UJp5  ji'Ht
POLICY RESEARCH WORKING PAPER   1915
Distortionary Effects of                                                The UruguLayRoui)d'
agreements orn agnclr i!re
State Trading in Agriculture                                            were intended to micve
member countries cowae,d a
fair and marl<er-oriernte d
Issues for the  Next Round  of                                          aicuaura taading ryeted
agricultujral trading systeml.
Multilateral Trade  Negotiations                                        But in practice, state trading
enterprises with ronopoly
Merlinda Ingco                                                          power or exclusive rilchts In
Francis Ng                                                              agricultural trade in rmiajor
products still prevall ,n maony
countries And significarnt
price distortions still enxit in
trade in products sLiuje-t to
state trading.
The World Bank
Development Research Group
April 1998



POLICY RESEARCH WORKING PAPER 1915
Summary findings
The Uruguay Round agreements on agriculture were                are still prevalent in both industrial and developing
intended to move member countries toward a fair and             countries.
market-oriented agricultural trading system. By                   In many countries, the operations of these state trading
progressively reducing domestic government support and          agencies tend in practice to nullify the intended
export subsidies, converting nontariff barriers to tariffs,     objectives of the concessions on market access reached in
and reducing barriers to market access, members were            the Uruguay Round.
committed to reducing distortions in world agricultural           And there are still significant price distortions in trade
trade and in preventing new distortions from arising.           in products subject to state trading.
But state trading enterprises with monopoly power or
exclusive rights in agricultural trade in major products
This paper-a product of the Development Research Group -is part of a larger effort in the group to evaluate the progress
of trade liberalization and their effects on developing countries. Copies of the paper are available free from the World Bank,
1818 H Street NW, Washington, DC 20433. Please contact Maria Chona Fernandez, room MC3 -610, telephone 202-473 -
3766, fax 202-522-1159, Internet address mfernandez@worldbank.org. The authors may be contacted  at
mingcoCaworldbank.org or fng@worldbank.org. April 1998. (37 pages)
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about
development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The
papers carry the names of the authors and should be cited accordingly. The findings, interpretations, an7d conclusions expressed in this
paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the
countries they represent.
Produced by the Policy Research Dissemination Center



DISTORTIONARY EFFECTS OF STATE TRADING IN
AGRICULTURE
Issues for the Next Round of Multilateral Trade Negotiations
Merlinda Ingco and Francis Ng*
Economist and Research Analyst, respectively, Development Research Group, The World Bank, Washington,
D.C. 20433. The authors appreciate the research funding by the World Bank Research Committee.



DISTORTIONARY EFFECTS OF STATE TRADING IN AGRICULTURE:
ISSUES FOR THE NEXT ROUND OF NEGOTIATIONS
Merlinda lngco and Francis Ng
Table of Contents
1.   INTRODUCTION .....................................................................1
2.   GATT/WTO RULES ON STATE TRADING .....................................................................2
3.   HOW  STES MAY CIRCUMVENT WTO RULES AND COMMITMENTS? .............................................5
3.1   POTENTIAL D      I       STORTIONARY EFFECTS OF STATE TRADING ........................................................................9
3.1.1   STE Activities and Behavior with Potential Distortionary Effects ............................................. 10
3.2   STATE TRADING AND THE IMPLEMENTATION OF URUGUAY ROUND COMMITMENTS IN
MARKET ACCESS .....................................................................                  12
4.   ESTIMATING THE DISTORTIONARY EFFECTS OF STATE TRADING ........................................... 16
4.1    DISTORTIONS BASED ON GATT/WTO RULES ................................................................6............................... 1
4.2    DISTORTIONS UNDER IMPERFECT COMPETITION .18......................................... 8
4.3   PRICE SUBSIDY EQUIVALENTS ON PRODUCTS SUBJECT TO STATE TRADING ............................................... 20
5.   STATE TRADING  ENTERPRISES IN AGRICULTURAL TRADE ....................................................... 25
6.   ALTERNATIVE POLICIES OR MULTILATERAL RULES ON STATE TRADING ............................ 29
7.  CONCLUSIONS.31



DISTORTIONARY EFFECTS OF STATE TRADING IN AGRICULTURE:
ISSUES FOR THE NEXT ROUND OF NEGOTIATIONS
Merlinda ingco and Francis Ng
1.    Introduction
The Uruguay Round (UR) agreements on agriculture were intenided to move member countries
toward the goal of establishing a fair and market-oriented agricultural trading system. Through a process
of progressive reduction in internal government support and export subsidies, conversion of non-tariff
barriers to tariffs, and reduction of barriers to market access, members committed to reduce distortions
in world agricultural trade and to prevent additional distortions from occurring.
It is only now, however, that it is apparent how countries have actually implemented their
generalized commitments. Analysis of actual implementation of the UR agreements in agriculture show
evidence of the ways the implementation process creates new opportunities for mischief and greater
efforts on the part of anti-liberalization forces. An important issue relates to the operations of state
trading enterprises (STEs) and their potential effects to circumvent the UR market access concessions and
commitments to reduce exports subsidies. Since little was done durinig the Uruguay Round to bring more
discipline to the activities of state trading enterprises, their effects onl the effectiveness of the new UR
rules in practice becomes a critical issue. In addition, the ongoing accessions to the World Trade
Organization (WTO) of major developing countries with state trading higlhliglht the need to examine STEs
and how to reduce their distortionary effects on trade.
Based on 108 reporting countries, we evaluate in this paper the potential distortionary effects of
STEs in agriculture and their abilities to circumvent the UR concessions on market access. Alternative
policies and multilateral rules to reduce the distortionary effects of STEs are also discussed. Section 2
briefly reviews the GATT/WTO rules on1 state trading. These include regulating the activities of STEs,
constraining their abilities to restrict trade and allowing their distortionary effects to be challenged under
the WTO dispute-settlement procedures. A theoretical analysis of potential distortionary effects of STEs
and the extent of these distortions in major countries are reviewed in sectioni 3. Section 4 provides an
inventory of country and product coverage of STEs and their importance to trade. Alternative policy
options for future multilateral reforms in the next Round are discussed in section 5. Section 6 concludes.
1



2.    GATTAWTO Rules on State Trading
This section briefly reviews the GATT rules on1 STEs under Article XVII. How the rules have
been inadequate in disciplining the behavior of state trading agencies with monopoly or exclusive rights
are discussed. The inadequacy is partly due to the vagueness of thie provisions and poor compliance on
STE notifications requirements.
Since the General Agreement on Tariffs and Trade (GATT) was first drafted in 1947,
governments and state trading enterprises have been recognized as legitimate participants in world trade--
both as market regulator and economic agent. As market regulator, governments impose trade policies
governing market access of foreign goods; and as market agent, engage in exports or imports. However, it
was recognized that governments or state-owned or controlled entities enjoying monopoly or exclusive
trading rights can engage in activities that effectively foreclose market access or create restrictions to
trade. Some countries attempted to limit the role of STEs, but failed as many other countries relied on
these entities for their control on trade (US/GAO, 1995).
The GATT rules that emerged did not outlaw state trading, but a series of obligations are
imposed. The most important requirements include the obligation to operate in a manner consistent with
the general principles of non-discrimination, to make purchases or sales solely in accordance with
"commercial considerations" and to supply information about the operations of state trade enterprises.
Information on trade covered by STEs has to be provided to tile GATT Secretariat on the basis of a
questionnaire adopted in 1957 and revised in 1960. The rules are contained in Article XVII which
established guidelines with respect to the behavior of state trading and the obligations of contracting
parties. In addition to holding STEs to the same disciplines as other trading entitiesl, and allowing
foreign enterprises the opportunity to compete, Article XVII mandates the transparency of activities of
state trading enterprises.2
Under GATT/WTO, non-discriminatory treatment generally includes most-favored-nation (MFN) and national
treatments. MFN requires granting to all members the most favorable treatment granted to any single member.
National treatment requires treating domestic and foreign producers equally. In article XVII, however, the meaning
of non-discriminatory treatment is unclear. The United States maintains that state trading should provide both MFN
and national treatment, but other members contends that national treatment is not required.
2 Notifications are required to be made for all STEs. Any member which perceives that a trading partner has not
adequately met its notification requirements may raise the matter bilaterally. More recently, a revision of the
questionnaire for STEs to provide more tranparency have been discussed in the Committee on State Trading
Enterprises.
2



Article XVII is not restricted to STEs that are owned or controlled by the state. Public ownership
is not the issue. The focus is on the behavior of entities formally granted exclusive rights, special
privileges or monopolies. Agencies or private-owned firms that hiave in effect been granted exclusive
rights of privileges are also covered by Article XVII. Hence, any member may notify entities or firms of
trading partners that are perceived to act as a STE on a de facto basis. However, Article XVII did not
provide a definition of what constitute a "state trading enterprise". As a result, what constitute a STE or
entities subject to Article XVII have beeni subject to different interpretationis by members. This is
apparent in the country notifications during the period 1980-1994 where countries appear to have
different interpretations of what constitute a STE.
The Uruguay Round Agreement did not change any of the provisions in Article XVII. However,
a Memorandum, called. Understanding on Interpretation of Article XVII was included in the Agreement.
The Understanding provided a definition of state trading enterprises, implemented procedural measures to
improve compliance with Article XVII's notificationi requirement, and created a working party to review
country notifications.3 The working party shall review notifications and counter-notifications, review the
adequacy of the questionnaire in light of notifications received.
For notification purposes, member countries agreed to define state trading enterprises during the
Uruguay Round as: "governmental and non-governmental enterprises, including marketing boards,
which have been granted exclusive or special rights or privileges, including statutory or constitutional
powers, in the exercise of which they influence through their purchases or sales the level or direction of
imports or exports" (WTO, 1994). All entities covered by this definitioni are subject to the guidelines in
Article XVII. Under this definition, state trading enterprises include government agencies, statutory
marketing boards, export marketing boards, regulatory marketing boards, fiscal monopolies, canalizing
agencies, foreign trade enterprises, and boards and corporations resulting from nationalized agencies.
Developed countries including the United States, Canada, Australia, New Zealand and Japan have
recognized the existence of state trading in their countries.
Another set of GATT/WTO  rules governing STEs comprise of the specific commitments
included in accession protocols that are made by members regarding their use or acceptance of such
3 A Working Party was established in 1995 under the Committee on Goods and Services to provide a practical
understanding of state trading as defined in the Memorandum and to explore means of ensuring transparency in STE
activities. The Working Party has met several times to address concerns about the potential trade distorting effects
of some STE practices, inciuding a complete reformulation of country notification requirements and established an
illustrative list of state trading activities (WTO 1995).
3



entities. In general, the specific commitments relate to price mark-ups or privatization of state-owned
enterprises.  In cases where any member perceives that an STE has circumvented previous trade
liberalization commitments, the WTO allow members to challenige such actions through the dispute
settlement procedures.
State trading enterprises that engage in agricultural trade are also subject to the disciplines
contained in the Uruguay Round Agreement on Agriculture. The Agreement required member countries
to reduce market access restrictions, export subsidies and domestic support including any such measures
provided by STEs. In particular, the disciplines on market access restrictions contain two specific
references to STEs. First, the definition of non-tariff barriers subject to conversion to tariff equivalents
includes non-tariff measures maintained through STEs.4 Second, when providing notifications regarding
implementation, members are required to explain the administration of market access commitments.
Where such commitments are administered by STEs, details about the STE and its relevant activities are
required to be provided. Third, under the export subsidy commitment, countries are required to reduce
their budgetary expenditures on export subsidies and their quantity of subsidized exports, including
subsidies provided by STEs. In addition, export subsidies not subject to reduction cannot be applied in a
manner that allows members to circumvent their commitments to reduce export subsidies, including
subsidies provided to or by STEs. Fourth, member countries are also required to reduce their aggregate
measure of domestic support, including budgetary expenditures and revenue forgone by governments or
their agents.
Other sections of GATT 1994 also contain references to STEs. For instance, countries that have
negotiated with other GATT/WTO members to provide a certain level of protection for domestic
producers cannot allow their STEs to operate in a way that affords a level of protection greater than was
negotiated (Article 11:4). That is, STE importers should not grant protection above that given by their
bound tariff schedules. Also, references made in other GATT articles to import or export restrictions
include those made effective through STEs.5 In addition, in the Uruguay Round, the United States
negotiated an exclusive bilateral agreement with Japan that sets limits on the price mark-up that the
Japanese Food Agency could maintain for specified commodities. The Agreement, however, is less
explicit on the disciplines on export credits and other subsidies administered through state trading
enterprises. Based on previous studies (US/GAO, 1995) and review of more recent country notifications,
there has been poor compliance on the rules to notify the existence and operations of STEs.
See Article 4:2 of the Agreement on Agriculture.
See interpretive note to GATT articles XI, XII, XIII, XIV, and XVIII.
4



