Introduction On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law ( P.L. 116-136 ). The CARES Act includes $3.5 billion in supplemental appropriations for the Child Care and Development Block Grant (CCDBG). This report provides an overview of the CCDBG provisions in the CARES Act. Among other things, these provisions address allowable uses and flexibilities of the supplemental funds. The report also includes allocations for the additional $3.5 billion in CCDBG appropriations. The CCDBG Act (42 U.S.C. Â§Â§9858 et seq.) is the main federal law supporting child care programs for low-income working families. The CCDBG is administered by the U.S. Department of Health and Human Services (HHS). HHS allocates CCDBG funds to states, territories, and tribes according to a statutory formula. In addition, certain funds may be reserved for other activities, such as technical assistance and research. State, territory, and tribal lead agencies submit CCDBG plans to HHS every three years describing how their child care programs will operate. CCDBG funds are used to subsidize the cost of child care for eligible children of low-income working parents. Funds are also used to support activities to improve the quality of child care and for certain other costs. CCDBG Provisions in the CARES Act The CARES Act appropriates $3.5 billion in FY2020 emergency supplemental funds to the CCDBG. The funds are to be used to "prevent, prepare for, and respond to coronavirus." The CARES Act funds are provided in addition to FY2020 annual appropriations of $5.8 billion (see P.L. 116-94 ). The additional $3.5 billion represents a 60% increase in total appropriations to the CCDBG in FY2020. The additional funds are to remain available for obligation by HHS through September 30, 2021 (i.e., the end of FY2021). The CARES Act includes a number of provisions that clarify allowable uses and, in some cases, waive certain underlying requirements of the CCDBG Act. Below is a brief discussion of key provisions. Continued Assistance to Child Care Providers Under the CCDBG Act, lead agencies subsidize the cost of child care for eligible children. Lead agencies commonly provide subsidy payments directly to child care providers. In some cases, lead agencies may provide additional CCDBG funds to eligible providers for other purposes, such as supporting professional development or helping build the supply of quality child care. The CARES Act specifies that CCDBG funds appropriated in the act may be used to provide continued payments and assistance to child care providers in cases of decreased enrollment or closures related to coronavirus, and to ensure that providers are able to remain open or reopen as appropriate and applicable. The CCDBG Act generally encourages (but does not require) lead agencies to make payments to child care providers based on enrollment rather than attendance. Specifically, the law states that lead agencies should "to the extent practicable" delink provider reimbursements from an eligible child's occasional absences due to holidays or unforeseen circumstances such as illness. This provision of the law is intended to support the fixed costs incurred by providers. Eligible Child Care Providers The CARES Act specifies that CCDBG funds appropriated in the act shall be available to eligible child care providers under the CCDBG Act for the purposes of cleaning and sanitation, and other activities necessary to maintain or resume the operation of programs. The act clarifies that this provision applies to eligible child care providers even if those providers were not receiving CCDBG assistance prior to the public health emergency resulting from coronavirus. Under the CCDBG Act, eligible child care providers generally must be licensed, regulated, or registered by the state (though states may exempt certain providers from this requirement); and meet certain minimum health and safety standards. An exception to these requirements is made in cases of child care providers caring only for relatives. However, such providers must comply with requirements applicable to relative caregivers. Continued Pay for Child Care Staff The CARES Act encourages states, territories, and tribes to place conditions on payments to child care providers aimed at ensuring providers use a portion of the funds to continue to pay staff salaries and wages. Payment of salaries and wages is not explicitly addressed in the CCDBG Act, though presumably it is typical for some share of CCDBG provider payments to support these expenses. According to national estimates from the Bureau of Labor Statistics (BLS), the mean hourly wage for child care workers was $12.27 in May 2019. BLS estimated the mean annual wage for child care workers at $25,510 nationally. Support for Essential Workers The CARES Act specifies that states, territories, and tribes are authorized to use CCDBG funds appropriated in the act to provide child care assistance to health care sector employees, emergency responders, sanitation workers, and other workers deemed essential during the response to coronavirus by public officials. Further, the act specifies that such workers may receive CCDBG assistance without regard to the typical income eligibility requirements under the CCDBG Act. The CCDBG Act generally stipulates that eligible children must be under age 13 (children may be older in limited circumstances ); reside with a parent who is working or attending job training (unless the child is receiving or needs to receive protective services); have family income no greater than 85% of state median income (SMI), or lower depending on state policy; and have no more than $1 million in family assets. While the CARES Act waives income requirements for essential workers as noted above, it does not waive other eligibility requirements (e.g., those related to the child's age or the parent's work status). State Plan Amendments The CARES Act requires HHS to remind states that CCDBG state plans do not need to be amended prior to using "existing authorities in the CCDBG Act for the purposes provided" in the CARES Act. Typically, if a state intends to make a substantial change to policies laid out in its CCDBG plan (e.g., a change in eligibility rules, provider payment rates, family copayments), the state would submit a state plan amendment to HHS for approval. Under regulations, a plan amendment must be submitted within 60 days of the effective date of the requirement (i.e., the state may execute the policy change before submitting the amendment). HHS has 90 days to approve or deny a plan amendment. In the current circumstances, there are several reasons states might want to amend their plans. For instance, the CARES Act authorizes HHS to provide child care assistance to essential workers regardless of income. This is a substantial change, as federal law and state policies generally condition eligibility on family income. Spending Flexibilities and Other Technical Provisions The CARES Act effectively waives or adjusts certain requirements related to the obligation and expenditure of the CCDBG funds appropriated in the act. Quality Spending The CCDBG Act generally requires lead agencies to spend at least 9% of their FY2020 allotments on quality activities, plus an additional 3% on activities to improve the quality of care for infants and toddlers. All told, these quality set-asides are intended to account for at least 12% of spending from FY2020 allotments. The CARES Act effectively waives these quality spending minimums for funds provided in the act, offering lead agencies greater flexibility in how funds may be spent. Direct Spending The CCDBG Act includes requirements related to minimum spending on direct services. (The term direct services generally refers to child care assistance provided to families and is often, but not always, provided in the form of a voucher.) For instance, after lead agencies set aside funds to meet minimum quality spending requirements and for spending on administrative costs (capped at 5% for states and territories ), they must use at least 70% of remaining CCDBG funds for direct services. The CARES Act effectively waives direct spending requirements in the CCDBG Act, again offering lead agencies greater flexibility in how funds may be spent. Supplement, Not Supplant The CARES Act specifies that funds provided via the CCDBG are to be used to supplement, not supplant , state, territory, and tribal general revenue funding for child care assistance for low-income families (i.e., the funds provided under the act should not be used to replace existing state, territory, or tribal spending on such activities). CCDBG provisions in annual appropriations acts typically include similar provisions. Past guidance from HHS suggests that this requirement would likely be considered satisfied if a state, territory, or tribe does not make any administrative or legislative changes to reduce general revenue spending after the enactment of a new CCDBG appropriation. An action occurring after this date could potentially be considered a violation of the non-supplantation requirement, unless the lead agency demonstrates that the reduction was not due to increased federal CCDBG funds. Use of Funds for Prior Obligations The CARES Act specifies that the CCDBG funds it appropriates may be made available to restore amounts, either directly or through reimbursement, for obligations incurred prior to enactment. These amounts may only be restored with CARES Act funds if they were used to prevent, prepare for, and respond to coronavirus. Obligation Deadline for Lead Agencies (or Other Recipients) The CARES Act states that payments made by HHS may be obligated by the state, territory, tribe, or other recipient in the current fiscal year or the succeeding two fiscal years. Effectively, this means that lead agencies have through FY2022 to obligate funds they receive under the CARES Act. The CCDBG Act typically gives states or other recipients two fiscal years, rather than three, to obligate funds. Allocation of CCDBG Funds CCDBG funds are generally allocated according to a formula set in statute. Under the CCDBG Act formula, HHS is to reserve up to 0.5% for territories and not less than 2% for tribes and tribal organizations. The formula also includes set-asides for technical assistance (up to 0.5%); research, demonstrations, and evaluation (0.5%); and a national toll-free hotline and website (up to $1.5 million). After all reservations have been made, the remaining funds go to states. Funds are allocated to states according to a formula based on their share of children under age five, their share of children receiving free- or reduced-price lunches, and state per capita income. Table 1 presents FY2020 CCDBG allocations released by HHS. The table includes allocations from FY2020 annual appropriations ( P.L. 116-94 ), as well as the CARES Act ( P.L. 116-136 ).


