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Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues, Date: August 9, 2002 1 (September 9, 2002)

handle is hein.tera/crser0167 and id is 1 raw text is: Order Code RS20210
Updated August 9, 2002
CRS Report for Congress
Received through the CRS Web
Trade Adjustment Assistance for Firms:
Economic, Program, and Policy Issues
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
Although free trade provides benefits to all trading partners, reducing barriers to
trade forces firms and industries in all countries to adjust to stiffer global competition.
For some, the adjustment process can be difficult and Congress, in recognizing this
problem, has authorized programs to assist trade-impacted firms, industries, and
workers. This report focuses on the trade adjustment assistance program for firms and
industries, which provides technical assistance to help them develop strategies to remain
competitive in the changing international economy.' The TAA legislation expired on
January 10, 2002, but the program continued to function with FY2002 appropriations
until reauthorized by Congress. A new reauthorization was signed into law by President
Bush on August 6, 2002 as part of the Trade Act of 2002 (P.L. 107-2 10). This report
will be updated periodically to continue following the firm TAA program.
Economics of Trade Adjustment
Economists tend to agree that in defining the rules of exchange among countries,
freer trade is preferable to protectionism. The theory of comparative advantage suggests
that freer trade leads to mutual gains for countries because through exchange, they can
specialize in producing those goods at which they are relatively more efficient, while
trading for those at which they are relatively less so. Firm productivity increases through
trade by reallocating resources to their more efficient use, while both firms and consumers
gain by having a wider variety of goods to choose from at lower prices.
It is also true that as countries adopt freer trade policies, often through negotiated
trade agreements, economies must adjust to increased trade, creating both winners and
losers. Some firms and industries will grow as they expand into overseas markets,
whereas others will contract, merge, or perhaps even fail when faced with increased
competition. While the adjustment process may be healthy from a macroeconomic

Congressional Research Service *** The Library of Congress

For a discussion of worker assistance and current legislation, see the CRS trade electronic
briefing book: [http ://www.congress.gov/brbk/html/ebtral1.shtmll

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