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Trade: An Opportunity About to Be Lost?

by Greg Mastel, Dutko Worldwide
and Howard F. Rosen, Peterson Institute for International Economics

Op-ed in the Hill
May 20, 2011

© The Hill

After a few quiet years for trade policy, the Obama administration and Congress are on the brink of a major breakthrough. Three new free trade agreements (FTAs) and an extension of Trade Adjustment Assistance (TAA) are logically and politically linked and are ready to move through Congress together. Unfortunately, shortsighted thinking threatens to grasp defeat from the jaws of victory.

The three FTAs with important trading partners were negotiated by the Bush administration. The Obama administration fine-tuned the agreements but is now ready to endorse them. After almost a decade of negotiations, the agreements are on track for final approval.

For almost half a century, efforts to liberalize trade through new trade agreements have been accompanied by assistance to workers potentially harmed by those agreements. TAA includes short-term income support, training, job search assistance, and healthcare benefits for workers who lose their jobs because of increased import competition.

There is broad consensus that agreements that lower trade barriers benefit the US economy by creating new export markets, and providing consumers access to less expensive and higher quality products. There has also long been a political consensus that trade liberalization can hurt workers in industries facing increased competition due to the removal of trade barriers. Although considerable to the workers directly affected, for the country as a whole these costs are outweighed by the benefits.

Since these job losses come as a result of government action—entering into trade agreements, it is only fair for policymakers to take steps to mitigate the losses and help workers acquire the skills they need to find jobs in more competitive industries. It was from this simple proposition that TAA was born almost 50 years ago.

TAA has evolved over the last five decades to keep up with changes in international trade and investment and innovations in workforce training. Unfortunately, Congress allowed TAA's legislative authorization to expire at the end of last year.

Some in Congress advocated allowing the program to expire in order to pressure the Obama administration to move forward on the FTAs. Now that the administration has completed the FTAs, some of the same members of Congress are questioning the cost and effectiveness of TAA and some of the program's recent reforms. Their arguments ring hollow.

Of course, TAA does cost money. But the just over $1 billion annually devoted to TAA is little more than a rounding error in the federal budget. Preliminary estimates suggest that the 3 FTAs will cost the government $8 to $9 billion over a decade due to lost tariff revenue and associated costs. If we can't find $1 billion to help tens of thousands of workers hurt by trade, how can we afford the FTAs?

Acknowledging that trade-related job loss is no longer limited to workers in manufacturing industries facing import competition, in 2009 Congress expanded TAA's eligibility criteria to include service workers and all workers who lose their jobs due to offshore outsourcing, most often to China. Since these changes have only been in place for two years and TAA training runs for two years, it is impossible to properly evaluate the reforms.

Extending TAA to cover services was an obvious step forward. When TAA was established almost 50 years ago, international trade was primarily in goods. Today, services are responsible for far more than half of the US economy and many services—from computer programming to reading X-rays—are routinely traded across borders. In light of these economic changes, recent trade agreements—including the three pending FTAs—have been expanded to cover service trade. It only makes sense for TAA to also be extended to services.

Similarly, TAA was expanded to cover workers who lose their jobs when US companies shifts production overseas. In recent years, many of these shifts have been to China, which became a more attractive place to invest after the US government approved its accession into the World Trade Organization (WTO). In this case, the linkage between a sound public policy to expand trade with unfortunate human costs is just as real and direct as it is in any FTA.

The arguments against reauthorizing TAA simply do not hold water. It is therefore entirely understandable that the Obama administration has announced that it will not submit the FTA for approval before Congress reauthorizes the entire TAA program. Linking trade liberalization to a robust, modern TAA makes every bit as much sense in 2011 as it did in 1963 when TAA was created. Breaking that linkage now could jeopardize a historic opportunity to promote US economic growth while strengthening the workforce.


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