WORLD TRADE
ORGANIZATIONWT/CTE/W/100
8 January 1999
(99-0051)
Committee on Trade and Environment Original:  English
ENVIRONMENTAL EFFECTS OF TRADE LIBERALIZATION IN
THE AGRICULTURAL SECTOR
Submission by Norway
Summary1. This paper reviews the impact on the environment of agricultural trade liberalization.
Allocative efficiency is a central objective in economic policy and provides a fundament for the
multilateral trading system.  Trade liberalization is not an end in itself, but is generally a means toimprove efficiency and increase welfare.  However, the market alone cannot lead to optimal resource
allocation if prices do not fully reflect all costs and benefits relating to the product.  And allocative
efficiency cannot be achieved if preferences for public goods  are not taken into account.
2. The environmental costs related to agricultural production are taken into account through the
Polluter-Pays-Principle  (PPP).  Concerning public goods, a way of reasoning could be what we have
suggested to call the Provider-Gets-Principle  (PGP).  According to this principle, those who provide
benefits, inter alia  in the environmental area, above a certain reference level and which are demanded
by the public, should if necessary be paid for them.
3. An analysis of public goods provided by the ag ricultural sector in Norway shows firstly that
the agricultural landscape is the most obvious environmental benefit or public good produced jointly
with agricultural production.  Arable land amounts to only 3 per cent of the total land area of Norway;
because of this scarcity extensive measures have been necessary to ensure its protection, includingboth general policies and specific measures.
4. Secondly, agriculture contributes to the conservation of biological diversity.  In Norway, the
agricultural landscape is the only habitat of around 10-20 per cent of the threatened species.
Conserving biodiversity is therefore closely related to protection of the agricultural landscape.
Moreover, increased trade in agricultural products increases the risk of alien species being introduced.Thirdly, agriculture in Norway contributes to good phytosanitary, zoosanitary and public health.
Under considerably increased trade, control measures may not fully offset the increased risk related to
the introduction of contagious substances and diseases.
5. Negative environmental effects have been considered in a global perspective in order to
examine the validity of the hypothesis put forward in the CTE that the environmental costs of the
agricultural sector are lower in low-support countries than in high-support countries.  The analysis is
based on nationally aggregated data for the OECD area, and it seems to indicate that animal densities
and the use per unit area of pesticides and N and P fertiliser are only moderately correlated with
support levels.  Moreover, high-support countries seem to have reduced fertiliser and pesticide use
more than low-support countries.  More importantly, low animal densities at national levels maskhigher concentrations at local level, and these have a negative impact on the environment;  for
instance, high levels of nitrate have been found in groundwater samples in both high - and low -
support countries.WT/CTE/W/100
Page 2
6. The production shift projected to follow from further trade liberalization may also have a
detrimental impact on biodiversity in low-support countries where agriculture is projected to expand.
Several low-support countries with extremely high levels of biodiversity have already experienced
loss of biodiversity due to agricultural expansion.
7. To conclude, the extent of the environmental problems relating to the agricultural sector
varies above all according to natural conditions, farming methods, and national legislation and policy
measures, including input-output price relationships.  All in all, the analysis does  not seem to indicate
that the shift in production from high- to low-support countries that is projected to result from further
trade liberalization would lead to an overall reduction in environmental degradation.
I. INTRODUCTION
8. During the March meeting of the WTO Committee on Trade and Environment (CTE),
countries that suggested that trade liberalization could lead to adverse  environmental effects were
invited to contribute examples from their own experi ence.  Norway is pleased to accept this invitation.
This paper presents a review of the agricultural sector.
9. In the Preamble to the Marrakesh Agreement Establishing the World Trade Organization  , the
Parties recognize that their relations in the field of trade and economic relations should allow for
“optimal use of the world’s resources in accordanc e with the objective of sustainable development ”.
10. The Ministerial Decision on Trade and Environment adopted by ministers in Marrakesh in
April 1994 states that the WTO Committee on Trade and Environment should address a number of
issues, including market access, “ with the aim of making international trade and environmental
policies mutually supportive ”.  According to the Agreement on Agriculture, non-trade concerns, such
as the need to protect the environment, should be taken into account in the agricultural reformprocess.
11. This paper examines from a welfare economics perspective how environment and trade
policies in the agricultural sector could be made mutually supportive.  Section Two explores the
relationship between allocative efficiency and welfare maximization as policy objectives and
agricultural trade and trade liberalization as means of achieving such objectives.
12. Sections Three and Four examine the extent to which production externalities exist in the
agricultural sector, focusing only on environmental issues.  Important non-environmental public
goods and non-trade concerns such as food security and rural viability, which would be included in an
overall cost-benefit analysis of the agricultural sector, are therefore not examined in this paper.
Section Three discusses public goods in the Norwegian agricultural sector.  No attempt is made to
analyse environmental benefits relating to agriculture in other countries.
13. Section Four deals with negative  production externalities.  Here, a global approach is taken in
order to examine the validity of the hypothesis put forward in the CTE that the environmental costs of
the agricultural sector are lower in low-support countries than in high-support countries.
14. Section Five explores the environmental effects related to the transport  involved in
agricultural trade.
15. Based on the analysis and with relevance to further agricultural policy reform, Section Six
makes some concluding remarks on the positive and negative environmental effects in the agricultural
sector.WT/CTE/W/100
Page 3
16. The analysis is by no means exhaustive, and further research is needed.  We are looking
forward to an open dialogue and a constructive discussion on these issues in the Committee.
II. ALLOCATIVE EFFICIENCY
17. Allocative efficiency is a central objective in economic policy and provides a fundament for
the multilateral trading system.  Trade liberalization is not an end in itself, but is generally a means toimprove efficiency and increase welfare.
1  However, the market alone cannot lead to optimal resource
allocation as long as market failures exist, i.e. if prices do not fully reflect all costs and benefits
relating to the product.  Also, allocative efficiency cannot be achieved if preferences for public goods
are not taken into account.  In contrast to private goods, public goods have no functioning markets,
and it is generally accepted that governments use various types of public intervention, where
necessary, to ensure the provision of these goods.
