to somewhat larger benefits, the difference depending on how high his average weekly wage has been and how high the state-wide average is. Table 1 compares the benefit levels in all states under the current Trade Expansion Act of 1972 and the proposed Trade Reform Act of 1973 (based on 1972 data). In many of those states which suffer particularly from import competition, even the highest paid workers would not receive a higher level of benefits under the new Trade Reform Act because the state-wide average wage is low. This includes all of New England (except Connecticut), North Carolina, and South Carolina. TABLE 1.-1972 TRADE READJUSTMENT ALLOWANCES UNDER TRADE EXPANSION ACT OF 1962 Sources: 1. U.S. Department of Labor, Bureau of Labor Statistics, Earnings and Employment May 1973, vol. 19, No. 11 2. U.S. Department of Labor, Manpower Administration, Unemployment Insurance Statistics, Dec. 1972, p. 3. Even more important than reduction in the level of benefits is the administration proposal to lower the duration of benefits. Under the current program, workers are entitled to a minimum of 52 weeks of trade readjustment allowances (TRA). A worker in a training program approved by the Department of Labor may receieve an additional 26 weeks of TRA, and workers over age 60 may receive an additional 13 weeks. The Trade Reform Act would link duration of trade readjustment allowances to the period of eligibility under state unemployment insurance schemes. Currently maximum eligibility in most states is 26 weeks but in some states ranges up to a maximum of 39 weeks. At the time a trade-impacted worked loses his job, however, he may only have 5 or 10 weeks remaining of eligibility for unemployment insurance because of a history of frequent layoffs. Under the current legislation, the worker's eligibility for TRA allowances is independent of his current unemployment insurance eligibility; he has a minimum of 52 weeks of eligibility over a two-year period. Thus under the Trade Reform Act, most workers in most states will be entitled to no more than half, some substantially less than half, the period of eligibility to which they are now entitled under current legislation. I have heard some administration officials claim that the reduction in eligibility is not important since the average period of unemployment is only 12 or 13 weeks. The average period of unemployment, however, does not take into account the fact that a worker may be unemployed several times in the course of a year or two. Under the current legislation, a trade-impacted worker has 52 weeks of eligibility over two years, whether or not his unemployment is continuous. Furthermore, the average age of workers who lose their jobs because of import competition is much greater than the average age of the unemployed worker in general, about 44 years for trade-impacted workers as compared to 31.6 years for all unemployed workers.3 In addition, trade-impacted workers often lose their jobs in communities with depressed labor markets. All of these factors combine so that the actual average number of weeks of TRA benefits is in excess of 30 weeks and far above the 13 week estimate that one obtains by looking at the length of unemployment of the average unemployed worker. Both the lower level of benefits and the shorter duration of eligibility serve to thwart the basic objectives of a trade adjustment assistance program, i.e., to provide a reasonable level of compensation to those workers who must bear the heavy burden of job loss so that the great majority of the population may gain the benefits from freer trade. The administration, by failing to provide adequate compensation, has weakened support among some labor unions, consumer interest groups and the Congress for its laudable goal of freer trade. Representative Whalen, for example, can support liberal trade policies in Dayton, where a firm producing printing machinery and employing more than 650 persons was forced to shut down as a result of import competition, and he could couple his advocacy with a plea for more generous adjustment assistance. A representative from Massachusetts might more easily take a responsible position on foreign trade matters knowing that, to date, 19 worker petitions have been approved in Massachusetts, 8 of them in the town of Haverhill alone. Congressman Culver of Iowa, from an area which depends on agricultural and manufactured exports for many of its jobs, advocates liberal trade policies in a speech that includes an appeal for a broadened program of adjustment assistance. Congressman from New England, the industrial South and Midwest, and California, areas hardhit by import competition, can hardly be expected to be strong advocates of a responsible trade policy if the already inadequate benefits of trade adjustment assistance are reduced. The adjustment assistance provisions of the Trade Reform Act are also disappointing in that no real imagination has been applied to attempt to solve some of the basic deficiencies of the existing trade adjustment assistance program. Rather than revitalize the lagging program of adjustment assistance for firms, helping the more dynamic segments of a trade-impacted industry to expand into new lines, they propose to abolish it. There is no attempt to help those beleagured small and medium-size communities, whose labor force, small tradesmen, and service industries suffer disproportionately when one or two factories are closed because of import competition. Yet the Defense Department's Office The figure of 31.6 years is estimated from data on unemployment by age. See U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, Vol. 19, No. 9 (March 1973), p. 27. See Congressional Record, March 29, 1973. pp. E1971-E1974. See Congressional Record, February 28, 1973, pp. H1251-H1253. of Economic Adjustment is now preparing for a substantial extension of their already successful programs of assistance to communities impacted by defense cutbacks. There is nothing in the bill or the President's message, except for the promise of pension reform, which would shift the worker's burden of adjustment to those large firms which can transfer workers to other plants, give advance notice and termination pay, and provide on-the-job training, counseling and placement services. The bill draws nothing from the successful experience of the Armour Company's Automation Committee and the numerous provisions regarding worker security in the more progressive