Food-Related Services: Opportunities Exist to Recover Costs By Charging
Beneficiaries (Letter Report, 03/20/97, GAO/RCED-97-57).

GAO reviewed the opportunities to increase the share of funding by
beneficiaries for food-related services provided by the federal
government, focusing on: (1) the types of food-related services provided
by the federal government; (2) the extent to which beneficiaries
currently pay for such services through user fees; and (3) potential
opportunities for recovering more of the service costs through user
fees, as well as arguments for and against doing so.

GAO noted that: (1) federal agencies provide individuals, firms, and
industries such food-related services as: (a) premarket reviews,
including approving new animal drugs and food additives for use and
grading grain and other commodities for quality; (b) compliance
inspections of meat and poultry and domestic foods and processing
facilities to ensure adherence to safety regulations; (c) import
inspections and export certifications to ensure that food products in
international trade meet specified standards; and (d) standard setting
and other support services essential to these functions; (2) about
one-quarter of the $1.6 million spent by the federal government in
fiscal year (FY) 1995 on food-related services was funded through user
fees; (3) the premarket service of quality grading of grains and
agricultural commodities was the primary food-related service funded
through user fees; (4) nearly three-quarters of the cost of food-related
services was funded by general fund appropriations rather than user
fees; (5) compliance activities, such as the inspection of meat and
poultry, were the primary food-related activities funded through general
fund appropriations; (6) on the basis of its review of selected
food-related services, GAO determined that potentially about $723
million in additional user fees could have been charged for services
provided in FY 1995; (7) according to the Office of Management and
Budget's criteria, additional user fees could have been assessed in
three principal areas; (8) additional user fees could have been charged
for some federal services by including the full costs of providing the
service, such as the cost of setting standards, in the fee calculations;
(9) user fees currently charged for certain food-related services, such
as agricultural inspections at the nation's borders and ports of entry,
could have been consistently applied to similar types of services that
are provided without charge; (10) user fees could have been assessed on
certain services, such as the inspection of meat and poultry, that are
provided to identifiable beneficiaries without charge; and (11) although
the arguments for and against user fees vary with the agency and service
in question, the arguments center on who benefits from the service, the
general public or specific beneficiaries, and the impact the user fee
would have on producers or consumers.

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

 REPORTNUM:  RCED-97-57
     TITLE:  Food-Related Services: Opportunities Exist to Recover Costs 
             By Charging Beneficiaries
      DATE:  03/20/97
   SUBJECT:  Food additives
             User fees
             Product safety
             Customs administration
             Agricultural products
             Grain inspection
             Meat inspection
             Poultry inspection
             Commodity marketing
             Safety regulation

             
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Cover
================================================================ COVER


Report to Congressional Committees

March 1997

FOOD-RELATED SERVICES -
OPPORTUNITIES EXIST TO RECOVER
COSTS BY CHARGING BENEFICIARIES

GAO/RCED-97-57

Food-Related Services

(150917)


Abbreviations
=============================================================== ABBREV

  AMS - Agricultural Marketing Service
  FDA - Food and Drug Administration
  FSIS - Food Safety Inspection Service
  GAO - General Accounting Office
  GIPSA - Grain Inspection, Packers and Stockyards Administration
  IOAA - Independent Offices Appropriation Act
  NMFS - National Marine Fisheries Service
  OMB - Office of Management and Budget
  USDA - United States Department of Agriculture

Letter
=============================================================== LETTER


B-275998

March 20, 1997

Congressional Committees

The federal government spent nearly $1.6 billion in fiscal year 1995
to provide food-related services, such as inspecting, testing,
grading, and approving agricultural commodities and products.  In
some cases, the individuals and companies benefiting from these
services paid user fees for all or part of the cost of providing the
service.  In other cases, no user fees were charged.  Consequently,
in fiscal year 1995 the government incurred about $1.2 billion in
food-related service costs that were funded through general fund
appropriations. 

Reducing the federal budget deficit has become a national priority. 
In this context, we identified and evaluated opportunities to
increase the share of funding by beneficiaries for food-related
services provided by the federal government.  Specifically, we
identified (1) the types of food-related services provided by federal
agencies; (2) the extent to which beneficiaries currently pay for
such services through user fees; and (3) potential opportunities for
recovering more of the service costs through user fees, as well as
arguments for and against doing so. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Federal agencies provide individuals, firms, and industries such
food-related services as (1) premarket reviews, including approving
new animal drugs and food additives for use and grading grain and
other commodities for quality, (2) compliance inspections of meat and
poultry and domestic foods and processing facilities to ensure
adherence to safety regulations, (3) import inspections and export
certifications to ensure that food products in international trade
meet specified standards, and (4) standard setting and other support
services essential to these functions. 

About one-quarter of the $1.6 billion spent by the federal government
in fiscal year 1995 on food-related services was funded through user
fees.  The premarket service of quality grading of grains and
agricultural commodities was the primary food-related service funded
through user fees.  Nearly three-quarters of the cost of food-related
services was funded by general fund appropriations rather than user
fees.  Compliance activities, such as the inspection of meat and
poultry, were the primary food-related activities funded through
general fund appropriations. 

On the basis of our review of selected food-related services, we
determined that potentially about $723 million in additional user
fees could have been charged for services provided in fiscal year
1995.  According to the Office of Management and Budget's (OMB)
criteria, additional user fees could have been assessed in three
principal areas.  First, additional user fees could have been charged
for some federal services by including the full costs of providing
the service, such as the cost of setting standards, in the fee
calculations.  Second, user fees currently charged for certain
food-related services, such as agricultural inspections at the
nation's borders and ports of entry, could have been consistently
applied to similar types of services that are provided without
charge.  Finally, user fees could have been assessed on certain
services, such as the inspection of meat and poultry, that are
provided to identifiable beneficiaries without charge.  Although the
arguments for and against user fees vary with the agency and service
in question, the arguments center on who benefits from the
service--the general public or specific beneficiaries--and the impact
the user fee would have on producers or consumers. 


   BACKGROUND
------------------------------------------------------------ Letter :2

User fees--charges individuals or firms pay for services they receive
from the federal government--are not new but have begun to play an
increasingly important role in financing federal programs,
particularly since the Balanced Budget Act of 1985.\1 Increases and
extensions of user fees could be used to help meet the nation's
budget deficit reduction goals or increase the level of government
services. 

User fees may be established in various ways.  General user fee
authority was established under title V of the Independent Offices
Appropriation Act (IOAA) of 1952.  The IOAA gave agencies broad
authority to levy user charges on identifiable beneficiaries by
administrative regulation.  Before its enactment, an agency generally
imposed fees only if it had specific congressional authorization to
do so.\2 User fee authority may also be granted through specific
authorizing legislation.  For example, the Congress mandated user
fees in the authorizing legislation of a new program to certify
agricultural products as organically grown.  These fees will be used
to fund administrative and review activities necessary to the
certification process.  Agencies may also request approval to charge
user fees by including proposals to do so in their annual budget
submissions to the Congress. 

The IOAA provides general guidance to agencies but is not specific
enough to conclusively determine the appropriateness or amount of a
user fee in a given situation.  The federal Circuit Court of Appeals
for the District of Columbia has interpreted the IOAA to mean that if
a government service provides an "independent" public benefit, no
user fee should be charged for that portion of the benefit.\3
Furthermore, according to the 1993 version of Circular A-25, the
latest guidance by OMB, if private individuals or firms receive the
primary benefits of the government service and public benefits are
"incidental," then user fees could be charged for the full costs of
providing the service. 

Because the IOAA and OMB's guidance do not define "independent" or
"incidental" public benefits, interpretations of these criteria have
changed over time.  For example, from the inception of the IOAA, the
Food and Drug Administration (FDA) maintained that the public was the
primary beneficiary of its services and that an independent public
interest was involved, which precluded a user fee.  However, FDA has
recently argued that various identifiable private recipients are the
primary beneficiaries of some of its services, for example reviewing
applications for new human drugs, and that the existence of
incidental public benefits does not preclude charging a user fee.\4

To assist the agencies in determining when user fees are appropriate,
in 1959 the Bureau of the Budget (now OMB) issued Circular A-25,
which contained guidance for assessing user fees.  The circular, last
revised by OMB in 1993, states that "a user charge will be assessed
against each identifiable recipient for special benefits derived from
federal activities beyond those received by the general public."
According to OMB, a special benefit will be considered to accrue, and
a user charge will be imposed when the government service

  -- enables the beneficiary to obtain more immediate or substantial
     gains or values (which may or may not be measurable in monetary
     terms) than those that accrue to the general public (e.g.,
     receiving a patent, an insurance or guarantee provision, or a
     license to carry on a specific activity or business);

  -- provides business stability or contributes to public confidence
     in the business activity of the beneficiary; or

  -- responds to the request of or is provided for the convenience of
     the service recipient and is beyond the service regularly
     received by other members of the same industry or by the general
     public (e.g., receiving a passport, visa, or Custom's inspection
     after regular duty hours). 

In determining the user fee amount, the circular states that "full
costs" should be charged.  Full costs include (1) direct and indirect
personnel costs, including salaries and expenses for fringe benefits
such as medical insurance and retirement; (2) physical overhead,
consulting, and other indirect costs, including costs for utilities,
insurance, travel, and rents; (3) management and supervisory costs;
and (4) the costs of enforcement, research, regulation, and the
establishment of standards. 

In some cases, the government supplies a service that provides a
special benefit to an identifiable recipient and also provides a
benefit to the general public.  According to Circular A-25, when the
public obtains benefits as a necessary consequence of an agency's
provision of special benefits to an identifiable recipient (i.e., the
public benefits are not independent of, but merely incidental to, the
special benefits), an agency need not allocate any costs to the
public and should seek to recover from the identifiable recipient the
full costs of providing the service. 


--------------------
\1 Absent authority to do otherwise, user fees are deposited in the
U.S.  Treasury's general fund and are not credited to the agency or
activities that generated the revenue.  However, in many cases,
particularly ones in which fees are charged for business-type
activities, the Congress permanently authorizes that these fees be
used by the agency or for a specific purpose. 

\2 The Congress has prohibited the Food and Drug Administration from
imposing user fees based on the general authority of the IOAA,
requiring the agency to seek authority to charge fees on a
case-by-case basis. 

\3 Central and Southern Motor Freight Tariff Association, Inc.  v. 
United States, 777 F.2d 722 (D.C.  Cir.  1985) and Engine
Manufacturers Association v.  Environmental Protection Agency, 20
F.3d 1177 (D.C.  Cir.  1994). 

\4 Disputes regarding the existence of independent versus incidental
benefits have generally been resolved by the courts. 


   FOOD-RELATED SERVICES PROVIDED
   BY FEDERAL AGENCIES
------------------------------------------------------------ Letter :3

The federal government provides food-related services in four general
categories--premarket reviews, regulatory compliance, import or
export activities, and essential support.  These services are
provided to individuals, firms, and industries by six federal
agencies in three departments.  Both producers and consumers of
agricultural products and commodities, such as beef, seafood, grain,
vegetables, food additives, and animal drugs, benefit from these
services. 


      CATEGORIES OF SERVICES
---------------------------------------------------------- Letter :3.1

The food-related services provided by the federal government can be
grouped into four general categories. 

  -- Premarket reviews encompass a number of activities that take
     place before a product or commodity can be sold to a wholesaler
     or consumer and include (1) product approvals that allow
     companies to market specific products, for example, animal
     drugs, after they have been determined to be safe and effective;
     (2) quality grading to determine that certain commodities such
     as grain, beef, and some fruits meet established standards for
     quality and condition; and (3) permit issuance for activities
     such as the use of experimental biotechnological techniques.

  -- Compliance inspections are aimed at ensuring that regulated
     firms adhere to all applicable laws and regulations regarding
     product safety.  For example, federal agencies need to
     periodically inspect manufacturing facilities and procedures to
     ensure the safety of food-related products.

  -- Import inspections and export certifications are made so that
     the government can attest to the quality and safety of products
     in international trade.  For example, some countries to which
     the United States exports seafood require that the product be
     accompanied with a health certificate.  Food-related products
     that are imported into the United States are inspected to ensure
     that they are safe and free of agricultural diseases and pests.

  -- Essential support activities, such as standard setting and
     laboratory analysis, support the government's main inspection,
     grading, and compliance programs.  Without these support
     activities, the programs could not fully operate.  For example,
     to grade the quality of a food-related product requires a set of
     standards specifying the desired characteristics of the product. 
     To analyze meat and poultry for the presence of pathogens and
     other contaminants requires laboratory services. 


      AGENCIES PROVIDING
      FOOD-RELATED SERVICES
---------------------------------------------------------- Letter :3.2

Six federal agencies in three different departments provide
food-related services.  These agencies are FDA in the Department of
Health and Human Services; the National Marine Fisheries Service
(NMFS) in the Department of Commerce; and the Food Safety and
Inspection Service (FSIS), Agricultural Marketing Service (AMS),
Grain Inspection, Packers and Stockyards Administration (GIPSA), and
Animal and Plant Health Inspection Service (APHIS) in the Department
of Agriculture (USDA). 

