question isn't clear. The disparate tariff rates for Mexican versus 

 American imports of powdered milk beyond the duty-free levels and 

 the varying tariff phaseout periods make any potential gain for the 

 dairy industry questionable. NAFTA also maintains for many years 

 high tariffs for U.S. exports of some cheeses to Mexico that are cur- 

 rently subject to import licensing, reducing the competitiveness of 

 our exports. 



It appears that the U.S. dairy industry, therefore, has given up 

 a great deal for limited market gain. This agreement at best ap- 

 pears to provide little benefit to agricultural producers in this coun- 

 try, and at worst will cost farmers their markets, incomes, and po- 

 tentially their livelihoods. 



While there are many NAFTA supporters in agriculture, there 

 are also a number of agricultural producer groups which are not 

 supporting the agreement and believe NAFTA will be devastating 

 to their industries. 



After looking at those reports, I had to ask myself if perhaps the 

 potential modest gains to agriculture have been overestimated and 

 the substantial risks underestimated. Assumptions, for example, 

 have been made, Mr. Chairman, that the dairy industry in Mexico 

 cannot be competitive with U.S. industry, and the assumption is 

 based on Mexico's reliance on small and efficient dual-purpose 

 dairies, but it ignores the growth of large, high-tech dairies in the 

 northern states of Mexico and their ability to further expand with 

 access to greater inputs. 



The other questionable assumption is that increased demand for 

 dairy products fueled by higher Mexican incomes generated by 

 NAFTA will actually be filled by U.S. products rather than the low- 

 cost products of the European Community, Canada, and New Zea- 

 land. Obviously, one of the assumptions of greatest concern to 

 those of us involved with the dairy industry is whether the rules- 

 of-origin provision will be adequately enforced. There are strong 

 market incentives for processors and European exporters to cir- 

 cumvent the rules-of-origin provisions for dairy products. 



We are concerned that the EC will find the back door to our 

 dairy markets wide open if the rules of origin are not as strict in 

 practice as they are on paper. Perhaps above all else, Mr. Chair- 

 man, I am concerned that NAFTA will prevent the dairy industry 

 from ever effecting any change in the current price support pro- 

 gram. Clearly, NAFTA could negate any advantages provided by a 

 supply management program promoted by many dairy farmers. I 

 believe that even the market-oriented self-help plan promoted by 

 dairy cooperatives could be rendered ineffective due to the export 

 subsidies provision in NAFTA. It seems clear to me that we would 

 do little to provide greater dairy producer support once this agree- 

 ment is in place. 



So I have many other concerns, but I wanted to at least lay out 

 a few that are of particular concern to dairy. I will wait for the 

 question period to discuss these issues further. 



The Chairman. Thank you very much. 



Senator Grassley, also a member of the Finance Committee. 



