U.S. Farm Support: Compliance with WTO Commitments

Summary: As a member of the World Trade Organization (WTO) agreements, the United States has committed to abide by WTO rules and disciplines, including those that govern domestic farm policy as spelled out in the Agreement on Agriculture (AoA). Since establishment of the WTO on January 1, 1995, the United States has complied with its WTO spending limits on market-distorting types of farm program outlays (referred to as amber box spending). However, the addition of large, new trade assistance payments to producers in 2018 and 2019, on top of existing farm program support, has raised concerns by some U.S. trading partners, as well as market watchers and policymakers, that U.S. domestic farm subsidy outlays might exceed the annual spending limit of $19.1 billion agreed to as part of U.S. commitments to WTO member countries. CRS analysis indicates that the United States probably did not violate its WTO spending limit in 2018 but could potentially exceed it in 2019.

Summary: A farm support program can violate WTO commitments in two principal ways: first, by exceeding spending limits on certain market-distorting programs, and second, by generating distortions that spill over into the international marketplace and cause significant adverse effects. Program outlays are cumulative, and compliance with WTO commitments is based on annual aggregate spending levels. Under the WTO's AoA, total U.S. amber box outlays (that is, those outlays deemed market distorting) are limited to $19.1 billion annually, subject to de minimis exemptions. De minimis exemptions are spending that is sufficiently small (less than 5% of the value of production)ârelative to either the value of a specific product or total productionâto be deemed benign. Since 1995, the United States has apparently stayed within its amber box limits. However, U.S. compliance has hinged on judicious use of the de minimis exemptions in a number of years to exclude certain amber box spending from counting against the amber box limit. These exemptions have never been challenged by another WTO member.

Summary: According to CRS analysis, projected U.S. amber box spending for 2018 (inclusive of $8.7 billion in product-specific outlays under the 2018 trade assistance package) could exceed $14 billion. This would be the largest U.S. amber box notification since 2001. However, despite its magnitude, it still would fit within the U.S. spending limit of $19.1 billion. A more ambiguous result is projected for 2019. The expansion of direct payments under a second trade assistance package to $14.5 billion in 2019 and their shift to a non-product-specific WTO classificationâwhen combined with currently projected spending under other non-product-specific programs such as the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programsâcould push U.S. amber box outlays above $24 billion. This would be in excess of the U.S. amber box spending limit of $19.1 billion. However, this projection hinges on several as-yet-unknown factors, including market prices, output values, and program outlays under traditional countercyclical ARC and PLC programs. If the final price and revenue values are higher than currently projected, then program payments under ARC and PLC could be smaller than those used in this analysis. This could decrease both aggregate non-product-specific outlays and the possibility of exceeding the amber box spending limit.

Summary: If cumulative payments in any year were to exceed the agreed-upon spending limit, then the United States would be in violation of its commitments and could be vulnerable to a challenge under the WTO's dispute settlement mechanism. Furthermore, to the extent that such program outlays might induce surplus production and depress market prices, they could also result in potential challenges under the WTO.

The long-term objective of the World Trade Organization's (WTO's) Agreement on Agriculture (AoA) is to establish a fair and market-oriented agricultural trading system. The principal approach for achieving this goal is, first, to achieve specific binding commitments by all WTO members in each of the three pillars of agricultural trade policy reformâmarket access, domestic support, and export subsidiesâand second, to provide for substantial progressive reductions in domestic agricultural support and border protection from foreign products.

As a signatory member of the WTO agreements, the United States has committed to abide by WTO rules and disciplines, including those that govern domestic farm policy as spelled out in the AoA. Since the WTO was established on January 1, 1995, the United States has generally met its WTO commitments, including spending limits on market-distorting types of farm program outlays.

Direct payments to producers under U.S. farm support programs are cumulative, and compliance with WTO commitments is based on annual spending levels. The addition of large, ad hoc trade assistance payments to producers in 2018 and 2019, on top of existing farm program support, has raised concerns by some U.S. trading partners, as well as market watchers and policymakers, that U.S. domestic farm subsidy outlays in those two years might exceed the annual spending limit of $19.1 billion agreed to as part of U.S. commitments to the WTO.

This report examines whether the United States might exceed its WTO spending limit. As background, this report briefly reviews the WTO rules and disciplines on farm program spending. Then, it reviews the types of U.S. farm programs that are subject to WTO disciplinesâin particular, it focuses on programs that make direct payments to producers based on agricultural production activities. The review of farm programs includes a discussion of how U.S. compliance may be affected by changes made to U.S. farm programs under the 2018 farm bill (the Agricultural Improvement Act of 2018, P.L. 115-334 ), as well as by the two rounds of ad hoc direct payments made under the Market Facilitation Program initiated by the Secretary of Agriculture in 2018 and 2019 under other statutory authorities.

The nature and timing of U.S. farm support program outlays are discussed in the context of relevant WTO commitmentsâin particular, how different types of program outlays are notified to the WTO and how they might count against the aggregate U.S. spending limit. Finally, this report examines current projections about farm program outlays for 2018-2019 and assesses the possibility of whether U.S. farm program spending might exceed the $19.1 billion spending limit in those years.

WTO Disciplines on Farm Program Spending

Farm support programs can violate WTO commitments in two principal ways: first, by exceeding spending limits on certain market-distorting programs, or second, by generating market distortions that spill over into the international marketplace and cause significant adverse effects for other market participants. In general, U.S. farm support outlays should be evaluated against both of these criteria for a potential violation of WTO commitments. However, this report focuses on the first potential pathway for a violation: excessive spending.

WTO member nations have agreed to limit spending on their most market-distorting farm policies. The WTO's AoA spells out the rules for countries to determine whether their policies are potentially trade-distorting, how to calculate the costs of any distortion, and how to report those costs to the WTO in a public and transparent manner. (See the text box "WTO Classification of Domestic Support" below. More detail on WTO classifications of domestic support is provided in two appendices to this report: Appendix A , "WTO Domestic Support Commitments," and Appendix B , "U.S. Domestic Support Notifications.")

Domestic farm subsidies under the AoA are measured using a specially defined indicator, the "Aggregate Measure of Support" (AMS). AMS encompasses two types of support provided as a benefit to agricultural producers: product-specific support (that is, benefits linked to a specific commodity) and non-product-specific support (general benefits not linked to a specific commodity). This distinction is important for evaluating compliance, as discussed below. In addition, some types of programs are not subject to spending limits under WTO commitments.

The United States, along with 27 other original members of the WTO, agreed to establish ceilings for their non-exempt AMS, referred to as the amber box. The U.S. ceiling for amber box spending has been fixed at $19.1 billion since 2000. If the United States were to exceed its WTO annual spending limit, then U.S. farm support programs could be vulnerable to challenge by another WTO member under the WTO's dispute settlement rules.

Some Program Spending May Be Exempt from Disciplines

Not all farm support program outlays count against amber box spending limits. Certain domestic support outlays may be exempt from counting against the amber box spending limit if they meet one of four possible conditions ( Appendix A ). First, if a program's outlays are considered to be minimally or non-trade distorting (in accordance with specific criteria listed in Annex 2 of the AoA), then they may qualify as green box programs and not be included in the AMS. Second, if program spending is market-distorting but has offsetting features that limit the production associated with support payments, then they may qualify as blue box programs and not be included in the AMS. Finally, if AMS outlays are sufficiently small relative to the value of the outputâmeasured as a share of either product-specific or non-product-specific outputâthen they are not included in the amber box. In addition to these exemptions, the timing of outlays across crop, calendar, or marketing years may also influence the calculation of total AMS spending for any given year and help avoid exceeding the amber box spending limit during a particular time period.

