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Monday, February 28, 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 authorized the program through February 12, 2012, and it continues to operate at FY2010 levels of $15.8 million under a continuing resolution (see CRS Report RL30343, Continuing Resolutions: Latest Action and Brief Overview of Recent Practices, by Sandy Streeter.)

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, which 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 authorized 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.

Authorization of the TAA programs was set to expire on January 1, 2011. The Omnibus Trade Act of 2010 (H.R. 6517), which the House and Senate passed on December 22, 2010, extended the TAAF program through February 12, 2012. However, because of expiring language in the act, those expanded provisions covering eligibility for services firms and other matters passed in the ARRA all expired on February 12, 2011, although the program continues to be authorized and operate at FY2010 levels of $15.8 million under the continuing resolution.

On February 8, 2011, S. 308, the Trade Extenders Act of 2011 was introduced in the Senate. This bill would authorize the TAA for Firms program to operate through June 30, 2013. It would also authorize appropriations of $50 million for FY2011 and $37.5 million for the nine months ending June 30, 2012. Because the TAA for Firms program awards grants to the eleven regional Trade Adjustment Assistance Centers (TAACs) on July 1 of the fiscal year, S. 308 would allow grants for FY2011 to be funded at the $50 million level, if Congress fully appropriates that amount, and a nine-month pro rated share ($37.5 million) would be available for FY2012. Funds would be awarded for the grant fiscal year July 1, 2012 through June 30, 2013.

Date of Report: February 14, 2011
Number of Pages: 11
Order Number: RS20210
Price: $29.95

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