Trade Adjustment Assistance for Firms:
Economic, Program, and Policy Issues
J. F. Hornbeck
Specialist in International Trade and Finance
February 14, 2011
Congressional Research Service
7-5700
www.crs.gov
RS20210
CRS Report for Congress
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repared for Members and Committees of Congress
Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
Summary
Economists generally acknowledge that trade liberalization enhances the economic welfare of all
trade partners, but with stiffer global competition, many firms and workers also face difficult
adjustment problems. Congress has responded to these adjustment costs by authorizing four trade
adjustment assistance (TAA) programs to assist trade-impacted workers, firms, farmers, and
communities. This report discusses the TAA program for firms (TAAF). The TAAF program
provides technical assistance to trade-affected firms to help them develop strategies and make
other adjustments to remain competitive in the changing international economy. The 111th
Congress authorized the program through February 12, 2012, and it continues to operate at
FY2010 levels of $15.8 million under a continuing resolution (see CRS Report RL30343,
Continuing Resolutions: Latest Action and Brief Overview of Recent Practices, by Sandy
Streeter.)
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. It provides technical
assistance to help trade-impacted firms make strategic adjustments, which 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.
Debate early in the 111th Congress over TAA reauthorization led to a February 5, 2009, bipartisan
agreement to expand and extend 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 of 2009 (P.L. 111-5—the Stimulus Bill). Congress changed the TAA for Firms
program in a number of important ways. It expanded eligibility for trade adjustment assistance to
include services firms, authorized an extension of the program through December 31, 2010,
increased annual authorized funding levels from $16 million to $50 million, provided greater
flexibility for a firm to demonstrate eligibility for assistance, established new oversight and
evaluation criteria, created a new position of Director of Adjustment Assistance for Firms, and
required submission to Congress of a detailed annual report on the TAAF program.
Authorization of the TAA programs was set to expire on January 1, 2011. The Omnibus Trade Act
of 2010 (H.R. 6517), which the House and Senate passed on December 22, 2010, extended the
TAAF program through February 12, 2012. However, because of expiring language in the act,
those expanded provisions covering eligibility for services firms and other matters passed in the
ARRA all expired on February 12, 2011, although the program continues to be authorized and
operate at FY2010 levels of $15.8 million under the continuing resolution.
On February 8, 2011, S. 308, the Trade Extenders Act of 2011 was introduced in the Senate. This
bill would authorize the TAA for Firms program to operate through June 30, 2013. It would also
authorize appropriations of $50 million for FY2011 and $37.5 million for the nine months ending
June 30, 2012. Because the TAA for Firms program awards grants to the eleven regional Trade
Adjustment Assistance Centers (TAACs) on July 1 of the fiscal year, S. 308 would allow grants
for FY2011 to be funded at the $50 million level, if Congress fully appropriates that amount, and
a nine-month pro rated share ($37.5 million) would be available for FY2012. Funds would be
awarded for the grant fiscal year July 1, 2012 through June 30, 2013.
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
Contents
Introduction ................................................................................................................................ 1
Recent Developments.................................................................................................................. 1
The Economics of Trade Adjustment ........................................................................................... 2
The Firm Trade Adjustment Assistance Program ......................................................................... 3
Eligibility and Certification................................................................................................... 4
Program Evaluation .............................................................................................................. 6
Economic and Policy Issues ........................................................................................................ 7
Tables
Table 1. Firm TAA Authorizations and Appropriations, FY2000-2010 ......................................... 3
Table 2. Trade Adjustment Assistance, Select Program Indicators for FY2003-2009 .................... 6
Contacts
Author Contact Information ........................................................................................................ 8
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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues
Introduction
Economists generally acknowledge that trade liberalization enhances the economic welfare of all
trade partners, but with stiffer global competition, many firms and workers also face difficult
adjustment problems. Congress has responded to these adjustment costs by authorizing four trade
adjustment assistance (TAA) programs to assist trade-impacted workers, firms, farmers, and
communities. This report discusses the TAA program for firms (TAAF). The TAAF program
provides technical assistance to trade-affected firms to help them develop strategies and make
other adjustments to remain competitive in the changing international economy. The 111th
Congress authorized the program through February 12, 2012, and it continues to operate at
FY2010 levels of $15.8 million under a continuing resolution.
Recent Developments
Debate early in the 111th Congress over TAA reauthorization led to a February 5, 2009, bipartisan
agreement to expand and extend 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 TAA
for Firms program in a number of important ways. It expanded eligibility for trade adjustment
assistance to include services firms, authorized an extension of the program through December
31, 2010, increased annual funding levels from $16 million to $50 million, provided greater
flexibility for a firm to demonstrate eligibility for assistance, established new oversight and
evaluation criteria, created a new position of Director of Adjustment Assistance for Firms, and
required submission to Congress of a detailed annual report on the TAAF program.
