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Full text of "How NAFTA will affect U.S. agriculture : hearing before the Committee on Agriculture, Nutrition, and Forestry, United States Senate, One Hundred Third Congress, first session, on the effect of the North American Free Trade Agreement (NAFTA) on U.S. agriculture, September 21, 1993"

S. HRG. 103-465 

HOW NAFTA WILL AFTECT U.S. AGRICULTURE 



Y 4. AG 8/3: S. HRG. 103-465 

Hou NAFTA Uill Affect U.S. Agricult. . . 

HEARING 

BEFORE THE 

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED THIRD CONGRESS 

FIRST SESSION 

ON 

THE EFFECT OF THE NORTH AMERICAN FREE TRADE AGREEMENT 
(NAFTA) ON U.S. AGRICULTURE 



SEPTEMBER 21, 1993 



Printed for the use of the 
Committee on Agriculture, Nutrition, and Forestry 










****** 



U.S. GOVERNMENT PRINTING OFFICE 
73-024 CC WASHINGTON : 1994 

For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-044038-6 

T3_m/i r\ n/i l 




S. HRG. 103-465 

HOW NAFTA WILL AFFECT U.S. AGRICULTURE 



4. AG 8/3: S. HRG. 103-465 



3U 



NAFTA Uill Affect U.S. Agricult. 



HEARING 

BEFORE THE 

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED THIRD CONGRESS 

FIRST SESSION 

ON 

THE EFFECT OF THE NORTH AMERICAN FREE TRADE AGREEMENT 
(NAFTA) ON U.S. AGRICULTURE 



SEPTEMBER 21, 1993 



Printed for the use of the 
Committee on Agriculture, Nutrition, and Forestry 










U.S. GOVERNMENT PRINTING OFFICE 
73-024 CC WASHINGTON : 1994 

For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-044038-6 



COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 

PATRICK J. LEAHY, Vermont, Chairman 

DAVID H. PRYOR, Arkansas RICHARD G. LUGAR, Indiana 

DAVID L. BOREN, Oklahoma ROBERT DOLE, Kansas 

HOWELL HEFLIN, Alabama JESSE HELMS, North Carolina 

TOM HARKIN, Iowa THAD COCHRAN, Mississippi 

KENT CONRAD, North Dakota MITCH McCONNELL, Kentucky 

THOMAS A. DASCHLE, South Dakota LARRY E. CRAIG, Idaho 

MAX BAUCUS, Montana PAUL COVERDELL, Georgia 

J. ROBERT KERREY, Nebraska CHARLES E. GRASSLEY, Iowa 
RUSSELL D. FEINGOLD, Wisconsin 

Charles Riemenschneider, Staff Director 

JAMES M. CUBIE, Chief Counsel 

Christine Sarcone, Chief Clerk 

CHARLES CONNER, Staff Director for the Minority 

(ID 



\ \ 



CONTENTS 

Page 

Statements 

Hon. Patrick J. Leahy, U.S. Senator from Vermont 1 

Hon. Richard G. Lugar, U.S. Senator from Indiana 3 

Hon. Max Baucus, U.S. Senator from Montana 5 

Hon. Kent Conrad, U.S. Senator from North Dakota 7 

Hon. Russell D. Feingold, U.S. Senator from Wisconsin 8 

Hon. Charles E. Grassley, U.S. Senator from Iowa 10 

Hon. Larry E. Craig, U.S. Senator from Idaho 10 

Hon. David Pryor, U.S. Senator from Arkansas 11 

Hon. Thad Cochran, U.S. Senator from Mississippi 12 

Hon. Thomas A. Daschle, U.S. Senator from South Dakota 12 

Hon. Mike Espy, Secretary of Agriculture 13 

Hon. Michael Kantor, U.S. Trade Representative 17 

Robert L. Foster, vice chairman, board of directors, Agri-Mark, Inc 46 

Leland Swenson, president, National Farmers Union 48 

Mike Bauerle, immediate past chairman, Nebraska Corn Development, 

Utilization, and Marketing Board 50 

Roger Stuber, president, National Cattlemen's Association 52 

Martha R. Roberts, Deputy Commissioner for Food Safety, Florida Agri- 
culture and Consumer Services 53 

Dean R. Kleckner, American Farm Bureau Federation 55 

APPENDLX 

Prepared statements 

Senator Lugar 63 

Senator Conrad 63 

Senator Feingold 66 

Senator Grassley 67 

Senator Pryor 68 

Senator Cochran 69 

Senator Dole 69 

Senator Harkin 70 

Secretary Espy 70 

Ambassador Kantor 75 

Robert L. Foster 83 

Leland Swenson, with attachments 86 

Michael Bauerle 108 

Roger Stuber 109 

Martha R. Roberts, with attachments Ill 

Dean R. Kleckner 133 

Friends of the Earth 

Andrea Durbin 134 

Brent Blackwelder, with attachments 138 

National Grange 144 

National Family Farm Coalition 146 

Agribusiness Council 147 

National Association of State Departments of Agriculture 148 

Luis Tellez K. to Charles J. O'Mara 153 

Jeff Lundberg to Senator Leahy 153 

Carl Schwensen and Winston Wilson to Senator Leahy 154 

Additional material submitted for the record 

Summary of agriculture private sector comments on NAFTA 155 

Questions from Senator Baucus and responses thereto 168 

(III) 



THE NORTH AMERICAN FREE TRADE 

AGREEMENT 



TUESDAY, SEPTEMBER 21, 1993 

U.S. Senate, 
Committee on Agriculture, Nutrition, and Forestry, 

Washington, DC. 
The committee met, pursuant to notice, at 2:36 p.m., in room 
SD-138, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 
chairman of the committee, presiding. 

Present or submitting a statement: Senators Leahy, Pryor, 
Boren, Harkin, Conrad, Daschle, Baucus, Kerrey, Feingold, Lugar, 
Cochran, Craig, and Grassley. 

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM VERMONT 

The Chairman. Good afternoon. The committee will come to 
order. 

Mr. Secretary, it is good to have you here. 

I am delighted to have the Secretary of Agriculture, a good 
friend, here. I am told the Trade Representative is tied up in a 
meeting. 

We are here today to debate the North American Free Trade 
Agreement (NAFTA), an issue that is going to affect each and 
every American. There are those who would have us believe that 
the economy of the United States will spiral down into Mexico if 
we pass this agreement and that we would wipe out the U.S. 
manufacturing sector, destroy the family farm, and undermine all 
our public health and environmental standards. And there are 
those that would have us believe that the United States will spiral 
into economic obscurity if we don't pass this agreement. 

We have heard all the sensationalism. We have heard reports of 
doom versus boom. Today we are here to carry the debate one step 
further. 

Now, there are responsible voices on both sides of the debate, but 
I am not going to take kindly to those who try to make their case 
by exaggerating either the risks or benefits of NAFTA. NAFTA is 
not the worst thing that is ever going to happen to the United 
States. NAFTA is also not the best thing that is going to happen 
to the United States. It is not as good as its strongest proponents 
say it is, and it is certainly not as bad as its strongest opponents 
say it is. And I think that we are not going to have a debate that 
is going to engage the American people until both proponents and 
opponents of NAFTA lower the rhetoric and stick a lot closer to de- 
monstrable facts. 

(l) 



My concerns are not how this agreement is going to affect cor- 
porate America and agribusiness giants. They are going to take 
care of themselves, and, in fact, some of our agribusiness giants 
have become, in effect, taxpayer welfare cases when we underwrite 
so much of their sales abroad to the extent that even this year 
alone the American taxpayers are spending $1.9 billion in foreign 
aid to Saddam Hussein. Why, you might ask? Because some of the 
corporate giants in this country got us to co-sign notes for exports 
to Saddam Hussein. He, not feeling too kindly to the United States 
at the moment, decided not to pay the notes, and, of course, the 
American taxpayers are. 

My concern, though, is how this agreement is going to affect real 
Americans trying to deal with very real, day-to-day problems — un- 
employment, low wages, health care, education costs, and the envi- 
ronment. These are very legitimate concerns that jeopardize their 
future and the future of their children. 

We want to make sure we are not going to compromise the safety 
and integrity of our food supply simply to champion free trade. 

Last, but certainly not least, we need assurances that NAFTA 
will promote not just free trade, but fair trade as well. Sometimes 
free trade is not necessarily fair trade. We want both. And with the 
end of the Cold War and the start of peace in the Middle East, we 
enter a new venue of competition — one of economics. 

So these are unsettled questions. We want to know what it would 
do. It is clear there is a lot to be said for a North American free 
trade area. Such a market would be the largest in the world. It 
could power the economy of the 21st century. And NAFTA does 
promise this, and perhaps it can deliver. But we have to be sure. 
There are unsettled questions, and we need straight answers before 
we decide on the fate of NAFTA. 

Exports have been a key factor in the strength of our economy. 
Today we want to learn if NAFTA is the best agreement to build 
on that strength. It seems to me the greatest fear is that American 
jobs will be lost, drawn to the lower wages of Mexico. 

Proponents say there is nothing to fear. There may be some dis- 
location, but the projected millions of dollars from new exports 
would translate into many new jobs in the United States. Oppo- 
nents argue that the new jobs are a fairy tale. The only exports 
they see are American factories relocating in Mexico. 

Some say that if the border to Mexico is open to trade, it will en- 
courage illegal immigration and make it easier for drugs to be 
smuggled into the country. Others argue that NAFTA will promote 
cooperation between the United States and Mexico and create op- 
portunities for workers in Mexico, making the border even more se- 
cure. 

At present, we know the Mexican tariffs on American goods are 
more than double American tariffs on Mexican goods, and Mexico 
imposes trade barriers against many American products. Under 
NAFTA, of course, these barriers and tariffs will be phased out en- 
tirely. 

America has successfully maintained free trade with Canada 
since 1989. But even with a country whose standard of living is so 
close to our own, there have been problems, one in particular with 
subsidized wheat. If free trade with Canada has resulted in dif- 



faculties, we have to look long and hard at Mexico for similar prob- 
lems, as well as new ones. 

There is more at issue than economics. Even though Mexico has 
environmental laws comparable to ours, their lax enforcement of 
those laws has created many environmental disaster areas. It does 
not do any good to say that their laws are the same if they are not 
being enforced. And Mexico has been cited in the past by the Unit- 
ed Nations and others as a flagrant abuser of human rights and 
labor rights. We must ask if we are condoning this behavior with 
NAFTA or do we see NAFTA as a way of bringing freedom and 
hope into Mexico. 

Each side has cited many facts and figures to support its argu- 
ments. The bottom line has to be what is best for the United States 
and all U.S. citizens. It is our responsibility to sort through these 
figures, and see if NAFTA is what America needs. 

Again, let me say that before this is voted on in the Senate, I 
would hope that the debate would start by stating relevant facts 
and making claims that can be supported. Some of the proponents 
and some of the opponents have done precisely that. But when I 
think of some of the mail and some of the calls I get in my office, 
with some of the wildest claims for it and some of the wildest 
claims against it, it is no wonder the American people are confused. 
And certainly those of us who are going to have to vote on it are 
going to be confused. 

We are going to hear from other Senators, but I should note, 
though, that I do not include the Secretary of Agriculture in those 
making the wild claims. He and I have had many discussions of 
this, and he has been very careful and has stuck to things that can 
be supported. 

Senator Lugar. 

STATEMENT OF HON. RICHARD G. LUGAR, A U.S. SENATOR 

FROM INDIANA 

Senator Lugar. Well, thank you very much, Mr. Chairman. I join 
you in greeting the distinguished Secretary of Agriculture, and we 
look forward to hearing from his associates and the Trade Rep- 
resentative and other distinguished Americans. 

I agree with you completely that it is time to demystify the sub- 
ject, to push emotion aside, and get to the facts. And as each one 
of us has been doing in our particular States, I have taken a strong 
look at steel, at automobiles, and at agriculture. These are the 
three basic industries for Indiana, a very diverse State. I am happy 
to report, Mr. Chairman, that if NAFTA passes, steel exports from 
Indiana will increase substantially; so will auto parts and auto as- 
semblies, and so will corn. And all three are important to me, and 
they mean more jobs for Indiana. 

Now, this may come as a startling conclusion to some of my con- 
stituents as well as to other Americans. Let me just say that I have 
analyzed carefully plants in Indiana that have operations in Mexico 
and Canada, or plants in Indiana that went to Mexico and that 
came back. 

The reason people are going to Mexico and coming back is that 
the manufacturing costs are less in Indiana than they are in Mex- 
ico because, even given a large wage differential, the productivity 



of Indiana workers is five to six times that of Mexican workers. 
And the communications ease, the transportation ease, even the 
local governmental services are very positive factors for manufac- 
turing in Indiana, even if the wage rate is $2 in Mexico and $16 
in Indiana. 

I think that is an important point that has to be made. These 
are facts, not emotion. The emotion is to suggest a $2 wage rate 
necessarily means with a great swoosh everybody goes to Mexico. 
Some manufacturers have succumbed to that temptation, and as 
the Wall Street Journal front-page story last week on manufactur- 
ing in Connecticut pointed out, they have come back, because they 
have found that manufacturing costs total, across the board, all of 
it, are frequently less in Indiana, Connecticut, and in other States 
of our Union. 

Now, with regard to agriculture, we face, in my judgment, Mr. 
Chairman, the toughest 90 days that we are likely to have in this 
century. NAFTA and GATT are both critical for the future of Amer- 
ican agriculture, and I would just say to anyone who is interested 
in agriculture — and I certainly am — if we do not have a robust ex- 
port program, we are dead in the water. We will have corn and 
beans up to our necks. 

Out in Indiana, Iowa, and in most other States, in many years 
we have to move from a fourth to a third of all we produce now 
in corn and beans. We have to knock down the Mexican barriers 
to our exports, and that is what NAFTA does. We have to have ac- 
cess to the European market, and that is what GATT does. 

If we fail on both of these, there is no recovery, in my judgment, 
for American agriculture. There is simply an end to the prospects 
of the exports to which we have become accustomed and which we 
must have for upside potential. Though we will not be emotional 
about it, we will just be poor. We will go downhill in the process, 
and rapidly. That is why even though I am confident regarding my 
steel and auto workers that we are going to gain jobs, with regard 
to agriculture this is a desperate search for the end zone. And we 
have to succeed. 

Let me just say finally that, indeed, exports are important for 
other reasons, among them, of course, the overall growth of our 
economy. We have had very tough debates in the Congress this 
year on the budget and on the tax bill. There are differing views 
as to whether deficit reduction will occur. But most economists be- 
lieve that the tax bill that we have passed will have at least tempo- 
rarily a depressing effect upon growth of jobs and growth in our 
economy. To sustain a double loss by losing NAFTA in the same 
year would really be fatal to growth and to jobs. We cannot sustain 
that in this economy and expect to see 2- or 3-percent real growth 
in this year or any time soon. 

And with regard to one further consideration, we have a foreign 
policy opportunity with Mexico that is heaven sent. We have sat 
around in the Senate debating our relationship with Mexico for 
many years. We have never had such an opportunity to rejoice in 
a progressive administration friendly to our country, eager to do 
business, to liberalize its economy. Mexicans have extended their 
hands in this respect for cooperation, and it would be an unparal- 



y b 



leled setback for that relationship if at this moment we were to 
spurn that opportunity. 

I do not predict, as the chairman has suggested, all sorts of cata- 
clysmic results. I simply say that when an opportunity of this sort 
presents itself in the life of foreign policy, you seize it, because it 
means not only forging a tie with Mexico but clearly an opportunity 
to work with the Central American democracies and the free trade 
agreement they are fashioning, with the Merkersur Group in the 
southern cone of South America, with Chile or Argentina or various 
other countries, either in a bilateral fashion or perhaps hopefully 
in a pan-American free trade zone during this century, and per- 
haps maybe during the next few years. These are all extremely im- 
portant developments. 

If we have a setback with Mexico, we are unlikely to see those 
developments very rapidly, if at all. And we will have dealt our- 
selves a fatal blow in terms of our export potential by consigning 
the great solidarity we could have in this hemisphere as we face 
challenges in Asia and in Europe and worlds to come that are more 
difficult to fathom. 

So this is an important hearing, Mr. Chairman. I congratulate 
ou on getting the Secretary and Trade Representative right off the 
at so that we have an opportunity to hear them, to question them, 
and likewise for the service you provide for the American people. 

Thank you. 

The Chairman. Thank you very much, Senator Lugar. 

Senator Baucus? First, I should note it is to our advantage on 
this committee to have Senator Baucus as a member because he is 
probably the key member on the Senate Finance Committee on this 
issue. It is very helpful having him here, just as it is having a sen- 
ior member of the Foreign Relations Committee, Senator Lugar. 
We try to bring many disciplines into play in this committee. 

Senator Baucus. 

STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM 

MONTANA 

Senator Baucus. Thank you very much, Mr. Chairman. I very 
much appreciate your holding a hearing on the agricultural aspects 
of NAFTA. Many are concerned with other aspects of NAFTA and 
not enough attention has been focused on agriculture, and I very 
much appreciate this hearing. 

Mr. Chairman, as I assess the provisions of NAFTA, it seems to 
me that American agriculture stands to benefit from the passage 
of NAFTA. Increased market access, decreased tariffs, and in- 
creased employment are but a few of the benefits that I think 
America's farmers stand to gain. 

However, I think it is important that this committee focus on 
some critical unresolved issues with respect to agriculture that are 
not specifically contained in the agreement. These are issues of 
concern to many in this Nation's agriculture industry, and, further, 
these issues are of importance to myself and to other Senators in 
determining a final position that they will take whether or not to 
support this agreement. 

In fact, my own informal survey conducted by myself and my 
staff indicates that as many as 15 Senators have indicated that 



certain agricultural issues will have a critical impact upon 
their vote on NAFTA. The agriculture problem most frequently 
cited that I hear in my survey involves wheat. There are others. 
It is edible dry beans, it is sugar. There are a good number of 
others, but the one I hear most frequently, Mr. Chairman and 
Ambassador Kantor and Secretary Espy, is wheat. 

Canadian transportation or crow's-nest subsidies have become 
a very serious problem for our people, particularly in the High 
Plains States but for other wheat-producing States as well. They 
amount to the Canadian Government paying the cost of shipping 
Canadian farmers' crops from field to market, sometimes resulting 
in a $20-per-ton subsidy on wheat. 

Under the Canadian Free Trade Agreement, our trade nego- 
tiators inexplicably agreed to a scheme which banned using 
crow's-nest subsidies on shipments into Western States, but 
allowed them on shipments to Eastern States. And not surpris- 
ingly, Canadian shipments of wheat have tripled from 23 million 
bushels to 75 million bushels in the last 5 years, with almost all 
the shipments coming into — you guessed it — Eastern States. 

To the great credit of the President and to you, Secretary 
Espy, and Ambassador Kantor, a working group has been ap- 
pointed to deal with this problem of Canadian wheat-trading 
practices. It is my understanding that the as yet unreleased re- 
port of this working group concludes that these subsidized Cana- 
dian shipments of wheat are distorting the United States wheat 
market and costing the Government some $600 million over 4 
years in additional farm program costs. There is also a con- 
cern that some of this Canadian wheat is finding its way into 
U.S. farm export programs and is being re-exported at taxpayer 
expense. 

The damage doesn't end there. The Canadian Government has 
also used these transportation subsidies in the last 3 years to in- 
crease their share of the Mexican market from a 0-percent share 
to over 50 percent, a market in which the United States has obvi- 
ous geographic advantages over Canada. 

In addition to transportation subsidies, Canadian wheat 
exports are also subsidized through a Government monopoly 
known as the Canadian Wheat Board. All sales prices are 
carefully guarded secrets by the Wheat Board. But those 
familiar with wheat markets, including USDA experts, be- 
lieve that Canada consistently undercuts market prices to 
undersell the United States. And, further, American wheat 
remains blocked out of the Canadian marketplace by a sys- 
tem of restricted import licenses and export certificates. 

Mistakes made in negotiating the Canadian Free Trade Agree- 
ment with regard to wheat were not corrected in the NAFTA. Now 
we have a unique opportunity to remedy the inequities that 
burden American farmers in tne context of NAFTA. The admin- 
istration has within its grasp the opportunity to solve this problem 
and to facilitate the passage of NAFTA. We can be certain that 
if we miss this opportunity now, it will not return. 

The administration should work quickly to limit Canadian wheat 
imports under Section 22. These sanctions are warranted and nec- 
essary, and I urge their immediate adoption. A second necessary 



action is the adoption of end-use certificates for use on imported 
grain. This action would guarantee the integrity of U.S. export pro- 
grams, an action expected of us by the American public. 

Finally, the time has come to negotiate an end to unfair trading 
practices and the use of export subsidies on commodities sold on 
the North American continent. We must bring the Canadians to 
the table, and we must remain there until this problem is resolved 
once and for all. 

Again, we are on the verge of voting on this momentous agree- 
ment. In the days before the vote, we have the unique oppor- 
tunity — in my opinion, absolutely unique — to improve agricultural 
trade with Canada and Mexico, to eliminate the problems which 
previous negotiators have not addressed. We can fire the final shot 
in the Canadian wheat war, or we can retreat. In the best tradi- 
tions of American history, I urge the administration to fire that 
final shot. Let's put an end to this finally so we can pass NAFTA 
and also get some more sanity in the market and end the unfair 
Canadian subsidies. 

Thank you, Mr. Chairman. 

The Chairman. Thank you. I don't want to cut anybody off, but 
I would urge members to keep opening statements brief. We are at 
some point going to be finishing up the HUD bill. We are trying 
to do this hearing and finish by 4:30. But I don't want to cut off 
any questions, especially of the two key witnesses, Secretary Espy 
or Ambassador Kantor, this afternoon. We will ask questions as 
long as there are members who wish to ask questions of those two 
members before we go to the other panels. 

Senator Conrad. 

STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM 

NORTH DAKOTA 

Senator Conrad. Thank you, Mr. Chairman. Let me just say that 
this is a critical issue for the people that I represent. As I said in 
the Finance Committee the other day, I am not certain this agree- 
ment is good for our country. 

I am certain that as it stands it is not good for my State. 

I say that because North Dakota is on the front lines, along with 
Montana, in terms of what we have faced with the so-called Cana- 
dian Free Trade Agreement. We have faced an unfettered flood of 
Canadian grain into my State, Durum and Spring wheat. Imports 
of both have grown dramatically as a result of the defects of that 
agreement. Failure to act now will do irreparable damage to the 
U.S. wheat market and our wheat producers. We simply must seize 
this opportunity to act. 

As I look at this agreement, the concerns that I have that are 
directly affected by the agreement are wheat and barley coming in 
from Canada. As I have indicated, we have seen the shortcomings 
of the Canadian Free Trade Agreement lead to truck after truck 
after truck of Canadian grain coming into our State, not because 
they are more competitive, not because they are more efficient, but 
because of loopholes in that agreement. It is time to address them. 

I have called for a Section 22 action against Canada. There is no 
question in my mind that they are dumping at below their cost into 
our market. No question in my mind. They have gone from per- 



8 

cent of the U.S. Durum market in 1986 to over 20 percent today. 
They have had a five-fold increase in the Spring wheat market. 
And those trends are continuing. 

I have also called for end-use certificate legislation, legislation 
that I have introduced previously, legislation that has twice passed 
the United States Senate, legislation which the conference commit- 
tee on reconciliation accepted until the Byrd rule was used to 
knock it out. 

And my concerns don't go just to wheat and barley, although 
those are critical ones. In addition, we have problems with the 
NAFTA agreement on sugar to provide unlimited access to the U.S. 
sugar market for Mexico in year seven even though Mexico is an 
importer of sugar. 

We have problems on dry edible beans: It will cut our shipments 
of dry edible beans to Mexico in half because of an inadequate 
record base that was used in negotiating the agreement. 

And potatoes: Potatoes exports to Mexico, which have been grow- 
ing by 100 percent a year — that growth will be cut off by this 
agreement. 

Mr. Chairman, members of the committee, my message today is 
very simple: Fix it or forget it. Fix it or forget it. And f hope that 
message is received and responded to. 

I thank the Chair. 

The Chairman. Thank you very much, Senator Conrad. 

The order I have as members have come in, next is Senator 
Feingold, then Senator Grassley, Senator Craig, Senator Pryor, 
Senator Cochran, and Senator Daschle. 

Senator Feingold. 

STATEMENT OF HON. RUSSELL D. FEINGOLD, A U.S. SENATOR 

FROM WISCONSIN 

Senator Feingold. Thank you, Mr. Chairman. I will try to be 
brief. 

One of the most significant concessions the United States would 
make under NAFTA is the immediate elimination of our Section 22 
import quotas with Mexico. 

Section 22 has been central in our efforts to stabilize domestic 
prices and supplies for commodities such as dairy, cotton, sugar, 
and peanuts. The magnitude of this concession cannot be ignored. 
This concession also has strong implications for any future agricul- 
tural agreement that might be achieved with regard to the GATT 
talks. 

Any adverse impacts resulting from the elimination of Section 22 
are supposed to be prevented by this side agreement on import 
surges. I have concerns about the adequacy of that agreement to 
prevent import surges and the ability of the working group on 
emergency action to prevent that flood of imports. 

I have been told by many farmers in Wisconsin that the key to 
a successful NAFTA or GATT agreement is market access. In 
NAFTA, Canada has been excluded from the agreement on dairy. 
Clearly, U.S. producers have not gained access to that lucrative 
market. 

The question, then, for dairy is: What level of market access do 
we achieve under this agreement with Mexico? The answer to that 



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. 



10 

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR 

FROM IOWA 

Senator Grassley. Thank you. 

NAFTA is very good for agriculture in Iowa. I may have some 
misgivings about a narrow section of NAFTA here or there, but as 
a whole for agriculture, it is very, very good. 

Iowa's secretary of agriculture, Dale Cochran, informed me today 
that he and 40 other State secretaries of agriculture or commis- 
sioners of agriculture are signing a letter in support of NAFTA. It 
seems to me that when you look at the large number of secretaries 
of agriculture who are supportive of NAFTA, they speak as well of 
the importance of this agreement to agriculture as anybody in the 
United States. They have surely got to know as much as we United 
States Senators do about agriculture in their respective States. 
Probably a larger share of those are Democrats than are Repub- 
licans, would be my guess. I don't know for sure. 

Senator Lugar said that we have either got to export or we are 
going to be up to our necks in corn and other commodities. That 
is very true. In my State, 38 percent of our corn and 41 percent 
of our beans are exported. If we don't export, we might as well just 
shut down 40 percent of American agriculture. And you shut down 
40 percent of American agriculture, and for every farmer that is 
out of business because of that, you are going to lose six or seven 
people beyond the farm that are connected. Their business or occu- 
pations are connected to agriculture. 

When you look at it from the other end, if we export $1 billion 
worth of products, we are going to create 20,000 jobs. And those 
20,000 jobs pay on an average 13 percent above the national aver- 
age. 

Every one of us has specific problems that need to be dealt with, 
and I hope they can be dealt with. But on the whole, there isn't 
any segment of the economy that benefits more from NAFTA than 
agriculture, particularly agriculture in the Upper Midwest and 
Ohio Valley. 

I support NAFTA. I thank the chairman for holding the hearings, 
and I will put my statement in the record. I yield the floor. 

The Chairman. Thank you. 

Ambassador Kantor and Secretary Espy are trying to figure out 
what the trend is in this committee. If you do, you be sure and let 
me know. 

Ambassador Kantor. We are always optimists, Mr. Chairman. 

The Chairman. It escapes me so far. Senator Craig. 

STATEMENT OF HON. LARRY E. CRAIG, A U.S. SENATOR FROM 

IDAHO 

Senator Craig. Mr. Chairman, I will skew the trend. 

Mr. Secretary, Mr. Ambassador, thank you both for being with 
us today to discuss this issue and respond to questions. If we 
pegged this moment in time, we know that agriculture is successful 
in this country because it is trading today. It will trade no less to- 
morrow with or without NAFTA. 

The $7 billion surplus with Mexico today is without NAFTA. It 
is because the Mexicans have dropped a substantial number of 



11 

their restrictions and will continue to do so to see their own econ- 
omy improve. 

In the long term, yes, I agree that NAFTA, properly adminis- 
tered, can produce results. But in the short term, farmers damaged 
are farmers lost. The tragedy of the Canadian Free Trade Agree- 
ment, as my colleagues from Montana and North Dakota have ex- 
pressed so clearly, is that you have to show damage. In the busi- 
ness of agriculture, that means going out of business before you 
can appeal to the Government in a way that will get a response. 

Barley is pouring into the State of Idaho right now at a time 
when grain markets are moving up because of the Midwestern 
problems. It is pouring in because of the Canadian Free Trade 
Agreement and our Government being less than responsive. And 
the story goes on and on. 

Now, I can't afford to lose a farmer, and you, Mr. Secretary, but 
more importantly you, Mr. Ambassador, know I have appealed to 
you and to the Mexican Government to establish proof positive, if 
at all possible, that any sugar agreement is one that our domestic 
producers can live with. You knock the sugar beet industry out of 
my State, and you badly damage the agriculture economy of my 
State. I have yet to be convinced that this is an effort worth sup- 
porting in lieu of the damage that can result. 

I have also taken the time to read in detail and to try to gain 
a broader explanation and understanding of the environmental side 
agreement; what it will mean and how it will be enforced, who the 
enforcers will be, what kind of power they will have. It concerns 
me that while this Nation leads the world with environmental pol- 
icy and environmental concern, we might choose someone else to be 
our environmental enforcer. That is a legitimate concern, and my 
constituents, once they have read the fine print, are beginning to 
ask questions. The answers are not yet forthcoming. It will be in 
those issues that your ability to respond and your ability to clarify 
and to get the devil out of the detail will go a long way toward con- 
vincing me that I ought to support, on behalf of Idahoans and 
Idaho agriculture, this particular trade agreement. 

I did not support the Canadian Free Trade Agreement because 
I tried to cajole my own administration into cleaning up the details. 
They didn't clean up the details. You now hear testimony from the 
Senator from North Dakota and the Senator from Montana and 
you are hearing it from me: domestic farmers are hurting when 
they shouldn't be. That shouldn't happen with NAFTA, but it prob- 
ably will unless the details are clarified, put in writing, and made 
enforceable. Once that happens, there must be the will to enforce 
it. So I am anxious to hear your testimony. 

Thank you very much, Mr. Chairman. 

The Chairman. Senator Pryor of Arkansas. 

STATEMENT OF HON. DAVID PRYOR, A U.S. SENATOR FROM 

ARKANSAS 

Senator Pryor. Mr. Chairman, you were so persuasive a moment 
ago when you talked about limiting our statements and letting our 
witnesses go forward. I am putting my statement in the record, and 
I thank you, sir. 



12 

The Chairman. Senator Pryor is trying to set an example be- 
cause he knows he is next in line to take my seat here. [Laughter.] 

He doesn't want to have to put up with long opening statements 
if he comes in. 

Senator Pryor. I want you to know, I prayed for your reelection 
last fall. [Laughter.] 

The Chairman. More than some in Vermont did. 

Senator Cochran. 

STATEMENT OF HON. THAD COCHRAN, A U.S. SENATOR FROM 

MISSISSIPPI 

Senator Cochran. Mr. Chairman, I am going to put my state- 
ment in the record, too. I join you in welcoming Secretary Espy, 
Ambassador Kantor, and the other witnesses who will testify at 
this hearing on NAFTA. I am convinced that it is going to create 
more jobs in the United States and it is going to break down trade 
barriers and improve living conditions in Mexico, Canada, and the 
United States. And I look forward to hearing the details and some 
of the facts that will help convince me that I am right. 

The Chairman. Thank you. 

Senator Daschle. 

STATEMENT OF HON. THOMAS A. DASCHLE, A U.S. SENATOR 

FROM SOUTH DAKOTA 

Senator Daschle. Mr. Chairman, I too would like to welcome our 
guests, and I will be very brief. 

I think it is clear from the opening remarks that our differences 
are not political or philosophical. You have got conservatives and 
liberals, you have got Democrats and Republicans, on both sides of 
this issue. 

I do think, however, that there are winners and losers under the 
current situation, and that is my concern as well. Senator Conrad 
said it very well: Fix it or forget it. And I think for those in the 
northern-tier States, we have got to find a way to fix it. Northern- 
tier States, especially with wheat and in some cases with sugar 
and other grains, are very concerned about the implications of this 
agreement as it now stands. And I have three concerns: 

The first is that the concerns expressed this afternoon will not 
be fully considered and weighed and carefully addressed in ways 
that we can either do unilaterally or at least with Mexico in the 
coming weeks and months, that they will be buried with the con- 
cerns expressed already on many other issues relating to the agree- 
ment. 

Secondly, that the exaggerated claims on both sides will so obfus- 
cate the debate that we really aren't going to clearly understand 
the implications. I worry about that with each one of these hear- 
ings and with all of the rhetoric I hear on the floor. They cannot 
be believed, and we have got to be very careful about what it is we 
say about the effect of this agreement. 

Then, finally, I think we have to look at NAFTA as to how it fits 
in with our longer term strategy in agricultural policy. In particu- 
lar, as chairman of the Inspection Subcommittee with Senator 
Craig, I am very concerned about the inspection implications that 
we have got to address here. We had to deal with that in the Cana- 



13 

dian situation, and we will certainly have to deal with it in Mexico. 
The Acreage Reduction Program, the Export Enhancement Pro- 
gram, and a whole range of other tools that we use have to be 
clearly understood as to their implications in future farm policy de- 
bates. 

So I think those three concerns, Mr. Chairman, have to be ad- 
dressed, and I hope this hearing this afternoon will lend a better 
understanding in those areas as well. I thank you. 

The Chairman. Thank you very much. I should note that seven 
of our members also serve on the Finance Committee, so while 
these opening statements may have seemed somewhat long, I hope 
this gives you somewhat of an idea where we stand. 

Secretary Espy, please go ahead, sir, and then Ambassador 
Kan tor. 

STATEMENT OF HON. MIKE ESPY, SECRETARY, UNITED 
STATES DEPARTMENT OF AGRICULTURE; ACCOMPANIED BY 
JOSEPH O'MARA, SPECIAL TRADE NEGOTIATOR, USDA, AND 
EUGENE MOOS, UNDERSECRETARY FOR INTERNATIONAL 
AFFAIRS AND COMMODITY PROGRAMS, USDA 

Secretary ESPY. To Mr. Chairman, to Senator Lugar, and to the 
other members of this committee, I am delighted to be here, de- 
lighted to be with you and joined by Ambassador Mickey Kan tor 
to discuss NAFTA and its impact on agriculture. 

Mr. Chairman, I do have a rather lengthy statement which I 
don't choose to read, so if I could have your consent to have it en- 
tered as a part of the record, I would appreciate it. 

The Chairman. Of course. 

Secretary Espy. Mr. Chairman, much has been said about 
NAFTA. Many of the arguments we have heard — not today — have 
been surrounded by hyperbole, immersed in rhetoric, and depend- 
ing on where you stand or sit, passage of this agreement either 
heralds the Second Coming or evidences the mark of the Devil him- 
self. 

So, today, I would like to in my own way present the facts as I 
see them and try to set the record straight on why we in this ad- 
ministration and in this USDA believe that NAFTA is a good deal 
for U.S. agriculture, a good deal for all of our farmers and all of 
our ranchers. 

It has been said here already, Mr. Chairman, in the opening 
comments. It is a win- win situation for agriculture if you look at 
it from a macro point of view, simply because, as Senator Lugar 
said, a third or fully up to 40 percent of the crops grown in Amer- 
ica are really grown and targeted toward the export market. And 
if we don't aggressively pursue markets and increasing market 
share, I fear the consequences for our supply management system. 
There will be deleterious impacts on food prices and certainly prob- 
lems with the farm program budget. 

If we don't pursue an aggressive trade strategy and specifically 
if we don't pursue it within our hemisphere, our competitors cer- 
tainly will. The European Community and Japanese will swoop in 
and absorb these markets and the market share. If we don't pass 
the NAFTA, then we will see, in my opinion, the Government of 
Mexico begin to ratchet up their tariffs and their nontariff barriers 



14 

and their levies. Lastly, if we don't do it, Mr. Chairman, I fear that 
we will have, again, negative consequences at the GATT where we 
have to show our leadership in this particular area. 

So I do think that the United States needs the NAFTA, and I 
have seen it work. I was in Mexico 2 weeks ago. I had the oppor- 
tunity to travel there to cut the ribbon on the largest trade show 
that the United States and the USDA has ever held in any country 
since we have been doing these shows. The show was organized by 
FAS, the Foreign Agricultural Service, and it was managed by the 
USDA. I was there 2 days, Mr. Chairman, and I was amazed by 
the presentations and exhibits of more than 200 U.S. exhibitors. 
Almost every State in our country took part, all there with expecta- 
tions of high sales. 

And so this sucking sound we hear? I heard a sound as well. I 
heard a sound of a stampede of Mexican agents and purchasing ne- 
gotiators; all were there to review evidence of U.S. agriculture, par- 
ticularly value-added agriculture. 

Then I had a chance to walk through certain grocery stores in 
Mexico, and I saw shelves lined with American food products. And 
so I can certainly tell you in no uncertain terms, without equivo- 
cation, that it is a good deal for us, it is a good deal for U.S. agri- 
culture, and Mexico is no doubt a major market for U.S. agricul- 
tural products. 

In fact, Mr. Chairman, Mexico is already the third largest foreign 
market for U.S. agriculture products and the second largest market 
for U.S. -manufactured products. U.S. agriculture exports to Mexico 
will reach, we believe, about $4 billion this year, more than double 
the 1988 level. Why? Because President Salinas has already par- 
tially opened the Mexican market, and we have seen incredible ad- 
vances. 

Since 1986, when he came in, we had export sales there of about 
$1 billion. And just by his unilateral actions, we have seen almost 
a quadrupling in the U.S. presence in their agricultural market. So, 
simply, we want to lock in these trade gains. 

These exports to Mexico already support an estimated 700,000 
U.S. jobs in agriculture, manufacturing, transportation services 
and other industries. Four hundred thousand of those jobs were 
created just since 1986, as I said, since Mexico began opening up 
its economy. So the potential as a market for U.S. goods is even 
greater. Mexico has about 90 million people. We prefer to consider 
them as 90 million consumers, including Mexico's large and grow- 
ing middle class. And even though Mexico's tariffs have dropped 
significantly over the past few years, their tariffs are still 2.5 times 
higher than ours. 

The average U.S. tariff on goods from Mexico is only 4 percent, 
while the average tariff on goods from the United States to Mexico 
is 10 percent. So under NAFTA, Mexico must eliminate these high 
tariffs completely. 

For the first time, our trading relationship will develop in a con- 
trolled way, not by accident, and for the first time, we will be build- 
ing on a level and on a fair playing field. 

There is lots of talk here about losers and winners under the 
NAFTA. If you consider the doctrine of comparative advantage, I 
believe there are some clear winners for agriculture under the 



15 

NAFTA. There are some marginal winners, and there are very few 
U.S. agriculture commodities that will lose under this deal. 

If NAFTA is defeated, there will be winners as well, but the win- 
ners will be the European Community, the countries of the Pacific 
Rim who recognized years ago the advantages of having and the 
necessity to have a special trading relationship with those coun- 
tries nearest to their borders. They are aggressively creating new 
preferential markets for their goods while we choose to rely upon 
old markets for ours. 

Those who oppose the Uruguay Round will consider themselves 
winners as well if NAFTA is defeated. Let me assure you, our 
GATT negotiating position will be strengthened by the implementa- 
tion of NAFTA. 

So, again, we believe that American farmers and ranchers have 
much to gain from NAFTA. It will create new long-term growth op- 
portunities for agriculture within our own hemisphere. In fact, we 
believe that U.S. agricultural exports will be between $2 billion to 
$2.5 billion higher annually when NAFTA is fully implemented 
than without the NAFTA. U.S. grains and meats would account for 
more than half of the expanded trade value, although many U.S. 
products would benefit. We also see new opportunities in the area 
of biotechnology trade, agricultural investment, and the transpor- 
tation of farm and food products. 

The increased import demand from Mexico will have a positive 
impact on U.S. prices and cash receipts, boosting U.S. farm cash 
receipts up a projected 2 to 3 percent. And this means a lot to the 
American farmer. It means farm income, and increased farm in- 
come means jobs and more job security and increased investment 
in the rural economy. We believe 56,000 additional jobs on the farm 
and in the food industries will be created because of the NAFTA. 
And so these are gains, we think, that are not to be diminished and 
will certainly benefit all of rural America. 

We expect many of our exports to Mexico to increase imme- 
diately, but even more gains will be realized over time as the Mexi- 
can standard of living grows and as the Mexican market grows 
even further. Without the NAFTA, we do not expect our exports to 
Mexico to grow nearly as much, although I believe they would 
grow. Those 56,000 agricultural jobs will never have the chance to 
be created, but what is perhaps more important, without the 
NAFTA there is nothing to prevent Mexico from once again closing 
its borders by erecting new and onerous barriers to imports. And 
this could easily result in the loss of a major market for American 
goods, and this would put in jeopardy those 700,000 U.S. jobs that 
now exist because of our exports to Mexico. 

Mr. Chairman, we have Ambassador Mickey Kantor here, and he 
will talk more about other provisions, including agriculture, but 
just let me mention a few things that NAFTA doesn't do, if you 
will, and then let me spend the concluding moments here discuss- 
ing a couple of questions that you generously asked of me before 
I arrived here. 

NAFTA does not do these things: NAFTA does not affect U.S. 
quotas imposed under Section 22 of the Agricultural Adjustment 
Act of 1933 for any country except Mexico, nor does it affect U.S. 
tariffs or other import protections for non-NAFTA countries. 



16 

NAFTA does not require any changes in stringent U.S. standards 
for food safety, animal or plant health, or environmental protection. 
Nor does it prevent the adoption, maintenance, or enforcement of 
even tougher scientifically based standards, including those more 
stringent than international standards, including some adopted by 
your States. NAFTA does not exempt our NAFTA partners from 
meeting U.S. quality and grade standards for fruits, vegetables, 
and other products. And lastly, the NAFTA does not prevent us 
from using the Market Promotion Program, nor does it stop us 
from using the Export Enhancement Program, as well as other 
measures to counter the unfair trading practices of our competitors. 

Mr. Chairman, you had earlier forwarded specific questions to 
me, some of which I have answered and I am sure we will answer 
in Q and A. But you asked about the impact on U.S. farm income, 
the operation of U.S. farm programs, and the U.S.-Mexican agri- 
cultural balance of trade. 

Very quickly, USDA projections show that the increased import 
demand from Mexico resulting from NAFTA will boost U.S. farm 
cash receipts a projected 2 to 3 percent. Increased U.S. exports to 
Mexico will generate more than 50,000 new jobs on the farm and 
in the food industries because of NAFTA, and no changes in our 
domestic farm programs will be required. 

On the question of safety of imports of agricultural products, 
NAFTA specifically recognizes the right of each country to establish 
its own levels for protection of human, animal, and plant health, 
and the obligations of each country to use science-based standards. 
NAFTA also allows State and local governments to enact their own 
tough standards without restriction, so long as the methods used 
to determine if imports meet those standards are scientifically de- 
fensible. 

Imports that do not meet U.S. health and safety standards will 
not be permitted within the United States. USDA and the Food 
and Drug Administration will continue to enforce legal limits on 
pesticide residues and refuse entry to any products that do not 
meet these limits. So the bottom line is, Mr. Chairman, the United 
States will maintain its high standards for public health and food 
safety, and there will be no compromise in these areas. 

You also asked about rules of origin under the NAFTA. NAFTA 
includes strong country-of-origin rules so that the incentives for 
trade within North American do not open the flood gates to free ac- 
cess for the products of countries outside this continent. Commod- 
ities from non-NAFTA countries must be transformed or processed 
significantly before they can receive NAFTA preferential treatment. 
NAFTA gives U.S. Customs auditors the ability to visit business fa- 
cilities in Canada and Mexico to ensure that tariff preferences go 
only to qualifying goods. 

I should point out that, in general, NAFTA's rules of origin for 
the U.S. -Mexico agreement are stronger than those in the U.S. -Ca- 
nadian Free Trade Agreement. This administration will take what- 
ever steps are necessary to ensure that U.S. workers are not in- 
jured because of illegal activity by those who would try to import 
non-NAFTA goods to the United States, passing them off as a prod- 
uct of a NAFTA country. 



17 

So, in conclusion, Mr. Chairman, I am obligated to take a macro 
view of this agreement. In my considered opinion, this is a win-win 
for U.S. agriculture. If we don't pass it, as has been said before, 
we will have trouble with our reserves, we will have trouble with 
our supply management system, we will have trouble, in my opin- 
ion, with the resulting increased food prices with regard to that. 
We will have trouble if we don't pass this by Mexico perhaps in a 
counteractive way reestablishing increasing barriers and nontariff 
barriers. We will have trouble with our competitors from the Pa- 
cific Rim and the EC swooping in to take advantage of markets 
which I believe are rightfully ours. 

Thank you. 

The Chairman. Thank you very much, Mr. Secretary. 

Ambassador Kantor, I know that nobody has worked harder than 
you have on this subject, not only going around this country but 
around the world. I hope your back is healed. You gave a number 
of your friends, myself included, a great deal of concern when you 
had that fall. I am sure from your mind it was bad enough, but 
it could have been, as you know, a lot worse. 

Ambassador Kantor. It could have been. I could have had an- 
other hearing before the Senator Finance Committee. [Laughter.] 

The Chairman. Knowing the number of Finance Committee 
members that are around here, you probably think you are, any- 
way. 

Ambassador Kantor. I am sure they are tired of seeing my face, 
Mr. Chairman. 

The Chairman. We took a poll, and it was unanimous. They 
wanted you back to hit you from a different angle, I guess. But I 
am glad you are okay because I did worry about you. 

Ambassador KANTOR. Thank you. That is very nice. 

The Chairman. I had called your office during that time, and 
they assured me you were coming along well, and I am glad to see 
you looking so well. 

Ambassador Kantor. Thank you very much. I appreciate that. I 
understand the vote on my getting well among the Finance Com- 
mittee members on your committee was 4 to 3. I am happy to win 
that one. [Laughter.] 

STATEMENT OF HON. MICHAEL KANTOR, UNITED STATES 
TRADE REPRESENTATIVE, WASHINGTON, DC 

Ambassador Kantor. Mr. Chairman, I appreciate the oppor- 
tunity to be here. First, let rne follow the example of my colleague, 
Secretary Espy, and the example of my adopted Senator, Senator 
Pryor. I lived on Beechwood Drive in Little Rock for a number of 
interesting months in 1992, and so 

Senator Pryor. Did you register to vote there? [Laughter.] 

The Chairman. Before you answer 

Ambassador Kantor. Senator, I tried and I tried, and they 
wouldn't let me do that. 

The Chairman [continuing]. Before you answer that, I remember 
while campaigning in Vermont running into you at the Rutland 
County Fair, and I was ready to register you there, too. So if you 
registered in more than one place, please don't say anything about 
it. 



18 

That is a joke, for anybody [Laughter.] 

Everybody takes everything so seriously around Washington — ex- 
cept NAFTA. Go ahead, please. 

Ambassador Kantor. And maybe we ought to be a little more 
balanced, as Senator Daschle suggested, about NAFTA as well as 
we go through our advocacy for it. And others will take other posi- 
tions in both parties, and as you correctly point out, it is interest- 
ing who is on both sides. I am not sure I have ever in my lifetime 
seen such an arrangement of political ideologies or lack thereof for 
and against a treaty. 

Let me apologize. I did pick up my daughter at school, but I will 
stay here as long as the Chair wishes. We do have someone at 
home with her right now. 

I would like to start by saying the North American Free Trade 
Agreement with the side agreements will not solve every economic 
problem this country has. It will not. But it is a vital part of an 
overall approach of this administration to create jobs, to open mar- 
kets, and to increase the wealth of this country. 

Number two, it will not solve every problem we have with Mex- 
ico. There are some people who want it to. There are those on this 
side of the table who tried hard to solve a lot of problems. But let 
me say it will not solve every problem we have. But it makes the 
situation with Mexico and in North America substantially and sig- 
nificantly better than it has been before. 

Let me submit my statement for the record and just make a few 
comments, and Secretary Espy certainly has brilliantly covered 
much of the agricultural sector. First let me say that the best argu- 
ment we can make for NAFTA and I think the most compelling ar- 
gument is: We have a free trade agreement today with Mexico. The 
problem is it only goes one way. It is free trade for the Mexican 
Government and Mexican businesses and Mexican workers, those 
workers in Mexico and those businesses who have moved there. 
And it is not free trade for our companies and our workers. 

Let me explain that. Mexico at one point had 100-percent tariffs, 
and then they were bound at GATT at 50, and now they average 
10 percent, 16 percent in agriculture. Our tariffs have always been 
low, especially since the Second World War. They are now at 4 per- 
cent. Mexican tariffs are about 2.5 times larger than our tariffs. 

Let me say, number one, that causes a problem for U.S. workers 
and U.S. businesses as you try to export into Mexico. 

Number two, import licensing requirements in agriculture is a 
pernicious system we'll get rid of on day one that NAFTA goes into 
effect. 

Number three, other unfair rules that affect goods and services 
are production requirements and performance requirements. They 
make it impossible for some industries, difficult for others, to ex- 
port into Mexico. 

Number four, the maquiladora program, begun in 1965 with the 
cooperation of both governments, says if you want to establish a 
business in northern Mexico, come on in. You can take every com- 
ponent part you import from the United States tariff-free, make it 
into a value-added product; but you can't sell it in Mexico, you have 
to export it back to the United States. 



19 

Now, what did the United States do? We then said we won't 
charge tariffs on the whole product, just on the value-added por- 
tion. 

Now, if there is any prescription to draw jobs down to Mexico 
and U.S. businesses, that was it. And there are about 1,000 of 
them there right now that employ about 250,000 people, another 
1,000 owned by other either Mexican nationals or by nationals of 
other countries — 2,000 businesses. 

So let's take what we have. We had high tariff barriers. We had 
unfair rules, import licensing requirements, the maquiladora pro- 
gram, and then to add insult to injury, no enforcement of environ- 
mental or labor standards. So if you are a business person and you 
have the flexibility to move, especially if you are big — medium- 
sized and small businesses don't have that flexibility — you went 
down to Mexico. At least 1,000 of them did and took 250,000 jobs. 

The NAFTA changes that. It makes the rules fair. That is point 
one. 

Point two, Mr. Chairman and Senator Lugar, which I think is a 
critical point, we have evidence that lowering those tariffs and get- 
ting rid of some of those unfair rules works. Now, what is our evi- 
dence? 

In 1987, President Salinas began a program to lower to some de- 
gree those tariffs and to lower to some degree or to get rid of to 
some degree those rules. What happened? Our exports to Mexico 
went from $12 billion to $40.6 billion, a 3V2-fold increase. We had 
a $5.7 billion deficit in 1987. Now we have a $5.4 billion surplus. 
We had 275,000 jobs in 1987 related to exports to Mexico. Today 
it is 717,000 on its way to nearly 1 million if we can get the 
NAFTA adopted and ratified by this Congress. 

And so we have evidence that when you get rid of the unfairness, 
even a little bit — and I know some of you have heard this, and I 
apologize to the Finance Committee members — you begin to make 
progress. You create jobs. We become wealthier. We export more 
goods. 

Now, number three — and Secretary Espy referred to this, and 
quite eloquently — we are building the largest free trade zone in the 
world with NAFTA, 370 million people, $6.5 trillion in gross prod- 
uct. Frankly, it is also the largest trade preference zone in the 
world. And what does it do? It makes us more competitive with the 
Japanese and with our European counterparts. Does that help us? 
Yes, it does. Does it make our businesses stronger? Does it create 
more jobs here? Yes, it does. And there are 400 million people liv- 
ing south of the border in the second fastest growing region in the 
world, from Mexico to Argentina. And let me say today, as I said 
the other day, if we don't take advantage of those markets, some- 
body else will. And it doesn't take a leap of imagination to conjure 
up who that is going to be. 

Shame on us if we miss this opportunity with the NAFTA. Again, 
it is not perfect. I don't claim it to be; Secretary Espy won't claim 
it to be. But it is so much better than what we have today, which 
is getting rid of these unfair rules and growing this large market 
and growing jobs in the country. 

I won't go through the pages I had on agriculture, although I 
think they are critical, absolutely critical. Mexico is our third larg- 



20 

est importer of agricultural goods today, $3.8 billion. It will grow 
in 15 years to over $10 billion. We will have 100,000 more jobs, in- 
cluding 56,000 more directly related to NAFTA in agriculture be- 
cause of this growth in exports to Mexico. 

Let's not miss this opportunity, and one more thing. I think it 
is interesting if you look at population growth, which I know this 
committee looks at because it makes so much difference in agri- 
culture, in percent of population in 25 years, Mexico is growing 
three times faster than the United States. Mexico will have 107 
million people by the year 2007 on their way to the middle of the 
next century of 150 million people. Sixty percent of the population 
of Mexico is under 25 years old, and they consume twice as much 
cereal per capita as U.S. citizens. 

This is an opportunity of this country in goods, in services — 
which they open up for the first time, by the way — and for agri- 
culture. It should not be missed. 

I look forward to answering questions from you, Mr. Chairman, 
and thank you for your kind remarks, and from you, Senator 
Lugar, and other members of the committee. 

Thank you. 

The Chairman. Thank you, Mr. Ambassador. 

Let me ask you, if you look at rural areas, an area most of us 
on this committee are concerned with, you find a preponderance of 
the jobs are in manufacturing industries, and many of them rely 
on lower skilled labor. A lot of them are jobs that are susceptible, 
very susceptible, to competition with Mexican labor. 

Do you think that NAFTA would have a negative effect on jobs 
in rural America? What is your estimate of its effect on rural 
America? 

Ambassador Kantor. No, I don't, Mr. Chairman. Again, the past 
is prologue. The last 5 years, as these rules have become more fair 
and we have lowered tariff barriers, 48 of the 50 States have in- 
creased their exports to Mexico, not only agricultural but goods and 
manufactured goods as well. We have created a substantial number 
of jobs. 

There is no evidence that, in fact, whether it is in so-called low- 
skill or low-wage jobs or in high-skill, high-wage jobs we can't com- 
pete. Frankly, we have increased our exports to Mexico in almost 
every category you can imagine over the last 5 years. 

Interestingly, the average Mexican consumer buys about $450 a 
year in U.S. goods, more than the average Japanese consumer or 
the average consumer in the European Community, although obvi- 
ously their wages are less per capita or their income is less per 
capita. We don't see that happening, and in fact, for small and me- 
dium-sized businesses, many of those in rural areas, as you know 
better than I, this is a real winner. 

Small and medium-sized businesses work on, by their very na- 
ture, small margins. If you have tariff barriers and nontariff bar- 
riers, they can't compete. Larger businesses can absorb that unfair- 
ness or that inequity. Larger businesses also can open up in Mexico 
where small and medium-sized business by its very definition can't. 

When we open up under NAFTA and lower those barriers, we 
will be exporting products, not jobs, and a lot from small and me- 
dium-sized businesses. And I don't want to go too long, but I have 



21 

been to the Atlanta Saw Company, and we have talked to the 
owner of Quaker Fabrics, in Fall River, Massachusetts, and we 
have talked to Springs Industry in South Carolina, Keva Plastics 
in Phoenix, Arizona. And they all come up with the same story. 
Many of these are smaller businesses. They are going to do great 
under NAFTA, and they are looking forward to it. 

Secretary Espy. Mr. Chairman, if I could just add a word? 

The Chairman. Yes, certainly. 

Secretary Espy. You know how concerned I am about jobs in 
rural America and increasing the supply of jobs, and you also know 
my background. I am from rural Mississippi, the Mississippi Delta, 
an area that many would consider to be a prime target for the ex- 
port of jobs from that region into Mexico. 

In addition to what the Ambassador has said, with the obvious 
benefits of a prime market to supply for agricultural products 
which will increase jobs in rural America, just let me say, Mr. 
Chairman, that there are many other reasons why a small firm 
would choose not to relocate from a rural area into Mexico that go 
beyond the productivity and the wage issues. You have to look at 
rural America and rural Mexico and consider that we have huge 
advantages in transportation, huge advantages in infrastructure 
development. As much as we lament it, it is to be said to our credit 
that we are a lot better than some areas down there. We have huge 
advantages when it comes to research and being close to research- 
oriented universities and 1890 colleges; huge advantages in inter- 
est rates and what it costs to set up a firm down there; and cer- 
tainly, as has been said before, huge advantages in productivity of 
workers. 

So I just don't see this immediate rush, even from areas such as 
mine, down into Mexico. 

The Chairman. Thank you. I also know that we have to wonder 
about some of the lost revenues. I realize Mexico has higher tariffs 
on balance than we have on theirs, but when Secretary Bentsen 
testified — I believe at the same time you were there — he told the 
Finance Committee that we would lose about $2.5 billion in tariffs. 

What is our intention? I am thinking of the budget package we 
just passed. How do we make up that $2.5 billion? I guess that is 
$2.5 billion every single year. 

Ambassador Kantor. No, it is not. It is $2.5 billion over 5 years, 
Mr. Chairman. 

The Chairman. Okay. How do we make it up? 

Ambassador Kantor. We are working on that right now with 
both the Senate Finance Committee and the House Ways and 
Means Committee. Obviously it is the largest cost of the NAFTA 
given the pay-go system. We can, of course, take into account the 
Fact that we will create about $6 billion a year in Government reve- 
nues from the increased exports and imports that result in in- 
creased business and agricultural activity. 

However, we believe that there is — through certain savings in 
certain programs and other ways, we will be able to make up about 
$500 million. It is less in the first year, as you might imagine. It 
slowly will kick in, and then by year 5 it would have averaged $500 
million for 5 years. But we would like to work with not only those 



22 

committees, but your committee as well, in finding appropriate 
sources. 

The Chairman. I am undecided on NAFTA, which is one of the 
reasons for this hearing. I mention that because nobody in the ad- 
ministration has asked me if I have a position one way or the 
other, so I will pass it on back that I don't. I want to know if there 
are any extra costs in here that we are not aware of. So I would 
be interested, when you reach your final conclusion, how you are 
going to do it. Let us know. 

Is there anything in NAFTA that would allow Federal preemp- 
tion, not just the NAFTA preemption, but allow the Federal Gov- 
ernment to preempt food safety laws in individual States? 

Ambassador Kantor. No, sir. 

The Chairman. Now, if I read the paper, I understand — and we 
have heard some mention of it here today — that the sugar industry 
is concerned about NAFTA, that it may have a flood of imports of 
sugar from Mexico. You have also said you are not going to open 
NAFTA to amendment. 

How do you take care of the problems of the sugar industry with- 
out changing the underlying agreement? 

Ambassador Kantor. We believe there are a number of creative 
approaches we might take. As late as Friday, we were in discus- 
sions with the Mexican Government regarding this problem. It is 
not one that is either new to this witness or new to the witness 
on my left. 

As you know, in the first 6 years, Mexico could not exceed 25,000 
tons exporting to the United States even if they become a net pro- 
ducer. They are not a net producer today. They are not expected 
to be for a while. 

After 6 years, of course, if they become a net producer, that rises. 
The fact is the concern over the substitution of high fructose corn 
syrup in soft drinks, the potential of that, and that then relieving 
Mexico of the need to use that sugar in the production of soft 
drinks, therefore becoming a net producer as a result of substi- 
tution. In the formula that was negotiated by the prior administra- 
tion, high fructose corn syrup (HFCS) was left out. 

