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Friday, July 9, 2010

Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues

J. F. Hornbeck
Specialist in International Trade and Finance

Economists generally acknowledge that trade liberalization enhances the economic welfare of all trade partners, but with stiffer global competition, many firms and workers also face difficult adjustment problems. Congress has responded to these adjustment costs by authorizing four trade adjustment assistance (TAA) programs to assist trade-impacted workers, firms, farmers, and communities. This report discusses the TAA program for firms (TAAF). The TAAF program provides technical assistance to trade-affected firms to help them develop strategies and make other adjustments to remain competitive in the changing international economy.

Congress first authorized TAA in Title III of the Trade Expansion Act of 1962 (P.L. 87-794), including a new firm and industry assistance program, which is administered by the Economic Development Administration (EDA) of the U.S. Department of Commerce. It provides technical assistance to help trade-impacted firms make strategic adjustments that may allow them to remain competitive in a global economy. Originally firm TAA also included loans and loan guarantees, but Congress eliminated all direct financial assistance in 1986 because of federal budgetary cutbacks and concern over the program's high default rates and limited effectiveness.

Debate early in the 111th Congress over TAA reauthorization led to a February 5, 2009 bipartisan agreement to expand and extend existing programs for workers, firms, and farmers, and to add a fourth program for communities. The agreement became part of the American Recovery and Reinvestment Act of 2009 (P.L. 111-5—the Stimulus Bill). Congress changed the TAA for Firms program in a number of important ways. It expanded eligibility for trade adjustment assistance to include services firms, authorized an extension of the program through December 31, 2010, increasing annual funding levels from $16 million to $50 million, provided greater flexibility for a firm to demonstrate eligibility for assistance, established new oversight and evaluation criteria, created a new position of Director of Adjustment Assistance for Firms, and required submission to Congress of a detailed annual report on the TAAF program.

Historically, program evaluation has been limited, lacking a formal evaluation process. Congress addressed this issue with an annual report requirement. In recent years, EDA has used feedback systems to improve delivery of TAAF services. The petition and adjustment proposal approval process has been automated and streamlined, and over the past two years, the time between submission of petitions for certification and acceptance of the adjustment proposal has fallen. Without more sophisticated analysis to estimate the effectiveness of this program approach, however, the issue of the impact of TAAF remains a somewhat speculative if not open question.

The current TAAF program authorization is in place through December 31, 2010, and the 111th Congress may consider extending and/or amending it prior to its expiration.

Date of Report: July 1, 2010
Number of Pages: 10
Order Number: RS20210
Price: $29.95

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