Assessing NATO’s Value

Summary: On April 4, 2019, foreign ministers from the 29 member states of the North Atlantic Treaty Organization (NATO) are to gather in Washington, DC, to mark the 70th anniversary of the North Atlantic Treaty (also known as the Washington Treaty). NATO Secretary General Jens Stoltenberg is to address a joint session of Congress on April 3, 2019, the first ever to do so. Congress was instrumental in creating NATO in 1949 and has played a critical role in shaping U.S. policy toward the alliance ever since.

Summary: A key goal of the 70th anniversary meeting will be to highlight NATO's past successes and present a unified vision for its future. The United States was the driving proponent of NATO's creation and has been the unquestioned leader of the alliance as it has evolved from a collective defense organization of 12 members focused on deterring the Soviet Union to a globally engaged security organization of 29 members. Successive U.S. Administrations have viewed U.S. leadership of NATO as a cornerstone of U.S. national security strategy. Proponents of NATO cite numerous benefits to the United States, including

Summary: peace, stability, conflict prevention, and deterrence in Europe; treaty-based defense and security support from 28 allies, including many of the world's most advanced militaries; an unrivaled platform for constructing and operating international military coalitions; U.S. military bases in strategically important locations; and economic stability in the world's largest trade and investment marketplace.

Summary: On the other hand, NATO's critics argue that European reliance on U.S. security guarantees have fostered an imbalanced and unsustainable "burdensharing" arrangement by which the United States carries an unfair share of the responsibility for ensuring European security. Critics cite the following costs to the United States of its leadership of NATO:

Summary: loss of autonomy; heightened risks to U.S. forces; continued European military dependence on the United States; provoking Russia; and a negative budgetary impact.

Summary: The anniversary meeting comes at a tense time for NATO, as the allies have struggled to present a unified response to vocal criticism from U.S. President Donald Trump. President Trump has admonished European allies for failing to meet agreed NATO defense spending targets and has repeatedly questioned NATO's value to the United States. Although he is not the first U.S. president to press the allies to increase defense spending, none has done so as stridently and none has called into question the U.S. commitment to NATO as openly or to the same extent as Trump. The President's criticisms have provoked mixed reactions in the United States, with NATO supporters, including many Members of Congress, reaffirming the U.S. commitment to NATO, and others reevaluating the costs and benefits of long-standing U.S. leadership of the alliance.

Summary: Trump Administration officials stress that they remain committed to NATO and to upholding European security. They underscore that Congress has supported the Administration's requests to increase funding for U.S. defense activities in Europe such as the European Deterrence Initiative. President Trump's supporters also argue that his forceful statements have succeeded in securing defense spending increases by European allies that were not forthcoming under his predecessors.

Summary: While many Members of Congress have criticized specific developments within NATO—regarding burdensharing, for example—Congress as a whole has demonstrated consistent bipartisan support for NATO. During the Trump Administration, congressional support has at times been viewed as an effort to reassure allies troubled by President Trump's criticisms of the alliance. During the Trump Administration, both chambers of Congress have passed legislation expressly reaffirming U.S. support (H.Res. 397; H.R. 5515/P.L. 115-232; H.Res. 256), including legislation passed by the House in January 2019 (H.R. 676) seeking to limit the president's ability to withdraw from NATO unilaterally (similar legislation, S.J.Res. 4, has been introduced in the Senate). Some analysts portrayed the bipartisan House-Senate invitation to Secretary General Stoltenberg to address a joint session as an additional demonstration of NATO's importance to the Congress.

The United States was the driving proponent of NATO's creation in 1949 and has been the unquestioned leader of the alliance as it has evolved from a regionally focused collective defense organization of 12 members to a globally engaged security organization of 29 members. Successive U.S. Administrations have viewed U.S. leadership of NATO as a cornerstone of U.S. national security strategy, bringing benefits ranging from peace and stability in Europe to the political and military support of 28 allies, including many of the world's most advanced militaries.

For almost as long as NATO has been in existence, it also has faced criticism. One chief concern of critics in the United States, including some Members of Congress, has been that European allies' reliance on U.S. security guarantees have fostered an imbalanced and unsustainable "burdensharing" arrangement by which the United States carries an unfair share of the responsibility for ensuring European security. President Donald Trump has amplified these concerns, and his assertions that NATO is a "bad deal" have caused some analysts and policymakers to reassess the costs and benefits to the United States of its long-standing leadership of the alliance.

Although successive U.S. presidents have called on the allies to increase defense spending, none has done so as stridently as President Trump. He is also the first U.S. president to publicly suggest that the United States could modify its commitment to NATO should the allies fail to meet agreed defense spending targets. Trump Administration officials stress that the United States remains committed to NATO, as articulated in the Administration's National Security and Defense Strategies. They highlight the Administration's successful efforts in 2017 and 2018 to substantially increase funding for the U.S. force presence in Europe. President Trump's supporters, including some Members of Congress, also argue that Trump's forceful statements have succeeded in securing defense spending increases across the alliance that were not forthcoming under his predecessors.

Nevertheless, many supporters of NATO, including some allied governments, continue to question the President's commitment to the alliance and worry that his condemnations could damage NATO cohesion and credibility. In the face of these concerns, Congress has demonstrated significant bipartisan support for NATO and U.S. leadership of the alliance. In January 2019, following reports that the President has considered seeking to withdraw the United States from NATO, the House of Representatives passed legislation reaffirming U.S. support for the alliance and limiting the President's authority to withdraw ( H.R. 676 , passed by a vote of 357-22); similar legislation has been introduced in the Senate (S.J.Res. 4).

Many analysts view the bipartisan, House-Senate invitation to NATO Secretary General Jens Stoltenberg to address a joint session of Congress on April 3, 2019, as an additional sign of continued congressional support. At the same time, Congress continues to assess NATO's utility and value to the United States and some Members are concerned about several key challenges that continue to face the alliance, including burdensharing, managing relations with Russia, and divergent threat perceptions within the alliance.

This report provides context for ongoing discussions about NATO's value to the United States and the extent to which NATO serves U.S. strategic interests. A historical overview focuses on the perceived benefits to the United States of NATO membership from NATO's founding to the present day. Sections on burdensharing and Russia address key challenges facing the alliance. The report concludes with a discussion of U.S. policy and considerations for Congress. An appendix provides data on defense spending by NATO members.

Broadly speaking, NATO has evolved through four phases since its inception in 1949:

t he Cold War era between 1949 and 1991; t he post-Cold War transformation of the 1990s , marked by the start of NATO enlargement to former Warsaw Pact countries and debates over "out-of-area" military operations prompted by wars in the Western Balkans; t he post-September 11, 2001 , focus on crisis management and stabilizing Afghanistan; and s ince 2014, a renewed focus on deterring Russia and heightened concern about threats emanating from the Middle East and North Africa.

NATO's current Strategic Concept, adopted in 2010, articulates three broad activities for NATO: collective defense, crisis management, and cooperative security. The far-reaching nature of these priorities reflects both the increasingly complex global security environment and the diverse range of threat perceptions inherent in an alliance of 29 members. Some observers express concern that NATO may lack the collective political will and the requisite military capacities to fulfill these objectives, which in turn could lead to an erosion of political and public support for the alliance. Others counter that despite such concerns, NATO's capacity to enhance security for its member states remains unparalleled and that the alliance has demonstrated flexibility in adapting to meet a wide range of evolving security threats.

The Cold War: Defending Against the Soviet Union

In the aftermath of World War II, the United States designed NATO to provide a framework for coordinating U.S., Canadian, and West European defense against the threat from the Soviet Union and the Warsaw Pact. NATO's foundational mutual defense clause—enshrined in Article 5 of NATO's founding North Atlantic Treaty—sought to prevent both further Soviet expansion and the U.S.S.R's ability to fracture the alliance (see text box). An additional objective was to bind the formerly warring European states (including France, the UK, Italy, and, crucially, West Germany) in a security arrangement that could prevent the outbreak of future hostilities among them. As NATO's first Secretary General, Lord Ismay reportedly quipped, NATO was created "to keep the Soviet Union out, the Americans in, and the Germans down."

Throughout the Cold War, U.S. leaders assessed that the strategic benefits of defending Western Europe from an expansionist Soviet Union, building interoperable European militaries, and preventing renewed hostilities among Western European states outweighed the cost of maintaining a vast U.S. military presence in Europe that included more than 400,000 U.S. troops as well as U.S. nuclear weapons. For European allies, the benefits of the U.S. security umbrella were perceived largely as outweighing the costs of hosting U.S. military facilities, fulfilling defense and other requirements determined by the United States, and a loss of strategic autonomy.

