1A state trading enterprise (STE) that is the sole importer for its country is classed as a monopoly. If the STE is an importer, but private firms also are allowed to import, the import arrangement is termed coexists. If imports are conducted by private firms only, the import arrangement is private. The coexists category can be applied to many countries where trade has been opened to private trade, but where the STE may import under certain conditions.

Saudi Arabia's Grain Silos and Flour Milling Organization (GSFMO) handled 27 percent of world barley imports from 1993/94 through 1997/98. STEs in China and Japan held 10 and 9 percent, respectively, of world barley imports over the same period. Saudi Arabia allowed private traders to import barley for the first time in 1998, and Japan will open import tenders for feed barley to private importers for the first time in 1999.

Rice, a staple food commodity for many Asian countries, is heavily regulated by government policies to restrict exports and imports, which STEs often administer. STEs account for about half of world rice exports and nearly a third of rice imports. Private traders export rice from Thailand, the largest rice-exporting country with over one-quarter of world rice exports, but rice exports from Vietnam, the second largest rice-exporting nation (14-percent share of world exports from 1994 through 1998), are handled by state agencies and are restricted by the Government of Vietnam. Rice producers in New South Wales, Australia, use an STE to export their rice, and the Chinese Government controls rice exports. Australia and China have global rice market shares of 3 and 6 percent, respectively. Imports by Indonesia's BULOG accounted for 12 percent of world rice imports from 1994 through 1998. BULOG lost its exclusive authority to import rice in 1998, but continues to import rice as needed. Other import-oriented rice STEs are the Philippines' National Food Authority (4 percent of world imports), China's COFCO (4 percent), the Iranian Government (5 percent), and Malaysia's Bernas (3 percent).

The chief dairy export STE, the New Zealand Dairy Board, handles about 30 percent of world dairy product exports. Smaller dairy export STEs--the Australian Dairy Corporation, the Canadian Dairy Commission, and the Polish Agricultural Marketing Agency--handle some, but not all, of their country's exports. The largest dairy exporter, the EU, does not use an STE to export dairy products, but the EU Commission administers export subsidies for private sector sales of dairy products, particularly butter, milk powder, and cheese. [3] Mexico's Compania Nacional de Subsistencias Populares (CONASUPO) largely handled Mexico's milk powder imports, which accounted for about 31 percent of global nonfat dry milk imports from 1993 through 1997, until private firms began to import large quantities of milk powder in 1998. After announcing that it would close CONASUPO on March 31, 1999, the Mexican Government permitted another federal agency, LICONSA, to import milk powder for the government's social programs, and began auctioning import permits for milk powder to the private sector July 7, 1999.

Governments heavily regulate the pricing, marketing, and trade of sugar, although STEs are not the sole administrators of national policies, and the STE with the largest share of world exports, the Queensland Sugar Corporation (QSC), is owned by its producers. In addition to QSC, which accounted for 11 percent of world sugar exports from 1994 through 1998, Cuba (8 percent of world exports) and Ukraine (4 percent of world exports) also use STEs to export their sugar. Exporting countries that do not use STEs to administer their pricing policies are the European Union, Brazil, and Thailand, although the EU and Brazil heavily regulate the pricing and marketing of sugar. India, a net exporter in some years but a net importer in others, allowed private firms to export sugar in 1997. Among the much larger number of importing nations, China uses an STE to import its sugar, as do other smaller importers such as Morocco. The European Union, Canada, and the United States heavily regulate sugar prices and imports through tariff-rate quotas, but do not conduct trade through STEs. Indonesia revoked the exclusive sugar import authorities of its chief agricultural STE, BULOG, in September 1998.

Countries must report their STEs to the GATT, now the WTO. 4 More than 30 countries reported close to 100 agricultural enterprises or other agricultural organizations to the WTO in 1995 and 1996. The notifications covered many different types of STEs and a large number of traded agricultural products. (See box, "What Types of STEs Are Reported to the WTO?")

The largest export-oriented STEs reported to the WTO in 1995 and 1996 were the Canadian Wheat Board, the New Zealand Dairy Board, the Australian Wheat Board, and the Queensland Sugar Corporation (see table 2). The four largest STEs each exported more than $900 million annually of their designated agricultural commodities between 1992 and 1995. Other export-oriented STEs marketed grains, dairy products, meats, sugar, fruits, and vegetables.

Australia, Canada, New Zealand, and South Africa reported numerous marketing boards. Australia's States maintain marketing boards for commodities such as barley, sugar, and rice, although the Australian Wheat Board is a federal-level board. 5 Canada reported federal-level marketing boards for grains and dairy products, as well as numerous provincial-level boards for beer, wine, and distilled liquor. New Zealand's farmers also marketed livestock, dairy, and an extensive list of horticultural products through marketing boards, although internal reforms in the past two decades reduced many of New Zealand's marketing boards' domestic market and trading authorities. Many New Zealand boards have relinquished their exporting activities to private firms, but coordinate exports through export licensing to import markets regulated by tariff-rate quotas such as the EU, Japan, and the United States, and continue to conduct market promotions. South Africa dismantled its many marketing boards in 1996 and 1997 and ended its export subsidies in July 1997. Among the products marketed by some of South Africa's largest boards were apples, grapes, citrus fruits, and corn.

The list of import-oriented STEs reported to the WTO is far less complete than that of the exporters (see table 3). Asian countries house the most numerous and largest net importing STEs. The top import-oriented agricultural STEs in WTO member countries were the Japan Food Agency and Indonesia's Badan Urusan Logistik (BULOG). Both imported agricultural commodities valued at more than $1 billion annually on average from 1993 through 1995. The Japan Food Agency is the largest Japanese agricultural STE, although other STEs in Japan import and resell tobacco, silk, and some dairy products.

Indonesia's BULOG, established as a government agency in 1967 to stabilize agricultural commodity prices at the producer and consumer levels, was authorized in the 1993-95 reporting period to import several agricultural commodities, export rice, administer the marketing and processing of selected domestically produced and imported agricultural commodities, procure domestic rice production, and manage rice stocks. A government edict revoked BULOG's

exclusive trade authorities in September 1998, but the agency has continued to procure commodities, manage stocks, and import rice during Indonesia's financial crisis.

The Republic of South Korea designated 8 STEs to import 18 agricultural products, including beef, citrus fruits, and rice, under its WTO tariff quotas. [6] STEs for several agricultural commodities also were reported by Malaysia (rice), the Philippines (rice and corn), and Thailand (potatoes, tea, and tobacco). Appendix B contains a list of agricultural STEs reported to the WTO in 1995 and 1996.