18. The allocative efficiency of Norwegian agricult ure depends to a large extent on two important
policy principles.  The first relates to negative production externalities and is called the Polluter-Pays-
Principle  (PPP).  This well-known and widely accepted principle, states that the costs of a negative
externality (e.g. pollution) should be borne by its or iginator, and reflected in the price of the product.
Through the application of the PPP, a certain reference level of environmental quality would be
achieved in accordance with the definition of good agricultural practices.
19. The second principle, which deals with the provision of public goods (e.g. agricultural
landscapes), we have suggested could be called the Provider-Gets-Principle  ( PGP).  Thi s pr inc ip le
relates to public demand for, inter alia , environmental qualities beyond  the reference level, according
to an established environmental target.  As the production of such goods commonly depend on
privately owned production factors, and since privat e property rights are recognized, application of
the PGP means that, if necessary,  payments must be made to the provider of such goods in order to
achieve the desired resource allocation.
20. It is important to bear in mind that in order to ensure the quality of the public goods provided,
a range of other policy measures, including legislative and administrative measures, voluntary
agreements, training and information may be indispen sable.  However, in Norway, provision of public
goods such as agricultural landscape and biological diversity by the agriculture sector, is contingent
on relatively high levels of public payments.
21. Both principles are reflected in Norwegian agricultural policy.  This policy is based on a
number of objectives related to non-trade concerns such as environmental protection, food security
and the viability of rural areas.  The overall level of support to the Norwegian agricultural sector
reflects the political valuation of the public goods provided by agriculture, as well as the generally
high costs involved in the provision of those g oods in Norway.  To the extent that taxes and
restrictions limit negative effects and a certain level of agricultural support is necessary in order to
ensure a balance between the supply and demand of certain public goods, current agricultural policy
in practise obeys the Provider-Gets and Polluter-Pays-Principles.
                                                     
1 By trade liberalization we understand reductio ns in border protection, domestic support and export
subsidies, as provided for in the WTO Agreement on Agriculture.WT/CTE/W/100
Page 4
III. PUBLIC GOODS IN THE AGRICULTURAL SECTOR: THE CASE OF NORWAY
A. AGRICULTURAL LANDSCAPE
22. The agricultural landscape is generally defined as landscape created or modified by
agricultural activity.  In Norway, as in many other countries, this landscape is the result of thousands
of years of farming, and it varies according to natural conditions and farming practices.  The valueattached to the agricultural landscape relates to (i) its contribution to human health and welfare (the
recreational value);  (ii) its aesthetic, cultural and historical qualities;  and (iii) its biological and
ecological characteristics (covered in more detail in the next sub-section).
23. The agricultural landscape generally includes elements such as farmland, meadows, pastures,
dry stone walls, farm roads, waterways, animal s and farm buildings.  However, the concept of
agricultural landscape goes beyond the sum of the single elements.  More importantly, the value of the
agricultural landscape is related to its genuine farming origin.  Just as natural wilderness cannot beman-made, but derives its value from the fact that it is native to the area and untouched by man, the
agricultural landscape is by definition closely related to agriculture’s primary function of producing
food and fibre, from which it cannot be detached.  Therefore, the agricultural landscape is not only
decorative scenery;  its aesthetic and recreational value is closely contingent on the authenticity of its
food-producing role.  Thus, this public good is a joint product of the agricultural production.
24. The agricultural landscape is the result of a continuous history of agriculture over several
thousand years and is a central part of our cultural heritage.  The difficult natural conditions under
which Norwegian agriculture operates, have resulted in a variety of local adaptations.  Thus, the
agricultural landscape and the living traditions connected with farming and the management of
buildings and farmland are vital both to our identit y and as a source of knowledge on the relationship
between man and the natural environment.  The conservation of our cultural heritage, and the
understanding of the sustainable agriculture on which it is based, therefore depend on the continued
viability of rural areas and their agricultural activities.
25. Around 80 per cent of the Norwegian population take part in outdoor recreational activities.
Based on ancient traditions and regulated by law, every citizen has, under certain conditions, freeaccess to uncultivated or cultivated land, regardless of whether this land is privately - or publicly -
owned.
2  In addition to the practical problems and limited usefulness of fencing off pieces of
agricultural land in order to commercialize agricultural landscape as private goods, this would
therefore be incompatible with Norwegian culture and traditions.
26. In Norway, the total arable land amounts to approximately 1 million ha, accounting for only
3 per cent of the total area of Norway excluding Svalbard (as against e.g. 27 per cent in the EU,
21 per cent in the US and 12 per cent in New Zealand).3  Productive forests cover around 22 per cent
of the land area, and the remaining 75 per cent consists of mountains, lakes and man-made
infrastructure.  The scarcity of agricultural landscape has meant that extensive measures have been
necessary to ensure its protection.
27. Agricultural landscapes vary according to farming methods and location.  Thus, preserving
different types of landscape requires the maintenance of agricultural production in all parts of thecountry, even in marginal areas.  It is therefore a national objective in Norway, as in many other
countries, to safeguard rural agriculture and the viability of rural areas.  High production costs and
low population densities often threaten the viability of the rural agricultural economy.  As remote
                                                     
2 Free access to agricultural fields is only permitted during the frost period or from 15 October to
1 May.
3 Source:  FAOSTAT.  Permanent pasture is not included in the definition of arable land.WT/CTE/W/100
Page 5
rural areas often have above-average production costs, rural agriculture frequently requires substantial
support, to certain extent linked to production.  Moreover, in Norway, due to regional development
concerns, budgetary support is strongly modulated, in order to allocate higher support per area or
livestock unit to smaller farms, and is also differentiated according to the region’s suitability for
agricultural production. Such differentiation favours rural areas.4
28. A number of policy measures are designed to meet specific environmental objectives,
including the protection of the agricultural landscape.  The Acreage and Agricultural Landscape
Scheme, which accounts for  roughly 28% of budgetar y outlays, aims in particular at the protection of
the agricultural landscape. The scheme imposes several environmental conditions on farming, such as:
− maintenance of open waterways;
− protection of field fringes, including a ban on pesticide use;
− maintenance of dry stone walls and other landscape elements;
− ban on land grading;  and
− maintenance of paths.
