TRADE ADJUSTMENT PROGRAM

Experience has demonstrated that the economy as a whole has not suffered from the gradual lowering of tariff barriers during the past quarter of a century. However, some few industries have been hit hard by the impact of increased imports resulting from tariff reductions. If increased trade and a continued gradual reduction of tariff barriers are in the national interest, then it must also be in the national interest to help the firms, communities, and workers adversely affected by such increased imports.

That is the basic purpose of the trade adjustment program which has been proposed by several Senators. In effect, the trade adjustment program would give the President an alternative to tariff increases or quotas under the escapeclause procedure. It represents an effort to meet the problems resulting from import competition without resorting to measures which restrict rather than liberalize international trade.

The need for an adjustment program rests on two fundamental principles: (1) Tariff policy should not be so restrictive that tariffs must be maintained at or raised to unduly high levels in every situation where the domestic industry cannot maintain levels of activity without such a high tariff; and (2) the entire burden of the impact of increased imports must not be placed on the firms and workers adversely affected by tariff reductions. If tariff reduction is part of a national policy required in the best interests of the Nation as a whole, then no one group should be expected to pay the price of that policy. It is a cost which should be borne, insofar as possible, by the Nation as a whole.

The objective of this proposal is not to subsidize the affected groups or to compensate them for injury. Instead, the aim is to help them adjust to increased imports either by assisting them to make more effective and efficient use of their present facilities or by development of new lines of production which would offer business opportunities to firms and communities and employment opportunities to workers.

The theory behind the proposal is that if by Government decision, tariffs are reduced and the reduction causes or threatens to cause serious injury, then it should be by Government decision and action that some aid, assistance, and adjustments are offered.

HOW THE TRADE ADJUSTMENT PROGRAM WOULD WORK

If the trade adjustment program were enacted, the United States Tariff Commission would be required to continue to make its findings under the terms of the escape clause. Upon application by industry, the Tariff Commission proceeds to hold hearings to determine the extent of injury before invoking the escape clause. Once the Commission finds injury or the threat of injury, it recommends to the President that the tariff be increased.

Under the present law, the President can decide either to accept the Tariff Commission's findings of injury and thereby impose the recommendation, which would be an increase in duty, or to reject the findings completely.

Under the trade adjustment program, the President would be given one additional route to follow: He could accept the Tariff Commission's findings of injury, but instead of imposing an increase in duty, he could recommend that the facilities of the trade adjustment program be invoked.

Thereupon, certain types of assistance would be available for workers, industrial enterprises, and communities.

For workers:

1. Supplementary unemployment-compensation benefits up to two-thirds of weekly earnings for 52 weeks.

2. Earlier (aged 60) retirement for recipients of old-age pensions under our social-security law.

3. Retraining for new job opportunities.

4. If necessary, transportation for entire families to new areas of employment. For industrial enterprises:

1. Loans through the Small Business Administration for the adjustment of such business enterprises and communities to economic conditions resulting from the trade policies of the United States.

2. Appropriate departments and agencies of Government will supply "technical information, market research, or any other form of information and advice which might be of assistance in the development of more efficient methods of production and the development of new lines of production."

3. Accelerated amortization would be permitted business, industrial enterprises necessary for the *** "development of new or different lines of production by an eligible business enterprise or a more balanced economy in an eligible community."

For communities or industrial development corporations within the communities:

1. Loans are available to communities and industrial development corporations on the same basis as their availability to business enterprises.

2. Technical information, market research, and any other form of information and advice are available to the community on the same basis as to industrial enterprises, as long as such information is designed to develop a more balanced and diversified economy in the community.

In order for any workers, industrial enterprises, or communities to avail themselves of these aids, they must receive a certificate of eligibility from the Trade Adjustment Board. The Board is to be appointed by the President and composed of five members from among the officers and employees of the executive branch of the Government. The Board determines eligibility and issues certificates on the basis of the United States Tariff Commission's report to the President.

The Board is authorized to hold whatever hearings are necessary to make such determinations.