The 1990s: Enlargement, the "Peace Dividend," and "Out-of-Area" Operations

With the fall of the Berlin Wall in 1989, the subsequent reunification of Germany, and the collapse of the Soviet Union, some in NATO questioned whether or in what form NATO should continue to exist. The United States and other allied leaders determined that the alliance could still play an important role in fulfilling shared security objectives beyond Cold War territorial defense. Chiefly, the allies agreed to a new nonconfrontational posture based on a drawdown of military forces and pursuit of partnership with former adversaries in the Warsaw Pact. A focus on spreading peace, stability, and democracy throughout Europe led to the accession of 10 new member states in 1999 and 2004 (see Figure 1 ). Although NATO and Russia took the first steps toward partnership during this period, leaders in Moscow remained uneasy with NATO and would later characterize NATO enlargement towards Russian borders as a major security threat.

The wars in the Western Balkans in the 1990s spurred debate within NATO about so-called "out of area" operations. During the Cold War, NATO's military posture had been limited to defending allied territory. The United States and other allies now argued that to remain relevant, NATO must be prepared to confront security threats outside of alliance territory—"out of area or out of business" became NATO's de facto mantra. NATO's military intervention in the Western Balkans—beginning in Bosnia in 1995—was a first step in this direction and a monumental one for Germany, which had been constitutionally barred from deploying its forces abroad since World War II. At the behest of the United States, NATO's 1999 Strategic Concept articulated a broader definition of security and identified new security threats, including terrorism, ethnic conflict, human rights abuses, political instability, and the spread of nuclear, biological, and chemical weapons.

At the same time, the changed European security environment and the so-called "peace dividend" marked the beginning of reductions in European defense spending and military capabilities that created tensions in later years. The United States also embarked on a sharp reduction of U.S. forces in Europe.

Terrorist Attacks of September 11, 2001: NATO in Afghanistan

The September 11, 2001, terrorist attacks on the United States were another pivotal moment in NATO's evolution. For the first and only time, the allies invoked NATO's Article 5 mutual defense clause and offered military assistance to the United States in responding to the attacks. Over the next 13 years, Canada and the European allies would join the United States to lead military operations in Afghanistan in what became by far the longest and most expansive operation in NATO history. As of March 2019, almost one-third of the fatalities suffered by coalition forces in Afghanistan have been from NATO members and partner countries other than the United States. In 2011, the high point of the NATO mission in Afghanistan, about 40,000 of the 130,000 troops deployed to the mission were from non-U.S. NATO countries and partners.

Many analysts viewed the significant allied support of the United States following 9/11 as a powerful testament of NATO's enduring strength. The extent of European support could be considered especially remarkable given that many European publics were opposed to, or at best skeptical of, the war in Afghanistan and did not view the Taliban or Al Qaeda as imminent threats to Europe. Canada and the European allies also took on greater responsibilities in Afghanistan despite U.S. reluctance to involve NATO in initial military operations, and despite an acrimonious split between many European governments and the George W. Bush Administration over the U.S.-led war in Iraq. Many analysts point out that the United States only turned to NATO to take on a greater burden in Afghanistan after having launched military operations against Iraq in 2003. They argue that the United States would have been severely challenged to carry out both missions simultaneously without NATO support in Afghanistan.

Despite the unprecedented show of solidarity following the September 11 attacks, NATO operations in Afghanistan also exposed significant disparities in allied military capabilities and in allies' willingness to engage in combat operations. U.S. officials, including many Members of Congress, consistently criticized the European allies, and especially Germany, for shortfalls in capabilities and for national "caveats" that limited the scope of allied military engagement. The United States led a renewed push for the allies to increase defense spending and develop military capabilities to better respond to the new security environment, including "out-of-area" stabilization and counter-insurgency operations. The allies first adopted, albeit informally, the 2% of GDP defense spending guideline at NATO's 2006 summit in Prague.

Back to the Future: Russia's Annexation of Crimea and Renewed Deterrence

Russia's annexation of Crimea in 2014 and subsequent invasion of eastern Ukraine upended NATO's post-Cold War transformation into a more globally oriented security organization. Since 2014, the alliance has taken major steps to strengthen its territorial defense capabilities and deter Russia. NATO's renewed focus on collective defense and deterrence has created some tensions within the alliance, particularly between those member states that perceive Russia as an acute threat and those that favor engagement with Russia over confrontation. In addition, heightened fears about instability in the Middle East and North Africa have exposed differences between those allies more concerned about security threats from NATO's south and those that continue to prioritize deterring and managing Russia.

Reflecting the broadening security priorities of its member states, NATO has launched a range of initiatives, including a more robust military presence in its eastern member states and counterterrorism efforts in the Middle East and North Africa. NATO has established an Enhanced Forward Presence (EFP) of about 4,500 troops in the three Baltic States and Poland, increased military exercises and training activities in Central and Eastern Europe, and created new NATO command structures in six Central and Eastern European countries. As part of broader efforts to confront terrorist threats posed by instability in the Middle East and North Africa, NATO has launched a training mission in Iraq. The allies remain heavily invested in seeking to bring long-term stability to Afghanistan, including through a train-and-assist mission of about 17,000 (8,500 non-U.S.) soldiers. NATO continues to maintain a security force of 3,800 troops in Kosovo and also is seeking to develop more robust cyber defense capabilities and address the need to more effectively confront so-called hybrid warfare.

Most analysts agree, however, that while NATO has never been more engaged in such a broad range of security efforts, its activities continue to expose significant shortfalls, both in its deterrent posture and in broader crisis management efforts.

Since NATO's creation in 1949, the United States has been viewed as the unrivaled leader of the alliance. The United States continues to be the world's preeminent military power and U.S. defense spending long has been significantly higher than those of any other NATO ally. As early as the 1950s, however, U.S. political and military leaders—including some Members of Congress—expressed concern about European dependence on the U.S. security umbrella in Europe and the longer-term political and military implications of this dependence. To promote a more equitable sharing of the transatlantic security burden, Members of Congress and other U.S. leaders have focused most often on seeking to compel European allies to increase their national defense budgets in order to take on a greater share of the security burden. In the 1980s, for example, the U.S. Congress enacted legislation that would place a cap on U.S. force strength in Europe if the allies did not meet a target to grow national defense budgets annually by a rate of 3% higher than inflation.

More recently, the allies have agreed to ensure that national defense budgets reach at least 2% of GDP by 2024 (discussed in more detail below). Analysts on both sides of the Atlantic have argued, however, that a relatively narrow focus on defense inputs (i.e., the size of defense budgets) could be wasted if not accompanied by an equal, if not greater, focus on defense outputs (i.e., military capabilities and the effectiveness of contributions to NATO missions and activities). The alliance's target to devote at least 20% of each member's national defense expenditure to new equipment and related research and development reflects this goal.

NATO Secretary General Jens Stoltenberg also has emphasized a broader approach to measuring contributions to the alliance, using a metric of "cash, capabilities, and contributions." Others add that such a broader assessment of allied contributions would be more appropriate given NATO's wide-ranging strategic objectives, some of which may require capabilities beyond the military sphere.

Cash: National Defense Budgets, the 2% Guideline, and NATO's Common Fund

NATO members contribute financially to the alliance in various ways. The most fundamental way is by funding, in members' individual national defense budgets, the development of military capabilities that could support NATO missions and the deployment of their respective armed forces.

NATO member states also fund NATO's annual budget of about $2. 6 billion by contributing to NATO's so-called "common funds ." National contributions to the common funds pay for the day-to-day operations of NATO headquarters, as well as some collective NATO military assets and infrastructure. According to NATO, in 2018, the U.S. share of NATO's common-funded budgets was about 22% , or about $570 million, followed by Germany (15%), France (11%), and the United Kingdom (UK; 10%).

In 2006, NATO members agreed informally to aim to spend at least 2% of gross domestic product (GDP) on national defense budgets annually and to devote at least 20% of national defense expenditure to procuring new equipment and related research and development. These targets were formalized at NATO's 2014 Wales Summit, when the allies pledged to " halt any decline in defence expenditure" and to "aim to move towards the 2% guideline within a decade. "

The 2% and 20% spending targets are intended to guide national defense spending by individual NATO members; they do not refer to contributions made directly to NATO nor would all defense spending increases necessarily be devoted solely to meet NATO goals. For example, although the United States spends about 3.4% of GDP on defense, a relatively small portion of this spending goes to NATO and European security as the U.S. defense budget supports U.S. military engagements throughout the world.