We believe because both countries — it is in the NAFTA; I will not 
quote it directly — have a right to determine what is a net producer 
and when it occurs that we will be able to work with not only this 
committee but the others, as well as the Mexican Government, in 
order to address that problem. 

It is a problem that should be addressed. The Mexican Govern- 
ment has indicated that they don't intend nor do they foresee at 
any time that they would substitute HFCS because of pricing dif- 
ferentials for sugar. But if that is the case, I gently said to them 
that I thought we might be able to take care of this problem if it 
is not something they intended to do. 

Secretary Espy. Mr. Chairman, could I just jump in on this one? 

The Chairman. Yes, Secretary Espy. I was going to ask you the 
same question, so please feel free to comment. 

Secretary Espy. The Ambassador knows that I am concerned 
about this as well, and I agree with him that we are going to work 
together to lessen this as a negative concern relating to the agree- 
ment. But when I went down there to Mexico 2 weeks ago, I raised 



23 

this question of whether or not there is any reason for us to believe 
that they would start using high fructose corn syrup in their bev- 
erage industry. 

As I sit here, I don't believe that that is really going to happen, 
for two reasons: one, because of, in my words, the sorry state of af- 
fairs in their beverage industry right now. There are a few compa- 
nies that have gone bankrupt recently. It is really hard to believe 
we are going to see a quick capitalization of their beverage indus- 
try. Then, secondly, as most consumers know, because of the taste 
differences between what beverages taste like with high fructose 
corn syrup than they taste like now with the current ingredients. 
I think that we know that there is a taste difference. I think we 
saw that in the old argument over the Classic Coke. And I just 
don't think that conversion to the use of high fructose corn syrup 
is going to happen. 

So insofar as their becoming a net surplus producer and our hav- 
ing to fear that they will export that raw sugar into our markets, 
I just don't believe that there is a probability of that, even after 
year seven. 

The Chairman. We are talking about things that might be im- 
ported. You said earlier in your testimony that you thought that 
NAFTA would prevent Canada or any other country from cir- 
cumventing the U.S. Section 22 import quotas by shipping dairy 
products through Mexico. In my understanding of a reading of it, 
it does prevent that but only if we enforce it. 

How do you enforce those rules? Would it be the administration's 
intent to make sure the rules really are enforced? 

As you know and I know, we have some rules on imports and ex- 
ports that we on occasion turn a blind eye to, for whatever reasons, 
ranging from national security to economic realities. But this is one 
that resonates a bit back home, so please tell me it is going to be 
enforced. 

Secretary Espy. Well, I am sitting at the table with the author 
of the three side agreements: on labor, on environment, and on im- 
port surges. 

Mr. Chairman, there are some things that we should take on 
faith, and we know how difficult this agreement is to pass, and we 
are not going to let the critics have a field day by knowing that we 
did not enforce that particular requirement. 

The Chairman. What are the prospects for imports of dairy prod- 
ucts from Mexico? You said there are now about $160 million a 
year in exports of dairy products to Mexico. To put it in perspec- 
tive, that is about half, I think, of the production in my own State 
a year. What are the prospects of imports? 

Secretary Espy. Let me turn to Joe O'Mara on that one. 

The Chairman. Mr. O'Mara. 

Mr. O'Mara. Thank you, Mr. Chairman. Thank you, Mr. Sec- 
retary. I am looking it up right now. 

I don't think, while I am looking this up for the specific number, 
that we would anticipate much imports from Mexico. 

The Chairman. Well, why don't we do this? Why don't you sub- 
mit the anwer for the record. I realize that is a fairly technical one. 

Mr. O'Mara. I would be happy to do that. 



24 

The CHAIRMAN. I would like to have one you can be very se- 
cure with. 

[Mr. O'Mara submitted the following material for the record:] 

Given its higher prices and uncompetitive dairy sector, Mexico is unlikely 
to become a major exporter of dairy products to the United States. There 
may be a niche market for certain Mexican products, such as cajeta, a 
sweetened goat's milk product, in regional markets in the United States. In 
general, we will remain a large and growing net exporter of dairy products 
to Mexico. 

The Chairman. Let me ask you this: If we filled our milk powder 
quota in Mexico — let's assume Mexico needed further milk powder. 
They are now spending, as near as I figure it, about $1.70 per cap- 
ita per year on U.S. dairy products in Mexico. Will we be treated 
the same as European and New Zealand dairy exporters in making 
further sales to Mexico? 

Mr. O'Mara. Well, of course, as you are well aware, Mr. Chair- 
man, that market is the biggest in the world for milk powder, and 
you know how important it is to us to supply that market. 

The Chairman. That is why I thought I would ask. 

Mr. O'Mara. I think that we will be very competitive for the 
over-quota amount of milk powder. As you also are aware, the Ca- 
nadians, because of their position in the dairy product sector, have 
essentially eliminated themselves from a preferential arrangement 
in that market. I think we will do very well within the quota, and 
we will do very well outside the quota. 

The Chairman. Outside the quota, can we go on an equal MFN 
basis? 

Mr. O'Mara. Yes. 

The Chairman. If they did need additional imports, we would 
have to pay a higher NAFTA tariff? 

Mr. O'Mara. It is hard to explain precisely what will happen 
over the quota situation — at this stage at least — because I am not 
quite aware how the Mexican Government will handle the dairy 
sectcr, dairy import sector. It is likely that they still will retain 
government control over imports in a rather significant way be- 
cause of the very sensitive nature of this product in that market 
and because it is a critical part of their food supply. 

I think, though, that we can generalize at this stage and expect 
to see the United States to do very well in that market, and I think 
we will be very competitive in the over-the-quota market as well. 

Ambassador Kantor. The quotas in the first year are 40,000 
tons for the United States and 433 tons from Mexico coming into 
this country. We believe two things: First of all, import licensing 
requirements, which don't apply to us, will apply to any other non- 
NAFTA country; but, number two, they could waive the over-the- 
quota tariff or tariff rate quota rate in order to import more of the 
product, more of the powdered milk. 

So I think this is one in which we have not only a large advan- 
tage but one in which our supply is in great need in Mexico, and 
I agree with Mr. O'Mara. 

The Chairman. Thank you. I will put in the record the letter 
from Luis Tellez K, the Under Secretary for Planning, that was 
sent to Mr. O'Mara in this regard. 1 



iSee letter on page 151. 



25 

Senator Lugar. Ambassador Kantor, pardon me just a moment. 
Mr. Chairman, I would like unanimous consent to submit a state- 
ment of Senator Dole for the record. 

The Chairman. Without objection. 

Senator Lugar. Ambassador Kantor, revisiting just for a moment 
the question of high fructose syrup and sugar, I appreciate the an- 
swers you and Secretary Espy have given about the unlikelihood of 
the Mexican soft drink industry converting to high fructose in the 
short run. But let me just say generally that those of us who are 
interested in corn farmers have a different perspective on the situ- 
ation. In other words, we would like for Mexicans in due course to 
consider high fructose syrup because our corn farmers produce, ob- 
viously, corn that is used by the soft drink industry in this country 
for just that purpose. 

Therefore, even though you may be under pressure from the 
sugar people to try to contain high fructose usage and thus dis- 
advantage corn farmers, I would gently push back from the corn 
farmer side and indicate we are equally interested in keeping that 
choice open to Mexican manufacturers. 

I would hope you would remain silent, neutral, in essence let free 
trade work, and not only with regard to Mexico but with regard to 
the competition that goes on from time to time, as you have no- 
ticed, between corn farmers and sugar farmers in this country. 

I just make that point. You may already have come to that con- 
clusion that you will remain neutral and silent, and I am hopeful 
that will be the case. 

Let me ask this, however, with regard to another consideration. 
We have had at least suggestions today that Section 22 might be 
applied to Canadian wheat. Now, I iust want to think through for 
a moment the analysis of the Canadian wheat situation in view of 
the fact that our Export Enhancement Program would appear to 
keep U.S. domestic wheat prices $30 to $40 a ton higher than 
world prices. And, in fact, Mr. Secretary, you paid, according to my 
records, a bonus of over $57 a ton for a sale to Morocco under the 
Export Enhancement Program just last week. 

In effect, wheat is being priced as a feed grain and is selling at 
a substantial discount to corn, which has not received EEP sub- 
sidies. So my question is: Have wheat imports from Canada risen 
because of the existing free trade agreement with Canada or be- 
cause we deliberately — that is, the United States Government pol- 
icy keeps domestic wheat prices more than $1 above the price the 
Canadians can get almost any other place in the world? 

I think this is an important question. As we are berating the free 
trade agreement with Canada, if by our own policies we inflate 
wheat prices in this country to an extraordinarily attractive area, 
it seems to me, dubious whether in the negotiations on the NAFTA 
treaty we try to penalize the Canadians, having provided a situa- 
tion that would make that flow a perfectly natural consequence. 

I would like a comment from either of you as to this situation 
because clearly it is a big one. A suggestion has been made today 
that Senators from wheat-producing States are very concerned 
about this and putting some pressure on you to do something about 
it. I just want the basis of your economic analysis on what you 
might be prepared to do. 



26 

Mr. Moos. Senator Lugar, what you say is the case, to some ex- 
tent. In defense of our export policy, though, I must say that we 
have been very aggressive because we felt we needed to be, given 
the diminished demand that we are facing overseas. And it has 
been a very competitive market overseas. We have indicated that 
we are happy to try to maintain reasonable world wheat prices, but 
if we are going to have to meet the competition, we will meet it. 

The unfortunate side effect of that is to sometimes strengthen 
prices here in the United States. But I must say that there are 
other factors which encourage the movement of Canadian wheat 
into this country, not only because of the effect of the EEP pro- 
gram. We feel that the Canadians unfairly took advantage of the 
Canadian Free Trade Agreement to ship good quality wheat into 
this country under a feed wheat label last year. And so we want 
to try to make for a level playing field here. 

Secretary Espy. Also, let me add, Senator, that their pricing poli- 
cies are not at all transparent, and, in addition to that, their rail 
subsidies have an impact on their marketing of wheat. And so we 
are conscious of all these things. We have not yet made a decision 
on this Section 22 matter, but it is being thoroughly discussed. 

Ambassador Kantor. If I might just add one thing to that, I 
have been through this to some degree. I am not an expert like the 
three gentlemen to my left, but I certainly can look at numbers. If 
you look at the Durum wheat imports into this country from Can- 
ada, starting in 1986-87 where there was zero before that, it went 
from 59,000 to 508,000 expected in 1992-93. Total wheat, in the 
same time period, increased from 322,000 to 1,566,000. 

I think that it is clear that the sort of crow's-nest subsidy, the 
Canadian Wheat Board's lack of transparency, we don't know how 
much they are subsidizing in wheat, frankly. We have no earthly 
idea. All I would say is the proof of the pudding is in the eating, 
and if you look at the Mexican market, they had percent just 3 
years ago. Then it went to 14 percent, and then 70 percent last 
year. 

It is a major problem. I think what Secretary Espy has done with 
the EEP program is commendable. I think it needed to be done, 
both to Mexico and China. And we hope that it will work. We be- 
lieve that it will. These folks are experts. I am not. But as the 
Trade Ambassador, let me just say that I think it is critical that 
we deal with this problem, we deal with it quickly, because I be- 
lieve the Canadians have taken unfair advantage of the free trade 
agreement, both in their exports into this country and into Mexico. 

Senator Lugar. I appreciate your answers. Obviously it is a com- 
plex problem. We have debated here the virtues of export enhance- 
ment as a basic concept. By and large, almost all of us have come 
out in favor of certain expenditures, which add to the deficit. They 
are a part of our national budget. Consumers in America need to 
know that to some extent we are inflating the cost of food as we 
try to throw shots across the bow particularly of the European 
Community. 

But some of the side effects I think are present in our own mar- 
kets, and I trust that as you analyze what you do here, you will 
try to separate those. The credibility of our programs falters if 
somehow someone writes a story that the Federal Government is 



27 

deliberately raising domestic prices and then suddenly accusing the 
Canadians of bad faith. Both may be true, but the mix of the situa- 
tion is very important to analyze and make explicit, I believe. 

Secretary Espy. I think the answer to all of this ultimately is to 
be found in the GATT agreement. 

Senator Lugar. That would be obviously very helpful. 

Secretary Espy. Yes. 

Senator Lugar. Let me ask you, Secretary Espy. Some constitu- 
ents have written to me about statements of Mr. William J. Leh- 
man, a USDA meat inspector in Montana, who testified before a 
House panel in February alleging that U.S. meat inspection proce- 
dures on Canadian beef are inadequate and that Australian beef 
was being transshipped in the United States through Canada in 
circumvention of the voluntary restraint agreement, and that by 
implication the situation would only get worse under NAFTA. I 
think it is important there be an official response to that allegation 
by Mr. Lehman. 

Secretary Espy. Senator, I was briefed on that specific allegation 
this afternoon, and some would even allege that Mr. Lehman suf- 
fered some negative employment consequences because of these al- 
legations. That is certainly not true. The gentleman was moved at 
his request. But with regard to his allegation, that is certainly un- 
true. Just completely untrue. 

Senator Lugar. Well, can you testify what type of inspection pro- 
cedures would occur under NAFTA so that what Mr. Lehman has 
charged with regard to the past would not be true in the future? 

Secretary Espy. We will not reduce or dilute or suffer any dimin- 
ishment in our enforcement standards at present, Senator. The 
Customs officials, in addition to the FSIS officials, will make sure 
that we don't import any meat products or poultry into this country 
that are adulterated or suffer any damage at all. And under the 
NAFTA, that would not be reduced at all. 

Senator Lugar. Ambassador Kantor, my final question is a more 
macroeconomic question. Two parts: To what extent does the suc- 
cess of this hearing/ratification process we are now engaged in on 
NAFTA increase our bargaining power with European countries or 
Asian countries, both with regard to GATT or with regard to other 
agreements we may need to enter into? And, likewise, the other 
side of that coin, what would be the effect of failure of passage of 
NAFTA on any potential success of the GATT negotiations that are 
currently coming to a conclusion? 

Ambassador Kantor. There is no doubt in the President's mind 
or in mine or anyone in this administration that the success of 
NAFTA before this Congress would be tremendously helpful to our 
position in getting a successful conclusion to the Uruguay Round, 
the GATT round. We grow a bigger market. It is much more attrac- 
tive. It is a trade preference zone. There is no way to say it any 
more clearly than that. It is in our interest to do so, and we would 
gain confidence in terms of the whole world that the United States 
was not only opening its market but was cooperating with other 
countries to open their markets and enter into successful trade 
agreements, agreements that were good for all sides — as Secretary 
Espy said, a win-win situation. 



28 

If we fail, I fear we would hurt the round terribly. I think it 
would be viewed as this administration, for whatever reason — al- 
though we are doing everything in our power to get this passed — 
that we weren't as committed to free and open trade as some would 
want us to be, that we weren't leading global growth. I think that 
others then would begin to advocate that they wanted more out of 
the Uruguay Round than might be acceptable to us. And lastly, 
frankly, it would have an incredibly negative effect in Central and 
South America. Those growing market economies and democracies 
are looking to this agreement as a commitment by the United 
States to join with them in the future to grow the most successful 
and largest economic market in the world. I think we would have 
a very negative effect on that movement. 

Secretary Espy. I agree with the Ambassador. I think it would 
have really negative consequences for the GATT because, after all, 
what we are trying to do is to embrace a philosophy of reduced tar- 
iffs and nontariff barriers to open markets and to have appreciable 
increases in market access. And if we don't do it, it would give rise 
to the actions that some of our friends, including the French, are 
trying to do right now with regard to the GATT, and it is a contin- 
uum of a philosophy that we need to evidence here. 

Senator Lugar. Let me just say I appreciate the leadership Am- 
bassador Kantor and Secretary Espy have given, likewise very 
strong statements by the President of the United States and the 
great leadership he is giving on this issue. As you know, on our 
side of the aisle we have signed a letter — I am among the signato- 
ries — in which 34 Republicans have pledged to support the Presi- 
dent. And we are hopeful that we will have a very strong biparti- 
san support as we approach the final vote. We thank you for com- 
ing today. 

Secretary Espy. Thank you. 

Ambassador Kantor. Thank you, Senator. 

Senator Lugar. I yield to my colleague. 

Senator Conrad [presiding]. Thank you, Senator Lugar. 

First I want to thank Secretary Espy and Ambassador Kantor for 
the attitude that they have brought to the problems that we faced 
with Canada. I think you give a very good description of some of 
the problems that we confront. We very much appreciate the re- 
sponsiveness that you have shown. 

Let me just try to sum up for my colleague from Indiana what 
we face, because the fact is there are real problems with the Cana- 
dian Free Trade Agreement, the rail subsidy that does not count 
under the terms of the agreement, the lack of price transparency 
by the Canadian Wheat Board when you can discover on any hour 
of any day what our prices are on the Chicago markets, and finally, 
the very direct problem we have with the question of what con- 
stitutes dumping into the U.S. market. 

The plain language of the Canadian Free Trade Agreement says 
we will look to their full acquisition price. Only that is not what 
happens. That is not what happens because of a side agreement 
that was made that was not revealed to Congress by former Trade 
Representative Clayton Yeutter. Trade Representative Yeutter 
made an agreement that said, well, the agreement doesn't really 



29 

mean what it says there. We are not talking about the full acquisi- 
tion price for determining whether they are dumping below cost. 

The result has been Canada has gone from Durum wheat bush- 
els coming into this market to over 14 million today. They have 
fone from percent of this market to over 20 percent of this mar- 
et. On Spring wheat they have gone from averaging 7 million 
bushels a year for the 5 years previous to the Canadian Free Trade 
Agreement to 35 million bushels today, a five-fold increase. And 
that has nothing to do with inefficiency. It has nothing to do with 
being more competitive. It has everything to do with the defects of 
that agreement. 

Let me just say that Section 22 requires the Secretary of Agri- 
culture to advise the President whenever he has reason to believe 
that any article is being imported into the United States under 
such conditions and in such quantities as to render ineffective or 
materially interfere with any program or operation of the Depart- 
ment. That is what the law requires. We believe, many of us be- 
lieve, that those conditions have clearly been met. 

I was very encouraged at a Finance Committee hearing last week 
to hear Ambassador Kantor say, number one, that this administra- 
tion is closely considering moving towards a recommendation on 
Section 22 with respect to Canada; number two, that the adminis- 
tration supports my end-use certificate legislation that has passed 
the Senate twice before. 

I would like to turn my questioning to the Secretary and just 
say: Are you ready to follow the outstanding leadership of the 
Trade Representative? [Laughter.] 

Secretary Espy. I have a memo on my desk from Undersecretary 
Moos' office outlining in great detail an answer to the question of 
whether or not these Canadian practices that you have mentioned 
have materially interfered with our wheat program. I will be mak- 
ing a decision shortly as to whether or not to endorse this idea and 
move it to the next stage. 

Senator Conrad. Can you give us some idea of what your time 
frame is? 

Secretary Espy. Well, the longer I sit here, the less time I can 
read. [Laughter.] 

It is a memo of great importance to me. 

Senator Conrad. Well, let's assume that you get out of here 
today. I think that is a safe assumption. Have you some sense of 
when you might come to a conclusion? 

Secretary Espy. I have some sense that we do have a problem. 
The Canadian Durum imports, as you said and as we all acknowl- 
edge, are a huge problem for us. I have been to Canada. I have met 
with Mr. Mayer on the question, and we have met them in tradi- 
tional markets — with the EEP on wheat, the 32 million metric ton 
EEP, the largest we have ever had in the USDA. 

Senator Conrad. Which we appreciated very much, by the way. 

Secretary Espy. Thank you, sir. Clearly that was an indication 
that we want to meet our competitors toe to toe, but still there are 
problems. The lack of transparency with the Canadian Wheat 
Board, the rail subsidies, and many other things that we have not 
et mentioned suggest to us that we should go a step further. But 

can't announce it today; neither can I really say when I am going 



73-024 0-94-2 



I 



30 

to do it, Senator, except to say to you that it is very important. It 
is there on my desk, and at least at this moment it is going to fall 
primarily on my shoulders as to whether we do or don't. 

Senator Conrad. May I ask Mr. Moos what the memo says, what 
your recommendation is? 

Mr. Moos. The recommendation as forwarded on to the Secretary 
would recommend that the President consider an emergency proc- 
lamation establishing quotas on the import of Canadian wheat, 
and, of course, that the ITC then conduct an investigation. 

Senator Conrad. And did you conclude that there is material in- 
terference in the functioning of the agriculture program as a result 
of Canadian action? 

Mr. Moos. Yes. Being concerned about the growing level of im- 
ports coming into the United States, we set up a task force this 
summer to review the issue. After many weeks of consideration, 
they came forth with a judgment that the imports were materially 
interfering with our income price support program by raising the 
cost of the deficiency payment program, adding some $600 million 
additional outlays to the operation of our deficiency payment pro- 
gram. 

Senator Conrad. I appreciate that very much. Secretary Espy? 

Secretary Espy. This is as good a time for me to exit, I believe. 
I had already notified the chairman that I had a speech obligation 
at 4:30, and I am just about going to make it if I leave now. But 
based on that question, it is a good time for me to go, and then I 
can get back to my office and read these memos that I mentioned. 

Thank you. 

Senator Conrad. Thank you very much, Mr. Secretary. We ap- 
preciate your testimony. 

The chairman is absent. Senator Feingold is next. 

Senator Feengold. I do not know whether the folks up here will 
be able to answer or want to answer some of these questions with 
the Secretary gone, but we will try. If that doesn't work, I will sub- 
mit them in writing. 

My question relates to the Export Enhancement Program and 
what impact the agreement might have on these types of programs, 
and in particular with respect to the Dairy Export Incentive Pro- 
gram. Will the United States be able to continue using the DEIP 
for exports of cheese for nonfat dry milk to Mexico? 

Mr. O'Mara. Yes, sir. 

Senator Feingold. What about in the case with regard to 
nonsubsidized, low-cost imports from New Zealand, for example? 

Mr. O'Mara. We will have a preference in that market, Senator. 

Senator Feingold. Sorry? 

Mr. O'Mara. We will have a preference in Mexico that will con- 
siderably improve our relative competitive position compared with 
all other suppliers. 

Senator Feingold. Do you need to draw any distinction between 
the EC countries versus New Zealand in this regard? 

Mr. O'Mara. We will have a better position relative to all other 
suppliers, whether they are subsidizers, such as the EC, or New 
Zealand. 



31 

Senator Feingold. But it won't make any difference? Wouldn't 
it be a different situation since the EC would subsidize exports of 
dairy products? 

Mr. O'Mara. Well, we have not given up the opportunity to use 
the Dairy Export Incentive Program to meet that competition, so 
I don't think it will make any difference. 

Senator Feingold. Thank you. 

With regard to the Federal milk marketing orders, I am wonder- 
ing if there is any impact of this agreement on that program. Has 
the Department made a determination on the pricing and pooling 
of milk sold either as raw or packaged products in Mexico under 
the Federal order system under NAFTA? Does that have any im- 
pact? 

Mr. O'Mara. As far as I know, Senator, there is no effect. 

Senator Feengold. So there couldn't be any determination under 
NAFTA that we might have a violation of trie agreement through 
our marketing order system? 

Mr. O'Mara. There is no effect, Senator. 

Senator FEINGOLD. Okay. With regard to the rules of origin, the 
Secretary of Agriculture suggested that we ought to go on faith 
with regard to our ability to enforce those provisions. But after 
hearing the stories from North Dakota with regard to another 
product and with regard to the Canadian-U.S. Free Trade Agree- 
ment, I am wondering just what assurances you can give us about 
our ability to enforce the agreement and avoid the dumping of 
third-party product through Mexico into this country. Does the 
Customs Service have the resources to effectively enforce these 
rules? 

Mr. Moos. In that regard, Senator, the NAFTA rules of origin for 
U.S. -Mexico trade are much stronger than those in the U.S. -Cana- 
dian Free Trade Agreement. Additionally, we will take whatever 
steps are necessary to assure that U.S. workers are not injured. 

Senator Feingold. But does the Customs Department have the 
resources to do that? I don't question your intent, but do we have 
the resources out there to enforce this provision? 

Mr. Moos. Let's hope so. That is our job. 

Ambassador Kantor. Let me add one thing, if I might. I am 
sorry, Mr. Moos. One of the interesting things is the Customs Serv- 
ice allows a U.S. company to challenge the origin of a particular 
product in this discussion. As we have found under the private At- 
torney General right in other areas, this probably will be quite ef- 
fective, and the denial of a Customs Service visit to investigate and 
so on may result in a Canadian or a Mexican company, depending 
on the company, losing NAFTA tariff preferences on the goods they 
ship. 

So I think that it is quite strong, and I believe that the Depart- 
ment and the Customs Service have the tools to make it work and 
make it work well. 

Mr. O'Mara. In fact, there is a provision in the NAFTA that 
would provide for the opportunity for Customs inspectors to go to 
the books and check them directly, which is an additional safe- 
guard that does not exist now. 

Senator Feingold. Do you have any background material pre- 
pared on how this process will work? 



32 

Mr. O'Mara. We can certainly submit it. 

Senator Feingold. I would appreciate receiving just a little more 
detail. I appreciate the answers. 2 

Senator Feingold. Thank you, Mr. Chairman. 

Senator Daschle [presiding]. The chairman has yet to arrive. As 
I understand the order, I am next and then Senator Kerrey, Sen- 
ator Harkin, and Senator Boren. 

Senator Conrad asked some very good questions along the lines 
of those I was going to ask, but tnere is another related question 
that I would like the Ambassador to answer for us, if he could. The 
trilateral portion of the ag title, chapter 7, has a paragraph that 
I think is very important, out somewhat unclear. The quote is: "It 
is inappropriate for a party to provide export subsidies for an agri- 
cultural good exported to the territory of another party where there 
are no other subsidized imports of that good into the territory of 
the other party." 

I am wondering what effect that has. Basically, if this were law, 
if this were practiced by all three countries, we wouldn't have a 
problem. And yet we are spending a lot of time talking about the 
very fact that we anticipate serious problems. The Secretary talked 
about it; Mr. Moos has just talked about the ongoing problem we 
have with Canada. 

What does that paragraph mean? 

Ambassador Kantor. Well, the paragraph is fairly clear, I think, 
on its face that if a country subsidizes in a particular product and 
ships it into — let's say we subsidize and we ship into Mexico, but 
Canada, or a third party, does not subsidize the same product, then 
that would be a violation of the agreement. Therefore, it would be 
subject to dispute resolution. 

Mr. O'Mara. If I could, Ambassador, the main reason that that 
language reads as it does, in addition to what the Ambassador is 
saying, is that because of this Canadian problem, this provision of 
the agreement, and because that Canadian problem hasn't been re- 
solved, this agreement permits us to use EEP for wheat in the 
Mexican market. 

Senator Daschle. It is clear on the face of it, if the face of it is 
what we all intend to adhere to. But clearly Canada is going to be 
using a transportation subsidy, which in my view would be in di- 
rect violation of the intent of this paragraph were they to continue 
this practice after the NAFTA is consummated. But yet we are — 
I am struggling here for a definition or some understanding as to 
how Canada can continue to conduct themselves in that fashion 
using subsidies to the degree we know they will, given language in 
the trilateral portion of the ag title which states that it is illegal. 

Mr. O'Mara. It does not prohibit the use of export subsidies. 

Senator Daschle. Well, it says that it is inappropriate. What 
does inappropriate mean? 

Mr. O'Mara. Not a good idea. [Laughter.] 

Senator Daschle. Is that the best we can do, to say that it is 
not a good idea? 

Mr. O'Mara. Well, the language reads as it does, frankly, as a 
defensive mechanism because we had not yet been able to accom- 



zThe information is retained in the committee file. 



33 

modate the concerns raised here today with respect to Canadian 
subsidization. Now, when the time comes that we do that, which 
I hope is soon, then it is a different situation. But in the absence 
of having resolved that problem, Senator, we did not want to leave 
U.S. producers in the situation where we could not use EEP to ship 
wheat to Mexico. 

Senator Daschle. Well, I understand 

Ambassador Kantor. May I say it one more time? 

Senator Daschle. Yes. 

Ambassador Kantor. I am going to be as clear as I can be. We 
could take it to dispute resolution and try to enforce our rights 
under that provision. "Inappropriate" is not as strong a word as I 
would have liked to have negotiated. So that is not there at the 
time. But the fact is we could take it to dispute resolution. That 
is the best I can do, and let me not mislead you or any other mem- 
ber of this committee. That is the best we could do under these cir- 
cumstances. 

Senator Daschle. I agree with you, Mr. Ambassador, that we 
could take it there. But I must tell you, I think any board looking 
at this language would say, look, it says it is inappropriate, which 
means, as Mr. O'Mara has interpreted it, it is not a good idea, but 
it is not illegal, it is not strictly prohibited. 

It leads me to my next point, which is, if that is the case — and 
I think Mr. O'Mara just laid it out as well as he can. If it is not 
a good idea but not expressly prohibited, our only option is to take 
unilateral actions, the likes of which Senator Conrad has been talk- 
ing about and what I hope will be done in the very near future. 

We have to have some clear understanding as to what actions we 
can take short of taking the dispute for some kind of international 
reconciliation. That isn't going to happen given the language we 
have. 

The second question I have is how we define export subsidies and 
what effect that would have on other tools we use besides EEP. Not 
only export subsidies, but what would it do, for example, to the 
Acreage Reduction Program? Could that in any way be interpreted 
as something that the United States could not continue to do? 

Mr. O'Mara. No, sir. 

Senator Daschle. So there is no dispute about that? 

Mr. O'Mara. No. 

Senator Daschle. Okay. The problem also is addressed with re- 
gard to inspections. As some of you know, we have had problems 
in the bilateral negotiations with Canada on the appropriateness of 
reinspecting Canadian meat. Is there any misunderstanding in 
your view with regard to the right of this country to continue to 
use all of its means for inspection of meat imported from Mexico 
under this agreement? 

Mr. O'Mara. Not to my knowledge, sir, no. There would be no 
reason why we couldn't do that. As far as I know, no. But I would 
have to check to be absolutely sure. But to my knowledge, there is 
nothing in this agreement that would prohibit us from doing that. 
The FSIS will continue to operate as it now does, in terms of meat 
inspection in Mexico and in Canada, and the NAFTA would not ab- 
rogate that or reduce the effectiveness or in any way change what 
FSIS does. 



34 

Senator Daschle. Well, I hope you will clarify that, Mr. O'Mara, 
because as you know, we had similar assurances before we agreed 
to the Canadian Free Agreement, and we have spent an inordinate 
amount of time trying to clarify just what that assurance meant 
after the agreement was signed. And so I would hope we don't. I 
hope we have learned from the lessons that we had with the Cana- 
dians with regard to inspection, and assurances in and of them- 
selves are no longer enough. We are going to have to see some kind 
of an interpretive ruling, and anything in writing that you can 
share with us and for the record would be very helpful. 

[Mr. O'Mara submitted the following material for the record:] 
There is nothing in the NAFTA that prohibits us from maintaining the 
current or higher standards on domestic and imported meat. The FSIS will 
continue to inspect meat and poultry as required by our laws, and the 
NAFTA will in no way affect that. 

Senator Daschle. Thank you, and I thank you, Mr. Chairman. 
Senator Kerrey is next, Mr. Chairman. 

The Chairman. I think that is wonderful. Senator Kerrey, go 
right ahead. 

Senator Kerrey. Secretary Moos, just to close out the possible 
Section 22 recommendation that you might be making against Can- 
ada, do you intend to include all small grains, specifically oats? 

Mr. Moos. No. This just refers to wheat. 

Senator Kerrey. Why? 

Mr. Moos. Because that was the focus of the task force study. 
We would have to treat other grains separately if we want to go 
forward and make a similar case for them. 

Senator Kerrey. Well, it seems to me that a case could be made 
for both of them if you are going to make a case for one. We have 
a large amount of subsidized oats coming into the United States as 
well as subsidized wheat. It is essentially the same thing. 

Mr. Moos. There has been a large amount of oats imported from 
Canada for years, but there hasn't been the kind of pressure or the 
charge that it was being done unfairly to promote or provoke a task 
force study in terms of whether a Section 22 action ought to be in- 
voked. 

Senator Kerrey. We didn't holler loud enough? 

Mr. Moos. I wasn't, of course, part of the previous administra- 
tion, but I at one time in my past did represent the American Oat 
Industry. 

Senator Kerrey. You didn't holler loud enough. 

Mr. Moos. I found out that there are a lot of users in the United 
States that welcomed the imported oats from Canada. 

Senator Kerrey. Yes, I am not surprised. 

Ambassador Kantor, I have a series of questions for you, leading 
to a little bit of a discussion on the problem with sugar. I under- 
stand that while I was gone you made some references to it. I must 
say I really do appreciate your openness and willingness to meet 
with many individuals and organizations, specifically the dry edible 
bean producers that have raised some concerns. 

It seems to me that if we have a future, as you alluded to, of bi- 
and trilateral treaties like this, then I say with all due respect for 
Carla Hills and President Bush that one of the lessons that I carry 
away from NAFTA is that if you close the process off, that con- 



35 

sultation all by itself is insufficient. Consultation does not provide 
the level of confidence that people need that they have been given 
an opportunity to present their case. It just doesn't do it. It is my 
very strong feeling that part of the problem we are having right 
now is people just don't trust the agreement because it was not ne- 
gotiated in an open manner. 

Very closely related to that, it seems to me that if you and I are 
negotiating, you own a piece of property and I am trying to buy it, 
and I know that you are in a hurry to sell — let's say that it is Sep- 
tember, and I know that you have got to close the deal by Novem- 
ber, it seems to me that you are going to be in a position of weak- 
ness. I would just observe that that is also part of the reason that 
people don't trust that we got the best that we could have because 
they saw some time constraints on our part. 

I just say that as my own observation, and it is apt to be that 
those sorts of artificial things are going to be there in the future. 
I think the more that we can avoid them, the better. I am not try- 
ing to take a shot at President Bush or Ambassador Hills, because 
I think they worked in good faith. But when the perception is that 
we were anxious to close the deal, it creates misgivings that aren't 
based on fact, but they are based upon common sense, and that 
causes, it seems to me, a lot of distrust. 

As somebody who leans in support of NAFTA and concedes to 
you all the arguments that you made earlier on this treaty, I still 
continue to be frustrated trying to work out this one specific prob- 
lem having to do with sugar insofar as it appears that there is an 
opportunity for substitution of high fructose corn sweeteners. I 
would ask you if it is an appropriate thing to do or a constructive 
thing to do, either one, to invite either Minister Serra and/or Min- 
ister Aspe to come to Washington, to come to the United States and 
visit with us, particularly those of us who have sugar growers in 
our area, that have concerns about the substitution question, have 
concerns about Mexico moving from importer to exporter status 
rather quickly. 

My conversations with both of those individuals, I must say, al- 
layed a great deal of the fears that I have. But, again, based on 
what I said earlier, what I have to do is turn around and represent 
to people whose lives, economic lives, depend on this issue, I have 
to represent to them that I think we have received pretty good as- 
surances here. It would be an awful lot better, it seems to me, and 
more constructive — and I know some guys in the House are very 
concerned about this as well — to perhaps invite Minister Serra and 
Minister Aspe, either one of them or both, up here. I know you 
have had conversations with both of them. I am just inquiring 
whether or not you think it would be constructive for us to invite 
them to come up and meet with Members of Congress in an open 
fashion so that people whose economic livelihoods are at stake here 
could hear what resolution may occur. 

Ambassador Kantor. Let me suggest, hopefully delicately, that 
I would welcome any entreaties that might be made to my good 
friend, Minister Serra Puche, with regard to this issue. We have 
talked about it as late as Friday in person. It is an important issue, 
and we certainly understand that in the administration and appre- 
ciate your remarks. 



36 

Whether or not the most effective forum would be a public forum 
for that discussion is a matter of some conjecture, and I would be 
happy to sit down and talk to you or others about that. 

Senator Kerrey. Well, I would appreciate that. You are well 
known for your capacity to be delicate and ambassadorial and tact- 
ful. That isn't required with me in this particular case. What would 
be your conjecture as to the impact of a public meeting? 

Ambassador Kantor. I think that, with all due respect, a public 
meeting might harden the positions and might make it less likely 
that we accomplish what I think is generally conceded we should 
accomplish in this particular situation. 

Senator Kerrey. I am willing to listen to that as a possibility. 
Let me try to break the question down into two parts. You see it 
being possibly constructive to invite the Minister to come to the 
United States to discuss with Members of Congress who are con- 
cerned about this issue, discuss his own view of what is likely to 
happen and what assurances he might be prepared to give as well 
to allay some of the concerns? 

Ambassador Kantor. You mean in a private situation? 

Senator Kerrey. In either a private or public. 

Ambassador Kantor. Well, I would vote for A and not B. 

Senator Kerrey. Well, so you are saying that you think it would 
be constructive if it was private? 

Ambassador Kantor. I think it would be. 

Senator Kerrey. And you are not certain about — or you are 
certain? 

Ambassador Kantor. Oh, I am very certain. I was just trying to 
be delicate with my friend from Nebraska. 

Senator Kerrey. Pull the tooth. [Laughter.] 

Ambassador Kantor. I am not in the habit of being — we have 
known each other a long time. I think it would — if I were to go 
down to Mexico and had to appear in public and were in the same 
situation as my good friend, Secretary Serra Puche, who is a — I 
would find I would fight like a banyan and block myself into a posi- 
tion publicly that I might be more flexible in a private situation. 
And I am just trying to put myself in his position. 

Senator KERREY. I am not talking about a public hearing where 
we would ask him to come and testify. I am just talking about a 
meeting with the opportunity to 

Ambassador Kantor. I would be happy to work with you, and I 
think he would, too, in some session that would be helpful. 

Senator Kerrey. I find with both he and Minister Aspe that 
there is the capacity to articulate what they see as the risk, and 
they in my judgment are taking a considerable amount of risk. 
They see significant competitive advantages in the United States 
of America with a number of their industries at risk. 

Ambassador Kantor. Absolutely. 

Senator Kerrey. And though I am concerned about many of the 
details, as I have alluded to earlier, I must say I am enormously 
impressed with their political willingness to take risk with their 
economic reform as well as their political reform. When one hears 
them articulate what they are trying to do, when one hears them 
describe what it is that they are doing with their own policies, 
going from a 15-percent fiscal deficit to a surplus, taking their debt 



37 

down to 20 percent, taking inflation down to single digits, talking 
about privatization, moving to the market to try and keep the ac- 
tion out in the private sector, one hears and sees a great deal of 
political risk that they are taking, and feels a considerable amount 
of excitement, in fact, in becoming a more complete partner with 
Mexico as they make this transition. 

Very few of us in this Congress resist the notion that we ought 
to be a partner with Russia as they move from Communism to de- 
mocracy and to free markets. We get excited about it. We are en- 
thusiastic about it. There is very little protectionist impulse when 
it comes to trying to assist Russia in making their transformation. 
And it seems to me that we are talking about a similar kind of ven- 
ture, and as I indicated, I think in particular those two ministers 
might be very helpful in presenting to the American people what 
it is that Mexico is trying to do, and specifically, perhaps, assisting 
us in working out a very, very thorny and to this point irresolvable 
issue. So I appreciate, Mr. Ambassador, your comment on that, and 
I look forward to talking with you about inviting them up here in 
a private setting and perhaps allowing me to make another appeal 
for why at least a part of the meeting should be in a public envi- 
ronment. 

Thank you. 

Senator Conrad [presiding]. Senator Harkin. 

Senator Harkin. Thank you, Mr. Chairman. 

Mr. Ambassador, I want to cover another aspect of this. I don't 
know if it was covered before I got here or not. A number of studies 
have predicted that we will have some increased agricultural ex- 
ports to Mexico under NAFTA, although these increases are spread 
out over 10 to 15 years, so they are some time down the pike. I 
think in selling this NAFTA to many farmers, it has been held out 
that all of a sudden there is going to be a huge increase in exports 
to Mexico, but the studies show that it is going to be 10 years or 
more down the line when we get the big benefits. So it is quite a 
bit in the future. 

In Iowa, the livestock industry is an important part of our econ- 
omy, especially the pork industry. It literally has saved our State 
on more than one occasion. There are over 30,000 individual hog 
operations in the State of Iowa. I always like to brag that one out 
of every four pigs in America lives in Iowa, and that is about right. 
It is about 25 percent. And we are very proud of that industry. It 
is a big industry. I think it is something in the neighborhood of $6 
billion a year to our State economy. 

Now, again, it will be great if NAFTA enables us to ship more 
pork to Mexico. You know, if their wages go up and they are able 
to buy more meat and we can ship them more pork, that is great. 

Is it possible that the agreement will tend to facilitate shifting 
livestock production and processing from the United States to Mex- 
ico? Or at least encourage Mexico to satisfy any increased demand 
that they might have for meat by producing it there rather than 
buying it from us? 

Ambassador Kantor. Well, I think anything is possible, but we 
have 5 years of evidence that goes in the opposite direction. 

Senator Harkin. Five years of what? 



38 

Ambassador Kantor. Five years of evidence that goes in the op- 

Eosite direction. As Mexico began to liberalize its trade, lower tariff 
arriers, change the rules, allow U.S. products in until — well, with 
beef, they raised the tariff in the last year, and beef exports went 
down precipitously. In fact, we have done very well in pork and 
beef and in almost every area of agriculture but wheat, which is 
fascinating, and I think that has more to do with the Canadian sit- 
uation than it does any other situation, frankly, which we talked 
about earlier. 

But we believe that tripling the exports from $3 to $10 billion in 
agriculture by the year 2007 is helpful. We see it creating about 
108,000 jobs in agriculture, 56,000 strictly because of NAFTA. So 
we believe, in fact, that exports will continue and see the Mexican 
agricultural economy, which is so much smaller than ours, and 
their problem with water and their problem with other respects — 
and these gentlemen can answer better than I could — are much 
more difficult than others that, in fact, we will in some ways domi- 
nate their agricultural situation. 

In fact, there was great worry on some person's part that we 
would be so dominant in so many areas of agriculture, of course, 
that many people would leave the farm. That is one reason this is 
spread over 15 years, in order not to have that effect. And so there 
is no doubt that we are a winner in the agricultural sector as we 
are in many other sectors with Mexico in this situation. 

Senator Harkin. Mr. Moos. 

Mr. Moos. I might also add. Senator Harkin, that we expect that 
corn will be one of the big winners under the NAFTA agreement. 

Senator Harkin. By the year 2007? 

Mr. Moos. And, of course, the reason for that is that we expect 
that as Mexico's economy strengthens, there will be more demand 
for meat products, particularly products like pork. We expect to 
benefit from that additional demand. Our only concern is whether 
it is practical to ship the corn down there to enlarge their animal 
industry. 

From a practical standpoint, providing we can ship the corn 
down there, one wonders whether they can afford to import the 
corn to produce the hogs to sell back into the United States. We 
doubt whether that is going to be practical. 

Senator Harkin. Mr. Moos, I don't know. I think there are at 
least three factors that would encourage that: first of all, reduced 
barriers to capital investment; second, less enforcement of environ- 
mental requirements; and, third, lower wages in labor protections. 

Let's take the second one, environmental standards. One of the 
biggest concerns now to a hog farmer in America is meeting envi- 
ronmental restrictions. Now, if I am a big hog producer — I don't 
mean a family farmer. I mean one of these big outfits, 10,000, 
20,000 hogs, farrow to finish, you know who I am talking about. 

Mr. Moos. Right. 

Senator Harkin. And I am thinking about investing some place, 
building other hog operations. If there is a better investment cli- 
mate in Mexico, if we have a trade agreement that breaks down 
all these barriers, if the Mexicans don't have to live up to strict en- 
vironmental standards, why wouldn't I put the hog operation down 
there? 



39 

Now, you say we are going to sell more corn down there. Well, 
all right, we will sell more corn down there. They are going to buy 
more corn, although I question that. Maybe they will want to buy 
it from South America rather than from us. Why wouldn't they buy 
it from Argentina and places like that? 

Mr. O'Mara. Preference. 

Senator Harkin. What? 

Mr. O'Mara. Because there is a big preference. 

Senator Harkin. There is a what? 

Mr. O'Mara. There is a big preference. There is no incentive to 
buy from Argentina. We have the preference in that market for 
corn. 

Ambassador Kantor. That is right. 

Mr. O'Mara. They would have to pay more money for Argentine 
corn. 

Ambassador Kantor. Let me add two things to that, if I might, 
Senator, that I think are quite important, which I know you know. 
The fact is this agreement is in our favor, not theirs. The rules 
have been stacked against our farmers and against our manufac- 
turers for years. We are changing those rules in our favor. The tar- 
iffs have been higher. They have had import licensing require- 
ments, and we for the first time in the history of any trade agree- 
ment ever have a side agreement on enforcement of environmental 
laws which, in fact, has been endorsed by six of the largest environ- 
mental organizations in this country, which will force Mexico to en- 
force environmental standards or be subject to both fines and then 
later sanctions, trade sanctions. That has never happened before. 

So I think it opts in the opposite direction. The situation now, 
now with unfair rules, would draw somebody to Mexico. The situa- 
tion later will not. In fact, you can export products and not jobs 
later. 

Senator Harkin. Mr. Ambassador, isn't it true that the Canadi- 
ans offered an environmental standard in the trade agreement 
early on that would have set certain international norms and Mex- 
ico didn't want it and we sided with them and we turned it down, 
and now we have a side agreement that really, in effect, has no 
teeth to it? There is no enforcement in the side agreements? 

Ambassador Kantor. Well, that is not true, number one. 

Senator Harkin. The Canadians did not offer an 
environmental 

Ambassador Kantor. Well, no, no. I said it is not true we don't 
have teeth in the side agreements. The side agreements are the 
strongest side agreements on environment and labor in the history 
of trade agreements, and there is no one who has denied that, not 
even those who oppose the NAFTA. So that is number one. 

Number two — I was trying to think of your first point. It is really 
interesting to hear the arguments against the NAFTA. The status 
quo is not in the best interest of American workers or American 
farmers or American business. It just is not. We have been having 
our clock cleaned because we have allowed that to happen — high 
tariffs, high tariff barriers like import licensing requirements, a 
maquiladora program that was — and I know that is not in agri- 
culture, but it was a disaster — nonenforcement of environmental 
and labor standards. We are getting to those. 



40 

Now, is it perfect? Absolutely not. But will it make the situation 
substantially better and is it in the best interest of the American 
people and American workers? There is not a doubt in my mind 
that it is. 

Senator Harkin. Well, I am going to continue to look at those 
side agreements, and I welcome any information you can give me 
on exactly how they are going to be enforced and what the Mexi- 
cans actually have to live up to. 

The environmentalists may have one thing that they look at. 
What I am looking at is the prospect of losing a livestock industry 
because of lower environmental standards and enforcement that 
they have and for the three reasons I just gave you, which could 
be devastating to this country. So I would like to see your side 
agreements and how they are really going to be enforced, and I 
don't think very much attention has been paid to the possibility 
that we could lose a lot of livestock production to Mexico. We have 
looked at the grains, but we haven't fully looked at the livestock 
aspect of it. 

Ambassador Kantor. Let me just say one more thing, Senator, 
with all due respect. Again, I want to make it clear. If you wanted 
to move your livestock operation, you are better off with the rules 
as they exist today, with them able to throw up barriers against 
U.S. livestock exports, than you will be under NAFTA. 

Senator Harkin. Well, I am not certain about that. 

Now, you said there was a preference for U.S. corn? 

Mr. O'Mara. Yes, sir. 

Senator Harkin. Could they extend that to other countries? 
There is no prohibition against them extending that to other 
countries? 

Mr. O'Mara. No other party is a member of the NAFTA. 

Senator Harkin. But there is nothing that would prohibit Mexico 
from extending that kind of preference to any other country. 

Mr. O'Mara. They would have to negotiate that. 

Senator Harkin. Of course they would, and they could. 

Mr. O'Mara. Well, of course they could, but they would have to 
do it in concert with us as well, sir. 

Senator Harkin. They don't have to ask for our concurrence for 
them to have a preference to another country. 

Mr. O'Mara. Well, they could certainly negotiate an agreement 
with Argentina that was 

Senator Harkin. They don't have to get our okay for it. 

Mr. O'Mara [continuing]. That would give Argentina preference 
in the Mexican market, that is true. 

Senator Harkin. Sure. And they don't have to ask for our leave 
to do that. 

Mr. O'Mara. No, they do not. But in the absence of that happen- 
ing, we have negotiated an agreement which gives us the pref- 
erence. 

Senator Harkin. One last thing I wanted to bring up, and it is 
something I have written to you about, Mr. Ambassador, since 
March. It may not seem to be related to agriculture, but it is. A 
lot of our farm families now depend on off-farm jobs in a lot of our 
communities — small manufacturing, that type of industry. A major 



41 

concern is the disparity in tariff treatment accorded to home appli- 
ances. You know what I am going to say. 

We have three firms in Iowa: Maytag, Amana, and Frigidaire — 
about 8,000 jobs, good-paying jobs. These companies over the last 
several years or more have invested upwards of close to $1 billion 
in U.S. plant modification. They have increased their productivity 
with mechanization and state-of-the-art manufacturing. 

But under this agreement, as soon as we agree to NAFTA, if it 
is agreed to, the tariffs on those major home appliances from Mex- 
ico coming into the United States is 0, but going the other way it 
stays at 20 percent and is phased out over 10 years. 

Now, I know that there is a large firm that invested in Mexico. 
At least one, maybe two, invested in Mexico in making these home 
appliances. 

So where is the fairness? Here are U.S. companies — Maytag, 
Amana, Frigidaire — invested in their workers, invested in produc- 
tivity, invested in America to upgrade their plant and equipment 
to be more competitive. Two other companies go to Mexico; they get 
the benefit. 

I don't understand how that is fair. 

Ambassador Kantor. Well, let me — I am not going to argue. Let 
me make two points. Number one, on today's facts, the 20 percent 
would stay and it is still 0. There are no tariffs on appliances, as 
you know so well, Senator, coming from Mexico into the United 
States. The NAFTA begins to change that. 

Now, not fast enough. Not fast enough. And we want to reach 
agreement with the Mexican Government — and we have already 
discussed it with them — to use the acceleration clause on the first 
day this goes into effect and begin to negotiate a more rapid de- 
crease of those tariffs in the appliance sector that you have cited. 
But, remember — and I know you are — I am just saying this for rhe- 
torical purposes only, Senator. Without the NAFTA, it is 20 to 
nothing and it will never change. With the NAFTA, it changes 
every year for 10 years, and we get rid of it. But we have the op- 
portunity, which we have done three times, by the way, under the 
Canadian Free Trade Agreement, to accelerate the lowering of tar- 
iffs. It is a good deal for us. It is a better deal than we have right 
now. 

Senator Harkin. Well, now, as a good lawyer, you left out one 
thing. 

Ambassador Kantor. I am sure I left out more than one. 

Senator Harkin. No. You left out one thing, and that is the au- 
thority we have now under GSP. We have the authority to impose 
tariffs if imports go above a certain level. And we have done that. 
We have a 4-percent tariff right now on stoves. NAFTA wipes that 
out. 

So it is not 20 to nothing. It is 20 to nothing, but we can impose 
tariffs if imports impinge on our manufacturing in this country. 
And what happens is that this agreement prohibits us from doing 
that. 

So you say it is 20 to nothing, but we have a little hammer over 
here. Under NAFTA it is 20 to nothing, and we don't have a ham- 
mer. 



42 

Ambassador Kantor. The hammer can only be exercised upon 
certain things happening, as you know. 

Senator Harkin. And we have exercised it. There is a 4-percent 
tariff. The white goods industry is so competitive, 4 percent means 
a lot. It is not so much the 20 percent. Four percent could mean 
a lot. 

You put that 20 to nothing without our ability to impose those 
GSP tariffs, and we give up the hammer that we hold. And they 
know because we have done it before. We put on a 4-percent tariff. 
They know if they sharply increase shipments, we will impose a 
GSP tariff on refrigerators or other appliances as we did on stoves. 

If we don't have that tariff hammer — because it is such a com- 
petitive industry — 3, 4, 5, years is a lot of lead time for Mexican 
production even though you may be starting to phase Mexican tar- 
iffs out. But if you don't have an acceleration, I can tell you 
Amana, Maytag, and Frigidaire are really going to be hurt. If I am 
not mistaken, the ITC predicts that we are going to reduce our em- 
ployment in the home appliance sector, I think by upwards of 10- 
15 percent, just as it is now. 

I say to you that in that smaller sector of the major appliances — 
stoves, refrigerators, things like that — it is going to be a very dam- 
aging blow unless we have Mexican tariff reductions accelerated or 
unless we keep that hammer that we have of putting that GSP tar- 
iff on if they exceed a certain amount of exports to the United 
States. 

That is a big issue for us in Iowa. That is a lot of jobs. And they 
are important jobs, and I just don't think it is fair. 

Ambassador Kantor. Well, I am not going to be defensive at all. 
We have agreed to try to reach agreement with the Mexicans for 
a negotiation to decelerate those tariffs, and we will continue those 
discussions. We hope, before the Senator I am talking to has to 
vote, we accomplish that. 

Senator Harkin. Well, I still haven't decided how to vote on this 
agreement yet. I see good in it, and I see bad in it, and I just have 
to see how the scales tip. 

Thank you. 

The Chairman. Senator Boren. 

Senator Boren. Mr. Ambassador, first of all, I want to com- 
pliment you on the job that you have done, I think, to improve this 
agreement and to strengthen it since the time you took over these 
responsibilities and your colleagues working with you. I think you 
have made a very strong case that, on balance, trie agreement is 
in our national interest. If we have a situation where the tariffs are 
2V2 times as high on our products coming into Mexico as our tariffs 
and duties are on theirs coming into this country, that clearly 
shows that, from a big-picture point of view, we are better off to 
get rid of those barriers. 

I think that some of the scare tactics that have been used, as you 
have well pointed out, certainly overstate even the temporary 
losses to our country. The idea that an economy 4 percent the size 
of ours is somehow going to overwhelm us simply I think is not 
something that really bears close scrutiny when we think about it. 
And, of course, the long-term relationship between our two coun- 
tries is so incredibly important to us — in fact, to all three countries. 



43 

The maintenance of the United States as part of the world's largest 
market unit is important to us in terms of our bargaining position 
on other economic issues with other nations in the world. So not 
only is it beneficial in terms of our relationship with our closest 
neighbors, it is beneficial to all three of us in terms of our ability 
to hold our own in terms of fairness with the rest of the world. 

So I think overall you and others in the administration have 
made the case very well and very strongly and very persuasively. 

As always, even though we may find a cienefit to us in total from 
an agreement, there are always individual problem areas. I want 
to ask you just about a couple of them today that are of concern 
to me and of particular concern to my constituents. 

The question of the freight subsidies, the Canadian freight sub- 
sidies, has already been raised by Senator Daschle, and that is 
something that concerns us. I know there is a great concern along 
the northern tier States, but there is a concern in our part of the 
world as well, because wheat exports to Mexico have been very sig- 
nificant. We know that under this agreement the duties on our 
wheat would be phased out during the period of 10 years, perhaps 
hopefully sooner but at least by then. And just as in the case with 
beef, I think these are areas where there is a great potential bene- 
fit to the United States with growing exports to Mexico. 

But as I understand the current freight subsidy matter, since you 
can use the subsidy on shipments going west, it would be available 
to the Canadians to use this freight subsidy as a way of reducing 
the cost of the wheat which they ship and sell to Mexico, therefore 
depriving us of some of the benefit that will otherwise flow from 
this agreement. 

Now, hearing the earlier conversation and noting that Senator 
Daschle talked about the use of the word "inappropriate" and our 
uncertainty as to whether or not we can have any enforcement 
mechanism, I wonder if the administration would still be commit- 
ted as a persuasive matter with the Canadians to discourage them 
from using this inappropriate mechanism to make sure that we 
still — we have used EEP in the past, that we have a strong Export 
Enhancement Program that might potentially be used to stop — 
what is the term? — inappropriate behavior in the agreement. 

Ambassador Kantor. We have already begun EEP into Mexico — 
you can correct me if I am wrong — and into China, which is an- 
other big Canadian market. As you know, we have supported Sen- 
ator Conrad's legislation on end-use certificates. Unfortunately, it 
was a victim of a Senate rule, and therefore was not part of rec- 
onciliation. 

Secretary Espy made it quite clear he is considering at this time 
a Section 22 action and will make a decision on that. 

Senator Boren. Right. 

Ambassador Kantor. I believe we need to take strong action. It 
is up to the Secretary what he will recommend to the President. 
We have already talked privately about this. I believe the Canadi- 
ans not only have used the Western Grain Transportation Act, they 
have also used the Canadian Wheat Board and other matters to 
subside their wheat. I think the facts speak for themselves, from 
percent in the Mexican market to 14 percent to 70 percent in just 
3 years. It is really stunning what has happened. And I guess you 



44 

have to have some grudging admiration for their willingness to go 
after a market, but shame on us if we don't react and protect our 
interests, our farmers, our businesses here at home. 

Senator Boren. Well, I appreciate your answer, and I am reas- 
sured by it because I think that we just simply have to get their 
attention. We cannot allow this to go on. I asked for and received, 
several of us on this committee, a GAO study of the practice of the 
Canadian Wheat Board. I think that study speaks for itself. And 
to me it is absolutely essential, if we are not able to negotiate in 
stronger language a change in this agreement before we vote on it 
as it affects some of the practices now being carried out by the Ca- 
nadians, that we be prepared to use every tool available to us as 
leverage to try to end this kind of behavior. 

So I take your answer to mean that not only now are we consid- 
ering these actions, but that we would continue to consider them 
in the future if these kinds of inappropriate actions continue. 

Ambassador Kantor. By the way, that soft language was nego- 
tiated, and the industry wanted it as well, because we were wor- 
ried that we have the Uruguay Round going on and we had these 
talks going on. And as you negotiate, if we had locked ourselves in 
too strongly into a position, we could have been adversely affected 
by what happened in the Uruguay Round. 

Senator Boren. I understand. 

Ambassador Kantor. That was part of the reason for that. 

Senator Boren. Well, I would just urge vou to continue to be 
willing to use the mechanisms that are available to us as leverage 
to try tc solve this problem as our relationship evolves. 

One other specific question, and I will ask it very quickly; that 
is in the area of peanuts, which, of course, like cotton and others, 
are affected under the potential Section 22 phase-out and change 
in terms of our relationship with Mexico. Again, this is more of a 
Canadian problem so far than it has been a Mexican problem. 

As I understand it, if peanuts are to be processed and shipped 
back into this country duty free, we must assure that they are 
Mexican-produced peanuts. In other words, if the Mexicans were to 
produce peanut butter and send it into the U.S. market, it would 
have to be peanuts grown in that country. 

My understanding is that now there is a very serious problem 
with peanuts being imported into Canada that are not produced in 
Canada, now processed into peanut butter and other products in 
Canada, flooding into our market. Now, it seems to me, again, this 
violates the whole spirit of transshipment and the other kinds of 
basic principles that we have been operating on, and it is a very 
serious problem. And I might say as an added irritant to us, pea- 
nut producers are already going to lose partially the protection of 
the quota in terms of the agreement with Mexico. I know that 
there are offsetting tariff protections that can kick in if the former 
quota is exceeded. 

But it does seem to me that it would help the situation greatly 
if we could find a way to at least shut off this huge loophole with 
the Canadians now to make sure that it doesn't carry over into 
other parts of the agreement. I understand it wouldn't apply in 
Mexico's case. 