3.    How STEs May Circumvent WTO Rules and Commitments?
This section provides a discussion of major policy issues on STEs and their potential effects to
circumvent the market access concessions reached in the UR.  A theoretical analysis of potential
distortionary effects of STEs is also presented.
On the import side, the UR Agreement on Agriculture mentions state trading in the context of
market access in a footnote to Article IV.2. This provision stipulates that"members shall not maintain,
resort to or revert to any measure of the kind which have been required to be converted into ordinary
customs duties".  The footnote clarifies that non-tariff measures maintained through state trading
enterprises fall under this prohibited category.
An important issue is whether state trading operations tend to effective]y nullify in practice the
market access concessions reached under the Uruguay Round. The ability of STEs to distort trade in
practice and effectively nullify the UR market access concessions stems in part from the ambiguity in the
GATT rules governing STEs. As discussed in section 2, Article XVII states that state trading enterprises
are expected to operate based on "commercial considerationis". However, what constitutes a
"commercial" consideration is ambigous, as firms can use market power as a commercial practice. In
addition, when governments establish a state trading monopoly, market power is usually used to gain
advantage over other domestic and foreign competitors. Given that market advantage, a state trader does
not operate in the same way as a private enterprise. Hence, in practice, Article XVII has not been
effective in modifying or disciplining the behavior of state trading enterprises.
In principle, the Uruguay Round Agreement in agriculture has introduced a way of reducing the
distortionary effects of STEs. First, the abolition of non-tariff barriers (tariffication) under the UR
include the non-tariff measures imposed by these entities. Second, Article 11:4 of GATT 1994 states that
no price mark-up administered by a STE importer slhould be larger than the bound tariff. Since few
agricultural tariffs were bound before the Uruguay Round, and countries were allowed to maintain non-
tariff barriers, STEs were able to effectively maintain high price mark-ups through non-tariff measures.
Under the Uruguay Round Agreement in agriculture, the non-tariff measures (including those
maintained by STEs) were converted to tariffs. However, since these new bound tariffs are very high in
5



many countries, STEs, are still able to effectively maintain hiigh price mark-ups and domestic price
protection in these countries.
An obvious but important policy reform for the next Round is, therefore, that of a further
reduction in the remaining high bound tariffs. This approachi should automatically limit the level of
import price protection maintained by STEs. If countries notify the level of price mark-ups administered
by STEs, it would be relatively easy to monitor the extent of import price protection by comparing price
mark-ups with bound tariffs. Under this policy, state traders must sell imports on the domestic market at
no more than the border prices plus the tariff.
Further reductions in the UR bound tariffs, combined with a more strict implementation of the
Havana Charter would impose further discipline on the extent of import protection maintained by STEs.
Two provisions of the Havana Charter (Article 31:4 and 31:5) are relevant. Article 31:4 called for an
analysis of import costs and profit margins of import monopolies. Article 31:5 stated that import
monopolies would "import and offer for sale such quantities of the product as will be sufficient to satisfy
the full domestic demandfor the imported product..." In simple terms, this implies that STEs canot be a
further impediment to trade. This, combined with Article 11:4 of GATT (disciplines on mark-ups) seems
to impose some discipline on STEs in most cases. That is, if a STE did not import to meet demand, the
evidence would manifest itself through a mark-up higher than that allowed. Although this may be
difficult to show in practice.
Based on the panel decision between New Zealand and Korea on beef in 1989, the issue is
clouded by quantitative restrictions or tariff quotas.6  The panel explicitly stated that it would be
inappropriate to apply Article 11:4 when there is a quantitative restriction (and, at least from an economic
point of view, a tariff quota) as the protection is provided by the quantity rather than the in-quota tariff.
6Korea's LPMO was a beef import monopoly established in July 1988, with exclusive rights for the administration
of both the beef import quota set by the Korean government and the resale of the imported beef to wholesalers or in
certain cases directly to end users such as hotels. The Panel examined whether the mark-ups imposed on imported
beef, in combination with the import duties collected at the bound rate, afforded "protection on the average in
excess of the amount of protection provided for" in the Korean schedule in violation of the provisions of paragraph
4 of Article 11, as claimed by New Zealand. The LPMO bought imported beef at world market prices through a
tender system and resold it either by auction to wholesalers or directly to end users. A minimum bid price at
wholesale auction, or derived price for direct sale, was set by the LPMO with reference to the wholesale price for
domestic beef.
6



According to the Panel, the price premium obtained by LPMO through the setting of a minimum
bid price or derived sale price was directly afforded by the situation of market scarcity arising from the
quantitative restrictions on beef. The Panel concluded that because of the presence of the quantitative
restriction, the level of the LPMO's mark-up of the price for imported beef to achieve the minimum bid
price was not relevant in the case. The panel stressed, however, that in the absence of quantitative
restrictions, an import monopoly was not to afford protection, oni the average, in excess of the amount of
protection provided for in the relevant schedule, as set out in Article 1[:4 of the GATT. Furthermore, in
the absence of quantitative restrictions, an import monopoly was not to charge on the average a profit
margin which was higher than that "which would be obtained under normal conditions of competition"
(in the absence of the monopoly). In principle, STEs could no longer maintain quantitative restrictions in
agricultural products as a result of the Uruguay Round Agreement in agriculture. By converting
quantitative restrictions (and other non-tariff measures) into tariffs,   STEs could not, in principle,
maintain protection higher than the new bound tariffs.
A stronger discipline which requires STE imports until the difference between import and
domestic prices does not exceed the bound tariff means that the state importer will act similarly as a
private trade under a fixed import tariff. In addition, a strict stipulation that the STE must meet market
demand would rules out tricks like selling a fixed quantity at a price that falls below the binding, while
generating a domestic market price above the binding.
On exports, an important issue relates to whether there is circumvention of commitments on
export subsidy reductionis. The Agreement on Agriculture does not mention state trading in the context of
exports. During the Uruguay Round, some members had suggested for greater transparency that of
introducing into Article 9 (export subsidy commitments) a specific obligation to notify details of exports
of commodities by state trading enterprises. This was rejected by the participants involved in state
trading. They referred to the notification system which already existed under Article XVII for all sectors,
including agriculture.  Under the present notification requirement to the Committee on Agriculture,
exports by state trading enterprises fall under the general notification requirement as described in table
ES I and ES2 in the document on notifications accepted by the Comm itte on Agriculture. In practice, this
implies that the details on exports by state trading enterprises will not be available through this
notification.  Recently, complains by members have been expressed concerning some practices by
marketing boards in third country markets which are not linked to the traditional kind of export subsidies.
It is claimed that these practices have the effect of export subsidies but are allowed by the WTO.
7



The types of export subsidies which are subject to reduction commitments are defined in Article
9 of the Agreement in Agriculture. If a state trading enterprise receives such subsidies, they would be
subject to reduction. In addition, Article 10 stipulates that export subsidies not listed in Article 9 shall not
be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy
commitments. This is also applicable to state trading enterprises. A problem that needs to be addressed
is the lack of transparency concerning state trading. Traditionally, marketing boards and STE exporters
do not release information on their export sales. However, some of these sales are subsidized. Because of
this lack of transparency, it is very difficult to monitor thle export subsidy involved in a given
transaction.7 This problem is made worse by the practice used by state trading enterprises to pool
revenue from all export sales and to distribute the revenue to farmers. Under this conditions, eventual
circumvention of the commitment to reduce subsidized exports or to keep subsidies at a zero level cannot
be verified.
Many participants believe that more transparency is needed and that some details (e.g. acquisition
price on the internal market, selling price on the world market) should be supplied if requested in the
Committee on Agriculture, especially under Article 10:3 (preventioni of circumvention) and also under
Article 18:6 of the Agreement on Agriculture (right of participants to raise any matter relevant to the
implementation of commitments). The lack of transparency lhas been justified by members having STEs
by the confidentiality needed to operate in the world market. Other exporters however, do not claim a
similar degree of confidentiality for their exports. The wheat sector is perhaps a good example. There
are five major exporters on the world market for wheat. Two of them have STEs which keep details of
transactions confidential. The other three are more transparent. Two countries in the latter group
subsidize exports, but the amount of subsidies is published and their selling prices are known.
Another problem is the fact that in the past, compliance with Article XVII notifications has been
very poor. Circumvention of reduction commitments only could be verified by details on volumes of
individual transactions, their level of subsidies and sales prices. The present questionnaire does not cover
these points. In the past, those elements have not been supplied, also not in the framework of those
notifications under Article XVII.
7 The lack of transparency is justified by the concerned countries by the confidentiality needed to operate on the world market.
Other exporters, however, which do not have boards, do not claim a similar degree of confidentiality for their exports. It is
actually the private trade which in their case makes and carries out sales. In the wheat market for instance, there are five major
exporters on the world market. Two of them have trading boards, which keep details of transactions confidential. The other
three ar more transparent. Two countries in that latter group subsidize exports, but the amount of their subsidies is published and
their selling prices known. In addition, these latter countries would be ready to supply on request more detailed information on
export transactions to the Committee on Agriculture.
8



