Trade Adjustment Assistance: Impact of Federal Assistance to Firms is
Unclear (Letter Report, 12/15/2000, GAO/GAO-01-12).

Concerns about the impact of foreign trade on U.S. manufacturing have
focused attention on federal programs designed to help domestic firms
that have been adversely affected by imports. One such program, the
Department of Commerce's Trade Adjustment Assistance program, aims to
help U.S. firms adopt strategies to become more competitive. The program
is administered by the Economic Development Administration (EDA). GAO
reviewed the nature and extent of Trade Adjustment Assistance as well as
the outcomes of this assistance. GAO found that for fiscal years 1995
through 1999, EDA certified 157 firms annually as eligible for trade
adjustment assistance and approved business recovery for about 127 firms
each year. An average of $9.8 million dollars was spent by each of the
12 regional Trade Adjustment Assistance Centers operating under
cooperative agreements with EDA. The impact of the program on firms is
inconclusive because EDA does not formally monitor and track program
outcomes of program recipients. Instead, EDA sets annual numerical goals
for certifications and approved business recovery plans for each of the
centers. As a result, EDA does not have the information necessary to
systematically assess center performance in helping firms adjust to
import competition.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-12
     TITLE:  Trade Adjustment Assistance: Impact of Federal Assistance
	     to Firms is Unclear
      DATE:  12/15/2000
   SUBJECT:  Private sector
	     Business assistance
	     Program evaluation
IDENTIFIER:  Trade Adjustment Assistance program
	     Cooperative agreements
	     Performance measures
	     International trade
	     Importing

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GAO-01-12

A

Report to the Chairman and Ranking Minority Member, Committee on Finance U.
S. Senate

December 2000 TRADE ADJUSTMENT ASSISTANCE

Impact of Federal Assistance to Firms Is Unclear

GAO- 01- 12

Letter 3 Appendixes Appendix I: Objectives, Scope, and Methodology 22

Appendix II: Statistical Profile of Firms Certified to Receive Trade
Adjustment Assistance 24

Appendix III: GAO Questionnaire for Certified Firms 31 Appendix IV: Comments
From the Department of Commerce 37 Appendix V: GAO Contacts and Staff
Acknowledgments 41

Tables Table 1: Distribution of Firms Interviewed, by Center and Category of
TAA Participation 16

Table 2: Standard Industrial Classification Codes for Certified Firms,
Calendar Years 1995- 99 28 Table 3: Standard Industrial Classification Codes
for Certified

Firms GAO Interviewed 29 Table 4: Example of TAA Projects at Midwest TAA
Center,

October 1995- May 2000 30 Figures Figure 1: TAA Center Locations and
Regional Coverage 7

Figure 2: Flowchart of the TAA Process 9 Figure 3: Trade Adjustment
Assistance Centers' Total Expenditures, Cooperative Agreement Years 1995- 99
11

Figure 4: Certifications and Adjustment Plans Approved, by Trade Adjustment
Assistance Center, Fiscal Years 1995- 99 14 Figure 5: Distribution of
Certified Firms, by Gross Annual Sales,

Calendar Years 1995- 99 24 Figure 6: Distribution of Certified Firms GAO
Interviewed, by Gross

Annual Sales 25 Figure 7: Distribution of Certified Firms, by Number of
Employees,

Calendar Years 1995- 99 26 Figure 8: Distribution of Certified Firms GAO
Interviewed, by

Number of Employees 27

Abbreviations

EDA Economic Development Administration TAA Trade Adjustment Assistance

Lett er

December 15, 2000 The Honorable William V. Roth, Jr. Chairman The Honorable
Daniel Patrick Moynihan Ranking Minority Member Committee on Finance United
States Senate

Congressional concerns about the impact of foreign trade on U. S.
manufacturing have focused attention on federal programs designed to help
domestic firms that have been adversely affected by imports. One such
program, the Department of Commerce's Trade Adjustment Assistance program,
aims to help U. S. firms adopt strategies to become more competitive in a
global economy. Commerce's Economic Development Administration administers
the program, which was established in 1962. The agency is responsible for
certifying firms' eligibility to receive assistance and approving the
certified firms' business

plans for economic recovery. To become eligible to receive assistance, a
firm must demonstrate that increases of imports have contributed importantly
to decreases in sales or production and in its number of employees. Twelve
regional Trade Adjustment Assistance Centers, which

operate under cooperative agreements with the Economic Development
Administration, help firms with the certification process, assess the
viability of firms, and develop business recovery plans. The Centers also
provide funding for and oversight of the work done by third- party

consultants, who implement the projects detailed in the business recovery
plans. Certified firms generally pay 25 percent of the cost of developing a
recovery plan and no less than 50 percent of the total cost of the technical

consulting services for projects that cost more than $30, 000. The Economic
Development Administration's fiscal year 2000 Trade Adjustment Assistance
appropriation is $10.5 million.

You asked us to review the nature and extent of Trade Adjustment Assistance
as well as the outcomes of this assistance. Specifically, we (1) identified
how the funding was used and the number and type of firms participating in
the program and (2) examined the impact of the program assistance received
by firms, including the views of participating firms and Center directors
about the quality and impact of program services.

