LegiStorm

Summary:

As Congress considers possible legislation to implement the proposed Trans-Pacific Partnership agreement (TPP), the potential impact of TPP on U.S. workers and firms is part of the debate. The Trade Adjustment Assistance (TAA) programs were first authorized by Congress in the Trade Expansion Act of 1962 to help workers and firms adapt to import competition and dislocation caused by trade liberalization. While trade liberalization may increase the overall economic welfare of all the affected trade partners, it can also cause adjustment problems for firms and workers facing import competition, and adjustment assistance has long been justified on the grounds that it is the least disruptive option for offsetting policy-driven trade liberalization. The TAA programs for workers, firms, and farmers represent an alternative to policies that would restrict imports, providing assistance while bolstering freer trade and diminishing prospects for potentially costly tension (retaliation) among trade partners. This report discusses the Trade Adjustment Assistance for Firms (TAAF) program, which is administered by the U.S. Department of Commerce Economic Development Administration (EDA), and related policy issues. Most recently, reauthorization of TAA was linked to renewal of Trade Promotion Authority (TPA). Both TPA (P.L. 114-26 ) and TAA (P.L. 114-27) were signed into law in June 2015. The renewed TAA not only extended TAAF but reinstated certain expanded provisions and authorized annual funding. TAAF provides technical assistance to help trade-impacted firms make strategic adjustments to improve their global competitiveness. Under TAAF, a firm first submits a petition to demonstrate its eligibility, then works with TAAF professionals to develop and submit, and finally implement, a business recovery plan. As required by the Trade and Globalization Adjustment Assistance Act of 2009 (TGAAA) (Title II of P.L. 111-5), EDA publishes annual reports on the performance of the TAAF program. The reports have generally shown that two years after completion of the program, on average, participating firms have increased sales, employment, and productivity. The high success rate for firms that “completed” the TAAF program represents only about half of all firms certified as eligible for assistance. The rest left the program without completing an adjustment plan and were no longer monitored. The Government Accountability Office (GAO) completed a comprehensive evaluation of the TAAF program in 2012 and found marked improvement in EDA’s administration and evaluation efforts and also confirmed EDA’s assessment that trade-impacted firms benefitted from the specialized attention provided by TAAF assistance. GAO also found a “small and statistically significant relationship between program participation and sales,” which was particularly relevant to smaller firms, albeit also highly correlated with firms operating in high-growth industries. Employment effects were not found to be statistically significant. Since the 1990s, debates over trade liberalization have increasingly focused on the changing nature of trade in an era of globalization—especially the emergence of global value chains (GVCs) and the evolving digital economy. GVCs are organized and coordinated by multinational companies (MNCs) and now account for about 70% of global trade in goods and services and capital goods. GVCs offer the potential for small- and medium-size firms to become more integrated into international trade and produce higher-value-added products. One question is whether EDA, through the TAAF program, can help trade-impacted firms in developing stronger relationships with MNCs and GVCs. Another is how EDA can help small and medium enterprises take advantage of the digital economy to reach new markets, including those opened up by trade agreements. Congress may consider these questions as well as further reforms or amendments to TAAF as part of ongoing discussions on potential trade agreements.