The Uruguay Round Agreement does not exempt countries with state trading from  their
obligation to provide information. The request for information by members would not be made because
of state trade but because there is a serious doubt whether the exports by the concerned country meet its
reduction commitments. The obligation to supply information under Article XVII:4 of the General
Agreement is triggered by other conditions when a party believes that its interests are adversely affected
by the operations of the state trading enterprises. It is obviously not related to the reduction commitments
under the Agreement on Agriculture.
On imports, members will have to ensure that new applicants commit themselves from the
beginning of their membership to a system in which the substantial part of imports is executed by the
private sector and not by state trading enterprises. In addition, tariff quotas sold to be under the control of
state trading agencies, unless specific conditions are agreed should ensure market access. No country has
so far claimed that the notification obligation under Article XVII of the General Agreement would
preclude interested parties from asking questions under Article 18:6 of the Agreement on Agriculture, as
to whether or not imports by state trading enterprise are in conformity with Article 4:2. It is likely that
the right to ask those questions will often be exercised, particularly after the accession of countries such
as Russia and China.
3.1.   POTENTIAL DISTORTIONARY EFFECTS OF STATE TRADING
Any evaluation of the trade distortionary effects of state trading are complicated by the various
measures that STEs use to control either a country's production, imports and/or exports. In addition, the
lack of transparency in the operations of STEs prevent a sophisticated quantification of their distortionary
effects. Based on the review of the GATT/WTO country notifications and Trade Policy Review reports,
actual operations of state trading enterprises include assessment of levies on production and/or imports,
license requirements for exports, provision of government guarantees on borrowed funds, and provision
of export subsidies. Other state trading practices included government guaranteed minimum prices.
Some member countries have justified their state trading enterprises by thie need to protect domestic
producers against low-priced imports. The variety of state trading practices makes comparisons between
countries difficult. In addition, many types of STEs operate in the world market, with differences in
operations such as import or export STEs, the types of industries, size of operations, and the level of
government control or intervention. This diversity makes it difficult to generalize about the distortionary
effects of STEs and their effects on particular markets or on the world trading system.
9



3.1.1 STE Activities and Behavior with Potential Distortionary Effects
A significant number of STEs handling agricultural commodities appear to combine foreign trade
monopoly with mechanisms to influence domestic supply and distribution. The major objectives of many
STEs include domestic price stabilization, market regulation, and control and promotion of exports.
These agencies are usually producer controlled, government sanctioned monopolies with exclusive
authority to engage in intervention purchases of domestic production, control output prices, set producer
and consumer prices, influence domestic distribution and conduct imports and exports. In general, the
state trading agency has control over the movement, pricing, quality standards and marketing of the
products concerned. In many agricultural markets, STEs usually obtain their power from their ability to
be price discriminators.
Policies implemented through state trading involve a wide variety of activities.8 In this section,
we identify and rank STE policies and activities in terms of their potential ability to distort trade. The
STE operations and characteristics listed in Box 1 and discussed in this section are considered to have
the greatest potential to create trade distortions.
Box I
Potential Distortionary Effects of STE Operations
Most trade-distorting STE operations
*  Administration of price support schemes for domestic production through different price schemes
*  Determines the purchase price and/or sales prices of domestic production and imports
*  Authorizes or manages production and processing of domestic goods
*  Purchases and sales of all or significant percentage of domestic production based on the predetermined floor
and ceiling prices; administration of marketing arrangements
*  Monopoly on imports and/or exports
*  Maintenance and administration of quantitative restrictions and licenses on imports and/or exports
*  Provision of export credit guarantees and export subsidies
o  Administration of global or bilateral agreed quotas, phytosanitary regulations and restraint arrangements
*  Restrictions on export licenses
Least trade-distorting STE operations
*  Quality control of domestic production
*  Provision of export-related support services such as storage, shipping, handling, processing, and packaging
*  Promotion and advertising activities for both exports and national consumption
*  Maintenance of emergency stocks of key staples
8 For a detailed discussion of STE activities, see WTO note, dated October 1, 1996, "Draft Illustrative List of the
Relationship between Governments and STE and STE Activities, Annex I and 11. G/STRIW/32 1996.
10



Price support to producers. A major role of STEs in many countries is to support the domestic policy
objective of price and/or income support to producers. To attain this objective, countries impose
regulations on quantities and prices of traded goods. The mechanism used is usually through"guaranteed
or fixed prices" for outputs or inputs directly or indirectly administered by the STE or by the government
through parastatal organizations. In these cases, STEs will establish floor (minimum) or ceiling
(maximum) prices which will trigger their purchases of goods or their release of stocks.  Inherent in
these functions is a monopoly or monopsony power granted to the STE in order to insulate domestic
markets from foreign competition. For STEs mainly engaged in import activities, the STE has a sole
purchasing authority in the world market and monopoly selling rights in the domestic market. In the case
of STE exporters, the policy is reversed with the government granting parastatal organizations
monopsony power in the domestic market and monopoly export rights or "single selling desk" authority
in world markets.
In countries with price stabilization as a major objective, a STE is also typically engaged in intervention
activities including management of stocks, buying and disposal of stocks and management of government
set targets for reserved stocks. In many developing countries, state trading is used as a mechanism to
execute or operationalize "food security" objectives througlh cheap food policy. The latter policy involves
taxing producers and subsidizing consumers. In this situation, STEs are viewed by governments as an
effective administrative agency to implement this domestic policy objective. This usually includes
transportation and distribution of subsidized food and/or agricultural inputs. The practices of the Food
Corporation in India and BULOG in Indonesia, both have sole authority for'intervention purchases of
domestic production for grains and exclusive rights to import illustrate these types of STE operations.
Among the developed countries, activities of the Japan Food Agency provide additional illustrations of
STE instruments with potential trade distortionary effects.
In the case of STEs engage in exporting, a number of developed country exporters have STEs which
engage in price pooling to support producer prices or minimize income risks to farmers. The impact of
price pooling arises from the STEs ability to create differences between markets--particular domestic
versus export markets, but also between different sub-markets. This can be consistent with economic
efficiency in the country, if for instance, an exporter discriminates to increase export returns. However,
price pooling within season is costly economically. While being justified by some strange notion of
equity, price pooling creates costly distortions in storage markets.
11



Under price pooling, the final price paid to producers by STEs is a blended price based on a net revenue
of all sales in foreign and domestic markets. This allows STEs to pay producers the same return
regardless of the time of delivery during the marketing year. Througlh a system of delayed payments to
producers, STEs enjoy greater flexibility than private firms in discretionary pricing in world markets.
Exclusive rights to buying and selling. Typically, statutory regulations provide STEs with opportunities
unavailable to private firms that compete against them. In particular, many STEs maintain exclusive
rights to purchase and sell certain products destined for domestic and/or export markets. Depending on
the objectives of STEs, this statutory power is often used to act as a monopsonist or monopolist, offering
producer prices lower than world market prices and/or selling to consumers at prices higher than world
levels. Revenues and profits derived from these transactions are used by STEs to subsidize exports of
selected commodities in which it has monopoly or monopsony rights. In addition, most STE exporters
have exclusive rights to export sales of key products. These exclusive export rights can enhance the
monopoly powers and economic rents available to STEs and enhanlce the practice of price discrimination
across export markets. STEs with exclusive rights to buying and selling usually control domestic
supplies, hence facing less uncertainty in sourcing supplies for exports than other competitors. This
provides flexibility for STES in making long-term export arrangemenit with importing countries.
Enjoys government subsidies or guarantees. Many STEs enjoy special privileges and facilities from
their sponsoring governments. These facilities usually include subsidies paid out to cover deficits on
price payment guarantees to producers and/or financial benefits that would not be available to private
firms. The funds could be used to reduce the prices of exports to gain an advantage in the international
market. In some countries, the subsidies are used in isolated cases, such as during unusually low prices.
For example, the Canadian government provided financial assistance to Canadian Wheat Board during a
year when market prices were low, thus reducing the impact of low prices on producers. In other
countries, the subsidies are provided on a regular basis, resulting in higher returns and production of
subsidized producers. Other forms of special privileges granted to STEs include special tax advantage,
transportation subsidies, and interest rate subsidies lowering the cost of STE borrowings relative to
private firms.
3.2    STATE TRADING AND THE IMPLEMENTATION OF URUGUAY ROUND COMMITMENTS IN
MARKET ACCESS
As discussed in the previous section, a major concern with STEs is that such entities may be used
through which governments may circumvent their commitments under the Uruguay Round agreement in
12



agriculture. Unfortunately, neither the Agreement nor the country schedule of commitments spell out how
the various aspects of the trade regime will be implemented. The implementation in some countries, while
consistent with WTO rules, is managing trade more than liberalizing it. in practice, the conversion of non-
tariff barriers in agricultural products is implemented by the adoption of tariff-rate quotas.  The
Agreement on agriculture allowed discretion in the allocation of import rights at the lower in-quota tariff
rates. In some countries, the tariff quotas are aliocated to state trading agencies or domestic producer groups
who has the right to determine the conditions of entry and, in some cases, the marketing channels used. In
some cases, the quotas are allocated to domestic processors thereby insuring that the imported product does
not have direct access to consumers. Some countries have allocated the quotas to importers on the condition
that they buy a certain amount of domestic product.
During the implementation of the Uruguay Round commitments in market access, many STE
importers still enjoy exclusive or monopoly rights to import, purchase and sell certain key products. In
many cases, it is very difficult, if not impossible to evaluate whether purchases, both domestic and
imports, are restricted due to lack of demand or because of specific government policy such as domestic
protection. In this situation, if the STE decides to keep control on sales and purchases, then tariffication
and/or tariff reductions may not necessarily enhance demand and improve market access.
Table I shows the number of tariff lines by type of TRQ administration. The frequency index
(Fm)9 showing the percentage of tariff lines subject to specified scheme of TRQ administration is also
9 The frequency measure provide one way of capturing the changes in trade policies and comparing the policies on a
country-by-country basis. A frequency index and trade coverage measure for each type of allocation scheme will be
measured as follows:
Fm     =       ( iD N;  Nt) * 100
TCm    =       ((ZDit-r * V        V.11 )i* 100
where
Fm     =       frequency index showing the percentage of tariff lines subject to a
specified measure
TCm            trade coverage ratio showing the share of total imports subject to a
specified measure
N;     =       tariff line i,
D;it,  =       dummy variable, I if one or more NTB is applied, 0 otherwise
N,     =       total number of tariff lines in a product group
Vit-n  =       value of imports in tariff line item i in year t-n
If r and m are zero, the index is based on current trade values, otherwise it is based on specified base year trade
weights. Holding n constrant and varying r will measure the effects of changes in protection with constant trade
weights.
13



estimated. As shown in Table 1, many of the newly established tariff-rate quotas in many countries are
administered by a government agency or a STE.
Based on the WTO notifications by 33 countries in 1995, table 1 shows the number of tariff
lines  subject to tariff quotas in agricultural products establislhed under the Uruguay Round Agreement
classified first by nature of allocation (global or specific country) and second, by type of administration.
The percentage of tariff lines for each type of administration schleme for all the tariff quotas established in
1995 are also shown. The results can be summarized as follows. First, a significant proportion of the
tariff quotas established under the Uruguay Round are administered by importing countries. Second, for
tariff quotas with specific country allocations, the most of the quotas are administered by a government
agency. Several importing countries have allocated the tariff quotas to their state trading agencies.
In many cases, the government agency has allocated the quota rights for certain products
exclusively to a state trading monopoly. Given that these STEs maintain monopoly or exclusive rights or
has significant control over domestic marketing, distribution, pricing, and other bottleneck facilities, the
commitments on trade policy reforms and tariff concessions become largely irrelevant in enhancing
market access. That is, even with zero tariff bindings and zero quotas, the STE has the ability to
effectively foreclose domestic markets from foreign competition by influencing prices of domestic and
foreign goods. In addition, the state monopoly maintains the ability to impose high mark-ups on imported
products, thereby reducing domestic demand for imports. Similarly, if STEs enjoy special privileges in
sourcing domestic outputs and inputs and prices paid are below market-clearing levels, the STE
effectively receives a subsidy which may reduce market access opportunities for foreign products.
The country notifications on market access specifies the tariff quotas and the tariff lines under each tariff quota.
The number of tariff lines under each tariff quota were counted by country.
14