To answer these objectives, we collected data on program operations from the
Centers and the Economic Development Administration for the time period
covered by the Centers' cooperative agreement years 1995- 99. 1 To determine
the impact of program services received by firms, we relied on

data provided by the Economic Development Administration and Center
directors and also conducted interviews of 72 firms that were certified by
the Economic Development Administration to receive program assistance. These
firms fell into three categories: (1) 18 firms that were certified in 1998
but later withdrew from the program; (2) 28 firms that were certified in
1998, had approved business recovery plans, and had one or more projects
implemented; and (3) 26 firms that were nominated as “success
stories” by their respective Trade Adjustment Assistance Center.
Because

our sample was small and not random, the results are not projectable and do
not permit us to draw conclusions about all firms participating in the
program. However, the interviews provide insight into the program and

illustrate how firms used the Trade Adjustment Assistance program to help
them meet their competitive challenges. We also interviewed Trade Adjustment
Assistance program officials, including the 12 directors of the Centers, to
obtain additional perspectives on the program. For a more complete
discussion of our scope and methodology, see appendix I.

1 The annual time periods covered by the cooperative agreements vary among
the Centers and do not necessarily correspond to the fiscal year.

Results in Brief The 12 regional Trade Adjustment Assistance Centers spent
an annual average of about $9.8 million for cooperative agreement years 1995
through 1999. Although Centers' expenditures varied, most of these funds (61
percent) were used to fund operational and administrative costs, including
the cost of helping firms become certified and developing their business
recovery plans. The remainder- an annual average of about $3. 8 million, or
approximately 39 percent of the total- was used to fund direct technical
assistance to firms through the implementation of business recovery plans.
For fiscal years 1995 through 1999, Commerce's Economic Development
Administration certified, on average, 157 firms annually as eligible for
trade adjustment assistance and approved business recovery

plans for about 127 firms each year. The median sales for certified firms
was $3.2 million and the median number of employees was 45. The three
industries most frequently represented among certified firms for cooperative
agreement years 1995 through 1999 were industrial machinery

and computers (14 percent), electronic equipment (13 percent), and apparel
manufacturers (12 percent). 2 Examples of projects funded and implemented in
conjunction with the business recovery plans included marketing, Web site
development, standards certification, and production process improvement.

The impact of the program on firms is inconclusive because the Economic
Development Administration does not formally monitor and track program
outcomes of program recipients. Rather, the agency sets annual numerical
goals for certifications and approved business recovery plans (outputs) for
each of the Centers. As a result, the Economic Development Administration
does not have the information necessary to systematically assess Center
performance in helping firms adjust to import competition. Most (40) of the
54 firm managers we interviewed who used Trade Adjustment Assistance funds
to implement projects reported that the assistance had a positive impact on
their firms' gross annual sales, and most (31) reported that the assistance
had had a positive impact on employment. However, some (7) managers pointed
out that the Trade Adjustment Assistance was small relative to the firm's
overall investments, and most (31) firm managers that had implemented
projects told us that they had finished projects with their own funds. Eight
of the directors of 2 The data from one Center were not available for this
analysis. Other categories included fabricated metals (10 percent),
miscellaneous manufacturing (7 percent), and rubber (6 percent).

the regional Centers were generally satisfied with the Economic Development
Administration's overall management, but all 12 directors identified limited
program funds as a problem affecting the Centers' ability to deliver program
services. In allocating the limited funds for project implementation,
Centers use different mechanisms, such as “first- come,

first- served” or funding at least one project in all recovery plans.
This inconsistent approach to project funding raises questions about whether
scarce resources are being used effectively. This is important because the
12 Centers currently have a combined backlog of about $12 million in
approved, but unfunded, projects. At the current rate of recovery plan
funding at the Centers, it will take more than 3 years to fund these
projects

if no new companies are taken on as clients. This report contains
recommendations to the Secretary of the Department of Commerce to improve
program management by (1) developing better measures of program outcomes and
(2) applying these outcome measures to evaluate the effectiveness of the
Centers' delivery of services to make the best use of the limited funding of
this program. In written comments on

a draft of this report, the Department of Commerce generally agreed with our
findings and the recommendations. Background The Trade Adjustment Assistance
(TAA) program for firms was established

by the Trade Expansion Act of 1962 3 to assist firms that have been
adversely impacted by import competition; and the program was expanded under
the Trade Act of 1974, as amended. 4 Commerce administers the program
through the Economic Development Administration (EDA). Although Congress
originally authorized Commerce to assist firms by providing technical
assistance, direct loans, and loan guarantees, the direct loan and loan
guarantee provisions were eliminated in 1986. 5 The program

lapsed in June 1999, but Congress reauthorized it in November 1999 through
September 30, 2001. 6 EDA receives a separate appropriation for TAA, which
it uses to fund 12 regional Trade Adjustment Assistance 3 Public Law 87-
794, 19 U. S. C. 2341 to 2355.

4 Public Law 93- 618. 5 19 U. S. C. 2344 (d). 6 Consolidated Appropriations
Act of Fiscal Year 2000, Public Law 106- 113, H. R. 3421, which was enacted
into law by reference in H. R. 3194.

Centers, under renewable cooperative agreements. As shown in figure 1, the
Centers cover geographical areas of different sizes. Funding for individual
Centers varied from $660, 000 to $1 million for cooperative agreement year
2000. Each Center funds technical assistance to firms within its region that
have received EDA certification of eligibility and whose business recovery
plans have been approved by EDA.