  -- FDA provides food-related services in two primary
     areas--premarket reviews and compliance inspections.  The agency
     requires that new animal drugs are safe and effective for their
     intended use and that drug residues in animal tissue will not be
     harmful for human consumption.  Food additives and colorings are
     reviewed primarily for safety.  Before marketing a new animal
     drug, food additive,\5 or color additive,\6 sponsors are
     responsible for demonstrating the safety and, in the case of
     animal drugs, the effectiveness of their products by conducting
     studies and submitting data to FDA as part of a review process. 
     FDA is responsible for reviewing these data and approving or
     denying the application.  FDA also inspects domestic and
     imported food products (excluding meat, poultry, and some egg
     products) to ensure safety, wholesomeness, and accurate
     labeling. 

FDA performs a wide variety of compliance inspection activities. 
Among these activities, FDA periodically inspects the manufacturers
and importers of food products such as cheese, canned food, and
seafood to ensure that they are not contaminated with pesticides,
filth, or pathogens, such as salmonella.  Scientists analyze samples
in FDA field laboratories, and compliance officers and others conduct
enforcement actions when necessary. 

  -- NMFS administers a voluntary seafood inspection and
     certification program.  The purpose of the seafood inspection
     program is to facilitate consistent distribution of safe,
     wholesome, and properly labeled fishery products of designated
     quality.  The inspection provides assurances of safety,
     wholesomeness, proper labeling, and quality of seafood to
     consumers and the seafood industry.  NMFS conducts seafood
     inspection and grading activities for a wide variety of clients,
     including harvesters, processors, and retailers.  Products
     inspected and certified by NMFS can bear one of several official
     marks, such as "U.S.  Grade A."

  -- FSIS ensures that meat, poultry, and some egg products moving in
     interstate and foreign commerce are safe, wholesome, and
     correctly marked, labeled, and packaged.  Meat and poultry
     slaughterhouses receive continuous carcass-by-carcass
     inspections, while processing plants are inspected daily.  Egg
     products processing plants are also subject to continuous
     federal inspection.  Inspectors collect and send product samples
     to FSIS laboratories that test the samples for the presence of
     chemical residues or pathogens.  The agency also inspects
     imported and exported meat, poultry, and egg products to ensure
     that they meet U.S.  standards.

  -- AMS is responsible for inspecting and grading agricultural
     commodities and products, such as fruits, vegetables, meat, and
     poultry, as an aid in marketing these commodities.  AMS also
     administers marketing agreements and orders that are designed to
     stabilize market conditions for milk and certain fruits and
     vegetables and improve producers' revenues.  In addition, the
     agency promotes fair trading practices in the sale of fresh and
     frozen fruits and vegetables.

  -- GIPSA facilitates the marketing of grain, lentils, and related
     commodities by ensuring uniform inspection and weighing,
     establishing descriptive standards, and certifying quality. 
     GIPSA also helps ensure fair business practices in the
     livestock, meat, and poultry industries by guarding against
     fraudulent practices and providing payment protection.\7

  -- APHIS has responsibility for inspecting plants and animals
     within the country and those that are being imported to or
     exported from the United States to ensure that they do not
     spread agricultural pests and animal diseases.  APHIS also
     regulates the development and use of genetically modified
     organisms and veterinary biological products by issuing permits
     and licenses for these activities.  In addition, the agency is
     responsible for controlling the damage caused by wildlife to
     agricultural interests, natural resources, and human health,
     safety, and property. 


--------------------
\5 Food additives are substances that are added intentionally or
incidentally to food or that otherwise affect the characteristics of
food, such as its flavor, texture, or shelf life.  The additives may
also be used in food packaging or processing equipment in such a
manner that they inevitably become components of food. 

\6 Color additives are substances that are added to foods, drugs, or
cosmetics to impart color. 

\7 GIPSA's payment protection provides for the livestock seller's
financial security by providing protection against a buyer's default
on payment of a contract. 


   ONE-QUARTER OF FOOD-RELATED
   SERVICES ARE FUNDED THROUGH
   USER FEES
------------------------------------------------------------ Letter :4

Of the about $1.6 billion available to the six agencies in fiscal
year 1995 for food-related services, about $411 million was provided
by user fees.  The other nearly $1.2 billion was provided through
general fund appropriations.  The percentage of user fee funding
varied by agency and the type of service provided.  Certain types of
activities, for example grading, were generally funded through user
fees, whereas the costs of other activities, such as compliance
inspections, generally were funded through general fund
appropriations. 

The percentage of an agency's food-related services funded through
user charges, as shown in table 1, ranged from a high of 96 percent
for NMFS to a low of 1 percent for FDA.  Some agencies, such as NMFS,
AMS, and GIPSA, received the majority of their funding from user fees
while others, such as FDA and FSIS, did not.  For example, in 1995
$116 million, or 67 percent, of AMS' funding came from user fees,
mostly for grading services, while FSIS received about $84 million,
or 14 percent, of its funds through user fees, mostly charges for
overtime incurred on inspections of meat, poultry, and egg products. 



                                Table 1
                
                Six Federal Agencies' Funding for Food-
                  Related Services in Fiscal Year 1995

                         (Dollars in millions)

                                General fund     Total      Percentage
                          User  appropriatio   program     funded from
Agency                    fees            ns   funding       user fees
--------------------  --------  ------------  --------  --------------
NMFS                     $13.6          $0.6   $14.2\a              96
AMS                      116.0          57.3   173.3\b              67
GIPSA                     33.5          22.7      56.2              60
APHIS                    160.6         313.2     473.8              34
FSIS                      83.9         531.0     614.9              14
FDA                        3.3         258.0     261.3               1
======================================================================
Total                   $410.9      $1,182.8  $1,593.7              26
----------------------------------------------------------------------
\a NMFS also received $1.58 million in general fund appropriations
for the National Seafood Inspection Laboratory; however, because the
laboratory does not primarily provide services to the seafood
inspection program, its funding is not included in the total. 

\b Includes funds for some services that are primarily food-related
but also support other agricultural products such as cotton and
tobacco. 

Sources:  Data from NMFS, AMS, GIPSA, APHIS, FSIS, and FDA. 

Certain types of food-related service costs are generally funded
through user fees, other types of service costs are sometimes funded
by fees, and still other services are generally provided without
charge to the service recipient.  The costs of the federal premarket
service of grading are the ones that are most likely to be funded
through user fees.  Drawing on the authority provided in the laws
establishing the programs, AMS and GIPSA charge fees for the direct
grading services they provide.  For new product reviews, another
premarket activity, fees are charged for the review of some products
but not for others.  For example, FDA charges some user fees for new
human drug and color additive reviews but does not charge for new
animal drug or food additive reviews.  In addition, APHIS charges for
the inspection of imported animal products, but FDA and FSIS do not
charge for their import inspections. 

Mandatory compliance activities, conducted during regular duty hours,
were the primary food-related activities not funded by user fees at
the six agencies we reviewed.  These activities include (1)
inspecting the safety of meat and poultry, (2) monitoring the
conditions under which food is manufactured, and (3) investigating
violations of grain laws.  (See app.  I for the food-related services
provided by each agency we reviewed and their funding sources during
fiscal year 1995.)


   OPPORTUNITIES EXIST TO INCREASE
   THE SHARE OF FUNDING BY PROGRAM
   BENEFICIARIES
------------------------------------------------------------ Letter :5

Potentially about $723 million in additional user fees could have
been charged to program beneficiaries in fiscal year 1995, according
to our review of selected food-related services.\8 Applying OMB's
criteria in Circular A-25, we determined that these user fees could
have been assessed in three areas.  For agencies that collect partial
user fees for certain services, additional fees of about $22.5
million could have been charged to cover the full costs of providing
the service.  About $49 million could have been charged by assessing
user fees consistently for similar services, and $651.5 million could
have been charged for certain other services that are currently
provided without charge. 


--------------------
\8 Of the about $1.2 billion in food-related services that were not
funded through user fees in fiscal year 1995, we identified about
$723 million in additional user fees that could have been charged. 
However, we did not review all of the food-related services at the
six agencies where user fees may be appropriate. 


      FULL COSTS OF PROVIDING
      SERVICES ARE NOT ALWAYS
      RECOVERED
---------------------------------------------------------- Letter :5.1

For certain food-related services, the federal government charges
user fees that are less than the full costs of providing the service. 
For example, some user fees are based on calculations that exclude
the cost of activities essential to the service, such as the cost
associated with developing program standards.  For the food-related
services that we reviewed, basing user fees on the full costs of
providing the service would have allowed the federal government to
charge about $22.5 million more in fiscal year 1995. 

Circular A-25 states that agencies charging user fees should recover
the government's full costs of providing the service, including both
direct and indirect costs.  According to the circular, indirect costs
include among other things, essential support expenses for such
things as establishing program standards.  Establishing standards is
essential to assessing the quality of an agricultural product or
commodity.  For example, in grading grain, GIPSA develops and
maintains quality standards for water content, hardness, protein
content, and other factors that determine the value of the grain on
the market. 

In a 1981 report,\9 we stated that public funding for
standard-setting activities for grading services is appropriate as
long as the standards primarily benefit commodity marketing
industries as a whole and not just those requesting grading services. 
This view was based on OMB's original 1959 version of Circular A-25,
which stated that "no charge should be made for services when the
identification of the ultimate beneficiary is obscure and the service
can be primarily considered as benefitting broadly the general
public." However, the guidance in the 1993 revision of the circular
allows agencies to charge service beneficiaries the full costs of
providing the service, even though the public receives incidental
benefits.  For example, if the grain industry as a whole obtains
benefits that are not independent of, but rather incidental to the
special benefits provided to grading customers, under A-25's guidance
an agency should recover from these customers the full costs of
providing the benefits. 

While GIPSA includes the costs of its direct grading activities in
its user fee calculations, it excludes the costs of developing and
maintaining the necessary standards---about $4.8 million in fiscal
year 1995.  Believing that standard-setting costs should be included
in its user fee calculations, GIPSA requested congressional authority
to charge for these activities in the President's fiscal year 1997
budget.  However, the Congress did not approve GIPSA's request. 
GIPSA has again proposed charging user fees for standard-setting
activities in the fiscal year 1998 budget. 

In opposition to GIPSA's proposal, the National Grain and Feed
Association\10 said (1) standard-setting activities have broad
societal benefits and therefore should receive public funds, (2) new
user fees are likely to fall disproportionately on exporters and
effectively become a tax on U.S.  agricultural exports, and (3) new
user fees would weaken the official inspection system because higher
costs would drive some domestic grain inspection customers away from
the system.  The last two concerns relate to the fact that grain for
export is required to be inspected by GIPSA's official grading
system, but grain for the domestic market is not. 

GIPSA estimated that including standards development costs in its
user fee calculations for grading services would increase the fees by
about 13 percent, for example, from $31.50 per hour to $35.60 per
hour.  However, to lessen the burden on small firms, a fee schedule
could be developed that would vary, for example, on the basis of the
volume of grain inspected.  According to a GIPSA official, for fiscal
year 1995, including the cost of standard setting in the user fee
calculations would increase the grain industry's total cost by less
than 1 percent. 

(App.  II contains additional examples of programs with user fees
that do not fully cover the costs of providing services.)


--------------------
\9 Department of Agriculture Should Have More Authority to Assess
User Charges (GAO/CED-81-49, Apr.  16, 1981). 

\10 This trade association represents more than 1,000 grain, feed,
and processing firms that process and export more than two-thirds of
all U.S.  grains and oilseeds. 


      USER FEES ARE NOT APPLIED
      CONSISTENTLY TO SIMILAR
      SERVICES
---------------------------------------------------------- Letter :5.2

The federal user fee structure for food-related services is
inconsistent among similar services.  For example, user fees are
charged for premarket review of human drugs but not for animal drugs. 
Furthermore, while most air passengers and commercial vehicles
entering the United States are charged a user fee to cover the
government's cost of agriculture inspections at the nation's borders,
some are not.  Eliminating disparities in how user fees are charged
for similar services would have allowed the federal government to
charge an additional $49 million in fees in fiscal year 1995. 


         ANIMAL DRUG REVIEWS
-------------------------------------------------------- Letter :5.2.1

To protect public health and the nation's economic interests, federal
review and approval is required on certain products before they can
be marketed.  FDA, for example, approves the efficacy and safety of
human and animal drugs.  The agency charges some user fees for new
human drug reviews but does not charge for new animal drug reviews. 

The general approaches used for reviewing and approving human and
animal drugs are very similar.  Sponsors of both new human and animal
drugs are responsible for demonstrating the safety and effectiveness
of their products by conducting studies and submitting data to FDA as
part of the premarket review process.  In animal drug studies, the
sponsors are required to demonstrate safety both to the animal and to
humans consuming edible tissue of the treated animal.  FDA is then
responsible for reviewing the safety and effectiveness data and
approving or denying the application to market the new drugs.  FDA
reviews applications both for animal drugs intended for use in
food-producing animals as well as drugs for pets and other
non-food-producing animals. 

In the Prescription Drug User Fee Act of 1992, the Congress approved
some user fees for human drug reviews, stipulating that the revenues
generated were to be used to help reduce the length of time needed to
review new drug applications.  In fiscal year 1995, FDA charged about
$71 million in user fees for human drug reviews.  However, no fees
are charged for the review and approval of animal drugs.  In fiscal
year 1995, FDA received about $20.2 million in general fund
appropriations to review new animal drugs. 

FDA's review and approval of new animal drugs provides producers of
these drugs economic benefits by (1) allowing them to market approved
drugs and keeping unapproved animal drugs off the market, (2)
increasing public confidence in the efficacy and safety of approved
drugs, and (3) reducing the manufacturer's exposure to liabilities
associated with unknown side effects. 

