industry under even more intense and unforeseeable pressure from imports than in the past. Countries undertaking substantial trade liberalization in the current negotiations will want assurance that an effective multilateral safeguard system is available both to control the pace of adjustment to import competition when this is necessary and to restrain unnecessary restrictive actions by their trading partners. I can only heartily applaud and second this statement by the subcommittee and urge its reissue at this time as evidence of the U.S. commitment to an expanded use of the safeguard system. And part and parcel of this whole system, I believe, is the need for a strengthened adjustment assistance program. SUMMARY AND CONCLUSIONS I think it quite appropriate that the committee has chosen this time to undertake an oversight review of the adjustment assistance program. We are about to renew our efforts in Geneva to negotiate seriously for further trade liberalization. We still find ourselves under a variety of potential protectionist forces in this country and abroad, and we of course need to guard against these pressures at all times. The Trade Act of 1974 made some very favorable and progressive changes as regards the use of adjustment assistance as part of our international trade policy. I think we should build on these changes and seek to improve these programs by putting more resources into them, by considering eliminating the use of high interest costs on business loans, by expanding the size of individual indebtedness by a firm, and most importantly, by putting more emphasis on the retraining aspects of the worker adjustment assistance program. These changes might also be part of a broader sectoral approach and analysis that the U.S. might undertake, not for the purposes of interference with the U.S. economy, but more to provide an informed awareness of the part of the U.S. Government of the changes that are taking place at the microeconomic level whether these changes are associated with trade or other factors. This informed awareness, I believe, could result in a better-informed and articulated overall economic policy. Thank you for your time and consideration. I shall be happy to answer any questions. [Attachment to the prepared statement follows:] TABLE 1.-CUMULATIVE SUMMARY OF TRADE ADJUSTMENT ASSISTANCE CASES, APR. 3, 1975–FEB. 28, 1977 Mr. FISHER. Thank you, Mr. Rosenblatt. It was a balanced presentation. We have the impression that you recognize fully the shortcomings of the trade assistance adjustment program and are critical of it, but you don't give up on it. Mr. ROSENBLATT. No, sir. Mr. FISHER. Do you have any questions, Mr. Frenzel? Mr. FRENZEL. I am curious. What is the International EconomicPolicy Association? Mr. ROSENBLATT. It is a nonprofit association, 20 years old. It is primarily a research organization and its objectives are principally to work in the areas of foreign policy matters on such as investment, trade, resources, and what-have-you. Mr. FRENZEL. Could you supply for the committee record who the contributors to the organization are? Mr. ROSENBLATT. I could do that. [The information follows:] The International Economic Policy Association has no contributors other than its members who are a select but representative group of U.S. companies concerned with the international economy. The Committee already has membership data in its files. The Association's current Board of Directors are listed below. BOARD OF DIRECTORS Melvin C. Arnold Executive Vice President Law and Corporate Relations Joseph C. Bates Vice President-International Aluminum Company of America Cyanamid Europe-Mideast-Africa James E. Courtney Vice President International Operations The Hanna Mining Company Edward J. Gerrity, Jr. Senior Vice President-Corporate Lloyd N. Hand Senior Vice President and Walter L. Lingle, Jr. Executive Vice President (ret.) Vice President Administration (ret.) Manufacturers National Bank of Detroit W. C. Brian Peoples Arthur Andersen & Co. William C. Rittman Jones, Day, Reavis & Pogue President and Chief Operating Owens-Illinois, Inc. Timothy W. Stanley IEPA Ib Thomsen Goodyear International Executive Vice President Maj. General Richard A. Yudkin Senior Vice President Mr. FISHER. We have been told that 50 percent or so of the shoes bought in this country now are imported. What is your judgment as to a reasonable percent of import of shoes? Mr. ROSENBLATT. First, I would say that the judgment would vary from industry-to-industry. Mr. FISHER. Just talk about shoes. Mr. ROSENBLATT. I think obviously, sir, the question is difficult. My own reaction would be not to look at that number particularly. I would look at the composition of the industry and the mix of products they produce. I would balance that with the cost to consumers of a variety of import relief proposals. My own preference, and this is purely a personal preference and not reflective of any institution, is that we might in dealing with this problem in the short run make some exceptions at the lower endthose shoes that are valued at $2.50 and below. It is my understanding the U.S. industry does not produce many of these to begin with, and they would obviously have an impact on the low-income consumer, if we followed the