WORLD TRADE
ORGANIZATIONWT/CTE/W/106
11 February 1999
(99-0535)
Committee on Trade and Environment Original:  English
AGRICULTURE AND THE ENVIRONMENT
THE CASE OF EXPORT SUBSIDIES
Submission by Argentina, Australia, Brazil, Canada, Chile, Colombia, Indonesia, Malaysia,
New Zealand, Paraguay, the Philippines, Thailand, United States, Uruguay
I. INTRODUCTION
1. WT/CTE/W/67 summarizes generally the trade and environment links in agriculture.  Some
agricultural policies have been identified as a particular concern within the WTO because of thedistortionary effects that they cause.  This paper focuses on agricultural export subsidies as a first step
in deepening the CTE's analysis of the environmental benefits of removing trade restrictions and
distortions.
2. Within the WTO framework, export subsidies are prohibited for all products except
agricultural goods.  Furthermore there tends to be a relationship between export subsidies and overallagricultural market distorting policies.  The use of export subsidies is often a reflection of domestic
policies which promote both above market levels of production and above market prices.  This creates
surpluses which are then subsidized for export.
3. Given the linkages between the environment and agriculture, and the current exemption that
agricultural export subsidies have from the general WTO prohibition on such subsidies, we believe
that a useful contribution to debate under item 6 would be to analyse the environmental effects of
export subsidies to the agricultural sector.  The key issue is the impact which export subsidies have onthird countries and their ability to use trade to promote environmentally sustainable development.
II. TRADE LIBERALIZATION AND THE ENVIRONMENT
4. At the 1992 United Nations Conference on Environment and Development it was recognized
that liberalization of agricultural trade and protection of the environment could complement and
strengthen each other as part of efforts to make trade and environment policies mutually supportive.Trade liberalization, including substantial and progressive reduction in the support and protection of
agriculture, was seen as contributing to a more supportive international climate for achieving
environment and development goals through:
- a more efficient allocation and use of resources which would reduce demands placed
on the environment (through the same output with less use of natural resources ormore output with the same use of natural resources);
- more predictable access opportunities, higher returns for rural producers and the
consequent reduction in poverty, particularly in developing countries with potential
for improving their agricultural production capacity and ability to invest insustainable development;WT/CTE/W/106
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- a move away from the practice of dumping onto international markets the domestic
consequences of policy induced production surpluses which impoverish rural
populations, particularly in developing countries, and that therefore works against
food security and both rural and urban development throughout the world;
- greater opportunities for developing countries to earn the foreign exchange they need
to finance development programmes to address issues like poverty alleviation and
environmental degradation;  and
- an international economic environment more supportive of the implementation of
domestic policies to promote sustainable resource use and to encourage long-term
investment in ecologically sustainable agricultural production.
5. As a result, the key instrument from the Conference, Agenda 21 (the UN Programme of
Action on the environment and sustainable developmen t) identified the urgent need to achieve the
substantial and progressive reduction of export subsidies and other types of distortive support.
Agenda 21 also highlighted the need to encourage a more open and non-discriminatory trading system
and avoid unjustifiable trade barriers and in doing so facilitate the further integration of agricultural
and environmental policies so as to make them mutually supportive.
III. AGRICULTURAL EXPORT SUBSIDIES
6. The WTO Agreement on Agriculture required Members to reduce both outlays and volumes
of export subsidies and the reduction commitments are specified in Members' Schedules.  The
reductions were generally on the basis of export subsidies provided in 1986-90, although in some
circumstances the cuts were calculated from th e period 1991-92.  For developed Members a minimum
reduction from 1995 until 2000 of 36 per cent in value and 21 per cent in volume was required.Developing Members were required to reduce export subsidies by two thirds of the level for
developed Members and over a ten-year period running from 1995 until 2004.  Least-developed
Members were not required to make export subsidy reduction commitments.
