The Use and Abuse of Multifunctionality

Abstract

In the next round of multilateral trade negotiations, some countries have indicated that they would like to create exemptions for certain production-related support. These countries argue that agricultural production creates additional joint or spillover benefits, such as open space, wildlife habitat, biodiversity, an assured supply of food, and viable rural communities. They maintain that supporting agricultural production using production-linked payments enhances the multifunctional character of their agriculture. Thus, they say, production-linked payments are necessary to obtain socially desired nonfood outputs. However, a wide range of private actions and public policies can provide these nonfood outputs. Following the principle of targeting policies to their specific objectives, many nonfood products can be produced, probably with greater efficiency, without subsidized agricultural production. In addition, distorting domestic agricultural production imposes costs on other countries by distorting trade. Current World Trade Organization rules account for these costs by limiting countries' expenditures on trade-distorting domestic policies and by encouraging countries to use minimally distorting box policies. Many of the targeted policies that can provide these nonfood outputs efficiently and with little or no cost to other countries are in the green box.