Trade Adjustment Assistance: New Ideas for

an Old Program

June 1987

NTIS order #PB87-203741
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Trade Adjustment Assistance: New

Ideas for an Old Program-Special Report, OTA-ITE-346 (Washington, DC: U.S. Government Printing Office, June 1987),

Library of Congress Catalog Card Number 87-619836

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402-9325

(order form on p. 69)
Foreword

In 1986 OTA was asked by the Senate Committee on Banking, Housing, and Urban

Affairs; the Senate Committee on Finance; and the House Committee on Banking, Finance,

and Urban Affairs to carry out an assessment of technology, innovation, and U.S. trade,

As part of that assessment, and in preparation for congressional consideration of new comprehensive trade legislation, Senator John Heinz asked OTA to prepare a special report

evaluating the problems and opportunities of the Trade Adjustment Assistance program

(TAA).

TAA includes two programs: employment and training assistance for workers who have

lost jobs on account of trade and technical assistance for firms and industries hurt by imports. Both parts of TAA have the potential to help workers and businesses adjust to intensifying global competition. This report discusses options for TAA redesign and administration that could make both programs more effective.

OTA’s analysis of TAA for workers builds on a broader assessment, Technology and

Structural Unemployment: Reemploying Displaced Adults, published in February 1986,

which examined the reemployment and retraining needs of displaced workers generally

(not just those affected by trade) and the adequacy of government programs to meet those

needs. Taking as a starting point the lessons learned in the earlier study, this special report

analyzes the strengths and weaknesses of TAA in helping trade-affected workers find or

train for new jobs. TAA’s greatest strength is its capacity to support long-term training,

Its major weaknesses are delays in delivery of services and lack of attention to workers’

individual needs. This report focuses especially on coordinating TAA benefits with the

services available to all displaced workers under Title III of the Job Training Partnership

Act, in ways that take advantage of the strong points of both programs and best serve the

individual worker. TAA for workers has recently expanded and is now a substantial

program—almost equal in funding (about $200 million in 1987) and enrollment (more than

100,000 workers) to the JTPA Title III program,

TAA for firms and industries, modestly funded at about $16 million per year, is nevertheless the main source of long-term, intensive technical assistance from the Federal Government to small and medium-sized manufacturers. The Administration has long proposed

to abolish the program, arguing that it is inappropriate and ineffective, and in recent months

has largely immobilized it by delaying grants to service providers. Despite its difficulties,

the program does have potential for helping high-risk, trade-injured firms recover competitiveness. The potential cannot be fulfilled, however, unless the grants that pay for technical

assistance are released in a timely, reliable manner.

In conducting this study, OTA interviewed TAA and JTPA Title III program managers

in 39 States and directors of 11 Trade Adjustment Assistance Centers, which receive TAA

grants to deliver technical assistance to firms. The viewpoints of many others with an interest in the TAA program were sought as well. OTA thanks the many people who provided data and advice—panel members; State and local government officials; representatives of the Departments of Commerce and Labor; and experts in academia, business, and

labor unions–for their assistance. As with all OTA studies, the analyses and findings of

this report are solely those of OTA.

Director

.,. ///
Technology, Innovation, and U.S. Trade

Advisory Panel

Lewis Branscomb, Chairman

Harvard University

Michael Aho

Council on Foreign Relations

John Culbertson

University of Wisconsin

Bruce Cumings

University of Washington

Joseph Grunwald

University of California, San Diego

Jeffrey Hart

Indiana University

George N. Hatsopoulos

Thermo Electron Corp.

Thomas Hout

Boston Consulting Group

Franklin P. Johnson, Jr.

Asset Management Co.

Lester Krogh

Minnesota Mining & Manufacturing Co.

Paul Krugman

Massachusetts Institute of Technology

Al Lehnerd

Sunbeam Corp.

Ann Markusen

Northwestern University

Ray Marshall

University of Texas

Regis McKenna

Regis McKenna, Inc.

Richard Morse

Wellesley, Massachusetts

David Mowery

National Academy of Sciences

Robert N. Noyce

INTEL Corp.

Kenneth Oshman

Menlo Park, California

Paula Stern

Carnegie Endowment for International

Peace

Brian Turner

AFL-CIO

Gus Tyler

International Ladies Garment Workers

Union

Lewis C. Veraldi

Ford Motor Co.

Ezra Vogel

Harvard University
OTA Project Staff–Trade Adjustment Assistance

Lionel S. Johns, Assistant Director, O T A

Energy, Materials, and International Security Program

Audrey Buyrn

Industry, Technology, and Employment Program Manager

Katherine Gillman, Project Director

Mary R. Clifford, Analyst Julie Fox Gorte, Senior Analyst

Edna M. Thompson, Administrative Assistant

Diane White, Secretary

Acknowledgments

This special report was prepared by the staff of the Industry, Technology, and Employment

Program of the Office of Technology Assessment. The staff wishes to acknowledge the contribution of the Advisory Panel, and to thank the following individuals, organizations, and government agencies for their generous assistance:

Paul Barton, National Assessment of

Educational Progress

Steven Baldwin, National Commission for

Employment Policy

Louis Jacobson, The W.E. Upjohn Institute

for Employment Research

Robert E. Litan, The Brookings Institution

New England Trade Adjustment Assistance

Center

Southeastern Trade Adjustment Assistance

Center

State of Massachusetts, Industrial Services

Program

U.S. Department of Commerce, Office of

Trade Adjustment Assistance

U.S. Department of Labor, Office of Trade

Adjustment Assistance

U.S. General Accounting Office

In addition, OTA wishes to thank the State administrators of Trade Adjustment Assistance

programs, State managers of displaced worker programs (under Title 111 of the Job Training

Partnership Act) and directors of the Trade Adjustment Assistance Centers who generously took

the time to respond to OTA’s telephone and letter surveys on Trade Adjustment Assistance.
CONTENTS

Summary and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Adjustment Assistance for Workers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Adjustment Assistance for Firms and Industries. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Policy Issues and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TAA for Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Continued Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Coordination of TAA and Title III Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reducing Delays and Inequities in TAA Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outreach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Industrywide Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . .

Other Problems of Equity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Emphasizing Adjustment Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TAA for Firms and Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Continued Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Industrywide Certification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Adjustment Assistance: History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TAA for Workers: 1962-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Creation and Early Years: 1962-74 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years of Expansion: 1975-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cutback and Regrowth: 1981-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TAA for Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Early Years: 1962-74 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years of Expansion: 1975-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bare Survival: 1981-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Adjustment Assistance for Workers: Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Equity Argument for TAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Extra Benefits Under TAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vocational Skills Training . . . . . . . . . . ..., , ..., ., ., , ..., . . . . . . . . . . . . . . . . . . . . . . . ,

Out-of-Area Job Search and Relocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Extended Income Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Difficulties With TAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Eligibility: Drawing the Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Job Search Program Requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Department of Labor’s Role. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Coordination Between TAA and Title III Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Adjustment Assistance for Firms and Industries: Issues. . . . . . . . . . . . . . . . . . . . . . . .

How TAA for Firms Operates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Should TAA for Firms Continue? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Inspector General Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The HCR Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Defining Success. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . .

Improving TAA for Firms: Problems and Opportunities .., . . . . . . . . . . . . . . . . . . . . . . . . .

Interruptions to the Program ., . . . . . , ., ., . . . . . . . . , . . . , , ..., , ..., . . . . . . . . . . . . . .

Time Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outreach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

1

5

7

7

9

10

11

11

13

14

16

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18

20

20

21

22

26

30

31

31

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36

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41

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52

52

58

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vii
CONTENTS–Continued

Page

Affiliations With Other Institutions ., . . . , . . . . . . . . . . . . . . . . . . . . ., . . . ... , ... , , . . . . 65

Broader Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

The TAA Industrywide Program ..., .. ..,.., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,.., 66

Boxes

Box Page

A .Are GM Auto Workers Trade-Affected? Under TAA Rules, Maybe Not . . . . . . . . . . . . . . 38

B. Coordinating TAA and Title III Programs: How Massachusetts Does It . . . . . . . . . . . . . 50

C. New Life for a Ninety-Year-Old: TAA Helps New England Clock Firm Survive. . . . . . . 55

D. Made in the USA: Trade Adjustment Assistance for Apparel Manufacturers . . . . . . . . . 56

Figures

Figure No. Page

1, Workers Certified for TAA Benefits, 1969-87 , . . . . . . . . ., ., ..., . . . . . . . . . . . ..., . . . , . 23

2.0utlays for TAA Benefits for Workers, 1970-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..., . 24

3. Workers Certified for Trade Adjustment Assistance, by Selected Industries, 1975-86 . . . 29

Tables

Table No. Page

l. Workers Certified for TAA, Trade Readjustment Assistance,

and Adjustment Services, 1975-87. . . . . . . . . . . . . . . . . . . . . . . , . . . , . . . , . . . . . . , . . . . . . . . 25

2. Workers Certified for Trade Adjustment Assistance, by Selected Industries,

Fiscal Years 1970-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3. Workers Certified for TAA as a Percentage of Workers Applying . . . . . . . . . . . . . . . . . . . 28

4. Trade Adjustment to Firms and Industries,

Fiscal Years 1978-86—Technical Assistance . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . 33

5. Firms and Industries Receiving TAA Technical and Financial Assistance,

Before Fiscal Year 1982 and Fiscal Years 1982-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

,

viii
SUMMARY AND CONCLUSIONS

In debating the great issues of international

trade, and searching for new ideas to improve

U.S. competitiveness, Congress has the opportunity to examine and improve an old idea,

Trade Adjustment Assistance (TAA). Adjustment assistance for workers losing jobs and

firms losing business because of imports has

existed, in various forms, for 25 years. In today’s world of intense global competition, TAA

has good potential for helping American workers and businesses adapt. Neither the program

for workers nor the one for firms is currently

fulfilling its potential, but both have strong

points to build on.

TAA for workers offers special training and

relocation assistance and extended income support during unemployment to people losing jobs

on account of imports. After several lean years,

the program has regrown to substantial proportions, expected to cost over $200 million in 1987

and enroll well over 100,000 workers. Historically, the income support part of the program

dwarfed training, but in recent years training

has taken on greater importance. The strongest point in the TAA program for workers is better opportunities for training than in other government-sponsored employment and training

programs.

TAA for firms offers technical assistance to

firms and industries that are losing out to foreign competition. The TAA firm program is

small and its existence precarious. In line with

Administration policy to abolish it, only $2.2

million of the $15.8 million funding provided

for it by Congress had been released by May

1987. Modest as it is, TAA for firms is the major Federal program providing sustained, indepth technical assistance to small and mediumsized manufacturers.

The Administration also proposes to end the

TAA program for workers, arguing that they

can be served in a new broader program open

to all displaced workers.1 (Spending for the

IThe Administration proposal for a new worker readjustment

program is described in the section entitled Polic.v ]ssues and

Options.

present TAA program for workers has not been

held up, however.) The rationale for a program

open only to trade-affected workers and businesses is that people who bear the heaviest costs

of the Nation’s free trade policy, meant to benefit all Americans, deserve special assistance.

The main argument against a special program

is that, as the U.S. economy is increasingly involved in world trade, distinctions among those

who are trade-affected and those who are not

have become difficult and arbitrary.

If Congress decides to maintain TAA for

workers as a separate program, it may want to

consider several ideas for bolstering TAA’s

advantages—mainly, training opportunities—

and repairing its weaknesses, such as delays

and inequities in determining workers’ eligibility. If TAA for firms is to be preserved, it

will need strong, explicit congressional direction for timely spending of appropriated funds.

Trade Adjustment Assistance for Workers

After several years when TAA benefits were

provided to relatively few workers and spending was limited, TAA is now expanding rapidly. In 1987, TAA approached the size of the

general displaced worker program, under Title III of the Job Training Partnership Act

(JTPA), which is open to anyone who loses a

job when U.S. industries close plants, retrench,

automate, relocate, or send work overseas.

Funds for Title III for the program year beginning July 1987 will be $223 million,2 about equal

to the projected TAA spending of $203 million

for fiscal year 1987 ($223 million if a supplemental appropriation of $20 million is passed).

About 145,000 workers per year were newly

enrolled in Title III projects in the mid-1980s;

this compares to 93,000 certified for TAA benefits in fiscal year 1986, and 110,000 to 140,000

2For the program year 1986-87, Title I I I funds were $100 million; Congress had cut the funding from $223 million because,

on a national basis, there was a large amount of unspent Title

111 funds. Congress restored funding to $223 million for the program year 1987-88.
2

expected to be certified in 1987, s Thus, T AA

is a major resource for displaced workers who

are trade-affected. One director of displaced

worker services (Massachusetts) told OTA:

“TAA is the only way we’ve been able to make

the money go far enough. ”

To be eligible for TAA benefits, workers must

be laid off, or threatened with layoff, from a

firm that is losing ground to import competition. First, a group of three or more workers,

or their union or representative, or the company, must petition the U.S. Department of Labor to certify them as eligible. To approve the

petition, the Department must find that: 1) a

significant number of workers in the firm or

subdivision have lost their jobs, or are threatened with job loss; 2) the firm’s sales or production, or both, have declined absolutely; and

3) imports of articles “like or directly competitive with” articles the firm produces “contributed importantly” to the decline; that is, the increased imports were as important as any other

factor in the decline. On this last point, the Labor Department requires proof that the firm’s

customers have switched to imports, and the

switch must be recent, since records are examined for the past 2 years only. Once certified,

the workers are eligible for income support, at

the level of unemployment insurance (UI) payments, for as long as 1 year of unemployment;

training and extended income support during

training; and allowances to cover (within limits)

the costs of out-of-area job search and relocation.

According to State officials responsible for

the programs,4 TAA’s greatest advantage has

been its ability to support long-term, intensive

training and its extended income support for

workers in training—up to 78 weeks, at the level

of unemployment insurance (about $150 a week,

on average). TAA legislation has always stated

training in a new skill as a major aim of the

program. Though training was little used in the

1970s, it has recently become a stronger component of the program; training and relocation

assistance has accounted for about 25 percent

of TAA spending since 1982.5 The number of

workers getting TAA training is not large; it

has been about 7,000 to 8,000 a year in recent

years. However, State officials report that demands for TAA training are rising.

In 1987, in fact, TAA training funds were running out. Before the end of the first quarter of

the fiscal year, the Labor Department was delaying, rejecting, or sharply cutting back

proposals for training submitted by the States.

Even so, $18 million of the year’s $26 million

appropriation for training, out-of-area job

search, and relocation assistance was gone by

March, and half the rest was reserved for job

search and relocation assistance, which are

considered entitlements under the law. 6 I n

April, the House passed a supplemental appropriation of $20 million; by early May the

Senate Appropriations Committee reported out

a bill, but the full Senate had not yet acted.

Despite the current shortage of funds, TAA

does have the mandate and the potential to support long-term training. The JTPA Title III program, open to all displaced workers, has a great

deal of flexibility, but in practice, training tends

to be be deemphasized. Most of the JTPA programs give higher priority to low-cost job search

assistance that leads to early reemployment.

Title 111 training is usually short (9 weeks,

on average, according to the General Accounting Office), and income support is nearly always confined to the 26 weeks of regular UI

payments.

Several bills before Congress would require

that workers receiving TAA income support

payments (Trade Readjustment Allowances, or

TRAs) take remedial education or vocational

3OTA based this estimate for 1987 on the numbers of workers

certified in the first two quarters of the fiscal year. Certifications were exceptionally high in the first quarter, because the

Labor Department simplified its decision process, and went

through a backlog of petitions,

4

For this special report, OTA interviewed directors of Trade

Adjustment Assistance worker programs and JTPA Title 111 programs in 39 States.

5For most years, Labor Department records do not show spending for training, out-of-area job search, and relocation assistance

separately; in fiscal year 1984, when spending was reported

separately, training accounted for 87 percent of the total for the

three benefits.

8The total appropriation for training, out-of-area job search,

and relocation assistance was $29,9 million, of which $3,9 million was for administrative costs.
3

skills training courses, unless State officials

waive the requirement as inappropriate or infeasible. If Congress wishes to to take such steps

to emphasize training under TAA more strongly,

higher funding will be necessary. The Labor

Department has projected that 55,000 workers

will draw TRAs in 1987, an estimate that is

probably low, considering the rising number

of workers being certified. T If 55,000 TAAeligible workers were in training, the cost for

the year would probably be about $138 million

to $165 million; this compares to an appropriation of $29.5 million for training, out-of-area

job search, and relocation allowances in fiscal

year 1987.

The great disadvantage of TAA, according to

State officials, is that workers have to wait to

get adjustment services. Often, workers do not

know about the TAA program and do not submit petitions for eligibility promptly. Then it

usually takes at least 60 days to get a decision

from the Labor Department. Until quite recently, the delays were often much longer. In

October 1986 the Department simplified the certification process and delegated part of the factfinding to its regional offices, In May 1987 the

Department reported that 85 percent of petitions were being approved or denied within the

60 days the law allows for a decision. Because

approvals are case-by-case, however, some delay is built into the TAA process. Experience

with displaced worker adjustment programs

shows that early action is critical in helping the

workers find or train for new jobs, Under Title

III of JTPA, an immediate response to plant

closings or mass layoffs and early provision of

services are possible, although most States are

not yet organized to offer an effective rapid response.

State officials also report that workers are

much more likely to get individual skills assessments and job counseling from Title III projects

than from the Employment Service, which administers TAA training and relocation assistance, Workers benefit most from training—

both remedial education and occupational skills

7According to Labor Department spokesmen, this estimate may

be revised upward.

training—that follows individual assessment

and counseling.

Thus, it takes a combination of features from

TAA and from JTPA Title III to provide the best

service to trade-affected displaced workers.

Most States have at least some pro forma integration of TAA and Title III services, but only

about a dozen do an effective job of putting the

best features of the two programs together. In

the few States that do an outstanding job (Massachusetts, for example), everyone from the

State director of displaced worker services

down to staff at individual projects is aware

of the helpful features of both programs. They

are aggressive in urging unions, companies, or

groups of three workers to submit TAA petitions promptly. “We go to the plant the minute

we hear about a closing or layoff, ” said a Massachusetts official, “and we carry TAA petitions in our pockets. ” They use Title III for

counseling, assessment, and job search skills

training, and for starting workers in vocational

skills training. They switch to TAA, if it comes

through, for longer term training.

Some of the States that do little to coordinate

TAA and Title III services have few displaced

workers. Some, however, do have large numbers of certified workers, but neither Title III

nor TAA officials are aware of the potential of

the other program. For example, in Santa Clara

County, California, where tens of thousands of

workers in semiconductors and computers

have lost jobs since January 1985, Title 111

project managers knew little or nothing about

TAA, The same was true of officials at the State

level.

In general, States have not received adequate

Federal information and guidance on TAA. For

example, regulations under the 1981 amendments to the program were not published until

the end of 1986.8 The Labor Department has not

given the States much technical assistance on

how to combine services from the two programs,

The Labor Department’s Region V (Chicago) is

‘Regulations under the TAA legislation passed in 1986 were

not yet published as this report was written (May 1987), but the

Department of Labor stated that proposed regulations would be

published no later than June.
4

an exception. This regional office holds quarterly roundtables for Title III and TAA officials

of the Midwestern States it serves, for exchange

of information and experience. Several of these

State officials volunteered that the help they

get from the regional office in coordinating

TAA with Title 111 is essential. “If not for that,

we’d be much further behind, ” said a Wisconsin official,

Other problems besides coordination also interfere with the best use of TAA training benefits. Many trade-affected workers could benefit from remedial education, but few States use

TAA funds to provide it. In its TAA regulations,

the Labor Department classifies remedial education as a supportive service, so that payment

has to come from administrative funds, not

training funds; no State reported using administrative money for this purpose. The Department does allow the use of TAA training funds

for remedial education if it is an integral part

of a vocational skills training course, and a few

States (such as Massachusetts) use the funds

in this way. If Congress wants remedial education to be offered as training in the TAA program, it could direct the Department of Labor

to approve the use of TAA training funds for

this purpose.

Another problem is that under the law, as interpreted by the Department of Labor, TAA

funds must pay for all of a worker’s TAA training; contributions from State or local programs

or from private sources (such as the company

laying the workers off) cannot be accepted.

Funds from other Federal programs can be used

to start a worker’s training, but once TAA

money begins to be used, funding from other

Federal programs must cease. If Congress

deems it desirable to encourage the combining

of resources to pay for training for tradeaffected workers, it could add language to the

law that explicitly allows it.

Finally, not all displaced workers want or can

benefit from vocational skills training. Another

possible way to help trade-affected workers adjust might be to use a portion of a worker’s

Trade Readjustment Allowance as a wage supplement, for a limited time. On average, displaced workers take a cut in earnings when they

find a new job. A limited wage supplement

might help some workers get reemployed sooner

than they otherwise would, and possibly get a

head start on regaining some of their earning

power. There has been very little experience

with a public program of this sort; how much

it might cost, and whether it might have adverse effects that are not anticipated, are uncertain. If Congress is interested in the idea of

a wage supplement, it might wish to authorize

a demonstration project,

While TAA training support can be invaluable to workers who want training in a new skill,

it is difficult to administer because the delays

and unpredictability of TAA certification seriously interfere with planning. In setting up

training for groups of workers, the State agencies may have to gamble on getting TAA certification. If all workers from certain designated

industries were made automatically eligible for

TAA benefits, TAA training funds could be

available immediately.

Industrywide certification might make eligibility more equitable, as well as faster and more

predictable, A finding of a decline in sales or

production would not be necessary for individual firms, Also, in identifying trade-affected industries, import trends over the past decade or

so, rather than the past 2 years only, might be

considered. Sometimes firms in trade-affected

industries are slow to react, and postpone technological or organizational changes that could

help the firm compete but involve reductions

in the work force. Industrywide certification

could extend TAA benefits to workers laid off

from firms that make changes in order to meet

foreign competition—by adopting new laborsaving technology, or trimming less profitable

operations, or sending some of their work to

lower cost countries. Very likely, industrywide

certification would mean that many more workers would be eligible for TAA benefits, and

needs for funding would rise substantially.

One difficulty with industrywide certification

is in defining the industries. It has been suggested that findings of import injury by the International Trade Commission might be one ba-
5

sis for certifying industries; however, these

findings are infrequent and narrow, and are

made for purposes other than adjustment assistance to workers. If Congress is interested in

the idea of industrywide certification, it might

make more sense to develop criteria, such as

trends in import penetration, import levels, exports, and world market shares, for defining

the industries to be certified.

A much-criticized feature of TAA is the exclusion of workers from service and supplier

industries. This gives rise to such anomalies

as shoe workers being ruled eligible, but not

the workers who make rubber heels for the

shoes, If coverage of TAA were broadened to

include firms providing essential services and

supplies to the firms directly affected by imports, the number of workers eligible would

almost certainly rise. So would funding needs.

Another way to achieve broader coverage is

to replace TAA and Title III with one program

that includes the most useful features of each

and is open to all displaced workers. Administration proposals before the 100th Congress

would do away with TAA and create a new

worker readjustment program, adding new features that are not in the present Title III program, and authorizing spending of $980 million per year. The Administration bill for a new

displaced worker program does not, however,

include all the desirable features of TAA, in particular the long-term income support now available to TAA-certified workers in training. Nor

does it include any extended income support

for unemployed workers who lost their jobs due

to import competition but are not in training.

Some version of this feature has been a part

of the TAA program since the 1960s. Continuation of a program of special benefits to tradeaffected workers has strong support on both

sides of the aisle in Congress, on grounds that

it is fair to compensate those injured by national

trade policy.

Trade Adjustment Assistance for

Firms and Industries

TAA for firms is a small program offering

technical assistance to trade-affected firms,

which are defined in the law in the same way

as for the worker program. The assistance is

delivered by a dozen regional Trade Adjustment Assistance Centers (TAACs), nonprofit

entities that are funded by Federal grants averaging about $1 million each per year, through

the Department of Commerce. The program

also offers technical and export assistance to

industries affected by imports, primarily

through their industry associations. Despite its

small size (under $16 million for fiscal year

1987), TAA for firms is the major Federal program (with minor exceptions, the only one) that

provides sustained, intensive technical assistance (including advice on finance, marketing,

engineering design, and shop floor operations)

to small and medium-sized manufacturing

firms. Experience with this modest program

may shed some light on how a more broadly

available industrial extension service could contribute to the competitiveness of American industry.

Recently, however, Commerce Department

administration of TAA for firms has virtually

paralyzed the program. From October 1986 to

mid-March 1987, the TAACS were given only

1-to 2-month extensions, mostly no-cost extensions with almost no funding from the fiscal

year 1987 appropriation of $13.9 million for

technical assistance (an additional $1.9 million

was appropriated for Commerce Department

administration). Through the end of April 1987,

the Department had not given any 12-month

grants to the TAACs. Previously, ever since they

were established in 1978, the TAACs had operated on 12-month grants. After an Administration request for rescission of fiscal year 1987

funds failed in March 1987, the Department still
6

postponed any decision on providing long-term

grants to the TAACs, Instead, it extended the

TAACs’ authority only through mid-June, and

released grant money in limited amounts. As

of the end of April, $2.2 million had been released to the TAACs; $11.7 million remained

unreleased. In May, the Department of Commerce finally requested refunding proposals

from the TAACs, for the period June 1987-May

1988. When and if these proposals are approved, the TAACs will receive the remainder

of the fiscal year 1987 money.

The effect on the TAACs of the prolonged

starvation for funds and authority was crippling. Most were reduced to skeleton staffs.

They lacked the money to meet outstanding

commitments to clients, and could not take on

any new clients, since they were authorized to

stay in business for only a couple of months.

TAAC directors told OTA that they had lost

legitimacy with the firms they were meant to

serve. g

The Administration has asked for an end to

the TAA program for firms every year since

1982, and twice proposed rescissions, both of

which failed. Administration officials have said

they consider the program ineffective and have

argued that in any case it is inevitable for many

firms to succumb to competition, foreign as

well as domestic, and that the government has

no business trying to save them. Proponents

of the program (including many firms that have

received assistance from the TAACs) argue

that, given good technical assistance, many

firms weakened by import competition can revive, and continue to provide economic life to

their communities.

Studies evaluating the effectiveness of the

TAA program for firms are contradictory and

uncertain. The report of the Commerce Depart9

For this special report, OTA interviewed directors and staff

of 11 of the 12 Trade Adjustment Assistance Centers operating

across the country.

ment’s Inspector General, which called the program a failure, fails in many ways to fairly judge

its effectiveness. Probably the most appropriate way to assess the program is to measure

its costs to the taxpayer against benefits to society. No one has conducted a systematic costbenefit analysis of this kind. TAA for firms is

by its nature high-risk, because firms can qualify for assistance only if they show that sales

or production have declined due to imports.

Evidence from a few firms strongly suggests

that a few successes a year, resulting in higher

income and property tax receipts from the jobs

and firms saved, can more than repay the costs

of the program.

Many individual firms that have received

technical assistance from the TAACs have high

praise for the program. Many of the small and

medium-sized manufacturing firms assisted by

TAA are operated by one person, with family

help. One experienced apparel manufacturer

in Georgia gave the TAAC most of the credit

for getting his company out of trouble, by introducing him to better cost and quality control methods and helping to pay for advice from

an industrial engineer, who suggested improvements in the cutting room. Some of the suggestions, he said, were “obvious, once they said

it,” but he had been too busy to realize what

changes needed top priority attention.

The experience of the last year suggests that

appropriation of funds for the TAA program

for firms is not enough to assure its survival.

