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grams, and all US export subsidy programs—would lead to a decline in Mexican corn production by 19 percent and reduce total farm employment by an estimated 800,000 rural workers. These workers would in turn emi- grate to urban Mexico and the United States.162 If the estimate is accurate, free trade would reduce the share of Mexican workers engaged in agricul- ture from 21 to 19 percent.

We recommend that the Mexican government set its sights on free trade in corn over a period of six years, between 2008 and 2014. The liberaliza- tion period should be stretched out from the original NAFTA timetable through negotiation. During this period, as a consequence of WTO negoti- ations in the Doha Round, the United States will very likely cut its corn (and other agricultural) subsidies, perhaps by a large dollar amount and percentage. Export subsidies on agricultural products are likely to be elim- inated altogether. If the United States continues to subsidize corn, either through distorting amber or blue box supports,163 Mexico should be per- mitted to impose safeguard measures, with a lower injury threshold (e.g., “market disruption”) than customary for safeguard actions.

Conclusions and Recommendations

Agriculture remains the make-or-break issue for multilateral and regional trade agreements. This is equally true for bilateral FTAs. To resolve the agricultural hurdle, the US-Chile FTA has long phaseout periods for sen- sitive agricultural products (notably dairy, sugar, avocadoes, and orange juice). In the US-Australia FTA and the Central American Free Trade Agreement (CAFTA), sugar is either excluded altogether or liberalized very little, and barriers on other sensitive products (dairy, beef, rice, and poultry) are phased out over long periods. Compared with other free trade pacts, the US-Mexico component of NAFTA ranks among the better agreements so far as farm products are concerned. By adhering to built-in timetables and by launching new negotiations on residual barriers (espe- cially between the United States and Canada), NAFTA can achieve nearly free agricultural trade—what may be called “approximate free trade”— within a decade.

As a prelude to our recommendations, we note that NAFTA is far from an integrated economic area. Much remains to be done. According to one estimate, in 2000, the intensity of within-country trade was still 12 times greater than the intensity of between-country trade among the NAFTA

162. Under this scenario, Mexican horticultural exports would increase and partly compen- sate for the decline in corn and basic crop production. See Yunez-Naude (2002b).

163. Amber box subsidies either support prices or increase production quantities, or both. Blue box measures are government payments (such as deficiency payments) linked to pro- duction restraint programs. See WTO (2004c).

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NAFTA REVISITED: ACHIEVEMENTS AND CHALLENGES

Institute for International Economics | www.iie.com

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