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Pr
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Congress responded to adjustment problems created by increased trade liberalization by
authorizing three trade adjustment assistance (TAA) programs to assist workers, firms, and
farmers. This report discusses the TAA program for firms, which provides technical assistance to
trade-affected firms to help them develop strategies to remain competitive in an increasingly
challenging international economy. Program authorization has lapsed and the 110th Congress was
unable to agree on new legislation, except to appropriate funding through March 6, 2009.
Economists tend to agree that in defining the rules of exchange among countries, freer trade is
preferable to protectionism. It is also true that increased competition from trade liberalization
creates both “winners and losers,” presenting adjustment problems for all countries. One way to
balance the broad-based gains of freer trade with the 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. 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).
To receive assistance a firm must first be certified as eligible by demonstrating that its workers,
sales, and production have been affected by increased imports of competing articles. 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 proposal: (1) contributes to the
economic adjustment of the firm, (2) considers the interests of the firm’s workers, and (3)
demonstrates that the firm will commit its own resources to its turnaround. 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 adjustment proposal and implementing it. In
practice, this technical assistance is provided through one of the 11 regional Trade Adjustment
Assistance Centers (TAACs).
Historically, program evaluation has been limited, lacking a formal evaluation process, although
anecdotal evidence suggests that TAA has helped firms adjust to import competition. The firm
TAA program, nonetheless, has been criticized for its inability to reach all trade-impacted firms,
its backlog of eligible firms that have not received assistance, and its stringent and cumbersome
certification process. Also, TAACs were found to have inconsistent cost and fee structures. In
recent years, EDA has taken steps to address these criticisms including, improving outreach and
coordination with other federal programs, improving the efficiency of the TAACs, and
undertaking a comprehensive study to assess firm satisfaction and success with the TAA program.
Reauthorization of the TAA programs has been at the heart of congressional consideration of the
broader trade agenda. In the 110th Congress, the Democratic leadership insisted on taking action
on TAA prior to other trade bills. In the absence of an agreement to do so, trade legislation,
including implementing bills for three outstanding free trade agreements, stalled. Given the
importance that many Members attach to TAA programs and its short-term appropriations, it is
possible that TAA program reauthorization may be among the first trade bills to receive
consideration in the 111th Congress.
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The Economics of Trade Adjustment .............................................................................................. 1
Firm and Industry Trade Adjustment Assistance............................................................................. 2
Economic and Policy Issues ............................................................................................................ 5
The 111th Congress .......................................................................................................................... 6
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Table 1. Firm TAA Authorizations and Appropriations, FY1999-2008 ($ millions)....................... 3
Table 2. Trade Adjustment Assistance, FY2003-2008..................................................................... 3
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Author Contact Information ............................................................................................................ 6
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Economists generally agree that trade liberalization enhances the economic welfare of all trade
partners, but in compelling firms and workers to face stiffer global competition, can also cause
adjustment problems. Congress responded to this issue by authorizing three trade adjustment
assistance (TAA) programs to assist trade-impacted workers, firms, and farmers. This report
discusses the TAA program for firms, which provides technical assistance to trade-affected firms
to help them develop strategies to remain competitive in the changing international economy.1
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Economists tend to agree that in defining the rules of exchange among countries, freer trade is
preferable to protectionism. Insights from the theory of comparative advantage point to freer trade
providing mutual gains for countries because exchange encourages specialization, where
countries produce those goods at which they are relatively more efficient, while trading for those
at which they are relatively less so. 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.2 Consumers
(both firms and households) also gain from a wider variety of goods at lower prices.
It is also true 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.3
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. 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 broad-based gains from freer trade with the 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. Supporters justify TAA
1 There is also a much larger TAA program for workers, see: CRS Report RL34383, Trade Adjustment Assistance
(TAA) for Workers: Current Issues and Legislation, by John J. Topoleski.
