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Thursday, January 20, 2011

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. The 111th 

Congress passed a short-term extension of the program through February 12, 2011. 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 111
th 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, increased 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.

Authorization of the TAA programs was set to expire on January 1, 2011. The Omnibus Trade Act of 2010 (H.R. 6517), as introduced on December 13, 2010, among other goals, provided an 18- month authorization extension for the TAA programs. The House passed the bill by voice vote. The Senate was unable to agree to various provisions in the bill, and so an amendment was proposed in the nature of a substitute that provided for a six-week extension of the TAA programs through February 12, 2011, at current funding levels. The amendment was agreed to by unanimous consent in the Senate on December 22, 2010, and later that day in the House. Given the short extension, legislation may be introduced early in the 112
th Congress that would extend and perhaps further amend the TAA programs.

Date of Report: January 3, 2011
Number of Pages: 10
Order Number: RS20210
Price: $29.95

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