29. If these rules are violated, payments may be withdrawn for a period of three years.5  Other
policy measures include the Specific Agricultural Landscape Support Scheme6;  support for amended
soil management, along with soil protection and reduction of erosion; and support for mountain
farming during the summer period (transhumance).
30. The Ministry of Agriculture and the Ministry of the Environment have developed a
monitoring programme in order to collect accurate information on status of the agricultural landscape
and any development trends.  The programme will provide information on specific issues of interestssuch as ecosystems, cultural heritage, accessibility for the general public and infringement by urban
development.
B. C
ONSERVATION OF AGROBIOLOGICAL DIVERSITY
31. Environmental protection in the agricultural sector also raises important issues concerning
biological diversity, which includes both diversity in ecosystems and habitats, species diversity and
genetic diversity.  The objective of the 1992 Rio Convention on Biological Diversity is to ensure the
conservation of biological diversity.  In Norway, the agricultural landscape is the only habitat of
around of 10-20 per cent of the threatened species.7  Conserving biodiversity is therefore closely
related to the protection of the agricultural landscape.
32. In the agricultural sector, two processes have to a large extent had adverse effects on
biodiversity in Norway.  The first relates to more intensive use of the arable land.  The second process
consists of land abandonment, often in marginal and less-favoured areas.  Both processes may have a
negative impact on the agricultural landscape and, thereby, on biodiversity.  Therefore, it appears that
                                                     
4 For more information about this modulation and differentiation, see Norwegian Ministry of
Agriculture, 1998.  Non-trade concerns in a multifunctional agriculture.  Implications for agricultural policy
design and the multilateral trading system.  Oslo, 16 pp.
5 Additional legal requirements have to be met through e.g. the Land Act, the Cultural Heritage Act, the
Nature Conservation Act and the Pollution Control Act. A minimum outdoor grazing period of 8 weeks forcattle  is also required.
6 The scheme involves grants for restoring valuable buildings and promotion of alternative types of
production in grain-producing areas vulnerable to erosion.
7 According to the Norwegian Dir ectorate for Nature Management.WT/CTE/W/100
Page 6
biodiversity would in most cases benefit from policy measures aiming at the conservation of the
mosaic pattern of the agricultural landscape.8
33. Increased trade in agricultural products also increases the risk of alien species being
introduced.  According to Article 8(h) of the Convention on Biological Diversity, “ each Contracting
Party shall, as far as possible and as appropriate … prevent the introduction of, control or eradicatethose alien species which threaten ecosystems, habitats or species”.  According to the Norwegian
Directorate for Nature Management, around 10 alien insect species are introduced to Norway every
year, partly as a result of agricultural trade.  Around 1 per cent of these introductions constitute a
possible ecological threat with potentially far-reaching implications.
C. G
OOD PHYTOSANITARY AND ZOOSANITARY STANDARDS AND PUBLIC HEALTH
34. Another ecological and health issue involves the increased risk of spreading pests and
diseases.  With the considerable increase in agricultural trade, control measures may be very costlyand are unlikely to fully offset the increased risks related to the introduction of contagious substances
and diseases, even if we have access to the most modern and efficient measures available.  Further
research is needed in order to assess the implic ations of increased animal and food trade for the
transmission of microbes and infectious animal, plant and human diseases, and in order to develop
efficient ways of dealing with these challenges.
IV. NEGATIVE PRODUCTION EXTERNALITIES IN AGRICULTURE
35. This section examines negative environmental production externalities commonly associated
with agriculture, concentrating mainly on pesticide use, water pollution as result of nitrogen and
phosphorus overloads, and loss of biological diversity.  Both national and transboundary
environmental effects are analysed.  In particular we examine the hypothesis that environmentalproblems are less pronounced in countries with low agricultural support levels than in countries with
high levels of support.
36. Unfortunately, the analysis is restricted by lack of data for a number of environmental
indicators.  Comparative statistics are to a large extent only available for the OECD countries.
9  The
analysis therefore focuses mainly on the OECD area.   While some country cases are included in the
analysis, these are by no means exhaustive or comprehensive.
A. E NVIRONMENTAL RISKS RELATED TO PESTICIDE USE
37. Ideally, the environmental risks related to pesticide use should be measured by sampling
pesticide residues in the biological environment, e.g. in water or animal tissue, and comparing them
with an established threshold level.  However, as comparative data are not available, pesticide use is
commonly used as a proxy indicator.  Table 1 presents all available data on average pesticides use per
square km arable land and on producer subsidy equiva lents (PSE) for the OECD countries.  The table
seems to indicate that pesticide consumption is moderately correlated (r = 0.49) with support,
measured as PSE.10  Moreover, while all countries for which data are available have reduced their
pesticide use, reductions, in absolute figures, have generally been higher in high-support countries.
                                                     
8 Policy measures specifically aimed at protecting the agricultural landscape are described in
Section 3.1.
9 OECD has developed a number of agri-environmental indicators, and a recent OECD workshop was
held on these issues in York, UK, on 22-25 September 1998.  This paper draws to some extent on this work.
10 However, the sample is small, thereby reducing the reliability of the correlation coefficient.
Although no data on support levels are available for a wider range of countries, significantly increasing use of
pesticides has recently been reported in some major low support exporting countries (not included in Table 1),WT/CTE/W/100
Page 7
Table 1
Pesticide use per arable land for the OECD countries in 1994/95
Producer Subsidy Pesticide use per arable land and land under permanent crops
Equivalents (PSE) 1985/86 1994/95 ----Change 1985/86-94/95----
Country 1994/95 (%) kg/km2 kg/km2 kg/km2 in per cent
Australia 10 n.a. 260 n.a. n.a.