The WTO notifications provided an incomplete picture of the prevalence of state trading in world agricultural trade. WTO members reported their enterprises based on their individual interpretations of the 1994 GATT working definition. Many countries such as Egypt, Mexico, and Pakistan reported that they had no STEs for agricultural products, although these countries did use STEs to import agricultural commodities during the reporting period (1992 through 1995). Egypt opened imports of wheat to private firms in 1993, although it maintained the General Authority of Supply Commodities (GASC) as an importer. GASC handled an estimated 60 percent of Egyptian wheat imports in 1997. Pakistan opened imports of wheat to the private sector in 1991, but the government handled all of Pakistan's wheat imports until 1998. After wheat imports by private firms boomed in 1998, the Government of Pakistan banned private sector imports in June 1999. CONASUPO was Mexico's designated importer of milk powder until 1998 when the Mexican Government issued a large block of import licenses to a multinational firm. The Government officially closed CONASUPO March 31, 1999.

Many applicants to the WTO conduct their trade of grains and other agricultural products through state agencies. In principle, STEs in the former Soviet republics have been eliminated, but regional and national governments continue to procure commodities from farmers and restrict commerce between regions. Foreign trade companies in these countries continue to be directly or indirectly controlled by the government and are akin to state traders. STEs maintain control over grain trade in other countries seeking accession to the WTO, including Algeria, Saudi Arabia, and Vietnam.

China, the largest country seeking accession to the WTO, has several enterprises that fit the WTO definition of state trading enterprises (table 4). In 1978, China "decentralized foreign trade rights beyond the handful of centrally controlled foreign trade corporations" (Martin and Bach, 1998, page 290). However, China maintained its agricultural STEs--China's National Cereals, Oil and Foodstuffs Import and Export Corporation (COFCO) and China National Textiles Import and Export Corporation (Chinatex)--to conduct foreign trade in grains and cotton. [7] China's state control of grain trade is defined more explicitly in Section V, "Ranking STEs with Respect to Their Capacity To Distort Trade."

III. Why Do Countries Pursue State Trading of Agricultural Products?

IV. Evaluating the Market Impacts of STEs

To study the market impacts of state trading activities, one approach would be to examine the effects that such enterprises have on domestic and international prices. For instance, a state trader that restricts imports into a country will increase domestic prices in the same way an import tariff does. Similarly, an STE that expands exports will have an effect on domestic price that resembles an export subsidy. Thus, we can explain the market effects of STEs by expressing their impacts on prices in terms of tariff or subsidy equivalents. This tariff/subsidy equivalent approach dispenses with the need for a special theory of state trading.

The analytical framework for measuring the tariff/subsidy equivalent of state trading enterprises is well established in the literature (Dixit and Josling, 1997; Lloyd, 1982). Consider an STE that faces an import demand function represented by ED and an excess (export) supply function ES that is perfectly elastic (limitless availability of the commodity) at the world price P w (fig. 2). If the STE sells at the same price (account being taken for handling costs and tariffs applicable to all firms), then the tariff equivalent--represented by the gap between domestic and world prices--is zero. Consumers can obtain an unrestricted volume of imports at the world price and the existence of an STE importer has no additional effect on market prices or trade. The STE behaves no differently than a private firm under competitive market conditions. If the STE sells at a price higher than the world price, then the market effects of the STE can be represented as the difference between the domestic and world prices (P m -P w ). In other words, the existence of an STE leads to a domestic price that is greater than world price by t, the tariff equivalent. The trade impact of the STE is the reduction in import volume (M 0 -M 1 ) that would be caused by the tariff equivalent (t). If the STE sells at a price lower than the world level, then the trade effect is the increase in imports from the subsidy equivalent.

A similar approach can be used to represent a state trading exporter. Consider an STE exporter that exhibits an excess (export) supply schedule ES and faces an excess demand (import) schedule ED that is perfectly elastic (limitless demand for the commodity) at the world price P w (fig. 3). At a domestic price of P m , the STE is willing to export X 1 quantity of the commodity. But this can be done only if the STE offers an export subsidy of s in the world market. The per unit subsidy s is analogous to the tariff equivalent of the STE importer, and the trade effect is X 1 - X 0 , the amount by which export expands beyond levels corresponding to price P w . The level of export subsidy equivalent multiplied by the quantity of exports equals the total expenditure on export subsidies. [10] If the domestic price offered to producers is lower than the world price, then the trade impact is the reduction in exports caused by the tax equivalent.

Although we focus on the trade impacts of STEs, we should not lose sight of the associated effects of STEs on the domestic market. An STE that curtails imports is likely to induce expanded production and reduced domestic demand compared with free-market levels. Conversely, an STE that pursues policies that subsidize food consumption is likely to cause decreases in domestic supply and increases in consumption beyond free-market levels. Each of these can have far-reaching income and welfare implications.

A state trading enterprise can maintain a price gap between domestic and world prices (tariff/subsidy equivalent) and affect external trade if it is able to influence domestic prices by altering the volume of the product available in the market. [11] Thus, an STE importer that attempts to raise consumer prices by holding back sales will succeed only if it does not face competition from domestic sellers. Similarly, an STE exporter seeking to maximize its profits might want to lower the price it offers to producers by restricting the volume of purchases. But again, for this to succeed, the STE exporter must be able to control domestic purchases of the product. Otherwise, domestic producers could sell their product to competitors and acquire better prices. Domestic market power, or the ability to control the volume of products bought and/or sold in the internal market, is an essential precondition for STEs to influence the market.

To exercise domestic market power, an STE must also be able to control commodity trade in and out of the country. Consider again the STE importer that seeks to raise the price paid by domestic consumers by restricting sales volume. If the STE has no quantitative controls over imports, then buyers can always satisfy their needs from imports even in the absence of other domestic sellers. The STE importer will not be able to sustain a higher price, and the quantity of imports will be no different from that of a competitive firm. A similar situation exists for STE exporters.

Take the case of the STE exporter that acts as the sole buyer of domestic output (monopsonist) and tries to minimize its purchasing costs. The monopsonist might wish to purchase less than under competitive market conditions. But this would require export controls (or the compulsory purchase of all domestic products, which implies a ban on exports). If domestic suppliers can export, then the monopsonist loses its market power. Export restrictions are, therefore, the key issue with respect to the use of monopsony power on the domestic market. Such restrictions are the vital link between the use of monopsony power and impact on trade flows.

Another prerequisite for an STE to influence prices and affect trade is its ability to regulate substitute products. An STE importer may control the market for a particular product, but its ability to influence prices is greatly diminished if buyers can purchase substitute products from other sources. For instance, an STE importer may be unable to raise rice prices if consumers are willing to eat wheat instead, which is available under competitive market conditions. Similarly, an STE exporter will have little market power if sellers can offer substitute products over which the STE has no control. For instance, the monopoly power of an STE that offers rice producers prices lower than world levels would be meaningless if a substitute crop could be grown on the same land and exported without restrictions. Clearly, the existence of nonregulated substitute commodities will substantially affect an STE's ability to influence the market for regulated commodities.

