Order Code RS20210
Updated August 9, 2002
CRS Report for Congress
Received through the CRS Web
Trade Adjustment Assistance for Firms:
Economic, Program, and Policy Issues
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
Although free trade provides benefits to all trading partners, reducing barriers to
trade forces firms and industries in all countries to adjust to stiffer global competition.
For some, the adjustment process can be difficult and Congress, in recognizing this
problem, has authorized programs to assist trade-impacted firms, industries, and
workers. This report focuses on the trade adjustment assistance program for firms and
industries, which provides technical assistance to help them develop strategies to remain
competitive in the changing international economy.1 The TAA legislation expired on
January 10, 2002, but the program continued to function with FY2002 appropriations
until reauthorized by Congress. A new reauthorization was signed into law by President
Bush on August 6, 2002 as part of the Trade Act of 2002 (P.L. 107-210). This report
will be updated periodically to continue following the firm TAA program.
Economics of Trade Adjustment
Economists tend to agree that in defining the rules of exchange among countries,
freer trade is preferable to protectionism. The theory of comparative advantage suggests
that freer trade leads to mutual gains for countries because through exchange, they can
specialize in producing those goods at which they are relatively more efficient, while
trading for those at which they are relatively less so. Firm productivity increases through
trade by reallocating resources to their more efficient use, while both firms and consumers
gain by having a wider variety of goods to choose from at lower prices.
It is also true that as countries adopt freer trade policies, often through negotiated
trade agreements, economies must adjust to increased trade, creating both “winners and
losers.” Some firms and industries will grow as they expand into overseas markets,
whereas others will contract, merge, or perhaps even fail when faced with increased
competition. While the adjustment process may be healthy from a macroeconomic
1 For a discussion of worker assistance and current legislation, see the CRS trade electronic
briefing book: [http://www.congress.gov/brbk/html/ebtra1.shtml]
Congressional Research Service ˜ The Library of Congress

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perspective, much like market-driven adjustments that occur in the absence of trade (e.g.
changing technology), it can be a rather harsh reality for many firms.
Critics of free trade agreements often highlight the adjustment costs of reducing trade
barriers. To avoid business closures and layoffs, trade-impacted firms often 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.2 The brunt of these costs falls to
consumers, both individuals and businesses, who must pay higher prices.
One way to balance the gains of freer trade that are realized broadly throughout the
economy, with the costs that tend to be more concentrated, is to address the needs of firms
negatively affected. This can be done by legislating trade adjustment assistance (TAA).
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 helps redeploy economic resources more quickly, thereby reducing productivity
losses and related public sector costs (e.g. unemployment compensation).
Firm And Industry Trade Adjustment Assistance
Congress first authorized TAA in Title III of the Trade Expansion Act of 1962 (P.L.
87-794), establishing a new firm and industry program under the Economic Development
Administration (EDA) of the U.S. Department of Commerce. It provides technical
assistance to help trade-impacted firms make strategic adjustments necessary to remain
competitive in a global economy. Originally, 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. TAA legislation expired on January 10, 2002, but the program continued
to function with FY2002 appropriations, pending congressional reauthorization.
To receive assistance a firm must first be certified as eligible by demonstrating: 1)
a “significant” loss or threatened loss of employees; 2) a decrease in sales or production;
and 3) that increased imports “contributed importantly” to both the layoffs and fall in
sales or production. Once certified, the firm has two years to apply for assistance in
developing and/or implementing its adjustment proposal. Approval depends on EDA’s
finding that the adjustment proposal: 1) is likely “to materially contribute” to the
economic adjustment of the firm; 2) considers the interests of the firm’s workers; and 3)
demonstrates that the firm will use its own resources for adjustment.3
EDA can provide technical assistance to a firm for preparation of the petition for
eligibility certification and to a certified eligible firm for developing the economic
2 For cost estimates of protection, see: Hufbauer, Gary Clyde and Kimberly Ann Elliot.
Measuring the Costs of Protection in the United States. Washington, D.C., Institute for
International Economics, 1994.
3 P.L. 93-618, Sections 251 and 252, as amended.

