WORLD TRADE
ORGANIZATIONWT/CTE/W/97
10 August 1998
(98-3130)
Committee on Trade and Environment Original:  English
NON TRADE CONCERNS IN THE NEXT AGRICULTURAL NEGOTIATIONS
Submission by Argentina
The following paper has been received from the delegation of Argentina with the request that
it be circulated to Members of the Committee on Trade and Environment as a contribution to work
under Item 6.  This paper was prepared by Argentina for the Committee on Agriculture's process of
analysis and information exchange.
_______________
I. EXECUTIVE SUMMARY
1. Every economic sector interacts with many other aspects of reality and is inscribed in a
complex scenario where nothing is isolated and everything is “multifunctional”.  The so-called
“multifunctionality” of the agricultural sector is a recognition of the complexity of reality and states a
valid concept for all the trade sectors that fall w ithin WTO disciplines, agriculture amongst them.
This concept is referred to in Article 20 of the Agreement on Agriculture as “Non Trade Concerns”
that have to be taken into account in the negotiations called for continuing the process of fundamental
reform of the agricultural sector.
2. Every country has valid “non trade concerns” that have to be duly considered within the
“long-term objective of (achieving) substantial progressive reductions in support and protection
resulting in fundamental reform” of the agricultural sector as an ongoing process.  Therefore, the key
point is to identify how to better serve those “non trade concerns” while honouring that objective.
3. Since the WTO is meant to promote trade liberalization and to serve this purpose, Member
States have assumed binding obligations and commitments, this approach should not need furtherjustification.  This paper argues that there are also economic and environmental fundamental reasons
to avoid “exporting” our own “Non Trade Concerns” to our trading partners.
II. HEALTHY PRICES ARE FOR THE SAKE OF THE ENVIRONMENT
4.  The environment is at the root of the “non trade values” of important and very active sectors
of our societies.  Environmental degradation is posing problems world-wide and despite incomedifferences, all social sectors are affected.  Environment protection is directly linked to natural
resource management policies.  Commodities are in general intensive in use of natural resources and
agriculture production is no exception.
5. The liberalization of trade does not guarantee greater protection for the environment,
particularly when the price of traded goods does not truly reflect their full production cost.  AccordingWT/CTE/W/97
Page 2
to the World Bank,1 among the most powerful policies to improve environmental management are
those that use market and price signals to make the appropriate allocation of resources.
Environmental resources (e.g. land, water, biodiversity) are typically underpriced in two ways:  (i) by
subsidies that actually reduce the cost of overexploiting or polluting the environment;  and (ii) by the
failure of markets that normally tend to reflect only the private costs of production, ignoring thedamages inflicted on others by pollution and the depletion of natural resources.  These two “failures”
have been catalogued as “policy failures” and “market failures”.
2
6. Therefore, in order to promote a cooperative relationship between environmental protection
policies and international trade agreements, we should begin by eliminating those trade restrictions
and distortions that prevent the true production costs from being reflected in the actual price of goods
traded and, only then, attempt to counterbalance market failures. This is just like being faced with the
problem of excessive heat in a room:  before sw itching on the air conditioning, we need to try
switching off the heating.
7. In a market economy, prices are the arbitration mechanism by which the remuneration is
defined for each of the different factors involved in the production process (according to their position
on the supply and demand curve).  Prices determine decisions made by investors, producers and
consumers.  A distortion in price alters the message sent to all economic players, and this has a clearenvironmental impact, particularly when commodity prices are involved.  There are three reasons for
this:  (i) commodities form the basis of the production pr ocess, so that any change in their prices has a
knock-on effect for the remainder of the process;  (ii) commodities have a cost structure that is much
simpler than that of goods produced by a greater level of manufacturing, which means that an
incorrect valuation of the natural resource being exploited (i.e. land, fishing grounds, forests, air,water) will have a much more appreciable effect than it would have on products with a more complex
cost structure;  and (iii) commodities are basically fungible
3, so that any price distortion would easily
be transmitted to the international system in which they originated.
8. Therefore, a price distortion results in an inaccurate message.  The relative scarcity of any one
single factor involved in production (i.e. natural resources, such as land or water) is obscured and thisstands in the way of determining the system's capacity to sustain a given production over a period of
time (known as sustainable production).  Accordin gly, ensuring that growth and sustainable
development policies are compatible requires a two step reform:  (i) moving towards free market
prices, i.e. removing “policy failures” that impede  prices to reflect full private marginal costs of
production;  and (ii) moving beyond free market prices, i.e. adopting policies that counterbalance
“market failures” responsible for not allowing prices to reflect full costs of production.
9. Consequently, the removal of subsidies capable of distorting production and trade, hence
prices, is an indispensable first step towards sustainable exploitation of natural resources.
III. NATIONAL POLICIES WITH GLOBAL CONSEQUENCES
10. The correct pricing of agricultural products is of utmost importance for the protection of the
environment because of two reasons:  (i) agricultural activities have a strong impact on the natural
environment;  (ii) they are characterized by large levels of support.
4  Since we are moving towards a
                                                     
1World Bank, Five years after Rio,  Environmentally Sustainable Development Studies and
Monographs series, No. 18, Washington, 1997.
2OECD, The Environmental Effects of Trade , Paris, 1994, page 8.
3That can serve for, or be replaced by another answering to the same definition.
4Van Beers and André de Moor, Scanning Subsidies and Policy trends in Europe and Central Asia ,
Institute for Research on Public Expenditure, research funded by UNEP, The Hague, 1998, page 2.WT/CTE/W/97
Page 3
global economy, if a subsidy policy which affects production were able to alter the international price
of an agricultural product, the consequences of this distortion would be felt at a global level.