collective bargaining agreements in the U.S. V. RECOMMENDATIONS REGARDING GENERALIZED TARIFF PREFERENCES As I indicated earlier in the testimony, I regard the system of generalized tariff preferences as wholly inadequate in meeting the needs of the less developed countries for greater access to United States markets. There are, however, a number of technical problems with the Trade Reform Act, as drafted, which could give absurd and unintended results and complicate administration. Section 605 (c) excludes from preferences an item for which total exports exceed $25 million or from a country supplying over 50 per cent of the United States imports. These rules should be combined and only extramarginal exports should lose preferences. If, for example, a country has, within one calendar year, supplied 50 per cent by value of the total imports of the previous calendar year of an eligible article into the United States and has supplied a quantity of such an article to the United States having a value of more than $25,000,000 within one calendar year, that country should not be considered a beneficiary developing country in respect to further quantities supplied of that article during the calendar year. Combining the two rules would eliminate the absurdity of having to deny preferences to small amounts of exports from a country which exports more than 50 percent of an item for which the total volume supplied is very small. It would also avoid the inevitable obsolescence of the $25,000,000 exclusionary rule caused by the effects of inflation and the growth of trade. Finally, the suggested change would eliminate any incentive to play with the application of the exclusionary rules, by applying it sometimes to a sub-classification within a particular tarin category (7-digit TSUSA classification), where the 50 per cent rule is most likely to bite, and sometimes to the tariff category itself (5-digit TSUSA classification), where the $25 million exclusionary rule is likely to come into effect. In any case the Congress ought to be clear as to which type of category the exclusionary rules should apply. A second important change in the provisions of Title VI involves section 603 (b), which gives the Secretary of the Treasury the authority to exclude from the preference scheme any article containing less than a specified percentage of value added in the exporting country. This bestows on the Secretary of the Treasury the power to eliminate, at any time, all meaningful preferences by setting the percentage high enough so that most export articles are excluded. The Secretary ought to be given some legislative guidance. He might, for example, be required to set the percentage so as to eliminate any incentive to trans-ship articles from non-beneficiary countries through beneficiary countries to the United States. The percentage could be limited to less than 20 per cent. VI. RECOMMENDATIONS ON ADJUSTMENT ASSISTANCE The provisions of Title II, Chapter 2 of the Trade Reform Act concerning import relief and adjustment assistance are inadequate, especially when taken together. The inclusion of strengthened safeguard provisions with weakened adjustment assistance provisions will make the U.S. more reliant on safeguards to mitigate the impact of import competition since there be an even less viable alternative in the form of adjustment assistance. A much more adequate program would contain the following basic elements: (1) Aid to communities.-A major part of a more satisfactory program of adjustment assistance is a mechanism for providing help to a trade-impacted community. There is considerable evidence for providing help to a trade-impacted work. The Defense Department has pursued a successful program of assisting See George P. Schutz and Arnold R. Weber, Strategies for the Displaced Worker, New York, Harper and Row, 1966. nmunities to adjust to the impact of defense and aerospace cutbacks. With ⚫ urging and help of Representative John Brademas, the Federal Governnt was a leader in coordinating an attack on the severe dislocation which : South Bend, Indiana on the closing of the Studebaker plant in December 1963. Isistance to trade-impacted communities could be implemented simply by exnding the Presidential charter of the existing Interagency Committee for Ecomie Adjustment, chaired by the Secretary of Defense. Most of the techniques ed by this committee could be applied to trade-impacted as well as defense-imcted communities. In fact, a number of communities now being assisted suffer om dislocations caused by both trade and defense. (2) A system of early warning.-The Trade Reform Act does not include lequate provisions for early warning of firms and workers, which would enable em to prepared adjustment plans or apply for trade adjustment assistance in Ivance of severe economic dislocation. The Interagency Committee for Economic djustment could monitor data on trade, production, employment, profits, and pacity utilization on an industry-by-industry basis. On the basis of analysis these data, the committee could declare that a particular industry is tradenpacted, and inform firms and workers that they may be eligible to apply for djustment assistance. The Committee could develop a set of criteria by which to judge whether an dustry is impacted by trade. They might use the following definition of a tradenpacted industry: (a) both production and employment in the industry have declined, and (b) there has been an appreciable increase in imports or an appreciable decrease in exports. This criterion could be administered simply and flexibly and requires data aleady compiled by the Census Bureau on output, exports, and imports on a 5ligit Standard Industrial Classification basis. (3) Relaxed eligibility criteria for workers.-The liberalized criteria for workers in the Trade Reform Act represents a step forward, although the potential mpact is much reduced because of the reduction in worker benefits. The criteria uggested above for defining a trade impacted industry, however, suggest that a more simple criterion could be applied to workers. Once it has been established that a group of workers is associated with a trade-impacted industry, they would be eligible for adjustment assistance benefits if it were determined that the workers' firm or appropriate subdivision had (a) suffered a decline in production, and The implementation of this criterion would require only a determination that a particular firm belonged to a trade-impacted industry, as defined above, and that employment had declined substantially. Like the industry criterion, it could be administered flexibly. (4) Entirely new criteria for firms.