Ambassador Kantor. It does not. 



45 

Senator Boren. But it continues to apply — and this isn't a mat- 
ter of a flaw in this current negotiating round but it is a flaw in 
past negotiations that gives us trouble and undermines our credi- 
bility with producers and processors as we go into this agreement. 

Is there anything that we can do about the loophole that now ex- 
ists in that area with the Canadians? 

Ambassador Kantor. Other than reopen negotiations on this 
particular product, no. That doesn't mean we can't. I would work 
with you on that. You are absolutely correct it has to be 100-per- 
cent home-grown Mexican peanuts in peanut butter from Mexico, 
but not Canada. 

I can't explain why that was done, and I am not critical of it. I 
am sure there was a legitimate reason. The NAFTA in many ways 
is much stronger than the Canadian FTA. 

Senator Boren. Yes. 

Ambassador Kantor. And that is one of the reasons Canada did 
not want to join into the agricultural arrangements under the 
NAFTA as they had joined with us in the FTA. They had the FTA 
agreement, which is not as strong in many aspects. 

Senator Boren. Well, I was looking at the figures in terms of the 
tonnage going back and forth, both in terms of peanuts and cotton, 
which our quota impacted potentially. And, of course, we are 
strongly a net exporter in both areas to Mexico, Mexico being prin- 
cipally an importer. So I think that in terms of those two commod- 
ities there is a strong argument that can be made that NAFTA will 
be beneficial in the long term. But I would urge you to see if we 
can go back and look at some way of getting redress, because it is 
the cause of some of the opposition in the agricultural community. 
Some of my constituents have concerns, although I think by and 
large the majority of the agricultural community supports this 
agreement because they see many opportunities in it. But I think 
that the loopholes in the Canadian agreement, really more than 
anything else, the past insufficiencies are inflaming and causing 
some of the opposition on the question of this agreement, even 
though it is not responsible for the ongoing problems. 

Ambassador Kantor. Frankly, Senator, every time we don't en- 
force our trade laws in other areas, we hurt our credibility in the 
same way and the American people don't have as much confidence 
in us. That is why this administration has tried to enforce those 
laws in a fair but strong manner, in order to create confidence in 
the American people that they will believe the agreements we 
reach are in the best interests of our workers and our businesses. 

Senator Boren. Well, I commend you for that spirit, and I know 
that is a hard line to draw, at what point does toughness cross the 
line toward reigniting trade wars and protectionism. And let me 
say that I think from my observation of the way you and your col- 
leagues have conducted yourselves since the beginning of the ad- 
ministration, I think there has been a vast improvement, and I 
think you have walked that line very, very well. And I think that 
you have increased the level of confidence that Congress has. That 
is one of the reasons why in the past there have been attempts to 
reduce the discretion the executive branch has in these areas. 

I think that when we have an administration clearly committed 
to looking after our rights and enforcing those rights under existing 



46 

agreements aggressively and fairly, as you have been doing, I think 
that that continues to increase the confidence here. And so I en- 
courage you to continue. I think of myself as one that wants as 
much free and open trade as we can have, and I think that this 
is historic. I think it would be tragic if we were to see this agree- 
ment rejected, tragic in terms of all of the relationships here in the 
hemisphere, and, indeed, in terms of our position in the world eco- 
nomically. 

Ambassador Kantor. I agree. And, by the way, we did not give 
up our Section 22 rights to Canada with regard to peanuts or other 
products under the NAFTA. 

Senator Boren. I understand. Thank you. 

Ambassador Kantor. Thank you, Senator, very much. 

The Chairman. We will stand in recess for 15 minutes while we 
go and vote. I know these witnesses have to leave. I must say that 
I appreciate very much, Mr. Ambassador, the amount of time you 
have spent here this afternoon. I know that you had to readjust 
your own personal schedule to do so. But I think with the combina- 
tion of both the Finance Committee members and Agriculture Com- 
mittee members, it was well worth doing. 

Mr. Moos and Mr. O'Mara, and Secretary Espy, I say the same 
thing to you gentlemen. You have spent a great deal of time. I ap- 
preciate that, and the time that the Secretary spent with me pri- 
vately before the hearing. 

We will stand in recess for a few minutes. 

[Recess.l 

Senator Conrad [presiding]. This hearing before the Senate 
Committee on Agriculture, Nutrition, and Forestry will come to 
order. 

We first of all want to apologize to these panels. As you can see, 
the first panel went far beyond what was anticipated, and that was 
perhaps to be expected given the importance of this hearing and 
the witnesses who were appearing. But we have a great interest in 
what the members of these panels have to say as well. 

Given the lateness of the hour, we will ask you to make your 
statements part of the record and to summarize your testimony. 

The chairman is not going to be able to return. Because of events 
in Russia today, the chairman has to meet with the President very 
soon, and obviously that has also thrown an additional curve at us. 
But notwithstanding that, we will be very interested in the testi- 
mony of the members of this panel: Mr. Bob Foster, the vice chair- 
man, Board of Directors of Agri-Mark; Mr. Lee Swenson, the presi- 
dent of the National Farmers Union; Mr. Mike Bauerle, immediate 
past chairman of the Nebraska Corn Development, Utilization, and 
Marketing Board; Mr. Dean Kleckner, president of the American 
Farm Bureau Federation; Dr. Martha Roberts, deputy commis- 
sioner for food safety of Florida Department of Agriculture; and Mr. 
Roger Stuber, president of the National Cattlemen's Association, 
who hails from a very important State — in fact, perhaps the most 
important State, the State of North Dakota. 

Welcome to you all, and please proceed. We will begin in the 
order provided with Mr. Foster. Thank you for being here. The 
committee thanks you for your patience. 



47 

STATEMENT OF ROBERT L. FOSTER, VICE CHAIRMAN, BOARD 
OF DIRECTORS, AGRI-MARK, INC., MIDDLEBURY, VT 

Mr. Foster. It is my pleasure to be here. Mr. Chairman, mem- 
bers of the Committee on Agriculture, Nutrition, and Forestry, I 
appreciate the opportunity to be here. I am Bob Foster, vice chair- 
man of Agri-Mark, a value-added milk marketing cooperative. I live 
on a farm in Middlebury, Vermont, where I farm with my family. 

My task today is to share with you my perspective on the North 
American Free Trade Agreement. I will be expressing the position 
of the Council for Northeast Farmer Cooperatives. CNFC rep- 
resents 5,500 dairymen in 4 cooperatives: Agri-Mark, Eastern, St. 
Albans, and Upstate. These cooperatives service the Northeast 
fluid milk markets, package and market the full range of manufac- 
tured products, as well as provide ingredients to service the dairy 
industry. Products range from whole and skim milk powder to 
Cabot sharp cheddar cheese, from condensed milk to ice cream and 
yogurt mixes for Ben & Jerry's Ice Cream. Last year Agri-Mark ex- 
ported product to six continents. 

We live in a world of finite resources. One nation cannot isolate 
itself from the rest. Consider, if you would for a moment, if my 
State, Vermont — or it could be your State — decided to close its bor- 
ders and produce only what we need for ourselves. Vermont's econ- 
omy would literally dry up and wither away. With that in mind, 
what will NAFTA do? 

NAFTA provides mechanisms for the elimination of tariffs im- 
posed on a number of U.S. products. Some are immediate; others 
are phased out over as many as 15 years. Specifically, dairy prices 
are determined by national supply and demand mechanisms and 
markets. 

In dairy, we face a double challenge. Tight prices have forced the 
accelerated adoption of current technology and management. Cur- 
rently the national herd average for milk is 15,000 pounds per cow. 
Consequently, more than half are below the 15,000-pound level. 
With current technology, allowing for production of over 20,000 
pounds, and with the adoption of this technology occurring cur- 
rently at a very rapid rate, we could face as much as a 20-percent 
increase in production over the next several years. 

Dairy must become, to use Senator Leahy's words, "a reliable 
and dependable exporter" of significant amounts of production, or 
our productive capacity must be downsized substantially. Without 
NAFTA and, thus, without expanded markets, we are headed for 
a wreck, resulting in a painful downsizing in the number of dairy 
producers. 

Remember that a 1- or 2-percent increase or decrease in domestic 
supply causes dramatic increases in prices, as much as 20 to 40 
percent. Increasing prices are quickly captured at the retail level. 
Conversely, decreasing prices collapse prices received by producers, 
while only inching down to consumers. 

Unless product is moved out of the domestic market, prices to 
producers will have to be reduced dramatically. Without new and 
expanded markets for dairy, the U.S. and Vermont producers face 
a very tenuous future. 

One of the major concerns of the dairy industry is the dumping 
of subsidized product in Mexico which tnen would flow freely into 



48 

the United States. This concern has been addressed. Any product 
that does not meet the specific rules-of-origin provisions is excluded 
from the agreement. 

In my opinion, dairy and beef will gain significantly under the 
provisions of NAFTA. With the cost of capital at more than 20 per- 
cent, lack of infrastructure, expensive inputs, there isn't much in- 
centive for U.S. production to move south. 

So what does this mean to Vermont and dairymen in general? 
Less pressure to downsize agriculture than there would be without 
NAFTA; more U.S. jobs; more income in Mexico to spend on U.S. 
value-added products. NAFTA allows for easier flow of value-added 
products into Mexico. One-quarter to one-third of the Mexicans 
have relatively high incomes, creating a market nearly the size of 
Canada's for U.S. goods. As we heard earlier, Mexicans already 
purchase more per capita from the United States than do the Japa- 
nese or Europeans. 

Many U.S. products currently carry heavy tariffs. Even so, the 
United States has a trade surplus with Mexico of $5.4 billion in 
1991, compared to a trade deficit of over $75 billion with Asia — so 
much for less iobs because of NAFTA. 

NAFTA makes trade a two-way street. If we turn down NAFTA, 
we are relinquishing a $3.8 billion market. Vermont, like most 
other States, is an exporter of goods, products, and services. Ac- 
cording to The Economist, July 3 business section, Vermont exports 
grew $1 billion in 1988 to over $4 billion this past year. That's one 
trend I don't want to change. 

One final point: Agriculture has a multiplier effect of approxi- 
mately 4.5 to 7 times. This is true in Vermont, and it is also true 
nationally. Most of the products bring dollars into a State, and 
then those producer's dollars are spent many times over in that 
State. 

Value-added products will continue to be the success story in the 
future, I believe. U.S. grain will be converted in the United States 
to these products, creating jobs at home. According to several dairy 
economists, NAFTA could bring as much as $1 billion more in in- 
come to dairy farmers and generate as many as 10,000 new jobs 
throughout the dairy industry in this country. 

I trust that you will base your decision on the facts and what is 
good for the long-term interests of this country. NAFTA means 
more U.S. jobs. NAFTA means a stronger American agriculture. 
NAFTA will help maintain and revitalize rural America. 

NAFTA is a win-win situation for everyone — American, Cana- 
dian, or Mexican, whether they are a laborer, a farmer, a 
consumer, or an environmentalist. 

Thank you. 

Senator Conrad. Thank you, Mr. Foster. 

And now, Mr. Lee Swenson, head of the National Farmers Union. 
Welcome. 

STATEMENT OF LELAND SWENSON, PRESIDENT, NATIONAL 
FARMERS UNION, DENVER, CO 

Mr. Swenson. Thank you, Mr. Chairman. I would enter for the 
record a copy of the testimony; in addition to that, provide an ini- 
tial document that analyzes the impact of the Canadian Free Trade 



49 

Agreement and its implementation on American agriculture as part 
of our testimony, and just summarize it. 

I want to thank you for the opportunity to present the position 
of the farm, ranch, and rural families of the National Farmers 
Union on the NAFTA agreement. Since becoming president of the 
National Farmers Union in 1988, I have tried to be a strong advo- 
cate of trade and support the establishment of international rules 
and regulations which enable the trading of commodities, goods 
and services in a manner which provides a fair return to producers 
and promotes environmentally sound production methods, and also 
provides assurances to consumers in regard to the quality and safe- 
ty of the products that are traded. 

We support trade which advances the social and economic struc- 
ture of all people within the participating countries. And we have 
taken a look at the expansion that has occurred with Mexico over 
the last number of years, we know that those gains have been sig- 
nificantly linked with the possibilities of assisting those sales with 
credit provisions. 

As we take a look at the NAFTA agreement and its side agree- 
ments, we feel that it comes up short of the overall objectives that 
we think need to be put in place for trade. It especially lacks a 
number of safeguards that we feel need to be put in place to make 
it a good trade agreement. 

I am as concerned as the chairman expressed about the political 
rhetoric which exaggerates the concerns on both sides, but also 
that which exaggerates the unfounded negatives if the agreement 
as proposed is not accepted, because I take a look at the fact that 
we cannot accept status quo but that we have to make sure within 
a renegotiated NAFTA agreement that certain safeguards are put 
in place. 

As we take a look at the proposed agreement and a number of 
the points which we feel need to be addressed and have been dis- 
cussed in great detail today, I want to draw your attention to the 
Mexican tariff schedule. It points out that corn, barley, wheat, 
beans, milk, and cheese products have either less access or higher 
tariffs, or both, for the immediate future. Yet the proposed agree- 
ment allows Canada to maintain significant commodity protection 
and transportation assistance. And on wheat, Mexico has imposed 
a new 5-percent addition to the existing 10-percent tariff on Durum 
wheat and imposed a new 15-percent tariff on other wheat in ex- 
change for free license. 

Canada, meanwhile, as has been discussed here, will maintain 
its transportation assistance and pricing system in marketing its 
wheat to Mexico as well as into the United States. 

And I would draw your attention to a chart which shows the in- 
crease in Durum wheat that has come into the United States under 
the Canadian Free Trade Agreement, an increase of Durum wheat 
of 130 percent since before the Free Trade Agreement. 3 If you look 
at all wheat, an increase of 76 percent; barley, up 213 percent. 

Now, the Clinton administration has announced Mexico's eligi- 
bility as the Export Enhancement Program recipient for wheat to 
offset Canadian assistance, and support that as a means of com- 



3See page 101. 



50 

petition. Yet because of the lack of end-use certificates, there is a 
chance that we may be exporting Canadian wheat within our Ex- 
port Enhancement Program. I am not sure that that is the wisest 
use of our taxpayer dollars to benefit American wheat producers. 

But in addition, in the Mexico-U.S. agreement, it removes one of 
the only tools of recourse if a trade abuse occurs, and that has been 
discussed as Section 22. 

Let me just raise on particular point of concern. We have had the 
Canadian Free Trade Agreement in place since 1988. And the pre- 
vious administration, even with political pressure, agricultural 
pressure, resisted the implementation of a Section 22 when we 
were seeing an economic impact on Durum wheat producers in this 
country. It wasn't until the Clinton administration, in responding 
to the political pressure and the agricultural pressure, enacted or 
is considering enacting Section 22. And I am concerned of adopting 
the NAFTA as proposed with no recourse. What happens if a new 
administration comes in? What assurance do we have that Mickey 
Kantor is going to stay in place for the next 50 to 60 years to make 
sure the program is implemented appropriately. 

Transshipment of product and peanut butter and peanut paste 
has increased 567 percent. Sugar products into the United States 
increased 3,021 percent since the implementation of the Canadian 
Free Trade Agreement. It shows clearly that transshipment is oc- 
curring. 

And I was interested in the response of Secretary Espy to the 
questions, but he did not clearly identify the mechanism we would 
use with Mexico if transshipment — or who would have to prove it. 
Because it is my understanding that it will be producers in regards 
to agricultural products that will have to prove if transshipment is 
a concern. We analyzed that within the U.S. -Canadian agreement 
and found out it cost anywhere between $250,000 and $500,000 to 
have a case follow all the way through. 

Another very important safeguard that is missing is the border 
inspection. There is a lot of verbiage in the agreement, but we are 
concerned about enforcement, especially in regards to livestock as 
it moves across the border, the increase of feeder cattle, and the 
increase in TB that has already been documented. There is concern 
about a number of safeguards that we sense are lacking, and I look 
forward to addressing the questions you may have. 

Thank you, Mr. Chairman. 

Senator Conrad. Thank you, Mr. Swenson. 

Mr. Bauerle. 

STATEMENT OF MIKE BAUERLE, IMMEDIATE PAST CHAIRMAN, 
NEBRASKA CORN DEVELOPMENT, UTBJZATION, AND MAR- 
KETING BOARD, CHAMPION, NE 

Mr. Bauerle. Thank you. Mr. Chairman, I will ask that my writ- 
ten testimony be placed in the record, and I will, in the interest 
of brevity, speak from some abbreviated notes, if that is okay. 

Senator Conrad. Let me just say that we will introduce 
everybody's statements into the record as if presented in full, and 
as you know, these statements are important to us because they 
provide a basis for future debate and discussion among colleagues 
here in the Senate. 



51 

Mr. BAUERLE. Okay. Thank you. 

My name is Mike Bauerle. I am an agricultural producer. I live 
in western Nebraska and operate a farm on my own. For the last 
5, going on 6 years, I have served on the Nebraska Corn Board, the 
corn check-off board, and that represents 32,000 corn producers in 
the State of Nebraska. 

Many of these producers in the last 6 months to a year have ex- 
pressed the same frustration as the chairman did in his opening re- 
marks concerning the rhetoric, the extreme exaggerations on both 
sides of this issue. 

The Nebraska Corn Board got caught up in it, also, and 6 
months ago decided to take a unique approach to this. We commis- 
sioned the University of Nebraska Agricultural Econ. Department 
to take an analytical, well-disciplined approach and look at every 
study of NAFTA that is out there. 

We released this study last week in Nebraska and yesterday in 
Washington, DC, and that will be part of the record. 4 

This is a two-part study. First, they started with 84 different ar- 
ticles, studies, completely — everything they could get their hands 
on concerning NAFTA. They weeded it down to 40, basically throw- 
ing out those that had no economic justification, no data. Of those 
40, 10 economists then went to work using the same criteria to 
analyze those 40 as to their validity, if they used similar methods, 
and gave us a one- to two-page synthesis of each one of those re- 
ports. You will find that in the back half of the report that we have 
just issued. 

To complete the second half— I might add, too, that the charge 
we gave to them was not to give us any predetermined results. We 
wanted to know for the best interests of those corn producers that 
we are representing what the best guess of the outcome of NAFTA 
would be. At that point, they went to work using a RUPRI model. 
RUPRI is a model for Rural Policy Research Institute, which is a 
multistate model that was set up between the States of Nebraska, 
Missouri, Arkansas, and Iowa to predict how public policy affects 
rural people. It also consists of an econometric model. 

They took the synthesis of all those 40 results and placed it into 
that economic model, and I will give you a very brief synopsis of 
what we found when that model was completed. 

For the United States, it shows a positive growth in GDP — small 
but positive, with ranges from 0.02 to 1.34 percent. It shows ex- 
ports in agriculture increasing. It shows that the big winners in ag- 
riculture would be corn, as we have talked about, wheat, coarse 
grains, oilseeds, meat and livestock products. 

Several of the studies indicated that grain and oilseed sectors 
would be the biggest beneficiaries under this NAFTA agreement. 

It showed that U.S. corn exports to Mexico would increase in a 
range from 44 percent to 244 percent with the successful conclusion 
to the NAFTA agreement. This is at the end of the phase-in period. 

For Nebraska, what it showed was a 5- to 9-cent increase in the 
price of corn. As a corn producer in Nebraska, if we can get a 5- 
to 9-percent increase in the price of corn, we are going to push for 
it. 



* The study is retained in the committee file. 



52 

Senator Conrad. Percent or cent? 

Mr. Bauerle. I am sorry. Cent, 5 to 9 cents. And the range is 
based on the substitutability of yellow corn for food grade white 
and food grade yellow. If we can get a dime a bushel more for white 
corn, we will be glad to raise white corn. We have no problem 
switching. 

On jobs — and this is probably the hottest contested issue as you 
listen to the TV and the radio. We have more calls from people 
wanting to know what is the truth on jobs, what are the actual 
facts. On jobs, it shows a slight increase in total U.S. jobs. Now, 
that is not saying that there won't be some jobs lost and some jobs 
created, but it shows anywhere from roughly a 35,000- to 150,000- 
job increase for the United States. 

A big consideration, as the baseline for this econometric model 
was drawn, was what happens to environmental concerns if 
NAFTA is not passed. The environmental concerns in Mexico were 
not an issue in the United States until NAFTA. If NAFTA fails, 
there's a real fear that these environmental concerns could go by 
the wayside. 

U.S. meat, cattle exports, pork exports, and even poultry would 
have sizable increases, large increases. Contrary to popular belief, 
after visiting with some people and looking at our Mexican Em- 
bassy, their number one requirement right now for corn is for in- 
dustrial uses and for food. They are reluctant to feed $4.86 corn to 
pigs. So that fear was totally unfounded. 

I might also add that I am a producer of dry beans, and I am 
tickled to death to hear all the attention to dry beans. I didn't 
know anybody in Washington knew what a dry edible bean was. 
But I have the same concerns as many other dry bean producers 
had, and that is with the quota. But I also have to say that in the 
last 10 years of raising dry beans, I have sold beans for 11 cents 
in years when Mexico wasn't buying beans and I have sold beans 
for 38 cents a pound when they were. So I will take the 50,000 tons 
and take it somewhere in between that. 

Thank you. 

Senator Conrad. Thank you very much, Mr. Bauerle. 

Now we will hear from Mr. Stuber from my home State. A spe- 
cial welcome to you, Roger. 

STATEMENT OF ROGER STUBER, PRESIDENT, NATIONAL 
CATTLEMEN'S ASSOCIATION, BOWMAN, ND 

Mr. Stuber. Thank you, Senator, and good afternoon. My name 
is Roger Stuber. I am from Bowman, North Dakota, and president 
of the National Cattlemen's Association representing 230,000 cattle 
producers nationwide. 

Mr. Chairman, the National Cattlemen's Association strongly 
supports the North American Free Trade Agreement as a good 
business opportunity. During the last years or last decades, we 
have worked aggressively to develop, access, and expand foreign 
markets, and today we are exporting about 10 percent of our value. 

As the U.S. population ages and our population slows, the contin- 
ued growth of beef will depend on the new economies of the world. 
The dynamics of the Mexican market are exciting: 50 percent of the 
population below the age of 20, 80 percent below the age of 40. 



53 

Mexico is a growing economy with 90 million consumers who like 
to eat beef, and it is a natural market for the United States. 

We export presently to Mexico about $260 million worth of beef 
and variety meats. Our economist predicts by the year 2000 that 
that could reach $1 billion, about what we presently export to 
Japan. 

So the market is there. It is growing, but it is bumpy. The North 
American Free Trade Agreement is needed to smooth out that mar- 
ket. Last fall Mexico imposed tariffs on imports of live cattle and 
beef. Those tariffs have already slowed the growth of our market 
there. I have figures from the U.S. Meat Export Federation that 
say in the first 6 months of this year that both value and dollar- 
wise and tonnage the market has dropped by 40 percent. And that 
is a significant figure. 

It is unfortunate that the critics of the North American Free 
Trade Agreement have based their arguments on fear, fear that the 
United States will not be able to compete with Mexico. Mr. Chair- 
man, the United States beef industry is not afraid to compete with 
any country in the world on a level playing field. We are the most 
efficient producer in the world of high-quality beef. 

We have heard claims that NAFTA will shift the U.S. beef indus- 
try south of the border. This is just not going to happen. The real 
issue is productivity, and Mexico does not have the efficient produc- 
tion practices, the feed supplies, the infrastructure, or the capital 
to steal the United States beef industry. 

They also say that NAFTA will increase imports to this country 
from Mexico, exports of Mexico feeder cattle to this country. That 
is a market-driven basis, and if we look at the figures for the last 
2 years, it has actually dropped as the economy of Mexico im- 
proves. 

Disease control was brought up, and it was answered very clearly 
today. They have got to meet the controls and the rules and regula- 
tions of this country to come in here. 

Some critics of NAFTA have argued that countries desiring ac- 
cess to the United States market with their beef may use Mexico 
as a platform to enter the United States market. We believe the 
agreement answers these critics by including strong rules of origin. 
All fresh, chilled, and frozen beef is considered of one character re- 
gardless of the processed state. 

We agree with President Clinton's strong statement at the White 
House the other day when he said, "Every single, solitary thing you 
hear people (critics) talk about, that they are worried about, can 
happen whether this trade agreement passes or not, and most will 
be worse if it fails." 

Jobs have been an important part of the debates on NAFTA. We 
know that increased exports, particularly exports of high-value or 
value-added products, will create jobs to rural America. That was 
addressed earlier by both the Ambassador and the Secretary. 

A good trade agreement is a win-win situation for all countries 
involved. We are excited about the opportunities presented by 
NAFTA. The NAFTA will improve the economies of all three coun- 
tries. 

We strongly urge the Congress of the United States to pass this 
trade agreement. If it fails, you are telling the American people 



54 

that the U.S. Government does not care to create jobs, improve the 
economy, and regain our position in the world as a major player 
in world trade. 

I thank you, Senator, Mr. Chairman, for the opportunity to 
testify. 

Senator Conrad. Thank you, Roger. 

Dr. Roberts. 

STATEMENT OF MARTHA R. ROBERTS, DEPUTY COMMIS- 
SIONER FOR FOOD SAFETY, FLORIDA DEPARTMENT OF AG- 
RICULTURE AND CONSUMER SERVICES, TALLAHASSEE, FL 

Ms. Roberts. Thank you, Senator Conrad. I sit here before you 
today as the other segment that will be negatively impacted, in ad- 
dition to the Northern States and what they have found with 
wheat. I sit here today representing Commissioner Bob Crawford 
and the entire Florida agriculture industry of winter fruits and 
vegetables, citrus, sugar, our Farm Bureau, our cattlemen, and our 
dairymen. We have unified our position the last 2V2 years. We have 
asked for some very basic considerations to be included within this 
agreement. 

We find, regrettably, that we are in a position in which the Inter- 
national Trade Commission, the Council on Agricultural Science 
and Technology, the Government Accounting Office, and leading 
economists all say that there is one big loser in this agreement, 
and that is Florida winter-produced fruits and vegetables and our 
citrus. It is a matter of latitude. So early on, we began asking for 
some very specific basic inclusions in the agreement. 

We think that the food that we produce, the fruits and vegetables 
that are so essential to our health, are too precious a food resource 
to trade away. In this day of debate on health care, when we are 
trying to strive for preventative health care, we think it very criti- 
cal that our country continue to produce fruits and vegetables that 
our own National Academy of Sciences has indicated is so essential 
to our prevention of chronic disease and cancer. 

Recent reports have indicated that our school children are get- 
ting less than one serving of fruits and vegetables per day on aver- 
age. We certainly don't want the production we have in Florida to 
be traded away. 

We have a $6 billion agricultural industry with over a $40 billion 
impact upon our economy. Leading economists in our State first in- 
dicated we would be losing 54,000 jobs in Florida agriculture alone. 
I know Secretary Espy spoke of the creation of 54,000 jobs, an 
automatic tradeoff from a loss in fruit and vegetable production to 
maybe a gain in another commodity. Very recently, Dr. Polopolous, 
a world-renowned economist, now estimates over 100,000 jobs lost 
in Florida agriculture alone, and we are also facing a potential loss 
of $2 billion in our production. 

Now, what we asked for is very basic. We asked for a price-based 
safeguard in addition to the volume base that is presently within 
the agreement, because of the perishability of the commodities that 
we deal with. We also ask, as do many others, that there be a clear 
enforcement and there be equalization of requirements in the labor, 
environmental, food safety, pesticides, sanitary and phytosanitary 
areas. 



55 

It is very critical to us as a subtropical and very vulnerable State 
that we retain clear standards. I was very pleased to hear Sec- 
retary Espy and Ambassador Kantor indicate that we would. How- 
ever, we are very concerned with some other documents that indi- 
cate our country may be moving away from that area. 

There is a recent document in which APHIS of USDA is looking 
towards the vision for the year 2000. They are indicating that their 
inspections for phytosanitary standards will be much less frequent. 
And they have specifically stated in the Vision 2000 that they are 
looking at the reality in the near future of not being able to protect 
our Nation from imported plant pests and diseases. 

If this is what we are looking toward, Florida will face much ad- 
ditional loss. In the last 15 years, we have spent $180 million just 
to fight pests that have been imported into our State. 

How do we explain to our Nation and to our citizens in Florida 
that our farmers are not allowed to use a whole host of chemicals 
that can be used by their neighboring farmers to the south? I know 
this particular committee has dealt with the proposal before, par- 
ticularly on the export of pesticides and on the use of pesticides 
that may have been judged by our Government to be too toxic for 
either our farm workers to be exposed or for residues later on food. 
We think that equalization of standards is necessary. 

We would also offer and explain to the farmer in Dade County 
who is facing the decision on replanting tropical fruit trees. He is 
facing a capital investment of 5 to 6 years before production after 
the losses he sustained in Hurricane Andrew. Should they replant, 
or should they just throw in the towel now if there are to be no 
changes in the current agreement before us? 

In summing up, I would just say to you that I represent and I 
speak for all of the citrus and winter-produced fruits and vegeta- 
bles in Florida. We produce 50 percent of the fruits and vegetables 
in the winter months. During the winter months, we are the sole 
domestic producers of those essential foods so critical to your diet. 

We regret that we as yet have had no indication by Secretary 
Espy, the administration, or Ambassador Kantor, that any of our 
concerns on the redefinition of sugar to include high fructose corn 
syrup or strict enforcement of the country of origin or a price-based 
mechanism — those have not been addressed. Since they have not 
been addressed, we have no position other than to be in total oppo- 
sition. 

We are for free trade. We are just not for this particular agree- 
ment. I would like to offer into the record some additional informa- 
tion which our Farm Bureau, our citrus industry, and our vegeta- 
ble industry presented yesterday as part of a full campaign, hoping 
to defeat this agreement. 

Thank you. 

Senator Conrad. Without objection, that will be entered into the 
record. 

Senator Conrad. By the way, in addition to your statements, any 
other information that you wish to enter into the record will be ac- 
cepted as well. 

Mr. Kleckner, welcome. 



56 

STATEMENT OF DEAN R. KLECKNER, PRESIDENT, AMERICAN 
FARM BUREAU FEDERATION, WASHINGTON, D.C. 

Mr. Kleckner. Thank you, Mr. Chairman. I am president of 
American Farm Bureau and a corn, soybean, hog farmer from 
northern Iowa, and I represent the Nation s largest farm and ranch 
organization and am here in support of NAFTA. 

NAFTA will be good for American farmers and workers. It will 
expand exports and bring about higher net farm income and a net 
increase in U.S. jobs. Rejection of NAFTA could cause job losses 
and actually reduce U.S. exports. 

I think the only great sucking sound heard across this country 
if NAFTA fails will be the sound of exports going down the drain. 

With NAFTA, we have the means to improve the environment 
and reduce illegal immigration. Without it, these problems will 
only persist and worsen. 

Mexico is our third largest market, as we have heard today, 
following Japan and Canada, and certain to become a better one 
under NAFTA. Mexico's agriculture with limited resources is not 
now keeping up with their domestic demand for food, and that is 
why we have now a $1.5 billion agricultural trade surplus with 
Mexico. 

With its rapidly growing population and a strong desire for im- 
proved diets — and I have been down there, and I think, Mr. Chair- 
man, you probably have, and they do want better diets — they are 
going to continue to require substantial and growing levels of im- 
ports. 

NAFTA will assure that these imports will come from the United 
States by American farmers and ranchers. If we reject NAFTA, 
however, other countries will no doubt take advantage of the grow- 
ing Mexican market at our expense. 

I am a pork producer. Mexico doesn't need to buy pork from the 
United States. It can get it from Canada or Denmark. It doesn't 
need to buy wheat from the United States. It can get it from Can- 
ada, France, Argentina, Australia. Mexico does not need to buy soy- 
beans or nonfat dried milk, or dry edible beans or corn or sorghum 
or rice or beef or poultry or apples or pears or timber, and a whole 
host of other products from U.S. producers. It can get them else- 
where because they are produced elsewhere in the world, and it 
probably will if we reject NAFTA. 

Virtually all impartial studies — and I heard President Clinton 
say a week ago today that 18 of 19 that he had seen — I think that 
is what he said in the White House — have shown NAFTA to be a 
net job creator for our Nation and good for our overall economy. 
More than 280 noted U.S. economists, including all 12 living Nobel 
Laureates — and that is from Tobin on the left and Friedman on the 
right, and everybody in between — have told President Clinton that 
they all agree that NAFTA will, in varying degrees, be a net posi- 
tive for the United States in both job creation and economic 
growth. All living former Presidents concur. As far as I know, all 
living ex-Secretaries of Agriculture concur in this. 

NAFTA is not perfect. We heard it earlier. No trade agreement 
can be. I thought Mickey Kantor said it perfectly. We would have 
preferred, we in the Farm Bureau, longer transitions for some sen- 
sitive commodities, and shorter ones for some of our key exports. 



57 

But overall this agreement is a positive and necessary step for our 
agriculture and trade interests. It is a solution to, not the cause of, 
many of the problems raised by opponents about the agreement. 

For example, if there is a problem for U.S. companies moving to 
Mexico, NAFTA is not the reason. We don't have a NAFTA. In fact, 
NAFTA can help address the problem. It opens the Mexican mar- 
ket to our exports, thus allowing companies to stay home and still 
supply products to Mexico. It eliminates the maquiladora program 
and would help raise wage rates in Mexico. 

If there is a problem with illegal immigration from Mexico, 
NAFTA is not the reason. But NAFTA can help solve it by creating 
more jobs throughout Mexico, not the maquiladora region just 
there on the border. 

If there are problems in our trade with Canada, NAFTA is not 
the reason. The cure that some propose — to reject NAFTA — would 
be worse than the ailment. We could turn over even more of our 
ag markets to Canada by killing NAFTA. 

Some say Mexico's pesticide rules are too lax, that Mexico still 
allows DDT to be used. The GAO report that is often cited should 
be read before you swallow this argument. GAO found the U.S. and 
Mexican pesticide laws and violation rates to be close to equivalent, 
and GAO found that Mexico's use of DDT was confined to govern- 
ment applications in jungle areas to control mosquitoes that carry 
malaria. Unfortunately, people are being convinced that NAFTA 
should be rejected for that reason. 

The list of unfounded grievances about NAFTA goes on and on, 
and I have addressed a number of other ones in my prepared text. 
I expect to hear before you vote that it is also the cause of bunions 
and bad breath. Everything that is wrong is caused by NAFTA, ap- 
parently, or the perception that NAFTA will cause it. 

NAFTA, however, is probably the most thoroughly studied and 
analyzed trade agreement ever written and almost all studies show 
it will be a net plus for both countries. 

The Farm Bureau studied the impact it will have on U.S. agri- 
culture and concluded it will be an overall plus. We recognize that 
not every sector will be helped, and some will face increased com- 
petition. But we believe that the transition periods under the 
agreement will enable most producers to adjust. 

As I conclude, I will say the supplemental agreement on import 
surges negotiated by President Clinton will also give us a little 
extra warning of potential problems from imports. Currently, Mex- 
ico has relatively free and easy access to our market for commod- 
ities that they produce — we have heard that earlier today from a 
number of witnesses — while we face more restrictive barriers when 
we try to sell our products down there. NAFTA will level this play- 
ing field to our favor, and we anticipate further growth in our trade 
surplus with Mexico if NAFTA is approved. 

Thank you, Mr. Chairman, for allowing me to appear today, and 
I will just conclude by saying that Ben Franklin said — I don't think 
it was the cause of his death when he said, "No nation was ever 
ruined by trade." 

Thank you. 

Senator Conrad. Thank you. 



58 

I am going to try to be very brief in the questioning given the 
lateness of the hour, and I really greatly appreciate the patience 
of this panel. You have been very gracious with the Senate Agri- 
culture Committee. I hope you understand the unusual cir- 
cumstances we were under today. 

Mr. Kleckner, I would guess you are familiar with the situation 
we face on the northern tier with respect to the influx of Canadian 
Durum and Canadian Spring wheat, as well as the barley problem 
we are facing that Senator Craig of Idaho talked about and others 
of us have talked about as well. 

I assume that you would support steps that were taken to ad- 
dress that question; for example, Section 22 on Canada, end-use 
certificates, other things that have been discussed today. Or what 
is your position with respect to those problems? 

Mr. Kleckner. Mr. Chairman, thank you. I am certainly aware 
of it. I have heard about it from the North Dakota Farm Bureau 
and certainly from the other State farm bureaus at some length. 

I don't think there is any question that the U.S. -Canada Trade 
Agreement could be better and should be better. But I remember 
that there were things left out of the U.S. -Canada Trade Agree- 
ment on purpose regarding agriculture because they were such con- 
tentious issues, and really the agreement to not agree back then 
really said let's wait and let the Uruguay Round of the GATT fix 
these things because it probably will or I believe it will, the 
thought being back then that the Uruguay Round would be over. 

Seven years ago today, Mr. Chairman, I was in Punta del Este 
when those talks were going on. Seven years ago. I have become 
a grandfather five times since that time. I will be a great-grand- 
father by the time it concludes if it continues at the present rate. 

So we do need to fix in some manner the U.S. -Canada Trade 
Agreement regarding those issues. But also, it seems to me that it 
is probably not right to assume that the problems with Canada im- 
mediately translate over to problems with the U.S. -Mexico agree- 
ment, because we learned from the U.S. -Canada agreement. I think 
the U.S. -Mexico agreement is infinitely better than the U.S. -Can- 
ada agreement. 

Senator Conrad. Can I just follow up and say to you — can you 
see that some of us are trying to use our position with respect to 
NAFTA' s leverage to try to get these problems with Canada fixed? 
Because we see this is kind of our last best hope for getting some 
of those fixed. We have had a bitter experience, I might say to you. 
There were a whole series of things that are right in the Canadian 
Free Trade Agreement and the implementing language that were 
supposed to be addressed but never have been, and our suspicion 
is never will be unless we use our leverage now. 

You may have a comment or observation on that. 

Mr. Kleckner. Real quickly, again, Mr. Chairman, I understand 
your position, being from North Dakota, and you know, I have been 
there and I have talked to the Durum growers, and certainly you 
have a lot of sugar beets in your State, two contentious issues. 

I guess I feel that probably the best way to fix this, though, is 
in the GATT, and that is coming down the pike. I think both 
NAFTA and the GATT will be accomplished by the end of this year 
or neither one will be accomplished. That is my feeling right now. 



59 

I hope that the U.S. -Canada agreement will not be the cause of the 
NAFTA failing. 

Senator Conrad. All right. 

Mr. Swenson, maybe I would turn to you on this same question. 
I go back to the Canadian Free Trade Agreement, and a whole se- 
ries of representations were made to us at that time. But I can re- 
member very, very well being in hearings in which we were told 
we would not face these problems with Durum that have subse- 
quently surfaced. I remember very clearly being told Spring wheat 
is certainly not going to be a problem. And the result truly has 
been a bitter one. 

We have seen an absolute flood tide of Canadian grain coming 
across our border, and we can't send anything north. We have had 
people actually prevented from — we had a situation in our State. 
A North Dakota farmer was going up to visit a family member and 
had a bushel of wheat, a bushel of North Dakota wheat in the back 
of his car, going to take it up and deliver it to a family member, 
and that was prevented from going in. 

Yet day after day, the trucks roll. Day after day after day. This 
has led to a high level of anger and frustration, as I think Mr. 
Kleckner indicated. 

Do you share my recollection on what we were told with respect 
to the Canadian Free Trade Agreement, and what is your observa- 
tion? 

Mr. Swenson. Senator, I would agree that your recollection of 
the discussion and debate is accurate, that we were promised en- 
forcement, which did not result, and the mistrust is now deeply 
embedded in those that have been impacted by the results of the 
manner in which the Canadian Free Trade Agreement has been 
implemented. That distrust, I think, does not allow us to accept 
just verbiage and political rhetoric that, well, this won't happen 
now under the North American Free Trade Agreement, because, 
again, we haven't seen the real teeth, if you want to call it that, 
the manner in which the language will be enforced. And we see the 
loss of Section 22. What is the recourse? And so we have real con- 
cerns. 

Also, we strongly support the implementation of end-use certifi- 
cates, with Canadian trade, with Mexican trade. We think it is a 
necessity. 

Senator Conrad. I am just being advised that we are anticipat- 
ing a vote soon, but I will try to end the questioning before we get 
to that vote. 

Dr. Roberts, with respect to sanitary and phytosanitary stand- 
ards, we heard Secretary Espy indicate that we will be able to en- 
force our standards, and I think we all understand that. The ques- 
tion is, as a practical matter, whether or not border inspections can 
give you enforcement of those standards that is effective. And I 
would guess that the Florida fruit and vegetable producers have a 
perspective on that, and perhaps you could share it with us. 

Ms. Roberts. I would be happy to, and I think I would also go 
back to the previous question, because I think what you learned is 
that the history of the past shows us we must have specificity in 
the language in the agreement, or it is merely rhetoric and prom- 
ises. If the individual was there that gave you that interpretation 



60 

is no longer there, all you have is the language that is in the agree- 
ment. And there is no specificity in the agreement, nor in the side 
agreements on labor and environment, nor the two-page document 
that supposedly is supposed to address import surges. 

As a microbiologist and an agriculturalist in food science, you 
just cannot rely on border inspections to prevent problems in food 
safety, phytosanitary issues, and sanitary standards. Right now 
Customs 

Senator Conrad. And why not? Why not? 

Ms. Roberts. To give you some statistics with current resources, 
FDA, USDA, Customs indicate to us that less than 2 percent of the 
shipments coming through are inspected. The inspections that they 
do are oftentimes not very thorough because the trucks are backed 
up waiting to come in. It is very 

Senator Conrad. So they just wave them through. As a practical 
matter, they check two loads out of a hundred. 

Ms. Roberts. Oh, they are very wonderful people with a lot of 
professional expertise. They just cannot do what they have been as- 
signed to do. 

It will require some strong enforcement by all our trading part- 
ners involved in the agreement. Mexico will have to have their own 
governmental enforcement provisions. 

We in the States are going to have to pick up a greater share 
of attempting to be partners with the Federal Government in this. 
The Federal Government cannot do this. Both USDA and FDA 
have indicated in various documents that the number of inspec- 
tions will actually be decreasing per the volume being imported. 

Senator Conrad. Given the fact there will be more volume, same 
number of inspectors, the actual rate of inspection will decline. 

Ms. Roberts. Actual rate. And we can't push aside, even though 
we have had assurances, we can't push aside the food safety ques- 
tion. We have up to 81 million people ill each year from foodborne 
disease. It is a real statistic now with the foods we consume. We 
must do a better job of protecting the safety of the foods we 
consume and the standards that apply to those, whether imported 
or domestic. 

Senator Conrad. Thank you very much. 

Mr. Stuber, Roger, you know the sensitivity in the State of North 
Dakota on the wheat and barley questions. I assume that you 
would not object and probably would support attempts to get these 
problems addressed with respect to Canada. Am I correct on that? 

Mr. Stuber. I want to agree, but if I can give you the cattlemen's 
perspective on it, what we want is market access and to get rid of 
export subsidies. They often send the wrong signals or create some 
signals that cause price disparity. I think we have too much going 
with this agreement. And I raise wheat. I have two or three bins 
of Durum sitting there I would like to sell. So I understand the 
issue. 

I personally have no opposition to that. As a member of our 
group, we just don't get into those things, Senator. 

Senator Conrad. I understand. 

Well, let me again thank this panel. We have been advised there 
is a vote about to be called, so I am going to excuse this panel. 



61 

Again, I thank you for your contribution here today as well as your 
patience. 

This hearing is closed. 

[Whereupon, at 6:21 p.m., the committee was adjourned, subject 
to the call of the Chair.] 

[Material submitted for inclusion in the record follows.] 



73-024 0-94-3 



APPENDIX 



PREPARED STATEMENTS 

Senator Lugar 

Mr. Chairman, NAFTA deserves our support because it will be good for American 
exports and American jobs. It will give U.S. goods and services preferential access 
to Mexico's dynamic developing economy. It will preserve our ability to make our 
own decisions on critical consumer issues like food safety, highway standards and 
professional certification — and back up those decisions with action. 

Many different U.S. industries will benefit from NAFTA. For example, the De- 
partment of Commerce says U.S. automotive exports could rise by $1 billion in the 
first year of the agreement. But agriculture is a particularly clear case of NAFTA's 
benefits. 

The anticipated increase in exports from just six commodity sectors — corn and 
corn products, soybeans and soybean products, wheat, pork, beef and dairy prod- 
ucts — would increase Indiana farm income by $100 million a year once NAFTA is 
fully implemented. 

And the increase in exports will not benefit just bulk commodities. Processed food 
sales to that market have grown dramatically since the late 1980s. So it is not sur- 
prising that support for this agreement in my State includes not only farm groups 
like the Indiana Farm Bureau, the Indiana Pork Producers and the Indiana Soy- 
bean Growers, but also agribusiness firms like Agricor, American Maize Products, 
Central Soya, Dean Foods, and Pioneer Seed. 

Under NAFTA, access to the Mexican corn market will no longer be subject to the 
whims of the Mexican Government, but guaranteed for an initial 2.5 million tons — 
an amount that will grow each year until all barriers are dropped. Sudden, arbi- 
trary tariff increases on U.S. livestock products will also be avoided. 

But as important as such "rules-based" gains will be, they are likely to pale beside 
"growth-based" gains. In other words, growth in Mexican incomes from increased 
trade will translate into a higher quality diet, creating rich opportunities for U.S. 
farmers and food companies. 

Mexico is already our fourth -largest agricultural market, after Japan, the EC, and 
Canada. With NAFTA, its rank as a market will almost certainly increase, and so 
will the incomes of American farmers. 



Senator Conrad 

Earlier this year I wrote Ambassador Kantor to express my concern that the 
NAFTA negotiated by the Bush administration was so badly flawed that it ought 
to be renegotiated. The administration had already decided, though, that the agree- 
ment would not be renegotiated but rather that it would be supplemented by side 
agreements. Consequently, I urged USTR to use these side agreements and the im- 
plementing legislation to fix the flaws that I perceived in the agreement. 

These flaws included problems affecting the sugar and wheat industries, concerns 
regarding enforcement of the rules of origin and sanitary/phytosanitary chapters of 
the agreement, the widely different levels of wages and environmental and labor 

(63) 



64 

standards in Mexico and the United States, flaws in the dispute settlement process, 
and a lack of protection against exchange rate manipulation. 

Last week, President Clinton signed the side agreements on labor, the environ- 
ment and import surges. While the agreements on labor and the environment rep- 
resent unprecedented attention to these issues in a trade agreement, I am not con- 
vinced that they go far enough in addressing these important issues. 

In addition, and most importantly from the perspective of my State, they do not 
even address many of the issues I raised in my February 24 letter to Ambassador 
Kantor. I hope that these issues will still be addressed before the NAFTA comes to 
a vote, because I recognize that our economy is becoming increasingly integrated 
with the Mexican economy. In my view, we ought to manage this integration in a 
way that benefits farmers and workers and small businesses on both sides of the 
border. 

But, frankly, I am skeptical that the NAFTA and its implementing legislation will 
be modified sufficiently. If these issues — and others that have come to my attention 
as I have studied the agreement and Mexico more closely — are not addressed, the 
NAFTA will be bad for North Dakota. And I believe it will be bad for the country 
as well. 

There are several reasons why I cannot support the agreement in its current 
form. These range from specific concerns regarding agriculture to more general con- 
cerns regarding the low wages and incomes in the Mexican economy, Mexican en- 
forcement of environmental standards, access to and the impartiality of the Mexican 
legal system, and the state of human rights and democracy in Mexico. I expect that 
there will be many opportunities over the next several months to debate these is- 
sues. Today, I want to focus on the impact of the NAFTA on North Dakota agri- 
culture. 

North Dakota producers of Durum, Hard Red Spring wheat, and barley know first 
hand what a few loopholes in a trade agreement can do to their incomes. Ever since 
the United States-Canada Free Trade Agreement was implemented, North Dakota 
grain growers have suffered from a flood of unfairly subsidized Canadian imports. 
Canada has used huge transportation subsidies and the secretive, anticompetitive 
pricing practices of the Canadian Wheat Board to undercut U.S. prices. Imports of 
Canadian Durum have climbed from before 1985-86 to an average of 15 million 
bushels in the past 2 years. Imports of Hard Red Spring wheat reached a record 
35.4 million bushels last year — or more than seven times the average during the 5 
years preceding implementation of the CFTA. As a result, North Dakota producers 
have lost hundreds of millions of dollars in income, and USDA supply management 
and export programs have been undermined. 

The NAFTA, as negotiated by the Bush administration, follows in the same path. 
It does nothing to correct the problems created by the CFTA, even though the Presi- 
dent was required by the CFTA implementing legislation Lo enter into consultations 
to resolve these issues. In fact, the NAFTA will make things worse by allowing Can- 
ada to use westbound transportation subsidies to ship wheat into Mexico. 

I am encouraged that Ambassador Kantor and Secretary Espy have been much 
more sympathetic to the concerns of wheat growers than their predecessors. Their 
efforts to approve the use of EEP to counter aggressive Canadian subsidies in the 
Mexican market is a clear step in the right direction. Yet the basic problems of the 
CFTA have not been resolved; much more must be done. 

I have urged USDA to recommend that the President invoke Section 22 of the Ag- 
ricultural Adjustment Act of 1933 to limit Canadian imports. And I have aggres- 
sively championed end-use certificates to prevent the illegal commingling of Cana- 
dian grains into U.S. export programs. It is my hope that these steps will eventually 
lead to a negotiated agreement that closes the loopholes in the CFTA and levels the 
playing field in the North American grain trade. 

The NAFTA also creates significant problems for sugar producers. Sugar is a $1.5 
billion industry in the Red River Valley of North Dakota and Minnesota, but it could 
be wiped out by a loophole in the NAFTA. In its present form, the agreement could 
allow Mexico, which is currently a net importer of sugar, to export unlimited 
amounts of sugar to the United States starting in year seven of the agreement if 
Mexico becomes a "net surplus producer" of sugar. If Mexico had to increase its pro- 
duction by diverting resources from other types of agriculture and dramatically in- 
creasing the efficiency of its processors, this would seem reasonable. But Mexico 
doesn't have to do this. Instead, because of an ambiguity in the text, Mexico may 
be able to achieve a net production surplus simply by converting its beverage indus- 
try from sugar to high fructose corn sweetener. This provision must be clarified in 
order to ensure that the sensitive U.S. sugar industry — an industry that is highly 
competitive in the world market and supplies sugar to the American consumer at 



65 

the lowest price in the developed world — receives the full benefit of a 15-year transi- 
tion period. 

NAFTA also treats potato and edible bean producers unfairly. Because U.S. nego- 
tiators did not accurately measure U.S. edible bean exports to Mexico, the tariff rate 
?uota established by the NAFTA will cut U.S. exports to Mexico in half. While 
FSTR argues that the quota is a minimum amount and may be increased if the 
Mexican domestic supply is inadequate, there is no guarantee that U.S. producers 
and Mexican purchasers will receive adequate notice of any temporary increase in 
the quota nor that other countries will not gain advantageous access to the Mexican 
market in this situation. It is my hope that this ambiguity could be cleared up 
through an exchange of letters with Mexico. 

While potatoes did not fare quite as badly as edible beans, potato producers ap- 
pear to be worse off under NAFTA than they would have been without it. Over the 
past several years, potato exports to Mexico have doubled each year as Mexican 
processing plants sprouted in northern Mexico. The NAFTA stops this growth in its 
tracks. 

To be completely fair, NAFTA will likely increase U.S. exports of a number of 
commodities produced in North Dakota. Exports of corn, oilseeds, pork and beef are 
projected to increase as a result of the NAFTA. However, unless something is done 
to address the problems I identified above, the overall impact on North Dakota pro- 
ducers will be negative. 

Beyond the impact of the NAFTA on individual commodities, I have serious con- 
cerns about the application of the rules of origin and sanitary and phytosanitary 
portions of the agreement. On paper, the rules of origin are strong and detailed. But 
the provisions enforcing these rules are weak. In practice, because agricultural com- 
modities are fungible, there will be little more to rely on than the good faith of 
Mexican producers and the Mexican Government. Unfortunately, self-certification is 
insufficient to prevent non-Mexican goods from receiving the preferential treatment 
granted to Mexican products in the NAFTA — especially as Mexico concludes trade 
agreements and expands its trade with other Latin American and Caribbean na- 
tions. Yet the cumbersome notification requirements in the verification procedures 
virtually guarantee that there will be little effective oversight beyond self-certifi- 
cation of Mexican exporters. Unless the verification procedures are considerably 
strengthened, I fear that the NAFTA could lead to significant transshipment of agri- 
cultural goods through Mexico into the United States. 

Similarly, the agreement contains strong sanitary and phytosanitary standards on 
paper. However, there is no question that food safety and consumer protection 
standards in Mexico are significantly lower than in the United States. While the 
agreement allows the United States to maintain its current standards and apply 
them to Mexican imports, I have two concerns. The first is that — given the realities 
of USDA border inspections — some Mexican imports will not be adequately tested. 
The second is that there will be strong pressure for the United States to accept 
Mexican standards as equivalent to our own when — because they are not effectively 
enforced — they are, in fact, weaker. We should not allow the NAFTA to threaten the 
safety of our food supply nor undercut our lengthy and expensive disease control 
and pest eradication efforts. Not only would a less safe food supply risk the health 
of U.S. consumers — and even their lives, as the E. coli attack this spring dem- 
onstrated — it could lead to significantly lower domestic consumption and negate any 
projected benefits to U.S. producers from expanded exports to Mexico. 

Finally, I am concerned about how the availability of low-cost labor and lower 
standards might affect the location of food processing facilities. While I recognize 
that many factors other than just labor go into facility location decisions, labor costs 
are often one of the most significant factors within the control of management. 
Value-added processing and other light manufacturing ventures have been touted 
as the key to economic development in rural communities. Rural America cannot af- 
ford to lose the diversification and incomes provided by these enterprises. This is 
clearly a risk: as I mentioned earlier, Mexico is investing in potato processing facili- 
ties, and Green Giant moved a major processing plant from Watsonville, California 
to Mexico in 1983. As the Green Giant example suggests, some of this will happen 
without the NAFTA, but NAFTA will undoubtedly accelerate the process. Unless 
Mexican wages rise to levels commensurate with the productivity of Mexican work- 
ers using modern U.S. equipment, I fear that NAFTA could lead more value-added 
processing to move south of the border. 

While I have many concerns about elements of this particular agreement, I be- 
lieve strongly in expanding trade. I am convinced that U.S. agriculture can compete 
successfully with anyone on a level playing field. As I said at the beginning of my 
statement, I hope that the administration will move expeditiously to repair the 



66 

flaws in the agreement so that it truly benefits farmers, businesses and workers in 
my State and across the country. 

Senator FEfNGOLD 

I want to thank Chairman Leahy for calling this hearing today on this very im- 
portant issue and I want to thank those who have taken time out their schedules 
to testify before this committee. 

I can think of no issue that is as complex for policymakers as the one before us 
today. When the issue of the North American Free Trade Agreement comes up at 
one of my listening sessions or town meetings in Wisconsin, as it invariably does, 
it generates diverse reactions and emotions ranging from anger and apprehension 
to enthusiasm and anticipation. I expect nothing less from this hearing today. 
NAFTA, as it relates to agriculture, provides us with a unique challenge. We are 
faced with reconciling the goals of NAFTA with the goals of our domestic agricul- 
tural policies. Obviously this is not an easy task. 

One of the most significant concessions the United States would make under 
NAFTA is the immediate elimination of our Section 22 import quotas with Mexico. 
Section 22 has been central in our efforts to stabilize domestic prices and supplies 
for commodities such as dairy, cotton, sugar and peanuts. Under NAFTA, of course, 
those quotas are converted to tariff-rate quotas eventually allowing unlimited im- 
ports. The magnitude of this concession cannot be ignored. This change could render 
our domestic support programs ineffectual. Our price support program for dairy 
would be rendered useless if we are flooded with imports of surplus commodities. 
I am concerned that this provision will be carried through to any GATT agreement 
we may have for agriculture. This major concession on market access will likely 
make it difficult to maintain our Article 25 Waiver for Section 22 in GATT creating 
a flood of imports from the EC. 

Now, I've been told by many farmers in Wisconsin that the key to a successful 
NAFTA or GATT agreement is market access. In NAFTA, Canada has been ex- 
cluded from the agreement on dairy. Clearly, U.S. producers have not gained access 
to that lucrative market. We have surrendered Section 22 while allowing Canada 
to continue to protect their domestic industry. The question then, at least for dairy, 
is what level of market access do we achieve with Mexico. The answer to that ques- 
tion is not clear. 

While Mexico converts their import licenses for dairy products to tariff rate quotas 
(TRQ's) and the United States converts our Section 22 quotas into TRQ's, the tariffs 
for nonfat dry milk imports above the duty-free quantity are much higher for U.S. 
imports into Mexico than for Mexican imports into the United States. In fact, the 
tariff is so high that it is unlikely that the United States would export beyond the 
duty-free amount. Similarly, the Mexicans are given 15 years to phase out their tar- 
iffs on nonfat dry milk, while the United States allows unlimited access to our mar- 
ket after just 10 years. 

For cheese the agreement raises similar questions. It seems unlikely that the 
dairy sector will benefit from the deal made for cheese. The United States would 
allow 5500 tons of cheese duty free while rto U.S. exports to Mexico would be al- 
lowed in duty free. Tariffs on cheese, currently subject to import licensing, would 
be set at 20 percent for hard cheese and 40 percent for fresh cheeses which is, I'm 
told, the preferred cheese type in Mexico. A report from Texas A&M indicated that 
hard cheeses are typically consumed only by the middle and upper classes due to 
the high cost. The cost of U.S. cheeses would be even higher due to the tariffs, mak- 
ing increased demand unlikely. 

It appears that the U.S. dairy industry has given up a great deal for limited mar- 
ket gain. I am concerned that the side agreement on import surges is inadequate 
to protect our domestic producers from substantial harm from this agreement. The 
Working Group on Emergency Action, created by the agreement, appears to provide 
little more than a mechanism for slowing down action by a country to protect itself 
from import surges. 

I am concerned that at best this agreement provides little benefit to agricultural 
producers in this country, and at worst will cost farmers their markets, incomes and 
ultimately their livelihoods. Particularly in agriculture there appear to be some 
clear losers. The citrus, tomato, sugar, wheat and peanut industries certainly feel 
as though they have a lot to lose under this agreement. 

Some observers say these adverse results will not occur. In fact there are a large 
number of agribusiness and commodity trade associations that have endorsed this 
agreement. The group "Ag for NAFTA, consisting of 101 agricultural organizations, 
believes that U.S. agriculture will be clear beneficiaries of this agreement. The De- 



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- 



68 

culture — demonstrating the significance of agriculture markets in the United States, 
Mexico, and Canada that trade that connects them. 

The rhetoric on both sides of the issue has been heated — and the cold facts and 
hard truths have been obscured by passion, prejudice and preconceived notions. One 
side argues doom-and-gloom if NAFTA is passed; the other side predicts the same 
if it fails. Many don't know what to believe. 

In my view, however, two truths remain certain. 