An STE can affect trade if it can exploit differences in price responsiveness, either between domestic and international markets or among individual global markets (Houck, 1986, page 112). For instance, the Canadian Dairy Commission can charge higher prices for milk to be consumed at home than for dairy products destined for export because demand for milk in Canada is relatively less responsive to price changes than dairy product demand in Canada's export markets. With exclusive authority over Australian wheat exports but not over domestic wheat sales, the Australian Wheat Board attempts to obtain price premiums in less price-responsive markets like Japan while selling at lower prices to other export markets that are more price responsive. Exploiting differences in price responsiveness can work as a pricing strategy if there is no arbitrage between the two markets. Price discrimination strategies also become costly when exporters compete for the same markets.

Several factors influence the tariff/subsidy equivalent associated with a state trading agency, including the degree of control that the STE has over the domestic market, the STE's policy objectives, the extent of the STE's international market power, and the range of privileges that are exclusive to the enterprise. These factors not only influence the tariff equivalent associated with the state trader but also determine the type of policy instrument the STE might use.

The principal factor that influences the magnitude of the tariff/subsidy equivalent associated with an STE is its degree of domestic market power. In general, the greater the market power an STE possesses, the more it can influence prices and the volume of products traded. An STE's domestic market power depends on both the array of market activities that it controls as well as the range of commodities that it regulates. An STE's control over four specific activities--domestic marketing, procurement (i.e., sales and purchases), imports, and exports--determines its capacity to exercise domestic market power. There are several possibilities in this regard. At one end of the spectrum is an STE that maintains complete control over each of these activities. All transactions, whether in the domestic or international markets, have to be channeled through the STE. The other extreme is an STE that has no control over any of these activities. Presumably, the STE in this situation behaves no differently from a competitive private firm, and the possibilities for an STE to influence the domestic market are very limited. Thus, an STE that controls the full gamut of marketing activities will affect prices and the tariff/subsidy equivalents much more than a state trader that controls only one of these activities.

Similarly, an STE's market power depends on its capacity to differentiate products and regulate use of substitutes. Hence, the larger the number of substitute products over which an STE has regulatory control, the greater its ability to manipulate the market and influence the tariff/subsidy equivalent. This capacity is likely to be even greater if the STE controls upstream and downstream marketing and processing activities and engages in transfer pricing as a consequence of vertical integration.

The policy goals of an STE influence the magnitude of its tariff/subsidy equivalent. For instance, an STE importer that seeks to maximize its own profits can do so by exploiting consumers, producers, or both. The tariff equivalent of the policy set in each case would be different. If the objective is to maximize profits by taxing consumers, the tariff equivalent is the difference between the world price and the higher price at which imports are sold to consumers. Conversely, if the objective of the STE is to tax producers, the tariff/subsidy equivalent is the difference between the world price and the lower acquisition price offered to producers. However, if the STE importer controls domestic marketing as well and decides to exploit both consumers and producers to maximize its profits, imports could be sold domestically at a high price and domestic products could be purchased at a low price. With market differentiation, the tariff/subsidy equivalent would have to be calculated separately either as producer and consumer subsidy equivalents (OECD, 1987), or from a combination of price differences faced by producers and consumers (Roningen and Dixit, 1991). This type of market differentiation existed in several countries of the former Soviet Union.

It is possible that a state trader is in place to support the producer monopoly, working with producers to exploit domestic consumers. If the entire rent is to be distributed to producers through higher prices, then the tariff equivalent of the STE is the gap between domestic and world prices. If only part of the rent is passed on to producers in the form of higher prices, then the tariff/subsidy equivalent, as earlier, will depend on the combination of prices faced by producers and consumers. Marketing boards in some exporting countries are examples of state traders that seek to support producers by exploiting consumers.

If the state trader is in place to support consumers through lower food costs, then it would keep domestic prices below world levels. The trade impact of an STE is measured by the subsidy or tax equivalent on consumers only.

STEs may have access to a wide variety of trade instruments to alter consumer and producer prices. For instance, consumer prices could be increased either through an import tariff or quantitative trade controls, such as quotas or licenses. Similarly, producer prices could be lowered by using import subsidies or export controls. While the tariff/subsidy equivalents in either case would be the same, an STE that relies on quantitative restrictions on imports (or exports) is likely to distort international trade much more than an STE that obtains its protection from tariffs/subsidies. From a free-trade perspective, therefore, an STE that is supported by tariffs/subsidies is preferred to one that resorts to nontariff trade barriers.

The tariff equivalent is defined as the difference between domestic and world prices, taking into account all associated transaction costs and tariffs. Hence, the tariff equivalent attributable to an STE also depends on the extent of its international market power. The analytical exercises presented in figures 2 and 3 assume that a state trader cannot influence world prices. But, this may not be the case. For instance, a few large sellers dominate the global wheat market. Thus, an STE exporter with market power could hold back sales in the international market to achieve higher world prices and increased total revenue. [12] As before, the tariff/subsidy equivalent of the STE is the difference between the domestic price and world price, though the difference is likely to be lower because the state trader could raise international prices as well. Similarly, an STE importer with international market power could force purchases at lower prices by restricting purchases. [13] The difference between the domestic and international price is the tariff equivalent, and the gap is likely to be greater with international market power because of the STE's ability to lower world prices. In general, the greater the international market power that a state trader enjoys, the more it can influence the tariff/subsidy equivalent.

The range of exclusive or special privileges available to an STE can substantially affect the tariff/subsidy equivalent. Special privileges might include the financial benefits that accrue to an STE as a result of governmental association, such as underwriting of producer payments, interest rate subsidies, tax benefits, and preferential foreign exchange rates, or nonfinancial privileges such as the authority to establish long-term trade agreements with other governments. These privileges, in general, are likely to be affected by the ownership structure of the STEs; that is, the extent of managerial control that the government exercises over the enterprise. For instance, an STE that is owned by the government and has been established to provide income and price stability may behave differently than an STE owned by producers determined to maximize profits. Or, an STE that is owned by the government and is guaranteed against bankruptcy is likely to follow different trading practices than a commercial firm operating without government assistance.

Exclusive privileges, particularly financial support, allow STEs to undertake pricing risks beyond what a commercial enterprise might, especially if the state trader has goals other than profit maximization. Such privileges could lead to prices and tariff equivalents different from those that would exist in the absence of such privileges. The greater the array of privileges available exclusively to the STE, the more it can influence prices and the tariff/subsidy equivalent.

