Econ Focus

The Trade Act of 2002 finally renewed trade promotion authority for the executive branch, eight years after it had lapsed during the Clinton administration. Previously known as "fast track," trade promotion authority enables the President to negotiate a trade pact and submit it for a single congressional vote. In other words, legislators can't dissect an agreement and reject the parts that they dislike.

For the World Trade Organization's upcoming round of negotiations, "it is critical [for the President] to have fast track," says Lael Brainard, senior fellow at the Brookings Institution. "If the [talks] proceed as expected, there will be comprehensive trade agreements going across a range of sectors, with a very large number of negotiating partners." Those partners might be less inclined to enter into lengthy talks with the United States if they thought the agreements would be amended significantly once the President presented them to Congress.

While Congress loses its ability to fine-tune a trade agreement negotiated under fast track, they gain additional oversight of the negotiating process. For example, lawmakers can establish objectives for President Bush to meet during trade talks. Also, Bush must consult with various congressional committees before he can sign any agreement.

Furthermore, while fast track has been a symbol of America's leadership in the complex world of international trade, in practice it hasn't been used as much as one might think. When it was originally in effect from 1974 to 1994, the fast track process was used only five times. Since 1999, Congress has passed six pieces of trade legislation without fast track.

Will President Bush use his new power to encourage free trade? Brainard thinks Bush's trade record has been mixed. On the one hand, the Bush administration agreed to a new round of negotiations in Doha, Qatar, to liberalize world trade. Yet the administration has imposed import barriers on foreign steel and lumber and has supported new subsidies for American farmers.

Wage Insurance for Displaced Workers

Since President Bush could use his trade promotion authority to open U.S. markets, some congressmen insisted on several provisions in the Trade Act to cushion the blow for Americans whose jobs could migrate abroad. Aside from providing a tax credit to help displaced workers retain their health insurance, the legislation's biggest achievement is the creation of the nation's first "wage insurance" program.

Under a pilot program established by the Trade Act, workers 50 years of age and older who find full-time employment can receive up to half the difference between their old and new salary. The maximum payout is $10,000 over two years, and the worker's yearly wage can't exceed $50,000.

Why is such a program necessary? Two-thirds of workers displaced by import competition end up earning lower wages in their new jobs, according to a recent book by economist Lori Kletzer of the University of California at Santa Cruz. Kletzer says the wage insurance program targets older workers because they have a "somewhat lower probability of being re-employed and, once re-employed, [face] large earnings losses. ...Older workers experience more difficult readjustments than younger workers do."

For example, people who have worked and lived in the same town all of their lives are less willing to relocate for new jobs, notes Charles McMillion, president and chief economist at MBG Information Services in Washington, D.C. Also, "there are plenty of well-paying service sector jobs, but the fact that you have worked in an industrial plant for 30 years doesn't necessarily qualify you" for those jobs.

Older workers can end up in a vicious cycle. "They hold out [for a better salary] and stay out of the work force for a very long time. ...Then they get holes in their employment record," explains McMillion. Recipients of wage insurance cannot receive training provided under the federal Trade Adjustment Assistance program. Kletzer would have liked to see educational programs paired with wage insurance, but she hopes that on-the-job training will provide similar benefits for displaced workers. "The training will be specific to the new job, but if the worker gains skills and becomes more productive, that worker's wage should rise," she says.

Within communities with a lot of workers displaced from an industry, such as textiles or furniture, "it is possible that ... the wage insurance program could have an effect," notes Kletzer. But, overall, "the number of workers that are affected by this program is relatively small." What's more, it's difficult to target people who have actually been hurt by foreign trade, says University of Virginia economist John McLaren. "There's always a certain amount of arbitrariness in deciding this person lost his job because of the trade agreement or some other reason."