Introduction On May 23, 2019, Secretary of Agriculture Sonny Perdue announced that USDA would undertake a second round of trade aid in 2019 to assist farmers in response to trade damage from continued tariff retaliation and trade disruptions. Partial details of the new initiative were announced on July 25, 2019. Final program detailsâsuch as calculation of the individual commodity-specific payment rates used in the formulation of the county-level payment rates for non-specialty cropsâwere released on August 23, 2019. The 2019 trade aid package builds on the 2018 trade aid package in that it is based on the same legislative authority: Section 5 of the Commodity Credit Corporation (CCC) Charter Act of 1948 (P.L. 80-806; 15 U.S.C. 714 et seq. ), as amended. Specifically, the President has authorized USDA to provide up to $16 billion in new funding for the 2019 initiative. This new funding authority is in addition to the $12 billion in funding authority that was announced for the previous 2018 trade aid package. The 2019 trade aid package is to be implemented using the same three trade assistance programs that were used under the 2018 trade aid packageâa Market Facilitation Program (MFP), a Food Purchase and Distribution Program (FPDP), and an Agricultural Trade Promotion (ATP) programâbut at generally higher funding levels ( Table 1 ), except for ATP. Also similar to the 2018 initiative, the 2019 trade aid package funding authority corresponds with USDA's estimate of the trade damage to the U.S. agricultural sector from retaliatory tariffsâimposed on U.S. agricultural goods in response to previous U.S. trade actionsâand other trade disruptions in 2019. The 2019 programs are intended to assist agricultural producers while the Administration works to resolve the ongoing trade disputes with certain foreign nations, most notably China. This report describes the new trade aid package authorized for 2019, including its constituent parts, and identifies distinguishing differences from the 2018 trade aid package. An appendix provides additional details on USDA's implementation of the FPDP and ATP programs and on the evolution of USDA's formulation of the MFP payment rates under the 2018 and 2019 MFP programs. 2019 Trade Aid Package Components Under the 2019 trade aid package, USDA is to use up to $16 billion to fund three programs to assist producers of affected commodities in 2019: 1. A Market Facilitation Program , administered by USDA's Farm Service Agency (FSA), to provide up to $14.5 billion in direct payments to producers of USDA-specified eligible commodities (described below). 2. A Food Purchase and Distribution Program , administered through USDA's Agricultural Marketing Service (AMS), to use $1.4 billion to purchase surplus commodities affected by trade retaliation, such as fruits, vegetables, some processed foods, beef, pork, lamb, poultry, and milk for distribution by the Food and Nutrition Service to food banks, schools, and other outlets serving low-income individuals. 3. An Agricultural Trade Promotion Program , administered by USDA's Foreign Agriculture Service (FAS), to use $100 million to assist in developing new export markets on behalf of U.S. agricultural producers. Some important differences between the 2018 and 2019 trade aid packages include the following: The 2019 package includes an expanded funding commitment of up to $16 billion versus $12 billion under the previous package. The 2019 package includes an expanded list of eligible commodities (41 eligible commodities in 2019 versus 9 in 2018). The MFP payment formula for 2019 is modified for non-specialty crops (field crops) to be a single county payment rate rather than commodity-specific rates. This is done to minimize influencing producer crop choices and avoid large payment-rate discrepancies across commodities. MFP payments for non-specialty crops in 2019 are to be based on planted acres, not harvested production as in 2018. This change would avoid having MFP payments reduced by the lower yields that are expected across major growing regions due to the widespread wet spring and delayed plantings. The 2019 package includes 1. expanded payment limits per individual per commodity group ($250,000 versus $125,000 for 2018 MFP payments); 2. an expanded maximum combined payment limit across commodity groups ($500,000 versus $375,000); and 3. adjusted gross income (AGI) eligibility criteria based on the average AGI for 2015, 2016, and 2017. AGI criteria used to assess eligibility for 2018 MFP payments were based on AGI for 2013, 2014, and 2015. Initially, 2018 MFP payment recipients were subject to an AGI limit of $900,000 for eligibility. However, the 2019 Supplemental Appropriations for Disaster Relief Act ( P.L. 116-20 ) included a provision that retroactively eliminated the AGI threshold if at least 75% of a farm's AGI came from farming operations. This expanded AGI interpretation is retained for 2019 MFP payments but based on the different three-year period described above. Market Facilitation Program The MFP program is authorized to make direct payments to producers of eligible commodities. Eligible producers must submit application forms as part of the signup for the MFP program. Signup runs from Monday, July 29, through Friday, December 6, 2019. Program informationâincluding MFP application forms (CCC-913), program eligibility requirements, commodity coverage, and county-level payment ratesâis available at USDA's MFP program website. Key program details are summarized below. Payment Qualifications Producers of MFP-eligible commodities (listed below) may apply for MFP payments, provided that they also have an ownership interest in the commodity and are actively engaged in the farming operation; have an average AGI for tax years 2015, 2016, and 2017 of less than $900,000 per year or an AGI in excess of $900,000 with at least 75% of AGI derived from farming, ranching, or forestry-related activities; comply with the provisions of the "Highly Erodible Land and Wetland Conservation" regulations, often called the conservation compliance provisions; and have filed a 2019 acreage report with their county FSA offices. Producers are not required to have purchased crop insurance or coverage under the Noninsured Crop Disaster Assistance Program to be eligible for participation, nor are they required to participate in any other CCC programs. Covered Commodities and Payment Determination With respect to 2019 MFP payments, USDA has categorized the eligible commodities into three groups: 1. non-specialty crops (field crops including grains and oilseeds), 2. specialty crops (tree nuts and fruits), and 3. animal products (dairy and hogs). Each of these three commodity groupings has different payment structures. In particular, producers of non-specialty crops will be eligible for a single county payment rate multiplied by their farms' total acres of MFP-eligible non-specialty crops planted in a county in 2019. In contrast, dairy, hogs, and specialty crops will each have a single national payment rate to be multiplied by their production history, inventory, or acres under cultivation in 2019, respectively ( Table 2 ). Non-Specialty Crops Eligible non-specialty crops include alfalfa hay, barley, canola, corn, crambe, dried beans, dry peas, extra-long-staple cotton, flaxseed, lentils, long- and medium-grain rice, millet, mustard seed, oats, peanuts, rapeseed, rye, safflower, sesame seed, small and large chickpeas, sorghum, soybeans, sunflower seed, temperate japonica rice, triticale, upland cotton, and wheat. Unlike 2018, where MFP payment rates were specific for each eligible non-specialty crop, 2019 MFP payment rates are fixed at the county level and do not vary with a producer's mix of crops. This change in payment structure was done to minimize influencing producer crop choices (as the announcement was made before planting was finished) and avoid large payment-rate discrepancies across commodities. Thus, under the 2019 MFP payment format, producers of MFP-eligible non-specialty crops, within a particular county, are to receive MFP payments based on that county's MFP payment rate multiplied by the farms' total plantings to eligible crops in that county in 2019. USDA is requiring that a producer's total MFP-eligible plantings in 2019 may not exceed total 2018 plantings. The MFP payment rate for non-specialty crops is fixed within each county. However, MFP payment rates will vary across counties based on each county's historical average share of eligible crops planted, average planted acres per eligible crop, and average yields of eligible crops. Within this construct, USDA has set minimum and maximum county MFP payment rates of $15 and $150 per acre. Producers who were prevented from planting MFP-eligible crops due to adverse weather but filed prevented-planting claims under crop insurance and planted FSA-certified cover crops (with the potential to be harvested) on the unplanted acres are also eligible for the minimum $15 per acre payment rate. Acres that were never planted in 2019 are not eligible for MFP payments. Acreage of non-specialty crops and cover crops must have been planted by August 1, 2019, to be eligible for MFP payments. Dairy and Hogs Dairy producers who were in business as of June 1, 2019, are to receive a $0.20 per hundredweight payment on their milk production history as reported for the Dairy Margin Coverage program. Hog producers are to receive a payment of $11 per head based on the number of live hogs owned on a date to be selected by the producer between April 1 and May 15, 2019. Specialty Crops MFP payments are to also be made to producers of almonds, cranberries, cultivated ginseng, fresh grapes, fresh sweet cherries, hazelnuts, macadamia nuts, pecans, pistachios, and walnuts. Per-acre MFP payment rates will vary across specialty crops ( Table 2 ) based on their 2019 acres of fruit- or nut-bearing plants or, in the case of ginseng, harvested acres in 2019. MFP Payment Start Dates Payments are to be made in up to three tranches. The first payment is to consist of the higher of either 50% of a producer's calculated payment or $15 per acre. On August 22, 2019, news media announced that USDA had begun to process the first tranche of MFP payments. USDA announced on November 15, 2019, that the second tranche of payments would go out on November 18, 2019. For producers with overall MFP payment rates equal to $15 per acre, there will be no second or third tranche payment. For producers with payment rates less than $30 per acre but greater than $15 per acre, the second tranche would equal the remaining unpaid balance. For producers with payment rates greater than $30 per acre, the second payment would be up to 75% of a producer's calculated payment (less the portion already received in the first tranche). As of November 25, 2019, USDA reported that $10.2 billion had been paid out under the first and second tranches. The third tranche would depend on USDA's evaluation of market and trade conditions. If deemed necessary, the third and final payment would be for the remainder of a