First, 95 percent of the world lives outside our borders. In light of a static domes- 
tic demand and limited industrial uses, we must continue to find more markets out- 
side our borders for our agricultural products. This is particularly true of States like 
Iowa where agriculture is so important. Iowa is second only to California as an ex- 
porter of agricultural products in the United States. Thirty-eight percent of Iowa's 
corn and 41 percent of our soybeans finds its way into overseas markets. Moreover, 
Mexico is our third largest market, behind Canada and Japan. Dale Cochran, Iowa's 
Secretary of Agriculture, today informed me that he, along with 47 other State sec- 
retaries of agriculture have signed on in support of NAFTA. Iowa's trade has ex- 
panded annually since Mexico opened their markets in 1987 despite their relatively 
high tariffs. A reduction of barriers under NAFTA would clearly be a boon to Iowas 
agricultural sector. With the Asian and European Countries closing ranks — and 21 
other regional trading areas established — do we turn inward and regress toward the 
protectionist policies of earlier this decade — or do we rise to meet the challenges of 
the future? 

Second, for the first time we have in President Carlos Salinas a reform-minded 
President of a country which has previously shunned foreign capital, which has sub- 
sidized its industry and protected them with high tariffs; a country known for its 
bloated state enterprises and an agricultural sector that has been perpetually weak 
and poverty stricken. President Salinas' bold moves to reform the country is, at the 
very least, an endorsement of the free market economics which we as a country 
have labored to instill in nations around the world. Rejecting NAFTA would cut 
Mexico off at the knees economically — and would imperil the reforms of which we 
have been so supportive. 

Though my primary interest under NAFTA, first and foremost, is to expand mar- 
kets and create jobs, I do not believe we can ignore the benefits it may bestow on 
an important neighbor. 

In closing — a divided House leadership; a litmus-test issue for labor and business; 
and a Texas businessman bombarding the public with info-mercials and ghost-writ- 
ten books will ensure that NAFTA will be political drama of the first order. 

Last year, Bill Clinton ran his campaign oto the mantra of "jobs and the economy." 
Many congressional candidates echoed the s&me sentiment. Yet, I find it ironic that 
those who last November predicted the end of gridlock — and preach the sermon of 
"jobs and the economy" — are now those opposing President Clinton on a watershed 
issue of his presidency. When a Republican opposes the President it is "gridlock"; 
when a Democrat does so, it is "leadership." 

I look forward to today's testimony, and thank our distinguished guests for joining 
us. 



Senator Pryor 

Mr. Chairman, I want to thank you for scheduling this hearing on the North 
American Free Trade Agreement. Our witnesses, Secretary Espy and Ambassador 
Kantor, do not need to be told that agriculture has too often gotten the short end 
of past trade agreements. One of our goals in this committee should be to ensure 
that it does not occur again. 

A number of my agriculture constituents in Arkansas have taken a stand for or 
against NAFTA, but many others believe they do not yet completely understand its 
impact. They need and deserve straight information. 

To help them and to address my own concerns, I intend to get answers to specific 
questions about the impact of NAFTA in Arkansas, such as the effect it will have 
on Arkansas farmers and related agriculture industries. 

Mr. Chairman, Americans are being whipsawed by contradictory and confusing in- 
formation on what NAFTA will mean. The TV airwaves are beginning to fill with 
flashy advertising on both sides of the debate. 

I believe that it should be the primary goal of these hearings to set the record 
straight and give the public honest, understandable, and straightforward informa- 
tion on the impact of NAFTA on U.S. jobs, the environment, business and certainly 
agriculture. 



69 

Today's testimony, I believe, gets us going down that road. There are tough ques- 
tions to be asked and I know our excellent witnesses will have helpful answers. 

Finally, I want to commend the chairman's staff for pulling together a thorough 
report that summarizes the comments of scores of agriculture groups regarding 
NAFTA.* 



Senator Cochran 

Mr. Chairman, thank you for convening this hearing to discuss the North Amer- 
ican Free Trade Agreement. I join you in welcoming Secretary Espy, Ambassador 
Kantor and the other witnesses who will testify. 

I'm convinced NAFTA will break down trade barriers, create more jobs, and im- 
prove living standards in Mexico, Canada, and the United States. It will create the 
world's largest market with over 370 million people and $6.5 trillion of production, 
and an estimated 200,000 jobs in the first 2 years of its implementation. 

Opponents of NAFTA claim that only Mexico will benefit from this agreement. 
But Mexico already enjoys one-way free trade with the United States because of its 
high tariffs, which range between 10 and 20 percent. Incidentally, they now have 
the legal right to raise tariffs to 50 percent. To make matters worse, Mexico applies 
a restrictive import licensing system for many of our agriculture commodities. That 
would all be phased out under NAFTA. 

In contrast, the United States applies much lower tariff duties on Mexican 

foods — averaging less than 4 percent — and over half of agriculture imports from 
lexico already enter duty free or subject to a minimal tariff. 

NAFTA will force Mexico to make deeper cuts on its tariffs than we will on ours. 
There are also prohibitions in this agreement to prevent Mexico from raising tariffs 
on U.S. products in the future. 

To illustrate the importance of NAFTA to U.S. agriculture interests, we can cite 
the case of U.S. frozen beef patties. Earlier this year, the Mexican Government im- 
posed a 25-percent tariff on American frozen beei products. 

NAFTA would phase out this tariff and others that are imposed on American food 
products. It will bring down trade barriers and eliminate special license require- 
ments for American exporters of agriculture products. 

NAFTA is good for U.S. agriculture. Mexico already buys $1.5 billion more farm 
products from us than we do from them. NAFTA would create 26,000 jobs in Ameri- 
ca's farming industry for every $1 billion in exports. By the end of NAFTA's 15-year 
phase-out period, U.S. agriculture exports will be $1.5 to $2 billion higher than they 
would be without NAFTA. The U.S. Department of Agriculture estimates that farm 
income would rise by 2 to 3 percent as a result of this agreement. 

If NAFTA is rejected, farmers of commodities such as cotton, corn, wheat, rice, 
soybeans, dairy, beef, poultry and many others will lose access to over $2 billion in 
new markets, and our competitors in Europe will gain an advantage over American 
producers in Mexico. It will also be difficult for the United States to gain Mexico's 
cooperation on other important issues that affect our two countries such as illegal 
immigration. 

It is clear that NAFTA holds great importance for North America's economic fu- 
ture. I applaud the administration's commitment to work hard to pass this agree- 
ment and remain convinced that free trade and open competition will stimulate our 
economy and create jobs for American workers in the farming industry. 



Senator Dole 

Mr. Chairman, American agriculture is the most productive and competitive in 
the world. With NAFTA, we will capitalize on this competitive advantage. 

The U.S. Department of Agriculture projects that by the end of the transition pe- 
riod, annual U.S. agricultural exports will be $2 billion to $2.5 billion higher than 
they would be without NAFTA. This will create an additional 50,000 agricultural 
jobs in the United States, in addition to the 81,000 agricultural jobs that currently 
depend on agriculture exports to Mexico. 

NAFTA is good for Kansas, too. Overall, since 1987 Kansas' exports to Mexico 
have increasea at an average annual rate of 126 percent. Further market opening 
under NAFTA will accelerate and strengthen the benefits of Kansas' trade with 
Mexico. 



"See page 153. 



.70 

Kansas agriculture will especially benefit from this agreement. U.S. corn and sor- 
ghum sales are expected to increase by about $400 million to $450 million due to 
NAFTA. At the end of the transition period, U.S. exports of corn to Mexico are ex- 
pected to be about 6 million metric tons, which is 50 percent more than would have 
been expected without NAFTA. U.S. exports of sorghum are expected to increase to 
about 6 million metric tons by the year 2000, which is about 15 percent more than 
would be expected without NAFTA. 

NAFTA is also expected to increase U.S.-Mexico trade in live cattle and beef. U.S. 
exports of cattle to Mexico could grow to over 1 million head per year, according 
to the Department of Agriculture. 

NAFTA will also add approximately ( $30 million to wheat industry revenues by 
the end of the transition period. U.S. wheat exports to Mexico should grow by 40 
percent, according to the Department. 

Kansas companies that manufacture food and commodity processing equipment 
should also benefit from NAFTA, as well as farm equipment, agricultural chemical 
and fertilizer manufacturers who find opportunity to supply the growing Mexican 
market. 

So Mr. Chairman, I look forward to the testimony of our distinguished witnesses 
on this trade agreement which will benefit not only my State of Kansas, but the 
country, and our entire hemisphere. 



Senator Harkin 

Mr. Chairman, I commend you for convening this hearing today to examine the 
ramifications of the North American Free Trade Agreement for agriculture and 
rural America. I am looking forward to the opportunity tb try to get accurate infor- 
mation on the table about the agreement and its effects. 

For someone like me, who is undecided on the agreement, getting more informa- 
tion is critical to making a responsible judgment and deciding how to vote. The 
NAFTA is a very important matter, and I intend to make a decision based on the 
facts — not on some preconceived ideological position. Far too many have rushed to 
embrace or condemn the agreement based on abstractions and rhetoric without con- 
sidering the facts involved. 

Mr. Chairman, the rhetoric has mushroomed on both sides of this issue, and it 
is now time for some rational discourse. Many of the proponents of NAFTA have 
overstated its benefits and the necessity of this particular agreement. The prospect 
of new markets in Mexico is very encouraging. But remember, the Mexican economy 
is only about one-twentieth the size of the U.S. economy and Mexican wages and 
benefits average only about $2.35 an hour, versus $16.17 an hour in the U.S. With 
disparities of that kind, it is just not realistic to think that NAFTA is going to 
unleash a huge buying binge by Mexican consumers. 

But I also believe that the rhetoric of at least some of the opponents of the agree- 
ment has become far wilder than that of its supporters. Plainly, this is exactly the 
kind of issue where it is much harder \p persuade the public and Congress to sup- 
port something than it is to tear it down. 

I'm ready to cut through the rhetoric and make my decision based on whether the 
agreement is in the best interests of my State of Iowa and the Nation. And I will 
say that Iowans and Americans are coming down on both sides in good conscience. 
A third or more do not know enough yet to have an opinion. I have serious questions 
about the range of impacts on agriculture and on the U.S. manufacturing sector. I 
will have questions about whether the environmental and labor provisions in the 
side agreements are really enforceable and effective. So Mr. Chairman, I look for- 
ward to today's hearing. 



Secretary Espy 

Mr. Chairman, members of the committee, I appreciate this opportunity to discuss 
the North American Free Trade Agreement as it relates to U.S. agriculture. I am 
delighted to be joined by my colleague, Ambassador Mickey Kantor, who did a fan- 
tastic job in negotiating supplemental accords that grdatly improve NAFTA and 
make it a good deal for the United States "and a good deal for the American worker. 

With NAFTA, the facts are sometimes shrouded in misconception. There are, I am 
quite sure, many in this room with questions about NAFTA and what it means for 
America. So let me present the facts about NAFTA, to the extent that I can, and 
try to set the record straight on why we believe that the NAFTA package, and it 
is a package, is good for America, and is good for America's farmers and ranchers. 



71 

Last Tuesday, President Clinton was joined by three former Presidents, represent- 
ing both major political parties, to announce their bipartisan support for NAFTA. 
Forty-one State Governors have also announced their support for NAFTA. And 
members of the National Association of State Departments of Agriculture voted 
overwhelmingly in support of NAFTA as their organization became a member of the 
"Ag for NAFTA" coalition. Why? Because all of these leaders from across the coun- 
try, and from across party lines, recognize that NAFTA offers real hope for America 
to take a giant step toward improving our global competitiveness. 

WHY THE UNITED STATES NEEDS A NAFTA 

We all have heard the President and Ambassador Kantor tell us that NAFTA will 
create a net gain of 200,000 higher paying U.S. jobs in the next 2 years alone. While 
many people across America have heard the President, some vocal opponents just 
do not believe that this is true. I suppose in part this is because they just do not 
believe that Mexican citizens can afford our goods and many Americans do not see 
Mexico as a legitimate market opportunity. 

Well, the fact is, the average Mexican citizen — even though wages are lower in 
Mexico — is spending more per person in absolute terms, not just in percentages, to 
buy American goods than the average Japanese, or the average German. 

Earlier this month, I had the opportunity to travel to Mexico City and to take 
part in the "U.S. Food Festival '93," a trade show managed by my Department's For- 
eign Agricultural Service. I was amazed by the presentations of the more than 200 
U.S. exhibitors who took part — all with high expectations of future sales. But I was 
even more amazed when I walked through a grocery store in Mexico City and saw 
the shelves lined with American food products. I can personally tell you, Mexico is 
a major market for U.S. agricultural products. 

In fact, Mexico is already the third largest foreign market for U.S. agricultural 
products and the second largest market for U.S. manufactured goods. U.S. merchan- 
dise exports to Mexico were nearly $41 billion last year, up more that 200 percent 
since 1986. U.S. agricultural exports to Mexico will reach about $4 billion this year, 
more than double the 1988 level. 

And the fact is, these exports to Mexico already support an estimated 700,000 
U.S. jobs in agriculture, manufacturing, transportation, services, and other indus- 
tries — 400,000 of those jobs were created just since 1986 when Mexico began open- 
ing up its economy. 

Mexico's potential as a market for U.S. goods is even greater. Mexico has about 
90 million people — 90 million consumers, including Mexico's large and growing mid- 
dle class. Even though Mexico's tariffs have dropped significantly over the past few 
years, their tariffs are still 2V2 times higher than ours. The average U.S. tariff on 
goods from Mexico is only 4 percent, while the average tariff on goods from the 
United States to Mexico is 10 percent. Under NAFTA, Mexico must eliminate these 
high tariffs — completely. For the first time, our trading relationship with Mexico 
will develop in a controlled way and not by accident, and for the first time, we will 
be dealing on a level and fair playing field. 

Too much attention in this whole debate has focused upon "winners" and 'losers" 
in the NAFTA negotiating process. Those who look at these negotiations as a game 
to be won or lost are missing the point — NAFTA is not about who won and who lost 
during the negotiating process — the fact is, the United States, Mexico, and Canada 
are each winners in this negotiation — NAFTA is good for each of our countries. 
NAFTA will create the world's largest market — with 370 million people and a $6.5 
trillion annual economic output. 

There will be winners and losers, however, when the NAFTA debate is brought 
to a conclusion. If NAFTA supporters carry the debate and NAFTA is approved by 
the Senate and by the House, as I am hopeful it will be, the winners will be the 
American workers. Jobs will be created in the United States because U.S. products 
will be given preferential access to the Mexican market — that is, U.S. goods will 
enter Mexico without being subject to the tariffs and nontariff barriers that goods 
from other countries will continue to face. 

If NAFTA is defeated, there will be winners as well. But the winners will be the 
European Community, and countries of the Pacific Rim, who recognized years ago 
the advantages of having, and the necessity to have, a special trading relationship 
with those countries nearest to their borders. They are aggressively creating new 
preferential markets for their goods while we choose to rely upon old markets for 
ours. Those who oppose the Uruguay round will consider themselves winners as well 
if NAFTA is defeated because, let me assure you, our GATT negotiating position 
would not be nearly as strong without NAFTA as it would be with it. 



72 

But the President has told you what NAFTA will mean to our economy as a 
whole. Ambassador Kantor, who has testified here today, Secretary Bentsen, and 
others, have already testified before the Senate about NAFTA's benefits for our Na- 
tion as a whole. So, Mr. Chairman, let me tell you and the members of the commit- 
tee today what I believe NAFTA will mean to American agriculture. 

WHAT NAFTA MEANS FOR U.S. AGRICULTURE 

Let me begin by saying that NAFTA is an important, and indeed, an integral part 
of this administration's domestic economic agenda. The future for jobs in this coun- 
try is unmistakably tied to exports. And the fact is, the future of farm income is 
tied to agricultural exports. 

American farmers and ranchers have much to gain from NAFTA. Trade accounts 
for up to a quarter of our agricultural production. Clearly, we cannot retreat from 
the global economy, either in agriculture or in other areas. Quite the contrary; we 
must embrace the opportunities that NAFTA offers. 

NAFTA will create new, long-term growth opportunities for agriculture within our 
own hemisphere. In fact, we believe that U.S. agricultural exports will be between 
$2 billion and $2.5 billion higher annually when NAFTA is fully implemented. U.S. 
grains and meats would account for more than half the expanded trade value, al- 
though many U.S. products would benefit. We also see new opportunities in the 
areas of biotechnology trade, agricultural investment, and the transportation of 
farm and food products. The increased import demand from Mexico will have a posi- 
tive impact on U.S. prices and cash receipts, boosting U.S. farm cash receipts a pro- 
jected 2 to 3 percent. 

What does this mean to the American farmer? It means increased farm income, 
and increased farm income means more jobs and more job security. We believe 
54,000 additional jobs on the farm and in the food industries will be created because 
of NAFTA. The gains to be realized by U.S. agriculture will benefit all of rural 
America. 

We expect many of our exports to Mexico to increase immediately, but even more 
gains will be realized over time as the Mexican standard of living grows and as the 
Mexican market grows even further. Without NAFTA, we do not expect our exports 
to Mexico to grow nearly as much. Those 54,000 agricultural jobs will never have 
the chance to be created. But what is perhaps more important, without NAFTA, 
there is nothing to prevent Mexico from once again closing its borders by erecting 
new and onerous barriers to imports. This could easily result in the loss of a major 
market for American goods. This would put in jeopardy those 700,000 U.S. jobs that 
now exist because of our exports to Mexico. 

We believe that increased trade within our own hemisphere will position U.S. 
farmers as even stronger competitors in the international arena by capitalizing on 
U.S. advantages in farm productivity and permitting fuller and more efficient use 
of our productive capacity. 

The NAFTA agricultural agreement will provide thes% opportunities, along with 
strong protections for consumers and strong rules of origin — as well as long transi- 
tion periods and special safeguards for the import-sensitive sectors of our Nation. 

OVERVIEW OF THE AGREEMENT 

Before I address the committee's specific questions, I would first like to list, in 
very broad terms, a few of the agreement's major provisions involving agriculture: 

• If ratified, NAFTA will ultimately result in the elimination of all tariffs, quotas, 
and licenses that act as barriers to agricultural trade between the United States 
and Mexico. 

• NAFTA will give the United States, and with sOme exceptions Canada, pref- 
erential access to the Mexican market. This means that by the end of the tariff 
elimination period, U.S. products will enter Mexico duty free, while products of 
other countries will continue to face high tariffs and significant nontariff barriers 
to trade. 

• NAFTA will establish strong rules of origin to ensure that North American pro- 
ducers are the ones to reap the primary benefits from NAFTA trade preferences. 

• NAFTA will provide stronger protections for agricultural inventions, patents, 
trademarks, and technologies. 

Given the deluge of misinformation that I have heard concerning NAFTA, let me 
point out just a few commonly misunderstood points about what NAFTA does not 
do. 



73 

• NAFTA does not affect U.S. quotas imposed under Section 22 of the Agricul- 
tural Adjustment Act of 1933 for any country except Mexico, nor does it affect U.S. 
tariffs or other import protections for non-NAFTA countries; 

• NAFTA does not require any changes in stringent U.S. standards for food safe- 
ty, animal or plant health, or environmental protection, nor does it prevent the 
adoption, maintenance, and enforcement of even tougher scientifically based stand- 
ards, including those more stringent than international standards; 

• NAFTA does not exempt our NAFTA partners from meeting U.S. quality and 
grade standards for fruits, vegetables, and other products; and 

• NAFTA does not prevent us from using our Market Promotion Program, nor 
does it stop us from using our Export Enhancement Program as well as other meas- 
ures to counter the unfair trading practices of our competitors. 

On this last point, NAFTA does include very general provisions relating to export 
subsidies and domestic support. The three countries agreed to work toward the 
elimination of agricultural export subsidies in North America, to provide each other 
with notice of any intent to introduce a subsidy on agricultural exports going to an- 
other NAFTA country, and to consult with each other about ways to avoid such sub- 
sidies. These provisions do not prevent the United States from subsidizing exports 
to Mexico to counter subsidies from the European Community or from Canada. 

With that in the way of general background, let me address the committee's ques- 
tions that were outlined in your letter of invitation. 

Mr. Chairman, you had asked what effect NAFTA will have on U.S. farm income, 
the operation of U.S. farm programs, and the U.S.-Mexican agricultural balance of 
trade. I have already discussed the positive effect NAFTA will nave on farm income 
and the U.S.-Mexican agricultural balance of trade, but to summarize, USDA projec- 
tions show the increased import demand from Mexico resulting from NAFTA will 
boost U.S. farm cash receipts a projected 2 to 3 percent. Increased U.S. exports to 
Mexico will generate more than 50,000 new jobs on the farm and in the food indus- 
tries because of NAFTA. No changes in our domestic farm programs will be required 
because of NAFTA. 

On the question of the safety of imports of agricultural products, NAFTA specifi- 
cally recognizes the right of each country to establish its own levels of protection 
for human, animal, and plant health, and the obligations of each country to use 
science-based standards. NAFTA also allows States and local governments to enact 
their own tough standards without restriction, so long as the methods used to deter- 
mine if imports meet those standards are scientifically defensible. Imports that do 
not meet U.S. health and safety standards will not be permitted into the United 
States. The Environmental Protection Agency will continue to set pesticide residue 
levels at the level of protection it deems appropriate to protect health, safety, and 
the environment in the United States, and USDA and the Food and Drug Adminis- 
tration will continue to enforce legal limits onpesticide residues and refuse entry 
to any products that do not meet these limits. The bottom line is, the United States 
will maintain its high standards for public health and food safety. There will be no 
compromise in these areas. 

Some critics of NAFTA argue that the agreement somehow lessens the protection 
of our consumers by requiring that measures be scientifically based. Those critics 
just simply do not understand the history of agricultural trade. The fact is, by re- 
quiring that health and safety standards be scientifically based, NAFTA permits, to 
tne maximum extent, each country to protect its citizens from legitimate risks. At 
the same time, NAFTA provisions prevent countries from adopting, in the name of 
health and safety, unnecessary measures as barriers to trade, after other barriers 
have been negotiated away. 

Similar rights and conditions apply to U.S. protections for animal and plant 
health. If Mexico declares one of its agricultural areas to be free of a disease or pest 
that would threaten U.S. agriculture, it must provide evidence supporting the claim 
and allow U.S. officials access for inspection and testing before products from that 
area are allowed into the country. 

Mr. Chairman, you also asked about the rules of origin under NAFTA. NAFTA 
includes strong country-of-origin rules so that the incentives for trade within North 
America do not open the floodgate to free access for the products of countries outside 
this continent. 

Commodities from non-NAFTA countries must be transformed or processed sig- 
nificantly before they can receive NAFTA preferential treatment. NAFTA gives U.S. 
customs auditors the ability to visit business facilities in Canada and Mexico to en- 
sure that tariff preferences go only to qualifying goods. 

I should point out that in general, NAFTA rules of origin for the U.S.-Mexico 
agreement are stronger than those in the United States-Canada Free Trade Agree- 



74 

ment. This administration will take whatever steps are necessary to assure that 
U.S. workers are not injured because of illegal activity by those who would try to 
import non-NAFTA goods to the United States, passing them off as the product of 
a NAFTA country. 

Finally, let me address your question regarding how we will protect U.S. produc- 
ers who are injured by increased imports from Mexico. I would first remind you that 
NAFTA is a package. This package includes supplemental accords on environmental 
issues, labor issues, and import surges. I won't discuss these accords in great de- 
tail — I will defer to Ambassador Kantor to address the specifics of these agreements. 
But each of these plays a key role in protecting American jobs and protecting the 
American worker. 

Under the environment and labor accords, each Party has the obligation to ensure 
that its laws and regulations provide a high level of protection for the environment, 
and high labor standards. Together with the NAFTA, the side agreement on envi- 
ronment requires Mexico to enforce its environmental standards and discourages 
Mexico from lowering its standards to attract iobs and investment to its country. 
High-level commissions will be created to evaluate and settle disputes, and this 
process will be open to the public to fully expose violations. The United States can 
ultimately impose trade sanctions against Mexico if it fails to enforce its own domes- 
tic environmental and labor laws. 

The import surges accord supplements the many safeguards already included in 
the NAFTA text to protect U.S. industries, sectors of agriculture, and workers 
against damaging import surges. This accord sets up a system to help us identify 
potential surges in imports. It provides each country the opportunity to use NAFTA 
safeguard measures in a timely fashion to protect workers from being injured by in- 
creased imports and provides the other NAFTA countries with "early warning" of 
the need to take such measures. 

But as I said, this is a package, and these agreements are only a part of this 
package. I should note that the administration will be working with Congress to ful- 
fill its promise to U.S. citizens to develop and fund a strong worker adjustment pro- 
fram. This, too, is part of the NAFTA package. The President has pledged that the 
enefits of trade in terms of jobs and growth should not be used as an excuse to 
forget the potential impact on those who, already, are increasingly vulnerable to 
global competition. 

Secretary Reich, who is a strong supporter of NAFTA, will lead this administra- 
tion's efforts to make it possible for those workers who are affected by NAFTA, and 
there will be some, to find a new, better paying job. But I assure you that I will 
be beside Secretary Reich in this campaign, not behind him, working to provide 
rural America with a reemployment system, not just an unemployment system. 

CONCLUSION 

Mr. Chairman, let me close with a few general comments. 

The greatest challenge we face in the world today is one of economic competition 
and growth. To expand and prosper, U.S. agriculture needs growing export markets. 
NAFTA will put U.S. farmers in the middle of the world's largest and richest free 
trade area, with more people, more income, and more potential for future growth 
in food demand than the 12-nation European Community. It will secure future 
growth opportunities for U.S. agriculture within our own hemisphere. 

The latest USDA forecasts indicate that our two closest neighbors together will 
purchase a record $9.0 billion in U.S. farm and food products this fiscal year. That 
is over 20 percent of our total agricultural exports — more than either Japan or the 
EC is expected to buy. North America has become our largest agricultural export 
market, and NAFTA will lay the foundation for continued export growth far into the 
next century. 

Mexico, in particular, represents an agricultural market of great growth potential. 
Income growth and the emerging demand for better, more diverse diets already 
present substantial opportunities not present in the relatively mature U.S. and Ca- 
nadian markets, and Mexico's population is growing at a much faster rate. In fact, 
over the next 20 years, Mexico is expected to add more people to North America's 
total population than the United States and Canada combined. 

NAFTA will protect and expand U.S. access to this market, while bolstering Mexi- 
can economic growth and the demand that results from higher incomes. The ratifica- 
tion of this agreement will demonstrate to the world what can be achieved when 
nations recognize the benefits of fair and free trade and are committed to realizing 
those benefits for their farmers and ranchers, their citizens, and their economies. 

Mr. Chairman, that concludes my statement. I will be glad to answer your ques- 
tions and those of the committee. 



75 

Ambassador Kantor 

Mr. Chairman, members of the committee, I am pleased to appear before you 
today, along with Secretary Espy, to set forth the Clinton administration's case for 
the North American Free Trade Agreement (NAFTA), with the recently negotiated 
supplemental agreements. As some of you know, last Wednesday, I presented testi- 
mony to the Senate Finance Committee on this issue with Secretary of State War- 
ren Christopher and Secretary of the Treasury Lloyd Bentsen. A week ago today, 
I appeared before the House Committee on Ways and Means with the Secretary of 
Labor Robert Reich and EPA Administrator Carol Browner. 

Over the next few weeks, I and my cabinet colleagues will be participating in 
other hearings focusing on the NAFTA in both the House and the Senate. We appre- 
ciate these opportunities to present the administration's case on why the approval 
of NAFTA is strongly in the national interest. 

NAFTA AND THE ADMINISTRATION'S ECONOMIC STRATEGY 

Against a background of intense debate, a mountain of misinformation, and con- 
siderable hyperbole, it is important to remember NAFTA really does a very simple 
thing. It eliminates over time tariffs and nontariff barriers among the United 
States, Mexico and Canada, creating the wfirld's largest market: 370 million people 
and $6.5 trillion of production. 

NAFTA will reinforce and enhance the free trade agreement negotiated between 
the United States and Canada and will help equalize the terms of trade between 
the United States and Mexico. Current rules clearly are in Mexico's favor. Mexico's 
trade-weighted tariffs average 10 percent, compared with 4 percent for the United 
States. Mexico is also a major beneficiary of the Generalized System of Preferences 
(GSP). This means that a significant portion of its exports to the United States 
enter duty free under this GATT-sanctioned tariff preference program for developing 
countries. The GSP program is a one-way tariff preference program. 

In the agricultural sector, Mexico maintains an extensive system of licenses is- 
sued at the government's discretion which control imports of a broad range of farm 
goods. In most cases, Mexico's agricultural import licensing requirements were es- 
tablished specifically to protect against the threat of unrestricted imports from the 
United States. While the United States also maintains nontariff barriers on certain 
agricultural products (Section 22 quotas on dairy products, peanuts, certain types 
of cotton, and sugar-containing products, as well as potential restrictions on beef 
and other meats under the U.S. Meat Import Law), Mexico is not a major exporter 
of any of these products. In our bilateral relationship, the maintenance of these non- 
tariff barriers helps Mexico much more than than it helps us. Conversely, the elimi- 
nation of these barriers will be more beneficial to the United States than to Mexico. 

The vast new market created by NAFTA also makes us more competitive against 
Europe and Japan and will result in the creation of new jobs. And it is a vital ele- 
ment of the President's overall economic strategy. 

President Clinton and this administration are committed to building the strong- 
est, most productive, most competitive economy in the world. By doing so, we will 
expand high wage and high skill job opportunities for United States workers and 
for their children who will be entering the work force. 

We are finally facing the fact that our economy, as well as the global economy, 
is changing. 

As all of you are all too aware, over the last 20 years, real wages and job opportu- 
nities for unskilled workers in manufacturing have declined. But at the same time, 
technological advances have made American workers more productive. Technology 
has revolutionized the world, as well. Our economy is no longer self-contained. We 
compete in a global economy, where capital and technology are mobile. These trends 
are here to stay. The question is not whether we adapt to them, but how. 

Our economic strategy started with the President's economic package: putting our 
economic house in order by attacking the budget deficit, increasing public and pri- 
vate investment, and undoing some of the unfairness in the tax code by making 
upper income taxpayers pay their fair share of the burden. We are beginning to see 
the benefits of Congress s approval of the package last month: Interest rates at a 
30-year low, job creation, and a growing economy. 

Our drive for health care reform is fundamentally motivated by the desire to se- 
cure for every American access to the health care that they and their families need. 
But the soaring cost of health care also makes our strongest corporations uncompeti- 
tive and threatens the existence of many small businesses. Similarly, our initiative 
to reinvent government is intended to make government more effective and acces- 
sible, but it will also reduce the size and cost of government, freeing up resources 
that can be used for productive investment. 



76 

These initiatives — along with welfare reform, changes in education, worker train- 
ing, investing in technology — all work in pursuit of the same objective: to build a 
more productive and competitive economy. 

Our trade policy, including NAFTA, is an essential part of that strategy. Since 
we are producing more with fewer workers, opening up new markets is the key to 
new job creation and economic growth. Closing ourselves off from the world does 
nothing to improve our competitiveness and only deprives us of new economic oppor- 
tunities. As President Clinton has said, we must compete, not retreat behind our 
borders. 

This is, of course, precisely what our competitors are doing. The European Com- 
munity is expanding trade with Eastern Europe and the countries of the former So- 
viet Union. Japan is searching out new opportunities in China, Malaysia, Indonesia 
and the rest of Asia. 

In this intensely competitive global economy, NAFTA presents an opportunity to 
compete freely in a vast new market: 90 million people in Mexico, in a fast growing 
area, hungry for U.S. goods. It is also a step to an even larger market — 400 million 
people throughout Central and South America and the Caribbean. 

The United States seeks to open markets everywhere and trade and compete 
worldwide. We have nearly $200 billion each year in two-way trade with the EC; 
through APEC, we seek expanded trade with the rapidly growing nations of Asia. 
Japan is a major market for U.S. products, despite the major and persistent barriers 
that we are committed to breaking down. Completing the Uruguay round — taking 
down tariff and nontariff barriers worldwide, and writing new rules for the inter- 
national trading system — remains a top priority for us. 

But it is no accident that Canada is our number one trading partner, despite hav- 
ing a population of only 27 million, and Mexico has become our third leading trading 
partner, despite its historic policy of maintaining a closed economy. Shared borders 
and geographical proximity do matter, even in this globalized economy. 

And we have a natural advantage, and a great opportunity, to expand trade and 
investment with Mexico, and then with the rest of Central and Latin America and 
the Caribbean. Many of those countries have chosen, in recent years, to cast off the 
controls on their economies and the shackles on their political systems. They took 
these steps at the urging of the United States. 

Tariffs have fallen and nontariff barriers have been reduced. Since 1989, U.S. ex- 
ports to Latin America and the Caribbean increased over 50 percent and are grow- 
ing at over twice the rate of U.S. exports to the rest of the world, making this region 
our second fastest growing market. They have become a growing market for U.S. 
products; 43 percent of Latin American imports come from the United States. 

Chile, Venezuela, Argentina, and many other nations are intently following the 
NAFTA debate. The possibility of NAFTA accession provides an incentive for further 
trade and investment liberalization in the region. The decision to reject NAFTA 
would have profoundly negative economic and political consequences throughout the 
hemisphere. 

The companies, farmers and workers of the United States are world-class competi- 
tors. We lead the world in everything from airplanes and computers, to wheat and 
soybeans. Without fanfare, and with much pain from adjustment, we have returned 
to being a world-class manufacturer of automobiles and steel. We have regained our 
position as the world's leading exporter. But expanding our access to markets and 
assuring that the markets of other nations are as open to our goods and services 
as ours are to theirs is absolutely critical to our success at creating economic growth 
and jobs. 

Japanese firms have long benefited from having a lock on the emerging markets 
of Asia. NAFTA will give U.S. firms a definite advantage in the Mexican market. 
The NAFTA gives the United States the potential to compete more effectively with 
Japanese economic strategies. Japanese companies have invested heavily in the 
emerging economies of the Far East and set up assembly plants to assemble Japa- 
nese components into finished products for export. This creates a trade surplus for 
Japan with these countries and increases Japan's production and exports. The 
NAFTA can be an instrument for helping the United States and Mexico cooperate 
in meeting Japanese competition and producing more globally competitive products. 

In the new global economy, there are challenges and risks, as well as great oppor- 
tunities. I am confident that American workers are up to that challenge — and will 
reap the benefits. One reason I am so confident is that we are not going into 
NAFTA blindly. We do not have to speculate about the results from this change; 
we have gone through a 7-year trial run. 



77 

JOB GROWTH AND TRADE WITH MEXICO 

Starting in 1986, Mexico, recognizing that its economic policies had been disas- 
trous, began to lower trade and investment barriers. The results have been dramatic 
for the United States: 

• From 1987 to 1992, we transformed a $5.7 billion trade deficit with Mexico into 
a $5.4 billion trade surplus. 

• U.S. exports to Mexico increased from $12.4 billion in 1986 to $40.6 billion in 
1992, with increases coming across the board from computers to services to agri- 
culture. 

• Mexico has become our third leading export market, and our second leading 
market for manufactured exports ($34.5 billion) and our third largest market for ag- 
ricultural products ($3.7 billion). 

• Eighty-four percent of this growth in exports has been exports for Mexican con- 
sumption. 

• Four hundred thousand U.S. jobs related to exports to Mexico were created. 

The success of the past 7 years has occurred even though Mexican trade bar- 
riers — tariff and nontariff— remain far higher than ours. Bringing down the remain- 
ing barriers, which is what NAFTA does, will ensure continued growth of U.S. ex- 
ports to Mexico, which have been such a bright spot in our economic picture for the 
past 7 years. 

Virtually every responsible study — and there have been over two dozen — con- 
cludes that NAFTA will produce a net gain in jobs or an increase in real wages in 
the United States. The consensus is that with NAFTA, an additional 200,000 jobs 
related to exports will be created in the United States by 1995. While the studies 
acknowledge that there will be some jobs lost in certain sectors, they agree that the 
jobs lost will be a relatively small number compared to the jobs that are lost in the 
United States overall, because of defense conversion, corporate downsizing, and 
technological change. This is true because Mexico's economy is only one-twentieth 
the size of ours and our tariff and nontariff barriers are already low. 

Despite the overwhelming evidence, some have argued that 5.9 million U.S. jobs 
are at risk if NAFTA is adopted. They got that number simply by calculating the 
number of U.S. jobs in industries where wages account for more than 20 percent 
of the value of output. It includes high wage, nigh skill sectors such as sonar equip- 
ment, aerospace, medical equipment and telecommunications where credible studies 
agree that there will be a future job gain due to NAFTA. It also includes nontraded 
sectors, such as bakers, which do not compete with Mexico at all. 

We believe the critics are looking at the future through a rearview mirror. To the 
extent that there has been job loss to Mexico, it is precisely because of trade distor- 
tions in the current trade relationship with Mexico, which we seek to change 
through NAFTA. 

NAFTA AND THE STATUS QUO 

The status quo in our trade relationship with Mexico is, quite simply, unaccept- 
able. NAFTA will level the playing field for U.S. workers. It makes the rules fair 
and ends an unbalanced trading relationship that has existed between the United 
States and Mexico that has worked to disadvantage U.S. companies and workers 
producing in the United States. 

Historically, Mexico has been a closed, state-controlled economy. To shield its in- 
dustry and agriculture from competition, it relied on tariffs as high as 100 percent 
and a full range of nontariff barriers, including domestic content requirements, re- 
strictions on investment, performance requirements to keep out exports, and import 
licensing requirements. The result was that Mexico was largely closed to imports. 
Its economy was characterized by inefficient, protected producers, which contributed 
to widespread poverty and did not serve the interests of Mexico's people. 

Perhaps the closed Mexican economy reflected the historical Mexican mistrust of, 
and antagonism toward, the United States. For whatever reason, Mexico remained 
largely closed to U.S. business until U.S. and Mexican law combined to produce the 
maquiladora program. But this program hardly resulted in an open Mexican mar- 
ket. 

The maquiladora program resulted in trade preferences and incentives for compa- 
nies to locate assembly plants in Mexico to produce for the U.S. market. It gave 
products assembled in Mexico these preferences while at the same time maintaining 
all of Mexico's trade and investment barriers. In fact, these maquiladora plants 
were not allowed to sell in the Mexican market. The program thus created an artifi- 
cial "export platform" in Mexico, with products assembled in maquiladora plants 
being required to be exported to the United States. By 1992, there were over 2,000 



78 

maquiladora factories operating in Mexico, the overwhelming number of which were 
established by U.S. and Mexican corporations, employing more than 400,000 Mexi- 
can workers. 

In addition, Mexican import protection and rules requiring firms selling in the 
Mexican market to locate in Mexico made it difficult if not impossible for firms pro- 
ducing in the United States to sell into Mexico. Nontariff barriers — licensing, citi- 
zenship requirements, and a host of other regulations — were especially hard on 
small businesses in the United States, which do not have the resources to navigate 
through the bureaucratic maze in Mexico. 

The result of the maquiladora program and Mexican protection has been to distort 
U.S. -Mexican trade, limiting exports from the United States to Mexico and exagger- 
ating exports from Mexico to the U.S. NAFTA transforms the situation by opening 
Mexico's market and eliminating the distortions created by the maquiladora pro- 
gram. Under NAFTA, Mexico eliminates its import protection and the maquiladora 
program is also effectively eliminated, permitting firms to sell in the Mexican mar- 
ket without restriction. 

Much of the opposition to NAFTA reflects justifiable concern about the policies of 
the past that have disadvantaged U.S. workers. Despite Mexican progress in volun- 
tarily opening markets, Mexican tariffs remain, on the average, 2.5 times higher 
than ours. By contrast, over 50 percent of our imports from Mexico already enter 
duty free. Our average tariff on imports is only 4 percent. 

Mexico currently has no obligation to continue recent market-opening moves on 
which thousands of U.S. jobs already depend. NAFTA will not only lock in current 
access but expand that access. 

NAFTA will require relatively little change on our part — while requiring Mexico 
to sweep away decades of protectionism and overregulation. NAFTA will eliminate 
especially burdensome tariffs and nontariff barriers in a number of key sectors 
where the United States is competitive vis-a-vis Mexico, such as autos and agri- 
culture. 

NAFTA lets U.S. workers compete on a level playing field with fair rules. And 
we are confident, in those circumstances, U.S. workers will succeed. 

NAFTA will give U.S. exporters a significant preference in the rapidly expanding 
Mexican market over Japanese, European, and other foreign suppliers. As I have 
already noted, Mexico's tariffs average 10 percent. Countries other than the United 
States (and Canada) will continue to face Mexican duties. In addition, Mexico's cur- 
rent import licensing requirements on agricultural imports would disappear for the 
United States (and Canada, for most products) when the NAFTA goes into effect. 
However, a license would be required to bring in covered products from all other 
countries. 

U.S. exporters of most agricultural products will share unrestricted access to the 
Mexican market with their Canadian counterparts. For dairy, poultry, and egg prod- 
ucts, however, U.S. shippers will have exclusive access to Mexico's market: Canada 
and Mexico agreed to exempt these items from their agreement. It should be noted 
that Mexico is the world's largest import market for powdered milk, and demand 
is expanding for all dairy, poultry and egg products. With the access provided by 
NAFTA, our proximity to the market, and our potential to produce large supplies 
of competitively priced dairy, poultry and egg products, NAFTA will provide an ex- 
cellent opportunity for boosting export sales of these products. 

MAJOR FEATURES OF NAFTA 

Reduction of Mexican Tariffs. Under NAFTA, half of all U.S. exports to Mexico 
become eligible for zero Mexican tariffs when NAFTA takes effect on January 1, 
1994. Those exports which will be tariff free include some of our most competitive 
products, such as semiconductors and computers, machine tools, aerospace equip- 
ment, telecommunications equipment, electronic equipment, and medical devices. 
Within the first 5 years after NAFTA's implementation, two-thirds of U.S. industrial 
exports will enter Mexico duty free. That makes U.S. products more competitive. 

Removing Mexican nontariff barriers. NAFTA reduces or eliminates numerous 
Mexican nontariff barriers which today require U.S. companies to invest in Mexico 
or manufacture in Mexico in order to supply the Mexican market. For example, 
NAFTA will eliminate the requirements that force U.S. companies to purchase 
Mexican goods instead of U.S. -made equipment and components. Moreover, NAFTA 
abolishes the requirements that force our companies to export their production, usu- 
ally to the United States, instead of selling directly into the Mexican market. Re- 
quirements that make U.S. companies produce in Mexico in order to sell there will 
also be phased out. 



79 

MAJOR BENEFITS OF NAFTA 

Opening up Trade in Agriculture. I am sure that Secretary Espy will elaborate 
in more detail on the benefits NAFTA includes for American agriculture. But let me 
touch on some of these. 

As this committee knows, exports are the life blood of American agriculture. As 
much as one-quarter of our total agricultural production is exported and for some 
key commodities, the share shipped overseas is even higher. The economic well- 
being of our agricultural sector is directly linked to our ability to sell our products 
in international commerce. To ensure growth in our agricultural economy and pros- 
perity in our rural communities, we must secure and expand our agricultural export 
markets. NAFTA does that. 

After Japan, Canada and Mexico are the second and third largest markets for 
U.S. agricultural exports. Since 1987, shipments of American farm products to Mex- 
ico have nearly tripled, climbing from $1.2 billion to $3.8 billion in 1992 and estab- 
lishing Mexico as our fastest growing market for farm-produced goods. In fact, our 
two neighbors accounted for more than 20 percent ($8 billion) of U.S. agricultural 
exports in 1992. NAFTA secures our access to these markets and establishes a 
sound basis for further growth. 

NAFTA contains separate bilateral undertakings on cross-border trade in agricul- 
tural products, one between Canada and Mexico, and the other between Mexico and 
the United States. As a general matter, the rules of the U.S. -Canada Free Trade 
Agreement on tariff and nontariff barriers will continue to apply to agricultural 
trade between Canada and the United States. 

The U.S.-Mexico agreement on market access for agricultural goods represents a 
significant change from the status quo and is one of the highlights of NAFTA. Upon 
implementation of NAFTA, tariffs and tariff-rate quotas will replace current non- 
tariff barriers in U.S. -Mexican agricultural trade. Roughly one-half of U.S. -Mexican 
trade will be duty free when the agreement goes into effect. Nine years later, all 
agricultural tariffs between the United States and Mexico will be eliminated except 
duties on certain highly sensitive products. 

Barriers on U.S. imports of sugar, peanuts, orange juice and a few fruits and 
vegetables will not be eliminated until the 14th year after the agreement takes ef- 
fect. Also at the beginning of the 14th year, Mexico will fully eliminate its barriers 
on corn, dry beans, powdered milk, sugar, and orange juice. 

Mexican import licensing requirements for covered U.S. agricultural products will 
be eliminated as soon as the NAFTA takes effect. This will secure access to the 
Mexican market for U.S. producers of products such as corn, dried beans, nonfat dry 
milk, poultry, barley/malt, animal fats, potatoes, eggs, tobacco, grapes, and other 
products. While we have shipped significant quantities of many of these commod- 
ities to Mexico, the cessation of licenses has been a constant threat. Exporters who 
have been regularly supplying the market suddenly find that their Mexican im- 
porter cannot obtain a license. Under present circumstances, there is little or no re- 
course. 

Another threat to our access has been the fact that most of Mexico's tariffs are 
bound in the GATT at 50 percent. However, Mexico typically applies a lower rate — 
usually from zero to 20 percent. Without a NAFTA, we have no basis for challenging 
an increase in Mexican tariffs, unless the GATT -bound rate of 50 percent is ex- 
ceeded. 

A decision by the Mexican Government to increase duties on live cattle and beef 
last fall is instructive in considering the value of NAFTA. Although bound at 50 per- 
cent, Mexico had been applying no duty on cattle and beef. However, last November 
tariffs were increased up to 15 to 25 percent on live cattle and various categories 
of beef. Since we had no NAFTA rights and could not exercise our GATT rights be- 
cause the increase did not exceed the GATT-bound rate, we could not effectively re- 
spond. 

The NAFTA requires that Mexico eliminate all duties on U.S. and Canadian live 
cattle and beef. It may maintain the higher duties on all other countries. 

Mexican demand for food is likely to grow significantly over the next few decades. 
The NAFTA, our proximity to the market, and our unparalleled ability to produce 
large quantities of competitively priced farm products ideally positions U.S. farmers 
to satisfy much of that expected growth. As evidence of the potential for growth in 
Mexican demand for food: 

• Mexico's population is about 90 million. With a median age of 19, compared 
with 33 years of age for the United States and Canada, Mexico's population growth 
rate is, and will continue to be, significantly higher that ours. 



80 

• Mexican demand for food is expected to strengthen, perhaps by 5 to 6 percent 
annually, throughout this decade as the population grows, the economy picks up 
steam, and incomes rise. 

• Mexico's, limited natural resource base (arable land and water supplies) will re- 
quire increased imports of food and feedstuffs to keep pace with an expanding de- 
mand. Mexico has about 0.7 acres of arable land per person, compared with 1.9 for 
the United States. (With Mexico's population rising at a faster rate, the U.S. advan- 
tage will widen.) 

The bottom line is that the NAFTA will give U.S. agricultural producers signifi- 
cant opportunity in our hottest market. We expect particular benefits for our exports 
of beef, pork, poultry, eggs, dairy products, fresh fruit, grains and oilseeds. 

Increased import demand from Mexico will have a positive impact on U.S. farm 
prices and cash receipts, boosting U.S. farm cash receipts a projected 2 to 3 percent. 
USDA also projects that U.S. agricultural exports to Mexico will be $2.6 billion high- 
er annually when NAFTA is fully implemented than they would be without a 
NAFTA. This means about 56,000 additional jobs. 

NAFTA includes important benefits for other key U.S. sectors: 

Opening up Trade in Services. NAFTA will open new markets for the delivery of 
U.S. services to Mexico and Canada, where service companies are already large and 
growing. NAFTA will allow U.S. service firms to provide their services directly from 
the United States on a nondiscriminatory basis, with any exceptions clearly spelled 
out. Furthermore, U.S. service companies will benefit from the right to establish, 
if they so choose, in Mexico or Canada. NAFTA opens the Mexican market to U.S. 
bus and trucking firms, financial service providers, and insurance and enhanced 
telecommunications companies, among others. 

Protecting U.S. Copyrights, Patents, and Trademarks. NAFTA will ensure a high 
level of protection under Mexican law for U.S. owners of patents, copyrights, trade- 
marks, trade secrets, and integrated circuits, including strong safeguards for com- 
puter programs, pharmaceutical inventions, and sound recordings. NAFTA obligates 
both Mexico and Canada to enforce intellectual property rights against infringe- 
ment, both internally and at the border. By protecting intellectual property rights, 
NAFTA will increase trade and diminish losses from counterfeiting and piracy. 

U.S. motion pictures, music and sound recordings, software, book publishing, and 
other creative industries lead the world, and are crucial to the high-wage economy 
that we intend to build. The copyright industries are one of the largest and fastest 
growing segments of the U.S. economy, employing 5 percent of the U.S. work force, 
and exporting, by a conservative estimate, $34 billion in 1990. 

The Benefit to Small Business. I have noted the statements of several sectors cit- 
ing the benefits which will result from NAFTA; that sentiment is widely held in the 
business community, by businesses large and small. Indeed, small businesses stand 
to be among the major beneficiaries of NAFTA. Small businesses are not well- 
equipped to employ attorneys and other professionals to wrestle with the tariff and 
licensing requirements which presently block the way to the Mexican market. With 
tariffs reduced or eliminated, and nontariff barriers coming down, U.S. small busi- 
ness, which makes up a growing share of U.S. exports, will be able to sell into the 
Mexican market. 

THE SUPPLEMENTAL AGREEMENTS ON LABOR AND THE ENVIRONMENT 

President Clinton endorsed NAFTA last October during the campaign in a speech 
at North Carolina State University, but he also set out a series of principles which 
he wanted to see incorporated into supplemental agreements and related initiatives. 

He made a promise to the American people which he has today kept: that he 
would make sure economic growth with Mexico did not come at the expense of the 
environment or workers' rights, and that we would be protected from the possibility 
of import surges. 

Last Tuesday, President Clinton, Prime Minister Campbell, and President Salinas 
signed historic agreements on environmental and labor cooperation. In addition, 
Mexican Trade Secretary Jaime Serra, Canadian Minister of International Trade 
Tom Hockin and I have concluded the negotiation of an understanding on import 
surges. 

These agreements break new ground. The fundamental objectives of the labor and 
environment agreements are to work cooperatively to improve conditions for labor 
and the environment throughout North America and to improve national enforce- 
ment of national laws relating to labor and the environment. They commit all three 
nations to fair, open and equitable administrative and judicial processes for the en- 
forcement of environmental and labor laws. 



81 

Each establishes a Commission, headed by a cabinet-level representative of each 
government, which will make sure that the concerns of labor and of the environ- 
ment have no less attention than that accorded in NAFTA to trade issues. 

The Commissions will provide the first trinational forum for addressing environ- 
mental and labor problems facing this continent. For example, the environmental 
commissions can look at the spectrum of environmental issues from migratory and 
endangered species to transboundary pollution, to advising the NAFTA Commission 
on disputes on health restrictions. The labor commission will work on matters from 
worker safety, to worker rights, to improved protection against child labor abuses 
and improving competitiveness and productivity. 

The Cabinet officials will carry out their new responsibilities with the support of 
a secretariat, and the Commissions will be able to draw on private expertise as well. 
The environmental secretariat will be centrally located; the labor secretariat will 
consist of national sections in each country. 

To encourage improved enforcement, each of the agreements provides a means by 
which there can be an independent, objective evaluation and report on the effective- 
ness of national enforcement of national laws in the environmental and labor 
areas — by the secretariat (in the case of the environmental agreement) — and by an 
Evaluation Committee of Experts (in the labor agreement). 

The agreements also provide for dispute settlement in the event of a persistent 
pattern of failure to effectively enforce national laws. Where consultations fail to re- 
solve such disputes, a neutral panel of independent experts would be established by 
a two-thirds vote of the parties. Ultimately, if a panel found that there was such 
a persistent pattern, and if a party failed to remedy the matter, then there could 
be fines and trade sanctions. Canada has agreed, in lieu of trade sanctions, to make 
assessments and other panel -ordered remedies fully enforceable by the Commission 
in Canadian courts. 

The Import Surge Agreement will complement the NAFTA by improving the effec- 
tiveness of safeguard provisions that allow action against imports that might cause 
or threaten serious injury to a domestic industry including the workers of that in- 
dustry. 

These supplemental agreements strengthen NAFTA, and represent an unprece- 
dented commitment to cooperate on these issues in connection with a trade agree- 
ment. 

FUNDING REQUIREMENTS FOR NAFTA 

The administration recognizes that implementing NAFTA will have costs for the 
Federal Government. The reduced tariff revenue, as required under the Budget En- 
forcement Act, must be offset. Under the administration's proposal to create a Bor- 
der Environmental Administration (BEA), one of its financing mechanisms (the Bor- 
der Environmental Financing Facility) will also require contributions from the Unit- 
ed States, although it will rely primarily on private sector funding. Funding will 
also be required to assure benefits to workers who lose their jobs as a result of eco- 
nomic changes such as NAFTA. The labor and environment commissions will re- 
quire modest funding for staffing ahd operations. 

The administration believes that the implementation of NAFTA will expand the 
U.S. economy (i.e., increase income) over time, bringing in additional revenues 
through existing taxes. Using current economic studies of NAFTA's effect on the 
U.S. economy, additional Federal revenues in the near term could average $6 bil- 
lion. Under the Budget Enforcement Act, however, only the direct effects of legisla- 
tion (i.e., the loss of revenues through reduction in tariffs) on the Federal budget 
are considered. The reduction in revenues will be, on average, $500 million a year. 
As part of the cooperative process of developing the legislation to implement 
NAFTA, the administration will consult with the Congress over the next few weeks 
to develop appropriate measures for ensuring that this minimal loss of revenue will 
not increase the U.S. budget deficit. 

FOREIGN POLICY IMPLICATIONS 

The NAFTA deserves to be approved on its economic merits. However, especially 
in the light of U.S. agriculture's heavy dependence on international markets, foreign 
policy implications of this issue should not be minimized. Echoing comments made 
by my friend and colleague, Secretary of State Warren Christopher, last week: "Re- 
jection of NAFTA would seriously damage our relations with Mexico and erode our 
credibility with the other nations of the hemisphere and around the world. For the 
United States, failure to approve NAFTA would be a self-inflicted setback of historic 
proportions." 



82 

In my view a Congressional rejection of NAFTA would be a "shot heard around 
the world." It would be read across the globe as a seachange, marking a U.S. retreat 
from our traditionally strong advocacy for open markets and expanded trade. 

As the Secretary of State pointed out, a U.S. failure to approve NAFTA would un- 
dermine Mexico's capacity to cooperate with us on vital cross-border issues that af- 
fect millions of Americans. 

Second, it would send a chilling signal about our willingness to engage in Latin 
America at a time when so many of our neighbors are genuinely receptive to co- 
operation with the United States. 

Third, it would hand our major economic competitors in Europe and East Asia a 
clear opportunity to gain an advantage in what should be natural and growing mar- 
kets for us. 

Fourth, it would undermine our position as a negotiating partner on global trade 
agreements, like the Uruguay round, which are vital to the economic renewal of the 
United States. 

NAFTA is good economic policy and good foreign policy. 

RESPONDING TO THE OPPOSITION 

NAFTA was negotiated by a Republican President and endorsed, and strength- 
ened, by his Democratic successor. More than 40 of the Nation's Governors — Repub- 
lican and Democratic — support NAFTA, and they are the government officials with 
the most direct responsibility for economic development. Virtually everyone involved 
in business, large and small, across the board, supports NAFTA. Yet it is no secret 
that NAFTA is bitterly controversial; that the opponents are well organized and 
strongly committed; and that their arguments have been resonating with people 
across the country. 

NAFTA comes along at a time of great economic insecurity in this country. Bill 
Clinton became President because he had a plan to address weaknesses in our econ- 
omy, reflecting 20 years in which we followed misguided economic policies and ne- 
glected the foundation of our economic strength. Jobs have been lost; our manufac- 
turing base did go through a period of serious erosion; the fact that many companies 
did move offshore lends a touch of vivid reality to the frightening arguments of the 
opponents. But many of the opponents have been playing fast and loose with the 
facts, dealing with a complex issue through a combination of inaccuracies, mislead- 
ing statements, and outright falsehoods. It is time to puncture the myths that oppo- 
nents of NAFTA are trafficking in. Statements made by President Clinton, myself, 
and other administration officials last week, this week, and in ensuing weeks are 
designed to provide factual information on this critical issue. 

CONCLUSION 

All Americans agree that we cannot respond to the challenge of a changing world 
by drifting, content to accept the result of other nations' trade and economic strate- 
gies. We need our own strategy, which builds on our strengths, faces our weak- 
nesses, and responds to the challenges and realities around us. 

We would ask the opponents of NAFTA: does walking away from NAFTA seem 
like good trade and economic strategy? Can you envision Japan or the EC — if they 
were in our position — rejecting a deal like this? Would either of them kick sand in 
the face of their third biggest, and fastest growing, trading partner? Would they opt 
for the status quo, the unbalanced relationship, where Mexico keeps the tariff and 
nontariff barriers it chooses to keep? Would they ever be willing, in one unthinking 
lurch, to throw away the friendship and progress that have characterized the past 
7 years, dramatically reversing the historic pattern of mistrust and antagonism? 
Would they conclude, as the NAFTA opponents apparently have, that it would be 
easier, somehow, to cooperate with Mexico on the environment, controlling drug 
traffic, or illegal immigration, if NAFTA were defeated? 

This administration did not negotiate the NAFTA. Moreover, Bill Clinton as a 
presidential candidate was sharply critical of the economic and trade policy of his 
predecessors. When confronted with the need to make a decision on NAFTA, he ap- 
proached it very skeptically. There were powerful political reasons for opposing it. 

But when he studied it, he found that NAFTA— particularly if strengthened by 
supplemental agreements — would be strongly in the economic interest of the United 
States. It was not a favor that we were doing for Mexico. It would benefit both coun- 
tries, and Canada as well. It would not solve all our Nation's economic problems, 
but it would be an important piece of the economic strategy that we were putting 
in place to build the world's most productive and competitive economy. 

The administration has the responsibility of convincing Congress and the country 
that NAFTA is in the national economic interest, and we intend to do so. I am con- 



83 

fident that by the time Congress votes on NAFTA later this year, the country will 
recognize that NAFTA is a vital part of the solution to the economic challenges that 
face us. 



Robert L. Foster 

Mr. Chairman, members of the Committee On Agriculture, Nutrition and For- 
estry, I appreciate the opportunity to testify today. I am Robert Foster, Vice Chair- 
man of Agri-Mark, Inc., a value-added milk marketing cooperative. I live and farm 
in Middlebury, Vermont. 

My task today, as a dairyman and a producer of livestock, is to share with you 
my perspective on the North American Free Trade Agreement. 

I also will be expressing the position taken by the Council of Northeast Farmer 
Cooperatives at its meeting yesterday, September 20, 1993. CNFC represents 5500 
dairymen in 4 cooperatives: Agri-Mark, Eastern, St. Albans, and Upstate. These co- 
operatives service the Northeast fluid markets, package and market the full range 
of manufactured products, as well as provide ingredients to service the dairy indus- 
try. Products range from whole and skim milk powder to Cabot sharp cheddar 
cheese, from condensed milk to ice cream and yogurt mix for Ben & Jerry's Ice 
Cream. Agri-Mark has exported product to six continents. 

We live in a global economy. As such, every effort must be made to develop and 
negotiate agreements which level the playing field so that more trade — not less — 
can develop and prosper. Agreements provide the rules that guide this activity and 
which transcend the political governments that seem, at times, to change rapidly. 