The U.S. Department of Agriculture (USDA) implements four general types of farm programs that provide payments (classified as AMS) directly to individual producers:

Traditional farm p rograms authorized under Title I of the 2018 farm bill ( P.L. 115-334 ). These include the Market Assistance Loan (MAL), Agricultural Risk Coverage (ARC), Price Loss Coverage (PLC), Dairy Margin Coverage (DMC), and sugar programs. Payments under these programs during crop years 2014-2018 were authorized by the 2014 farm bill ( P.L. 113-79 ). These programs were modified by the 2018 farm bill and include payments made for crop years 2019-2023. Because of the way their payments are triggered, outlays under the MAL, DMC, and sugar programs are notified as product-specific AMS, whereas ARC and PLC payments are notified as non-product-specific AMS. Permanent disaster assistance programs include the Livestock Forage Disaster Program (LFP), Livestock Indemnity Program (LIP), Tree Assistance Program (TAP), and Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish Program (ELAP). Payments under all of these permanent disaster assistance programs are coupled to producer choices and notified as product-specific AMS. The federal crop insurance program provides premium subsidies to producers. Premium subsidies are statutorily defined as a percentage of a policy's total premium, and premiums vary with insured units, coverage levels, and crop values. Since 2012, USDA has notified crop insurance premium subsidies to the WTO as product-specific AMS, since they are coupled to producer crop choices. A d hoc programs may be authorized by the Secretary of Agriculture, outside of Congress, using authority under the Commodity Credit Corporation (CCC) Charter Act to make payments in support of U.S. agriculture. Two such programs are the trade assistance programs of 2018 and 2019. USDA has not yet notified any trade assistance payments to the WTO, nor has USDA announced the WTO classification it intends to use for such payments.

Payments under U.S. conservation programs are generally deemed non-market-distorting and are notified as green box, where they are not subject to any spending limit.

The traditional revenue support programs, as well as the disaster assistance and ad hoc payment programs, are implemented by USDA's Farm Service Agency (FSA) using mandatory CCC funding. The federal crop insurance program is implemented by USDA's Risk Management Agency (RMA) using mandatory funding from the Federal Crop Insurance Corporation.

Farm Program Changes Under the 2018 Farm Bill

The United States has instituted several farm program changes since early 2018 that could bring increased scrutiny from other WTO members. With respect to the current incarnation of traditional farm support programs, most were established under previous farm bills. They were reauthorized by the 2018 farm bill but with some modifications that might alter their treatment under WTO disciplines. In general, the 2018 farm bill incrementally shifts farm safety net outlays away from decoupled programs and toward coupled (and more market-distorting) programs. This was done by raising support levels for certain existing coupled programs, removing several of the coupled programs from individual farm payment limit requirements, and expanding the potential pool of family-farm payment recipients, thus weakening payment limit restrictions. Similarly, federal crop insurance coverage was expanded under the 2018 farm bill, thus increasing the potential for greater premium subsidy outlays.

Coupled, Product-Specific Support Levels Raised for Selected Commodities

The 2018 farm bill increased statutory, product-specific MAL rates for several program crops. MAL payments are coupled directly to actual harvested production (subject to a producer's participation choice). MAL payments may be triggered when the local market price for a MAL commodity falls below its statutory MAL rate. Raising the MAL loan rate has two effects: It increases the probability of triggering a coupled MAL payment when market prices are declining, but it decreases the maximum potential payment under the decoupled PLC program associated with that commodity. The potential for increased MAL payments has become more relevant under the 2018 farm bill, because all MAL benefits were removed from counting against annual USDA producer payment limits.

Furthermore, the 2018 farm bill raised support levels for participating dairy producers under the DMC program. DMC payments are triggered when the monthly average of a formula-determined margin, between milk prices and feed costs per unit, falls below a producer-selected margin coverage level. DMC payments are made on a farm-level historical milk production base. Milk producers must participate in the DMC to be eligible for payments. Thus, DMC payments are treated as coupled. DMC, like its predecessorâthe Margin Protection Programâoperates without any limit on payments received.

Coupled payments can influence producer production choices in favor of those farm activities expected to receive larger support payments. If such payments represent a significant share of a commodity's farm value and result in surplus production that moves into international markets, then they could attract the attention of competitor nations. Such spillovers, if measurably harmful to foreign export competitors or producers, could lead to challenges under the WTO's dispute settlement process.

Decoupled, Non-Product-Specific Support Potentially Expanded Under ARC and PLC

Of the direct payment programs, the ARC and PLC programs are partially decoupled from producer behavior: Payments are made to a portion (85%) of historical base acres irrespective of current-year plantings. However, ARC and PLC payment calculations use current market-year prices to determine if a payment has been triggered, thus partially coupling them to market conditions. The partial decoupling of both ARC and PLC is in deference to WTO rules that view decoupled payments as less distorting of markets than coupled payments. Furthermore, ARC's use of a moving average formula based on historical prices and yields is also in response to a WTO panel finding (under dispute settlement) to consider market conditions in setting program support levels. In contrast, PLC's use of a statutorily fixed reference price ignores market conditions. Similarly, ARC's revenue formula uses the PLC reference price as a floor price. Thus, ARC only reflects market conditions when prices are above PLC reference prices. As a result, both ARC and PLC could be market distorting when market prices are below the statutory reference prices for prolonged periods.

By basing ARC and PLC payments on historical acres rather than current planted acres (i.e., current crop choices), the payments are partially decoupled, and USDA notified them as non-product-specific. As a result, ARC and PLC payments have been excluded from counting against amber box spending limits in the WTO since their origin in 2014 under the non-product-specific de minimis exclusion.

PLC Program Changes That Expand Potential Payments

Two changes to the PLC program under the 2018 farm bill include the option for producers to update their program yields (used in the PLC payment formula) and an escalator provision that could potentially raise a covered commodity's effective reference price (used in both the PLC and ARC payment rate) by as much as 115% of the statutory PLC reference price based on 85% of the five-year Olympic average of farm prices. Both of these options would likely be used by producers only when they offer the potential to expand program payments.

ARC Program Changes That Expand Potential Payments

The 2018 farm bill also specifies several changes to the ARC program. Among the changes, ARC will use a trend-adjusted yield to calculate its revenue guarantee. In addition, the five-year Olympic average county yield calculations will increase the yield floor (substituted into the formula for each year where the actual county yield is lower) to 80%, up from 70%, of the transitional county yield. This yield calculation is used to calculate the ARC benchmark county revenue guarantee. Both of these yield modifications have the potential to raise ARC revenue guarantees for producers, thus increasing the potential for payments when actual current-year yields or prices turn downward.

The 2018 farm bill offers producers the option in 2019 of switching between ARC and PLC coverage, on a commodity-by-commodity basis, effective for both 2019 and 2020. Beginning in 2021, producers again have the option to switch between ARC and PLC but on an annual basis for each of 2021, 2022, and 2023. This flexibility could allow producers to benefit from current market information to select the program, ARC or PLC, that offers the greatest potential to make payments. Both ARC and PLC payments are subject to annual USDA farm payment limits under the 2018 farm bill (unchanged from the 2014 farm bill).

Several Product-Specific Payment Programs Exempted from Payment Limits

In a change from previous farm policy, the 2018 farm bill removed several coupled, direct payment programs from annual farm payment limit requirements. These include benefits under MAL and the three permanent disaster assistance programs: LIP, TAP, and ELAP. DMC, like its predecessorâthe Margin Protection Programâoperates without any farm payment limit. All of these programs make product-specific amber box payments. The absence of a limit on benefits received by an individual farmer under these programs represents the potential for unlimited, fully coupled outlays that count against the U.S. amber box limit unless exempted under the PS de minimis exemption.

