Thursday, July 31, 2008

50 Days, 50 Ways: Trade Promotion

Here's some more information from the Congressional Budget Office on the Commerce Department's corporate welfare program, providing business advice to private firms. In 2007, CBO estimated that eliminating this unnecessary program would save taxpayers $305 million a year:

Eliminate the International Trade Administration's Trade Promotion Activities or Charge the Beneficiaries

The International Trade Administration (ITA) of the Department of Commerce runs a trade development program that assesses the competitiveness of U.S. industries and promotes exports. The ITA also operates the U.S. and foreign commercial services, which counsel U.S. businesses on issues related to exporting. The agency charges some fees for those services, but the fees do not cover the costs of all such activities.

This option includes two alternatives: Eliminate the ITA's trade promotion activities or charge the beneficiaries for those services. Either change would save $305 million in outlays in 2008 and a total of about $2.0 billion through 2012.

The principal rationale for this option is that business activities such as trade promotion are usually better left to the firms and industries that stand to benefit from those activities rather than to a government agency. Having the government engage in such activities (without charging the beneficiaries for their full cost) is an expensive means of helping the firms and industries because the benefits are partially passed on to foreigners in the form of lower prices for U.S. exports. Moreover, the lower prices could result in some products' being sold abroad for less than the cost of production and sales and, thus, could lower U.S. economic well-being. Further, in the most recent Program Assessment Rating Tool evaluation, the Office of Management and Budget concluded that businesses can obtain services similar to those of ITA's foreign commercial services from state, local, and private-sector entities.

An argument against eliminating the ITA's trade promotion activities is that such activities are subject to some economies of scale, so having one entity (the federal government) counsel exporters about foreign legal and other requirements, disseminate information about foreign markets, and promote U.S. products abroad might make sense. An alternative way to reduce net federal spending but continue the ITA's activities would be to charge the beneficiaries for their full costs. Fully funding the ITA's trade promotion activities through voluntary charges, however, could prove difficult or impossible. For example, in many cases, it would not be possible to promote the products of selected firms that were willing to pay for such promotion without also promoting the products of other firms in the same industry. In those circumstances, firms would have an incentive not to purchase such services because they would be likely to receive the benefits regardless of whether they paid for them. Consequently, if the federal government wanted to charge beneficiaries for the ITA's services, it might have to require that all firms in an industry (or the industry's national trade group) decide collectively whether to buy the services. If the firms opted to purchase the services, all firms in the industry would be required to pay according to some equitable formula.

Running total, 11 days, $8,046,6000 in annual savings to taxpayers.

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