Table 1. TRQ Administration by Importers, No. of Tariff Lines and Frequency index by type of arrangement.
COUNTRY                                         GLOBAL                                                         SPECIFIC COUNTRIES
Administered by Importers                                            Administered by Importers
Domestic         State    Traditional Compound    Domestic         Government  State Trading   Marketing    Domestic   Not Notified
Industry     Trading   Importers                  Producers &       Agency          Board          Board       Producer
State Trading                                                 Group
Austria                        0            0            0           0               0              0              0             0             0            0
Barbados                       0            0            0           0               0              0              0             0             0            0
Brazil                         0            0            0           0               0              0              0             0             0            0
Canada                         0            0            0           0               0            123              0             0             0            2
China                          0            0            0            0              0              0              0             0             0            0
Colombia                      48            0            0           0               0            119              0             4             0            0
Costa Rica                     0            0            0           0               0             11              0             0             0            0
Czech Republic                 0            0            0           0               0             46              0             0             0            0
El Salvador                    0            0            0           0               0              0              0             0             0            0
Finland                        0            0            0            0              0              0              0             0             0            0
Guatemala                      0            0            0           0               0              6              0             0             0            0
Hungary                        0            0            0           0               0              4              0             0             0           75
Iceland                       40            0            0           0               0             57              0             0             0            0
Indonesia                      1            0            0           0               0              4              1             0             0            0
Israel                         3            0            0           0               0             21              0             0             0            0
Japan                         39            0           24           0              59             98             24             0             0            0
Korea, Republic                0            0            0           0               0             19              0             0             0            0
Malaysia                       0            0            0           0               0              0              0             0             0            0
Mexico                         0            0            0            0              0              0              0             0             0            0
Morocco                        0            0            0            0              0              0              0             0             0           32
New Zealand                    0            0            0           0               0              0              0             0             0            0
Norway                         0            0            8           0               0              0             35             0             0            0
Philippines                    5            1            0           0               0             13              0             0             0            0
Poland                         0            0            0           0               0            254              0             0             0            0
Romania                        0            0            0           0               0              7              0             0             0            0
Slovak Republic                0            0            0           0               0             38              0             0             0            0
Slovenia                       0            0            0           0               0             33              0             0             0            0
South Africa                   8            0            4            0              0             62              0             0             0            0
Swaziland                      0            0            0           0               0              0              0             0             0            0
Sweden                         0            0            0            0              0              0              0             0             0            0
Switzerland                 240            94            0           0               0            446            164             0             0           19
Thailand                       2            3            0            0              0             37              0             0             0            0
Tunisia                        0            0            0            0              C             13              0             0             0            0
Turkey                         0            0            0            0              0              0              0             0             0            0
United States                  0            0            0           0               0             63              0             0             0           78
Uruguay                        0            0            0            0              0              0              0             0             0            0
Venezuela                      0            0            0            0              0              0              0             0             0            0
European Union                 4            0           88           0               0             11             15             0             0          267
Total          390            98         124            0             59           1485            239             4             0           473
(%)         13.58         3.41         4.32        0.00            2.05          51 71           832           0.14          0.00        16.47
Source: Autlors' estimates
As indicated in section 2, GATT 1994 imposed limits on the extent of protection that can be
extended to STE importers. Article 11:4 of GATT states that protection, on average, should not exceed
the amount of tariff protection provided for in their tariff scheduie. This could be interpreted as the
maximum price mark-up which can be charged when imports are sold in the domestic market. In
addition, the Uruguay Round introduced tariff rate quotas as a means to improve access for those
products subject to tariffication. However, both of these provisions in themselves do not guarantee
improved market access. For instance, STEs can satisfy the rule on1 maximum price mark-ups by simply
reducing their profit margin without expanding imports. Second, since the over-quota tariffs are
prohibitively high, as is the case in many countries, imports only enter within the minimum  access
commitments. Third, in countries where existing preferential arrangements are included in current access
commitments, the possibilities for increased market access remain limited.
15



GATT/WTO rules allow STE monopoly importers to administer imports into a country provided
such activities are carried out within "acceptable commercial practices."  But what is considered
"acceptable commercial practices"? The lack of transparency in STE activities and operations precludes
the determination of specific distortionary impacts and whether operations are within the spirit of the
Agreement. The administration of tariff quotas determine who gets the monopoly rent associated with
quota rights and licenses. The legalization of tariff rate quotas following the Uruguay Round Agreement
makes import administration by STEs a major concern, especially due to the non-transparency that exists
in the Agreement on Import Licensing Procedures with regards allocation of import quotas.
The tendency of member countries to establish new STEs to administer the implementation of the
new tariff quotas following the Uruguay Round is another concerni. The Philippines, for example,
established a new STE to administer its commitments on meat tariff rates quotas. Similarly, Taiwan set-
up new STE to administer its tariff rate quotas on rice and poultry products. China recently re-introduced
state trading in oilseeds and oilseed products. The objectives in all these appear to be to provide
exclusive purchase rights to STEs so that the government can maintain its control on trade flows. These
activities preclude competition and impede the entry of new private firms.
Several other STE activities and operations can circumvent the general WTO rules on market
access. Many of these entities control grades and standards of imported products. Such control may lead
to discriminatory treatment against products of certain national origin, thus impeding the free trade and
market access in these goods. In addition, some members maintain multi-tiered foreign exchange rate
systems, where STEs are granted preferential rates for purchases. These policies in effect discourage
competition at discriminates against private importers, both domestic and foreign. In other countries,
STEs are occasionally allowed to keep over-quota tariff revenues or resale price differentials. These
STEs use the tariff revenues to subsidize other aspects of their own operations to the disadvantage of
other firms.
4.    ESTIMATING THE DISTORTIONARY EFFECTS OF STATE TRADING
4.1    DISTORTIONS BASED ON GATT/WTO RULES
To estimate the trade distortion effects of STEs, one has to determine the extent of government
intervention resulting from STE operations and their effects on domestic production and total demand--
domestic and foreign. For STEs which control imports, one approach in the literature follows the"tariff
16



equivalence" method which the distortion effect is measured by the equivalent effect on domestic prices
to a tariff. Similarly, it could be argued that the distortion effect of a STE which controls exports can be
measured by the effect on domestic price equivalent to an "export tax or export subsidy equivalent".
Another approach attempts to evaluate the effects of STEs based on specific GATT rules. For
instance, based on GATT 1994 STE importers must operate in such a way such that domestic demand for
imports is satisfied and protection granted should not exceed the bound tariff. In addition, STEs should
behave like commercial firms and respect the principle of non-discrimination. Based on these rules, the
analytical task is to evaluate whether domestic demand for imports is satisfied and whether the STE
enjoys more protection than the bound tariff. Whether the STE behaved "commercially" is difficult to
define and evaluate in practice. One way is to determine whether the STE imports to satisfy the level of
domestic demand which would be faced by a private importer under competitive conditions.
The methodology for measuring protection is well developed in the literature. Given an import
demand function for a product, the difference between the world price level and the wholesale price of
the same good is the tariff equivalent of the import policies which operate to determine the import
quantity. This is shown in Figure I where a particular STE administers imports under competitive
markets. Given an excess demand (ED) faced by the STE and the excess supply curve (ES) which is
perfectly elastic at the world price (Pw), the tariff equivalent measures the impact of the STE on prices.
If the STE imports and sells at the same price as Pw, then there will be a zero tariff equivalent. If the
STE sells in competition with private importers, the tariff equivalent would be equivalent to the actual
tariff applied to private imports. The effect of the STE on trade is measured by the reduction in the import
volume.
For STE exporters, the Uruguay Round Agreement mandates that they should not grant export
subsidies that would exceed their UR commitments. The question is whether the STE grants an export
subsidy and how much. The simple analysis of export subsidies could be employed to estimate the
distortionary effects of STE exporters. The latter will have an export supply schedule which will be
observable at the price Pw and quantity of sales Qo (Figure 2). Given a domestic price faced by
producers, the degree of subsidy represented by export subsidy equivalent could be measured in the same
way as the tariff equivalent in Figure 1. The effect on trade is the amount by which an export subsidy
equal to the subsidy equivalent would expand exports. The total expenditure on export subsidies provided
by the STE exporter is given by the per unit subsidy equivalent multiplied by the volume of exports.
17



4.2    DISTORTIONS UNDER IMPERFECT COMPETITION
The analysis of distortions and welfare effects resulting from STEs with monopoly power under
imperfect competition is complex. Monopoly power resulting from exclusive rights granted to STEs can
be exercised in several ways which will affect trade flows. The major analytical questions include (a) the
effects on imports and exports of STEs with exclusive rights or monopoly power in domestic markets and
(b) use of monopoly or monopsony power in the world market to influence traded quantities and prices.
The first question is analogous to a small country case, where the country STE does not influence
its terms-of-trade. In this situation, monopoly power of STEs in domestic markets are exercised in
several ways including control on supplies, distribution, consumption, and quantities traded. Assume
initially that a STE has control on at least one of these functions. Also assume that the STE does not
impose any quantitative restrictions on total imports and other firms can import additional quantities
above the tariff quota or minimum access level to satisfy total demand. In practice, this implies that the
STE does not restrict other firms from importing over the in-quota tariff. For STE exporters, assume
initially that UJR commitments on maximum export subsidies are satisfied. The analytical question is
therefore on the extent of trade distortion other than those resulting from hidden non-tariff barriers and
export subsidies. In this case, the STE with monopoly power in the domestic market may restrict
production below the competitive level in order to raise prices. However, other firms can engage in trade
and consumers can purchase from abroad at the world price. The STE would operate in such a way that
marginal cost of domestic production is equal to marginal revenue as given by the price of imports. If the
STE does not enjoy any quantitative controls on total imports, then other firms can always satisfy their
needs from imports. Hence, the quantity of total imports would be similar from that of competitive level.
The trade distortion effect of the STE in the initial case of zero quantitative restrictions or hidden non-
tariff barriers would be minimal.
Consider another case of STE with monopsonist power and exclusive rights in purchasing
domestic production. To minimize cost, the STE monopsonist would buy less from domestic suppliers
than under a competitive market condition. The STE would capture rents from purchasing less of the
domestic product at lower prices than the cost of imports in order to equate its marginal cost of buying
from the domestic market with the world price inclusive of tariffs. In practice, this usually require
imposing export restrictions or ban on exports. However, if other domestic firms can engage in exports,
the STE monopsonist loses its market power. Therefore, the distortion and trade effect of monopoly or
monopsony power of STEs in the domestic market arises from the existence of non-tariff barriers
including hidden quantitative import and export restraints.
18