Most analysts agree that the 2% spending figure "does not represent any type of critical threshold or 'tipping point' in terms of defens e capabilities, " and NATO does not impose sanctions on countries that fail to meet the target. However, the target is considered politically and symbolically important.

U.S. and NATO officials say they are encouraged by a steady rise in defense spending since the 2014 Wales Summit (See Figure 2 ). Whereas three allies met the 2% guideline in 2014, NATO estimates that seven allies met the target in 2018 (see Table A-1 ). Sixteen allies have submitted plans to meet the 2% and 20% targets by 2024. President Trump and others continue to criticize those NATO members perceived to be reluctant to achieve defense spending targets, however. This includes Europe's largest economy, Germany, which currently spends about 1.25% of GDP on defense and does not plan to reach 2% of GDP by 2024.

According to NATO defense spending figures, if every ally were to meet the 2% benchmark, the aggregate sum of NATO members' national defense budgets would increase by about $100 billion (from about $988 billion). Although most analysts agree that such an increase could benefit the alliance significantly, many stress that how additional resources are invested is equally, if not more, important . Critics note, for example, that an ally spending less than 2% of GDP on defense could have more modern, effective military capabilities than an ally that meets the 2% target but allocates most of that funding to personnel costs and relatively little to procurement and modernization.

NATO proponents point out that despite long-standing criticisms of European defense spending levels, the forces of key European allies still rank among the most capable militaries in the world; this assessment remains particularly true for the UK and France, which rank sixth and seventh, respectively in global defense expenditure (Germany ranks ninth). In 2018, total defense spending by European allies is expected to amount to about $282 billion (compared to about $685 billion for the United States), funding close to 1.8 million military personnel (compared to 1.3 million U.S. military personnel).

Critics contend that defense spending in Europe is often inefficient, with disproportionately high personnel costs coming at the expense of much-needed research, development, and procurement and what they view as a considerable amount of duplication. They point to significant, long-standing shortfalls in key military capabilities, including strategic air- and sealift; air-to-air refueling; and intelligence, surveillance, and reconnaissance (ISR). NATO military planners also have sought to address so-called readiness shortfalls by urging allies to shorten the time it would take to mobilize and deploy forces. With respect to duplication, NATO officials lament that taken together, European countries have 17 different types of main battle tanks, 13 different types of air-to-air missiles, and 29 different types of naval frigates.

In an effort to address these concerns, in 2014, the allies adopted the aforementioned guideline calling for 20% of member states' national defense budgets to be allocated to the procurement of new equipment and related research and development, considered to be a key indicator of the pace of military modernization. NATO leaders say they are encouraged by allied progress toward achieving this target: whereas four allies met the 20% target in 2013, 16 allies met the target in 2018 (see Table A-1 ).

NATO officials have long sought to ensure that the national defense spending priorities of member states reflect the broader strategic priorities of the alliance. As these priorities have shifted, so too have its capabilities requirements. To this end, the alliance conducts a Defense Planning Process in order to harmonize national and NATO defense planning efforts to provide the required forces and capabilities in the most efficient way. These planning efforts also reflect the fact that among the NATO members only the United States, France, and the UK aspire to develop the full range of military capabilities necessary to maintain a global military footprint.

In light of this reality, NATO and U.S. leaders have promoted defense cooperation initiatives, including the pooling and sharing of national resources and joint acquisition of shared capabilities, aimed at stretching existing defense resources further. Analysts argue that the European defense industry remains fractured and compartmentalized along national lines; many believe that European defense efforts would benefit from a more cooperative consolidation of defense-industrial production and procurement as well as more transatlantic defense industrial cooperation. Progress on these fronts have been limited, however, with critics charging that national governments often remain more committed to protecting domestic constituencies than making substantive progress in joint capabilities development.

Shifting strategic priorities present an additional challenge to long-term defense planning. In the two decades following the end of the Cold War, NATO defense planners promoted military modernization plans aimed at moving away from the large, heavily armored forces that were required for Cold War territorial defense to smaller, more agile forces that could be deployed across the globe. Some allies eliminated capabilities such as tanks (the Netherlands) and submarines (Denmark) that were thought to be outdated and unnecessary. Renewed concerns about Russian aggression have caused some analysts and policymakers to question those decisions, and have prompted reevaluations of capabilities targets in many European countries.

Allied contributions to NATO operations are another key factor often considered when assessing burdensharing dynamics in the alliance. Since the end of the Cold War, NATO allies and partner countries have contributed to a range of NATO-led military operations across the globe, including in the Western Balkans, Afghanistan, the Mediterranean Sea, the Middle East, and Eastern Europe. Many in Europe and Canada view their contributions to NATO operations in Afghanistan as an unparalleled demonstration of solidarity with the United States and a testament to the value they can provide in achieving shared security objectives. Some analysts also point out that to meet the costs of maintaining continuous deployments to Afghanistan, many member states delayed needed defense modernization efforts. Ongoing contributions often cited by European allies include the following:

Afghanistan . More than 100,000 troops from Canada and European NATO members have served in the country since 2001, when U.S.-led military operations commenced. At the height of NATO-led operations in the country, over 40,000 non-U.S. allies and partner country personnel were deployed to the mission. As of March 2019, Canada and the European allies had suffered approximately 1,050 of the 3,561 of coalition fatalities suffered in Afghanistan. Since 2007, non-U.S. allies and NATO partners have committed more than $2.6 billion to the Afghan National Army Trust Fund. As of February 2019, approximately 8,500 of the 17,000 troops deployed to NATO's follow-on train-and-assist mission in Afghanistan are from European NATO member states or NATO partner countries (including 1,300 from Germany, 1,100 from the UK, and 895 from Italy). NATO deterrence and collective defense efforts . Since 2014, European allies and Canada have contributed forces and capabilities to bolster deterrence and collective defense initiatives. This includes leading three of the four battlegroups of NATO's Enhanced Forward Presence in Poland and the Baltic States, commanding NATO's Baltic Air Policing Mission, contributing to NATO's standing naval forces in the Baltic and Black Seas, AWACS patrols over Eastern Europe, command of the NATO Response Force and Very High Readiness Joint Task Force, and hosting new NATO command and control facilities in Central and Eastern Europe. Kosovo . Since 1999, tens of thousands of non-U.S. allies have contributed to NATO's Kosovo Force (KFOR) to maintain security and stability in Kosovo. As of February 2019, non-U.S. allies and NATO partner countries contributed about 3,000 of the 3,500 KFOR troops.

NATO operations also have exposed significant disparities in allied military capabilities, especially between the United States and the other allies. In most, if not all, NATO military interventions, European allies and Canada have depended on the United States to provide key capabilities such as air- and sea-lift, refueling, and ISR. In some cases, the United States has filled more basic shortfalls, in munitions for example.

NATO's 2011 military intervention in Libya, Operation Unified Protector (OUP), highlighted these shortfalls. Although OUP was the first NATO mission in which the United States did not lead military operations, the six allies carrying out NATO airstrikes—Belgium, Canada, Denmark, France, Norway, and the UK—faced munition and other shortfalls relatively early on. Then-Secretary of Defense Robert Gates encapsulated U.S. frustration when he stated, "the mightiest military alliance in history is only 11 weeks into an operation against a poorly armed regime in a sparsely populated country – yet many allies are beginning to run short of munitions, requiring the U.S., once more, to make up the difference."

Russia's annexation of Crimea and subsequent invasion of Eastern Ukraine in 2014 prompted a sweeping reassessment of NATO's post-Cold War efforts to build a cooperative relationship with Moscow. In the words of then-NATO Deputy Secretary General Alexander Vershbow, "For 20 years, the security of the Euro-Atlantic region has been based on the premise that we do not face an adversary to our east. That premise is now in doubt." Since 2014, Russia also has increased its military activities in northern Europe, particularly through reportedly deploying nuclear-capable missiles to Kaliningrad, enhancing its air patrolling activities close to allied airspace, and increasing its naval presence in the Baltic Sea, the Arctic Ocean, and the North Sea.

In response to Russian aggression in Ukraine, NATO has moved to implement what its leadership characterized as the greatest reinforcement of NATO's collective defense since the end of the Cold War. Although the allies have continued to support and contribute to NATO deterrence initiatives, some express concern about the effectiveness and sustainability of these efforts. Many analysts, including the authors of a February 2016 report by the RAND Corporation, contend that "as presently postured, NATO cannot successfully defend the territory of its most exposed members." Some allies, including Poland and the Baltic States, have urged a more robust allied military presence in the region to "make it plain that crossing NATO's borders is not an option."