Figure 1: TAA Center Locations and Regional Coverage A

Rocky Mountain Center K

Midwest Center W A

Great Lakes Center

M M

N E

New England Center

O T

D V

Northwest Center

ID S

M N

NH R

N W

T MA D

I Y

New York Center

W MI

RI Y

N IA

PA NJ CT N

E O

C V

U IN H DE

New Jersey Center

A T

C IL

W K

M V

VA MD

O S

O KY AZ O

TN NC

Mid- Atlantic Center

N K

A S

M R

C HI

M AL G

Southeastern Center

LA S

A T

Western Center

X

FL Southwest Center

Mid- America Center

Source: GAO derived from Department of Commerce information.

A firm that seeks TAA benefits must petition EDA for certification of its
eligibility. To be found eligible, a firm must demonstrate (1) that a
significant number or proportion of the firm's workers have become totally
or partially separated from their employment, or are threatened to become
totally or partially separated; (2) that sales or production overall have
decreased, or that sales or production of a product that represents at least
25 percent of its total production has decreased during the preceding

12- month period; and (3) that increases in imports of articles like or
directly competitive with the firm's product contributed importantly to the
employment separations (or threat thereof) and the declines in sales or
production. Trade Adjustment Assistance Centers' staffs work with firms to
develop the documentation. EDA requires firms to support claims of

declining sales and employment and increases of imports competing with the
products they produce. EDA is required to determine the firm's eligibility
within 60 days of receiving a petition. Once certified, a firm has 2 years
during which it is to develop a business recovery plan in consultation with
the regional Center. This recovery plan should detail the firm's fundamental
business operations, assess its competitive problems, and propose specific
projects to be implemented by

one or more competitively selected third- party consultants. After EDA
approves the plan, the Center funds specific projects within the plan,
subject to the Center's available funds. Projects are limited to technical
assistance such as marketing strategies, technical standards certification,

product and process development, and computer system upgrades. TAA funds may
not be used for capital expenditures such as physical plant improvement or
machinery upgrades. Firms are permitted to receive up to $75,000 in TAA
funding but are required to match federal funds dollar- for- dollar to
implement the technical assistance projects. 7 (See fig. 2 for a summary of
the TAA process.) 7 For projects budgeted to cost less than $30,000, Centers
may fund up to 75 percent of the total cost.

Figure 2: Flowchart of the TAA Process

Firms

Submit petitions for certification to Commerce through Centers Following
certification, submit recovery plans

through the Centers to EDA for approval Use consultants to implement
recovery plans

Firms typically pay Centers 25 percent of the cost of developing a business
recovery plan

$

Firms pay

Trade Adjustment Department of Commerce

consultants 50

Assistance Centers Economic Development

percent of

$

Help firms file certification

Administration

project costs

$

petition Assess firms' viability

Certifies firms to participate in Develop business recovery

program plans with firms

Approves adjustment plan Provide oversight of project

implementation by consultants

Commerce funds budgets for 12

$

regional Centers

Consultants

Centers pay consultants 50 percent of Provide technical

project costs (up to $75, 000) assistance to firms to implement projects in
the business recovery plans

Source: GAO derived from Department of Commerce information.

Less Than Half of Expenditures by the 12 regional Centers during cooperative
agreement

Center Expenditures years 1995- 99 totaled about $49 million, or an annual
average of

$9. 8 million. Between 1995 and 1999, the 12 regional Centers used about
Were Used to Fund 39 percent (about $3. 8 million annually), on average, of
TAA funding to Project

fund technical assistance from third- party consultants to eligible firms
with Implementation by approved business recovery plans. During the same
period, Centers spent about 61 percent (about $6 million annually), on
average, to fund

Consultants operational and administrative costs associated with helping
firms with the

initial certification process, developing business recovery plans for
certified firms, and funding the day- to- day operations of the Centers. 8
However, the proportion of funds spent to fund consultants varied across
Centers. As shown in figure 3, the New England and Western Centers spent
over half of their program funds (about 59 percent and 58 percent,
respectively) on technical assistance provided by consultants to eligible
firms, while the Great Lakes Center spent about 12 percent. EDA officials
told us that the Great Lakes Center is currently on probation due to its

relatively few certifications and business recovery plans submitted to EDA
in the last 2 years.

8 According to Center directors' estimates, about 64 percent of their
staffs' time is spent on working with firms on developing certification
documentation and business recovery plans.

Figure 3: Trade Adjustment Assistance Centers' Total Expenditures,
Cooperative Agreement Years 1995- 99

$6, 000, 000 $5, 000, 000 $4, 000, 000 $3, 000, 000 $2, 000, 000 $1, 000,
000

$0 York

Midwest ica

n Lakes

Atlantic Jersey

England New Mountain

Northwest Mid- Amer

Southeaster Great Mid- New Western

Southwest New Rocky Operations and administrative costs Consultant costs

Note: Operations and administrative costs include staff time spent assisting
firms with the certification process and preparing adjustment plans, in
addition to the cost of funding day- to- day operations.

Source: GAO derived from TAA Centers' data.

Between fiscal years 1995 and 1999, EDA certified a total of 784 firms
(about 157 firms annually, or about 13 each year for each of the 12 Centers)
as eligible to receive trade adjustment assistance. EDA approved the
business recovery plans for 633 certified firms (about 127 firms annually,
or an average of 11 firms per year for each Center). 9 Firms participating
in the program represent a broad array of industries that produce
manufactured products. Such firms include manufacturers of auto parts,
agricultural equipment, electronics, jewelry, circuit boards, textiles, log
homes, and

many others. Based on the data provided by the Centers for firms certified
between cooperative agreement years 1995 and 1999, we found that about 14
percent of firms produce industrial machinery and computers, about 13
percent manufacture electronic equipment, and 12 percent produce apparel.
For the 5- year period, firms had annual sales (at the time of
certification) that ranged from a low of $1,563 to more than $219 million,

with median sales of $3.2 million. The number of workers employed at the
time of certification ranged from 1 to more than 3,000, but the median
number of employees was 45. See appendix II for a statistical profile of
firms that EDA certified as eligible to receive TAA benefits in cooperative
agreement years 1995- 99.