I believe that in considering this subject, one must take into account the long- 
term as well as the short-range consequences of that action. One must consider the 
perceptions and implications of the actions taken. In other words, what kind of sig- 
nal does the acceptance or rejection of NAFTA send to the rest of our trading part- 
ners. Do we want to trade or not? The signal is just that simple! 

We live in a world of finite resources. One nation cannot isolate itself from the 
rest. Consider, if you would for a moment, that my State, Vermont, decided to close 
its borders and produce only what we need ourselves. Our agriculture (particularly 
dairy), our industry, our educational institutions, our tourism industry, our forest 
products industry — and I could go on and on — all produce for and market to many, 
many others outside our borders. Vermont's economy would literally dry up and 
wither away; 85-90 percent of our dairy output is marketed out-of-State. 

With that in mind!, what will NAFTA do? It will create one of the largest markets 
in the world — some 370 million consumers — more than $6.5 trillion in production. 
NAFTA provides mechanisms for the elimination of tariffs imposed on a number of 
U.S. products. Some are immediate, others may be phased out over 15 years. 

Specifically, Vermont's dairy and livestock prices are determined for the most part 
by national supply and demand mechanisms and markets. Sure, there are niche 
markets; and Vermonters are good at finding these. Agriculture and its productive 
capacity, assisted by technology, has allowed fewer and fewer producers to produce 
significantly more. In dairy, for example, the national herd average is around 15,000 
lb/cow/yr. Many herds produce well over 20,000 lb/cow. However, both U.S. dairy 
and beef face a domestic market that is mature — that i^, a market of consumers 
that have a standard of living that has plateaued, with little chance to move much 
more product in either category. The same is true in Canada. Mexico, on the other 
hand, is a developing market and is a rapidly developing country. 

In dairy we face a double challenge. Tight prices have forced the accelerated adop- 
tion of current technology and management. Remember, I mentioned that national 
herd average is 15,000 lb/cow/yr. Many in this State produce over 20,000 lb/cow with 
some over 24,000 lb/cow; if more than half are below 15,000, if current technology 
allows for over 20,000, and if adoption of this technology is occurring at a rapid rate, 
then we could see as much as a 20 percent increase in production over the next sev- 
eral years. The domestic market is only growing at 1 to 2 percent per year. Dairy 
must become, to use Senator Leahy's words, "a reliable and dependable exporter" 
of a significant amount of production, or our productive capacity must be downsized 
substantially. 

In beef a similar situation exists. In 1995, we are expected to produce from 106 
million head the same tonnage of beef as we did in the early 1970's from 132 million 
head. Like dairy, the domestic market for b^ef can only absorb about a 2-percent 
growth per year. Cattle exports grew by 15 percent in 1992, with Japan and Mexico 
as the principal markets. Exports now account for 5 percent of annual U.S. produc- 
tion and 10 percent of value, ^ding $70 per head to fed cattle sold in the U.S. Cat- 



.j ^ 



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 



85 

Mexico. The study stated that U.S. milk production is unlikely to move south in 
order to take advantage of the cheap labor once the border is open because Mexico 
doesn't have a large enough supply of water to support modern facilities. With a 
cost of capital at 20 percent or more, poor infrastructure, and expensive inputs, 
there isn't much incentive to move south. For similar reasons the beef industry is 
not expected to shift south to Mexico. U.S. feedlots do not use much labor, and are 
located near abundant feed supplies. Mexico just does not have the natural re- 
sources necessary to support grain-fed beef. 

After a 15-year transition period, U.S. exports of all dairy products are projected 
to total $250-300 million, about 15 percent higher than without NAFTA. Exports 
of U.S. milk powder are projected to increase 50 percent, resulting in a gain of about 
$36 million. Mexican import licenses are now the most significant trade barrier; 
NAFTA will eliminate them immediately. The effect on U.S. producer prices can be 
significant as powder is the residual or last resort use of milk. It, along with cheese, 
sets the floor price for U.S. milk and milk products. 

So what does this mean to Vermont? Less pressure to downsize agriculture than 
there would be without NAFTA; more U.S. jobs; more income in Mexico to spend 
on U.S. value-added products of agriculture. NAFTA allows for easier flow of value- 
added products into Mexico, which has a sizable middle class already established. 
Mexico has enjoyed very favorable access to the U.S. market. One-fourth to one- 
third of Mexicans have relatively high incomes creating a market nearly the size 
of Canada for U.S. goods. Mexicans already purchase more per capita from the Unit- 
ed States than the Japanese or Europeans. 

Many U.S. products currently carry heavy tariffs. Even so, the United States has 
a trade surplus with Mexico of $5.4 billion in 1991 and $11.46 billion in 1992 com- 
pared with a trade deficit of over $75 billion with Asia for 1991 — so much for less 
jobs because of NAFTA. 

In 1991, the Mexican economy measured in terms of real domestic product (GDP) 
grew 3.6 percent, while it fell in both the United States and Canada. During 1992, 
in the midst of a worldwide recession the gain in real GDP slowed to 2.8-percent 
real GDP. It is expected to grow by 3.2 percent and 4.2 percent in each of years 
1993, and 1994.7 

NAFTA makes trade a two-way street. If we turn down NAFTA, we are relin- 
quishing a $3.8 billion (1992) market for U.S. agricultural products to other provid- 
ers, such as the EC. In addition, there is the potential for Mexico's shifting its cur- 
rent trade with the United States to another partner as well. Currently, Canada 
and Mexico are the second and third largest U.S. markets for agricultural exports. 

Remember in considering NAFTA and free trade in general— Vermont is an ex- 
porter of products, goods, and services, whether it be to other States, or in the inter- 
national arena. Cabot, Ben and Jerry's, IBM, Vermont Granite and Marble, forest 
products, tourism, all would substantially decrease in business activity if operating 
in an isolated mode. According to "The Economist" July 3 business section, Vermont 
exports grew from $1 billion in 1988 to over $4 billion this year. I don't think we 
want to change that trend. Americans can compete if the field is level, and if there 
are established rules of play. Ten to fifteen years does allow time for adjustment. 
Vermont industries have become quite flexible and noted for being innovative and 
forward thinking. 

One final point, agriculture has a 4.5- to 7-percent multiplier effect on the econ- 
omy of Vermont. Most agricultural products bring dollars into the State, and then 
those producer dollars are spent several times over right here in the State. This is 
true for beef and milk nationally as well. 

Value-added products will continue to be the success stories. U.S. grain will be 
converted in the United States to these products creating jobs at home. According 
to several dairy economists, NAFTA could put as much as $1 billion more income 
into dairy farmers' pockets, and generate as many as 10,000 new jobs throughout 
the dairy industry in this country. 

Allen Parker, of Ben & Jerry's Ice Cream, succinctly put the debate over the 
NAFTA issue in perspective when he stated that, "NAFTA has become the lighten- 
ing rod for a number of social issues." 

I trust that you will base your decision on the facts and what is good for the long- 
term interest of this country. NAFTA means U.S. jobs. NAFTA means a stronger 
American agriculture. NAFTA will help maintain and revitalize rural America. 
NAFTA is a win/win situation for every American, Canadian, or Mexican, whether 
they be a laborer, a farmer, a consumer, or an environmentalist. 



'Consensus Economics, Consensus Forecasts, (London: Consensus Economics, March 17, 
1993), p. 362. 



86 

Leland Swenson 

Thank you for the opportunity to present the position of the 250,000 farm ranch 
and rural families of the NFU on the proposed NAFTA. Last week approximately 
250 of our members traveled to Washington DC, at their own expense, to discuss 
their concerns on NAFTA with all the members of Congress. Our farm delegates 
were surprised when some Members of Congress stated that they were unaware of 
farm opposition to NAFTA. 

Today, I wish to emphasize our message— NOT THIS NAFTA! 

A question often asked is whether organizations who oppose the current agree- 
ment could support any trade agreement. The answer is yes. National Farmers 
Union is a strong advocate of trade. We support the establishment of international 
rules and regulations which enable the fair trade of goods and services in a manner 
that provides a fair return to the producer and promotes environmentally sound pro- 
duction methods. 

However, we believe it is neither necessary nor beneficial to accept an agreement 
which trashes the social, economic and environmental gains we have achieved, all 
in the name of free trade. 

In previous testimony, we have gone on record in support of the resolutions 
passed by Congress which set forth certain guiding principles that must be met by 
U.S. trade agreements. Last fall, NAFTA was announced and many, including Ma- 
jority Leader Gephardt, pointed out that it did not meet the standards, and must 
be renegotiated. Others, including President Clinton, took the position that there 
were problems, but that points of concern could be addressed with the addition of 
side agreements. 

Now we have read the side agreements and our earlier concerns remain valid. 
Our analysis of the proposed agreement shows that NAFTA will be a giant step 
backward, not only for our friends with labor and environmental concerns, but spe- 
cifically for North American farmers. Today I intend to point out the inequities and 
lack of safeguards for agriculture in the proposed NAFTA. 

Our concerns fall under four general categories, which will affect our members not 
only as family farmers, but as consumers and taxpayers as well. 

1. Food safety — including inadequate inspection, the use of banned chemicals, 
meat inspection problems under the CFTA, and animal disease. 

2. Displacement of our markets for commodities — caused by transshipment con- 
cerns, the accession clause, and inadequate country of origin provisions. 

3. Loss of means for redress against trade violations — including the loss of Section 
22. 

4. Loss of farm income — including the loss of off-farm employment opportunities. 

Failure to add safeguards to address these areas will result in a loss of farmers, 
not only in our country, but in Mexico and Canada as well. The lack of safeguards 
carries over into the concern of environmental abuse in Mexico as livestock feedlot 
expansion occurs, dairy factories increase in number, large fruit and vegetable pro- 
ducers move south of the border. In addition, the NAFTA lacks safeguards to protect 
children and other workers from exploitation. 

I. FOOD SAFETY 

Many take it for granted that all we have to do is go to the grocery store, where 
we choose from the freshest fruit, a large selection of attractively packaged meat 
and all types of dairy products. Will this change with NAFTA? We believe it will. 
Suppose USDA and EPA suddenly decided that chemicals which had previously 
been banned on food for human consumption were now okay for use — not because 
the danger had lessened, but because they were convenient to use. Suppose they 
further decided that dairy farmers should be able to stretch their production by add- 
ing water and vegetable oil to milk? Suppose they decided to forego inspection of 
meat plants, or to change current regulations which prohibit the sale of meat con- 
taminated with feces and urine? 

No one would agree to these changes, and yet it has been documented that these 
problems currently exist with imports and will be exacerbated if we step up trade 
without addressing them. When confronted with these problems, free-traders often 
respond that a trade agreement is not the proper forum. This ignores the reality 
that behavior is tied to profit. There is clearly a financial incentive not to comply 
with restrictions. If at the same time, there is no reason to comply with standards, 
i.e., no trade sanctions, then laws on food safety, as well as worker safety and envi- 
ronmental protection will be ignored. 

An important safeguard that is missing is the assurance of both the quality and 
quantity of border inspections for commodities traded. 



87 

The Government Accountability Project (GAP) has documented the problem with 
meat inspection under the U.SyCanada Free Trade Agreement. Under the CFTA, 
meat inspection has turned into paperwork inspection. 

GAP has also documented the problem of transshipment. Under the CFTA, Aus- 
tralian beef is shipped into Canada and then comes into the United States as Cana- 
dian beef. Because it is not produced in Canada or sold for Canadian consumption, 
it is not inspected in Canada. At the same time, because it comes over the U.S. bor- 
der as Canadian beef, it is not inspected as Australian beef, nor does it apply toward 
the import quotas and tariffs normally applied to Australian beef. 

What then, are the implications for the U.S./Mexican border? 

If current inspection under the Canadian/U.S. agreement is any indication, and 
we believe it is, then the process would better be labeled a paper certification in- 
spection. We clearly have stronger inspections between States and within our mar- 
keting structure and processing system than exist at either our Canadian or the 
Mexican borders. In the absence of strong corrective measures, we believe the prob- 
lem will become even worse as trade is increased. 

Safeguards are also needed to protect against the spread of animal disease, which 
could have disastrous consequences. GAP reports that since 1982, the number of 
steers imported annually from Mexico has quadrupled, and so has the incidence of 
TB in cattle. In 1992, 83 percent of the cases of bovine TB were found in Mexican 
cattle. Bovine tuberculosis is more than a disaster for cattle producers — it can also 
cause TB in humans. Yet, a USDA veterinarian has testified that he was ordered 
to release for human consumption a beef carcass with laboratory-confirmed evidence 
of TB lesions. 

Food safety and human health will also be jeopardized if imports produced with 
banned or restricted pesticides are allowed to come up across the border. GAO found 
58 pesticides which could not be used in the United States, but which are allowed 
in Mexico. Clearly, pesticides not safe for use within the United States are also not 
safe if they are introduced into the food supply via imports. 

II. LOSS OF U.S. MARKET ACCESS 

The NAFTA is supposed to increase our market access. Yet in some instances, it 
actually decreases market access, by adding new tariffs and restricting many exist- 
ing markets. Corn, barley, wheat, beans, milk, and cheese products have either less 
access or higher tariffs, or both for the immediate future. Yet the agreement allows 
Canada to maintain significant commodity protection and transportation assistance. 

The Mexican tariff schedule shows that, in the case of dry edible beans, between 
1989 and 1991, the U.S. average annual export volume of beans to Mexico pursuant 
to CONASUPO license, was 90,276 metric tons with no tariff. NAFTA cuts our tar- 
iff-free access from over 90,000 metric tons to 50,000 metric tons. Sales over that 
amount have a tariff of 139 percent, but not less than $480 a ton. 

This new tariff will come down slowly over 15 years and the quota will increase 
by 3 percent a year over 15 years. 

The situation we believe gives China the advantage to export more beans to Mex- 
ico as they continue to operate under the old CONASUPO licensing system with no 
tariffs! 

On wheat, Mexico has imposed a new 5-percent addition to the existing 10-percent 
tariff on Durum wheat, and imposed a new 15-percent tariff on all other wheat, in 
exchange for the free CONASUPO license. 

Canada, meanwhile, will maintain its transportation assistance in marketing its 
wheat to Mexico, as well as the United States. The attached chart shows the in- 
crease in Durum, all wheat, and barley to the United States from Canada since the 
implementation of the Canadian Free Trade Agreement. 8 

Import levels from Canada have increased since the implementation of the Cana- 
dian Free Trade Agreement in peanut products, sugar products, beef and beef prod- 
ucts, pork, wheat, and barley, and there is a clear need to correct these inequities. 
There is no reason to believe that such activities will not occur under the Mexican/ 
U.S. agreement at an even greater level and quantity base. 

This year the United States made a significant investment in using the Export 
Enhancement Program (EEP) to allow us to compete favorably with Canada on 
wheat sales to Mexico. Yet, because there are inadequate rules of origin, the is no 
way to ensure that the United States is not expending EEP dollars to export Cana- 
dian produced wheat! If we further open our borders without correcting this prob- 
lem, what other countries will send us commodities to be exported with our EEP 
funding? 



s See page 153. 



88 

We are also concerned that NAFTA may jeopardize our ability to continue use of 
the Dairy Export Incentive Program (DEEP) on sales of milk to Mexico. 

III. LOSS OF ABILITY TO ADDRESS TRADE INEQUITIES 

The U.S. eliminates restrictions on access to its market immediately, as well as 
removes the only tool of recourse if trade abuse occurs, in giving up Section 22 in 
our agreement with Mexico. Section 22 of the Agriculture Adjustment Act of 1933 
allows the Secretary of Agriculture and the President to take immediate action if 
they believe a condition exists requiring emergency treatment. 

In analyzing what has taken place with certain commodities under the Canadian/ 
U.S. Free Trade Agreement, the Clinton administration has now seen the need to 
take and consider Section 22 action. The accompanying chart A-3 reports the in- 
crease in peanut butter and peanut paste at 567 percent from 1989 to 1992 and an 
increase of 3021 percent in sugar products from 1989 to 1992. 

Chart A-2, referred to previously, clearly shows the import surge of Durum, bar- 
ley, and all wheat that has occurred from Canada since the implementation of the 
Canadian Free Trade Agreement. The only tool available to the administration to 
respond to the detrimental trade action is Section 22. 

The only other option for producers of a particular commodity is to file a com- 
plaint through a binational panel, at a cost per case of several hundred thousand 
dollars. 

Within the Mexico/U.S. agreement, there is no enforceable way for the U.S. Gov- 
ernment to intercede on behalf of producers if flagrant transshipment of commod- 
ities occur, nor to intercede if import surges occur. 

IV. LOSS OF FARM INCOME 

Some may characterize NAFTA as a method of redistributing the wealth. We be- 
lieve farmers in both the United States and Mexico will be the donors. 

Free trade proponents like to cite a recent study claiming that corn prices may 
increase by 5.06 per bushel under NAFTA. It is worth noting that this study does 
not make any claims of gains for any other U.S. agriculture commodities. We also 
point out that the 5.06 for our farmers comes at the expense of an estimated 3 mil- 
lion Mexican corn farmers who will lose their farms, jobs, and homes when their 
prices are cut by one half. 

One of the biggest threats to U.S. farm income under the NAFTA is the loss of 
Section 22, which allows us the ability to stabilize our domestic food supply. Cur- 
rently used for dairy, sugar, peanuts, and cotton, Section 22 is available and has 
been used for many other commodities, including wheat, barley, rye, oats, and oth- 
ers. NAFTA eliminates our import controls in favor of tariffs, which are then phased 
out, over periods of 5, 10, and 15 years. 

The loss of import controls, coupled with the problems caused by inadequate rules 
of origin and transshipment, combine to produce a serious threat to producer income 
and will also negatively impact U.S. taxpayers. 

The problem becomes even worse when one considers that NAFTA provides an in- 
centive for farms to be moved south of the border, due to cheaper labor and land, 
and lack of enforcement regarding environmental restrictions. Family farmers do 
not have the incentive to move. However, agribusiness does. 

A Texas dairy farmer compared his costs of production to those of a Mexican coun- 
terpart. The Texan paid his workers $40 a day, along with social security and work- 
men's compensation. His land costs were higher, his fuel costs were higher, and his 
environmental restrictions more severe. His Mexican friend paid his workers $3.00 
a day, with no benefits, and paid less for the chemicals and pesticides he used on 
his farm. The result was no surprise. The Mexican farmer had a much higher profit 
margin. 

The projected loss of jobs is often cited by labor unions. This loss is also serious 
for farm families, since off-farm income is often the source of cash flow that provides 
day to day living expenses for our members. When off-farm income is separated out 
from farm income, USDA figures reveal that the average annual farm net income 
is less than $4,000 per year! 

CONCLUSION 

Some tell us that the decline of the American farm family is inevitable. If the 
United States continues to accept agreements such as the NAFTA, we will seal this 
fate. 



89 



THE 

NORTH 

AMERICAN 

FREE 

TRADE 

AGREEMENT 



Will We Learn From Our Mistakes? 

An analysis of the Canada-US. Free Trade Agreement's impact on American family farmers 



nnnonnL 
FnnmEns 
union 



Washington D.C. Office: 

600 Maiyland Avenue, S.W., 
Suite 202 West 
Washington D.C. 20024 
202-554-1600 

Denver Office: 

10065 E. Harvard Ave. 
Denver, CO 80231 
303-337-5500 



Produced: September 1993 




90 
INTRODUCTION: 



On the following pages, youll be provided with information that may surprise you 
about the effects of the five-year-old VS. I Canada Free Trade Agreement on American family 
farmers. 

In fact, / hope it shocks you with the realization that despite much rhetoric to the 
contrary, free trade agreements are not a panacea for rural America. 

It's not that the National Farmers Union is against trade. Trade is vital in 
maintaining standards of living and cultural exchange and development. But bad trade 
agreements work contrary to those objectives, creating uncertainty and difficulties for effected 
people. 

Now that the North American Free Trade Agreement is being debated, we have a rare 
opportunity to learn from our mistakes. The family farmers of America cannot tolerate a 
continuation of the trends begun under the U.S. /Canada accord. 

ff problems like those amplified on the following pages have been created because of a 
trade agreement between two nations that are perhaps as similar economically and culturally 
as any two countries on the globe, then what will happen if we enter an even weaker agreement 
with a nation such as Mexico — a neighboring nation, yet one a world apart economically and 
socially? 

I hope you'll find this document useful and I hope you'll consider very seriously the 
consequences of NAFTA in the months ahead. 



Sincerely, 

Leland Swenson, President 
National Farmers Union 



91 
Summary 



American imports of Canada's six major grains and oilseeds 
increased 38% from 1990 to 1991. 

From 1991 to 1992 the rate of growth of Canadian exports to the 
U.S grew faster than any of the other top ten U.S. trading 
partners. 

U.S. imports of Canadian wheat increased by 76% after the 
implementation of the Canadian Free Trade Agreement. 

U.S. barley imports increased by 213%. 

Durum imports increased 130%. 

The equivalent of about 90% of all the sugar grown in Canada is 
exported to the U.S. in the form of "select sugar containing 
products." 

Canada grows no peanuts, yet exports 40 million pounds of 
peanut butter and peanut paste to the U.S., an increase of 567% 
in three years. 

Imports of Canadian feeder cattle cut into Mexican market share 
and contribute to lower prices paid to American producers. 

American pork producers are at risk due to subsidized Canadian 
pork and Canadian challenges to U.S. counter-vailing duties. 

U.S. farmers received 4% less of the American family food dollar 
in 1992 than in 1988. 

The number of American farms continues to decline at the rate 
of 2% per year. 



92 



THE CANADIAN FREE 
TRADE AGREEMENT 
AND AMERICAN 
AGRICULTURE 



Studies by NFU of readily available data relating 
to current trade practices with Canada under 
the CFTA, clearly show that NFU has not been 
"crying wolf." In fact, NFU believes the 
information contained in this report is shocking 
enough that it warrants a congressional hearing. 



A Blow to Agricultural Producers 

Many of the National Farmers Union's 250,000 
family farm members have been victimized by 
the Canadian Free Trade Agreement (CFTA). 
In fact, many sectors of American production 
agriculture have been adversely affected. Facts 
and figures contained in this report highlight and 
detail the unfair practices which have caused 
NFU and its members grave concerns since the 
inception of the CFTA NFU has aired these 
concerns on numerous occasions as Canadians 
have manipulated the CFTA to their advantage 
on a regular basis. It is precisely these unfair 
practices which regularly occur under the existing 
CFTA that cause NFU to adamantly oppose the 
North American Free Trade Agreement 
(NAFTA) in its current form, and to oppose the 
direction which the talks on the General 
Agreement on Tariffs and Trade (GAIT) are 
headed. 

The U.S. continues to lose farmers at the rate of 
2 percent per year, after having lost a quarter of 
a million farmers in the last decade. 
Furthermore, farm incomes have eroded to the 
degree that the average farm family earned a 
mere $5,742 in on-farm income in 1990. Canada 
has also experienced lower commodity prices, as 
well as a loss of farmers along with the decline in 
the economic health of rural communities, which 
naturally follows. 

The CFTA is often used as a model for the 
development of agreements such as NAFTA and 
GATT. In reality, the CFTA should be used as 
an example of what to avoid in new agreements. 
NFU contends that the good points of the 
CFTA have been or will be weakened in NAFTA 
and GATT, while the errors contained in the 
CFTA will be even more detrimental to 
American family farmers. 



Benefits of Canadian Free Trade 
Agreement Proving to be One- 
sided 

The Manitoba (Canada) Co-operator," reported 
on September 9, 1992, that, "The United States 
was Canada's fourth largest grain customer last 
year, importing 1.8 million metric tons of 
Canada's six major grains and oilseeds." The 
article went on to say that "imports of Canadian 
grain were up 38 percent from the 13 million 
metric tons purchased by the U.S. the previous 
crop year." Canadian Grains Minister Charlie 
Mayer was quoted as saying, "I think this is 
evidence that the Free Trade Agreement with 
the United States has worked and worked quite 
welL Our agricultural exports to the U.S. in the 
last three years are up about 30 percent" 

Mayer's next quote is far more telling: "WHEN 
YOU THINK ABOUT IT, THATS PRETTY 
GOOD. THE AMERICANS ARE THE 
LARGEST EXPORTERS OF GRAIN IN THE 
WORLD. WE BUY VIRTUALLY NOTHING 
(no grain) FROM THEM. OUR BORDERS 
ARE VIRTUALLY OPEN (with barley the 
only exception).* 

Farmers Union would have to agree with 
Mayer's Canadian perspective of the CFTA. The 
CFTA has worked quite well for Canada. When 
one considers that the article went on to say, 
"Wheat (excluding durum) was the single largest 
grain imported by the U.S. from Canada last 
crop year...a 100 percent increase over the 
previous year," one should be 
able to understand why NFLTs producer 
members do not share Mayer's satisfaction. The 
figures Mayer used in the article do not 
constitute a "bump in the road"— they are a 
trend. 



-1- 



93 



Canadian Imports Grow 22 
Percent in 1992 



According to the 1992 Fiscal Year Supplement 
on Foreign Agriculture Trade of the United 
States (FATUS), the total Canadian agriculture 
trade surplus with the U.S. in 1990 was $376 
million. In 1991, that total dropped to $231 
million, largely due to much lower prices for 
commodities. Although the value of Canadian 
agricultural exports to the United States declined 
by 15 percent from 1990 to 1991— dropping from 
$11.9 billion to $10.1 bOlion-the volume of 
exports to the U.S. exceeded the previous year. 
Wheat prices were down 30 percent and rice was 
down 10 percent. The average price of wheat 
on the farm in the U.S. was $3.72 per bushel in 

1990 as compared with $2.61 per bushel in 1991. 

Major agricultural imports from Canada 
increased from $3,096 billion in 1990 to $3215 
billion in 1991 and jumped 22 percent from FY 

1991 to 1992, reaching a total of $3.93 billion. 
These commodities include cattle, beef, pork, 
grains, feed grains, oilseeds and other products 
(the oilseeds imports would be primarily canola, 
which is enjoying increased consumption in the 
U.S., but is not being widely produced in the 
U.S.). 

Canada was the source for about 18 percent of 
all U.S. agricultural imports in 1992. The rate 
of growth of Canadian agricultural exports, up 
22 percent from 1991 to 1992, was greater than 
the growth rate of any other U.S. trading 
partner among the top 10 (USDA's 1992 
'Foreign Agricultural Trade of the United 
States"). 



Dakota Department of Agriculture, show that 
Canada's total wheat shipments, including 
durum, enjoyed a generally steady rate of 
growth from 1983 to 1988, with a range of 23 
million bushels to 17.5 million bushels. Durum 
exports alone climbed from zero to 6 million 
bushels during that time. 

Since 1989, shipments of Canadian wheat and 
durum to the U.S. have exploded. According to 
the Canadian Trade Commission, in 1991-92, all 
wheat shipments reached 30.8 million bushels, 
including 13.8 million bushels of durum. Figures 
available through February 1993 indicate that all 
wheat exports were already a record at 362 
million bushels, and durum exports were at a 
record-setting pace. The figures for durum at 



Canadian Grain Imports Climb 

Following Free Trade Agreement 

Mllllou ol lmk*u 




I Hlgk baton n>. 



(Him lIM-IMVt m hill tOM 
iaiiwi CmkII Iff* 



the end of February were at 13 J million bushels, 
with a strong potential for exceeding 14 million 
bushels for the first time in history. 



WHEAT AND DURUM-- 
THE FIRST BLOW 

Canadian Wheat Imports Climb, 
U.S. Prices Fall 

Figures from the Canadian Grain Commission, 
obtained with the cooperation of the North 



The primary durum-growing area in the VS. is 
in the upper Midwest, with the greatest 
concentration in North Dakota. The primary 
durum area in Canada is directly across the 
border from North Dakota. Most of the durum 
grown in North Dakota is shipped to terminals 
on the Great Lakes. Many of the durum 
shipments from Canada to the U.S. end up in 
the same terminals as North Dakota durum. 
This has a significant price-dampening effect on 
the U.S. market. 



-2- 



73-024 0-94-4 



94 



Durum is often thought of as something of a 
specialty crop which has historically enjoyed a 
substantial price premium over other wheat. 
Since the CFTA went into effect, that premium 
has largely vanished, driving U.S. durum prices 
below the price of hard red spring wheat. In 
fact, for considerable periods of time, durum 
prices at the farm level were lower than prices 
for hard red winter wheat, a situation which has 
rarely, if ever, occurred before. 



U.S. Subsidizing Canadian Wheat 
Exports 

There has also been sufficient concern that 
Canadian durum and other wheat may actually 
be exported with the benefit of the U.S. Export 
Enhancement Program (EEP). This concern was 
strong enough to prompt U.S. Senator Kent 
Conrad (D-ND) to work for the passage of a law 
requiring end use certificates for commodities 
imported from Canada. 



NAFTA will exacerbate Vie problems associated 
wait higher levels of Canadian wheal imports: 



• High levels of imports of wheat and durum 
would lower prices received by American farmers. 



BARLEY - A FLOOD IS 
FORECAST 

U.S. Barley Producers Soon to be 
on Endangered-Species List 

If the recommendations contained in a report by 
Colin A. Carter, Professor of Agricultural 
Economics, University of California, Davis, 
entitled; "An Economic Analysis of a Single 
North American Barley Market" are 
implemented, America's barley growers could 
encounter the same difficulty as durum 
producers, and since a large part of the barley 
produced in the U.S. is grown by the same 
farmers who produce durum, the result would 
place these people in double jeopardy. 

In essence, the Carter study suggests that the 
creation of a single North American barley 
market would benefit growers on both sides of 
the border. 

Beyond the Carter study looms the efforts of the 
Canadian agriculture minister, Charlie Mayer, 
who is attempting to remove barley from the 
control of the Canadian Wheat Board (CWB). 
Mr. Mayer's proposed change is slated to take 
effect August 1, 1993. If barley is removed from 
the control of the CWB, massive shipments of 
Canadian feed barley will simply be trucked 
across the border to local delivery points in the 
VS. 



• Lower grain prices to American farmers could 
mean higher costs to American taxpayers due to 
increased farm program costs. 



• Any Canadian grain exported under EEP is a 
direct cost to American taxpayers. 



• The importation of large amounts of Canadian 
grain would glut the American market and 
necessitate the use of EEP in situations where it 
might not otherwise be needed 



Keep in mind that the U.S. is not the world 
leader in barley production. Canada grows 25 
percent more barley annually than the U.S. As 
alluded to earlier, the vast majority of the VS. 
barley production area is in the states of 
Washington, Montana, North Dakota, and 
Minnesota-an area directly across the border 
from the primary barley production area in 
Canada. Facilities in the U.S. which are 
accustomed to handling barley are conveniently 
located for accepting the influx of Canadian 
barley. 

Since Canada's population numbers roughly 
one-tenth the population of the U.S., and the 



-3- 



95 



Canadians produce more barley, h would seem 
to follow that the flow of barley into the U.S. 
would be at least ten times as great as the U.S. 
shipments into Canada. 

The release of barley from CWB control would 
affect the same region and many of the same 
people who are still reeling from the CFTA 
effects on the durum market. It could well be 
the final straw for a large number of U.S. 
producers in an area of the country where family 
farmers are already experiencing severe 
hardship. Plummeting prices for another of 
their major products could cause another round 
of farm failures. 



American Tax Payers to Subsidize 
Canadian Barley Exports 

Wilfred Harder, chairman of the Advisory 
Committee for the Canadian Wheat Board, in a 
press release dated June 10, 1993, made the 
following comments in part: "The prospect of a 
mass southward movement of barley will 
definitely lower prices and not. ..increase returns 
to barley producers." 



Mr. Harder aired an even more interesting 
concern, stating that "CANADIAN BARLEY 
COULD VERY WELL FIND ITSELF 
COMPETING WITH BARLEY 
TRANS-SHIPPED VIA THE U.S. INTO 
OFFSHORE MARKETS. THERE ARE NO 
SAFEGUARDS TO PREVENT CANADIAN 
BARLEY FROM BEING RE-EXPORTED 
FROM THE U.S., POSSIBLY EVEN UNDER 
THE EXPORT ENHANCEMENT 
PROGRAM." 



Harder 's comments give added credence to the 
importance of Senator Conrad's efforts toward 
end use certificate legislation. The United States 
would be in the ridiculous position of using 
American tax dollars to subsidize the sale of 
Canadian barley in competition with Canadian 
barley being sold with the assistance of the CWB. 



Cheaper Barley Would Drive Down 
Prices of Other Feed Grains 

While the U.S. accounts for 60 percent of the 
world trade in total feed grains, including corn, 
barley, oats, and a number of other lesser crops, 
one must look domestically at the competition 
among these crops to realize the effect of 
potentially huge inflows of Canadian barley. 
The fact is that a flood of Canadian barley would 
reduce barley prices nationwide, making it much 
more competitive with corn, thus lowering the 
price of U.S. com nationwide. 

The result would be increased costs to USDA 
through greater use of Commodity Credit 
Corporation (CCC) loans and a higher number 
of forfeitures of both crops due to prices below 
the loan rates. Government reaction to this 
scenario, as indicated from past performances, 
would be to reduce farm program benefits and 
put U.S. farmers at greater risk rather than 
moving to correct the root problem, which is the 
lopsided trade practices allowed by the CFTA. 

Northern U.S. farmers, who were left as orphans 
on the doorstep during the CFTA negotiations, 
would see another of their regional markets 
destroyed. Farmers across the country would 
also be victimized as they struggle to compete 
against Northern U.S. and Canadian barley 
which would hit the market at Ore sale prices. 

It is not as though the Canadians have not been 
enjoying access to the American barley market 
already. Prior to the CFTA, the U.S. imported 
between 5 and 8 million bushels of Canadian 
barley annually. Since the CFTA, those 
numbers have risen to as high as 25 million 
bushels in 1991-92. The projections for 1992-93 
are at IS million bushels, due primarily to poor 
malting barley quality in the current available 
Canadian stocks. This drop in Canadian exports 
is a strong incentive for the Canadian 
agriculture Minister to pursue his goal of 
opening the barley trade system completely. 

These figures were obtained from a report 
entitled, "United States Barley Statistics" which 
was prepared by the North Dakota Barley 
Council 



-4- 



96 



SUGAR - WHO LET THIS 
OUT OF THE BAG? 



American Sugar Producers Soon 
to be Relics of the Past 

Information supplied by the United States Beet 
Sugar Association, The American Sugarbeet 
Growers Association, the USDA/ASCS 
Sweetener Analysis Division and others, 
indicates that those involved in all areas of U.S. 
sugar production are about to suffer the same 
impacts as northern U.S. wheat and feed grain 
producers. 

Sugar production and consumption in Canada 
have not shown any major change in the period 
1989-90 to the present, but Canada's level of 
sugar imports from other countries and its level 
of exports to the U.S. of products that are 60 to 
99 percent sugar have risen substantially. 
Products with less than 60 percent sugar have 
undoubtedly risen, as well. 



The Facts: 

• According to the U.S. Sugarbeet Growers 
Association, Canada only produces about 9 
percent of its domestic sugar needs. Imports meet 
the remaining needs. 

• In 1989-90, Canadian sugar production 
was 121,000 metric tons. In 1992-93, production 
totaled 140,000 metric tons, which seems to be a 
record high. 

• Canadian sugar imports doubled during 
the last four years. Domestic consumption, while 
growing, accounted for only a small part of the 
increase in imports. Beginning/ending stocks have 
also remained relatively stable throughout this 
period 



Canadian 1989-90 imports which were 524,000 
metric tons, have increased to the current 
annual rate of 1.065 million metric tons. Since 
Canada's total sugar exports hovered between 
29,000 and 40,000 metric tons during the same 
period, part of the rise in its imports can be 
explained by two factors: 1) an increase in 
Canadian population from about 26.5 million 
people in 1989 to 27.4 million people in 1993; 
and 2) an increase in the consumption of sugar 
from 29.9 kilograms to 40.2 kilograms per 
person during the same time period. 

The remainder of Canadian sugar supply is 
largely exported to the U.S., mainly in the form 
of "select sugar-containing products." To make a 
long story short, Canada's exports to the U.S. of 
products which are 60 percent to 99 percent 
sugar have increased from 3,796 metric tons in 
1989, to a current level of 118,456 metric tons. 
In other words, in 1992, Canada shipped the 
equivalent of nearly 90 percent of all the sugar 
it produced domestically to the U.S. in the form 
of flavored sugar, iced tea mixes, gelatins and 
other items! 

At the same time, shipments of similar items to 
the U.S. from other countries saw a 
corresponding decline in three of the four 
sugar-containing categories. In 1992, Canada 
accounted for all but 6,554 metric tons of 
sugar-containing products which entered the U.S. 

Canadian Processed Foods Imports Explode 
Following FrM Trade Agreement 



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-5- 



97 



Burning Our Bridges Behind Us? 

• If the American market is so attractive 

for a country which must import most of its 
sugar, countries which rely on sugar exports as 
their major agricultural income will be even 
more aggressive in their approach to the market. 

• Currently, the U.S. sugar program is net 
zero cost. However, if substantial amounts of 
sugar from U.S. farmers enter the CCC loan 
program and are forfeited, U.S. taxpayers will 
have to foot the bill. 

• If the U.S. continues to import massive 
amounts of sugar, the federal government will 
likely discontinue the price support program, 
following the trend of cut-backs on other 
American farm programs such as wheat and feed 
grains in recent years. 

• If the U.S. sugar industry goes by the 
wayside and U.S. consumers must rely on sugar 
supplies from parts of the world which have long 
histories of civil unrest and instability, we are in 
for extreme price fluctuations. 



most glaring example is that Canadian exports 
of peanut butter and peanut paste to the United 
States have risen from 6 million in 1989 to 40 
million pounds in 1992. That is a six- fold 
increase in a mere three years. 

According to an April 6, 1993, article by the 
Georgia Peanut Commission entitled. The 
Effect of Peanut Paste Imports on The U.S. 
Peanut Industry and the Price Support 
Program," these products can be brought in to 
the U.S. at a cost 25-cents-per-pound lower than 
the price of domestically grown and processed 
peanuts. 

This means that much of the U.S. domestic 
peanut production must be purchased by USDA 
at a price that is higher than the cost of 
Canadian peanut imports. For 1993, these 
purchases could cost the federal government $17 
million to S18 million. 

If the trend should continue to a point where 25 
percent of the U.S. production is forfeited to 
USDA, the cost to American taxpayers could 
exceed $100 million per year well before the turn 
of the century. 



An End to U.S. Peanut 
Production? 



WE'RE NOT TALKING 
PEANUTS HERE 

Canadian Manufacturers Benefit 
at U.S. Expense 

It is not as though the U.S. trade problem with 
Canada is related to only the crops grown on 
the northern tier of states, or that the effects of 
the CFTA are felt only by those areas which 
grow durum, hard red spring wheat, sugar beets, 
and barley. The problem now affects crops 
grown in the Southern U.S. and involves crops 
which Canada does not produce at all. The 



As with sugar, the result of these burgeoning 
costs would likely be a massive overhaul of the 
U.S. peanut program which could simply 
translate into a program phase-out. In the case 
of the exploding peanut butter and peanut paste 
import problem, the United States finds itself 
sabotaging not only its peanut growers but its 
peanut processing industry. The U.S. will 
continue to encourage the construction of 
state-of-the-art plants in other countries by 
willingly accepting their products. 

Finally, the plants which are constructed abroad 
for the purpose of taking advantage of U.S. 
markets will have a life span of several decades 
and will affect the competitiveness of American 
producers for as long. 



-6- 



98 



FEEDER CALVES COME 
SOUTH 

Even the Mexicans Are Losing 

U. S. livestock interests are being affected by the 
CFTA as well Information contained in a 
recent report by Ernest Davis, C. Parr Rosson, 
III, Amy Angel, and Oral Capps, Jr., of Texas 
A&M entitled, "U.S. Price Impacts of Feeder 
Cattle Imports From Mexico,* documents the 
effects of the importation of both Canadian and 
Mexican feeder cattle on the domestic market. 

While Canada ranks a distant second to Mexico 
in this area, Canadian gains in the sale of feeder 
cattle to the U S. were substantial after the 
CFTA was implemented, showing a 249 percent 
increase from 1989 to 1990. During that time, 
Mexican exports increased 44 percent. 

Canadian Feeder Cattle Imports Swell 
Following Free Trade Agreement 



ThouMrxa ot hud knportad 




Mexico, currently the major power in this 
market, held an eight-to-one margin over Canada 
in 1990, the last year for which figures are 
available. Although that sounds like a 
commanding lead, it seems to be shrinking 
rapidly. At one point in the 1980s, the ratio was 
130 to one in favor of Mexico. 



U.S. Producers Lose $40 Per Head 
on Feeder Cattle 

Canada's total exports of feeders to the U.S. in 
the decade of the 1980's was 353,475 head. In 
1990 ALONE, the total was 158,181 feeder 
calves. The highest level of annual exports for 
the decade of the 1980's was 81,111 head in 
1982. The report goes on to say that the 
decrease in market prices paid for feeders in the 
U. S. is .555 percent for every 100,000 head of 
feeder cattle imported. 

The average 500 lb. feeder calf brought a price 
of $10230 per cwt. at Amarillo in 1990. Using 
the Texas A&M figures, the same animal would 
have brought producers in excess of $1 10.00 per 
cwt., or an increase in the value of each animal 
of nearly $40. $40 x 1.42 million imported 
feeders from Mexico and Canada means that 
American producers lost $56.8 million dollars to 
lower prices caused by the importation of feeder 
cattle. 



AND THIS CANADIAN 
PIGGY WENT TO 
MARKET 

Countervailing Duties Keep 
Canadian Pigs From Flooding U.S. 
Market 

The National Pork Producers Council (NPPC), 
working with pork and hog interests in the U. S. 
has, until a very recent victory, been fighting 
what can best be described as a strategic retreat 
from the continuous onslaught of Canadian 
hogs, pork and pork products, as the Canadians 
manipulate the CFTA to their advantage. 

Canada subsidizes pork production to the tune of 
about $18. per hog. Currently that subsidy is 
offset by countervailing duties which prevent 
these highly subsidized hogs from flooding U. S. 
markets. If it were not for these duties 



-7- 



99 



Canadian producers, who have production costs 
which are 20 percent higher than U. S. 
producers, would be flooding U. S. markets with 
subsidized hogs. 



WHY NOT LEARN FROM 
OUR MISTAKES? 



U.S. Has No Compensation for 
Canadian Subsidized Pork Imports 

In reality that is what is happening right now 
with pork that has been slaughtered and 
processed in Canada. 

The waning hours of the CFTA negotiations saw 
the creation of binational panels for the purpose 
of settling disputes. These panels have regularly 
assumed the authority to interpret and all but 
rewrite the laws governing the U.S. Department 
of Commerce and the International Trade 
Commission. One of those recent binational 
panel decisions removed the countervailing 
duties from pork and pork products. 

This decision allows subsidized Canadian pork to 
compete with unsubsidized U. S. producers and 
processors. The result is lower prices paid to 
U. S. producers, more jobs for Canadian meat 
packers and more unemployment in similar 

industries here. 



It's Worth Pondering—Can bi- 
national panels be truly unbiased? 

1) Each time the American pork interests have 
registered a challenge the panel was made up of 
two V. S. representatives and three from Canada. 
The decisions were always three to two favoring the 
Canadian position, except for the latest decision 
which allowed the current practice of 
countervailing duties on live hogs to remain in 
place. 

2) Even though the binational panel dispute 
mechanism has shown its flaws in well publicized 
cases and as recently as 1992, the NAFTA 
contains a very similar provision. 



Making a Bad Deal Even Worse 

The only safety net in the CFTA is Section 22 
(6) of the Agricultural Adjustment Act, which 
states that "Where the Secretary determines—that 
a condition exists requiring emergency treatment, 
the President may take immediate action under 
this section without awaiting the 
recommendation of the tariff commission.* 

Unfortunately, previous administrations which 
negotiated both of these pacts have possessed a 
"free trade at all costs" attitude which prevented 
them from invoking Section 22 (B), because to 
do so would have been an admission that the 
CFTA was flawed. 



Decline in Weil-Being of U.S. Farmers 
From 1988 to 1992 

Farmers lost 4 cent* of the food dollar 




•N2 

The American Food Dollar 



I Anownt to Pwm 



iotnar Cmu. 



Similarly, the people who serve on the binational 
panels would be admitting that the CFTA has 
problems if they found in favor of U. S. 
interests. Often those who sit on these panels 
have interests in dumping laws and have past 
and possibly future interests on the Canadian 
side of the border. 

While the CFTA has flaws which make it a very 



-8- 



100 



one-sided agreement, the NAFTA contains an 
even worse flaw in that section 22 (B) was traded 
away and will no longer exist. This was done 
while allowing Canada to keep Article 11 of its 
trade law, which is its equivalent of Section 22 
(B). 



Let's Even the Playing Field 

The National Farmers Union is not against trade. 
NFU is opposed to unfair trade practices which 
have long gone unchecked. NFU is opposed to 
practices that victimize American family farmers, 
jeopardize the jobs of American workers in the 
food industry, and increase the cost to taxpayers, 
while at the same time lowering the safety 
standards of the food we consume. 

NFU believes that in order to negotiate effective 
agreements for the future, the negotiators must 
not repeat the mistakes of the past In the 
NAFTA, the negotiators have done just that. 
The problems of the CFTA been ignored by 
those who negotiated the NAFTA In fact, 
American farmers may well find themselves 
burdened with a trade agreement which is 
weaker and even more riddled with mistakes 
than the CFTA 



Decrease in Number of U.S. Farms 

From 1988 to 1992 

Number of U.S. Farm* DecJint 6% 



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Side Agreements Are Not Our 
Salvation 

Finally, NFU believes thai the much-discussed side 
agreements are at best, limited in power and at 
worst, meaningless and misleading. 

• Side agreements cannot change anything 
already agreed to in NAFTA. They can only add 
supplemental language for clarification. 

• The side agreements cannot interfere with 
the sovereignty of any country which has signed 
the agreement. 

• No country will ever sign a side agreement 
which would weaken the position it has agreed to 
in the original treaty. We see the talk of side 
agreements as a way of telling members of 
Congress that their concerns will be taken can of. 
At the same time, our trading partners are told 
that nothing will change the agreement they have 
signed In short, the side agreements are destined 
to be meaningless, because no country would sign 
them if they were otherwise. 



We Can Do Better 

Remember the American farmer as the orphan 
left on the doorstep of CFTA negotiations? 
Well in the NAFTA be was left on the doorstep 
without the benefit of his blanket and basket - 
Section 22 (B). 

Keep in mind that if all these well documented 
problems occur under the CFTA, an agreement 
with the one country which has been our closest 
neighbor and ally, a country which has greater 
similarity to the U.S. than any other in ways 
ranging from language to living standards, what 
happens when you apply a much weaker 
document to a country which has none of those 
commonalities and possesses a well known 
reputation for corruption in most levels of 
government? 

NFU does not want to find out. In fact, 
American family farmers and many others 
simply cannot afford to find out. American 



-9- 



101 



producers and consumers have been adversely 
effected by CFTA, yet the damage suffered is 
only the tip of the iceberg if NAFTA or GATT 
are ratified as they now stand. America can do 
better. American farmers cannot afford to do 
any worse. 



IN CONCLUSION: 

• In the area of wheat and barley, Canada 
has dramatically increased exports of agricultural 
commodities to the U.S. to the point where it 
could be considered dumping. 

• Canada has used the binational panel to 
its advantage wherever possible.. 

• Canada is using the agreer. nt to export 
commodities which it does not produce (peanuts) 
to the VS. 

• High levels of Canadian imports cut into 
the market share of other VS. trading partners. 

• The importation of large amounts of 
agricultural commodities is detrimental to U.S. 
farm prices and to the well-being of U.S. 
farmers. 

• The harmful effects of the CFTA should 
not be repeated in subsequent agreements. 



Note: Full-size copies of the graphs from this 
document, along with data used in these charts, 
follows.' 



-10- 



102 



Appendices 



1 U.S. IMPORTS OF CANADIAN 
\AGRICULTURE PRODUCTS BY 
COMMODITY 


Highest 
year 
before 
CFTA* 


Highest 
year 
after 
CFTA* 


Percent 
Increase 


All wheat (millions of bushels) 


17.5 


30.8 


76% 


Durum (millions of bushels) 


6.0 


13.8 


130% 


Barley (millions of bushels) 


8.0 


25.0 


213% 


Selected sugar containing 
products (metric tons) 


3,796 


118,456 


3021% 


Peanut butter and peanut paste 
(millions of pounds) 


6.0 


40.0 


567% 


Canadian feeder calf imports 


81,111 


158,181 


95% 



• Canadian Free Trade Agreement 



Decline in Well-Being of American 
Family Farmers 


1988 


1992 


Percent 
Decline 


American farmers share of the food 
dollar (grocery retail price) 


30 cents 


26 cents 


13% 


Number of farms in the U.S. 
(in millions) 


2.197 


2.096 


5% 
■ ■ — 



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108 

Michael Bauerle 

On behalf of the 8 other corn farmers who make up the Nebraska Corn Board 
and the over 32,000 corn producers in Nebraska we represent, I would like to thank 
you for allowing us to present this testimony on the North American Free Trade 
Agreement. 

The Nebraska Corn Board is a producer-funded check-off organization. Created in 
1978, the Nebraska Corn Board conducts programs of market development, re- 
search, promotion, and education to increase the demand for corn and improve the 
profitability of our producers. 

As we prepare to harvest another corn crop in Nebraska, the third leading corn 
producing State in the Nation, we have survived a summer filled with some of the 
worst weather calamities in our State's history: 100-year floods, 100 mile-per-hour 
winds that devastated some of the best looking corn in some of our best corn produc- 
ing counties, and just last week, record-low, corn-killing temperatures not seen this 
early in Nebraska in 100 years. 

After 20 years of farming, I have grudgingly learned to accept the fact that there's 
not much I can do about the weather. During that same 20 years, I have also 
learned that I can have an influence on the demand for the corn I produce. The 
North American Free Trade Agreement, or NAFTA, is one area that would increase 
the demand for the corn I produce. 

Unlike many other leading corn producing States in the United States, Nebraska 
corn growers are heavily dependent on the export market. Approximately one out 
of every three acres of corn grown in Nebraska is exported. Two years ago and long 
before the current debate over NAFTA began, as part of its strategic planning proc- 
ess, the Nebraska Corn Board identified Mexico as a potential key market for Ne- 
braska corn exports. 

Members of our staff and board have already made several trips to Mexico to 
identify potential buyers for our corn. This has been a joint project between the Ne- 
braska Corn Board and the Nebraska Department of Agriculture, with partial fund- 
ing through the USDA's Federal-State Marketing Improvement Program. 

During the past year, as the NAFTA debate intensified, many members of the Ne- 
braska Corn Board were frustrated by the fact that there wasn't enough accurate 
information available about NAFTA and its effects on the producers we represent. 
It seemed like we were faced with a daily barrage of conflicting reports and studies 
about the effects of NAFTA on our farming operations. 

In order to determine exactly which of these claims were reliable, accurate and 
factual, we decided to take matters into our own hands. We commissioned the Agri- 
cultural Economics Department at the University of Nebraska-Lincoln — one of the 
premier land-grant research institutions in the United States — to do a critical, in- 
depth analysis and review of studies completed so far on NAFTA and its impact on 
Nehraska corn producers. 

It's important to point out that this request was for information, with no predeter- 
mined guidelines or conditions. Ten agricultural economists participated in this crit- 
ical review of over 80 published studies, articles and books on NAFTA. We received 
the results of this analysis, titled "The Economic Effects of the North American Free 
Trade Agreement on the Nebraska Corn Industry," last week. After reviewing it, all 
nine members of the Nebraska Corn Board expressed their unanimous support for 
NAFTA as it pertains to corn. 

While it's impossible to predict precisely what the effects of NAFTA will be, our 
analysis indicated if NAFTA is ratified, it will produce a small but positive, static 
gain for the U.S. economy. Projections indicated that U.S. gross domestic product 
could be .02 to 1.34 percent greater with NAFTA than without NAFTA. The eco- 
nomic gains were even greater in the analyses when the dynamic effects of free 
trade (increased competition, economies of scale, enhanced investment, etc.) were in- 
corporated. 

Most of the studies reviewed also reported that U.S. agricultural output, exports, 
and employment would expand with NAFTA. Sectors that would benefit from 
NAFTA include dairy and dairy products, coarse grains, wheat, oilseeds, and meat 
and livestock products. Several studies estimate the grain and oilseed sectors would 
experience the biggest export gains. 

It appears certain U.S. corn exports to Mexico would expand under NAFTA. Pro- 
jections indicated U.S. corn exports to Mexico could be anywhere from 44 to 244 per- 
cent greater with NAFTA than without NAFTA. The magnitude of the increase will 
depend on several factors: the level of government assistance for Mexico's corn pro- 
ducers, the government's restriction on the quality of corn that can be fed to live- 
stock, and the substitutability of yellow corn for white corn in Mexico. 



109 

Using a Nebraska-specific econometric model and several simulations, the analy- 
sis concluded that, if yellow and white corn are perfect substitutes in Mexico, the 
corn price would be approximately 9 cents per bushel higher in Nebraska with 
NAFTA than without NAFTA. In 1 year of Nebraska corn production, this trans- 
lates into an economic gain of well over $200 million to the State's economy from 
corn alone. Even under less optimistic scenarios, the effects of NAFTA would still 
be positive on the price of corn in Nebraska. 

A concern we have heard frequently by opponents of NAFTA is that it will result 
in substantial job losses due to "cheap labor in Mexico. According to studies re- 
viewed in our analyses, this fear is unfounded as NAFTA would induce slight in- 
creases in total U.S. employment and total labor demand. 

Let's focus for a moment on the jobs back in Nebraska: The number of farmers 
who will keep producing corn on their farm due to the increased exports of corn to 
Mexico; the jobs of the people that will transport, store and sell the corn once it 
leaves the farm and the jobs of the people in the rural communities who will sell 
the farmers the tractors, the fertilizer and the seed so they can plant next year's 
corn crop. 

There are over 32,000 corn growers back in Nebraska. Each one of these farmers 
and their families harvest an average of 175 acres of corn, which yields 135 bushels 
per acre, for a total production of over a billion bushels. That is a lot of corn. But 
it isn't worth a plug nickel unless you find a customer to buy it. The good news is 
that there are over 90 million people south of the Rio Grande who want to buy our 
corn. 

As corn farmers, we can see specific benefits for our product under NAFTA. Cur- 
rently, we face a quota, tariffs and import licensing system, which means wide 
swings in Mexico's imports. Imports totaled only 51 million bushels of corn in 1991. 
NAFTA would immediately establish a 100 million bushel duty-free level for U.S. 
corn exports entering Mexico. Over the 15-year transition period for corn, this level 
would increase 3 percent per year while tariffs on levels above this amount would 
decrease. A fully implemented NAFTA could quadruple corn exports. 

Nebraska corn farmers also stand to benefit from U.S. beef exports to Mexico, 
which are projected to increase to more than 200,000 metric tons after a 10-year 
transition period. By the end of the transition period, U.S. cattle prices are projected 
to increase by 50 cents to $1 per hundredweight. Livestock, especially beef, is the 
largest consumer of corn. Every pound of red meat exported from the United States 
represents a significant amount of corn as well. 

Up until now, NAFTA opponents have been the most vocal and visible in this free 
trade debate. It's time to separate the facts from the fiction. In summary, our re- 
search indicates the ratification of NAFTA would benefit the United States and the 
corn producers of Nebraska. Most certainly, the tales of economic doom told by oppo- 
nents of NAFTA will not happen as evidenced by the results of studies reviewed in 
our analysis. 

If you should have any questions or require additional copies of the report, please 
feel free to contact the Nebraska Corn Board or the UNL Agricultural Economics 
Department. 



Roger Stuber 

Good afternoon. My name is Roger Stuber. I am a cattleman from Bowman, ND, 
and president of the National Cattlemen's Association, representing more than 
230,000 cattle producers nationwide. 

Mr. Chairman, the National Cattlemen's Association strongly supports the North 
American Free Trade Agreement because it is a good business opportunity. During 
the last decade we have worked aggressively to develop, access, and expand foreign 
markets because we recognize that future economic growth in our industry relies 
on growth in our export markets. Today, the U.S. beef industry exports more than 
10 percent of the value of its production. It is in this spirit of new markets for meat 
that harbors the strong support for NAFTA by the Meat Industry Trade Policy 
Council (MITPC). MITPC members include the American Meat Institute, the Na- 
tional Pork Producers Council, the American Sheep Industry Association, the Amer- 
ican Farm Bureau Federation and the U.S. Meat Export Federation. 

As the U.S. population ages and slows in growth, continued market growth of U.S. 
beef will increasingly depend on our ability to reach younger, faster growing mar- 
kets elsewhere in the world. The dynamics of the Mexican market are exciting, 50 
percent of the population being 20 years of age or younger and 80 percent under 
the age of 40. The average Mexican family spends about 30 percent of its disposable 
income on food, compared to less than 10 percent in the United States. 



110 

Mexico, is a growing economy of 90 million consumers who like to eat beef, it is 
a natural market for the United States. Mexico currently has a high demand for 
inexpensive variety meats — meat for which there is little demand in the United 
States. As the Mexican standard of living improves, there will be a greater demand 
for more protein and more beef. The United States already dominates this market 
for high quality, grain-fed beef. In addition, increased business activity in Mexico 
will mean an increase in the hotel and restaurant trade. Mexico is already our third 
largest export market for beef. 

We exported about $260 million worth of beef and variety meats to Mexico last 
year. That market has grown by $50 million a year since 1989. NCA economists pre- 
dict that exports to Mexico will more than triple by the year 2000, reaching $1 bil- 
lion. That's equal to today's U.S. beef exports to Japan. 

The market is there, and growing — but it is bumpy. The NAFTA is needed to 
smooth out that market. Last fall Mexico imposed stiff tariffs on imports of live cat- 
tle and beef. Those tariffs already have slowed the growth of our market there. They 
are: A 15-percent tariff on live slaughter cattle, a 20-percent tariff on chilled beef, 
and a 25-percent tariff on frozen beef. The tariffs would be lifted for our industry 
immediately under the NAFTA. The NAFTA also would phase out a 20-percent tar- 
iff on beef variety meats over 10 years. It is unfortunate that critics of the North 
American Free Trade Agreement have based their arguments on fear — fear that the 
United States will not be able to compete with Mexico. Mr. Chairman, the U.S. beef 
industry is not afraid to compete with any country on a level playing field. We are 
the most efficient producer of high quality beef in the world. 

I have heard claims that the NAFTA will shift the U.S. beef industry to south 
of the border. That is not going to happen. Right now there is nothing keeping U.S. 
business from moving to Mexico. The real issue is productivity. Mexico does not 
have the efficient production practices nor the feed supplies to steal the U.S. beef 
industry. 

NAFTA will not encourage feeder cattle imports from Mexico to flood the U.S. 
market. Right now, we import feeder cattle from Mexico on a market driven basis. 
This will not change under the NAFTA. In fact, imports have slowed in 1991 and 
1992 from previous years due to a stronger domestic cattle market in Mexico. 

NAFTA will not weaken U.S. animal disease control and eradication efforts. With 
or without a NAFTA, Mexican cattle producers must pass strict U.S. animal health 
standards before they are allowed into the United States. NCA is confident the 
NAFTA will encourage Mexican cattle producers and their government to strength- 
en their animal disease control programs if they are to be competitive in the U.S. 
market. Currently, this joint committee is developing the guidelines for a bovine tu- 
berculosis and brucellosis eradication program in Mexico to protect our respective 
domestic herds from these diseases. 