The tariff/subsidy equivalent approach proposed here captures most of the trade effects associated with STEs. In Appendix C, we point out how this methodology takes into account the trade effects of STE activities that evoke the most controversy, including cross-subsidization across markets, price pooling, and the competitive advantage such firms secure from governmental association. From this perspective, the methodology appears relatively robust. But, there are several weaknesses with this approach. For instance, data limitations may make it difficult to isolate the trade impacts exclusive to the STE if other distortionary forces exist. Similarly, the approach is geared toward obtaining the trade impacts of STEs over a period of time rather than assessing the distortionary implications of state trading practices that involve undercutting competitors on a transaction-by-transaction basis or the use of predatory pricing to drive commercial competitors out of the market.

For these special circumstances, the tariff/equivalent methodology may be somewhat inadequate. But overall, we find this approach extremely appropriate for measuring the trade distortion associated with STEs, given its simplicity, elegance, and the ease with which it allows comparisons across diverse parastatal institutions.

V. Ranking STEs with Respect to Their Capacity To Distort Trade

One of the primary goals of the WTO is to move toward freer trade while taking into account the existence of state trading enterprises. To this extent, quantitative measures of the trade impacts of such enterprises, as represented by tariff/subsidy equivalents, are desirable. Such information shows what types of institutions are most distortive and what activities might need disciplining. Attempts to capture the quantitative impacts of such entities and their activities on international agricultural trade have just begun. Progress has been slow because of the proprietary nature of the information sought. [14] Besides, where the tariff/subsidy equivalents have been calculated, it has been difficult to argue convincingly that they solely represent the effects of STEs and not other factors that influence trade. An example is an STE that manages import licenses and is responsible for implementing health and sanitary measures.

A classification scheme--or taxonomy--that provides qualitative indications (or ordinal ranking) of the trade impacts of such enterprises is needed to understand and to analyze the market effects of STEs. Such a scheme, if based on a strong conceptual foundation, can be useful in several respects. Most obviously, it would provide a basis for evaluating state traders in terms of their distortionary capacity. This would be similar to approaches used in the WTO with respect to the Agreement on Agriculture (green and amber boxes) and the Agreement on Subsidies (permissible or nonpermissible). Moreover, a classification scheme can provide a snapshot of the similarities and differences among STEs in terms of their broad economic traits. Policymakers might find it useful to know, for instance, if the Canadian Wheat Board, the Australian Wheat Board, or the Commodity Credit Corporation are comparable with respect to economic characteristics such as market power, use of trade policy instruments, and their linkages to the government. Finally, a classification scheme provides a framework for development of a dynamic inventory of STEs as their powers and institutional structures change over time.

What might be an appropriate classification scheme to understand the economics of state trading enterprises? If the objective is to evaluate STEs in terms of their capacity to distort trade, then our discussion on the tariff/subsidy equivalent approach suggests there are three basic preconditions that need to be taken into consideration: the extent of control over the domestic market, the ability to influence international trade, and regulatory authority over substitute products. To keep it simple, we will initially confine our classification scheme to the first two characteristics, and later explain how this might change in a multiproduct environment.

Table 5 presents a simple classification scheme for STEs based on their ability to control domestic markets and external trade. The classification scheme helps policymakers to identify enterprises that have the greatest potential to distort trade, to compare agricultural STEs in terms of their broad economic traits, and to provide a framework for the development of a dynamic inventory of STEs as their powers and institutional structures change.

A Type I STE operates without any controls on either domestic markets or international trade. In other words, the STE is competing with private firms on a level playing field. Clearly, Type I STEs have little, if any, capacity to affect the market, and their potential to distort trade is negligible.

A Type II STE operates without any restrictions on external trade but maintains control over the domestic market. Market controls may take the form of price regulation, supply control, procurement, and domestic marketing. Domestic consumers (producers) can resort to international markets for purchases (or sales), suggesting that domestic controls without trade restrictions do not significantly violate competitive norms. The potential to distort trade for a Type II state trader is low.

A Type III STE competes with private firms to procure and sell domestic production in the home market, but maintains quantitative controls on external trade. These STEs have the potential to moderately distort trade, but the actual extent of distortion would depend on factors such as the extent of international market power, the range of exclusive privileges available to the firm, the policy objectives of the STE, and the importance (share) of external trade in domestic consumption and production.

A Type IV STE imposes quantitative restrictions on imports or exports and maintains control over the domestic market as well. These STEs are more able to distort trade than the other three groups. But, whether a Type IV STE distorts trade much more than other types of STEs depends on factors that influence the magnitude of the tariff/subsidy equivalents, similar to those indicated for Type III STEs. Thus, a Type IV STE that has a small share of the global market may distort trade less than a Type III STE that is a big player in world trade.

This classification does not account for the multiproduct nature of STEs. We pursued a single-product approach to keep the scheme manageable. But, if the multiproduct element of the parastatal organization is important, two points are worth noting. First, the four types of STEs could be further disaggregated within each group to create subgroups A (single product) and B (multiple product), where Type B could be potentially more trade-distorting than Type A. The disaggregation, though, might be realistically relevant only for Types III and IV STEs because of their potential for moderate to high trade distortions. Second, in a multicommodity setting, the same STE might be classified differently, depending on the commodity under consideration.

Can policymakers use the classification scheme to determine which existing agricultural STEs have the greatest potential to distort trade? To illustrate this possibility, we examined the four largest export-oriented agricultural STEs and the three major import-oriented STEs reported by their governments to the WTO in 1995 and 1996. The four export STEs are the Australian Wheat Board, Canadian Wheat Board, New Zealand Dairy Board, and Queensland Sugar Corporation, while the three largest import STEs reported to the WTO in 1995 and 1996 are Japan's Food Agency (barley, rice, and wheat), Indonesia's Badan Urusan Logistik (BULOG) for several commodities, and the Republic of South Korea's Livestock Products Marketing Organization (LPMO) for beef. We also examined a fourth import STE, Mexico's Compania Nacional de Subsistencias Populares (CONASUPO) for milk powder, even though Mexico did not report CONASUPO to the WTO as an STE in 1995 or 1996. CONASUPO was the largest single milk powder importer in the world until March 31, 1999, when the Mexican Government closed CONASUPO's doors. The Mexican Government continues to import milk powder for social programs through LICONSA, and began auctioning import permits for milk powder to the private sector July 7, 1999.

In addition, we applied the classification scheme to the programs of the U.S. Commodity Credit Corporation in the box on p. 19, "Does the U.S. Commodity Credit Corporation Function as an STE?" and to China's state control of grains and oilseeds.

Tables 6 and 7 present important indicators of the control of STEs over domestic supplies and trade. Exporters are distinguished from importers because their behavior can be expected to differ significantly. [15] For each export and import STE, we compared the STE's share of exports or imports, its share of the domestic market, its procurement of domestic production, its export share of domestic production or import share of domestic consumption, the policies that help the STE maintain or reinforce its authorities, government financial support for the STE, and the structure of the STE (government or private).

