Monday, July 4, 2011

The TAA-FTA "Deal," Part 1: It's the Spending, Stupid

[Ed note: This is the first of a three-part series in which I'll review the joint FTA-TAA legislation proposed by the Obama administration and Senate Democrats last week.  Familiarity with the White House's brilliant plan and recent events is presumed.]

One of the reasons that things went haywire last week was the simple fact that the White House's joint FTA/TAA legislation didn't actually represent a "compromise" on the scope of the Trade Adjustment Assistance expansion that was attached to the US-Korea FTA.  As AEI's Claude Barfield notes:
The attempt to slip TAA through in the FTA process took both the House majority leadership and Senate Republicans, who apparently not been privy to any of the negotiations, by surprise. And it infuriated Finance Committee Republicans, who felt particularly dissed by the substance and the process. The usually mild-mannered [Orrin] Hatch gave a blistering critique of the administration and the president personally in his speech here at AEI. In addition, House Speaker John Boehner immediately disassociated the House Republican leadership from the president’s decision to combine the FTA and TAA legislation in one bill.

Under all of this, there is another complication—the belief by some Republicans Representative Camp had conceded too much on TAA to the administration, allowing too many provisions of the expanded 2009 TAA bill to remain in place. At the panel session we held here at AEI after Hatch’s speech on Thursday, the two speakers, Howard Rosen (long-time advocate for TAA) and Sallie James (a leading critic), who agreed on little else, both agreed that the “compromise” did not split the difference but went far in the direction of the administration’s position.
According to Inside US Trade [$], administration officials have actually been bragging to their supporters about the broad scope of the TAA program attached to the US-Korea FTA implementing legislation:
Administration officials described the TAA deal they negotiated with Republicans and Senate Democrats as a “strong and strengthened program” that retains the most important features of a 2009 expansion. For example, officials noted that the deal retains the eligibility of service workers and workers who lose their jobs due to offshoring and trade with countries with which the U.S. does not have FTAs.
In short, the joint TAA/KORUS legislation saves almost all of the features of the "mega-TAA" program that was created as part of the 2009 Stimulus* bill.  So, given the serious budget constraints facing the federal government these days, this fact of course raises a very simple question:

How much does this darn thing cost?

Well, if the White House is to be believed, they have absolutely no idea:
It now costs about $1 billion annually and administration officials said they did not have a final estimate of what the revised program would cost.
So much for the President's "adult-in-the-room" fiscal responsibility streak, eh?  Of course, such claims of ignorance do run straight into the fact that the "offsets" section of each piece of proposed legislation - required under congressional PAYGO rules - are extremely precise.  For example, Section 601 of the the KORUS legislation raises certain Customs merchandise processing fees on imports from 0.21% to 0.329%.  Meanwhile, Section 602 extends the duration of one Customs users fee program from January 7, 2020 to December 31, 2020 and another Customs users fees program from January 14, 2020 to November 10, 2020.

Those are pretty odd and exact numbers for a program of allegedly indefinite cost, eh?  And don't the White House and Congress have, like, their own personal budget analysts on call?  Hmmmmmm.

The disconnect between the precision of such offsets and the administration's claims of ignorance raises only two possibilities, neither of which are flattering for the White House.  Either they truly have no clue as to how much the TAA program costs and are just spitballing the offsets (insipring total confidence in the process, no doubt); OR they know exactly how much the expanded TAA program costs, but don't want to say in order to avoid putting a very-public pricetag on the cost of their little pet program.  Either way, it's very sketchy.

Furthermore, what kind of fiscally responsible "offset" is the extension of Customs users fees programs from January 2020 to November/December 2020 anyway?  (Such goofy extensions are also included in the legislation for the Panama and Colombia FTAs too.)  There are good arguments against the strict use of PAYGO rules, particularly for legislation that lowers tariffs and taxes, but they're the rules that are now in place.  So please someone explain to me how "paying" for TAA and the FTAs by extending a revenue program that doesn't expire for 9 years passes the "fiscal responsibility" laugh test.

Quick answer: it doesn't.  (So much for the "First Adult.")

The aforementioned KORUS/TAA offsets in Section 601 of the legislation also raise other serious questions.  As I noted before (also discussed by Cato's Sallie James):
  • Raising customs fees on imports by about 50% is a rather ridiculous way to "offset" the revenue impact of legislation that eliminates tariffs on those very same imports (and others); and
  • Using customs fees to expressly supplement federal budget revenues instead of paying for the cost of services actually rendered could very well violate the United States' international trade obligations under GATT Article VIII.
Moreover, Section 601 of the KORUS legislation also raises questions under the very US law that it amends.    In particular, 19 USC Sec. 58c(a)(9)(B)(i) expressly indicates that such Customs fees should reflect the costs of Customs services rendered not be used to pay for things like TAA (strikethrough represents the KORUS amendment):
The Secretary of the Treasury may adjust the ad valorem rate specified in subparagraph (A) to an ad valorem rate (but not to a rate of more than 0.210.329 percent nor less than 0.15 percent) and the amounts specified in subsection (b)(8)(A)(i) (but not to more than $485 nor less than $21) to rates and amounts which would, if charged, offset the salaries and expenses that will likely be incurred by the Customs Service in the processing of such entries and releases during the fiscal year in which such costs are incurred.
In short, the KORUS legislation is partially paid for by increases in Customs users fees that, according to very same law being amended, are only supposed to "offset the salaries and expenses that will likely be incurred by the Customs Service in the processing of such entries and releases during the fiscal year in which such costs are incurred."  Nice.

So to recap: the Obama administration's TAA legislation (i) is of unknown (but significant) cost; (ii) raises revenue by, in part, extending customs programs that don't actually expire for almost 9 years; and (iii) contains offsets that raise taxes on imports and potentially violate WTO rules and US law.

Behold, the new era of American fiscal responsibility!  Bring on the debt ceiling!


Tomorrow (hopefully), I'll examine whether the KORUS/TAA legislation can proceed in the Senate under Trade Promotion Authority (aka "fast track"), as some Senate Democrats claim.

(And Happy 4th, everyone.)

1 comment:

John B. said...

Is anybody willing to be honest about these FTAs? Everybody on the Hill knew Obama was going to attach TAA to KORUS, and most interested people off the Hill knew it, too. It was in all the papers. Hatch and his cohorts are behaving like children. At $1 billion per year, TAA is not that expensive. Yet the Republicans talk about it as though it were going to send the budget deficit to Pluto. It's all theater. I would have preferred that Obama not attach TAA to KORUS, but he did. Hatch, et al, need to stop with the temper tantrum, hold their noses and vote for the damn thing. If these three FTAs go down in flames, it will be their fault, not Obama's.