Canada 24 72 64 -7 -10,4
EU 49 594 475 -118 -19,9
Hungary 25 543 172 -370 -68,3
Japan 76 1703 1438 -265 -15,6
New Zealand 3 n.a. 430 n.a. n.a.
Norway 73 177 93 -84 -47,5
Poland 21 91 49 -41 -45,8
Switzerland 80 596 439 -157 -26,3
Turkey 28 138 114 -24 -17,3
USA 16 201 200 -1 -0,6
PSE Correlation 0,49 -0,34 -0,04
Source:  FAOSTAT (http://apps.fao.org/cgi-bin/nph-db.pl?subset=agriculture) and OECD (1996a, 1997b, 1998b and 1998e).
Notes:  PSE  as a percentage of the value of  agricultural production.  Arable land includes land under permanent crops, but
excludes permanent pasture. Generally, pesticide data are from 1994/95 (or the most r ecent year available prior to 94/95), as
more recent data were not available.
38. The pesticide use and trends observed in Table 1 are related to a number of factors, such as
the input-output price relationship between pesticides and the corresponding agricultural produce,
legislative or administrative restrictions on pesticide use, climate and natural conditions and cropping
techniques and intensity.  One possible explanation for the pesticide use observed in the table may be
that the input-output price ratio is lower in high-support countries, than in those with lower support
levels, which acts as an economic incentive for pesticide use.  However, the table also suggests thatchanging policies in high-support countries, partly through increased input-output price ratios and
stricter environmental policies, have resulted in a reduction in pesticide use.
39. It should also be noted that the use of pesticides may vary substantially according to the type
of crops.  Further research should be undertaken in order to examine the extent to which the
aggregated data presented in Table 1 mask production-specific differences between countries.
11
40. Moreover, legislative restrictions relating to pesticide use and enforcement capacity vary
substantially between countries.  Analysis undertaken by the FAO seems to indicate that on average,from an environmental and health point of view , pesticide restrictions may generally be more
                                                                                                                                                                    
for which the initial pesticide use was at relatively low levels.  The pesticide use per km2 arable land and land
under permanent crops in Argentina, Brazil and Thailand is 201 kg (1996), 68 kg (1995) and 118 kg (1995),respectively.  In these countries, use per unit arable land has increased by 108%, 95% and 28%, respectively,since 1993.
11 Preliminary analysis seems to indicate that these production-specific variations are not systematically
correlated with support levels (OECD, 1998b).WT/CTE/W/100
Page 8
stringent, and enforcement capacity more developed, in high-support countries than in low-support
countries.12
B. NITROGEN AND PHOSPHORUS  POLLUTION IN WATER
41. Nitrogen (N) and phosphorus (P) may result in the eutrophication of lakes, rivers and marine
waters.  Nitrogen, in the form of nitrate, may also contaminate drinking water.  The agricultural sectoris reported by the OECD to be a major source of  N and P water pollution in most OECD countries
through run-off and leaching, regardless of support levels.  According to the OECD environmental
policy reviews, these problems, and agriculture’s contribution to them, do not seem to be less severe
in low-support countries than in high-support countries.
42. Various indicators are commonly used to measure the risk of water contamination.  The
OECD uses emission indicators, such as national nutrient balances based on total nutrient input and
output.  Indicators relating to agricultural practices, such as fertiliser use and livestock density, pointto the risk of nitrogen leaching and phosphorus losses.  Table 2 gives all available data on national
livestock densities and fertiliser use for the OECD area.  The table suggests that while animal density
and phosphate fertiliser use are only weakly correlated with support levels (r equal to 0.24 and 0.34,
respectively), nitrogen fertiliser use seems to be strongly correlated with support levels (r = 0.87).
However, the table also seems to indicate that high-support countries have generally reduced nitrogenand phosphate fertiliser use more than low-support countries.
13
Table 2
Animal manure units (AMU) and nitrogen and phosphate fertiliser use per unit of arable land for
OECD countries in 1994/96 (average) and percentage changes compared to 1984/86
PSE (%) --- AMU/km2 --- --- Nitrogen (mt/km2) --- --- Phosphate (mt/km2) ---
Country 1994/96 1994/96 % change 1994/96 % change 1994/96 % change
A u s t r a l i a 9 7 4 - 51 , 3 68 71 , 9 22 3
Canada 23 24 15 3,35 28 1,40 -6
EU 47 186 -1 14,83 -14 4,55 -31
Hungary 22 33 -46 5,71 -49 1,06 -85
Japan 74 133 9 12,34 -15 14,80 -7
Mexico 14 108 -10 3,72 -27 0,90 -43
New Zealand 3 416 -5 4,29 355 12,16 45
Norway 72 121 -8 11,43 -11 3,25 -48
Poland 21 57 -27 6,04 -32 2,05 -67
Switzerland 79 357 -12 14,22 -18 5,16 -49
                                                     
12 This is evidenced by the analysis of government responses to FAO’s second questionnaire on the
state of implementation of the International Code of Conduct on the Distribution and Use of Pesticides (see
http://www.fao.org/ag/agp/agpp/pesticid/manage/quest2/2qfrt.htm).
13 Interestingly, New Zealand, which has substantially reduced its support levels during the second half
of the 1980s and now ranks as the least-supported country in the OECD, has substantially increased phosphateuse (by 45 per cent) and nitrogen use (by remarkably 355 per cent) between 1984/86 and 94/96.  It should alsobe noted that Switzerland adopted stricter environmental policies, relating to water pollution in environmentally
vulnerable areas in 1997 and in its new agricultural act in 1998.  These policies are expected to further reduce
fertiliser and pesticide use below the levels reported in Tables 1 and 2.WT/CTE/W/100
Page 9
PSE (%) --- AMU/km2 --- --- Nitrogen (mt/km2) --- --- Phosphate (mt/km2) ---
Country 1994/96 1994/96 % change 1994/96 % change 1994/96 % change
Turkey 27 56 13 3,92 14 1,96 4
USA 16 48 3 6,14 20 2,41 18
PSE Correlation 0,24 0,16 0,87 -0,44 0,34 -0,36
Source:  FAOSTAT (and OECD (1997b and 1998e))
Notes:  PSE  as a percentage of the value of the agricultural production.  Arable land includes land under permanent crops,
but excludes permanent pasture. One AMU is defined to equal 1. 5 cattle; or 7 sheep; or 7 goats; or 2 horses; or 7 pigs; or
300 chickens; or 180 turkeys; or 250 ducks; or 150 geese.  Given the small sample, the reliability of the correlation
coefficients is relatively low.