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adjustment proposal or implementing the proposal. In practice, this technical assistance
is provided through one of the 12 Trade Adjustment Assistance Centers (TAACs), which
operate as non-federal consultants. They provide technical assistance to firms from the
initial certification process through implementation of the adjustment proposal.4
As seen in table 1, all of EDA’s TAA appropriations since 1995 have been used to
support the TAACs. In some years, the TAAC’s funding has been augmented by
Department of Defense appropriations through the Defense Adjustment Assistance
Program (DAAP). In addition, for fiscal years 1991-1994, grants were made to specific
industry representatives and research groups. These included the American Electronics
Association (Europe and Japan offices); the Semiconductor Industry Association; the
Motor Equipment Manufacturers Association; the Gear Research Institute; the American
Foundrymen’s Society; and the University of Texas. No funds go directly to firms.
Table 1. Firm Trade Adjustment Assistance:
Appropriations, Fiscal Years 1995-2003
($ millions)
1995
1996
1997
1998
1999
2000
2001
2002
#2003
EDA
10.0
8.5
8.5
9.5
9.5
10.5
10.5
10.5
13.0
DoD
0
0.7
1.6
1.5
1.5
0.5
0.2
0
0
Total
10.0
9.2
10.1
11.0
11.0
11.0
10.7
10.5
13.0
# Bush Administration request for fiscal year 2003.
Source: U.S. Department of Commerce. Economic Development Administration (EDA).
The 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, federally supported consultants specializing in business turnarounds. TAACs
focus their efforts on certifying eligible firms and devising targeted adjustment strategies,
which are usually implemented by private consultants on a contractual basis. EDA is
statutorily restricted to cover no more than 75% of adjustment proposal costs, but
beginning in fiscal year 1996, EDA reduced this to 50%, capped at $75,000 per firm.5
TAACs develop business recovery strategies specific to the needs of each firm, but
competing with lower-priced imports typically involves making adjustments in one or
more common areas. First, since firms must be experiencing falling sales to participate,
TAACs often focus on marketing or sales strategies to identify new markets, new
products, promotional initiatives, and export opportunities. Second, production
inefficiencies are corrected to reduce firm costs and improve price competitiveness.
Third, TAACs can develop debt restructuring strategies and frequently act as
intermediaries in finding new sources of business financing through either government
agencies (U.S. Small Business Administration) or private financial institutions.
4 P.L. 93-618, Section 253, as amended and U.S. Department of Commerce. Economic
Development Administration. The Trade Adjustment Assistance Program. May 1999.
5 Ibid., and discussions with EDA staff.

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Table 2 summarizes the disposition of TAA petitions. For fiscal years 1996-2001,
of the 1,073 petitions for certification on file, 1,029 or 96% were certified as eligible to
receive assistance. During this period, 762 firms filed trade adjustment proposals.
Numbers for these two categories do not match on a fiscal year basis because there is an
average time lapse of half a year between being certified and filing an adjustment
proposal.
Table 2. Disposition of Trade Adjustment Assistance
Petitions for Certification and Adjustment Proposals,
Fiscal Years 1996-2001
1996
1997
1998
1999
2000
2001
Average
Petitions for Certification
Total
159
171
178
179
203
185
179
Certified
148
159
167
175
201
179
172
Other#
11
12
11
4
2
6
7
Adjustment Proposals
Received*
107
120
134
141
147
113
127
Accepted
101
123
128
149
139
118
126
Rejected
0
0
0
0
0
0
0
Pending
6
3
9
1
9
4
5
Avg Firm
$8.1
$6.8
$7.3
$9.9
$10.8
$12.8
$9.3
Sales ($mil)
Avg Firm
87
86
94
78
126
250
120
Employees
Avg TAA
$48,600
$48,450
$57,000
$54,060
$52,000
$50,440
$51,758
Per Firm
# Other = withdrawn, terminated, or rejected.
* The number of adjustment proposals accepted, rejected, and pending do not necessarily sum to the amount
received for any given fiscal year due to carry overs from previous years.
Source: EDA, TAA Adjustment Proposal and Certification Fact Sheet.
Table 2 shows that there has been a very high adjustment proposal acceptance rate
due, in part, to a preliminary review process that eliminates incomplete or ineligible
applications. Most firms receiving assistance are small to medium-size manufacturing
businesses. For the six-year period summarized in table 2, firms had an average $9.3
million in sales and 120 employees. The mean value of the trade adjustment assistance
provided by the TAACs was $51,758 per firm.
Historically, program evaluation has been limited, although there is considerable
anecdotal evidence indicating that TAA has helped many firms survive that were seriously
threatened by imports. The Urban Institute completed the most recent comprehensive
evaluation of the program in 1998. It found the TAA program effective in helping
“distressed manufacturing enterprises respond to foreign imports.” Specifically, the study
concluded that five years after certification, eligible firms that sought TAA had a higher

