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Thursday, October 6, 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 trade adjustment assistance (TAA) programs for workers, firms, farmers, and communities. This report discusses the TAA 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 to improve their competitiveness. 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 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 the ARRA 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 continuing resolution, so no interruption of operations is expected in the near term.

The pre-ARRA program authorizations are set to expire on February 13, 2012, and the 112th Congress is considering legislation to extend all TAA programs. Although there are multiple bills addressing TAA that range in scope from repealing the authorizing legislation to providing expanded multiyear extensions, the issue is taking form as part of the debate on passage of implementing legislation for the proposed free trade agreements (FTAs) with Colombia, Panama, and South Korea. As Congress seeks to resolve this debate, two issues dominate the discussion: (1) reauthorization of TAA programs; and (2) procedural issues on how to move TAA legislation.

At present, a bipartisan compromise (H.R. 2832) passed in the Senate by a vote of 70-27. It would reauthorize TAA programs through December 31, 2013, including many, but not all, of the enhanced programs and funding levels contained in the ARRA. The firms program would be reauthorized at an annualized level of $16 million. Procedural issues over how to move the TAA and FTA implementing bills are still under discussion.

For a broader policy discussion on TAA, see CRS Report R41922, Trade Adjustment Assistance (TAA) and Its Role in U.S. Trade Policy.

Date of Report: September 30, 2011
Number of Pages: 11
Order Number: RS20210
Price: $29.95

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