producer's calculated payment and would begin in January 2020. MFP Payment Limits MFP payments are limited to a combined $250,000 for each crop year for non-specialty crops per person or legal entity. MFP payments are also limited to a combined $250,000 for dairy and hog producers and a combined $250,000 for specialty crop producers. However, no applicant can receive more than $500,000 across the three commodity groups. MFP payments do not count against other 2018 farm bill payment limitations. There are no criteria in place to calculate whether MFP might duplicate losses covered under revenue support programs such as the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs of the 2018 farm bill. As a result, the same program acres that are eligible for ARC or PLC payments may be eligible for MFP payments. MFP Payment Distribution by State Under the 2018 MFP program, payments were skewed toward major soybean producing statesâparticularly states in the Corn Belt âas the payments were based on commodity-specific payment rates and soybeans were allocated the largest payment rate at $1.65 per bushel ( Figure 1 ). When combined with a record soybean crop of over 4.5 billion in 2018, U.S. soybean producers received total outlays estimated at about $7 billion (or 82%) of 2018 MFP payments. For the 2019 MFP program, USDA released the MFP county-level payment rates for nearly 3,000 counties in the United States on July 25, 2019. Unlike 2018, when MFP payments centered on soybean-producing regions, the areas with the highest payment rates in 2019 are regions with heavy cotton and sorghum production ( Figure 2 ). Nationally, MFP payment rates range between $15 and $150 per acre. Some 22 counties are to receive the maximum paymentâfive counties each in Alabama, Georgia, and Texas; three counties in Mississippi and Arizona; and one county in New Mexicoâwhile nearly 400 counties across the country are to receive the minimum $15 per acre payment. Some economists suggest that cotton acreage likely played a role in higher MFP payments rates in 2019 across southern states. In 2019, cotton acres averaged 52% of all MFP-eligible acres in counties with rates over $100 per acre. Peanut acreage could also play a role in higher payments. Food Purchase and Distribution Program USDA is to use CCC Charter Act authority to implement a 2019 FPDP program, valued at up to $1.4 billion, through AMS. FPDP is to purchase surplus commodities affected by trade retaliation, such as fruits, vegetables, some processed foods, beef, pork, lamb, poultry, and milk, for distribution by USDA's Food and Nutrition Service to food banks, schools, and other outlets serving low-income individuals ( Table B-1 ). The premise is that removing products from normal marketing channels helps to reduce supply and thereby increase prices and farm income. Agricultural Trade Promotion Program FAS will administer the ATP under authorities of the CCC. The ATP is to provide cost-share assistance to eligible U.S. organizations for activitiesâsuch as consumer advertising, public relations, point-of-sale demonstrations, participation in trade fairs and exhibits, market research, and technical assistanceâto boost exports for U.S. agriculture, food, fish, and forestry products. On July 19, 2019, USDA awarded $100 million to 48 organizations through the ATP to help U.S. farmers and ranchers identify and access new export markets ( Table C-1 ). Many of the 2019 ATP award recipients are among the cooperator organizations that had been awarded funding from the $200 million in 2018 ATP funds. Conclusion The broad discretionary authority granted to the Secretary under the CCC Charter Act to implement the trade aid package also allows the Secretary to determine how the aid is to be calculated and distributed. In 2018, when the first trade aid package was announced with funding of $12 billion, USDA officials declared that it would be a temporary, one-time response to foreign tariffs imposed on selected U.S. commodities. However, on May 23, 2019, Secretary Perdue announced a second round of trade aid package valued at $16 billion in 2019. USDA's use of CCC authority to initiate and fund agricultural support programs without congressional involvement is not without precedent, but the scope and scale of its use for the two trade aid packagesâat $28 billionâhas increased congressional and public interest. Some have suggested that the effects of tariffs and retaliatory tariffs could be long-lasting because they have created uncertainty about U.S. trade policy behavior and have called into question U.S. reliability as a trading partner. Furthermore, the use of CCC authority to mitigate tariff-related losses may establish a precedent for future situations. Some trade economists and market watchers have suggested that annual trade aid packages might continue as long as the trade disputes remain unresolved. Most farm commodity and advocacy groups have been supportive of the trade aid package even as they have called for solutions that restore export activity. However, some stakeholders have questioned the equity of the distribution of 2018 MFP payments and the rationale for determining payments based on "trade damage" rather than a broader "market loss" measure. Some economists have suggested that, even under the 2019 formulation, USDA is overpaying farmers for trade losses and that USDA's calculations failed to fully incorporate last year's record soybean harvest or new trade patterns that have emerged following China's reluctance to buy U.S. soybeans. Due to their price tag ($12 billion in 2018 and $16 billion in 2019) and the coupled nature of the MFP payments to planted acres, there is considerable interest from policymakers, market observers, and trading partners about whether these payments will be fully compliant with World Trade Organization (WTO) commitments. In particular, there is some interest in whether large MFP payments might cause the United States to breach its $19.1 billion annual WTO spending limit on trade-distorting farm subsidies. Appendix A. MFP Payment Formula On August 23, 2019, USDA published the details on the calculation of MFP payment rates for USDA-designated eligible commodities under the 2019 trade aid packageâincluding county-level MFP rates for non-specialty crops and national MFP rates for hogs, dairy, and specialty crops. For both the 2018 and the 2019 trade aid packages, USDA defined economic losses due to foreign retaliatory trade actions narrowly in terms of gross trade damages rather than broadly as lost market value. Gross trade damages is defined as the total amount of expected export sales lost to the retaliating trade partner due to the additional tariffs. Gross trade damages were estimated for each of the major farm commodities affected by the retaliatory tariffs. The estimated trade damages were then used to derive both commodity-specific MFP payment rates and FPDP purchase targets for pork (hogs) and milk (dairy). Both the 2018 and 2019 trade aid packages used the same methodology to estimate gross trade damages for USDA-designated commodities. However, the two estimates used different time frames to calculate the trade damages, thus producing different commodity-specific MFP payment rates ( Table A-1 ). The 2018 calculations of gross trade damages compared trade data from 2017 (pre-retaliatory tariffs) with 2018 data (post-retaliatory tariffs). The 2019 calculations used a longer historical time series, extending the "look-back" over a 10-year period from 2009 through 2018 compared with 2019 trade. In a further change from the 2018 methodology, the 2019 MFP payment rates for non-specialty crops combined commodity-specific MFP payments rates at the county level in a formula (weighted by historical county planted acres and yields) to derive a single county-level MFP payment rate rather than separate national commodity-specific rates. Hogs, dairy, and specialty crops retained their national MFP payment rates but at different values due to the longer "look-back" period used to estimate gross trade damages. This appendix section briefly reviews the methodology used to derive the 2018 MFP commodity-specific payment rates. Then it discusses the adaptations made by USDA for 2019 to derive both the county-level payments for non-specialty crops and the national-level payment rates for specialty crops, hogs, and dairy. 2018 MFP Payment-Rate and Payment Methodology USDA calculated a unique national MFP payment rate for each affected commodity (as determined by USDA). A producer's MFP payment calculation involved three steps: First, USDA estimated the level of direct trade-related damage caused by 2018 retaliatory tariffsâimposed by Canada, China, the European Union, Mexico, and Turkeyâto U.S. exports for each affected commodity. Direct trade loss is the difference in expected trade value for each affected commodity with and without the retaliatory tariffs. To measure this, USDA compared U.S. exports for 2017 (the year prior to the imposition of retaliatory tariffs) with 2018 export levels when trade was subject to the retaliatory tariffs. Much of the affected 2018 agricultural production had yet to be harvested and sold at the time the MFP payment rates were calculated. In addition, the final trade effect, with or without retaliatory tariffs, was not observable, and markets had yet to fully adjust to whatever new trade patterns would emerge from the trade dispute. As a result, USDA estimated both export values (with and without retaliatory tariffs) using a global trade model that accounted for the availability of both substitute supplies from export competitors and demand for U.S. agricultural exports from alternate importers. Indirect effectsâsuch as any decline in market prices due to record 2018 soybean production and the build-up of domestic stocks, or resultant economy-wide "lost value" for non-producer owners of the affected commoditiesâwere not included in the payment calculation. Second, the estimated trade damage for each affected commodity was divided by the crop's production in 2017 to calculate a national commodity-specific, per-unit damage rate. This per-unit damage rate is the commodity-specific MFP payment rate. In the case of both pork and milk, FPDP purchases were subtracted from the estimated trade damage before the per-unit MFP payment rates for hogs and milk were calculated. Finally, a producer's 2018 MFP payment was equal to the commodity-specific MFP payment rate multiplied by the producer's 2018 production for corn, cotton, sorghum, soybeans, wheat, fresh sweet cherries, and shelled almonds. For hog producers, the MFP payment rate was multiplied by a producer-selected hog inventory from July 15 to August 15, 2018. For milk producers, the MFP payment rate was multiplied by the farm's production history as reported for the Margin Protection Program of the 2014 farm bill. 2019 MFP Payment-Rate and Payment Methodology To calculate the 2019 MFP payment rates, USDA made