Bridging the global governance gap: reforming the law of trade adjustment.

Author:Park, Stephen Kim
Position:IV. Realizing the Principles of Trade Adjustment through V. Conclusion, with footnotes, p. 839-871
 
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  1. REALIZING THE PRINCIPLES OF TRADE ADJUSTMENT

    TAA and other means of assisting trade's losers can be characterized as a second-best, non-ideal alternative. (154) Given the impossibility of achieving Pareto efficiency and the logistical and political constraints associated with directly compensating losers with the gains derived from liberalization, adjustment assistance can serve as an indirect means to make whole those who incur short-term economic losses. Accordingly, if we accept justifications for trade-related adjustment assistance in principle, the effectiveness of TAA may rest on the ability to accurately identify and precisely compensate losers, thereby making a procedural concern a matter of substantive outcomes. (155)

    Hence, based on the normative principles laid out above, the legal regime governing TAA should seek to harmonize the following objectives:

    * promote (and not retard) liberalization and international economic integration generally;

    * minimize non-productive rents to inefficient import-competing industries;

    * permit trade-displaced workers to participate in public discourse when subject to sudden, substantial, and irreversible decreases in income;

    * facilitate the transition of trade-displaced workers to productive, stable, and lucrative jobs by implementing pro-adjustment policies; and

    * address the inefficiencies, negative externalities, and localized costs associated with liberalization-induced dislocations across national borders.

    1. Current Proposals to Reform TAA

      Dissatisfaction with TAA in the United States, both among its supporters and critics, has spurred a wide range of reform proposals in recent years. An analysis of these proposals provides a revealing look at the contradictory policy objectives and structural shortcomings of TAA, thereby calling attention to the failure of the current regime to satisfy the normative principles on which justifications for TAA are based.

      Proposals to reform TAA generally fall into two distinct categories: (i) procedural reforms that focus on eligibility criteria for TAA and the process by which TAA eligibility is determined; and (ii) substantive reforms that seek to improve the effectiveness of assistance to certified workers. (156)

      1. Procedural Reforms: Revising Eligibility Criteria and Improving Process

        One avenue for TAA reform concerns the criteria for determining eligibility for TAA. TAA's eligibility requirements seek to address a fundamental question: what constitutes trade-related loss of employment? From a macroeconomic perspective, if the objective of TAA is to facilitate adjustment in order to more efficiently allocate labor resources, then it is imperative that there be an agreed-upon process for identifying who has been adversely affected by trade and how such workers have been affected. The primary objective of eligibility reform is to amend eligibility criteria in order to more accurately identify trade-related job losses. Fine-tuning the institutional response to disruptions in the U.S. labor market serves on a broader plane to clarify the policy debate regarding the purpose and scope of TAA as a social mandate.

        Confusion over eligibility criteria has had a detrimental impact on the political efficacy of TAA. (157) On a broader scale, TAA eligibility criteria do not adequately account for trade-related job losses that can be partially attributed to industry-wide or multi-industry trends rather than solely caused by import competition or shifts in production with respect to a specific article of production or firm. (158)

        Potential reforms seek to address these concerns in several different ways. One avenue for reform is to broaden coverage to expressly include trade-related effects other than import competition and shifts in production, such as job losses in export-related industries. Thus, workers laid off in export industries that have experienced competition in foreign markets do not receive assistance even though their job loss is also due to trade. (159) In addition, TAA coverage for job losses resulting from intra-firm shifts in production (i.e., from domestic-based operations to a corresponding foreign branch) is dependent on how the locus of production is defined. If, for example, a wholly-owned foreign subsidiary provides increasingly greater labor input (such as through intra-firm offshoring) related to the production of an article or the supply of a service, the scope of the domestic workers' employment may be materially diminished over time and may ultimately result in the loss of their employment. In both cases, international trade may have had an adverse effect on domestic employment.