Authorization of the TAA programs was set to expire on January 1, 2011. The Omnibus Trade Act
of 2010 (H.R. 6517), which the House and Senate passed on December 22, 2010, extended the
TAAF program through February 12, 2012.1 However, because of expiring language in the act,
those expanded provisions covering eligibility for services firms and other matters passed in the
ARRA all expired on February 12, 2011, although the program remains authorized and continues
to operate at FY2010 levels of $15.8 million under a continuing resolution.
On February 8, 2011, S. 308, the Trade Extenders Act of 2011 was introduced in the Senate. This
bill would authorize the TAAF program to operate through June 30, 2013. It would also authorize
appropriations of $50 million for FY2011 and $37.5 million for the nine months of FY2012
ending June 30, 2012.
The TAAF program operates by awarding grants to the regional Trade Adjustment Assistance
Centers (TAACs). The grants are awarded on July 1 of the fiscal year in which appropriations are
made. Therefore, TAACs are currently working off FY2010 funds and the TAACs are scheduled
to be awarded FY2011 grants on July 1, 2011, so no interruption of operations in the near term is
expected. However, the program is funded under a continuing resolution. The implications of S.
1 This legislation affected the workers program more, with many provisions expired on February 12, 2011. See: CRS
Report RL34383, Trade Adjustment Assistance (TAA) for Workers: Current Issues and Legislation, by John J.
Topoleski.
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308 are, that if passed by Congress, grants for FY2011 would be funded at the $50 million level,
with a nine-month pro rated portion ($37.5 million) made available for FY2012. Grants would
likely be awarded to TAACs on July 1 of that year.
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 traditional trade theory (comparative advantage) 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 similar, intra-industry trade based on efficiencies from
segmented and specialized production.2 Firm-level 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 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 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
2 For an accessible summary of these effects, see Paul Krugman, "The Increasing Returns Revolution in Trade and
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 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.
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.
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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).
The Firm Trade Adjustment Assistance Program6
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.7 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 nearly half century it has been in
existence, most recently in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5).
Key changes include extending eligibility to services firms, increasing funding, and introducing
greater flexibility to demonstrate eligibility for assistance.
TAA authorizations and appropriations for fiscal years 2000-2010 appear in Table 1. The TAA for
firms program has been reauthorized through December 31, 2010, at an annual level of $50
million. Historically, appropriated funds have fallen short of authorized spending levels, which
remains the case under the most recent authorization and appropriations acts.
Table 1. Firm TAA Authorizations and Appropriations, FY2000-2010
($ millions)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Authorizations 10.0 10.0 10.0 16.0 16.0 16.0 16.0 16.0 16.0 50.0 50.0
Appropriations 10.5 10.5 10.5 10.0 11.9 11.0 12.8 12.8 14.1 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 have been 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
implementation of the adjustment proposal. 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
6 Based on 13 C.F.R. § 315, which provides details for applying for TAAF assistance. Note that many of these rules
expired on February 12, 2011 and it remains to be seen if Congress will reinstate them.
7 The TAA for firms program was originally administered jointly by the Tariff Commission (predecessor to the USITC)
and the U.S. Department of Commerce.
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to the needs of each firm, which typically faces adjustments in many areas to compete with lower-
priced imports.8
Eligibility and Certification
The process for receiving TAA unfolds in three phases. First, a firm must submit a petition to
become certified as eligible. EDA is statutorily required to accept or reject the petition within 40
days of receiving all materials. The firm must demonstrate eligibility by documenting that (1) “a
significant number or proportion of workers”9 in the firm have become or are threatened to
become totally or partially separated; (2) sales, production, or both of a firm “decreased
absolutely;”10 and (3) increased imports of competing articles “contributed importantly”11 to the
decline in sales, production, and/or workforce. Declines in these variables must be demonstrated,
but may be done so in five different ways to establish “minimum certification thresholds” for
eligibility:
• Twelve-month decline—using all three criteria, compare the most recent 12-
month period for which data are available with the immediately preceding 12-
month period.
• 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.
8 P.L. 93-618, Section 253, as amended and U.S. Department of Commerce. Economic Development Administration.
http://www.taacenters.org.
9 5% of a firm’s work force or 50 workers, whichever is less, with EDA discretion to set other parameters in special
cases.
10 A firm’s sales or production or both (or of any article or service that accounted for not less than 25% of total sales or
production ) have declined by a minimum of 5% relative to statutory comparison guidelines below.
11 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 “trade-
impacted.” 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.
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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. EDA typically makes a determination within two to four weeks.
Third, the firm has five years to implement an approved adjustment proposal. The standard time
to completion tends to be within two years.12
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 for assistance provided in developing the petition, but 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.13 In practice, because technical assistance is provided in the
preparation of the petition, there is a high formal acceptance rate likely because petitions are
completed correctly and poor proposals or candidates can be weeded out early in the process.