Others, including leaders in Western European countries like Germany and Italy, have stressed the importance of a dual-track approach to Russia that complements deterrence with dialogue. For these allies, efforts to rebuild cooperative relations with Moscow may be given as much attention as efforts to deter Russia. Accordingly, NATO continues to resist calls to permanently deploy troops in countries that joined after the collapse of the Soviet Union due to concerns in these member states that this would violate the terms of the 1997 NATO-Russia Founding Act; NATO's Enhanced Forward Presence has been referred to as "continuous," but rotational. Former German Foreign Minister (and current German President) Frank-Walter Steinmeier encapsulated concerns about NATO's deterrence posture in 2016 when he likened a military exercise of NATO member states and partner countries taking place in Poland to "saber-rattling and war cries." He added, "whoever believes that a symbolic tank parade on the alliance's eastern border will bring security, is mistaken." NATO and U.S. officials subsequently rebutted Steinmeier's comments.

Discussions over NATO's strategic posture could continue to be marked by these divergent views over the threat posed by Russia and by debate over the appropriate role for NATO in addressing the wide-ranging security challenges emanating from the Middle East and North Africa (MENA). On threats from the MENA region, several allies are reluctant to endorse a bigger role for NATO in issues—such as terrorism and migration—on which the European Union (EU) has traditionally taken the lead. Furthermore, many analysts contend that significant budgetary and political constraints facing many allied governments could limit NATO's capacity to deter Russia while addressing security threats to NATO's south.

U.S. Policy: Shifting U.S. Priorities and the Benefits and Costs of NATO Membership

Since NATO's founding, successive U.S. Administrations have viewed U.S. membership in, and leadership of, NATO as a key pillar of U.S. national security strategy. As outlined above, throughout NATO's evolution, U.S. leadership has given the United States a strong voice in formulating strategic objectives for NATO that align with U.S. national security objectives. U.S. military objectives in Europe also have shifted over time, especially since the end of the Cold War. Today, about 74,000 U.S. military service members, including two Brigade Combat Teams (BCTs), are stationed in Europe, compared to more than 400,000 troops at the height of the Cold War.

Throughout the 1990s and 2000s, United States European Command (EUCOM) shifted its activities in Europe to non-warfighting missions, including building defense capacity and capability in former Warsaw Pact states and logistically supporting other U.S. combatant commands. Events in recent years, particularly Russia's actions in Ukraine since 2014 and increased military activities near NATO borders, have tested the strategic assumptions underpinning EUCOM's posture.

While President Trump has criticized NATO, his Administration's National Security Strategy and National Defense Strategy both identify European security and stability as key U.S. national security interests and emphasize the U.S. commitment to NATO and Article 5. Administration officials and many Members of Congress underscore that the Administration has requested significant increases in funding for U.S. military deployments in Europe under the European Deterrence Initiative (EDI, previously known as the European Reassurance Initiative, or ERI).

Proponents of NATO argue that U.S. membership in and leadership of NATO brings a range of important benefits to the United States. These include, but are not limited to, the following:

Peace, stability, conflict prevention, and deterrence . Many analysts believe that NATO has played a vital role in keeping the peace in Europe for the last 70 years and preventing a repeat of the two World Wars of the first half of the 20 th century. NATO proponents add that a divided NATO with a less committed United States could benefit Russia's widely acknowledged efforts to undermine NATO and the EU. Treaty-based defense and security support from 28 allies, including many of t he world's most advanced militaries , including a nuclear deterrent and missile defense systems based in Europe. Despite the criticisms of European defense spending trends, non-U.S. allies still possess significant military capabilities, which they have deployed in support of U.S. security objectives. An u nrivaled platform for constructing and operating international military coalitions. Through its history, NATO has developed an integrated command structure to carry out collective defense and crisis management operations that is unprecedented in terms of size, scale, and complexity. This includes advancing allied interoperability by designing command and control systems, holding multinational training exercises, and creating policies for standardizing equipment amongst its members. U.S. military bases in strategically important locations. U.S. leadership of NATO has allowed the United States to station U.S. forces in Europe at bases that enable quicker air, sea, and land access to other locations of strategic importance, including the Middle East and Africa. Economic stability. The EU, which includes 22 NATO allies, is the United States' largest trade and investment partner. By promoting security and stability in Europe, NATO helps protect this extensive economic relationship that accounts for 46% of global GDP.

Nevertheless, questions about the value of NATO to the United States have led some to reassess the benefits and costs of U.S. membership. Critics of NATO highlight a number of costs incurred by the United States—both qualitative and quantitative—due to its leadership of NATO. These include the following:

Loss of autonomy. Whether at the strategic or the operational level, forging agreement with 28 other governments is undoubtedly more difficult than maintaining full national control. Analysts note, for example, that U.S. military planners' negative experience working with European counterparts during the NATO intervention in Kosovo in 1999 (European allies' reportedly rejected bombing targets proposed by U.S. commanders) was a key factor behind the U.S. decision to conduct initial military operations in Afghanistan outside the NATO command structure. Some have argued that ad hoc coalitions of like-minded allies under unified U.S. command could be more desirable than working within established NATO structures. Heightened risks to U.S. forces. Some critics argue that the Article 5 commitment to defend a NATO ally in the event of an attack could draw the United States into a conflict that it might otherwise avoid. Others note that Article 5 commits an ally to respond to an attack by "taking such action as it deems necessary." Continued European dependence. Some critics contend that European allies' dependence on the U.S. security guarantee limits their incentive to invest in defense capabilities that would make them more capable partners for the United States. At the same time, President Trump's criticisms of NATO and individual allies have caused some in Europe to question the United States' continued reliance as a security partner. Provoking Russia . Some critics of NATO argue that NATO's post-Cold War enlargement to include former members of the Warsaw Pact and the Baltic states represented an unnecessary and counter-productive provocation of Russia and ensured long-term rivalry between Russia and "the West." A negative b udgetary impact. U.S membership in NATO carries with it certain financial commitments, including annual contributions to NATO's Common Fund (about $570 million in 2018). The U.S. missile defense capability in Europe is also under NATO command, and the United States contributes an estimated $800 million annually to additional NATO capabilities such as Allied Ground Surveillance and strategic airlift.

Although the United States could potentially reduce its military footprint in Europe, analysts point out that without a reduction in overall U.S. force structure, the Department of Defense would still cover the costs of redeployed personnel. Additionally, as noted above, U.S. military bases in Europe offer strategic and logistical advantages beyond enabling U.S. commitments to NATO.

Congress was instrumental in creating NATO in 1949 and has played a critical role in shaping U.S. policy toward the alliance ever since. While many Members of Congress have criticized specific developments within NATO—regarding burdensharing, for example—Congress as a whole has consistently demonstrated strong bipartisan support for active U.S. leadership of and support for NATO. This support has manifested itself through an array of congressional action including financial support through the authorization and appropriations processes and legislation enabling NATO enlargement and NATO military operations and deterrence efforts. Congress also has been at the forefront of the burdensharing debate within NATO since the alliance's inception and has often called on U.S. Administrations to do more to secure increased allied commitments to NATO.

Congressional support for NATO has traditionally served to buttress broader U.S. policy toward the alliance. During the Trump Administration, however, demonstrations of congressional support for NATO have at times been viewed more as an effort to reassure allies about the U.S. commitment to NATO after President Trump's criticisms of the alliance. Trump Administration officials stress that the Administration remains strongly committed to NATO and to European security (as articulated in the National Security and Defense strategies), and Congress has supported the Administration's requests to increase funding for key U.S. defense activities in Europe such as the European Deterrence Initiative.