        Other eligibility reforms focus on when trade-affected workers may become eligible for TAA assistance. One approach would expand the timeline for eligibility so that workers may apply for certain benefits prior to being separated from employment. (160) Under the current eligibility criteria, workers must be either fully or partially separated from their employment, or be threatened by a full or partial loss of employment. By eliminating the requirement of actual or imminent loss of employment, TAA would more effectively promote adjustment by permitting individuals working in declining industries adversely affected by trade to obtain support for skills retraining. (161)

        Another aspect of TAA that has been subject to criticism is the process by which TAA is administered. TAA's procedural requirements have the effect of limiting TAA's impact by making it more difficult and time consuming to obtain TAA benefits and even deterring eligible beneficiaries from applying. (162) According to TAA proponents, streamlining the process would encourage greater numbers of eligible workers to apply for TAA as well as more efficiently provide assistance to certified workers, in the process bolstering the political viability of TAA. (163)

        There is substantial anecdotal evidence, .confirmed by recent studies commissioned by the U.S. federal government, that a lack of public awareness of TAA has led to its underutilization. Eligible workers are simply not aware of the existence of TAA and the benefits for which they may be eligible. (164) Under the current statutory regime, the onus is primarily on states, acting through their unemployment and social services agencies, to notify displaced workers of TAA eligibility and services. (165) Rates of participation in TAA correlate directly with the effectiveness of these notification, outreach, and public awareness programs. (166)

        From a procedural perspective, one of the primary points of criticisms is the TAA certification investigations conducted by the Labor Department. (167) Among a range of criticisms, the very nature of the fact-finding process has also been questioned. (168) Among the procedural aspects of Labor Department investigations subject to critiques are:

        * Initiation of investigations. Certification denials have been attributed to the inability of workers to provide the Labor Department with sufficiently relevant information demonstrating the connection between the decline in production or services by their employer and increased imports of like or directly competitive products, (169) In many cases, either individual workers or their representative unions file petitions, requiring such petitioners to submit detailed information regarding the scope of their work as it relates to the production of an article or a provision of a service adversely affected by foreign competition. (170) Companies may not have sufficient incentive to assist workers and cooperate with the Labor Department, due to a lack of resources and potential bad publicity associated with plant closings and employee layoffs, thus further exacerbating the difficulty of obtaining information necessary to prove trade-related displacement. (171)

        * Delays in eligibility determinations. Upon receiving a petition, the Labor Department must either certify the petitioning worker or deny the petition within 40 days. (172) However, frequent delays beyond this period have been cited as a widespread cause of frustration. (173) If denied TAA, workers may either seek reconsideration within 30 days or appeal to the CIT within 60 days, in both cases upon publication of the Labor Department's decision in the Federal Register. (174) Negative determinations subject to judicial review before the CIT (and, if further appealed, the Federal Circuit) may remain in limbo for several years. Meanwhile, trade-displaced workers must continue to attempt to rejoin the workforce without knowing whether or not they will receive assistance.

        * Inconsistent application of eligibility requirements. Besides deficiencies in the fact-finding process, the Labor Department has been hampered by a lack of statutory guidance and industry input on what constitutes production or services for purposes of TAA eligibility. In addition, the Labor Department has been accused of disregarding the express remedial purpose of TAA, as evident in the sharply worded critiques in numerous CIT reversals of negative determinations. (175)

        Accordingly, proposed reforms of the TAA process should invariably focus on providing more support and oversight with respect to the Labor Department's gatekeeping role. Requiring greater input from employers during the investigative phase, including the participation of in-house legal counsel, would provide the Labor Department with more information to make certification decisions, as would improving data reporting and analysis regarding industry trends and worker participation in TAA. Likewise, legislative and regulatory rule-making to clarify and codify the scope of production under TAA, with the input of relevant industry and labor stakeholders, may expedite eligibility determinations and substantially reduce the transaction costs incurred by the current Labor Department petition process. (176) In light of dissatisfaction with Labor...

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