2 On how trade affects total factor productivity based on U.S. manufacturing firm and plant level data, see Bernard,
Andrew B. 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.
3 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.
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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).
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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.4 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.
The TAA for firms program was last reauthorized through FY2007 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 that (1) a
“significant” number or proportion of workers became or are threatened to become totally or
partially separated; (2) sales, production, or both decreased absolutely; and (3) increased imports
of competing articles “contributed importantly” to the decline in sales, production, and/or
workforce. 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 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 economic development (adjustment).5
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 adjustment proposal or
implementing the proposal. In practice, this technical assistance is provided through one of the 11
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.6 TAA authorizations and appropriations for fiscal years 1999-2008
appear in Table 1. Historically, appropriated funds have fallen short of authorized spending levels
and program authorization lapsed on December 31, 2008. Congress appropriated funds through
FY2008 and continued those levels through March 6, 2009 in the Consolidated, Security, Disaster
Assistance and Continuing Appropriations Act, 2009 (P.L. 110-329). All funds have been used to
support the TAACs; no funds go directly to firms.
4 The TAA for firms program was originally administered jointly by the Tariff Commission (predecessor to the USITC)
and the U.S. Department of Commerce.
5 P.L. 93-618, Sections 251 and 252, as amended, and 13 CFR 315.7.
6 P.L. 93-618, Section 253, as amended and U.S. Department of Commerce. Economic Development Administration.
http://www.taacenters.org.
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Table 1. Firm TAA Authorizations and Appropriations, FY1999-2008 ($ millions)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Authorizations 10.0 10.0 10.0 10.0 16.0 16.0 16.0 16.0 16.0 a
Appropriations 9.5 10.5 10.5 10.5 10.0 11.9 11.0 12.8 12.8 14.1
Data Source: U.S. Department of Commerce. Economic Development Administration.
a. Authorization lapsed on December 31, 2008.
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,
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 (development and implementation), but EDA requires a 50% match for
implementation costs in excess of $30,000, with EDA funds capped at $75,000 per firm.7
TAACs help develop business recovery strategies specific to the needs of each firm, which
typically faces adjustments in many areas to compete with lower-priced imports. First, since firms
must be experiencing falling sales or declining production 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.
Table 2 summarizes trade adjustment data for fiscal years 2003-2008. On average, 146 firms
were assisted each year for this period. Most assisted firms were small to medium-size
manufacturing businesses, averaging $10.7 million in annual sales and 81 employees. The
Federal Government provided 52% of adjustment costs; the mean value of the trade adjustment
assistance provided by the TAACs was $50,816 per firm.
Table 2. Trade Adjustment Assistance, FY2003-2008
2003 2004 2005 2006 2007 2008 Average
Number
of
Firms
Assisted
162 177 132 137 126 139 146
Avg
Firm
Sales
(millions) $7.2 $11.6 $8.4 $10.6 $11.2 $15.0 $10.7
Avg
Firm
Employees 68 88 64 91 68 81 77
Govt
Share
(millions) $8.1 $8.5 $5.9 $6.7 $7.1 $7.9 $7.4
Firm
Share
(millions) $7.4 $8.1 $5.4 $6.0 $5.9 $7.5 $6.7
Total
TAA
(millions) $15.5 $16.6 $11.3 $12.7 $13.0 $15.4 $14.1
Avg TAA Per Firma
$50,000 $48,023 $44,697 $48,905 $56,449 $56,827 $50,816
Data Source: U.S. Department of Commerce. Economic Development Administration.
7 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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a. Government share of TAA Firm program divided by the number of accepted adjustment proposals.