Nevertheless, during the Trump Administration both chambers of Congress have passed legislation expressly reaffirming U.S. support for NATO at times when some allies have questioned the President's commitment. This includes legislation passed by the House in January 2019 ( H.R. 676 , see below) seeking to limit the president's ability to unilaterally withdraw from NATO; similar legislation has been introduced in the Senate (S.J.Res. 4). Some analysts portrayed House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell's joint invitation to NATO Secretary General Jens Stoltenberg to address a joint session of Congress on April 3, 2019, in commemoration of NATO's 70 th anniversary as an additional demonstration of NATO's importance to the Congress. Examples of legislation in support of NATO passed in Congress since 2017 include the following:

H.Res. 397 (115 th Congress) , Solemnly reaffirming the commitment of the United States to NATO's principle of collective defense as enumerated in Article 5 of the North Atlantic Treaty. Passed by the House by a vote of 423-4 on June 27, 2017. H.R. 5515 / P.L. 115-232 (115 th Congress) , John S. McCain National Defense Authorization Act for FY2019 . After the Senate agreed to go to conference with the House on H.R. 5515 , Senator Reed (RI) made a motion to instruct conferees to reaffirm the commitment of the United States to NATO. The Senate agreed to the motion by a vote of 97-2. H.Res. 256 (115 th Congress) , Expressing support for NATO and the countries of Central and Eastern Europe. Passed by the House by unanimous consent on July 11, 2018. H.R. 676 (116 th Congress) , NATO Support Act . Passed by the House by a vote of 357-22 on January 22, 2019. The bill prohibits the appropriation or use of funds to withdraw the United States from NATO.

Although Congress has expressed consistent bipartisan support for NATO and its cornerstone Article 5 mutual defense commitment, congressional hearings on NATO in the 115 th and 116 th Congresses have reflected disagreement on the impact President Trump is having on the alliance. Some in Congress argue that President Trump's criticism of allied defense spending levels has spurred recent defense spending increases by NATO members that were not forthcoming under prior Administrations despite long-standing U.S. concern. They point out that NATO Secretary General Jens Stoltenberg has acknowledged that President Trump "is having an impact" in securing $41 billion of additional defense spending by European allies and Canada since 2016.

Others in Congress counter that President Trump's admonition of U.S. allies and his questioning of NATO's utility has damaged essential relationships and undermined NATO's credibility and cohesion. They contend that doubts about the U.S. commitment to NATO could embolden adversaries, including Russia, and ultimately weaken the commitment of other allies to the alliance. Some analysts argue that European allies who feel belittled by the U.S. president might be less likely to support future NATO operations advocated by the United States. Critics also tend to downplay President Trump's role in securing recent defense spending increases by NATO allies. They argue that Russian aggression in Europe has been a greater factor behind rising defense budgets, particularly in Central and Eastern Europe.

Despite disagreement over President Trump's impact on the alliance, most Members of Congress continue to express support for robust U.S. leadership of NATO, in particular to address potential threats posed by Russia. Many Members have called for enhanced NATO and U.S. military responses to Russian aggression in Ukraine and others have advocated stronger European contributions to collective defense measures in Europe. Congressional consideration of EDI could enable further examination of U.S. force posture in Europe and the U.S. capacity and willingness to uphold its collective defense commitments. Deliberations could also highlight longer-standing concerns about European contributions to NATO security and defense measures.

In light of these considerations, Members of Congress could focus on several key questions regarding NATO's future. These might include the following:

addressing the strategic value of NATO to the United States and the leadership role of the United States within NATO; examining whether the alliance should adopt a new strategic concept that better reflects views of the security threat posed by Russia and new and emerging threats in the cyber and hybrid warfare domains (NATO's current strategic concept was adopted in 2010); examining NATO's capacity and willingness to address other security threats to the Euro-Atlantic region, including from the Middle East and North Africa, posed by challenges such as terrorism and migration; examining the possible consequences of member states' failure to meet agreed defense spending targets; assessing U.S. force posture in Europe and the willingness of European allies to contribute to NATO deterrence efforts and U.S. defense initiatives in Europe such as the ballistic missile defense program and EDI; revisiting the allies' commitment to NATO's stated "open door" policy on enlargement, especially with respect to the membership aspirations of Georgia and Ukraine; and developing a NATO strategy toward China, particularly given U.S. and other allies' concerns about the security ramifications of increased Chinese investment in Europe.

Appendix. Additional Defense Spending Information


Financial Services and General Government (FSGG) FY2019 Appropriations: Overview

Summary: The Financial Services and General Government (FSGG) appropriations bill includes funding for the Department of the Treasury, the Executive Office of the President (EOP), the judiciary, the District of Columbia, and more than two dozen independent agencies. The House and Senate FSGG bills fund the same agencies, with one exception. The Commodity Futures Trading Commission (CFTC) is usually funded through the Agriculture appropriations bill in the House and the FSGG bill in the Senate.

Summary: President Trump submitted his FY2019 budget request on February 12, 2018. The request included a total of $49.1 billion for agencies funded through the FSGG appropriations bill, including $282 million for the CFTC. The $49.1 billion figure includes $3 billion for a legislative provision on government-wide transfers (Section 737).

Summary: The 115th Congress House and Senate Committees on Appropriations reported FSGG appropriations bills (H.R. 6258, H.Rept. 115-792 and S. 3107, S.Rept. 115-281) and both houses passed different versions of a broader bill (H.R. 6147) that would have provided FY2019 appropriations. The House-passed H.R. 6147 would have provided a combined total of $45.9 billion for the FSGG agencies, while the Senate-passed H.R. 6147 would have provided $45.7 billion. In both cases, the largest differences compared to the President's request were in the funding for the General Services Administration (GSA), the funding for the Executive Office of the President, and the absence of the Section 737 provision on government-wide transfers in both bills. No full-year FY2019 FSGG bill was enacted prior to the end of FY2018. The FSGG agencies were provided continuing appropriations until December 7, 2018, in P.L. 115-245 and until December 21, 2018, in P.L. 115-298. No final bill was enacted, and funding for FSGG agencies, along with much of the rest of the government, lapsed on December 22, 2018. No further appropriations occurred prior to the 116th Congress.

Summary: In the 116th Congress, the House of Representatives passed H.R. 21, which contained six full FY2019 appropriations bills, including FSGG provisions nearly identical to those passed by the Senate in the 115th Congress on January 3, 2019. On January 23, 2019, the House passed H.R. 648, also containing six appropriations bills, which was reportedly based on a potential conference report from the 115th Congress and would have provided $46.0 billion for FSGG appropriations. (Neither of these bills provided full-year funding for the Department of Homeland Security.) The Senate did not act on either of these bills.

Summary: On February 14, 2019, both the House and the Senate passed a conference report (H.Rept. 116-9) for H.J.Res. 31, containing seven appropriations bills providing full FY2019 funding for the government's operations that had not been previously funded, including FSGG provisions nearly identical to H.R. 648. The President signed the resolution on February 15, 2019, enacting it into law as P.L. 116-6. The law provides $45.7 billion in the FSGG appropriations portion (Division D), which includes the funding for the CFTC. This is $3.4 billion less than the President's request, with the bulk of this due to the absence of the Section 737 transfer authority in P.L. 116-6. Other notable differences include the funding for GSA and the Executive Office of the President.

Summary: Although financial services are a major focus of the FSGG appropriations bills, these bills do not include funding for many financial regulatory agencies, which are funded outside of the appropriations process. The FSGG bills have, however, often contained additional legislative provisions relating to such agencies, as is the case with H.R. 6258/H.R. 6147 in the 115th Congress, whose Title IX contained language from a number of different bills relating to financial regulation. P.L. 116-6 did not contain this language.

T he Financial Services and General Government (FSGG) appropriations bill includes funding for the Department of the Treasury (Title I), the Executive Office of the President (EOP; Title II), the judiciary (Title III), the District of Columbia (Title IV), and more than two dozen independent agencies (Title V). The bill typically funds mandatory retirement accounts in Title VI, which also contains additional general provisions applying to the funding provided to agencies through the FSGG bill. Title VII typically contains general provisions applying government-wide. The FSGG bill has also often contained provisions relating to the U.S. policy toward Cuba.

The House and Senate FSGG bills fund the same agencies, with one exception. The Commodity Futures Trading Commission (CFTC) is funded through the Agriculture appropriations bill in the House and the FSGG bill in the Senate. Where the CFTC is funded upon enactment depends on which chamber originated the law, which typically alternates annually. Thus, the enacted amounts for the CFTC typically are in the Agriculture appropriations bill one year and FSGG the following year.

This structure has existed in its current form since the 2007 reorganization of the House and Senate Committees on Appropriations. Although financial services are a major focus of the bill, the FSGG appropriations bill does not include funding for many financial regulatory agencies, which are instead funded outside of the appropriations process. It is not uncommon for legislative provisions addressing various financial regulatory issues to be included in titles at the end of the bill.

President Trump submitted his FY2019 budget request on February 12, 2018. The request included a total of $49.1 billion for agencies funded through the FSGG appropriations bill, including $282 million for the CFTC. This total included a proposed legislative provision on government-wide transfer authority in Section 737, which was estimated at $3 billion by the appropriations committees.