This leaves the case of STEs with monopoly power on trade. Consider the case of STE
monopoly operating to maximize profits or rents by influencing or controlling trade. If the objective of
the STE is to maximize profits by exploiting consumers, then even in the case of a small country with no
influence on world prices, the STE would impose trade restrictions equivalent to a tariff or an export
subsidy. For a STE importer, the rent-maximizing tariff equivalent would be the difference between
marginal and average revenue on the domestic market. The volume of imports would be lower than the
free-trade level. Thus, the distortion effect can be measured by the size of the tariff equivalent of the
policies in-place. Conversely, if the STE monopolist engages in trade by exploiting producers, the
equivalent policy would be a subsidy on imports to reduce domestic prices until the marginal cost of
buying from domestic suppliers is equal to the world price. The level of rent-maximizing subsidy would
be the difference between the supply price and the marginal cost of purchasing from domestic suppliers.
In this case, the trade distortion effect would be measured by the import subsidy equivalent. If the STE
monopolist also controls domestic marketing and decides to exploit consumers, imported products are
sold domestically at a high price and domestic product are purchased at the low price. With product
differentiation, the trade and distortion effects should be measured accounting for product prices and
quality differences in imports and domestic goods. The distortion effect can be represented or proxied by
measures of producer or consumer subsidy equivalents.
Consider another case where a STE has monopoly rights on trade and is supporting a country's
domestic producer price or income support policy. In this case, rents are transferred from consumers to
producers and the STE. If the STE operates to support domestic prices above the competitive level and
rents are distributed to producers in the form of higher prices, the impact on trade would be equivalent as
in the case of production controls or quota. The distortion effect in this case would be represented by the
tariff equivalent, measured as the price gap between the higher domestic price and the world price. A
third case is that of a STE operating in support of cheap food policy or "food security" objective. Here,
the STE with trade monopoly and controls on marketing or distribution sells imports at low domestic
prices through imposition of import subsidies or export taxes. The distortion effect would be represented
by the subsidy or tax equivalent.
In a large country case where a member country is large enough to influence its terms of trade,
the distortion and trade effects are more difficult to measure in practice. In this case, the STE with
monopoly power on trade faces a demand curve which is the sum of the domestic and foreign demand,
and is less than perfectly elastic. The STE monopolist operates in such that its total marginal costs is
19



equivalent to its total marginal revenue. Profits in this case could be increased by restricting production
and driving up the world price. The effect on trade flows can be represented by a producer tax equivalent
on domestic production, where the height represents the degree of monopoly power in domestic and
world market. In practice however, controlling domestic production in the absence of trade restrictions is
not likely to result in trade distortions. The STE monopsonist likewise has some market power if world
prices are influenced by the restriction of purchases on the domestic market. With restrictions on
domestic purchases, imports and world prices would increase. Here, the trade effect is due to restrictions
on domestic production and can be represented by a producer tax equivalent measure.
Consider a profit-maximizing STE with monopoly or monopsony powers on trade. Assume also
that the STE has the power to discriminate among markets and impose optimal trade taxes. In this
situation, the STE monopolist would operate such that its excess supply curve is equivalent with its
marginal export revenue function and would impose an optimal export tax. A STE monopsonist would
equate its excess demand schedule with the marginal import cost function and impose an optimal import
tariff. The distortion effects would be represented by a tariff equivalent of the optimal tax/tariff policies.
Figure 5 illustrates a measure of the "true" rate of protection when a tariff or price mark-up are
imposed on all importables under the case of differentiated products and three classes of commodities:
exportables (P(x)); importables (P(m)); and purley domestic goods ((P(H)). When a price mark-up or
tariff equivalent to t is imposed on all importables, the price ray corresponding to the P(m)/P(x) price
ratio rotates from OT to OT'. The price ratio rotates such that the new ray OT' is above the old
equilibrium point by an amount equal to the length (l+t) of the nominal price mark-up or tariff. To reach
a new equilibrium (at point B), the intersection of OT' with HH, the price of exportables relative to
domestic goods decline to 1/(l+d), while the price of importables relative to domestic goods increase to
(l+t) / (I+d), where d is the increase in the price of domestic or home goods. The increase in the price of
home goods is larger, the stronger the elasticity of substitution between importables and home goods.
4.3    PRICE SUBSIDY EQUIVALENTS ON PRODUCTS SUBJECT TO STATE TRADING
As discussed in the previous section, many state trading enterprises administer directly or
indirectly their respective country's domestic price support schemes. In these countries, domestic
producer prices, prices at which STEs buys and sells, export prices or some combination are most often
fixed and administered by the STE. A simple indicator of the extent of price distortions resulting from
STE operations is the tariff equivalent of market price support measures or price subsidies extended to
products under STEs. If the STE importer controlled domestic marketing as well, importables may be
20



sold to consumers domestically at P(m) while purchasing home goods from domestic producers at low
prices (P(d)). Under differentiated products, the trade and price distortion effects of STEs are estimated
as the producer subsidy equivalents (Dixit and Josling, 1997).
Table 2 shows the estimates of producer subsidy equivalents of major agricultural products
subject to STEs in several developed and developing countries. The coverage of countries and respective
products include only those which have submitted country notificationis to the WTO.' i To compare the
changes in the extent of subsidies provided after the completion of the Uruguay Round Agreements,
estimates of subsidy equivalents during the pre-Uruguay Round period (1988-94) and in 1995, following
the implementation of the agreements are presented.
Has the implementation of the Uruguay Round Agreements resulted in a decline in the magnitude
of subsidy equivalents for major agricultural products subject to STEs? In developed countries, current
estimates indicate that, except in a few cases, the magnitude of average subsidy equivalents of major
products have declined during the first year of implementation. However, the extent of remaining
subsidies and distortions resulting from these subsidies are still very large in many cases. Among the few
cases where the subsidy equivalents appear to have increased in 1995, Japan's rice and milk sectors
showed the largest increase.
Table 3 summarizes our estimates of tariff equivalents of price subsidies including price mark-
ups on major products under state trading in countries where information are available for the year 1995.
The estimates of tariff equivalents of price subsidies shown in Table 3 indicate that state trading agencies
in the countries covered tend to set domestic selling prices above world market prices, resulting in
subsidies to producers. Imported products are sold by STEs at a fixed, above world market price levels,
resulting in protection for domestic producers, which is paid by consumers.
For state trading agencies engage in exports, the analysis indicate that domestic prices are set or
maintained at above the agencies' export price (i.e. world prices) of a given product. The agencies'
monopoly gain on domestic sales are used to raise the revenue of the domestic producers and thus
becomes an implicit production subsidy. Likewise, export subsidies result from guaranteed minimum
reference prices for purchases from producers, to the extent that such prices are above prevailing world
prices. State trading agencies which administer domestic price support schemes essentially provides
protection to domestic producers. Imports are sold based on determined mark-ups, equivalent to a tariff
Estimates will be updated as country notifications to the WTO become available.
21



in order to maintain the domestic production subsidy. The country notifications indicate that in almost all
cases, the volume of imports is determined based on market requirements to compensate for any shortfall
in domestic production, the level of whicll is usually influeniced by some forn of producer subsidy.
22