We already have an established relationship in this area During the last 2 years 
NCA members have been working directly with Mexican cattle producers to estab- 
lish a bovine tuberculosis eradication program in Mexico. The Animal and Plant 
Health Inspection Service and the Mexican Government are also participants in the 
discussions. I am pleased to announce that a joint group of U.S. cattle producers 
and APHIS officials and Mexican cattle producers and government officials met for 
the first time during the NCA midyear meeting this August. 

Some critics of NAFTA have argued that countries desiring access to the U.S. 
market with their beef may use Mexico as a platform to enter the U.S. market. We 
believe the agreement answers these critics by including strong rules of origin. All 
fresh, chilled and frozen beef is considered of one character, regardless of processed 
state. A character change is required to meet a Mexican origin standard. Without 
a transformation, the product is considered not of Mexican origin and is subject to 
the Meat Import Law. 

We agree with President Clinton's strong statement last week at the White House 
when he said, "Every single, solitary thing you hear people (critics) talk about, that 
they are worried about, can happen whether this trade agreement passes or not, 
and most will be worse if it fails." 

Jobs have been an important part of the debates on the NAFTA. We know that 
increased exports, particularly exports of high-value or value-added products such 
as beef mean more jobs in rural America. The NAFTA means increased exports. 
Some U.S. companies were forced to move to Mexico in order to compete in that 
market because of current trade barriers. Those barriers will be eliminated with the 
NAFTA. So those companies can remain in the United States to provide more jobs 
to U.S. citizens. 

A good trade agreement is a win-win situation for all countries involved. We are 
excited about the opportunities presented by the NAFTA. The NAFTA will improve 
the economic picture in Mexico, the United States and Canada. This in turn will 



Ill 

increase consumption of goods and services and the total number of jobs needed in 
all three countries to meet the demand. 

We strongly urge the Congress of the United States to pass this Trade Agreement. 
If it fails, you are telling the American people that the U.S. Government does not 
care to create jobs, improve the economy and regain our position in the world as 
a major player in world trade. 

Thank you for this opportunity to testify on this important free trade measure. 



Martha R. Roberts 

Mr. Chairman, thank you for the opportunity to appear before you today to ex- 
press our deep concern, our deep disappointment, and our opposition to the North 
American Free Trade Agreement and the side agreements that are being placed be- 
fore you for your acceptance. 

Mr. Chairman, the united position of Commissioner of Agriculture Bob Crawford 
and of all segments of Florida's vast agriculture is: 'This NAFTA is the wrong 
NAFTA." 

We support free trade; we do not support this agreement. I have really struggled 
for appropriate words to express our position to you in any different way than ex- 
pressed so many times before. From the initial announcement of the intention to 
negotiate an agreement for the three countries, we have vocally and in written testi- 
mony expressed the needs of Florida agriculture to the International Trade Commis- 
sion, the U.S. Trade Representative and to various congressional committees and 
leaders. Florida agriculture united in their concerns and issued a position in Novem- 
ber of 1990. I have attached for you our latest reaffirmation of our United Position, 
dated September 22, 1992. Our concerns have still not been addressed. 

Our message has been consistent. The food we produce is too precious a national 
resource to sacrifice. In these days of health care reform, our National Academy of 
Sciences recommends a diet that would require doubling and tripling the usual con- 
sumption of fruits and vegetables by most Americans to prevent chronic disease and 
cancer that robs our citizens of their life and health. Florida produces 50 percent 
of our Nation's fresh fruit and vegetables. This does not need to be sacrificed. 

To retain the diversity and strength of fruit, vegetable and citrus agriculture, we 
must have fair trade. NAFTA doesn't provide it. 

In any situation, there are big winners and big losers. Chairman Don Newquist 
of the International Trade Commission in an eloquent speech delivered to our 
Southern Commissioners of Agriculture in San Antonio in late June stressed his 
support of NAFTA but openly recognized that the big loser would be Florida agri- 
culture — the strength of citrus and winter-produced fruits and vegetables in our Na- 
tion. 

Time after time, we in Florida stressed the need for: 

— Equalization of labor, environmental, food safety, phytosanitary and sanitary re- 
quirements 

— A price-based safeguard mechanism for perishable commodities which are ex- 
tremely import sensitive 

— A strong enforcement mechanism to prevent substitution and transshipment of 
commodities 

— Adequate statistics on Mexico's agricultural sector on which to base decisions and 
safeguards 

— Fair definitions of sugars that include corn sweeteners and reflect a true world 
usage 

— The maximum phase-out possible for our import-sensitive, winter-produced fruit, 
vegetables and citrus until equalization of requirements can be accomplished 

— Strong enforcement of labor, environmental, food safety pesticide, and 
phytosanitary requirements 

We were told repeatedly that these concerns were legitimate and that they would 
be addressed. But the language of the final agreement did not do this. The adminis- 
tration in their announcement of side agreements on labor, environment and safe- 
guard mechanisms indicated that all had been fixed. As far as we can see from re- 
view of the language, nothing was fixed. An attempt was made to strengthen en- 
forcement of labor and environmental laws, but why do we have to wait for the fu- 
ture for enforcement? Our chances are gone. Legislation through Congress cannot 
now fix what requires a three-party agreement to change. 

Mr. Chairman, and esteemed members of the Agriculture Committee, why do our 
questions and concerns remain unaddressed? 



112 

How do we explain to our Nation's citizens and to our Florida farmers that a na- 
tion with whom we are proposing free trade can use chemicals to grow crops that 
have been judged either too toxic for us to use or too hazardous to farm workers? 

How do we explain to the farmer in Dade County devastated by Hurricane An- 
drew and trying to decide whether to replant a grove of tropical fruit with no com- 
mercial harvest for 5 years, that his counterpart in Mexico will not have to follow 
the same environmental, labor and sanitary requirements he has to follow? 

How do we explain to our over 500,000 agricultural workers that Dr. Polopolous, 
renowned agricultural economist, is forecasting that 100,000 will lose their jobs? 
Many try to say for every job lost in agriculture, five will be created. I ask where? 
It is sad indeed that the first jobs to be lost in agriculture after this agreement may 
be focused on women and minorities. How do we explain to them? 

I am incensed at the accusation that we in agriculture are reactionaries and 
doomsdayers. I am appalled that certain trade experts have suggested that our 
farmers merely move to Mexico or rush to joint ventures and abandon their Florida 
farms to those new, highly paid technical jobs that will be created for the ones we 
lose in agriculture. Just for instance, average wages in the citrus industry are ap- 
proximately $9.50 not including higher paid management. But even if we are talk- 
ing about great losses in minimum wage jobs, to what professions will they be re- 
trained? And where will we find the $30—40 billion Congressman Gephardt esti- 
mates we need to implement NAFTA? 

We cannot become a totally service oriented society. We clearly understand our 
vulnerability as a nation with dependence upon a foreign oil supply and we must 
not become vulnerable by total dependency upon any foreign nation for food essen- 
tial to our health and well-being. 

Florida's agriculture is a diverse $6 billion cash receipts industry with $48 billion 
economic impact producing over 240 individual commodities that is the strength of 
our State and provides wholesome affordable foods for consumers in the United 
States and around the world. During the winter months we provide the only domes- 
tically grown major fruits and vegetables. 

As a microbiologist and food scientist, I cannot stress enough the need for assur- 
ance of the safety of the foods we eat. With up to an estimated 81,000,000 cases 
of foodborne illness each year and with an estimated $4 to 10 billion dollar impact 
in lost productivity and medical costs, we must assure our citizens that those who 
produce foods for import into our Nation do so under sanitary conditions. 

As a matter of geography and latitude, Florida and Mexico will be in direct com- 
petition in fruit and vegetable production. In addition, Florida as a subtropical State 
is extremely vulnerable to imported plant pests and diseases. Our agency has spent 
over $180 million in the last 15 years combating imported plant pests and diseases 
such as Medfly, citrus canker, Thrips palmi, and a host of others. Phytosanitary and 
animal health issues are critical to all of agriculture. Yet, we see even our own Na- 
tion's defense diminishing: USDA's Animal and Plant Health and Inspection Service 
has proposed in their Visioning 2000 that inspections on imports will decrease and 
indicate that "the reality that preventing plant pests from entering the United 
States will eventually be an unrealistic goal." Competition is not the problem. We 
can compete, and compete well — just not in an unfair system. Farmers are used to 
change, to competition and to commitment. But, we should be fair in what we de- 
mand of our farmers compared to our neighboring farmers to the south. 

To many sectors of the American economy, the agreement may be viewed as bene- 
ficial. But we in Florida face possible loss of $2 billion in agricultural production 
in addition to the estimated 54,000 to 100,000 job loss. This price is too high, too 
unfair to our State and our Nation. 

Since the agreement before you contains an accession clause through which other 
South American nations may be added, it becomes critical that the language of the 
base agreement is fair, equitable and sufficient for the future. 

Florida agriculture fosters and supports increased international trade. We support 
fair trade agreements, and recognize the need for a trade agreement with our good 
neighbors to the south. 

THIS NAFTA IS NOT THAT AGREEMENT 

NAFTA as now written and the side agreements as proposed are fundamentally 
flawed. Commissioner Crawford and Florida agriculture urge defeat of the unfair 
Mexican pact. Resolutions of Florida's Governor and Cabinet and the Florida Senate 
stress their agreement of the negative impact on our agriculture. 

Why must we accept an agreement so unfair in its treatment of fruits, vegetables, 
citrus, labor, environmental, food safety, pesticide, and sanitary issues? 



113 









Unified Position 
on the 

North American 
Free Trade Agreement 

September 22, 1992 

BOB CRAWFORD 
COMMISSIONER OF AGRICULTURE 

FLORIDA DEPARTMENT OF AGRICULTURE 

AND 

CONSUMER SERVICES 

and the 

Florida Cattlemen's Association 

Florida Citrus Mutual 

Florida Citrus Packers 

Florida Citrus Processors Association 

Florida Department of Citrus 

Florida Farm Bureau Federation 

Florida Foliage Association 

Florida Fruit and Vegetable Association 

Florida International Agricultural Trade Council 

Florida Lime and Avocado Administrative Committees 

Florida Nurserymen and Growers Association 

Florida Ornamental Growers Association 

Florida Peanut Producers Association 

Florida Tropical Fruit Growers Association 

Florida Strawberry Growers Association 

Florida Sugar Cane League Incorporated 

Florida Tomato Committee 

Gulf Citrus Growers Association 

Indian River Citrus League 

Sugar Cane Growers Cooperative of Florida 



114 



FLORIDA AGRICULTURE 
and the 
NORTH AMERICAN FREE TRADE AGREEMENT 
Background 

Florida agriculture is a $6 billion industry that provides wholesome, affordable food for consumers in 
the United States and around the world. More than 240 different crops arc produced on Florida's 40,000 farms, 
ranches and groves. During the winter months, Florida growers provide more than half of the nation's fruit, 
vegetables, citrus and cane sugar. The industry provides jobs for more than 250,000 people during peak 
production periods, and contributes strongly to the state's economy. 

The negotiation of a North American Free Trade Agreement (NAFTA) has been of great concern to 
Florida agriculture. The International Trade Commission in February, 1991, found that producers and 
processors of winter fruit, vegetables, and citrus were expected to experience losses in production and 
employment as a result of the agreement. 

In April, 1991, Florida agriculture requested an exemption of import-sensitive, winter-produced fruit, 
vegetables, citrus and their products from the NAFTA until such time as several concerns of the industry were 
meaningfully satisfied. The industry also asked that existing patterns of trade in raw and refined sugar needed 
to be preserved. 

Florida Agriculture's Position 

The North American Free Trade Agreement, as written, fails to satisfy many of Florida agriculture's 
concerns. The industry believes the document must be modified to meaningfully address these important issues. 
Florida agriculture's viability as a producer of our nation's food, as an employer of hundreds of thousands of 
people, and as a strong contributor to Florida's economy is at stake. Should the agreement not be satisfactorily 
modified, Florida agriculture strongly recommends that the United States Congress vote to disapprove the 
agreement. 

The agreement must be modified in the following areas: 

1- TarifT phase-out categories: Throughout the negotiations, winter fruits, vegetables, citrus and sugar were 

recognized as being the most sensitive to tariff reductions. However, only 4 percent of Florida's winter 
fresh fruits and vegetables are contained in the longest phase-out period. The agreement must be 
modified to provide sensitive commodities with a transition period that will afford producers the 
maximum time for adjustment (see attached commodity recommendations). 

2. Safeguards: Florida agriculture had strongly requested a price and volume-based safeguard mechanism 

to protect the industry during the transition period from downward price pressure caused by import 
surges. The agreement contains a volume-based, tariff rate quota (TRQ) mechanism that will artificially 
alter planting patterns during the quota periods. The end result will likely be depressed prices early 
in each tariff window. The agreement must be modified to include a price-based special safeguard 
mechanism for perishable commodities. In addition, the tariff windows for the TRQ should be no 
longer than 30 days. The general safeguard mechanism in the agreement should also be strengthened 
and have no restrictions on its use. 



115 



3. Standards: From a competitive standpoint, Florida agriculture is greatly concerned about the 
differences in environmental, food safety, and labor regulations between the United States and Mexico. 
The cost of compliance with these laws and regulations are a major factor in the cost of production for 
Florida agriculture. The industry had requested harmonization of applicable laws and regulations in 
order to balance the competitive playing field between the two nations. Although the agreement 
encourages the adoption of international standards, it allows each party to establish its own rules. The 
agreement must be modified to require harmonization of standards-related measures within 10 years 
of the implementation date. In addition, the agreement must be modified to require equitable 
enforcement of each nation's laws and regulations regarding the production of goods and services. 

4. Sanitary and Phvtosanltarv Regulations: The NAFTA confirms the right of each nation to adopt and 
maintain sanitary and phytosanitary measures necessary to protect human, anim al or plant life. The 
agreement must ensure that VS. agriculture continues to be protected from the Introduction of 
harmful pests and diseases that could threaten human, plant or animal health. 

5. Transshipment and Substitution: The industry expressed concern that non-participating countries in 
the NAFTA would ship products through Mexico or CanaJ^i into the United States and receive the 
benefits of the agreement. The NAFTA contains rules of origin designed to prevent such abuses. It 
is essential that the agreement contain strong enforcement mechanisms. The agreement does not 
prevent the substitution of non-participant products from being used in a member's country so that the 
member country's production can be shipped to another member. The agreement must ensure the 
practice of substitution is not utilized by a member country to the detriment of another member 
country. 

6. Data Collection: The industry is concerned with the lack of adequate, reliable information on Mexican 
agricultural production. The agreement must be modified to include a requirement that Mexico 
develop complete statistical information on its agricultural sector in areas such as acreage, yield, 
consumption, trade, etc. 

Addendum 1: Fruit and Vegetables 

The North American Free Trade Agreement must be modified to place Florida-produced fruit and 
vegetables into the most sensitive tariff phase-out period. The following commodities should be given the 
maximum phase-out period provided for in the agreement, plus have access to a special safeguard mechanism, 
from the period October 1 to July 14, each year: 

potatoes, fresh 

tomatoes 

cherry tomatoes 

cauliflower 

cabbage 

head lettuce 

other lettuce 

carrots 

radishes 

cucumbers 

beans, all 

eggplant 

celery 

bell peppers 

squash 

sweet corn 

parsley 

other vegetables 

cantaloupes 

watermelons 

strawberries 



116 



The following commodities should be given the maximum phase-out period provided for in the 
agreement, plus access to a special safeguard mechanism, throughout the year. 

atcmoya 

avocados 

carambola 

guanas 

leeciite nut 

mamey 

mangoes 

papayas 

other tropical fruit 

Addendum 2: Citrus 

The Florida Citrus industry reaffirmed its current position that fresh and processed citrus products 
should be excluded from the North American Free Trade Agreement and went on record in non-support of this 
Agreement; and strongly recommends that our government enforce phytosanitary production of citrus to prevent 
the possibility of the conduit of citrus products from other countries entering the U.S. duty-free; and all labor 
and environmental issues should be harmonized and enforced with U.S. standards to make certain those 
standards are met in order to ensure that wholesome citrus products arrive in the U.S. Without an exception, 
a two billion dollar adverse economic impact will accme to the Florida Citrus industry over 20 years. 

In the final stages of congressional review of NAFTA, the Florida Citrus industry would not support 
the agreement if it does not meet its stated objectives. If there is no possibility of an exclusion for citrus, then 
the Florida Citrus industry strongly supports at least a 20-year drop-dead period with no reduction in the citrus 
tariff schedule during the 20-year period. 

Addendum 3 : Sugar 

1. Sugar Recommendations: The following changes must be made: 

a. Net Exporter Determination. Mexico will be given increased access to the U.S. market any 
year it is projected to achieve sugar "surplus producer" status. This "surplus producer" 
determination must be changed in two ways: 

(1) It must be calculated not just on the basis of sugar, but expanded to include corn 
sweeteners. Otherwise, Mexico will have tremendous incentive to achieve sugar 
surplus status simply by replacing the 1.5 million tons of sugar consumed by its 
beverage industry with corn sweeteners, and shipping its surplus sugar to the United 
States. 

If this change is not made, the pain of adjustment for the Mexican sugar industry 
would be shifted to the U.S. sugar industry. Our industry has already borne the pain 
of the transition from sugar to corn sweeteners in beverages, at an enormous cost - 53 
closings of cane sugar mills, beet sugar factories, and cane refineries, plus the loss of 
thousands of U.S. jobs. 

(2) It must be calculated on the basis of verifiable history and not just on uncertain 
projections, as currently provided. In addition, sound verification methods must be 
established and enforced. 

b. Access Limitation. Mexico's access to the U.S. market would be expanded to 150,000 tons in 
year 7, and increased 10% per year during years 8-15 of the agreement. By year 15, this would 
amount to imports of 322,000 tons, 44 times Mexico's current access. 

But if Mexico achieves surplus producer status any two consecutive yea.s, including years 1-6, 
it is permitted to send its entire exportable surplus to the United States. This provision must 
be struck - Mexico should not have virtually unlimited access to the U.S. market, particularly 



117 



after a mere 6 years. 

When U.S. domestic marketing allocations are in place, imports from Mexico, or any other 
country, above the 1.25-million-short-ton minim um, must be subject to the common external 
tariff. To prevent substitution during or after the transition period, Mexico must apply the 
common external tariff to all non-NAFTA sugar imports after it achieves net exporter status. 

2. Suaar-Conta inin g Produ ct Recommendation. U.S. Section-22 protections for refined sugar and sugar- 
containing products will be phased out over 10 years. This transition period should be 15 years, not 10 years, 
consistent with the transition period for raw sugar. 

Addendum 4: Section 22 Commodities 

Florida's Section 22 commodities should not be tariffied. The U.S. has a Section 22 waiver, and 
inasmuch as Canada's dairy and poultry regimes will not be tariffied, in either a trilateral or bilateral, tariffication 
of our Section 22 is not desirable. 

Tariffication of Section 22 in the NAFTA could also set an undesirable precedent for future bilateral 
or plurilateral free trade negotiations with other Latin American and Caribbean countries under the proposed 
Enterprise for the Americas Initiative. 

Tariffication of Section 22 could also undermine and complicate our position in the Uruguay Round 
of the General Agreement on Tariffs and Trade since the proposed market access levels in the Uruguay Round 
will most likely be more conservative than those in the proposed NAFTA. 

This is not an issue of competitiveness. For example there is no question that our Section 22 crops are 
more competitive than Mexico's, but the root of the matter is that Section 22 is subject to a multilateral waiver 
that the U.S. was granted in 1955 for the GATT, and therefore, it should only be dealt with in the multilateral 
context of the Uruguay Round. 



118 



cfo H % 



RESOLUTION 



WHEREAS, the nutritional content and safety of our food supply remain of 
critical Importance to the citizens of Florida and the Nation; and 

WHEREAS, Florida produces the majority of the Nation's supply of winter 
fruits, vegetables, citrus and cirrus products and is the sole domestic supplier 
of many of these commodities for several months each year; and 

WHEREAS, eating fresh fruits and vegetables each day provides good 
nutrition and can reduce the risk of heart disease and cancer; and 

WHEREAS, agriculture is Florida's premier industry, generating more than 
$6.2 billion in sales and providing jobs for more than 100, 000 Floridians; and 

WHEREAS, the North American Free Trade Agreement between the United 
States, Canada and Mexico threatens Florida agri culture by scheduling the 
eli mi nation of tariffs which may shift control of the production of our food 
supply to a foreign nation; and 

WHEREAS, Mexico does not possess equivalent regulatory programs to ensure 
that pesticide use, food safety, phytosanitary and animal health practices are 
strictly monitored and properly enforced; and 

WHEREAS, differences in environmental protection, labor requirements, 
farm worker safety, sanitation laws and workers compensat ion give Mexican 
growers an advantage to the detriment of Florida growers in what should be a 
fair trade agreement. 

NOW, THEREFORE, BE IT RESOLVED that the Governor and Cabinet of the State 
of Florida do hereby urge the Administration and Congress to exempt Florida's 
winter produced fruits, vegetables, citrus and citrus products, sugar, tropical 
crops and ornamental horticulture products from the North American Free Trade 
Agreement tariff reductions until such time that Mexico compl ies wi th labor, 
environmental , pesticide, phytosanitary and sanitary requi rements . 



Admini 
labor, 

implem 



Admini 
indust 
food 



BE IT FURTHER RESOLVED that the Governor and 
stration and Congress to insist on compliance 

pesticide, phytosanitary. and "jsanixary-sregulat 
enting legislation be* ore:ihe "agreement' is imp 

BE IT FURTHER RESOLVED/that the .Governor .and; 
stration and Congress-to.'erophasize-r^he^role "of 
ry in our nation's security by preserving dome 



Cabinet urge the 

in equivalent envi ronmental , 

ions and to require such in 

lemented. 

f *v » 
Cabinet urge the 

our' fruit and vegetable 
stic production of essential 



.^■liv&i wnwy*'. 



IN TESTIMONY WHEREOF, the Governor and Cabi 
have hereunto-subscribed Theirjjnaroes and. have -caus 
State of Florida , to be hereunt.o_af.f ixed in the CLt 
day of February, 1993. 



: of the State of Florida 
ed the Of f 1 tial Seal of the 
y oi_Ual_la.l.assee on this 23rd 




ter-TY CA-STpS 



cokm;ssl<wer of education 



119 



MMntion 



By Senators Foley, r.cKay, Sullivan, 
Bociar, Eilliams and Casas. 



A rcsnlutinn to exclude certain Florida agricultural products 
from the proposed Xnrth American Free Cradc Agreement. 



ITHERE.AS, the health of nnr nation's people depends upon the availability of 
a safe anu economical food supply as recognised in the 1990 farm Bill, and 

EHEREAS, Florida, because of its geographical location and climate, produces 
more than 50 percent of our nation's supply of winter fruits and vegetables, and 

EKEREAS, oucr 500,000 acres of irinter fruits and vegetables, 700,000 acres 
of citrus, 400,000 acres of sugar cane, and 35,000 acrrs of ornamental 
horticultural plants arc gromn in Florida, and 

PHEREAS, Florida is the sole domestic producer of many fruits and vegetables 
in the nation's marketplace during the it-inter months, and 

FHEREAS, it is essential tn nr.r natinn's security that irr r.r.t hcrnmc 
dependent or, a foreign supply uf essential foods in the American diet, and 

EHEREAS, Florida's puhlic policy irith respect tn agricultural production, as 
found in section 604.001, Florida Statutes, states "It is important tn the liralth 
and me If arc of the people of this state and to the economy nf the state that 
additional problems arc not created for groitrrs and ranchers engaged in thr 
Florida agricultural industry by lairs and regulations that cause, "or tend to 
cause, agricultural production to become inefficient nr unprofitable," and 

EHEKEAS, this state recognises the increasing importance nf fostering 
international trade as a means Tor eenr.nnic development and maintaining global 
competitiveness, and the significant role that agricultural trade plays,".-.:'.:', 

1HIEREAS, proposed expansion of free trade agreements to include other 
sruthem hcr.isphcri: c nun tries including Chilr, i'encsne la, Braz.il, Csicsfiin, and 
Argentina necessitates appropriate trade agreement formulation as a standard for 
these future negotiations as sell as for current negotiations irith r.cxico and 
Canada, and 

PHE8EAS, car.'.- rorcign countries dn not have regulatory or enforcement 
capabilities to ensure fend safety and compliance irith phutosanitaru and 
environmental regulations, and 

BHEKEAS, differences in u-agr requirements, fan:, irerker safctu, environmental 
regulation, Barkers' compensitinu, and snverr-.mcs.taJ, land subsidies give foreign 
groiccrs ar. advantagr ni'cr Florida groircrs, NCT, ^THEREFORE 

Be It Rcsoivcd hi; the Senate nf the State of Florida: 



120 



that thr Florida Senate urges the President nf the United states anit 
Congrrss tn ensure an cnnitahlc Free trade Aprccmcnt in u'hich the Oin>crnmcnt nf 
Hlcxicn agrees fcc enact lairs and regulations and tn enforec these regulatory 
requirements sn that the public health and safety nf U.S. citizens irho consume 
the agricultural prnducts nf Bicxicn arc assured, and sn that a healthy, 
competitive domestic ren.ir.nal and irorld marfcrt ror cadi nation's agricultural 
products is guaranteed. In thr absence nf such treaty provisions, 11.5. 
negotiators should be directed to take steps to assure the physical safety of its 
citizens and the financial safety of U.S. agriculture. 

PE If FURtHER RESPCOEP that the Flnrida Senate urges the President nf the 
United States and Congress to exclude Florida's irintcr fruits and vegetables, 
citrus and citrus .inirc products, tropical crops, and ornamental horticultural 
prodnrts frrr. thr North American Free trade Agreement until fllcxico complies irith 
labor, environmental, pesticide, phytnsanitary, and sanitary requirements. 

EH It FUREMER RESCCOEP that a copy of this resolution, irith the Seal of the 
Senate affixed, be dispatched tn the President of the United States, to the 
Officr nf the United States trade Representative, and to the President of the 
United States Senate, the Speaker nf the United States House of Rcorcsentativcs, 
and to each member of the Florida Delegation to the United States Congress. 




this is a true and correct copy 
nf Senate Kcsnlution No. 2036, 
adopted by the Florida Senate 
on February 23, 1?93. 




M ^ 



s:!ucr Crensnair- 
President nf the Senate 



JL 



AttESf 




JOC r-.-J 1 ^)! 

Secretary nf the Senate 



121 




Statement by Florida Agriculture Commissioner Bob Crawford 
Dump NAFTA press conference 

Tallahassee, Florida 
September 20, 1993 



Good morning. For two years, Florida's agriculture 
industry has been sending Washington a single, clear, 
consistent message about the North American Free Trade 
Agreement: 

It's flawed. It will devastate Florida farmers. It 
will cost Florida jobs. It will threaten the security and 
safety of this nation's food supply. 

Two years later, our message is the same. Only now the 
agreement is final. Congress will be asked to vote on it 
soon. Florida jobs are on the line. The nation's food 
supply is at stake. 

I am here today with agricultural leaders from around 
the state, representing virtually every commodity group, to 
announce the formation of a group to defeat NAFTA. 

Up until now, our goal has been to change NAFTA. We 
believed it was possible to negotiate a trade agreement with 
Mexico that benefited this country and preserved our 
agriculture industry. But those changes have not been made. 

This week, Florida agriculture will begin a statewide 
television campaign to help the public see NAFTA for what it 
is — a threat to our food security. The spot, which we'll 
play for you in a minute, will begin airing on t.v. stations 
around the state later this week. 

This is a matter of life and death for Florida's 
agriculture industry. But, more than that, it should be a 
concern of every American. 






122 



P 




9 III, NAFTA 

U%t Unfair Maxisan Pas! 



GULF CITRUS GROWERS ASSOCIATION, INC. 
NAFTA Statement 

September 20, 1993 



Since the debate on fast track authorization through the present, Gulf Cirrus 
has maintained that the United States should pursue negotiation of the North 
American Free Trade Agreement (NAFTA) in an effort to advance the national 
interest. The agreement should promote the well being of the country, encourage 
expansion and investment and create jobs. At the very least, it should not destroy 
investment, jobs and vibrant existing economic activity. However, the agreement as 
currently proposed does just that to the Florida citrus industry, especially in the Gulf 
Cirrus Growers' region. As presently negotiating, NAFTA does not permit the 
critically impacted Florida citrus industry to make adequate adjustments and prevent 
wholesale loss of investment. 

The Gulf Cirrus growing region consists of 5 southwest Florida counties and is 
the newest and fastest expanding citrus growing region in Florida. Following several 
devastating freezes during the 1980's, the Florida citrus industry shifted southward to 
what is now the newest of Florida's three official growing regions. These plantings 
are primarily oranges for processing into juice. Planting in this region has been 
steady over the past 5 years in an effort to maintain — and expand — this critical 
Florida agri-industry. Since 1987, cirrus acreage in the Gulf Cirrus region has 
increased from 65,000 to almost 160,000 acres. This represents a $1.5 billion 
investment. Planted acreage has increased 26% since 1990 and tree numbers have 
increased by 32% for the same period, making Gulf Citrus the fastest growing citrus 
production area in the state. 

This growth in southwest Florida is greatly enhancing the economic outlook 
and projections for this area. For example, in Hendry County, now the state's second 
largest citrus producing county, nearly one-half of the country's average monthly 
employment is related to citrus. As production increases, new jobs will increase 
dramatically. In addition, citrus production contributes significantly to the area tax 
base. Within five years, as young trees come into production, there will be a 
property value assessment increase of over $125 million across the five county area. 
These additional dollars are critical to infrastructure and local government services. 




123 



Page 2 

Gulf Qtrus Growers Association 



Presently, over 50% of plantings in the Gulf Citrus region is immature and 
non-bearing. Therefore, much of Gulf Citrus growers' significant upfront investment 
will not begin generating income for 5 to 7 years; indeed, this investment represents 
negative cash flow until that time. Furthermore, growers are unable to modify land 
use once the grove is planted without losing the value of the investment. Gulf 
Citrus' growers estimate that 14 to 21 years is currently required to recoup overall 
initial investment and realize a modest return. 

With a tariff in place, a grove planted without financing in southwest Florida 
would require 14 to 15 years to recover investment. If a grower borrowed to finance 
planting, which is typically the case, another 2 to 3 years would be required to 
recover initial investment. If a 10% return on investment is to be realized, 3 to 4 
additional years is required. The outer range of these estimates is more likely since 
this model does not include the potential cost of freeze, hurricane, disease or other 
pest damage, or factor in the cost of such past disasters. 

The 15 year tariff elimination contained in NAFTA does not provide adequate 
opportunity for the southwest Florida grower to effectively recoup initial investment. 
Proposed tariff elimination, and the accompanying depressed effect on prices, will 
effectively eliminate the margin of difference our growers need to recover costs, make 
a profit and continue generating economic activity. 

The negative effect of the agreement's provisions will be felt immediately 
because NAFTA will increase Mexico's ability to export. The Florida Department of 
Citrus estimates that NAFTA's reduced import tariff on orange juice products could 
result in perhaps as much as a doubling of Mexican orange juice exports to the U.S. 

Mexico, like Florida, has a significant amount of non-bearing trees. Much of 
this production is becoming available, which will make NAFTA's negative impact felt 
upon implementation. Any benefit U.S. negotiators thought might be obtained by 
staging tariff reduction over 15 years is eliminated by permitting immediate access of 
40 million gallons (SSE) of frozen concentrate orange juice at 50% of the MFN rate. 
This represents an approximate $7 million available now to Mexican citrus producers 
to plow back into grove expansion and improvements, greatly enhancing Mexico's 
ability to take advantage of the tariff reductions over the 15 year transition period. 

Mexico is already a major citrus producer of citrus juice products. In 1991, the 
value of Mexico's citrus product exports to the U.S. totaled $71.6 million, increasing 
fourfold since 1978 WITH A TARIFF IN PLACE. Mexico's ability to export citrus 
products is growing in the absence of tariff reductions. Growth in citrus production 
continues to be assisted by cheap labor, subsidized inputs and less stringent (or 
unenforced) environmental and labor regulations. In addition, given Mexico's 
substantial commitment to liberalize its grain sector, Mexico will be seeking transition 
to more profitable export production, particularly citrus. Mexico already exports over 
80% of its expanding juice production to the U.S. Also, Mexico's recent historic land 
tenure and agricultural investment reform and substantial efforts to strengthen 



124 



Page 3 

Gulf Citrus Growers Association 

transportation infrastructure will serve to bring about rapid expansion in production 
over the period covered by the agreement. 

This expansion should not, and need not, be achieved at the long-term expense 
of Florida citrus growers. We urged negotiators to maintain U.S. tariffs for a period 
of 20 years followed by an immediate elimination is an appropriate and effective way 
to address NAFTA's negative effect on the investment made by Gulf Citrus growers. 
This would give growers adequate time to recoup their substantial recent 
investments. Existing plans for large scale expansion are seriously being 
reconsidered; these growers now seek to prevent losing existing investment and to 
phase down operations, if necessary, in an orderly fashion. Eliminating tariffs after 
20 years would have also provided for a more level playing field for citrus exports 
once tariffs are eliminated. It would provide the U.S. and Mexico a realistic amount 
of time to harmonize pesticide and environmental regulations and standards and for 
Mexico to better enforce them. 

However, NAFTA as currently written does not to take the economic realities 
of citrus production into account. Gulf Citrus Growers view the following elements 
as necessary to an acceptable NAFTA: 

1) Safeguard mechanism which provides for a tariff rate snapback to MFN 
rates when Mexican import prices fall below specified levels. 

2) Harmonization of all Mexican labor and environmental standards; no 
tariff reduction until harmonization is accomplished. 

3) Strict enforcement of all phytosanitary standards. 

4) Accurate and timely mechanism for gathering information on Mexican 
cirrus production, processing and packing shipping to prevent transshipment to third 
countries. 

Without the inclusion of these elements, Gulf Citrus is not able to urge its 
representatives in Congress to support the present agreement. 



125 




FLORIDA SUGAR CANE LEAGUE 
NAFTA Statement 

September 20, 1993 



One of the most important things to remember about NAFTA, the North 
American Free Trade Agreement, is that "Free Trade" is not necessarily "Fair Trade." 

The way NAFTA is now structured it will create an unfair competitive 
situation that will destroy the U.S. domestic sugar industry, eliminate needed jobs, 
and leave this nation's consumers susceptible to the vagaries and whims of foreign 
suppliers. 

Under NAFTA, within six years a flood of Mexican sugar will depress U.S. 
sugar prices and severely damage U.S. producers, as well as producers from the 39 
traditional sugar supplying countries. 

Although NAFTA ties increases in Mexico's sugar exports to the U.S. to its 
ability to achieve the status of a net exporter (when its domestic production exceeds 
its own domestic consumption), it can easily achieve this status simply by 
substituting less expensive corn sweeteners, or lower cost imported sugar, for use at 
home, while shipping its own sugar production to the U.S. at a higher price. 

This is one example of how the volume based "safeguards" in the agreement 
fail to address the realities of the market, the price sensitivity of commodities such as 
sugar, and the cost advantages that are inherent in the economy of a third-world 
country like Mexico. 

For instance, because Mexican sugar growers do not have to comply with the 
same stringent environmental and labor laws that U.S. sugar growers must, they 
have lower production costs. In essence, this difference constitutes a subsidy for the 
Mexican grower. Traditionally such subsidies have been offset by tariffs. But 
NAFTA will reduce and eliminate existing tariffs, without eliminating the unfair 
Mexican subsidy. 




73-024 0-94-5 



126 



Page 2 of 2 

FSCL NAFTA Statement 



We support "Fair" trade. And for NAFTA to similarly embrace "Fair" trade it 
should recognize that: 

* Sweeteners are sweeteners, and Mexico's sugar net exporter status should be 
determined by including corn sweeteners. Otherwise the cost of Mexico 
shifting to this sweetener will be borne by the U.S. sugar industry, which 
already paid for such a transition when U.S. beverage companies switched 
from sugar to corn sweeteners. And to prevent substitution of imported 
sugar, Mexico should be required to apply the common external tariff to all 
non-NAFTA sugar imports when it does achieve net exporter status. 

* Mexico's access to the U.S. market should not be unlimited. It should not be 
allowed to send its entire exportable surplus to the United States, at the 
expense of a vital U.S. industry, and traditional sugar exporting nations. 

* Different environmental quality, food safety and labor regulation standards 
create a production cost differential that is inherently unfair. First the 
agreement must be modified to include a price-based safeguard mechanism 
that will help offset this advantage and that will cushion the domestic 
industry from the impact of a surge of imports. Similarly, the agreement 
should be modified to "harmonize" the environmental quality, food safety 
and labor standards among NAFTA nations. 



127 




BMP, NAFTA 



FLORIDA FRUIT & VEGETABLE ASSOCIATION 
NAFTA Statement 

September 20, 1993 



Florida Fruit & Vegetable Association (FFVA) — an organization that represents 
Florida's vegetable, citrus, tropical fruit and sugar cane growers — believes the North 
American Free Trade Agreement (NAFTA) as presently written will harm the winter 
fruit and vegetable industry. 

Numerous governmental and private organization studies have examined the 
potential impact of the proposed agreement on the U.S. economy. The U.S. International 
Trade Commission (ITC) in February, 1991, reported that the winter fruit and vegetable 
industry in the United States would suffer losses in employment and production as a 
result of a free trade arrangement with Mexico. Subsequent studies have confirmed 
these findings, including a recently-released report by the Council for Agricultural 
Science and Technology (CAST). 

In an effort to prevent potential damage to the industry, FFVA and other 
agricultural groups representing the fruit and vegetable industry in the United States 
worked cooperatively with the Bush Administration, and subsequently the Clinton 
Administration, to develop provisions within the agreement that would provide Florida 
producers the opportunity to compete on an equitable basis. To date — despite good 
faith efforts - neither the agreement itself, nor the recently-concluded side agreements, 
contain the kind of substantive measures needed to prevent harm from occurring to the 
industry. 

FFVA's position on the agreement has remained constant throughout the 
negotiation process. Specific measures designed to mitigate harm to the industry must 
be included in the NAFTA or FFVA recommends that Congress reject the agreement. 
The specific measures are: 

1. Tariff phase-out: Sensitive winter fruit, vegetable and citrus commodities must 

be provided a transition period that affords producers of these commodities with the 
maximum time for adjustment. 




128 



Page 2 
FFVA 

2. Safeguards: A price-based special safeguard mechanism for perishable 
commodities must be included. Markets for these commodities are too sensitive and 
react with too much speed to be adequately addressed with the volume-based 
mechanism currently found in the agreement. 

3. Labor and Environmental Standards: Mexico's occupational safety and health, 
pesticide and environmental standards must be harmonized with the United States prior 
to the implementation of the agreement. No tariff reductions or other provisions of the 
agreement should be implemented until equivalent regulatory and enforcement practices 
are achieved. 

4. Data Collection: A database must be developed and maintained on the U.S. and 
Mexican agricultural sectors for the purpose of assessing the agreement's impact on the 
industry. 



129 





iwiiim i Will 




Defeat Unfair Mexican Pact 



INDIAN RIVER CITRUS LEAGUE 
NAFTA Statement 

September 20, 1993 



The Indian River Citrus League, a trade association representing 1600 citrus 
growers in a six-county area on Florida's east coast, strongly opposes the North 
American Free Trade Agreement and its side agreements as written. 

In our opinion, the agreement will cause long-term injury to Florida's cntius 
industry, and we urge all Floridians to join with us in opposing this flawed 
agreement. 




130 




DIM NAFTA 



FLORIDA FARM BUREAU FEDERATION 
NAFTA Statement 

September 20, 1993 

We oppose the North American Free Trade Agreement (NAFTA) in its current 
form. 

The North American Free Trade Agreement has yet to be resolved despite the 
recent announcement by the Clinton Administration of the long-awaited side 
agreements. The International Trade Commission says the side agreements address the 
concerns voiced by Florida agriculture; however, the ITC has yet to cite specific 
provisions that will benefit our state. 

Farm Bureau remains adamantly opposed to NAFTA regardless of the side 
agreements, however, the Administration is moving full speed ahead with it despite a 
Federal Court ruling requiring an environmental impact statement. 

Senate leaders are urging the President to withhold the Administration's health 
care reform until the Senate acts on NAFTA. The strategy advocated by NAFTA 
supporters would be to first, have NAFTA pass the Senate, where it stands the best 
chance of passing, hoping the momentum thus gained will then carry it through the 
House. 

Public sentiment against NAFTA seems to be growing in Florida. It appears 
members of Congress, smarting from criticism of the Budget Reconciliation measure, will 
be hesitant to buck public sentiment regarding NAFTA. 



131 




FLORIDA CITRUS MUTUAL 
NAFTA Statement 



September 20, 1993 



* The NAFTA will result in the reduction of tariffs on frozen concentrated 
orange juice (FCOJ) and fresh citrus imported from Mexico, over a 10-15 year period. 

* The FCOJ tariff will decline by 50% in the first year for the quota level of 
juice. Reductions in the over-quota tariff will eventually intersect with the in-quota 
tariff, and decline to zero by year fifteen. 

* The NAFTA tariff elimination will have a serious adverse effect on the 
144,000 employees and $7 billion dollar capital investment in Florida citrus. 

* The ITC predicts at least a 17% increase in imports from Mexico. Mexican 
bearing and non-bearing orange acreage have expanded by approximately one-third 
over a three year period, with virtually no domestic market. Acreage is already 
equal to that of Florida. 

* The ITC also predicts job losses and grove reductions, all in Florida, as a 
result of NAFTA. Citrus trees are not productive until the fourth year after planting, 
and have a twenty year productive life. 

* Mexican imports will not simply replace other imports. FCOJ is priced as a 
commodity; all suppliers will be drawn to the lowest common denominator. Brazil, 
which accounts for 72% of world output, will match the price to maintain its market 
in the U.S. 

* Because of the severity of the pricing impact and the influence of world 
supplies, a safeguard mechanism tied solely to volume surges from Mexico is 
inadequate. There must be a safeguard mechanism which provides a tariff snapback 
in the event that import prices fall below the minimum breakeven price for twenty 
consecutive days. 

* Mexico does not incur may of the environmental and health safety 
regulatory costs incurred by Florida growers. These costs account for 20-30% of 
Florida grower costs, while Mexican costs are 49% of Florida's costs. There must be a 
side agreement which provides for a tariff snapback in the event Mexican 
environmental standards, including agricultural chemical regulations, are not 
harmonized with U.S. standards. 




132 




FLORIDA CITRUS PACKERS 
NAFTA Statement 



September 20, 1993 



We're still waiting for someone to explain how NAFTA and the eleventh 
hour side agreements are fair to Florida citrus. No one can. When you have the 
potential to lose everything, what would you do? 




133 

Dean Kleckner 

My name is Dean Kleckner and I am president of the American Farm Bureau 
Federation. I also raise corn, soybeans and hogs on my farm in Rudd, Iowa. 

The American Farm Bureau Federation, the Nation's largest organization of farm- 
ers and ranchers, appreciates this opportunity to present its views in support of the 
North American Free Trade Agreement (NAFTA). 

NAFTA will be good for American farmers and workers. It will expand exports 
and bring about higher farm income and a net increase in U.S. jobs. Rejection of 
NAFTA could actually reduce U.S. exports and cause job losses. 

With NAFTA, we also have the means to improve the environment and reduce 
illegal immigration. Without it, these problems will only persist and worsen. 

Mexico is the third largest single country market for U.S. farm products and is 
certain to become better under NAFTA. Mexico's agriculture, with its limited re- 
sources, is not now keeping pace with domestic demand for food. That is why we 
have a $1.5 billion farm trade surplus. With its rapidly growing population and a 
strong desire for improved diets, Mexico will continue to require substantial and 
growing levels of imports. NAFTA will ensure that these imports are produced in 
the United States by American farmers and ranchers. 

If we reject NAFTA, however, other countries will no doubt take advantage of the 
growing Mexican market at our expense. Mexico does not need to buy pork from the 
United States; it can get it from Canada or Denmark. Mexico does not need to buy 
wheat from the United States; it can get it from Canada, France, Argentina or Aus- 
tralia. Mexico does not need to buy soybeans, nonfat dry milk, dry edible beans, 
corn, sorghum, rice, beef, poultry, apples, pears, and a whole host of other products 
from U.S. producers; it can get them elsewhere — and probably will — if we reject 
NAFTA. 

American agriculture must continue to open foreign markets. Our domestic mar- 
ket is basically limited to our population growth, which is almost flat, and to new 
uses for farm commodities. But 95 percent of the world's population is outside our 
borders. We must tear down the trade barriers to these people. They will be some 
of our best customers in the future. Increased sales into foreign markets help us 
avoid domestic surpluses that drive down farm prices, raise farm program costs and 
force farmers off their farms. This is what happened in the early '80s when our agri- 
cultural exports fell from $44 billion to $26 billion. Our Nation cannot afford to see 
this reoccur. 

Our failure to approve NAFTA would have to be viewed with a mixture of sur- 
prise and gratification by our foreign competitors. Who would be the big winners 
in agriculture if NAFTA is rejected? Probably the biggest winners would be Cana- 
dian farmers followed in short order by farmers in Europe and elsewhere. The big- 
gest losers would be our farmers. 

Virtually all impartial studies have shown NAFTA to be a net job creator for our 
Nation and good for our overall economy. More than 280 noted U.S. economists, in- 
cluding all 12 living Nobel Laureates, have told President Clinton that they all 
agree that NAFTA will, in varying degrees, be a net positive for the United States 
in both job creation and economic growth. 

Without defensible counter-arguments, some opponents have resorted to emotion 
and exaggeration to convince Americans it is a bad deal. As a result, NAFTA is 
being blamed for many things: for failing to do enough, or for doing too much, some- 
times both on the very same issue. 

NAFTA is not perfect. No trade agreement can be. We would have preferred 
longer transitions for some sensitive commodities and shorter ones for some of our 
key exports. But overall this agreement is a positive and necessary step for U.S. for- 
eign policy and trade interests. It is a solution to, not the cause of, many of the 
problems raised by opponents about the agreement. 

For example, if there is a problem of U.S. companies moving to Mexico, NAFTA 
is not the reason. In fact, NAFTA can help address the problem. It opens the Mexi- 
can market to U.S. exports, thus allowing companies to stay home and still supply 
products to Mexico; it eliminates the maquiladora program; and it will help raise 
wage rates in Mexico. 

If there is a problem with illegal immigration from Mexico, NAFTA is not the rea- 
son. But NAFTA can help solve it by creating more jobs throughout Mexico. 

If there are problems in our trade with Canada, NAFTA is not the reason. The 
cure some propose — to reject NAFTA — would be worse than the ailment. We could 
turn over even more agricultural markets to Canada by killing NAFTA. 

Some say Mexicans are too poor to buy our products. The fact is, they already 
buy a lot from us, and one of NAFTA's principal objectives is to increase income 
levels and expand the middle class in Mexico. If we ignore markets around the 



134 

world because the people there are "too poor," we will relinquish to other countries 
nearly all of the demand growth for food and fiber in the years to come. 

Some opponents argue that agricultural products will be transshipped from other 
countries through Mexico. NAFTA's rules against this are tighter than any other 
trade agreement we have ever entered into. But, in any case, Mexico's import bar- 
riers on products from other countries are generally very restrictive, so, in most 
cases, it would make little sense for products to be shipped through Mexico and face 
tariffs that are on average 2.5 times higher than U.S. tariffs. 

Some say Mexico's pesticide rules are too lax and that Mexico still allows DDT 
to be used. The oft-cited GAO report should be read before this argument is swal- 
lowed. GAO found the U.S. and Mexican pesticide laws and violation rates to be 
close to equivalent, and GAO found that Mexico's use of DDT was confined to gov- 
ernment applications in jungle areas to control mosquitoes that carry malaria. Un- 
fortunately, people are being convinced that NAFTA should be rejected for that rea- 
son. 

There are those who express concern for the Mexican farmer under NAFTA. Mex- 
ico is in the process of reforming its agricultural sector and will do so regardless 
of whether NAFTA is adopted. The Mexican Government recognizes that its socialist 
land ownership policy of the past has failed and is moving toward full private own- 
ership of farm holdings. As a result of this domestic policy change, many Mexican 
farmers will be looking for jobs in industry. With NAFTA, there is greater likelihood 
that they will find them in Mexico. Without NAFTA, many may be encouraged to 
come to the United States for work. As Mexico reforms its agricultural system, it 
will continue to require imports to feed its growing population. Mexico's clear pref- 
erence is that those imports come from the United States and Canada. That could 
change if the United States rejects NAFTA. 

Opponents also complain that U.S. courts could not be used to petition against 
unfair imports, even though U.S. courts are not used now. Others claim the U.S. 
livestock industry would shift to Mexico, although there is no study that suggests 
this, and every major meat industry group rejects the notion. 

The list of unfounded grievances about NAFTA goes on and on. However, NAFTA 
is probably the most thoroughly studied and analyzed trade agreement ever written, 
and almost all studies show it will be a net plus for both Mexico and the United 
States. 

Farm Bureau has studied the impact it will have on U.S. agriculture and has con- 
cluded that it will be an overall plus. We recognize that not every sector will be 
helped and some will face increased competition. However, we believe that the tran- 
sition periods under the agreement will enable most producers to adjust. The sup- 
plemental agreement on import surges negotiated by President Clinton will also 
give us a little extra warning of potential problems from imports. 

Currently, Mexico has relatively free and easy access to our market for agricul- 
tural commodities it produces, while we face more restrictive barriers when we try 
to sell our products in Mexico. NAFTA will level this playing field to our favor, and 
we anticipate further growth in our trade surplus with Mexico if NAFTA is ap- 
proved. 

I appreciate the opportunity to appear before you today. I congratulate you for 
holding this hearing and look forward to working with you in the coming weeks on 
the development of the implementing legislation. 



Andrea Durbin 

Mr. Chairman and members of the subcommittee: Good morning. I am Andrea 
Durbin, Policy Analyst with Friends of the Earth. Friends of the Earth is a national, 
nonprofit environmental organization with 50,000 members and supporters. We 
have affiliated organizations in 51 countries and work on a wide range of national 
and international environmental issues. 

We appreciate this opportunity to share our views on the North American Free 
Trade Agreement (NAFTA). After long and careful review of the text of the NAFTA, 
as well as the text of the Side Agreement on Environment, we have concluded that 
the NAFTA, as currently written, is not in the environmental interest of the three 
countries that are parties to the agreement. 

We believe that it is possible to structure a trade agreement that will directly link 
economic growth and the improved social and environmental conditions of the three 
countries, but this agreement does not achieve these ends. We urge the members 
of the subcommittee to vote against this agreement and put your full energies be- 
hind its renegotiation. 



135 

Since we last spoke before the full committee, the administration has concluded 
a side agreement on the environment. We want to acknowledge the administration's 
efforts in this undertaking and recognize the advancements ol environmental issues 
in the trade arena over the last few years. Trade and the environment will be intri- 
cately linked from now on. However, the environmental side agreement does little 
to address the fundamental environmental questions raised by NAFTA. 

Friends of the Earth believes that NAFTA's potential to create environmental 
problems and its lack of regard to existing problems is serious enough that it should 
be rejected, in spite of what was negotiated in the side agreement. We agree with 
the Federal District Court which ruled that "NAFTA, by its very terms, sets forth 
criteria that may form a basis for challenging various domestic health and environ- 
mental laws" * * * and that "a state law that conflicts with the NAFTA is pre- 
empted." 

We believe that rejection of this agreement, and commitments to negotiate an- 
other, is better than approving this agreement in its flawed form, particularly since 
the NAFTA will serve as a model for future integration with the rest of Latin Amer- 
ica. 

We do not subscribe to the idea that increasing economic growth will automati- 
cally lead to improved environmental protection. We believe that economic growth 
enables a country to better protect the environment, but it will not necessarily fol- 
low without some guarantees and explicit commitments within the agreement. 

In our testimony today we will: 

1. Summarize some of the issues that have not been addressed in the environ- 
mental side agreement. 

2. Analyze the contents of the side agreement. 

3. Explore how the side agreement would address existing situations. 

I. ANALYSIS OF THE ENVIRONMENTAL SIDE AGREEMENT 

Many crucial environmental issues are not addressed at all in the side agreement. 
For example, the agreement: 

1. Does not ensure that NAFTA will not be used by our trading partners to weak- 
en Federal or State environmental, health and safety laws that may impact trade. 

2. Does not make the basic dispute resolution process of NAFTA more open or 
democratic by allowing for public participation or requiring a more representative 
process. 

3. Does not create a comprehensive border cleanup plan, based on the "polluter 
pays" principle. 

4. Does not deter companies from relocating to countries with weaker or 
nonenforced environmental standards. 

5. Does not address the serious impacts of NAFTA on the conservation of natural 
resources — mining, timber and agricultural impacts. 

6. Does not safeguard laws which protect us against products produced in an en- 
vironmentally destructive manner. 

7. Does nothing to solve the ongoing problem of U.S.-owned companies failing to 
return toxic wastes to the United States for proper treatment. 

A Tri-National Commission: A Lot of Talk But No Real Teeth 

The side agreement is limited and weak, consisting only of (i) the establishment 
a tri-national Commission for Environmental Cooperation (CEC), (w) an exhaustive 
mechanism to bring disputes between countries regarding lax enforcement of domes- 
tic environmental laws and (Hi) an announcement that the United States and Mex- 
ico will continue discussion about a proposed border institution to leverage bonds 
that would build infrastructure along the Dorder region. 

Because of the limited authority of this commission, we have to conclude that this 
new institution will have little power to protect the environment from the impacts 
of NAFTA. In fact, it could be negative for the environment because it will redirect 
resources that could otherwise be used for border cleanup and building community 
infrastructure. 

A major function of the Commission is to gather information in response to com- 
plaints. However, the Commission cannot conduct its own investigations, but must 
rely on information provided by the governments, not companies. It cannot inves- 
tigate a workplace or company directly. If a government finds an information re- 
quest excessive or unduly burdensome, the government may deny the request for 
information. 

The Commission can draw attention to environmental problems and it can make 
recommendations. Beyond that it can go no further. In short it is little more than 
a forum for discussion. 



136 

A Long and Exhaustive Process for Enforcement 

The centerpiece of the Commission is its ability to review whether or not each 
Party is enforcing its own domestic environmental laws. Unfortunately, this power 
is so circumscribed that it is effectively meaningless. 

First, the definition of environmental law in the agreement is narrow and explic- 
itly excludes laws regulating the exploitation of natural resources from the enforce- 
ment provisions. The Commission can only consider laws related to the prevention 
or control of pollutants, hazardous substances, and the protection of wild flora and 
fauna, including endangered species. By narrowly defining environmental laws in 
this way, laws such as food safety regulations or public health measures are ex- 
cluded. 

In addition, only the repeated failure to enforce an existing law is reviewable by 
the Commission. Environmental problems that are caused because of a lack of regu- 
lation are not subject to review because there is no law to review. This kind of back- 
ward criteria leads to a downward pressure against establishing an environmental 
regulatory structure. 

For those narrow laws that are covered by the agreement, there are other criteria 
that must be met to determine whether or not a government can be penalized for 
not enforcing its environmental laws. The agreement allows for a Party to not en- 
force its environmental laws if it "reflects a reasonable exercise of the agency's or 
the official's discretion" or if it "results from a bona fide decision to allocate enforce- 
ment resources to violations determined to have higher priorities" (annex II), creat- 
ing a gigantic loophole for governments to argue their way out of a complaint. 

Finally, in order to be reviewable, there must be a persistent pattern of non- 
enforcement," which is defined as "a sustained or recurring course of action or inac- 
tion" (annex IV). This definition is extremely vague as to the length of time such 
a behavior must be sustained before a complaint can be brought. Without a more 
specific definition, the determination of persistent pattern of nonenforcement is left 
subjective and undetermined: it could be 1 year or 5 years of nonenforcement. 

Enforcement: Punishing Governments, Not Polluters 

The administration has argued that the real "teeth" in this agreement is the abil- 
ity to penalize a government for nonenforcement through sanctions. The compromise 
struck between the three countries would allow sanctions to be levied against the 
United States and Mexico, and fines against Canada, enforced through the Cana- 
dian courts. 

Much of the debate has focused on Mexico's record of enforcing environmental 
laws, rather than on the behavior of industries and whether or not they are comply- 
ing with the law. We continue to believe that the industries themselves must be 
held responsible and accountable for their own behavior. But this agreement pun- 
ishes governments for not enforcing, not industries for not complying. 

If, after a long and exhaustive process, the Commission decides that sanctions or 
fines can be levied, the agreement limits the amount of the penalty to no more than 
$20 million the first year, and .007 percent of the three-way trade between countries 
thereafter (which is roughly $20 million this year). Although $20 million appears 
to be a significant amount, when it is a fme against governments, it is relatively 
insignificant. Despite what the administration has argued, it is unlikely that the 
government will pass on that cost to the offending industry. Structuring the agree- 
ment this way puts the burden on governments, rather than encouraging companies 
to comply with the law. 

Resolving Disputes in the Commission 

Like the NAFTA itself, the side agreement establishes a dispute resolution proc- 
ess to allow Parties to bring complaints about nonenforcement. Only nonenforce- 
ment cases will be resolved by this mechanism. All other environmental cases will 
be heard in NAFTA's dispute resolution mechanism, which still remains closed to 
the public, and unrepresentative of environmental interests. 

To see the disparity between the side agreement and the NAFTA, one only needs 
to look at the dispute resolution process. In order for a Party to establish a panel 
in the Commission, it must gain the support of two-thirds of the Parties. Compare 
that requirement to the NAFTA dispute resolution which requires that only one 
Party needs to approve in order to form a panel. The criteria in the environmental 
side agreement are consistently more difficult to meet than in the NAFTA 

Only governments, not citizens, can request a panel. Although citizens can bring 
a complaint to the Commission, citizen complaints do not lead to the formation of 
a panel. If a citizen meets the regimented criteria that the Commission requires to 
be a legitimate consideration, the most the Commission can do in response to that 
complaint is issue a report, which requires the approval of two-thirds of the Parties. 



137 

Still the governments can refuse to answer a citizen's request, or scale back the re- 
quest. 

The negotiators have made progress in the dispute process of the Commission, 
when compared to NAFTA's dispute resolution. It will set up a roster of panelists 
that include panelists that have environmental expertise. However, this does not ex- 
tend to NAFTA's dispute panel where environmental experts are not mentioned or 
required. This difference is crucial because any challenges to U.S. environmental, 
health or safety laws will be resolved in the NAFTA dispute process. 

II. CARBON II: A HYPOTHETICAL CASE 

In recent weeks there have been a number of press reports about the Carbon II 
coal-fired power plant facility under construction in Mexico near the U.S. border 
town of Eagle Pass, Texas, 140 miles southeast of Big Bend National Park. The coal- 
fired plants may be exporting energy to the United States. 

Carbon II will lack scrubbers and pollution control devices for sulfur dioxide that 
would be standard equipment on a newly constructed power plant in the U.S. Envi- 
ronmentalists are concerned that its emissions will cause air pollution problems on 
the U.S. side of the border and impact Big Bend National Park. We would like to 
imagine how this situation would be addressed by the environmental side agree- 
ment. 

