TRADE ADJUSTMENT 

ASSISTANCE 

Commerce Program Has 

Helped Manufacturing and 

Services Firms, but 

Measures, Data, and 

Funding Formula Could Be 

Enhanced 

Statement of J. Alfredo Gomez, 

Acting Director, International Affairs and Trade

Testimony 

Before the Subcommittee on Government 

Organization, Efficiency, and Financial 

Management, Committee on Oversight and 

Government Reform, House of Representatives 

For Release on Delivery 

Expected at 10:00 a.m. EST 

Wednesday, November 14, 2012

GAO-13-166T 

United States Government Accountability Office

GAO 
Page 2 GAO-13-166T Trade Adjustment Assistance 

Chairman Platts, Ranking Member Towns, and Members of the 

Subcommittee: 

I am pleased to be here today to discuss the Trade Adjustment 

Assistance (TAA) for Firms program, which is administered by the 

Department of Commerce’s (Commerce) Economic Development 

Administration (EDA). Over the past decade U.S. imports have almost 

doubled, reaching $2.7 trillion in 2011. During the same period, the United 

States entered into free trade agreements that liberalize trade with 14 

partner countries. Further trade liberalization is being pursued, including a 

Transpacific Partnership among 11 nations in the Asia-Pacific region. 

Although trade expansion can enhance the economic welfare of all trade 

partners, many firms and workers experience difficulties adjusting to 

import competition. Congress has responded to concerns about these 

difficulties with trade adjustment assistance programs.1

 Established in 

1962, the TAA for Firms program provides technical assistance to help 

trade-impacted, economically distressed firms make adjustments that 

may enable them to remain competitive in the global economy. In fiscal 

years 2009 through 2012, EDA received $15.8 million annually for the 

TAA for Firms program. EDA uses its appropriation for the TAA for Firms 

program to fund 11 TAA Centers (center), which provide assistance to 

U.S. manufacturing, production, and service firms in all 50 states, the 

District of Columbia, and the Commonwealth of Puerto Rico. 

Congress amended the TAA for Firms program under that part of the 

American Recovery and Reinvestment Act of 2009 known as the Trade 

and Globalization Adjustment Assistance Act (TGAAA) of 2009 and 

mandated that we review the operation and effectiveness of these 

amendments. My testimony is based on our September 2012 report that 

examined (1) the results of the legislative changes on program operations 

and participation, (2) the performance measures and data that EDA uses 

to evaluate the program and what these tell us about the program’s 

effectiveness, and (3) how program funding is allocated and spent. 

 

1

The three other TAA programs focus on workers, farmers, and communities. 
Page 3 GAO-13-166T Trade Adjustment Assistance 

My statement today summarizes our findings on each of the three issues 

discussed in our report.2

First, we found that the four changes mandated by the 2009 legislation 

contributed to improvements in program operations and increased 

participation: 

 Creation of director and other full-time positions: The creation of a 

director and other full-time positions for the program resulted in 

reduced firm certification processing times for petitions. 

 New annual reporting on performance measures: EDA has submitted 

three annual reports to Congress on these performance measures as 

a result of the legislation. 

 Inclusion of service sector firms: According to our analysis of EDA 

data, the inclusion of service sector firms allowed EDA to certify 26 

firms not previously eligible for assistance from fiscal years 2009 

through 2011.3

 

 Expansion of the “look-back” period from 12 months to 12, 24, or 36 

months: Our analysis of EDA data shows that 32 additional firms 

participated in the program from fiscal years 2009 through 2011 

based on the expansion of the look-back period from 12 months to 12, 

24, or 36 months. Prior to the legislative changes, firms were only 

allowed to compare sales and production data in the most recent 12 

months to data from the immediately preceding 12-month period. 

 

2

More detail is available in the report, GAO, Trade Adjustment Assistance: Commerce 

Program Has Helped Manufacturing and Services Firms, but Measures, Data, and 

Funding Formula Could Improve, GAO-12-930 (Washington, D.C.: Sept. 13, 2012). We 

conducted our work from July 2011 to September 2012 in accordance with generally 

accepted government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our audit objectives. We believe the evidence 

obtained provides a reasonable basis for our findings and conclusions based on our audit 

objectives. 

