The European Globalisation Adjustment Fund: Easing the pain from trade?

03/22/2018

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Grégory Claeys and André Sapir

Introduction Conventional wisdom in economics is that trade benefits countries through lower prices, greater product variety, better resource allocation and fuller exploitation of scale economies. All countries gain from trade, though some might gain more than others. Within countries, however, while most individuals stand to gain from trade, some might lose out, typically workers whose jobs are displaced by trade liberalisation. It was the recognition that trade liberalisation, though good for the country, might hurt some workers, which led the United States Congress to establish the Trade Adjustment Assistance (TAA) programme under the 1962 Trade Act authorising the US to participate in the Kennedy Round (1964-67) of multilateral trade negotiations. Initially meant to provide income support to workers losing their jobs because of trade negotiations, the TAA programme was amended by the 1974 Trade Act to aid workers certified by their local state labour department as having been negatively affected by increased imports. The programme has remained in effect ever since. Although its economic effectiveness has been questioned, there is broad agreement that the TAA programme has played an important political role in obtaining the consent of Congress for trade liberalisation . For a long time, no such programme existed at European Union level for the simple reason that EU member states typically have much more generous welfare states than the US and are therefore better able to cope with the ‘pains from trade’. What has long existed at EU level, however, is the European Social Fund (ESF), an instrument of the EU budget with a role assigned by the EU Treaty “to render the employment of workers easier and to increase their geographical and occupational mobility within the Union, and to facilitate their adaptation to industrial changes and to changes in production systems, in particular through vocational training and retraining.” However, unlike to the TAA programme, the ESF was not targeted specifically at workers affected by increased imports. Nor does it help equally workers across the entire territory of the Union. Instead it was designed to deal with industrial changes in general and to assist mainly workers in relatively low-income regions. With the European Globalisation Adjustment Fund (EGF), established in 2006 and operational since January 2007, the EU now has an instrument broadly comparable to the TAA programme. The EGF provides financial assistance to facilitate the re-integration into employment of workers who have lost their jobs as a result of globalisation – defined as a substantial increase in imports into the EU, a serious shift in EU trade in goods or services, a rapid decline of the EU’s market share in a given sector, or the offshoring of activities to non-EU countries– provided these redundancies have a significant adverse impact on the local, regional or national economy, regardless of whether they occur in high- or low-income regions. The creation of the EGF was a response to the rapid increase in globalisation and was a political acknowledgment that the EU, which has exclusive competence over trade policy, needs to assume some budgetary responsibility for the economic displacement that globalisation entails. Since the ESF only amounts to a tiny fraction of social expenditures by EU member states, it was recognised from the start that the EGF could assume only a relatively modest budgetary responsibility and that it needed, therefore, to be both politically visible and economically sensible. The EGF programme originally ran for the entire duration of the 2007-13 Multiannual Financial Framework (MFF), the seven-year programming cycle of the EU budget. It was renewed in 2013 for the duration of the 2014-20 MFF. The financing for the EGF, currently capped at €150 million per year, comes from unused ESF money, of which it represents a tiny fraction. To give an order of magnitude, the ESF budget for 2014-20 is €84 billion, or €12 billion per year and close to 10 percent of the entire EU budget. The amount currently permitted for the EGF represents therefore a little over 1 percent of the ESF budget or 0.1 percent of the total EU budget. We evaluate the EGF programme after ten years of activity and in the context of the negotiations on the 2021-27 MFF (which are expected to start in spring of 2018 with the publication by the European Commission in May of detailed proposals). We describe the programme (section 2), outline its functioning since its creation until 2016 (section 3), evaluate its political visibility and economic effectiveness (section 4) and make recommendations on how it can be improved (section 5).
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Grégory Claeys, a French and Spanish citizen, joined Bruegel as a research fellow in February 2014. 
André Sapir, a Belgian citizen, is Senior Fellow at Bruegel, as well as a Research Fellow of the London-based Centre for Economic Policy Research.
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