Agricultural Subsidies in the form of Environmental Incentives

Agricultural subsidies have been a subject of great tension and divide within the international trading system. This dates from the beginning of the General Agreement on Tariffs and Trade (GATT), short after World War II and continues under the current World Trade Organization (WTO) framework. The existing WTO provisions allow for several exceptions from the commitment to reduce subsidies. These are categorized under the Green Box (this means, they are non-or minimal trade distorting). Subsidies provided by developed countries to their farmers, have undergone in the last 10 years an important shift from Amber Box subsidies (highly distorting subsidies) to the Green Box. The latter are conditioned in some countries, to the compliance with certain standards, such as environmental, animal health and food safety. Green Box subsidies criteria also permits the inclusion of environmental programmes, such as the Agri-Environment Payments (AEPs) financed under the Common Agricul-tural Policy (CAP) of the EU. AEPs are a form of Payment for Environmental Services (PES), as they are supposed to recognize the positive externalities that agriculture can generate and minimize the negative ones. This research indicates that these environmental incentives have trade distorting effects, as they have an impact on production, wealth, quality of products and decisions made by farmers. They are also part of a more comprehensive basket of subsidies, which accumulate and allow farmers to continue to produce and make investments that they wouldn’t be able to make without the subsidies. Besides these economic effects and their impact on other countries, important deficiencies in the implementation of the AEPs cannot be overlooked. These include poor targeting, lack of clear objectives, payment calculation, etc. All of which raise important questions about the effectiveness of the system to really pursue environmental benefits. Relevance to Development Studies States have the right to establish the policies that best fit their development and environmental needs. However, as part of the more and more globalized world, States also agree to abide by certain international common rules, which might to some extent, limit that sovereignty. To add more complexity to this already contentious issue, there are occasions when different international regimes overlap or conflict with each other. As recognized by several critics, there is some tension between the international trade and environment regimes. Eckersley (2004: 25, 29) argues that “global trading rules systematically undermine efforts towards international and national environmental regulation” and that “trade rules appear to have the upper hand”. So what is interesting about this research paper is to analyse how so called environmental considerations in the North are main-streamed into agricultural policy and have become an extension of these subsi-dies. Agricultural subsidies as a whole in developed countries are 2 or 3 fold the amount of Official Development Assistance (ODA) to developing countries, so the amount is significant. There is a tension between the multilateral trading system, national develop-ment goals,