In view of the next round of multilateral trade negotiations, OECD and WTO have been examining environmental aspects of agricultural policy and trade liberalization, focusing on the creation of agroenvironmental indicators and the application of the polluter pays principle (PPP) to the farming sector. The author discussed the fundamental problems of agro-environmental policy, that underlie the recent development of the above-mentioned examination, from the economic point of view.
　Firstly, collaboration with natural sciences and further empirical studies are essential to clarify the relationship between agricultural protection and the intensity of farming. In theory, with certain types of technical change, reduced protection does not necessarily result in less intensive farming practices.
　Secondly, the reasons for the PPP being rarely applied to agriculture were discussed. In addition to the non-point characteristics of agricultural pollution, the market structure of agriculture and the assignment of environmental property rights are important.
　Thirdly, a number of reasons why farming is regarded as environmentally-friendly in Japan were identified. It should be noted, however, that strengthened agricultural protection in developed countries might discourage the evolution of agricultural production in less developed countries.

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　The purpose of this paper is to compare the measures, principles, implications and backgrounds of agro-environmental policies of different countries in the EU. Comparisons were made firstly between northern Europe (Britain, the Netherlands and Germany) and southern Europe (France); secondly between the above three countries in northern Europe; and thirdly between the EU and Japan.
　Agro-environmental policies aim to realize a "sustainable development of agriculture in each rural community." The policies may be classified into two types: (1) those which set regulations and levy taxes on less environmentally-friendly ways of agricultural production in order to prevent or reduce negative external effects, such policies are categorized as an application of the PPP; and (2) those which support more environmentally-friendly ways of agricultural production with subsidies in order to strengthen positive external effects, such policies are categorized as an application of the Public Charge Principle.
　An agro-environmental policy was formed in 1985 with the measures for ESA's and then expanded in 1992 with Council Regulation 2078/92. Since 1993, all member countries have carried out their own agroenvironmental programs under this Regulation. Such policies are an application of the Public Charge Principle. On the other hand, a typical case of an application of the PPP is the Minerals Accounting System of the Netherlands.
　The experiences of the EU suggest at least two points: the necessity for (1) the introduction of the decoupling principle into Japan's agro-environmental policy and (2) the promotion of the coupling of the agro-environmental policy with that for developing rural areas.

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　This paper discusses three points. First, the differences in recognition between European and Japanese people in how agriculture affects the environment are made clear. The former recognize that agriculture is harmful against the environment, while the latter think that agriculture is harmonious with the environment. In other words, farmers in Japan have been engaging in agriculture basically within the cycle of nature. This difference has led to a great gap in the formation of agro-environmental policies.
　Second, environmentally-friendly agriculture currently practiced in Japan is described and briefly evaluated in terms of farm management and profitability, based on the data of several enquête-surveys and case studies. Environmentally-friendly farms exist in almost half of the municipalities. They are classified into three groups: the recycling group, technique-aid group and community-env. group. The first group is the most common. These farms require somewhat more labor and make less profit, however they are generally viable.
　Third, the significance of environmentally-friendly agriculture is emphasized. The type of agriculture to be pursued in future is called 'Agriculture as Alternative Culture' (Bunka toshiteno kankyou hozengata nougyou). It will play an important and powerful role in the construction of an environmentally-friendly society in future.

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　Compared with other industries, agriculture and forestry play important roles in preserving natural resources and in providing desirable rural amenities for both local people and visitors alike. Such multiple roles are seldom marketed or traded, most of which are termed so-called 'external economies' that are not compensated by anyone through the normal market mechanism. For this reason, it is indispensable for future research and policy implementation to carry out an economic evaluation and to quantify the magnitude of those externalities provided by agriculture and rural communities.
　This paper tries to examine the nature and basic issues of environmental policies in agriculture. The following three points are analyzed, employing theories and analytical framework used in environmental economics. Firstly, economic and policy analyses are made on multiple functions played by agriculture and rural communities. Secondly, by reviewing literature on the economic evaluation of public functions of agriculture and forestry, various alternative methods for evaluating such externalities are compared and critically examined. Finally, policy implications and policy alternatives are examined, taking into account such externalities.

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