Historically, program evaluation has been limited, lacking a formal evaluation process, although
anecdotal evidence suggests that TAA has helped firms adjust to import competition. The Urban
Institute conducted 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 amounted to a termination rate (firm either merged or failed) 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.8
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, but declined the assistance, a
comparison could be made between two similar groups of firms that took different paths. This
distinction is useful 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 have included 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.9
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.10
A Government Accountability Office (GAO) report points to similar problems in its own
evaluation of the TAA for firms program. It highlights the inability of EDA to monitor and
evaluate the performance of either firms assisted (after leaving the program) or the TAACs
themselves. GAO also cites the small federal funding levels as reason for a backlog of unfunded
8 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.
9 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. The Government Accountability Office (GAO) was even more
critical of this study, citing the “selection bias” issue, as well as failure to test for other explanatory variables. See U.S.
GAO. Trade Adjustment Assistance: Impact of Federal Assistance to Firms Is Unclear. Report GAO-01-12.
Washington, DC. December 2000. pp. 19-20.
10 For more details on cost-benefit analysis and program design improvements, see Urban Institute, op. cit., pp. iv-vi, 8-
9, and 32-48.
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projects and the small portion that federal assistance constitutes of the total firm adjustment
project costs.11
In recent years, EDA has taken steps to address the above criticisms. Outreach to more firms
has increased through coordination with other federal programs and EDA is working to automate
forms and streamline the application process. In FY2007, EDA began to work more closely with
the TAA programs for workers and farmers to ensure that eligible firms and workers benefit from
all programs. EDA has also enhanced TAAC performance through increased direct oversight of
TAACs and implementation of a feedback mechanism using firm surveys to gauge their
satisfaction and success rates. TAACs are now allocated funds in part based on performance
measures (number of firm certifications and adjustment proposals generated) and quality
measures that include the firm survey feedback mechanism and evaluation of TAA client firm
outcomes through a contract with Dunn & Bradstreet, which is intended to provide some
indication of “successful interventions” and “program best practices.” One outcome appears to be
a reduction in time between application submission and receipt of assistance, but data from the
Dunn & Bradstreet study on firm success rates and satisfaction are not expected until 2009.12
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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, if 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 process simply be accepted as part of a dynamic market economy
working to allocate resources more efficiently and in a way that is 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 amount to many times the value of 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 the 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 also
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
11 GAO, op. cit., pp. 13 and 18.
12 Federal Register, op. cit. p. 6926 and correspondence with EDA.
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continuing foundation of U.S. trade policy and temper calls for relief through increased tariffs,
quotas, or other restrictions on 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.
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Authorization for the TAA programs has lapsed and appropriations are in place only through
March 6, 2009. In the 110th Congress, Representative Rangel introduced the Trade and
Globalization Act of 2007 (H.R. 3920), which included TAA reauthorization. The House passed
the bill by a vote of 264 to 157, but the Senate could not agree on a similar bill (S. 1848)
introduced by Senator Baucus. Major changes to the firm TAA program from these bills would
have included adding services firm eligibility, expanding the eligibility criteria, and reauthorizing
the program through FY2012 at $50 million per year. The House also defeated a Republican
alternative by a vote of 196 to 226. It reflected an emphasis on cost and effectiveness issues, did
not address services firms, and would have required more stringent performance measures and
reporting requirements.
Reauthorization of the TAA programs has been at the heart of congressional consideration of the
broader trade agenda. In the 110th Congress, the Democratic leadership insisted on taking action
on TAA prior to considering implementing bills for three bilateral free trade agreements (FTAs).
In part because Congress did not agree to a TAA reauthorization bill, none of the FTA
implementing bills was taken up either. Many Members of Congress attach high importance to
TAA programs and given appropriations for them will expire in March 2009, it is possible that
TAA program reauthorization may be among the first trade bills to receive consideration in the
111th Congress.13
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J. F. Hornbeck
Specialist in International Trade and Finance
jhornbeck@crs.loc.gov, 7-7782
13 Washington Trade Daily. Setting the New Congressional Agenda. December 18, 2008 and Cohn, Peter. Chamber:
TAA Should Follow Action On Stimulus Measure. Congress Daily PM. December 16, 2008.
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