7. The pattern of export subsidy usage varies gr eatly between agricultural products and between
WTO Members.  At the end of the Uruguay Round it was calculated that total outlays on exportssubsidies for which reduction commitments were made amounted to $US 22.5 billion
(GATT Secretariat, November 1994).  More than 80 per cent of the $US 22.5 billion was accounted
for by dairy, wheat and coarse grains, beef, sugar and fruit and vegetable products:  $US 5 billion for
61.5 million tonnes of wheat; $US 3 billion for 1.8 million tonnes of beef; $US 2.6 billion for
21.2 million tonnes of coarse grains; $US 5.7 bill ion for 5.3 million tonnes of dairy products;
$US 1.7 billion for 6.3 million tonnes of sugar; a nd $US 804 million for 9.4 million tonnes of fruits
and vegetables.
8. The European Communities was the largest user  of export subsidies, accounting for some
74 per cent of base period outlays.  The next largest users of export subsidies were the United States
(approximately 4 per cent), Poland (4 per cent), Canada (3 per cent) and Switzerland (2 per cent).
9. Experience since the annual reduction commitments came into force in 1995 has shown wide
variation in the extent to which WTO Members have notified export subsidies up to their annuallimits (or beyond).  Overall use of export subsidies has been less than half of the maximum level
allowed under WTO rules, mainly due to relatively high world grain prices during this period and
changes in agricultural policies in some Members.  The highest utilisation rates were for dairy
products (over 80 per cent for cheese and other dairy products), beef (72 per cent), eggs (65 per cent)
and poultry meat (56 per cent).WT/CTE/W/106
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10. About one third of the 25 Members which have export subsidy reduction commitments listed
in their Schedules have reported no or minimal amounts of exports subsidies in the first two years of
the implementation period.
11. WTO Members reported total export subsidies of $US 7.7 billion (1995) and $US 8.4 billion
(1996) during the first two years of implementation of the WTO Agreement on Agriculture with theEuropean Communities accounting for more than 80 per cent of the exports subsidies.  The remainder
of the export subsidies were mainly provided by South Africa (7 per cent although South Africa
subsequently eliminated its export subsidy scheme), Switzerland (5 per cent), Norway (1 per cent) and
the United States (1 per cent).  Hungary was also a major user of export subsidies during this period,
although the full amount is not reflected in its notification to the WTO (Hungary received a waiver in
1998 to general export subsidy rules).
IV. THE ENVIRONMENTAL COSTS OF EXPORT SUBSIDIES
12. Section III of this paper indicates the considerable extent to which agricultural export
subsidies continue to be used. The figures provided on taxpayers funds used for expenditure on such
subsidies underline the massive funding that, in the absence of such policies, might otherwise be
available to pursue sustainable policy goals.  But these figures only tell a small part of the story.  The
cost of export subsidies is not simply to be measured  in the fiscal cost to the taxpayers in countries
that provide such subsidies - considerable though this is - but also in the broader and global economic
and environmental effects that these export subsidies have.
13. The environmental costs of export subsidies include the direct adverse effects on land-use in
the countries providing the subsidies; and indirect effects through their impacts on the countries
receiving subsidized product and other exporting countries.  In the case of both the direct and indirecteffects, the wider global environment pays a cost.
14. With regard to the first aspect, it has been pointed out in past CTE discussions that export
subsidies have been a basic element in the structure of those patterns of support which have
encouraged overuse of resources and led to excessive production in those countries with high levels of
support.  In particular, export subsidies have often been a key component of the provision of themarket price support which has stimulated unec onomic levels of production and have often been
essential in the "disposal" of the resulting surplu ses.  The environmental problems associated with
these patterns of support have included the encouragement of monoculture and intensive farming,
expansion of agriculture into environmentally fragile or ecologically valuable land, and poor farming
practices involving non-sustainable levels of effluent and excessive use of pesticides and other inputs
to maximize production output. These "costs" have been well documented.