3

Examples of service sector firms assisted by some centers include architectural 

engineering firms, telecommunications firms, and software development firms. 
Page 4 GAO-13-166T Trade Adjustment Assistance 

Our review found that from fiscal years 2008 through 2010 EDA certified 

and approved an increased number of petitions and business recovery 

plans. According to staff at several TAA Centers, the economic downturn 

contributed to the increase in firms applying for and receiving assistance 

from the TAA for Firms program during this time period because more firms 

could demonstrate a decline in sales and employment. Additionally, EDA 

officials and TAA Centers staff stated that the 2009 legislative changes 

increased interest in and demand for the program by prospective firms. 

EDA certified fewer petitions and approved fewer recovery plans in fiscal 

year 2011 than in fiscal year 2010. EDA officials and TAA Centers staff 

attributed the decline to a lapse in the legislative changes from February 

to October 2011; uncertainty regarding the program’s future funding; and 

improvement in the economy, which prevented some firms from 

demonstrating decreases in employment, sales, and production. 

Second, we found that EDA’s performance measures and data collection 

for the TAA for Firms program provide limited information about the 

program’s outcomes, although our economic analysis found a statistically 

significant association between participation in the program and an 

increase in firm sales. EDA collects data to report on 16 measures to 

gauge the program’s performance, such as the number of firms that 

inquired about the program and the number of petitions filed, but most of 

these measures do not assess program outcomes. EDA is exploring 

better ways to assess the effect of their efforts on firms. 

We found that EDA does not systematically maintain data collected by the 

TAA Centers on the firms they assist, resulting in gaps in centralized data 

that EDA could use to evaluate the program and meet reporting 

requirements. We identified the following issues: 

 Gaps in centralized data. According to EDA officials, the agency 

maintains databases of information from petitions, such as firm 

location, or information about sales or production, but EDA does not 

maintain the necessary data to conduct a quantitative analysis of the 

program, such as whether a firm is a public or private firm or a 

multiplant firm. 

 EDA relies on multiple data requests from the TAA Centers. EDA 

frequently makes additional requests to the centers to obtain their 

program data when preparing required reports. 
Page 5 GAO-13-166T Trade Adjustment Assistance 

 Data requests require verification but can still result in inaccuracies. In 

addition, EDA relies on each of the centers to validate its data. 

However, when we compared EDA’s data with data provided by the 

centers, we identified errors in EDA’s data. 

 Lack of guidance results in dissimilar information across centers. EDA 

has also not developed guidance on the format and types of program 

data that centers collect, which has contributed to a lack of 

comparable data on program activities across the centers. 

Given the weaknesses we found in EDA’s performance measures and 

data collection, we undertook further analysis to determine the impact of 

the TAA for Firms program. Our analysis of data collected from the TAA 

Centers showed that the program was statistically associated with 

increased sales and productivity for manufacturing firms, although some 

factors were more strongly correlated with improved performance than 

was participation in the TAA for Firms program. 

We determined the following: 

 There is a small positive and statistically significant relationship 

between program participation and sales. Overall, we estimate that 

the effect of participation in the program was an increase in firm sales, 

ranging from 5 to 6 percent on average, if all other factors are held 

constant. The effect was greater for firms with 300 or fewer 

employees, which account for 95 percent of firms in our sample. 

Using productivity (firm sales divided by employment) as one outcome 

variable, we also found that the effect of the program on productivity 

was about a 4 percent increase. 

 As imports rose, sales declined for TAA for Firms clients. Our analysis 

shows that import penetration4

 was highly statistically significant and 

most likely had a very negative effect on firm sales. According to our 

estimates, for every 1 percentage point increase in the industry import 

penetration ratio, sales of firms included in our analysis decreased by 

about 16 percent on average. 

