by Greg Mastel, Dutko Worldwide
and Howard F. Rosen, Peterson Institute for International Economics
Op-ed in the Hill
July 21, 2011
© The Hill
Largely eclipsed in the debt-limit rancor, an acrimonious debate has sprung up over the Obama administration's intention to include an extension of Trade Adjustment Assistance (TAA)—a half-century old program that provides training and other assistance to workers who lose their jobs due to foreign competition—in the legislation implementing the US-Korea free trade agreement (FTA). Using grossly outdated information, critics have questioned the value of TAA, and, using a highly selective reading of history, the appropriateness of attaching its reauthorization to the FTA.
Wild charges aside, TAA is simply not an out-of-control spending program. Based on a compromise crafted by Senate Finance Chairman Max Baucus (D-Mont.) and House Ways and Means Chairman Dave Camp (R-Mich.), TAA is projected to cost only $1 billion next year—three one-hundredths of a percent of total projected government spending. At that level, TAA's cost is tiny in both absolute and relative terms. Reforms over the last few decades have reduced the cost of TAA from a peak of $4.6 billion in 1980, and the cost per participant has declined by 45 percent since 1993 (adjusted for inflation).
For context, the Peterson Institute for International Economics estimates that international trade with all countries benefits the US economy by more than $1 trillion a year. The Korea FTA alone is estimated to generate more than $10 billion in gains for the US economy. Many of those trade gains would not have been possible without the political consensus made possible in no small part by TAA. The $1 billion TAA budget is a tiny investment in addressing the needs of displaced workers that will continue to yield outsized returns.
Viewed another way, if the United States cannot afford to invest in helping those harmed by trade, how can it afford to forego the $7.3 billion in lost tariff revenue that CBO estimates will result from the US-Korea FTA over the next decade?
Other critics are fond of indicting TAA as ineffective and duplicative, citing evaluations, some of which were performed a decade before recent major reforms to TAA were implemented. Although some claim that we already have too many training programs, TAA is the only one that exclusively serves workers displaced by globalization and provides intensive, full-time training. Rather than perpetuating grossly outdated information and half-truths, the Baucus-Camp compromise includes a comprehensive evaluation of the TAA program from which informed decisions on the program's future can be made when the currently proposed authorization expires in two years.
Finally, many contend that linking TAA to the US-Korea FTA is a "gross breach" of the fast-track rules under which the Congress considers trade agreements. In fact, under fast-track the president is specifically empowered to include other provisions in FTA implementing legislation that are "necessary and appropriate," and this power has been used numerous times in the past. For example, sweeping customs modernization legislation was included in previous FTA implementing legislation and approved by Congress under fast-track rules. Specifically relevant to this debate, TAA reforms were included in the 1993 fast-track legislation that implemented the NAFTA.
Given all the fuss over linking TAA to the US-Korea FTA, it is notable that no one seems to have noticed that both the Senate Finance Committee and the House Ways and Means Committee approved linking renewal of two large trade preference programs for developing countries—the Generalized System of Preferences (GSP) and the Andean Trade Preference Act (ATPA)—to the implementation of legislation for the US-Colombia FTA. This oversight by critics is especially odd since the amount of foregone tariff revenues due to those renewals—about $600 million per year—approaches the cost of TAA. Furthermore, GSP—though meritorious in its own right—has nothing to do with the US-Colombia FTA, since Colombia will no longer be eligible for the preferences. By contrast, reauthorizing and reforming TAA is directly "necessary and appropriate," since implementing new FTAs without a program in place to deal with those Americans who may lose their jobs from trade would be simply irresponsible.
Congress and the administration are right to press forward immediately on approving the FTAs with Korea, Panama, and Colombia. But at the same time it is entirely "necessary and appropriate" to extend TAA to ensure that those who lose from increased import competition have the opportunity to find new jobs and restore order to their lives. The marriage between TAA and opening US markets to trade has allowed the United States to pursue a mostly free trade policy throughout the post-WWII era. Breaking that linkage now threatens the current FTAs and all future trade agreements.
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