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to be rewarded 3 or 4 weeks later by a 14 percent increase. This is a two-edged thing. I am always hesitant about applying any restraints on trade which result in higher prices to the American consumer.

Mr. Oswald. You can’t dump it.

Mr. WANIK. It can’t be dumped but at the same time you just can’t lock in escalated prices in America through some kind of protective arrangement.

Mr. Oswald. I think that goes hand-in-hand.

Mr. VANIK. I think if there is evidence of serious harm to the American consumer it should be cut off.

Thank you.

At this point the Chair will be taken over by my colleague, Mr. Fisher.

Mr. FISHER (presiding). Thank you.

We hope to complete these hearings this morning by 12:30. I would like now to call on Mr. Samuel M. Rosenblatt, senior economic consultant, International Economic Policy Association.

Mr. Rosenblatt, we are delighted that you are here and we look forward to your testimony. We have copies of it, I believe. If you would keep in mind we hope to finish by 12:30 and there are two others besides yourself.

STATEMENT OF SAMUEL M. ROSENBLATT, SENIOR ECONOMIC CONSULTANT, INTERNATIONAL ECONOMIC POLICY ASSOCIATION

Mr. RoseNBLATT. Thank you, Mr. Chairman. I am very conscious of your time constraints. As I understand it, the full statement will. be submitted for the record.

Mr. FISHER. Yes.

Mr. RoseNBLATT. My name is Samuel M. Rosenblatt. I am a senior economic consultant to the International Economic Policy Association, and I am testifying on behalf of the association and its president, Timothy W. Stanley. The International Economic Polic Association is a 20-year-old nonprofit research organization whic conducts studies and undertakes research on U.S. and foreign government policies in the areas of trade, aid, investment, and other aspects of our international economic system.

Prior to my present affiliation with IEPA, I worked for 12 years with the Federal Government in a number of agencies, including the Board of Governors of the Federal Reserve System, the Economic T]evelopment Administration, and the Office of Business Research and Analysis in the Department of Commerce. For the last 2 years I served as Assistant Director on Trade and Resources for the Council on International Economic Policy in the Executive Office of the President. In this capacity, I was directly involved in the formula: tion and implementation of Presidential decisions in import relief petitions under section 201 of the Trade Act of 1974. I therefore had numerous opportunities to work with and become familiar with the administrative procedures and the other broader aspects of these petitions and the operations of the trade adjustment assistance programs generally.