By approving a firm's new animal drug application, the government
gives the applicant in effect a "license" to sell its drug and
potentially derive substantial profits.  The approval also provides
the public with assurances that the drug is safe and will not leave
residues that are harmful to humans.  In a 1990 report, the
Department of Health and Human Services' Inspector General concluded
that regulated industries, including the animal drug industry, should
contribute to the cost of ensuring the safety and effectiveness of
their products because they receive benefits from FDA's regulatory
activities.\11

In our 1992 report on the new animal drug review process,\12 we
concluded that user fees could be charged for new animal drug
reviews: 

     "In light of existing constraints on federal resources and the
     importance of regulating the safety and efficacy of animal
     drugs, providing FDA with specific authority to charge user fees
     for approving new animal drugs may be a viable alternative to
     appropriations for funding this program."

In a November 1994 study on the new animal drug review process, FDA
found that by collecting some user fees the agency could accelerate
the review process, which would result in speedier market entry and,
therefore, increased financial benefit to the sponsors of new animal
drugs.\13 The study estimated that the financial benefits to industry
from an improved animal drug review process would range from $16
million to $55 million. 

Since publishing its 1994 study, FDA has not proposed charging user
fees for animal drug reviews, and the Congress has taken no action on
the matter.  According to FDA, some administrative and procedural
changes are being made to reduce the time required to review and
approve new animal drug applications.  In addition, the animal health
industry has come to believe that many improvements to the review
process can be made without charging fees to hire additional
reviewers.  Finally, according to an OMB official, currently the
Congress and FDA may view other potential candidates for user fees,
such as medical device reviews, as a higher priority. 

The Animal Health Institute, which represents the interests of
manufacturers of animal health products, opposes user fees for the
review of new animal drugs.  In case user fees are considered,
according to the Institute, the funds collected should be used only
to meet specific goals for improving the review process.  The
Congress stipulated that goals for reducing review time should be
established and met when it approved some user fees for human drug
reviews. 


--------------------
\11 Implementing User Fees in the Food and Drug Administration:  A
Case Study, Department of Health and Human Services, Office of
Inspector General (July 1990). 

\12 Food Safety and Quality:  FDA Needs Stronger Controls Over the
Approval Process for New Animal Drugs (GAO/RCED-92-63, Jan.  17,
1992). 

\13 User Fee Feasibility Study, FDA, Center for Veterinary Medicine
(Nov.  1994). 


         BORDER INSPECTIONS
-------------------------------------------------------- Letter :5.2.2

In addition to inconsistencies in user fees for premarket reviews,
user fees are not charged consistently for agricultural inspection
activities at the nation's borders and ports of entry.  In 1991,
APHIS began charging user fees to fund the inspection of
international air passengers and commercial conveyances, such as
aircraft, vessels, loaded railcars, and trucks, for the presence of
plant pests and animal diseases.\14 All air passengers and commercial
vehicles entering the United States are charged a user fee--except
those originating in, and entering from, Canada.  Because Canadian
agricultural products posed less risk to U.S.  agriculture and thus
required less frequent inspections, air passengers and commercial
vehicles entering from Canada were excluded from the user fee
charges. 

After reviewing the situation, in 1996 APHIS considered charging user
fees for air passengers and commercial vehicles entering from Canada
but did not go forward with such a proposal.  According to APHIS
officials, the proposal was not made because (1) agricultural
products from Canada still constitute relatively little risk to U.S. 
agriculture, (2) the user fees would generate little revenue, and (3)
the user fees may induce Canada to reciprocate by charging U.S.  air
passengers and commercial vehicles crossing into Canada a similar
fee. 

While we do not know whether or not the Canadian government would
reciprocate, we noted in our review of APHIS' budget documents that
risks to U.S.  agriculture have increased and thus more inspections
are required of products entering the United States from Canada. 
According to APHIS' explanatory notes for its fiscal year 1997
budget, "increased traffic of untreated Asian and European
agricultural products into the United States through Canada has
created the need for increased inspections to reduce the risk of
introducing exotic agricultural pests into this country." Over the
past 3 years, the value of agricultural imports from Canada has
increased about 29 percent, from $5.2 billion to $6.7 billion. 

We estimate that charging air passengers and commercial vehicles
entering from Canada the same fees charged for entries from all other
foreign countries would have generated approximately $15.1 million in
new revenues from the 1995 border crossings.  The costs of collecting
such fees would be minimal because the collection mechanism is
already in place.  However, some of the new revenues may be offset by
additional program costs related to increased inspections. 

(App.  III contains a discussion of other food-related services
provided without charge that are similar to federal services for
which user fees are charged.)


--------------------
\14 Except for flights originating in Canada, air passengers pay
$1.45 as part of their airfare, commercial aircraft pay $53.00 for
each U.S.  landing until all of the aircraft's cargo and passengers
are off-loaded, vessels pay $369.50 per arrival for the first 15
arrivals per year, rail operators pay $7.00 for each loaded railcar
crossing the Mexican border, and trucks pay $2.00 for each crossing
of the Mexican border or $140 per year for a decal that allows
unlimited crossings. 


      SOME SERVICES WITH
      IDENTIFIABLE BENEFICIARIES
      ARE BEING PROVIDED WITHOUT
      CHARGE
---------------------------------------------------------- Letter :5.3

The federal government provides many food-related regulatory services
at no cost to the beneficiaries.  For example, FSIS does not charge
user fees for compliance inspections of meat and poultry slaughter
and processing plants conducted during regular duty hours.  In
addition, AMS does not charge user fees to producers of specific
commodities such as milk, fruit, and vegetables for establishing and
overseeing marketing agreements and orders.  Federal marketing
agreements and marketing orders, established at the request of
producers, set parameters aimed at stabilizing market conditions and
improving producers' revenues.  Another $651.5 million in user fees
could have been assessed in fiscal year 1995 if identifiable
beneficiaries had been charged for food-related services that are
currently provided without charge. 


         MEAT AND POULTRY
         INSPECTIONS
-------------------------------------------------------- Letter :5.3.1

Federal agencies routinely inspect food firms to help ensure that
foods and food-related products are safe, wholesome, and properly
labeled, according to federal standards.  In some cases, agencies
base the frequency and intensity of these inspections on their
resources and assessments of the public risk associated with the
firm, process, or product.  In others, the inspection frequency is
legally mandated.  For example, current federal law requires that
federal inspectors (1) examine each meat and poultry carcass
slaughtered and (2) visit each meat and poultry processing plant at
least daily. 

To meet these mandated inspection requirements in fiscal year 1995,
FSIS inspected about 6,400 meat and poultry plants at a cost of about
$523 million--the largest single federal food-related service
cost.\15 Currently, FSIS provides meat and poultry inspections at no
cost during regularly scheduled shifts, which at larger plants may
mean two or three shifts per day.  For unapproved and unscheduled
shifts, FSIS has the authority to charge for overtime inspections. 
Under this authority, FSIS was able to recover about $77 million of
the $523 million it spent on mandatory meat and poultry inspections
in fiscal year 1995. 

From 1986 to 1988, FSIS requested in its annual budget submissions
the authority to charge user fees for all of its meat and poultry
inspections.  From 1994 to 1997, FSIS limited its request to the
authority to charge user fees for any inspections beyond a single
scheduled and approved primary shift.  The Congress has not approved
any of these requests.  In its fiscal year 1998 budget submission,
FSIS expanded its user fee proposal to charge for the salaries,
benefits, and related costs associated with in-plant inspections of
meat and poultry at all establishments inspected by the agency.  FSIS
estimated that it could charge about $381 million in fees for its
direct inspection services.  The proposal does not include user fees
for indirect costs such as the agency's administrative, supervisory,
and other overhead costs. 

A variety of arguments have been raised in favor of charging user
fees for mandated meat and poultry inspections.  Those in favor of
charging user fees argue that these inspections benefit industry by
(1) providing inspected firms an economic advantage, (2) helping
ensure public confidence in the safety and wholesomeness of the
product, (3) performing quality control activities that are generally
thought of as a plant's responsibility, and (4) protecting against
unfair competition from firms that might not otherwise perform
adequate safety inspections in an attempt to lower their costs. 

Meat and poultry firms are not charged for FSIS' inspections but
benefit economically in several ways.  First, firms must be federally
inspected before they can market their products in interstate and
foreign commerce.  Second, firms marketing products that are not
regulated by the meat and poultry acts, such as buffalo, venison,
rabbit, emu, ostrich, and quail, must pay to receive an examination
by FSIS and inspection stamp from USDA.  (In fiscal year 1995, FSIS
charged $1.1 million for these requested inspections.) Finally, FSIS
officials believe that many people make their choice of meats based
on the presence of a USDA stamp of inspection. 

In a 1981 report,\16 we stated that "USDA's inspections of meat and
poultry processing plant operations clearly provide broad public
benefits; therefore, appropriations funding is appropriate." This
view was based on OMB's original 1959 version of Circular A-25, which
stated that "no charge should be made for services when the
identification of the ultimate beneficiary is obscure and the service
can be primarily considered as benefitting broadly the general
public." However, the guidance in the 1993 revision of the circular
allows agencies to charge service beneficiaries the full costs of
providing the service even though the public receives incidental
benefits.  In the case of meat and poultry processors, the public
benefit of safer meat and poultry, some believe, is incidental to the
special economic benefits, such as increased marketability, that
accrue to the processors. 

In a February 1996 letter to the Chairman and Ranking Minority Member
of the House Agriculture Committee, we noted that federal meat and
poultry inspections benefit industry by helping ensure public
confidence in the safety and wholesomeness of its products.  For
example, federal inspections benefit industry by reducing the adverse
publicity and potential liability costs that accompany outbreaks of
foodborne illness.\17 In its April 1996 report on FSIS'
inspections,\18 USDA's Office of Inspector General also concluded
that industry derived special benefits, including increased public
confidence, from federal inspections of meat and poultry.  The report
recommended that FSIS recover the cost of these inspections through
user fees. 

Moreover, not charging for meat and poultry inspections also
subsidizes plants' quality control activities.  We and others have
testified in congressional hearings that industry should be more
responsible for ensuring the safety and quality of its products.  In
this regard, FSIS is now considering a plan to allow plant employees
to conduct some inspection activities with FSIS' oversight. 

Historically, the Congress has believed that meat inspection costs,
with the exception of overtime costs and voluntary services, should
be borne by the federal government, because the public was considered
the primary beneficiary.  In addition, the American Veterinary
Medical Association and the American Meat Institute oppose user fees
for meat and poultry inspection.  Veterinary Association officials
said that they believe the public is the primary beneficiary of
federal meat and poultry inspections and therefore user fees for such
services are not appropriate.  A position paper endorsed by a
coalition of groups,\19 including the Meat Institute, states, among
other things, that user fees would (1) erode consumer confidence, (2)
reduce the government's incentive for improving the efficiency of
inspections, (3) place the meat and poultry industry at a competitive
disadvantage with foreign countries, and (4) place a serious burden
on small businesses. 

However, other countries, including major meat producers and
exporters such as New Zealand and Australia, charge for government
meat inspection, and Canada plans to institute some user fees for
meat and poultry inspections in 1997.  Moreover, according to FSIS,
if industry passed inspection costs along to consumers, the
additional cost per pound would be negligible.  FSIS estimated that a
user fee covering all its inspection costs would increase consumer
prices an average of 0.6 cents per pound.  USDA's Inspector General
reported in April 1996 that for the small plants it reviewed, the
cost of inspection services would be about 5 cents per pound. 
However, according to FSIS officials, fee schedules could be
developed that would lessen the burden on small plants. 


--------------------
\15 FSIS provided an additional $40.6 million in fiscal year 1995 to
27 states to fund state-conducted inspections of meat and poultry. 
No user fees were collected for these inspection activities. 

\16 Department of Agriculture Should Have More Authority to Assess
User Charges (GAO/CED-81-49, Apr.  16, 1981). 

\17 Analysis of HACCP Costs and Benefits (GAO/RCED-96-62R, Feb.  29,
1996). 

\18 Food Safety and Inspection Service Meat and Poultry Inspection
Program Phase II, USDA, Office of Inspector General, Evaluation
Report No.  24801-1-AT (Apr.  1996). 

\19 Inspection Fees for Meat and Poultry:  The New Food Safety Tax
(Mar.  1995). 


         MARKETING AGREEMENTS AND
         ORDERS
-------------------------------------------------------- Letter :5.3.2

In addition to inspection activities at FSIS, the federal government
provides a number of other food-related services without charge to
identifiable beneficiaries.  One example is the marketing agreements
and orders program at AMS.  Milk marketing agreements and orders
stabilize market conditions to ensure an adequate supply of milk by
establishing the prices handlers pay to dairy producers.  Fruit and
vegetable marketing orders (1) promote adherence to quality and
maturity standards, (2) establish orderly marketing through controls
on the amount of a commodity available for sale, and (3) support
appropriate research and development projects. 

When growers or handlers submit a proposal for a new marketing order
to USDA, AMS analyzes the proposal and, if it appears feasible, holds
a public hearing.  On the basis of AMS' analysis and the hearing
evidence, USDA issues a recommended decision along with the proposed
order.  After considering any comments on the proposed order, USDA
issues the final order.  AMS then holds a referendum among the
producers, two-thirds of whom must approve the order before it is put
into effect.  After marketing orders are approved and put into
effect, AMS monitors the operation of each order by, among other
things, processing formal and informal amendments to the order and
promoting compliance with it by taking legal sanctions against
violators.  These activities were funded with $10 million in general
fund appropriations in fiscal year 1995. 

