Trade Adjustment Assistance for Firms:
Economic, Program, and Policy Issues
J. F. Hornbeck
Specialist in International Trade and Finance
September 30, 2011January 27, 2012
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
Summary
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 adjustment costs these problems with trade adjustment assistance (TAA) programs for workers, firms,
farmers, and communitiesand farmers. 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 isnow 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
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
provided greater flexibility for a firm to demonstrate eligibility for assistance, established new oversight
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 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 Policyextended
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
Report R42012, Trade Adjustment Assistance (TAA) for Workers, by Benjamin Collins; and CRS
Report R40206, Trade Adjustment Assistance for Farmers, by Remy Jurenas.
Congressional Research Service
Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
Contents
Recent Developments ...................................................................................................................... 1
The Economics of Trade Adjustment............................................................................................... 1
The Firm Trade Adjustment Assistance Program ............................................................................ 3
Eligibility and Certification....................................................................................................... 3
Program Evaluation ................................................................................................................... 5
Policy Issues .................................................................................................................................... 6
Proposed Legislation ....................................................................................................................... 7...... 5
Tables
Table 1. Firm TAA Authorizations and Appropriations, FY2001-2011........................................... 3
Table 2. Trade Adjustment Assistance for Firms, Select Program Indicators for FY20032010FY20032011 .............................................................................................................................................. 5
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
A
lthough tradeT
rade liberalization can enhance the economic welfare of all trade partners, it can
also cause difficult adjustment problems for some import-competing firms and workers.
but in adjusting
to greater competition, many import-competing firms and workers face difficult problems.
Since 1962, Congress has responded to these adjustment costs with trade by authorizing trade
adjustment assistance (TAA)
programs for workers, firms, farmers, and communitiesand farmers. This report discusses the
firms program,
which provides technical assistance to trade-affected firms to help them develop
strategies to
remain competitive in a dynamic international economy.1
Recent Developments
Debate early in the 111th Congress over TAA reauthorization led to a bipartisan agreement on
February 5, 2009, to expand and extend the then-existing programs for workers, firms, and
farmers,
and to add a fourth program for communities (later repealed). The agreement became
part of the American
Recovery and Reinvestment Act (ARRA) of 2009 (P.L. 111-5—the Stimulus
Bill). Congress
changed the firms program in a number of important ways. It expanded eligibility
to include
services firms, increased annual authorized funding levels from $16 million to $50
million, provided
greater flexibility for a firm to demonstrate eligibility for assistance (the
“extended look-back period”), 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 firms 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 TAA programs 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 firm 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 112th Congress is considering TAA reauthorizing legislation (H.R. 2832). 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. H.R. 2832 would extend the firms
program through December 31, 2013 at annualized spending levels of $16 million. Many, but not
all, of the enhanced programs contained in the ARRA would be reauthorized, including extending
benefits to services workers and firms The provisions would apply retroactively to the expiration
date of the ARRA enhancements.
Procedural issues over how to move the TAA and three FTA implementing bills are still under
discussion. The Senate passed a TAA compromise bill (H.R. 2832) on September 22, 2011.
Consideration of H.R. 2832 in the House depends on finding an agreement with the Obama
Administration over sequencing the three FTA implementing bills, which have yet to be
introduced. At present, a procedural solution has not been finalized.
The Economics of Trade Adjustment
Economists tend to agree that in defining the rules of exchange among countries, freer trade is
preferable to protectionism. Insights from trade theory point to the mutual gains for countries
1
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 (H.R. 2832) passed on October 12, 2011,
and President Obama signed it into law on October 21, 2011 (P.L. 112-4). It extended the firms
program through December 31, 2013, at annualized spending levels of $16 million. Many, but not
all, of the enhanced programs contained in the ARRA were reauthorized retroactively, including
extending benefits to services workers and firms, allowing the extended look-back period, and
requiring final decisions on petitions for certification to be made within 40 days of acceptance.
The Economics of Trade Adjustment
Economists tend to agree that in defining the rules of exchange among countries, freer trade is
preferable to protectionism. Insights from trade theory point to the mutual gains for countries
trading on their differences, producing those goods at which they are relatively more efficient,
while trading for those at which they are relatively less so. Additional gains are realized from
intra-industry trade based on efficiencies from segmented and specialized production.2 Firm-level
1
For a broader discussion on the policy debate over 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.