43. As with pesticide use, fertiliser use and trends observed in Table 2 are related to a number of
factors, including the input-output price relationship and environmental restrictions.  In the case of
nitrogen fertiliser, one possible explanation for the strong relationship between N fertiliser use andsupport levels may be that the input-output price ratio is lower in high-support countries, than in those
with lower support levels.  However, the table also suggests that changing policies in high support
countries, again partly through increased input-output price ratios and stricter environmental policies,
have resulted in a reduction in fertiliser use.
44. The actual price-elasticity of nitrogen demand has been subject to research.  Recent modelling
of the cereal production function in Norway seems to indicate that N fertiliser use is only weakly
affected by changes in the input-output price ratio, and only modest reductions in N leaching
(12-15 per cent, depending on local conditions) were predicted as a result of a 100 per cent N tax or a
33 per cent reduction in cereal prices.
14
45. The data presented in Table 2 should be interpreted with considerable caution.  Firstly, the
number of countries in the sample is limited, reducing the reliability of the computed correlation
coefficients.  Secondly, the definition of arable land  may vary between countries.  Thirdly, permanent
pasture has not been included in the calculations.  Although these shortcomings are expected to have a
considerable affect on the reliability of the figures, the effect may not be systematic.
46. More importantly, aggregated figures for national stocking densities may mask higher
densities at regional, local and farm level.  This is the case in both high - and low - support countries.
Preliminary data from major livestock-producing low-support countries such as USA, Argentina andAustralia suggest that stocking densities in some of their production regions are substantially above
the national average rates.  It is reported that “ livestock agriculture (e.g. dairy, beef, pork, poultry) in
the USA is tending rapidly toward operations where a large number of animals are concentrated in a
relatively small area”.
15
47. These regional variations are emphasized by the OECD:  “ Regional data suggest that in
certain areas of those countries where the national nitrogen surplus is relatively low,…, they are
experiencing both the effects of nitrate pollution (e.g. the Brittany area of France, and some regions
of Canada and the United States), and soil nutrient depletion from crop production (e.g. certain
regions in Australia, Canada and United States)”.16
48. The actual environmental and health effects of livestock production and fertiliser use, as well
as pesticide use, depend on a range of factors that are independent of support levels, such as soil and
                                                     
14 See Vatn et al. (1996).
15 Cressie and Majure, 1997.
16 OECD, 1997a.WT/CTE/W/100
Page 10
climate conditions, cropping techniques and the absorptive capacity of the recipient.  This capacity is
also determined by the ratio of agricultural land to other land in the recipient area.
49. Empirical evidence relating to the health and environmental impact of livestock production
and fertiliser use is found in for instance in the leve l of nitrate (NO3) in drinking water in agricultural
areas.  Generally speaking, the OECD reports that, for most OECD countries, agriculture is a “ major
contributor [to N and P emissions], accounting for around two-thirds of nitrogen emission into
surface and marine waters and about one-third for phosphates .17  Certain high-support countries
including large parts of the EU have reported high nitrate levels in their water resources.  In Austria,
15 per cent of 18 277 ground-water samples were above the threshold limit of 50 mg NO3/litre.  In
Denmark, which has very high animal densities, as many as 25 per cent of the samples exceeded this
level.18  According to national review s, no freshwater samples, including ground-water, are reported
to exceed this guideline in Norway.
50. However, nitrate problems are also widespread in several low support countries.  In US,
nitrate concentrations in 21 per cent of groundwater samples collected beneath agricultural land
exceeded the maximum contamination level of 10 mg N/litre set by the US Environmental Protection
Agency.19
51. In Canada, “ agriculture makes a significant contribution to the diffuse source contamination
of surface and groundwater resources, particu larly contributing to the NO3-contamination of
groundwater. … The rural groundwater quality in Ontario, Canada, was evaluated with respect to
common contaminants including NO3.  Approximately 1300 domesti c farm wells were sampled, and
wells were drilled in some fields of farms involved in the study.  NO3 was present at concentrations
above the maximum acceptable for drinking water (10 mg N/litre) in 14 per cent of wells, including7 per cent of wells that also had unacceptable conc entrations of coliform bacteria.  Significant levels
of NO3-contamination were observed under most agricultural land use practices investigated.
20  In
intensive dairy areas in New Zealand, nitrate concentrations in the domestic water supply have been
shown to exceed the 50 mg NO3/litre recommended limit in 5 per cent of the affected area.21
52. The environmental impact of fertiliser use and livestock production is also indicated by the
degree of eutrophication  of lakes and rivers.  In New Zealand, the OECD reports that “m any streams
in intensive dairy areas suffer from excessive levels of dissolved inorganic nitrogen, dissolved
reactive phosphate, suspended sediment concentrations, turbid base flows and faecal contamination.
Small watercourses that receive animal waste from multiple rural point sources are not safe for
contact recreation much of the time, and some are not even safe for water supply of stock" .22
53. In the USA, “ the economies of scale are counterbalanced by the dangers of pollution from
inadequate treatment of animal waste.  Traditional  methods of treatment involve lagoon retention and
subsequent spreading on fields, but the sheer volume of production seems to be outstripping these and
other technologies.  Surface-water runoff finds its way into streams and rivers, ultimately polluting all
downstream segments of the watershed".23  Eutrophication is also increasing in Australia:  “In the
Murray-Darling Basin region of Australia, which accounts for over 40 per cent of the nation’s
                                                     
17 OECD, 1997a.
18 See European Commission, 1998.
19 Mueller et al. (1995), based on 2012 ground-water samples from agricultural land.  In a similar study
for Nebraska, which is characterized by intensive agriculture, about 20 per cent of a total of 5826 groundwatersamples had nitrate concentrations exceeding the maximum recommended contamination level
(Lakshminarayan et al., 1996).  It should be noted that 10 mg N is equivalent to around 44 mg NO3.