PRICE                                             PRICE
I i             Figure 1                           i                Figure 2
ES
P(M)        )                                         P(d)
1t(m)    I                    ES                                           1t(x)
P(w) -                                                P(w)t                            -    ED
I       ~~~~~~~ID
ED
M(t)       M(o)        IMPORTS                        X(o)       X(1)        EXPORTS
A i            Figure 3                             A L              Figure 4
Mc   s                                                                        5(0)
P(m,                                               P(m)
P(W)  ~ ~     ~    ~      -P(w)
P(HL
-                        ~~~~~~~~MR(t)   D
S(1) S(0)          D(1) D(0)                                              (1)  0(0)
P(m)/P(H)    HFigure 5T'
1+t\    "
B
+(1 +tl(ld), =t
H"
I t   t tI H'        H
0  1/1+1)  f        P(x)/P(H)
1/(1 +d)
23



Table 2
Prmducer Subsidy or Tax Equivalents of products subject to STEs in selected developed and developing countries, percent.
Product Groups                  wheat                rice            coarse grains            beef                    nfilk
Pre-UR         1995 Pre-UR       1995 Pre-UR           1995 Pre-UR          1995 Pre-UR                1995
Developed Counties
Austalia                        4.50     6.40      6.70     5.60       4.62      5.03       9.41      5.18        18.50          24.70
Canada                         62.10    29.40      0.00     0.00      39.82     18.62      22.70     13.60        81.70          62.20
Finland                        80.10    79.00      0.00     0.00      74.66     79.71      80.26     72.64        83.60          81.00
Japan                          98.00   103.00     89.40    97.10      98.80     99.30      48.90     46.70        85.90          90.50
NewZealand                     16.30     1.00      0.00     0.00       3.36      1.00       7.71      2.11         4.00           1.60
Naway                          85.60    73.10      0.00     0.00      54.20     47.90      84.60     79.93        88.70          85.70
Sweden                         43.70    30.00      0.00     0.00      45.35     51.54      61.06     51.65        73.90          69.00
Switzerland                    84.40    80.70      0.00     0.00      89.07     77.15      87.16     88.66        82.50          86.10
Turkey                         51.30    -6.40      0.00     0.00       7.14      1.57       8.90     39.98        26.10          50.30
United States                  45.40    22.50     48.70    39.70      22.58     11.63       6.40      5.11        62.50          43.90
Developing
Colombia                       87.20    21.00     50.30    27.50      -7.40      -5.30     21.80     41.40        19.70          19.80
Argentina                      -1.80     4.20      0.00     0.00      -2.30      3.80       -6.30     6.80         0.00           0.00
Ecuador                         O.00     0.00     -8.80   -10.10     -22.80    -60.20      23.30    -19.10         0.00           0.00
Paraguay                       -40.10    11.50     0.00     0.00       0.00      0.00       0.00      0.00         0.00           0.00
Bolivia                        10.77            -422.16             -657.91                -46.25               -906.58
Peru                           56.83               0.00                9.62                 1.75                -150.35
Mexico                         53.90    31.81     32.78   -22.46      24.69      5.22                             -5.17         -44.73
Brazil                         43.20              95.10                8.10                -78.10                  0.00
Venezuela                       0.00              39.50               70.70                 0.00                   0.00
Egypt                          46.40    73.90     12.10   -22.80     -48.30    -71.10       0.00      0.00         0.00          0.00
morocco                        52.00    6Z20
Tunisia                        47.00               0.00              302.00                  0.00                 22.00
South MAfica                   -22.40              0.00              -11.80                 0.00                   0.00
Malaysia
Thailand                                           4.73   -23.03
Indonesia                                         21.83     4.64
rindia
Czechoslovakia                -22.50               0.00              -16.10                76.80                   4.70
Hungary                       -14.20               0.00              -23.20                53.40                  25.10
Poland                         -38.80              0.00              -19.20                -69.50                  O.Q0
Romania
Source: Authors' Estimates, based on basic data from OECD, USDA, and World Bank documents.
24



Table 3. TariffEquivalents of Price Subsidies and Mark-Ups, percent, 1995
Australia  Canada     Japan     New Zealand    Norway    Switzerland  Turkey  United States
wheat                00         00       5807         00       1379       2746        -16.2        6.0
rice                 0 8        00       503 1        0.0       0.0        0 0         0.0         0.0
coarsegrains         00         0.0      2557         0.0       69.        51 8        -1.8        00
beef                 0.0       47.0        00         0.0      109 4      304 1        58 4        45.7
milk                 31.0     104 3      398 1        0.0      10(S 7     336 0        56.1        65.6
other meat           0.3        6.4       69.5        20 0     157 6      189 0        24.9        0 0
sugar               -158        00       58.4         00         0 0       769        13.1        -4.6
Source: Authors' Estimations
5.    State Trading Enterprises in Agricultural Trade
This section attempts to answer the following questions: Whichi countries have STEs and what
products are under their control? How important are STEs in practice as an instrument of protection and
source of market distortions in agricultural trade? To date, there has been no cross-country study of
STEs in both developed and developing countries. This mackes it difficult to quantitatively evaluate the
prevalence of STEs in trade and the extent of their potential distortionary effects. To evaluate the latter,
specific information on STE behavior, activities and transactions level data such as price mark-ups are
required. Unfortunately, these types of data are not readily available. The analysis in this paper is based
on information from various sources including WTO country notifications and Trade Policy Reviews,
agriculture and commodity reports prepared by trade attaches in the Foreign Agricultural Service of the
US Department of Agriculture (USDA/FAS), and World Bank country documents and internal reports.
In accordance with Article XVII, member countries are required to submit responses to
questionnaires on state trading activities every 3 years. In addition, members are required to provide
notifications of any changes in STE operations during intervenin1g years. Compliance by members on
notification requirements between 1980 and 1994 were very poor. During this period, only a total of 45
countries submitted either a full or updating notifications. Out of the 45 countries, only 3 countries
(Finland, Sweden and Norway) provided full notifications for all five of the full reporting years. 26
countries only submitted three or fewer times during the period, with eight countries reporting only once
during the period.12
During 1995 through July 1997, only 35 countries notified the WTO about their STE operations.
These notifications indicated that a total of 121 state trading enterprises were involved in state trading in
12 See WTO, G/L/128, October 28, 1996.
25



35 countries. Twenty of these countries listed state trading for grains and eleven countries notified the
presence of state trading in dairy products. State trading were also reported in other agricultural products,
including cotton, fisheries, forest products, horticulture, livestock and meats, oilseeds and vegetable oils,
and some tropical products.  The extent of state trading activities based on these figures are likely
underestimated because of the remaining ambiguity in interpretinlg the new WTO definition and because
many members have yet to submit their notifications.
Tables 4 and 5 summarizes the range of products under STE operations in developing countries.
The data indicate that although STEs exist in manufacturinig and services industries, agriculture appears
to be the most important category of products under state trading in both developed and developing
countries.13 A review of country notifications suggests that the emphasis oln agriculture in state trading
activities stems from countries' agricultural policies. And because these agricultural policies were
generally exempted from GATT disciplines prior the Uruguay Round Agreement, it was futile in practice
to have tight restrictions of STEs which carried out agricultural trade policies. This gave room for the
possible use of STEs as administrators of non-tariff barriers allowed under Article XI:2 and perhaps
prevented the strict application of Article 11:4 to agricultural trade.
The importance and role of STEs vary significanitly across countries. State-owned enterprises
accounted for about 13 percent of GDP in a sample of 65 developing countries during the late 1980s, as
compared with about 6 percent in a group of 10 developed countries (World Bank, 1995). How
important are STEs in world agricultural trade? Evidence based on a review in developing countries
shown in Tables 4 and 5 suggest that many STEs affect trade in agricultural products. This is reflected in
both formnal exclusive rights or de facto monopoly rights or special privileges through control over
domestic sources of supplies, inputs, marketing and prices.
We evaluate the extent of STE control and potential distortionary effects on trade based on
several indicators, namely (1) the number of commodities covered under STE operations; (2) market
share of STEs on key products; (3) whether the STE has monopoly control or exclusive rights; and (4)
existence of non-tariff measures used by the STEs. Based on these indicators, we ranked the operations
of STEs in individual countries as "strong", "medium" and "weak". A "strong" status implies that the
country has a long list of commodities (over 30 product categories) under extensive STE controls, with
13 However, it is likely that STE operations are also prevalent in manufacturing and services sectors, but accurate
analysis is prevented by lack of information and low compliance on country notifications on STEs. Service sectors
seems implicitly not included in the STE notifications.
26



exclusive rights or import monopoly on many items, and with significant market share in key products. A
category "weak" means that only one or two sectors or a few commodities (less than 5 product items)
were under STE control. In addition, the STE concerned may not lhave exclusive rights or monopoly
preference on imports or those items have been in a process of phase-out or deregulation under a
government reform program. The category "medium" is in between the strong and weak category.
Under a medium status, the country is still maintaining STEs in trade witlh quite many commodities
covered and granted exclusive rights or monopoly power are applied to certain items (between 5 to 30
product items).
Table 4 also summarizes the ranking of STE operations and potential distortionary effects in 45
developing countries. Based on the extent of commodity coverage and existence of monopoly or
exclusive rights, seven developing countries (Bangladesh, Bolivia, Glhana, Hungary, India, Kenya, and
Nigeria) are considered to have STEs with strong control on trade and potential significant distortionary
effects. Sixteen developing countries examined (Costa Rica, Cote d'lvoire, Dominican Republic, Egypt,
Indonesia, Mauritius, Mexico, Pakistan, Peru, Romania, South Africa, Sri Lanka, Tunisia, Uruguay,
Venezuela, and Zimbabwe) have STEs which are considered under "medium" status. Out of the 16
countries, 8 countries have STEs with monopoly power and exclusive rights on several important
products.  The other 19 developing countries in the sample are classified as having"weak" STEs mainly
due to few commodity coverage. However, 8 of these 19 countries have STEs which are granted
monopoly power or exclusive rights on trade in key product items.  Hence, the potential distortionary
effects of STEs in these countries may still be important on these key product markets, despite the fact
that few commodities are covered under STE control.
Although the data on value or volume of trade carried out by STEs are very limited based on the
WTO Trade Policy Reviews, tables 4 and 5 indicate that a significant amount of agricultural trade were
carried out by STEs in several countries.  For example, about 30 percent of Bangladesh's imports on
foodgrains, edible oils, and raw meat were under state trading in early 1990s. In India, about 28 percent
of total imports of rice, wheat, cereals, edible oils and fertilizers were under state trading during the same
period. STEs in Peru accounted for about 20 percent of total imports in rice, cocoa, fish and fertilizers.
Similarly, about 20 percent of Tunisia's total imports of foodstuffs, tea, coffee, vegetable oils and
tobacco were under state trading.
On exports, STEs also accounted for important shares in total exports in several developing
countries. For example, STEs in Bolivia accounted for 45 percent of total exports in rice, sugar, coffee,
27



raw wool and yarns. About 38 percent of Dominican Republic's total exports of rice, wheat flour and
sugar were under state trading.
We now turn to the review of country notificationis on state trading submitted to the WTO during
a more recent period: 1995-1997. Table 6 provides a summary of state trading enterprises, their product
coverage and market share of STE trade in total trade in these products for selected industrial countries.
As shown, a wide range of products are under state trading in major industrial countries. Among these
countries, Australia, Canada, Japan, New Zealand, Switzerland and the United States appear to have the
largest number of STEs and/or largest number of products under state trading. As described in Box 1,
the operations of STEs in these countries indicate potential substantial effects on the extent of domestic
protection and distortions in trade in major agricultural products.
In many of these products, the state trading enterprises have significant shares in total trade in the
products concerned, with several countries indicating STEs accounting for 100 percent of country's total
trade in several key commodities during 1992-95.  It is interesting to note that, while many products
under STEs are agricultural goods, other products such as electricity, gas, chemicals, minerals, and
petroleum are also under STEs in several industrial countries (see Table 6). Many of these STEs have
monopoly or exclusive rights in trade in these products. In the case of Canada, the Canadian Dairy
Commission (CDC) maintained exclusive import rights in dairy products following the implementation of
Canada's minimum access commitments under the Uruguay Round.
Although a tariff rate quota was established under the UR minimum access commitment for
butter, the exclusive allocation of all import licenses to the state trading monopoly (CDC) would likely
limit in practice the extent of market access in the Canadian market for butter despite the implementation
of commitments made under the Uruguay Round. Similar situations are likely in other industrial
countries where the tariff rate quotas established under the Uruguay Round are administered by the state
trading monopoly and/or the import licenses under the TRQ are exclusively allocated or granted to the
state trading enterprise with exclusive rights. The prevalence of this phenomenon where STEs act as
administrators of UR minimum access commitments in agriculture are discussed further in section 4.
The WTO country notifications sometimes do not provide complete information on existing
