Policy measures to respond to trade adjustment costs

24-11-2017

Trade liberalisation is generally expected to bring net welfare gains to the domestic economy by reallocating resources to more productive firms or to industries with a comparative advantage. However, these gains are not always distributed evenly and can involve transitional costs for certain firms and workers. Trade adjustment measures are designed to compensate for these costs. The literature proposes mainly active labour policies (including training and other measures for re-employment) for dealing with these adjustments. Other policies, such as passive labour policies (unemployment benefits), credit financing, housing policies, etc., can also play a role. The EU's main instrument is the European Globalisation Adjustment Fund (EGF), which focuses on active labour policies. In the USA, trade adjustment assistance includes assistance for workers as well as firms and farmers. Assessments of these measures have shown some positive results. In both the EU and the USA, the effectiveness of the measures was found to be greater the higher the educational level of workers or, in the case of measures targeting firms, the higher the growth of the industry's market. This would suggest that structural policies (such as education) play a key role. The EGF has tended to target redundancies from big multinational or national champions, and its co-financing rules are less favourable than other funds, leading to uneven use of the fund by Member States and different views with respect to the reforms needed. The Commission is planning to propose improvements to the EGF in the near future. This briefing may be read together with the 2016 European Implementation Assessment on the EGF for the EMPL Committee, and the recent study on Interactions between trade, investment and trends in EU industry: EU regions and international trade.

Trade liberalisation is generally expected to bring net welfare gains to the domestic economy by reallocating resources to more productive firms or to industries with a comparative advantage. However, these gains are not always distributed evenly and can involve transitional costs for certain firms and workers. Trade adjustment measures are designed to compensate for these costs. The literature proposes mainly active labour policies (including training and other measures for re-employment) for dealing with these adjustments. Other policies, such as passive labour policies (unemployment benefits), credit financing, housing policies, etc., can also play a role. The EU's main instrument is the European Globalisation Adjustment Fund (EGF), which focuses on active labour policies. In the USA, trade adjustment assistance includes assistance for workers as well as firms and farmers. Assessments of these measures have shown some positive results. In both the EU and the USA, the effectiveness of the measures was found to be greater the higher the educational level of workers or, in the case of measures targeting firms, the higher the growth of the industry's market. This would suggest that structural policies (such as education) play a key role. The EGF has tended to target redundancies from big multinational or national champions, and its co-financing rules are less favourable than other funds, leading to uneven use of the fund by Member States and different views with respect to the reforms needed. The Commission is planning to propose improvements to the EGF in the near future. This briefing may be read together with the 2016 European Implementation Assessment on the EGF for the EMPL Committee, and the recent study on Interactions between trade, investment and trends in EU industry: EU regions and international trade.