Well, I've never seen this problem before. Let me take a stab at it.

On boldface questions such as this one, it's best initially to find the conclusion of the argument. In this case, our conclusion is: regulation of pesticide use should take place not at the national level but at the local level (reworded to be parallel). Many conclusions contain a modal verb (will, should, must) so any sentence with a modal is a good candidate for a conclusion.

Why? Because it is in the areas where pesticides are actually applied that they have their most serious effects and because local officials are much more likely than national legislators to be truly knowledgeable about such local conditions.

Now that we have identified the conclusion and its two premises (one of which is a boldface statement), we must ask ourselves about the rest of the argument. The first boldface statement seems to argue against the conclusion. We know this partially by using logic and partially by observing the word "nevertheless" right before the conclusion. Clearly, this conclusion goes against the statement just before that.

Accordingly we can conclude that the first boldface statement is a counter-premise and the second boldface statement is a premise. Now let's go to the answer choices:

(A) The first statement does not provide support for the conclusion of the argument.
(B) The first statement does not state the conclusion of the argument.
(E) The first statement does not provide support for the conclusion of the argument.

So we are reduced to C vs. D.

(C) The second statement does not state the conclusion of the argument.

So it must be (D).

I agree with you it is best to identify the conclusion of the argument, and the conclusion is indeed =
regulation of pesticide use should not take place at the national level but at the local level.



[1]Certainly, pesticides can adversely affect the environment in localities distant from where the pesticide has actually been used. Nevertheless, [2]regulation of pesticide use should not take place at the national level but at the local level. [3]It is in the areas where pesticides are actually applied that they have their most serious effects. [4]Just how serious these effects are depends on local conditions such as climate, soil type, and water supply. [5]And local officials are much more likely than national legislators to be truly knowledgeable about such local conditions.

[2] is the conclusion.
[1] is against the conclusion.
[3], [4], and [5] are again in support of the conslusion.

Proof that this is a genuine GMAT Prep Question.