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
trading on their differences, producing those goods at which they are relatively more efficient,
while trading for those at which they are relatively less so. Additional gains are realized from
similar, intra-industry trade based on efficiencies from segmented and specialized production.2
Firm-level See also CRS Report R42012, Trade
Adjustment Assistance (TAA) for Workers, by Benjamin Collins; and CRS Report R40206, Trade Adjustment
Assistance for Farmers, by Remy Jurenas.
2
For an accessible summary of these effects, see Paul Krugman, “The Increasing Returns Revolution in Trade and
(continued...)
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evidence supports theory. Trade appears to “enable efficient producers within an
industry, and
efficient industries within an economy, to expand,” leading to a reallocation of
resources that
increases a country’s productivity, output, and income.3 Consumers (both firms and
households)
also gain from a wider variety of goods at lower prices.
It is also true, and commonly cited, that increased competition from trade liberalization creates
both “winners and losers,” presenting adjustment problems for all countries. The more efficient
firms and plants may grow as they expand into overseas markets; the less efficient may contract,
merge, or perhaps even fail when faced with greater foreign competition. While the adjustment
process may be healthy from a macroeconomic perspective, much like market-driven adjustments
that occur for reasons other than trade (e.g., technological change), it can be a harsh transition for
some firms and their workers.4
Critics of free trade agreements often highlight the adjustment costs of reducing trade barriers. To
avoid business closures and layoffs, trade-impacted firms may seek to weaken, if not defeat, trade
liberalizing legislation. This makes economic sense from the perspective of affected industries,
firms, and workers, but economists argue that in the long run it can be more costly for the country
as a whole. The costs of protection arise because competition is suppressed, reducing pressure on
firms to innovate, operate more efficiently, and become lower cost producers. The brunt of these
costs falls to consumers, both individuals and businesses, who must pay higher prices, but the
national economy is also denied higher standards of living because of forgone productivity gains.
One way to balance the large and broad-based gains from freer trade with the smaller and more
highly concentrated costs is to address the needs of firms negatively affected. Congress has done
so in authorizing the trade adjustment assistance (TAA) programs, including the one for firms.5
Supporters justify TAA policy on grounds that (1) it helps those who are hurt by trade
liberalization (the “losers”),; (2) the economic costs are lower than protectionism and can be borne
by society as a whole (“the winners”),; and (3) given rigidities in the adjustment process, it may
help redeploy economic resources more quickly, thereby reducing productivity losses and related
public sector costs (e.g., unemployment compensation). Others dispute these claims and have
raised concerns over the effectiveness and costs of the program, arguing that it should be limited
or discontinued.6
2
For an accessible summary of these effects, see Paul Krugman, “The Increasing Returns Revolution in Trade and(...continued)
Geography,” American Economic Review, vol. 99, no. 3 (June 2009), pp. 561-571.
3
On how trade affects total factor productivity based on U.S. manufacturing firm and plant level data, see Andrew B.
Bernard and J. Bradford Jensen, “Exporting and Productivity in the USA,” Oxford Review of Economic Policy, vol. 20,
no. 3 (2004), pp. 343-344, 350, 352, and 356.
4
Both the benefits and costs of trade derive from resources moving from less to more productive plants (intra-industry)
and firms (inter-industry). Employment dislocation is the most noticeable cost, giving rise to congressional interest in
TAA programs. Ibid., pp. 345 and 356.
5
Howard F. Rosen, Strengthening Trade Adjustment Assistance, Peterson Institute for International Economics, Policy
Brief PB08-2, Washington, D.C., January 2008, pp. 1-2.
6
Details to both sides of the argument may be found in CRS Report R41922, Trade Adjustment Assistance (TAA) and
Its Role in U.S. Trade Policy,
by J. F. Hornbeck and Laine Elise Rover.
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
The Firm Trade Adjustment Assistance Program7
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.8 It provides technical
assistance to help trade-impacted firms make strategic adjustments that may allow them to
remain competitive in a global 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.
Congress has amended the program many times over the half century that it has been in existence,
most recently in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). These
amendments have since expired, with program rules reverting to those in pre-2009 statutesexisted.
TAA authorizations and appropriations for fiscal years 2001-20112012 appear in Table 1. The TAA for
firms program has been reauthorized through February 12, 2012December 31, 2013, and is currently operating under
under a full-year continuing resolution at an annual appropriated level of $15.8 million.