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As you well know, the Trade Act of 1974 eased the criteria under which “escape clause” import relief and adjustment assistance to eligible workers, firms and communities could be provided, as contrasted with the provisions of the Trade Expansion Act of 1962. Under the latter act, increased imports must have been, in major part, the result of trade agreement concessions before import relief measures were taken. Under the Trade Act of 1974, no link to prior concessions is required. Furthermore, under the 1974 act, increased imports must only be a substantial cause of serious injury, or the threat thereof, rather than the major factor as was true under the Trade Expansion Act of 1962. A similar easing of eligibility requirements for adjustment assistance was incorporated in the Trade Act of 1974. The intent of these changes was to make it easier for eligible petitioners to qualify for the benefits available under the adjustment assistance program. In addition, the level of benefits available to certified workers was also expanded. As regards firms and communities, the 1974 act made it somewhat easier for firms to qualify for financial and technical assistance and established potential trade adjustment assistance to communities for the first time. The latter two programs were to be administered by the Economic Development Administration. The clear intent of these changes and additions was to improve the effectiveness of the adjustment assistance programs as compared with their predecessors. In addition, it was also intended that the programs be incorporated into, and be made an essential ingredient of, U.S. trade policy. It was the intent of both the Congress and the Executive that these programs become a much more viable component of U.S. trade policy so as to minimize as much as possible the implementation of import relief measures such as tariffs, quotas, or other forms of trade restrictions. Experience under the Trade Act of 1974 for the adjustment assistance programs is of limited duration. However, in spite of this, it is still appropriate for the Congress and the Executive to review these programs at this time to assess the extent to which they are achieving some of the anticipated objectives, and to evaluate how effectively they are operating. On the basis of the experience to date, I think it is fair to conclude that these programs have had limited success at best, and that the results achieved under them have been disappointing. There are a number of reasons for this outcome, some of which have to do with the programs themselves while others lie entirely outside their purview. During the more than 2 years since the passage of the Trade Act of 1974, the U.S. economy experienced its most severe recession since the mid-1930's. The subsequent recovery from that recession has still left the national unemployment rate at relatively high levels. Hence the overall economic environment has not yet been very conducive nor accommodating to the program objectives developed for the adjustment assistance programs. Second: The very nature of the problems with which these programs are involved are inherently difficult to overcome. Indeed, they reflect some of the hardest economic structural adjustment problems the country faces. However, there are also aspects of the programs themselves that have contributed to this outcome and it is these aspects that I would like to address. The worker adjustment assistance program provides a range of benefits to workers who have been certified as eligible to receive such assistance. This assistance includes trade readjustment allowances which compensate displaced workers for up to 70 percent of their previous weekly wage, training and related services such as testing, counseling, placement and support services, and job search and relocation alsowances. Certified workers have a basic 2-year period in which they must file for benefits. Benefits are generally provided up to a maximum of 52 weeks. However, workers 60 years of age and older at separation may receive up to 26 additional weeks of trade readjustment allowances in order to complete training, provided they made application for such training within 180 days of the date they become eligible to apply for adjustment assistance or the date their benefits became effective, whichever is later. This program therefore potentially provides a wide array of possibilities. What has been the actual experience, however? Table 1 lays out the cumulative results under this program from April 3, 1975, through February 28, 1977. Briefly, almost 189,000 workers have been certified while 646 petitions, representing 242,000 workers, have been denied. In terms of actual trade readjustment allowances paid by the 50 State unemployment insurance offices through January 31, 1977,142,000 workers have had their applications paid by their respective States. This represents the equivalent of some 3.6 million man-weeks of benefits with a total expenditure of some $193 million. These payments are, in effect, supplemental unemployment benefits. Now compare this with the other pieces of the adjustment assistance program: 249 workers have received job search assistance; 117 have received relocation assistance: 1900, training; and there have been 2,200 job placements. In effect, the program has become almost entirely a means of providing supplemental unemployment insurance to workers adversely affected or deemed eligible under this program. Very little has been accomplished under the other aspects of this program, and it is these aspects that were intended to serve as facilitating devices to help, the workers in industries affected by imports to make the transition to other occupations that hopefully would prove more economically rewarding to them and the general economy over the longer term. What are some of the reasons for these results? First: The Trade Expansion Act of 1962 had such stringent eligibility requirements that it was very difficult for workers to qualify and, onee eligible, the amount of assistance actually available was quite limited. Hence labor unions and workers developed a very negative attitude toward these programs in spite of their prior enthusiasm and support of them in the 1950's. It thus became commonplace for workers to refer to these programs as burial insurance rather than adjustment assistance. This attitude o oried over to the programs initiated under the Trade Act of 1974.