Certified firms receiving trade adjustment assistance developed business
recovery plans that included a broad range of projects, including marketing,
Web site development, standards certification, improvements to

production processes, inventory control, and others. These projects, which
were customized to meet each firm's specific needs, were implemented by
third- party private sector consultants selected jointly by the firm and the
Center, and some firms used more than one consultant in the course of
implementing its recovery plan. For more detail on types of projects

undertaken at one Center, see appendix II. Impact of TAA

The impact of the TAA program for firms is unclear, based on our review of
Program for Firms

EDA's data, our interviews of program participants who received TAA
benefits, and our interviews of the 12 regional Center directors. Unclear

9 According to EDA data, EDA rejected only 2 of the total number of business
recovery plans submitted for EDA approval between fiscal years 1995 and
1999.

EDA Does Little to Monitor Although EDA funds the Trade Adjustment
Assistance Centers, it has not

Program Outcomes formally monitored and tracked program results. EDA
establishes goals for each Center regarding the number of certifications and
business recovery

plans to be completed annually for EDA review (outputs). In addition, EDA
program officials told us that they conducted site visits in the past but
discontinued them in fiscal year 2000 because of budget constraints.
However, EDA provides no oversight of project implementation and does not
track the outcomes of firms receiving TAA funding. Additionally, we found
that the Centers do not always collect the same information on clients and
funded projects. Furthermore, not all Centers were able to provide us with
information on the type of projects included in each client's recovery plan,
the status of each project, and changes in sales and

employment. This lack of standardization and of a systematic collection of
basic data hinders EDA's ability to assess program effectiveness. As a
result, EDA is unable to use any performance measures other than numbers of
approved certifications and recovery plans to evaluate the performance of
the Centers and of the program overall. According to the

data EDA does collect, certifications by Center for fiscal year 1999, the
last fiscal year for which data are available ranged between 6 and 24, while
the number of approved recovery plans ranged between 2 and 22. As shown in
figure 4, the number of certifications and business recovery plans approved
varied across Centers for the fiscal year 1995- 99 time period that we

reviewed.

Figure 4: Certifications and Adjustment Plans Approved, by Trade Adjustment
Assistance Center, Fiscal Years 1995- 99

90 80 70 60 50 40 30 20 10

0 ca

York c

Jersey Lakes

Southwest England

d- Ameri New Midwest

Northwest Western

Mountain d- Atlanti

New Great Southeastern New Mi

Rocky Mi Certifications Business recovery plans approved

Source: GAO derived from Department of Commerce data.

EDA officials have recognized some of the shortcomings in the available
performance data, and, building on the requirements of the Government
Performance and Results Act of 1993 (P. L. 103- 62), have begun to collect
client satisfaction data from participating firms. As of October 1999, these
data are being collected through a one- question survey provided to program
participants by the Centers. According to a Commerce TAA program official,
the results of these surveys are not yet available. Although client
satisfaction is one important dimension of program effectiveness, other
measures of economic recovery, such as changes in sales,

employment, and earnings, could potentially provide more meaningful
indications of program impact. One Center Director told us that in October
1999, he began to collect more extensive data from client firms. This Center
has designed and implemented an electronic questionnaire to measure

client satisfaction with the Center project manager and the private sector
consultant. It also asks firms about changes in sales, employment and
capital expenditures as a result of the project that was implemented by the
consultant. According to the Director, the results are not yet available,
but he expects to use them to report to EDA and his state government on the
economic impact overall of projects that his Center funds. Although the
Director has presented this questionnaire to other directors, the
questionnaire is not used by all Centers because some Centers lack the
necessary technology to implement the survey.

Although Views of Private We were unable to conclusively assess the impact
of the TAA program

Sector Firms Are Positive, because EDA does not track changes in the
business condition of assisted

Overall Program Impact Is firms. To obtain insight into program operations
and effectiveness, we

Uncertain interviewed 72 firms certified by EDA. (See app. III for the
questionnaire.) Table 1 shows the distribution of the types of companies we
interviewed by Center and category of the firms' participation in the
program.

Table 1: Distribution of Firms Interviewed, by Center and Category of TAA
Participation Firms that were Firms designated as

certified and had Firms that were “success stories” by

approved business certified, but withdrew TAA Center

Centers recovery plans

from the program Total

Great Lakes 2 2 1 5

Mid- America 2 2 2 6

Mid- Atlantic 2 4 0 6

Midwest 2 2 2 6

New England 3 1 1 5

New Jersey 3 3 1 7

New York 2 2 2 6

Northwest 2 3 2 7

Rocky Mountain 2 3 2 7

Southeast 2 2 1 5

Southwest 2 2 2 6

Western 2 2 2 6 Total 26 28 18 72

Of the 54 firm managers we interviewed that had implemented one or more
projects, 53 indicated they were satisfied with the services they had
received from the Centers, and 51 said they were satisfied with the third-
party consultants. Most of these managers also indicated that TAA had had a
positive impact on increases in sales and employment (40 and 31,
respectively). For example, one firm manager said that TAA funding helped
the firm to redesign a key product. According to the manager, the TAA-
funded project led to increases in gross annual sales and employment levels.
However, we also found that some (5) of the 18 firms we interviewed

that dropped out of the program after becoming certified also reported
increases in sales and employment. Despite these positive views of the
program, firm managers also identified other factors that contributed to the
successful recovery of their firms. Seven managers noted that the amount of
TAA funding was small relative to the firm's overall investments in its
business recovery. For example, one manager explained that the firm's
business recovery project cost $5. 5 million, of which $50, 000 came from
TAA funds. According to the

Director of the Center serving this firm, the TAA funding facilitated the
financing of the overall project but was not the only factor in its success.