Table 1. Firm TAA Authorizations and Appropriations, FY2001-2011
($ millions)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Authorizations
10.0
10.0
16.0
16.0
16.0
16.0
16.0
16.0
50.0
50.0
0.0
16.0
Appropriations
10.5
10.5
10.0
11.9
11.0
12.8
12.8
14.1
15.8
15.8
15.8
15.8
Data Source: U.S. Department of Commerce. Economic Development Administration and P.L. 111-5.
In practice, technical assistance is provided through one of the 11 Trade Adjustment Assistance
Centers (TAACs), which apply for grants from EDA to operate their programs. All appropriated
funds are used to support the TAAC process; no funds go directly to firms. TAACs may operate
through universities, private firms, or non-profit associations. They provide or contract for
technical assistance to assist firms from the initial certification process through adjustment
proposal implementation. TAACs are staffed by professionals with broad business expertise who
can help firms develop “recovery strategies” and also identify financial resources. They are, in
effect, consultants specializing in business turnaround strategies specific to the needs of each
firm, which typically faces adjustments in many areas to compete with lower-priced imports.9
Eligibility and Certification
There are three phases to successful completion of a trade adjustment assistance project. First, to
receive TAA, a firm must demonstrate that it is eligible to apply for assistance. The firm submits
a petition for eligibility documenting that it has met three conditions:
7
7
Based on 13 C.F.R. § 315, which provides details for applying for TAAF assistance., and U.S. Department of
Commerce, Economic Development Administration, Annual Report to Congress on the Trade Adjustment Assistance
for Firms Program for Fiscal Year 2011, Washington, D.C., December 15, 2011.
8
The TAA for firms program was originally administered jointly by the Tariff Commission (predecessor to the USITC)
and the U.S. Department of Commerce.
9
P.L. 93-618, Section 253, as amended and U.S. Department of Commerce. Economic Development Administration.
http://www.taacenters.org.
8
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
a petition for eligibility documenting that it is “trade-impacted firm” by having met three
conditions:10
(1) “a significant number or proportion of workers”1011 in the firm have become or are threatened to
become totally or partially separated;
(2) sales, or production, or both of an article decreased absolutely, or sales, or production, or both
of any article that accounted for not less than 25% of total sales or production of the firm
during the 12-month period preceding the most recent 12-month period for which data are
, 24, or 36 months preceding the most recent 12, 24, or 36 months for which
data are available have decreased absolutely; and
(3) increased imports of competing articlesarticles or services like or directly competitive with articles produced or
services provided by the firm have “contributed importantly”1112 to the decline in sales,
production, and/or workforce and/or
production.
Second, once certified as eligible, a firm has two years to develop and submit its adjustment
proposal. Approval of the adjustment proposal depends on EDA’s finding that it (1) is reasonably
calculated “to materially contribute” to the economic adjustment of the firm; (2) gives adequate
consideration to the interests of the firm’s workers; and (3) demonstrates that the firm will use its
own resources for adjustment.
Third, the firm has five years to implement an approved adjustment proposal. Successful firms
typically implement the adjustment proposal within two years.1213
EDA can provide technical assistance to a firm for preparation of the petition for eligibility
certification, and to a certified eligible firm for developing and implementing an approved
adjustment proposal. There is no cost to the firm for assistance provided in developing the
petition and EDA is statutorily required to make a final determination on petitions within
60 days 40 days
of accepting it. In recent years, this time has averaged six weeks. There is no cost to the firm for
assistance provided in developing the petition.13, but fell the three weeks in
2011.14
The TAACs also provide detailed assistance in formulation offor the adjustment proposal, which
seeks to identify
business planning and practices that can be enhanced to improve firm
competitiveness. EDA has
another 60 days to accept or reject the adjustment proposal. In
practice, because technical
assistance is provided in the preparation of the petition and adjustment
proposal, there is a high
formal acceptance rate, likely because these submissions are completed
correctly and poor
candidates can be weeded out early in the process. The firm must pay at least
25% of the cost to prepare the adjustment proposal and at least 25% of any awarded adjustment
assistance. For project assistance exceeding $30,000, a firm must cover at least 50% of the total
cost.14
10
25% of the cost to
10
U.S. Department of Commerce, Economic Development Administration, Annual Report to Congress on the Trade
Adjustment Assistance for Firms Program for Fiscal Year 2011, Washington, D.C., December 15, 2011, p. 4-5.
