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Friday, February 15, 2013

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 and related policy issues. 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 111
th Congress reauthorized a more extensive TAA program for firms that expanded eligibility to services firms, increased authorized funding levels, 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. Congress allowed those expanded provisions to expire on February 13, 2011, but the 112th Congress, in passing the Trade Adjustment Assistance Extension Act of 2011 (P.L. 112-4), extended the firms program through December 31, 2013,with many, of the enhanced program provisions reinstated retroactively, including extending benefits to services firms. It is funded annually at $16 million.

EDA has released four annual reports under the new statutory requirements that point to administrative and operational improvements. The FY 2012 TAAF annual report further notes that two years after completion of the program, on average, firm sales increased by 26.8%, employment rose by 13.2%, and productivity increased by 11.9%, better outcomes than the benchmark manufacturing industry as a whole. This outcome is reported as being particularly encouraging given TAAF firms have had such a high “survival rate,” and yet face the additional burden of all having to adjust to import competition compared to the benchmark. Still these numbers varied significantly from the year before, and despite the high success rate for firms that “completed” the TAAF program, it is important to note that they represent only about half of all firms that had their adjustment proposals approved for assistance. The rest left the program for numerous reasons without completing the adjustment plan and were no longer monitored.

To address the evaluation issue more completely, the Government Accountability Office (GAO) conducted a comprehensive evaluation of TAAF program in 2012. It found that EDA’s administration and evaluation efforts had improved markedly because of changes provided in the 2009 legislation. GAO also confirmed EDA’s assessment that trade-impacted firms benefitted from specialized attention provided by TAAF assistance, but to a lesser extent. GAO found a “small and statistically significant relationship between program participation and sales,” which was particularly relevant to smaller firms, albeit also highly correlated with firms operating in high-growth industries. Employment effects were not found to be statistically significant.

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. See also CRS Report R42012, Trade Adjustment Assistance for Workers, by Benjamin Collins and CRS Report R40206, Trade Adjustment Assistance for Farmers, by Remy Jurenas.

Date of Report: January 28, 2013
Number of Pages: 11
Order Number: RS20210
Price: $29.95

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