 

4

Import penetration is defined as the ratio of imports to apparent domestic consumption, 

which shows the share of the U.S. market for the particular product served by imports. 

Apparent domestic consumption is derived by subtracting net exports (exports minus 

imports) from U.S. industry sales or shipments. 
Page 6 GAO-13-166T Trade Adjustment Assistance 

 TAA for Firms participation combined with market growth increased 

firm performance. We found a statistically significant and positive 

effect of industry market growth on firm sales after firms participated 

in the program.5

 Specifically, for firms participating in the program, the 

percentage change in firm sales increased as market growth 

increased. For firms in relatively high growth industries, such as 

certain types of metal manufacturing, plastic pipe manufacturing, and 

flooring industries, the combination of participation in the program and 

industry growth affected sales more positively, with such firms 

experiencing a 6 to 10 percent increase in sales. 

 Our survey of TAA for Firms participants also showed that the 

program had a positive effect. We conducted a survey of 163 firms 

that had a recovery plan approved in fiscal year 2009 to obtain their 

views about their experience with the program; we received 

responses from 117 of the 163 firms, with a final response rate of 72 

percent. The survey included questions about the TAA Centers, the 

consultants who carried out the projects included in the business 

recovery plans, and the outcomes of the firm’s participation in the 

program.6

 More than 90 percent of responding firms reported that 

they were either very or generally satisfied with the services they 

received from their TAA Center and the consultants who performed 

work for them (see fig. 1). Over 80 percent reported that the program 

helped them to identify projects and business process improvements, 

and 62 percent said that the program helped them to identify 

management weaknesses. 

 

5

For market growth, we used yearly value of shipments data from the Census Annual 

Survey of Manufacturers from 1997 to 2010. For 2011, we estimated a projected value of 

shipments. We then estimated market growth rates for each industry (as determined by 

the six-digit North American Industry Classification System) associated with each firm by 

taking the natural log differences of the value of shipments divided by the change in year. 

Log growth rates are often used in economic modeling and empirical analyses. 

6

For complete survey results, please see Trade Adjustment Assistance: Results of GAO’s 

Survey of Participant Firms in the Trade Adjustment Assistance for Firms Program

(GAO-12-935SP), an e-supplement to GAO-12-930. 
Page 7 GAO-13-166T Trade Adjustment Assistance 

Figure 1: TAA for Firms Program Clients Expressed Satisfaction with Program and Results 

Notes: The difference between the cumulative percentage and 100 percent represents responses that 

were either “didn’t help,” “as satisfied as dissatisfied,” “generally dissatisfied,” “very dissatisfied,” 

“don’t know,” or “no response/not applicable.” 

a

Due to rounding, the cumulative percentage adds up to 34. 
Page 8 GAO-13-166T Trade Adjustment Assistance 

In narrative responses to our survey’s open-ended questions, 22 firm 

representatives said that the program helped their business to grow or 

improve. In addition, 30 respondents wrote positive comments about their 

TAA Center’s attentiveness to their needs and the ease of working with 

their center. For the complete results of our survey, please see GAO’s esupplement, GAO-12-935SP. 

Third, in terms of how funds are allocated and spent, we identified key 

weakness pertaining to EDA’s funding formula. 

EDA has allocated funding to the 11 TAA Centers using a funding 

allocation formula that comprises a set of weighted factors; however, the 

formula does not take into account the potential number of firms in need 

of the program and differences in costs across the centers. According to a 

key standard—beneficiary equity—a funding allocation formula should 

distribute funds according to the needs of respective populations and 

should take into account the costs of providing program services, so that 

each service area can provide the same level of services to firms in need. 