STEs. For example, although the Australian notification provided accurate review of state trading
enterprises, several entities which qualify as STEs are excluded. These include the Australian Barley
Board, which controls feed and malting barley; the West Australia Grains Pool which has monopoly
control over all grains in Western Australia except wheat; GRAINCO, the Queensland STE which
28



controls certain non-wheat grains and GRAINCORP, the New Southl Wales STE which similar functions
as GRAINCO.
For developing countries and transition economies, table 7 summarizes the range of products
under state trading and STE's market share in trade in these products in 30 countries. The results indicate
that many STEs with exclusive rights are still maintained by developing countries and that trade in a wide
range of products are under the control of these enterprises. More importantly, many of the STEs appear
to hold monopoly power or exclusive rights in trade in many products, as indicated by the estimates of
market shares. While the market shares of many STEs appear to have declined in recent years, a number
of STEs also appear to have increased their shares in total trade in several products in recent years. For
example, the trade share of the Turkish STE in barley trade increased from 75% in 1992-94 to 100% in
1995.
There are other STEs in developing countries which are also not reported in WTO country
notifications. For example, in Indonesia, in addition to BULOG, the national logistics agency which
controls trade in most major agricultural commodities, the Clove Coordinating Agency (BPPC) and
APKINDO also meet the working definition of a STE. BPPC seeks to manage the domestic market and
controls all clove production and imports. All imports are barred, though smuggling is likely given
Indonesia's higher domestic prices compared with world prices. APKINDO, the wood products trade
association is non-goveirnmental enterprise which has been granted exclusive rights to export plywood to
certain markets, particularly South Korea, Japan and Europe. Its major purpose is to fix prices in export
markets. Through its export licensing role, APKINDO controls about 70 percent of the world market in
hardwood plwood.
6.   Alternative Policies or Multilateral Rules to Reduce Distortionary Effects of State
Trading
A more effective approach to reduce the incidence of trade distortions due to STEs with
monopoly power or exclusive rights is to eliminate the source of their distortionary power rather than
through rules governing their behavior. An obvious approach would be to abolish their monopoly powers
on imports. While STEs could continue to exist, they should not have exclusive import rights. Policy
rules that outlaw monopoly rights, exclusive or discriminatory allocation of the new tariff-quotas in
agricultural products to state trading monopolies would also reduce their distortionary effects on trade.
Furthermore, member countries could establish new rules which allow private firms to compete with the
29



state trading body as a component of the further liberalization of trade. For example, members should
implement their market access commitments under the Agreement in Agriculture such that the new tariff
rate quotas are allocated to private firms on a non-discriminiatory basis and not to government agencies or
state trading monopolies. This would improve the ability of otlher countries to monitor the performance
of STEs and generate interest groups that promote liberal trade within the importing country.
Hoekman and Low (1997) provide an excellent discussion of alternative approaches for
disciplining state trading with exclusive rights. They reviewed current approaches including binding STE
mark-ups, requiring trade expansion  commitments in counltry accessions and sector specific
commitments. Alternative approaches suggested by Hoekman and Low include the following: (i)
continuing to allow state trading but focus more tightly on their behavior; (ii) adopting tighter restrictions
on the creation of state trading enterprises witlh special privileges; (iii) adopting countervailing actions
and remedies; (iv) provision of compensation to trading partners when an STE is established. According
to Hoekman and Low, adoption of countervailing remedies is undesirable and that the alternative
approaches could potentially provide better outcomes.
In agricultural trade, one way to effectively reduce the market power of STEs is to expand the
quantity of the new tariff quotas until the monopoly power hias no binding effect. Expanding the
magnitude of imports under the minimum access provisions such that actual imports are determined by
the lower in-quota tariffs would reduce the ability of STEs to maintaini high import protection. Hence,
further expansion in the tariff quotas and rules defining obligatory imports under minimum access would
reduce the distortionary effects of STEs.
The Uruguay Round Agreements did not specify how the tariff quotas would be allocated. New
policy rules governing a non-discriminatory allocation of import rights under the new tariff quota
mechanism would be another way of challenging the power of STEs. The key is to expand the required
import quantities under the minimum access commitments beyonid the level which the STE would choose
to import. Rules requiring the minimum access provisions as obligatory imports would reduce the
distortionary powers of STEs.
In the case of STE exporters, a different strategy would be required. One important issue is
whether the STE exporter is in violation of liberal trade. If the STE can restrict sales of another country
exporter below the competitive level, then this may be treated as a matter of internal competition policy.
If the monopoly power of the STE exporters extends to international markets, and can influence the sales
to and from others, then some regulation at the multilateral level seems necessary. However, in practice
30



the STE exporter usually exports into a competitive market, and there is little need for multilateral rules in
this situations. Trade liberalization by opening up markets should further weaken the monopoly power of
particular STE exporters.  In developinig countries, many marketing boards have been deregulated
recently to allow the private sector to compete in export markets. Appendix I provides a summary of
recent reforms in STEs in developing countries.
In agriculture, an important issue for STE exporters for the next round arises not from the
descriminatory practice of monopoly power but with the covert subsidization of agricultural exports.
The United States has complained that Canada's Wheat Board undercuts US exporters in world markets,
by subsidizing exports. The issue is therefore a more simple one of monitoring and further reductions on
export subsidies.  For STEs, the provision of finanlcial assistance to STE exporters should be explicitly
included as an export subsidy under the rules in the Uruguay Round Agreement. The export subsidies
extended to these STEs should have been included into their schedules of commitments. If the process of
reducing such export subsidies continues during the implementation of the Uruguay Round Agreement,
then the issue of the subsidized STE exporters will disappear. In a number of countries, the state trading
export activity results from the presence of STE importers and some from the existence of export
subsidies in other countries. Abolishing the monopoly power of STE importers and further reducing
overall export subsidies may reduce the attractiveness of establishing or using STE to conduct trade.
Overall, multilateral rules to strengthen the monitoring of STEs and their activities, including
introducing stronger disciplines under Article XVII (e.g. increased transparency) would be needed to
reduce the trade distortionary effects of STEs. As mentioned above, the notification procedure under
Article XVII is woefully inadequate and has no teeth partly because of the vagueness of the provisions
and because the Article has not been used to claim nullificationi, althouglh it surely must as shown through
the Trade Policy Reviews.
7.    Conclusions
While permitted under Article XVII of the General Agreement on Tariffs and Trade, state trading
monopolies are not permitted to operate in such a manner as to distort trade. We evaluate in this paper
the prevalence of state trading enterprises in agricultural trade, their potential trade distortionary effects
and their abilities to circumvent the Uruguay Round concessions on market access. We conclude that
state trading agencies with monopoly power or exclusive rights are indeed very important in trade in
major agricultural products in both developed and developing countries. The analysis in this paper
indicate that the operations of these agencies effectively result in discriminatory practices and high
31



protection of domestic products over imported goods. Based on1 estimates of tariff equivalents of price
subsidies extended to major products under state trading, the analyses indicate that significant price
distortions remain in trade in these products.
In principle, the abolition of non-tariff barriers under the Uruguay Round would have reduced
the distortionary powers of state trading monopolies. Governments could no longer claim that their STE
is maintaining a non-tariff barrier. In addition, under Article 11:4 of the GATT, the price mark-up
imposed by state trading importers could not be larger than the bound tariff submitted under the Uruguay
Round tariff schedules. The analysis in this paper indicate that the operations of STEs with monopoly
power or exclusive rights may tend to effectively nullify in practice the intended objectives of the market
access concessions reached under the Uruguay Round.
The notification procedure under Article XVII is woefully inadequate and has no teeth in
disciplining distortionary behavior of STEs partly because of the vagueness of the provisions and because
so far, with one exception, the Article has not been used to claim nullification, although it surely must.
There is a need to strengthen the monitoring of STE operations and disciplines under Article XVII.
Based on actual implementation, the new established tariff rate quotas under the Uruguay Round
minimum access commitments-have increased the scope for state trading in agricultural trade. Based on
the WTO country notifications, new STEs have been established in a number of countries. The analysis
of TRQ administration and allocation schemes indicate that in a large number of countries, the new tariff
rate quotas are administered by a STE with monopoly power or a government agency. Or in many cases,
the import licenses are allocated or granted exclusively to a STE with exclusive rights or government
agency.
32



Table 4: Summary of the Status of State Trading Enterprises for 45 Developing Countires
State Trading Enterprises                          Sector Covered
Country        Status Monopoly   Regime  %Import % Export  Agric  Manuf  Serv   Major Agricultural Products
Argentina      Weak        No       M/X          ..          ..    X                   Grains, meat
Bangladesh    Strong      Yes        M         30%         ..      X       X           Foodgrain, edible oil, raw matl.
Bolivia       Strong       No       MIX         9%       45%       X       X      X    Rice, sugar, coffee, raw wool, yams
Brazil         Weak        No         X           ..       ..              X
Cameroon       Weak        Yes      M/X          ..          ..    X       X      X    Cotton, wheat flour, fertilizers
Chile          Weak        No       M/X          ..          ..    X       X           Wheat
Colombia       Weak        No        M          5%         ..      X       X      X    Agricultural inputs
Costa Rica    Medium       Yes      M/X          ..          ..    X       X      X    Rice, wheat, mazie, beans, sugar
Cote d'lvoire  Medium      Yes      M/X                    ..      X       X      X    Wheat flour, rice, ref. sugar, coffee, cocoa, cotton
Czech Repu     Weak        No       M/X                            X              X    Foodstuffs
Dominican   Medium        Yes       MIX        23%       38%       X       X           Rice, wheat flour, sugar
Egypt        Medium -     Yes        M            ..         ..    X       X           Wheat, flour, tea, edible oils, fats, tobacco, wood
El Salvador    Weak       Yes        M            ..       ..      X              X    Sugar
Ghana         Strong       No       M/X          ..          ..    X       X           Foodstuffs, beverages, fertilizers
Hong Kong      None        No
Hungary       Strong      Yes       M/X          ..          ..    X       X      X    Grains, oilseeds
India         Strong      Yes       M/X        28%        6%       X       X           Rice, wheat, cereals, edible oils, fertilizers
Indonesia    Medium       Yes       M/X          ..          ..    X       X           Foodstuffs, beverages, sugar, garlic, fertilizers
Israel         Weak        No        M            ..       .       X                   Frozen meats, edible offal
Kenya         Strong      Yes       M/X          ..          ..    X       X      X    Cereals, sugar, fertilizers
Korea          Weak        No       M/X          ..        ..      X                   Beet: tobacco, ginseng
Macau          None        No
Malaysia       Weak       Yes        M            ..       ..      X                   Rice
Mauritius    Medium       Yes       M/X         9%         ..      X       X           Rice, flour, staple crops, fertilizers, fruits
Mexico       Medium       Yes        M            ..         ..    X       X           Maize, milk powder, soybean, sorghum, oilseeds
Morocco        Weak       Yes        M            ..       .       X              X    Oilseeds, tobacco
Nigeria       Strong      Yes       M/X          ..          ..    X       X      X    Cocoa, cotton, groundnuts, palm products, rubbers
Pakistan     Medium       Yes         X           ..       ..      X                   Edible oils, fruits
Peru         Medium        No       M/X        20%         ..      X       X      X    Rice, cocoa, fish, fertilizers
Philippines    Weak       Yes        M            ..       ..      X                   Rice
Poland         Weak        No        M            ..       ..      X                   Basic food, tobacco, spirits
Romania      Medium        No       M/X          ..          ..    X       X      X    Livestock, dairy products
Senegal        Weak       Yes        M            ..         ..    X       X           Rice
Singapore      None        No
Slovak Repu    Weak        No         X                            X                   Beef, port, dairy products, sugar, potatoes
South Africa  Medium      Yes       M/X                            X       X           Wheat, maize, cereals, dairy prod., sugar, oilseeds
Sri Lanka    Medium       Yes        M           ..        ..      X              X    Wheat
Thailand       Weak       Yes       M/X                     .      X       X           Potatoes, garlic, tea, fish, plywood, tobacco
Tunisia      Medium       Yes       MIX        20%      20%        X       X           Foodstuffs, tea, coffee, veg. oil, tobacco
Turkey         Weak        No        M           ..          ..    X       X           Sugar, tobacco
Uganda         Weak        No         X          ..        ..              X      X    Coffee, food crops, timber, lint
Uruguay      Medium        No       M/X          ..          ..    X       X      X    Sugarcane, sunflower oil, potatoes
Venezuela    Medium       Yes       M/X        11%         ..      X       X      X    Sugar processing, milk
Zambia         Weak       Yes        M           ..        ..              X      X
Zimbabwe    Medium        Yes       M/X          ..          ..    X       X           Wheat, maize, beef, dairy products, cotton
Memo Items
STE status:       7 => 5 Yes/ 2 No
Medi       16 =>13 Yes/ 3 No
Wea        19 => 8Yes/ It No
None        3 =>       3 No
Source: GATT/WTO, Trade Policy Review, various issues, 1990-96.



Table 5: State's Trading in Agricultural Products by Country in 1990.