The Budget and Impoundment Control Act of

1974 was a response to the problem of an Administration’s failure to spend appropriated

funds because of policy opposition to a program; however, the act does not provide a very

direct remedy. One option that is open to Congress, if it wishes the program to continue, is

to direct the Department of Commerce to approve 12-month grants to the TAACs by a certain date every year—say by December 31 (the

end of the first quarter of the fiscal year),
POLICY ISSUES AND OPTIONS

In light of the Administration’s proposals to

abolish Trade Adjustment Assistance for both

workers and firms, the first issue to consider

is the continued existence of both programs.

If Congress decides to preserve them, several

options for their more effective functioning may

be considered. For the worker program, the major issues Congress may wish to examine are:

●

●

●

●

how to encourage more effective coordination of TAA and Title 111 programs (under the Job Training Partnership Act) so

that workers can take advantage of the best

features of each;

how to cut back delays, inequities, and inconsistencies in determining eligibility for

TAA;

how to structure TAA to emphasize

adjustment—that is, training for workers

who can benefit from it and prompt reemployment for others; and

how and at what level to fund a program

offering high-quality services to-a b-road

group of eligible workers.

For the firm program, the major issue Congress may wish to consider is how to put technical assistance for firms on a steady, reliable

footing. Also, options for broadening and simplifying eligibility for TAA might be considered

for firms as well as for workers. The following

sections consider separately the TAA programs

for workers and for firms.

TAA for Workers

Continued Existence

The principal arguments in favor of continuing a separate program for trade-affected workers are: 1) that fairness demands special attention to the needs of people who pay the most

for the Nation’s free trade policy, and 2) that

a combined program, open to all displaced

workers, is bound to lose some of the valuable

features now offered to TAA-certified workers.

Some also argue that changes in TAA certification (discussed below) could remove much

of the delay and inequity in determining eligibility.

The main argument against a separate program is that decisions on who is trade-affected

and who is not have become difficult and arbitrary. Twenty-five years ago, when trade was

only a modest factor in the U.S. economy, it

may have been feasible to identify particular

groups of workers affected by trade. Today,

when more and more of the goods manufactured in the United States are facing stiff world

competition, such distinctions are hard to draw,

A program offering adjustment services of high

quality to all displaced workers, regardless of

the cause of displacement, would avoid the delays and inequities in determining eligibility

that plague TAA.1

As this report was written, in spring 1987,

none of the proposals before Congress for a

comprehensive displaced worker program included all of TAA’s features. The Administration proposal to abolish TAA and replace Title

III of JTPA with a new displaced worker program was contained in Subtitle C (the Worker

Readjustment Act) of a bill entitled the Trade,

Employment and Productivity Act of 1987 (H.R.

1155., introduced by Rep. Michel and others in

the House, and S. 539, introduced by Sen. Dole

and others in the Senate). The proposed Worker

Readjustment Act includes a number of new

features, such as a requirement that States

establish a system for rapid response to plant

closings or large layoffs, and authorizes spending of $980 million per year. This compares to

the appropriation of $223 million for JTPA Title 111 for fiscal year 1987, and the projected

expenditure of $206 million for TAA.

The Administration bill would also allow up

to 2 years of training for displaced workers (as

TAA now does for trade-affected workers) and,

if it were determined necessary for participation in training, would provide income support

1

In this section, the arguments for and against a separate program for trade-affected workers are only briefly stated. For a

fuller discussion, see the section entitled “The Equity Argument

for TAA, ” under Trade Adjustment Assistance for Workers:

Issues.

7
8

at the level of unemployment insurance payments after UI is exhausted. For workers not

eligible for UI, a needs-based benefit could be

provided. Thus the bill has a provision for extended income maintenance for workers in

training. However, these payments would not

be granted automatically, as in TAA, but only

allowed. Also, to be eligible for the payments,

the worker must decide to participate in retraining no later than 10 weeks after starting to receive UI. Furthermore, the money to pay for

income support must come out of the funds

available for all support services, which include

transportation, health care, special services and

materials for the handicapped, dependent care,

financial counseling, and other reasonable expenses necessary for participation in the worker

readjustment programs. Spending for support

services is limited to 15 percent of the amount

available for the basic services program (including training), which is half the total authorization of $980 million. Thus the maximum available for all support services for people in

training would be $73.5 million per year (assuming Congress appropriates the amount authorized),

Judging by experience, it is not likely that the

full 15 percent would be spent for all supportive services, much less for the single item of

income support for people in training. Title III

of JTPA also allows roughly 15 percent of grant

money to be spent for supportive services, including income support for participants in

training. In practice, almost nothing has been

spent for this purpose. z In JTPA program year

1985 (July 1985 to June 1986), the most recent

for which information is available, 5 percent

of Federal grants for Title 111 services was spent

for all supportive services, and no more than

7 percent was spent in any previous year; most

of it has gone for transportation and child care

expenses, Possibly, with a program that is more

2By and large, Title III programs do not emphasize vocational

skills training, especially long-term training; most emphasize

rapid reemployment and low-cost services. See U.S. Congress,

Office of Technology Assessment, Technology and Structural

Unemployment: Reemploying Displaced Adults, OTA-ITE-250

(Washington, DC: U.S. Government Printing Office, February

1986), pp. 182-185.

generously funded than JTPA Title III, more

would be allocated to income support for workers in training, but the Administration bill

would not assure income maintenance as TAA

does.

Even in the unlikely event that the maximum

amount allocated for support services were

devoted to income support for people in training, it probably would not go far enough. The

Administration estimated that the new program

would serve 500,000 displaced workers per

year. In well-run displaced worker projects,

about 20 to 30 percent of participants can be

expected to opt for retraining. Supposing that

100,000 workers per year (20 percent) selected

training, that the average length of training was

32 weeks (two semesters), and that the Worker

Readjustment Program provided income support payments for 16 weeks (assuming that

workers enroll in training after 10 weeks of receiving UI, and that UI pays income support

for the first 16 weeks of training). In 1987, TRA

payments averaged about $147 per week; 16

weeks of payments would amount to $2,350;

and 100,000 such payments would amount to

$235 million per year.

The Administration bill has no provision for

extended income support (up to 1 year) for unemployed displaced workers, comparable to the

Trade Readjustment Allowances that all TAAcertified workers are entitled to draw. Few

proposals have ever been made for extending

this benefit to all displaced workers, although

the rationale—that people losing jobs because

of structural economic change are likely to go

through longer spells without work than the

average unemployed worker—applies as much

to all displaced workers as to trade-affected

workers. Such a benefit for all displaced workers could cost as much as $2 billion per year. a

The Administration proposal for income support for workers in training falls short of that

now available to trade-affected workers under

TAA. If Congress wishes to combine the two

3

Further discussion of this point and the basis for the estimate

are in the section entitled “Extended Income Benefits” under

Trade Adjustment Assistance for Workers: Issues.
9

programs but to preserve the TAA benefit of

reliable income support throughout the period

of training, and extend it to all displaced workers, the benefit would have to be made automatic, not optional, and it would have to be better funded.

Coordination of TAA and Title Ill Programs

Should Congress continue to maintain separate programs for trade-affected workers and

displaced workers in general, effective coordination of the two programs can be highly advantageous to both groups of workers. TAA-certified workers can make use of services in Title

III programs that are not offered (or effectively

offered) under TAA. For example, rapid response to plant closings and early provision of

services is all but impossible under TAA, because workers must first petition for certification and wait for approval, a process that usually takes at least 2 months. Rapid response is

possible under Title 111, though it is not yet

widely in place; several bills before the 100th”

Congress would strengthen rapid response capabilities in programs open to all displaced

workers. q Program coordination can also

spread benefits over a greater number of displaced workers; when TAA approval comes

through for trade-affected workers and payment for their training or relocation benefits

is picked up by TAA, Title III funds can be freed

for service to other displaced workers.

The great advantages of TAA are its ability

to support longer term training and income support during training, plus more generous allowances for out-of-area job search and relocation costs. The greatest strength of Title III,

besides the possibility of early response, is that

these projects offer a wider range of services—

especially in counseling and assessment—than

TAA-certified workers usually get from the Employment Service, With better coordination of

4For example, H, R. 1122, introduced by Rep. William Ford and

others, and S. 538, introduced by Sen. Howard Metzenbaum and

others (both entitled the Economic Dislocation and Worker Adjustment Assistance Act); H .R. 90, introduced by Rep. Augustus

Hawkins; and the Administration bills, S. 539 and H.R. 1155.

the two programs, Title III projects could offer workers the individual counseling they need

to evaluate their training and reemployment options, and could provide expert guidance

(which many ES offices cannot offer) on local

training opportunities.

Only about a dozen States have made real

progress toward coordinating their TAA and

Title III programs, but some of these have done

it very successfully. Common features in these

States are their aggressiveness in making sure

that petitions are submitted as early as possible for workers’ TAA eligibility, and their ingenuity in putting together services from each

program for the benefit of individual workers.

Because TAA certification is not predictable,

these States must cope with a high degree of

uncertainty in making training plans.

Some State officials—including some in

States doing an outstanding job of coordination—say that coordination would be easier if

TAA could reimburse Title III programs for

money spent on workers who later get TAA certification, for such services as counseling and

assessment, job search skills training, or the

early weeks of vocational skills training courses.

The latest law authorizing TAA (the Consolidated Omnibus Budget Reconciliation Act of

1985, enacted in April 1986) prohibits this kind

of reimbursement. So long as money available

for training, per worker, is more plentiful under TAA than under Title III, this idea might

have the merit of spreading training opportunities more equitably among all displaced workers. However, with the near exhaustion of TAA

training funds in the first quarter of fiscal year

1987, the reimbursement issue became moot.

In the future, if TAA training were funded at

a higher level, reimbursement might again become a practical question.

Another problem in coordination is that, under the law, as interpreted by the Department

of Labor, once a TAA-eligible worker is approved for training, all the training costs must

be paid by TAA. Training cannot be approved

in the first place unless the TAA program has

the funds to pay for all of it, and afterwards
10

the funds must be spent.5 In effect, this means

that no contribution from any private sources,

such as the company that laid off the workers,

or from State or local governments can be used

to supplement TAA training funds. The law

also states quite explicitly that no other Federal program can contribute to the costs of TAA

training once TAA funds are being spent for

the purpose.6 Congress may wish to reconsider

these prohibitions, and allow TAA programs

to combine their own training funds with additional contributions from companies, company-union funds (such as the United Auto

Workers-Ford and UAW-General Motors nickelan-hour funds), State programs, and other Federal programs, including federally funded Vocational Education and Adult Basic Education.

Another prohibition that could get in the way

of effective service to trade-affected workers

is the Labor Department’s decision that TAA

funds may not be used to pay for the job search

workshops or job finding clubs that COBRA requires for workers receiving TRAs. The Department took the position that the requirement

could mostly be met by other programs, such

as Title III or the Work Incentive Program; the

law allows a waiver of the requirement if no

job search program is reasonably available. A

number of States have reported difficulty in providing the job search program, especially for

workers in rural areas, and five States with large

numbers of TAA-eligible workers said they are

waiving the requirement for many workers.

Nearly all officials interviewed by OTA observed that job search training is valuable, and

those that could not provide the service regretted it. If Congress wishes to make the service

available to all TAA-eligible workers, it may

want to consider designating funds for the

purpose.

5This interpretation is based on language in the Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) stating that

the Secretary of Labor may approve training for TAA-eligible

workers and that “upon such approval, the worker shall be entitled to have payment of the costs of such training paid on his

behalf by the Secretary” (Sec. 2506(2)(a)].

8This explicit prohibition was added in the Consolidated Omnibus Budget Reconciliation Act of 1985 (Public Law 99-272),

which states that if the costs of training a TAA-eligible worker

are paid by TAA, “no other payment for such costs maybe made

under any other provision of Federal law” (Sec. 13004(3)(A)),

The Department of Labor has asked the Governors to take steps to promote coordination

of TAA and Title III, but the Department itself

has not actively encouraged it or offered much

technical assistance. Also, TAA regulations

were not published in a timely way from 1981

to 1986. The Labor Department has stated, however, that proposed regulations under COBRA

(passed in 1986) will be published by June 1987.

If Congress wishes to encourage States in coordinating TAA and Title III services, to make

the most of both programs in serving displaced

workers, it might consider the following:

●

●

●

●

through legislative guidance in oversight

hearings, encourage the Department of Labor to offer technical assistance to the

States on coordinating the two programs

via the Department’s 10 regional offices;

alternatively, require by law that the Department do so;

amend the Trade Act to allow TAA programs to accept contributions from other

public and private sources for training of

TAA-eligible workers;

amend the Trade Act to allow reimbursement to Title III projects for services given

to trade-affected workers before the workers are certified for TAA; and

provide a designated fund for offering job

search workshops or job finding clubs in

States or areas where the service is not

otherwise available.

Reducing Delays and Inequities in TAA Certification

Delays of several months have been common

in getting certification of workers for TAA benefits. Delays arise from two causes: 1) ignorance

about the program, so that workers or their representatives (union, employer, or any three

workers) do not submit petitions as soon as the

workers are laid off or get notice of layoff; and

2) the process of certifying workers firm-byfirm, which inevitably takes time. To approve

a petition, the Labor Department must find evidence that import competition contributed importantly to the declining sales or production

of the firm laying off those workers. Usually,

the Department interviews customers of the
11

firm to establish that imports have displaced

the products of that firm.

Outreach.–More energetic outreach, both by

State employment security agencies and the

U.S. Labor Department, might help to reduce

delays caused by lack of knowledge about TAA.

One bill before the 100th Congress (H.R. 3,

passed by the House of Representatives in April

1987) would require States to inform workers

about benefits and procedures under TAA

when the workers apply for unemployment insurance, and to facilitate the early filing of TAA

petitions. Another possibility is to allow State

Governors to file petitions on behalf of workers. This would give the Governors more responsibility, as well as more opportunity, to

make sure that workers in their States become

eligible for TAA benefits as quickly as possible.

A number of the State employment security

agencies have suggested that they could do a

better job of acquainting workers with the TAA

program and seeing that petitions are submitted

early if administrative money were available

in advance, rather than paid after proposals for

TAA services are approved. (The State agencies receive 15 percent of the amount of training or relocation grants for costs of administration.) With money provided at the beginning

of the fiscal year, they say, they could hire permanent staff to take care of TAA clients, providing more individual counseling and assessment as well as doing a better job of TAA

outreach.

How to allocate the money among (and also

within) States is the problem with providing

administrative funds in advance. It is hard to

predict where trade-affected workers will be

concentrated. If the administrative funds were

allocated by the same formula as Wagner-Peyser grants (the Federal grants which are the

main source of funding for the State employment security agencies), the funds might turn

out to be poorly matched with the number of

workers certified for TAA benefits. This is

speculative, however. There is no reason to believe that TAA certifications accurately reflect

the geographic or industrial distribution of

trade-affected workers. Some States have done

a much better job of outreach than others, and

labor unions are active in submitting petitions,

so that unionized workers have a better chance

than non-union workers to be certified, WagnerPeyser grants are allocated by a formula that

takes account of the size of the State’s labor

force and its rate of unemployment. If advance

allocation of TAA administrative funds succeeded in getting State agencies to do better

outreach, the result might be a wider and more

equitable distribution of TAA benefits than exists at present, It probably would also raise demands for funding for the program.

If advance allocation of administrative funds

appears desirable, one option might be to allocate a portion, not necessarily all of it.

Industrywide Certification.-The Labor Department recently improved turnaround time for

TAA petitions by simplifying procedures and

delegating to its regional offices some of the

tasks of collecting information. However, even

if all decisions are made within the statutory

limit of 60 days, a delay of several weeks makes

it impossible to deliver adjustment services

promptly to TAA-certified workers. One proposal to reduce delays is to certify whole industries, so that all workers displaced from jobs

in those industries are automatically eligible

for TAA benefits. Industry certification might

also make eligibility more predictable and more

equitable,

A difficulty with industry certification is that,

as eligibility becomes more equitable and widespread, needs for funding to serve the larger

number of eligible workers would rise. In addition, it may not be a simple matter to identify

trade-affected industries, H.R. 3, the trade bill

passed by the House in April 1987, in the 100th”

Congress, provides for automatic approval of

petitions from workers losing jobs in industries

that the International Trade Commission [ITC]

has found, under Section 201 of the Trade Act

of 1974, to be seriously injured by imports. (The

workers’ petitions would have to be filed within

3 years of the finding of serious in jury.) Section 201 findings are few and quite limited,

however. In responses to twelve Section 201

petitions in fiscal years 1984 through 1986, the
12

ITC found only four industries to be seriously

injured by imports, and some of those industries were very narrowly defined; one, for example, was wood shingles and shakes. 7

A fundamental problem with using ITC findings as a basis for industry certification is that

these findings are made for entirely different

purposes. In the case of Section 201 findings,

the purpose is to allow a nation to provide some

import relief, which would otherwise be illegal under the General Agreement on Tariffs and

Trade, to hard-pressed domestic industries.

Probably one reason there has been so little use

of this “escape clause” is that import relief for

domestic industries, even if justified by a finding of serious injury, has important repercussions on the economies of both the United

States and our trading partners.

Another possibility is to certify industries that

have an ITC finding of import injury in relation to charges of dumping by foreign competitors, or of government subsidies that give competitors an unfair advantage (anti-dumping and

countervailing duty investigations, under Title VII of the Tariff Act of 1930). These findings are much more numerous than those under

Section 201—56 in fiscal years 1984-86, compared to 4 under Section 201.

8 These findings,

although somewhat broader than those under

Section 201, still tend to be quite specific. In

7The industries receiving an affirmative finding of serious injury from imports in fiscal years 1984-86 were certain carbon

and alloy steel products, unwrought copper, non-rubber footwear (1985), and wood shingles and shakes, Negative findings

were made for stainless steel flatware, non-rubber footwear

(1984), canned tuna, electric shavers and parts, certain metal

castings, apple juice, and steel fork arms. The fact that non-rubber

footwear was turned down for a finding of serious injury in 1984

and accepted in 1985 suggests that these findings may not be

very predictable or consistent.

@This includes all final affirmative findings under the antidumping and countervailing duty provisions of the Tariff Act.

Final affirmative findings, made after a final investigation by

the ITC and the Department of Commerce, indicate that “a U.S.

industry is materially injured or threatened with material injury,

or the establishment of such an industry is materially retarded,

by reason of imports of merchandise that is being sold at less

than fair value (i.e., dumped) or is benefiting from foreign subsidies.” (U.S. International Trade Commission, Annual Report ’85

(Washington, DC: U.S. Government Printing Office, 1986), p. 2.)

Preliminary affirmative findings are made after a preliminary

investigation by the ITC, and indicate that “there is a reasonable indication” of injury. (Ibid. ) There were 208 preliminary

findings of injury in the 3 years 1984-86.

1985, for example, of 129 investigations completed, 56 involved narrowly defined steel products such as hot-rolled carbon steel plate, carbon steel wire rod, stainless steel sheet and

strip, welded carbon steel pipes and tubes,

stainless steel wire cloth, carbon steel sheets,

and steel wire nails.9 Also, these findings are

made only in connection with charges of dumping or subsidies, and thus do not cover the

whole range of industries that might be importaffected. Using the ITC finding of import injury as a trigger for certification of an industry

would be at best a partial answer to certification of workers by industry, rather than by individual firm.

Along the same line, another trigger for industry certification might be the existence of

trade agreements by which other countries

voluntarily agree to limit exports of certain articles to the United States. An example is the

Voluntary Restraint Agreement for autos,

which Japan observed from 1981 to 1985 (and

continues to observe voluntarily through 1987),

the Multifiber Agreement (negotiated in 1974)

covering textiles and apparel, and a number

of Orderly Marketing Agreements. 10 Thes e

agreements might be taken as evidence that

American industries are seriously threatened

by foreign competition in the items covered,

Another possible approach is allow industries, as well as firms, to petition for certification as trade-affected. To decide on the petitions, the Labor Department would need to

identify trade-affected industries. This might

be done by examining data for employment

trends, import penetration in the U.S. market,

import levels, exports, and share of world markets, by industry. A part of the responsibility

for such an effort already rests with the Departments of Labor and Commerce; Section 282 of

the Trade Act directs them to monitor changes

in U.S. imports and related domestic production and employment. However, data on exBIbid., p. 3.

IOThe number of these agreements in force is, at fJIWeIIt, Unknown. The Department of Commerce and the Office of the U.S.

Trade Representative told OTA that there is no current count

of such agreements, but the USTR plans to make a compilation

and keep it up to date.
13

ports and world market shares are more limited.

A 1982 paper by a Bureau of Labor Statistics

economist analyzed 318 manufacturing industries at the four-digit SIC level, and concluded

that 72 were “import sensitive, ” that is, had experienced either a sustained high level or a substantial increase in import share of U.S. sales

during 1972-79. 11 Of 79 industries producing

goods similar to those in the import-sensitive

group, 38 showed employment declines over

the period; more than half of these were in the

textile, apparel, and leather goods manufacturing businesses, The Labor Department has not

repeated this analysis, but the data to do so are

available.

In its program of industrywide technical

assistance under TAA, the Department of Commerce needs to identify import-affected industries. The Department’s method is, first to define the industry by four-digit SIC, and then

determine whether it has a significant number

of firms, worker groups, and workers certified

as eligible for TAA. Then, the Department examines trends in import penetration ratios and

levels of imports over several years. The Department also considers ITC findings of import

injury (if any), and examines data developed

by industry representatives on particular product lines, especially for industries that don’t

neatly fall into SIC codes, Because the Commerce Department does not need to be comprehensive in selecting industries for technical assistance, but can be selective, it is not an

exact model for possible industrywide TAA certification for workers. It can be useful as a

guide, however, in how to identify trade-affected

industries.

Because of lack of experience, there are many

uncertainties in both the method and results

of certifying workers for TAA benefits by industry. For example, the impacts from foreign

competition are now so widespread throughout American manufacturing industries, that

the result might be to open the TAA program

to nearly all workers displaced from manufacllGregory K. Schoepfle, “Imports and Domestic Employment:

Identifying Affected Industries, ” hfonthl~ Labor Review, August 1982, pp. 13-26.

turing jobs, The total number of workers displaced per year because of plant closings and

production cutbacks is about 2 million per year;

about half (approximately 1 million per year)

are from manufacturing industries, If Congress

is interested in pursuing the idea of industrywide certification for workers, it might direct government agencies, such as the Departments of Labor and Commerce, to undertake

a study of possible methods of identifying the

industries and the number of workers likely to

be covered, with results reported back to Congress within a reasonable time (e.g., 1 year).

Other Problems of Equity.—A continuing problem

of equity in TAA certifications is that workers

in service and supply industries are not eligible. For example, many workers in oil and gas

exploratory drilling have been denied certification because they were considered service

industry workers. (Others were turned down

because the Labor Department did not consider

imports to be the cause of distress in the industry.) Several bills in both the 99th and 100th Congresses proposed to extend eligibility to all oil

and gas workers. More generally, the legislation that would have reauthorized TAA, but

failed to pass Congress in December 1985, (the

Consolidated Omnibus Budget Reconciliation

Act) would have extended eligibility to workers in firms providing essential parts or essential services to the firms injured by import competition, S. 23 introduced by Senators Roth and

Moynihan in the 100th Congress, contains the

same provision, This broadening of eligibility,

like industrywide certification, would result in

opening TAA benefits to more workers, and

raising costs. COBRA proposed to generate

funds for TAA from a new source, a small uniform duty on all imports (described in the section on funding, below).

A more specialized problem, but one that affects a good many workers, has to do with the

date of the worker’s separation. Under the

present law, workers may receive income support payments (Trade Readjustment Allowances, or TRAs) during a 2-year period following their first layoff after the impact date

established for their firm. Often during a firm’s

decline, workers are repeatedly rehired and laid
14

off; since the clock for TRAs starts to run from

the date of their first layoff they maybe denied

full benefits. Congress addressed this problem

in the last authorization of TAA, by extending

the period of eligibility from 1 year to 2 years

after the first date of separation; some workers, however, still run into a cutoff of benefits,

while coworkers who were not rehired and laid

off repeatedly may receive full benefits. One

bill before the 100th Congress (S. 749, introduced by Senators Mitchell and Heinz) would

amend TAA to allow workers to collect TRAs

during the 2-year period following their last,

not first, date of separation.

If Congress wishes to attempt to reduce delays in TAA certification, it might consider the

following:

●

●

●

●

through legislative oversight, encourage

the Department of Labor to offer more information and technical assistance to State

employment security agencies on the TAA

program and urge them to take a more active role in getting petitions submitted

early; alternatively, require in legislative

language that States inform workers of

TAA benefits and procedures when workers register for UI, and facilitate the early

filing of TAA petitions;

provide by law for the allocation of TAA

administration funds in advance;

direct the Labor Department to give automatic approval to petitions from workers

in industries with findings of import injury

from the ITC or industries covered by

voluntary agreements with other countries

that restrict their exports to the United

States; or

direct the Departments of Labor and Commerce (and any other appropriate agency)

to undertake a study of possible methods

for industrywide certification of TAA

workers and the number of workers likely

to be covered, with a date set for submission of the study report to Congress.

Some of the above options might make TAA

benefits available to a larger number of workers and at the same time distribute the benefits

more equitably. Another option for more equitable and broader eligibility that Congress might

wish to consider is to:

● extend TAA eligibility to workers in firms

that supply essential supplies and services

to firms injured by import competition.

Emphasizing Adjustment Services

Several times in the 25 years of TAA’s existence, Congress has made changes in the program to reemphasize its original purpose, that

is, to provide services that will help tradeaffected workers find or train for new jobs that

are reasonably well-paid or offer opportunities

for advancement. In the 1980s, training and

relocation services have become a more significant part of the program, in relation to TRAs.

Under the present law, workers must take part

in a job search skills training program or job

club (if either is reasonably available) in order

to receive TRAs, must be advised of training

opportunities, and must enroll in training if advised to do so.

A number of proposals put before Congress

would tie TAA benefits still more tightly to

training. In the 1985 legislation that would have

reauthorized TAA, Congress included a requirement that any worker collecting TRAs

must be enrolled in training or remedial education. In 1986, when the legislation was

passed, the requirement for training was removed. Bills before the 100th Congress reinstated it. For example, H.R. 3, the House-passed

trade bill, would require workers receiving

TRAs to be in training or remedial education.

Workers would be exempt only if they had already completed training, or if they had a reasonable prospect of recall to the old job, or if

training were not considered feasible or appropriate. S. 23 would also require that workers

receiving TRAs be in training, unless State

agencies waived the requirement because training was not feasible or appropriate.

Several problems arise with a requirement

that workers receiving TRAs be in training.

First, funding for training would have to be

greater than it is now. Training funds were virtually exhausted before half the fiscal year was
15

out in 1987, even with no requirement for training. The Labor Department estimated that about

55,000 workers would receive TRAs in fiscal

year 1987; as noted above, that figure is probably low, but it can serve as the basis of a rough

estimate of training costs. Assuming on the basis of recent TAA figures that spending for

training is about $2,500 to $3,000 per worker

per year (not counting TRAs), the annual cost

of training for 55,000 workers would be about

$138 to $165 million, or approximately $110 to

$127 million more than in 1987. Both H.R. 3

and S. 23 provide that workers are entitled to

vouchers of $4,000 for approved training, remedial education, or relocation services and

the money may be spent over 104 weeks of training. Both bills also contain a provision for a

small import duty as a new source of funding

(see the discussion below).

Another concern is that not everyone needs

or can benefit from training. For example, some

older workers who plan to work for only another

few years may not want to make the investment

of time, effort, and forgone income that training requires. (No implication is intended that

older workers cannot benefit from training;

some can and do.) A related problem is that linking TRAs to training might artificially inflate

the demand for training. One option that might

reduce these difficulties is to allow workers to

use a portion of their TRAs as a temporary wage

supplement, easing the transition for workers

for whom retraining is not appropriate. This

option was included in H.R. 3; it would allow

workers taking a new job at lower pay than the

old job to collect 50 percent of their TRA benefits as a supplemental wage allowance over a

period of 1 year, beginning when regular UI

payments end, The reasoning is that the supplemental wage would encourage workers to

take new jobs faster than they otherwise would,

and begin to restore some of their lost earning

power. The allowance would be limited to an

amount that would raise the worker’s pay to

a maximum of 80 percent of the pay on the old

job.

