84 



tie numbers are now increasing rapidly and may reach over 120 million head by 

 1995. 



In both cases, without NAFTA, and thus without expanded markets, we are head- 

 ed for a wreck resulting in a painful downsizing in numbers of cattle ranchers and 

 dairy producers. Remember that a 1- to 2-percent increase or decrease in the domes- 

 tic supply needs causes a dramatic (20- to 40-percent) increase or decrease in price. 

 Increasing prices are quickly captured at the retail level. Decreasing prices collapse 

 prices received by producers, but only inch down to consumers. Beef and dairy 

 prices, because of the commodity nature of the business, are based on the national 

 market. 



Thus, unless product is moved out of the domestic market, prices to producers will 

 have to be reduced dramatically. Without new and expanded markets for beef and 

 dairy, as provided by NAFTA, the U.S. and Vermont producers face a very tenuous 

 future. 



NAFTA is an agreement which provides rules of play. To cite an example, it 

 adopts the strict U.S. animal health standards which continue the efforts by all 

 three countries to control and eliminate animal diseases. NAFTA protects the U.S. 

 consumer by not changing the rules of entry pertaining to pesticide use and resi- 

 dues. The United States retained the right to exclude goods that do not meet the 

 U.S. domestic standards. NAFTA would eliminate artificial health and safety bar- 

 riers that in November were used to exclude beef exports to Mexico by adopting 

 measures based on recognized scientific international standards. 



NAFTA provides for all three nations a mechanism to enhance their environ- 

 mental consciousness and awareness. Under President Salinas' leadership, Mexico 

 has adopted strong environmental regulations. The problem is one of enforcement. 

 Mexico has boosted its enforcement budget from $6.6 million to $77 million, with 

 an increase from 50 to 200 environmental inspectors. It maintains the U.S. environ- 

 mental health and safety standards. NAFTA opens Mexican markets to U.S. envi- 

 ronmental technology and products. Also, NAFTA provides for the establishment of 

 a North American Trade Commission to handle disputes and provide for their reso- 

 lution. 



One of the major concerns of the dairy industry is the dumping of subsidized prod- 

 uct, primarily from the EC, in Mexico, which would then flow freely into the United 

 States. This concern has been addressed. Any product that does not meet the spe- 

 cific rules of origin provision is excluded from the agreement. By definition, products 

 must be either produced in a NAFTA country or use ingredients that originate in 

 a NAFTA country. 



In my opinion, dairy and beef will gain significantly under the provisions of 

 NAFTA: 



According to USDA, beef exports to Mexico are projected to increase to more 

 than 200,000 metric tons after a 10-year transition period; in 1991, the 

 United States exported 64,000 tons. By the end of the transition period, 

 U.S. cattle prices are projected to increase by 50 cents to $1 per hundred- 

 weight, which would mean a $200—400 million gain for U.S. industry. Re- 

 cent Mexican tariffs of 15 percent on live cattle, 20 percent on fresh beef 

 and 25 percent on frozen beef will be eliminated immediately under 

 NAFTA. Currently, trade is two-way: the United States imports about 1 

 million feeder calves from Mexico and exports 140,000 head of slaughter 

 cattle to Mexico. NAFTA is expected to increase such trade in both direc- 

 tions." s 



Many of the major benefits will be indirect. As Mexico's economy grows, there will 

 be growing demand for U.S. meat due to increased consumer purchasing power, and 

 a demand for U.S. middle meat cuts due to changes in Mexican domestic controls 

 and other livestock policies. 



Concern has been expressed that U.S. businesses will simply move to Mexico be- 

 cause of the cheap labor. Several companies have already tried it and have found 

 that the reduced labor cost has been more than offset by reduced productivity. I call 

 your attention to the Wall Street Journal, September 15, 1993, front page article 

 by Bob Davis titled, "Some U.S. Companies Find Mexican Workers Not So Cheap 

 After All." One study by the International Trade Commission concluded that Mexi- 

 co's dairy industry is at a competitive disadvantage to the United States. Mexico 

 lacks the infrastructure for handling and transporting milk, as well as state-of-the- 

 art processing. A similar study by the Department of Agricultural Economics at 

 Ohio State predicts strong marketing opportunities for the U.S. dairy industry in 



e "NAFTA Will Expand Exports of Many U.S. Commodities," AG for NAFTA 