Some firm managers also said that other factors not related to TAA, such as
a strong domestic economy or physical plant investments, had also
contributed to increased sales and employment.

Thirty- one firm managers said that they had finished approved projects with
their own funds, and four firm managers specifically noted that the lack of
funds from their respective Center impaired the timely implementation of
projects. For example, one firm manager said that TAA program funding for
the firm's projects ran out several times during implementation and that the
projects had to be delayed until the following year. The manager further
noted that delayed funding for scheduled

projects creates problems for businesses that must implement changes quickly
in order to remain competitive in today's economy.

The 18 firm managers we interviewed that withdrew from the TAA program cited
a variety of reasons for dropping out of the program, including the lack of
funds to cover the firm's portion of the business recovery plan, or a
decision that the firm did not want the type of technical assistance funded
by the TAA program. Another firm withdrew after the manager responsible for
overseeing the TAA process left the firm.

Center Directors Identify A majority of the directors of the 12 Centers we
interviewed said the Trade

Issues Affecting Program Adjustment Assistance program provides an excellent
model for assisting

Implementation firms but expressed concerns about a number of program
issues. Although

8 were generally satisfied with EDA's program management, all 12 directors
reported frustration with current funding levels. According to the
directors, they cannot fund all projects in approved business recovery plans
due to the limited program funding. Six of the directors told us that they
ration scarce funds across all approved business recovery plans, trying to
fund at least one project of every approved plan. However, the

other six directors indicated that they use predominantly a “first
come”, “first- served” approach to fund projects. The 12
directors reported a combined backlog of $12 million for projects in
business recovery plans approved by EDA that the Centers are currently
unable to fund. Using the current rate of Centers' funding of projects in
approved recovery plans ($ 3.8 million annually over the 5- year time period

we reviewed), it will take more than 3 years to fund all projects slated for
implementation to help firms respond to the business pressures associated
with import competition.

Conclusion We identified two overall issues in the TAA program that suggest
a need for reexamining how the program operates. First, Commerce's Economic
Development Administration has not developed appropriate outcome

measures to conclusively demonstrate the value of the program in achieving
its goal of assisting firms adversely affected by imports. This, combined
with the lack of standardized data collected by the Centers, makes it
difficult to judge the outcomes of the program. Second, there is a current
backlog of about $12 million in approved but unfunded projects, and Centers
use different approaches to allocate limited program resources. These
variations among the Centers in how they allocate limited funds, combined
with the lack of outcome measures, raise questions about

whether available funds are being used in the most effective manner.
Recommendations for To improve the effectiveness of the Trade Adjustment
Assistance program Executive Action

in helping firms that are adversely affected by imports, we recommend that
the Secretary of Commerce establish more effective measures of desired
program outcomes and apply these outcome measures as criteria to evaluate
the effectiveness of the Centers in making the best use of the limited
program funding to help trade injured firms adjust to import competition.

Agency Comments and We received written comments on a draft of this report
from the Our Evaluation

Department of Commerce (see app. IV). Overall, the Department of Commerce
agreed with our findings and recommendations and said that the Department is
committed to implementing the most effective program in order to help U. S.
trade- injured firms adjust to import competition. The Department of
Commerce also provided technical comments, which we incorporated in the
report as appropriate.

The Department of Commerce cited the finding in our report that 39 percent
of the program funds go to provide technical assistance to trade injured
firms from third party consultants while the remaining 61 percent of the
funds are used for operational and administrative costs, including

the costs of certifying firms and developing business recovery plans.
Commerce stated that the Economic Development Administration is confident
the majority of administrative and operational costs actually support Center
staff technical assistance to the trade injured firms and are not overhead
costs as implied by sections of the report. We agree, as noted

above and in our draft report, that the Centers use a portion of the
administrative and operational costs to provide technical assistance to
firms and believe that the Center's role in assisting firms is clearly
stated in our report. We acknowledge this fact in our report by
characterizing these expenditures as administrative and operational- not
overhead. However, we maintain that it is essential to note that less than
half of the program's expenditures are used to fund the implementation of
business recovery projects for firms adversely affected by import
competition. Because the Centers' budget data only identifies expenditures
for technical assistance

provided by consultants, we reported the available data and cannot comment
on Commerce's view that the majority of the Centers' operational and
administrative expenditures are used to provide technical assistance to
firms.

The Department of Commerce also stated that it was disappointed that the
positive findings from our interviews with firms cannot be used to support
conclusions about the overall program. Commerce cited a November 1998

Urban Institute study commissioned by the agency that found statistically
significant improvements in sales, employment, and survivability for firms
receiving Trade Adjustment Assistance when compared to firms certified

as eligible but which did not receive implementation assistance. Commerce
also pointed to an “effectiveness report” prepared by the
Centers annually that has consistently shown substantial increases in sales
and employment for firms assisted by the Centers in comparison to the
declines the firms reported prior to entering the program.