several adaptations to the 2018 methodology. As a result, a producer's MFP payment calculation in 2019 involved an additional fourth step. First, USDA again calculated the level of direct trade-related damage caused by retaliatory tariffs to U.S. exports for each commodity. However, USDA used 2019 retaliatory tariffs (not 2018) that were being imposed by China, the European Union, and Turkey. Canada and Mexico were removed from the calculations, as they were no longer imposing retaliatory tariffs on U.S. agricultural exports. In addition, USDA adjusted the calculation of direct trade damage by using 10 years of historical U.S. export data (2009-2018) rather than a single year. This larger period captured trade losses for certain commodities that experienced fluctuating trade patterns in recent years and where trade levels during the 2017 data period were unrepresentative of historical trade volumes. Second, the estimated trade damage for each affected commodity was divided by the crop's average production during the three-year period 2015-2017 to calculate a national commodity-specific, per-unit damage rate. In the case of both pork and milk, FPDP purchases were subtracted from the estimated trade damage before the per-unit MFP payment rates for hogs and milk were calculated. Third, the commodity-specific damage rates were then used to establish county-level, per-acre payment rates based on historical county data for average planted area and yields of the affected commodities. For each county, USDA multiplied three terms together to estimate the county-level trade damage for each MFP-eligible crop: (1) the three-year (2015-2017) average yield for each cropâtaken from USDA's Risk Management Agency's (RMA) crop insurance data, (2) the four-year (2015-2018) average planted acres of each crop in the countyâtaken from FSA's database of crop acreage reportsâand (3) the commodity-specific, per-unit damage rate for each crop (from step two above). Then, for each county, the crop damage estimates were added across all MFP-eligible crops produced in the county to generate an estimate of the county's total trade damages. The county's total trade damage estimate was then divided by total planted acres of MFP-eligible crops within the county. The result is a unique county-level MFP payment rate. Under this formulation, MFP county-level rates will vary across counties based on the average crop mix, the average planted acres per crop, and average crop yields. Finally, a producer's 2019 MFP non-specialty-crop payment is equal to the county-level MFP non-specialty-crop payment rate (for the county where production occurs) multiplied by the total acreage of all non-specialty crops planted in that county by that producer. Thus, the 2019 MFP non-specialty-crop payment is independent of an individual farmer's crop mix (from among MFP-eligible non-specialty crops). In 2019, many producers were prevented from planting acreage due to wet, cool conditions. These acres were not eligible for MFP non-specialty crop payments. However, if a USDA-approved cover crop was planted on the "prevent-plant" acres with the potential to be harvested, then those producers qualified for a $15-per-acre payment on "prevent-plant" acres. USDA suggests that this independence from individual crop choices prevents the county-level MFP payment from distorting producer planting decisions that were ongoing at the time of the initial trade aid package announcement on May 23, 2019. However, planting of an MFP-eligible crop was a requirement for MFP eligibility. Thus, the 2019 MFP payments may be non-commodity-specific outlays, but they are coupled to the planting of an MFP-eligible crop. These distinctions, although subtle, are important considerations for how the resultant outlays may be notified under WTO domestic-support program disciplines. Appendix B. FPDP Implementation The Administration is allocating about $1.4 billion of its 2019 trade aid package to USDA's AMS for purchasing various agricultural commodities and distributing them through domestic nutrition assistance programs ( Table B-1 ). Under the 2019 FPDP program, AMS is to buy affected products in four phases, starting after October 1, 2019, with deliveries beginning in January 2020. The products purchased can be adjusted between phases to accommodate changes due to growing conditions, product availability, market conditions, trade negotiation status, and program capacity. AMS maintains purchase specifications for a variety of commodities based on recipient needs. The products discussed in this plan are to be distributed to states for use in the network of food banks and food pantries that participate in the Emergency Feeding Assistance Program, elderly feeding programs such as the Commodity Supplemental Foods Program, and tribes that operate the Food Distribution Program on Indian Reservations. These outlets are in addition to child nutrition programs such as the National School Lunch Program, which may also benefit from these purchases. Appendix C. ATP Program Implementation USDA announced funding allocations under the ATP program for both the 2018 and 2019 trade aid packages in 2019 ( Table C-1 ). A total of 59 organizations have received $300 million in awards under the two ATP programs, including 57 organization receiving $200 million under the 2018 ATP program and 48 organizations sharing $100 million under the 2019 program.


Introduction On October 7, 2019, after six months of formal negotiations, the United States and Japan signed two agreements intended to liberalize bilateral trade. One, the U.S.-Japan Trade Agreement (USJTA), provides for limited tariff reductions and quota expansions to improve market access. The other, the U.S.-Japan Digital Trade Agreement, includes commitments pertaining to digital aspects of international commerce, such as on data flows. These agreements constitute what President Donald Trump and Prime Minister Shinzo Abe envision as "stage one" of a broader trade liberalization negotiation, which the two leaders first announced in September 2018. The two sides have stated their intent to begin second stage negotiations on a more comprehensive deal after these agreements enter into force. Congress will not have a role in approving the two agreements. The Trump Administration intends to use delegated tariff proclamation authorities in Trade Promotion Authority (TPA) to enact the tariff changes and quota modifications, while the digital trade commitments, which would not require changes to U.S. law, are in the form of an Executive Agreement. Japan's Diet (the national legislature), however, had to ratify the pact, and did so on December 5, 2019, paving the way for entry into force on January 1, 2020. The two Japan deals raise a number of issues for Congress, including their limited coverage and staged approach, as compared to past U.S. free trade agreement (FTA) negotiations, the trade authorities used to bring them into effect in the United States, questions over their compliance with World Trade Organization (WTO) rules, and questions over how they compare with the trade agreement the United States previously negotiated with Japan in the former Trans-Pacific Partnership (TPP) and current TPP-11. Given the narrow scope of the agreements, particularly the USJTA tariff commitments, their commercial and strategic impact is likely to be determined by whether a more comprehensive bilateral agreement can be achieved. Many Members of Congress and other stakeholders support the agreements, but view the prospective second stage of trade talks as critical for U.S. interests. At the same time, some observers have raised questions about the potential coverage of issues in future talks and whether there will be sufficient political support in both countries to make progress, especially during an election year in the United States. Background and Motivation for Negotiations In October 2018, in line with TPA requirements under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 ; TPA-2015), the Administration provided Congress 90 days advance notification of its intent to begin negotiations. The Administration released its negotiating objectives, which included a number of issues beyond tariffs and digital trade, in December of the same year. The Trump Administration's interest in a trade agreement with Japan is closely tied to its decision to withdraw the United States from the TPP in 2017, and to pursue bilateral agreements, as opposed to the more regional approach taken under TPP. It also reflects the Administration's strategy of focusing on reaching agreements with major U.S. trade partners, especially those with which the United States runs a trade deficit (the U.S. goods trade deficit with Japan was $67.2 billion in 2018, the fourth-largest bilateral U.S. deficit). Although TPP included 10 countries in addition to the United States and Japan, the U.S.-Japan component of the agreement was the most economically consequential given existing U.S. trade agreements with 6 of the 10 other participants, and the relatively small economies of the remaining four (Brunei, Malaysia, New Zealand, and Vietnam). In these limited, stage one agreements with Japan, the Administration has attempted to address concerns raised by TPP proponents, especially agricultural groups, that the U.S. withdrawal placed U.S. exporters at a disadvantage in the Japanese market, in particular given Japan's recently enacted trade agreements with other trade partners. Following U.S. withdrawal from the TPP, Japan led efforts among the remaining 11 TPP countries to conclude the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11), which took effect in December 2018 for the first six signatories who ratified, including Japan, and for Vietnam in early 2019. The TPP-11 includes the comprehensive tariff liberalization commitments of TPP (near complete elimination among the parties), and the majority of TPP rules and disciplines on numerous trade-related issues, though the parties agreed to suspend a small number of nontariff commitments sought largely by the United States, following the U.S. withdrawal. Japan's FTA with the European Union (EU), which is to eventually remove nearly all tariffs and establish trade rules between the parties, went into effect in February 2019. It provides for elimination of the EU's 10% auto tariff, and elimination or reduction of most Japanese agricultural tariffs. Additional trade agreements involving Japan could take effect in coming years, compounding U.S. exporter concerns, including the possible 2020 conclusion of the Regional Comprehensive Economic Partnership (RCEP), which includes Japan, China, and 13 other Asian countries. Given Japan's commitment to TPP, Prime Minister Abe was initially hesitant to agree to bilateral U.S. trade negotiations, instead urging the Trump Administration to reconsider its withdrawal. Japan's decision to participate in bilateral talks came after President Trump raised the possibility, based on national security concerns, of imposing unilateral motor vehicle tariffs on Japan, an industry of national significance and accounting for one-third of U.S. goods imports from Japan (see " Motor Vehicles and Threat of U.S. Section 232 Tariffs "). The importance of the U.S.