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Thursday, February 2, 2012

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 import-competing firms and workers. Congress has responded to these problems with trade adjustment assistance (TAA) programs for workers, firms, and farmers. This report discusses the TAA for Firms (TAAF) program. Congress first authorized TAA in the Trade Expansion Act of 1962 (P.L. 87-794), including a new firm and industry assistance program, now 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 in a dynamic global economy.

The 111th Congress reauthorized a more extensive TAA program for firms that expanded eligibility to 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 extended the TAA programs through February 12, 2012, but allowed those expanded provisions to expire on February 13, 2011. The 112th Congress revisited TAA reauthorization as part of the debate on passage of implementing legislation for the proposed free trade agreements (FTAs) with Colombia, Panama, and South Korea. The Trade Adjustment Assistance Extension Act of 2011 (P.L. 112-4) extended the firms program through December 31, 2013 at annual authorized spending levels of $16 million. Many, but not all, of the enhanced programs were reinstituted retroactively, including extending benefits to services firms.

EDA has released three annual reports under the new requirements that point to administrative and operational improvements. Anecdotal evidence points to “success” stories, but more sophisticated analysis is needed to estimate adequately the effectiveness of this program. It is difficult to isolate the effects of the firm TAA program in determining why a particular firm might succeed in its turnaround effort. Other studies have suggested that many firms might have been able to do so on their own.

The FY2011 TAAF annual report illuminates two other interesting points. First, over a two-year assessment period, firms that fully implemented their adjustment proposals experienced on average a 1.6% decrease in sales, a less than 1% rise in productivity, and a 1.9% decrease in employment. The decline in employment may be common for recovering firms. It is also possible that a longer evaluation period may be necessary to capture the full effects of the TAAF program, which often lag behind restructuring, particularly with an economy still recovering from recession. Second, of the 108 firms that left the TAAF program in 2011, 41% completed the program and were operational. The remaining 59% did not complete the program for various reasons, including exceeding the five-year threshold (37%); going out of business (4%); or losing interest, being sold, or having inadequate funds (18%). Given that TAAF focuses on firms facing bankruptcy, in part because of foreign competition, these results may not be surprising.

For a broader policy discussion on TAA, see CRS Report R41922, Trade Adjustment Assistance (TAA) and Its Role in U.S. Trade Policy, by J. F. Hornbeck and Laine Elise Rover. See also CRS Reports CRS Report R42012, Trade Adjustment Assistance (TAA) for Workers, by Benjamin Collins and CRS Report R40206, Trade Adjustment Assistance for Farmers, by Remy Jurenas.

Date of Report: January 27, 2012
Number of Pages: 9
Order Number: RS20210
Price: $19.95

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