The day-to-day administration of marketing agreements and orders is
conducted at the local level by boards, committees, and market
administration officers.  The costs of local administration are paid
for through fees assessed on the producers and handlers covered under
the agreements and orders. 

AMS believes that marketing agreements and orders provide benefits to
producers, handlers, and consumers.  These benefits include stable
markets, fair prices, and dependable supplies of milk and fruit. 
Nevertheless, marketing orders are provided at the request of
particular groups of agricultural producers to benefit their members. 
According to OMB's Circular A-25, when a government service responds
to the request of or is provided for the convenience of the service
recipient, a special benefit will be considered to accrue and a user
fee should be imposed. 

AMS estimates that charging user fees for the approximately $10
million obligated annually for this program would have no significant
impact on retail prices.  While the user fees charged would vary
among the numerous commodities covered, the total charges would
represent about 0.05 percent of the commodities' sale value in 1995. 
For example, user fees for milk marketing orders would amount to
about 0.03 cents per gallon of milk. 

Neither the Congress nor the affected industries have supported user
fees for marketing orders.  The Congress has denied AMS' request to
charge user fees for these services for the last 14 years.  Recently,
AMS again requested user fee authority for these services in its
fiscal year 1998 budget submission.  The industry groups that we
contacted either favored continued public funding or had no opinion
on funding.  For example, the National Milk Producers Federation, one
of the many groups that represent growers and handlers covered by
marketing agreements and orders, prefers public funding for the
services.  Only if user fees were necessary to continue the program,
would the federation support them.  The United Fresh Fruit and
Vegetable Association had no position on who should pay for marketing
agreements and orders. 

(App.  IV contains a discussion of other food-related services that
benefit specific firms or industries but are provided without
charge.)


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Opportunities exist to charge additional user fees for some federal
food-related activities.  Such fees would (1) provide new federal
revenues that could be used to help reduce the federal deficit or
increase program services and (2) eliminate inconsistencies that
currently exist in charging for federally provided services.  In our
view, given the guidance provided by Circular A-25, the case for
charging user fees is the strongest where the government does not
charge the full costs of providing the service and where current user
fees are applied inconsistently.  However, charging user fees for
regulatory compliance inspections from which firms and industries
derive specific benefits, such as mandated meat and poultry
inspections, would produce the most revenue. 

Concerns about the appropriateness of user fees for food-related
services center on three primary issues.  First, in addition to
benefitting specific firms or industries, these services, for
example, inspections of imported foods, often also benefit consumers. 
Second, increased user fees for certain food-related services could
have an adverse economic impact on small producers.  And third, some
believe that the federal government should not charge for activities,
such as meat and poultry inspections, that are required by law. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

We provided a draft of this report to NMFS, AMS, APHIS, FSIS, GIPSA,
and FDA for review and comment.  The Department of Commerce,
commenting for NMFS, generally concurred with the accuracy of the
report but indicated that funding for the National Seafood Inspection
Laboratory should not be included in the seafood inspection program's
funding because the laboratory is not an essential part of the
inspection program (see app.  V).  We concur and have deleted
discussion of the laboratory from the final report.  We met with
officials from AMS, APHIS, FSIS, and GIPSA to obtain their comments. 
Agency officials providing comments included (1) AMS' Assistant
Deputy Administrator, Executive Resources Office, as well as program
officials responsible for fruit and vegetable, dairy, seed, and
compliance activities; (2) APHIS' Deputy Administrator for Management
and Budget; (3) FSIS' Associate Administrator for Field Operations
and Director of the Budget and Finance Division; and (4) GIPSA's
Administrator and Deputy Administrators for grain inspection and
packers and stockyards.  These officials generally agreed with the
report's findings and conclusions and provided us with clarifying
technical comments that we incorporated into the report as
appropriate.  FDA had no comments other than technical suggestions
and clarifications that we also incorporated into the report as
appropriate. 


---------------------------------------------------------- Letter :7.1

To identify and evaluate opportunities to increase the share of
funding paid for by beneficiaries of food-related services, we
reviewed various studies and literature on user fees and interviewed
(1) budget and program officials at OMB and the six federal agencies
that provide food-related services and (2) representatives of
industry groups that would be affected by additional user fees.  We
also analyzed agencies' user fee proposals and budget requests,
congressional reports on agency appropriations, and industry position
papers on user fees.  We asked the agencies to provide user fee and
appropriations funding data for their food-related activities.  We
did not verify the accuracy of these data.  Our work was conducted
from April 1996 through January 1997 in accordance with generally
accepted government auditing standards.  (See app.  VI for a more
detailed explanation of our methodology.)

We are sending copies of this report to the Secretaries of
Agriculture, Commerce, and Health and Human Services.  We will also
make copies available to others on request.  Major contributors to
this report are listed in appendix VII. 

Robert A.  Robinson
Director, Food and Agriculture Issues

List of Recipients

The Honorable Richard G.  Lugar
Chairman
The Honorable Tom Harkin
Ranking Minority Member
Committee on Agriculture, Nutrition, and Forestry
United States Senate

The Honorable Pete V.  Domenici
Chairman
The Honorable Frank R.  Lautenberg
Ranking Minority Member
Committee on the Budget
United States Senate

The Honorable John McCain
Chairman
The Honorable Ernest F.  Hollings
Ranking Minority Member
Committee on Commerce, Science, and Transportation
United States Senate

The Honorable Thad Cochran
Chairman
The Honorable Dale Bumpers
Ranking Minority Member
Subcommittee on Agriculture,
 Rural Development, and Related Agencies
Committee on Appropriations
United States Senate

The Honorable Robert F.  (Bob) Smith
Chairman
The Honorable Charles W.  Stenholm
Ranking Minority Member
Committee on Agriculture
House of Representatives

The Honorable John R.  Kasich
Chairman
The Honorable John M.  Spratt, Jr.
Ranking Minority Member
Committee on the Budget
House of Representatives

The Honorable Thomas J.  Bliley, Jr.
Chairman
The Honorable John D.  Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives

The Honorable Joe Skeen
Chairman
The Honorable Marcy Kaptur
Ranking Minority Member
Subcommittee on Agriculture, Rural Development,
 FDA, and Related Agencies
Committee on Appropriations
House of Representatives


FUNDING FOR FOOD-RELATED SERVICES
IN SIX FEDERAL AGENCIES
=========================================================== Appendix I



                               Table I.1
                
                Agricultural Marketing Service Funding,
                            Fiscal Year 1995

                         (Dollars in millions)

Food-related services                                        Funding\a
------------------------------------------------------  --------------
User fees
----------------------------------------------------------------------
Processed fruit and vegetable grading                           $33.27
Poultry and egg grading                                          22.68
Meat grading                                                     19.29
Fresh fruit and vegetable grading                                14.35
Licensing/reparations (PACA\b)                                    7.37
Dairy products grading                                            5.89
Laboratory testing                                                5.13
Standardization                                                   3.88
Research and promotion                                            1.91
Market news printed reports                                       1.24
Plant variety inspection                                          0.85
Seed testing                                                      0.09
Cattle futures grading                                            0.04
======================================================================
Total                                                          $115.99

General fund appropriations
----------------------------------------------------------------------
Market news                                                     $19.35
Pesticide data program                                           12.00
Marketing agreements and orders                                   9.98
Commodity purchase services                                       5.91
Transportation services                                           2.56
Wholesale market development                                      2.31
Shell egg surveillance                                            2.00
Pesticide record keeping program                                  1.50
Federal seed regulatory program                                   1.17
Organic certification\c                                           0.50
======================================================================
Total                                                           $57.28
----------------------------------------------------------------------
\a A small portion of the funding for some of these services supports
non-food-related agricultural products such as cotton and tobacco. 

\b Perishable Agricultural Commodities Act. 

\c This is a new program.  Once the program is fully operational, the
agency will begin assessing user fees as authorized by legislation. 

Source:  Data from the Agricultural Marketing Service. 



                               Table I.2
                
                   Animal and Plant Health Inspection
                   Service Funding, Fiscal Year 1995

                         (Dollars in millions)

Food-related services                                          Funding
--------------------------------------------------  ------------------
User fees
----------------------------------------------------------------------
Agricultural quarantine inspection                             $105.85
Import/export                                                    13.59
Animal damage control reimbursements                             20.40
Veterinary diagnostics                                            1.49
Reimbursable overtime                                            12.07
Miscellaneous contributed funds                                   7.18
======================================================================
Total                                                          $160.58

General fund appropriations
----------------------------------------------------------------------
Agricultural quarantine inspection                              $24.97
Import/export                                                     7.72
Other pest and disease exclusion programs                        52.68
Plant and animal health monitoring                               73.03
Animal damage control operations                                 20.80
Other pest and disease management                                84.77
Veterinary diagnostics                                           15.76
Veterinary biologics                                             10.50
Biotechnology/environmental protection                            7.65
Other scientific and technical services                          15.33
======================================================================
Total                                                          $313.21
----------------------------------------------------------------------
Source:  Data from the Animal and Plant Health Inspection Service. 



                               Table I.3
                
                 Food and Drug Administration Funding,
                            Fiscal Year 1995

                         (Dollars in millions)

Food-related services                                          Funding
--------------------------------------------------  ------------------
User fees
----------------------------------------------------------------------
Color additive certifications                                    $3.26
Color additive reviews                                              \a
Export certificates                                                 \b
Total                                                            $3.26

General fund appropriations\c
----------------------------------------------------------------------
New animal drug reviews                                         $20.17
Animal drug compliance inspections                               21.52
Domestic food compliance inspections                             42.35
Import food compliance inspections                               38.78
Food additive reviews                                             7.34
Color additive reviews                                           0 .64
Food-related export certificates                                 0 .09
Other food-related services                                     127.11
Total                                                          $258.00
----------------------------------------------------------------------
\a Fees received from petitions for the review of new color additives
totaled $12,000. 

\b Fees received from export certificates totaled $3,650 and are not
kept by the agency but go to the U.S.  Treasury. 

\c The agency does not receive individual appropriations for the
services listed below.  The amounts listed below represent the
agency's estimates of the unreimbursed costs of performing these
services. 

Source:  Data from the Food and Drug Administration. 



                               Table I.4
                
                Food Safety Inspection Service Funding,
                            Fiscal Year 1995

                         (Dollars in millions)

Food-related services                                          Funding
--------------------------------------------------  ------------------
User fees
----------------------------------------------------------------------
Reimbursable overtime--meat and poultry slaughter               $77.18
 and processing inspection
Reimbursable overtime--laboratory services                        0.70
Reimbursable overtime--import/export inspection                   0.81
Reimbursable overtime--egg products                               0.52
Reimbursable--other federal agencies                              1.67
Voluntary meat and poultry slaughter and                          1.09
 processing fees
Voluntary laboratory service fees                                 0.05
Voluntary import/export and laboratory services                   1.68
 fees
Voluntary egg products fees                                       0.19
======================================================================
Total                                                           $83.89

General fund appropriations
----------------------------------------------------------------------
Meat and poultry slaughter and processing                      $446.27
 inspection
Laboratory services                                              18.02
Import/export inspection                                         12.44
Egg products inspection\a                                         3.44
Pathogen reduction                                               10.21
Grants to states                                                 40.59
======================================================================
Total                                                          $530.97
----------------------------------------------------------------------
\a Responsibility for egg products inspections was transferred to the
agency during 1995.  Total federal annual egg products inspection
funding for fiscal year 1995 was $10.86 million. 

Source:  Data from the Food Safety Inspection Service. 



                               Table I.5
                
                Grain Inspection, Packers and Stockyards
                Administration Funding, Fiscal Year 1995

                         (Dollars in millions)

Food-related services                                          Funding
--------------------------------------------------  ------------------
User fees
----------------------------------------------------------------------
Grain inspection and grading                                    $23.40
Miscellaneous commodities inspection                              4.00
Rice inspection                                                   4.00
Supervision of states and agencies                                1.50
Inspection of U.S. grain exported from Canada                     0.60
======================================================================
Total                                                           $33.50

General fund appropriations
----------------------------------------------------------------------
Packers and stockyards regulation                               $11.70
Grain Standards Act standardization                               4.80
Grain Standards Act compliance                                    4.70
Methods development                                               1.50
======================================================================
Total                                                           $22.70
----------------------------------------------------------------------
Source:  Grain Inspection, Packers and Stockyards Administration. 



                               Table I.6
                
                   National Marine Fisheries Service
                       Funding, Fiscal Year 1995

                         (Dollars in millions)

Food-related services                                          Funding
--------------------------------------------------  ------------------
User fees
----------------------------------------------------------------------
Seafood inspection and grading services                         $12.35
National training branch                                         0 .87
Document approval and supply services                            0 .33
Other programs                                                   0 .05
======================================================================
Total                                                           $13.60

General fund appropriations\a
----------------------------------------------------------------------
Standards and specifications/sensory evaluation                   0.32
Foreign requirements                                              0.30
======================================================================
Total                                                            $0.62
----------------------------------------------------------------------
\a The agency also received $1.58 million in general fund
appropriations for the National Seafood Inspection Laboratory;
however, because the laboratory does not primarily provide services
to the seafood inspection program its funding is not included in the
total. 