The House Committee on Appropriations reported a Financial Services and General Government Appropriations Act, 2019 ( H.R. 6258 , H.Rept. 115-792 ) on June 15, 2018. Total FY2019 funding in the reported bill would have beeen $45.7 billion, with another $255 million for the CFTC included in the Agriculture appropriations bill ( H.R. 5961 , H.Rept. 115-706 ). The combined total of $45.9 billion would have been about $3.2 billion below the President's FY2019 request, with the largest differences in the funding for the General Services Administration (GSA) and in language relating to government-wide transfers that was requested by the President but not included in the legislation (Section 737).

H.R. 6258 was included as Division B of H.R. 6147 , the Interior appropriations bill, when it was considered by the House of Representatives beginning on July 17, 2018. The bill was amended numerous times, shifting funding among FSGG agencies but not changing the FSGG totals. H.R. 6147 passed the House on July 19, 2018.

The Senate Committee on Appropriations reported a Financial Services and General Government Appropriations Act, 2019 ( S. 3107 , S.Rept. 115-281 ) on June 28, 2018. Funding in S. 3107 totaled $45.9 billion, about $3.2 billion below the President's FY2019 request, with the largest differences in the funding for the GSA and in the government-wide transfers requested language (Section 737).

The Senate began floor consideration of H.R. 6147 on July 24, 2018, including the text of S. 3107 as Division B of the amendment in the nature of a substitute ( S.Amdt. 3399 ). The amendment also included three other appropriations bills. The amended version of H.R. 6147 was passed by the Senate on August 1, 2018.

The conference committee on H.R. 6147 convened on September 13, 2018. No conference report was reported, however, prior to the end of the fiscal year. Instead, Division C of P.L. 115-245 , enacted on September 28, 2018, generally provided for continuing appropriations at FY2018 levels for the FSGG agencies through December 7, 2018. A further continuing resolution ( P.L. 115-298 ) was passed providing funding through December 21, 2018. No additional appropriations were passed in the 115 th Congress, leading to a funding lapse for the FSGG agencies as well as those funded in six other appropriations bills beginning on December 22, 2018.

The House of Representatives passed two consolidated appropriations bills in January 2019. H.R. 21 —which contained six full FY2019 appropriations bills, including FSGG provisions nearly identical to those passed by the Senate in the 115 th Congress—passed on January 3, 2019. H.R. 21 would have provided a total of $45.9 billion for the FSGG agencies, with the CFTC funding included with FSGG funding in Division B, following the Senate structure. On January 23, 2019, the House passed H.R. 648 , also containing the same six full FY2019 appropriations bills, which was reportedly based on a potential conference report from the 115 th Congress. H.R. 648 would have provided $46.0 billion for the FSGG agencies, with the FSGG portion—including CFTC funding—in Division C. Neither of these bills included the financial regulatory provisions in Title IX of the House-passed bill in the 115 th Congress. The Senate did not act on either of these bills.

On February 14, 2019, the House and the Senate agreed to a conference report ( H.Rept. 116-9 ) on H.J.Res 31 , the Consolidated Appropriations Act, 2019, containing seven appropriations bills. This act provides full FY2019 funding for the government's operations that had not been previously funded, including FSGG provisions nearly identical to H.R. 648 , but located in Division D. The primary substantive differences were in the Department of the Treasury Forfeiture Fund and in funding for GSA. The President signed the resolution on February 15, 2019, enacting it into law as P.L. 116-6 .

P.L. 116-6 included $45.7 billion in FSGG funding, including the CFTC. It did not include the Title IX financial regulatory provisions passed by the House in the 115 th Congress. The final total was approximately $3.4 billion less than the President's request, with most of the difference coming from the Section 737 transfer authority, which was not included by Congress. Other notable differences included the funding for the GSA and the Executive Office of the President.

Table 1 below reflects the status of FSGG appropriations measures at key points in the appropriations process across the 115 th and 116 th Congresses. Table 2 lists the broad amounts requested by the President and included in the various FSGG bills, largely by title, and Table 3 details the amounts for the independent agencies. Specific columns in Table 2 and Table 3 are FSGG agencies' enacted amounts for FY2018, the President's FY2019 request, the FY2019 amounts from the 115 th Congress bills ( H.R. 6147 as passed by the House and H.R. 6147 as passed by the Senate), the FY2019 amounts from the 116 th Congress House-passed bills ( H.R. 21 and H.R. 648 ), and the final FY2019 enacted amounts from P.L. 116-6 .

Financial Regulatory Agencies and FSGG Appropriations

Although financial services are a focus of the FSGG bill, the bill does not actually include funding for the regulation of much of the financial services industry. Financial services as an industry is often subdivided into banking, insurance, and securities. Federal regulation of the banking industry is divided among the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Comptroller of the Currency (OCC), and the Bureau of Consumer Financial Protection (generally known as the Consumer Financial Protection Bureau, or CFPB). In addition, credit unions, which operate similarly to many banks, are regulated by the National Credit Union Administration (NCUA). None of these agencies receives its primary funding through the appropriations process, with only the FDIC inspector general and a small NCUA-operated program currently funded in the FSGG bill.

Insurance is generally regulated at the state level, with some Federal Reserve oversight at the holding company level. There is a relatively small Federal Insurance Office (FIO) inside the Treasury, which is funded through the Departmental Offices account, but FIO has no regulatory authority.

Federal securities regulation is divided between the Securities and Exchange Commission (SEC) and the CFTC, both of which are funded through appropriations. The CFTC funding is a relatively straightforward appropriation from the general fund, whereas the SEC funding is provided by the FSGG bill, but then offset through fees collected by the SEC.

Although funding for many financial regulatory agencies may not be provided by the FSGG bill, legislative provisions affecting financial regulation in general and some of these agencies specifically have often been included in FSGG bills. In the 115 th Congress, H.R. 6258 and H.R. 6147 as passed by the House included many provisions, particularly in Title IX, that would have amended the 2010 Dodd-Frank Act and other statutes relating to the regulation of financial institutions and the authority and funding of financial regulators. Many of these provisions were included in other legislation, notably H.R. 10 , which passed the House on June 8, 2017, and S. 488 as amended by the House, which passed the House on July 17, 2018, though neither of these bills were enacted in the 115 th Congress. Of particular interest from the appropriations perspective, H.R. 6258 and H.R. 6147 as passed by the House would have brought the CFPB under the FSGG bill instead of receiving funding from outside of the appropriations process, as is currently the case. S. 3107 and H.R. 6147 as passed by the Senate did not include similar provisions affecting the CFPB or other aspects of financial regulation as in Title IX of the House bills.

In the 116 th Congress, the bills passed by the House ( H.R. 21 and H.R. 648 ) did not include financial regulatory provisions similar to those in the 115 th Congress House-passed bill, and neither did the enacted P.L. 116-6 .

The House and Senate Committees on Appropriations reorganized their subcommittee structures in early 2007. Each chamber created a new Financial Services and General Government Subcommittee. In the House, the FSGG Subcommittee's jurisdiction is primarily composed of agencies that had been under the jurisdiction of the Subcommittee on Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies, commonly referred to as TTHUD. In addition, the House FSGG Subcommittee was assigned four independent agencies that had been under the jurisdiction of the Science, State, Justice, Commerce, and Related Agencies Subcommittee: the Federal Communications Commission (FCC), the Federal Trade Commission (FTC), the SEC, and the Small Business Administration (SBA).

In the Senate, the new FSGG Subcommittee's jurisdiction is a combination of agencies from the jurisdiction of three previously existing subcommittees. Most of the agencies that had been under the jurisdiction of the Transportation, Treasury, the Judiciary, and Housing and Urban Development, and Related Agencies Subcommittee were assigned to the FSGG subcommittee. In addition, the District of Columbia, which had its own subcommittee in the 109 th Congress, was placed under the purview of the FSGG Subcommittee, as were four independent agencies that had been under the jurisdiction of the Commerce, Justice, Science, and Related Agencies Subcommittee: the FCC, FTC, SEC, and SBA. As a result of this reorganization, the House and Senate FSGG Subcommittees have nearly identical jurisdictions, except that the CFTC is under the jurisdiction of the FSGG Subcommittee in the Senate and the Agriculture Subcommittee in the House.

Table 4 below lists various departments and agencies funded through FSGG appropriations and the CRS experts' names pertaining to these departments and agencies.