20 Goss et al. 1995.
21 OECD, 1996a
22 OECD, 1996a.
23 Cressie and Majure, 1997.WT/CTE/W/100
Page 11
agriculture production, soil eutrophication of surface water bodies is becoming increasingly
common" .24  However, once again, these problems are widespread in most of the OECD area,
including in high support-countries.
C. LOSS OF BIOLOGICAL DIVERSITY
54. Biological diversity is commonly defined as the variability among living organisms and
includes diversity within species, between species and of ecosystems.25  The existing endowment of
biodiversity is fundamentally a non-renewable resource that we are unable to duplicate or substitute
by technological innovation.26  Today, biological diversity is being depleted at alarming rates, and this
is widely attributed to the spread of unsustainable  human development.  More specifically, it is caused
by habitat loss and fragmentation; the introduction of species;  overexploitation of plant and animal
species;  pollution of soil, water and atmosphere;  and global climate change.27
55. Agriculture is both a major threat to biodiversity and a key to its survival.  As pointed out in
Section 3, traditional agriculture can play a major role in the conservation of biodiversity.  Some
agricultural land use systems maintain surprisingly high levels of biodiversity.28  Nevertheless,
agriculture is arguably the principal cause of habitat destruction and biodiversity loss around the
world.  Such loss generally results from the expansion of the agricultural sector, the conversion of
natural land into farmland or the intensified use of existing farmland in ways that negatively affect thebiodiversity of the current agricultural landscape.
29  The shift in production projected to result from
further trade liberalization may therefore have a negative impact on biodiversity both where
agriculture is contracting (as described in Section 3) and where it is expanding.
56. A very small number of countries, 17 in all, defined as megadiversity  countries, account for
some 60-70 per cent of total global biodiversity, see Table 3.  All megadiversity countries arelow-support countries where the agricultural sectors are expected to expand, as a result of trade
liberalization.  Table 4 gives the total number of species and the number of threatened species in
selected high - and low-support countries.
Table 3
Megadiversity countries ranked according to level of biodiversity
1.  Brazil 7.  Venezuela 13. Australia
2.  Colombia 8.  Ecuador 14. Malaysia
3.  Indonesia 9.  Peru 15. Madagascar
4.  China 10. United States 16. Democratic Republic of the Congo
5.  Mexico 11. Papua New Guinea 17.  Philippines
6.  South Africa 12. India
Source:  Mittermeier et al. (1997), and Conservation International
                                                     
24 Commonwealth of Australia, 1995.
25 See Article 2 of the Convention on Biological Diversity.
26 Swanson, 1997.
27 WRI, IUCN, and UNDP 1992.
28 Smith (1996) reports that in the Yucatán, for example, home gardens contain 387 plant species, and
other forms of agroforestry can mimic some of the complexity of rainforests.
29 It should be noted that not all land converted to farming is natural or has a high level of biodiversity.WT/CTE/W/100
Page 12
57. During the last 15 years, land use has changed considerably, particularly in developing
countries where deforestation resulted in a net loss of some 180 million hectares of forests between
1980 and 1995, or an average annual loss of 12 million hectares.30  Table 5 shows agricultural
expansion and annual deforestation for the same countries as those presented in Table 4.  Table 5
clearly indicates that deforestation rates are relatively high in several low-support countries.Moreover, while deforestation is caused by several factors, including commercial logging, it often
coincides with, and is partly a result of, an expansion in agricultural land.
31  Deforestation often
affects virgin forests and thus has a negative impact on biodiversity.32  It therefore seems that it can be
concluded that the expansion of the agricultural sector that is projected to take place in low-support
countries as a result of further trade liberalization, will probably have a negative impact on
biodiversity.33
Table 4
Total numbers of species, and threatened species in selected countries
Mammals Birds Higher plants Sum
In total Threatened In total Threatened In total Threatened In total Threatened
USA 428 22 768 46 16300 1845 17496 1913
Australia 252 43 751 51 15000 1597 16003 1691
Japan 132 17 583 31 4700 704 5415 752
Canada 193 6 578 5 2920 649 3691 660
Brazil 394 45 1635 103 55000 463 57029 611
Malaysia 286 20 736 31 15000 510 16022 561
Thailand 265 22 915 44 11000 382 12180 448
Indonesia 436 57 1531 104 27500 281 29467 442
New Zealand 10 3 287 45 2160 236 2457 284
Argentina 320 20 976 40 9000 170 10296 230
Norway 54 3 453 3 1650 20 2157 26
Switzerland 75 2 400 3 1650 9 2125 14
Source:  World Bank, 1998
                                                     
30 World Resources Institute, 1998.
31 The correlation coefficient between the annual deforestation rate and the expansion in agricultural
land is 0.67 (0.69 if forestation is excluded).
32 In the Brazilian Amazon basin, for example, many of the fires are set to clear old cattle pastures or
secondary forest areas.  However, about one third of the fires are set to clear virgin forests (World Resources
Institute, 1998).  Likewise, the net forestation  that occurs in some of the countries listed in Table 5, results in
secondary forests that, generally speaking, are not expected to substantially increase biodiversity.
33 As an example, in the Pantanal region of Fazenda Rio Negro, Mato Grosso do Sul, a thriving
ecosystem, home to a number of endangered species, is under threat from the expansion of soya bean productionon the surrounding plateau.  The runoff of pesticides and silt harms the rivers and wildlife.  At the same time,MERCOSUR wants to build export capacity by dredging and straightening the Rio Negro in order to make it
easier to get soya beans to market.  This straighten ing would significantly alter the Pantanal ecosystem.