Source:  National Marine Fisheries Service. 


FOOD-RELATED SERVICES FOR WHICH
CURRENT USER FEES DO NOT RECOVER
ALL PROGRAM COSTS
========================================================== Appendix II

Federal agencies charge user fees for a number of food-related
services, but the fee calculations for some of these services exclude
the support costs that are essential to providing them.  In addition
to the grain standard-setting activities discussed in the body of
this report, several other food-related services charge user fees
that do not take all program costs into account. 

Specifically, user fees do not take into account the following costs: 
(1) the Grain Inspection, Packers and Stockyards Administration's
(GIPSA) costs for developing grain measurement methods and compliance
activities; (2) the National Marine Fisheries Service's (NMFS) costs
for developing standards and conducting other essential activities
related to its seafood inspection program; (3) the Food and Drug
Administration's (FDA) full costs for issuing food product export
certificates and reviewing color additives for foods, drugs,
cosmetics and medical devices; and (4) the Animal and Plant Health
Inspection Service's (APHIS) costs for controlling the damage that
wild animals do to agricultural interests, natural resources, and
human health, safety, and property. 

Table II.1 lists food-related services that we reviewed for which the
user fees do not account for the full costs.  This appendix provides
a general description of these services, the level of federal funding
they receive, and arguments for and against increasing user fees to
account for the full costs. 



                               Table II.1
                
                 Food-Related Services Whose User Fees
                 Are Not Calculated Based on Full Costs
                and Fiscal Year 1995 Funds Appropriated

                         (Dollars in millions)

Food-related services                                          Funding
--------------------------------------------------  ------------------
GIPSA standardization\a                                          $4.80
GIPSA methods development                                         1.50
GIPSA compliance                                                  4.70
NMFS standards, sensory evaluation, and foreign                   0.62
 requirements
FDA food-related export certificates                              0.09
FDA color additive reviews                                        0.64
APHIS animal damage control                                    10.10\b
======================================================================
Total                                                           $22.45
----------------------------------------------------------------------
\a Discussed earlier on pp.  9-11. 

\b This amount represents an estimate of the user fees that could
have been charged for livestock protection activities in fiscal year
1995. 

Sources:  Data from GIPSA, NMFS, FDA, and APHIS. 


   GIPSA'S METHODS DEVELOPMENT AND
   COMPLIANCE ACTIVITIES
-------------------------------------------------------- Appendix II:1

GIPSA conducts a number of activities that are essential to its grain
inspection and grading services.  These activities include (1)
developing and implementing new methods for measuring grain quality
and (2) ensuring the quality of the program through regulatory
compliance activities.  Currently, none of the costs of providing
these services are included in GIPSA's user fee calculation for
inspection and grading services. 


      GIPSA'S METHODS DEVELOPMENT
      ACTIVITIES
------------------------------------------------------ Appendix II:1.1

GIPSA's grain inspection and grading program was established to
facilitate the marketing of U.S.  grains, oilseeds, rice, and related
commodities.  GIPSA, as required by the U.S.  Grain Standards Act and
the Agricultural Marketing Act, inspects and weighs almost all
exported grain shipments.  While grain for domestic use is not
required to be inspected and weighed, GIPSA provides these services
on a voluntary basis. 

GIPSA charges customers with contracts a user fee of $31.50 per hour
for its services.  However, the user fee calculation was based only
on direct program activities, such as inspection and weighing, and
did not include the $1.5 million GIPSA received in 1995 to identify,
evaluate, and implement new or improved methods for measuring grain
quality. 

GIPSA's methods development activities help ensure the continued
integrity of inspection certificates and, as such, are essential to
its grain inspection and grading program.  According to the Office of
Management and Budget's Circular A-25, user fees should recover the
full costs of providing the service, including all direct and
indirect costs. 

The National Grain and Feed Association\1 opposes new user fees for
activities that support GIPSA's grain grading services, arguing that
(1) appropriated funds are the only fair way to fund these activities
because of their broad societal benefits, (2) new user fees are
likely to fall disproportionately on exporters and effectively become
a tax on U.S.  agricultural exports, and (3) new user fees would
weaken the official inspection system because higher costs would
drive some domestic grain inspection customers away from voluntary
inspections. 

The National Association of Wheat Growers\2 voiced similar concerns. 
The Association argued that new fees are likely to fall
disproportionately on grain exporters.  To compensate for the
decrease in revenues associated with reduced grain exports, GIPSA
would then need to further increase fees for its remaining customers
to fund future operations. 


--------------------
\1 The National Grain and Feed Association is a trade association
representing more than 1,000 grain, feed, and processing firms that
process and export more than two-thirds of all U.S.  grains and
oilseeds. 

\2 The National Association of Wheat Growers is a federation of 22
state wheat growers associations, representing wheat growers'
educational, legislative, and regulatory interests. 


      GIPSA'S COMPLIANCE
      ACTIVITIES
------------------------------------------------------ Appendix II:1.2

GIPSA spends about $4.7 million annually ensuring the quality of its
grading program.  GIPSA investigates violations of applicable grain
laws, licenses personnel to grade grain, and maintains an
international monitoring program that interacts with foreign
governments and responds to complaints concerning the quality and
quantity of U.S.  grain shipments.  GIPSA also performs management
evaluations and procedural reviews of its field offices and
compliance reviews of the state and private agencies designated to
inspect grain. 

In addition to the grain grading work of its own employees, GIPSA has
designated 17 state and 48 private agencies with authority to
officially inspect and weigh domestic grain.  Eight of the 17 states,
called delegated states, also have the authority to inspect and weigh
export grain.  Criteria for becoming a designated or delegated state
or private agency for GIPSA include (1) having licensed personnel,
(2) providing training to maintain skills, (3) using approved
equipment, and (4) keeping proper records.  State and private
agencies operate under a 3-year agreement that can be renewed. 

While GIPSA charges user fees for its direct grain grading
activities, no fees are charged for compliance activities such as (1)
approving the states and private companies who want to participate in
the program, (2) licensing grain inspectors and weighers, or (3)
investigating violations of applicable grain laws.  The grain
industry benefits from GIPSA's compliance activities, because they
give grain purchasers confidence that the grain is inspected and
weighed properly, meets U.S.  grain standards, and can be sold for
export.  Thus, these activities are part of the full costs of grain
inspection, as defined by OMB Circular A-25. 

Neither GIPSA nor the grain industry supports charging user fees for
GIPSA's compliance activities.  GIPSA officials said that the agency
has not proposed user fees for compliance activities because (1) it
is difficult to identify specific beneficiaries and (2) increased
user fees could decrease the number of voluntary inspections
performed and thereby reduce agency revenues.  Just as they opposed
user fees for standard setting and methods development activities,
industry groups also oppose user fees for GIPSA's compliance
activities. 


      IMPACT OF INCLUDING FULL
      COSTS IN GIPSA USER FEES
------------------------------------------------------ Appendix II:1.3

Table II.2 shows how grain inspection user fees would increase to
cover the full costs of the service, according to GIPSA.  If all
costs were included, fees would increase from $31.50 per hour to
$40.96.  Charging user fees to cover GIPSA's full costs should have a
minimal impact on the cost of grain.  The total cost of grain grading
user fees, including the cost of standard setting, methods
development, and compliance activities, represented less than 0.3
percent of the value of grain exports in fiscal year 1995. 



                               Table II.2
                
                  Cumulative Impact of Including Full
                 Costs in GIPSA's User Fee Calculations

                                 Percent          Hourly
Activity                        increase        increase   Hourly rate
--------------------------  ------------  --------------  ------------
Direct grain grading                   -               -        $31.50
Standard setting                      13           $4.10         35.60
Methods development                    4            1.26         36.86
Compliance                            13           $4.10        $40.96
----------------------------------------------------------------------
Source:  GAO's analysis based on data from GIPSA. 


   NMFS' ACTIVITIES ESSENTIAL TO
   INSPECTION AND GRADING SERVICES
-------------------------------------------------------- Appendix II:2

NMFS' seafood inspection program includes a number of activities
essential to its voluntary seafood inspection and grading services. 
NMFS develops and maintains processing, inspection, and grading
standards.  NMFS develops and supports a sensory science program that
uses touch, sight, and smell to determine the wholesomeness and
quality of fish and fish products.  As part of this program, the
agency develops standard definitions and terms of seafood freshness
and decay and trains inspectors on how to consistently identify and
describe these factors.  NMFS also collects, translates, analyzes,
codifies, and disseminates seafood import requirements of foreign
governments and buyers and develops seafood export certificates that
meet these requirements.  NMFS received about $620,000 in general
fund appropriations in fiscal year 1995 to perform these services. 
Currently, none of the costs of providing these essential support
services are included in NMFS' user fee calculations for inspection
and grading services. 

Program standards and sensory evaluation techniques are essential
elements of NMFS' seafood inspection and grading services, because
without them NMFS inspectors would not be able to attest to the
quality and safety of the seafood they examine.  Furthermore, NMFS'
foreign requirements work directly benefits seafood exporters.  All
of these costs fall under the Circular A-25 definition of full costs. 

Under its original proposal to operate a stand-alone,
self-supporting, "performance-based" organization,\3 NMFS included
the cost of conducting standard setting, sensory evaluation, and
foreign requirements activities in its user fee calculation.  In
November 1996, NMFS revised its proposal to include only the costs of
sensory evaluation in the user fee calculation.  The revised approach
responded to customer arguments that the benefits of standard-setting
and foreign requirements activities did not accrue solely to
inspection customers but rather were broadly shared by the seafood
industry. 

However, other agencies have concluded that essential support costs,
such as developing and maintaining standards, should be included in
the user fee calculation.  The Agricultural Marketing Service
includes the cost of standardization activities in its user fee
calculations, and GIPSA has proposed including such costs in its user
fee calculations. 

Seafood inspection and grading service customers have been generally
supportive of NMFS' efforts to create a performance-based
organization.  However, because the program is voluntary, if
customers find the fees too high for the benefits received, they may
choose not to participate.  NMFS officials said that including
sensory evaluation costs in the user fee calculation should not
increase inspection and grading user fees, because under their
performance-based organization proposal some administrative overhead
costs would be eliminated. 


--------------------
\3 A performance-based organization is designed to be more responsive
to customer needs by emphasizing business-like operations, improving
efficiency, and meeting specific performance goals. 


   FDA'S EXPORT CERTIFICATIONS AND
   COLOR ADDITIVE REVIEWS
-------------------------------------------------------- Appendix II:3

Apart from omitting essential support costs, such as standard
setting, from user fee calculations, some federal agencies charge
only a nominal fee that bears little relation to the actual costs of
providing the service.  For example, FDA does not cover the costs of
providing export certifications or reviewing color additives.  FDA
could obtain about $730,000 annually if it charged fees that were
sufficient to cover the costs of providing these services. 


      FDA'S EXPORT CERTIFICATIONS
------------------------------------------------------ Appendix II:3.1

Some foreign countries require that food-related products exported to
their countries be accompanied by a certificate from FDA.  FDA's
certificates of export generally indicate that the product can be
freely sold in the United States and that there are no known safety
concerns about the product or the company that manufactures it.  FDA
issues certificates after determining that the product, among other
things, meets the specifications of the foreign purchaser and is not
in conflict with the laws of the country to which it is intended for
export.  The certificate consist of three parts:  (1) a letter to the
firm explaining FDA's responsibilities concerning the product, (2) a
"to whom it may concern" letter that is intended for the importing
country, and (3) the certificate with the Department's seal and
ribbon attesting to the facts in the "to whom it may concern" letter. 

Currently, FDA charges a $10 fee for each export certificate it
issues for food products.\4 Although FDA does not know exactly what
it costs to issue a food-related export certificate, it recently
estimated that on average agencywide, it costs about $250 to process
an export certificate.  Using this figure, we estimate that in fiscal
year 1995 FDA spent about $91,250 processing 365 export certificates,
but it charged only $3,650 in fees. 

In addition, FDA issues export health certificates for seafood being
exported to the European Union.  These certificates state that the
shipment was produced in an establishment covered under a regulatory
oversight program equivalent to those in place in the European Union. 
FDA issued 8,884 seafood export health certificates in fiscal year
1996.  FDA does not have any estimate of the cost of processing these
certificates.  The agency does not charge user fees for seafood
export certificates although the National Marine Fisheries Service's
seafood inspection program does. 

OMB's Circular A-25 states that agencies charging user fees should
recover from the service beneficiary the government's full costs of
providing the service, including both direct and indirect costs. 
Export certificate recipients benefit from FDA's export
certification, for example, by being able to market their products in
international commerce.  The benefits related to export certification
have been recognized by NMFS, the Food Safety and Inspection Service,
and APHIS, which all charge user fees for providing export
certificates. 


--------------------
\4 According to FDA, this is a Freedom of Information fee, and the
money collected does not stay with FDA but goes to the U.S. 
Treasury. 


      FDA'S REVIEW OF NEW COLOR
      ADDITIVES
------------------------------------------------------ Appendix II:3.2

FDA is responsible for reviewing and approving new color additives
used in foods, drugs, cosmetics, and medical devices.  The approval
of a color additive is initiated by a petition from the manufacturer
to FDA.  The petition contains information on the intended use,
chemical composition, methods used to produce the colors, and the
results of various tests.  FDA analyzes the petition and supporting
data and determines if the color can be approved.  According to FDA,
between 1986 and 1995 the agency averaged fewer than five petitions
for new color additives each year, which includes amendments to
already regulated color additives.  Once a color additive is approved
and listed by FDA, it can be manufactured by anyone. 