Higher DMC and MAL support levels increase the potential for higher program payments during a market downturn when prices are lower. Weak market conditions and relatively low commodity prices (below MAL loan rates) would be needed to trigger payments under MAL. DMC payments are triggered by weak farm milk prices relative to feed costs. In contrast, disaster payments are triggered by natural disasters or other qualifying perils occurring at the farm level.

Potential Pool of Payment Beneficiaries Expanded

The 2018 farm bill made no changes to the "actively engaged in farming" criteria used to determine whether an individual is eligible for farm program payments. However, it modified the criteria for farm program eligibility. The definition of family farm is expanded to include first cousins, nieces, and nephews, thus increasing the potential pool of individuals eligible for individual payment limits on family farming operations. With respect to payment limits and the adjusted gross income (AGI) criteria, the 2018 farm bill left both the payment limit of $125,000 per individual ($250,000 per married couple) and the AGI threshold of $900,000 unchanged.

The U.S. sugar program does not rely on direct payments from USDA, and no changes were made to this status under the 2018 farm bill. Instead, USDA provides indirect price support via MAL loans to processors at statutorily fixed prices (which were raised 5% by the 2018 farm bill), while limiting both the amount of sugar supplied for food use in the U.S. market and the amount of sugar that may enter the United States under a series of tariff rate quotas. In its 2016 notification of domestic support to the WTO (the most recent notification year), USDA notified the implicit cost of the sugar program at $1.5 billion in market price support. The change in the sugar MAL rate is not expected to influence the United States' implicit sugar cost notification.

Federal Crop Insurance Direct Support Expanded

Federally subsidized crop insurance is available for over 100 agricultural commoditiesâincluding both program commodities and others. Federal crop insurance is permanently authorized by the Federal Crop Insurance Act (7 U.S.C. 1501 et seq. ) but is periodically modified by new farm legislation. The principal subsidy component of federal crop insurance is a premium subsidy that has paid for an average of 63% of the cost of buying crop insurance since 2014.

Premiums (and premium subsidies) vary with the type of policy, insured unit, and coverage level selected. Thus, both the premium and its subsidy component are coupled to producer behavior. In its annual notifications to the WTO of domestic support outlays, USDA has declared the premium subsidies as product-specific direct payments to producers (i.e., product-specific AMS).

The 2018 farm bill expanded the federally subsidized crop insurance program. In addition, the 2018 farm bill extended the authority for catastrophic policies to forage and grazing crops and grasses. It allows producers to purchase separate crop insurance policies for crops that can be both grazed and mechanically harvested on the same acres and to receive independent indemnities for each intended use. Annual USDA premium subsidiesâwhich have averaged $6.2 billion per year since 2014âcount against the U.S. amber box spending limit of $19.1 billion but are subject to potential exclusion at the commodity level under the product-specific de minimis exemption.

Large Payments Expected Under Ad Hoc Trade Aid Programs

During 2018 and 2019, the Secretary of Agriculture has used his authority under the CCC Charter Act to initiate two ad hoc trade assistance programs. USDA initiated the trade aid packages as part of the Administration's effort to provide short-term assistance to farmers in response to foreign trade retaliation targeting U.S. agricultural products. The first trade aid package was announced on July 24, 2018. It targeted production for selected agricultural commodities in 2018 and was valued at up to $12 billion. The second trade aid package was announced on May 23, 2019. It targeted production for an expanded list of commodities and was valued at up to an additional $16 billion.

According to USDA, the two trade aid packages are structured in a similar manner and include three principal components ( Table 1 ):

The Market F acilitation P rogram (MFP) provides direct payments to producers of certain USDA-specified commodities. MFP payments are administered by FSA. The Food P urchase and D istribution P rogram (FPDP) is intended to purchase unexpected surpluses of affected commodities such as fruits, nuts, rice, legumes, beef, pork, milk, and other specified products for redistribution through federal nutrition assistance programs. It is administered by USDA's Agricultural Marketing Service. The Agricultural Trade P romotion (ATP) program provides funding to assist in developing new export markets for affected U.S. farm products. It is administered by the USDA's Foreign Agriculture Service in conjunction with the private sector.

The two years of trade assistance are valued at a combined $28 billion ( Table 1 ). The largest part of the aid is two years of MFP payments valued at a combined $24.5 billion.

The United States has yet to notify spending to the WTO under any of the trade assistance programs, so the exact WTO spending classification is currently unknown. However, past practice can serve as a useful guide for the likely notification.

The FPDP and ATP programs for 2018 and 2019 are expected to be implemented in a similar manner during both years. USDA outlays under food purchase and distribution programs have historically been notified to the WTO as green box compliant and thus not subject to any spending limit. Trade promotion programs, such as ATP, are not notified under domestic support, because they do not involve direct payments to producers. Thus, the FPDP and ATP programs are not expected to affect the United States' ability to meet its WTO commitments.

However, the anticipated large outlays under the MFP programs have raised questions. Payments under the two MFP programs are structured differently during 2018 and 2019. As a result, they are likely to be notified under different WTO classifications. The specific manner of determining how payments are made to individual producers is likely to determine their WTO status.

2018 MFP Payments Are Likely to Be Notified as Product-Specific AMS

USDA's MFP payments for 2018 are based on each farm's harvested production of eligible crops during 2018 times a fixed per-unit payment rate. Payments to dairy are based on historical production, while hog payments use midyear inventory data. Under this specification, 2018 MFP payments are likely to be notified as coupled, product-specific AMS and count against the U.S. annual spending limit of $19.1 billion (unless they are exempted under the product-specific de minimis exemption).

USDA initially announced potential 2018 MFP payments of up to $10 billion. As of August 22, 2019, USDA reported that $8.59 billion in MFP payments had already been distributed to producers, including $7.07 billion to soybean producers, $483 million to cotton, $245 million to sorghum, $241 million to wheat, $182 million to dairy, $156 million to hogs, $133 million to corn, $42 million to fresh sweet cherries, and $20 million to shelled almonds. These MFP payments have to be added to all other non-exempt, product-specific payments for each of these commodities and then be evaluated against their individual product-specific de minimis exemptions.

Both MFP payment caps and AGI criteria are relevant. However, the FY2019 Supplemental Appropriations for Disaster Relief Act ( P.L. 116-20 ) altered the AGI requirement as it applies to MFP payments such that it may be waived if at least 75% of AGI is from farming, ranching, or forestry-related activities.

To the extent that producers expect similar MFP payments to occur in future years, product-specific payments can become market distorting in favor of those commodities with higher per-unit payments and subject to potential WTO challenge.

2019 MFP Payments Are Likely to Be Notified as Non-Product-Specific AMS

USDA is making MFP payments for the 2019 trade assistance program under a different formulation that avoids identifying payments with a specific crop. Instead, the underlying product-specific MFP payment rates are weighted at the county level by historical planted acres and yields to produce a single per-acre MFP payment rate for the entire county. This county-specific rate is then applied to each producer's total planted acres for all eligible commodities within that county, irrespective of the share of planted acres for any particular crop. Thus, payments are coupled to a producer's having planted at least one eligible commodity within the county, but they are independent of which commodity or commodities were planted. Under this specification, the 2019 MFP payments would appear to be coupled to planted acresâa producer has to plant an eligible crop to get a paymentâbut non-product-specific, thus possibly notifiable as non-product-specific AMS.

Will U.S. Farm Spending Comply with WTO Limits in 2018 and 2019?

The United States has notified its farm program support outlays through the crop year 2016. Under a normal timeline, USDA would notify spending for the crop year 2017 in the fall of 2019. Notification of domestic support for crop year 2018 would not be expected before 2020. Similarly, notification of domestic support outlays for crop year 2019 is not expected before 2021. U.S. compliance with WTO spending limits for 2018 and 2019 cannot be definitively known until notifications for those crop years have been released. As a result, the delay in notification may inhibit or deter another WTO member from bringing a case, assuming that MFP payments are not extended beyond 2019.