-Japan security relationship may also have factored into Japan's decisionmaking. Japan relies heavily on the United States for its military defense. The two countries' agreement on how to share the costs of the roughly 50,000 U.S. troops stationed in Japan is due to be renegotiated in 2020 as the current agreement expires at the end of March 2021. President Trump has called for Japan to significantly increase its contributions, perhaps by as much as fourfold. Japan, some analysts suggest, may see a bilateral trade agreement as way to reduce tension in the bilateral relationship, in light of other pressing security issues. Additionally, the Trump Administration may try to use the cost-sharing negotiations to extract concessions from Japan in proposed stage-two trade negotiations, or vice versa. As the United States' fourth-largest trading partner and the world's third-largest economy, Japan routinely features prominently in U.S. trade policy. In 2018, Japan accounted for 5% of total U.S. exports ($121 billion) and 6% of total U.S. imports ($179 billion). The United States is arguably even more important to Japan, representing its second-largest trading partner after China in 2018, and accounting for nearly 20% of Japan's goods exports. The two countries are also major investment partners, with Japanese foreign direct investment (FDI) in the United States valued at $484 billion in 2018 on a historical cost basis, largely in manufacturing, and U.S. FDI in Japan valued at $125 billion, concentrated in finance and insurance. Major areas of U.S. focus in the trade relationship include market access for U.S. agricultural goods, given Japan's relatively high tariffs in this sector, and the elimination of various nontariff barriers, such as in the motor vehicles and services sectors. Agriculture and Japan's Other Trade Agreements Japan is an important market for U.S. farmers and ranchers, accounting for about 9% of total U.S. agricultural exports to all destinations since 2014. In 2018, Japan was the third-largest export market for the United States, after Canada and Mexico, with $12.9 billion in U.S. agricultural exportsâout of a total of $140 billionâshipped to Japan. Corn, beef, pork, soybeans, and wheat make up more than 60% of total U.S. agricultural exports to Japan ( Figure 1 ). With TPP-11 and the EU-Japan FTA entering into force in late 2018 and early 2019, exports from EU and TPP-11 member countries became more competitive for Japanese importers. U.S. agricultural exports to Japan meanwhile declined 7% ($8.3 billion) from January through August 2019, compared with the same period in 2018 ($9 billion). According to Japanese Customs data, notable product-specific declines during the first nine months of 2019, compared to the same period in 2018, include non-durum wheat (down 13%), pork (down 7%), and beef (down 4%). Over the same period, Japanese imports of these commodities from several EU and TPP-11 countries have increased. With the stage one U.S.-Japan agreement resulting in lower tariff rates on most U.S. agricultural products in the near term, it could improve the outlook for U.S. agricultural exporters. Motor Vehicles and Threat of U.S. Section 232 Tariffs Motor vehicles and parts are the largest U.S. import category from Japan ($56.0 billion in 2018), while Japan imports few U.S.-made autos ($2.4 billion in 2018), despite having no auto tariffs ( Figure 2 ). U.S. industry argues the latter stems from nontariff barriers, including discriminatory regulatory treatment, while Japan argues that U.S. producers' inability to cater to the Japanese market is to blame. Although Japan buys few U.S. cars, Japanese-owned production facilities in the United States (valued at $51 billion in 2018) employ more than 170,000 workers, according to the Bureau of Economic Analysis (BEA). President Trump has repeatedly flagged the U.S. automotive trade deficit and noted that U.S. goals in broader trade talks include market access outcomes that will increase U.S. auto production and employment, but no provisions on motor vehicles were included in the stage one agreement. In May 2019, one year after the start of an investigation by the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. Â§1862), President Trump proclaimed motor vehicle and parts imports, particularly from Japan and the EU, a threat to U.S. national security. This determination asserted that the imports affect "American-owned" producers' global competitiveness and research and development on which U.S. military superiority depends. Under affirmative Section 232 determinations, the President is granted authority to impose import restrictions, including tariffs. Toyota and other Japanese-owned auto firms took particular issue with the President's emphasis on U.S. ownership in his determination, noting their significant U.S. investments in automotive manufacturing and research facilities. The President directed the U.S. Trade Representative (USTR) to negotiate with Japan (and the EU) to address this threat and report back within 180 days. Speaking immediately after the signing of the USJTA, USTR Lighthizer stated that in light of the new trade agreement, the Administration has no intent, "at this point," to pursue additional Section 232 U.S. auto import restrictions. Japan also remains subject to Section 232 tariffs on U.S. steel and aluminum imports, which the Administration implemented in March 2018. U.S. Trade Agreement Authorities Congress sets objectives for U.S. trade negotiations and establishes certain authorities to enact agreements that make progress toward achieving those objectives in Trade Promotion Authority (TPA) legislation under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 ; TPA-2015). TPA allows for expedited consideration of implementing legislation to enact trade agreements covering tariff and nontariff barriers, provided the Administration meets certain notification and consultation requirements. It also provides the President, under Section 103(a) (19 U.S.C. Â§4202(a)), delegated authority to proclaim limited tariff reductions without further congressional action. The limits on Section 103(a) authority primarily relate to the amount and staging of the reduction in duty rates (see " U.S. Tariff and Quota Commitments "). Prior to the Trump Administration, the United States negotiated FTAs that removed virtually all tariffs between the parties and covered a broad range of trade-related rules and disciplines in one comprehensive negotiation. Nontariff issues often require implementing legislation by Congress to take effect, and Congress has typically considered implementing legislation for past U.S. FTAs under TPA's expedited procedures. The Trump Administration, however, plans to put the limited, stage one agreements with Japan into effect without congressional approval. The Administration intends to use delegated authorities pursuant to Section 103(a) of TPA to proclaim the tariff changes included in the USJTA, while the U.S.-Japan Digital Trade Agreement does not appear to require changes to U.S. law and is being treated as an Executive Agreement. Some observers and Members of Congress have questioned whether Section 103(a) authorizes the President to also establish rules of origin and modify import quotas, which are components of the U.S. market access tariff commitments in the USJTA. The language of Section 103(a) proclamation authority originated in the Reciprocal Trade Agreements Act of 1934, when tariff barriers were the primary focus of trade agreement negotiations. Similar language has been included in subsequent iterations of the TPA statue, including the current TPA-2015, which is effective through July 1, 2021. Past U.S. Administrations have invoked Section 103(a) and its past iterations to modify U.S. tariffs and implement agreements addressing tariff barriers. Most recently, in 2015 President Barack Obama invoked this authority to implement an agreement among members of the Asia-Pacific Economic Cooperation (APEC) forum to reduce duties on environmental goods. Agreement Provisions The two agreements included in the "stage one" U.S.-Japan trade deal cover tariff and quota commitments on industrial and agricultural goods and commitments on digital trade. The limited coverage and composition represents a significant departure from recent U.S. trade agreements, which typically are comprehensive and cover additional issues such as customs procedures, government procurement, labor and environment protections, intellectual property rights (IPR), services, and investment. Notably, neither agreement includes a formal dispute settlement mechanism to enforce commitments should either side take fault with the other's implementation. The Trump Administration points to Article 6 of the USJTA, which lays out a 60-day consultation process for resolving issues relating to "the operation or interpretation" of the agreement as a means to resolve disputes relating to tariffs and quota commitments. A future comprehensive deal could include a formal dispute settlement mechanism, but it is unclear how this would affect the initial agreements. U.S.-Japan Trade Agreement (Tariff and Quota Commitments) The USJTA, which covers tariff and quota commitments, is four pages in length and includes eleven articles governing the operation of the agreement. Two separate annexes include the specific tariff reduction schedules for the United States and Japan. The annexes also include staging categories, which lay out the timeline for tariff reductions, and rules of origin, which specify the conditions under which imports are considered to originate from each country and therefore are eligible for the preferential tariff treatment. In total, the agreement is to reduce or eliminate tariffs on approximately $14.4 billion or 5% of bilateral trade ($7.2 billion each of U.S. imports and exports, Figure 3 ). The agreement also includes provisions providing for amendment and termination procedures (Article 8 and Article 10, respectively). While the Trump Administration has stated that the USJTA should "enable American [agricultural] producers to compete more effectively with countries that currently have preferential tariffs in the Japanese market," the U.S.