The Australian Wheat Board (AWB) can be classified as a Type III STE because it has exclusive authority over exports, but not over imports or the domestic market. The Australian Parliament established the AWB as the sole marketer of Australian wheat domestically and for export in 1939. The AWB will undergo a National Competition Policy review of its single-desk export authority in 2000 (next year). The Australian Government publicly supports the AWB's single-desk authority until 2004, subject to a favorable National Competition Policy review. The AWB plays a pivotal role in Australia's wheat marketing since wheat exports accounted for 79 percent of Australian wheat production in the 1994-97 marketing years. Australia also held a 13-percent share of world wheat exports for the 1993/94 through 1997/98 international wheat marketing (July/June) years, ranking Australia behind the United States, Canada, and the EU. The AWB does not control imports, which accounted for less than 1 percent of domestic supplies from 1993 through 1997 but are subject to strict quarantine and transportation procedures.

The AWB lost its exclusive authority over the domestic wheat market in 1989 and now must compete with other marketers to sell wheat in Australia. The AWB holds an estimated 50 percent of the Australian wheat market. In 1989, the AWB also gained the right to market other Australian grains and grains of other origins (countries).

The AWB was an Australian Government corporation until July 1, 1999, when Australian wheat producers took over ownership of the new AWB Limited. The Australian Government also eliminated its guarantees of the AWB's initial pool payments to its growers at the same time. The new corporation, AWB Limited, will issue one set of shares valued at about A$600 million to its member-growers and a second set of shares to other investors.

The Canadian Wheat Board (CWB) is sole among the four export STEs to be classed as Type IV because it exclusively procures and markets domestically produced Western wheat and barley in Canada for human consumption and exports all Western Canadian wheat and barley. Exports are far more important to Canadian wheat than barley. Exports account for 75 percent of Canada's wheat production, but only 22 percent of barley production. Canada's share of world trade, which averages 19 percent for wheat and 18 percent for barley for the 1993/94-1997/98 marketing years, ranks Canada behind only the United States in world wheat trade and behind the EU and Australia in world barley trade. The CWB's marketing of Western wheat and barley for human consumption accounted for an average of 67 and 52 percent, respectively, of total domestic consumption (consumption plus feed use) from 1994 through 1997.

The CWB does not control imports of wheat or barley, but Canadian Government regulations on wheat and barley varieties, phytosanitary standards, and transportation regulations tend to restrict imports, which accounted for less than 1 percent of domestic supplies for the 1993/94-1997/98 marketing years. In a Memorandum of Understanding of December 1998, Canada and the United States agreed to work together to facilitate access for U.S. wheat into Canada.

The Canadian Government continues to support the majority of its grain producers™ demands to maintain the statutory export and domestic market authorities of the CWB. The CWB relinquished its status as an agent of the Crown late in 1998 after electing 10 producers as new board members in addition to 5 government-appointed board members. However, the Canadian Government has continued to underwrite CWB operations (estimated at $6 billion Canadian in 1998), including the CWB's initial pool payments to growers.

The New Zealand Dairy Board (NZDB) fits the description of a Type III STE because it has statutory authority to act as sole exporter of New Zealand dairy products, but does not control domestic marketing or imports. Exports accounted for 88 percent, 82 percent, and 93 percent of New Zealand butter, cheese, and nonfat dry milk production, respectively, from 1994 through 1998. New Zealand commanded 38 percent of world butter exports, 20 percent of world cheese exports, and 19 percent of world nonfat dry milk exports for the same period. In addition to basic dairy commodities, the NZDB is world renowned as an exporter of branded and higher value dairy products. Overall, New Zealand is the second largest world dairy product exporter, accounting for over 30 percent of world dairy product exports. The NZDB has no control over imports, which account for less than 1 percent of New Zealand cheese consumption. New Zealand does not import butter or milk powder.

The NZDB is owned and financed by its member dairy cooperatives. The New Zealand Government announced in its budget submission of May 1998 that its agricultural marketing boards, including the NZDB, would be required by mid-November 1998 to develop and submit for approval marketing strategies to replace the exclusive export authorities of their industries' export marketing boards. In mid-June 1999, the New Zealand dairy industry applied to the New Zealand Commerce Commission to merge the NZDB and nine New Zealand dairy companies. If approved by the Commission, the proposal would create a huge cooperative to market New Zealand dairy products at home and overseas. In a preliminary decision of August 27, 1999, the Commerce Commission rejected the dairy industry proposal. The Commission accepted written submissions on the proposal until September 17 and will hold a public conference on the issue in early October 1999. The formation of the new dairy company also will require the financial agreement of the dairy companies to be merged, the approval of New Zealand dairy farmers, and the New Zealand Parliament's implementing legislation. If approved, the new firm could be the largest corporation in New Zealand.

The Queensland Sugar Corporation (QSC), a state-level marketing board, is classed as a Type III STE because the Queensland government has given the QSC a statutory monopoly over Queensland raw sugar exports. The QSC exported all Australian raw sugar until 1996, when New South Wales and Western Australia began to export very small quantities of raw sugar. The QSC also has exclusive authority to market Queensland raw sugar to Queensland refiners. However, it has no exclusive control over raw sugar marketing in other Australian States. Producers from New South Wales also sell raw sugar to domestic refiners, although Queensland continues to produce 95 percent of Australia's raw sugar.

The Australian Government lifted its embargo on sugar imports in June 1989. Imports climbed to 13,716 tons in 1992, fell sharply between 1993 and 1995, and stabilized at 2,000 to 3,000 tons from 1995 through 1999. After lifting the embargo in 1989, the Australian Government imposed a tariff on imported sugar. Australia maintained the tariff on raw sugar imports until July 1997. The tariff permitted the QSC to maintain two price pools--one for sales to the domestic market and a second for export sales. The removal of the tariff has allowed Australian sugar refiners to access raw sugar at export parity (world) prices. Queensland sugar growers own and finance the QSC.

Japan's Food Agency would be classed as a Type III STE for rice because it controls rice imports, but not the marketing of domestically produced rice. For barley and wheat, the Food Agency would be classed as a Type IV STE because it controls imports and the marketing of domestically produced barley and wheat.

Until 1995, Japan granted the Food Agency exclusive authority to import and export rice. The Food Agency imported rice only if domestic production failed to satisfy consumption needs. In the Uruguay Round (UR), Japan agreed to provide minimum access for rice equal to 4 percent of the average consumption in the UR base period, 1986 through 1988. This would rise in annual increments of 0.8 percent of the base period consumption until it reached 8 percent in the final year, 2000, when Japan agreed to import 758,000 tons of rice. [16]

Food Agency rice imports are subject to a markup of 292 yen per kilogram. However, most rice imported by the Food Agency is used for feed, by industries, or for food aid. The Japanese Government also initiated a Simultaneous Buy-Sell (SBS) system for rice imports in 1995. In the Japanese rice SBS, buyers and sellers propose a quantity of rice to be transacted, a cif import price (basically, the seller's price), and a price for purchase by the buyer. The Food Agency then examines all the bids and chooses those that have the widest margin between the selling and the buying price. The Food Agency keeps this margin, which can also be considered the markup. Japan's use of the SBS for rice has risen from 3 percent of rice imports in 1995 to almost 20 percent in 1998.