Products (S91'  Rev. 2)     Exporting Cotritnes              linporting Countim,c         No. ot Exporier   No. of Importer
00 Food & live animals      AIF<, EkiY, JOR, MWI, ML 1,       NER, PtL, RO M, SDN, SYK,              6                  8
ROM                              TGO, TUN, TUR
01 Meat & meat preparations  ALG, COM, COG, ETH, EGY,        BWA, NIC, NER, PER, TUR,               10                  6
GHA, JAM, MLT, MOZ, PER          ROM
02 Dairy products & eggs    ALG, BDI, BEN, BFO, BGD,         BRA, PAN, ROM, TUN                     20                  4
COL, COM, ETH, ECU, GHA,
IDN, JAM, MEX, MLT, NER,
NGA, PER, TUR, ZMB, ZWE
03 Fish & fish preparations  BEN, COG, COM, EGY, GHA,        BEN, BDI, BGD. BRA, GIN,                9                 13
JAM, MLT, MOZ, NGA               IND, MEX, MOR, MOZ, PAN,
ROM, SLV, URY
04 Cereals & cereal Prep.   ALG, BEN, BDI, BOL, BRA,         ALG, ARG, BOL, BRA. BWA,               27                 18
BWA, COL, COG, CRI, CYP,        CRI, GUY, IDN, LSO, MDG,
DOM, EGY, ETH, GHA, GUY,         MOR, MWI, PAK, ROM, SLV,
JAM, MEX, MLT, MOR, MUS,         SYR, TUR, ZWE
MWI, NER, PER, ROM, SEN,
SYR, ZMB
05 Vegetables & fruits      ALG, BEN, COG, COL, COM,         AFG, BEN, BFO, CRI. CYP,               15                 25
DOM, EGY, GHA, GUY, MLT,         EGY, ETH, GIN, GHA, IND,
NER, SDN, TUN, URY, ZMB          JAM, LSO, MDG, MOR, MWI,
NER, NIC, PAN, PAK. ROM,
SDN, SYR, TUN, TUR, VEN
06 Sugar & honey            AFG, BEN, BDG, COG, EGY,         BDG, BRA, CIV, CR!, DOM,               10                 15
GHA, MOR, MOZ, ROM, SYR          ETH, GUY, IND, LSO, MDG,
MOZ, NIC, ROM, SLV, ZMB
07 Coffee, cocoa, & tea     BFO, EGY, MLI, MLT, ROM,         BDI, BDG, BOL, BRA. CAF,                9                 24
SYR, TUN, URY, ZMB              CIV, CMR, COG, CRI. DOM,
ETH, IND, IDN. JAM, LBR,
LKA, MDG, MOZ. NGA, PAN,
SLE, TGO. TUN, TZA
08 Animal feeding & stuff   COL, EGY, JAM, LKA               BGD, BRA, BWA, NER, PER,               4                  10
SEN, TGO, TUR, TZA, ZMB
09 Misc, edible products    ALG, BEN, EGY, ETH, GMB,         ALG, PAN, ROM, TUR                     12                 4
GUY, MDG, MEX, SDN, SYR,
TUN, ZMB
El Beverages                BEN, BFO, GHA, GMB, ETH,         ALG, BEN, CYP, MDG, MOR,               9                  7
NGA, ROM, SDN, SYR               PAN, ROM
12 Tobacco & products       AFG, ALG, BEN, BFO, COM,         ALG, BGD, CAF, CMR, COG,               14                 11
EGY, ETH, GMB, MLI, NER,         DOM, EGY, NIC, PER, SYR,
PER, ROM, SDN, SYR               TZA
21 Hides & skins (raw)      EGY, ROM                         BDI, BGD, BWA, ETH. KEN,               2                   9
MWI, NER, PAN, SDN
22 Groundnuts & peanuts     COL, CYP, EGY, JAM, LKA,         AFG, ARG, BFO, BRA, CMR,               8                  17
MEX, ROM, VEN                    CRI, GMB, ETH, MYS, MWI,
NGA, NEC, ROM, SDN, SLE,
SYR, TUR
23 Crude rubber             ALG, DOM, EGY, ETH, IND,         BRA, CMR, IDN, LKA, MYS,               9                   8
IDN, MOZ, ROM, ZMB               NGA, PAN, TUR
24 Cork & wood              ALG, EGY, JAM, MLE, MLT,         COG, COL, ROM, TZA, UGA,               8                  6
ROM, TGO, ZMB                    ZMB
25 Waste paper & board      DOM, IDN, LKA, ROM               BRA, TUR                               4                   2
26 Cotton & fibres          BDG, DOM, EGY, ETH, IND,         AFG, BDI, BGD. BOL, BRA,               10                 21
IDN, LKA, MOZ, SYR, TUR          CAF, CMR, COL, EGY. ETH,
GMB, IND, LKA, MOZ, MWI,
NGA, NIC, PAK. SYR, TGO,
TUR
27 Crude fertilizers        BDI, BEN, BFO, BOL, BUR,         BRA, CHL, EGY, ETH, GIN,              25                  20
CMR, COG, DOM, ETH, EGY.         IND, IDN, JOR, KEN, LKA,
GMB, IND, IDN, JOR, KEN,         MOR, MOZ, MRT, MWI. PAK,
LKA, MOR, MWI, NER, NPL,         PAN, ROM, SEN, TGO, TUR
PAK, ROM, SYR, TUR, ZMB
29 Crude animal & veg matis  BFO, ETH, MOZ, MWI, PAK,        AFG, BWA, EGY, ETH, MDG,               10                11
ROM, SYR, THA, URY, ZMB          NER, PAN, PER, ROM, SLV,
TZA
County Total:                                                                                    221                2
Source: UN(1AI, Handbook ot State Trading Organizations ot Developinig Countries. Vol. 1, 1990.
34



Table 6. Summary of State Trading by WTO Notifications of Article XVII:4(a) in Selected Industrial Countries
1994 Value                       As% of
Country                  Date             State Enterprise                                              Trading Product                                 import      Export              (USS Mill)        Remark    Total Trade
I........            ..................................................................................................................................................................................... .......................................................-.................................. ..............................
Australia                07/22/96        Australian Dairy Corp.                                         Milk powder, cheese, butter                                      x                  243.4                            23%
Australian Dried Fruits Board                                 Sultanas, raisins, currants
Australian Honey Bureau                                       Honey
Australian Horticultural Corp.                                Nursery products, avocados
Apples, pears, citrus
Dried vine fruit
Cheatnuts & macadamia nuts
Austalian M-es & L;vestock Conp.                              Beef & 'aeal, buffalo meat
Lamb, goat meats, mutton
Live cattle & sheep
Australian Wheat Board                                        Wheat                                                            x                 2235.8                            99%
Australian Wine & Brandy Corp.                                Wine, brandy & grape spirit
Wool Intemational                                             Wool                                                             x                  2210                              5%
Queensland Sugar Corp.                                        Sugar                                                            x                 2231.7                            81%
Grainco - Queensland based agribusiness                       Wheat & barley, sorghum
New South Wales Grains Board                                  Coarse grains, oilseed
Barley sorgitum, oats
Australian Barley Board                                       Barley, oats, peas. faba beans
Lupins, vetch & canola
Grain Pool of Westem Australia                                Oats, faba beans, peas, linola
Barley, lupins & canola
New South Wales Rice Marketing Board                          Rice                                                             x                   733.0                           63%
Canada                   09/29/95         Canadian Dairy Commission                                      Butter                                              m                                 1.4                           69%
x                     3.7                           97%
Milk & milk powder                                              x                    84.3                           94%
Freshwater Fish Marketing Corp.                               Freshwater fish                                                  x                    37.6                           37%
Importation of Intoxicating Liquor Act                         Alcoholic beverages                                 m                               177 7
Canadian Wheat Board                                          Wheat                                                       x                      2995 6                            99%
Barley                                                     x                        476.3                          100%
Euiopean Union           01/23/96         Electricite & Gaz De France                                    Electricity & gas                                   m           x
(France)                                  Entieprise Miniere et Chimique                                 Nlinerals, chemicals                                m
Potassium fertilizers                               m           x                 270 tons ('000)
(Austria)                06/26/96         Austria Tabakwerke AG                                          Tobacco                                             m
VOA                                                           Alcohol                                              in
Iceland                  01/15/97         State Alcohol & Tobacco Monopoly                               Alcohol, beer, wine, spirit                         m                                13.5                           100%
Spirit                                                          x                     0.6                          100%
Tobacco & products                                  m                                13.6                          100%
Japan                     10/30/96        Agriculture & Livestock Industries Corp.                       Livestock, raw silk, & sugar                        m
Skim milk & powder                                  m                             16.9 tons ('000)
Japan Food Agency                                              Wheat                                               m                             6.4 tons (mill)
Rice                                                m                              1.6 tons (mill)
Barley                                              m                              1.8 tons (000)
Japan Tobacco Inc.                                             Tobacco                                             m                               703.4
Salt                                                m                               277.0
Ministry of Intl Trade & Industry                             Alcohol (>90%/.)                                     m                                  1.4
Source: VTO Country Notification of STEs, 1995-97.



Table 6: Summary of State Trading by WTO Notifications of Article XVII:4(a) in Selected Industrial Countries
-   -  ~ ~ ~~~ ~~~~~~~~~~~~                                                               ~~~~~~~   9 ~~~~~~~~~1994 Value                                                   As% ot
Country                  Date             State Enterprise                                               Trading Product                                Import      Export               (USS Mill)        Remark    Total Trade
....................................... .........................I....................................................................................................................................... ............................................................................................................................
New Zealand              08/08/95         Apple & Pear Marketing Board                                   Apples, pears                                                   x                     326                          100%
Hop Marketing Board                                           Hops                                                             x                     6.1                          100%/6
Dairy Board                                                   Butter, cheese, milk powders                                     x                  3389.9
Kiwifruit Board                                               Kiwifruit                                                        x                   381.1
Wool Board                                                    Wool                                                             x                  1054.1
Meat Producers Board                                          Meats                                                            x                  2634.9
Game Industry Board                                           Deer meat & dear antlers                                         x                   182.5
Norway                   09/12/96         Norwegian Grain Corporation                                    Grains, feed stuffs                                 m                                84.2
A/S Vinmonopolet                                              Alcoholic bevrrages & spirits                        m           x
Switzerland               12/06/95        Swiss Butter Supply Board                                      Butter                                              m                                  5.2          100%
Federal Alcohol Administration                                Distilled beverages                                  m                                15.1           100%
Federal Office of Agriculture                                 Bread flour, wheat meal                              m                                 0.1           100%
x                     0.3          100%
United States            09/29/95         Commodity Credit Corp.                                         Butter, cheese, dry milk                            m                                156.1
x                  406.6
Barley, com, oats                                   m                                89.5
x                 3968.3
Sorghum, soybeans                                   m                                14.5
x                 4761.0
Wheat, rice                                         m                                89.3
x                 4914.8
Roney, sugar                                        m                               663.S
x                   135.7
Cotton. rye                                         m                                17.5
x                 2286.6
Peanuts, dry beans                                  m                                29.1
x                  392A4
Sunfloweiseeds, flaxseed                            as                                8.5
x                   63.0
Federal Helium Program                                         Helium                                                          x                100.4 mn3 (mill)
Isotioes Prod & Distr. Program                                Isotopes                                             m                                88.2
x                   103.8
US Enrichment Corp.                                           Uranium                                              m                               518.1
x                 1045.7
Naval Petroleum & Oil Share Reserves                           Crude oil, gas, petroleum prod.                     m                            43354.8
x                  502.9
Strategic Petroleum Reserve                                   Crude petroleum                                      m                            38463.5
x                   53.3
Power Marketing Administration                                Electricity                                                                         3046.9  Revenues
Tennessee Valley Authority                                    Electricity                                          m                               960.3
x                    30.0
Strategic & Critical Materials                                Stockpiles materials                                 m                              4324.6
Stockpiling                                                                                                                   x                   685.1
Sourcer WTO Country Notification of STEs, 1995-97.



References
Dixit, P & Josling, T, "State Trading in Agriculture: a Background paper", Washington D.C.: Seminar
Paper presented at the Economic Research Service, USDA, 1997.
Kostecki, M.M., "State Trading by the Advanced and Developing Countries: The Background," in State
Trading in International Markets, Kostecki, M.M, Editor. St. Martins Press, New York, 1982.
GATT, List of Liberalization Measures, Note by the Secretariat, Revision, MTN.GNG/MA/W/10/Rev.2,
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Gwartney, James & Lawson, Robert, Economic Freedom of the World, Annual Report, 1997.
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