Neither the Urban Institute study 10 nor the Economic Development
Administration's “effectiveness report” demonstrates the impact
of the trade adjustment assistance program. The Urban Institute study has
some methodological shortcomings that served to undermine the validity of
the study's conclusions, including selection bias- an inherent bias in favor
of the TAA- assisted firms. In order to receive Center services, eligible
firms have to invest their own time and resources as part of the assistance.
In

addition, at least some Center directors further screen firms to select
those most likely to succeed. As a result, firms qualifying for Center
assistance

10 The Urban Institute study, prepared in November 1998, compares firms that
actually received Center assistance with those that did not on three outcome
measures: firm termination rate, firms' total employment, and sales growth.
Both groups of firms were certified as eligible to receive Center
assistance. The study observed significant differences between the two
groups of firms on all three outcome measures. These observed differences
are attributed to the positive effect of the Trade Adjustment Assistance
program.

are likely to be stronger, healthier, and more committed than the firms not
participating in the program. While this may be an appropriate strategy for
delivering scarce program funds, it complicates efforts to independently
evaluate results as treatment and comparison groups must be selected in a
manner that rules out any inherent bias in favor of either group. The design
of the Urban Institute study did not do this. In addition, the study did not
measure and test for other explanatory variables, such as the availability
of other federal or state assistance, firms' own investment in capital
improvements or technology, or changes in human resource strategies that

may account for or influence positive outcomes. Consequently, the study
cannot attribute any observed differences between the groups compared- those
receiving TAA assistance and those that did not receive assistance-
exclusively to the TAA program. Regarding the “effectiveness
report” generated by the Centers, we note that it reports changes in
sales and

employment for all clients for each Center on an aggregate basis without
reference to differences in firm size, number of employees, or phase of
recovery for each client. As such, its usefulness in assessing effectiveness
of trade adjustment assistance is limited.

The Department of Commerce stated in its letter that the Economic
Development Administration has undertaken several efforts to monitor the TAA
program and its impacts. Commerce points to a 1998 Urban Institute
evaluation study, regular visits to Centers by EDA staff in fiscal year 1999
to monitor Center progress, and the use of a satisfaction query of assisted
firms to demonstrate its monitoring efforts. We agree that Commerce has
completed some monitoring efforts in the past and have included this
information in our report. However, we still believe that the Economic
Development Administration needs to introduce more systematic and

focused monitoring to better judge program outcomes. In our view, effective
monitoring should include establishing appropriate measures of success for
each firm assisted, regular tracking of program outcomes by the Department
of Commerce, and using that information to evaluate the

success of each Center. We are sending copies of the report to interested
congressional committees and to the Honorable Norman Y. Mineta, the
Secretary of Commerce. We will also make copies available to others on
request.

If you or your staff have any questions about this report, please contact me
on (202) 512- 4128. Other GAO contacts and staff acknowledgments are listed
in appendix V. Susan S. Westin Managing Director International Affairs and
Trade

Appendi Appendi xes x I

Objectives, Scope, and Methodology The Chairman of the Senate Finance
Committee, William V. Roth, Jr., and the Ranking Member, Daniel Patrick
Moynihan, requested that we review the Trade Adjustment Assistance (TAA)
program for firms. We (1) identified how the funding was used and the number
and type of firms participating in the program and (2) examined the impact
of the program assistance received by firms, including the views of
participating firms and Center directors about the quality and impact of
program services To determine how TAA funding was used and the number and
type of firms participating in the TAA for firms program, we collected data
from the

Department of Commerce's Economic Development Administration on
certifications and approved adjustment plans from fiscal years 1995 to 1999.
We also contacted the 12 regional Trade Adjustment Assistance

Centers, which provided data on their program expenditures and information
about client firms, including gross annual sales, number of employees, and
industry information made under their cooperative

agreements years 1995- 99. 1 To identify the nature of the assistance
provided, we asked Centers to indicate projects contained in each client
firm's approved business recovery plans. Some Centers provided detailed
information on actual projects, while others told us that they could not
pull together this information for all clients in time for our analysis.
Because the data on projects are limited, we present (in app. II) project
information from a single Center to illustrate the variety of projects and
the combinations of projects undertaken by firms to implement their business
recovery plans. To assess the impact of the program, we conducted interviews
with EDA officials responsible for the program and reviewed EDA program
files. We conducted on- site visits at three Centers in Atlanta, Georgia;
San Antonio,

Texas; and Los Angeles, California. We chose these sites because they
represented different regions, and we were able to combine these visits with
other TAA- related audit work. To report on the views of certified firms and
the Center directors on

program operations and the quality and impact of program services, we
conducted telephone interviews with 72 certified firms, and interviewed the
12 Center directors. GAO selected about two- thirds of the firms that we
interviewed, and the Centers chose the remaining third. For the

1 The annual time periods covered by the cooperative agreements vary among
the Centers and do not necessarily correspond to the fiscal year.