In analyzing for an earlier assessment the option of a temporary supplemental wage for all

displaced workers, 12 OTA noted that there is

little or no experience with a publicly funded

program of this sort, and cost estimates are

highly uncertain, A rough estimate of the cost

of such a program as proposed in H.R. 3 is about

$33 million per year for every 10,000 workers.

This estimate assumes that the wage supplement program pays, on average, the difference

between $7.80 per hour (80 percent of the average manufacturing wage of $9.80 per hour in

early 1987) and $6.20 per hour (the average

reemployment wage of workers who went

through Title III programs and found jobs in

1986).

13 Any estimate of how many workers

would be covered in such a program, and how

many would be removed from the rolls of those

receiving full TRAs, must be highly speculative because of the novelty of the program. In

light of the large uncertainties involved, OTA

suggested in the earlier assessment that if Congress is interested in the proposal, a trial or demonstration program might be a practical first

step.

According to the directors and staff of displaced worker projects, many of their clients—

typically, 20 percent or more—need remedial

education to improve their basic skills in reading and math. Although States may offer remedial education as one of the services in Title

III projects, not many do. 14 Trade-affected

workers are probably just as much in need of

basic skills training as other displaced workers, but remedial education is very infrequently

offered as a TAA benefit, In its TAA regulations, the U.S. Department of Labor classifies

remedial education as a support service, unless it is an integral part of a vocational skills

training course, Payment for support services

must come from administration funds, not

training funds; no States reported to OTA that

they use administrative money for this purpose.

The 1986 legislation reauthorizing TAA states

IZU. S. congress, office of Technology Assessment, Technology and Structural Unemployment, op. cit., pp. 61-62.

IQThe Supplement on an hourly basis would be $1.60, which

is $64 per week and $3,328 for 1 year. This is within the limit

of 50 percent of the average TRA benefit paid in 1987, which

was $147 per week.

Iiu. s. congress, Office of Technology Assessment, Technolog.yand Structural Umemp]oyment, op. cit., pp. 185-186, 260-261,
16

that any training program provided by States

in Title III projects may be approved as TAA

training; a number of States approve remedial

education as training under Title III (although

not many actually include it among the services offered), and all could approve it if they

wished. If Congress desires that remedial education be offered as training in the TAA program, it could direct the Department of Labor

to approve this use of TAA training funds.

Implementing a training requirement through

a voucher system, as proposed in several bills

before Congress, might raise some other problems. Many experienced directors of displaced

worker programs believe that their clients benefit greatly from guidance in selecting training

courses. It is not uncommon for displaced

workers to have held just one job in their lives;

often they have little knowledge of the local labor market, or training institutions, or the kind

of training that their background and skills are

best suited to. In addition, a voucher system

raises the danger that workers may be victimized by trainers who are in it for the money.

When training is not just one option, but is required for anyone receiving TRAs, this problem could assume greater proportions. Coordination of TAA and Title III programs, with

emphasis on adequate counseling and guidance

of TAA-eligible workers in one program or the

other, could help to avoid the danger of misguided or wasted training.

Some of the options that Congress may wish

to consider for emphasizing adjustment as the

goal of the TAA program for workers are the

following:

●

●

require that recipients of TRA benefits be

enrolled in approved vocational skills training or remedial education programs, with

some exceptions, e.g., for workers who

may be recalled to plants that are still in

operation, for workers beyond a certain

age, or for cases where training is not feasible or appropriate;

support a demonstration program of temporary wage supplements for TAA-certified workers taking a new job at a substantial cut in pay; and

● direct the Department of Labor to approve

spending of TAA training funds for remedial education.

Funding

Many of the options discussed above imply

a higher level of funding than is currently spent

for TAA. In fiscal year 1987, Congress appropriated $29.5 million for training and relocation services (including 15 percent for administration); and when demands for the funds

outran the supply, a supplemental appropriation of $20 million was approved by the House

(the Senate Appropriations Committee had reported the bill, but the Senate had not yet acted

on it as this report was written). In addition,

spending for TRAs, from the Federal Unemployment Benefits Account, was running at the

rate of $176 million for the year.

A number of proposals before the 100th Congress provided for increased spending for services to displaced workers. Both the Administration bill, which would replace JTPA Title III

with a new Worker Readjustment Program, and

H.R. 3, which amends Title III as well as TAA,

would authorize $980 million a year for retraining and readjustment programs open to all displaced workers.

For funding the TAA program for workers,

the idea of a small uniform duty (up to 1 percent) on all imports has come up several times.

It was included in the legislation which was

reported by the conference committee, but

failed to pass the Congress, in December 1985.

That version directed the President to undertake negotiations to change GATT so that any

country could impose a small duty on imports

for the purpose of funding a program of adjustment to import competition. The President was

directed to report on progress on the GATT negotiations in 6 months, and the duty would be

imposed as soon as there was agreement—but

in any case, whether or not agreement was

reached, the duty would take effect 2 years after enactment of the law. The bill also would

have established a trust fund to pay for the TAA

program for workers, with amounts equal to

the proceeds of the import duty earmarked for

the trust fund.
17

A similar proposal was before the 100th Congress, in S. 23. H.R. 3, the House-passed trade

bill, provides for a trust fund supported in part

by a small import duty, but would let the duty

take effect only when GATT is changed to allow it.15 Those who propose negotiating with

GATT, but imposing the duty anyway after a

certain period, argue that a small duty for funding an adjustment program is reasonable, is not

a serious barrier to trade, and that GATT negotiations are usually so slow that a time limit

is needed to impel action. Those who oppose

it argue that any unilateral action that contravenes GATT undermines the treaty and opens

the door to protectionist actions by all countries.

The proposal to support the TAA program

through a trust fund is not new. The Trade Act

of 1974 provided for it, but the trust fund was

never established. The Office of Management

and Budget generally opposes earmarking funds

for any activity, advocating instead that programs contend on their merits each year for

a share of general revenues; this was true in

the Carter Administration as well as in the Reagan era. Although laws can be written so that

services funded by trust funds are not granted

automatically but still require approvals by the

responsible agency, the tendency may be to lose

budgetary control.

The argument for a trust fund is that it is difficult to anticipate the magnitude of worker displacement, from trade or any other cause, and

that it makes more sense to draw from a trust

fund as needed than to set appropriations at

the right level in advance, or to add funds

through the uncertain and usually slow process of supplemental appropriations. Proponents

sometimes draw the parallel with the unemployment insurance trust fund accounts, which

are supported by variable UI tax rates. In a like

manner, the uniform duty on tariffs could be

varied (up to the limit of 1 percent), to replenish the account when spending has risen, and

to lower the duty when spending falls. To maintain control over spending, Congress might set

15This bill would also support the trust fund with money raised

from import relief duties and from public auction of import

licenses.

a limit on the total that could be spent in any

year.

Other funding arrangements might also be

devised. For example, the Forest Service draws

the funds needed to fight fires from a special

account, which Congress then replenishes

through supplemental appropriations. A number of different kinds of trust funds, with restrictions on spending from them, exist in various Federal Government agencies; some might

provide a useful model for the TAA program.

The principle in a trust fund or other new funding arrangement would be to make money available when needed for services to trade-affected

workers, but keep total spending under control.

TAA for Firms and Industries

Continued Existence

In reauthorizing the TAA program for firms

in 1986 and appropriating funds for it, for that

fiscal year and the next, Congress made a decision to continue the program. Commerce Department administration of the program from

January 1986 through the spring of 1987 almost

brought it to an end. At the end of April 1987,

more than halfway through the fiscal year, only

$2.2 million of the $13.9 million Congress provided for technical assistance to trade-affected

firms and industries for that year had been obligated, and money carried over from the previous year was diverted to other uses. The Trade

Adjustment Assistance Centers, which deliver

technical assistance to firms, had been given

only brief 1- or 2-month extensions of authority (mostly no-cost extensions), and were able

to do little more than keep their doors open.16

In the Budget and Impoundment Control Act

of 1974, Congress tried to deal with the problem of an Administration refusing to spend

money Congress had appropriated to carry out

a program. Under terms of this law, the Administration proposed in January 1987 a rescission

of fiscal year 1987 funds for the TAA program

for firms. The proposal remained before ConY~ln early May, the Department of Commerce requested refunding proposals from the TAACS for the 12-month period June 1987

to May 1988.
18

gress for the 45 days provided by the law, and

in mid-March, since Congress had taken no action, the rescission failed. Through that period,

only three TAACs received any fiscal year 1987

money. After the rescission failed, the TAACs

received extensions only through mid-June, and

were given small grants.

A spokesman for the General Accounting Office informed OTA that this situation, under

which the Administration had released only

small amounts of the funds appropriated for

technical assistance to firms, was being investigated as a possible policy deferral, as described in Section 1013 of the Budget Act; in

a policy deferral, the Administration seeks to

withhold funds to achieve the President’s policy, as opposed to that of Congress. If GAO

found that the failure to spend funds for the

TAA program for firms was a policy deferral,

Congress could deal with the situation, as it has

done in several deferral cases in the past, by

enacting a law directing the President to spend

the appropriated funds as originally provided

by Congress. 17

The Administration has also asserted that the

President has inherent authority to defer spending, unless Congress has mandated a schedule

of expenditures. One option that is open to Congress, if it wishes to assure that Trade Adjustment Assistance Centers receive grants soon

enough and for a long enough period to get

some substantive work done, is to mandate a

date by which 12-month grants for the TAACs

must be approved. For example, Congress

might direct bylaw that by December 31 of each

year (the end of the first quarter of the fiscal

year) the Commerce Department must approve

12-month grants extending through the end of

the next calendar year for all the TAACs. Thus,

all the money appropriated for TAA assistance

to firms for the fiscal year would be obligated

ITS~C+ lola~] of the Budget and Impoundment Control Act

gave Congress authority to disapprove policy deferrals by a vote

of either the House or the Senate, after which the Comptroller

General could sue the responsible department or agency to spend

the funds as provided by Congress. However, a Circuit Court

of Appeals decision has held Sec. 1013(b) invalid, following the

1983 Supreme Court decision declaring a congressional veto unconstitutional (Immigration and Naturalization Service v. Chack

1983).

in a timely way. Experience in fiscal year 1987

suggests that legislative guidance through congressional hearings might not be sufficient to

assure the continued existence of the TAA program for firms. Also, if Congress desires the

program to continue, it may need to anticipate

a period of rebuilding. It may take some time—

possibly a year or more—for TAACs to rebuild

their staffs, services, and credibility with

clients.

One reason the Administration wishes to end

the TAA program for firms is that it considers

the program ineffective. Neither of the two recent evaluations of the program (which came

to opposite conclusions) is satisfactory. In considering the future of the program, Congress

might wish to request an independent evaluation of TAA for firms, including an analysis

of the social costs and benefits of the program,

from the Congressional Budget Office or the

General Accounting Office. A rigorous costbenefit analysis might prove an unduly expensive way to evaluate this rather small program.

However, a less rigorous analysis might provide enough information to judge whether benefits from a very few successful interventions

are enough to pay for the modest costs of the

program.

Industrywide Certification

It has been suggested that the TAA program

for firms might be more productive if all firms

within a trade-affected industry were eligibile

for technical assistance–not just those that

have already shown a decline in sales or production and employment.18 The idea is to open

TAA benefits to firms that have a better chance

of survival.

One difficulty with this approach, as with industrywide certification of workers, is that the

population of firms eligible for assistance would

balloon. Unless the program received more

funds, the TAACs would be faced with greater

selection and screening problems than they

18H.R. 3, the House-passed trade bill, provides for automatic

approval of petitions from firms, as well as workers, from industries found by the ITC to be seriously injured by imports.

As noted, these certifications are few and often quite narrow.
19

have now; unlike the situation with TAA for

workers, there are no current proposals for a

new source of funds for TAA for firms. Nor

is there quite the same justification for industrywide certification. One of the strongest findings from experience with displaced workers

programs is that the earlier adjustment services start, the better the results; the best time

to begin services to workers is before layoff,

if that is possible. It is true that, for firms, there

is a point after which assistance is not much

use; the firm is too far gone. But no one has

identified one key point for offering assistance

that promises the best results. Most of the

TAAC directors and staff interviewed by OTA

said that quite a few of the firms applying for

certification have enough financial or managerial strength that they can benefit from assistance. One said:

All of them are in some kind of trouble, or

they wouldn’t come to us and wouldn’t be certified. But it isn’t true that they all have one

foot in the grave and the other on a banana

peel.

The best argument for making technical assistance available to all firms in trade-affected industries is that such a program, if well done,

might help to improve competitiveness of our

national economy. But to expand the present

small, barely surviving TAA program to such

dimensions would be a very large leap. The idea

of an industrial extension service for small and

medium-sized manufacturing industries is an

intriguing one, but is probably best approached

in several steps, with consideration of a number of factors—for example, whether States

might play a leading role, building on services

that some of them already offer. Such an assessment is beyond the scope of this report, with

its focus on TAA programs as they exist now

or as they might be changed incrementally.
TRADE ADJUSTMENT ASSISTANCE: HISTORY

Trade Adjustment Assistance was created in

the Trade Expansion Act of 1962, as recompense for workers and businesses hurt by the

Nation’s policy of lowering trade barriers. The

program was intended not as a payoff but as

an aid to adjustment. “This cannot and will not

be a subsidy program of government paternalism,” said President Kennedy in announcing

the trade bill that created TAA. “It is instead

a program to afford time for American initiative, American adaptability and American resiliency to assert themselves. ” Two linked motives for TAA were fairness—the obligation, as

President Kennedy said, “to render assistance

to those who suffer as a result of national trade

policy’’—and the need to find a different way

than protective tariffs or quotas to cope with

the disruptive effects of trade,

In principle, the TAA approach, offering adjustment assistance in place of protection, fits

with a policy of free trade. In practice, questions have been raised since TAA was created

on whether the adjustment assistance was

really working. Was TAA meeting its goal of

helping displaced workers train for and find

new jobs and helping businesses adapt to the

challenge of rising imports? Is it reasonable to

expect that firms losing out to imports can recover, even with good technical assistance?

Another recurring question had to do with

fairness: Is it equitable or even possible to distinguish between job losses due to trade and

losses due to other (but related) factors, such

as advances in technology or changes in consumer preference? Does the worker who loses

a long-held job because of import competition

need more help than his neighbor who loses

out to automation? Or is there a special responsibility to workers affected by trade? A national

program to help all displaced workers find or

train for new jobs was created in Title III of

the Job Training Partnership Act of 1982 (JTPA),

but TAA has some benefits that do not exist

in the Title III program.

Arguing that trade-affected workers can be

served in a program open to all displaced work20

ers, the Administration has proposed to abolish TAA, to replace Title III of JTPA with a new

worker readjustment program, and to authorize funding for the new program at about twice

the current level of TAA and Title III funding

combined. The Administration bill does not,

however, include all the benefits now available

to TAA-certified workers. While proposing to

end TAA for workers, the Administration took

more forceful action to close out the TAA program for firms, asking for a budget rescission

in 1987 (which Congress did not approve) and

meanwhile granting such short-term low-level

funding that program activities virtually ceased.

Trade Adjustment Assistance for both workers and firms continues to have strong support

in Congress. The equity argument, that special

help is due those who are injured by the Nation’s trade policy, is widely accepted across

party lines. In 1986, Congress reauthorized

TAA and extended it for 6 years, through the

end of 1991. While rewriting trade legislation

in the spring of 1987, Congress again considered substantial changes in TAA, in particular

the program for workers, The emphasis in the

proposed changes was on making adjustment

services stronger and more flexible.

This section outlines briefly the experience

with TAA over the past quarter of a century.

The next two sections discuss issues related,

first, to the current operation and future of the

program for workers and second, to the program for firms and industries.

Trade Adjustment Assistance for Workers,

1962-87

Over its 25 years, TAA for workers has been

much more a compensation than a training program, whatever the intentions of its founders.

The benefits TAA offers to trade-affected workers are extra income maintenance (more than

unemployment insurance provides) and training and relocation assistance. Of $4.5 billion

spent on the program over the years, more than

97 percent has gone for income maintenance;
21

nearly all the workers certified for TAA have

received this benefit. However, training has

been a stronger part of the program in the 1980s;

training and relocation assistance has accounted for about 25 percent of spending since

1982. Demands for training were great enough

in early 1987 that the appropriation for the fiscal year—$29.9 million—was nearly exhausted

at the end of the first quarter.

Spending for TAA and the number of workers served has fluctuated greatly over the years,

Almost inactive for the first dozen years, the

program grew to large proportions by 1980

(costing $1.6 billion that year], was restructured

and sharply reduced in the early 1980s, and is

now again expanding, It is a sizable program

today. In addition to the $29.9 million for training and relocation assistance, spending for income maintenance is projected to be $176 million for fiscal year 1987. If workers continue

to be certified at the same rate as in the first

two quarters of the year, 110,000 to 140,000

workers will have become eligible for benefits

during the year. ’ Both in amount of spending

and in number of workers served, TAA is now

about as large a program as the general program, under Title III of the Job Training Partnership Act of 1982, which is open to all displaced workers,

Administration of TAA for workers is divided

between the State employment security agencies and the U.S. Department of Labor, The

Labor Department makes the decisions on certifying groups of workers as trade-affected, according to the criteria in the law. The State

agencies, under cooperative agreements with

the Labor Department, determine the eligibility of individual workers covered by a certification, and process applications for benefits.

The Unemployment Insurance (UI) offices take

charge of income maintenance payments, and

1Nearly 48,000 workers were certified in the first quarter of

fiscal year 1987, and about 22,000 in the second quarter. The

Labor Department simplified and speeded up the certification

process at the beginning of the first quarter. Thus, the exceptionally large number of certifications in the first quarter probably reflects the Department’s efforts to reduce a backlog of petitions If certifications for the last half of the fiscal year run at

the rate of the second quarter, the total for the year will be about

114,000.

the Employment Service (ES) is responsible for

helping workers find jobs or training opportunities.

Creation and Early Years: 1962-74

The Trade Expansion Act of 1962, authorizing the Kennedy round of trade negotiations

under the General ‘Agreement on Tariffs and

Trade (GATT), also created Trade Adjustment

Assistance, Labor spokesmen strongly supported the adjustment program as a part of the

law. George Meany, president of the AFL-CIO,

told the Senate Finance Committee:

There is no question whatever that adjustment assistance is essential to the success of

trade expansion. And as we have said many

times, it is indispensable to our support of the

trade program as a whole.2

To the House Committee on Ways and Means

he said that TAA would:

. . . strengthen both our domestic economy

and our world competitive position by helping companies and workers to increase their

efficiency, either in their present field or a new

one.3

Eleven years later, labor support for TAA had

evaporated. Meany called TAA “burial insurance” and said that “adjustment assistance cannot solve modern trade problems.”4 By the early

1970s, there was good reason, aside from the

success or failure of TAA itself, to reevaluate

trade policy. Economic and trade conditions

had changed. The United States had gone through

a recession in 1970, and in 1971 and 1972 experienced its first merchandise trade deficits

in many decades. However, there was also a

quite specific reason for labor’s disaffection

with TAA, which was that very few workers

had benefited from it. The eligibility require2Hearings before the Committee on Finance, U.S. Senate, July

24, 1962, cited in Steve Charnovitz, “Worker Adjustment: The

Missing Ingredient in Trade Policy, ” California Management

Review, vol. xxvii, No. 2, winter 1986.

3Hearings before the Committee on Ways and Means, U.S.

House of Representatives, Mar. 19, 1962, cited in Steve Charnovitz, op. cit.

4Hearings before the Committee on Ways and Means, U.S.

House of Representatives, May 17, 1973, and the Committee on

Finance, U.S. Senate, March 27, 1973, cited in Steve Charnovitz,

op. cit.
22

ments as laid out in the 1962 law and as interpreted by the administering agency, the U.S.

Tariff Commission, were so restrictive that no

one qualified from 1962 till 1969. The Tariff

Commission then reinterpreted the eligibility

rules, and for the first time approved some petitions; still, only about 54,000 workers had been

certified for benefits by 1975.

The TAA benefits for workers provided in

the 1962 law were training, relocation assistance, and extra income maintenance, at a

higher level and for a longer time than UI afforded. The idea was that workers who lost their

jobs because of trade were likely to go through

longer than average spells of unemployment,

and needed time to train in new skills. Income

support was in the form of Trade Readjustment

Allowances (TRAs) which, combined with UI,

could pay up to 75 percent of the worker’s

former wage and could last for a full year, or

65 weeks for workers at least 60 years old. The

TRA alone, after unemployment insurance ran

out, could pay as much as 65 percent of the

worker’s former wage or 65 percent of the average manufacturing wage, whichever was lower;

UI paid less than that in many States, and was

generally limited to 26 weeks.

The law emphasized training. Congressional

debate on the bill also showed that its backers

expected training to be a prominent feature of

TAA; the floor manager in the House of Representatives said that most workers getting

TRAs would:

. . . [receive] an intensive training program

which will be aimed at getting these workers

trained in skills which will enable them, in as

short a time as possible, to take their rightful

place in the economy.5

Any eligible trade-affected worker could get

training free, if referred by the Department of

Labor. Moreover, workers could collect an additional 26 weeks of TRA (a total of 78 weeks)

while in training. The law directed the Labor

Department to disqualify workers for TRAs if

they refused suitable training when referred to

it, or failed to make satisfactory progress.

‘Rep. Eugene Keogh (D-NY) was House floor manager. See Congressional Record, June 27, 1962, p. 1145.

The law also included a relocation benefit.

For workers who could find a suitable job only

outside their commuting area, TAA offered

reimbursement of “reasonable and necessary

expenses” (to be prescribed by regulation) of

moving a worker and his family and household,

and a lump sum payment, equal to two and onehalf times the average weekly manufacturing

wage, for other related expenses.

The benefits under the 1962 law remained

mostly theoretical. To become eligible, a group

of three workers, or their representative, or the

company, had to petition the Tariff Commission, which then determined whether “as a result in major part of concessions granted under trade agreements” increased imports were

causing or threatening to cause unemployment

or underemployment of a significant number

or proportion of workers in a firm or subdivision. Until 1969, not one petition was approved.

Over the next 5 years, about 46,000 workers received TRAs; no complete record was kept of

those receiving training, but they were few,

according to the Department of Labor.

Years of Expansion: 1975-81

In the Trade Act of 1974, Congress revised

the framework for trade negotiations, to guide

the forthcoming Tokyo Round of GATT trade

talks, and at the same time restructured TAA.

The biggest change in TAA for workers was

to ease the eligibility requirements. The new

law no longer required proof that trade concessions caused injury to firms or workers, or

even that imports were a major cause, but only

that increased imports “contributed importantly” to the injury. It created two criteria for

injury: 1) an absolute decline in sales, production, or both, in a firm or subdivision; and

2) actual or threatened total or partial layoffs

of a significant number or proportion of the

workers,

Another major change was to raise benefits.

TRAs were now set at 70 percent of the worker’s previous wage and capped at 100 percent

of the national average manufacturing wage;

combined TRA and UI benefits could be as

much as 80 percent of the previous wage. The
23

period of eligibility for TRAs was still 52 weeks,

except for people in training or workers 60 and

over, who qualified for an extra 26 weeks. Recognizing that very little practical adjustment

assistance had reached trade-affected workers

under the 1962 law, Congress established a new

trust fund drawing from tariffs to pay for the

program. Also, the law added a new benefit

which would repay workers 80 percent of the

costs of searching for jobs outside their home

areas (up to a maximum of $500). Finally, certification of workers for TAA was moved from

the Tariff Commission to the Department of

Labor.

Over the next 7 years, many more workers

received TAA benefits, and far more money

was spent, than in the first dozen years of the

program (figures 1 and 2). At least some workers displaced by trade did receive compensation. But very few received any kind of adjustment assistance, and compensation was usually

so late—typically beginning 14 to 16 months

after layoff—that most workers were back at

work, either at the old job or a new one, by the

time they got their first payment, According

to surveys of TAA during this period, two-thirds

of the workers receiving TRAs were eventually recalled to their old jobs and thus were not

really displaced—for the time being at any rate.6

In fiscal years 1975 to 1981, over 1.3 million

workers were certified eligible for TAA benefits. Fully half of these workers were certified

in one fiscal year (1980) when auto workers responded to rapidly rising imports and widespread layoffs with unprecedented applications

for TAA benefits. Spending for the program,

‘Two of the most comprehensive reviews were U.S. Congress,

General Accounting Office, Restricting Trade Act Benefits to

Import-Affected Workers Who Cannot Find a Job Can Save h4il-

)ions (Washington, DC: 1980); and Walter Corson, Walter Nicholson, David Richardson, and Andrea Vayda, Final Report: Survey of Trade Adjustment Assistance Recipients, report to the

Bureau of International Labor Affairs, U.S. Department of Labor (Princeton, NJ: Mathematical Policy Research, Inc., 1979).

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987’

Year

aEstlmated.

SOURCE U S Department of Labor, Bureau of International Labor Affairs and Otflce of Trade Adjustment Assistance,
24

Figure 2.–Outlays for TAA Benefits for Workers, 1970-87

1,700 

1.600

1,500

1,400

1,300

 1,200

 1,100

c

900

800

500

400

300

200

100

0

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987a

Year

❑ Trade readjustment allowances Training, jobsearch, and relocation assistance

aEstimated.

SOURCE: U.S. Department of Labor, Off Ice of Trade Adjustment Assistance; and U.S. Congress, House Committee on Ways and Means, Background Mater/a/and Data

on Programs WIttrm the Jur/sd/ct/on of the Cornm/ffee on Wavs arrd Mearm, 1987 Ed/tion, 10Oth Corw., 1st sess., Committee Print WMCP, 100-4. Mar 6, 1987,

pp. 318, 320.

which was about $150 million in fiscal years

1976 and 1977, and about $260 million in the

next 2 years, soared to $1.6 billion in 1980 and

$1.4 billion in 1981.

Nearly all of this money went for TRAs. Some

48,000 workers (4 percent of those certified) entered training. About 5,200 got out-of-area job

search assistance and 4,400 relocation assistance; each of these services went to fewer than

one-half of one percent of the certified workers. Of the $3.9 billion spent for the program

in 7 years, only $43 million went for training,

relocation, and out-of-area job search combined

(table 1).

The TRAs, though no doubt welcome at any

time, did not serve the purpose of income support during the time the workers were unemployed, since 50 to 70 percent were back at work

by the time they got their first payment.’ Several factors accounted for the delays. First,

workers were slow to file petitions. Many did

not know until months after their layoff that

the program existed; and when they did discover TAA, did not know how to apply. The

U.S. Department of Labor did not try to acquaint workers directly with the program, but

urged the State employment security agencies,

which administer TAA through the local ES

and UI offices, to do so. The outreach system

did not work well. Most workers who heard

about TAA discovered it through their union,

The Mathematical study found that the average delay in receiving the first TRA payment was 14 months, and 50 percent

of the recipients were reemployed. The General Accounting Office (GAO) found an average delay of 16 months and 71 percent

reemployed. See Corson, et al., op. cit.; and U.S. Congress, General Accounting Office, op. cit.
25

Table 1 .–Workers Certified for TAA, Trade Readjustment Assistance, and Adjustment Services, 1975-87

Outlays

Workers for TRAs Number of workers Outlays (millions of dollars)a

Fiscal Workers

year certified

1975 (4th qu.) . . . . 34,879

1976 . . . . . . . . . . . 144,396

1977 ., . . . . . . . . 116,726

1978 . . . . . . . 165,866

1979 ., . . . . . 140,079

1980 ., . . . . . . . . 684,766

1981 . . . . . . . . 51,072

1982 . . . . . . . . . 19,465

1983 . . . . . . . . . 56,173

1984 . . . . . . . . . . . 19,688

1985 . . . . . . . . . . . 25,339

1986 . . . . . . . . 93,132

1987 . . . . 110,000-140,000f

receiving

TRAs

47,000

62,000

110,705

155,005

132,188

531,895

281,426

30,463

30,032

15,821

20,300

42,OOOe

55,000e

(millions of

dollars)

71

79

148

257

256

1,622

1,440

103

37

35

40

119e

176e

Entered

training

463

823

4,213

8,337

4,456

9,475’

20,366C

5,844

11,299

6,821

7,424

7,743e

n.a.

