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establishes a TRQ for Canadian wheat exports. This memorandum of un- derstanding could resemble the 1994 one. For example, the within-quota limit for Canadian total wheat exports to the United States might be 1.5 million metric tons or a percentage of the US market, whichever is higher, with a sublimit on durum wheat exports. Canadian wheat exports above the limit would be subject to a tariff, say 10 percent. While the memoran- dum of understanding is in effect, Canadian wheat would not be subject to AD or CVD penalties.

In order for the WTO Doha Round to succeed, the United States, Canada, and the European Union must curtail their amber and blue box supports for agriculture, including wheat. Farm subsidies in the amber box (trade- distorting, such as price supports) and blue box (trade-distorting but with production limits) will need to be sharply reduced, but to some extent the funds may be redirected to the green box (decoupled, nondistorting subsi- dies, such as income supports). Whatever formula is finally agreed on, it is virtually certain that the Doha Round will not altogether eliminate amber and blue box farm subsidies. 72

Therefore, after the WTO package is concluded, the United States, Canada, and Mexico should take an additional bold step: a NAFTA agree- ment that after the Doha agreement has been fully implemented, remain- ing amber and blue box subsidies for wheat will be phased out altogether over an additional 10 years. Each country could choose, if it wished, to cushion the impact on farm values by redirecting the funds to green box supports. Green box supports could, for example, take the form of a con- tractual acreage payment that declines year to year, scaled to the historic wheat acreage in each farm, whether or not the acreage is planted to wheat in future years. This NAFTA agreement would serve as a valuable example not only for other subsidized crops in North America but also for support programs in Europe and elsewhere. More immediately, it would pave the way for completely free wheat trade within North America.

The Sugar Saga

The United States and Mexico share a long tradition of maintaining artifi- cially high internal sugar prices.73 Moreover, since 1998, as world sugar prices have declined, government assistance to sugar has increased.

72. For more detailed analysis of the Doha Round negotiations on agriculture, see Josling and Hathaway (2004).

73. Sugar has been a highly protected product for centuries—literally since the regime of Emperor Napoleon Bonaparte. In the interest of space, we pass over the rich history of pol- icy intervention and start our NAFTA account in the 1990s. However, it is worth noting that while the United States and Mexico generously protect their domestic sugar producers, Canada does not.



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