Hearings on the WTO
by Gary Clyde Hufbauer, Peterson Institute for International Economics
Testimony before the Subcommittee on Trade House Ways and Means Committee
United States House of Representatives
February 8, 2000
- The WTO is blocked. The overriding reason is simple. The Congress is deeply divided on the right way to shape the competing forces of globalization.
- For the United States, the open economy ranks as one of our three great engines of growth. The other two engines are a flexible economy and information technology. Together, these three engines have given us the longest period of growth in history, remarkably low inflation, very low unemployment, and rising productivity even after 8 years of prosperity.
- But a prosperous dynamic economy produces losers as well as winners. Moreover, our trading partners do not necessarily embrace values that are deeply held in the United States concerning environmental and labor standards. These two issues, more than any others, deeply divide the Congress and the American people on the WTO, NAFTA, China and other trade agreements.
- Today, I urge two solutions for these divisions. The solutions can be "Made in America". They do not require fresh international negotiations. They only require agreement by the Congress and the President.
- The first solution is degressive wage insurance: a make-up payment lasting 3 years, for a portion of the FICA wages lost by all dislocated workers. The make-up payment would start at 75 percent of lost wages for the first year, drop to 50 percent in the second year, and drop to 25 percent in the third year. Trade-impacted workers are less than a fifth all dislocated workers. Their wage insurance should be the same as workers dislocated by technology, downsizing, and the array of other factors in our flexible economy.
- Recent statistics indicate that dislocated manufacturing workers in 1996/97 incurred a wage loss of under 5 percent when they took a new job. In 1990/91, the loss was about 20 percent. A high-pressure, high-employment economy makes it easier to find new work at reasonable pay. My rough estimate is that degressive wage insurance would cost about $15 billion annually, even at 1990/91 loss rates. The cost would be reduced by lower periods of unemployment.
- My solution for environmental and labor standards is to move the central debate out of the WTO and into a U.S. commission charged with developing appropriate environmental and labor labels ("green" and "blue" labels) and the underlying standards for their use. With appropriate labeling, both household consumers and industrial buyers could make an informed choice between goods and services that were produced in accordance with established environmental and labor standards, and goods and services that do not meet those standards.
- This approach represents a generalization of the approach adopted in the "Biosafety Protocol". A similar approach has been used for tuna, apparel, athletic shoes, and lumber products, among others. The labels should not be designed so as to afford protection against imports. Mandatory labels should be mandatory for all products in the category; voluntary labels should be equally available to foreign and domestic producers.
- The commission would be an independent commission with distinguished members and an adequate staff. It would categorize goods and services into a two-by-two matrix. One dimension is the choice between those requiring voluntary labels and those requiring mandatory labels. The second dimension is the choice between labels developed by private bodies (such as Underwriters Laboratory) and labels authorized by the government.
- In developing labels and the underlying standards, the commission would hold hearings open to all interested parties. Different interest groups would disagree. The Sierra Club would take one position on forestry labels; Weyerhauser might take a different position. Likewise, the AFL-CIO would take one position on labor standard labels for apparel imports; a retailers association would take a different position. Fine. This is a domestic debate. Let the debate take place in a domestic forum, and let the decisions be made by the U.S. commission.
- With domestic solutions to our vital domestic disagreements on trade, the United States can again lead the world towards open markets. Open markets have raised the living standards for billions of people over the past 50 years; they can continue to raise living standards in the United States and around the world in the next 50 years.