Job

search

158

23

277

1,072

1,181

931

1,491

697

696

799

916

1,384e

n.a.

Relocation

44

26

191

631

855

629

2,011

662

3,269

2,220

1,692

1,089e

n,a.

Job

training

$2-7

3.8

12.0

12.0

5.2

1.9

18.4

33.0

16.5

30.2

28.6

29.9

Job

Search

0.2

0.3

0.1

0,3

d

d

0.2

b

b

b

Relocation

$

b

0.2

0.6

1.2

0.7

2.0

1.0

3.0

2,3

b

b

b

aFor 19&5 and Ig87, “outlays’ are apprOprlatlOnS

blncluded In total for tralnln9

cof ~orker~entering tralnln~ ,n 1980, 5,840 (59pe~cent) paid forthelr own tralnlng costs, In 1981 18,940(94 percent) paid forthelr own tralnlng Tratnees were ellglble

forTRA living allowances

dlncludedIn total for relocation

elj s Department of Labor estimate

‘OTA estimate

NOTES Trade Readjustment Allowances (TRAs) provide Income support during unemployment or tralnlng Job search expenditures are for job searches outside the

workers’ commuting area

SOURCES U S Congress, House Committee on Ways and Means, Background Maferfal and Data on Progarns WIthIn the Jurwdlct(on of the Cornrnf(tee on Ways and

Means, 1987 Ed/t/on IOOth Cong , 1st sess Comm!ttee Print WMCP 100.4, Mar 6.1987, PP 318, 320, U S Department of Labor. Off Ice of Trade Adjustment

Ass{stance

co-workers, or the company, belatedly as a rule.

Workers and unions typically lost 7 months in

getting petitions filed, and another 2 or 3

months after the workers were certified, often

because State agencies failed to notify them that

they were now eligible for benefits.

The other main factors in the delay were that

the Labor Department generally took much

longer than the 60 days allowed under the law

to process petitions for certification. As more

petitions were filed, backlogs grew and delays

of 5 or 6 months before certification were common. State agencies added more delays in

checking out individual workers’ eligibility and

benefits. Thus, by the time the average claimant got his first check, 14 to 16 months had gone

by.

These delays were part of the reason for the

failure to deliver adjustment services. The

majority of workers had taken a job in the year

or more that it took for government help to

reach them; at this point there was little to be

done for them, other than giving them a lump

sum retroactive payment. Also contributing to

the failure was the fact that workers did not

know that training or other adjustment services were available. One study found that only

one-third knew about the possibility of training; one-fifth had heard of job counseling, testing, and job referral services; and one-eighth

knew about the out-of-area job search allowance

and reimbursement of moving expenses. a

Generally, the ES offices did not push these

services. A principal reason was that the States

never got any extra training or relocation funds

for TAA-certified workers. Despite the provision in the Trade Act for a TAA trust fund, the

Office of Management and Budget refused to

set it up, arguing that employment and training services were available under the Comprehensive Employment and Training Act (C ETA).

Yet CETA was designed primarily for disadvantaged workers; the Department of Labor set

aside only very limited CETA training funds

for the TAA clients. Moreover, applying to

CETA for training was both a bureaucratic and

psychological hurdle for TAA-eligible workers.

In fact, in the 2 years 1980-81, over 80 percent

8Corso n, ct al., op. cit., p. 127.

72-674 0 - 87 – 2
26

of TAA-certified workers in training paid their

own tuition and fees; TAA did give them income support, however, in the form of TRAs.

Another likely reason for the neglect of adjustment services was that the Employment

Service, which was supposed to provide them,

had other clients to serve and other legally set

priorities—in particular, to serve disadvantaged

jobseekers. According to GAO, many officials

and staff of the Labor Department’s regional

offices, State agencies, and local ES offices saw

no reason why displaced trade-affected workers should go to the head of the queue for such

services as testing, counseling, and referral to

training. 9 Considering the scant attention given

to training and the lack of funds for it, it is not

surprising that the Department of Labor never

enforced the provision under which TRAs

could be withdrawn if a TAA client refused

training that was recommended for him,

Even if training and relocation services had

been offered much more effectively, it is by no

means certain that many workers would have

made use of them, At that time, few adult workers with a steady work history had experienced

long-term displacement. Most had been through

layoffs and recalls before, and probably expected to be recalled again, eventually. The old

job usually offered better pay and benefits than

any new job available through training, so that

holding out for a recall seemed to many at the

time a better choice than retraining. And they

were right—at least for a brief time. Only later,

in the 1980s, did widespread displacement and

permanent loss of the old job become a reality

for millions of adult workers.

While the TAA program expanded in the half

dozen years after 1975, the mix of industries

affected by trade changed considerably. In the

earlier years, 1975-79, most of the certified

workers were from the leather, shoe, textile,

and apparel industries (see table 2). In 1980,

auto workers accounted for most of the enormous rise in certifications. The soaring number of TAA-certified workers and the great rise

‘U.S. Congress, General Accounting Office, op. cit., pp. 15-16.

in spending pushed the program into notoriety. The studies showing that the majority of

TAA clients had gone back to their old jobs,

that most were back at work when they collected TRAs, and that training and relocation

services were scarcely used, made TAA a prime

target for cost cutting as the Reagan Administration took office in 1981.

Cutback and Regrowth: 1981-87

In the Omnibus Budget Reconciliation Act

of 1981 (OBRA) Congress reconstructed the

TAA program for workers to cut its costs, pull

away from income compensation for temporary

layoffs, and once more emphasize training and

other adjustment measures for the permanently

displaced. The major change was to cut back

TRA benefits. The TRA was reduced to the

same level as the worker’s UI payment (differing under various State laws), and payment

could begin only after the worker’s UI was exhausted. The overall limit for UI plus TRAs remained at 52 weeks, with 26 additional weeks

for workers in approved training, The extra 26

weeks for older workers was abandoned.

OBRA extended the program for 1 year only.

Later legislation extended it for another 2 years,

and then for briefer periods through December 19, 1985, at which time authority temporarily lapsed, to be restored in April 1986.

No changes were made in the criteria for

TAA eligibility,10 but the number of workers

certified dropped steeply after 1981, and so did

spending. In fiscal year 1982, expenditures for

TAA for workers were $121 million, less than

one-tenth the levels of the 2 previous years, and

for the next 3 years dropped still lower, to about

$54 to $73 million, The number of workers applying for benefits declined from the 1980 peak,

possibly because of a widespread misapprehension that the program was abolished. More important, the percentage of workers approved

for certification by the Labor Department de10OBRA did tighten the criterion for eligibility y slightly, but the

change never took effect. The change was to require that imports be a “substantial” rather than an “important” cause of declines in employment and sales or production. The change was

rescinded before it was scheduled to take effect.
- I I
28

clined sharply. Approvals, which had held at

about 65 percent through 1970s and rose above

80 percent in 1980, dropped to 15 and 12 percent (table 3).

The decline in certifications was in line with

the new Administration’s efforts to cut spending; according to GAO, borderline petitions that

would previously have been approved were

now rejected.11 Also, all petitions for 50 or more

workers began to receive special scrutiny; for

a period all were personally reviewed by the

Assistant Secretary of Labor with responsibility for the program. Certifications of auto workers dropped steeply. Over 90 percent of auto

workers petitioning for certification got approvals in 1980, 22 percent in 1981.12 In 1982,

petitions covering just 65 auto workers were

approved; this compares with about 592,000 in

1980 and 19,000 in 1981 (figure 3; table 2 shows

details).

Another change in the TAA program for

workers was in the patterns of activity and

spending. In relative terms, training took on

greater importance. Some 214,000 workers

were approved for TAA benefits in the 5 years

1982-86. In the same period, a total of 139,000

received TRAs and 39,000 entered training.

About 9,000 received relocation assistance and

4,500 got help with out-of-area job search. (The

numbers of workers receiving training, out-ofarea job search, arid relocation assistance are

not additive; some workers may have received

11 U.S. Congress, General Accounting Office, ~nformation on

the 1974 Trade Act Worker Adjustment Assistance Program Certification Process (Washington, DC: 1982].

IZThe Labor De~artment stated that many petitions in 1981

were from auto dealers, which were ineligible because they were

service firms, and from auto parts makers, which were ineligible because the parts they made were not being imported. However, only about 700 workers in auto dealerships petitioned in

1981; all were denied. Petitions from final auto assembly plants

were denied in the same proportion [78 percent) as from auto

parts plants. In 1981, the Labor Department approved TAA petitions covering 11,929 workers from firms making motor vehicle parts and accessories (SIC 3714) and rejected petitions covering 41,563 workers. The same year, petitions covering 6,927

workers from plants making motor vehicles and car bodies (SIC

371 1) were approved, and petitions covering 24,384 such workers were rejected, In 1982, 64 workers from motor vehicle parts

and accessories were certified and 4,680 rejected; 1 worker from

motor vehicles and car bodies was certified and 4,245 were rejected.

Table 3.—Workers Certified for TAA as a Percentage

of Workers Applying

Workers applying Workers Percent

Fiscal year for certification certified certified

1970-75a 

. . . 121,330 53,899 44 ”/0

1975b . . . . . . 73,036 34,879 48

1976 . . . . . . . 219,641 144,396 66

1977 . . . . . . . 183,218 116,726 64

1978 . . . . . . . 255,452 165,866 65

1979 . . . . . . . 214,856 140,079 65

1980 . . . . . . . 840,794 684,766 81

1981 . . . . . . . 354,863 51,072 14

1982, . . . . . . 157,549 19,465 12

1983 . . . . . . . 266,954 56,173 21

1984 . . . . . . . 88,133 19,688 22

1985 . . . . . . . 72,001 25,339 35

1986 . . . . . . . 168,005 93,132 55

1987 C . . . . . . 190,000-255,000 110,000-140,000 55-58

aThrough March 1975 bFrom Apil 1975 to September 1975

COTA estimate, based on first and second quarters, fiscal year 1987

SOURCE” U S. Department of Labor, Off Ice of Trade Adjustment Assistance

two or three of the services.) Although the numbers of TAA-certified workers receiving training were no greater than in earlier years (see

table 1), the proportion of those certified who

entered training was much larger (18 percent,

versus under 4 percent), During the deep recession of 1982-83, more workers than ever before

took advantage of relocation assistance,

The increased emphasis on training reflected

easier access to training funds. In 1982, for the

first time, Congress earmarked funds specifically for training and relocation services. The

appropriation for several years was about $26

million, with $3,9 million for administrative expenses added in 1985. Cuts required under the

Gramm-Rudman-Hollings deficit reduction law

lowered the combined funds to $28,5 million

in 1986; the $29.9 million appropriation was

restored in 1987.

In its most recent years, 1985 through early

1987, the TAA program for workers survived

uncertainty, the lapse in legal authority, and

proposals by the Reagan Administration to

abolish it. Under a new Secretary of Labor,

TAA for workers began once more to expand,

In 1986 and 1987, petitions for eligibility and

requests for training rose fast, At the same time,

the percentage of workers approved for certification increased to about 55 percent—not far

below the 65 percent that was typical in the
29

Figure 3.— Workers Certified for Trade Adjustment Assistance, by Selected Industries, 1975-86

20

10

0

1975 76 77 78 79 80 81 82 83 84 85 86

Year

Apparel and textile products

SIC 23

‘

0 

40

30

20

Year

Blast furnaces and basic steel products

SlC 331

20

15

10

5

0

r

1975 76 77 78 79 80 81 82 83 84 85 86

Year

Non-rubber footware

SlC 314

10

0

1975 76 77 78 79 80 81 82 83 84 85 86

v

1975 76 77 78a 79 80 81 82a 83 84 85a 86 a

Year

Motor vehicles and equipment

SlC 371

aNumber of workers certified was less than 500

500

400

300

200

100

SOURCE U S Department of Labor, Off Ice of Trade Adjustment Assistance

1970s. In fiscal year 1986, over 93,000 workers

were certified, and $119 million was spent for

TRAs, compared to $35 to $40 million per year

in the 3 previous years. In the first half of fiscal year 1987 (October 1986 to March 1987),

more than 69,000 workers were certified (an

annual rate of up to 140,000) and the Department of Labor estimated that $176 million

would be spent for TRAs by the end of the fiscal year.13 Demands for training in early 1987

13TRAs are not funded by a line item appropriation, but are

drawn from the Federal “Unemployment Benefits Account

(footnote continued)

(F UBA), which is mostly spent for TRAs. General revenues support the FUBA account; if it is exhausted before the end of the

year, funds can be advanced from the Advances Account of the

Unemployment Trust Fund and Other Funds Accounts. FUBA

is currently in good financial shape because it can tap funds

that were intended for the Black Lung Trust Fund, but because

of a change in the law are not needed. Without this windfall,

it is not likely that FUBA would have had enough money to pay

for TRAs in fiscal year 1987, unless Congress provided it in a

supplemental appropriation.

The Labor Department’s estimate of $176 million for TRAs

in fiscal year 1987 appears very conservative. It is based on an

estimate of 55, 000 workers receiving TRAs for an average of 22

weeks, with the average payment $147 per week. Since 93, 000

workers were certified for TAA benefits in fiscal year 1986, and

(footnote continued)
30

were great enough that Labor Department officials expected funds to run out before the end

of the fiscal year, and were rejecting or paring

down requests from the States for training

funds.

The future of the TAA program for workers

was placed in doubt in February 1985, when

the Administration proposed in its 1986 budget to abolish TAA and rescind what was left

of the $26 million FY 1985 appropriation. The

reason given was that TAA was unnecessary,

since the Title III program under the Job Training Partnership Act could be used to serve all

displaced workers. The programs are not identical, however. TAA offers more generous support for training, out-of-area job search, and

relocation assistance, and provides extended

income support during training, TAA also had

continuing political support, on the grounds

that workers injured by a trade policy meant

to benefit the entire Nation deserve special

assistance or compensation. Congress did not

act on the rescission proposal, and it expired

in April 1985.

In December 1985 the program lost its legal

authority. Congress failed to pass budget reconciliation legislation that would have reauthorized the program, opened it to more workers,

and provided a new source of funding through

a small tariff on all imports. Although Congress

adjourned without passing the bill, the floor debate indicated strong congressional interest in

keeping the program alive; also, a continuing

resolution provided funds to keep it going. During the lapse of legal authority, the Department

of Labor continued to certify workers and to

provide training and relocation services (although not TRAs).

Authorization for TAA was restored in April

1986 in the Consolidated Omnibus Budget and

Reconciliation Act of 1985 (COBRA), which extended the program through the end of 1991.

This was the longest extension since TAA was

overhauled at the outset of the first Reagan

(footnote continued from previous page)

69,000 were certified in the first half of fiscal year 1987, the estimate of 55,000 seems low, Labor Department spokesmen told

OTA the estimate might be revised.

Administration; for the first time in 6 years, the

program appeared to have a stable future.

The act also made substantial but not radical changes in the TAA program for workers,

It extended the period of eligibility for benefits, because rules related to date of layoff had

previously kept some workers from getting their

full share. It renewed emphasis on training, requiring that State agencies must advise every

worker who applied for TRAs to apply for training, must let the worker know of suitable training opportunities within 60 days, and must approve training, so long as five criteria were met:

no suitable job is available, training is available,

the worker will benefit from training, can expect to complete it, and can reasonably expect

to get a job afterwards. Workers were not obligated to enter training, however, as a condition for getting TRAs. They were obligated to

take part in a job search skills workshop or job

finding club, unless no acceptable job search

program was reasonably available,

With the renewal and apparent stability of

the TAA program came a rising tide of applications for benefits. For fiscal year 1987, TAA

for workers was expected to cost about $206

million—nearly as much as the $223 million appropriation for the JTPA Title III program,

which is open to all displaced workers, regardless of cause. The projection of 110,000 to

140,000 workers certified for TAA in fiscal year

1987 compares to about 146,000 displaced

workers newly enrolled in Title III programs

in the most recent reporting period, July 1985

to June 1986.

Trade Adjustment Assistance for Firms

TAA for firms was created at the same time

as the program for workers, in the Trade Extension Act of 1962, It has gone through substantial changes in character since it was created 25 years ago. Like TAA for workers, it was

dormant in its first dozen years. As it expanded

in the 1970s, it was primarily a financial aid

program, offering loans and loan guarantees

to firms that were in trouble because of import

competition. Technical assistance was at first

a small component but soon came to be con-
31

sidered more valuable than financial assistance.

A feature added in the later 1970s was industrywide assistance; a few industries began to

get technical and export assistance, usually

through industry associations. In the 1980s, the

Reagan Administration initially backed technical assistance for firms but soon shifted and

made the program a target for abolition. In fiscal year 1987, TAA for firms was barely kept

alive; the Commerce Department granted only

brief, uncertain extensions of authority and

funds to service providers.

Over the years, TAA for firms has had less

visibility and political support than the TAA

program for workers; and even at its height,

cost a good deal less. It is now a small program

for technical assistance only, funded at $15.8

million in fiscal year 1987; loans and loan

guarantees were dropped in the last law Congress passed reauthorizing the program. Despite its modest scale and its bare survival at

present, TAA for firms is, with a few special

or minor exceptions, the only Federal program

that provides sustained, in-depth technical help

to small and medium-sized manufacturing companies. Thus its experience may shed some light

on the potential and problems of a governmentsponsored industrial extension service for

firms.

The TAA program for firms is administered

by the Office of Trade Adjustment Assistance,

in the Commerce Department’s International

Trade Administration (until 1981, the Economic Development Administration was responsible for the program). The Commerce Department does not directly provide technical

assistance to firms, but gives grants to 12 independent nonprofit agencies, Trade Adjustment

Assistance Centers (TAACs), which provide the

technical services. The Department decides on

petitions for certification, and keeps a tight rein

on the TAACs, retaining the power to approve

assistance plans and contracts for consultants.

The Early Years: 1962-74

Under the 1962 law, eligibility for the TAA

firm program was just as restrictive as for the

worker program. In order for a firm to qualify,

the Tariff Commission would have to find that

the firm was suffering “serious injury” from

imports as a result “in major part” of trade concessions. In determining serious injury, the

Commission was to take into account all economic factors it considered relevant, including idling of productive facilities, inability to

make a reasonable profit, and unemployment

or underemployment in the firm.

A firm that got certification could apply for

technical, tax, or financial assistance. Once certified, the firm could carry back or carry forward current operating losses for 5 years, and

apply for any tax refund or credit that might

result. The firm could also receive technical

assistance from a public agency or private provider, sharing in the cost as determined to be

appropriate by the Commerce Department. The

firm could get loans or loan guarantees under

the program only if the financial assistance

were not available privately or from some other

existing government program. The loans were

to be used primarily for plant or equipment,

but in exceptional cases could be made for

working capital,

Through 1969, the Tariff Commission approved no petitions for adjustment assistance.

No firms were certified, and none received any

help. After the eligibility rules were revised in

1969, 39 firms were certified; 16 were approved

for loans and loan guarantees, which amounted

to $32.5 million, of which $14 million went to

two plants. This was the extent of firm assistance in the first dozen years of TAA.

Years of Expansion: 1975-81

The Trade Act of 1974 relaxed eligibility rules

for firms on the same terms as for workers. It

also dropped tax assistance, limited loans to

$1 million and loan guarantees to 90 percent

of $3 million, and required that firms pay at

least 25 percent of the costs of technical assistance.

With the relaxation of eligibility rules and

transfer of the program from the Tariff Commission to the Department of Commerce, it was

expected that more firms would apply for assistance under TAA. They did, but not to the ex-
32

tent expected. The Trade Subcommittee of the

House Ways and Means Committee reported

in 1977 that in the first 2 years under the Trade

Act 73 firms were certified, and 18 applications

for financial assistance were approved, for a

total of $19.1 million in loans and loan guarantees. 14 A year later, the General Accounting Office also concluded that the program was little

used—and that the few firms getting TAA benefits (mostly loans) had not used them to become viable. 15

TAA was criticized for the amount of paperwork involved in applying for the program, and

resulting delays; firms complained of high interest rates for loans and requirements for

personal repayment guarantees. 16 The Trade

Subcommittee of the House Ways and Means

Committee said that TAA represents a “classic Catch 22 situation.” Firms could not get help

until their sales and/or production and employment were already declining. To get loans,

firms had to show they were unable to get

financing in the commercial market–but at

the same time had to provide assurances of

repayment.

The Commerce Department introduced TAA

assistance for an entire industry in 1977, using

existing authority of the Economic Development Administration. American makers of footwear were suffering from foreign competition,

imports having risen from one-fifth to one-half

of consumption since 1968 while employment

declined 29 percent. The International Trade

Commission recommended a quota, but President Carter rejected the proposal. Instead, he

proposed an Orderly Marketing Agreement, under which Korea and Taiwan agreed to limit

imports for 4 years, and the concerted use of

several government programs, including TAA,

IW. s, Congress, I-IOUse of Representatives, Subcommittee on

Trade of the Committee on Ways and Means, Background A4aterials on the Trade Adjustment Assistance Programs Under Title ZZ of the Trade Act of 1974 (Washington, DC: U.S. Government Printing Office, 1977).

lq-J. s. Congress, Genera] Accounting Office, Adjustment Assistance to Firms Under the Trade Act of lg74—Income Maintenance or Successful Adjustment? (Washington, DC: U.S. Government Printing office, 1978).

161 bid,, and U.S. Government, House of Representatives, op. cit.

to help both individual footwear firms and the

industry as a whole.

TAA industrywide assistance for the footwear industry included technological studies

(by the government, universities, and private

industry) and export promotion, in cooperation

with the industry association. Individual firms

were targeted for TAA help; in 1977-78, 60 percent of firms certified were in the footwear industry, compared with 20 percent previously.”

At the time there were 376 non-rubber footwear

companies in the United States; 56 were certified by the end of January 1978. Information

is incomplete on how much assistance these

firms actually received; according to GAO, approval of loans was slow, and technical assistance was not yet a major part of the TAA program for firms.18 The effort to revitalize the

American shoe industry did not stop the industry’s decline, though the losses may have been

moderated; by 1984 imports were 70 percent

of U.S. consumption, and employment in the

U.S. industry was about 95,000, down from

233,400 in 1968.

Other industries besides footwear also began

getting technical assistance in 1978 (table 4).

The biggest recipient was the textile and apparel industry, which got nearly $20 million for

technological assistance and export development through fiscal year 1986. TAA funds contributed to the cooperative public-private

project of the Textile & Clothing Technology

Corp. (TC2

), to develop automated methods of

sewing. Other projects included helping the

American electronics industry and an auto

parts industry association set up offices in

Tokyo, to serve as marketing, public information, and public policy centers.

In 1978 the Commerce Department also established a new way of offering TAA assistance

to firms, Instead of providing it through consultants on contract, the Department set up private non-profit Trade Adjustment Assistance

Centers (TAACs) in several regions of the Nation, to deal with firms applying for TAA help,

ITU,S. Congress, General Accounting Office (1978), OP. cit.

*81 bid,, pp. 42-43.
33

Table 4.—Trade Adjustment to Firms and Industries, Fiscal Years 1978-86—Technical Assistance

(thousands of dollars)

Assistance to firms Industrywide assistance

Direct Multi- Technical

TAACa TAAC firm Apparel/ industry assistance

agreements support assistance Total Footwear textiles Other projects Total Total

1978 . $ 7,359 $ 94 $3,100 $10,553 $2,437 $1,975 $2,675 $36

197 9 8,159 101 2,920 11,180 1,597 1,724 2,417 829

1980 . 9,736 180 600 10,516 2,719 3,029 1,037 56

1981 . 12,663 200 — 12,863 670 3,160 771 —

1982 . 8,695 — — 8,695 244 2,718 382 124

1983 ., 12,990 — — 12,990 33 2,854 1,335 285

1984 . . 12,951 — — 12,951 — 1,735 800 394

1985 . . 13,947 — — 13,947 — 2,000 592 100

1986 . 5,078 – — 5,078 — — 1,164 —

‘TAAcS are Tr’ije Adjustment Assistance centers

bEDAS rjlrect funding to firms w’s phased out when the TAACS were created

NOTE TAA flnanclal assistance (loans and loan guarantees) IS not shown on this table See table 5 for data on flnanclal assistance

SOURCE Off Ice of Trade Adjustment Assistance, International Trade Admlnistratlon, U S. Department of Commerce

$7,123

6,567

6,841

4,601

3,468

4,480

2,929

2,692

1,164

$17,676

17,747

17,357

17,454

12,163

17,470

15,880

16,639

6,242

Operating on grants from the Commerce Department, the TAACs would take firms through

the first stage of preparing petitions for certification, help them apply for loans and loan

guarantees, and offer technical assistance to

help firms improve their operations and gain

a better chance of survival. Drawing technical

competence both from their own staffs and

from consultants, the TAACs were able to

advise firms on problems ranging across new

product development, improved manufacturing methods and work organization, financial

controls, management information systems,

and marketing. With the establishment of the

TAACs, the program began to lean more

strongly to technical assistance, though loans

and loan guarantees remained a big part of it

until a change of direction under the Reagan

Administration.

Bare Survival: 1981-87

The TAA program for firms initially found

some support in the new Administration, as a

useful alternative to protectionist measures, In

line with this idea, TAA was moved from the

Economic Development Administration to the

International Trade Administration (both in the

Department of Commerce). Financial assistance was deemphasized, Loans and loan guarantees were cut back from over $40 million per

year to about $20 million; firms getting financial assistance dropped from about 40 per year

to a dozen (table 5). The technical assistance

program was pared for one year, but less drastically, and was then restored to its previous

modest level of $16 million to $17 million per

year. In the Omnibus Budget Reconciliation Act

of 1981, Congress explicitly authorized the

industrywide technical assistance program

(previously carried out under EDA authority).

Otherwise, there were few changes in the law

affecting the TAA program for firms; this was

in contrast to the TAA program for workers,

which Congress revamped in several major

ways to reduce spending.

By the next year, the situation changed, In

1982 and every year thereafter, the Administration proposed to eliminate TAA for firms.

