Table of Contents
Why Regulate State Trading?
In information on state trading, there is a general assumption that business enterprises will act according to commercial considerations and, based on theories of comparative advantage, will expand their international trade to reap the corresponding benefits. However, a private company with considerable power in a given market may exercise that power in a way that distorts trade and causes economic harm rather than a benefit. Furthermore, governments can use indirect means to influence world trade in an uneconomic direction; for example, they may use companies to provide protection against imports or promote exports, to the detriment of foreign producers.
The Widespread Incidence of State Trading
State trading remains a common feature of many economies where agriculture is an essential trade sector. Thus, state-trading enterprises in developed countries with significant agricultural trade interests and state-trading enterprises in agrarian-based developing countries. The fact that state trading activities are primarily focus on agriculture would indicate that governments view state trading as an appropriate means of achieving agriculture policy objectives, such as sustaining the prices of essential agricultural products or food security. In the field of industrial products,
Lack of Transparency
One of the main problems related to state trading in a rules-based international trading system is the lack of transparency regarding the existence and activities of state trading enterprises. Although the obligation to notify such companies has been “on the books” — that is, in the General Agreement — since 1947, and the first deadline for such notifications was February 1958, compliance with this obligation has been very average until very recently.
Possible Adverse Effects on Trade
State trading enterprises can implement many trade policy measures that are not following WTO provisions. The most common is non-compliance with market access obligations. For example, an STE could protect the domestic market for a particular product by setting import resale prices too high. Thus nullifying bound tariff concessions in WTO Schedules and violating Article II of the GATT 1994. In addition, the provision of subsidies to STEs that are primarily export-oriented may be contrary to the disciplines on export subsidies. Even where the government’s objective using the STE is not to deliberately distort trade, the operations of that company may nonetheless do so.
For example, the protection of public health, the often cited reason for maintaining monopolies in alcohol and alcoholic beverages, can seriously distort trade in these products. Only when state-trading enterprises’ activities can be examin can an analysis of their effects. On work be carried out and, ultimately, more rigorous standards be developed.
What is a State Trading Company?
Lack Of Clarity Problem
A significant gap in the history of Article XVII has been the lack of a clear definition of what is a state trading enterprise or state trading. There have been many attempts to draft such a definition, but all have failed. It constituted a severe obstacle in fulfilling the transparency obligation under Article XVII.
Article XVII:1(a)
Article XVII:1 contains the basic idea of a state trading enterprise, although no actual definition is the attempt. It refers to three types of companies: i) “State companies” (i.e. state-owned); ii) companies to which the State grants special privileges (for example, a subsidy or equivalent aid); and iii) companies that enjoy exclusive privileges (i.e. a monopoly on the production, consumption or trade of certain products). Thus, a private company or company that receives some special right or privilege from the State (i.e., a right or privilege not generally granted to other private sector entities operating in the same field). And which, as a result of that right or privilege may influence the level or direction of trade is a state trading enterprise.
Definition in the WTO Understanding
During the Uruguay Round, multilateral trade negotiations resulted are the Understanding of Article XVII’s interpretation. One of the main features of this Understanding is the “working definition” of state trading enterprise contained in paragraph 1, which reads as follows: “Governmental and non-governmental enterprises. Including trading entities, that have been granted exclusive or special rights or privileges. Including legal or constitutional powers, in the exercise of which they influence. And also, through their purchases or sales, the level or direction of imports or exports.”
Types of State Trading Enterprises
Official Marketing Boards
However, the agricultural sector’s most excellent common type of state trading enterprise appears to be official marketing boards, also called official marketing agencies and control boards. They often combine a foreign trade monopoly with responsibility for managing domestic production and distribution.
Export Marketing Boards
Export marketing boards could very well be classify in the official marketing boards category, with the defining feature that they deal only with exports. In general, they are organisms controlled by the producers that pursue the promotion of exports. And the achievement of advantageous sales conditions in foreign markets.
Marketing Regulation Boards
Therefore, Marketing regulation boards perform functions similar to those of the official marketing boards. However, one distinctive feature is that they do not carry out foreign trade operations themselves. But subcontract to private commercial companies to carry them out.
Conclusion
State trading is a mutual feature of many economies where agriculture is a vital trade sector. Thus, State trading enterprises are found in developed states with significant agricultural trading interests and agriculturally-based developing countries.