ARGUMENTS AGAINST TRADE ADJUSTMENT PROGRAM

Opponents of the trade-adjustment program fall into two categories. In the first group are the arch-protectionists. Committed as they are to more and more restrictions on trade, they recognize that they would lose a powerful argument if the trade-adjustment program were adopted. Since the tradeadjustment program would largely mitigate the injury of domestic industries adversely affected by import competition, the advocates of trade restriction would have to admit that they were unwilling to make any adjustment whatsoever to the changes resulting from expanding trade even though such changes are in the national interest and would not result in undue hardship to any single group.

The second group opposing the trade-adjustment program comprise those who favor a more liberal trade policy but oppose the trade-adjustment program either because they underestimate the strength of the opposition to the reciprocal trade agreements program or because they are too timorous or too doctrinaire to undertake the steps necessary to assure a continuing reciprocal-trade program. Let me take up then the major criticisms that have been raised by those opposing the trade adjustment program:

1. It is sometimes argued that the trade adjustment program would require the establishment of a huge new administrative setup. The actual fact is that the propsoed trade adjustment program simply involves adding one new facet to the existing escape-clause procedure. The program could be established without the creation of any new administrative agencies.

The program is envisaged as simply an additional route which the President might take in escape-clause procedures. With the trade adjustment program in effect, the President would have discretion, after a Tariff Commission finding of injury or threat of injury resulting from increased imports, to invoke the provisions of the Trade Adjustment Act instead of raising tariff duties. Decision as to whether particular firms, workers, or communities were eligible to receive assistance under the program would be determined by a Trade Adjustment Board composed of officials of the executive branch of the Government. The actual assistance offered would be administered by existing Federal and State agencies, including the Small Business Administration, the Commerce, Labor, and Health, Education, and Welfare Departments, and State unemployment insurance agencies. Thus, no new administrative setup would be required for the program. 2. There are some who believe that the trade adjustment program would involve a tremendous expenditure on the part of the Federal Government. Actually, the cost of the program to the Federal Government would be quite limited. Since the actual impact of imports is confined to only a very small sector of the economy, the number of workers, firms, and communities receiving assistance under the program would be quite small.

It has been estimated that even if all tariffs were to be temporarily suspended only 200,000 to 400,000 workers might be affected of whom only about one-third are in nonfarm employment. However, since no such drastic step is anticipated,

the actual scope of the program would be very much smaller. According to the United States Department of Labor, in 23 industries in which the Tariff Commission found injury or threat of injury in escape-clause actions from April 1948 to March 1957, the maximum total displacement was 28,000. This is obviously a much more relevant figure for use as to the scope of the trade adjustment program than the much larger estimate of the number of workers who might be displaced by temporary suspension of all tariffs.

It is important to realize that most of the types of assistance contemplated in the trade adjustment program involve no outright additional cash outlays by the Federal Government. Instead, they involve such forms of assistance as loans, accelerated amortization, and technical assistance. Only the supplemental unemployment compensation and the very limited stipends for transportation of workers and their families to new areas of employment involve actual outlay of Federal funds.

It is of course impossible to estimate accurately in advance the precise amount of appropriations that would be required. During the past 9 years, the average annual displacement in industries involved in escape-clause procedures has been about 3,100. Moreover, many workers would not receive benefits for the full 52 weeks permitted by the bill. Thus, it is much more likely that the annual cost of the supplemental unemployment compensation would be somewhat less than $2 million. To this might be added a maximum of perhaps $150,000 a year for transportation stipends for workers moving to other communities. Thus, the total cost of the program would be a maximum of $2 million a year and probably less than this amount.

3. Some of those who oppose the trade adjustment program contend that some types of assistance are already available to those adversely affected by imports. Of course, this is true. For example, some types of technical information are available from the Commerce Department for any business or community, including those affected by imports. The Small Business Administration makes certain types of financial assistance available to small firms generally. The Labor Department as well as the Department of Health, Education, and Welfare sponsor certain training programs without regard to whether the workers utilizing such services have been displaced from their jobs by imports.