-If it were determined that a firm was associated with a trade-impacted industry, such firm should become immediately eligible to apply for adjustment assistance. The application, however, would be judged solely on the economic soundness of the adjustment proposal and the -extent to which it took into account the interests of the firm's workers. This approach should help the more ably-managed and progressive firms in a tradeimpacted industry to move into more profitable lines of production. Under the present program, benefits have typically gone to firms on the verge of failure and financial collapse, and, mostly for this reason, the program has been judged a failure. (5) More efficient administration and speedier delivery of benefits.-The Trade Reform Act contains some good proposals which should help in more speedy delivery of benefits. The power to determine eligibility is vested in the Secretary of Labor rather than in the Tariff Commission. This eliminates a procedural step by having the Department of Labor responsible for both eligibility and delivery of benefits to workers. Administration for firms should also be streamlined in this fashion by making the Department of Commerce, or a suitable independent body, responsible for both determinations of eligibility and delivery of benefits. The ease of applying the eligibility criteria described above should allow for more speedy determinations and hasten the delivery process. Our proposals for an early warning system in which firms and workers in an industry would be informed, in advance, that they may be eligible for adjustment benefits would also make delivery of benfits more timely. (6) A system of budget control.-One of the criticisms of the adjustment as sistance proposals of the 1962 Trade Expansion Act was the open-ended nature. of the program from a budgetary point of view. Any group of workers which qualifies for assistance is entitled to receive a specified level of benefits, and any firm which qualifies can receive whatever amount of assistance which is required to implement the approved adjustment plan. With the relaxed eligibility criteri of the Trade Reform Act and the uncertainty as to how these criteria will operate. the need to institute a form of budget control is even more important. One way of achieving this control is to make a multi-year authorization of funds to be allocated to adjustment assistance programs, perhaps combined with annual ap propriations. Spending could be contained within the budgetary limits if the Interagency Committee were given enough flexibility in applying the criteria used to declare an industry trade-impacted, and the Secretaries of Commerce and Labor were given some flexibility in the application of the criteria for deter mining eligibility of individual firms and groups of workers, respectively. Furl allocated to assistance to firms would be parceled out to individual firms on the basis of the quality of their adjustment proposals. If fewer funds become available, higher standards of quality could be applied. As a general principle, government programs should not be funded in an openended fashion; spending levels should be well-defined ahead of time, and funds should be allocated in a manner which most efficiently satisfies the political and economic goals of the program. The cost to the Federal Government of the kind of program outlined here would not be great. The average number of weeks of TRA benefits under the present program is about 30. The average number of weeks of unemployme insurance is about 17 although this may be expected to rise as more states allow for longer periods of eligibility (let us assume it rises to 20 weeks on the average). If we assume that the average TRA benefit under the new program is 75 per cent of the average manufacturing wage in 1973 (75 per cent of about $170), and the average unemployment benefit is $60, the net cost per worker of TRA benefits under our proposed program would be $2625. In the last thre years about 10,000 workers a year have been certified as eligible to apply for se justment assistance. Perhaps only 7,500 receive benefits, however, some workers never apply and some are turned down because they do not satisfy all of the requirements for benefits to be paid. At the current rate of worker eligibility, therefore, the total cost of TRA benefits under the proposed program would be about $20 million per year. With liberalized eligibility criteria, I believe at the very most 60,000 workers per year would be certified as eligible. Thus the cost of TRA allowances would be about $120 million per year. Perhaps an additional $45 million would be allocated to worker training, counseling, placement, relocation, health benefits, etc. and $35 million to firm adjustment assistance (I would propose that technical and tax assistance to firms be eliminated and that more reliance be placed on loan guarantees rather than direct government loans). The total package would, at most, involve $200 million a year, and $150 million a year would be a more likely estimate. This is a small price to pay compared to the billions of dollars lost to consumers through restrictive trade policies. (7) Expanded rather than reduced benefit levels for workers.-At a minimum the level of trade readjustment allowances to workers should be specified as follows: (a) 80 per cent of the worker's average weekly wage, or (b) two-thirds of the state-wide average manufacturing wage, which ever is less. This formula would give higher TRA allowances to lower paid workers. At the same time, it makes allowances dependent on state wage levels which tend to reflect, at least in part, regional differences in the cost of living. The duration of benefits should also be improved and based on length of service. A more equitable formula would be the following: (a) Every eligible worker would receive a minimum of 26 weeks allows ance; (b) an additional 6 weeks of allowance would be given for each year of service with the trade-impacted firm up to 10 years of service; and (c) an additional 8 weeks of allowance for each year of service over 10 years with the trade-impacted firm. 7 We assume here that the Federal Government would pay the difference between u ployment insurance benefits received and the allowable TRA benefit. |