GAO- selected firms, we identified companies that had received TAA
assistance from each of the 12 Centers. We selected companies certified in
calendar year 1998 to ensure that the companies had sufficient time to
become certified as eligible by EDA, decide whether to proceed with

assistance, develop a recovery plan, and have some experience with
implementing the recovery plan. We attempted to interview at least two
companies from each Center that had developed an approved recovery plan and
two companies that withdrew from the program. Based on data provided by the
Centers, we attempted to identify four of each type of company to attempt to
contact. When a Center's number of clients that fit

our specifications exceeded four, we chose companies randomly for our
interviews. However, not all Centers had four firms in each category. One
Center did not have any candidates for our “certified but
withdrew” category. In those cases, we interviewed more firms in the
“certified with recovery plan” category. For a few Centers, our
interview strategy

produced more than four interviews when more firms returned our calls than
expected. For the Center- selected cases, we asked each Center to nominate
companies that they considered “success stories,” and we
interviewed at least two companies in this category for each Center. Because
we did not select the firms that we interviewed randomly, the results do not
permit us to draw conclusions about all firms participating in the program.
However, the interviews allow us to illustrate how firms used

the Trade Adjustment Assistance program to help them meet their competitive
challenges.

We conducted our work from February through October 2000 according to
generally accepted government auditing standards.

Statistical Profile of Firms Certified to

Appendi x II

Receive Trade Adjustment Assistance We present in this appendix a series of
figures and tables that provide statistical details of firms that were
certified between cooperative agreement years 1995 and 1999, including a
profile of firms by sales, employment levels, and Standard Industrial
Classification code. Similar data are also provided for the firms that
participated in our interviews. We also present information about projects
of certified firms at one Trade

Adjustment Assistance Center. Figure 5 shows the distribution of certified
firms by gross annual sales at the time the firm was certified to
participate in the TAA program for calendar years 1995- 99. Figure 6 shows
similar data for the firms that participated in our interviews. The firms we
interviewed had median sales of about $3.5 million, and ranged from $3,229
to $90. 9 million. The total population of certified firms had median sales
of $3. 2 million, and the sales

ranged from $1, 563 to $219.2 million.

Figure 5: Distribution of Certified Firms, by Gross Annual Sales, Calendar
Years 1995- 99

450 400 350 300 250 200 150 100

50 0

0 to 5 5+ to 10 10+ to 15 15+ to 20 20+ Gross annual sales at certification
(dollars in millions)

Note: Sales data were provided by the TAA Centers for 655 firms. Source: GAO
derived from TAA Centers' data.

Figure 6: Distribution of Certified Firms GAO Interviewed, by Gross Annual
Sales

40 35 30 25 20 15 10

5 0

0 to 5 5+ to 10 10+ to 15 15+ to 20 20+ Gross annual sales at certification
(dollars in millions)

Note: Data were provided by the TAA Centers for 64 of the 72 firms we
interviewed. Source: GAO derived from TAA Centers' data. Figure 7 shows the
distribution of certified firms by number of employees

at the time the firm was certified to participate in the TAA program for
calendar years 1995- 99. Figure 8 shows similar data for the firms that
participated in our interviews. The median number of employees was 44 for
the firms we interviewed, and the number of employees for interviewed firms
ranged between 4 and 648. The median number of employees for total
population of firms was 45, and the number of employees ranged between 1

and 3,089.

Figure 7: Distribution of Certified Firms, by Number of Employees, Calendar
Years 1995- 99

250 200 150 100

50 0

1 to 25 26 to 50 51 to 75 76 to 100 101 to 200 201 to 500 500 + Number of
employees at certification

Note: Employment data were provided by the TAA Centers for 657 firms.
Source: GAO derived from TAA Centers' data.

Figure 8: Distribution of Certified Firms GAO Interviewed, by Number of
Employees

20 18 16 14 12 10

8 6 4 2 0

1 to 25 26 to 50 51 to 75 76 to 100 101 to 200 201 to 500 500 + Number of
employees at certification

Note: Data were provided by the TAA Centers for 64 of the 72 firms we
interviewed. Source: GAO derived from TAA Centers' data. Table 2 shows the
distribution of Standard Industrial Classification codes

for firms certified for calendar years 1995- 99. Table 3 presents similar
data for the firms included in our interviews.

Table 2: Standard Industrial Classification Codes for Certified Firms,
Calendar Years 1995- 99 Standard Industrial Classification

Number of Industry grouping

codes (2- digit) certified firms Percent

Agricultural production 01 10 1.4 Agricultural services 07 1 0. 1 Food
manufacturing 20 20 2.8 Textile mill 22 32 4.5 Apparel 23 82 11. 5 Lumber 24
28 3.9 Furniture 25 23 3.2 Paper 26 10 1.4 Printing/ publishing 27 5 0. 7
Chemicals 28 12 1.7 Petroleum refining 29 1 0. 1 Rubber 30 41 5.8 Leather 31
23 3.2 Stone/ clay 32 16 2.3 Primary materials 33 17 2.4 Fabricated metals
34 68 9.6 Industrial machinery/ computer 35 100 14. 1 Electronic equipment
36 89 12. 5 Transportation equipment 37 31 4.4 Instruments 38 39 5.5 Misc.
manufacturing 39 50 7.0 Electrical services 49 1 0. 1 Wholesale- durables 50
1 0. 1 Wholesale- nondurables 51 4 0. 6 Apparel stores 56 1 0. 1 Eating and
drinking 58 1 0. 1 Business services 73 3 0. 4 Public administration 95 2 0.
3 Total 711 100 a

a Total does not add to 100 percent due to rounding. Source: GAO derived
from TAA Centers' data.