This section analyzes available data on U.S. farm program payments for crop years 2017, 2018, and 2019 to evaluate the potential for the United States to remain in compliance with its amber box spending limit of $19.1 billion, particularly with the addition of large MFP payments in 2018 and 2019. There are several questions that will largely determine whether the United States remains in compliance with its amber box spending limit.

1. How will USDA classify the MFP payments for 2018 and 2019 in its notifications to the WTO? 2. How will market conditions and commodity prices evolve in 2019 with respect to final crop values and product-specific de minimis exemptions? 3. What will be the final value of total U.S. farm output in 2019 for evaluating the 5% non-product-specific de minimis exemption threshold against total non-product-specific AMS outlays? 4. How will market conditions affect decoupled ARC and PLC payments and total non-product-specific outlays in 2019? 5. Will the U.S.-China trade dispute continue into 2020, and if so, will a third year of trade assistance be in the offing?

In response to the first question, the 2018 MFP payments appear to be coupled, product-specific AMS, whereas 2019 MFP payments appear to be non-product-specific AMS. Thus, different de minimis exemptions will be important for these two programs when evaluating compliance in 2018 and 2019.

Sources for Farm Program Outlay Data for 2018 and 2019

To conduct an analysis of the potential WTO compliance of U.S. farm program spending for 2017, 2018, and 2019, data are drawn from several sources. Whenever available, actual USDA program outlays are used. For example, FSA estimates DMC outlays for 2019 at approximately $300 million. Federal crop insurance premium subsidy outlays are available for the 2018 and 2019 crop years from USDA's RMA. When actual data are unavailable for any major farm program (most notably under ARC and PLC), then the projected spending data from the Congressional Budget Office (CBO) baseline for farm programs are used. Wherever values are not available from either USDA or CBO, then the 2017 value is repeated for 2018 and 2019.

With respect to MFP program outlays, USDA has not released any official payment data on outlays under the 2018 or 2019 MFP programs, although some information has been released episodically to various news media (for example, see footnote 42 ). CRS relies on those media reports for information on 2018 MFP payments. Final MFP payments for 2018 are projected by CRS at $8.7 billion. The full $14.5 billion for 2019 MFP payments is incorporated into the WTO notification projection for 2019.

Compliance Hinges on the Non-Product-Specific De Minimis Threshold

According to this analysis, U.S. amber box spending for 2018, projected at over $14 billion, fits within the U.S. spending limit of $19.1 billion ( Table 2 ). However, if realized, this would be the largest U.S. amber box notification since 2001 ( Figure 1 ). Large product-specific outlays to soybeans (projected at $8.275 billion), wheat ($1.153 billion), cotton ($990 million), and peanuts ($231 million) in particular exceed their product-specific de minimis exemptions and contribute to the large amber box projection for 2018.

A more uncertain result is found for 2019. The expansion of MFP payments to $14.5 billion in 2019, and their shift to a non-product-specific WTO classification, suggests that the United States may potentially approach or exceed its $19.1 billion amber box spending limit. In this analysis, U.S. compliance with WTO spending limits in 2019 depends on how eventual aggregate non-product-specific outlays compare with the final 5% non-product-specific de minimis threshold as evidenced by the two scenarios presented in Table 2 and discussed below.

Scenario 1: Non-Product-Specific Outlays Not Exempted Under De Minimis

Under scenario 1, the value of total U.S. farm output for 2019 is projected at $378 billion ( Figure 1 ). This is roughly equivalent to a three-year average of $377.954 billion for crop years 2014-2016. If realized, the $378 billion in total farm output would yield a 5% non-product-specific de minimis threshold of $18.9 billion. Total non-product-specific outlays for 2019 are projected at $18.92 billionâjust in excess of the non-product-specific de minimis exemption threshold. As a result, the full $18.92 billion of non-product-specific AMS would count against the amber box spending limit. When combined with the projected $5.119 billion in product-specific, non-exempt AMS outlays, total U.S. amber box outlays in 2019 would be a projected $24.039 billionâin excess of the $19.1 billion spending limit.

Scenario 2: Non-Product-Specific Outlays Exempted Under De Minimis

Under scenario 2, an entirely different result is produced with only a minor increase in the projected value of total U.S. farm output at $380 billion ( Figure 2 ), up $2 billion from scenarioÂ 1. The choice of $380 billion in the total output value in scenario 2 highlights the sensitivity between compliance and noncompliance based on a small (0.53%) change in total output value between the two scenarios. In this scenario, the 5% non-product-specific de minimis threshold is $19 billion, and the entire projected non-product-specific AMS total of $18.92 billion would be exempted from counting against the amber box spending limit. As a result, total U.S. amber box outlays under scenario 2 would be equal to the projected product-specific, non-exempt AMS total of $5.119 billionâwithin the amber box spending limit.

Other factors that could alter this analysis are the final realized 2019 market year average farm prices and county revenue values used to determine outlays for major program crops under the MAL, PLC, and ARC programs. Also, crop yields for corn and soybeans in 2019 are still uncertain due to the delayed planting and late crop progress in several important growing regions. Better-than-expected yields or higher-than-expected harvests could push market prices lower, whereas lower yield or harvest estimates could help to raise farm prices. Also, a continuation or possibly a deepening of the U.S.-China trade dispute could keep downward pressure on commodity markets.

If the final price and revenue values are lower than currently projected, then program payments under ARC and PLC could be larger than those used in this analysis. This could increase aggregate non-product-specific outlays and increase the possibility of exceeding the 2019 amber box spending limit. At the same time, lower market values, if realized, would contribute to a lower total valuation for U.S. farm output and a subsequent lower 5% non-product-specific de minimis threshold for aggregate non-product-specific outlays to surpass, thus affecting the potential non-product-specific de minimis exemption status.

In contrast, resolution of the U.S.-China trade dispute and an improved demand outlook could have the opposite effect of raising prices and commodity output values while lowering payments under countercyclical farm programs such as MAL, PLC, and ARC.

According to the scenarios developed in this analysis, including a projected set of market conditions, the United States may potentially exceed its cumulative amber box spending limit of $19.1 billion in 2019. Excessive amber box payments in 2019 could result from the addition of large MFP payments to the traditional decoupled revenue support programs ARC and PLC.

However, this analysis found that U.S. compliance with WTO amber box spending limits was very sensitive to a change in market conditions and market valuations. Noncompliance hinges on many key market factors that are currently unknown but would have to occur in such a manner as to broadly depress commodity prices through the 2019 marketing year (which extends through August 31, 2020, for corn and soybeans). Another crucial uncertainty is how the U.S.-China trade disputeâwith its deleterious effects on U.S. agricultural marketsâwill evolve. Resolution of the U.S.-China trade dispute and an improved demand outlook could lead to higher commodity prices and output values while lowering payments under countercyclical farm programs such as MAL, PLC, and ARC. Such a turn of events could help facilitate U.S. compliance with its WTO spending limits.

Appendix A. WTO Domestic Support Commitments

WTO member nations have agreed to limit spending on their market-distorting farm policies. With respect to farm program outlays, the AoA spells out the rules for countries to determine whether their policies are potentially trade-distorting, how to calculate the costs of any distortion, and how to report those costs to the WTO in a public and transparent manner.

Domestic support is measured in monetary terms and expressed as the AMS. Domestic support includes both direct and indirect support in favor of agricultural producersâin other words, it includes any government measure that benefits producers, including revenue support, input subsidies, and marketing-cost reductions. Domestic subsidies include both budgetary outlays and revenue forgone by governments. Such support is measured at both the national and subnational level (i.e., state, county, or other local level). Producer-paid fees are deducted from the AMS.

Domestic support should be calculated as closely as practical to the point of first sale of the basic agricultural product concernedâpreferably at the farm gate. Support measures directed at processors should be included to the extent that such measures benefit producers.