The arguments were, first, that the program did

not work. This argument focused mainly on the

loan and loan guarantee program, Because so

many firms went bankrupt shortly after getting

financial assistance, the Administration said,

the program suffered from a high default rate;

about half the TAA portfolio was in liquidation or written off at the end of 1983, and

another 11 percent was delinquent in meeting

payments. Also, the Administration argued, the

fact that a firm is harmed by import competition does not justify special government assistance; this is not fair to firms that suffer from

recessions or domestic competition, Besides,

firms that are harmed by unfair import com-
34

Table 5.— Firms and Industries Receiving TAA Technical and Financial Assistance,

Before Fiscal Year 1982 and Fiscal Years 1982-86

Before Cumulative

FY 1982 FY 1982 FY 1983 FY 1984 FY 1985 FY 1986 to date

Firms certified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265 195 413 398 319 178a 2,768

Petition acceptance to certification (average

number of days) . . . . . . . . . . . . . . . . . . . . . . . . . . 52 54 57 74 48 88a

57

Adjustment plans accepted . . . . . . . . . . . . . . . . . . (not 114 106 191 158 56 —

available)

Total firms receiving DOC Direct Technical

Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 0 0 0 0 0 176

Total firms assisted by TAACsb . . . . . . . . . . . . . . 1,665 523 734 814 749 442 4,927

Pre-certification . . . . . . . . . . . . . . . . . . . . . . . . . . 1,153 248 513 502 413 206 3,035

Post-certification . . . . . . . . . . . . . . . . . . . . . . . . . 434 213 157 252 233 99 1,388

Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . 78 62 64

$70,816 $12,163 $17,470 $15,8% $16,639

137 504

Total technical assistance ($000) . . . . . . . . . . . . $6,243 $139,428

Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,951 13,947 5,078 99,320

Industrywide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,157 3,468 4,480 2,929 2,692 1,164 40,108

Firms receiving financial assistance . . . . . . . . . . 295 12 16 13 340

Total loans ($000) . . . . . . . . . . . . . . . . . . . . . . . . . . . $321,778 $19,289 $15,784 $23,900 $3,400 $ 900 $385,051

Direct loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,781 2,527 7,500 400 900 206,957

Guaranteed loans . . . . . . . . . . . . . . . . . . . . . . . . . 133,997 16,762 7,935 16,400 3,000 0 178,094

aB~t~~~n Dec 19, lg~, andAPr, 7, 1988, lhe~e~a~ala~se,rl thea~th~~l~ation for the trade adjustment assistanceprograrn for firms during which petition processing

was suspended

bDouble counting is unavoidable, sin~emostfirm~ re~eive more than Onernqorcategory of TAAC assistance, Only completed projects have been counted beginning

in fiscal year 1979, In.process projects are carried over to the next year, and inactive projects are not Included.

cFinancial asslstanceto firms was discontinued on Apr, 7, 1988, upon enactment of the Consolidated Omnibus Budget Reconciliation Act of 1985.

SOURCE Office of Trade Adjustment Assistance, International Trade Administration, U S, Department of Commerce.

petition can appeal for protection under the

trade laws.19

In its fiscal year 1986 budget, submitted to

Congress in February 1985, the Administration

asked for an immediate end to both TAA programs, and a rescission of fiscal year 1985

funds. Under the Congressional Budget and Impoundment Control Act of 1974, Congress has

45 working days to consider an Administration

request to rescind funds already appropriated

for the current fiscal year; unless both Houses

approve the request within the 45 days, it fails.

During the time the rescission request ran, the

Department of Commerce approved no new

grants for TAA firm assistance; but that had

little practical effect, because most of the

TAACs, which provide the technical assistance,

continued to operate on yearlong grants that

had already been awarded. The loan program

became virtually a dead letter, however. Al19The Administration arguments against the TAA program for

firms are cited in U.S. Department of Commerce, Office of Inspector General, International Trade Administration Trade Adjustment Assistance: No Cure for Import-injured Firms, report

No. D-068-5-006 (Washington, DC: Department of Commerce,

1985), p. 2.

though money was available for financial assistance, only two firms got loans or guarantees

in fiscal years 1985 and 1986, after delays of

up to 2 years.

The TAACs and the firm assistance program

had no protection when authority for both TAA

programs lapsed in December 1985. The Department of Labor continued training and relocation assistance (but not Trade Readjustment

Allowances) for TAA-certified workers, under

funding Congress had provided in a continuing resolution. The Department of Commerce

ordered all TAACs to stop services to their

clients and close down their offices entirely by

March 31, 1986.

In the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), signed into law

on April 7, 1986, Congress revived both the

worker and the firm TAA programs. The law

ended financial assistance for firms; only technical assistance remained. The Senate and

House Appropriations Committees, in providing $15.8 million for the firm program in fiscal

year 1987 ($13.9 million for grants, the rest for

administration) directed that the Department

of Commerce continue to provide technical
35

assistance through the TAACs. The Department

interpreted this direction to mean that no

money was available for industrywide programs.

20

Despite the new legislative lease on life, TAA

for firms barely survived the next year. First,

the Department of Commerce instructed all

TAACs to resubmit their proposals for grants;

in effect, they had to start over. Most of the

TAACs received new grants by the following

August, but the grants were short-term, running only through the end of December 1986,

In January 1987, in submitting its fiscal year

1988 budget, the Administration again proposed to end the TAA program for firms, and

asked for rescission of fiscal 1987 funds. The

TAAC agreements were extended for 2 months,

XII n a supp]ementa] appropriate ions hill for fiscal year 1987,

the House Appropriations Committee stated in its report: “The

Committee did not intend to prohibit fiscal ~rear 1987

funds . . from being used for industry project grants. The Comm ittee expects ITA to make funds available for this acti~’ity out

of the total amount appropriated for TAA for FY 1987, at approximately the same level as was made a trainable for this activity in FY 1985 and FY 1986’ ‘—that is, about $1 million per year,

through the end of February 1987; most of the

extensions were on existing funds, with no new

money. Then some small grants were doled out,

with extensions through the end of March. The

rescission request expired that month with no

action by Congress. The Department of Commerce then gave the TAACs an extension to

June 15,1987, with limited grants from the fiscal

1987 appropriations. Of $13.9 million available

for TAAC grants for the year, $2,2 million had

been released by the end of April 1987. In May

1987, the Commerce Department finally requested refunding proposals from the TAACs,

for the period June 1987-May 1988. Meanwhile,

in dealing with interruptions, short-term extensions, and lack of money over a period of 16

months, most of the TAACs found they were

virtually unable to deliver assistance to their

clients, 21

ZI In March 1987, OTA interviewed directors of 11 of 12 ‘1’AA~s

(all but one that had just been established): all reported serious

disruptions of ser~’ice to clients during the pre~ious months of

interrupted and uncertain funding, Other results of the inter-

~’iews are reported in the section entitled, Trade Adjustment Assistan t for Firms and Industries: lss[Jes,
TRADE ADJUSTMENT ASSISTANCE FOR WORKERS: ISSUES

The stated aim of Trade Adjustment Assistance for workers is to help people who lose

their jobs because of imports learn new skills

and find good new jobs. The main issue in

evaluating TAA is whether it does this job well.

By its nature, TAA cannot include all the features that make a displaced worker program

most effective. In a 1986 study of worker displacement, Technology and Structural Unemployment: Reemploying Displaced Workers,

OTA found several common ingredients of success in projects serving displaced workers,

regardless of the details of their design, These

common factors are:

1. help for workers is ready early, preferably

before people are laid off;

2. services are offered all together, in a onestop center, on the premises where the layoffs take place or as nearby as possible;

3. employers and workers are directly involved in planning and delivering services;

and

4. the projects offer a full range of services,

including testing, assessment, and counseling; training in job search skills and searching out job opportunities; and arranging

for training in new skills or in basic educational skills, when workers are lacking in

such skills.1

With TAA alone, it is scarcely possible to begin serving workers before layoff, since they

must first be certified as trade-affected; this

takes several weeks at the least and in the past

has often taken several months. There is no provision under TAA for employers and workers

to cooperate in the delivery of services; the Unemployment Insurance (UI) and Employment

11 U .S. Congress, Office of Technology Assessment, Technology and Structural Unemployment: Reemploying Displaced

Adults, OTA-ITE-250 (Washington, DC: U.S. Government Printing Office, February 1986), ch. 6 and passim. For another report

that emphasizes many of the same elements in successful displaced worker projects, see Economic Adjustment and Worker

Dislocation in a Competitive Society, Report of the Secretary

of Labor’s Task Force on Economic Adjustment and Worker Dislocation (Washington, DC: U.S. Department of I.abor, December 1986).

36

Service (ES) offices are charged with this task,

As for offering a full range of services, it is theoretically possible for the ES to do counseling,

assessment, job development, and so on for

TAA-certified workers; in practice, the ES has

never done much in the way of providing these

services to its clients, and with the staff and

funding cuts of recent years is now doing even

less. 2

To get the benefit of early response, one-stop

services in the plant or nearby, employer-worker cooperation, and a full range of services, displaced workers must go elsewhere than TAA.

Projects funded under Title 111 of the Job Training Partnership Act can offer all these features;

not many, so far, do. But it is at least possible.

The States administer Title III; many of them

are striving to create programs that include the

desirable features described above. TAA has

its own special advantages for workers—

mainly, the possibility of generous support for

training and extended income benefits for people out of work. Thus, States which are adept

at combining the best features of the two programs can offer first-class service to TAA-certified workers (assuming the funds for training and relocation assistance hold out). A few

States are doing this very well, and offering an

example to others,

An alternative to coordination would be to

revise the law so as to roll TAA and Title III

into one comprehensive adjustment assistance

program open to all displaced workers. Most

of the issues related to eligibility and certification of trade-affected workers for TAA would

disappear if the two programs became one. So

would the management problems of coordinating TAA and Title III. However, no proposal

before Congress for a single program includes

all the useful features of both programs, in particular, the long-term income support now

available to TAA-certified workers in training.

Also, the equity argument for TAA–that workers bearing the heaviest costs of the Nation’s

‘U.S. Congress, Office of Technology Assessment, Technology and Structural Unemployment, op. cit., p. 198.
37

free trade policy deserve special consideration

–has strong bipartisan support.

Many of the other issues that concern administrators of TAA and Title III programs come

down, essentially, to money. TAA-certified

workers in approved training courses are entitled to an extra year of income support; workers in Title III projects are not. This is a money

issue. Shoe workers are usually certified for

TAA; workers who make rubber heels for those

shoes are not. The eligibility rule that causes

quirks like these is principally a money issue,

In the detailed discussion that follows, it may

be helpful to keep in mind the larger, simplifying issues of how much the Nation is willing

to pay for help to displaced workers, and

whether workers injured by our trade policies

need special adjustment assistance,

The Equity Argument for TAA

The equity argument is the main rationale for

a Program of benefits restricted t. tradeaffected workers, Despite some difficulties and

outright failures in program administration,

TAA as a separate program is popular with its

beneficiaries. Labor unions representing large

clusters of trade-affected workers are strong advocates of TAA. Many individual workers feel

more at home in the local Unemployment Insurance office, where Trade Readjustment Allowances are administered, or in the Employment Service, which supervises TAA training

and relocation benefits, than in an unfamiliar

JTPA project center.

The equity argument can be turned upside

down, however. In asking for an overhaul of

the TAA program for workers in 1981, President Reagan appealed to fairness as the reason for abolishing extra benefits under TAA.

He said:

[W]e wind up paying greater benefits to

those who lose their jobs because of foreign

competition than we do to their friends and

neighbors who are laid off due to domestic

competition. Anyone must agree that this is

unfair. 3

-.

I Add ress Before a J o i n t Session o f the (;ong ress on t h e Program for E(, onorn it. Reco\rery, ~’eb. 18, 1~81 , ~’[lb]l(; }’(J/X?IS of

the [%~si(ients of the 1‘niteci .States. Ronald Keagatl, 1981, p. 111.

Another objection to a special assistance program for trade-affected workers is that it is difficult to pinpoint the cause of worker displacement, This is more true today than when the

program was created; in 1962, U.S. involvement

in world trade was much slighter than it is now,

and trade-affected workers easier to identify,

In today’s world, worker displacement results

from a combination of causes, hard to disentangle—competition from imports, domestic

competition, and automation in response to

competition, as well as changes in consumer

tastes and failures of management. Under the

law and Labor Department regulations, the certification of workers for TAA seems to be quite

reliable in excluding workers who are not affected by trade, but it is not so good at including all those who are affected, at least indirectly.

Inevitably, the distinctions between those who

get benefits and those who don’t are sometimes

unfair or illogical; and the whole process of applying the distinctions takes time. These are unavoidable features of a program targeted to just

one class of workers—those affected by trade,

As part of its evaluation of TAA for workers,

OTA interviewed the administrators of TAA

and Title III programs in 39 States, on strengths

and weaknesses of the two programs and coordination between them.4 Many of these officials favored combining the two programs, both

for administrative simplicity and for equity, Because of the intricacies of eligibility for TAA,

there may be two classes of workers within a

single plant, or even among partners on the assembly line. Foreign competition has strong indirect impacts, said one State official, so why

restrict some benefits only to those directly

4

0TA requested inter~’iew’s ~v it h progra m ad m i n 1 St r,it o r> i n

40 States, including all that had any substantial nl]mber of TA.~-

certified workers in fiscal years 1985 and 1986; i n t ert iews 1~’ere

conducted in all but one of these States. hlost of the inter~’iew. s

were by telephone; man]’ of the States proi’ided writt Cn ans~t. ers

to a brief suri’ey as well. OTA staff \’isited one State (hlassachusetts) for interviews. The States inter~ie~l’ed ~~’ere Alabama,

Alaska, Arizona, California, Connecticut, Il(:lii\\iir(:,F’lorida,

Georgia, Idaho, Illinois, Indiana, Kansas, Kentuck}, Imuisiana,

Maine, Maryland, Nlassachusetts, Michigan, hfinnesota, Nfissouri, Montana, N“ebraska, NeII’ Hampshire, New. Jersey, N’ort 1]

Carolina, North I)akota, Ohio, Oklahoma, Oregon, Penn\ }l\ania,

Rhode Island, South Carolina, Tennessee, Texas, I’errnont, i’irginia, Washington, \4’isconsin, t$’~oming.
38

affected—” It makes for bad feelings. ” In one tioned, however, against losing special TAA

State (Pennsylvania] a steel company that had benefits, such as greater support for training,

been certified as import-affected in one year if the two programs are combined. One said:

was turned down the next—just before it closed. “Our fear is they will take the worst parts of

The reason was that there was no evidence of each program. ”

an increase in imports in the year of closure.

“This makes absolutely no sense,” said these A variant of the equity argument in support

officials. (See box A for another example, the of TAA is that the program is politically necesauto industry.) Several administrators cau- sary to defuse demands for tariff or quota pro-
39

tection against imports, Brookings Institution

authors Lawrence and Litan, for example, say:

“Rather than acceding to protectionism, lawmakers should develop effective policies for easing the dislocations induced by trade.”5 They

argue that protection can cost much more than

even a generous adjustment program.

Extra Benefits Under TAA

Vocational Skills Training

In 38 of 39 States surveyed, officials cited the

superior support for training under TAA as a

great advantage for eligible workers. First, TAA

provides income support at the level of UI benefits for as long as 78 weeks, which includes

26 extra weeks for people in approved training courses, Title III offers very little in the way

of income support; though services that support training, such as child care and transportation, can be approved for reimbursement,

they seldom are.6 As a rule, the only publicly

provided income support for displaced workers in Title III training is UI, which lasts no

more than 26 weeks (except when unemployment rates are exceptionally high), In addition,

TAA can pay for tuition and fees for training

courses that last as long as 2 years. And, until

recently at least, there was more money available for training costs, per person, in the TAA

pot than in Title III. Although there is no explicit time or money limit for training courses

under Title III, managers have to juggle the demands of many clients for limited resources.

Also, most Title III training courses are planned

to be short enough to fit into the 26 weeks of

eligibility for UI. In 1985, the average length

of classroom training under Title 111 was 9

weeks. 7 

States report that the more generous support

for training and income maintenance under

5Robert Z, Lawrence and Robert E. Lita n, ‘‘Living With the

Trade Deficit: Adjustment Strategies To Preserve Free Trade, ”

The ~rookjngs ~e~riewr, fal] 1985.

‘U.S. Congress, Office of Technology Assessment, Technoiog~’ and Structural Unemplo~’ment, op. cit., p. 436,

‘U.S. Congress, General Accounting Office, Dislocated il’orkers: Local Programs and Outcomes Under the Job Training Partnership Act (Wash ington, DC: 1987), p. 47.

TAA allows workers to enroll in courses that

will give them more advanced skills and the

potential for a higher wage. Some workers are

able to complete college degrees with TAA help.

Also, having a longer period for training means

that there is time for people to be assessed, and

for them to makeup their minds to put up with

the sacrifices and make the commitments that

training requires, Moreover, it allows time for

those who need it to get remedial education before undertaking vocational skills training, One

State JTPA manager explained that, from her

point of view, there is a different mind set about

training in the two programs, because (until

quite recently) TAA training funds were sufficient to provide training to all the eligible workers who wanted it, “With Title III, you have

to spread it thin. With TAA, it’s a gift. ”

One or two State officials demurred on the

value of TAA-funded training, One (in Illinois)

said that workers sometimes “take advantage”

of expensive training and lucrative income benefits that may not really be in their best interest. Another (Oregon) said, more critically, that

workers play the TAA and Title 111 programs

against each other, dropping out of JTPA when

they are eligible to enter longer term TAA training, with its extended income support.

The idea that workers enter training in order to get the extra 26 weeks of TRA benefits

was only rarely encountered among the State

officials OTA interviewed, but it has been a cautionary note in the reports of some analysts of

TAA.

8 A more common criticism is that T A A

training has been ineffective in preparing workers for jobs. Lawrence and Litan cite Labor Department figures to show that the percentage

of workers completing training under TAA, and

then finding jobs related to their training, was

7,6 percent from 1977 to 1981, and dropped to

only 4.1 percent from 1982 to 1984.9 Labor Department officials say, however, that these

figures cannot be taken at face value. Most

Wee, for example, Lawrence and Litan, op. cit.; also, Robert

Z, Lawrence and Robert E. Litan, Salrin,g 1+’ree Trade: A fJragmatic Approach [Washington, DC: The B rookings Institution,

1986), pp. 58-59.

‘Ibid.
40

placements of TAA trainees are probably never

even reported because there is no follow up of

participants; the placements that are reported

must meet a very rigid definition that was developed to distinguish which placements could

be credited solely to the efforts of ES offices.

It is notoriously difficult to evaluate the effect of training programs on job placement and

earnings; most past studies are of disadvantaged workers, and show mixed but modestly

favorable results. Experience with displaced

worker programs, and the few statistical studies

available, suggest that in well-run programs,

where applicants and training courses are carefully matched, and the training is planned to

meet demands in the local labor market, training in a new skill pays off. For a substantial

proportion of displaced workers, on the order

of 20 to 30 percent, skills training is the best

way to regain the ability to earn a middle class

wage. *O

The principal disadvantage to training under TAA alone, according to the State officials,

is lack of guidance. In 25 of 39 States, officials

of TAA or JTPA, or both, said that Title 111

projects offer far more individual counseling

and assessment than the ES does for the TAAcertified workers it serves. According to GAO,

84 percent of Title III participants get some individual job counseling.11 Several State officials

commented that while the sole purpose of Title

III is to serve displaced workers, the ES was

established as a job exchange service for everyone to use. The ES has neither the staff nor the

money to concentrate on the needs of tradeaffected workers—especially since the funding

cuts and 20 percent staff reduction since 1981;

much of the staff cut was taken in counseling,

Although TAA has administrative money

equal to 15 percent of program costs, the Labor

Department releases these funds only after

training is approved for individual workers, not

before. The lack of budgeted administrative

10Us. Congress, office of Technology Assessment, Techno~-

ogy and Structural L’nemp]oyrnent, op. cit,, pp. 170, 250-260,

and passim. II us. congress, Cenera] Accounting Office, Dislocated ~~orkers, op. cit., p. 5 0 .

funds for TAA, combined with the general

shrinkage of funds and staff, discourages planning for TAA activities; most ES offices do not

keep any full-time staff dedicated to serving

TAA-certified workers. Said one TAA official

(New Jersey):

Our biggest frustration is lack of funds for

personnel. We need specialists who can convince the workers to enter retraining and, if

they need it, basic education.

The paucity of counseling in the ES offices

means that many TAA-certified workers are on

their own in choosing from a list of approved

training courses. Many people experienced in

training of displaced workers consider this bad

practice—especially considering the fact that

many displaced workers have held just one job

throughout their adult lives, and have little

knowledge of the job market or demand for

skills. “We make no bones about it, ” said one

veteran project director. “We help them choose

any training they’re going to take. The results

are better, ” A State director of displaced worker

services put it this way:

TAA relies on the individual worker to know

where to go. That’s too random a system, It

leaves people in a self-service position. In Title III we are the motivators.

Two TAA officials (Maryland and Pennsylvania) said that the ES offices in their States

do as much as they can to assess individuals

and match them with appropriate training, but

perhaps assessment by the ES is not entirely

necessary since the institutions offering courses

have their own admissions requirements anyway,

At the time of OTA’s telephone survey, early

in 1987, the States’ greatest complaint about

TAA training was that the money was running

out. The law requires that TAA-certified be advised of opportunities for training. But State

after State had proposals for training turned

down or pared down, for lack of funds. Training funds had also run short toward the end

of the 1986 fiscal year, but the situation was

more acute in 1987. Of the $26 million appropriation for training and relocation benefits for

fiscal year 1987 (ending Sept. 30, 1987), 70 percent was obligated by January. Of the remain-
41 —

ing $8 million, the Labor Department set aside

half for relocation benefits, which are considered entitlements under the law. That left $4

million for training for the last 8 months of the

fiscal year.12

Some States could turn to Title III funds for

at least some of training needs for displaced

workers (assuming sufficient coordination between the two programs). But others had run

out of their Title III funds for the year and had

nothing left to obligate. Three-quarters of Title

III funds are allocated among the States by a

formula in the law, based on the State’s share

of the national labor force and it unemployment

rate. It was these formula funds that many (not

all) States had fully obligated well before half

the Title 111 program year was over.13 The other

one-quarter of Title III funds is given out at the

discretion of the Secretary of Labor, but most

of this was also obligated.14

Out-of-Area Job Search and Relocation

As with training, there is no explicit limit on

what Title 111 projects can pay to reimburse

workers for costs of job hunting outside their

commuting area, or for moving expenses. But

again, the need to “spread it thin” dictates

I Lrrhe fu ] ] ;Il)p ropriat io o for training and relo~at ion, i IIc]Ud 1 Ilg

$3.9 million for administrate i~e costs, was $29.9 million. As this

report was completed, in May 1987, the House of Representat i~es had passed a supplemental appropriations bill that woulcl

pro~ride an extra $ZO million for TAA training and relocation

ass i sta nce for fiscal ~’ea r 1 !387, The Senate Appropriate ions Committee had reported a similar bill, but the Senate had not yet acted.

1s J ‘r [1A programs at-e operated on a program year which runs

from July. I to June 30 of the following year. Congress appropriates funds for these programs in advance, by fiscal year, For

example, Congress appropriated $100 million for Title 111 programs for fiscal ~ear 1986, which began Oct. 1, 1985 and ended

Sept. 30, 1986. States began spenc]ing fiscal year 1986 funds on

July 1, 1986, which \\’as the beginning of the 1986 program year

Thus, program year spending begins about SI months after it is

appropriated. I n early 1987, many States had exhausted their

a] locations of fiscal year 1986 money. Although funds for fiscal

year 1987 were al read}’ appropriated, at $223 million for the year,

States could not start spending that money until the new’ program ~ear began on luly 1, 1987. Not all States hacl exhausted

their formula money; a number have not been very active in proliding Title III ser~’ices, and have amassed unspent funds. See

the discussion of spendin~ for Title 111 programs in U.S. Congre~~, Office of Technology Assessment, TechnoIog~ and .5’tructura] [ ‘nen?p~()~’ment,, op. cit., pp. 186-189,

1~ ] n In i(j. \f a r(; h 1987, t h er~ m,as about $7 m il} ion ]eft 111 the

Se(, retar~’s dis(:retionar~’ fund, to last through June 30, but there

~t’ere al read! proposals i n the pipe] i ne for much of the rema in(ler,

against spending too much for any one person

on costs of relocation, Few projects, in fact, put

much emphasis on relocation. Under ordinary

circumstances, without a good deal of help, information, and assurance of both a job and

acceptable, affordable living conditions on the

other end, rather few blue-collar workers consider relocating to get a new job. Middle-aged

and older workers are especially disinclined to

move. Not only are the costs often high—selling

a home in a depressed market, abandoning family and community ties, giving up a spouse’s

job—but the rewards are relatively small for

those who have few working years ahead of

them.

Under TAA, out-of-area job search and relocation benefits are generous. They can cover

up to 90 percent of outlays, with a cap of $800

for each; and the Labor Department considers

them an entitlement, which means that any certified worker who properly applies for them

gets them. The number of workers getting these

benefits has never been very large; about 13,300

people received relocation allowances from

1975 to 1986, and around 9,600 got out-of-area

job search benefits over the years (no doubt

many were the same people). In the first 3

months of fiscal year 1987, nearly 900 got relocation allowances—an annual rate of about

3,600, which would be an all-time high if it

persists,

The recipients tend to be concentrated in a

few States—recently, California, Minnesota,

Pennsylvania, and Arizona, In Arizona, for example, both the Title III and TAA programs

have been exceptionally active in supporting

relocation of displaced workers. As many as

60 percent of the State’s Title III clients have

lost jobs in the deeply depressed mining areas,

so that moving to Tucson or Phoenix, where

unemployment rates are relatively low, is an

attractive option. Because of competing demands for Title III money, State officials put

a limit of $650 per worker from the JTPA funds

for moving costs. The TAA allowances make

it possible to offer relocation help to many more

workers—about 30 percent of TAA-certified

workers in Arizona use it, according to State

officials—and the allowances are usually larger.

72-674 0 - 87 - 3
42

Extended Income Support

Historically, extended income support for the

unemployed has been the major benefit of the

TAA program for workers. From 1975 to 1986,

nearly 1.5 million trade-affected workers received TRAs, and 55,000 are projected to get

TRA benefits in fiscal year 1987. 15 The basic

benefit is a guarantee of 52 weeks of income

support payments at the level of the individual

worker’s unemployment insurance, Since UI

usually lasts only 26 weeks, TRAs cover an

extra 26 weeks of unemployment. (As noted

earlier, workers in training can receive TRAs

for 52 weeks, added to the regular 26 weeks

of UI.) TRAs are an entitlement. Once a worker

is certified, and applies for his TRA within the

prescribed time, he automatically gets it. 16

One argument for TRAs is that trade-affected

workers are likely to remain unemployed longer

than the average person who is out of work,

because they are more likely to have to change

their industry or occupation to get a new job.

Thus they need extra time to adjust—to learn

a new skill or look for a different kind of job,

Whether TRA payments actually help tradeaffected workers’ adjustment in this way is by

no means certain. Some analysts argue that extended income support may be counterproductive, postponing the time when the worker must

come to terms with the loss of the old job and

seriously look at training, reemployment, or

relocation options, One study of displaced

workers (not just trade-affected workers) found

that those who remained out of work the longest before finding a new job took greater than

average pay cuts when they did finally get reemployed. This suggests, said the authors, that a

long spell of joblessness may mean that a worker

has particularly severe adjustment difficulties,

15As noted above, this estimate is probably on the ]OW side.

