very creation of TAA in 1962 coincided with multilateral trade negotiations aimed at lowering tariffs.

However, the current proposal to expand TAA is not tied to progress on the broader trade agenda. While the U.S.-Peru Free Trade Agreement is expected to win approval this year, the outlook for the larger bilateral trade deals now before Congress and for the Doha Round of multilateral negotiations is dim at best. Meanwhile, TPA has expired, which temporarily scuttles the chances of any new trade pacts being signed. If Congress were to expand TAA without also guaranteeing the passage of the pending FTAs with Colombia, Panama, and South Korea, it would be a net loss for the trade agenda.

The harsh reality is that growing economies produce both winners and losers. Economic growth is a force that creates new jobs and new industries but also eliminates older jobs and older industries. Changes in trade flows, technology, and even fashion trends all affect some workers positively and others negatively. In 2006, there was a net creation of 1.8 million U.S. jobs. But that was the result of 30.4 million jobs being created and 28.6 million jobs being lost. The dynamic nature of the U.S. labor market is a key factor in our ability to adapt and grow as a country.

Instead of satisfying the unions by expanding an already generous program crafted to help some workers in certain situations while not helping others who are equally deserving, Congress should reexamine the institutions that prepare workers to be competitive in the global economy and strengthen the programs designed to move unemployed Americans back into the workforce (regardless of what caused their job loss). Ensuring that all workers have access to affordable health insurance regardless of their employment status, that all workers have secure and portable pensions, and that all workers have the basic skills necessary to compete in a global economy should make for a commonsense bipartisan reform agenda.

Alex M. Brill is a research fellow at the American Enterprise Institute and an economic policy adviser to Buchanan Ingersoll & Rooney, PC. He was senior adviser and chief economist for the House Ways and Means Committee, where he worked from 2002-2007.

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