Reconsidering Argi-Environmental Policy Permitted by the Uruguay Round Agreement

Agri-environmental policies are increasingly being used to redress the balance between jointly-produced agricultural and environmental outputs, and are permitted by the Uruguay Round (UR) agreement with the general provision that they not distort trade. In this paper we argue that any market consequences of efficient, welfare-enhancing agri-environmental policies should not be considered trade-distorting. To consider them so is inconsistent with economic efficiency and with ecological integrity. Social cost-benefit analysis (CBA) is a more appropriate test and guide of trade-consistency for agri-environmental policies, and using trade effects as the test may not enhance social welfare. Moreover, specific provisions in the UR agreement restricting payments under agri-environmental policies to opportunity costs are not warranted on economic efficiency grounds, and consign the environment to a status subsidiary to agricultural output.