-Japan agreement is narrower in scope than either TPP-11 or the EU-Japan FTA. In particular, because of the legal authority under which the United States negotiated the USJTA, the agricultural provisions address only tariffs and quotas, while TPP-11 and the EU-Japan FTA also address many other policies that may interfere with trade in agricultural products. As a result, U.S. agricultural exporters may continue to be at some disadvantage in the Japanese market against those from the TPP-11 countries or the EU. Lack of legal text on non-market-access provisions, such as agricultural biotechnology, geographical indications, sanitary and phytosanitary measures, and technical barriers to trade (TBT) in the USJTA may limit the United States' ability to challenge potential future trade barriers in Japan (and vice versa) related to these issues, for example, if Japan were to align its requirements for agricultural imports more closely with those of the EU or of TPP-11 countries. U.S. Tariff and Quota Commitments The USJTA tariff schedule commits the United States to reduce or eliminate tariffs on 241 tariff lines that accounted for $7.2 billion of U.S. imports from Japan in 2018 (about 5% of total U.S. goods imports from Japan). Per requirements under TPA's tariff proclamation authorities, which as discussed, the Administration intends to use to implement the agreement, U.S. products slated for tariff elimination must have less than a 5% current U.S. most-favored nation (MFN) tariff rate. The authority allows for the Administration to reduce tariffs by 50% for products with current MFN tariff rates above 5%. According to the USJTA tariff schedule, the United States is to eliminate tariffs on 169 of covered U.S. tariff lines, while the remaining 72 are to be reduced to 50% of their current MFN rate. Unlike the former TPP, which committed the United States to eliminate tariffs on 99% of U.S. tariff lines, the USJTA agreement is to affect a relatively small share of U.S. imports from Japan, both because it covers fewer products and does not include autos and auto parts, the largest single U.S. import category. The U.S. tariff schedule of the USJTA states that auto and auto parts "will be subject to further negotiations with respect to the elimination of customs duties." Under TPP, by contrast, the United States committed to eliminate its 2.5% car tariff over 25 years and its 25% light truck tariff over 30 years. Most of the U.S. products covered in the agreement are industrial goods. Select tariff lines from 30 different U.S. Harmonized Schedule (HS) chapters or categories are included. However, roughly half of the covered products, both in terms of the number of tariff lines and U.S. import value, are from three chapters: machinery (U.S. imports of $3.3 billion in 2018), electrical machinery ($771 million), and tools ($683 million). Other product categories include optical/medical equipment ($534 million), iron and steel articles ($305 million), rubber ($302 million), organic chemicals ($182 million), inorganic chemicals ($182 million), musical instruments ($133 million), copper and articles ($125 million), photographic and cinematographic goods ($118 million), railway ($105 million), and toys ($79 million). The top 10 tariff lines covered by the agreement accounted for $3 billion of U.S. imports in 2018 or 42% of all imports covered ( Table 1 ). U.S. tariffs on these 10 products are to be eliminated either upon entry into force (EIF) of the agreement or at the start of year two. The United States also agreed to reduce or eliminate tariffs on 42 agricultural tariff lines on imports from Japan, which include certain perennial plants and cut flowers, persimmons, green tea, chewing gum, certain confectionary products, and soy sauce. In a side letter, the United States agreed to modify its tariff-rate quota (TRQ) for imports of Japanese beef. TRQs involve a two-tiered tariff scheme in which imports within an established quota face lower tariff rates, and imports beyond the quota face higher tariff rates. The United States has agreed to eliminate the 200 metric tons (MT) country-specific beef quota for Japan and increase its quota for "other countries or areas" to 65,005 MT. This would enable Japan to ship additional amounts of beef to the United States at low tariff rates under the increased "other countries or areas" quota. Japan's Tariff and Quota Commitments Under the USJTA, Japan agreed to eliminate or reduce tariffs for certain U.S. agricultural products and to provide preferential quotas for other U.S. agricultural products. Japan's commitments cover approximately 600 tariff lines, accounting for $7.2 billion of U.S. exports in 2018, according to the USTR. Essentially, Japan is providing the same level of market access to the products included in the USJTA as provided to exports from countries that are members of TPP-11. Some products included in TPP-11 such as rice and certain dairy products, however, are not included in the USJTA. According to the USTR, once this agreement is implemented, over 90% of U.S. food and agricultural products exported to Japan will either enter duty-free or receive preferential tariff access. When TPP-11 went into effect in December 2018, Japan implemented its first set of tariff cuts and TRQ expansions for TPP-11 countries, and followed these with a second round of tariff cuts and TRQ expansions on April 1, 2019, the start of its new fiscal year. In the USJTA, Japan agreed to accelerate and adjust its TRQ expansion and tariff reduction schedule so that Japan's imports of affected U.S. agricultural products are to receive the same level of market access as imports from TPP-11 countries. This means that tariff rates under the USJTA are to fall slightly faster than those under the TPP-11. For example, under TPP-11, tariffs on beef imports into Japan, previously 38.5%, were reduced to 27.5% in Year 1, to 26.6% in Year 2, and are to reach 9% in Year 16. Under the USJTA, tariffs on Japanese imports of U.S. beef would be reduced to 26.6% in Year 1 and would reach 9% in Year 15. Key Products and Provisions Japan is to reduce tariffs on meat products that collectively accounted for $2.9 billion of U.S. exports to Japan in 2018. Tariffs on processed beef products, including beef jerky and meat extracts, are to be eliminated in 5 to 15 years. Japan's right to raise tariffs if imports of U.S. beef exceed a specified level are to be restricted, and would be eliminated if the specified level is not exceeded for four consecutive fiscal years after Year 14. Tariffs on pork muscle cuts are to be eliminated over 9 years, and tariffs on processed pork products are to go to zero in Year 5. Certain fresh and frozen pork products would continue to be subject to Japan's variable levies when import prices are low, but the maximum variable rate is to be reduced by almost 90% by Year 9. As with beef, Japan's right to raise tariffs if imports of U.S. pork exceed a specified level is to be restricted. Japan is to gradually increase the amount of U.S. fresh, chilled, and frozen pork that could be imported annually without triggering additional tariffs, and such tariffs are to be terminated at the end of Year 10. Japan is to eliminate tariffs immediately upon entry into force of the agreement on selected products, including almonds, walnuts, blueberries, cranberries, sweet corn, grain sorghum, and broccoli, that collectively accounted for $1.3 billion of U.S. exports to Japan in 2018. Tariffs on corn used for feed, the largest U.S. agricultural export to Japan ($2.8 billion or 22% of total U.S. agricultural exports to Japan in 2018), are also to be eliminated upon entry into force of the agreement. Japan is to phase out tariffs in stages for products accounting for $3 billion of U.S. exports in 2018, such as cheeses, processed pork, poultry, beef offal, ethanol, wine, frozen potatoes, oranges, fresh cherries, egg products, and tomato paste. Japan agreed to provide country-specific quotas (CSQ) for some products, which provide access to a specified quantity of imports from the United States at a preferential tariff rate, generally zero. The CSQs would provide these products the same access into Japan as would have been accorded if the United States had joined the TPP-11. Products covered by CSQs include wheat, wheat products, malt, processed cheese, glucose, fructose, corn starch, potato starch and inulin. Additionally, Japan agreed to create a single whey CSQ for the United States that would begin at 5,400 MT and grow to 9,000 MT in Year 10. This CSQ combines the provisions of three separate CSQs for whey under the TPP provisions: whey used in infant formula (3,000 MT); whey mineral concentrate (4,000 MT); and whey permeate (2,000 MT). Japan agreed to improve access for U.S. skim milk powder by introducing an annual global (WTO) tender for 750 MT of skim milk powder, which would be accessible to the U.S. as well as other WTO-member exporters. This is viewed to represent a minor concession, given that the United States exported 713,000 MT of skim milk powder in 2018. Japan agreed to reduce the government-mandated mark-up on imported U.S. wheat and barley, which are controlled by state trading enterprises. Japan agreed to limit the use of safeguard measures to control surges in imports of U.S. whey, oranges, and race horses. Quota-Specific Issues According to the USTR, Japan has stated a commitment to "match the [agricultural] tariffs" provided to TPP-11 member countries in USJTA. While Japan's tariff schedule under the USJTA attempts to match the TPP-11 schedule, the TRQ schedule falls short of the TPP-11 schedule, potentially disadvantaging market access for some U.S. agricultural products. Under the TPP provisions, Japan had agreed to provide a rice CSQ for the United States, which was to start at 50,000 MT in Year 1 and reach 70,000 MT in Year 13. The U.S.-Japan Trade Agreement does not make provisions for a CSQ for U.S. rice, but Japan has made provisions for a CSQ for Australian rice under the TPP-11. TPP-11 additionally includes provisions for global TRQs for barley and barley products other than malt; butter; skim and other milk powder; cocoa products; evaporated and condensed milk; edible fats and oils; vegetable preparations; coffee, tea and other preparations; chocolate, candies and confectionary; and sugar. No corresponding TRQs are included in the U.S.-Japan agreement. Japan's simple average MFN tariff on all agricultural imports was 15.7% in 2018, although almost 22% of the Japanese agricultural tariff lines had MFN tariff rates greater than 15%. Many of the agricultural products subject to in-quota tariffs are subject to additional mark-ups through the state trading system, making the products more expensive to Japanese consumers. This may tend to suppress imports. For example, 29% of the amount of whey for infant formula that could have been imported under the TRQ was actually imported into Japan in 2017, and the corresponding fill rates for skim-milk powder ranged between 25% and 34%. Given that many TRQ quotas go unfilled and that over-quota tariff rates are extremely high, there is little trade beyond the set quota levels. U.S.