Did foreign trade really cause Hostess’ demise?

GLOBAL MARKETPLACE: While federal officials say foreign trade was an important factor in the demise of snack cake manufacturer Hostess, their own numbers showed a decrease in pressure from imported goods near the end of the company’s life last year.
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GLOBAL MARKETPLACE: While federal officials say foreign trade was an important factor in the demise of snack cake manufacturer Hostess, their own numbers showed a decrease in pressure from imported goods near the end of the company’s life last year.

By Travis Perry │ Kansas Watchdog

OSAWATOMIE — Earlier this year the U.S. Department of Labor extended millions of dollars in government welfare to people who lost their jobs following the collapse of iconic American snack cake manufacturer Hostess. The feds’ reasoning: Foreign trade.


But a review of documents used to justify the decision begs the question: How much is enough to say foreign trade forced the business’ closure?

While union members and company executives hurled mud at each other for running the company into the ground, DOL officials credited the loss of more than 18,000 jobs, at least in part, to global trade pressures. As a result, former Hostess workers became eligible for government assistance above and beyond standard unemployment insurance under the Trade Adjustment Assistance Act. The program is designed to lend a helping hand to American workers left out of work due to various trade factors with other countries.

Based on dollar amounts provided by the DOL, if every ex-Hostess employee eligible for benefits takes advantage of them, the bill could exceed $90 million.

An investigative report compiled by the DOL earlier this year — and obtained byKansas Watchdog following a Freedom of Information Act request — did reflect changes in Hostess’ sales and imports of competing products from other countries, primarily Canada and Mexico. Federal officials queried seven of the snack-cake manufacturer’s biggest customers — TargetAhold USASupervaluU.S. Military CommissaryPublix SupermarketsKroger and Walmart — and uncovered the following fluctuations:

  • Purchases by these seven companies from Hostess declined from $904.8 million in FY10 to $838 million in FY 11, a 7 percent drop. In the first 10 months of 2011 compared to 2012, purchases declined from $819.3 million to $601.2 million, a 27 percent drop.
  • Imports of Hostess’ foreign competitors increased from $76 million in FY 10 to $91.2 million in FY11, a 20 percent increase. And in the first 10 months of 2011 compared to 2012, imports increased from $120.7 million to 124.8 million, a 3 percent increase.

So, what’s trend mean for Hostess? According to DOL figures, the impact of foreign trade actually lessened as Hostess’ demise drew nearer. As a direct result of these imports, the company saw a 14 percent sales decline from FY10 to FY11, but only an 8 percent decline from the first 10 months of 2011 compared to 2012.

Is it enough to justify the massive handout to former Hostess employees?

DOL certifying officer Elliott Kushner certainly believes so. After all, his name is penned at the bottom of the report.

Federal laws regulating the TAA program are vague regarding how bad things have to get before a situation triggers the extra financial assistance.  The 2002 legislation establishing TAA only states that foreign trade must be an important, contributing factor in the loss of a significant number of jobs (see pg. 4 under “Group Eligibility Requirements”).

That seems to leave a gray area about a mile wide.

Kushner previously has declined multiple calls for comment from Kansas Watchdog, and has yet to respond to our most recent inquiry. But way back in 2009,Kushner told the Wall Street Journal that “virtually anybody can qualify” for TAA benefits.

Related: Ex-Hostess workers land sweet deal, taxpayers foot bill
Related: Department of Labor violates federal FOIA law
Related: Feds drag feet on Hostess worker benefits data request

Contact Travis Perry at travis@kansaswatchdog.org, or follow him on Twitter at@muckraker62. Like Watchdog.org? Click HERE to get breaking news alerts in YOUR state!



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