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survival rate (84%) than those eligible firms that did not ultimately pursue assistance
(70%). This amounts to a termination (firm either merged or failed) rate for assisted firms
of about half that of unassisted firms. Also, assisted firms on average added 4.2% more
employees and had sales growth of 34% compared to a 5.3% loss of employees and 16%
sales growth for eligible firms that had not received assistance.6
This study was careful to include a control group in making comparisons. By
including data on those firms that entered the process and became eligible for assistance,
but declined to pursue TAA, a comparison could be made between two similar groups of
firms that took different paths. This is a useful distinction and lends credibility to the
study’s overall positive conclusions. Still, given the financial commitment needed to
participate, it is likely that many eligible firms that did not pursue TAA may not have had
the financial ability to do so. If so, it is likely the control group may include a larger
proportion of the most financially distressed firms and even in this group, there was a
70% survival rate after five years. This would suggest that the firm TAA program may
help at the margin, but without it, between 70% and 86% of firms would still adjust on
their own. Nonetheless, the report does provide some indication that the TAACs may be
helping trade-impacted businesses become more competitive.7
The Urban Institute report pointed to specific characteristics of the TAA program
that were particularly effective including its unbiased diagnostic approach and
competitive bidding process for consulting services, its success in targeting viable firms
and ensuring they are financially and managerially committed to the adjustment strategy,
and its customized, broad-based, and heavily subsidized assistance package. On the other
hand, the firm TAA program was criticized for not reaching all trade-impacted firms,
being limited and backlogged in responding to eligible firms by funding restrictions, and
having a stringent and cumbersome certification process that needed simplifying. Also,
TAACs were found to have inconsistent cost and fee structures and were encouraged to
leverage other business assistance services.8
Economic and Policy Issues
By any measure, firm and industry trade adjustment assistance is a small federal
program; it remains, nonetheless, controversial. Critics point to fundamental arguments
opposing TAA that have been debated since before the program was initiated in 1962.
First, given that competition resulting from trade liberalization is not considered “unfair
trade,” why should the federal government be involved? Second, why should federal
assistance be necessary for adjustment to trade competition when there is no similar
6 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. pp. i, 8-14. The study, in
praising the firm TAA program, expresses a strong philosophical bias for assistance to trade-
impacted firms, even to the point of considering increasing tariffs or other trade limiting
remedies. See p. 57.
7 The study also attempts to control for industry, regional, and national economic conditions that
can be factors affecting firm recovery or failure. Ibid., pp. 13-17.
8 For more details on cost-benefit analysis and program design improvements see: Ibid., pp. iv-vi,
8-9, and 32-48.

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assistance for adjustment to domestic competitive pressures? Third, should not this
adjustment simply be accepted as part of a dynamic market economy working to allocate
resources more efficiently and in the country’s long-term interests?
Proponents of the program argue that TAA is only modestly funded and provides
benefits to firms, owners, managers, and workers that are many times the value of the
federal expenditures. Also, if changes in national trade policy have altered the rules under
which businesses compete, does not the federal government have some responsibility for
assisting firms that bear the costs of adjustment? Finally, a point in favor of firm TAA
is that it focuses on adjustment, not long-term financial assistance. Firms must commit
their own resources and have every incentive to make adjustment to ensure their very
survival. They are not faced with the potential for dependency on long-term cash
payments, which critics charge is a problem with some federal assistance programs.
In addition to purely economic reasoning, political considerations also surround the
TAA debate. Historically, Congress has accepted, with some reservations, that freer trade
is in the long-term interests of the United States. While those skeptical of trade
liberalization may support TAA for the assistance it provides to affected workers and
firms, proponents of freer trade may embrace TAA for its political expedience. To the
extent that firm and industry TAA can address some of the concerns of adversely affected
firms, it may support trade liberalization as a continuing foundation of U.S. trade policy
and temper calls for relief through raising tariffs, quotas, and other restrictions to trade.
Advocates of trade liberalization may find support for firm TAA as compelling from a
cost-benefit perspective if it leads to broader acceptance of trade opening legislation.
Reauthorization in the 107th Congress
TAA authorizing legislation expired on January 10, 2002, but all the programs were
funded through fiscal year 2002. There appeared to be support in both the House and the
Senate for the firm TAA program, but the issue became part of the broader trade
promotion authority (TPA) debate, delaying final action. Congress, as a whole,
recognized a continuing need to provide some help for those workers and firms that are
adversely affected by trade. A major question to be resolved was the size and scope of
such assistance, particularly in light of renewed interest in multilateral (the Doha World
Trade Organization round), regional (the Free Trade Area of the Americas), and numerous
bilateral (Singapore, Chile, Central America) trade agreements.
Reauthorization of the TAA program for firms was incorporated into the Trade Act
of 2002 (P.L. 107-210) as Subtitle B in Title I, Trade Adjustment Assistance. On July 27,
2002, the House agreed to the conference report by a vote of 215 to 212. The Senate
followed suit on August 1 by a vote of 64 to 34. President Bush signed the bill into law
on August 6, 2002. The firm TAA program was not amended, but extended through fiscal
year 2007 at a higher annual authorized funding level of $16 million.

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