The Food Agency also imports most of the wheat and barley under Japan's tariff-rate quotas (TRQ's) for those commodities. Japan does not apply an in-quota tariff to imports of wheat or barley, but the Food Agency applies a markup of up to 53 yen per kilogram to wheat imports, which will be reduced by 1.3 yen per kilo annually through 2000, and up to 34 yen per kilogram for imports of barley, to be reduced by 0.9 yen per kilo annually through 2000. Private firms are free to import barley and wheat at extremely high tariff levels above the quotas. Import data show few imports outside the quotas. [17]

Imports are important to Japan's wheat consumption, but less important to barley and rice consumption. Wheat imports averaged 98 percent of Japan's wheat consumption, 48 percent of Japan's barley consumption, and only 4 percent of Japan's rice consumption from 1994 through 1997. Japan held an 8-percent share of world barley imports from 1993 through 1997, but only 5 percent of world rice and wheat imports for the same period.

The Food Agency does not control the domestic marketing of rice. The Ministry of Agriculture and Foreign Affairs announces annual procurement prices for farmers' rice, but rice is marketed to consumers through thousands of retail stores. The Food Agency does control the pricing and marketing of domestic wheat and barley. In May 1998, the Food Agency announced several changes to its wheat and barley policies to be implemented in the 2000 to 2002 crop years. The Food Agency will allow private firms to purchase domestically produced wheat, and introduced an SBS for imported wheat and barley for feed use.

Until September 1998, Indonesia's Badan Urusan Logistik (BULOG) would have been classed as between a Type III and a Type IV STE. The Indonesian Government granted exclusive authority to BULOG in the 1960's to import rice, wheat, wheat flour, soybeans, and sugar and to export rice. BULOG licensed private firms to act as its agents and, in 1998, conducted public tenders for wheat imports. Indonesia applied very low tariffs to imports of agricultural commodities, but was able to control imports through BULOG's exclusive control. Indonesia agreed in the Uruguay Round to establish a TRQ for rice of 70,000 metric tons with an over-quota tariff bound at 160 percent in 2004. From 1994 through 1997, Indonesia's shares of global rice, soybean, sugar, and wheat imports averaged 12, 2, 2, and 4 percent, respectively.

BULOG did not have a monopoly in the domestic rice market, but stabilized domestic rice prices by procuring some domestically produced rice (less than 10 percent) for government stocks and selling them in the domestic market or for export. BULOG also owned grain storage facilities and controlled the milling or processing and retail of other commodities through the licensing of approved firms. BULOG's management of the processing and sales of imported commodities went hand-in-hand with government price controls on wheat, wheat flour, sugar, soybeans, and garlic.

In September 1998, however, the Government of Indonesia terminated BULOG's exclusive authorities over imports and exports and ended price subsidies for wheat, wheat flour, sugar, soybeans, and garlic. BULOG continued to import rice in September 1998, but, instead of choosing its own suppliers, conducted its first public tender for imports. Despite the termination of its exclusive trading authorities, BULOG continues to manage the stocks it accumulated prior to September 1998, and continues to import rice as needed to stabilize prices. The private sector has begun to import sugar, wheat, and other commodities previously controlled by BULOG. It is not clear what BULOG's role will be in the future.

Prior to 1998, CONASUPO would be considered a Type III STE for milk powder since it was Mexico's designated importer of milk powder. CONASUPO used the markups it obtained from selling the imported milk powder to private firms to finance the Government's other operations, including the processing and distribution of milk powder to low-income populations. After the Mexican Government established TRQs under the North American Free Trade Agreement and Uruguay Round Agreement on Agriculture, it continued to award almost all import licenses for milk powder to CONASUPO. Mexico's imports of milk powder averaged 31 percent of world trade from 1994 through 1997.

In 1998, CONASUPO's monopoly ended when the Mexican Government issued import licenses equal to about 20 percent of Mexico's milk powder imports to a multinational firm for its dairy product processing plant in the State of Chiapas. CONASUPO was the largest single milk powder importer in the world until March 31, 1999, when the Mexican Government closed its doors. In July 1999, the Mexican Government began conducting auctions of import licenses to private sector importers. CONASUPO's sister agency, LICONSA, will import milk powder for the Government's social programs.

The Republic of South Korea's Livestock Products Marketing Organization (LPMO) had not had monopoly control of Korea's beef imports since the early 1990's. The LPMO became Korea's exclusive beef importer and enforcer of its import restrictions in 1988. In the following years, the Korean Government agreed to reduce its protection for beef producers by increasing beef imports and allowing the private sector to import increasing quantities of beef through special industry groups (Super Groups). The LPMO share of Korea's beef import quota averaged about 80 percent from 1993 through 1995, but was reduced to 40 percent in 1998. The LPMO will be phased out as an importer in 2001. However, the LPMO was the largest Korean beef importer in 1998 when the private sector allocation of the import quota was not filled.

Some critics of the LPMO argue that the organization continues to control all imports of beef, despite TRQ allocations to specific industry groups through the SBS import system. [18] If true, this would imply that the LPMO would be classed as a Type III importer. Otherwise, the LPMO would be classed as a Type I STE. Korea is an important beef importer, accounting for 3 percent of world imports of beef and veal on average from 1994 through 1998.

Since 1978, China has dismantled many of the large foreign trade enterprises that were directed by the national government. Despite massive reforms throughout its economy, however, China maintained its state control of basic agricultural products, particularly grains. Prior to rural reform in 1978, China's specific agricultural policy goals were to "produce ample and cheap food for urban residents and to export farm products as planned to earn hard currency for imports of advanced technology and equipment to develop industries in urban areas" (Tuan and Ke, 1998). Over time, China's national government shifted its policy objectives to long-term food security and self-sufficiency in agriculture. Recently, China's national government shifted its food policy objectives to domestic price stability.

China's state control of grain markets qualifies China as a Type IV state trader in those commodities, but no one government agency controls all aspects of domestic marketing and trade. [19] In the domestic market, the Chinese Government controls domestic production, procurement, storage, transportation, milling, and sales of grain to urban residents and the military. Central and Provincial governments set purchase prices for wheat, rice, and corn procurement quotas.

Each year, government-owned and managed grain bureaus, which are located within each administrative unit (province, prefecture, or county) organize grain supply and use tables to determine grain availability and needs for each administrative unit. These tables signal whether grain is in surplus, balance, or deficit. For administrative units with surplus, the grain bureau fixes the amount of grain to be purchased from farmers at the fixed quota price (about 10 percent of total grain production). The Grain Bureau also purchases an additional 10 percent of each unit's production at above-quota prices for storage and planned distribution. Grain is transferred from surplus to deficit areas, first from surplus counties within a Province (if applicable) and then from other Provinces.

