67 



partment of Agriculture released a report earlier this year outlining sector-by-sector 



?;ains for agriculture. The study overwhelmingly concluded that farmers would bene- 

 it from greater cash receipts and higher levels of exports generated by trade with 

 Mexico. 



However, there are a large number of agricultural associations which are not sup- 

 porting the agreement ana believe the NAFTA will be devastating to their indus- 

 tries. They question the assumptions of the supporters of the agreement and they 

 question the ability of the United States to enforce provisions within the NAFTA. 



Some comprehensive economic analyses have not been strong in their endorse- 

 ment of the agreement for agriculture. Both the Congressional Budget Office and 

 the International Trade Commission estimated that any overall effect on agriculture 

 would be minimal with some slight gains and losses in certain sectors. After looking 

 at those reports, I had to ask myself if perhaps the potential modest gains to agri- 

 culture have been overestimated and the substantial risks underestimated. 



Assumptions have been made that the dairy industry in Mexico cannot be com- 

 petitive with the U.S. industry. This assumption is based on Mexico's reliance on 

 small, inefficient dual purpose dairies and lack of adequate infrastructure. This as- 

 sumption ignores the growth of large high-tech dairies in the Northern States of 

 Mexico that resemble U.S. dairies in the Southwest. These dairies, located near the 

 U.S. border, represent only 18 percent of the milking herd but account for 55 per- 

 cent of the milk produced in Mexico. With the ongoing liberalization of Mexico's 

 land-use policies and greater access to high quality feed and other inputs, this type 

 of dairy operation in Mexico will expand and will likely be competitive with the U.S. 

 industry. The constraints these dairies face for expansion will have be removed 

 under NAFTA and the advantages of little environmental regulation and low-cost 

 labor will remain intact. 



The other questionable assumption is that the increased income and demand in 

 Mexico generated by Mexico will benefit the U.S. agricultural sectors. In the case 

 of dairy, there is little to guarantee that increased demand in dairy products will 

 be filled by U.S. products. Currently the United States faces stiff competition from 

 highly subsidized exports from the European Community and other countries and 

 with the unsubsidized exports from New Zealand. There is nothing in NAFTA to 

 protect us from this competition and there is little to guarantee increased demand 

 for U.S. dairy products. 



Obviously, the assumption of greatest concern to me and to many in production 

 agriculture is the enforcement of the Rules of Origin provision. There are strong 

 market incentives for Mexican processors and European exporters to circumvent the 

 rules-of-origin provisions for dairy products. The EC will easily find the back door 

 to our markets for dairy and other producers wide open if the rules of origin cannot 

 be enforced. This concern goes well beyond the dairy industry. I have heard nearly 

 every sector discuss the importance of the enforcement of this provision. I will look 

 forward to hearing how these provisions will be enforced. 



We cannot forget from whom Mexico imports dairy products — the EC, New Zea- 

 land, and Canada. Until we can address the subsidies provided by Canada and the 

 EC, I suspect the U.S. dairy industry will not realize substantial benefit from 

 NAFTA. 



Perhaps, above all else, I am concerned that the NAFTA will prevent the dairy 

 industry from ever effecting any change on their current price support program. 

 Clearly NAFTA would negate any advantages provided by a supply management 

 program promoted by many dairy farmers. We can hardly support prices by control- 

 ling supply if we have no authority to control our imports. I Delieve that even the 

 market-oriented "self-help" plan promoted by dairy cooperatives could be rendered 

 ineffective due to the Export Subsidies provision in NAFTA. Since the self-help plan 

 would rely heavily on an export subsidy program much like the Dairy Export Incen- 

 tive Program it is unclear the extent to which it would be allowed under NAFTA. 

 It seems clear to me that we could do little to provide greater dairy producer sup- 

 port once this agreement is in place. 



While I have these concerns, I'm here to listen and learn from our very knowl- 

 edgeable witnesses and I appreciate having this opportunity to do so. 



Senator Grassley 



Thank you Mr. Chairman. I'd like to thank Ambassador Kantor and Secretary 

 Espy for joining us; it is always a pleasure to have each of you before the committee. 

 And I welcome the witnesses as well. 



Though I have some concerns about NAFTA, my support of its agricultural provi- 

 sions is whole and unqualified. NAFTA devotes an entire chapter to trade in agri- 