IeAs noted earlier, TRAs are drawn from the Federal Unemployment Benefits Account, which receives an annual appropriation and funnels the money into TRAs. If the FUBA account

runs out, as it did in fiscal year 1986 when TRAs unexpectedly

mounted up to $119 million, TRAs can be drawn from another

account that supplies advances as needed for several entitlement

programs. If that account runs dry, the Labor Department can

ask Congress for a supplemental appropriation.

but that extended job search does not, on average, produce better jobs. 17

The arguments in favor of TRAs are, first,

that they are a part of the bargain government

made with workers, exchanging adjustment

benefits for a policy of free trade and, second,

that TRAs are a small price to pay for the advantages of free trade. One analyst, advancing

both equity and political arguments for TRA

benefits, advocates large lump sum payments

to workers displaced by trade, funded by a small

tariff on imports.18 The reason for paying TRA

benefits in one lump sum is that it avoids linking benefits with duration of unemployment,

and thus possibly discouraging workers from

finding a new job as soon as they can. According to this analysis, a payment of $24,000 each

would compensate displaced steel and auto

workers for the loss of roughly one year’s salary (omitting non-cash benefits),

Most of the State Title III and TAA officials

interviewed by OTA were eager to keep the

TRA income support feature for workers in

training, indeed to extend it to all displaced

workers, not just trade-affected workers. Less

support was voiced for TRAs that are not tied

to training. In Massachusetts, however, one ES

official said that trade-impacted workers deserve a little bit extra, and that TRAs are needed

especially for older workers whether they are

in training or not, because it is hard for them

to find new jobs. The Administration proposal

to abolish TAA and replace Title III with a new

worker readjustment program open to all displaced workers would allow Federal grants to

be used, to a limited degree, for extended income support for people in approved training

courses. To qualify, workers would have to opt

for training by the tenth week of their UI benefit period. This is another approach to disITMichae] podgursky and Paul Swaim, “Labor Market Adjustment and Job Displacement: Evidence From the January 1984

Displaced Worker Survey,” report to the U.S. Department of Labor, Bureau of International Labor Affairs (Amherst, MA: University of Massachusetts, Department of Economics, 1986).

InLouis Jacobson, “Trade Adjustment Assistance: An Assessmerit, ” paper presented to the National Council on Employment

Policy (Kalamazoo, MI: The W.E. Upjohn Institute for Employment Research, 1986].
43

couraging workers from tacking on training as

a way of extending income support payments.

So long as extended TRAs are given to displaced workers who meet a quite restrictive definition of trade-affected, one might argue that

it is only fair to give similar extended income

support (or alternatively, lump sum payments)

to all displaced workers. Almost no one does,

however. One reason is that the equity argument weakens as the connection between displacement and foreign competition becomes

less clearly visible. Another reason is that extending TRAs to more people would cost extra

money, Assuming, for example, that about

600,000 more people per year would collect

TRAs if all displaced workers were eligible, and

that the average payment to a TRA beneficiary

were $3,200, the extra cost would be about $1,9

billion per year.19

Another idea is to provide a temporary wage

supplement to trade-affected workers who take

new jobs at lower wage; thus, the worker would

not have to be unemployed to get the benefit

of income maintenance. This proposal recognizes that displaced workers usually have to

take a cut in earnings when they get a new job.

A temporary wage supplement, perhaps equal

to half the value of a TRA payment, might encourage some workers to take a new job even

at a lower wage, rather than holding out longer

in hopes of getting a better one. These workers

would have the benefit of getting back to work

sooner than they otherwise would, gaining experience, and getting a start toward regaining

some of their former earning power.

A variant of the wage supplement idea is the

“reemployment bonus” that the Department of

19A Bureau of Labor Statistics survey in January 1986 found

that 10.8 million adult workers had lost jobs from 1981 to 1986

because of a plant closing or relocation, abolition of a position

or shift, or slack work. About 3.2 million of these, or about 647,000

per year o~er the 5 years, were without work for 27 weeks or

more after displacement. According to rough estimates by the

I,abor Department, approximately 55,OOO TAA-certified workers are expected to co]lect TRAs in FY 1987 for an average period

of 22 weeks, with payments averaging $147 per week. The estimate of $1.9 billion is based on the assumption that 592,000 extra workers per year (647, ooo less the 55, OOO who now recei~’e

TRA payments) would each collect $3,200 in benefits, if extended

income support ~tere open to all displaced workers.

Labor and the State of New Jersey have included in a demonstration research project in

the UI system. In the experiment, workers receiving UI are offered the chance, in their seventh week of unemployment, of collecting a

cash bonus equal to half their remaining UI entitlement (about $1,500 in New Jersey) if they

find a full-time permanent job within the next

2 weeks, The bonus declines by 10 percent a

week, reaching zero at the end of the 18th week.

Difficulties With TAA

Some of the difficulties States report with

TAA have already been touched upon. A source

of great frustration at present is the scarcity

of TAA money for training. The law requires

that workers be advised to enter training, yet

before the end of the first quarter of fiscal year

1987, the States were encountering delays,

denials, and steep cutbacks in their training

proposals, because the training money was fast

running out.20 In addition, many States concede

that they do not meet the needs of their TAA

clients for counseling and guidance, because

their funds and staff are stretched too thin. Second only to their concern about training money,

the States’ most numerous complaints had to

do with eligibility and certification of workers.

Delays

First, there are the delays in certification. The

law allows 60 days for responses to TAA petitions, but when a flood of petitions comes in

a decision by the Labor Department can drag

on for 6 months or more. In fiscal year 1984,

when 433 petitions covering about 36,000 workers were initiated, the average response time

was close to the required 60 days. But in fiscal year 1985, over 1,000 petitions, covering

115,000 workers, came in, and in fiscal year

1986 nearly 1,300, covering 108,000 workers.

Delays of several months in handling petitions

were the rule, not the exception. In September

1986 the Department of Labor took several steps

to speed up the response, including simplifyZOAS noted, the House had voted a supp]ementa] appropriation of $20 million as of Ma}” 1987, and the Senate was preparing to consider it,
44

ing the collection and reporting of data, and

delegating some of the work to the 10 regional

offices of the Labor Department. By May 1987,

officials reported that 85 percent of petitions

were getting a response within 60 days.

Despite this improvement, some delay is inevitable in getting TAA certification. Even if

100 percent of petitions were processed within

60 days, that much delay would still seriously

hamper the delivery of employment and training services to displaced workers. One of the

critical elements for success in displaced

worker projects is early action. A full range of

services should be ready, if possible, the day

of the plant closing or layoff, when demand for

assistance peaks. A lead time of 2 to 4 months

before the layoffs is needed for planning and

preparation. 21 The law gives Title III programs

wide latitude to respond quickly to plant closings; services can begin even before layoff if

the employer gives notice in advance. A few

States are organized to provide services effectively and quickly when plant closings or mass

layoffs are announced, but most are not.22 Many

States are showing a keen interest in improving

their rapid response abilities; the Labor Department is helping States learn how to do it; and

bills from both parties and in both Houses of

the 100th Congress proposed to strengthen

rapid response mechanisms, Already, the possibility is at least there in Title III programs.

In TAA it is not.

Another cause of delay is that many workers

who would be eligible for TAA benefits do not

know the program exists until long after they

lose their jobs. The Department of Labor does

not make aggressive efforts to inform State employment security agencies about the TAA program. In turn, some State agencies and local

ES offices are far from adequate in informing

ZIFor a fu]]er discussion, see U ,S. Congress, Office of Technology Assessment, Plant Closing: Advance Notice and Rapid

Response, OTA-ITE-321 (Washington, DC: U.S. Government

Printing Office, September 1986), pp. 12-16. See a]so the conclusions in the Report of the Secretary of Labor’s Task Force, op. cit.

ZZU, S. Congress, Office of Technology Assessment, plant C’lOsing, op. cit., pp. 28-32.

workers.

23 Some are misinformed. For example, a group of steel workers who lost jobs at

an Armco plant in western Pennsylvania were

certified in the spring of 1983, and applied soon

after for TRAs. ES officials told the workers

they could apply if they liked, but there was

no money to pay for benefits. This advice was

not accurate; TRAs are an entitlement, drawn

from the Federal Unemployment Benefits Account. Over a year later, some of these same

workers decided to apply for training, and requested TRAs for income support. Now, they

were told, their eligibility had expired. They

appealed, and in this case their TRAs were restored. But such delays can be fatal to a worker’s drawing benefits, because there are time

limits to eligibility for TRAs. 24

Eligibility: Drawing the Lines

Workers can be certified for TAA benefits

only after the Labor Department investigates

the firm they worked for, and finds that: 1) a

significant number of workers in the firm have

lost their jobs, or are threatened with job loss;

2) that sales or production, or both, of the firm

have decreased; and 3) that imports of articles

“like or directly competitive with” articles

produced by the firm in question were as important as any other factor in causing the declines. Labor Department investigations are

strict on this last point; proof is required that

a firm’s clients have switched to foreign

providers of the same article the firm makes.

Also, the influence of imports must be recent;

the Labor Department looks at records of the

firm for the past 2 years only,

ZsLoca] ES offices vary widely in their knowledge of the TAA

program and diligence in letting workers know about it. Some

do an outstanding job. For example, in 1985 congressional hearings the Lorain, Ohio ES office and counselor Ella Tomka got

high praise from a number of TAA-certified workers who were

steered into effective training through Ms. Tomka’s efforts. See

U.S. Congress, House of Representatives, Committee on Ways

and Means, Subcommittee on Trade, Hearings on Trade Adjustment Assistance for Workers, June 10, 1985, Lorain, OH (Washington, DC: U.S. Government Printing Office, 1985),

Z4Congress has recently responded to many reports of problems workers have had with time limits for TAA eligibility. As

reauthorized under COBRA in April 1986, the eligibility period

for TRAs was doubled; however, workers must still apply for

training within 210 days of becoming eligible for TAA, in order

to receive extended TRAs during training.
45

Further restrictions in the law exclude some

workers who clearly are affected by foreign

trade. Services are not covered. Oil well drillers,

for example, submitted petitions in droves after oil prices plunged in 1986, U.S. exploration

and production dropped precipitously, and oil

imports rose. But the Department of Labor considered drillers to be service workers, and their

petitions were denied. (Some petitions were

also denied because imports were not considered to be the cause of declining sales or production.) Services are covered only if they integrated into a goods-producing enterprise, The

present trend among many manufacturers is

to shed some of their service divisions (engineering design, for example) and buy the services from independent firms—whose employees would not be eligible for TAA if they were

displaced.

Another big exclusion is supplier industries.

This is why shoe workers were certified when

foreign shoes were coming to dominate the U.S.

market, but workers who make rubber heels for

the shoes were not certified. Rubber heels per

se are not imported; thus the firm that makes

them does not close down because of the import of a “like or directly competitive” article.

The same is true of tires made for new cars.

If General Motors sells 1 million fewer cars because of Honda or Toyota imports, the GM

workers are certified; but the Goodyear workers who once made tires for those GM cars are

not certified, The Labor Department applies the

same rule to suppliers as to services, that is,

they are covered only if they are employed by

an integrated company. For example, miners

producing coal for steelmaking in an integrated

company, USX, are certified because USX is

import-affected; but coal miners employed by

an independent coal company, Pittston, that

sells the coal to a steel company are rejected.

The legislation to reauthorize TAA that failed

to pass Congress in December 1985 would have

extended TAA eligibility to workers supplying

essential parts and services to manufacturers

experiencing declines on account of import

competition, Such an expansion might cause

some administrative problems, since second order import effects are probably harder to pin

down. It would also cost more money. The same

bill contained a new source of funding however; it authorized the imposition of a uniform

tariff on all imported goods, up to 1 percent

of their value. The Administration opposed

such a tariff, partly on grounds that it was illegal under the General Agreement on Tariffs and

Trade (GATT), and a Presidential veto was

threatened, The bill would have required the

President to negotiate with the other parties to

GATT over the following 2 years to allow a uniform fee on imports for adjustment purposes.

The idea of a tariff to fund TAA was still alive

and attracting interest in the 100th Congress.

Another idea that has been broached from

time to time, both to get rid of anomalies and

inequities in certifying workers for TAA and

to reduce certification delays, is to make findings of import injury for entire industries. The

finding of declining sales and production would

not be necessary for individual firms. In identifying trade-affected industries, it might make

more sense to look at import trends over the

past decade or so, rather than confine the observation to the past 2 years, as the Labor Department does for firms. Sometimes firms in

industries confronted by rising imports are slow

to react, and postpone technological or organizational changes that help the firm compete but

call for reductions in the work force. (See box

A for an example,) Thus, industrywide certification could extend TAA benefits to workers

laid off from firms that are able to survive foreign competition, perhaps by adopting new

labor-saving technology, or by trimming less

profitable operations, or by sending some of

their work offshore to places where costs (especially labor costs) are lower.

Another possible change, included in the

House-passed amendments to TAA in 1985 (but

not in the bill as reported by the conference

committee) is to extend eligibility to workers

laid off or threatened with layoff because of the

relocation of production to another country.

Directors of displaced worker programs point

out that the wait for TAA certification firm-byfirm not only delays the delivery of services to

workers, but makes it very hard to plan, since
46

you cannot confidently predict that a firm will

be certified. In extending eligibility and making it more equitable, the change would probably bring more workers into the program, and

cost more money. Also, identifying industries

that are trade-affected poses some difficulties .25

The time limits on eligibility, mentioned

above, have in the past been the cause of some

workers failing to get benefits even when coworkers succeeded. In certifying groups of

workers, the Labor Department establishes an

impact date for the import injury; the individual worker’s first layoff after that date starts

the clock running on his period of eligibility

for unemployment insurance and subsequently

for TRAs. Until COBRA was passed in April

1986, the worker remained eligible for TRAs

for 1 year after exhausting his eligibility for UI

under that first layoff. COBRA changed that

period to 2 years after exhausting UI eligibility under the first layoff following the impact

date. The reason for the extension is that plants

in decline do not always lay off everyone at

once. If the impact date is set too late, some

workers who actually lost their jobs due to the

decline lose their eligibility. If the impact date

is set earlier, some workers who have been laid

off once, then recalled, and then laid off again

later, have found their individual period of eligibility, reckoned from the first layoff, much reduced, compared to co-workers who were laid

off later. The 2-year period of eligibility provides more flexibility to avoid such difficulties,

but some persist. Some State officials suggest

that, in addition, the period of eligibility should

be determined by the last layoff, not the first.

A continuing source of inequality, sometimes

found among workers from the same plant, is

that the Labor Department certifies import injury by product. Suppose one plant makes toasters, toaster ovens, electric coffeepots, and waffle irons, and that only the first two are found

to be injured by imports. Then only the workers making those items are certified—yet the

whole plant may be moved or closed down, and

Zssee the discussion in the section entitled PO]iCY Issues fJII~

Options.

everyone loses his job. The workers who made

coffeepots and waffle irons are out of luck.

Ever since TAA began, a major difficulty has

been that many workers never find out about

it. Unions, employers, or as few as three workers in a group affected by imports may petition for certification. Unions have been the

most active petitioners. The General Accounting Office pointed out in a 1977 report that 80

percent of petitions were filed by unions, but

that only 35 percent of manufacturing workers were then represented by unions. In 1980,

GAO reported that a new sample (taken in 1978)

showed that 64 percent of petitions were filed

by unions—still a disproportionate figure. 26

The great variation over the years in total

number of workers certified for TAA benefits

reflects not only legislative changes but also

shifts in Administration policy and Labor Department practice. As noted above, certifications that had been running at around 150,000

to 200,000 per year soared to 685,000 in fiscal

year 1980, of which 592,000 were for auto workers; the Carter Administration policy in 1980

was to award TAA benefits generously to auto

workers losing jobs to imports. When the Reagan Administration took office, the policy

shifted to a clampdown on certifications. From

1981 to 1985, the Labor Department certified

20 percent or fewer of the workers applying.

When the approval rate rose in fiscal year 1986,

so did the number of workers certified; 92,000

workers were certified that year, compared to

25,000 in 1985. In the first half of fiscal year

1987 certifications were running at an annual

rate of 110,000 to 140,000.

The Job Search Program Requirement

When Congress reauthorized TAA in April

1986, in COBRA, it added a requirement that

workers must be enrolled in a job search workshop or job finding club in order to qualify for

TRAs, unless the worker has already completed

a job search program, or unless none is reasonZ13U, S. Congress, General Accounting Office, Restricting Trade

Act Benefits, op. cit., pp. 32-35.
47

ably available.27 These programs are meant to

help workers learn how and where to look for

jobs; many displaced workers have had just one

job in their lives, and they got it simply by appearing at the plant gate.

Neither Congress nor the Department of Labor has allocated extra funds to the Employment Service to provide job search programs

to TAA-certified workers; ES offices are expected either to furnish the programs themselves or to refer workers to other programs,

such as Title 111 or the Work Incentive Program

(WIN), that can furnish them. Findings that no

job search program is reasonably available cannot be made en masse; waivers must be written individually,

Of the 39 States OTA surveyed, 21 said they

had no problems with the job search requirement or had experienced few so far. Some of

these States had very few TAA-certified workers; others said they were meeting the requirement with job search programs already offered

in their ES systems; others had set up new systems to cope with the requirement, and found

they were working adequately so far. The other

18 States reported various degrees of difficulty.

Some were not able to serve workers in rural

areas and were giving them waivers; some

feared that a big plant closing would overload

their ability to provide the service. In five States,

officials said they were already overloaded, and

were waiving the requirement for many workers. Some officials expressed dismay that

another burden had been put on the TAA or

Title III programs with no extra money to cope

with it. No one had any quarrel with the requirement itself; nearly everyone thought that

job search programs are worthwhile. For example, a Wisconsin Title III official said,

We’ve had trouble figuring out how in the

world to pay for it. We don’t have near enough

money to do the Title III job, and now have

another job shoved at us, It makes perfect

sense to give TAA-certified workers job search

training; paying for it is the problem. . ., We

have a large need and small funds.

The Department of Labor’s Role

According to some State officials, the U.S.

Department of Labor made it difficult to get people into the TAA program in the early 1980s,

but this approach has recently changed. One

State administrator said:

The TAA program got off the track in 1981.

It just got back on last summer [1986]. They

[the Labor Department] are not being advocates, but the approach is now much more

open,

At the time of OTA’s survey, there were complaints that the Department gives too little help

to State agencies administering TAA, that as

a result workers never hear of the program, and

that if they do, they maybe misinformed by ES

or UI staff who do not understand the program

themselves.

Several officials reported difficulties because

of protracted delay in publishing TAA regulations. Eligibility and certification rules for TAA

are complex; yet a compilation of the regulations implementing the 1981 amendments to

the program (in OBRA) was not published until December 1986. To understand the Labor

Department’s rules on how to administer TAA,

local officials would have had to keep a scrapbook of notices appearing in the Federal Register over nearly 6 years. In May 1987 the Labor Department reported plans to publish a set

of proposed regulations for the TAA program

as amended by COBRA in 1986 within a month

or so.

ZzThe law defines a job search workshop as a short (1- to s-day] Coordination Between TAA and

seminar designed to teach participants skills in finding jobs;

among the subjects the seminar should include are labor market Title III Programs

information, resume writing, interviewing techniques, and techniques for finding job openings. A job finding club is defined In early 1987, coordination between the two

as a job search workshop that includes a I- to 2-week period of major programs serving displaced workers was

structured, supervised activity in which participants try to find

jobs, The term “job search program” means either a job search improving but had a long way to go, Success

workshop or a job finding club. in coordination is an important issue for sev-
48

eral reasons. First, Congress has reauthorized

TAA through 1991—the longest extension of

the program since TAA was overhauled in

1981, Second, the Administration has proposed

to replace TAA and Title III with one displaced

worker program; coordination of the two programs, taking advantage of the strongest features of each, is an alternative, Third, the funding situation in 1986-87 made coordination of

the programs a practical necessity in many

States. Funds available for the Title III program

year beginning July 1, 1986 were less than half

those available for the previous program year;

Congress cut the appropriation because, on a

national basis, there was a large, continuing

carryover of unspent Title III funds from one

year to the next. However, the States that had

been most active in serving displaced workers

were the ones that felt the financial pinch most,

since they had little unspent money from previous years.

States are almost wholly responsible for planning and operating Title III programs; TAA

services to workers are provided by State employment security agencies, through the local

ES and UI offices. In a May 22, 1986 letter to

the Governors, the Secretary of Labor urged

States to

, . . establish a common and coordinated delivery system for training, job search and relocation assistance . . . [that] will reduce duplication of effort, improve cost effectiveness and

improve delivery . . . 28

OTA’s survey of TAA and Title III officials

in 39 States found that all but four States make

some effort at coordination, However, only

about a dozen had some degree of real integration of services. The majority of States coordinated through a system one official described

as “paper shuffling”; that is, TAA officials

notify the Title III program when workers are

certified, and Title III informs TAA of major

plant closings and layoffs, While TAA officials

in many of these States notify companies and

unions of the program and the services offered,

they usually do not take active steps to make

~B’rhe H onorabl~ will iarn E. B roc k, Secretary of Labor, letter

to the Governors, May 22, 1986.

sure that someone has petitioned the Department of Labor for certification. Actual coordination of services in most States is limited and

uneven.

States give several reasons for their limited

degree of coordination, Many report that the

greatest barrier to coordination is the time it

takes to get certification. A New Jersey official,

for example, said that by the time the Department of Labor approves petitions, most of the

workers have completed their stay in the Title

III program, have exhausted their UI, and have

either found work or left the program, For this

reason, many States do not consider TAA an

integral part of their displaced worker program,

but view it as a fortuitous added benefit if certification is approved, Several States reported

that certification has sped up considerably

since regional Department of Labor offices took

over part of the task of investigating petitions

(starting in October 1986). One State (Washington) said that decisions were not only faster,

but more consistent, since the regional offices

have fewer petitions to deal with and have a

better understanding of the history of certifications in their own regions.

Other reasons for the limited coordination

in a majority of States were also offered. Some

States, such as Pennsylvania and California,

give a great deal of leeway to the local Service

Delivery Areas (SDAs) in administering Title

III services.29 Thus, coordination of services depends very much on the SDA’s knowledge of

TAA and how it can be used to complement

Title III. Some States referred to off-again onagain funding and authorization for TAA (the

lapse in authority from December 1985 to April

1986 and the funding cuts of the early 1980s)

and difficulties in coordination arising from uncertainty, In one State (Oregon), a Title III official said his program occasionally makes use

of TAA benefits, but he does not generally favor the longer term training TAA provides because “it is tougher for workers to return to

work and they grow reliant on UI. ” For this

2GS13As operate JTPA Title 11A employment and training programs for low-income workers. At the discretion of the Governor, they may also be put in charge of Title I I I programs.
49

.- —

and other reasons (uncertainty of funding, delays in certification), coordination in Oregon

is limited. Some States have been confronted

for the first time with large numbers of displaced workers. In Alaska, which now has thousands of displaced oil and timber workers, a

Title 111 official said:

I only just found out about TAA. There was

no real need for it until the bottom dropped

out of the State’s economy.

In the few States that make no effort at coordination, the reason is usually that they have

had very few certified workers. There are

States, however, that have a large number of

TAA-certified workers and receive substantial

TAA funds but operate the two programs as

quite separate entities. For example, California officials saw no reason to combine the programs since they consider that Title 111 serves

less skilled workers—many of them Hispanics

and Asians who do not speak English and

would require remedial education before retraining—while TAA serves workers with a

long work history who usually do not require

retraining but simply want benefits and a new

job. The separation of TAA and Title III services extends to the local project level. In Santa

Clara Valley, which has experienced the loss

of tens of thousands of jobs in semiconductor

and computer manufacture since 1985, managers of Title III were unaware, or barely aware,

of TAA benefits, and reported that they had no

linkage at the local level with TAA service

providers.

Eleven of the States were able to achieve some

real integration of TAA and Title III. Massachusetts is a leader. From the top managers of

the State’s Industrial Services Program, which

directs both displaced worker services and assistance to firms that are in trouble, to the staff

of local displaced worker projects, everyone is

aware of the possibilities of combining benefits from Title III, TAA, vocational and adult

education programs, and the State’s own displaced worker program. The State’s director

of displaced worker services said: “TAA is the

only way we’ve been able to make the money

go far enough. ” Box B describes how coordination works in Massachusetts.

The States that work around the uncertainties in TAA and integrate it with Title III services share a common approach. All are creative in looking for the best features in each

program—and in other programs as well, such

as vocational and adult education—and combining them for the benefit of individual workers, Many of them foster coordination at the

local or project level by requiring service

providers to list every source of funding available to the project.

In integrated programs, workers are usually

sent to Title III projects for assessment and

counseling, job search programs, on-the-job

training (OJT), remedial education, and—until

TAA funds come through—classroom training.

Title III can also pay for child care for people

in training; TAA cannot, For eligible workers,

TAA is reserved for long-term classroom training, the costs of transportation for training outside the normal commuting area, and out-ofarea job search and relocation expenses. A

number of the activities usually provided by Title III projects can be offered under TAA (onthe-job training, for instance) but the Title III

service providers usually have more staff and

administrative funds to plan and arrange for

such services, and they can usually start sooner.

Under Labor Department regulations, remedial

education is defined as a supportive service,

so that costs usually have to be covered by

administrative funds (no one reported doing

that). The Labor Department has ruled that TAA

training funds can pay for remedial education

when it is preparation for a vocational skills

training course, and a few States, such as Massachusetts, do so. Title III projects can offer

remedial education as training, independently.30 

A near-universal feature of integrated programs is the States’ aggressiveness in urging

unions, companies, or a trio of workers to petition for TAA. In Texas, for example, the State

300TA found in its assessment of mrorkrr (11s1)1,]( (?n](:nt ([J .S.

(;ongress. Office of Technology Assessment, 7’echrlo/og.t ar~d

Structura] L~nernplo~rment, op. cit. ( 1986)) that remedial e(lucation is largel~’ neglected in Title I I I programs, Howe\’er, this i~

not uni~’ersal: some States take ad~antage of the “1’itle I I I program to offer ki’ell-planned remedial education courses in an attracti~c setting. Nlan}’ of these States ar(’ the same that do an

outstanding job of coordinating TAA an(l Title 111.
50
51

Title 111 program has a coordination agreement

with the Texas Employment Commission, by

which Title III pays salaries of EC staff members to go out and actively get TAA petitions

started. The State’s rapid response team keeps

an eye on UI claims, and whenever the team

notes a big jump in claims, it targets the area

and alerts the Employment Commission. If the

layoffs are due to import competition, either

EC or Title III staff make sure that someone—

usually the union or the company personnel

director—files. If the company refuses and there

is no union, they go back to UI records and find

three workers who were laid off from the company, encouraging them to file. The system

works. In the 9 months before the agreement

was signed, Texas had only 28 applications for

TAA; in 6 months afterwards, 256 petitions

were sent forward. According to a Title III official, of all the resources available to displaced

workers including Title III and vocational education, TAA is a major contributor,

Other than sending a letter to Governors urging coordination between the Title 111 and JTPA

programs, the Department of Labor has generally not done much to actively promote it, An

exception to this is the Region V office of the

Department of Labor, located in Chicago, The

office holds quarterly roundtable meetings of

employment security agencies, TAA offices,

and JTPA in the six Midwestern States the region includes (Illinois, Indiana, Michigan, Minnesota, Wisconsin, and Ohio). Discussion of the

potential for coordinating TAA and Title III,

and examples of what to do and what not to

do, are leading topics at the roundtables. Several TAA and Title III officials in the region

praised the roundtable discussions. One State

(Wisconsin) said, “The roundtables have brought

us [TAA and Title III) together; if not for that,

we’d be much further behind, ” The regional

office also fields questions about the programs

on a daily basis and, according to the State officials surveyed, dispenses “excellent information.” Four of the six States in this region have

achieved some real integration of TAA and Title III services, and the other two are making

progress,

Other regions have not followed suit. Region

VI, in Dallas, held one meeting at the request

of Texas officials, and Region X also held a

meeting for the Pacific Northwest States. One

State official (Texas) specifically commented

that the coordination problems with Title’ III

and TAA are at the national level, in the Department of Labor. This official offered the example that, in conducting TAA training for the

Employment Service, the regional office of the

Labor Department said Title 111 agencies would

provide the job search programs required for

workers receiving TRAs—without any idea that

funds for Title III that year had been cut in half.