AMS encompasses two types of support provided as a benefit to agricultural producers: product-specific support (that is, benefits linked to a specific commodity) and non-product-specific support (a general benefit not linked to a specific commodity). Certain AMS outlays may be exempt from counting against any WTO spending limit if they comply with criteria defined under either the green or blue box or if their sum is sufficiently small as to be deemed benign under the de minimis exemption. (Exemptions are described below.)

Non-exempt AMS outlays are referred to (or classified) as "amber box" spending and subject to a strict spending limit. Under WTO commitments, cumulative U.S. amber box outlays are limited to $19.1 billion annually.

By leaving no constraint on green or blue box compliant spending, while imposing limits on amber box spending, the WTO's AoA classification structure encourages countries to design their domestic farm support programs to be more green and blue box compliant and less market-distorting.

Green box programs are minimally or non-trade-distorting and are not included in the AMSâthus they are not subject to any spending limits. Examples of green box programs include domestic food assistance programs, conservation and environmental programs, and general services such as research, inspection services, and extension activities. In its most recent notification to the WTO, the United States declared $119.5 billion in outlays for programs that met green box criteria during the 2016 crop year.

A key to evaluating whether a program's annual outlays qualify for the green box exemption is to assess how payments are triggered. If payments are fully decoupled from producer behavior and market conditions and instead are based on some other independent criteria such as historical planted acres, then they could potentially be excluded from the AMS under the green box criteria. For example, Direct Payment outlays under the 1996, 2002, and 2008 farm bills were fully decoupled and thus exempted from the AMS under green box criteria. If, instead, payments are coupled to current producer behavior (such as planted acres or harvested output) or to market conditions (such as price movements or trade levels), then they likely are not eligible for exemption from the AMS under green box criteria.

Blue box programs are described as market-distorting but production-limiting. Blue box programs generally have a supply-control feature that partially offsets their trade-distorting effects. For example, payments may be based on either a fixed area or yield or a fixed number of livestock or are made on less than 85% of base production. As such, blue box programs are not included in the AMSâthus they are not subject to any spending limits. The United States has not notified any program spending under the blue box criteria since 1995.

Programs outlays that fail to meet green or blue box criteria are part of the AMS. However, there are two additional exemptions that may prevent AMS outlays for certain programs from counting against the amber box spending limit. If AMS spending is sufficiently small (as described below), then it is deemed to be benign and excluded from counting under the AMS's amber box. There are two types of de minimis exemptions: product-specific and non-product-specific.

Product-specific outlays include all coupled outlays that are linked to the current planting or production of a specific commodity. Under the product-specific de minimis exemption, if total product-specific program outlays for a commodity are less than 5% of the value of production for that commodity, then such spending may be excluded from the country's AMS. Product-specific outlays are evaluated on a commodity-by-commodity basis against the 5% de minimis threshold.

N on- product -specific outlays include all AMS outlays that are decoupled from the specific commodities that are actually produced but are coupled to a non-commodity-specific measure such as market conditions or national average prices. All non-commodity-specific AMS outlays are aggregated and evaluated against 5% of the total value of U.S. agricultural output.

If the payment is based on the planted or harvested area or output of a specific commodity during the crop year, then program payments would be coupled directly to farmer behavior. Such payments would likely be notified as product-specific AMS spending and would count against the amber box ceiling. However, product-specific payments could potentially be excluded from counting against the AMS total by the product-specific de minimis exclusionâif they are less than 5% of the value of that specific commodity's output during that crop year.

Coupled or Partially Coupled, Non-Product-Specific Payments

If the payment is based on a formula that pools the planted or harvested area or output of several commoditiesâfor example, as a single county-level paymentâbut where the farmer need only have produced at least one of the pooled commodities to be eligible for the full county payment, then the payment could potentially be notified as coupled, non-product-specific AMS. Both ARC and PLC outlays on base acres are notified this way. However, ARC and PLC payments made on generic base under the 2014 farm bill were notified as commodity-specific payments, since the farmer had to plant the specific crop to receive a payment.

If the payment is based on a historical measure such as planted or harvested acres or output for some past period of time, but where some production of an eligible crop must occur during the current crop year to be eligible for a payment, then the payments would likely be notified as partially decoupled, non-product-specific payments.

To provide for monitoring and compliance of WTO policy commitments, each WTO member is expected to submit annual notification reports of domestic support program spending within the context of the agreed-to WTO commitments. However, there is no enforcement mechanism or penalty for late notifications.

The annual period used by each WTO memberâcalendar, fiscal, or marketing yearâis specified in the "schedule of concessions" (also referred to as the country schedule). The WTO's Committee on Agriculture reviews the annual notifications. However, the notification reports are public documentsâthey are posted online by the WTO where they are available for review (and possible challenge) by any other member or third party.

Appendix B. U.S. Domestic Support Notifications

The most recent U.S. notification to the WTO of domestic support outlays (made on October 31, 2018) is for the 2016 crop year. The majority of U.S. domestic agricultural program outlays have been categorized as indirect support that adhere to green box criteria ($119.5 billion) and thus have not been subject to any payment limit. In addition, the United States has traditionally relied on the de minimis exemptions to exempt substantial program outlays from counting against the amber box spending limit.

In 2016, the United States notified $16 billion in AMS outlays (prior to applying eligible exemptions), including $8.6 billion of product-specific spending and $7.4 billion of non-product-specific spending. However, the United States notified $12.2 billion in de minimis exemptions, thus reducing the original $16 billion AMS to just $3.8 billion in amber box spending to count against the $19.1 billion spending limit.

With respect to the non-product-specific de minimis exemption, the total value of U.S. national agricultural output in 2016 was $355.5 billion. As a result, the 5% de minimis non-product-specific threshold was $17.8 billion. Since non-product-specific outlays of $7.4 billion were well below this threshold, they were exempted in total from counting against the amber box spending limit.

In addition, the United States notified $4.8 billion in product-specific de minimis exemptions. An example of a product-specific de minimis exemption is corn. In 2016, U.S. corn production was valued at $51.3 billion. Thus the product-specific 5% value threshold for corn was $2.565 billion. The United States notified $2.345 billion in AMS for corn in 2016, but since it was less than the 5% threshold, the entire amount was exempted from counting against the amber box limit. Similarly, product-specific exemptions for other crops made up the difference for the $4.8 billion in total product-specific exemptions.

The De Minimis Exemption Aids U.S. Compliance

Since 1995, the United States has stayed within its amber box spending limits ( Figure B-1 ), but this compliance has hinged on use of the de minimis exemptions in a number of years (e.g., 1999-2001 and 2005) to exclude substantial AMS spending from counting against the amber box limit.

Since the 2002 farm bill ( P.L. 107-171 ), the United States has designed several of its major farm revenue support programs to meet non-product-specific criteria. Since the non-product-specific de minimis exemption threshold is measured as a share of the total value of U.S. agricultural output, it is associated with a very large exemption threshold. From 2010 to 2016, the value of total U.S. agricultural output has averaged $376.8 billion, which implies an average non-product-specific 5% de minimis threshold of $18.8 billion.

The manner by which the United States has notified its amber box outlaysâthat is, non-product-specific versus product-specificâhas changed over the years (particularly for federal crop insurance subsidies) in such a way as to facilitate compliance with the amber box spending limit. Generally, non-product-specific de minimis exemptions are much larger than product-specific de minimis exemptions ( Figure B-1 ). Since 201 0, non-product-specific de minimis exclusions have averaged $4.8 billion annually, compared with average product-specific exclusions of $3.8 billion.

The largest non-product-specific exemption was reached in 2011, when $7.5 billion in net crop insurance indemnities was exempted. In 2011, U.S. agricultural output value was $380.8 billion, which, in turn, yielded a non-product-specific 5% value threshold of $19.0 billion.