Strategic Petroleum Reserve: Mandated Sales and Reform

Summary: The Strategic Petroleum Reserve (SPR), administered by the Department of Energy (DOE), has played a role in U.S. energy policy for over 40 years. Over that time, its primary focus has changed from its original intent as world oil market conditions have changed. Originally intended to offset the market power of cartels and prevent economic damage from oil supply disruption, it has become primarily a tool for combatting the fuel market effects of domestic natural disasters like hurricanes. Most recently, U.S. net imports of oil and petroleum products have decreased as a result of the increase in domestic oil production. Because of lower reliance on imports, some stakeholders see less need for an oil stockpile, and view the SPR more as a mechanism for providing funding for a wide variety of legislative purposes, ranging from health care, to highways, and general purpose revenues. Over this period, the SPR has expanded its potential usefulness to cover all of these purposes.

Summary: As a member of the International Energy Agency (IEA) and a participant in the International Energy Program established by the IEA, the United States, as are all net-importer nations in the IEA, is required to hold the equivalent of 90 days of its net imports of oil and petroleum products as a reserve stock. As a result of relatively stable U.S. oil consumption and rapidly increasing production, and declining net imports, available oil stocks held in the SPR now are almost double the 90-day requirement.

Summary: While the SPR has recently seen relatively little use in combatting oil supply disruptions caused by political and military instability, or even natural disasters, it has provided a source of funding for a variety of legislative initiatives. These mandated sales from the SPR have committed almost 260 million barrels of oil for sale by FY2027, leaving less than 400 million barrels of uncommitted oil reserves. Determining whether further reductions can be made from the reserve while maintaining its ability to carry out its designed purpose is a key energy policy question. The extreme variant of this question is whether a reserve is required at all, or whether privately held stocks, as practiced by most European countries, are adequate to meet international commitments.

Summary: Legislation in the 115th Congress, H.R. 6511, sought to maintain the SPR facility and infrastructure, while reducing operating and maintenance costs, by renting unused storage capacity in the reserve to private companies and foreign nations. As of this writing, no bills have been introduced in the 116th Congress modifying the SPR.

The Strategic Petroleum Reserve (SPR), administered by the Department of Energy (DOE), has been a part of U.S. oil security policy for over 40 years. Originally intended as a reserve to replace oil that might be withdrawn from the world market to forward political purposes and objectives, its rationale has evolved with the changing world oil market and the role of the United States in the market. In addition to replacing oil lost to political turmoil, as in Libya in 2011, in recent years it has been more commonly used to replace oil supplies curtailed due to natural disasters, mainly hurricanes. The effects of hurricanes, especially those of the magnitude of Katrina, Rita, and others, has threatened to disrupt oil production, refining, and distribution, creating potential economic dislocation. Use of oil from the SPR has helped to minimize the economic effect of those events.

Since 2010, the oil market in the United States has been transformed. Low growth in petroleum product demand, rapidly increasing domestic oil production, and falling net imports of crude oil and petroleum products have reduced U.S. dependence on foreign oil suppliers. At the same time, export sources on the world market have expanded, reducing the ability of any one exporter, or group of exporters, to manipulate the market.

As the U.S. oil position in the world oil market has strengthened, some have questioned whether the SPR should be either downsized to reflect current supply and demand balances, or even eliminated entirely. Since 2015, Congress has passed legislation which mandates the sale of SPR oil to fund a variety of government activities. For some, a question exists as to how much oil might be withdrawn from the Reserve while still maintaining an adequate oil "safety net." Others question whether the evolving world oil market requires the United States to maintain any government-owned reserve holdings.

Enacted legislation to date has mandated the sale of over 250 million barrels of oil from the SPR, a situation that brings up another policy issue. If there is less oil in the SPR, what might be done with the "excess capacity" inevitably created? The government may be able to reduce the operating costs of the SPR by leasing reserve capacity freed by mandated sales.

This report addresses the questions of mandated sales and "right sizing" the SPR, as well as strategies to make optimal use of the reduced need for oil storage capacity.

The SPR was authorized by the Energy Policy and Conservation Act (EPCA, P.L. 94-163 ) of 1975. The intent was to establish a petroleum reserve of 1 billion barrels that could prevent the economic dislocation caused by the Organization of Arab Petroleum Exporting Countries (OAPEC) 1973/1974 embargo of oil sales to the United States and other countries. That event, in retaliation against the United States' support for Israel in the 1973 Arab-Israeli War, came at an important transition point in U.S. petroleum markets. U.S. production of crude oil had reached a then-peak in 1970 at about 9.4 million barrels per day (mm/d) and was considered likely to be in long-term decline. It was also believed that U.S. oil consumption would likely continue to increase. These supply and demand trends seemed to guarantee that U.S. oil dependence on the world oil market through increasing imports would continue to grow.

Although the original intent of EPCA was to create a reserve of 1 billion barrels of crude oil, the SPR only reached its original design capacity of 750 million barrels in 1991. Available storage capacity was reduced to the current 726.7 million barrels with the closure of the Weeks Island facility due to structural damage in 1996. The SPR was filled to near its maximum capacity at 726.6 million barrels on December 27, 2009. That total represents the largest amount of oil ever held in the SPR. In 2011, 30 million barrels of oil was sold from the reserve in conjunction with the loss of Libyan oil exports due to the political and military upheaval in that country.

Over its history, the SPR has expanded to include the Northeast Home Heating Oil Reserve (NEHHOR) as well as the 1-million-barrel Northeast Gasoline Supply Reserve (NGSR) located on the U.S. East Coast. The NEHHOR was created to support and stabilize the essentially regional demand for home heating oil in New England. The NGSR was set up in the wake of Hurricane Sandy in 2012. That hurricane caused disruption of gasoline supply deliveries due mainly to electric power disruption and flooding.

Gasoline is less amenable to long-term storage than crude oil. While crude oil may be stored with little observed deterioration for periods in excess of five years, the storage life of gasoline is shorter. Typical gasoline blended with 10% ethanol may have a shelf life in storage of approximately three months. The short shelf life of gasoline requires active supply management of the NGSR.

International Energy Agency (IEA) Obligations

The IEA was established in November 1974, with a broad mandate on energy security and energy policy coordination among member countries during energy-related emergencies. Strategic stock holdings are one of the policies included in the agency's International Energy Program (IEP). IEA member countries, including the United States, have committed to maintaining stocks of crude oil and petroleum products equivalent to 90 days of their previous year's net imports; developing programs for demand restraint in the event of emergencies; and agreeing to participate in an allocation of oil deliveries program to balance shortages among IEA member nations. For example, in 2011, the United States participated in a coordinated IEA oil stock drawdown in response to the withdrawal of Libyan oil exports from the market as a result of political and military turmoil in that country.

The SPR at its current holdings of 649.1 million barrels of crude oil satisfies the U.S. strategic stock holding requirement. Based on 2017 net import levels of 3.768 mmb/d, the SPR holds over 170 days of net imports of crude oil and petroleum products. Considered in another way, the net import level of 3.768 mmb/d, when multiplied by 90 days required stocks, implies a need for the United States to hold about 340 million barrels in the SPR. The difference between actual SPR holding and the implied holdings required to meet the IEA requirements has given rise to the viewpoint that U.S. reserve oil holdings are in excess of those needed and might be sold on the market.

At the full drawdown rate, the SPR can deliver 4.4 mmb/d of crude oil for 90 days, dropping to a rate of 3.8 mmb/d for an additional 30 days, and dropping further in drawdown rate for up to 180 days as stocks deplete. These drawdown rates are those likely to be associated with a total, or major, curtailment of potential imports from the world market, an unlikely scenario given the large portion of U.S. imports obtained from Canada, Mexico, and Venezuela, until recently.

According to the IEA, only the United States, the Czech Republic, and New Zealand meet their stock requirements using solely government-owned emergency oil and petroleum product stocks. Other nations meet their stock requirements through holding private industry or agency stocks or portions in combination. It is also possible, under IEA rules, for a nation to hold its IEA required oil reserves outside its borders. This could create a demand for SPR unused capacity by nations that have a shortage of domestic oil storage facilities.

Total U.S. oil stocks, including both commercial and publicly held stocks, of both crude oil and petroleum products, are generally in excess of 1.9 billion barrels on a monthly basis, far in excess of IEA requirements.

The most recent emergency release of SPR oil was in 2011 due to the Libyan export curtailment. At that time, the United States and other members of the IEA decided to release 60 million barrels of oil onto the world market. The U.S. obligation was set at 30 million barrels. In June 2011, competitive offers were solicited for the purchase of selling oil to be delivered by the end of August 2011.

