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Thursday, July 28, 2011

Trade Adjustment Assistance (TAA) and Its Role in U.S. Trade Policy

J. F. Hornbeck
Specialist in International Trade and Finance

Laine Elise Rover
Research Associate

Congress created Trade Adjustment Assistance (TAA) in the Trade Expansion Act of 1962 to help workers and firms adjust to economic dislocation that may be caused by trade liberalization. Although most economists agree that there are substantial national gains from trade, backers of TAA argue that the government has an obligation to help those hurt by policy-driven trade opening. In addition, as an alternative to policies that might otherwise restrict imports, it can provide assistance, while supporting freer trade and diminishing prospects for potentially costly tension (retaliation) among trade partners. Often controversial, it is still strongly debated some 50 years later, on equity, efficiency, and budgetary grounds, but may still serve a pragmatic legislative function. For those Members concerned with the negative effects of trade, it can provide a countervailing response to help maintain what is often slim majority support of highly contested trade legislation. For these reasons, it has been central to U.S. trade policy for the past half century.

Over time, the fortunes of TAA reauthorization have ebbed and flowed based in part on legislative context. When TAA remained a cornerstone of major trade legislation, as it was in 1962, 1974, and 2002, it received long reauthorizations and increased programmatic and funding support from Congress. When TAA was passed as part of budget reconciliation bills, distancing it from its main trade policy rationale, as in the 1980s, it struggled at times to achieve even shortterm extensions and maintain funding levels. (See Table A-1 for list of TAA reauthorizations.)

In the American Recovery and Reinvestment Act of 2009, Congress reauthorized TAA through December 31, 2010, and revamped the program to include eligibility for service workers and firms, a new communities program, an increase in the Health Care Tax Credit (HCTC) for dislocated workers, and additional funding for all programs. As TAA was about to expire again at the close of 2010, Congress extended it through February 12, 2012, as part of the Omnibus Trade Act of 2011. Higher authorization levels and expanded provisions of the ARRA, however, were only extended through February 12, 2011. TAA became part of the current trade debate when the 112
th Congress and the Obama Administration began to consider the three pending free trade agreements (FTAs) with South Korea, Panama, and Colombia along with TAA extension. Two issues dominate the immediate discussion. First, Members disagree on the need to continue funding TAA programs. Second, they dispute whether to include TAA as part of an implementing bill for the proposed U.S.-South Korea (KORUS) FTA.

Opponents of TAA consider it a costly and ineffective response to dislocation from imports, and so would like to see it debated and voted on as a separate bill. Supporters of TAA and especially the extended ARRA benefits (now lapsed) see the implementing bill as perhaps the best, if not only opportunity, to reauthorize TAA in the near future, given resistance in a Congress intently focused on deficit reduction. Those supporting TAA and not the KORUS FTA might also prefer to see separate votes on the two issues.

Because there is disagreement over TAA, even to the point of perhaps imperiling congressional action of FTA implementing bills, the situation again points to the centrality of TAA in the longterm national trade policy debate. Key policy questions include determining if: (1) the United States still has an ongoing obligation to help stakeholders hurt by imports; (2) TAA can be an effective approach to meeting this goal; (3) a TAA budget compromise can be found; (4) TAA can still help form a consensus on trade policy, and if so; (5) how the budgetary costs of TAA
programs  compare to the potential opportunity costs of possibly adopting more protectionist policies in the absence of TAA.

For details on the TAA programs for workers, firms, communities, and farmers, see other CRS reports.

Date of Report: July 20, 2011
Number of Pages: 20
Order Number: R41922
Price: $29.95

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