-Japan Digital Trade Agreement Digital trade, a growing part of the U.S. and global economy, is an area in which the United States and Japan have had largely similar goals on addressing the lack of common trade rules and disciplines. Digital trade entails not only digital products and services delivered over the internet, but is also a means to facilitate economic activity and innovation, as companies across sectors increasingly rely on digital technologies to reach new markets, track global supply chains, and analyze big data. The USTR has referred to the U.S.-Japan Digital Trade Agreement, which parallels the proposed U.S.-Mexico-Canada Agreement (USMCA), as the "most comprehensive and high-standard trade agreement" negotiated on digital trade barriers. Provisions of the U.S.-Japan Digital Trade Agreement largely reflect the proposed USMCA, as well as related U.S. negotiating objectives that Congress established under TPA, suggesting the agreement is likely to serve as a template for future U.S. FTAs. The agreement has also been cast by the USTR as demonstrating the "continued leading role" of both nations in global rulemaking on digital trade. In this view, U.S.-Japan approaches on rules and standards could set precedents for other ongoing talks, including at the WTO on a potential e-commerce agreement, where conflicting approaches to digital and data issues by other participating members (such as China) have been raised as joint concerns. Key Provisions and Selected Comparisons Key commitments of the U.S.-Japan Digital Trade Agreement are highlighted below, with some comparisons to the latest U.S. and Japanese commitments in USMCA and TPP-11, respectively. In USMCA and TPP-11, given the crosscutting nature of digital trade and cross-border data flows, related provisions are covered in multiple FTA chapters beyond digital trade or e-commerce, including financial services, IPR, technical barriers to trade, and telecommunications. Like the USJTA, the U.S.-Japan Digital Trade Agreement includes provisions allowing for potential amendments and possible termination (Article 22). Customs duties and nondiscrimination . Commitments prohibit customs duties on products transmitted electronically and discrimination against digital products, including coverage of tax measures. Cross-border data flows and data localization . Commitments prohibit restrictions on cross-border data flows, except as necessary for "legitimate public policy objectives." It also prohibits requirements for "localization of computing facilities" (i.e., data localization) as a condition for conducting business. Financial service providers are covered under the rules on data localization, as long as financial regulators have access to information for regulatory and supervisory purposes. This approach is distinct from Japan's commitments under TPP-11, which excludes financial services, but is similar to U.S. commitments under USMCA. Consumer protection and privacy . Commitments require parties to adopt or maintain online consumer protection laws, as well as a legal framework on privacy to protect personal information of users of digital trade. The content and enforcement of these laws are left to each government's discretion, while encouraging development of mechanisms to promote interoperability between different regimes. Unlike USMCA, there is no explicit reference to take into account guidelines of relevant international bodies' privacy frameworks, such as the Asia-Pacific Economic Cooperation (APEC) forum or the Organization for Economic Co-operation and Development (OECD). However, both the United States and Japan have endorsed and participate in the APEC Cross-Border Privacy Rules (CBPR) system. Source code and technology transfer . Commitments prohibit requiring the transfer or disclosure of software source code or algorithms expressed in source code as a condition for market access, with some exceptions. By comparison, under TPP-11 algorithms are not covered. Liability for interactive computer services . Commitments limit imposing civil liability with respect to third-party content for internet platforms that depend on interaction with users, with some exclusions such as for intellectual property rights infringement. This rule reflects provisions of the U.S. Communications Decency Act, which has raised concerns for some Members of Congress and civil society organizations about inclusion in U.S. FTAs, amid ongoing debate about the provisions' merits and possible revision to the law in the future. Cybersecurity . Commitments promote collaboration on cybersecurity and use of risk-based strategies and consensus-based standards over prescriptive regulation in dealing with cybersecurity risks and events. Open government data . Commitments promote publication of and access to government data in machine-readable and open format for public usage. Cryptography . Commitments prohibit requiring the transfer or access to proprietary information, including a particular technology or production process, by manufacturers or suppliers of information and communication technology (ICT) goods that use cryptography, as a condition for market access, with some exceptions, such as for networks and devices owned, controlled, or used by government. Views and Next Steps U.S. Views In general, the stage one agreements have been well received by several Members of Congress and U.S. stakeholders for the expected benefits to agriculture and cross-border digital trade. At the same time, many observers also contend the deals should not be a substitute for a comprehensive agreement and view the second stage of talks as critical to U.S. interests. The U.S. Trade Advisory Committee Report to the USTR and Congress reflects a range of views from among the various committees represented. The private sector Advisory Committee for Trade Policy and Negotiations (ACTPN) expressed support for the initial deals and the "significant boost to the U.S. economy that will result from implementation," while urging immediate negotiation of a comprehensive agreement and recommending several priorities for the talks. The Intergovernmental Policy Advisory Committee (IGPAC), which is composed of representatives from state and local governments, however, argued that the agreement did not meet most negotiating objectives under TPA, due to its "narrow nature." In the view of the Labor Advisory Committee, the deal is a "lopsided agreement designed to address short-term political objectives." Various industry committees issued reports outlining priorities for future talks. Some cited what they viewed as the USTR's lack of consultation and the lack of dispute settlement provisions in the agreements as concerns. Overall, many observers agree that the USJTA is important for U.S. agriculture to regain competitiveness in the Japanese market. At the same time, some raise concerns about product exclusions and the lack of provisions on nontariff barriers that were generally covered in past U.S. FTAs. One trade policy expert cautioned against the tariff-only approach as a model for future U.S. agreements. Given this concern, U.S. businesses have strongly advocated for continued progress toward a more comprehensive agreement. Other stakeholders question whether there will be sufficient political support in both countries to make progress in future talks, especially during an election year in the United States. In particular, since the agriculture sectorâamong countries' most sensitive markets and thus typically relegated to final stage negotiationsâhas already secured access, some view the United States as having limited leverage to secure further concessions. Other trade experts view the agreement as failing to maximize the potential of the U.S.-Japan economic relationship, both in terms of the market access gains, which essentially had already been agreed to in TPP, but also in terms of advancing U.S.-Japan leadership on rulemaking. More broadly, some view successful next-stage talks as also being critical to "engineer an American return to the regional economic architecture." Under this outlook, reaching a second-stage comprehensive agreement with Japan could help ease the perception among many East Asian policymakers and scholars that the Trump Administration's Indo-Pacific strategy has an insufficient economic component. Japanese Views While Prime Minister Abe framed the agreement as a "win-win outcome" that benefits both countries, some Japanese observers have criticized the agreement as a one-sided deal benefiting the political and economic interests of the United States. In particular, critics cite the lack of U.S. market access commitments in the auto sector in exchange for Japanese agricultural concessions, as well as the lack of concrete commitment by the United States not to impose Section 232 auto tariffs, despite verbal assurances from the Trump Administration. Instead, in a joint statement, both sides indirectly alluded to the issue, committing to "refrain from taking measures against the spirit of these agreements â¦ and make efforts for an early solution to other tariff-related issues." An estimate by the Japanese government of the economic benefits of a bilateral trade deal assumes the removal of U.S. auto tariffsâan approach criticized by some members of the Japanese Diet, who remain skeptical of achieving this future concession. More broadly, some analysts point to Japan conceding to bilateral talks as dimming any prospect for a possible U.S. return to TPP, a long-held Japanese goal. In others' view, the deal was favorable to Japan in achieving the primary goals of avoiding potential auto tariffs and sealing an expeditious conclusion of an agreement limited to goodsâPrime Minister Abe's initial characterization of the deal. Further, while Japan made concessions in agriculture, they remain limited to commitments in past Japanese trade agreements (TPP-minus in some cases). Japanese industry broadly welcomes the agreement, in particular the sectors that gain from reduced U.S. tariffs, but like U.S. industry, urge further progress. Next Steps Japan ratified the agreements on December 5, 2019, while the Trump Administration previously signed an executive agreement on the digital trade commitments, and is expected to issue a proclamation implementing the agreed tariff changes in December, paving the way for entry into force in January 2020. In its notification to Congress of the U.S. intent to enter into the agreements, the Administration stated that it "looks forward to continued collaboration with Congress on further negotiations with Japan to achieve a more comprehensive trade agreement." The Administration did not specify a timeline, however. The United States and Japan stated their intent to "conclude consultations within four months after the date of entry into force of the United States-Japan Trade Agreement and enter into negotiations thereafter in the areas of customs duties and other restrictions on trade, barriers to trade in services and investment, and other issues in order to promote mutually beneficial, fair, and reciprocal trade." While USTR trade negotiating objectives released at the outset of the talks in December 2018 suggested a broad range of issues beyond tariffs and digital trade are to be covered, it remains unclear what specific issues would be the subject of the next-stage talks. Issues for Congress The stage one agreements with Japan on agriculture, industrial goods, and digital trade, as well as the approach the Trump Administration has taken to negotiate them represent a significant shift in U.S. trade agreement policy. Given its constitutional authority to regulate foreign commerce, Congress may reflect on whether this shift aligns with congressional objectives. Congress may also consider the impact of the agreements on the U.S. economy, including the implications of completing (or not completing) a broader second-stage deal with Japan, and how a staged approach affects the countries' ability to achieve additional agreements. Congressional Role in Limited Scope and Staged Agreements The Administration's plan to implement the stage one U.S.