In addition to selling oil, the SPR can enter into exchange agreements. Exchange agreements, which are similar to loans, allow for delivery of oil from the SPR with return of the oil in kind, plus a premium, by a set future date. For example, in August and September 2017, following Hurricane Harvey, 5.2 million barrels of oil was delivered to Gulf Coast refineries to offset fuel shortages as a result damage and flooding. All of the original 5.2 million barrels plus the premium was returned by February 2018.

In 2014, a test sale was undertaken to evaluate SPR drawdown and sales procedure capabilities. Between March and May 2014, 4.62 million barrels was delivered by pipeline to successful bidders, and 0.38 million barrels was delivered via marine transportation.

Beginning in 2015, the debate over whether the SPR storage balance was too large given the evolving nature of U.S. oil production, consumption, and net imports resulted in Congress mandating the sale of SPR oil. The sales revenue accrued through SPR sales was allocated to a variety of uses; however, energy policy, or security, was not among them.

The legislation that mandated SPR oil sales includes the Bipartisan Budget Act of 2015 ( P.L. 114-74 ), the FAST Act of 2015 ( P.L. 114-94 ), the 21 st Century Cures Act of 2016 ( P.L. 114-255 ), the 2017 Tax Revision ( P.L. 115-97 ), the Bipartisan Budget Act of 2018 ( P.L. 115-123 ), and the Consolidated Appropriations Act, 2018. Broadly considered, this legislation requires oil to be sold from the reserve over the period FY2017 through FY2027.

Table 1 presents mandated SPR sales data.

The data in Table 1 show that while the 21 st Century Cures Act draws revenues from SPR sales during the three-year period 2017 through 2019, and the Balanced Budget Act of 2015 mandates SPR sales from 2018 through 2025, and the Consolidated Appropriations Act, 2018, mandates SPR sales in 2020 and 2021, the remaining legislation is oriented toward out-year sales, 2023 to 2027. This pattern of SPR sales might be important, because while it is likely that the favorable position of the United States with respect to oil production and imports will continue in the near-term, less certainty can be associated with a long-term perspective. Forecasting oil demand and supply is far from accurate, and when expected demand or supply respectively exceeds, or falls short of, expectations, the result is likely to be price volatility. Price volatility in the oil market can result in economic disruptions and slowdowns.

As per Section 510 of the 21 st Century Cures Act, the DOE offered 10 million barrels of SPR oil for sale in FY2017. A total of 9.89 million barrels of oil was delivered in FY2017, earning over $449 million, an average price of over $45 per barrel. DOE offered 9 million barrels of SPR oil sold in FY2018, earning approximately $522 million at an average price of over $58 per barrel.

The Balanced Budget Act of 2015, Section 404, authorizes the DOE to sell up to $2 billion of SPR crude oil for fiscal years 2017 through 2020. A total of 6.28 million barrels was sold in FY2017, earning $323.2 million. In FY2018, DOE offered 5 million barrels of SPR oil for sale, yielding approximately $290 million.

The legislation that directs sales from the SPR is not time coordinated. Possible problems could result from uncoordinated sales exceeding an amount consistent with energy security. However, the cited legislation generally has built-in "safety valve" language that ensures that SPR sales do not cause the United States to violate its international commitments, or allow the SPR holdings to fall below a specified value. In the case of P.L. 115-123 this value is set at 350 million barrels.

Determining the optimal level of oil holdings in the SPR is likely to remain controversial. Analytical tools common in public policy analysis, such as cost-benefit analysis, dynamic programming, or other optimization techniques depend on determining the value of variables that are highly uncertain in this case. The responsiveness of the adjustment of oil quantities on both the demand and the supply sides of the market, the price volatility of oil, and the probabilities of different degrees of political/military disruption in the oil market are all uncertain.

The SPR might be thought of as an insurance policy where fixed payments are made over time to avoid the large negative costs associated with low-probability events. For example, if conflict in the Persian Gulf resulted in the Strait of Hormuz being closed for a period of time, large volumes of Persian Gulf oil would likely be withdrawn from the world market. The reality of reduced oil supply coupled with expectations and speculation on the futures markets would likely result in an increasing and volatile oil price. Significant price increases, coupled with supply shortages could result in significant disruption of consuming and importing nations' economies. Reduced economic growth, rising unemployment, and inflation are likely consequences.

With respect to this example, an analysis of the appropriate size of the SPR might focus on values such as the risk tolerance of society with respect to bearing the consequences of an event of a given particular magnitude. Set against these values might be the cost of maintaining the SPR, which might be taken as an "insurance premium." In this case, the optimal strategy might be to minimize the cost of insurance as well as the probability that the negative event might occur. However, complications might still arise in transforming the theoretical analysis into a consistent practical decision guide.

Additional reform factors that could be considered, beyond the size of the SPR, might include the mix of crude oils held in reserve as well as the infrastructure available to deliver reserve crudes to the market.

A consequence of the fixed capacity of the SPR in conjunction with mandated sales from the reserve is the appearance of underutilized capacity. In the 115 th Congress, the House passed legislation to reform the SPR to include commercial leasing of storage capacity as well as leasing of capacity to foreign governments. H.R. 6511 would have authorized the Secretary of Energy to develop a leasing program and establish a pilot program for the leasing of storage and related facilities.

The most important benefit of leasing excess SPR capacity is the receipt of fees to "fully compensate the United States for all costs of storage, and removals of petroleum products (including the proportionate cost of replacement facilities necessitated as a result of withdrawals) incurred by the United States as a result of such lease." These fees can help offset the facilities operation and maintenance costs of the reserve, which were $233 million in FY2017.

While leasing excess reserve capacity provides the United States the benefit of reducing the cost of the energy security insurance the reserve provides, potential problems might exist. Commercial clients' usage patterns may not match the physical capabilities of SPR facilities. The salt domes that contain SPR crude oil are suitable for long-term oil storage and they may be less suitable for short-term injections and withdrawals. Oil is drawn from the SPR storage caverns by injecting brine into the caverns and causing the contained oil to rise, and then exit, the facility. Frequent brine injection and withdrawal could result in accelerated structural deterioration of the caverns.

Commercial oil companies are more likely to store oil for the short-term, rather than as a long-term security stock. Commercial stocks are typically part of a supply chain that holds stocks only until they can be shipped to refineries or other facilities for processing. In addition, emergency withdrawals of SPR oil may interfere with commercial withdrawals unless extraction and shipping infrastructure at the SPR is enhanced.

Leasing of excess SPR capacity to foreign governments for oil reserve storage is less likely to be associated with the short-term problems identified with commercial leasing.

In addition to the H.R. 6511 reform approach, some have called for partial, or total, elimination of the reserve. This approach usually cites the broader, more transparent nature of the world oil market compared to the 1970s, the large commercial stock holdings in the United States, or the existence of derivative market strategies available to firms, not available in the 1970s, which might be used to mitigate oil supply shocks.

Beyond partial or total liquidation of the reserve, analysts have developed other alternatives. Inventory monetization is a generally risk-free approach, generating revenues to cover expenses by monetizing a portion of the idle oil balances in the SPR. This approach uses options markets to generate revenues.

For example, suppose the oil futures market was in backwardation, a condition whereby the price of oil today is higher than the price a year from now by $3 per barrel. The government could sell crude oil paper contracts at today's price and purchase an equivalent number of barrels of crude a year from now at the lower future price. If this strategy were undertaken with perhaps 100 million barrels of SPR oil, the net revenue would be $300 million minus expenses and fees, an amount well in excess of yearly SPR operations and maintenance costs. If, in the example, the relative prices over time were reversed, and the future price was higher than the current price the government would buy oil now and simultaneously sell oil in the future, again profiting by the amount of the spread between the two prices. These purchases and sales are all on paper, no oil is actually required to leave the reserve, and the transactions are taken at the same time, locking in a profit with essentially potentially very low risk. A drawback of this approach is that the volume of government purchases and sales might be large enough to influence the market prices, or interfere with private sector traders.

The SPR has met many challenges. First conceived as protection against the "weaponization" of oil in the 1970s, it later became a safeguard against the disruption caused by domestic natural disasters. Most recently the Reserve has served as a source of funding for a variety of programs and activities. In each case, while its range of application has expanded, it still maintained its ability to respond to its original requirements.

Evolving oil market conditions have raised the question of whether the SPR can be further downsized, or even eliminated. Even if changing market conditions have made the reserve's rationale less compelling in the current environment than in the past, the SPR can provide a component of energy security policy as well as meeting other policy needs.