Thus, there are already some programs which can be invoked to help those adversely affected by import competition. These programs, however, are no adequate substitute for a comprehensive trade adjustment program.

In the first place, they are not specifically tied to trade. With enactment of the trade adjustment program, companies, workers, and communities affected by imports would have the assurance that they would have available to them certain services, facilities, and types of assistance specifically geared to their needs. The facilities would be tailored to meet the particular needs of those faced with the special problem of adjustment to import competition.

Secondly, how would such existing uncoordinated programs concentrate on a specific problem created by import competition? With the trade adjustment program, the President could immediately, upon a finding of injury by the Tariff Commission, start in motion the machinery to aid and assist in the adjustment procedure. Without the Trade Adjustment Act, the President must either accept or reject the Tariff Commission's findings.

Thirdly, existing programs are inadequate because they do not include a number of essential types of assistance which the trade adjustment program would make available, including supplementary unemployment compensation, earlier retirement under social security, transportation to new areas of employment, accelerated amortization and loans to communities and industrial development corporations. All of these are necessary if the necessary tools are to be made available for facilitating adjustment to the impact of import competition.

4. It is argued that there is no more reason to provide special assistance to those adversely affected by tariff reductions than for others who are suffering economic adversity for other reasons. For example, in rejecting the trade adjustment program, the Randall Commission said:

"In a free economy, some displacement of workers and some injury to institutions is unavoidable. It may come about through technological change, alterations in consumer preferences, exhaustion of a mineral resource, new inventions, new taxes, or many other causes. Since it has never been seriously proposed that the burden of all such injury arising in a free economy should be assumed by the Government, the Commission felt that it was not appropriate to propose such a plan in the tariff area only."

The answer to this argument is that those affected by import competition resulting from reduced tariffs are victims of a Government decision. If the Gov

ernment decision is right, then it is the responsibility of the Government to assist those who must make adjustments because of the consequence of the Government decision.

Even if this point is accepted, it is then argued by some that tariff reductions are not the only decisions that may be made by the Government which adversely affect particular groups in the economy. For example, the Government may decide to cut back civilian production in order to stimulate output for defense purposes or at other times to reduce defense output when it is no longer needed. Such decisions may also result in displacement of workers or hardship to firms or even communities.

There is an important difference, however, between the effects of Government decisions on defense production and on tariff levels. Where a producer because of a Government decision converts from defense to civilian production, or vice versa, this involves an adjustment into a market that is readymade for him and expanding. In a war situation, the Government needs and will buy the defense items he will produce. At the end of the war when he converts to civilian production, the public needs and will buy the peacetime products which have been unavailable during the war. In either case, the producer and his employees can confidently expect to benefit from an expanding market.

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The situation of those affected by import competition is just the opposite. firm in this plight is faced with the problem of having lost part of its market to the foreign producer. It must either become more efficient in order to win back the portion of the market it has lost or it must be helped into some other type of production in an expanding field where just because it is an expanding industry the new producer will not be depriving those already in that industry of the market which they have developed.

It is clear that for the firm confronted with import competition no automatic adjustment is possible. It will not only be of help to those directly affected but also in the best interest of the Nation for the Government make available to him, his employees and his community the assistance they need to make an effective adjustment to import competition.

BROAD SUPPORT FOR THE TRADE ADJUSTMENT PROGRAM

Whether intentionally, or not, some have misrepresented the trade adjustment program as a "labor program." Perhaps this impression may have developed in part because this program was recommended in the report of the Randall Commission by President David J. McDonald of the United Steel Workers of America who was a public member of that Commission. As I have already indicated, the program is by no means exclusively aimed at assisting workers. On the contrary, that is only one limited phase of a program which encompasses a number of other effective types of assistance to business firms and communities.

Moreover, the trade adjustment program is supported by business leaders and experts in the trade field who recognize that this type of program is essential if we are to have a continuing effective reciprocal trade agreements program. In an appendix, I have quoted from a number of statements endorsing the principles of the trade adjustment program. Those who have indicated support for this program include:

John S. Coleman, chairman of the board and former president, United States Chamber of Commerce.

