Order Code RS20210
Updated March 10, 2005
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. The TAA for firms program was
reauthorized through fiscal year 2007 at an annual funding level of $16 million as part
of the Trade Act of 2002 (P.L. 107-210).1 This report will be updated periodically.
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 competition, creating both “winners
and losers.” Some firms and industries will become more efficient and 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 perspective, much like market-driven adjustments that occur in
1 See also CRS Report 94-478, Trade Adjustment Assistance for Workers: A Fact Sheet, by Paul
J. Graney and CRS Report RS21182, Trade Adjustment Assistance for Farmers, by Geoffrey S.
Becker.
Congressional Research Service ˜ The Library of Congress

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the absence of trade (e.g. changing technology), it can be a rather harsh reality for many
firms and their workers.
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, 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. The TAA for firms program was reauthorized through fiscal year 2007 at
an annual funding level of $16 million as part of the Trade Act of 2002 (P.L. 107-210).
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
TAA appropriations through EDA since 1997 appear in Table 1. All 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 (not shown), 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 1997-2005
($ millions)
1997
1998
1999
2000
2001
2002
2003
2004
2005
EDA
8.5
9.5
9.5
10.5
10.5
10.5
10.0
11.9
12.0
DoD
1.6
1.5
1.5
0.5
0.2
0
0
0
0
Total
10.1
11.0
11.0
11.0
10.7
10.5
10.0
11.9
12.0
Data Source: U.S. Department of Commerce. Economic Development Administration (EDA) and Budget
of the United States, Fiscal Year 2006. Appendix. p. 209.
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 adjustment proposals, which shows that
there has been a 100% 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 $10.7 million in sales and 117 employees.
The mean value of the trade adjustment assistance provided by the TAACs was $49,261
per firm.
Table 2. Disposition of Trade Adjustment Assistance Proposals,
Fiscal Years 1999-2004
1999
2000
2001
2002
2003
2004
Average
Received 141
147
113
148
161
165
146
Accepted
149
139
118
141
162
177
148
Rejected
0
0
0
0
0
0
0
Pending
1
9
4
10
7
0
5
Avg Firm
$9.9
$10.8
$12.8
$11.7
$7.2
$11.6
$10.7
Sales
Avg Firm
74
132
240
102
67
89
117
Employees
Govt Share
$7.1
$7.1
$5.3
$7.6
$8.1
$8.5
$7.3
(millions)
Firm Share
$6.8
$6.5
$4.9
$7.1
$7.4
$8.1
$6.8
(millions)
Total TAA
$13.9
$13.6
$10.2
$14.7
$15.5
$16.6
$14.1
(millions)
Avg TAA
$47,651
$51,079
$44,915
$53,900
$50,000
$48,023
$49,261
Per Firm*
* Calculated as government share of TAA Firm program divided by the number of accepted adjustment
proposals.
Data Source: U.S. Department of Commerce. Economic Development Administration, TAA for Firms
Program: Adjustment Proposal Fact Sheet.
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 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 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

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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
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?
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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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.
The 109th Congress faces the possibility of multiple trade bills being introduced. The
debate over approving trade implementing legislation for various free trade agreements,
should it be introduced, will likely include the role of trade adjustment assistance. As one
of many TAA programs, the firm assistance through the EDA will likely be part of this
debate that in the past has focused on how to make trade liberalization work for all
segments of the U.S. economy.

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