Management of Trade Adjustment Program Shows Progress

CED-82-58: Published: Apr 2, 1982. Publicly Released: Apr 2, 1982.

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GAO reviewed the financial assistance provided to import-impacted firms under the Trade Act of 1974 to help Congress decide whether to reauthorize the firm assistance section of the Act before its expiration date.

Few of the import-impacted firms that received financial assistance under the Act have made the adjustments needed to successfully compete with other firms. While the program is designed to assist weakened firms, its rate of success has been hindered by weaknesses in the firms' adjustment plans, review and approval of loan applications, and loan servicing activities. Recently issued program management and debt collection procedures should correct many of the weaknesses. From program inception in 1975 through March 1, 1982, 229 firms received 339 direct loans totaling $188 million and 103 guaranteed loans totaling about $141 million. Some firms using the program have increased sales and profits. However, most continue to struggle, and some have not survived. Forty-five percent of the loans were in liquidation or had been liquidated; 34 firms were delinquent on payments. Only 35 percent of the firms were current on loan payments. GAO found that adjustment plans did not usually identify the reasons why a firm was unable to compete or the problems that had to be overcome. Most plans were directed primarily toward solving immediate problems rather than achieving long-term viability. Loan approval was based upon analyses of unverified information supplied by loan applicants. The regional analysts seldom visited a firm prior to loan approval, made limited use of ratios to assess a firm's repayment ability, and generally used sales and profit projections as well as personnel resumes supplied by the firm. The firms were allowed to submit unaudited financial statements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Commerce should direct the Under Secretary for International Trade to require that each applicant's production facilities be visited prior to loan approval to evaluate the condition of the plant and equipment and to assess management capabilities.

    Agency Affected: Department of Commerce

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Commerce should direct the Under Secretary for International Trade to require each firm to provide with its application the terms and conditions under which private financing was requested and the reason its loan request was denied.

    Agency Affected: Department of Commerce

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Commerce should direct the Under Secretary for International Trade to develop and issue loan servicing procedures.

    Agency Affected: Department of Commerce

 

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