The national government determines import needs and export opportunities. To plan imports and exports of grains, the State Planning and Development Commission (SPDC) consults with the State Council; the Ministry of Foreign Trade and Economic Development (MOFTEC); the Ministries of Agriculture, Internal Trade (Commerce); Foreign Trade; and the Administration for Grain Reserves (SAGR), an arm of the State Planning and Development Commission. The SPDC passes the import and export plans to MOFTEC, which delegates the trading process to China's National Cereals, Oil and Foodstuffs Import and Export Corporation (COFCO).

MOFTEC orders COFCO to import specified quantities of grain and transfer the imported grain to the grain bureaus at government-fixed import prices. MOFTEC also orders COFCO to export specified quantities of grain from specific provinces. [20] Both import and export transfer prices are based on the domestic government's procurement prices.

COFCO exports corn and rice and imports wheat and rice. [21] China is a large but erratic trader in world markets, controlling an average of 6 and 21 percent, respectively, of world rice and corn exports from 1994 through 1998. China also accounts for an average of 6, 10, and 4 percent, respectively, of world wheat, barley, and rice imports.

China's state control of domestic marketing and trade is strongest for grains. COFCO once was the sole agent for imports of soybeans and soybean products. In 1997, however, China's leaders broke up COFCO's monopoly and allowed four other companies to import soybean oil within the import quotas announced by the national government. China's national government does not control the domestic soybean market, although individual Provincial governments have restricted the movement of soybeans from one Province to another. Thus, China's state control of soybeans and soybean products would be classed more as a Type III than as a Type IV STE.

COFCO's role as import and export agent for the Chinese Government's grain and oilseed imports represents only a small part of its commercial activities. COFCO, a diversified conglomerate, also has investments in hotels, food processing, and other industries.

VI. Future Research Directions

This report is only a primer on the subject of state trading in agriculture. Clearly, several activities need further investigating. For one, considerable ambiguity still exists on the definition of a state trading enterprise. The 1994 Uruguay Round Agreement (Understanding on Article XVII) does not clearly define "governmental enterprise" nor elaborate on the interpretation of "exclusive or special privileges." It is also not clear whether these parastatal enterprises must make purchases or sales to qualify as an STE. Clarifying the ambiguities in the WTO definition of STEs would improve international reporting.

Moreover, this report provides information on a limited set of STEs that operate in agricultural markets. We would better understand how STEs influence markets if more information were available. Hence, a comprehensive inventory of STEs, including those which have not been reported to the WTO, needs to be built.

Our study points out that attempts to assess empirically the quantitative impacts of such entities on international agricultural trade have just begun. Progress has been slow because of the proprietary nature of the information required. Moreover, given that STEs are typically just one element of a web of agricultural policies designed to achieve a multitude of objectives, data limitations may make it difficult to isolate the trade impacts exclusive to the state trader if other distortionary forces are in existence. However, tariff and subsidy equivalents for STEs that are important to agricultural trade should be calculated.

Finally, STEs should be classified in terms of their ability to distort trade. Modifications to the existing classification scheme should be considered if empirical evidence supports the need for changes. Combining these activities with the knowledge of the institutional facets of individual STEs will best allow us to understand the economics of state trading.

References

Ackerman, K.Z. i.State Trading Enterprises: Their Role as Importers,l.Agricultural Outlook. U.S. Dept. Agr., Econ. Res. Serv., Nov. 1997, pp. 31-37.

Ackerman, K.Z., P. Dixit, and M. Simone. "State Trading Enterprises: Their Role in World Markets," Agricultural Outlook. U.S. Dept. Agr., Econ. Res. Serv., June 1997, pp. 11-16.

Alaouze, C., A. Watson, and N. Sturgess. "Oligopoly Pricing in the World Wheat Market," American Journal of Agricultural Economics 60: 173-85, 1978.

Baldwin, R.E. Non-tariff Distortions of International Trade. Brookings Institute, Washington, DC, 1970.

Barichello, R. "The Nature of State Trading in Indonesia: The Case of BULOG." Presentation to the International Agricultural Trade Research Consortium, Dec. 1996.

Bernier, I. "State Trading and the GATT," in Kostecki, M.M., editor, State Trading in International Markets. St. Martins Press, New York, 1982.

Carter, C.A., and R.M.A. Loyns. The Economics of Single Desk Selling of Western Canadian Grain. Alberta Agriculture, Canada, March 1996.

Carter, C.A., R.M.A. Loyns, and D. Berwald. "Domestic Costs of Statutory Marketing Authorities: the Case of the Canadian Wheat Board," American Journal of Agricultural Economics 80: May 1998, pp. 313-324.

Carter, C.A., and A. Schmitz. "Import Tariffs and Price Formation in the World Wheat Market," American Journal of Agricultural Economics 17: 241-53, 1979.

Choi, J.S., D.A. Sumner, and J. Song. "Importing STEs in Korea and Japan: Evolution, Operation and Implications." presented on November 20, 1998, at the Workshop on State Trading in North America, sponsored by the North America Forum at Stanford University and the Agricultural Issues Center at the University of California.

Crook, F.W., S. Langley, F.C. Tuan, and H. Colby. "State Trading and Management of Grain Marketing in China," Agricultural Outlook. U.S. Dept. Agr., Econ. Res. Serv., June-July 1999, pp. 27-30.

Davey, W.J. "Article XVII GATT: An Overview," in State Trading in the Twenty-First Century, eds. T. Cottier and P.C. Mavroidis, University of Michigan Press, 1998, pp. 27-28.

Dixit, P.M., and T. Josling. State Trading in Agriculture: An Analytical Framework, International Agricultural Trade Research Consortium Working Paper No. 97-4, July 1997.

Dyck, J., N. Childs, K. Ackerman, D. Skully, and S. Hanson, "Rice Tariffication in Japan: What Does It Mean For Trade?" Agricultural Outlook. U.S. Dept. Agr., Econ. Res. Serv., April 1999, pp. 13-16.

Gehlar, M., and C. Arnade. "Pricing Behavior in the International Wheat Market: An Empirical Investigation of Importers," forthcoming in the Canadian Journal of Agricultural Economics.

Ghai, D.P. State Trading and Regional Economic Integration Among Developing Countries, United Nations, New York, 1973.

Goodale, R. "Amendments to the Canadian Wheat Board: Goodale Responds to Questions about Bill C-4," Agriculture and Agrifood Canada news release of January 26, 1998.

G/STR/N/1/USA. "State Trading: Notification Pursuant to Article XVII: 4(a) of the GATT 1994 and Paragraph 1 of the Understanding of the Interpretation of Article XVII: the United States," September 29, 1995, pp. 2-5.

