Multifunctionality, Agricultural Trade and WTO Negotiations: A Review of Interactions and Issues

The paper considers the set of issues associated with the design and implementation of support, trade and multifunctionality policies in agriculture. It first describes how non-trade concerns were taken into account in the Uruguay Round Agreement on Agriculture and how they are currently integrated in the current round of negotiations through the opposition between multifunctionality proponents versus opponents. It briefly describes the main non-trade concerns that can be associated with agricultural production (food security, viability of rural areas, environment and natural resource protection) and concludes that a unambiguous resolution to the problems of identifying, measuring and valuing the externalities and/or the public goods associated with agricultural production is unlikely. It summarises some lessons that can be drawn from economic theory. If externalities are not adequately addressed, trade liberalisation may not be beneficial to some countries but even in that case, which corresponds to reality, trade policies are unlikely to be second-best instruments of dealing with externalities. According to the policy-targeting theory, non-trade concerns associated with agricultural production should be addressed through specific and targeted measures. Furthermore, policies are likely to be country specific reflecting differences in preferences among countries. As these normative conclusions rest on several assumptions, other criteria have to be taken into account for more complete evaluation of policy choices and policy impacts. Criteria include administrative efficiency, monitoring and enforcement, information and uncertainty, ethical and political considerations (notably political feasibility), distributional issues, other distortions (because markets are far from being perfect), as well as flexibility and dynamic adjustments.