FDA charges a fee of $3,000 for petitions requesting the approval of
a color additive for use in or on foods only.  The fee for this
review was set at $3,000 in 1963 and has not changed since.  FDA does
not know the exact cost of reviewing color additive petitions but
according to the agency, the current fees do not cover the full costs
of the review process.  FDA estimates spending about $163,000 per
food and color additive petition although this average is heavily
weighted by food additive petitions.\5 Using this cost estimate, FDA
spent about $652,000 in fiscal year 1995 reviewing four petitions for
color additives.  FDA is now studying what the actual review costs
are for all food and color additive petitions. 

OMB's Circular A-25 states that agencies charging user fees should
recover from the service beneficiary the government's full costs of
providing the service, including both direct and indirect costs.  By
approving a petition for a new color additive, the government allows
the color additive to be marketed, which may result in a financial
gain for the firm or industry which submitted the petition. 


--------------------
\5 According to FDA, certain complex petitions will cost many times
more to process while simple applications may cost much less than the
average amount. 


      APHIS' ANIMAL DAMAGE CONTROL
------------------------------------------------------ Appendix II:3.3

The purpose of the animal damage control program, as established
under the Animal Damage Control Act of 1931, as amended, is to
control damage caused by wildlife to agricultural interests, natural
resources, and human health, safety, and property.  Efforts to
protect livestock from predators, primarily coyotes, constitutes one
of the major program activities.  Livestock protection activities are
carried out primarily in the 18 western states.  Animal damage
control operations were funded with $41.2 million ($20.4 million in
nonfederal funds and $20.8 in federal general fund appropriations) in
fiscal year 1995. 

While program funding varies from state to state, the federal
government provided about 51 percent of the fiscal year 1995 funding. 
The remaining program funds came from state and local governments and
program beneficiaries such as grazing boards.  For example, funding
for fiscal year 1995 program activities in the state of Nevada was 54
percent federal, 39 percent state, 6 percent wool growers association
and grazing boards, and 1 percent local (cities and utilities). 

The animal damage control program's livestock protection activities
in the 18 western states primarily benefit livestock producers and
others who own livestock herds.  For example, in Nevada 90 percent of
the program consists of livestock protection.  Ten sheep operators
own about 90 percent of the sheep in Nevada, and in some cases,
animal control specialists work full time protecting one sheep
company's herd.  As such, proponents of charging user fees argue that
the recipients of animal damage control services receive "special
benefits" as defined in OMB's Circular A-25 and should be charged the
full costs of providing the service.  According to APHIS, fully
funding livestock protection activities through user fees could have
resulted in about $10.1 million in additional revenue in fiscal year
1995.  However, in the past when federal funding for these activities
decreased, nonfederal contributions decreased as well. 

Those opposed to increasing the share of program funding paid for by
service beneficiaries have raised several concerns.  First, some
believe that controlling damage caused by wildlife is inherently a
government responsibility because wildlife is a publicly owned
resource of the United States.\6 Second, instead of paying for APHIS
animal damage control services, some ranchers may try to save money
by controlling predators with illegal poisons thereby creating human
health or environmental safety hazards.  Finally, predators cross
property boundaries so that if one rancher pays for federal animal
damage control services, a neighbor who does not may still benefit. 

APHIS has not studied what the impact on ranchers would be of
charging user fees for the full costs of providing animal damage
control services.  Assessing the overall impact on ranchers would be
difficult, according to an APHIS official, because each state
operates and funds its program differently. 


--------------------
\6 The federal government has statutory supremacy for managing
threatened and endangered species, such as wolves and eagles, and
migratory birds such as ducks and geese. 


USER FEES ARE NOT APPLIED
CONSISTENTLY TO SIMILAR SERVICES
========================================================= Appendix III

The federal government does not consistently charge user fees for
similar food-related services.  In addition to the premarket review
of new animal drugs and border inspections of agricultural products
discussed in the body of this report, FDA's review of new food
additives and APHIS' issuance of licenses and permits for veterinary
biologics and biotechnology activities bear no user fees.  In
contrast, user fees are charged for similar licensing and approval
activities, such as FDA's color additive reviews. 

Table III.1 lists the food-related services that we reviewed for
which no user fees are charged, even though fees are charged for
similar services.  This appendix provides a general description of
these services, the level of federal funding they receive, and
arguments for and against recovering their full costs through user
fees. 



                              Table III.1
                
                 Food-Related Services Provided Without
                Charge That Are Similar to Services for
                Which User Fees Were Charged and Fiscal
                      Year 1995 Funds Appropriated

                         (Dollars in millions)

Food-related services                                          Funding
--------------------------------------------------  ------------------
FDA new animal drug reviews\a                                   $20.17
FDA food additive reviews                                         7.34
APHIS Canadian border inspections\b                            15.05\c
APHIS veterinary biologics                                      3.50\c
APHIS biotechnology                                             3.30\c
======================================================================
Total                                                           $49.36
----------------------------------------------------------------------
\a Discussed earlier on pp.  11-13. 

\b Discussed earlier on pp.  13-14. 

\c This amount represents an estimate of the user fees that could
have been charged for this activity in fiscal year 1995. 

Sources:  Data from FDA and APHIS. 


   FDA'S FOOD ADDITIVE REVIEW
   PROCESS
------------------------------------------------------- Appendix III:1

In addition to reviewing and approving new animal drugs, FDA is also
responsible under section 409 of the Federal Food, Drug, and Cosmetic
Act, for approving new food additives, such as artificial sweeteners. 
Sponsors of new food additives must conduct scientific studies to
establish the safety of their products.  FDA then evaluates the
scientific data submitted in support of a petition to approve a new
food additive to ensure that it is safe for its intended use. 

Between 1986 and 1995, FDA received an annual average of 55 petitions
for food additive approvals.  FDA estimates that it spent about $7.34
million in fiscal year 1995 reviewing and approving food additive
petitions.\1 However, according to FDA, the food additive program is
being redesigned, and a study is being conducted to more accurately
estimate the cost of food additive reviews.  FDA believes that a more
timely, predictable process would likely cost more than an average of
$163,000 per petition. 

FDA charges no user fees for reviewing petitions for new food
additives.  In contrast, FDA charges fees for reviewing petitions for
new food and drug colors and applications for human drugs. 
(Discussed previously on pp.  38-39 and p.  12.)

Those who support charging user fees for food additive reviews argue
that industry receives special benefits as a result of these reviews. 
OMB's Circular A-25 states that a special benefit exists if a
government service "enables the beneficiary to obtain more immediate
or substantial gains or values than those that accrue to the general
public." By approving a petition for a new food additive, the
government allows the food additive to be marketed, which may result
in a substantial financial gain for the firm or industry that
submitted the petition. 

According to an FDA official, the primary incentive a company has for
applying for a food additive approval is to "get a corner on the
market." Once the petition has been approved, the company will be
able to use the additive before anyone else.  That timing gives the
company an advantage over its competitors.  In addition, FDA's
approval validates the firm's efforts to produce a safe and effective
product and contributes to public confidence in the firm and its
products.  In a 1987 report,\2 the Department of Health and Human
Services' Inspector General identified FDA's review and approval of
food additive petitions as an activity that had the potential for
charging user fees. 

The Grocery Manufacturers of America, a trade association
representing the food industry, is opposed to user fees because food
additive approvals are not proprietary and thus do not provide the
economic rewards that drug approvals do.  The grocery manufacturers
favor an alternative system of nongovernmental, third-party reviews
of food additive petitions that would be paid for by the applicant. 


--------------------
\1 This amount is based on the 45 petitions FDA received in fiscal
year 1995 and its estimated average cost of $163,000 per petition. 
According to FDA, certain complex petitions will cost many times more
to process, while simple petitions may cost much less than the
average. 

\2 Analysis of Costs Included in Current Food and Drug Administration
User Fees and the Potential for Additional User Fees, Department of
Health and Human Services, Office of Inspector General (Dec.  1987). 


   APHIS' VETERINARY BIOLOGICS AND
   BIOTECHNOLOGY REGULATORY
   ACTIVITIES
------------------------------------------------------- Appendix III:2

APHIS regulates the development and use of veterinary biological
products and genetically modified organisms to help prevent the use
of ineffective or unsafe products.  As part of this regulation, APHIS
issues licenses and permits to the producers of veterinary biological
and biotechnology products.  APHIS does not charge user fees for
providing these services. 


      VETERINARY BIOLOGICS
----------------------------------------------------- Appendix III:2.1

To prevent the importation, production, and distribution of impure,
ineffective, unsafe, or impotent veterinary medicines and to regulate
veterinary medicine manufacturing, APHIS licenses drug companies that
produce veterinary biologics and issues permits for the manufacture
and sale of each approved biologic.  Veterinary biologics are
medicines for the diagnosis, prevention, and treatment of diseases in
animals.  A small portion of these medicines are made using
biotechnology.  Veterinary biologics are different from animal drugs
in that they generally attack the animal's immune system, causing the
body to react to the medicine.  Animal drugs, on the other hand,
attack the disease itself and are regulated by FDA. 

In both its fiscal year 1996 and 1997 budget requests, APHIS proposed
charging user fees for licensing, inspecting, and testing veterinary
biologics.  Specifically, APHIS proposed a general license fee for
approving establishments to manufacture approved biologics products,
a permit fee to manufacture each specific product, and a transit
permit fee for the movement of biologics for research and evaluation
and for the distribution and sale of biologics.  APHIS estimated that
it could charge user fees of about $3.5 million for its services. 

Firms that manufacture, sell, transport, research, and evaluate
veterinary biologics derive some specific identifiable benefits from
APHIS services.  Without an APHIS license or permit, veterinary
biologics cannot be field-tested or produced, imported, transported
interstate, or sold on either the domestic or international markets. 
An APHIS license or permit also enhances public confidence that the
veterinary biologic will not harm public health or the environment. 
In addition, APHIS licenses and permits help protect the livestock
and pet industries from unfair competition by excluding firms that
might manufacture unsafe or impure products.  Thus, these services
qualify for user fees under OMB's Circular A-25.  In addition, courts
have ruled that when a license is a prerequisite to operating in a
given industry, obtaining a license provides a special benefit that
justifies a user fee.\3

Other agencies that issue licenses or permits charge user fees.  For
example, the Nuclear Regulatory Commission charges a user fee for
licensing firms to operate nuclear power plants. 

To date, the Congress has not approved APHIS' veterinary biologics
user fee proposals.  We did not find any public record of the
Congress' reasons for not approving them.  APHIS has again proposed
user fees for its veterinary biologics licensing, inspection, and
testing activities in its fiscal year 1998 budget. 

The animal drug industry has also not supported APHIS' user fee
proposals.  The Animal Health Institute, which represents the animal
drug industry, believes that the assessment of any fees on veterinary
biologics would be detrimental to small firms, possibly forcing them
to abandon needed products.  In addition, the Institute believes that
the biologics program benefits the U.S.  population as a whole. 


--------------------
\3 Federal User Fees:  A Legal and Economic Analysis, Boston
University Law Review, vol.  67, No.  5 (Nov.  1987). 


      BIOTECHNOLOGY REGULATORY
      ACTIVITIES
----------------------------------------------------- Appendix III:2.2

The goal of APHIS' biotechnology program is to approve innovative
biotechnology techniques and processes that benefit the agricultural
industry while protecting the environment.  Biotechnology involves
developing products that make use of genetically engineered
organisms.  New biotechnology techniques or processes are primarily
used for improving agricultural crops.  For example, a company may
develop a new kind of soybean by genetically combining two different
kinds of soybeans.  The new soybean may grow faster, be more
resistant to weather, or contain more vitamins and minerals than any
other kind of soybean on the market. 

In order to market products that are manufactured or produced through
new biotechnology, a company must obtain a permit from APHIS.  APHIS
issues three types of permits:  (1) an import permit, (2) a transit
permit for interstate movement, and (3) a permit to release the
product to the environment, for example, disposing of product waste
in a landfill. 

Before issuing a permit for field testing biotechnology products,
APHIS reviews plans for field testing and the results of any
preliminary tests.  APHIS also analyzes the products' environmental
impact to ensure compliance with environmental laws and regulations. 

In both its fiscal years 1996 and 1997 budget requests, APHIS
proposed charging user fees of about $1 million for its biotechnology
services.  The proposed fees would cover the direct cost of
investigating and issuing notifications, petitions, and permits to
use genetically engineered products.  If indirect costs were included
in the user fee, permit applicants would be charged an additional
$2.3 million in fees. 

Without a permit from APHIS, a biotechnologically derived product
cannot be field-tested or produced, imported, transported interstate,
or sold on either the domestic or international markets.  In
addition, federal approval of the product fosters public confidence
that the technology and resulting products will not harm public
health or the environment.  Thus, APHIS' permit reviews qualify for
user fees under Circular A-25 and legal precedent. 

APHIS has been unsuccessful in obtaining congressional approval for
these user fees.  We did not find any public record of the Congress'
reasons for not approving the proposals.  APHIS has again proposed
user fees for the issuance of biotechnology certificates in the
agency's fiscal year 1998 budget submission. 