EDA’s funding formula divides two-thirds of allocated funding equally 

among the 11 centers according to base funding and two fixed factors—

geographic size and number of firms. The funding formula divides the 

remaining one-third of allocated funding among the centers according to 

three variable factors: 

 approved business recovery plans, 

 employees in approved recovery plans, and 

 firms achieving expected results.7 

However, EDA’s funding formula does not include a direct measure of the 

number of firms potentially in need of the program. To meet the 

beneficiary equity standard, the formula should use reliable and 

appropriate measures of need in each state or region.8

 Consequently, 

 

7

This is measured by the percentage of a center’s clients who reported satisfaction with 

the assistance received, and assistance being demonstrated by the center’s payment to a 

third-party consultant helping the firm implement a project. 

8

See GAO, Vocational Rehabilitation Funding Formula: Options for Improving State 

Grants and Considerations for Performance Incentives, GAO-09-798 (Sept. 30, 2009). 
Page 9 GAO-13-166T Trade Adjustment Assistance 

centers that may have a greater number of distressed firms due to import 

competition potentially receive similar funding as those centers serving a 

much smaller number of trade-impacted firms. 

EDA’s allocation of funding also does not take into account variations in 

TAA Centers’ costs of providing firms assistance, even though to meet 

the beneficiary equity standard, a formula should account for differences 

in the cost of providing services in each region so that each firm may 

receive the same level of assistance. However, we found that centers’ 

direct and indirect costs to operate the centers varied considerably from 

one center to another during the cooperative agreement years 2008 to 

2010. Because EDA’s funding formula does not take into account 

variations in centers’ costs of providing firms assistance, EDA cannot 

ensure trade-impacted firms in different service areas receive the same 

opportunities for assistance through the centers. The available evidence 

we analyzed suggests there is wide variation in the number of firms 

centers are able to assist and the amount of funding they may provide to 

implement approved business recovery plans, raising questions about 

whether limited program funding is being used as effectively as possible. 

In conclusion, although funding for Commerce’s TAA for Firms program, 

at less than $16 million, is small relative to the $1.3 trillion rise in imports 

over the past decade, our economic analysis and survey results show 

that the program has delivered positive results for participating 

manufacturing and services firms. We found that these firms receive 

individual attention from TAA Center professionals located in their 

regions, practical help in developing business recovery plans, and federal 

matching funds to pursue projects designed to address competitive 

weaknesses and capitalize on strengths. 

The changes to the TAA for Firms program that Congress enacted in the 

TGAAA in 2009 gave EDA and TAA Center officials more flexibility in 

certifying firms, strengthened professional management of the program, 

and improved transparency regarding the program’s performance. 

However, enhanced accountability can be accomplished only through 

better measures of how the program is helping firms adjust to import 

competition. Better and more readily retrievable data would give EDA and 

Congress a more comprehensive and complete picture of program 

activities and enable more meaningful and ongoing analysis of impact. 

EDA can do more to ensure that its allocations reflect firms’ and regions’ 

varied needs for assistance and TAA Centers’ varied costs in providing 

this assistance. EDA can also encourage more efficient program 

administration by making the cost of services a criterion in its funding 
Page 10 GAO-13-166T Trade Adjustment Assistance 

formula and by incentivizing TAA Centers’ cost-containment efforts, so 

that more funds are available to serve firms. 

In our report, we recommended that Commerce establish more effective 

measures of program outcomes, improve its data collection, and allocate 

funds in a way that considers program needs and costs. Commerce 

concurred with our findings and recommendations. EDA has recognized 

many of the weaknesses we identified and has already made initial efforts 

to address them. 

Chairman Platts, Ranking Member Towns, and Members of the 

Committee, this completes my prepared statement. I would be pleased to 

respond to any questions you may have. 

For further information on this statement, please contact J. Alfredo 

Gomez, at (202) 512-4101 or gomezj@gao.gov. In addition, contact 

points for our Offices of Congressional Relations and Public Affairs may 

be found on the last page of this statement. 

Individuals who made key contributions to this testimony include Kim 

Frankena, Assistant Director; Christina Bruff; David Dayton; Leah DeWolf; 

Barbara El Osta; Bradley Hunt; and Erin Preston. 

Contacts and Staff 

Acknowledgments 

 (320943) 
Page 11 GAO-13-166T Trade Adjustment Assistance 

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