Starting in 2012, USDA switched to notifying crop insurance premium subsidies for each individual insured commodity as product-specific. Since then, crop insurance premiums are evaluated at the individual crop level and eligible to be exempted under the product-specific de minimis exemption if they do not exceed 5% of the value of that commodity's output when combined with other PS outlays for that commodity. Since 2012, over $5 billion in product-specific crop insurance premium subsidies have been exempted each year.

As a result of this crop insurance notification switch, coupled with relatively high farm prices during 2012 and 2013 that reduced payments on the non-product-specific revenue support programs, product-specific de minimis exemptions surpassed non-product-specific exemptions during those two years. Then, starting in 2014, under program changes authorized by the 2014 farm bill ( P.L. 113-79 ), the value of non-product-specific exemptions again surpassed product-specific exemptions. This was driven by large non-product-specific outlays under the new, decoupled revenue support programs ARC (which incorporated high farm prices into its payment formula) and PLC. Annual ARC and PLC outlays averaged a combined $6.7 billion during 2014-2016, including $4.7 billion for ARC and $2.0 billion for PLC.


Saltonstall-Kennedy Act: Background and Issues

Summary: The Saltonstall-Kennedy (S-K) Act of 1954 (15 U.S.C. Â§713c-3) established a program to provide financial support for research and development of commercial fisheries. The S-K Act created a fund (known as the S-K fund) that is financed by a permanent appropriation of a portion of import duties on marine products. S-K funds are distributed by the Secretary of Commerce as grants and cooperative agreements to address needs of the U.S. fishing industry, including but not limited to harvesting, processing, marketing, and associated infrastructure. However, Congress allocates most funding to the National Marine Fisheries Service (NMFS) to fund agency activities related to marine fisheries research and management. Some have questioned whether the allocation of S-K funds reflects the original intent of the S-K Act and whether the S-K Grant Program addresses the needs and priorities of the fishing industry.

Summary: Since its creation, the S-K fund's authorizing language and priorities have evolved with changes to the fishing industry, new or amended federal laws governing fisheries management, and changing federal agency responsibilities. In 1980, the American Fisheries Promotion Act (AFPA) amended the S-K Act to authorize a competitive grant program, known as the Saltonstall-Kennedy Grant Program (S-K Grant Program) and the National Program to support fishing industry research and development projects. Both programs are administered by NMFS, part of the National Oceanic and Atmospheric Administration (NOAA). In the 1980s, the S-K Grant Program focused on fisheries development, but in subsequent years, as U.S. fisheries became fully or overexploited, priorities generally shifted to resource conservation and management. The S-K Grant Program has supported a variety of different projects, such as gear technology research, seafood marketing, aquaculture, and others.

Summary: The S-K Grant Program is funded by a permanent appropriation of 30% of the previous calendar year's customs receipts from imports of fish and fish products. These funds are transferred into NOAA's Promote and Develop American Fisheries Products and Research Pertaining to American Fisheries Fund (P&D account). Transfers of revenue into the P&D account have grown steadily from $26.7 million in 1980 to $182.8 million in 2020. Congress subsequently transfers most funds into the Operations, Research, and Facilities (ORF) account within NOAA. Congress has directed NMFS to use funds allocated to the ORF account for specific activities including stock assessments, fishing information networks, survey and monitoring projects, cooperative research, and interjurisdictional fisheries. The remaining funds are available for supporting the annual competitive S-K Grant Program and in some cases the National Program.

Summary: Since the early 1980s, Congress has transferred most P&D account funds into the ORF discretionary account, sometimes leaving little or no funding for the specified purposes of the S-K Act. Some critics have questioned whether funds from the P&D account could be used more effectively by targeting fishing industry needs, as Congress originally intended. For example, in the 112 th , 113 th , and 114 th Congresses, bills were introduced that would have used most S-K funds to establish a regional fisheries grant program. By contrast, some have expressed concerns that if significant funding is shifted away from NMFS fisheries management programs, additional funds would need to be appropriated or activities such as data collection and fish population assessments could be compromised. These NMFS activities provide information and analyses used to manage and conserve fish populations.

Summary: Some also have questioned whether the S-K Grant Program could be modified to provide the fishing industry with more direct input into the S-K grant process. Currently, NMFS, in consultation with the fishing industry, identifies S-K Grant Program priorities and selects the recipients of S-K grants. Over the last several Congresses, bills have been introduced that would change the procedure for screening, evaluating, and awarding S-K grants. In the 116 th Congress, the American Fisheries Advisory Committee Act ( H.R. 1218 and S. 494 ) would establish an industry advisory committee to identify the needs of the fishing industry, develop requests for proposals, review grant applications, and select grant applications for approval. S. 494 was reported on August 16, 2019, by the Senate Committee on Commerce, Science, and Transportation; on September 18, 2019, H.R. 1218 was ordered to be reported by the House Committee on Natural Resources.

The Saltonstall-Kennedy (S-K) Act of 1954 (15 U.S.C. Â§713c-3) established a fund (known as the S-K fund) to support U.S. fisheries development and research. Funding originates from a transfer by the Secretary of Agriculture into the Promote and Develop American Fisheries Products and Research Pertaining to American Fisheries Fund (P&D account). The P&D account is administered by the National Marine Fisheries Service (NMFS) of the National Oceanic and Atmospheric Administration (NOAA) in the Department of Commerce. Transfers of revenue into the P&D account have grown steadily from $26.7 million in 1980 to $182.8 million in 2020. Currently, the bulk of P&D account revenue is transferred into the Operations, Research, and Faculties (ORF) account, which supports fisheries science and management administered by NMFS. The remaining funds support the Saltonstall-Kennedy Grant Program (S-K Grant Program) and sometimes the National Program, which focus on fishing industry research and development projects.

Historically, the use of the S-K fund has evolved with changing fisheries management institutions and changing needs of U.S. fisheries. Congress is continuing to consider whether current funding from the P&D account meets the needs of U.S. fisheries and the U.S. fishing industry. Some have questioned whether the U.S. commercial fishing industry receives sufficient opportunities to provide input into the S-K competitive grant process. Due in part to what they perceive as a lack of industry input, some critics assert that NMFS has not distributed funding in accordance with the primary purposes of the S-K Act, such as supporting projects related to the marketing of fish. Another concern is the allocation of funds, and specifically whether there is a need for more financial support of S-K competitive grants than for funding NMFS fisheries science and management activities in the ORF account. However, if funding were reallocated to provide greater support of the S-K Grant Program, Congress may need to consider implications of the likely decrease in funds that would be transferred to ORF from the P&D account to support NMFS fishery research and management activities. Figure 1 summarizes the flow of funding from the P&D account into NOAA and the S-K program.

The S-K Act requires the Secretary of Agriculture to transfer 30% of duties on marine products collected under the so-called Section 32 Program to the Secretary of Commerce. These funds are transferred into the P&D account and made available to NMFS. Currently, the uses of S-K funds as specified in 15 U.S.C. 713c-3 include the following:

providing grants in support of fisheries research and development projects under subsection (c), implementing a national fisheries research and development program under subsection (d), implementing the Northwest Atlantic Ocean Fisheries Reinvestment Program, and funding the federal share of a fisheries capacity reduction fund.

The S-K Act requires the Secretary of Commerce to use no less than 60% of funds to make direct industry-assistance grants pursuant to subsection (c). Subsection (c) refers to topics that may be addressed by research and development grants, including but not limited to harvesting, processing, marketing, and associated infrastructures. Subsection (c) also identifies the terms and conditions of grant awards.

