Trade adjustment assistance (TAA) and its role in U.S. trade policy.(Report)

 Contents  Introduction TAA Programs and Rationale Antecedents to TAA   The Randall Commission   Early TAA Legislation Trade Expansion Act of 1962 The Failure of TAA: 1963-1974 Trade Act of 1974 The Trade Agreements Act of 1979 and the 1980s NAFTA and the Trade Act of 2002: TAA Expansion Economic Stimulus and TAA Outlook   TAA in 112th Congress Policy Issues Contacts Author Contact Information 

July 19, 2011

Summary

Congress created Trade Adjustment Assistance (TAA) in the Trade Expansion Act of 1962 to help workers and firms adjust to economic dislocation that may be caused by trade liberalization. Although most economist agree that there are substantial national gains from trade, backers of TAA argue that the government has an obligation to help those hurt by policy-driven trade opening. In addition, as an alternative to policies that might otherwise restrict imports, it can provide assistance, while supporting freer trade and diminishing prospects for potentially costly tension (retaliation) among trade partners. Often controversial, it is still strongly debated some 50 years later, on equity, efficiency, and budgetary grounds, but may still serve a pragmatic legislative function. For those Members concerned with the negative effects of trade, it can provide a countervailing response to help maintain what is often slim majority support of highly contested trade legislation. For these reasons, it has been central to U.S. trade policy for the past half century.

Over time, the fortunes of TAA have ebbed and flowed. When TAA remained a cornerstone of major trade legislation as it was in 1962, 1974, and 2002, it received long reauthorizations and increased programmatic and funding support from Congress. TAA was also expanded during times of economic downturn, as for example, in the American Recovery and Reinvestment Act (ARRA) of 2009, which added eligibility for services workers and firms. When distanced from its main policy rationale, as seen during the budget-cutting 1980s, it fared much worse, struggling at times to achieve short-term extensions with diminished resources from Congress.

TAA became part of the current trade debate when the 112th Congress and the Obama Administration began to consider the three pending free trade agreements (FTAs) with South Korea, Panama, and Colombia along with TAA extension. Two issues dominate the immediate discussion. First, Members disagree on the need to continue funding TAA programs. Second, they dispute whether to include TAA as part of an implementing bill for the proposed U.S.-South Korea (KORUS) FTA. Opponents of TAA consider it a costly and ineffective response to dislocation from imports, and so would like to see it debated and voted on as a separate bill. Supporters of TAA and especially the extended ARRA benefits (now lapsed) see the implementing bill as perhaps the best, if not only opportunity, to reauthorize TAA in the near future, given resistance in a Congress intently focused on deficit reduction. Those supporting TAA and not the KORUS FTA might also prefer to see separate votes on the two issues.

Because there is disagreement over TAA, even to the point of perhaps imperiling congressional action of FTA implementing bills, the situation again points to the centrality of TAA in the long-term national trade policy debate. Key policy questions include determining if: (1) the United States still has an ongoing obligation to help stakeholders hurt by imports; (2) TAA can be an effective approach to meeting this goal; (3) a TAA budget compromise can be found; (4) TAA can still help form a consensus on trade policy, and if so; (5) how the budgetary costs of TAA programs compare to the potential opportunity costs of possibly adopting more protectionist policies in the absence of TAA.

For details on the TAA programs for workers, firms, communities, and farmers, see other CRS reports.

Introduction

A "national trade policy" promoting trade liberalization emerged after a period of protectionism with passage of the Reciprocal Trade Agreements Act (RTAA) of 1934. It continues to be the dominant, but hardly uncontested, trade position of the United States. The substantial and widely-recognized national gains to trade have long been recognized, yet trade liberalizing legislation often faces strong political opposition because related costs, although much smaller, affect a vocal and concentrated constituency. Congress first addressed this inherent tension with legislation that allowed for the re-imposition of tariffs and other trade barriers when domestic industries were threatened or hurt by imports. In 1962, however, Congress adopted an additional approach by providing trade adjustment assistance (TAA) directly to trade-affected firms and workers. It remains a controversial pillar of U.S. trade policy today.

In the 112th Congress, TAA is again being considered for reauthorization. As in the past, Congress is debating the cost and utility of TAA programs, but the debate has become more complicated by the possible inclusion of TAA in an implementing bill for the U.S.-South Korea Free Trade Agreement (KORUS FTA). Because Congress has established a very specific framework for consideration of trade agreement implementing bills, this is an unusual legislative option. It also combines two controversial trade policies in a single vote. Members of Congress disagree over both program and legislative procedure issues.

This report discusses the role of TAA in U.S. trade policy, from its inception as a legislative option in the early 1950s, to its core role as an alternative to import relief that many argue has served to promote the long-term U.S. trade liberalization agenda. It will also consider the extent to which TAA has been linked to both renewal of trade agreements authority, (1) and passage of trade agreement implementing legislation. TAA has become an integral part of an increasingly complex U.S. trade policy. Understanding the origins of TAA, the historical congressional debate, and legislative options taken by Congress over the past 50 years may help inform the debate over TAA in the 112th Congress.

TAA Programs and Rationale

TAA began with two programs covering workers (retraining, relocation allowances, extended unemployment benefits) and firms (loans, loan guarantees, special tax deductions). Congress added a communities program (loans and grants) in 1974, which was subsequently terminated in 1982, and a farmers program (technical assistance and cash benefits) in 2000. Congress authorized another communities program in 2009. All TAA programs are usually reauthorized at one time. This report does not address details of the four programs, which are available in other CRS reports. Rather, it takes a holistic policy approach to the issue of assistance for adjusting to import penetration, with occasional reference to the large workers and much smaller firms programs that have formed the core of TAA since its inception in 1962.

Nearly eight decades after passage of the RTAA, the pending FTAs and President Obama's National Export Initiative stand as current reminders of the importance that the United States places on trade expansion, particularly of exports. The pursuit of export growth, however, generally cannot be done without conceding to a reciprocal increase in imports, and the tradeoff does not affect stakeholders equally. While freer trade can benefit exporters, consumers, and the economy as a whole, it can place hardship on some import-competing industries facing increased competition. (2) This is the cost of economic adjustment, and supporters of TAA argue that workers (especially the permanently displaced) and firms hurt by imports have more severe adjustment problems than others affected by different types of economic dislocation. From this reasoning, it is argued that they deserve their own category of assistance. So, while there are no categorical federal programs to address casualties of many types of specific economic change resulting from technological innovation, evolved consumer tastes, or regional relocation of businesses, there has long been a case made for supporting trade adjustment policies. (3)

The issues raised by this policy were identified early on in the postwar economic policy debate. Justification rested on arguments for: (1) economic efficiency, by speeding the adjustment process and returning idle resources to work more quickly; (2) equity, by compensating for lost income while spreading the cost of freer trade to …