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Linking the US-Korea FTA and TAA: What’s Really Necessary and Appropriate?

by | July 12th, 2011 | 05:22 pm
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A rancorous debate is taking place over whether to link reauthorization and reform of Trade Adjustment Assistance (TAA)—which provides assistance to workers, farmers, fishermen, and firms adversely affected by increased import competition and offshore shifts in production—to other legislation moving through Congress. Given TAA’s small size, the issue isn’t whether to link it or not, but rather which legislation to link it to.

Some members of Congress oppose the Administration’s plan to link TAA reauthorization and reform to legislation implementing the US-Korea free trade agreement (FTA) on the grounds that the program is too expensive and not “necessary and appropriate” to the agreement.

Based on the compromise deal crafted by Senator Finance Chairman Max Baucus (D-Montana) and House Ways and Means Chairman Dave Camp (R-Michigan), projected total expenditures on TAA are estimated to be approximately $1 billion next year—3 one-hundredths of a percent of total projected government in FY 2012. Congress almost never considers legislation this small on a stand-alone basis.

TAA’s cost is small 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. The cost per participant has declined by 45 percent since 1993, and half of that decline took place after reforms enacted in 2002 (inflation adjusted).

In relative terms Gary Hufbauer (of PIIE) estimates that international trade with all countries benefits the US economy by more than $1 trillion a year. The United States Trade Representative’s office estimates that increased trade resulting from the US-Korea FTA will contribute $10 to $12 billion to the US economy each year. Certainly we can “afford” $1 billion to help those workers adversely affected by that expansion in trade and investment.

If we can’t ”afford” $1 billion to help those adversely affected by globalization, can we “afford” to forego the $7.3 billion in lost tariff revenue over the next decade as a result of the US-Korea FTA, as estimated by the Congressional Budget Office?

Notably, there is considerable bipartisan Congressional support for the Baucus-Camp deal on reauthorizing and reforming TAA, especially given the amount of partisan rancor on so many other issues. Much of the current dispute focuses on strategy rather than substance. As many in the business community have publicly stated, $1 billion for TAA is a small price to pay for FTAs with Colombia, Korea, and Panama that could potentially increase US exports to those markets by approximately $10 billion a year.

Finally, including TAA reauthorization and reform in the US-Korea FTA implementing legislation meets the “necessary and appropriate” criteria set by historic precedent. Except for two cases, in 1981 and 2009, all Congressional action on TAA since the program was established almost 50 years ago, has been linked to trade legislation. TAA provisions were included in the Trade Expansion Act of 1962, the Trade Act of 1974, the Omnibus Trade and Competitiveness Act of 1988 and the Trade Act of 2002.

TAA has only been directly linked to FTA implementing legislation once, the NAFTA Implementing Act in 1993, since there was no need to reauthorize or make changes in the program at the time Congress was considering other FTAs. For example, the Trade Act of 2002, which included significant reforms, reauthorized the program through 2007. The only reason there is an immediate need to act on TAA is that the program’s authorization and the reforms implemented in 2009 expired on February 12.

Given all the fuss over linking TAA to the US-Korea FTA, it is ironic 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 country exports—the Generalized System of Preferences (GSP) and the Andean Trade Preference Act (ATPA)—to the implementing legislation for the US-Colombia FTA. The amount of foregone tariff revenues due to their renewal is more than half the cost of TAA. Furthermore, GSP 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 arguably “necessary and appropriate” to the US-Korea FTA, as it will provide assistance to workers adversely affected by increased import competition from all sources, including, but not limited to, Korea.

Members of Congress may try to score political points by holding up the process, but delaying approval of the three FTAs and the reauthorization and reform of TAA have real consequences to American workers and their families. A free trade agreement between Korea and the European Union, potentially jeopardizing billions of dollars of US exports, went into effect last week. At the same time, tens of thousands of American workers are being denied the assistance they need to cope with the most serious economic crisis in their lives. Simply put, it is unnecessary and inappropriate to hold up Congressional consideration of the three FTAs and reauthorization and reform of TAA any longer.

Howard Rosen is a Resident Visiting Fellow at the Peterson Institute for International Economics. He also serves as the Executive Director of the Trade Adjustment Assistance Coalition, a nonprofit group he established devoted to improving the program’s effectiveness.

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