The S-K Act requires the balance of S-K funds to be allocated to finance NMFS activities that support development of U.S. fisheries pursuant to subsection (d). Subsection (d) refers to a national fisheries research and development program (including but not limited to harvesting, processing, marketing, and associated infrastructures), if not adequately covered by projects assisted under subsection (c) of this section or as the Secretary deems appropriate.

In 1935, Congress passed legislation to provide financial support for domestic agricultural commodity markets. Section 32 of the Act of August 24, 1935, provided a permanent appropriation equal to 30% of gross receipts from all duties collected under customs laws. The act authorized the Secretary of Agriculture to use these funds to support exports and domestic consumption of agricultural commodities. The Act of August 11, 1939, authorized the Secretary of Agriculture to transfer up to $1.5 million from funds collected under Section 32 to support the fishing industry. Funds were transferred to the Federal Surplus Commodities Corporation to purchase and distribute surplus fishery products and to the Secretary of the Interior to promote markets for fishery products of domestic origin. Table 1 provides a history of legislative changes to the S-K Act.

In 1954, the S-K Act amended the Act of August 11, 1939, to provide additional funding from Section 32 funds to support the U.S. fishing industry. The S-K Act authorized the transfer from the Secretary of Agriculture to the Secretary of the Interior, from the larger Section 32 account's funding, an amount equal to 30% of gross receipts from duties collected on fishery products. These funds were maintained in a separate account for use by the Secretary of the Interior to support the flow of fishery products in commerce, develop and increase markets for fishery products, and conduct research. Annual expenditures from the fund were limited to $3 million, and the balance of the fund was not allowed to exceed $5 million at the end of any year. In 1956, the S-K Act was amended to remove the limit on annual expenditures from the fund. The S-K Act also authorized the Secretary of the Interior to appoint a fishing industry advisory committee to provide guidance on the formulation of policy, rules, and regulations pertaining to requests for assistance, and other matters.

In 1976, the Fishery Conservation and Management Act (FCMA; P.L. 94-265 ) established a 200-nautical mile fishery conservation zone (FCZ) and brought marine fisheries within the FCZ under domestic control. Foreign fishing was allowed to continue in the FCZ, but the domestic fishing industry was granted priority fishing rights under the FCMA. In the following years, U.S. policy emphasized development of domestic fisheries and replacement of foreign fishing with domestic fishing in the FCZ. According to the Government Accountability Office, until 1979, NMFS used nearly all S-K funds to support fisheries management and development activities; it granted only small amounts to the fishing industry for development projects. In 1979, likely because of growing industry support of domestic fisheries development, NMFS made available approximately $5.3 million of S-K funds to regional fisheries development foundations, universities, private industry, and state and local governments.

In 1980, Congress formally authorized the current competitive S-K Grant Program in Section 210 of the American Fisheries Promotion Act (AFPA; P.L. 96-561 ). The AFPA directed the Secretary of Commerce to use at least 50% of S-K funds for the S-K Grant Program and the balance of funds for a National Program. Both programs supported research and development efforts to address areas such as harvesting, processing, marketing, and related infrastructures. By 1980, the transfer from the U.S. Department of Agriculture (USDA) had grown to $26.7 million ( Table A-1 ). The AFPA also formally transferred responsibility for administering the fund from the Secretary of the Interior to the Secretary of Commerce. The House committee report accompanying the AFPA noted that the definition of fishery includes recreational fishing and that recreational projects would be eligible for grants. The AFPA also removed a section that established the S-K fishing industry advisory committee; the advisory committee had been previously terminated pursuant to the Federal Advisory Committee Act (P.L. 92-463).

In subsequent years, Congress made additional changes to the allocation and use of the S-K fund ( Table 1 ). The Highway Improvement Act of 1982 ( P.L. 97-424 ) increased the share of funds used for the competitive grant program from 50% to 60%. In the following years, potential uses of the fund were broadened to include the Fisheries Promotion Fund ( P.L. 99-659 ), the Northwest Atlantic Ocean Fisheries Reinvestment Fund ( P.L. 102-567 ), and the federal share of a fishing capacity reduction program ( P.L. 104-297 ). Congress established the Fisheries Promotion Fund to support domestic and international markets for domestically produced seafood. A portion of S-K funds was transferred to the fund from FY1987 to FY1991 for this purpose ( Table A-1 ).

The revenues that are transferred into the P&D account from USDA are derived from duties on fishery products, "including fish, shellfish, mollusks, crustaceans, aquatic plants and animals, and any products thereof, including processed and manufactured products." The P&D account is a mandatory fund that requires no periodic reauthorization or appropriation. Transfers from USDA to NOAA's P&D account have steadily increased from $26.7 million in 1980 to $182.8 million in 2020 ( Figure 2 ). In CY2017, approximately 77% of revenues were from duties collected on imports of nonedible marine products, including jewelry, ink, various chemicals, and skins. The remaining 23% of revenues were from duties on imports of edible seafood products. Tariffs on edible fish products have been reduced or eliminated for many seafood products, and most remaining duties are collected on canned products such as tuna or processed products such as fish sticks. In CY2017, most duties were collected on imports from India ($89.9 million), China ($86.2 million), Thailand ($79.8 million), Italy ($53.2 million), and France ($36.2 million).

Congress has allocated a growing portion of revenue in the P&D account to the ORF account rather than funding the S-K Grant Program as prescribed by the S-K Act. The transfer to the ORF account has ranged from $5 million, or 29% of the P&D account in 1979, to over $130 million in the five most recent years (FY2016-FY2020), which is more than 90% of the annual transfer into the P&D account ( Table 2 ). ORF funds are used "to support fisheries research and management activities including the analysis and decision-making that supports ecosystem approaches to management." Often the allocation of most funds to the OFR account limits the funding that is available for the specified purposes of the S-K Act.

In the last three fiscal years (FY2018-FY2020), the NOAA budget request proposed that all P&D account funding be transferred to the ORF account in support of NMFS activities. However, the Consolidated and Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ), restricted the use of P&D funds that are transferred into the ORF account. It limited this funding to fisheries activities related to cooperative research, annual stock assessments, survey and monitoring projects, interjurisdictional fisheries grants, and fish information networks. In subsequent years, agency budget requests have reflected this intent by identifying similar areas, and Congress has continued to include similar language in appropriations laws and accompanying Senate committee reports.

In most years, the majority of the funds that remain in the P&D account after the transfer into the ORF account have been used for the competitive S-K Grant Program as described in subsection (c) of the S-K Act and the National Program as described in subsection (d) ( Table 2 ). The amount of remaining funding for the S-K Grant Program has varied considerably from year to year, ranging from no funding in FY2011 and FY2012, when Congress did not leave any remaining funding for S-K program, to its highest level of $29.5 million in FY2009 ( Table 2 ). The S-K Act directs the Secretary of Commerce to use no less than 60% of funds for fisheries research and development grants pursuant to subsection (c). The Secretary also is required to use the remaining funds to finance NMFS activities directly related to U.S. fisheries development, as outlined in subsection (d). Since 1982, S-K grant funding has been less than 30% of total transfers from USDA, and it has been significantly lower in most years. In many years, Congress did not fund the National Program or provided a small portion of the remaining funds for that purpose.

Historically, financial support also was provided for the Fisheries Promotion Fund, which was funded between $750,000 and $3 million from FY1987 to FY1990. ( Table A-1 ). No funding has been provided for the Fisheries Promotion Fund since 1991. From FY2003 to FY2006, most funding remaining after the ORF transfer was used for congressionally directed projects that supported several regional seafood marketing initiatives ( Table A-1 ). Annual S-K reports and other sources indicate that S-K funds have not been used for either the Northwest Atlantic Ocean Fisheries Reinvestment fund or the fishing capacity reduction program.