(New York Times, 8 August 1998).WT/CTE/W/100
Page 13
Table 5
Deforestation in selected countries
Cropland Perm. pasture Agricultural land Forest
areaAnnual deforestation
- - - - - - - - - - - (in per cent of total land) - - - - - - - - - - - Change (1000 km2) Average 1990-95
1980 1995 1980 1995 1980 1995 1980/95 1995 km2% change
Japan 13 12 2 2 15 14 -1 251 132 0.1
N o r w a y 330033 0 8 1 - 1 8 0- 0 . 2
Switzerland 10 11 41 29 51 40 -11 11 0 0.0
Argentina 10 10 53 52 63 62 -1 339 894 0.3
Australia 6 6 57 54 63 60 -3 409 -170 0.0
Brazil 6 8 20 22 26 30 4 5511 25544 0.5
C a n a d a 553388 0 2 4 4 6 - 1 7 6 4 - 0 . 1
Indonesia 14 17 7 7 21 24 3 1098 10844 1.0
Malaysia 15 23 1 1 16 24 8 155 4002 2.4
N e w  Z e a l a n d 1 31 25 35 16 66 3 - 3 7 9 - 4 3 4 - 0 . 6
Thailand 36 40 2 2 38 42 4 116 3294 2.6
U S A 2 12 12 62 64 74 7 0 2 1 2 5 - 5 8 8 6 - 0 . 3
Source:  World Bank, 1998
D. OTHER NEGATIVE ENVIRONMENTAL EFFECTS
1. Soil erosion
58. Agricultural activity is a major contributor to soil erosion in many areas, including major
low-support countries that are exporters of agricultural products.  According to the US Department of
Agriculture, the annual off-site damage from soil erosion in the United States amounts to more thanUSD10 billion or around 10 per cent of the total value of US agricultural production.
34  The USA is
reported to have one of the world’s most comprehensive erosion control programs, and the rate of
erosion has been reduced substantially in some regions.
59. According to the OECD, Australia, which makes up 5 per cent of the world’s landmass,
accounts for an estimated 19 per cent of the world’s soil erosion.35  Around 20 per cent of Australia’s
soils are considered highly erosion prone with annual rates of loss of 10-50 tonnes/ha.  Soil formation
generally amounts to less than 1 tonne/ha in the country.  In Norway, around 15 per cent of the arable
land is considered to be vulnerable to erosion.36  Erosion rates in Norway have decreased by
30-35 per cent over the last few years.
                                                     
34 Data from the second half of the 1980s and covering the farm production regions in the USA.
Off-site damage is assessed to range from USD 5.8-20.3 billion with a best estimate, which is the most likely
extent of off-site damage, of 10.1 billion.  Sour ce:  Steiner, McLaughlin, Faeth and Janke, 1995.  Incorporating
Externality Costs into Productivity Measures:  A Case Study using US Agriculture.   In Barnett, Payne and
Steiner, 1995.
35 These estimates relate to total erosion, regardless of cause.  However, the agricultural sector is
considered to be the largest anthropogenic contributor to soil erosion.
36 Arable land prone to erosion is defined as having an erosion rate of more than 1.25 mt/ha annually.WT/CTE/W/100
Page 14
2. Water use
60. The OECD lists a number of environmental impacts associated with agricultural water use
and withdrawal.  These are increased concentrations of pollutants in smaller volumes of water,
including salinization; drought and flooding; soil  erosion, sedimentation, acidification, leaching,
salinization and water logging; wetland loss; loss of rare and valued scenery and of historical, culturaland archaeological sites and changes in microclimate.
37
61. Salinization  is a major problem in Australia. OECD reports that “ Australia’s soils are
naturally saline. Secondary salinization (dryland and irrigation) is a major problem in northern
Victoria, central New South Wales, the south-east of South Australia and the south-west of
Western Australia.  Some 2.5 million hectares are subject to dryland salinization, which can occur
when deep-rooted vegetation is replaced by shallow rooted annual crops, causing water tables to rise
and bringing dissolved salts to the surface.  Some 160 000 hectares are subject to salinization dueprimarily to rising groundwater tables resulting from irrigation.  If present trends continue, 5 million
hectares in the Murray-Darling basin alone will be subjected to salinization by 2020".
38
3. Energy consumption
62. Fossil energy consumption has environmentally harmful effects through emissions of CO2
and nitrogen and sulphur compounds.39  Total energy use in agriculture is affected by a number of
factors, such as scale, inter-industry transport distances and capital intensity.  While further research is
needed, a preliminary analysis seems to indicate that total energy use related to agricultural
production may be higher in high-support than in to low-support countries.  However, tax policies can
create incentives for greater energy efficiency.
E. TENTATIVE CONCLUSIONS ON NEGATIVE ENVIRONMENTAL EFFECTS
63. The analysis in Section 4 is preliminary and by no means exhaustive.  Comparative data are
lacking, and the figures presented are subject to certain methodological shortcomings.
64. The analysis is based on nationally aggregated data of the OECD area, and seems to indicate
that while N fertiliser use per unit area is strongly correlated with support levels, the coefficients for
animal density and acreage pesticide and P fertiliser use per unit area, show weak to moderatecorrelation with support levels.  However, high-support countries seem for various reasons to have
reduced fertiliser and pesticide use more than low-support countries.
65. More importantly, low animal densities at national levels mask higher concentrations at local
level, and these have a negative impact on the environment.  This may be one of the reasons for the
high levels of nitrate that have been found in ground-water samples, in both low- and high-support
countries.
66. The production shift projected to follow from further trade liberalization may have a
detrimental impact on biodiversity, both in high-support countries where agriculture is projected to
contract, and in low-support countries where agriculture is projected to expand.  Several low-support
countries with extremely high levels of biodiversity have already experienced loss of biodiversity due
to agricultural expansion.
                                                     
37 OECD, 1997a.
38 OECD, 1998a.
39 Agriculture acts both as a source and as a sink of greenhouse gases (GHG).  The sector is a major
source of GHG such as methane and nitrous oxide and a minor source of carbon dioxide.  Agriculture’s
contribution to total emissions seems above all to be related to the level of agricultural activity, regardless of
location.  However, further research may be needed.WT/CTE/W/100
Page 15
67. Other environmental problems, including erosion, water use, salinization and energy
consumption, also need careful consideration and should be included in an environmental review of
the agricultural sector.