11
5% of a firm’s work force or 50 workers, whichever is less, with EDA discretion to set other parameters in special
cases.
1112
A cause which is important, but not necessarily more important than any other cause. A firm must provide a list of
four important customers, of which the TAAC must interview two, to help evaluate whether the firm has been “tradeimpacted.” U.S. Department of Commerce. Economic Development Administration, “Program Announcement for the
Trade Adjustment Assistance for Firms Program,” 73 Federal Register 6925, February 6, 2008.
1213
U.S. Department of Commerce., Economic Development Administration, Annual Report to Congress on the Trade
Adjustment Assistance for Firms Program for Fiscal Year 20102011, Washington, D.C., December 15, 20102011, p. 5.
13
The recently expired legislative changes in P.L. 111-5 reduced the time required for EDA to make a final
determination on the petition to 40 days.
14
13 CFR 315.6 (c)(2) and Federal Register. Program Announcement for the Trade Adjustment Assistance for Firms
Program. February 6, 2008. Vol. 73. No. 25. p. 6925
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4.
14
Ibid., p. 7.
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
prepare the adjustment proposal and at least 25% of any awarded adjustment assistance. For
project assistance exceeding $30,000, a firm must cover at least 50% of the total cost.15
Adjustment proposals may involve strategic restructuring of various aspects of business
operations. First, because firms must be experiencing falling sales or declining production to be
eligible, TAACs often focus on marketing or sales strategies to identify new markets, new
products, promotional initiatives, and export opportunities. The core idea is to increase revenue.
Second, production inefficiencies are often targeted to reduce firm costs and improve price
competitiveness. Third, TAACs can develop debt restructuring strategies and act as intermediaries
in finding new sources of business financing. In 2010, 352011, 34% of adjustment assistance focused on
improving marketing-sales, 3227% on production-manufacturing, and 2535% on enhancing support or
management systems.15, and 4% on financial systems.16
Table 2 summarizes select trade adjustment data for fiscal years 2003-20102011. The TAAF program targets
targets small- and medium-sized enterprises (SMEs), which is borne out in the firm data. By 2010,
howeverWith the
exception of 2010, firms averaged overfewer than 100 employees and, although sales hadhave grown to an
average of $19 million.
The In 2011, the federal government provided 48.666.3% of adjustment costs, for
an average $61,953 per firm118,033 per firm, significantly higher than in the past. In 2011, 95% of certified
firms were in manufacturing, 3% in agriculture, and 2% in services.
Table 2. Trade Adjustment Assistance for Firms, Select Program Indicators for
FY2003-20102011
2003
2004
2005
2006
2007
2008
2009
2010
2011
Number of Firms Assisteda
162
177
132
137
126
139
172
265
183
Avg Firm Sales (millions)
$7.2
$11.6
$8.4
$10.6
$11.2
$13.1
$10.3
$19.1
$19.6
68
88
64
91
68
82
$79
$138
91
Gov’t Share (millions)
$8.1
$8.5
$5.9
$6.7
$7.1
$7.9
$10.3
$16.4
$21.6
Firm Share (millions)
$7.4
$8.1
$5.4
$6.0
$5.9
$7.5
$9.8
$15.6
$11.0
Total TAACost (millions)
$15.5
$16.6
$11.3
$12.7
$13.0
$15.4
$20.2
$32.1
$32.6
$50,000
$48,023
$44,697
$48,905
$56,449
$56,835
$59,884
$61,953
$118,033
Avg Firm Employees
Avg TAA Per
Firmb
Data Source: U.S. Department of Commerce., Economic Development Administration. Annual Report To
Congress on the Trade Adjustment Assistance for Firms Program. Fiscal Year 20102011. December 15, 20102011. pp. 23-2419-20.
a.
Number of adjustment proposals approved.
b.
Government share of TAA Firm program divided by the number of accepted adjustment proposals.
Program Evaluation
Historically, program evaluation has been limited, with EDA lacking a formal evaluation process.