According to NMFS, the S-K program's general goals are to fund projects that address the needs of fishing communities, optimize economic benefits by building and maintaining sustainable fisheries, and increase other opportunities to keep working waterfronts viable. Historically, examples of areas funded by the S-K Grant Program have included enhancing markets for fishery products, examining fishery management options, and developing more efficient and selective fishing gear. Projects often have focused on both state and federal marine commercial fisheries, but other sectorsâsuch as aquaculture and recreational fishingâalso have been eligible for and received support.

NMFS solicits proposals as a federal funding opportunity on the federal grants website, which includes funding priorities, application requirements, and proposal evaluation criteria. Funding priorities are developed in coordination with regional fishery management councils, interstate fishery commissions, NMFS science centers, and NMFS regional offices. For example in 2020, S-K program priorities are seafood promotion, development, and marketing, and science or technology that promotes sustainable U.S. seafood production and harvesting.

The review process includes (1) pre-proposal review, (2) technical review and ranking, (3) panel review and ranking, and (4) grant selection. Pre-proposals undergo an administrative review by NOAA staff, a review by subject matter experts, and S-K program evaluation. Full review includes administrative screening; technical review by federal, public, and private sector experts; and funding recommendations by program and NMFS leadership. NMFS also may solicit comments and evaluation from a constituent review panel composed of three or more representatives chosen by the NMFS assistant administrator of fisheries.

Funding of proposals is recommended by the S-K program manager; constituent panel ranking (if applicable); and input from NMFS regional directors, science center directors, and office directors. The agency selecting official, the NMFS assistant administrator, determines which proposals will be funded. The decision is based on the order of the proposals' ranking and other considerations, such as availability of funding, balance and distribution of funds, and duplication. Recently, NMFS has been considering whether the program and fishing industry would benefit from placing greater emphasis on monitoring approved projects and disseminating results. During 2019, feedback sessions were arranged with regional fishery management councils to solicit constituents' views on how to improve the dissemination and use of results from funded projects.

Some fishing industry representatives have questioned whether the U.S. commercial fishing industry and fishing communities could benefit from greater direct support from S-K funding. Two of the main concerns have been whether the competitive grant process should include greater fishing industry input and whether a greater portion of P&D funds should be allocated to the annual S-K Grant Program. Some assert that NMFS decides by its own criteria which programs receive grants and that in some cases the fishing industry's priorities do not match those of NMFS. They contend that broader, more direct fishing industry participation is needed to inform the process of identifying the needs and priorities of grant funding.

Another concern has been whether a greater portion of P&D funding should be allocated to the S-K Grant Program. Some contend that Congress, as reflected in statute, intended to provide at least 60% of funds to the S-K Grant Program and remaining funding to the National Program for fishing industry research and development. However, shifting significant funding from current NMFS activities may prompt questions about whether additional discretionary funding would be forthcoming to support other NMFS functions, such as data collection and fish population assessments.

Several bills were introduced during the 112 th , 113 th , and 114 th Congresses that would have significantly changed the allocation of P&D funding. Similar versions of the Fisheries Investment and Regulatory Relief Act in each of these Congresses would have allocated funding to fisheries management regions and would have established a regional fisheries grant program. Under these bills, each regional fishery management council would have established a fishery investment committee, which would focus resources on strengthening regional fisheries management. Each fishery investment committee would have

developed a regional fishery investment plan; reviewed grant applications and projects to implement regional fishery investment plans; and made recommendations on grant applications.

The regional fishery investment plans would have identified research, conservation, and management needs, as well as corresponding actions to rebuild and maintain fish populations and associated fisheries. Each regional investment plan would have been required to include topics related to

supporting stock surveys, stock assessments, and cooperative fishery research; improving the collection and accuracy of recreational and commercial data; analyzing social and economic impacts of fishery management decisions; providing financial assistance and investment for fishermen and fishing communities; developing methods or technologies to improve the quality and value of landings; researching and developing conservation engineering technologies; and restoring and protecting fish habitat.

Investment plans would have been reviewed by the Secretary of Commerce to ensure consistency with the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. Â§Â§1801 et seq.). Limited funding also would have been provided for administrative costs of the grant program and for the development and implementation of investment plans.

Under these versions of the Fisheries Investment and Regulatory Relief Act, the Secretary of Commerce also would have established a regional fisheries grant program to provide funds to advance the regional priorities identified in the regional fishery investment plans. The Secretary would have awarded grants only to projects that would implement regional fishery investment plans and to projects recommended by respective regional fishery investment committees and approved by each regional fishery management council. The Secretary would have been required to allocate 70% of funds from the P&D account to the eight council regions. Half of this funding would have been allocated equally among the councils, and half would have been distributed according to the combined economic impact of recreational and commercial fisheries in each region.

The Secretary also would have been required to allocate 20% of funds for a national fisheries investment program that would support rebuilding and maintaining fish populations and promote sustainable fisheries. Funding would have been divided equally among five general areas: (1) regional fisheries commissions; (2) seafood promotion; (3) fisheries management; (4) fisheries disasters; and (5) other needs, including highly migratory species and international fisheries. Each of the bills would have limited the transfer of ORF funding from the P&D account to 10% of receipts. The legislation also included a provision to provide funding to review regulations and procedures used to implement management under the Magnuson-Stevens Fishery Conservation and Management Act and to make recommendations to streamline regulations and incorporate new information into the management process.

Stopping the Transfer to the Operations, Research, and Facilities Account

In the 114 th Congress, a section of the Magnuson-Stevens Fishery Conservation and Management Reauthorization Act of 2014 ( S. 2991 ) would have attempted to stop the transfer of P&D funds to the ORF account. According to Section 205 of S. 2991 , it would not be in order in the Senate or in the House of Representatives to consider any bill, resolution, amendment, or conference report that would reduce any amount in the fund (P&D account). This change in the Senate and House rules would have allowed any Senator or Representative to stop the transfer of P&D funds to the ORF discretionary account by making a point of order that a rule is being violated. No further action was taken following the introduction of S. 2991 .

In the 116 th Congress, identical versions of the American Fisheries Advisory Committee Act ( S. 494 and H.R. 1218 ) were reported or ordered reported from the committees of jurisdiction in the Senate and the House. The bills would establish an American fisheries advisory committee and would change the process for awarding S-K competitive grants. The committee would

identify the needs of the seafood industry; develop requests for proposals; review grant applications; and select grant applications for approval.

Currently, NMFS is responsible for these functions, and NMFS considers industry input during the selection process. Both bills also would expand the specified purposes of fisheries research and development projects by explicitly including projects that focus on fisheries science and recreational fishing.

The committee would be composed of representatives from six geographic regions of the United States. The Secretary of Commerce would appoint three members from each region, including (1) an individual with experience as a seafood harvester or processor, (2) an individual with experience in recreational or commercial fishing or growing seafood, and (3) an individual who represents the fisheries science community or the relevant regional fishery management council. The Secretary also would appoint four at-large members, including (1) an individual who has experience in food distribution, marketing, retail, or service; (2) an individual with experience in the recreational fishing industry supply chain; (3) an individual with experience in the commercial fishing industry supply chain; and (4) an individual who is an employee of NMFS with expertise in fisheries research. The committee members would meet twice annually, and meetings would rotate among the six regions.

The Secretary of Commerce would identify three or more experts to undertake technical review of grant applications, which would occur prior to committee review. The Secretary also would be required to develop guidance related to technical review, including criteria for elimination of applications that fail to meet a minimum level of technical merit. A grant would not be approved unless the Secretary was satisfied with the applicant's technical and financial capability. Based on the committee's recommendations, the Secretary would evaluate the proposed project according to listed criteria and other criteria the Secretary may require. If the Secretary fails to provide funds to a grant selected by the committee, the Secretary would be required to send a written document to the committee justifying the decision.

Appendix. History of Financing Under the Saltonstall-Kennedy Act