The biotechnology industry in general opposes APHIS' proposed user
fees.  If user fees were too high, the industry argues that companies
might be forced to do their work in Europe.  In addition, some argue
that since this program also benefits the public by ensuring that
genetically engineered or modified plants or organisms do not put
livestock or crops at risk, user fees should not be charged. 

We estimate that a user fee covering all the agency's costs of
issuing biotechnology permits, notifications, and petitions would run
from about $400 per permit and notification, the most common types,
to $3,680 per petition, which requires an APHIS environmental study. 
Biotechnology customers are generally large corporations such as
Upjohn, Calgene, and Monsanto. 


FOOD-RELATED SERVICES THAT ARE
PROVIDED WITHOUT CHARGE TO
IDENTIFIABLE BENEFICIARIES
========================================================== Appendix IV

The federal government provides a number of food-related services for
which no user fees are charged.  In addition to meat and poultry
inspection and marketing agreements and orders discussed in the body
of this report, other federal services provided without charge that
benefit specific individuals or industries include (1) the Food
Safety Inspection Service's (FSIS) egg product inspections,
laboratory services, pathogen reduction activities, and import
inspections; (2) the Agricultural Marketing Service's (AMS) seed
regulatory activities; (3) the Grain Inspection, Packers and
Stockyards Administration's (GIPSA) regulatory oversight of packers
and stockyards; and (4) Food and Drug Administration's (FDA) domestic
and import compliance inspections. 

Table IV.1 lists the food-related services we reviewed that are
provided without charge to identifiable beneficiaries.  This appendix
provides a general description of these services, their fiscal year
1995 funding, and arguments for and against charging user fees. 



                               Table IV.1
                
                 Food-Related Services Provided Without
                Charge to Identifiable Beneficiaries and
                  Fiscal Year 1995 Funds Appropriated

                         (Dollars in millions)

Food-related services                                          Funding
--------------------------------------------------  ------------------
FSIS meat and poultry slaughter and processing               $486.86\b
 inspection\a
FSIS egg products inspection                                   10.86\c
FSIS laboratory services                                         18.02
FSIS pathogen reduction                                          10.21
AMS marketing agreements and orders\d                             9.98
AMS federal seed regulatory program                               1.17
GIPSA packers and stockyards regulation                          11.70
FDA domestic food and animal drug compliance                     63.87
 inspections
FDA import food compliance inspections                           38.78
======================================================================
Total                                                          $651.45
----------------------------------------------------------------------
\a Discussed earlier on pp.  15-17. 

\b Includes grants to states. 

\c Responsibility for egg products inspections was transferred to
FSIS during 1995.  This amount represents the total annual federal
funding for egg products inspections. 

\d Discussed earlier on pp.  17-19. 

Sources:  Data from FSIS, AMS, GIPSA, and FDA. 


   FOOD SAFETY INSPECTION
   SERVICE'S REGULATORY COMPLIANCE
   ACTIVITIES
-------------------------------------------------------- Appendix IV:1

In addition to inspecting domestic meat and poultry, FSIS (1)
inspects domestic egg products and imported meat, poultry, and egg
products and (2) provides laboratory analysis and pathogen reduction
services to support its inspection program.  No user fees are charged
for these services. 


      EGG PRODUCTS INSPECTIONS
------------------------------------------------------ Appendix IV:1.1

The Egg Products Inspection Act of 1970, as amended, mandated that
the federal government inspect egg processing plants to ensure that
egg products are safe, wholesome, and properly labeled.  An egg
products plant inspection includes, among other things, a
preoperations sanitary inspection, a rodent control program, and
testing for the presence of pathogens such as salmonella.  A federal
inspector must be present at all times for an egg products plant to
operate.  FSIS inspects egg products without charge during regularly
scheduled shifts, which may include several shifts daily, but charges
user fees for overtime, or unscheduled shift inspections.  In fiscal
year 1995, FSIS obtained from user fees about $710,000 of the $11.57
million funding for egg product inspections. 

In fiscal years 1996 and 1997, FSIS proposed charging user fees for
egg product inspections conducted during nonprimary shifts.  In its
fiscal year 1998 budget request, FSIS proposed user fees for the
salaries, benefits, and related costs associated with in-plant
inspections of egg products at all establishments inspected by the
agency.  Such user fees, according to USDA estimates, would generate
about an additional $9 million in revenues. 

A variety of arguments have been made in favor of user fees for FSIS
inspection activities.  In a recent report,\1 USDA's Inspector
General concluded that federal inspections of egg products provided
special benefits to industry, the costs of which should be funded
through user fees.  These special benefits include (1) helping assure
public confidence in the safety and wholesomeness of the product, (2)
permitting a plant to sell its products interstate and overseas, and
(3) allowing FSIS' stamp of inspection to be used as a marketing tool
to promote the product's superior quality. 

The Congress did not approve FSIS' fiscal year 1997 request to charge
user fees for egg products inspections because it viewed the public
as the primary beneficiary of such inspections.  The Congress has
generally taken the position that the costs of mandated inspections,
with the exception of overtime and voluntary services, should be
borne by the federal government. 

The United Egg Association, an industry trade association, opposed
user fees for egg inspections, stating "these federally mandated
programs were created solely to provide for the health and safety of
the American people." Furthermore, according to the Association, "the
integrity of the food inspection programs and the need to ensure
public confidence in the safety of food products has been part of the
historical basis for public funding of mandatory food inspection
programs."

Neither FSIS nor AMS, which administered the program before FSIS,
have estimated the cost impact of charging a user fee for the
inspections of egg products.  However, based on USDA's fiscal year
1995 funding for egg products inspection services, user fees would
likely increase the cost to egg products producers by less than a
half-cent per pound. 


--------------------
\1 Food Safety and Inspection Service Meat and Poultry Inspection
Program Phase II, United States Department of Agriculture, Office of
Inspector General, Evaluation Report No.  24801-1-AT (Apr.  1996). 


      FSIS LABORATORY SERVICES AND
      PATHOGEN REDUCTION
      ACTIVITIES
------------------------------------------------------ Appendix IV:1.2

The FSIS laboratory services and pathogen reduction programs support
meat, poultry, and egg product inspections through the scientific
examination of these products for disease, contamination, or other
forms of adulteration.  FSIS operates three multidisciplinary
laboratories and also accredits about 200 private laboratories to
carry out food safety and composition tests.  FSIS and accredited
laboratories test for antibiotic residues, chemical residues,
microbiological contamination, pathology, and serology.  Testing is
also done for processed product composition and economic
adulteration, such as testing for moisture, fat, protein, or salt
content in ham or poultry. 

Laboratory samples come from two sources--FSIS inspectors and plants. 
As part of the meat, poultry, and egg inspection programs, FSIS
laboratories analyze, without charge, inspector-collected samples. 
The FSIS laboratories also analyze plant-supplied samples, but charge
the plant for the services provided.  In fiscal year 1995, the
laboratory services program received about $19.24 million in funding. 
About $1.22 million came from user fees for overtime, laboratory
accreditation, and analysis of plant-supplied samples. 

Similar to the laboratory services program, the pathogen reduction
program provides essential support to the meat, poultry and egg
inspection programs.  The program's goal is to control microbial
contamination of meat and poultry products from farm to table, and
work is performed at all three FSIS laboratories.  In fiscal year
1995, FSIS' pathogen reduction program received about $10.2 million
in general fund appropriations; no user fees were charged. 

FSIS laboratory services and pathogen reduction programs are
essential support elements of the meat, poultry, and egg inspection
services.  Laboratory services and pathogen reduction were a single
budget account until 1994, when for visibility purposes, FSIS
separated them into two different accounts.  Nonetheless, these
programs would most likely not exist or at least be much smaller if
it were not for the meat, poultry, and egg products inspection
programs. 

If user fees were charged to cover FSIS meat, poultry, and egg
inspection costs, the fee calculation, according to OMB's criteria,
should include the costs associated with the laboratory analysis and
pathogen reduction activities.  OMB Circular A-25 states user fees
should cover the government's full costs, including essential support
costs, such as laboratory analysis. 

USDA's Inspector General recently recommended that FSIS either seek
statutory authority to assess, collect, and retain user fees for its
laboratory services or require the plants to assume financial
responsibility for laboratory testing costs by having them send FSIS
inspector-selected samples to accredited laboratories, with the plant
paying directly for testing costs.  The Inspector General also
recommended that FSIS seek user fees for its pathogen reduction
services, because they help ensure product quality and add to public
confidence. 

Historically, the Congress has believed that meat inspection costs,
including laboratory testing, should be borne by the federal
government, because the public was the primary beneficiary.  Others
opposed to the fees argue that if laboratory analysis were entirely
paid for by industry, the results of the laboratory analysis would
lose some credibility. 

If industry passed the costs of FSIS laboratory analysis, pathogen
reduction, and meat and poultry inspection services along to
consumers, the additional cost per pound would be negligible.  For
example, FSIS estimates that a user fee covering all of these
inspection-related costs would increase consumer prices for meat and
poultry an average of about one-half cent per pound. 


      FSIS IMPORT INSPECTIONS
------------------------------------------------------ Appendix IV:1.3

Federal meat, poultry, and egg products inspection laws require that
countries exporting these foods to the United States impose
inspection requirements at least equal to U.S.  requirements.  An
inspection document certifying that the products meet U.S.  standards
and issued by the responsible official of the exporting country must
accompany each shipment offered for entry into the United States. 
FSIS spent about $11 million inspecting 2.6 billion pounds of
imported meat, poultry, and egg products in fiscal year 1995. 

FSIS inspections of imported meat, poultry, and egg products consist
of checking (1) the exporting country's certifications and manifests
to ensure that the number of packages in the lot agree with what is
on the manifest and that no damage has occurred in transit, (2) the
labels for truthfulness, and (3) the product for wholesomeness using
organoleptic (sight, smell, and touch) techniques.  Import inspectors
also routinely pull import product samples for laboratory analysis. 

Those in favor of charging user fees for FSIS import activities argue
that importers receive a special benefit as a result of this federal
service.  Without the USDA inspection mark, importers cannot market
their products in the United States.  Federal inspection also adds to
public confidence in the safety and wholesomeness of the product. 

A 1996 report by USDA's Inspector General recommended that FSIS seek
user fee authority for import inspections because they benefit
specific identifiable individuals or firms by allowing entry to the
U.S.  market and enhancing public confidence through USDA's stamp of
inspection.\2 In addition, charging user fees for FSIS inspection
activities would reduce the inequities and inconsistencies that
currently exist in charging for import activities.  While FSIS does
not charge for import inspections, APHIS charges a $27.50 fee per
shipment to cover the cost of inspecting and issuing import permits
for animal products such as horns, skins, and animal trophies. 

The arguments raised against user fees for import activities at FSIS
are similar to those raised regarding inspection.  Some argue that if
industry paid for import inspections, the public might doubt the
credibility of the inspections or believe inspectors faced a conflict
of interest between facilitating an import entry and protecting
public health.  In addition, small brokers and import dealers may be
economically hurt by new user fees and foreign countries may take
reciprocal actions on U.S.  imports or may view fees as a trade
barrier. 

To be in compliance with the General Agreement on Tariffs and Trade,
the United States could not charge for import inspections without
charging for similar domestic inspections.  Currently, domestic
inspections are provided without charge. 

An import user fee, when prorated across all imported meat and
poultry products, would not have a significant impact on consumers. 
For example, if a user fee had been charged for the 2.6 billion
pounds of imported meat, poultry, and egg products FSIS reviewed in
1995 and the cost passed on to the consumer, prices would increase an
average of about one-half cent per pound. 


--------------------
\2 Food Safety and Inspection Service Meat and Poultry Inspection
Program Phase II, United States Department of Agriculture, Office of
Inspector General, Evaluation Report No.  24801-1-AT (Apr.  1996). 


   AMS' SEED REGULATORY PROGRAM
-------------------------------------------------------- Appendix IV:2

In accordance with the Federal Seed Act of 1939, AMS conducts an
enforcement program to ensure truthful labeling and fair competition
in the seed industry.  AMS conducts the program in cooperation with
the states, each of which has a state seed law with jurisdiction over
sellers within that state.  To enforce the interstate provisions of
the act, AMS has cooperative agreements with the states.  About 500
state inspectors are authorized to inspect seeds subject to the act. 
Seed samples are routinely drawn by state inspectors to monitor seeds
sold commercially.  AMS received $1.17 million in fiscal year 1995
general fund appropriations for the federal seed program.  No user
fees were charged. 

States refer apparent infractions of the act to AMS for verification
and action.  Based on the results of tests and investigations, AMS
attempts to resolve each case administratively by issuing "warning
notices" or assessing penalties.  For cases that cannot be resolved
administratively, AMS will take appropriate legal action. 

In 1987, AMS proposed charging user fees to fund the cost associated
with its seed program.  AMS proposed charging each of the
approximately 3,000 interstate seed shippers a license fee.  The fee
would be based on the dollar value of seed sold.  Currently, 37
states charge user fees for their intrastate seed inspections. 

Those in favor of user fees for the federal seed program argue that
AMS seed inspection activities benefit those involved in the
interstate seed business by ensuring fair competition and increasing
the confidence of buyers in the quality of the product.  Seed sellers
also benefit from the increased confidence that buyers have that the
seeds they purchase are properly labeled. 