68. The extent of the environmental problems relating to the agricultural sector varies  according
to natural conditions, including recipient capac ity, farming methods and national legislation and
policy measures.
69. The level of coupled support may also, all things being equal,  have an impact on the level of
use of input factors.  However, support levels cannot be directly compared across countries as general
cost levels vary substantially. Whether economic measures act as an incentive for input use depends
first and foremost on the input-output price relationship. Therefore, if some support coupled to
agricultural production is needed in order to produ ce public goods as described in Section 3, it would
be possible to avoid or limit any increase in the use of environmentally damaging inputs throughtargeted taxes and restrictions on input use.
70. To conclude, according to empirical evidence, there does not appear to be a clear relationship
between environmental degradation and the level of s upport in different countries.  All in all, the
analysis does not seem to indicate that the shift in production from high to low-support countries that
is projected to result from further trade liberalization would lead to an overall reduction inenvironmental degradation.
V. ENVIRONMENTAL EFFECTS OF TRANSPORT IN INTERNATIONAL
AGRICULTURAL TRADE
71. According to the FAO, agricultural trade liber alization is expected to result in a shift in
production away from countries that currently have high support levels and towards countries wherethe agricultural sector receives less support and is more competitive.  Such a shift in production is
likely to affect international transport in three diff erent ways.  Firstly, reduced agricultural support is
generally expected to lead to higher world prices fo r agricultural products.  In countries that are net
importers of food and where little or no support is currently provided for the agricultural sector, such
price increases may, if transmitted to domestic markets, result in higher domestic production andimport-substitution.  Consequently, this effect would lead to reduced  trade and international transport.
72. Secondly, as a result of trade liberalization, exporting countries with low support levels would
tend to replace exporting countries where the agricultural sector currently receives higher support
levels.  As a result, trade flows would change direction without there necessarily being any change in
the total volumes transported or the transport distances.  The overall impact of this effect on
international transport is therefore difficult to predict.  Thirdly, in countries with high support levels,
national production would tend to be replaced by imports, which would result in increasedinternational transport.
73. According to projections made by the FAO, the overall impact of further trade liberalization
will include an increase in international transport of agricultural goods.  This is confirmed by OECD
simulations, which estimate that large above average increases in transport would occur, as a result of
the Uruguay Round liberalization, in sectors with high pre-UR protection levels.
40  Trade in
agricultural products is estimated to increase by 9-14 per cent, followed by corresponding increases in
transport of agricultural goods.  It is reasonable to assume that further agricultural trade liberalization
will be followed by further increases in transport of agricultural goods.
                                                     
40 OECD, 1996c.WT/CTE/W/100
Page 16
74. A number of negative environmental effects are related to transport, for instance noise and
emissions of CO 2, NOx and SOx.  Transport prices generally fail to reflect these negative effects.  In
Norway, according to the Norwegian Institute of Transport Economics, which has quantified the
external costs of different transport categories, air transport seems to be taxed in accordance with the
level of external costs, whereas taxes on road transport reflect only 30-70 per cent of external costs.The corresponding figures for rail and marine transport are 9-18 per cent and 5-10 per cent (harbour
taxes not included), respectively.
41  Unless these external effects are internalised, trade liberalization
is likely to result in sub-optimal market solutions, from a resource allocation and welfare point of
view, compared to a situation where all external effe cts are internalised into the prices of the different
transport services.
75. These issues should be further analysed. In particular, the extent to which further trade
liberalization would result in increased transport and how far external costs are not reflected ininternational transport prices, should be examined.  These aspects should be integrated into any
environmental impact assessment of trade liberalization in the agricultural sector.
VI. CONCLUDING REMARKS
76. This paper examines environment-related non-trade concerns in the agricultural sector.  The
analysis is preliminary and by no means exhaustive, and further work on these issues is required.  Theaim of the paper is to shed light on two issues.
77. Firstly, focusing on negative environmental effects, these are to a greater or lesser extent
related to agricultural activity in all countries.  According to the empirical evidence reviewed in this
paper, there does not appear to be a clear relationship between environmental degradation and the
level of support in different countries.  Therefore, all in all, the analysis does not seem to indicate thatthe shift in production from high- to low-support countries, that is projected to flow from further trade
liberalization, would lead to an overall reduction in environmental degradation.
78. Secondly, in Norway, a number of positive en vironmental goods are produced jointly with
agricultural products.  Thus, a certain level of agricultural production is necessary to produce the
positive environmental effects demanded today, beyond the reference level, according to anestablished environmental target.  Given that large disparities exist between countries with respect to
agricultural production costs and natural conditions, different levels of support are required to provide
the positive environmental effects that are demanded.  Therefore, to the extent that a certain level of
agricultural support is necessary in order to ensure the balance between supply and demand of certain
public goods, such as those described in Section 3.A, 3.B and 3.C, the agricultural policy corresponds
in effect to what we have called a Provider-Gets-Principle (PGP).
79. In Norway, for example, agricultural producers face production costs far above the world
average. It is evident that production will only take place if production revenues exceed production
costs.  Thus, the different conditions under which agricultural production takes place should be
carefully considered.  In Norway, to the extent that public goods are joint products of the agricultural
production, a combination of policy measures, includi ng a certain degree of support coupled to the
agricultural production, seems to be the most efficient way of ensuring the desired production level ofpublic goods.  Based on the analysis in this paper, it seems that further agricultural trade liberalization
will have adverse effects on the environment in Norway if it does not allow the desired quantity and
quality of environmentally related public goods to be produced.
                                                     
41 These estimates include external costs such as emissions, noise, accidents, queues and degradation of
infrastructure.  They are based on Norwegian tax levels, which are assumed to be substantially above world
average.  For other countries, estimates of the de gree of internalization may differ considerably.WT/CTE/W/100
Page 17
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