1
15. Less attention has perhaps been paid in past discussions to the second aspect referred to
above, the broader global implications for sustainable development.  Export subsidies have
compounded the inefficient use of resources in the countries that have used them by distorting world
markets and adversely affecting the opportunities for more efficient agricultural producers to gain the
benefits of trade that could assist them to promote the sustainable development of their economies.
16. Export subsidies imposed in the main by a very small number of major industrialized
countries undermine the efforts of others to develop their agriculture sectors in environmentally
sustainable ways.  These effects are particularly felt by developing countries for which agricultural
production plays a very important role in their economies.  Whether producing for their domestic
markets or for export, developing countries are harmed environmentally and economically by the
                                                     
1Relevant studies have been surveyed in the Secretariat Notes WT/CTE/W/1, pp. 15-18, and
WT/CTE/W/67, pp. 9-14WT/CTE/W/106
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continued use of export subsidies.  Remunerative prices and stable market opportunities are an
essential ingredient for the growth of ecologically sustainable agricultural sectors in these countries.
But the use of export subsidies and associated market price support programmes to achieve domestic
income objectives and price stability in some affluent countries have contributed to greater price
instability on world markets and undermined the production, employment and trade opportunitiesavailable to the agriculture sectors in other countries.
17. Depressed rural returns in some countries, increased instability in world agricultural prices,
disincentives to higher value added processing and unfair competition from subsidized goods are all
well documented effects of export subsidies.  The continued use of export subsidies is inconsistent
with the need for more efficient allocation of th e world's resources, as called for by the 1992
United Nations Conference on Environment and Development (as set out in Section II).
18. Furthermore, the negative effects of export subsidies on world markets create a disincentive
for investment in the agricultural sectors of a number of developing countries.  Such investment is a
prerequisite for a move towards more sustainable agricultural production methods.  Uncertain world
markets can thus stifle the transfer of environmentally sound technologies resulting in further
misallocation of resources.
19. For the many developing countries reliant on their agricultural sectors and often with no
capacity to offset the effects of internationally dumped prices on their rural population, the negative
effects of export subsidies can slow development across the whole economy.  Export subsidies reduce
the resources available to introduce and maintain programmes to protect and enhance the
environment.  Farmers and rural communities faced with land degradation subsequently have less
money to pay for remedial works or to finance changes to more sustainable agricultural practices.
20. The distortions affecting the agricultural trading system - of which export subsidies rank at
the very top - directly work against efforts to address rural poverty, and to deal with the close
inter-relationship between poverty, the over-exploitation of natural resources and environmental
degradation to the detriment of the global environment as a whole.
V. SUMMARY
21. No environmental benefits can be associated with the provision of export subsidies.  The
accumulation of enormous surplus stocks butter, beef, grains or other products which are subsequently
dumped onto international markets does not serve any environmental objective.  The elimination of
these subsidies as part of a process of reducing high levels of agricultural support would be a
significant force in promoting a restructuring of support away from those policies which have been
most distorting from both a trade and environmental perspective.
22. The benefits to sustainable development from the elimination of export subsidies would be
broader than the direct environmental impacts in the countries that use export subsidies.  Export
subsidies destabilize markets, depress international prices and displace exports by non-subsidising
efficient suppliers, including those in developing countries, which are heavily reliant on their
agricultural sectors for generating foreign exchange.  The economic and environmental effects of
these policies are serious, and not just for the countries that provide them.  Export subsidies encouragenot only the export of goods, but also the export of numerous negative effects.  Economic instability
and poverty contribute to the degradation of the world's environment.
23. Furthermore, the use of  export subsidies in times of international financial crises can  greatly
exacerbate the pressures on commodity prices.  Th e more international commodity prices fall, the
more export subsidies are used.  In developing countries, this can only reinforce some of the mostacute social and environmental problems: rural poverty and migration to over-crowded cities, lessWT/CTE/W/106
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food production, less food security and less resources to devote to development and environmental
protection.
24. The elimination of export subsidies would consequently make a significant contribution in the
area of both agricultural trade and the environment and must be a key priority for the World Trade
Organization in forthcoming negotiations.
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