Agricultural multifunctionality in the WTO—legitimate non-trade concern or disguised protectionism?

Abstract The extent to which the multifunctionality of agriculture can justify continuing domestic subsidies to farmers that may be trade distorting in their effects, has emerged as a key bone of contention in the current World Trade Organization (WTO) agriculture trade talks. Supporters of multifunctionality point to the contribution of agriculture in terms of food security, rural development and environmental protection. In this paper, we focus on the environmental component in order to examine three interconnected questions. First, how robust is multifunctionality as a policy concept? Second, if multifunctionality is a reality, how valid is the claim made by European negotiators that the liberalization of agricultural policy and the abolition of blue box subsidies threaten the joint production of food and environmental goods in rural space? Third, what are the precise implications of this analysis for agri-environmental policy design, and the likely compatibility of the European Union's favoured model with current and future WTO disciplines? We conclude that, while multifunctionality is a genuine, and in some respects, unique, feature of European agriculture, it is in relation to the perceived threat of extensive agricultural restructuring to biodiversity and landscape values in the European Union that the concept has been most fully realized. This has profound implications for policy design, suggesting a need to retain some element of income support in the policy mix in order to defend environmental assets against the extreme consequences of farm structural change. We conclude by exploring what these deductions might mean for the future course of the WTO talks and for the long-term design of agri-environmental policy in industrialized countries.