Table 3: Standard Industrial Classification Codes for Certified Firms GAO
Interviewed Standard

Industrial Number of Classification

certified firms Industry grouping

codes (2- digit) interviewed Percent

Agricultural production 01 1 1. 5 Agricultural services 07 0 0 Food
manufacturing 20 0 0 Textile mill 22 1 1. 5 Apparel 23 3 4. 6 Lumber 24 4 6.
1 Furniture 25 1 1. 5 Paper 26 0 0 Printing/ publishing 27 1 1. 5 Chemicals
28 1 1. 5 Petroleum refining 29 0 0 Rubber 30 1 1. 5 Leather 31 3 4. 6
Stone/ clay 32 3 4. 6 Primary metals 33 1 1. 5 Fabricated metals 34 5 7. 6
Industrial machinery/ computer 35 11 16. 7 Electronic equipment 36 7 10. 6
Transportation equipment 37 5 7. 6 Instruments 38 10 15. 2 Misc.
manufacturing 39 7 10.6 Electrical services 49 0 0 Wholesale- durables 50 0
0 Wholesale- nondurables 51 0 0 Apparel stores 56 0 0 Eating and drinking 58
0 0 Business services 73 0 0 Public administration 95 1 1. 5

Total 66 100 a

a Total does not add to 100 percent due to rounding. Note: TAA Centers
provided Standard Industrial Classification code data for 66 of the 72 firms
we interviewed

Source: GAO derived from TAA Centers' data.

Table 4 lists projects funded by one Center- the Midwest TAA Center- for a
sample of 10 firms. The example illustrates the breadth of projects funded
and shows the combination of projects included in each of these firms'
business recovery plans. Some of these projects have been funded and
completed. Others are still in the implementation phase, while other
projects are awaiting funding.

Table 4: Example of TAA Projects at Midwest TAA Center, October 1995- May
2000 Client Project 1 Project 2 Project 3 Project 4 Project 5

Firm #1 Technical certification New equipment

Market research Technical certification Information system consulting
selection registration upgrade Firm #2 Promotional materials Sales
representative Productivity development improvement Firm #3 Strategic
marketing Promotional materials Process consulting Firm #4 Manufacturing
Information system Marketing materials Implement price technology study
upgrade quoting software

Firm #5 Market development Promotional materials Export market study Firm #6
Strategic marketing Information system Product design project Software
upgrade

upgrade Firm #7 Web site and online Manufacturing

Strategic planning catalog development representative search Firm #8
Facility layout

Software upgrade Strategic planning Strategic planning evaluation Firm #9
Paint process Dealer development Information system improvement upgrade

Firm #10 Information system Market research Distribution consulting
Manufacturing upgrade technology

Source: GAO derived from Midwest TAA Center information.

Appendi x II I GAO Questionnaire for Certified Firms

Comments From the Department of

Appendi x V I Commerce Note: GAO comments supplementing those in the report
text appear at the end of this appendix.

See comment 1.

See comment 2. See comment 3.

The following are GAO's comments on the Department of Commerce's letter
dated November 27, 2000.

GAO Comments 1. As we stated in our report, we conducted interviews with a
small number of TAA participants to gain a better understanding of the
program and to learn more about the firms' perspectives on TAA program
operations. The number of interviews that we conducted with client firms
receiving assistance was small (72 firms), and the selection of those firms
interviewed was confined to firms certified as eligible in 1998 and those
nominated by the Centers (with no constraint on the

certification date), and not random. Thus, their responses can not be
treated as representative of the views of all TAA participants.

2. Our report relates what TAA participants told us about factors other than
TAA assistance that they said contributed to the overall success of the
firms. We believe that, for these firms, factors other than TAA

assistance also contributed to their ultimate success. Our report does not
draw any conclusion about the TAA program's success overall. 3. We
highlighted this issue because Centers use inconsistent approaches in their
efforts to allocate the limited program funds. We think this

raises questions about whether program resources are being used effectively
across all Centers.

Appendi x V

GAO Contacts and Staff Acknowledgments GAO Contacts Steve Lord (202) 512-
4379 Judy Knepper (202) 512- 8554 Acknowledgments In addition to those
listed above, Carlos Evora, Matthew Helm, Phil Herr,

Christian Hougen, Kathleen Joyce, and Tim Wedding made key contributions to
this report.

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GAO United States General Accounting Office

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Contents

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Appendix I

Appendix I Objectives, Scope, and Methodology

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Appendix II

Appendix II Statistical Profile of Firms Certified to Receive Trade
Adjustment Assistance

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Appendix II Statistical Profile of Firms Certified to Receive Trade
Adjustment Assistance

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Appendix II Statistical Profile of Firms Certified to Receive Trade
Adjustment Assistance

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Appendix II Statistical Profile of Firms Certified to Receive Trade
Adjustment Assistance

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Appendix II Statistical Profile of Firms Certified to Receive Trade
Adjustment Assistance

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Appendix II Statistical Profile of Firms Certified to Receive Trade
Adjustment Assistance

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Appendix III

Appendix III GAO Questionnaire for Certified Firms

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Appendix III GAO Questionnaire for Certified Firms

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Appendix III GAO Questionnaire for Certified Firms

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Appendix III GAO Questionnaire for Certified Firms

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Appendix III GAO Questionnaire for Certified Firms

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Appendix IV

Appendix IV Comments From the Department of Commerce

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Appendix IV Comments From the Department of Commerce

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Appendix IV Comments From the Department of Commerce

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Appendix V

United States General Accounting Office Washington, D. C. 20548- 0001

Official Business Penalty for Private Use $300

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Postage & Fees Paid GAO Permit No. GI00
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