Early efforts to analyze the TAAF program included comprehensive studies by the Urban Institute
in 1998 and the Government Accountability Office (GAO) in 2000.16 Both found deficiencies
with the TAAF program, such as a cumbersome certification process, long approval times, and
little oversight and evaluation of projects. Congress addressed some of these issues by requiring
EDA to submit an annual report on the TAAF program by December 15 of each year, putting
15
15
Ibid., pp. 4-5 and 13 CFR 315.6 (c)(2) and Federal Register. Program Announcement for the Trade Adjustment
Assistance for Firms Program. February 6, 2008. Vol. 73. No. 25. p. 6925
16
U.S. Department of Commerce. Economic Development Administration, Annual Report to Congress on the Trade
Adjustment Assistance for Firms Program for Fiscal Year 20102011, Washington, D.C., December 15, 2010, p. 38.
16
U.S. Department of Commerce. Economic Development Administration. Effective Aid to Trade-Impacted
Manufacturers: An Evaluation of the Trade Adjustment Assistance Program. Prepared by the Urban Institute,
Washington, D.C., November 1998 and. GAO. Trade Adjustment Assistance: Impact of Federal Assistance to Firms Is
Unclear. Report GAO-01-12. Washington, DC. December 2000.
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2011, p. 30.
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in 1998 and the Government Accountability Office (GAO) in 2000.17 Both found deficiencies
with the TAAF program, such as a cumbersome certification process, long approval times, and
little oversight and evaluation of projects. Congress addressed some of these issues by requiring
EDA to submit an annual report on the TAAF program by December 15 of each year, putting
stricter time frames on processing petitions for assistance, and providing additional funding for
TAAF staff, requirements that expired with the ARRA legislation.17
Under the expired 2009 statute, .
EDA has released twothree annual reports under the new requirements that point to administrative
and operational improvements. In addition, TAACs are now allocated funds in part based on
performance measures (number of firm certifications and adjustment proposals generated) and
quality measures.18 Anecdotal evidence from the TAACs also point to numerous “success”
stories, but more
sophisticated analysis is needed to estimate adequately the effectiveness of this
program program
approach. It is difficult to isolate the effects of the firm TAA program in determining
why a
particular firm might succeed in its turnaround effort. Previous studies mentioned above
suggest suggest
that many firms might have been able to do so on their own.
The FY2010FY2011 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 14% increase1.6% decrease in sales, a 3less than 1% rise in productivity, and a 161.9% decrease in
employment.19
The falldecline in employment may be a common result for firms in decline. It is recovering firms. It is
also possible that a
longer evaluation period may be necessary to fully capture employment effectscapture the full effects of the
TAAF program, which often lag
behind recovery, particularly in the aftermath of the recent deep a period of slow economic recovery from
recession. Second, of the 102
108 firms that left the TAAF program in 2010, 562011, 41% completed the
program and were operational. The
remaining 4459% did not complete the program for various
reasons, including exceeding the fiveyearfive-year threshold (2337%); going out of business (114%); or losing
interest, being sold, or having
inadequate funds (1018%). Given that TAAF focuses on firms facing
bankruptcy, in part because of
foreign competition, these results may not be surprising.
Policy Issues
The 112th Congress is considering reauthorizing and extending the TAAF program. A key issue, in
addition to deciding the size and spending limits of the program, is whether to reinstate some or
all of the statutory changes added in 2009 under the ARRA (P.L. 111-5). These affect multiple
aspects of the TAAF program and include the following, all of which expired on February 13,
2011:
1. Services Firm Eligibility—first time service firms were eligible for assistance.
2. Change in Certification Requirements: to demonstrate eligibility, firms were allowed to
expand the “look back” period for determining declines in sales, production, and employment
beyond the 12 months set out prior to the 2009 legislation. The expanded “look back” included:
•
Twelve-month decline—using production, sales, and employment criteria,
compare the most recent 12-month period for which data are available with the
immediately preceding 12-month period (currently only program criterion).
17
U.S. Department of Commerce. Economic Development Administration, Annual Report to Congress on the Trade
Adjustment Assistance for Firms Program for Fiscal Year 2010, Washington, D.C., December 15, 2010, p. 7 and 39.
18
U.S. Department of Commerce. Economic Development Administration, “Program Announcement for the Trade
Adjustment Assistance for Firms Program,” 73 Federal Register 6926, February 6, 2008, and correspondence with
EDA.