When OTA asked the States what changes

they would like to see in the TAA program, the

one most often put forward (in 19 States) was

a shift toward more unified services for all displaced workers, whether or not the workers are

trade-affected. In a unified program, open to

all displaced workers, the nettlesome problems

of delays in certification and arbitrary distinctions among workers on whether they are tradeaffected would disappear, Most of the people

who suggested this change insisted, however,

that the best features of both TAA and Title III

be kept. For TAA, the best features are seen

as longer term, better quality and higher cost

training combined with extended income support. For Title III, they are State responsibility

for designing the program and control over

most of the funds; a broader range of services,

including remedial education; and the flexibility to move in and provide adjustment services

before layoff.

It should be noted that the “best features” of

TAA and Title 111 programs represent potential in some cases, not actuality. The superiority of TAA training was greatly diminished

in early 1987 because funds had nearly run out.

Not many States provide remedial education

in Title III projects, and an effective rapid response to plant closings and mass layoffs does

not yet exist in most States. Title III allows

States to provide these services, however, and

a few are effectively doing so.
TRADE ADJUSTMENT ASSISTANCE FOR FIRMS AND INDUSTRIES: ISSUES

The main issue concerning the TAA program

for firms is whether it should exist. The Reagan Administration maintains that it should

not, arguing that it is natural and inevitable for

many firms to succumb to competition, foreign

as well as domestic, and that the government

has no business trying to save them. Congress,

in reauthorizing TAA for firms through 1991,

in effect made the judgment that the program

is worthwhile, that given good technical assistance, some firms weakened by import competition can revive and continue to provide jobs

and economic benefits to their communities.

Since the reauthorization, however, Commerce

Department administration of the program has

hobbled its ability to offer technical assistance.

Aside from the current crisis in program

administration, a continuing question is

whether the certification requirements for

firms—a showing that the firm’s sales or production have declined, as a result of import

competition—make sense. Should the program

be restricted to firms that are demonstrably in

trouble already? Or should firms throughout a

trade-affected industry be eligible for TAA services, thus making it possible to offer assistance

to firms with a better chance of survival—but

also greatly enlarging the number of potential

clients. This question, though not so pressing

as the question of the program’s continued existence, has some broad implications. In recent

years the suggestion has been made, by OTA

and others, that an industrial extension service of some kind might contribute to competitiveness of American industry.1 The idea is for

*U, S. Congress, Office of Technology Assessment, Industry

Technology, and Employment Program, Det’elopment and Diffosion of Commercial Technologies.’ Should the Federal Go\rern -

ment Redefine Its Ro~e? staff memorandum, March 1984; see

also H. R. 4361, the Advanced ‘1’echnology Foundation Act, a bill

proposed in the 98th Congress.

a government-supported program that would

help small and medium-sized manufacturing

firms learn about and apply up-to-date technologies and management practice. Several States

have technical assistance programs along this

line,

An assessment of the possibilities of an industrial extension service is beyond the scope

of this special report, which is focused on the

Trade Adjustment Assistance programs. However, the experience with TAA for firms does

suggest, roughly at least, how a broader program of technical assistance to industry might

work.

How TAA for Firms Operates

Before getting to the issue of survival of TAA

for firms, let us first take a brief look at how

the program operates—or how it operated before the crippling interruptions of authority and

funding freezes that have occurred repeatedly

since December 1985. Two features of the program stand out. First, the technical assistance

the program offers is in-depth; typically, client

firms receive 60 to 80 days of expert assistance

in diagnosing competitive problems and developing ways to solve them. Second, the program

takes time. The assistance itself is time-consuming because it is intensive; and the Department

of Commerce approvals at three steps in the

process, though usually done fairly expeditiously, add more time.

Twelve Trade Adjustment Assistance Centers

(TAACs) operate the program through grants

from the Department of Commerce; the grants

have customarily been for 12 months (from December 1985 through May 1987 the TAACs received grants for no more than a few months

at a time, and they are operated on short time

extensions with limited funds). Annual grants

range from about $700,000 to $2 million, and

52
53

average a little more than $1 million each, z The

TAACs’ first step is to help firms prepare petitions for certification, claiming that sales and

production declines are due to competition

from imported products; weed out the clients

who obviously cannot substantiate the claim;

and send the petitions on to the Commerce Department for a decision. The department verifies the claims, usually by telephoning the firm’s

customers, and decides whether the firm is

eligible. If many petitions are being submitted,

these decisions may take longer than the 60 days

the law allows, but such delays have generally

been shorter than in the TAA program for

workers.

In interviews with OTA, officials of one

TAAC said that any firm coming to it is allowed

to apply for certification, so long as the firm

appears to meet the criteria of declining sales

or production due to imports. The other TAACs

do some informal screening. Although they accept the principle that any trade-affected firm

has a claim on assistance, they do sometimes

discourage clients from preparing petitions if

they see little chance that the firm can recover.

In making this judgment, the TAACs put greatest emphasis on management’s flexibility and

willingness to make changes, If the client seems

to be looking only for a quick financial fix, for

example, the TAAC counselor may emphasize

that the firm will have to bear at least 25 percent of the cost of technical assistance, Or if

a client appears to be on the brink of insolvency,

~rl’h i 5 description of how the program operates comes from

inter~’ie~t’s with and materials provided by officials of the Department of [;[)mrnercc and the TAACS, For this special report,

OTA interviewed policymaking officials and staff members of

the office of Trade Adjustment Assistance (OTAA), the agen(;~

in the Commerce Department which oversees TAA for firms,

OTA also interviewed by telephone and in two site visits the

directors and staff members of 11 of the 12 TAACS. The only

TAAC not represented in the telephone survey was the MidAmerica TAAC, located in St. Louis, which had just been created with final approval pending in the Department of Commerce,

The Mid-America TAAC was previously located in Little Rock,

AR, but it ceased operations in 1986. TAACS sur~eyed by telephone were ‘New York State, Binghamton, NY; Nletro New }’ork,

New York, NY; New Jersey, Trenton, NJ; hlid-Atlantic, Philadelphia, PA; Great Lakes, Anne Arbor, X41; hlid-~t’est, Chicago,

IL; Rocky Mountain, Boulder, CO; Northwest, Seattle, WA; and

Wf;stern, I.(),s Ange]e~, CA, The TAACs i’isited b}’ OrrA staff lt’ere

Ne~ England, Boston, MA, and Southeastern, Atlanta, GA.

the TAAC may point out that recovery measures will be slow and long-term. In this way,

the decision not to proceed is generally mutual;

TAACs do not simply turn away clients. At least

one TAAC (Western) does require that before

it gets involved with a firm, the management

must already have made some changes in response to problems, The idea is that a firm that

initiates its own adjustment shows a commitment to change, and also improves its ability

to get financing to carry out an adjustment plan,

Once a firm’s petition is approved, the TAAC

conducts a diagnostic survey, which includes

a scrutiny of the firm’s financial situation, its

system of management information and cost

controls, its product development, marketing

plans and sales efforts, as well as its operations

on the shop floor, To stay in the program a firm

must be willing to open its books. The diagnostic study is a critical piece of the program, since

it determines the direction the adjustment plan

will take. Usually, the TAAC’s technical staff

does the diagnostic study; most TAACs, when

fully staffed, have people with training and experience in industrial engineering, finance, and

marketing. Sometimes, for a client in an unusual or highly technical business, the TAAC

may hire a consultant for the diagnostic study.

TAAC and the firm together formulate an adjustment plan based on the diagnosis, specifying what the firm needs for recovery and the

kind of technical assistance it will ask for. The

study and plan generally take 6 to 8 weeks to

complete, An adjustment proposal must be sent

to the Department of Commerce for approval,

which usually takes about 3 weeks.

The next step is to find contractors who can

provide the technical assistance that the adjustment plan calls for. The firm may need a market survey, to determine whether a new product it is planning will find any customers. It

may may need engineering help in designing

a new product. It may need to install and learn

how to use a management information system

that will identify production bottlenecks that

raise costs, It may need a manufacturing engineer to look over and redesign shop floor operations. Technical assistance may cover any of

these things; but it cannot cover the purchase
54

of equipment or the provision of working capital. For technical assistance that costs an average of $75,000, firms must pay at least 25 percent; the firm’s share rises with increases in

cost beyond that level. Usually, the TAACs

bring in a consultant with specialized skills to

provide technical assistance; they are chosen

by competitive bids, and their contracts must

be approved by the Department of Commerce.

Assuming things go smoothly and there are

no hitches, the process outlined here takes at

least 6 to 8 months. Many firms meanwhile take

steps on their own to follow suggestions made

in the diagnostic study and adjustment plan.

Others take longer than a few months to mull

over the TAAC’s diagnosis and recommendations, and decide whether to proceed. In any

case, they must have enough strength to survive several months at least before getting the

adjustment assistance that has been designed

to meet their needs. Boxes C and D describe

the experiences of a New England clockmaker

and a couple of garment manufacturers in the

South with technical assistance provided by

TAACs.

Firms served by the TAACs are relatively

small. In the last 2 years the TAACs were in

full operation (fiscal years 1984 and 1985), the

TAACs each added an average of about 30 certified firms to their rolls, and had adjustment

assistance plans approved for 15 firms each,

on average (see table 5). The expenditure per

firm certified works out to about $37,500 per

year; adjustment assistance, if carried to completion, generally costs about $75,000 per

firm—not enough to do much for a large firms

The typical TAAC client has sales averaging

about $5 to $10 million per year and 100 to 150

employees; although quite a few smaller firms,

with sales of $1 to $2 million, are also served.

Service to firms with sales more than about $30

million per year is unusual. All the firms served

are in manufacturing, since TAA does not cover

service industries.

sInformation supplied by the TAACS.

No other Federal program—probably no State

or local program either—operates quite as TAA

does to provide sustained, sophisticated technical assistance to small and medium-sized

manufacturers. The Economic Development

Administration (EDA) gives grants of about $7

million per year to universities, local governments, or nonprofit organizations for several

purposes related to economic development in

areas of high unemployment and poverty. Activities include technical assistance to local businesses and programs to help local governments

learn about economic development. The Department of Defense offers assistance to small

companies, usually subcontractors, who lack

the sophisticated equipment needed to meet

military specifications.

The Small Business Administration offers

grants to Small Business Development Centers,

which are operated by the States and offer counseling and training to small businesses. Counseling, given to 72,000 firms in fiscal year 1986,

helps owners deal with specific difficulties that

arise in their day-to-day operations. Training,

provided to nearly 260,000 firms in 1986, is

given in seminars or classes that teach basic

business skills such as marketing or cost control, The average time spent with each firm is

7 to 10 hours. Most of the firms are small, some

with as few as one or two employees, and nearly

all are in services, mainly retail trade. The

SBDCs concentrate on firms that cannot afford

to pay someone for advice. The counseling and

training they provide is free; often volunteers

from the Service Corps of Retired Executives

offer the assistance. Funding for the program

in fiscal year 1986 was $35 million.

A number of States offer technical assistance

to manufacturing firms, often as part of their

economic development programs, OTA has not

assessed these programs, but from a brief look

it appears that many provide services that are

much shorter in duration than those the TAACs

provide. For example, the highly respected Industrial Extension Service of the Georgia Tech

Research Institute usually provides 3 to 5 days’

service to its clients, with the limit rising to 10

days for firms that are expected to provide new

jobs. The Georgia Tech program is one of the
5 5

Box C.—New Life for a Ninety-Year-OId: TM Helps New England Clock Firm Survive

The Chelsea Clock Co., founded in Chelsea, MA, in 1897, is the only one of the old New England

clockmakers left. Others still have their names on the clock cases, but the innards are made in Europe or Japan. Chelsea Clock, housed in its 19th century brick building in one of the old industrial

towns ringing Boston, makes fine timepieces from scratch and guarantees them for a lifetime-the

clock’s lifetime, which means as long as anyone wants to keep it.

Until a few years ago, the company made clocks the traditional way with spring-wound movements, despite the quartz technology revolution. Yachtsmen, clock collectors, and companies looking for a handsome gift for retiring employees remained steady customers for a timepiece handmade

of brass and fitted with gold-plated works that you could watch through the back of the case. But

in the early 1980s, the new technology began to catch up with the company. Customers started to

balk at paying several hundreds or thousands of dollars for a thing of beauty that didn’t keep time

as well as a $10 clock from the corner drugstore.

Richard Leavitt, president of Chelsea Clock, is a former accountant who bought the company

in 1978. By 1982, he realized that, even though dollar sales were holding up, the number of clocks

sold every year was sliding fast, from 14,000 in 1980 to 9,000 in 1983. Twenty of the firm’s 70 employees had to be laid off. First Leavitt tried putting the standard plastic quartz movement into a

Chelsea clock, but he didn’t like it and neither did his clock-fancier customers. He knew his company

was best off holding on to the fine clock part of the market, where sales of 15,000 to 20,000 clocks

a year would be enough to keep his small firm prosperous but not enough to tempt giants like Seiko

into competing, probably with a good looking but lower cost clock. He also knew he wanted a fine

electronic movement for the Chelsea clock. But the technical expertise to design it was beyond his

means to buy (he had already mortgaged his house to put money into the company), and banks don’t

readily lend money to buy designs. They can’t foreclose on a design.

Leavitt learned about the Federal Trade Adjustment Assistance program, which provides technical assistance to firms hurt by imports, just as he was concentrating on how to raise the money for

developing a high-quality quartz movement. The New England Trade Adjustment Assistance Center

(TAAC) helped to diagnose the firm’s problems and write a proposal, which the Department of Commerce approved, for a recovery plan. The project included a market survey as well as development

of the quartz movement. The Cambridge consulting firm Arthur D. Little Inc. did both pieces of work,

and Federal grant money paid two-thirds of the $100,000 cost; the company paid the rest. When the

market study found that customers would buy a high-priced clock with brass parts-but not plastic

parts-the design team created a movement with gold-plated brass plates, gear wheels that are cut

not stamped, and synthetic jewels at points of wear.

So far, the plan is succeeding. The company’s sales and profits have risen, and Leavitt plans an

aggressive sales effort to add more fine gift shops and jewelry stores to his customer list. Most but

not all of the work is done at the plant; cases for the top-of-the-line clocks are imported from Switzerland, but Leavitt plans to bring that work home. The shop already makes its own cases for ship’s

clocks, which have long been a staple of the Chelsea business. The plant has kept its 50 workers,

many of whom are 20-year veterans, and include precision assemblers, machinists, inspectors and

testers, and a master clockmaker.

Leavitt gives high marks to the New England TAAC for helping to make the company profitable

and competitive. He says he would have done the project eventually without the TAA help if he’d

had to, but at much greater risk. The cost of the project was as much as the firm’s entire profits in

a good year. Without help, Leavitt would have been obliged to bet the company, and if the bet didn’t

pay off soon enough, Chelsea Clock would have become a hollow company.

The other New England clockmakers have already taken that path. “We could have followed the

pack,” Leavitt said, “and used the Chelsea name to put on products we import. We chose the more

difficult route, keeping responsibility for design and manufacture. That translates into jobs here rather

than to people in other countries.”
56

Box D.-Made in the USA: Trade Adjustment Assistance for Apparel Manufacturers

Introduction

Garment making is still a very large industry

in the United States, despite increasing imports.

In 1986, employment in the industry was 1.1 million; this compares to 815,000 in the auto industry and 266,000 in basic steel. Certainly, imports

have made inroads. One-quarter of the amount

Americans spend for apparel and other textile

products goes for imports, Despite the highly

structured quota protection under the Multifiber

Arrangement, imports rose to a new high in 1986

–$17.8 billion. This compares to $2,3 billion

(about $5.3 billion in 1986 dollars) in 1973. And

employment is down from its 1973 peak of 1.4

million.

Yet in some ways apparel is holding its own.

Employment and output in steel mills, for example, are both less than half of what they were in

1973. Jobs in apparel have declined only about

20 percent, and output in constant dollars has

risen over 9 percent. Granted, jobs in apparel are

poorly paid compared to the average manufacturing wage ($5.86 per hour vs. $9.83), and are

taken mostly by women and minorities. But to

many of the people holding them, these are the

best jobs available anywhere near home,

The Southeastern TAAC, located in the Georgia Tech Research Institute in Atlanta, specializes in technical assistance for small and

medium-sized apparel and textile firms: Much

of rural Georgia and the Carolinas is economically dependent on textiles and apparel. A generation ago, when these industries were leaving

New England for the lower wage South, the

Southeastern States made energetic efforts to attract them, especially to the rural counties that

were losing tens of thousands of farm jobs with

the rapid mechanization of agriculture. Now,

Georgia and the Carolinas are trying to save these

industries from lower wage competition in Asia,

Mexico, and the Caribbean.

Aiken industries

The TAAC’s part in all this is to help firms like

Aiken Industries, a family-owned and run ap

parel plant in Aiken, South Carolina, survive and

prosper. Cary Friedman, the plant manager and

son of the founder, heard about the TAAC’s services through an industry newsletter in 1984, at

a time when the plant was losing sales and profits were declining. Friedman knew the firm had

to change to survive, but he didn’t know exactly

what to change, nor was the firm doing well

enough to pay for both technical advice and any

new hardware that might be needed. The TAAC

sent its apparel expert, a former private consultant to the apparel industry, to diagnose the firm’s

troubles and work with Friedman on an adjustment plan.

Aiken Industries is atypical small (135 employees] “cut-and-sew” operation. It receives fabric

from a larger apparel firm and returns the finished goods; essentially, it is selling labor, including managerial labor. A firm like this can survive

by doing quality work, accepting fast turnaround

orders (such as re-orders of popular items) that

would take too long for foreign competitors to

fill, and squeezing out unnecessary costs. The

TAAC’s contribution was to help Aiken Industries control costs. The diagnosis showed the

need for a management information system for

cost analysis and control. The company spent

$20,000 for a computer and software, and the

TAAC expert taught Friedman how to interpret

the data to pinpoint areas of excess labor cost.

(“Excess cost” is a term of art in the apparel industry; there is always some excess cost, but wellrun firms reduce it to a minimum,) Georgia Tech

Research Institute trainers, available through the

TAAC but paid for by the company, taught first

line supervisors how to reduce costs in the areas

identified-for example, by seeing that machines

are repaired quickly if there is a breakdown.

When the project started, the TAAC expert estimated that Aiken’s excess costs could be cut in

haIf. By early 1987, the company had achieved

60 percent of that by following the adjustment

plan and paying for the improvements it identified. The last piece of work was yet to be done,

however. The plan called for an engineering consultant to improve shop floor operations. This

was the technical assistance the TAAC promised

to help pay for; it would cost $90,00(), of which

the firm would contribute one-third. But the

TAAC was Unable to pay f@ technical assistance,

because it had not received any fiscal year 1987

funds from the Department of Commerce, and
57

was authorized to stay in business for only 1 or

2 months at a time.1 The Friedman family, Aiken’s owners, felt that they could afford to risk

$30,000, but not $90,000, for the engineering consultant.

The failure to come through with funds for the

consultant was Friedman’s only criticism of the

TAA program. At this point, he said, “For the

government not to help me be more competitive

would be crazy. ” Otherwise, he had nothing but

praise for the program, and freely gave it credit

for the firm’s turnaround.

Burke Industries

An apparel firm that completed its TAA adjustment plan with successful results is Burke Industries of Waynesboro, Georgia. Jack Steinberg,

Burke’s owner and manager, has been in business in Waynesboro for over 25 years and now

specializes in denim jackets, an exacting item

that requires over 40 operations. Burke has also

recently won a contract for military clothing, and

expects to add 100 more people to its work force

(early in 1987) of 160.

Despite the firm’s experience and good reputation, Burke nearly went under in 1982-83, when

the combined effects of the recession and rising

imports knocked many American apparel firms

out of business. Steinberg heard about the TAAC

at the industry’s annual meeting and fair (the

Bobbin Show in Atlanta). Just an initial talk with

a TAAC expert gave him some ideas, he said. He

pulled the firm through its immediate crisis by

selling finished garments to retailers.

For the longer haul, the TAAC made several

major contributions. At its low point, the firm

was strapped for cash. The TAAC expert helped

Steinberg devise a financial program, and went

with him to the local development board which,

after looking over the plan to improve the comIIn March 1987, the Southeastern TAAC received about $100,000

in a grant from fiscal year 1987 funds, and a time extension through

June 15. In earlier years, this TMC received about $1 million for

a 12-month grant. In May, the Commerce Department requested a

proposal for a Iz-month grant.

pany’s prospects, approved a loan. As it did for

Aiken Industries, the TAAC advised Burke to

install a computerized management information

system, and showed him how to use it. The

system has paid off in identifying areas of excess

cost. The TAAC also advised Burke to use a modified system of in-process statistical quality control, in which inspectors examine a sample of

garments before the sewing operations are completed. Burke inspectors also look at every finished garment before it goes out. The in-line sampling combined with the final audit have reduced

defects enough that customer rejections have

gone down from two or three shipments a year

to zero. In addition, Burke, like Aiken, got training for its first-line supervisors from Georgia

Tech experts.

The most notable change due to the TAAC’s

advice resulted from an engineering consultant’s

suggestions on re-arranging the cutting room. He

proposed to get rid of stored fabric that no one

was using, to use fewer cutting tables and make

them uniform in size and shape, and improve the

traffic pattern. These seemingly simple suggestions allowed Steinberg to reduce his staff in the

cutting room from 20 to 8.

Steinberg observed that many of the TAAC suggestions, once they were made, seemed obvious.

But like most small businessmen, he was so busy

with a multitude of tasks that he never had a

chance to step back and determine what changes

he needed to make, and which to do first. He gave

the TAAC full credit, not only for providing technical expertise that he lacked (how to use the

computerized management information system),

but also for identifying the most urgent actions

the company had to take. “The improvements

they helped us make were really and truly dramatic,” Steinberg said.

Burke Industries is now offered five times as

much business as it can handle, Steinberg says,

The firm has recovered strongly and its outlook

is good, at least for the time. “The advantage

we’ve got,” Steinberg says, “is that we can deliver on time. To get deliveries from overseas,

you have to order a year ahead of time. If we ever

lose that edge, we’ve lost it.” While he has it, the

firm employs 150 to 250 people a year, and is a

mainstay of the local economy.
58

most experienced in the country, It was established in 1960, now has 12 centers staffed by

engineers and other professionals throughout

the State of Georgia, and is funded by the State

at $2 million per year.

TAA for firms began with a strong emphasis

on loans and loan guarantees, but that part of

the program is now defunct. TAA financial

assistance was at its height at the end of the

1970s, reaching $70 million in 1980. Under the

Reagan Administration, loans and loan guarantees were scaled back sharply, declining to

$900,000 and just two firms in 1986, the last

year TAA financial assistance was offered.

When requirements for loans were not very

stringent, as was apparently the case in the late

1970s, numerous firms qualified but default

rates were subsequently high. When requirements were tightened, the number of firms getting loans or guarantees dropped sharply. To

qualify, firms had to show evidence that they

could pay back the loan, and at the same time

show they could not get private financing—a

difficult combination. Also, in the last 2 or 3

years of the program, loan approvals met with

long delays—usually more than a year—in the

Commerce Department; Commerce officials

themselves describe the time it took for approvals as “interminable. ”

TAA financial assistance to firms has few

defenders today. Because of the delays and the

stringent requirements for firms to qualify, most

of the TAAC officials interviewed by OTA did

not regret the loss of the loan program. Several said they considered technical assistance

more efficient and valuable in any case; if firms

need money to carry out their adjustment plans

—as many do—the very fact that they have an

adjustment plan makes them better prospects

for private loans. Also, loans or guarantees may

be available from other Federal sources (such

as the Small Business Administration), or State

or local agencies. For example, one Georgia garment manufacturer who had previously had no

luck with a community economic development

agency got a loan when the TAAC counselor

accompanied him to the agency and explained

the recovery plan. Three years later, the company was in good shape, and expanding. An

official of another TAAC (New England) said

that most firms served by his TAAC need management changes, not a quick financial fix, for

long-term survival; the main purpose the loan

program served, he said, was to draw people

who could use help into the technical assistance

program.

Should TAA for Firms Continue?

The Administration’s arguments against continuing TAA for firms are that it does not work,

and is not justifiable anyway, because firms injured by imports do not merit any special help

beyond what is available to other firms. Officials in charge of the program add that it is hard

in any case to draw the line between injury

caused by increased imports and plain inadequacy of management. It is also argued that,

in a dynamic society operating under a free

trade philosophy, TAA is often directed to firms

in industries that are dying a natural death.

TAA is “fighting the inevitable.”4

Proponents of the program are not very organized or visible, but they include business people who have received technical assistance.

Many individual firms have high praise for the

program, and credit it with their improvements

in sales and profits. s Those who favor TAA for

firms believe it works—not in every case, possibly not in the majority of cases—but often

enough, and with enough benefits to the public as well as to the firms concerned, to justify

the program. The equity argument—that special help is due those who are injured by the

Nation’s free trade policies—does not apply in

quite the same way to firms as to workers.

AThis argument is emphasized in U. S, Department of

Commerce, Office of Inspector General, International Trade

Administration Trade Adjustment Assistance: No Cure for

Import-Injured Firms (Washington, DC: Department of

Commerce, 1985), see especially pp. 12-13.

sSee, for example, U,S. Congress, House Committee on Ways

and Means, Subcommittee on Trade, Hearings: Trade Adjustment Assistance for Firms, April 6, 1985—Atlanta, GA; Trade

Adjustment Assistance for Workers, ]une 10, 1985–Lorain, 13H,

99th Cong,, Ist sess. (Washington, DC: U.S. Government Printing Office, 1985); also, five client firms visited by OTA staff in

December 1986 and January 1987 said they knew of no other

program providing the high quality, sustained technical assistance given by the TAACS, and attributed their improved performance to TAAC assistance.
5 9

Workers must earn a living; firms don’t necessarily have to stay in business. Yet, firms are

owned and managed by people, and employ

people; those people may be thought to have

a claim on the government for help if government policies do them economic harm. Moreover, if a government program helps to save

a business, that may well be a better outcome

than trying to adjust to the loss of all the jobs

that go with it if a business fails.

Whether the TAA program for firms works

is a central question. Two recent evaluations

of the TAA program for firms come to quite

different conclusions. A report by the Office

of Inspector General in the Department of

Commerce, issued in March 1985, concluded

that the TAA program successfully aided only

3.6 percent of clients requesting assistance and

13 percent of those completing adjustment

plans. The report said that although some

aspects of the assistance process—such as

timeliness—could be improved, “intractable national and international economic and market

conditions [e. g., low labor costs and subsidies

to industry in other countries, the strength of

the dollar] prevent the program’s success.”6 The

report praised TAAC personnel as dedicated

and well-qualified, but said “the adverse environment in which the program must operate

remains unyielding and overwhelming.”7

A May 1985 report prepared for the Department of Commerce by a private consultant firm,

HCR, found that 35 percent of firms receiving

technical assistance from the TAA program

were better off than they were before entering

the program—and better off than the average

firm of their own size and kind; 79 percent of

all the firms sampled were still in business. a

Because of congressional interest in determining whether TAA for firms is worthwhile,

‘U. S. L)epa rt m ent of Commerce, Office of Inspector Genera],

op. cit., p. 12.

7

1 bicl,, p. 14.

8HCR, Evaluation of the Adjustment of Firms Assisted b~ the

Trade Adjustment Assistance Program: Economic Experien[:e

of ~lient Firms Since 1981, report prepared for the U.S. Department of Commerce, Office of Trade Ac] justment Assistance

(Washington, DC: 1985),

and because the experience with TAA may be

a useful guide for other industrial extension

service programs, a close look at the methods

and results of the two studies is in order. Several factors help to explain the wide divergence

in the results, and to cast substantial uncertainty over both, The interpretation of data, definitions of success, and time period chosen (the

1982-83 recession) in the Inspector General report all tend toward pessimistic results; the report very likely understates the program’s successes. The HCR study lacks the detailed

descriptions of individual firms that appear in

the Inspector General report, and its data have

been criticized by the Department of Commerce

as inaccurate, erring on the optimistic side.