First, let's assume that a citizen's group like Friends of the Earth wishes to take 
action to try to stop transboundary pollution. It could lodge a complaint with the 
Commission, which can be denied. If it is accepted, the Commission could undertake 
a report. It could not conduct its own independent analyses of air quality or sub- 
poena plant managers or directors. It could only ask the Mexican and U.S. govern- 
ments to provide existing information. The governments can then simply refuse, 
saying the demand is burdensome. If the governments provide information, the 
Commission can write a report and make recommendations. If two of the three 
countries agree, the report can be made public, otherwise it remains confidential. 

It would he impossible for an individual or an organization like Friends of the 
Earth to initiate the process which might eventually lead to formal sanctions. Such 
actions can only come at the request of governments, and with the support of two- 
third's of the parties. 

If the U.S. Government decided to bring a formal complaint about Carbon II it 
would have to prove that the pollution is being caused by Mexico's lax enforcement 
of an existing law, not for the failure to set regulatory standards. According to the 
Wall Street Journal, the Mexican embassy has already said that the plant "meets 
or exceeds all applicable national and international pollution standards." If that is 
true, the Commission can do nothing. Second, the United States would have to 
prove that the violation is part of a "persistent pattern" of nonenforcement. While 
the meaning of this term is unclear and will likely be resolved through precedent, 
the United States will have to wait until the plant is operating and will have to 
show that the violations of environmental laws have been persistent. It may also 
need to prove not just that this plant is in violation but that the whole Mexican 
power sector is in violation. 

If these difficult points were proven, Mexico could then simply claim that enforc- 
ing pollution control on coal-fired plants is not a priority and the lack of attention 
"results from a bona fide decision to allocate enforcement resources to violations de- 
termined to have higher priorities" such as air pollution in Mexico City. 

If the United States were able to surmount these difficulties and succeed in levy- 
ing sanctions, the most it could collect is $20 million dollars. According to the U.S. 
EPA the costs of installing scrubbers to meet U.S. air emission standards would be 
around $300 million simply to control sulfur dioxide, not to mention nitrogen oxide. 
Given such costs, at the end of the day, paying the fine would be a bargain for Mex- 
ico. 

III. CASE STUDY OF REEXPORTING HAZARDOUS WASTES 

Annex III of the 1983 La Paz Agreement and the 1988 Mexican Law of General 
Equilibrium require maquiladora industries to export their hazardous waste to the 
country of origin for treatment and disposal. The thinking behind this agreement 
is that Mexico lacks facilities to treat these wastes in a manner equivalent to the 
treatment they would receive in the United States. 

The U.S. -owned maquiladoras widely flaunt this law. The Environmental Protec- 
tion Agency estimates that only about one-third of the hazardous waste generated 
in the maquiladoras is returned to the United States, leaving somewhere around 
20,000 tons in Mexico. 



138 

This situation is not in the interest of Mexico or the United States. The improp- 
erly dumped toxic wastes can lead to public health problems and huge long-term 
cleanup costs for Mexico. Industries may relocate to Mexico to take advantage of the 
situation and avoid the costs of proper disposal in the United States. The problem 
is not isolated to Mexico, since the toxics can cross back into the United States 
through the air, water, or ground water. 

This whole topic is not addressed in the NAFTA, despite being one of the clearest 
trade and environment problems between the United States and Mexico. We had 
hoped that the side agreements would address the problem, but, as with Carbon II, 
we see them doing little more than providing an opportunity to discuss the issue. 
In fact the agreement could provide political cover to allow this problem to persist 
into the next century. 

If this issue were brought before the Commission, the politics would be somewhat 
different from Carbon II, since in the case of the failure to reexport hazardous 
wastes both the U.S. and Mexican Governments are failing to meet treaty obliga- 
tions. Since the approval of two NAFTA country governments is required to initiate 
a formal enforcement proceedings, it is unlikely this situation would ever be consid- 
ered. Furthermore, if the issue were considered, the United States and Mexico could 
quickly announce that they had reached an agreement on the issue — whether or not 
any real action would ultimately take place. 

We therefore believe that the side agreements will deflect action on this crucial 
area for the immediate future. Furthermore, since NAFTA gradually phases out the 
maquiladora program as it phases out tariffs, the effect is to provide cover for these 
corporate violations until the NAFTA itself steps in and makes the dumping of haz- 
ardous wastes legal. In short, desperately needed control and prevention of indus- 
trial toxics will not take place. 

rv. CONCLUSION 

The environmental side agreement did not serve to resolve some key conflicts be- 
tween increased trade and environmental protection. Instead, it creates yet another 
international institution that, given its weak powers, will be ineffective, and given 
the requirements for sanctions to be invoked, it is unlikely that they will be applied. 

We still believe that a framework for integration is necessary within North Amer- 
ica, but that framework needs to be dramatically recast to incorporate the goals of 
sustainable development, democratic participation and responsible corporate behav- 
ior. 



Brent Blackwelder 

Mr. Chairman and members of the committee: My name is Brent Blackwelder. I 
am Vice President for Policy at Friends of the Earth. Friends of the Earth is a na- 
tional, nonprofit environmental organization with affiliated organizations in 51 
countries. We work on a wide range of national and international environmental is- 
sues. With me is Andrea Durbin, our Trade Policy Analyst. She recently returned 
from a trip to Mexico, where she had the opportunity to view some of PEMEX's fa- 
cilities first hand. 

We are pleased to have the opportunity to present our views on the energy impli- 
cations of the North American Free Trade Agreement. Friends of the Earth is op- 
posed to the NAFTA for a wide range of reasons and would urge the members of 
the subcommittee to vote against the agreement. At the same time we would urge 
the administration to begin negotiations on a new pact that would bring a more sen- 
sible order to trade relations among the countries of North America — a NAFTA II. 

From the outset we should make it clear that our views concerning the proper 
energy policy for the United States differ rather markedly from those espoused by 
the administration that negotiated the North American Free Trade Agreement. We 
believe U.S. energy policy should feature the following two goals: 

1. To dramatically increase the efficiency of the entire energy system from pro- 
duction through end use; 

2. To shift, as rapidly a possible, to renewable energy sources. 

We are confident that the subcommittee has heard many times and at great 
length about the benefits of applying these guiding principles and we will not elabo- 
rate on them here, except to point out that energy efficiency is a crucial component 
of global trade competitiveness. Efficient economies need to import less energy (or 
can export more) and, since energy is a smaller part of production costs, these 
economies find more of their products are competitive on the export markets. 



139 

Unfortunately, the NAFTA does not promote the goals of efficiency and renew- 
ables, but rather emphasizes business-as-usual. 

I. INCENTIVES EXEMPTED 

Quite simply the NAFTA and its side agreements do nothing to promote the effi- 
cient use of energy in any of the member countries. 

One of our main objections to the nature of current trade agreements is that in 
their quest to root out so-called "nontariff ' barriers, they infringe on areas that have 
long been the province of local, State, and National Governments. We have seen this 
process most dramatically in the General Agreement on Tariffs and Trade (GATT). 
There the European Community has announced that it plans to eliminate a wide 
range of U.S. practices, from minority set-asides to subsidized western water for 
farmers as unfair trade practices. The EC has initiated formal GATT actions against 
two U.S. energy conservation laws — Corporate Average Fuel Economy (CAFE) 
standards and the Gas Guzzler tax — as unfair trade practices. 

We bring up the GATT because the provisions of the NAFTA largely follow those 
of the GATT. Like GATT, the NAFTA seeks to weed out subsidies and exemptions 
granted to particular industries, since these allegedly skew the functioning of the 
free markets. 

While in principle we believe that many of these decisions are social matters that 
should be resolved through democratic means, rather than through trade agree- 
ments, we would have at least expected that the agreement would have obligated 
all aspects of the energy sector to the same rules. Unfortunately that is not the case. 
In article 608.2 a broad exemption is granted to the oil and gas industry: "The par- 
ties agree to allow existing or future incentives for oil and gas exploration, develop- 
ment and related activities in order to maintain the reserve base for these energy 
sources." 

The U.S. oil and gas industry already receives a wide range of "incentives" at tax- 
payer and environmental expense. Many of these exemptions are documented in 
Crude Awakening," a recent Friends of the Earth report on waste and inefficiency 
in the oil and gas industry. We append a chart from that report which points out 
how RCRA, Clean Water Act, Superfund, and other laws all contain broad exemp- 
tions for the oil and gas industry. This report also documents the incredible energy 
waste of the U.S. oil and gas industry, estimating that from wellhead to gas tank, 
the oil industry currently loses about 236 million barrels of oil per year — roughly 
the equivalent of 1,000 Exxon Valdez spills. NAFTA, by exempting incentives will 
simply allow this waste to continue unabated in the United States. 

Perversely, the effect of the exemption for oil and gas incentives may pave the 
way for future challenges to incentives for either efficiency or renewable energy that 
governments at various level may be offering now or in the future. We can imagine 
that if an incentive for a renewable energy source began to be so effective as to eat 
into oil and gas profits, a NAFTA case could be launched in which the incentive was 
challenged as an unfair trade practice. 

II. IMPROVING THE SITUATION IN MEXICO? 

It is no secret that PEMEX, the Mexican Government's oil and gas monopoly, is 
an inefficient and highly polluting energy producer. Our staffs recent sight visit to 
the State of Tabasco certainly confirmed this situation. 

Our colleagues in the energy industry will no doubt argue that U.S. investment 
in Mexico's energy sector, to the extent that it is allowed under NAFTA, would ben- 
efit the environment. To a limited extent, we agree with this analysis — the potential 
is there for investments to improve the efficiency of the Mexican fossil fuels sector. 

That said, we are not convinced that the NAFTA does anything to actually make 
that efficiency come about. The poor environmental record of PEMEX argues that 
the Mexican Government will do little to regulate the oil and gas industry. NAFTA, 
in essence, relies on the goodwill of the foreign investors to bring about efficiency 
improvements and pollution reductions. As mentioned above, the U.S. oil and gas 
industry, already feeding off numerous exemptions, has an extremely spotty record 
here. Furthermore, reports we receive from our affiliates around the world indicate 
that, once abroad, many of the U.S. oil companies comfortably satisfy themselves 
with meeting the lowest environmental standards they can get away with in the 
host country. 

As a subcommittee, you must ask yourselves if you believe that the oil industry's 
promises of heightened efficiency and cleanup in Mexico actually square with their 
successful efforts to exempt themselves from domestic U.S. environmental laws, or 
from the disciplines of the international free trade agreement. We believe that in 



140 

the absence of some mechanism to compel exemplary behavior, the U.S. oil and gas 
industry will do little for Mexico's pollution problem. 

III. TRANSPORTATION EFFECTS IGNORED 

In November 1989, the European Commission published a study of the environ- 
mental effects of the implementation of the Common Internal Market in 1992. While 
the Europeans are undertaking a more ambitious project than the proposed com- 
prehensive North American Trade Agreement, their preliminary analysis is a sober- 
ing confirmation of the environmental dangers of trade agreements. 

The task force explored a wide range of effects, the most significant of which was 
the increase in transportation that would result from greater trade. The task force 
concluded that the Common Internal Market would increase interstate truck trans- 
port in the EC between 30 and 50 percent. According to the task force, "the growth 
impact of the Internal Market is likely to cause atmospheric emissions of S0 2 and 
NO x to increase respectively by 8-9 percent and 12-14 percent by 2010." 

While geographic differences between North America and Europe mean that these 
results cannot be translated directly, a dramatic expansion of truck traffic along the 
U.S. -Mexican border seems inevitable. An EPA report, "Review of U.S. -Mexico Envi- 
ronmental Issues," points to a quadrupling of truck traffic between the United 
States and Mexico by the year 2000, even without NAFTA. With NAFTA the total 
will go higher; the report suggests that up to 12 million trucks may be crossing the 
border each way each year by the turn of the century — up from slightly under 2 mil- 
lion in 1990. 7 The resulting pollution could be significant. 

With the inclusion of Canada, one can reasonably expect growing transport across 
the United States to Canadian markets as well, although we do not have estimates 
of this effect. 

The overall increase in transport would not only have effects on S0 2 and NO* 
emissions, but would also increase emissions of C0 2 , the principal greenhouse gas. 

The task force goes on to conclude that in the European case: 

Without proper incentives, energy demand (and corresponding pollution) 
appears to be positively correlated with additional economic growth. The 
main policy lesson of the energy shortages of 1974 and 1979 may be that 
a proper incentive, such as higher energy prices, is critically important in 
breaking the link between economic growth and energy consumption. Only 
if the scarcity of natural resources is properly reflected in the use of price 
incentives and/or regulations, will economic growth associated with the 
completion of the Internal Market lead to overall economic efficiency. 

We concur with the conclusion of the task force and note that the NAFTA com- 
pletely lacks these sorts of compensatory measures. 

CONCLUSION 

In short, NAFTA holds the prospect for increased energy use, particularly fossil 
fuel use, in the United States, Mexico and Canada, especially in the transportation 
sector. Current exemptions from environmental laws and subsidies to the petro- 
chemical industry will continue, while inducements to the alternative energy indus- 
try may be vulnerable to challenge as nontariff barriers. As the case of Carbon II 
illustrates, we will be powerless to stop transborder pollution from power-generating 
facilities. Furthermore, these facilities may gain a competitive advantage in the 
electricity market because they need not abide by as strict a set of pollution control 
laws. 



? "Review of U.S.-Mexico Environmental Issues," February, 1992, pp. 177-178. 



141 
THE POLITICS OF EXEMPTION 



BIG OIL'S BIG EXEMPTIONS 

RCRA • The Resource Conservation & Recovery Ad 

Purpose: To foster safe management and disposal of waste; defines hazardous 
wastes and chemicals to be regulated as hazardous; prohibits disposal 
of hazardous waste, except in permitted facilities. 

Exemption: Drilling fluids, produced waters, and wastes associated with 
oil and gas exploration, development, or production. 

Other: Petroleum pipelines exempt from RCRA; weaker underground storage tank 
regulations; cleanups of leaking underground storage tanks exempt from 
toxicity characteristic; above ground crude oil storage tanks exempt 
from RCRA; used motor oil considered "non-hazardous." 

SUPERFUND - Comprehensive Response, Compensotion & Liability Act 

Purpose: To foster the prompt cleanup of hazardous substances released into the 
environment, mostly in toxic waste dumps. 

Exemption: Petroleum, natural gas, and synthetic gas exempted from this law's 
definition of hazardous substances. 

The Clean Water Act 

Purpose: To eliminate pollution discharges into the nation's waterways 

through the National Pollution Discharge Elimination System (NPDES). 
NPDES permits required for surface water discharge. 

Exemption: Stripper wells (less than 10 bbls/day) exempt from zero discharge 
requirement for produced water & associated wastes; 

Exemption: West of 98th meridian, produced water from any well may be dis- 
charged 

into navigable waters or used for wildlife or irrigation under "beneficial 

use" provisos. 

Clean Woter Act and Rivers & Harbors Act 

Special Provision: Under the Army Corps of Engineers regulation of dredging and 
construction activities in the coastal and offshore areas of the United 
States under Section 404 of the Clean Water Act and Section 10 of the 
Rivers and Harbors Act there is a special provision allowing for 
"nationwide permits," called no. 8 permits, which is type of blanket 
permit that does not require the same level of detail and environmental 
review that specific permits due. Oil and gas structures, in other words, 
do not have to go through the same level of review that a port authority 
might have to in building or expanding its facilities. 



Friends of the Earth CRUDE AWAKENING 143 



73-024 0-94-6 



142 
THE POLITICS OF EXEMPTION 



The Safe Drinking Woter Ac? 

Purpose: To prevent contamination of drinking water sources, including 
groundwater; regulates contaminants in drinking water, and also 
regulates deep-well injection of wastes. 

General Provision: House Report notes law's intent "not to authorize 
needless interference with oil and gas production." Oil and gas 
production, in other words, is accorded preferential treatment 
over protecting drinking water. 

Exemption: Oil & gas wastes — exempt from RCRA "hazardous" definition — 
allowed to be injected in less regulated, less structurally sound Class D 
underground waste wells. Some 170,000 Class II wells in 31 states 
are used for waste disposal and for enhanced oil recovery. Class II 
wells are also subject to less strict regulatory provisions. 

Exemption: Existing owners and operators — estimated at 70% of all Class D wells 
— exempt from abandoned well "area of review" requirement to search 
for and remedy improperly plugged /leaking wells in nearby area. 

Other Maximum allowable daily fines for past or current violations by oil and 
gas operators are half the level specified for others under EPA 
Administrative Orders. 



Hazardous Liquid Pipeline Safety Act 

Purpose: Regulation of Hazardous Liquid Pipelines and establishment of 
minimum federal safety standards. 

Exemption: Low-pressure, crude oil gathering lines of a diameter of six inches or 
less, and located in rural areas, are exempt from regulation under 
section 209. 

Clean Air Act of 1990 

Purpose: To improve public health by controlling and reducing air pollution. 

Exemption: Oil & gas platforms in federal offshore waters of Texas, Louisiana, 
Mississippi & Alabama are exempt from air pollution regulations 
required of onshore rigs. 

Other. Rule to regulate volatile organic compounds (VOCs) at marine-loading 
terminals has not been issued, and EPA officials say that one of the 
largest sources of such emissions — the Valdez, AK terminal with 
43,000 tons annually — may be exempted if it is determined there is 
no significant health risk. 



144 CRUDE AWAKENING 



143 
THE POLITICS OF EXEMPTION 



Emergency Planning & Community Right-To-Know Act 

Purpose: To publicly disclose information about toxic chemicals and potential 
chemical hazards under the Toxic Release Inventory (TRI) as required 
by the 1986 Superfund Amendments; also to encourage emergency 
response to chemical accidents. 

Exemption: The following oil- and gas-related industrial segments as classified by 
the Standard Industrial Classification (SIC) system, are excluded from 
the TRI: Oil and Gas Extraction, Petroleum Pipelines, Marine Cargo 
Handling Facilities, Gas Production and Distribution, Petroleum and 
Petroleum Product Wholesalers, Underground Injection Wells, Gasoline 
Service Stations, and Fuel Oil Dealers. 



On Pollution Act of 1990 

Purpose: To reduce the risk and frequency of, and where possible prevent, oil spills 
in US. waters; establishes double hull tanker requirement and other 
provisions for spill liability, compensation and spill clean-up response. 

Exemption: Barges exempt for double hull requirement; must meet other 
"secondary containment" requirement by year 2015. 



144 

National Grange 

I am Robert E. Barrow, the duly-elected Master of the National Grange, which 
has offices at 1616 H St., NW, Washington, DC The National Grange represents 
approximately 300,000 farmers and other residents of rural America in over 4,000 
local communities across the United States. 

The central problem for every free market economy is to keep supply and demand 
in balance. Agriculture has been struggling with supply and demand, in spite of pro- 
duction control programs, for over 60 years, and no end is in sight unless we have 
a structural increase in demand. 

Agriculture needs new customers and new markets in order to grow and prosper. 
Where can we find them? For starters, we can look south to Mexico; then beyond 
to Central and South America. 

The National Grange has followed the development of the North American Free 
Trade Agreement (NAFTA) since its inception more than 2 years ago. As a member 
of the Agricultural Policy Advisory Committee on Trade, I have personally been in- 
volved in the events that led up to the three Heads of State initiating the Agree- 
ment in the late summer of 1992. 

The voting delegates to the National Grange's 126th Annual Convention strongly 
supported the NAFTA. In 1991, in the early stages of the negotiations between the 
United States, Canada, and Mexico, the Grange adopted the following resolution: 

The National Grange supports the efforts of the United States, Mexico, and 
Canada to reach a North American Free Trade Agreement. To provide pro- 
tection to the producers of import-sensitive commodities, we recommend the 
following: 

1. The U.S. -Canadian agreement phases out tariffs over a 10-year period, 
but many of the U.S. domestically produced and processed products will 
vigorously compete in the U.S. market with products that are produced and 
processed in Mexico. The United States tariff phase-out period should be for 
a longer period of time than 10 years, and the commodity coverage under 
the General System of Preference should be terminated. 

2. The NAFTA should also provide for a temporary "snap back" restora- 
tion of tariffs during the peak harvesting season or during times of import 
surges of agricultural commodities that are above the trend line for that 
commodity. 

3. In addition to these two general provisions that would apply to all 
commodities, there are some products that may need to have special ar- 
rangements made to help their industries adjust over a longer period of 
time to a free trading environment. 

4. We recommend: a) establishment of minimum technical standards re- 
garding pesticide use, quality control, and disease control; b) protection of 
intellectual property rights, including plant variety trademarks and brand 
names; c) strong so-called country-of-origin protection that would protect 
U.S. producers and processors from competition from transshipment of 
Third Country products into the United States via Mexico's NAFTA provi- 
sions; and d) elimination of Mexico's import licenses that greatly reduce the 
amount of goods that are available for export and the product registration 
rules that make it time consuming and costly to gain access to Mexico's 
consumer markets. We have determined that the agreed-to NAFTA meets 
the National Grange's primary recommendation; therefore, we firmly sup- 
port its approval by the U.S. Congress. 

Following the negotiations in August of 1992, the National Grange met in Novem- 
ber, 1992 in Denver, Colorado for its 126th Annual Convention. At that time, the 
voting delegates reaffirmed the above policy and adopted the following: 

The Grange must continue to support expanding trade on a mutually bene- 
ficial basis. The success of the North American Free Trade Agreement 
(NAFTA) will be instrumental in accomplishing some of these objectives 
and the Grange should give it strong support. The Grange believes that the 
NAFTA, on the whole, will be beneficial to the economic growth of the Unit- 
ed States, Canada, and Mexico. The greater economic activity will be be- 
tween the United States and Mexico because the majority of the NAFTA's 
provisions have already been implemented under the U.S. -Canada Free 
Trade Agreement. This is particularly true for agriculture because Canada 
chose not to enter into most of the agricultural negotiations in the NAFTA, 
so U.S. farmers will benefit most from increased farm trade. 



145 

As the International Trade Commission's report pointed out, the NAFTA 's impact 
on the United States will vary by region and product. The report "Potential Impact 
on the U.S. Economy and Selected Industries of the North American Free Trade 
Agreement," which was written by the Commission, stated the case as it is currently 
understood — that there would be short-term and long-term effects by the trade 
agreement. The report said, in part, that the NAFTA is expected to expand U.S.- 
Mexican trade substantially. The estimated gains in U.S. exports to Mexico range 
from 5.2 to 27.1 percent. The projected increases in U.S. imports from Mexico range 
from 3.4 to 15.4 percent. 

The projected long-term gains in aggregate employment are less than 1 percent 
for the United States and Canada, but are up to almost 7 percent for Mexico. The 
expected increases in the average real wages are 0.3 percent or less for the United 
States, 0.5 percent or less for Canada, and 0.7 to 16.2 percent for Mexico. Although 
the evidence on the direction of real wage effects for low- and high-skilled U.S. 
workers is mixed, the preponderance of evidence indicates an indiscernible effect on 
the United States wage rates for both low- and high-skilled workers. 

According to the report, Mexico's improved access to advanced technology could 
lead to a long-term increase in Mexico s rate of economic growth. As longstanding 
participants in a global open trading regime, the United States and Canada may 
not realize substantial dynamic gains from the NAFTA, but will benefit from the 
market opportunities that are created by the economic growth in Mexico. 

The NAFTA will raise the standard of living in Mexico, creating new markets for 
U.S. products, including those from our farms. At the same time, the economic activ- 
ity in Mexico, as a result of freer trade between 360 million consumers, will result 
in increased employment in Mexico, alleviating part of the human misery that 
drives Mexican citizens across the Rio Grande to seek illegal employment in the 
United States. It will also provide the economic steam engine to help Mexico im- 
prove its labor and environmental standards. Without the NAFTA, there is no as- 
surance that these things will ever happen. Which is the better hemisphere to live 
in— pre-NAFTA or post-NAFTA? 

The NAFTA will create new, long-term growth opportunities for U.S. farm exports 
in the Western Hemisphere far into the next century. The USDA's Office of Econom- 
ics' most recent appraisal of the Agreement's impact on agricultural trade contains 
the following: 

In the year 2008, when the Agreement is fully implemented, U.S. farm ex- 
ports are estimated to be $2 to $2.5 billion higher than without the Agree- 
ment. Most of that will be gains in U.S. farm exports to Mexico. Farm ex- 
ports to Mexico have been on an upswing due primarily to Mexico's lowered 
barriers to U.S. agricultural imports at the same time its economy boomed. 

The further lowering and eventual removal of Mexico's tariff and nontariff bar- 
riers to trade will result in further increases in U.S. farm exports. This will be true 
for a large number of U.S. agricultural commodities. 

The NAFTA's provisions are well known to you and the members of your commit- 
tee. We believe that there are sufficient safeguards and other measures to protect 
the import-sensitive commodities. Designated quantities of these safeguarded prod- 
ucts may enter at a low tariff, with imports larger than those quantities paying a 
higher tariff. The United States can apply such safeguards to a wide range of im- 
pacted commodities, including fresh tomatoes, eggplants, chili peppers, squash, wa- 
termelons, and onions. 

There are other safeguards built into the NAFTA. The products that receive favor- 
able tariff treatment must originate (or be substantially transformed, such as 
through a manufacturing process) in Mexico, Canada, or the United States. Under 
the Rules of Origin, a country cannot import farm goods and ship them to a NAFTA 
partner under the Agreement's more favorable tariff treatment. Mexico's tariffs with 
other countries will not be changed by the NAFTA. 

Opponents of the NAFTA argue that the Agreement will result in unsafe food en- 
tering the United States because of another country's lower standards. Under the 
NAFTA, it will be possible for us to maintain our stringent standards for health, 
safety, and the environment, and prohibit imports that do not meet U.S. standards. 
State and local governments can enact their own import standards if they are based 
on scientific grounds. Each country in the Agreement can maintain the grade stand- 
ards to fit its marketing rules. The local content requirements of Mexico's 
manufacturing rules will be eliminated under the Agreement, opening up new mar- 
kets for U.S. goods. 

Some of the highlights on increased U.S. farm exports to Mexico under the 
NAFTA are: 20-percent increase in wheat, 2.5 million ton duty-free quota for corn 
that will increase 3 percent each year, 10- to 20-percent increase in rice, $400 to 



146 

$500 million increase for soybeans, 8-percent rise in peanut exports, pom fruits 
(peaches, apples, and pears) may nearly double, 20,000-ton increase in muk powder, 
and increased exports of pork and hogs. 

We live in a global economy, and no sector of the U.S. economy can escape that 
fact. The fastest growing sector of our economy is our exports, and. Mexico is an im- 
portant part of that growth. The NAFTA will lock in the gains in exports we have 
made with Mexico and open new opportunities for growth. 

New trade agreements will be more important to the restructured U.S. agricul- 
tural sector and rural America than any new farm bill. U.S. agriculture heavily de- 
pends on exports. About one-third of our production is sold to foreign customers. If 
we are to just maintain the present agricultural productivity, let alone bring back 
the millions of acres that are now being held out of production, help preserve family 
farms, and enhance rural America, we have no choice but to expand agricultural ex- 
ports. Otherwise, we must take resources out of agriculture in order to maintain a 
balance between supply and demand at reasonable prices. That means even fewer 
farms and fewer farmers. 

Mexico is just the beginning. Three-quarters of mankind lives in squalor. Our eco- 
nomic future lies in using our Nation's productive capacity to relieve the awful suf- 
fering of the great bulk of the world's people. No amount of foreign aid can accom- 
plish this task. Only foreign trade holds the key to world prosperity. 

We strongly support the NAFTA, and urge its approval by the U.S. Congress. To 
conclude that the United States stands to lose by eliminating trade barriers with 
Mexico, a small economically depressed nation, takes some mighty creative reason- 
ing. In the short run, we may have to restructure parts of our economy so that poor- 
er nations can more robustly consume our farm and industrial goods and services 
in the long run. The world had to restructure demand to bring about an end to the 
Great Depression. World War II was the primary reason behind that restructuring. 
Now we have a chance to accomplish it through peaceful means — trade expansion 
through regional and international trade agreements. 

We respectfully urge approval of NAFTA by this committee and Congress. To do 
otherwise will not only be detrimental to all of our economic sectors but would set 
back our political and economic relations with our Latin American neighbors to the 
point of nonrecovery. We urge you to vote "yes." 

Thank you for allowing the Grange to present its position on this matter. We 
would like to request that this statement be made part of the hearing record on the 
NAFTA. 



The National Family Farm Coalition 

The National Family Farm Coalition (NFFC) and other family farm groups were 
repeatedly told that the side agreements to the North American Free Trade Agree- 
ment (NAFTA) would address our concerns about its negative impact on family 
farmers. The side agreements released on August 13th do not even mention agri- 
culture and fall far short on environmental and labor concerns. It is imperative that 
the NAFTA be renegotiated. 

NAFTA has nothing to do with trade, free or otherwise, between the people of 
Canada, Mexico and the United States. Rather, it is a supra-legal device by well- 
positioned transnational corporations in various economic sectors to drive the citi- 
zens of these countries into senseless, self-destructive competition with each other 
for the lowest farm prices, lowest wages, lowest standards of living, and the lowest 
levels of food, environmental and consumer safety. 

The volume of the movement of goods and services between these three nations 
is already nearly the greatest in the world and growing annually. The only "free- 
dom" in NAFTA is that which is given to the transnational corporations and their 
major investors to conduct their business free from any requirements of fair pricing 
and wages for farmers and workers, of adherence to sound environmental and 
consumer safety standards, and of respect for the rights of communities throughout 
the proposed trade region to exercise their responsibilities of local self-government. 

In reality, NAFTA is not about free trade but rather about who controls capital 
investments, labor and the supply of food. And opposition to NAFTA cannot be 
called protectionist but rather represents the need for expanded economic oppor- 
tunity and reward for all North American people, not just the giant corporations 
and their major investors. 

NAFTA as it now stands must be rejected by Congress. The side agreements have 
revealed nothing to fix an inadequate agreement. President Clinton must initiate 
new negotiations for a truly fair, democratic, and workable trade agreement for the 
entire hemisphere. 



147 

The Agribusiness Council 

This statement supporting the North American Free Trade Agreement (NAFTA) 
is made on behalf of the Agribusiness Council, an organization representing agricul- 
tural producers from the grower to the processor and agricultural manufacturer, in- 
cluding all aspects of marketing agricultural products, from all U.S. regions 

The Council has actively supported NAFTA because we expect that the agreement 
will substantially expand export trade to Mexico in agricultural products as well as 
exports of agricultural-related products, such as farm equipment and chemicals. We 
also anticipate signficant growth in agricultural employment of 50,000 to 60,000 and 
more in ag-related industries as the result of NAFTA over the full 15 years of tran- 
sition periods provided in the agreement. 

Positive effects of NAFTA, including growth of production, exports, and employ- 
ment will benefit the entire range of agribusiness sectors: seeds, farm equipment 
and tractors, agro-chemicals, fertilizers, commodities and livestock (including fish- 
eries), farm management, forestry, commodity handling and storage, food process- 
ing, equipment and machinery for food processing and packaging, transportation, re- 
frigeration, retailing, finance and insurance, consulting, accounting, environmental 
and renewable-energy equipment (including controlled environmental agriculture). 

The Agribusiness Council has supported expanded international trade for agri- 
business as evidenced by the Council s sponsorship of a conference in October 1992, 
entitled "Globalization in Agribusiness: Competitive Challenges in the 1990s and 
Beyond." A principal focus of the conference was the relationship between NAFTA 
and economic reform and trade liberalization in Mexico. At that time the Council 
surveyed agribusiness executives throughout the United States on international 
business issues and responses indicated widespread interest in the completion of an 
acceptable NAFTA agreement. 

It is widely believed in the agribusiness community that U.S. agriculture will ben- 
efit from Mexico's need to feed an expanding population, and that economic growth 
in Mexico will produce increasing demand for greater protein consumption, high- 
quality fruit and vegetables, and more processed foods. 

Mexico is a mountainous country with a limited amount of arable soil. Much of 
the land there is arid or semi-arid. These limitations coupled with the population 
growth of Mexico's 92 million people, estimated at 2 percent per year, will result 
in increased demand for U.S. agriculture to supply food. Also, the limitation on 
available farmland in Mexico will cause Mexicans to turn to U.S. farm equipment 
manufacturers and suppliers of agricultural technology to furnish the means to farm 
the existing land intensively and efficiently. 

Within the first 5 years of the agreement, and for some products immediately, 65 
percent of U.S. agricultural products will be allowed to enter Mexico duty free. Ap- 
proximately half of the agricultural products exported to Mexico will receive duty- 
free treatment from the date the agreement enters into effect. This dramatic im- 
provement in market access to the Mexican market will benefit U.S. agriculture and 
agro-industries. Particularly important to agriculture will be the elimination of non- 
tariff barriers, especially import licenses, which have previously been used to re- 
strict U.S. export trade into Mexico. 

Meanwhile, the tariff rate quota provided by NAFTA acts as a safeguard against 
Mexican imports of agricultural goods and allows sufficient transition periods: 5, 10, 
or 15 years in different product categories, depending on the import sensitivity of 
the product. Special safeguards are provided for highly import-sensitive seasonal 
products, such as tomatoes and other winter vegetables. 

Now that acceptable supplemental agreements on labor and environmental stand- 
ards and import surge protection have been reached, the Council finds that the side 
agreements do not change its support for the overall NAFTA agreement. In sum, 
the Agribusiness Council anticipates substantial gains in exports and income from 
agriculture and related industries from the NAFTA agreement. 

I. SAFEGUARDS 

The Agribusiness Council has not opposed efforts to establish enforcement of labor 
and environmental standards on both sides of the U.S. -Mexico border so that a 
"level playing field" will prevail in trade relations between these countries. Although 
we have not favored trade sanctions, we accept the sanctions provided for in the 
supplemental agreements on labor and environmental standards in the context of 
dispute resolution procedures focusing on conciliatory and consultative methods. 

The Council also accepts the import surge protection features provided in the sup- 
plemental agreement, entitled "Understanding on Emergency Action." The agree- 
ment builds upon safeguards against import surges already contained in Chapter 
8 of NAFTA while adding a Working Group on Emergency Action to consult on mat- 



148 

ters of increased imports causing or threatening to cause serious injury and related 
economic issues. 

The Council has commented more fully on the supplemental agreements in a sep- 
arate document filed with the committee on September 17, 1993. 

II. SANITARY AND PHYTOSANITARY STANDARDS 

The Agribusiness community appears unanimous in agreement that the strong 
sanitary conditions adhered to by U.S. agriculture should not be compromised by en- 
tering into NAFTA, and national standards and enforcement of all three countries 
should be equivalent. The Council continues to be vigilant against the arbitrary use 
of standards to interfere with the free flow of imports, and are satisfied with 
NAFTA's treatment of this point. (Article 712(3) and (4)). 

The Agribusiness Council advocates rigorous enforcement of sanitary and 

Ehytosanitary standards in Mexico so that agricultural products exported to the 
Tnited States will be safe for consumption in this country. Moreover, we oppose 
Mexican agricultural producers receiving a competitive advantage over U.S. produc- 
ers by virtue of having weakly enforced sanitary standards and a low cost of compli- 
ance. 

III. TREATMENT OF CERTAIN COMMODITIES UNDER NAFTA 

Some commodities, such as peanuts, milk, and sugar, which have been protected 
under Section 22 of the Agricultural Adjustment Acts, will face more competitive 
market conditions under NAFTA. Also facing increased competition from Mexican 
products under NAFTA will be citrus fruit and winter vegetables. 

The Agribusiness Council has discussed the impact of NAFTA on these commod- 
ities in detail in its comments filed with the committee on May 25, 1993. In sum- 
mary, our view, enhanced by conclusion of the Understanding on Emergency Action, 
is that the existing safeguards, including the tariff rate quotas, and special safe- 
guards, provided for certain commodities, coupled with long transition periods, up 
to 15 years, and additional antisurge protection, should be sufficient to protect these 
import-sensitive commodities under NAFTA. 

Nevertheless, we do not oppose the effort underway by U.S. Trade Representative 
Mickey Kantor to negotiate more favorable terms with Mexico for sugar and fruits 
and vegetables. ("Inside U.S. Trade," August 6, 1993, at 1). 

IV. CONCLUSION 

The Agribusiness Council reaffirms its strong support of the North American Free 
Trade Agreement as a pact that will provide increased export opportunities and in- 
come growth for a broad spectrum of agricultural and agro-allied industries. 

We urge this committee to recommend Senate approval of the NAFTA agreement, 
subject to the supplemental agreements concluded on August 13, 1993, on environ- 
mental and labor standards and import surges. 



National Association of State Departments of Agriculture 

Good morning. Thank you, Mr. Chairman, and members of the committee. I am 
Robert L. Walker, Secretary of the Maryland Department of Agriculture. It is a 
pleasure to appear before this committee today on behalf of the National Association 
of State Departments of Agriculture (NASDA) as Chairman of its World Trade Com- 
mittee to discuss the North American Free Trade Agreement (NAFTA). NASDA is 
the nonprofit association of public officials representing the Commissioners, Sec- 
retaries and Directors of Agriculture in the fifty States and the territories of Amer- 
ican Samoa, Guam, Puerto Rico, and the Virgin Islands. As the chief State agri- 
culture officials, NASDA's members are keenly aware of the importance agriculture 
plays in their State's and the Nation's economy. 

NASDA supports all efforts to expand foreign trade, including the adoption of 
NAFTA. NASDA believes the NAFTA will have a positive impact on the agricultural 
industry of the United States. State Commissioners, Secretaries and Directors of Ag- 
riculture reaffirmed their support for the NAFTA at NASDA's recent annual meet- 
ing in Waterville Valley, New Hampshire. The public officials called on Congress to 
pass implementing legislation to enact the trade agreement. 

AGRICULTURAL TRADE BOOSTS U.S. ECONOMY 

Expanding foreign trade has long been a priority for the U.S. agricultural indus- 
try. Overseas exports directly help the American farmer by providing additional 
marketing options and improved income. U.S. agricultural exports generate employ- 



149 

ment, income and purchasing power in both the farm and nonfarm sectors. Each 
dollar received from agricultural exports in 1991 stimulated another $1.40 — a total 
of $54.7 billion overall — in supporting activities to produce U.S. exports. Agricul- 
tural exports generated an estimated 8,000 full-time civilian iobs, including 545,000 
jobs in the nonfarm sector. Farmers' purchases of fuel, fertilizer, and other inputs 
to produce commodities for export spurred economic activity in the manufacturing, 
trade and transportation sectors. 

The United States exported $39.2 billion of agricultural products in 1991 includ- 
ing 39 percent of its wheat, 45 percent of its rice, 30 percent of its soybeans, 22 per- 
cent of its corn, and 50 percent of its cotton. Exported raw products totaled $15.8 
billion, while processed commodities totaled $14.3 billion and transportation and 
trade services for raw and processed products totaled $9.1 billion. The nearly $55 
billion in supporting activity included $10.3 billion from the farm sector, $4.9 billion 
from the food processing sector, $15 billion from other manutacturing sectors, $6.9 
billion from trade and transportation, and $17.6 billion from other services. Non- 
farm sectors of the economy received about 81 percent of the additional economic 
activity. 

Of the 860,000 full-time civilian jobs related to agricultural exports, more than 
314,000 U.S. workers, 10 percent of the farm labor force, worked in the production 
of export commodities. In addition, 545,000 jobs in the nonfarm sector were directly 
or indirectly related to the assembling, processing, and distributing of agricultural 
products for export. About 67,000 of these jobs were in food processing, 228,000 in 
trade and transportation, 91,000 in other manufacturing sectors, and 159,000 in 
other services. USDA estimates that full implementation of NAFTA will create an 
additional 56,000 jobs for U.S. workers. 

Agriculture has long contributed to the U.S. trade balance. Net agricultural ex- 
ports of $16.5 billion in 1991 partially offset a $99 billion deficit in nonfarm trade, 
leaving the U.S. trade balance in deficit by $82 billion. U.S. agricultural trade sur- 
pluses have consistently offset the overall U.S. trade deficit. Agriculture remains 
this country's leading export earner. In fiscal year 1992, U.S. farm sales abroad to- 
taled $42.4 billion. The resulting positive agricultural trade balance for fiscal 1992 
swelled to $18 billion. 

NAFTA REGION TRADE 

According to recent Foreign Agricultural Service (FAS) analysis, U.S. agricultural 
exports to Mexico and Canada may reach a combined $8.3 billion in 1992. If real- 
ized, this would make Canada and Mexico the United States' largest export market 
for the first time — surpassing Japan's $8.1 billion and the European Community's 
$7.1 billion. At a level of $8.3 billion, U.S. exports to these two NAFTA countries 
would account for 20 percent of all U.S. overseas sales — up from only 10 percent 
just 5 years ago. 

Mexico is a net importer of food and agricultural products. Almost 70 percent of 
their imports in 1990 were from the United States, making Mexico our third largest 
single market. U.S. agricultural exports to Mexico in 1992 are anticipated to reach 
a record $3.5 billion, up 20 percent from the 1991 record and almost triple the 1987 
level of $1.2 billion. Primarily a bulk commodity market prior to 1987, Mexico is 
now one of the United States' largest and fastest growing high-valued markets with 
1992 exports expected to reach an all-time high of $2.4 billion — up 40 percent from 
1991 and almost four times higher than 5 years ago. As a result, high-value prod- 
ucts now account for almost 70 percent of all U.S. agricultural sales to Mexico ver- 
sus 40 percent in 1987. Much of this growth is due to Mexico's trade liberalization 
efforts that began in 1987 as well as the economic revitalization that has occurred 
as a result of President Salinas' structural reforms. Unfortunately, bulk commodity 
trade has not been liberalized. Therefore, exports of bulk commodities have shown 
little growth over the past few years — a situation that NAFTA will change, allowing 
more liberalized trade for bulk commodities. 

NASDA POSITION ON NAFTA 

Passage of NAFTA is of utmost importance to the agricultural economy. NASDA 
supports all positive efforts to expand foreign trade, including the adoption of 
NAFTA. We believe not only that the treaty will have a positive impact on the agri- 
cultural industry of the United States, we strongly believe that the defeat of NAFTA 
would cause irreparable damage impacting our ability to continue to sell products 
to Mexico and the entire world. 

We, at the State level, fully appreciate the importance of trade and exports in 
maintaining and creating jobs in the food sector. Clearly, Mexico will be an even 
greater export market for U.S. food products and commodities if the trade pact is 



150 

ratified by Congress. The U.S. economy can ill afford the long term impact if the 
agreement is defeated by Congress — America could put in jeopardy our third largest 
export market. 

Let me share a few of the comments made by my colleagues on NAFTA: 

Mexico is a growing economy with ever-increasing demand for 'value-added' 
agricultural products. New York supports NAFTA. It will both increase 
markets for our agricultural products as well as increase jobs both in pro- 
duction and in processing operations. — Richard T. McGuire, New York Com- 
missioner of Agriculture and Markets 

Illinois agriculture will benefit even beyond increased sales of our basic 
commodities. As the Mexican economy grows, we see growth in our proc- 
essed food exports to Mexico. This growth not only adds value to our basic 
commodities, but adds quality jobs to the Illinois economy and enlarges our 
tax base. — Becky Doyle, Director of the Illinois Department of Agriculture 

I support passage of this international trade agreement. I am convinced it 
will help not only farmers and processors, but all U.S. business and indus- 
try .—James A. Graham, North Carolina Commissioner of Agriculture 

NAFTA will be good for California agriculture by opening new markets for 
many of the commodities that we produce. It will level the playing field by 
eliminating tariff and nontariff barriers that now hinder trade with Mex- 
ico. — Henry J. Voss, Director of the California Department of Food and Agri- 
culture 

American agriculture can no longer be defined by a fence row or a turn row 
or for that matter a State line or a national boundary in today's global 
economy. The jobs and economic growth that NAFTA creates gives us op- 
portunities to increase our profits and expand our markets. I'm proud that 
NASDA has the foresight to join AG for NAFTA and to support the eco- 
nomic future of our farmers and ranchers. — Rick Perry, Texas Commis- 
sioner of Agriculture 

Forty-two lead State agricultural officials have endorsed NAFTA and called on 
Congress to pass the implementing legislation. They include: 

John W. Cramer, Director, Division of Agriculture, Alaska Department of Natural 

Resources 
Keith Kelly, Director, Arizona Department of Agriculture 
Gerald King, Director, Arkansas State Plant Board 
Henry J. Voss Director, California Department of Food and Agriculture 
Steven W. Horn, Commissioner, Colorado Department of Agriculture 
John R.H. Blum, Commissioner, Connecticut Department of Agriculture 
John F. Tarburton, Secretary, Delaware Department of Agriculture 
Tommy Irvin, Commissioner, Georgia Department of Agriculture 
Yukio Kitagawa, Chairperson, Board of Agriculture 
Becky Doyle, Director, Illinois Department of Agriculture 
James R. Moseley, Director, Indiana Agricultural Services and Regulations 
Dale M. Cochran, Secretary, Iowa Department of Agriculture and Land Stewardship 
Ed Logsdon, Commissioner, Kentucky Department of Agriculture 
Bob Odom, Commissioner, Louisiana Department of Agriculture and Forestry 
Bernard W. Shaw, Commissioner, Maine Department of Agriculture, Food and 

Rural Resources 
Robert L. Walker, Secretary, Maryland Department of Agriculture 
Jonathan L. Healy, Commissioner, Massachusetts Department of Food and Agri- 
culture 
Bill Schuette, Director, Michigan Department of Agriculture 
Elton Redalen, Commissioner, Minnesota Department of Agriculture 
Jim Buck Ross, Commissioner, Mississippi Department of Agriculture and Com- 
merce 
John L. Saunders, Director, Missouri Department of Agriculture 
Leo A. Giacometto, Director, Montana Department of Agriculture 
Larry E. Sitzman, Director, Nebraska Department of Agriculture 
Thomas W. Ballow, Executive Director, Nevada Department of Agriculture 
Stephen H. Taylor, Commissioner, New Hampshire Department of Agriculture 
Arthur R. Brown, Jr., Secretary, New Jersey Department of Agriculture 
Frank A. DuBois, Director/Secretary, New Mexico Department of Agriculture 
Richard T. McGuire, Commissioner, New York Department of Agriculture and Mar- 
kets 



151 

James A. Graham, Commissioner, North Carolina Department of Agriculture 
Fred L. Dailey, Director, Ohio Department of Agriculture 
Bruce Andrews, Director, Oregon Department of Agriculture 
Neftali Soto-Santiago, Secretary, Puerto Rico Department of Agriculture 
John M. Lawrence, III, Commissioner, Rhode Island Division of Agriculture, Depart- 
ment of Environmental Management 
D. Leslie Tindal, Commissioner, South Carolina Department of Agriculture 
Jay C. Swisher, Secretary, South Dakota Department of Agriculture 
L.H. "Cotton" Ivy, Commissioner, Tennessee Department of Agriculture 
Rick Perry, Commissioner, Texas Department of Agriculture 
Cary C. Peterson, Commissioner, Utah Department of Agriculture 
George M. Dunsmore, Commissioner, Vermont Department of Agriculture, Food and 

Markets 
Gus R. Douglass, Commissioner, West Virginia Department of Agriculture 
Alan T. Tracy, Secretary, Wisconsin Department of Agriculture, Trade and 

Consumer Protection 
Don Rolston, Director, Wyoming Department of Agriculture 

KEY PROVISIONS OF NAFTA 

NAFTA includes separate bilateral agreements in agricultural trade between the 
United States and Mexico and between Canada and Mexico. In general, the rules 
of the U.S. -Canada Free Trade Agreement, implemented in 1989, will continue to 
apply to agricultural trade between the United States and Canada. Key provisions 
of NAFTA for U.S. -Mexico trade include: 

• Elimination of nontariff barriers — When NAFTA goes into effect, the United 
States and Mexico will immediately eliminate all nontariff barriers to agricultural 
trade, generally through their conversion to tariff rate quotas (TRQs) or ordinary 
tariffs. 

• Elimination of tariffs — With the implementation of NAFTA, the United States 
and Mexico will immediately eliminate tariffs on a broad range of agricultural prod- 
ucts, with most tariffs eliminated within 10 years. Duties on a few highly sensitive 
products will be phased out over 15 years. 

• Special safeguard provisions — During the first 10 years that NAFTA is in ef- 
fect, a special safeguard provision will apply to certain products. A designated quan- 
tity of imports will be allowed at a NAFTA preferential tariff rate. Once imports 
exceed the designated quantity, the importing country may apply the tariff rate in 
effect at the time NAFTA is implemented or the then-current most-favored-nation 
rate, whichever is lower. The United States can apply the special safeguard to sea- 
sonal imports of fresh tomatoes, eggplant, chili peppers, squash, watermelons, and 
onions. 

• Country -of -origin rules — NAFTA increases incentives for buying within the 
NAFTA region and ensures that Mexico will not serve as a platform for exports from 
other countries to the United States. Under NAFTA, only North American producers 
can obtain the benefits of the tariff preferences. Non-Mexican origin commodities 
must be transformed or processed significantly in Mexico so that they become Mexi- 
can goods before they can receive the lower NAFTA duties for shipment to the Unit- 
ed States. 

nafta's impact on agriculture 

The most significant trade expansion from NAFTA will be with Mexico, already 
U.S. agriculture's third largest country market. With the elimination of all tariffs, 
quotas, and licenses that are barriers to agricultural trade, economic growth — espe- 
cially in Mexico — will be expanded. Mexico's economic growth, projected to increase 
annually by at least 0.5 percent, will lead to increased demand for food and agricul- 
tural products. NAFTA provisions affecting agricultural trade between the United 
States and Mexico will result in net gains for both countries. NAFTA will: 

• Lock in recent gains — U.S. agricultural exports to Mexico have grown signifi- 
cantly since the mid-1980s, rising from $1.4 billion in 1986 to $3.5 billion (prelimi- 
nary) in 1992. The export growth is largely the result of unilateral liberalization in 
Mexico, the natural comparative advantages of the two countries, and relatively 
strong Mexican economic performance. NAFTA will assure that this growth in U.S. 
agricultural exports to Mexico will continue by providing improved market access 
and preventing a return by Mexico to policies that limit trade and economic growth. 

• Assures a larger market — Mexico's population (about 92 million), which is grow- 
ing at more than 2 percent a year and becoming increasingly urbanized, represents 
a significant market for U.S. agricultural products. Improved economic activity re- 



152 

suiting from the NAFTA agreement will boost income and stimulate demand for 
larger amounts and more diverse food and feed products. In addition, Mexico's com- 
parative advantages suggest it will continue to be a net importer of food, feed, and 
fiber. 

• Expands high-value trade — Primarily a bulk commodity market prior to 1987, 
Mexico is now one of the United States' largest and fastest growing high-value mar- 
kets. High-value products now account for almost 70 percent of all U.S. agricultural 
sales to Mexico compared to 40 percent in 1987. 

• Increases production efficiency — NAFTA will lead to efficiency gains in both 
Mexico and the United States as producers respond to market opportunities. U.S. 
agriculture will benefit from trade creation, higher agricultural export prices, and 
increases in economic efficiency and productivity. 

• Increases U.S. agricultural exports and farm cash receipts — By the end of the 
15-year transition period, annual U.S. agricultural exports will likely be $2.0 to $2.5 
billion higher than without NAFTA. Over the same period, annual U.S. farm cash 
receipts are expected to increase by about 3 percent compared with projected re- 
ceipts without NAFTA. More agricultural trade will also expand employment in re- 
lated areas of processing and transportation and the economy as a whole. Because 
some of the largest U.S. export increases are expected for income supported com- 
modities, NAFTA is also expected to reduce farmprogram spending. 

• Maintains the integrity of U.S. standards — The U.S. will maintain its stringent 
standards regarding health, safety, and the environment and its right to prohibit 
imports that do not meet U.S. standards. NAFTA also allows States and local gov- 
ernments to enact standards without restriction, as long as these standards are sci- 
entifically defensible. The U.S. will take great care to make sure that chemicals 
legal in Mexico but illegal in the United States will not be present in imports. 
NAFTA allows each country to continue to develop grade standards to meet the 
marketing rules of its agricultural industry and ensure that consumers receive a 
product of acceptable quality. 

• Provides stronger protection for agricultural inventions, patents, and tech- 
nologies — The United States is a leader in the field of biotechnology, including the 
development of new varieties of plants. U.S. companies spend substantial amounts 
every year in the development of new plant varieties and processes that keep Amer- 
ican agriculture efficient. Provisions in the NAFTA's intellectual property rights text 
will help these companies to recoup the costs of their investments and protect their 
interests. 

• Facilitates investments in agriculture — NAFTA enables U.S. firms to establish 
new agricultural enterprises and to acquire existing businesses in both Mexico and 
Canada and to receive the same treatment, with limited exceptions, as domestic 
companies in either country. The agreement also gives U.S. investors in Mexico and 
Canada full rights to repatriate all profits and capital flows. NAFTA will further 
stimulate investment and opportunities of U.S. food processing affiliates in Mexico. 
NAFTA's elimination of Mexico's local content requirements for manufacturers will 
increase the demand for products from the United States. 

• Benefits agricultural transportation — Under NAFTA, Mexico's market for inter- 
national truck and rail transport will be opened and Canada's transportation mar- 
ket for U.S. firms, which is already open, will be locked in. 

CONCLUSION 

Basically NAFTA means a bigger and more lucrative market for U.S. farmers and 
ranchers. It means expanded access to 92 million consumers south of the border. 
As Mexico's economy grows, it should also lead to sales of greater amounts and a 
greater diversity of U.S. food and feed products. 

USDA is projecting that by the end of the 15-year transition period for NAFTA, 
annual U.S. agricultural exports will likely be $2.0 billion to $2.5 trillion higher than 
without the agreement. Over the same period, U.S. farm cash receipts will increase 
by 3 percent compared with projected receipts without NAFTA. More agricultural 
trade will also expand employment in related sectors — like processing and transpor- 
tation — and the U.S. economy as a whole. 

Thank you, Mr. Chairman, for the opportunity to stress the positive aspects of 
NAFTA with regard to American agriculture, and present NASDA's support for the 
treaty. I look forward to working with this committee on this and other important 
trade matters facing Congress. I will be happy to answer any questions you may 
have. 



153 

LETTERS 

Luis Tellez K., 
January 21, 1993. 
Mr. Charles J. O'Mara, 

Special Trade Negotiator, Office of the Under Secretary, International Affairs and 
Commodity Programs. 

Dear Joe: In your letter of November 5, you addess concerns relating to the ad- 
ministration of NAFTA tariff-rate quotas. Specifically, the concern is that "if the 
duty-free quota is filled, and Mexico requires additional imports, U.S. products will 
be assessed a large import tariff, while other countries will compete on a MFN 
basis." 

My view on this matter is that if NAFTA quota is filled, and if Mexico would need 
additional imports, SECOFI would issue import permits on a MFN basis, in compli- 
ance with our obligations under GATT. In this case, Mexico will have to comply with 
the historical rights on Mexican imports, then the United States would be able to 
compete for these additional imports on an equal MFN basis with other non-NAFTA 
suppliers. In the case that Mexico decides not to grant any import permits, the Unit- 
ed States and Canada would still have access to the Mexican market subject to the 
tariff equivalent negotiated in NAFTA. 

It is worth recalling that Mexico has not accepted yet Dunkel's latest proposal on 
tariffication. One implication of such proposal is that Mexico would have to grant 
quotas to other countries in order to secure them their current access, as it is speci- 
fied in the Draft Text. Under this scenario, Mexico would have to channel import 
quantities to third countries in fulfillment of these current access provisions. 

I learned from the letter you attached (sent to Secretary Madigan by the U.S. 
Feed Grains Council) that the latter is also concerned with respect to the adminis- 
tration of in-quota imports. You certainly recall our last discussions in Washington 
in which we agreed upon the language in article 302, paragraph 4(a) of NAFTA. 
Sincerely, 

(Signed) Luis Tellez K., 
Under Secretary for Planning. 



National Association of Wheat Growers, 

Washington, DC, September 21, 1993. 
Hon. Patrick Leahy, 

Chairman, Committee on Agriculture, Nutrition, and Forestry, U.S. Senate, Wash- 
ington, DC 20510. 

Dear Mr. Chairman: Thank you for the opportunity to provide the view of the 
National Association of Wheat Growers (NAWG) regarding the North American Free 
Trade Agreement (NAFTA). 

In December 1993, at your request, we sent a detailed letter analyzing our posi- 
tion, which I have attached. Since that time, we have made a serious independent 
attempt to develop a constructive and enduring solution to our outstanding prob- 
lems with regard to wheat trade in North America. As you know, we have one prob- 
lem which overlaps two borders: namely, Canadian export activities. Increasing Ca- 
nadian imports of all wheat (projected to total 2.0 million metric tons in 1993/94, 
up from 1.2 million metric tons in 1991/92 — an increase of over 63 percent) have 
added to our annual carryover and threaten to undermine the integrity of our do- 
mestic support programs. Notably, Canadian wheat exports to the United States to- 
taled a relatively nominal 418,000 metric tons in 1986/87, the crop year preceding 
enactment of the U.S. -Canada Free Trade Agreement (CFTA). 

Moreover, with regard to the larger matter of North American wheat trade, the 
U.S. share of the Mexican wheat market has been consumed by Canada since enact- 
ment of the CFTA. In 1989/90, Canada sold no wheat into Mexico; in 1991/92 it con- 
trolled over 50 percent of the market. This is particularly remarkable when you con- 
sider that Canada's main wheat growing region is over 2,800 miles from Mexico 
City. 

We believe that both these phenomena are a result of inequities contained in the 
CFTA which are broadened in the NAFTA. In particular, the U.S. wheat farmer is 
disadvantaged in the CFTA and in the NAFTA by the continuation of transportation 
subsidies, eastbound to the United States and westbound and eastbound into Mex- 
ico. In addition, neither the CFTA nor the NAFTA sufficiently address the pricing 
practices of the Canadian Wheat Board into either the United States or Mexico. 



154 

U.S. wheat producers are not looking for protection from fairly traded imports. 
Nor are we asking for an advantage over Canada in trading wheat with Mexico. Our 
goal is the elimination of these subsidies and to ensure that equitable conditions of 
competition exist in the North American wheat market. We strongly endorse the 
measures listed in the letter to Secretary of Agriculture Espy sent by Senator Bau- 
cus and others on September 9, 1993. This letter outlines the actions that should 
be taken to achieve our goal. 

Thank you again Mr. Chairman, for the opportunity to present our views. We ask 
that this letter De made a part of the committee's September 21 hearing on NAFTA. 
We look forward to working with you on resolving these matters and finding ways 
to expand trade for U.S. wheat growers. 
Sincerely, 

(Signed) Jeff Lundberg, 

President. 



National Association of Wheat Growers, 

Washington, DC, December 18, 1992. 

Hon. Patrick Leahy, 

Chairman, Committee on Agriculture, Nutrition, and Forestry, U.S. Senate, Wash- 
ington, DC 20510. 

Dear Mr. CHAIRMAN: Thank you for the opportunity to present our views about 
the North American Free Trade Agreement (NAFTA). 

In the last year, we have provided a number of statements to the committee de- 
scribing our concerns about the NAFTA. With your indulgence, we will summarize 
how the NAFTA meets our objectives for the negotiation. 

Objective No. 1. — To eliminate the Mexican wheat import license requirement to 
ensure consistent U.S. access to the Mexican market. 