kind of recommendations put forward by the ITC. I would propose something at the lower end of an exception there. I would couple that with a program, if we want the import quota base that raised the import base from 1974 to something more recent, I would couple that with a very much improved, as one of the previous witnesses referred to somewhat facetiously, a superadjustment assistance program. Whatever you call it, I think that is a key element to our trade policy. Mr. FISHER. Thank you. If you have any further writings or papers in your organization that would detail the improvements in the adjustment program, we would appreciate receiving them. Mr. ROSENBLATT. We would be happy to provide some that are available. [The information follows:] PROPOSED IMPROVEMENTS IN THE ADJUSTMENT ASSISTANCE PROGRAM The Trade Act of 1974 provides adjustment assistance to firms, communities, and workers. Suggested changes in the Act and administrative modifications to these programs are presented below. FIRMS A. Reduce interest costs.-The Act requires that eligible firms be charged interest rates adequate to cover the administrative costs and probable losses of the program. This has resulted in borrowing costs of about 9.5 percent. It would seem more appropriate for the Government to reduce this cost, thereby making it more likely that eligible firms would survive the transitional period to become viable economic entities in their present or another line of business. Many of the eligible firms are marginal operations to begin with, so that the higher cost of capital could deter firms even from applying for assistance. Once having applied, the interest costs could be sufficiently high as to cause the firms to fail in any event. B. Extend maturity of both direct and guaranteed loans. This action also would ease the repayment burden on eligible firms. C. Raise the Federal Government guarantee level from 90 to 100 percent.— This would serve the dual purposes of easing the firm's repayment burden somewhat and also increasing the supply of private capital. The availability of the Federal Government guaranty at 100 percent would virtually eliminate the credit risks to private lenders associated with these loans. D. Monitoring transition plans of eligible firms. It is now required that eligible firms develop specific transitional plans. This requirement should be given renewed emphasis. Firms should be aware of their responsibilities and obligations to develop and implement action plans that will enable them to compete more effectively with imports or to develop entirely new markets in new product lines. COMMUNITIES A. Ease eligibility criteria.—Experience with the 1974 Trade Act has clearly shown that it is virtually impossible for a community or labor area to qualify for the various adjustment assistance programs. The eligibility criteria should therefore be eased. One way of accomplishing this would be to establish a threshold level for a community or labor area such that, if 10 percent of its total work force is adversely affected by imports, then the entire community or labor area becomes eligible for assistance. This approach avoids the necessity of having to demonstrate absolute declines in employment in the community as a consequence of imports. This approach also would serve to energize all of the community's resources in efforts to deal with the problems of economic adjustment, and not only that portion of the community affected by international trade. WORKERS A. Increased emphasis on retraining and relocation.-These programs need to be made more vigorous. This requires both more resources and more imagination. Specifically, the following proposals might be made part of the program. 1. Housing assistance.-A major constraint on worker relocation in the past may have been the worker's accumulated equity in his home and his reluctance to sell his home on short notice. Such an action may have required the sale of his house in a depressed market, and the accumulated equity likely represented the worker's largest single asset. A government program to protect the worker from the loss of this equity would enhance the worker's willingness to relocate. Similarly, if the worker is tied down to a long-term lease a government program to minimize his obligations under this lease could be useful. 2. Job search.-Liberalize payments available to assist workers to become more mobile, both by adding to the level of benefits available under job search programs and emphasizing the availability of these programs. 3. Income maintenance.-Workers who participate in training programs should be compensated at or near their former wage levels. In fact, as an added inducement to enter training programs, premiums above trade readjustment allowances might also be considered. These payments would be in addition to the requirements set forth below that recipients of trade readjustment allowances must participate in training programs. While these premiums may raise the short-term costs of the program, its longer term objective would be to reduce the recurring costs of subsidizing workers who remain in marginal firms or industries. 4. Trade readjustment allowances.