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Tuesday, May 17, 2011

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

J. F. Hornbeck
Specialist in International Trade and Finance

Although trade liberalization can enhance the economic welfare of all trade partners, it also causes difficult adjustment problems for some firms and workers. Congress has responded to these adjustment costs with four trade adjustment assistance (TAA) programs for workers, firms, farmers, and communities. This report discusses the Trade Adjustment Assistance for Firms (TAAF) program.

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-affected firms make strategic adjustments, which may allow them to remain competitive in a dynamic international 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 bipartisan agreement on February 5, 2009, to expand and extend the 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 (ARRA) of 2009 (P.L. 111-5—the Stimulus Bill). Congress changed the TAAF program in a number of important ways. It expanded eligibility to include services firms, increased 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.

As authorization of the TAA programs was about to expire on January 1, 2011, Congress passed the Omnibus Trade Act of 2010 (P.L. 111-344). This act extended the TAAF program through February 12, 2012, but allowed those expanded provisions in P.L. 111-5 covering eligibility for services firms and other matters to expire on February 13, 2011. The TAAF program remains authorized and continues to operate at FY2010 spending levels of $15.8 million under a full-year continuing resolution, so no interruption of operations is expected in the near term. There is, however, an emerging debate in the 112
th Congress over reauthorizing the program, and whether to reinstate some or all of the recently expired provisions.

Date of Report: May 2, 2011
Number of Pages: 10
Order Number: RS20210
Price: $29.95

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