The TAACs also provide detailed assistance in formulation of the adjustment proposal, which
seeks to identify business planning and practices that can be enhanced to improve firm
competitiveness in at least three major areas. First, since 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. 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. In 2009, 65% of petitioning firms proposed projects to
improve marketing-sales or production-engineering, and 35% proposed projects to enhance
support services or management systems.14
Table 2. summarizes trade adjustment data for fiscal years 2003-2009. The TAAF program targets
small- and medium-sized enterprises (SMEs), which is borne out in the firm data. In 2009, firms
tended to have fewer than 100 employees and less than $11 million in sales. The federal
government provided 48.5% of adjustment costs, for an average $60,123 per firm.
12 U.S. Department of Commerce. Economic Development Administration, "Trade Adjustment Assistance for Firms
Program Fiscal Year 2009 Annual Report," 75 Federal Register, January 15, 2010, p. 2495.
13 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
14 U.S. Department of Commerce. Economic Development Administration, "Trade Adjustment Assistance for Firms
Program Fiscal Year 2009 Annual Report," 75 Federal Register 2492, January 15, 2010, p. 2508.
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Table 2. Trade Adjustment Assistance, Select Program Indicators for FY2003-2009
2003 2004 2005 2006 2007 2008 2009
Number of Firms Assisted
162
177
132
137
126
139
172
Avg
Firm
Sales
(millions)
$7.2 $11.6 $8.4 $10.6 $11.2 $13.1 10.7
Avg
Firm
Employees
68 88 64 91 68 82 77
Govt
Share
(millions)
$8.1 $8.5 $5.9 $6.7 $7.1 $7.9 10.3
Firm
Share
(millions)
$7.4 $8.1 $5.4 $6.0 $5.9 $7.5 9.8
Total
TAA
(millions)
$15.5 $16.6 $11.3 $12.7 $13.0 $15.4 20.2
Avg TAA Per Firma
$50,000 $48,023 $44,697 $48,905 $56,449 $56,827 60,123
Data Source: U.S. Department of Commerce. Economic Development Administration.
a. Government share of TAA Firm program divided by the number of accepted adjustment proposals.
Program Evaluation
Historically, program evaluation has been limited, lacking a formal evaluation process. Congress
addressed this issue by requiring EDA to submit an annual report on the TAAF program by
December 15 of each year. Earlier efforts to analyze the TAAF program include comprehensive
studies by the Urban Institute in 1998 and the Government Accountability Office (GAO) in
2000.15 Both found deficiencies with the TAAF program, such as a cumbersome certification
process, long approval times, and little oversight and evaluation of projects. Many of these
criticisms have been corrected. The petition and adjustment proposal approval process has been
automated and streamlined. In fact, over the past two years, the time between submission of
petitions for certification and acceptance has fallen from an average of 28 to 11 days. The average
time between acceptance of the petition and certification has been 45 days, higher than the
statutory 40 days. EDA notes that a 49% increase in petitions caused processing time to increase
for 2009.16
EDA reports that TAACs are now allocated funds in part based on performance measures
(number of firm certifications and adjustment proposals generated) and quality measures
developed in part from a firm survey feedback mechanism. Created by Dunn & Bradstreet, it is
intended to provide some indication of “successful interventions” and “program best practices.”
This survey has helped reduce the time between submission of the petition and approval of final
adjustment proposal.17 Anecdotal evidence points to numerous “success” stories, but more
sophisticated analysis is needed to estimate the effectiveness of this program approach. It is
difficult to isolate the effects of the firm TAA program in determining why a particular firm might
15 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.
16 U.S. Department of Commerce. Economic Development Administration, "Trade Adjustment Assistance for Firms
Program Fiscal Year 2009 Annual Report," 75 Federal Register 2491-2495, January 15, 2010.
17 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.
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succeed in its turnaround effort. Previous studies mentioned above have suggested that many
firms might have been able to do so on their own. The fact that small- and medium-sized firms
are targeted, however, suggests that the program is attempting to reach that pool of firms most
vulnerable to increased globalization and with the fewest resources for undertaking adjustment.
Without a more in-depth analysis, however, the issue of TAAF effectiveness remains a somewhat
speculative, if not open question.
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, 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?18 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 adjust successfully 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 economic concerns, political considerations also define the TAA debate. 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 as a
complement to an open trade policy along with other domestic economic policy adjustments.19 To
the extent that 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 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.
18 Citing President Kennedy prior to congressional passage of the first TAA statute, “There is an obligation to render
assistance to those who suffer as a result of national trade policy.” Howard F. Rosen, Strengthening Trade Adjustment
Assistance, Peterson Institute for International Economics, Policy Brief PB08-2, Washington, D.C., January 2008, p. 1.
19 Ibid.
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Author Contact Information
J. F. Hornbeck
Specialist in International Trade and Finance
jhornbeck@crs.loc.gov, 7-7782
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