Protecting workers from the effects of FTAs
The Nation, Bangkok
Protecting workers from the effects of FTAs
By Vilailuk Tiranutti
3 October 2006
The benefits of trade liberalisation to consumers and society as a whole have been widely acknowledged, but the hidden costs of liberalisation must also be brought to light if the free-trade regime is to move forward.
Free trade may increase employment opportunities in some sectors, but that has not always translated into higher wages and better working conditions for a large number of Thai workers. Similarly, some groups of farmers may be able to reap occasional commodity price hikes as a result of a liberalised market, but market imperfections along with structural problems may prevent many farmers from enjoying the benefits of free trade. In such a scenario, social protections must go hand-in-hand with free trade to reduce adverse effects on those at the bottom of the socio-economic hierarchy.
In a research paper entitled "Mechanisms for Adjustment or Social Safety Nets", Dr Worawan Chandoeywit of the Thailand Development Research Institute (TDRI) found that the FTAs between Thailand and seven other countries (namely, Australia, China, India, New Zealand, Peru, Japan and the United States) will create 80,000 jobs in the garment and leatherwear industries. However, another 20,000 jobs in the wood, paper, printing, chemical products, rubber and plaster, and metal and metal products industries were expected to disappear.
The question now is what government measures are in place to cushion laid-off workers from the negative consequences of FTAs?
Currently, Thailand has no trade-specific social protection programmes in place apart from general measures such as unemployment insurance, child support and pension funds. It also has some ad hoc programmes like agricultural price supports that provide temporary breathing space for people in need. The country’s social security system is still in its infancy (the unemployment insurance system began in 2004) and is inadequate both in terms of coverage and efficiency. For example, employers have failed to register their workers with the Social Security Office (SSO) or have deducted social security contribution from workers’ wages without delivering them over to the SSO. Issues like these demand immediate attention. Workers who contribute to the system should be able to access benefits they are entitled to.
Dr Worawan has suggested measures to better protect those affected by FTAs, such as creating a trade-adjustment fund for farmers who have been hurt by FTAs, although funding sources remain a controversial issue. Her study also suggested that unemployment insurance coverage should be extended from six to twelve months for those above the age of 50, and that monetary incentives should be offered to the unemployed to encourage faster reemployment.
These suggestions were derived from the US model - a trade-specific social security measure called Trade Adjustment Assistance (TAA) that has been in place since 1974 to help those affected by the US government’s foreign-trade policies. Workers wishing to receive help under this system must prove to the Department of Labour that import competition had "contributed importantly" to the loss of their jobs. But critics of the TAA system have argued that it has not always been easy to determine which job losses were caused by foreign trade and which were the result of domestic economic conditions. In addition, unemployment benefits act as a disincentive for people to find new jobs. Hence, the economists Robert Litan and Lori Kletzer proposed a wage-insurance scheme to supplement the unemployment insurance system. Under the wage-insurance model, all laid-off workers are eligible to apply for help, regardless of whether or not their dismissal was foreign trade-related. The scheme contributes up to 50 per cent of the workers’ lost earnings (50 per cent of the difference between the old and the new salary) for a maximum of two years after the lay-off. The catch is that benefits are triggered only after people find new jobs. On top of this, health insurance and on-the-job training are subsidised for a period of time. This scheme is said to lead to rapid reemployment among dislocated workers and is believed to "fix a deficiency of the current TAA programme".
Wage insurance is an interesting concept that is worth looking into. One question that arises is that in the case of a recession and severe unemployment, getting people back to work through the incentive of wage insurance may not work when there are no jobs available. In Germany, where jobs are rare and unemployment is rampant (8.1 per cent unemployment rate and 3.42 million jobless people in July 2006), what is needed is not simply a measure to encourage workers to accept any employment, but to create more jobs by offering incentives to keep local firms in the country and attract more foreign direct investment. The relocation of German companies to places like China, where wages are lower, is a major cause of the country’s chronic unemployment. As trade liberalisation intensifies, global competition may drive many Thai firms out of businesses. In such cases, it may be time for us to seriously search for a social-security model that will effectively help cushion the impacts of free trade on the marginalised.
While the current social security system should be reformed - as suggested in the TDRI study - the basic problems mentioned above that prevent workers from receiving their entitled help must first be tackled. Once the system can effectively deal with such problems, it will then be able to handle more complicated issues that will likely arise when the effects of FTAs become fully apparent.
Thailand may not be able to afford social-insurance programmes that are as generous as those in the US or Germany, but creating a more inclusive social safety net than what is currently available is extremely essential in order to catch up with the fast pace of trade liberalisation. The costs of social security may be high, but as Wall Street Journal writer David Wessel wrote, they are still "well below the benefits freer trade offers the rest of the economy".
As the market becomes more and more liberalised, workers’ rights at the workplace must also be rigorously enforced. To achieve this, employers and workers must find an agreeable compromise so both parties can survive trade liberalisation. In addition, in the case of recession where domestic jobs are hard to come by, allowing people to freely change occupations may be a crucial alternative to free trade-inflicted unemployment problems. However, that requires strong political will from all trading partners.
Vilailuk Tiranutti is a researcher at the International Institute for Trade and Development.
