partners (Vollrath 2004). Since agricultural markets are subject to some of the highest barriers, the trade intensity difference is probably greater for farm products.
While much remains to be done, it makes little sense to alter the sched- uled profile of farm barriers within NAFTA while Doha and FTAA talks are still under way—probably until 2007. However, NAFTA partners should use this window to chart a course toward “approximate free trade” over the decade 2007–17.
The starting point is to recognize that domestic agricultural subsidies will not be negotiated down across the board within NAFTA, because the United States and Canada will agree to “disarm” only with the assurance of comparable commitments from the European Union and other major agri- cultural producers. At most, trial programs, such as we have advocated for amber and blue box wheat supports, might be negotiated within NAFTA. Moreover, because agricultural subsidies have been capitalized into hun- dreds of billions of dollars of farmland values,164 they can be reduced only slowly, even in the context of WTO negotiations. A likely outcome of the Doha Round will be a partial transformation of amber and blue box subsi- dies (those that support agricultural prices and production) into green box subsidies (decoupled from price levels and production decisions).
With this context in mind, NAFTA partners should seek to phase out existing border barriers and eliminate them totally by 2017. However, to deal with the subsidy problem, NAFTA partners should negotiate their own “WTO-plus” commitments to eliminate or substantially reduce amber and blue box subsidies on a product-by-product basis beyond the reforms undertaken in the Doha Round. In addition, on a purely national basis, each partner should retain its privilege to invoke special agricul- tural safeguards, triggered by a market disruption test that could be ap- plied for one year. (The market disruption test could have a lower thresh- old, and the safeguards period could be longer, if amber and blue box subsidies were a factor.) “Snapback” tariffs should be the preferred means to revert to the previous level of protection, if an import surge caused a severe drop in domestic market prices.
As a second goal, by 2017, NAFTA members should adopt a common ex- ternal tariff (CET) on agricultural products. In the final chapter, we recom- mend that a CET on nonagricultural products be accomplished on a much faster timeline. The slower phase-in of an agricultural CET reflects the high sensitivity of this sector.165 By harmonizing their national tariff rates toward a negotiated CET, NAFTA countries will eliminate differences in the most-
164. Over 1994–2003, US agricultural subsidies and market access barriers have averaged $40.3 billion annually on a producer support estimate basis. Even if these supports are dis- counted at the high rate of 15 percent, taking into account market and political uncertainties, they could have created some $270 billion of higher US farmland values.
165. To be saleable, the CET would need to be phased in very slowly for key agricultural im- ports (such as sugar). See Hufbauer and Schott (2004).