In the NAFTA, the Mexican import license will be replaced by a 15-percent tariff 
on U.S. wheat to be phased out in equal installments over a 10-year period. Pres- 
ently, U.S. wheat enters Mexico duty free, with the exception of a 10-percent tariff 
that is applied to Durum wheat. Therefore, it is difficult for us to see why a 15- 
percent tariff should be considered a boon to U.S. farmers wanting to export wheat 
to Mexico. At the earliest opportunity, we will seek to implement a provision in the 
agreement which allows for accelerated reductions in the new duty, contingent on 
the consent of the parties to the NAFTA. 

Objective No. 2. — To maintain the current U.S. wheat ban on the import of karnal 
bunt-infected wheat or seeds. 

The NAFTA recognizes each country's right to determine the level of protection 
necessary to ensure continued agricultural health. This will allow each country to 
set more stringent standards so long as they are scientifically verifiable. Further, 
it is our understanding that the United States will not have to modify its current 
border inspection procedures unless it believes it is appropriate and the trading 
partner in question has demonstrated that adequate inspection systems and certifi- 
cation and testing procedures are in place. 

Nonetheless, we are still worried about the entry of karnal bunt-infected trucks 
and railcars into the United States as the surface transportation systems between 
the two countries become more integrated. Adequate inspection procedures will have 
to be implemented in order to guard against the inadvertent contamination of the 
U.S. wheat crop. The presence of karnal bunt in the United States would have a 
devastating effect on wheat exports to wheat-producing countries, particularly 
China and the former Soviet Union and could directly and adversely impact the 
farmers' ability to garner income from the market. 

Objective No. 3 — To achieve price transparency with the Canadian Wheat Board 
in Canadian export sales to the United States and Mexico. 

The NAFTA is silent on the specific issue of price transparency. This important 
issue has been consistently ignored by trade negotiators. Unlike the open market 
U.S. trading system, sales prices are not revealed in exporting countries with mo- 
nopolistic marketing regimes, such as the Canadian Wheat Board. The lack of price 
transparency makes it impossible to determine whether unfair trading practices are 
in use. 

Article 506 of the text deals with the topic of export subsidies, but notably pro- 
vides no definition of what constitutes an export subsidy. The 1990 farm bill directs 
the administration to consider the administered pricing practices of monopoly grain 
boards when considering using the EEP. We cannot accept an agreement which does 
nothing to address this matter. 



155 

As it is, the current state of the North American wheat trade defies geography. 
Canada's principal wheat producing region is centered around Regina, Saskatche- 
wan — some 2,800 miles from Mexico City, yet Canada enjoys 76 percent of the Mexi- 
can wheat market! The reason for this abnormality is that the United States has 
been unwilling to match subsidized competition in the Mexican market. Technically, 
the NAFTA would allow the United States to use its export subsidy program, the 
export enhancement program (EEP), to compete against Canada and non-NAFTA 
countries in the Mexican wheat market. While this provision provides the United 
States with the opportunity to protect its interests in Mexico, there has been no in- 
dication that our Government will go head-to-head against Canadian export sub- 
sidies in the future if the NAFTA is implemented. 

Objective No. 4. — To introduce disciplines on Canadian rail freight subsidies to 
westbound and eastbound destinations. 

The U.S. -Canada Free Trade Agreement already acknowledges that the 
westbound Canadian rail freight subsidy is an export subsidy. We believe that the 
NAFTA should expand this acknowledgment to include eastbound rail freight sub- 
sidies. Furthermore, a NAFTA should provide that these subsidies cease for sales 
made into either the United States or Mexico. 

Objective No. 5 — To prevent the application of Canadian rail freight subsidies on 
cargos shipped through the United States to Mexican or other third country mar- 
kets. 

The NAFTA provides no assurance that the transshipment of Canadian grain to 
Mexico or other destinations will be disciplined or monitored. This is an oversight 
which must be corrected. The U.S. Government must not allow the United States 
to become a "land bridge" for Canadian sales to Mexico and other points in Central 
and Latin America. 

Finally, we would like to discuss a related issue which we hope the Congress will 
incorporate into trade legislation. It too results from the unsatisfactory outcome of 
the U.S. -Canada Free Trade Agreement. 

The 1990 Farm Act explicitly forbids the practice of commingling foreign grain 
with U.S. grain for export under U.S. taxpayer-assisted programs. More than 80 
percent of U.S. wheat exports utilize these programs in one form or another; yet 
there is no means of assuring that foreign grain is not mixed into these shipments. 

With the implementation of the U.S. -Canada Free Trade Agreement, all U.S. 
wheat and oats exported to Canada must be accompanied by an "end-use" certificate 
which details, among other things, where the grain is going. We believe it is impera- 
tive that the same method be used to protect the integrity of U.S. grain. The adop- 
tion of this procedure would not disturb the status quo, inasmuch as foreign grain 
could still be blended with U.S. grain for domestic utilization or for export without 
Government sponsorship. 

We see no alternative to end-use certificates which would promote compliance 
with the 1990 Farm Act. Options such as transit billing or de minimis requirements 
would actually permit and expand the volume of foreign grain to be exported under 
these programs. 

We are pleased to know that you intend to give this agreement close scrutiny. Our 
offices are available to help your staff in answering any questions you may have. 
We look forward to working with you on implementing legislation that will address 
our concerns. 

Sincerely, 

(Signed) Carl F. Schwensen, 
Executive Vice President, National Association of Wheat Growers. 

(Signed) Winston Wilson, 
President, U.S. Wheat Associates. 



Summary of Agriculture Private Sector Comments on NAFTA 

The Agribusiness Council, Inc. 

The NAFTA is a promising agreement that will result in increasing trade and eco- 
nomic growth throughout North America. The trade associations that It polled sup- 
port the NAFTA, but many have specific concerns that relate directly to how the 
agreement will affect their business. Mexico's market potential is great because of 
its limited amount of arable land, and it needs to import American technology and 
equipment to maintain this land. 



156 

Alaska Seafood Marketing Institute 

The Alaskan seafood industry sees great potential in the Mexican market. Despite 
competition from Canada, the Alaskan industry still believes that the agreement 
will expand its export business. 

American Agriculture Movement, Inc. 

Concerns with NAFTA that it would accelerate displacement of family farmers in 
all three countries; forfeit U.S. control over domestic farm policy; shift U.S. agri- 
culture production to Mexico; move food processing facilities southward; overburden 
border food inspection; and replace farm experts with bureaucrats in trade dispute 
resolution. It recommends a GAO study on impact of NAFTA; farmer trade adjust- 
ment assistance; and farmer representation on NAFTA committees/working groups. 

The American Beekeeping Federation, Inc. 

Does not support the agreement. The U.S. industry cannot compete with imported 
honey from low-cost, developing nations. Implementing legislation must provide: 1) 
enforcement of rules of origin; 2) USDA should conduct studies on the impact honey 
imports will have on the domestic industry and the loan program, and the value 
of bee pollination to U.S. agriculture; 3) increase the U.S. honey import tariff to 20 
percent; and 4) if tariff is not increased, the buyback rate of the honey loan program 
should be lowered or the support rate increasea. 

American Cotton Shippers Association 

It recommends that the NAFTA be approved. Because of the high quality of Amer- 
ican cotton, ACSA believes that domestic and Mexican mills will continue to use 
U.S. cotton. There is some fear that spinning and weaving mills may move, but 
since these operations require a highly skilled labor force, ACSA believes that they 
will stay in the United States. Its main concern is the fate of Section 22 import 
quotas. 

AMCOT 

The main concerns of AMCOT is that the agreement eliminates Section 22 import 
quotas and does not include a fiber forward rule of origin. Without a fiber forward 
provision, imports of raw cotton, particularly from the former Soviet Union and 
Pakistan, will be imported, and Canada and Mexico will export the finished prod- 
ucts to the United States. 

American Dairy Products Institute 

The agreement will be a benefit to the U.S. dairy industry, but there are many 
issues of concern. Canadian exports of nonfat dry milk should not be allowed to com- 
pete with U.S. exports to Mexico, and present quality standards must be enforced. 
The industry is especially concerned about the elimination of Section 22. The tariff 
rate quota and rules of origin should sufficiently protect the market from disruptive 
levels of dairy imports. Its concern is that this concession will be connected to the 
GATT negotiations, and it could weaken our ability to maintain a waiver for Section 
22. 

American Farm Bureau Federation 

Supports the agreement. It is particularly concerned about the agreement's im- 
pact on several commodities (especially fruits, vegetables, sugar and peanuts). 
Would support changes in NAFTA for transitional safeguards, if can be done with- 
out weakening the benefits to other sectors or requiring renegotiation of the entire 
agreement. If not in the agreement, will support implementing legislation to 
strengthen transitional safeguards, consistent with the terms of NAFTA. 

American Farmland Trust 

AFT believes that if NAFTA is to be beneficial to American agriculture it must 
include a commitment to preserve strategic agricultural resources in the United 
States. This is a condition it requires of any trade agreement, not only NAFTA. Pro- 
viding the necessary funding for existing farmland protection policies, like the 
Farms for the Future Act, is essential. 

American Feed Industry Association 

AFIA sees the opening of world markets as the key to the feed industry's growth, 
and Mexico and other Latin American countries have the greatest potential for im- 
mediate gains. AFIA's members have voiced general support for the agreement, and 
they expect grain, oilseeds, dairy, meat and other agricultural trade with Mexico to 
increase by $1.5 to $2 billion a year. They believe the increase in demand will gen- 
erate major poultry production growth in the Southern and Western States, and 
swine feed plants will locate in Mexico or the United States, depending on ingredi- 
ent and distribution costs. 



157 

American Horticultural Marketing Council, Inc. 

The council does not support the agreement. The impact on Florida's agricultural 
sector will be devastating unless significant changes are made in the text or pro- 
vided for in the implementing legislation. Some of the changes it considers nec- 
essary are: More commodities must be given a tariff reduction period; price-based 
safeguard for perishable commodities; the harmonization of standards must be re- 
quired; strong enforcement of rules of origin; Mexico must be required to develop 
complete statistical information on its agriculture sector; and Mexico must also be 
required to enforce plant patent protection laws that the United States and Canada 
already follow. 

American Meat Institute 

AMI is a longstanding supporter of the NAFTA and believes that it can only in- 
crease the amount and value of trade with Mexico. There are, however, several po- 
tential problems that should be addressed. The phase-out period for pork is longer 
than for other products, and the safeguard mechanism cannot be allowed to evolve 
into another trade barrier. The implementing legislation should include the same 
displacement provisions that were used in the CFTA. Even though Mexico is a net 
meat importer, the possible effects of displacement should not be ignored. Strict en- 
forcement of the rules of origin standards are crucial. It also believes that the poul- 
try industry has been asked to compromise more than any other U.S. industry, and 
it will have to keep its exports level and possibly reduce them in the first year. 

American Oat Association 

Supports the NAFTA. The agreement will give raw oats and oat products better 
access to the Mexican market. The association is concerned that transportation and 
construction subsidies in Canada create an unfair advantage for Canadian oats en- 
tering Mexico and the United States. 

American Plywood Association 

The agreement will provide increased market access in Mexico, and it is satisfied 
with the negotiated agreement. 

American Sheep Industry Association 

ASI has a positive view of the NAFTA. Trade in live animals and meat will im- 
prove as the 10-percent tariff is reduced over 10 years. It is important to protect 
herd health through import licensing, S&P standards, border inspection ana strict 
enforcement of rules of origin. There are potential problems with wool and textile 
trade. Without a fiber forward provision, strict monitoring and enforcement of the 
yarn forward provision are necessary to protect the U.S. wool and woolen textile in- 
dustry. 

American Soybean Association and National Oilseed Processors Association 

ASA and NOPA strongly support the agreement. U.S. oilseed producers, proc- 
essors and exporters will benefit from unrestricted access to the Mexican market 
which has great potential for soybeans, protein meal and vegetable oil. The rules- 
of-origin standards will protect the U.S. market from non-NAFTA countries, and 
Mexican producers are not seen as a threat to the U.S. industry because Mexico 
should remain a net importer. 

American Sugar Cane League, American Sugarbeet Growers Association, 
Florida Sugar Cane League, Hawaiian Sugar Planters Association, Rio 
Grande Valley Sugar Growers, Sugar Cane Growers Cooperative of Florida, 
U.S. Beet Sugar Association, and U.S. Cane Sugar Refiners Association 

Will oppose the NAFTA unless the following concerns are met: strike the provi- 
sion that gives Mexico unlimited access to the U.S. market after 6 years if it be- 
comes a surplus producer in 2 consecutive years; expand the definition of surplus 
producer to include consumption of corn sweeteners; make determination of surplus 
producer on basis of verifiable history instead of projections; and expand the phase- 
out period for Section 22 protection from 10 to 15 years. Although Mexico is a net 
importer of sugar, NAFTA provides enormous incentive for Mexico to become a net 
exporter by increasing production through investment, decreasing domestic con- 
sumption by displacing sugar with corn sweeteners, and reporting imported sugar 
as Mexican origin (especially from Guatemala). 

Arizona Department of Agriculture 

Strongly supports the NAFTA. While most of Arizona agriculture will benefit from 
the agreement (the beef, cattle and dairy industries), the produce sector is concerned 
that Mexico will be given preferential treatment. The concern of the produce indus- 
try is that Mexican produce will not be adequately inspected when it enters the 
United States. 



158 

Arkansas Farm Bureau Federation 

The AFBF considers the agreement to be a major step in removing trade barriers, 
but it has several concerns. Pesticide regulations should be standardized and health 
and sanitary regulations should not be compromised. A fiber-forward, not yarn-for- 
ward, provision should also be included for textile trade, and it should also recognize 
labor cost differentials and include provisions for a dispute settlement body. 

Bayfield Farms, Inc. (various ag operations) 

Supports the agreement. While the asparagus operations of Bayfield farms will 
be hurt, it is possible to make up for this through improving quality and service. 
Bayfield's grain and apple production will benefit greatly. 

Bruce Foods Corporation 

Supports the agreement. The only problem is that the dispute settlement provi- 
sion relies too heavily on good faith. 

California Avocado Commission 

The quarantine on Mexican shipments should not be relaxed. The pests and dis- 
eases that Mexico has not been able to eradicate will cause significant harm to U.S. 
fruit and vegetable crops. NAFTA's S&P language appears to be adequate, but what 
is important is how strictly it is followed. The implementing legislation should set 
standards for compliance and enforcement of these standards. A longer phase-out 
period for tariffs would ease the industry's transition. 

California Citrus Mutual, Citrus Grower Associates, Florida Citrus Mutual, 
Florida Citrus Packers, Florida Citrus Processors Association, Florida De- 
partment of Agriculture and Consumer Services, Florida Department of 
Citrus, Florida Farm Bureau Federation, Gulf Citrus Growers Association, 
and Indian River Citrus League 

The U.S. citrus industry will suffer severe adverse economic consequences from 
a NAFTA as proposed. Inclusion of citrus and citrus products in the agreement will 
in the long term result in the virtual elimination of citrus and citrus industries of 
Florida. Their proposals include the exclusion of fresh and processed citrus products 
from NAFTA; maintain U.S. tariffs for 20 years, with elimination of tariffs only 
after that period; include a tariff safeguard mechanism for import surges based on 
specific, not ad valorem, rates. Also, enforce all U.S. phytosanitary standards, imple- 
ment a statistics-gathering mechanism to track Mexican exports, production, proc- 
essing, and packing of citrus. Harmonize Mexican labor and environmental stand- 
ards to U.S. standards. 

California Department of Food and Agriculture 

The agreement appears to meet most of the State's goals. Its letter, however, is 
very circumspect in stating what provisions it agrees with. Instead it relies on say- 
ing that certain provisions "appear" to meet the Department's concerns. Basically, 
the outcome depends on the execution. One solid concern it mentions is that Canada 
will subsidize wheat and feed sales to Mexico. 

California Pistachio Commission 

Strongly supports the agreement. Mexico does not produce pistachios, and with 
the tariff on pistachios falling to zero immediately, California growers will see im- 
mediate benefits. 

California Raisin Advisory Board 

Supports the concept of free trade and immediate elimination of 20-percent tariff 
on raisins. Wants explicit commitment that Mexico will eliminate all licensing re- 
quirements on raisins. Amend NAFTA to provide for the seasonal flow of workers 
from Mexico, and do not impose stricter regulation on farm labor. 

California Table Grape Commission 

Will be difficult to support the agreement because of Mexico's refusal to end its 
GATT-illegal licensing requirements prior to 1994. The licensing requirement has 
been removed for all other fresh fruit grown in the United States, but remains for 
table grapes. 

California Tomato Growers 

The Growers believe that the industry will be decimated by the agreement, and 
Congress should reject it. Mexico does not need the benefit of lower tariffs because 
it is not "burdened by environmental regulations or worker safety and health laws 
to the same extent as are U.S. growers and producers." 

California Tree Fruit Agreement 

The goals of NAFTA are a good idea, but Mexico has reinstituted a licensing re- 
quirement which will raise tariffs when it is converted to a tariff barrier. Under 



159 

GATT, Mexico removed its import licenses on stone fruit. Mexican phytosanitary 
concerns leading to an import ban on stone fruit are invalid because Mexico offered 
to trade their action for U.S. changes on avocado phytosanitary restrictions. 

Center for Rural Affairs 

Biggest adjustments of NAFTA will be made by small Mexican farmers and rural 
laborers. Winners in Mexico will be fruit, vegetable and animal agro-export sectors 
able to form joint ventures with U.S. agribusiness who will be the biggest winners. 
Also concerns with effect of agreement on emigration and sustainable rural develop- 
ment. Recommends the phase out of CCC concessional sales of basic agricultural 
commodities in Mexico; create a North American Rural Development Commission to 
confront rural poverty and make public investments; and ensure that U.S. stand- 
ards on pesticide use and registration do not become a competitive disadvantage. 

Cherry Marketing Institute, Inc. 

The Institute's main concern is not a surge of Mexican cherries (none produced), 
but the transshipment of cherries from the EC through Mexico. NAFTA must con- 
tinue strong prohibitions against transshipment of dumped EC product. The insti- 
tute is also concerned about the overall effect the agreement will have on the State 
of Michigan. 

Cigar Association of America, Inc. 

There are two flaws in the agreement. One is inadequate protection of intellectual 
property rights. A number of Mexican cigar companies have adopted the trademarks 
of U.S. cigars that no longer compete in the Mexican market. To resolve this prob- 
lem the agreement should recognize the first trademark registered in North Amer- 
ica. The second problem is the increased tariff that will be assessed to U.S. cigars 
(it jumps from 20 percent to 50 percent after import licenses are terminated) and 
the phaseout over 10 years. The tariff should be phased out over 5 years. 

CoBank 

Strongly supports the agreement and believes that it will be of significant impor- 
tance to most agriculture sectors. It also worked closely with and supports the Agri- 
cultural Policy Advisory Committee's report on the NAFTA. Its main concern is the 
financial services section of the agreement. Currently CoBank can only finance the 
export and import activities of its customers in foreign countries. It wants to be able 
to expand its business into financing joint ventures and the export of value-added 
agricultural products, not just agricultural commodities. 

ConAgra 

Fully supports the agreement. The NAFTA will increase Mexican incomes, and 
the elimination of trade barriers will expand the Mexican market for U.S. products. 
ConAgra does not agree with the argument that low labor costs will draw U.S. jobs 
to Mexico. Instead, it sees Mexico's location, poor infrastructure, and unproductive 
labor force as reasons for keeping facilities in the United States. 

Cottongrowers Warehouse Association 

Endorses National Cotton Council statement. Summary of issues include that 
there must be a determination of how increased NAFTA quotas would be affected 
by a quota triggered under the farm bill; more provisions on accession of other coun- 
tries to NAFTA; statement that U.S. farm law provisions for cotton do not violate 
the agreement's provisions on domestic and export subsidies; and others. If NAFTA 
is to be an economic plus for U.S. cotton, there must be growth within the apparel 
sector within the NAFTA; and the United States must be the primary supplier of 
raw materials. 

Daulton Ranch 

There are several issues that need to be addressed and monitored closely. Trans- 
shipment of cattle through Mexico already occurs and strict rules of origin must be 
established to prevent this from continuing. It must be assured that Mexico's regu- 
lations are transparent, and Mexico must be required to adopt a meat import law 
similar to that of Canada or the United States. 

David Bateman 

Many agriculture commodities that are the backbone of the American economy 
will be devastated by NAFTA and GATT. Enclosure statistics for several crops in 
North Carolina to show that there is little profitability in these sectors after land 
value is deducted. 

DEE— Ag Consultant 

In the long run the agreement will be beneficial. Some regulations must be tight- 
ened, especially those dealing with pesticides that are illegal in the United States 



160 

but are still shipped to Mexico. Training should also be provided for workers who 
lose their jobs as a result of the agreement. 

Eastern Milk Producers 

Overall it approves of the NAFTA because Mexico does not produce enough dairy 
products to meet domestic demand. It is concerned with the elimination of Section 
22 import protection and rules of origin. Eliminating Section 22 sets a precedent 
that will probably carry over into the GATT negotiations, and Eastern is concerned 
that the EC, New Zealand and Australia will not reciprocate. The rules of origin 
provisions must be strictly enforced to ensure that these countries do not ship dairy 
products through Mexico. 

Farmland Industries, Inc. 

Supports the agreement because it will expand U.S. exports to Mexico. Many is- 
sues, such as pesticide regulations, rules of origin, and dispute settlement have to 
be examined carefully to ensure that different sectors of agriculture are not ignored. 
Farmland also wants to study any side agreements that will involve agriculture. 

Fine Hardwood Veneer Association 

The members of the association agree that the NAFTA will benefit the industry 
as long as the Mexican tariff on veneer is reduced to zero immediately. 

Florida Department of Agriculture and Consumer Services 

Strongly opposed to the agreement in its current form. Unless substantial changes 
are made, it will recommend that the Congress vote against the agreement. The fol- 
lowing changes must be made: 1) virtually all of Florida's commodities should be 
considered sensitive commodities and be given the maximum tariff phaseout period; 
2) a price-based safeguard should be established for perishable commodities and the 
tariff windows for TRQs should be restricted to 30 days; 3) the harmonization of 
standards must be required within 10 years; 4) sanitary and phytosanitary regula- 
tions must be able to ensure the protection of U.S. agriculture; 5) strong enforce- 
ment of rules of origin to prevent transshipment and substitution; and 6) Mexico 
must be required to develop complete statistics on its agriculture sector. 

The Florida citrus industry maintains that fresh and processed citrus products be 
excluded from the agreement. If this is not possible, there should be a 20-year "drop 
dead" period for citrus products. The definition of surplus producer must be changed 
to include corn sweeteners, and this calculation must be based on Mexico's history, 
not on estimates. The provision allowing Mexico unlimited market access if it be- 
comes a surplus producer must be eliminated. 

Section 22 protection should be continued for Florida's commodities. Section 22 
can only be dealt with in the multilateral context of the Uruguay Round, and it can- 
not be terminated by the NAFTA. 

Florida Farm Bureau Federation 

The Florida Farm Bureau has a mixed reaction to the NAFTA. Some of its con- 
cerns are: 1) All processed citrus products should receive an extended phaseout; 2) 
lifting the import quotas on sugar will destroy domestic producers; 3) Mexico could 
convert its domestic citrus crop to processing purposes and then satisfy its demand 
for fresh produce with imports from Cuba, this would flood the United States mar- 
ket; 4) strict S&P measures must be maintained to prevent the introduction of pests 
and diseases; 5) there must be an effective dispute settlement procedure that grow- 
ers can access; 6) reliable data on Mexican production is essential; and 7) the side 
agreements should ensure labor and environmental regulations are enforced. 

Florida Fruit & Vegetable Association And National Watermelon Associa- 
tion 

Does not support the NAFTA because it will have a devastating impact on Flor- 
ida's agricultural sector. The Association's concerns are outlined by the Florida De- 
partment of Agriculture and Consumer Services Unified Position on the NAFTA. 

Food Marketing Institute 

Supports the NAFTA. Free markets will result in lower prices for consumers on 
a wider variety of products. It does not believe that the agreement will have a nega- 
tive impact on U.S. environmental, safety and health standards. Imported foods will 
have to meet U.S. standards. 

Georgia Agricultural Commodity Commission for Peanuts 

The agreement is flawed because it gives Mexican peanuts a competitive price ad- 
vantage in as little as 2 years. The Commission relies on a study by two professors 
at the University of Georgia which is included with its comments. Some of the re- 
port's findings are: Reduced price incentives to grow corn and soybeans in Mexico 
will increase peanut production; the loss of revenue to U.S. farmers will be $75- 



161 

$100 million; rural communities will lose $150-$200 million annually; the impact 
will be heavier in the Southwest; and U.S. exports to Mexico will not increase. Two 
major provisions should be included in the implementing legislation to protect pea- 
nuts. First, a provision that penalizes peanuts that are exported and then reenter 
the U.S. market to take advantage of higher prices. Second, imported peanuts must 
be required to meet the same quality and grade standards as domestic peanuts. 

The Senate of the State of Hawaii 

The Hawaiian State Senate opposes the NAFTA and passed a resolution that the 
State's congressional delegation oppose the agreement. The agreement should be op- 
posed because it will damage the domestic sugar industry which is an integral part 
of Hawaii's economy and heritage. Mexico will be capable of exporting sugar within 
15 years because its beverage industry will convert to corn sweeteners, it will be 
able to replace its domestic demand with imported sugar, and consumer demand 
will be weakened by increasing prices. 

Henningsen Foods, Inc. (poultry and eggs) 

Its concerns with the agreement mirror the concerns of the whole poultry and egg 
industry. Specifically, the company is concerned about the sanitary practices of 
Mexican operations. The proper safeguards must be established to ensure that im- 
ports meet U.S. standards. It is also concerned about the Canadian pricing system 
that limits access to its market and promotes export to the United States. Although 
disappointed that Canada is not included in the agreement, it does support the 
agreement because of the level of access to the Mexican market. It is, however, dis- 
appointed with the definitions used for egg, poultry and related products, and the 
tariff levels for the first 6 to 7 years for unprocessed eggs and poultry are too high. 

Institute of Shortening and Edible Oils, Inc. 

The ISEO fully supports the NAFTA. The agreement will increase the potential 
export of oilseeds and oilseed products, and overall its members will benefit. The 
rules of origin should be strong enough to prevent transshipment through Mexico. 

International Apple Institute 

The IAI strongly supports the NAFTA. The agreement will significantly increase 
apple exports to Mexico. The tariffs on fresh and processed apples will be phased 
out over 10 years. The agreement will also help provide a forum to address disagree- 
ments and disputes. 

International Dairy Foods Association 

The IDFA supports the NAFTA and GATT. The food industry will be served well 
by more liberal trade in North America. Mexico will be a important market for high- 
er value products such as meats and dairy products. The agreement will strengthen 
Mexico's economy and generate new markets for U.S. products. 

Iowa Farm Unity Coalition 

It is very concerned about the impact the NAFTA will have on the livestock indus- 
try. Section 22 and the Meat Import Act should not be overridden by the agreement. 
Mexico's pork industry will modernize to meet health standards, and meat proc- 
essors and packers will move to Mexico to take advantage of cheaper labor. The re- 
sulting loss of jobs will be significant, and rural America will be hit the hardest. 
It is also concerned that U.S. laws will be challenged, and the United States will 
be forced to lower its standards. 

Land O'Lakes, Inc. 

It has no formal position on the NAFTA, but the Chairman believes sanitary and 
phytosanitary standards allow equivalence and its rules of origin provisions are ade- 
quate. It is concerned about enforcement, and that the United States provide suffi- 
cient resources for monitoring and inspections. 

Louisiana Rice Growers Association 

Supports agreement. It would have liked to see tariffs reduced earlier than pro- 
vided for, but it supports the agreement as long as rules of origin and food safety 
standards are upheld. 

M-M Associates (fruit and vegetable trade) 

Supports the Agricultural Technical Advisory Committee for Trade in Fruits and 
Vegetables position on the NAFTA. It must be guaranteed that S&P measures can- 
not be used against the United States as nontariff barriers and that rules of origin 
and intellectual property rights are strictly enforced. 

M&M Mars (Peanuts) 

Strongly supports the NAFTA despite the objections of the remainder of the pea- 
nut industry. The agreement will result in increased export of peanuts in confec- 



162 

tionery products, and the 15-year phaseout should be sufficient for the industry to 
adapt. 

M&M Mars (on behalf of the ATAC on Sweeteners) 

Supports NAFTA. Sees increased demand through exports of U.S. sugar, dairy 
and peanut containing products. The agreement also provides a sufficient transition 
period for Section 22 commodities. Reduction in duties will enable U.S. confectionery 
products to significantly expand the Mexican market. 

Michigan Asparagus Advisory Board 

Wants amendment to NAFTA to give processed asparagus a 15-year tariff transi- 
tion period instead of 10 years. Also wants an automatic and effective snapback trig- 
gered on benchmark date and with daily or weekly monitoring on volume or value 
basis; require harmonization and enforcement of wage rates; and keep frozen and 
canned asparagus tariffs at 17.5 percent. 

Michigan Bean Shippers Association 

Does not believe that the agreement will benefit Michigan agriculture. The overall 
benefits to U.S. agriculture will be limited. 

National-American Wholesale Grocers Association 

Supports NAFTA. It will benefit U.S. producers and consumers by further opening 
our third largest export market. Agreement will encourage increased Mexican im- 
ports of meat, dairy, poultry and high value consumer food products. The agreement 
will also compensate for seasonal shortages in produce. It also provides adequate 
protection against import surges and harmonizes phytosanitary standards for agri- 
culture products; however, Mexican enforcement needs to be improved. 

National Association of Wheat Growers 

Of its major concerns, two address trade with Mexico and three are continuing 
problems with Canada. It does not believe that there should be a 15-percent tariff 
phased out over 10 years when there is currently a 10-percent tariff. Adequate in- 
spection procedures should also be provided for to guard against the contamination 
of U.S. wheat by karnal bunt-infected trucks or railcars. 

The biggest problems for the Wheat Growers are with Canada. It cannot accept 
an agreement that does not achieve price transparency with the Canadian Wheat 
Board, and action must be taken to counter Canadian subsidies on west and east- 
bound freight. Subsidies on shipments through the United States to Mexico or an- 
other market must also be prevented. 

This position was prior to the announcement by the binational panel on Canadian 
Durum subsidies. NAWG now opposes the Agreement. 

National Association of State Departments of Agriculture/Maryland Depart- 
ment of Agriculture 

Supports the agreement. It is in the long-term best interest of American agri- 
culture as a whole, and the implementing legislation should be used to ensure this. 

National Audubon Society 

The Society has six main concerns about the adequacy of the NAFTA: 1) protect- 
ing local environmental and health standards; 2) the burden of proof should be on 
the party that attacks these standards; 3) the dispute settlement procedure; 4) the 
environmental impact it will have on the Mexican border; 5) how it will ensure envi- 
ronmental enforcement; and 6) how funds will be secured to develop environmental 
infrastructure. 

The National Audubon Society now supports NAFTA and its side agreements. The 
environment will be much better off with the NAFTA than without it. This was a 
unique opportunity to introduce environmental conditions into a trade agreement. 
The agreement makes enforcement of environmental laws a major priority. 

National Cattleman's Association 

Support negotiations on the agreement, including the elimination of licensing re- 
quirements and tariffs that will contribute to a better trading environment. It is 
concerned about the enforcement of rules of origin and regulations on animal health, 
environment and food safety. The agreement must address ability of the United 
States to restrict trade from non-NAFTA countries indirectly shipped to the United 
States through Mexico. 

National Cooperative Business Association 

Supports the agreement, and special attention must be given to job dislocation 
and training and the protection of health and environmental standards. 



163 

National Corn Growers 

Fully supports the agreement. It eliminates Mexico's restrictive import licensing 
and replaces it with a tariff rate quota at a level that is a substantial improvement 
over the recent trend. The agreement will also improve sales of value-added agricul- 
tural products to Mexico that will increase demand for corn. Through the increased 
demand for pork, the agreement will create opportunities for jobs in the livestock 
breeding, feed milling, veterinary services, and meat packing sectors. NAFTA will 
create wealth in Mexico that will lessen the incentive for Mexican citizens to leave 
their nation. 

National Cotton Council of America and Cottongrowers Warehouse Asso- 
ciation 

No official position on the agreement at this time. Its preliminary report focuses 
primarily on raw cotton. The final agreement does not meet two of its most impor- 
tant goals: a fiber-forward rule and maintaining Section 22 cotton quotas. Without 
a fiber-forward rule, Mexican and Canadian producers will be able to purchase non- 
NAFTA raw cotton, primarily from Pakistan and the former Soviet Union, below 
world market prices. The Council's summary provides more detailed information on 
its other concerns. 

National Cottonseed Products Association 

Generally supports the agreement and its eventual elimination on cottonseed oil 
tariffs. The one criticism it has is that "PBSY" cottonseed oil is not considered a 
crude vegetable oil and will be subject to a tariff double that of other crude vegeta- 
ble oils. This should be corrected by including PBSY cottonseed oil in the Mexican 
definition of crude cottonseed oil. 

National Farmers Organization 

Opposes the agreement. Mexican agriculture is not a threat to the United States, 
but the agreement will not result in any net gains. The agreement should be renego- 
tiated and provide for adequate enforcement of rules of origin, S&P measures, and 
environmental standards. Section 22 and the Meat Import Act, environmental and 
S&P measures tied to the opening of our borders, and the establishment of an ade- 
quate infrastructure along the border should be part of a renegotiated agreement. 

National Farmers Union 

Opposes the agreement, it should be renegotiated. Any new agreement should 
maintain Section 22 and meat import law; count Mexican imports against meat im- 
port law triggers; protect livestock producers from the risk of disease; count imports 
of Mexican Tbeef toward trigger levels in the meat import law; assess user fees to 
importers to enhance border inspection; require county of origin labels; prohibit ad- 
ditional countries from joining the NAFTA unless entire agreement is renegotiated; 
provide protection for Mexican family farmers; protect American producers form Ca- 
nadian transportation and pricing structure; maintain tariffs on imports from com- 
panies that exploit workers, worker safety or environment; and solve Mexico's for- 
eign debt problem. 

National Forest Products Association 

Supports the agreement because at the end of a 10-year transition period it will 
provide unrestricted access to the Mexican market. Achieved important nontariff ob- 
jectives. While it would have liked to see tariffs eliminated over a shorter period, 
the U.S. industry will be better off with the agreement than without it. One concern 
it does have is the possible lack of enforcement for collecting duties from 
maquiladora companies. 

National Grange 

Supports the agreement. It should provide long-term growth for U.S. agriculture, 
and new trade agreements like the NAFTA are more important to agriculture and 
rural America than any farm bill. Implementing legislation should strengthen the 
rules of origin and further protect import sensitive crops. 

National Grain and Feed Association 

The Association strongly supports NAFTA. The agreement is of vital importance 
to the grain and feed industry, and the economy in general. Agricultural producers, 
processors, exporters, and consumers will benefit from free trade with Mexico. Ap- 
proval of the agreement should not be linked to unresolved issues under the U.S.- 
Canada Free Trade Agreement. 

National Hay Association, Inc. 

Does not support the agreement because it does not address Canadian export sub- 
sidies for forage trade. It will continue to withhold support until Canada is pre- 
vented from undermining U.S. competitiveness in the Mexican market. 



164 

National Pasta Association 

Generally supports the agreement. It is disappointed that Mexico is given imme- 
diate access to the U.S. market while U.S. producers have a 10-year phaseout for 
duties on uncooked pasta and a 3-year phaseout for all other pasta products. The 
implementing legislation should allow for consultations to accelerate the phaseout 
period. 

National Peanut Growers Group 

Wants two provisions of the 1990 farm bill included in the implementing legisla- 
tion. The first is to prohibit the reentry of peanuts already exported by the United 
States. The second is to require imported peanuts to meet the same quality and 
grade standards that domestic peanuts are required to meet. 

National Pork Producers Council 

Supports the NAFTA with reservations. The Council believes that the S&P meas- 
ures of the agreement are a significant improvement, and it will benefit pork trade. 
However, it is concerned that non-TRQ items will be scored against TRQ items and 
trigger the safeguard mechanism. It Is also concerned about the dispute settlement 
mechanism and the ongoing animal health restrictions, border inspection require- 
ments, plant inspection and certification requirements. 

National Potato Council 

Concerns Include the 10-year phaseout period on fresh table potatoes; Canadian 
nontariff barriers; lack of reciprocity on processed potato tariffs; and that Mexico 
does not have the resources to police its phytosanitary and quality control programs. 
Applauds language to encourage science in phytosanitary regulations while main- 
taining U.S. standards. 

National Renderers Association, Inc. 

Supports the agreement. Mexican production is not likely to increase, and U.S. 
exports will continue to expand. 

National Turkey Federation 

The NTF has not adopted an official position on the NAFTA. Existing tariff and 
nontariff barriers do not pose a major problem to U.S. producers, but it does have 
some concerns with the quota and tariff system used for the first 10 years. This sys- 
tem will reduce raw turkey exports, limit future raw turkey exports, and give com- 
peting products an advantage. 

NTF now supports the agreement and continues its support of free trade. It is dis- 
appointed that quotas are set for exports to Mexico that are lower than existing and 
projected levels. NTF requests that the U.S. Government request an expansion of raw 
turkey imports to help meet Mexican demand. 

New England Grain and Feed Council 

While its members may have specific concerns, the Council has no objections and 
endorses the agreement. 

North American Blueberry Council 

Fully supports the agreement. Free trade already exists for blueberries. 

Northeastern Loggers Association, Inc. 

Supports the agreement. While it would have liked to see tariffs eliminated over 
a shorter period, the U.S. wood products industry will be better off with the agree- 
ment than without it. Agreement achieves important nontariff barrier objectives. 
One concern it does have is the possible lack of enforcement for collecting duties 
from maquiladora companies serving the Mexican market. 

NT Gargiulo 

The agreement does not sufficiently address the problems that Florida agriculture 
will encounter. It does not recognize the disparity between worker environment con- 
ditions in Mexico and Florida, and it questions enforcement of the agreement in 
Mexico. The agreement should be changed to lengthen the phaseout periods and 
strengthen safeguards, or there should be stronger tie-ins and enforcement of envi- 
ronmental, food safety, S&P and working conditions. 

Pandol Brothers, Inc. 

It sees a gain for California and the United States if NAFTA is signed, but one 
problem is that Mexico has shut out U.S. grapes. Believes that the United States 
should pressure Mexico to lift restrictions on U.S. grapes. 

Papaya Administrative Committee 

The agreement will not have a damaging effect on the Hawaiian papaya industry. 



165 

Pioneer Hi-Bred International, Inc. 

Supports the agreement. It will increase exports of corn, soybeans, sorghum, other 
coarse grains, and meat, which will increase demand for seed in the United States. 
The sale of seed and inoculant products to Mexico will also benefit. Concerned with 
potential for overregulation of inoculants by combining the regulations of all three 
countries. It would like to see a streamlined registration process for inoculants. 

Prairie Fire 

Adamantly opposed to the agreement. It will cause significant damage to the U.S. 
agriculture industry and ruin the rural job base by sending more manufacturing 
jobs to Mexico. It will also further damage the livestock industry by moving produc- 
tion to Mexico and depressing prices. 

RiceLand 

It believes that the agreement provides the United States with long-term export 
opportunities and is in the economic best interest of the United States. It is impera- 
tive that the agreement has effective monitoring and enforcement of rules of origin, 
S&P measures and environmental standards. It also believes that the dispute settle- 
ment procedures are adequate. 

Rice Millers Association 

The U.S. rice industry stands to benefit from the agreement. However, these bene- 
fits could be greater if tariffs were phased out quicker and the tariff differential be- 
tween rough and milled rice was eliminated or phased out more quickly. 

The Rice Millers Association strongly supports the agreement. NAFTA will increase 
market access to Mexico and create jobs through expanding trade. NAFTA will secure 
an expansion of Mexican demand for U.S. rice. 

Rowe-Swanson International 

In favor of the agreement. The long-term impact it will have on the U.S. economy 
far outweighs any negative side effects. 

Rural Vermont 

The agreement could pave the way for expansion of mega-dairies in Mexico to 
take advantage of cheap Mexican labor, lax environmental laws (such as use of bo- 
vine growth hormone) and duty-free feed imported from the United States. Feed lot 
dairies could ship dairy products to the U.S. market duty free and without Section 
22 import quota protection. Mexico could ship its production to the United States, 
then import cheap New Zealand or subsidized EC milk for local consumption. 

Savannah Foods & Industries, Inc. 

Does not agree with the sugar provisions of the agreement, and the industry's rec- 
ommendations should be included in the implementing legislation. The net exporter 
definition must be changed to include corn sweeteners and be calculated on a verifi- 
able history. The market access provision should be struck, and the transition pe- 
riod for sugar-containing products should be 15 years, not 10. 

St. Albans Cooperative Creamery, Inc. 

No official position on the agreement, but is very cautious on its approach. 
NAFTA promises to benefit the dairy industry, but it must be ensured that it will 
benefit all Americans. The family dairy farmer should be compensated for the loss 
of quotas. Side agreements have to address environmental and labor standards and 
protect the United States from cheap imports. There should also be strong rules of 
origin, and Mexican dairy exports should have to meet the same requirements of 
U.S. dairy products. 

Scottsbluff/Gering 

Strongly opposed to the agreement. During negotiations, the input of many impor- 
tant economic sectors was not acknowledged, and the agreement will put U.S. agri- 
culture at a competitive disadvantage in the world marketplace. Nebraska and east- 
ern Wyoming will be hurt significantly by this agreement. 

South Carolina Farm Bureau Federation 

Supports the agreement and urges officials to work for a fair and equitable agree- 
ment that will protect the interests of U.S. agriculture and create a level playing 
field. The NAFTA may hurt some farmers, but on the whole it will be beneficial. 
The Federation also believes that the agreement will benefit soybean, corn, tobacco 
and cattle producers through increased exports, and U.S. cotton will still be in de- 
mand because Mexican cotton is of lower quality. 

Southern Forest Products Association 

Supports the agreement. While it would have liked to see tariffs eliminated over 
a shorter period, the U.S. wood products industry will be better off with the agree- 



166 

merit than without it. Agreement achieves important nontariff barrier objectives. 
One concern it does have is the possible lack of enforcement collecting duties from 
maquiladora companies serving the Mexican market. 

Southeastern Peanut Association 

Opposes the agreement. It will undermine the domestic industry, and it is impos- 
sible to guarantee that the quality of imported peanuts will meet the same stand- 
ards as domestic peanuts. The U.S. industry will be further damaged by the erosion 
in consumer confidence of the quality of the peanut supply. 

Southwest Peanut Growers 

Has the same recommendations as the rest of the peanut industry. The imple- 
menting legislation must include two additional provisions for peanuts. First, it 
should prevent the reentry of peanuts previously exported by the United States, and 
provide a financial penalty if they do reenter. Second, the same quality and stand- 
ard controls that U.S. peanuts have to adhere to should be required for imported 
peanuts. 

Sun-Diamond Growers of California 

Supports the agreement. 

Sweeteners Users Association 

Supports the agreement and its sweetener and sweetened-product provisions. It 
does not want to see the sugar provisions changed, and if Mexico does become a net 
exporter it will not be able to flood the U.S. sugar market during transition period. 
The Mexican market for sugar-containing products will continue to grow as the tar- 
iffs are reduced and Mexican demand rises. Sugar-containing product reexport pro- 
gram is maintained until Mexican tariffs reduced. 

Texas A&I University System 

The agreement will have mixed impacts on Texas agriculture, but the gains will 
far offset losses. Most changes will be small in magnitude, with largest impact on 
sectors that are economically sensitive to trade. Details on live cattle, horticultural 
crops, and sugar. 

Texas Department of Agriculture 

Strongly supports the agreement. Report of a select committee of Texas ag leaders 
and Commissioner Perry. The implementing legislation should include penalties for 
violations and noncompliance, convert tariff schedules to an ad valorem system, and 
enforce rules of origin. Included in the statement is a brief overview of how different 
agriculture groups in Texas view the agreement. 

Texas Farm Bureau 

It does not have a definite position, but trade with Mexico should be encouraged 
and promoted. Preliminary estimates indicate that the agreement will benefit the 
Texas economy. Any agreement should ensure that current standards are not re- 
laxed and are enforced. 

Tri Valley Growers 

Supports agreement. Most tariff reductions are reciprocal, except on tomato cat- 
sup. Supports de minimis rule of origin provision. U.S. grades and standards will 
not be compromised. Wants shorter period for dispute settlement procedures. Some 
nontariff barriers are not reciprocal, like Canadian can size restrictions. The United 
States must also be allowed to continue to subsidize exports to counter non-NAFTA 
exports through EEP and MPP. 

United Food & Commercial Workers 

The agreement falls far short of its expectations. It will bring major hardship and 
job dislocation on the meat and livestock industries. The principal danger of the 
agreement is that several of its provision will encourage Mexico to shift from export- 
ing live cattle to exporting meat and processed meat products. The new administra- 
tion should include provisions that will ensure the safety of our food supply and per- 
mit the United States to implement more stringent rules in the future. A provision 
to take action against violations of labor, environmental and human rights stand- 
ards should also he included. 

United Fresh Fruit and Vegetable Association 

Overall, the industry will benefit in the long run. However, some sectors will not 
benefit, and its comments address the deficiencies in the agreement that hurt these 
sectors. It is not satisfied with the safeguard mechanism because it would work 
much better if it was based on price and not volume. Mexican tariffs on many prod- 
ucts are not being phased out as soon as the same U.S. tariffs, and sensitive and 
highly sensitive commodities should have received a longer transition period. A 



167 

more detailed list of its concerns and how these concerns were addressed in the 
agreement is attached to its letter. 

USA Dry Pea & Lentil Council 

The Council is upset that the agreement did not address Canadian transportation 
export subsidies. While these subsidies are prohibited under the U.S. -Canada FTA 
for products entering the United States, the NAFTA does not prohibit these sub- 
sidies for products going to Mexico. It is also concerned about article 56 vagueness 
in addressing export subsidies and failure to provide a solution. 

USA Poultry & Egg Export Council 

Supports the agreement overall. The long-term benefits for all the Council's com- 
modities, especially value-added products, Tar outweigh any short-term limitations. 
It is concerned that the agreement may be delayed or dismantled by reopening nego- 
tiations. It is concerned about the 100-kilometer free trade zone in Mexico and if 
U.S. products entering this area will be exempt from quota levels. Another concern 
is that the agreement makes no distinction between table eggs and hatching eggs. 

U.S. Beef Breeders Council 

Reservations about agreement. It is concerned about the many unknown problems 
that will arise after the agreement is implemented. Elimination of tariffs will en- 
courage increased U.S. breeding stock. Feeder calf reciprocal trade will increase. In- 
creased competition might result in decreased prices for U.S. ranchers and feeder 
calf producers. It is also concerned about the rules of origin standards and the pro- 
tection of U.S. animal and plant health. 

U.S. Chamber of Commerce 

The agreement meets all of the Chamber's requirements, and it will benefit all 
parties involved. It adequately addresses the issues of labor impact, the environ- 
ment, food safety, rules of origin, administrative barriers, custom regulations and 
enforcement. Expanded regulatory systems will be necessary to ensure that health 
standards are upheld. 

United States Hide, Skin & Leather Association 

Supports the agreement. Mexico has traditionally been a strong market for U.S. 
hides and skins, and the agreement will encourage market growth by eliminating 
licensing requirements and quotas. It is concerned about the enforcement of the 
rules of origin, and that Mexico not attempt to impose artificial barriers to trade. 

U.S. Meat Export Federation 

Supports agreement. Barriers to trade with Mexico are already low, but MEF pre- 
dicts that beef and pork exports to Mexico under agreement could double or triple 
by the end of the decade. The major benefit is agreement will stop Mexico's arbi- 
trary implementation of trade barriers, such as increasing tariffs on beef and live 
cattle. The Federation also stressed the importance that programs like the MPP 
that have played in assisting its export programs. 

U.S. Rice Producers Group 

Supports the agreement. Disappointed that NAFTA did not reduce Mexican tariffs 
immediately or reduce duty on milled rice immediately to level of paddy rice tariff. 

United States Egg Marketers and Wampler-Longacre Chicken, Inc. 

Supports the agreement. While the rules of origin and tariffs for processed egg 
products are acceptable, the Mexican tariff levels for poultry are too high for the 
first 6-7 years and hatching eggs and table eggs should have separate tariff rate 

?uotas. The agreement must preserve all health standards for products entering the 
Fnited States. Safeguards should also be enacted to ensure that products entering 
the 100-kilometer zone or maquiladoras are not counted toward quota levels. 

The State of Vermont Department of Agriculture, Food and Markets 

NAFTA has great potential, but at the same time it poses many dangers. Specifi- 
cally, firms will entice firms to move to Mexico. It is important that the agreement 
truly does maintain the rights of States to maintain higner standards without pro- 
tracted dispute settlements. Rules of origin must be strictly enforced to prevent 
Canada from exporting dairy products through Mexico to the United States, prevent 
Mexico from meeting its domestic needs with New Zealand dairy products and ex- 
porting its supply to the United States, and prevent the reexport of non-NAFTA 
dairy products. Vermont is also concerned about the loss of Section 22 and the 
precedent it will set for the GATT. 

Vienna Beef 

Supports the agreement. Over time, the U.S. food industry will win out because 
of its ability to produce high quality products efficiently. Mexican labor costs and 



168 

phytosanitary standards will eventually rise to the U.S. level as Mexico is increas- 
ingly required to meet U.S. standards for quality. 

Washington Apple Commission 

Fully supports the agreement. Mexico is already its largest export market, and 
the agreement will further open its market. 
Western Dairy Co-op, Inc. 

Supports the agreement for the dairy industry. The rules of origin, health, pes- 
ticide and environmental standards are all acceptable. The Co-op is concerned about 
the future impact on U.S. agriculture. If Mexico allows foreign investors to own 
farmland, large-scale dairies could be established and, with low wage scale, make 
it difficult for American farmers to compete. 

Western Growers Association 

NAFTA falls far short of its expectations, and concerns must be addressed if fruit, 
vegetable and nut growers are to benefit. The areas that need to be looked at fur- 
ther are: Environmental, labor and pesticide regulations; longer phaseout for sen- 
sitive crops (20 years); price-based safeguard rather than a volume-based snapback; 
action to retaliate if Mexico uses phytosanitary measures as a means to limit U.S. 
product; immediate elimination of Mexican import licenses on table grapes and pota- 
toes; establish a Mexican PACA; commercial dispute settlement; protection of intel- 
lectual property; and Mexican funding in U.S. promotion programs of mutual bene- 
fit. 

Wine Institute 

The NAFTA is inadequate because Mexico does not provide the same access for 
U.S. table wines that Mexican wines entering the United States enjoy. Chile re- 
ceives better market access to Mexico than the United States. The U.S. industry 
only has about 10 percent of this market, and this is not expected to increase after 
the NAFTA is implemented because the market access provisions place the United 
States at a competitive disadvantage. 

Women Involved in Farm Economics 

WIFE has several concerns with the agreement. Rules of origin have to be 
strengthened and enforced, and end-use certificates should be required; U.S. compa- 
nies operating in Mexico should be required to adhere to U.S. environmental laws; 
challenges to U.S. pesticide laws is allowed under the agreement; and Mexican agri- 
culture products containing banned pesticides could reach the U.S. market. WIFE 
is especially concerned about the impact the agreement will have on U.S. jobs and 
how this will lower the living standard in the United States. 

QUESTIONS SUBMITTED FOR THE RECORD BY SENATOR BAUCUS AND 

RESPONSES THERETO 

Secretary Espy 

Question 1. I am supportive of efforts to use Section 22 with regard to Canadian 
wheat. Does the administration intend to pursue section 22 action and to require 
end-use certificates on imported grain? 

Answer. As you are aware, President Clinton requested the International Trade 
Commission to undertake a Section 22 investigation on wheat, to commence on Jan- 
uary 15, unless the administration had successfully resolved the issues connected 
with Canadian wheat imports. To date, despite negotiations both in Geneva and 
Canada, we have not yet reached an agreement with the Canadian Government on 
the various wheat issues. We continue to pursue a solution to this and other issues 
with the Canadian Government, but the Section 22 investigation will go forward. 

In addition, the NAFTA implementing legislation contains a provision requiring 
the USDA to impose end-use certificates on wheat and barley imports from any 
country that also requires end-use certificates on U.S. grain imports. This require- 
ment will go into effect 120 days after the implementing legislation is enacted, un- 
less Canada agrees to remove its requirement. 

Question 2. Is the administration prepared to exchange letters with the Mexican 
Government, committing to work towards the elimination of export subsidies on 
sales of grain to Mexico? 

Answer. The NAFTA text calls for the three parties to work toward eliminating 
all export subsidies on agricultural trade in North America. We are prepared to 
work toward that goal, but could not agree to eliminate all export subsidies in the 
NAFTA because Mexico continues to import subsidized agricultural goods from non- 
NAFTA countries. Additionally, export subsidies were not defined in the NAFTA, 



169 

leaving open the issue of unfair trading practices, such as Canadian Wheat Board 
pricing pratices. 

Question 3. You have been very active in actions to improve food safety since you 
have taken office. How will you address the concerns with food safety and inspection 
which have been brought forward today? Will it be possible to make these changes 
after the NAFTA has been implemented? 

Answer. We know where we need to improve the meat inspection system, for ex- 
ample, and we will continue to make progress in that direction. But the NAFTA will 
in no way affect our ability to improve the meat inspection system. The NAFTA spe- 
cifically provides that countries can adopt measures to protect human, plant, and 
animal health, so our ability to maintain and improve upon any health or inspection 
measure will not be diminished. The NAFTA does not require that we make any 
changes to our current standards for health and inspection. The NAFTA also pro- 
vides that a State can impose more stringent measures, as long as they are based 
on sound science and are not disguised trade barriers. 

Question 4. I understand that the Mexicans have imposed a "slowdown" on sheep 
moving into Mexico that has created a tremendous backlog of animals in that re- 
gion. It has been alleged that this slowdown is a protest against the tuberculosis 
regulations proposed for cattle. The market demand is being met by other nations. 
This could create lasting damage to the American sheep industry and threatens 
their support for the NAFTA. Is the Department involved in seeking a quick resolu- 
tion to this situation and will the NAFTA prevent such occurrences in the future? 

Answer. On September 7, 1993, the Government of Mexico announced that they 
would begin implementing requirements for U.S. slaughter sheep exported to Mex- 
ico to be individually inspected for extoparasites. Exporters expressed concern that 
Mexican inspection facilities were not adequate to handle the volume of sheep cur- 
rently exported, about 4,000 head per day. The new requirement, which Mexico had 
required 2 years ago in a similar move, has not materially affected the movement 
of sheep into Mexico from Texas. Mexico is, of course, allowed to require health in- 
spections on imported animals, as long as such requirements are also imposed on 
domestic animals and are scientifically defensible. The NAFTA will give us recourse 
to pursue any Mexican requirement we think does not meet the test of sound 
science. 



Ambassador Kantor 

Question 1. I am supportive of efforts to use Section 22 with regard to Canadian 
wheat. Does the administration intend to pursue Section 22 action? 

Answer. I understand your concerns about wheat imports from Canada. One pos- 
sible remedy is the imposition of an import fee or quota under Section 22 of the Ag- 
ricultural Adjustment Act of 1933. Under current law, the Secretary of Agriculture 
advises the President when the Secretary has reason to believe that imports of any 
article are entering the United States in such quantities "as to render or tend to 
render ineffective, materially interfere with" any USDA price support or other agri- 
cultural program, or "reduce substantially the amount of any product processed in 
the United States from any agricultural commodity or product thereof covered by 
a USDA agricultural program. 

If the President agrees, he must order an investigation by the U.S. International 
Trade Commission (ITC). Based on the ITC report, the President must determine 
whether the conditions specified in the statue exist. If the President make an af- 
firmative determination, he is required to impose, by proclamation, either import 
fees or import quotas sufficient to prevent imports from harming or interfering with 
the relevant agricultural program. Any import fee imposed, however, may not ex- 
ceed 50 percent ad valorem. Any import quota may not exceed 50 percent of the 
quantity imported during a representative period. 

If the Secretary of Agriculture determines and reports to the President that emer- 
gency action is needed, the President may take immediate interim action without 
awaiting a report from the ITC. Such interim action will continue in effect until the 
President acts on the ITC report. 

At this time, we understand that this issue is under review within the Depart- 
ment of Agriculture, but we are unaware of any pending advice to the President 
from the Secretary of Agriculture. Should such advice be received, my office would 
usually be asked to coordinate interagency recommendations to the President. With- 
in the interagency process, my office would support the idea of taking Section 22 
action. 




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Question 2. Is the administration prepared to exchange letters with the Mexican 
Government, committing to work towards the elimination of export subsidies on 
sales of grain to Mexico? 

Answer. During the negotiations, the United States expressed an interest in ne- 
gotiating the elimination of export subsidies into the Mexican market. However, 
Mexico was not prepared to preclude the opportunity to benefit from the import of 
subsidised products. Therefore, the United States negotiated Article 705, which pre- 
serves our right to use export subsidies in the Mexican market when Mexico is im- 
porting subsidized products from other countries, including Canada. 

Question 3. You told the Finance Committee that you support the use of end-use 
certificates against Canadian grain. Can you assure us this provision will happen 
as part of a NAFTA implementing bill? 

Answer. As I stated in the Finance Committee on September 15, this administra- 
tion does not oppose legislation to require appropriately crafted end-use certificates 
on imported grain in order to ensure that foreign grain is not benefiting from U.S. 
export programs. 



Leland Swenson 



Question 1. Can the concerns you have mentioned be addressed independent of 
the NAFTA? For example, there are indications that the USTR may be ready to 
take action under Section 22 with regard to wheat. Would your organization be in 
a position to support this agreement if such actions were taken? 

Answer. It is highly unlikely that the concerns of the national Farmers Union 
could be addressed satisfactorily by any North American Free Trade Agreement 
(NAFTA) side agreements. The flaws in the document run too deep. No country 
which has signed the current NAFTA would want to reopen the document only to 
retreat voluntarily from a position of advantage. A side agreement with language 
that strong would not be acceptable to the other countries. 

Lesser agreements, such as those between members of Congress and the adminis- 
tration, which do not bind the other nations in NAFTA, have no teeth and are not 
acceptable to NFU. We have seen these agreements come and go in relation to the 
Canadian Free Trade Agreement. They have been meaningless. 

NFU finds the proposed Section 22 action regarding wheat inadequate for several 
reasons. 

First, our members grow many commodities, wheat being only one. Singling out 
one grain for Section 22 action is merely an attempt to divide and conquer. We nave 
250,000 farms in our organization. Not all of them grow wheat, but most of them 
grow commodities which will be affected by NAFTA. 

Second, the proposed Section 22 action is merely an offer by the U.S. Trade Rep- 
resentative to look into an abuse which the previous administration has chosen to 
ignore for several years. NFU does not view an offer by the USTR to do its job on 
only one of many existing problems with the Canadian Free Trade Agreement as 
sufficient reason to support another flawed agreement. 

This NAFTA is lacking in several areas. For instance, no requirement for end-use 
certificates is included, no country-of-origin labeling provisions exist in it, and the 
provisions for environmental protection and border inspections ar far too weak. NFU 
has other concerns as well, but these problems are of sufficient importance to gen- 
erate strong opposition to this NAFTA among NFU members. 

American family farmers have not seen sufficient commitment by the United 
States Government to protect them from bad trade agreements in the past. They 
see their only protection from bad agreements in the future is to keep the United 
States from signing them in the first place. 



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