19
Productivity is defined as sales per worker, a simple measure that can be used across industries, but which may have
limitations for evaluative purposes.
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
•
Twelve-month versus twenty-four-month decline—using all three criteria,
compare the most recent 12-month period for which data are available with the
immediately preceding 24-month period, using average annual data for sales and
production.
•
Twelve-month versus thirty-six-month decline—using all three criteria,
compare the most recent 12-month period for which data are available with the
immediately preceding 36-month period, using average annual data for sales and
production.
•
Interim sales or production decline—using all three criteria, but defining a
base period based on sales and production figures that compares at a minimum a
most recent six-month period during the most recent 12-month period for which
data are available, with data in the same six-month period for the immediately
preceding 12-month period.
•
Interim employment decline—using all three criteria, but defining a base period
based on employment data that compares at a minimum a most recent six-month
period during the most recent 12-month period for which data are available with
data in the same six-month period for the immediately preceding 12-month
period.
3. Basis for Determinations—increases of like or directly competitive articles or services may
be determined by firm customer certification representing a significant percentage of the decrease
in sales or production of the firm.
4. Determination Time for Petition on Eligibility—was reduced from 60 to 40 days.
5. Notification Requirement—the Secretary of Commerce, upon receiving information from the
Secretary of Labor that workers were covered under the TAA for workers program, is required to
notify the related firm that it too is potentially eligible for TAA for firms.
6. Oversight and Administration—requires alignment of annual contracting schedules of the
TAACs and standardized formula for distribution of funds based on new annual reporting
requirements. The formula is to be determined in consultation with the House Ways and Means
and Senate Finance Committees, and funds are to be allocated promptly.
7. Authorization of Appropriations—increased for $16 million to $50 million annually, with
$350,000 made available for full-time positions in EDA to administer the TAAF program,
including a new Director of Adjustment Assistance for firms.
8. Enhanced Penalties—for firms misrepresenting information on petitions for assistance or the
adjustment proposals.
9. Annual Report—requires enhanced and detailed report on the TAAF program by EDA to be
completed by December 15 following the most recent fiscal year.
Proposed Legislation
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
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
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.
TAA reauthorization was added as a Senate Amendment to H.R. 2832. The Senate passed the bill
by a vote of 70-27 on September 22, 2011. The bill would reauthorize the TAA for firms program
at annualized levels of $16 million through December 31, 2013. Many, but not all, of the
enhanced programs and funding levels contained in the ARRA would be reauthorized, including
extending benefits to services workers and firms. The provisions of the bill would apply
retroactively to the expiration date of the ARRA enhancements.20
Despite having passed in the Senate, consideration of H.R. 2832 in the House depends on finding
an agreement with the Obama Administration over the sequencing of the FTA implementing bills.
The Obama Administration has made clear that it will not transmit to Congress implementing
legislation for the FTAs until the House votes on TAA. Once a trade implementing bill is
introduced in the two Houses of Congress, under the expedited rules of Trade Promotion
Authority (TPA), it must be voted on. Because of this requirement, the Administration is reluctant
to send over implementing legislation until the House takes up H.R. 2832. House Republican
leadership insists that the House take up the TAA legislation after the FTA implementing bills
have been sent over from the White House.21 At present, a procedural solution has not been
finalized.
20
For details on the large workers program, see CRS Report R42012, Trade Adjustment Assistance (TAA) for Workers,
by Benjamin Collins.
21
Inside U.S. Trade, "With Senate Approval of GSP/TAA, Pressure Mounts on Obama, Boehner," World Trade
Online, September 23, 2011.
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8 foreign competition, these results may not be surprising.
17
U.S. Department of Commerce. Economic Development Administration. Effective Aid to Trade-Impacted
Manufacturers: An Evaluation of the Trade Adjustment Assistance Program. Prepared by the Urban Institute,
Washington, D.C., November 1998 and. GAO. Trade Adjustment Assistance: Impact of Federal Assistance to Firms Is
Unclear. Report GAO-01-12. Washington, DC. December 2000.
18
U.S. Department of Commerce. Economic Development Administration, “Program Announcement for the Trade
Adjustment Assistance for Firms Program,” 73 Federal Register 6926, February 6, 2008, and correspondence with
EDA.
19
Productivity is defined as sales per worker, a simple measure that can be used across industries, but which may have
limitations for evaluative purposes.
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