Those opposed to user fees for the program argue that seed
inspections do not provide a special benefit to industry that would
justify a user fee.  The seed industry opposed the 1987 AMS user fee
proposal, saying that the public benefited from the program, not just
the industry.  The industry continues to oppose user fees for this
program because it believes that user fees are not appropriate for a
mandatory regulatory program. 

A user fee to cover AMS' fiscal year 1995 seed program funding of
$1.17 million would have equated to about $423 per seed shipper.  If
the user fees were based on the dollar value of seed sold, the amount
charged smaller dealers would be less than the average, while the
amount charged larger dealers would be somewhat greater than the
average. 


   GIPSA'S PACKERS AND STOCKYARDS
   ACTIVITIES
-------------------------------------------------------- Appendix IV:3

GIPSA is responsible for administering the provisions of the Packers
and Stockyards Act of 1921.  The act is aimed at ensuring fair
business practices and competitive markets for livestock, meat, and
poultry. 

In fiscal year 1995, GIPSA spent about $11.7 million without
reimbursement on activities aimed at fostering fair and open
competition, guarding against deceptive and fraudulent practices, and
providing payment protection in the marketing of livestock, meat, and
poultry.  To accomplish these aims, GIPSA investigates fraudulent
practices in livestock marketing, such as false weighing,
manipulating weights and prices, switching of livestock, and
misrepresenting the source, origin, and health of livestock.  GIPSA
also checks the accuracy of scales used for weighing livestock, meat,
and poultry and monitors the operation of scales to ensure that
weighing is done correctly.  GIPSA's payment protection provides for
the livestock seller's financial security by providing protection
against a buyer's default on payment of a contract. 

Since fiscal year 1995, GIPSA has proposed license fees to fund the
cost of the Packers and Stockyards Administration.  Under its
proposal, all 24,125 packers, live poultry dealers, stockyard owners,
market agencies and dealers registered with GIPSA would be charged a
license fee.  Currently, the Packers and Stockyards Act requires that
(1) market agencies and dealers register with GIPSA and (2)
slaughterhouses, processing packers, and poultry operations doing
over $500,000 worth of business a year file an annual report with
GIPSA. 

Packers, stockyard owners, and others who are subject to GIPSA's
regulation derive benefits because they are protected against
deceptive and fraudulent practices in the marketing of livestock,
meat, and poultry.  In addition, livestock and poultry producers
receive payment protection.  Thus, according to Circular A-25, a user
fee would be justified. 

AMS charges a similar fee for its activities under the Perishable
Agricultural Commodities Act (PACA) of 1930.\3 PACA promotes fair
trading practices in the marketing of fresh and frozen fruits and
vegetables.  The act prohibits unfair and fraudulent practices in the
industry and provides for dispute resolution outside the civil court
system.  Sellers must provide the quality and quantity of products
specified in contracts, while buyers must accept and promptly pay for
products received in accordance with the contract terms.  The PACA
program is funded primarily from license fees paid annually by
approximately 15,000 buyers and sellers, including dealers,
retailers, processors, and truckers.  The amount each licensee pays
is based on the number of branches and business facilities owned. 
Fees range from about $300 to $4,000. 

The National Cattlemen's Association, an industry association that
represents approximately 230,000 cattlemen, breeders, producers, and
feeders, opposes the imposition of license fees to cover the costs of
administering the Packers and Stockyards Act.  The Association
believes that the companies that would be responsible for paying
these fees accrue no benefit from the program.  Therefore, the
Association argues that GIPSA's licensing activities should be
publicly funded. 

GIPSA has estimated that the annual licensing fees for a single
business operation subject to regulation under the Packers and
Stockyards Act would range from about $600 to $7,500.  The amount of
the fee would vary based on the size of the firm.  If license fees
were passed on to the farmer, rancher, or the consumer, the impact on
meat and poultry prices would be negligible, according to a GIPSA
official. 


--------------------
\3 USDA License Fees:  Analysis of the Solvency and Users of the
Perishable Agricultural Commodities Act Program (GAO/T-RCED-95-135,
Mar.  16, 1995). 


   FDA'S COMPLIANCE ACTIVITIES
-------------------------------------------------------- Appendix IV:4

FDA is responsible for, among other things, the safety of the
nation's domestically produced foods and animal drugs.  The agency is
also responsible for ensuring that foods imported into this country
meet the same standards as domestic products.  To carry out these
responsibilities, FDA conducts inspections at domestic food and
animal drug plants and at ports of entry.  No user fees are charged
for these services. 


      FDA'S DOMESTIC COMPLIANCE
      INSPECTIONS
------------------------------------------------------ Appendix IV:4.1

FDA is responsible for ensuring the safety of all foods sold in
interstate commerce--except meat, poultry, and eggs, which are
regulated by USDA.  FDA conducts a variety of regulatory compliance
activities, including (1) monitoring the conditions under which food
is manufactured, processed, packed, and stored by inspecting food
establishments and products; (2) collecting and conducting laboratory
analysis of food samples; and (3) investigating violations and
initiating enforcement actions when appropriate.  FDA also
investigates USDA referrals of illegal drug residues found on meat
and poultry and ensures that animal drugs are manufactured in
accordance with established procedures. 

Domestic food-related compliance inspections were funded at about
$42.35 million in fiscal year 1995, and domestic animal drug
compliance activities received another $21.52 million; no user fees
were charged.  In a recent report,\4

we found that based on its 1994 operating plan, FDA inspected food
processing plants about once every 8 years.  FDA inspects animal drug
facilities about once every 2 years. 

Those favoring user fees for FDA's regulatory oversight of food and
animal drugs argue that these activities benefit firms in these
industries (1) by ensuring the safety and effectiveness of their
products, (2) increasing consumer confidence in their products, (3)
reducing their exposure to liability, and (4) protecting them from
unfair competition.  A 1990 report by the Department of Health and
Human Services' Inspector General stated, "...  user fees in the Food
and Drug Administration, properly instituted, represent a legitimate
method to recover regulatory costs.  Such fees would be consistent
with fee systems in other federal regulatory environments."\5 In a
1991 report, the Inspector General recommended that FDA collect an
inspection user fee from all food firms, in part so that the
frequency of inspections could be increased.\6

On the other hand, those opposed to user fees for FDA's food-related
compliance activities argue that these activities do not provide
specific benefits to industry but protect the public and, therefore,
are not appropriate for user fees.  In March 1995, an official
representing the Grocery Manufacturers of America, a trade
association whose membership comprises many of the largest food
companies in America, testified before the Subcommittee on
Agriculture, House Committee on Appropriations, that FDA inspection
programs should continue to be funded through appropriations, not
user fees.  Specifically, according to the official, to require the
food industry to pay for any form of government regulation intended
strictly to benefit the public is tantamount to a food tax. 

The Animal Health Institute, which represents animal drug
manufacturers, opposes user fees for FDA's compliance activities
related to animal drugs.  According to an Institute official, the
Institute does not support user fees for animal drug reviews, and any
discussion of user fees for animal drugs must begin with improving
the review and approval process before considering fees for other FDA
activities related to animal drugs. 

Arguably, any benefits that industry may derive from FDA compliance
inspections of food and animal drug firms are minimized by their
infrequency.  Furthermore, it is difficult to justify charging a user
fee for infrequent FDA compliance inspections, so long as the meat,
poultry, and egg industries receive continuous or daily FSIS
inspections without charge. 

About 48,000 food firms are in FDA's official inventory.  To fully
fund domestic food compliance inspections in fiscal year 1995, each
firm in the official inventory would have had to pay, on average, a
$900 annual fee.  To lessen the burden on smaller firms, a fee
schedule could be developed that would vary based on the size or
economic value of the firm's products. 

There are about 4,700 animal drug firms in FDA's official
establishment inventory.  To fully fund animal drug compliance
inspections in fiscal year 1995, each firm in the official inventory
would have had to pay, on average, a $4,600 annual fee.  To lessen
the burden on smaller firms, a fee schedule could be developed that
would vary based on the size or economic value of the firm's
products. 


--------------------
\4 Food Safety:  New Initiatives Would Fundamentally Alter the
Existing System (GAO/RCED-96-81, Mar.  27, 1996). 

\5 Implementing User Fees in the Food and Drug Administration:  A
Case Study, Department of Health and Human Services, Office of
Inspector General (July 1990). 

\6 FDA Food Safety Inspection, Department of Health and Human
Services, Office of Inspector General (1991). 


      FDA'S IMPORT INSPECTIONS
------------------------------------------------------ Appendix IV:4.2

All food products that are imported into the United States must meet
the same standards as domestic products.  For example, foods must be
safe to eat and produced under sanitary conditions.  However, rather
than inspect each shipment of imported food, FDA chooses samples to
inspect.  Most food products are admitted into the United States
without sampling.  In fiscal year 1995, FDA spent about $38.78
million inspecting imported foods.  No user fees were charged. 

In its fiscal year 1993 budget, FDA proposed charging about $60
million in user fees to fund inspections of imported products,
including foods, drugs and medical devices.  In justifying its user
fee proposal, FDA argued that importers benefit from FDA's activities
through increased consumer confidence in their products.  In fiscal
years 1996 and 1997 FDA again proposed charging user fees to increase
the effectiveness and efficiency of its regulatory compliance program
for imported products.  Approximately $15 million in user fees were
proposed to be charged and used to help pay for a computer system
which would improve the processing and monitoring of import entries. 
FDA argued that importers and brokers would benefit from the new
system through faster turnaround times, elimination of large volumes
of paperwork, and reduced costs of doing business. 

Neither of these proposals for import user fees were approved by the
Congress.  In rejecting the 1993 proposal, the Congress was
concerned, among other things, about the impact on FDA's operations
if the expected user fee revenues did not materialize.  In addition,
opponents argue that user fees on imports could (1) add to the cost
of food for consumers, (2) hinder food imports, which make up an
increasing proportion of the U.S.  food supply, (3) pose an unfair
burden on small businesses, which import small lots of foods, and (4)
be unfair if only those firms whose products are sampled by FDA had
to pay a user fee.  The Association of Food Industries, which
represents nearly 200 companies in the food import business, is
opposed to user fees for FDA's import inspection activities because
they are concerned that (1) fee revenues would not be spent
exclusively on improving the computer system that supports import
entries, (2) fees would rise each year and may continue indefinitely. 

Finally, as we mentioned earlier, to be in compliance with the
General Agreement on Tariffs and Trade, the United States could not
charge for the inspection of imported foods and food-related products
without charging for similar domestic inspections.  Currently,
domestic inspections are provided without charge. 

FDA has stated that charging an import fee would be relatively
simple.  According to FDA, all entries would be charged, regardless
of whether they were sampled, and a schedule could be established to
take into account the range of values and size of the import lots. 
Charging user fees for FDA's food import inspections should have a
minimal impact on the cost of imported foods.  FDA's funding for food
import inspections represented less than 0.2 percent of the value of
food-related imports in fiscal year 1995. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
COMMERCE
========================================================== Appendix IV



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================== Appendix VI

To identify and evaluate opportunities for increasing the share of
program funding paid for by beneficiaries of food-related services,
we identified (1) the types of food-related services provided by
federal agencies, (2) the extent to which beneficiaries currently pay
for such services through user fees, and (3) potential opportunities
for recovering more of the service costs through user fees, as well
as arguments for and against doing so. 

To identify the types of food-related services provided by federal
agencies, we identified the principal federal agencies--Agricultural
Marketing Service; Animal and Plant Health Inspection Service; Food
and Drug Administration; Food Safety and Inspection Service; Grain
Inspection, Packers and Stockyards Administration; and National
Marine Fisheries Service--that provide food-related services.  Some
other agencies may also provide limited amounts of food-related
services but we excluded them from our review.  From each agency, we
obtained and reviewed programmatic and budget information on the
food-related services they provide.  In addition, we met with agency
officials to discuss the type of food-related services they provide
and the beneficiaries of these services.  We also reviewed
information on food-related services from our previous reports and
those of inspectors general. 

To identify the extent to which beneficiaries pay for food-related
services through user fees we asked the agencies to provide user fee
and appropriations funding data for their food-related activities. 
We did not verify the accuracy of these data.  In addition, we
obtained and reviewed the agencies' budget documents and met with
agency officials to discuss the degree to which program activities
were funded through user fees. 

To identify potential opportunities for recovering more of the
service costs through user fees, as well as arguments for and against
doing so, we began by examining the programs that either charged
partial user fees or no user fees.  We then judgmentally selected
those programs where there appeared, in comparison to other programs,
to be inconsistencies in user charges or where there appeared to be
private beneficiaries of the services.  We did not review all of the
food-related services at the six agencies for which user fees may be
appropriate. 

We met with Office of Management and Budget and agency officials to
discuss the agencies' annual budget submissions and identify services
that have been proposed as appropriate for user fees in the past.  We
also discussed with OMB officials their Circular A-25, which provided
the principal criteria for identifying opportunities for charging
user fees to beneficiaries of federal services.  To identify the
arguments in favor of and opposed to user fees, we met with agency
officials and representatives of industry groups that would be
affected by additional user fees.  We also reviewed agency user fees
proposals, congressional reports on agency appropriations, and
industry position papers on user fees. 

Our work was conducted between April 1996 and January 1997 in
accordance with generally accepted government auditing standards. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII

Keith W.  Oleson, Assistant Director
Stephen D.  Secrist, Project Leader
Denis P.  Dunphy
LaSonya R.  Roberts
Jay L.  Scott
Jonathan M.  Silverman
Oliver H.  Easterwood

*** End of document. ***