11. As was recognized in the Río Declaration ,5 environmental protection and sustainable
development requires that prices should reflect both the private costs of production and the
environmental externalities caused during their production, distribution, consumption and disposal.
12. Full cost pricing is part of the economic chimer a of an ideal world in which consumption and
production patterns would tend to maximize social welfare.  However, this rarely tends to happen
since market prices hardly reflect external effects.  Moreover, as we previously expressed, some
public policies make market failures even worse, increasing inefficiency and further aggravating
already existing environmental shortages.6  For instance, agricultural policies that subsidise both
production and export artificially depress international prices, so that they do not even reflect the
private cost of production and accordingly prevent any possibility of implementing environmentalpolicies that would be conducive to incorporatin g an environmental externality in the prices.
13. As isolated markets are nowadays very much theoretical and the environment is typically a
cross-boarder issue, cooperation and coordination are extremely necessary.
14. Developed countries, particularly the richest amongst them, are the only that can heavily
subsidise agricultural production and exportation.  When doing so, they are not only allocatinginternal budgetary resources but they are also distorting international prices.  According to the
OECD,
7 in 1997, the level of support for agriculture within member countries was about US$ 280
billion;  this level of support was highly concentrated in a very few OECD countries and in one of the
most distortive, inefficient and non-transparen t ways of support:  market price support.
15. Consumers are forced to pay and ignore what they are paying for.  Tragically, and according
to the OECD, only 20 per cent of the US$ 280 billion spend during 1997 went to the pockets of
farmers, the rest was capitalized into land values and captured by input suppliers.  In highly intensive
agricultural practices, this results in more fertilizers, more herbicides, more pesticides, more energy,
more irrigation and, accordingly, more environmental degradation.
16. When a farmer decides how much of input is needed, such as fertilizers, pesticides, herbicides
or irrigation water, this farmer considers both the benefit that is expected and the cost of inputs.  Since
much of the OECD agricultural subsidies are prov ided through price support policies, farmers use
inputs until the marginal return obtained from using an additional unit of the input equals its cost.  If
you support prices you increase the returns and, consequently, you increase the input utilization.
17. Removing subsidies is, therefore, a sound first step toward ensuring that environmentally
damaging inputs are used in a socially optimal way.8
                                                     
5See Principle 16 of the Rio Declaration on Envi ronment and Development , UN Conference on
Environment and Development, 1992.
6Op. cit ., page 1.
7OECD, Agricultural Policy Reform: Stocktaking of  Achievements . AGR/CA/MIN(98)1, Paris, 1998.
8World Bank, "Subsidy Policies and the Environment”, in Expanding the Measure of Wealth ,
Environmentally Sustainable Development Studies and Monographs Series No.17, Washington, June 1997.WT/CTE/W/97
Page 4
IV. GLOBAL CONSEQUENCES THAT NEGATIVELY AFFECT DEVELOPMENT
COUNTRIES
18. Removing subsidies is also necessary to get prices right. Prices should “internalize”
environmental costs of production.  This is a common “mantra” that we all repeat since the Rio
Summit in 1992, but we cannot build upon distorted prices, and we cannot build upon prices that donot even reflect private costs of production.  As previously expressed, in a market economy prices
portray a message that tells us about the scarcity of the natural resource involved in production.  This
message determines decisions made by investors, producers and consumers.
19. Some governmental policies such as subsidies covered by the Blue and Amber Boxes, and,
even more dramatically, export subsidies, distort international prices and, consequently, negatively
affect distant decisions that have to do with inve stments, production methods, international trade and
consumption patterns.  Everything suffers:  economic efficiency, international trade and theenvironment.  Thus, consumers in the subsidizing country, farmers located in third countries and, in
the medium term, even farmers within the subsidizing country -- affected by the distorted market
message -- suffer.
20. Unfortunately, these policies are also bad news for international income distribution, for food
security and for the sustainable development of non-OECD countries.
21. Whenever a wealthy government decides to subsidise agricultural production and exportation,
it is encouraging new investments in that sector and, consequently, preventing those investments to go
elsewhere else, for instance, to developing countries, where agricultural production is less intensive
and where poverty, particularly rural poverty, is responsible for the degradation of rural and urban
environment.
22. Moreover, developing countries have no way of introducing sound environmental reforms if
these kinds of policies continue.  Short-term decisions are a matter of survival for many rural
producers in developing countries.  How could we ask an agricultural producer to stop soil
degradation and to shift to environmentally friendly ways of farming, when overexploiting and
exchanging some of the stock of natural capital for cash may be the only alternative to bankruptcy?
V. CONCLUDING REMARKS
23. In conclusion, trade distortive subsidies may affect national efficiency and result in local
environmental damage.  Unfortunately, the problem does not end there.  In a global economy, we are
living on one planet.  Agricultural subsidies, even if allocated to local constituencies, may have
harmful global effects. Definitely, we need to cooperate, and this means we should prevent
transforming our own “non trade concerns” in “trade and non trade concerns” for our trading partners.
24. We are not trying to suggest that if the richest countries remove subsidies that encourage
production and exports this will necessarily result in socially optimal outcomes.  We will also need to
cope with market failures, such as pointed out in the paper Norway submitted to the Committee on
Agriculture, and create incentives to take environmental externalities into account.
25. What we do try to say is that we have to begin somewhere and that the best place to begin is
by eliminating those subsidies that prevent prices from reflecting private costs of production.  Thiswill have positive consequences for the environment (by reducing overexploitation), for trade (by
enhancing market opportunities for countries that cannot afford to subsidize local production), and for
development (by reducing rural poverty and increasing food security in developing countries).
__________