-Japan agreements without the approval of Congress, an unprecedented move for U.S. FTA negotiations, has prompted debate among some Members over the appropriate congressional role. In a November 26, 2019, letter to the USTR some Members sought clarification from the Administration regarding its intent to implement the agreements and how Section 103(a) trade authorities under TPA allow the Administration to enter into a tariff agreement with Japan. Some analysts and Members cite uncertainties as to whether the delegated authorities also permit implementation of changes in rules of origin and quota modifications under the agreements. Some Members further suggest that future debate over potential reauthorization of TPA should consider congressional intent behind these delegated tariff authorities. At the same time, other Members have indicated that they would not object to the Administration's plan to implement the agreements with Japan without congressional approval. On procedure, questions have been raised by some as to whether the Administration has fulfilled the consultation requirements of TPA throughout the negotiationsâSection 103(a) includes fewer requirements with respect to tariff-only agreements. The digital trade commitments do not appear to require changes to U.S. law, but the inclusion of certain provisions has prompted some congressional debate. In the case of past U.S. FTAs, such debate would typically play out during congressional debate and formal consideration of legislation to implement the respective agreement under TPA. Key questions for Congress may include What role should Congress play in limited trade agreements, given the authorities and requirements established in TPA? Should Congress consider changes to delegated authorities in future consideration of potential TPA reauthorization? Staged Negotiation or Comprehensive Deal Congress set negotiating objectives for U.S. trade agreements in statute in its 2015 grant of TPA (19 U.S.C. Â§3802). Based on these guidelines and as required by TPA, the Trump Administration laid out 22 specific areas of focus for its bilateral negotiations with Japan. The stage one U.S.-Japan trade agreements, however, include provisions related to two of these areas: a limited reduction of tariffs on trade in goods and digital trade. The Administration has stated its intent to address the remaining issues in future negotiations, but its ability to conclude and implement such negotiations depend on the political landscape and will in both countries, making a second-phase deal an uncertain prospect. While the U.S. trade advisory committees generally support the initial-stage agreements, some, such as the services sector advisory committee, also argue that the two-stage or perhaps a multi-stage approach could make it more challenging for the United States to achieve the strongest possible overall outcomes in certain sectors. The staged approach also raises questions over the potential economic impact of the agreement. Due to the Administration's intended use of Section 103(a) proclamation authorities to enact the agreed tariff changes with Japan, an economic assessment by the U.S. International Trade Commission (USITC) will not be required for this stage one deal. The agreement may have a modest overall effect on the U.S. economy, given that it covers a small share of bilateral trade, but it could be significant for the U.S. agricultural exporters that will enjoy improved access to Japan's highly protected market. Key questions for Congress may include How do these stage one agreements with Japan affect the ability of the United States to negotiate a more comprehensive agreement in the future? Do staged trade negotiations adhere to Congress's negotiating objectives in TPA, and should Congress support this staged approach in future U.S. trade negotiations? Section 232 Auto Tariff Threat Congress delegated authority to the President to enact tariffs under Section 232 specifically to address possible threats to U.S. national security. President Trump, however, has stated that his use of tariff authorities have been a critical tool in getting U.S. trade partners to the negotiating table, and Japan's Foreign Minister, Toshimitsu Motegi, who negotiated the phase-one deal for Japan, highlighted the importance of avoiding Section 232 auto tariffs as a key outcome of the U.S.-Japan negotiations. The Administration has yet to publish the Commerce Department's report outlining the national security threat posed by auto imports, despite direct requests from Congress and legal requirement to do so. Some trade analysts caution that U.S. use or threat of trade barriers as negotiating leverage undermines existing global trade rules and could set a precedent used by other countries against the United States in the future. Many Members of Congress have questioned the security rationale behind the President's proposed and implemented tariff actions, and some support legislation revising Section 232 authorities. Key questions for Congress may include Does the use of Section 232 tariff authorities as leverage in broader trade and tariff negotiations represent an appropriate use of the delegated authorities? What are the potential long-term implications to U.S. and global trade policy of using the threat of tariff increases as leverage in trade liberalization negotiations? WTO Compliance The limited scope of the USJTA commitments (in particular, the exclusion of auto trade), has led several analysts and some Members of Congress to question the extent to which the agreement adheres to Article XXIV of the General Agreement on Tariffs and Trade (GATT) under the WTO. This provision requires regional trade agreements outside the WTO to eliminate duties and other restrictive regulations of commerce on "substantially all trade" between the parties. As discussed, U.S. market access commitments in the initial deal cover a limited share of U.S. goods imports from Japan. Congress has historically taken issue with other countries' partial scope agreements, advocating for better adherence to Article XXIV, including within TPA and other trade statutes. Some analysts suggest this concern could be mitigated if the stage one U.S.-Japan agreement were to qualify as an "interim agreement" under Article XXIV; but these agreements must include a "plan and schedule" for the formation of the free trade area within a "reasonable length of time." In practice, however, WTO members have rarely challenged other trading partners' agreements for consistency with these requirements under formal dispute settlement proceedings. Whether or not the agreement ultimately is inconsistent with the letter or spirit of WTO rules likely depends on the timeline and scope of the next-stage U.S.-Japan talks, which both sides have indicated aim to be comprehensive in scope. Key questions for Congress may include Are the stage one agreements consistent with U.S. obligations under the WTO? Does the limited scope of the agreements set precedents for other countries to negotiate other partial trade agreements that liberalize trade on a limited set of products or sectors that could potentially discriminate against the United States, as well as potentially undermine respect and adherence to the letter and spirit of WTO rules? Comparison to TPP (and TPP-11) and Strategic Considerations The Trump Administration's bilateral trade agreement negotiations with Japan represent an alternative to the U.S.-Japan trade agreement negotiated as part of TPP. Given the Trump Administration's decision to conclude a limited, stage one agreement, the most significant distinction with TPP (and TPP-11) at this point is that TPP covered a much broader range of commitments. For example, USJTA commits the countries to reduce or eliminate tariffs on small share of each country's overall tariff lines, whereas TPP committed both countries to eliminate tariffs on all but a limited number of agricultural products. In addition, this phase-one agreement with Japan includes one nontariff issue, digital trade, whereas TPP covered issues such as rules on technical barriers to trade, sanitary and phytosanitary measures, state-owned enterprises, labor and environmental standards, investment and intellectual property rights protections, and market access for services, among others. As discussed, whether the Administration will include such commitments in future negotiations with Japanâand in what formâremains to be seen. The Trump Administration's bilateral approach to negotiations with Japan also differs from the Obama Administration's and the George W. Bush Administration's multiparty approach to TPP, which may be tied to differing strategic priorities by the Administrations. For example, the Obama Administration saw the TPP as the economic component of its rebalance to Asia and a vehicle to establish rules that reflect U.S. interests and values as the regional framework for commerce, rather than allowing other countries, such as China, to set regional norms. The broad membership of TPP, arguably, was an important component of this strategy, creating an opportunity to harmonize rules across multiple trading partners, and creating a greater likelihood of attracting additional future participants. The Trump Administration, alternatively, has prioritized achieving fair and reciprocal trade, both in its objectives for the U.S.-Japan trade agreement and its broader Indo-Pacific strategy. The Administration argues that a bilateral approach to negotiations allows the United States to take full advantage of its economic heft to secure the most advantageous terms and allows for better enforceability. Key questions for Congress may include How has the U.S. withdrawal from TPP affected U.S. economic and strategic interests in Japan and the Asia-Pacific region and what is the best approach to advancing those interests moving forward in the next stage of talks with Japan? What are the costs and benefits of bilateral versus regional or multiparty approaches to U.S. trade agreement negotiations? Should the United States consider joining TPP-11?