Bridging the Global Governance Gap: Reforming the Law of Trade Adjustment

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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.

A. 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. …