William L. Batt, former president, SKF Industries.

George L. Bell, president, Committee for a National Trade Policy.

Fred H. Klopstock and Paul Meek, Federal Reserve Bank of New York. Howard S. Piquet, senior specialist, International Economics, Legislative Reference Service of the Library of Congress.

W. S. Woytinsky, outstanding economist and expert on international economics. Walter S. Salant, Brookings Institution.

Richard N. Gardner, associate professor of law, Columbia University Law School.

Charles P. Kindleberger, professor of economics, Massachusetts Institute of Technology.

N. Arnold Tolles, professor of economics, New York State School of Industrial and Labor Relations, Cornell University.

Jacob Viner, professor of economics, Princeton University.

The trade adjustment program is a broad program with support from a broad cross section of the community. Its enactment would provide essential justice to those affected by imports and would contribute to the broad national interest in reducing the barriers to trade. We urge this committee to incorporate at least the basic principles of the trade adjustment program as an essential part of the overall Reciprocal Trade Agreements Act.

FAIR LABOR STANDARDS AND INTERNATIONAL TRADE

The labor movement has long advocated the principle that fair competition in international trade requires fair labor standards in exporting industries. This principle has been given at least some official recognition in recent years. In its January 1954 report, the President's Commission on Foreign Economic Policy (Randall Commission) stated:

"The clearest case of unfair competition is one in which the workers on a particular commodity are paid wages well below accepted standards in the exporting country. In such cases, our negotiators should simply make clear that no tariff concessions will be granted on products made by workers receiving wages which are substandard in the exporting country." [Commission's emphasis.]

During the tariff negotiations between the United States and Japan in 1955, explicit recognition was given for the first time in the framework of a tariff conference to the importance of fair labor standards as an objective in tariff negotiations. At the conclusion of that conference, the head of the Japanese delegation formally stated to the chairman of the United States delegation:

"In connection with the recently concluded tariff negotiations sponsored by the contracting parties involving Japan, it is the foremost concern of the Japanese Government that wage standards and practices be maintained at fair levels in industries, including export industries, of Japan."

We are, of course, aware that this issue has been raised by opponents of a liberalized trade policy as justification for restricting trade. That is not our purpose in asking that attention be focused on the problem of fair labor standards in international trade. Instead, our aim is to secure an improvement of the labor standards in exporting countries as a means of equalizing competition in international trade. We are convinced that the best interest of our own country and countries seeking to export to us will be served if our efforts will be directed toward the twofold objective of expanding trade and raising labor standards in exporting countries.

If this is the objective we are seeking, then our course should be to make tariff concessions in accordance with a liberal trade policy, but for those items made in industries where there are unfair labor standards in the exporting countries, our concessions should be for a limited period and their continuing effect should be conditional upon sincere efforts in the exporting country to eliminate unfair labor standards. Such efforts will be enhanced by the economic opportunities afforded by the expanding market opened to the exporting countries which would provide the earnings necessary to increase productivity and thereby improve labor standards. At the end of the stated time period, if such efforts have been made efforts which in the context of the economic framework of the competing firms in the two countries would tend to narrow unwarranted differentials and labor costs-the concessions would continue in force. Failure of the exporting country to take steps to eliminate unfair labor standards would be grounds for withdrawal of the concession. However, it would clearly be in the interest of the exporting country, even if no other internal political or humanitarian consideration were involved, to raise its labor standards and thereby maintain its export market.

We urge that specific recognition be given to the principle of fair labor standards in international trade in the legislation extending the reciprocal trade agreements program. We ask the Congress to direct the President to make the promotion of fair labor standards in international trade a major objective of our international trade policy.

CONCLUSION

The measure now before the committee, H. R. 12591, already incorporates a number of amendments which weaken to some extent the effective operation of a reciprocal trade program. The AFL-CIO did not support these amendments and would prefer that they be deleted from the bill. At the very least, we firmly believe that no further weakening amendments should be added by this commit

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