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Second: There has been some reluctance and resistance on the part of workers and unions to encourage the widespread use of this program. A successful program that provides for the transition of workers out of one industry and into another has certain obvious institutional effects on the unions, on which I need not dwell. Also, the workers themselves needed the proper motivation and incentive to apply for retraining and relocation to new employment, and in many instances they were lacking since the workers may have been older and relatively less skilled, and hence somewhat reluctant to undergo the risks and uncertainties implicit in retraining and relocation. Finally: There are certain administrative matters that may have interferred with the types of activity under this program. The Federal Government's nsibilities more or less end when it certifies that workers are eligible to apply for the program. The burden of actually providing benefits, including the trade readjustment allowances, but more importantly, the training and relocation aspects of adjustment assistance, fall to the State employment offices. And in many instances these State offices may not have attached a particularly high priority to the adjustment assistance programs as contrasted with the many other manpower programs available. Hence we find that the program has evolved into being virtually an unemployment compensation program. This transforms it into a defensive orientation, in which it concentrates on maintaining the status quo, rather than becoming the outward-looking and dynamic program which I think was one of the intentions of Congress in passing the Trade Act of 1974. The program of providing adjustment assistance to firms is administered by the Economic Development Administration in the Department of Commerce. Under the Trade Act of 1974, section 251, a firm may petition the Department of Commerce and demonstrate that increased imports “contributed importantly” to (a) the separation or threat thereof of a significant number or proportion of its workers, and (b) and to an absolute decrease in its sales or production. The increase in imports may be either absolute or relative to domestic production while sales or production of the petitioning firm must show an absolute decrease. The “contributed importantly” criterion which must be met for the firm to be certified is less stringent than the “substantial cause” criterion which is required for the ITC to make a positive determination in an industry investigation. For purposes of certification of eligibility, the Commerce Department considers the operations of affiliates, subsidiaries and parents of the petitioning firm and its principal owners and treats them, in effect, on a consolidated basis. A firm certified as eligible under the Trade Act of 1974 is in a position to receive assistance from a variety of Government agencies. This assistance may take the form of direct loans and loan guaranties for the acquisition, construction, installation, modernization, development, conversion or expansion of buildings and other assets, and for working capital. Direct loans to any one firm under chapter 3 cannot exceed $1 million, guaranteed loans cannot exceed $3 million, and the guaranteed portions of loans cannot exceed 90 percent. The business loan and guaranty programs and the technical assistance programs of the Economic Development Administration are available to eligible firms as are certain selected programs of the Small Business Administration and the Farmers Home Administration. During 1976 EDA certified 25 firms as being eligible and approved adjustment assistance proposals for 12 firms. Total authorized financial assistance came to $14.4 million and included 16 direct loans— $10.2 million—and three loan guaranties—$4.2 million. The loan maturities for the direct loans ranged from 5.5 to 15 years, with the majority in the 7 to 10 year range. Interest rates were about 91% percent. The loan guaranties carried rates of interest of prime plus 200 to 300 basis points. This level of activity was well above that for 1975 when only three EDA loans were made—$2.3 million. -o-, -While this program is growing, it is still quite limited and I believe below expectations. For example, under President Ford's April 16, 1976 decision, in which he decided to opt for adjustment assistance in response to the import relief petition of the nonrubber footwear industry, the Department of Commerce sent information about its programs to some 589 footwear companies in May of last year. to Approximately 60 firms responded by requesting petition forms. In its February 16, 1977 report to the President in response to the requirements of section 264 of the Trade Act of 1974, the Department of Commerce indicated that 13 firms in the footwear industry have applied for and are receiving financial and technical assistance under the provisions of both the Trade Expansion Act of 1962 and the Trade Act of 1974. This assistance amounts to almost $17.5 million. An additional 14 firms have been certified eligible to apply for assistance but have not yet done so. These represent cumulative totals and should be viewed in the context of the almost 600 firms who were recently notified about this program. One might again ask, why has reality varied so much from expectations? The answer to this question are difficult to come by. Some firms have indicated a reluctance to fill in the forms and answer the questions required to become certified as eligible for assistance. This can be attributed to the normal resistance of private enterprise to become involved with what they refer to as Government redtape and bureaucratic meddling. o Some firms have also had difficulties in demonstrating their eligibility for certification under the program. Finally, the Trade Act of 1974 itself includes a number of restrictions which may detract from the attractiveness of this program. Eligible firms must demonstrate under section 255 that the funds they are requesting are not available from the firm's own resources and that there is a reasonable assurance of repayment of the loan. This section also requires that after the Secretary of the Treasury has determined the rate of interest on direct loans, the Secretary of Commerce will add an amount adequate in his judgment to cover administrative costs and probable losses under the program. In a similar fashion, on loan guaranties the Secretary of Commerce may charge a fee to the lender which makes the cost of a loan guaranteed under this chapter cover the cost of administration of such a guaranty. Finally, the aggregate number of loans made to any firm which are guaranteed and which are outstanding at any time, shall not exceed $3 million while the aggregate amount of direct

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