The Inspector General Study

The Inspector General report first looked at

the 370 firms certified in 1982 and 1983 at six

TAACs (Midwest, Mid-Atlantic, New Jersey,

New England, Southeastern, and Metro New

York), and found that 269, or 73 percent,

dropped out of the program after being certified but before reaching the phase of implementing an adjustment plan (generally, before

an adjustment proposal was written). Selecting the Midwest TAAC, with a 74 percent dropout rate, as typical, the report interviewed or

reviewed files of the 65 firms certified at that

TAAC over the 2 years to discover the reason

for the “tremendous percentage” of firms dropping out, Summing up the reasons 47 firms gave

for dropping out, the report classified 33 percent as “dissatisfaction” with the program, 24

percent as “disabling financial condition s,” and

15 percent as miscellaneous.

Yet the client responses, as summarized in

the report, could be interpreted quite differently, In many cases, it appears that “dissatisfaction with the program” amounted to disappointment that TAA would not provide a quick

loan, or that the firm had to pay 25 percent of

the cost of technical assistance, or that the program did not provide some kind of trade protection. Thus, one might well interpret the results as showing that the TAAC was weeding

out firms who were interested only in finding

a source of ready money, and were not willing
6 0

and able to make management changes that

would improve their chances of surviving. For

a program with limited resources and the goal

of providing intensive assistance, some kind

of triage is certainly necessary. The TAAC

might be criticized for failing to make clear the

nature of the program before sending on the

petitions for certification; perhaps more firms

could be weeded out at an earlier stage, before

they are certified. It should be kept in mind,

however, that 1982 and 1983 were the years of

the deepest recession in 50 years; it is likely

that more firms than usual were unable to pay

anything for an adjustment program.

A different kind of complaint, appearing quite

often in these cases, was that TAA help was

too slow in coming. The average time for completing adjustment plans ranged from a low of

1 year to a high of more than 6 years, with an

average of 2 years 8 months. Some of this delay is unavoidable, arising from the nature of

assistance in the TAA program (see the discussion below), but some might be avoided by improving TAA procedures.

The most serious charge against the TAA program in the Inspector General report is that its

success rate was a “dismal” 3.6 percent. This

extremely low figure was produced by examining 38 firms in four TAACs that completed

implementation of adjustment plans in 1982

and 1983 and concluding that five, or 13 percent, adjusted successfully due to TAA efforts.

This percentage was then applied to the 101

firms remaining in the programs of the six

TAACs, yielding 13 cases expected to be successful. The 13 cases were then divided by 370

(the number of firms certifed by the six TAACs

in 1982 and 1983), producing a figure of 3,6 percent, which was termed the success rate. This

puts the success rate in a very unfavorable light.

It implies that every firm that is certified should

receive service, and that success must be judged

by the ability of the TAACs to help all of the

firms certified, whether or not they received

service.

Another measure of success is the percentage of cases coming to completion that succeeded due to the TAAC's efforts. That figure

is 5 of 38, or 13 percent, according to the report. Another 4 cases were judged successes,

but not on account of the TAAC’s efforts; thus

9 firms, or 24 percent, adjusted satisfactorily.

A firm’s adjustment was defined as successful

if its sales, production, or employment stabilized or increased by the time the plan was completed, This part of the report’s conclusion also

bears questioning.

first, it maybe difficult in some cases to pinpoint just how much the TAAC had to do with

a successful outcome. For example, one TAAC

advised a firm producing wire that improved

marketing would be a major solution to its problems, recommended hiring five nationwide

sales representatives, and helped the firm

choose them. The firm decided later to do without the salesmen and instead got a listing in

a leading national industrial directory. Sales

rose, and the firm’s position improved, but a

company spokesman gave no credit to the

TAAC since he believed that success was entirely due to the directory listing. It might be

considered that the TAAC deserved some credit,

however, since it was the TAAC that identified

a national marketing effort as key to the firm’s

improvement.

A second point is that the cases on which the

Inspector General report rested its conclusions

were completed in the deep 1982-83 recession.

The large percentage of bankruptcies and business failures reported for the 38 firms the report examined was probably due at least in part

to the dismal economic climate of the time.

Congressional hearings on the TAA program

for firms, held in 1985, suggest that the number of successes found in the Inspector General study was exceptionally small, possibly on

account of the time frame chosen for the study.

At hearings of the Subcommittee on Trade of

the House Committee on Ways and Means in

Atlanta, Georgia, on April 6, 1985, a much

larger number of successful cases was reported

by two of the six TAACs included in the study.

The Southeastern TAAC submitted a report

stating that 45 firms entering its program from

1982 through 1984 had stabilized or improved
their situation by 1985.9 Several businessmen

whose firms got assistance from the Southeastern TAAC also testified that their situation had

improved. In addition, the New Jersey TAAC

submitted a report on 16 firms entering its program between 1978 and 1983 (13 of them from

1981 to 1983), detailing increases in sales a nd

employment for all of them by 1984-85.10 These

reports are not comparable with the results reported in the Inspector General study; most

were from the TAACs, not the firms, and might

have been biased toward optimism, Also, a followup a year or two later might show that some

of the improvements did not last. However, the

61 firms reported as improved after working

with these two TAACs greatly outnumber the

five successes credited to four TAACs (including the New Jersey TAAC) in the Inspector General report. One difference may be that 1984-

85 were much more prosperous years than

1982-83.

Finally, any study that evaluates the success

of a program must consider carefully what

“success” means. This issue is discussed below, in relation to the HCR report as well a s

the report of the Inspector General.

The HCR Report

This report by a private consultant was commissioned by the Commerce Department in

1984 and completed the following year. The

study selected a random sample of 249 firms

from a total of 426 firms which had submitted

a diagnostic survey or adjustment proposal between June 1, 1981 and April 24, 1984. (HCR

did not include in the sample all firms that were

certified, since TAACs discourage firms in

weak financial condition from seeking assistance.) Then, reports on the firms’ economic

circumstances were drawn from the TAAC files

or obtained from the firms themselves; usually

the TAACs got in touch with the firms for information, but in a few cases HRC made the

contact. Enough information was gathered o n

‘[J .S. Congress, House of Representatives, Subc om m ittec on

Trade of the Committee on l$~ajs and Means, Hearings, op. c,it,,

p, 97,

101 hid,, pp. 2fi-27

127 of the 249 firms in the sample to allow an

evaluation of the firm’s degree of success i n

adjusting by December 31, 1984, that is, 8

months to 3% years after the firms took the first

step to get technical or financial assistance.

The HCR study used three criteria to indicate whether the firm. understood and heeded

the TAAC’s advice, whether its economic situation improved, and whether the progress was

due to the TAAC’s intervention, or simply to

changing economic fortunes in the firm’s industry. The criteria for adjustment were that

the

●

●

Ž

firm must have:

begun implementing a majority of the tasks

specified in its adjustment proposal;

shown improvement in sales or profitability or an increase in employment after

TAAC assistance; and

equaled or bettered the average performance in sales or profit for similar firms

(with approximately equal sales and in the

same four-digit SIC).

These criteria for success are more exacting

than those used in the report of the Inspector

General. Yet HCR found that 44 of 127 firms

assisted by the TAACs met all the criteria, and

many met some but not all three; over half increased sales, the report said. Of the 122 sample firms for which no outcome data were available, HCR estimated (on the basis of the Dun

& Bradstreet Credit Rating Reference Book) that

81 percent were still in business. This is close

to the survival rate (79 percent) reported for

firms that did have outcome data, and perhaps

implies that the outcomes for both groups might

have been much the same.

The report’s results are clouded with uncertainty, however, HCR, unlike the Office of Inspector General, relied heavily on data in the

TAACs’ files, or collected by the TAACs in interviews; in the 127 cases, HCR directly interviewed only 17 firms. Details on the extent of

adjustment—that is, a listing of individual firms

showing what happened to the sales, profits,

and employment of each—do not appear in the

report. Thus, the questions the Commerce Department raised about the accuracy of the data
62

could not be convincingly answered by material in the report,

Department officials were particularly skeptical of the study’s finding that 10 of 15 firms

getting Trade Act loans adjusted successfully;

they thought this inconsistent with the fact that

the default rate on TAA loans had traditionally been high. The Deputy Assistant Secretary

in charge of the TAA program ordered a staff

review of the data on firms getting loans and

meanwhile held up release of the HCR report.

The staff review reported that 9 firms, not 15,

got TAA loans during the period reviewed, and

that 4 firms instead of 9 adjusted successfully.

The figures were not significant statistically because the sample was so small. No further information from the staff review was published,

and no details on individual firms were given.

In authorizing the release of the HCR report

in 1986, the Deputy Assistant Secretary for TAA

included as an appendix an exchange of letters on the data problem, His letter said that:

. . . a closer review of the forty-four firms

which HCR has characterized as “adjusted”

reveals that a number of them are in severe

financial difficulty .11

No details on the extent of financial difficulty,

that is, a listing by individual firms of declines

in profits or sales, appeared in the letter or the

appendix .

Defining Success

The definition of success is obviously a critical element in evaluating a program’s effects.

For individual firms, the standard of success

used in the Inspector General report—that the

firm must have increased or stabilized its sales,

production, or employment as a result of TAA

assistance—seems generally reasonable. However, there are cases in which such a standard

fails to measure success. For some firms battered by import competition, the best strategy

may be to contract, not expand, and find a niche

in which the firm can succeed. For example,

llAugust G. Fromuth, Deputy Assistant Secretary for Trade

Adjustment Assistance, letter dated June 30, 1986 to Ms. Louise

Woerner, President, HCR.

a New England company employing 500 people was producing three different kinds of

woollens and was using compromise equipment, not the best for each kind of material,

for “flexibility.” With the assistance of the

TAAC, the company put in a cost accounting

system which enabled it to discover that two

of the three lines of woollens were losing

money. The TAAC advised the company to

close two of its three mills, cut down to 300

workers, and concentrate on its profitable line.

The company did so, although reluctantly, since

the owners did not want to let the workers go.

But the change made the company profitable,

and made the 300 remaining jobs more secure.

In this case, a firm succeeded by reducing sales,

production, and employment, without the

TAAC assistance, the company might have

failed, with the loss of even more jobs.

This sort of definition also has a more fundamental flaw. In a high-risk program such as

TAA, in which assistance is given to firms that

are already in trouble, it may be misleading to

define success solely by the adjustment rate of

individual firms. One TAAC official advocated

what he called the “portfolio approach, ” He

said:

It’s like the way a venture capitalist operates. He may have 10 busts for every hit, but

if the hit is big enough, it pays for the failures.

Evaluating TAA assistance to firms would

mean analyzing the costs and benefits of the

whole program, measuring the public expenditure (now about $16 million per year) against

the social benefits of the businesses and jobs

that are preserved. The dollar benefits to society include property and income taxes paid, and

outlays for unemployment insurance, adjustment programs, and other social programs

avoided. No one has evaluated the program in

this way.

Some of the TAACs have offered illustrative

examples, however. For instance, Dawson Industries, a Georgia apparel manufacturer, first

sought help from the TAA program in 1977,

at a time when its line of women’s lingerie was

losing out to imports, and sales, profits, and

employment were declining. That year, the firm
6 3

paid

jobs

only $4,000 in corporate taxes, and its 350

were in jeopardy.

The first change Dawson undertook, with the

help of the New York TAAC, was to change

the firm’s line to higher fashion, more importresistant sportswear; the company received a

$1 million Trade Act loan to help make the

changeover. Sales increased, but profits still

lagged. The Southeastern TAAC then conducted an audit of the firm’s operations, and

recommended several changes to improve management and reduce manufacturing costs—

such changes as re-engineering the sewing

room, retraining first-line supervisors, and developing new piece rates and cost reporting.

Sales continued to rise (to $30 million in 1983,

up from $7 million 6 years before) and the company began making acceptable profits.

In 1985, employment was up to 400 at Dawson’s own plant, with many more workers employed by subcontractors, Annual income taxes

from corporate profits and the personal income

taxes from the 400 Dawson employees were

estimated at $1.5 million per year. The budget

for the southeastern TAAC was $1.3 million

for the year. In addition, when workers’ jobs

are saved, unemployment insurance need not

be paid. At $125 per week (the average UI payment in 1985), savings for 400 workers could

amount to $500,000, assuming an average of

10 weeks’ unemployment; with longer unemployment, savings of UI might be over $1

million.

The New England TAAC also provided OTA

with information on several firms that received

assistance from the program and were still in

business in 1987, as a basis for a rough costbenefit calculation. Four of the firms providing data entered the program in 1983. Their total employment in 1987 was 488. Based on payroll data provided by the firms and information

from the Internal Revenue Service on tax rates

for a family of four in 1984 (the latest data available), those workers paid, roughly, $911,500 in

Federal taxes in 1984. In addition, UI payments

saved for those 488 workers can be estimated

at $677,200. The combined benefit in income

taxes paid and UI payments avoided is roughly

estimated at $1,588,700 for 1984.12 The Federal

grant to the New England TAAC in 1983 (the

year these firms enrolled) was $l,040,000.

Obviously, this calculation is only illustrative.

It does not give credit for corporate income

taxes or property taxes paid by the company,

or for State income or other taxes paid by the

workers. It does not include all the firms that

enrolled in 1983 and afterwards improved their

sales and profits (two did not provide sufficient

data), On the other hand, it assumes that the

firms would have failed, with the loss of all their

jobs, without TAA assistance; and it credits

TAA with improvements that might have come

about anyway because of the improving economy. It does suggest, however, that a more

detailed analysis of the costs and benefits of

TAA for firms could offer a reasonable basis

for judging the success of the program,

The Dawson example from the Southeastern

TAAC is relevant to another issue, An argument against the existence of the TAA program

for firms is that it provides a temporary reprieve

at best; in a dynamic economy there will always

be some declining industries, especially those

where labor costs are a significant part of total

costs, and foreign labor costs are much lower

than in the United States. The description fits

the apparel industry. The prescription seems

to be to let the apparel industry go.

without getting into a number of broader

questions—such as what happens to the U.S.

textile and fiber industries if all apparel manufacture goes offshore—one might consider

whether it is worthwhile for government to assist an industry that is in decline, but still employs over 1 million people, to slow down and

stretch out the decline. The Dawson example

suggests that a program that helps even a few

companies survive for a few years—not necessarily for decades—may pay for itself. Another

IzFor ~onsistenc y O’r A ~lsed u I data for 1984, ‘1’h~! a\’e t’agc

weekly (-II payment that year was $123.42, 1 n a 1986 sur~’e}’ of

displaced workers, the Bureau of l,abor Statistics foun(i that \\orkers losing jobs in the pre~ious 5 }’ears (] ue !() plant closings or

production cutbacks were out of work for an average of 13 ~t’eeks.

For this calculation. OTA assumed that the workers losing jobs

in these trade-affected firms would collect U I for 13 weeks: the

at’erage payment would thus amount to $1,604.50 per worker.
64

point is that it may not be inevitable for the entire American apparel industry to decline. Not

all companies in industries facing severe import competition are fated to fail. Some parts

of the industry, for example, standard items like

men’s shirts, may be hard to defend against imports. But there may well be continuing opportunities in America for apparel manufacture—

for example, in more specialized, higher fashion lines where a quick turnaround is important. A government program of technical assistance to apparel firms capable of filling

profitable niches may succeed, and may pay

for itself,

Improving TAA for Firms: Problems

and Opportunities

In early 1987, OTA surveyed directors and

other officials of 11 of the 12 TAACs, 9 by telephone and 2 by site visits, Among the questions

asked were what problems the TAACs encountered in carrying out the program, what were

its strong points, and how it might be improved.

Interruptions to the Program

The single point raised by every TAAC in the

OTA interviews was the paralyzing effect of

the interruptions to the program since December 1985. Especially damaging were the 1-and

2-month extensions, mostly with no grants of

funds, in fiscal year 1987. First, when the

Commerce Department ordered all the TAACs

to close down following the lapse of legal authority for the program, the TAACs were forced

to break implementation contracts with many

of their clients. When they reopened months

later, many clients declined to return to the program, And it was hard to attract new clients,

since none of the TAACs had agreements lasting longer than a few months (through the end

of 1986). Firms that might have welcomed TAA

assistance were reluctant to make a commitment of time and money which the TAACs

themselves could not make.

The situation worsened in 1987, when extensions were kept to a month or two, and the

funds allowed the TAACs were only enough to

keep the doors open. Many staff members left

and could not be replaced; a typical reduction

in staff was from 15 to 18 down to 2 or 3. The

staff members who remained were job hunting, In April 1987, the TAACs had agreements,

with minimal funding, lasting only through

June 15.13 They owed millions of dollars of technical assistance to firms with whom they had

contracts dating back to 1985 and before. They

were losing their legitimacy with businesses

that might profit from their assistance.

Time Restrictions

Before the disruptions that began in December 1985, most of the TAACs found TAA for

firms to be, on the whole, administratively

workable, Two or three features of the program

have created difficulties, however. One is the

inflexible time limit of 1 year during which

TAACs can commit themselves to serve their

client firms. As described earlier, the shortest

time possible for producing an adjustment strategy is more than 6 months, and in practice the

time is usually several months longer. often,

the firm itself will delay in committing itself

to an adjustment plan, while weighing the costs

and benefits.

Commerce Department rules prohibit the

TAACs from undertaking any activity, whether

with clients, consultants, or anyone else, that

will last past the end of the TAAC’S grant

period. The way TAACs and their clients have

handled this restriction in the past, when the

TAACs customarily had 12-month grants, was

to make a good faith assumption that the TAAC

would be around the next year to finish the job.

For consultants, one strategy was to break up

a technical assistance program into smaller

parts that could be completed within the time

limits, This can bean awkward and expensive

way of managing a project, however, Another

possibility would be to allow the TAACs to

make contracts that last past the end of the grant

year, contingent on their receiving grants the

following year. With the recent 1- and 2-month

extensions, TAACs have been effectively barred

1 3As noted, in May 1987 the Commerce Department asked fo r

12-month grant proposals from the TAACs to cover the period

June 1987 to May 1988.
65

from giving any implementation assistance at

all, since the time is too brief even to get it

started. Five TAACs said in response to OTA’s

survey that a 1 2-month grant period is the minimum period they can work with.

Outreach

An October 1981 directive from the Department of Commerce prohibits TAACs from directly approaching firms, by letter or phone call,

to acquaint them with the TAA program or offer TAAC services, The purpose of the restriction, according to the Commerce Department,

is to prevent any firm’s feeling pressured to request trade assistance, TAACs may make

speeches or take part in seminars sponsored

by industries or communities and explain the

TAA program, but must make it clear that it

is up to the firm to take the initiative to request

assistance.

Most of the TAACs have found it a handicap

to operate under this restriction, since the TAA

program for firms is small, unpublicized, and

little known. The TAACs do make their program known to industry organizations and

Chambers of Commerce, Members of Congress,

Governors, State and local agencies, and community organizations, The TAACs that are affiliated with universities and economic development agencies use these groups to contact

firms. The necessity to make themselves known

through a network has proven a positive benefit to some of the TAACs, though most would

like to be free to approach firms directly. For

example, one TAAC director said he knew that

a leather goods firm in his community was in

trouble, and would have liked to offer TAA

assistance. Eventually the firm did find out

about the TAA program, and asked for help,

but by that time the firm was too far gone to

profit from assistance.

Affiliations With Other Institutions

For some of the TAACs, close links with other

institutions are a source of strength. Five of the

TAACs are independent, governed by boards

representing State and local agencies and the

private sector. The others are associated with

or under the wing of other institutions, Six are

affiliated with universities, Four of those consider the university connection very advantageous.

14 It gives them legitimacy and helps them

attract the kind of clients that can benefit from

their services, and it gives them ready access

to help from teachers, researchers, and graduate students in business and engineering schools,

The TAACs that seem to have the closest

university links are the Southeastern, western,

and Great Lakes. The Southeastern TAAC is

an integral part of the Georgia Tech Research

Institute, under its Industrial Extension Service. Staffed with Georgia Tech Research Institute employees, the TAAC is able to tap the expertise of the entire Institute, with its 650

professional and 150 academic researchers. An

especially valuable resource is the Institute’s

industrial training program, which specializes

in training for first and second line supervisors.

Another advantage Georgia Tech confers is its

name. Georgia Tech is so respected throughout the southeast that the TAAC staff find they

have immediate entree to many businesses that

might not react so favorably if they saw the

TAAC as a government agency. In addition, the

Southeastern TAAC has been able to weather

the disruptions of 1986-87 better than most because it can trade and share staff with other

departments of the Institute. Once staffed with

19 full-time equivalent staff members, it was

down to seven full-time equivalents, including

10 people, in early 1987.

The Western TAAC gears most of its assistance to designing new products and producliThe}, are Southeastern, ki.hich is connected \V ith Georgia ‘l”c{;h

Research Institute; Great Lakes, ttith the ( lni\rrsity of hfichigan; Mid-American (not interviewed b~ OTA), affiliated with

St. Louis Uni\rersity; Rock} Mountain, tiith the ( ~ni~ersit~ of

Colorado; and Western, with the Uni\ersit\ of Southern (~alifornia, The New York State TAAC, associatecj mith the State

University of New York at Binghamton, i~ largely autonomous;

the university’s contribution is largely (,onfined to help with

out reach.

The Mid-America TAAC was prek’iousl} located in I.ittle Rock,

AR, but it ceased operations in 1986, TAACs suri’e}re(i b~ tele-

~)hone were Nett }’ork State, Binghamton, N7Y; Metro Ne\\ York,

Ne\\I }rork, N}r; New Jerse\, Trenton, NJ; Mid-Atlanti(; , Philade] ~Ih i a, PA: Great I,akes, Anne A rhor, hl I; NI id-W’est, C}] ic ago,

11,; Rock) hloontain, Boulder, CO; North \\est, Seattle, WIA; an(l

J1’estern I,os Angeles, CA, ‘1’he “1’AACS \isited b~’ OTA staff were

.New En~lan(l, Boston, hlA, and Southeastern, Atlanta, GA.
66

— 

tion processes, and to installing computer systems; its association with USC gives it access

to the university’s research center for technology transfer. One professor each from the business and engineering schools serve part time

on the TAAC. The university also serves as a

base for the TAAC’s outreach and administrative activities.

The New Jersey TAAC says it profits from

its association with the State’s Economic Development Authority. As a part of the State’s

business retention services, it has access both

to expertise in the agency and to financial assistance for firms via the State industrial revenue

bonds. Also, the agency helps the TAAC with

outreach throughout the State.

Broader Eligibility

TAAC officials mention two problems with

eligibility for the program, First, as with TAA

for workers, service and supplier industries are

not eligible. Then, it is sometimes hard to draw

the line for firms that are manufacturing goods.

For example, if a firm makes several products,

some affected by imports but others not, any

product line that accounts for at least 25 percent of the firm’s total sales maybe considered

for eligibility. But unless the firm’s overall employment is declining, none of its products can

be certified for assistance. Often, firms losing

out to foreign competitors in one product line

will shift workers to another line as a temporary

expedient; yet over time, the firm’s position may

erode. An earlier intervention might have kept

it out of trouble.

In general, the need for an early response is

not as clear for trade-affected firms as it is for

workers losing their jobs, However, timely intervention, offered when a firm still has some

strengths, is obviously more likely to succeed

than help that is delayed until the firm is on

its last legs, It has sometimes been suggested

that whole industries might be certified as

import-affected, so that firms do not have to

wait till their sales or production are already

in decline before they are eligible for assistance.

This of course would enlarge the universe of

firms eligible for help; so would the extension

of eligibility to service and supplier firms. unless given additional funds, TAACs would then

have to be more selective than they are now,

or service to firms would have to be diluted,

with briefer, more superficial assistanc e

offered.

An alternative to broadening eligibility for

TAA services is to offer industrial extension

services to any manufacturing firm that needs

to improve its management and technology.

Possible models for this kind of service, open

to all, range from the highly competent but timelimited assistance offered by Georgia Tech’s Industrial Extension Service to the venerable

Agricultural Extension Service, with its combination of Federal, State, and county funds,

applied research in the land-grant universities,

and delivery of services by county agents. Although it is certainly not free from criticism,

the Agricultural Extension Service has received

a great deal of the credit for fostering the technologically advanced, highly productive agriculture of the United States, The service has

taken many years to develop, costs close to $1

billion per year, and would not be instantly

replicable in an industrial extension service.

It represents the high end of the range of possibilities for diffusing technology to manufacturing industries.

The TAA Industrywide Program

Since 1978, when industrywide TAA assistance began, the Department of Commerce has

signed 52 cooperative agreements with representatives of a variety of trade-affected industries, providing technical and export assistance.

Industry associations (or other representatives

of industry) share the cost of developing improved manufacturing technologies, better market analysis, and other kinds of technical assistance that will help firms in the industry

become more competitive at home and abroad.

They also cooperate in helping firms export

their products more effectively.

To qualify for the program, an industry must

show that its sales or production have declined,

that firms in the industry have been certified

as TAA-eligible, that the project results will lead
67

to prompt actions by the industry, and that the

industry will commit time, money, and effort

to carrying out the project and making its result known to members. usually the industry

provides one-quarter to one-half of the cost of

the project.

The TAA industrywide program began with

a heavy concentration on footwear and the

textile-apparel industry; apparel and textiles remain at the top in funding, but footwear has

dropped out and other industries—electronics,

auto parts, iron products—have received more

attention recently. Most of the industrywide

projects are short term; the Commerce Department considers its contribution seed money,

to get the industry started on technology and

management improvements for its members,

which the association will then take over itself.

One of the bigger recent projects ($450,000 in

TAA funds over 3 years plus $805,500 from industry) is for improved iron casting. As shown

in table 5, the industrywide program was funded

at about $2.5 million to $4 million in recent

years.

By far the largest industry project TAA has

supported is TC2 (Textile & Clothing Technology Corp.), whose purpose is to produce a machine that will automatically load, fold, and sew

limp fabric, particularly in the exacting task of

making men’s suit jackets. Contributions to that

project from TAA funds amounted to $1.6 million in 4 fiscal years, 1981 through 1984. When

the Commerce Department attempted to cease

funding TC2 after 1984, Congress took over and

provided line item appropriations, $3.5 million

in 1985, and $3.3 million in 1986 and again in

1987. (In April 1987, however, the Commerce

n

Department had not yet made any grants from

the fiscal year 1987 funds for TC2

.) From 1981

on, the industry provided $10.7 million in cash

for the project, and more resources (e.g., staff

time) in kind.

The industry association offices being opened

in Tokyo are examples of TAA export assistance to industries. The American Electronics

Association established a Tokyo office in 1984

with TAA help, and the Motor Equipment Manufacturers Association planned to follow suit

in 1987. Although the Commerce Department

intended to limit TAA funding for these offices

to 3 years, representatives of the electronics industry have asked that it be continued, on the

grounds that the Japanese take government involvement seriously, as an emblem of the industry’s importance to the U.S. economy,

Administration officials in the Commerce Department do not express the same “philosophical” objections to the TAA industrywide program as to the program for firms; one described

it as a “bright spot. ” However, the Commerce

Department has given no funds to the industrywide TAA program in fiscal year 1987, because officials interpreted language in reports

of the House and Senate Appropriations Committee as reserving all Commerce TAA funds

to the program for firms. The program is popular with a number of industry associations;

some protested to Congress about the cutoff of

funds. As noted earlier, the House Appropriations Committee explicitly stated in its report

on a bill providing supplemental TAA appropriations that funds should be available to industry projects as well as to the TAACs, for technical assistance to firms.