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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. M own reaction would be not to look at that number particularly. 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 end— those 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.

over 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 Assist ANCE 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

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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. Eartend 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 rhinimize the negative effects of such phaseouts on American industry, workers, and communities, - CONCLUSION

**In the broadest context, adjustment assistance programs must be given arenewed 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.

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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 Suporting 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.

SUMMARY OF COMMENTS AND RECOMMENDATIONS

One: Puerto Rico confronts extremely difficult problems of demography, high unemployment, resource scarcities, dependency, on laborintensive industries threatened by import competition and high costs of energy, petrochemical feedstock and shipping to import materials from and sell finished products to the U.S. mainland. Two: Puerto Rico has suffered severely from the impact of import competition in the U.S. market starting in the mid-1960's and extending to the present time. Further damage is anticipated from the effects of the U.S. Generalized System of Preferences and the impending reductions in U.S. duties to implement agreements reached in the current multilateral trade negotiations. Three: Puerto Rico supports extension of the retroactive period specified in section §§ during which partial or total separation of workers took place. Four: Community adjustment assistance should be administered in a more flexible manner. Generalized statistical data should be used in lieu of individual firm data to qualify regions and communities, long injured by import competition, for the full range of assistance available under the Trade Act of 1974 and Public Works and Economic Development Act of 1965, as amended. Five: Rather than waiting for communities, firms, and workers to establish damage or the threat of damage and justify remedies for import injury caused by Federal GSP decisions or trade agreements— or import injuries from other causes, including competition from foreign low-wage industries—the Federal Government should take the lead in developing cooperative measures with regions, States, and localities to identify threatened industries and individual plants well in advance of injury, and to develop effective programs to make these plants competitive in existing products or convert them to produce other internationally competitive products. Six: Additional funding o be provided to assure adequate resources both for title II of the Trade Act and for the full range of activities contemplated under the Public Works and Economic Development Act. Special consideration should be given to wider use of the 100-percent guarantee authority for loans to private enterprise—perhaps combined with reduced interest, extended terms and an increase in the Federal and decrease in the State and local exposure—with primary emphasis placed on finding the incentives and making available the infrastructure to multiply job-creating investment by private enterprise. Seven: The time has come to put into effect measures which implement recognition that aggregate economic policies and programs— including those designed to increase international trade, production and jobs—do not cure and sometimes seriously aggragate the high unemployment and other special development problems of certain regions, States, and localities of the United States. The Federal Government in cooperation with such areas should fine-tune its efforts—including those contemplated by section 301(c) of the Public Works and Economic Development Act—to define the causes of slow economic growth or economic stagnation and to define the specific public and private programs and actions required to overcome the human problems, establish the infrastructure, and bring jobs to the people by multiplying private investment in productive facilities in the target areas. Above all, it is essential to establish a creative and effective working partnership among private enterprise, labor, private community leadership and government at every level to define employment problems and to solve them.

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TRADE AND THE ECONOMY OF PUERTO RICO

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Overwhelmingly adverse demographic resource and cost factors must be overcome by Puerto Rico. From fiscal year 1952 through fiscal year 1976, the 14-and-over—working age—population in Puerto Rico increased by 852,000. The number employed increased by 114,000, including a net increase of 77,000 in manufacturing. The number of working-age o not employed—many of whom have given up looking for work—increased by 738,000. The current population is 3.2 million. There was a natural increase of 1.4 million from fiscal year 1952 through fiscal year 1976. A declining birth rate and outmigration of 575,000 eased somewhat the pressure for jobs. A reversal of migration—with inmigration of 184,000 from fiscal year 1972 through fiscal year 1976—is a major cause of the current relatively enormous increase in population and unemployed of working age. Official unemployment rose from 11.6 percent in June 1972 to 20.6 percent in June 1976, dropping only to 19.4 percent in February 1977. Labor force participation has dropped to a current 41.8 per33.6 percent of the working-age group is employed—versus about 60 o in the United States; and about 500,000 jobs are needed right now to achieve the same unemployment rate as the mainland. uerto Rico has extremely limited natural resources—low-grade copper ore, limestone, sand, beaches, water for consumption but not power, and limited arable land. Its major resources are its people and the substantial private and public infrastructure in place, plus its strategic location in the Caribbean. The successful “Operation Bootstrap” depended on low energy and petrochemical feed stock costs, low wages, inapplicability of Federal income taxes combined with Puerto Rican tax incentives and other special assistance to industries. Three Federal administrations have applied a policy of foreign low-cost oil import allocations to give Puerto Rico an advantage in energy and feed stock costs to overcome other high costs—including mainland Puerto Rican two-way shipping in U.S. bottoms—of locating industries in Puerto Rico. The OPEC cost price explosion has reversed Puerto Rico's competitive position and current oil and naphtha entitlements neither achieve competitive equality nor compensate for other high costs. From fiscal year 1967 to 1976, a period congruent with the Kennedy round and a large increase in labor-intensive imports from low-wage countries, 23,400 manufacturing jobs were lost in 913 closed plants, . probably an additional 48,000 other jobs lost as an indirect effect. In the period of fiscal year 1972 through the first 9 months of fiscal year 1975, 330 plants closed, including 21 textile, 99 apparel, 25 electrical equipment and machinery, 19 furniture, 19 leather products, 15 plastic products, and 12 chemical products plants.

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