-The availability of these payments should be linked to requirements for retraining. This is now presumably done, but obviously with little effect. It is important that retraining and the willingness to accept new employment be made a vital part of eligibility for trade readjustment allowances. 5. Family Unit.-Even though only one adult member of a family is eligible for trade readjustment allowances, both adult members of a family should be eligible for inclusion in the retraining and relocation aspects of the program. The level of benefits should be commensurate with the foregone wages of the presently employed adult member so as to provide enough inducement and incentive to get the family to move as a unit. 6. Fringe benefits.-Benefits such as group hospitalization rates and pension rights should be picked up and included as part of the trade readjustment allowance payments. 7. Early retirement.-Encouragement should be given to the early retirement of workers 55 and over, particularly those of low to moderate skill levels who would have the most difficulty in adjusting to a new occupation. Some broader considerations that bear on adjustment assistance programs include the following items: Improved manpower training programs. Our overall experience with these programs has not been particularly rewarding, and we need to do a better job of developing programs that effectively meet the needs of workers who seek employment in productive and remunerative occupations while satisfying the needs of American industry for workers who possess up-to-date and efficient skill levels. The possible reasons for this limited success may include a failure to identify properly future needs of industry as well as too close an association of these training programs with programs for the disadvantaged and minority groups in this country. Some of the members of these groups may have had only limited employment experience in the past, and hence would not be particularly good candidates for training programs. In addition, these programs tended to have more of a welfare rather than an economic orientation. As models for this national program, we could adopt programs developed by a number of states where the states, working closely with industry, have effectively identified industry's future skill requirement needs over a 5-year time horizon. The states have then tailored their training programs to satisfy these actual anticipated needs rather than some hypothetical ones. The trade adjustment assistance training program could be a part of such a national training and skills need identification system. Anticipatory system. As part of our international trade policy as well as for other reasons, the Federal Government might very well start to develop a greater analytic competence regarding the microeconomic structure of the American economy. The need for such a competence was brought home very forcefully in the aftermath of the 1973-74 oil embargo and subsequent quintupling of oil prices At that time, much of the microeconomic and structural consequences of these actions were not widely perceived, though exaggerated fears and concerns were expressed. As regards international trade policy itself, such an improved analytic competence would facilitate some longer range thinking of the possible need for and consequences of worldwide relocations of industry. A number of other industrial countries have more directly faced the implications of such eventualities and have prepared their own industries accordingly. In a similar fashion, in the United States, programs contemplating the gradual phasing out and transition of industries to other locations could be developed. The long lead time inherent in this type of approach would certainly help minimize the negative effects of such phaseouts on American industry, workers, and communities. CONCLUSION In the broadest context, adjustment assistance programs must be given renewed emphases as major ingredients of our overall international trade policy. It must be made apparent to workers, industry, and the general public, as well as to our trading partners, that we are serious in our efforts to improve and revitalize adjustment assistance. In the same sense, international trade policy must be looked upon as a vital ingredient and component of our overall international and domestic economic policies. These latter policies are designed to assure the achievement of long-run, stable, noninflationary economic growth, and we must emphasize the importance that an open economy can play in the achievement of this objective. Mr. FISHER. Thank you very much. Mr. Donald M. Allan, Commonwealth of Puerto Rico. We welcome you here and look forward to hearing from you. Do keep in mind that our time has about run out, so to the extent that you can, highlight; that would help. STATEMENT OF DONALD M. ALLAN, ECONOMIC AND TRADE CONSULTANT TO THE COMMONWEALTH OF PUERTO RICO Mr. ALLAN. I am Donald M. Allan, economic and trade consultant to the Commonwealth of Puerto Rico, 1625 Massachusetts Avenue. NW., Washington, D.C. 20036. I am representing the position of the Puerto Rican Government in providing general testimony supporting H.R. 4460, concerning the impact of trade on the economy of Puerto Rico and concerning other desirable actions to improve the effectiveness of title II of the Trade Act of 1974. |