"Havana Charter for an International Trade Organization: Including a Guide to the Study of the Charter," Department of State Publication 3206, Commercial Policy Series 114, September 1948.

Hazard, J.N. "State Trading in History and Theory," Law and Contemporary Problems, #24, 1959.

Helpman, E., and P.R. Krugman. Trade Policy and Market Structure. M.I.T. Press. Cambridge, MA, 1994, p. 28.

Horlick, G.N., and K.H. Mowry. "The Treatment of Activities of State Trading Enterprises under the WTO Subsidies Rules," in State Trading in the Twenty-First Century, eds. T. Cottier and P.C. Mavroidis, University of Michigan Press, 1998, p. 101.

Houck, J.P. "Chapter 11: Market and Price Discrimination," Elements of Agricultural Trade Policies, 1986, Waveland Press, pp. 112-119.

Josling, T. "Managed Trade in Agricultural Markets," Tim Wallace and Bill Schroder, eds., Perspectives on Food Industry and Government Linkages, 1997.

Josling, T. Agricultural Trade Policy: Completing the Reform. Institute for International Economics, Policy Analyses in International Economics #53, April 1998, pp. 86-88.

Kostecki, M.M. "State Trading in Agricultural Products by the Advanced and Developing Countries: the Background," Kostecki, M.M., ed., State Trading in International Markets, St. Martins Press, New York, 1982.

Kraft, D.F., W.H. Furtan, and E.W. Tyrchniewicz. "Performance Evaluation of the Canadian Wheat Board," Working Paper, University of Manitoba, Canada, January 1996.

LaFrance, J.A., A. Schmitz, and D. Silberman. "Small Leading Firms," Economic Record, 60 (1984): 160-64.

Lloyd, P.J. "State Trading and the Theory of International Trade," Kostecki, M.M., ed., State

Trading in International Markets, St. Martins Press, New York, 1982.

Martin, W., and C. Bach. "State Trading in China," in State Trading in the Twenty-First Century, eds. T. Cottier and P.C. Mavroidis, University of Michigan Press, 1998, pages 287- 301.

McCalla, A.F., and A. Schmitz. "State Trading in Grain," Kostecki, M.M., ed., State Trading in

International Markets, St. Martins Press, New York, 1982.

Miner, W.M. "State Trading and the WTO: Reforming the Rules for Agriculture," presented in Palo Alto on November 21, 1998, at the Workshop on State Trading in North America, sponsored by the North America Forum at Stanford University and the Agricultural Issues Center at the University of California.

New Zealand Apple and Pear Marketing Board. "Guidelines for Consent to Export Apples and Pears," May 31, 1994.

Office of the United States Trade Representative. "Market Access and Protocol Commitments," http://www.ustr.gov/release/1999/04/ch-memo.pdf, April 1999.

Organization for Economic Cooperation and Development (OECD). National Policies and Agricultural Trade. Paris, France, 1987.

Roningen, V.O., and P.M. Dixit. Measuring Agricultural Trade Distortion: A Simple Approach. ERS Staff Report AGES 9145, U.S. Dept. Agr., Econ. Res. Serv., Dec. 1991.

Schmitz, A., H. Furtan, H. Brooks, and R. Gray. "The Canadian Wheat Board: How Well Has It Performed?" in Choices magazine, First Quarter 1997, pp. 36-42.

Skully, D.W. "Price Discrimination and State Trading: the Case of U.S. Wheat," European Review of Agricultural Economics, 19 (1992), p. 319.

Sorenson, V.L. "The Economics and Institutional Dimension of State Trading," in Sorenson, Vernon L., and others, editors, State Trading in International Agricultural Markets: Institutional Dimension and Select Cases. International Policy Council on Agriculture and Trade, Washington, DC, Dec. 1991.

Sumner, D., and T. Josling. "The Role of the State in Agricultural Trade in North America: The U.S. Commodity Credit Corporation as a Government Actor in the North American Market for Grains," presented on November 20, 1998, at the Workshop on State Trading in North America, sponsored by the North America Forum at Stanford University and the Agricultural Issues Center at the University of California.

Tuan, F.C., and B. Ke. "A Review of China's Agricultural Policy: Past and Present Developments," unpublished ERS paper for presentation at a workshop of the OECD Directorate for Food, Agriculture and Fisheries, Nov. 19-20, 1998.

U.S. Department of Agriculture, Economic Research Service. Government Intervention in Agriculture: Measurement, Evaluation, and Implications for Trade Negotiations. FAER-229, 1987.

U.S. Department of Agriculture, Foreign Agricultural Service. Various Annual Commodity Reports for Australia, Canada, Indonesia, Japan, Mexico, New Zealand, South Korea, and other countries, as well as communications with the attaches.

United States General Accounting Office (GAO). "State Trading Enterprises: Compliance with the General Agreement on Tariffs and Trade," GAO/GGD-95-208, Washington, DC, Aug. 1995.

Veeman, M., M. Fulton, and B. Larue. International Trade in Agricultural and Food Products: The Role of State Trading Enterprises. Economic and Policy Analysis Directorate, Agriculture and AgriFood Canada. April 1999.

World Bank. Bureaucrats in Business: The Economics and Politics of Government Ownership. 1995, Oxford University Press.

World Trade Organization (WTO). Trade Policy Review: Republic of Korea. Geneva, Switzerland, 1996.

World Trade Organization. Guide to GATT Law and Practice: Volume I. Geneva, Switzerland. 1995a, pp. 322-324.

World Trade Organization. Operations of State Trading Enterprises as They Relate to International Trade: Background Paper by the Secretariat. G/STR/2. Oct. 26, 1995b.

World Trade Organization. The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts, Geneva, Switzerland, 1994.

Appendix A: STEs in the GATT

In 1947, GATT negotiators recognized that STEs could distort trade flows the same way that government policies regulating commercial trade affect trade. GATT Article XVII acknowledges STEs as legitimate participants in international trade, but requires that STEs not discriminate among importers or exporters and that they adhere to commercial considerations when they make purchases or sales.

GATT rules on import and export restrictions also regulate trade by STEs. An interpretative note to GATT Article XI, which prohibits countries from restricting exports or imports, applies the rule to restrictions made effective through state trading operations. GATT Article II:4 explicitly provides that an import monopoly not operate in such a way that it affords protection on the average in excess of the country's bound tariff rate (Davey, 1998, pp. 27-28). Article II:4 is strengthened by a reference to the Havana Charter, which requires that an import monopoly import and offer for sale "such quantities of the product as will be sufficient to satisfy the full domestic demand for the imported product...." (Havana Charter for an International Trade Organization, September 1948).

The Uruguay Round Agreement on Agriculture (URAA) eliminated many of agriculture's exemptions from GATT rules. Prior to the URAA, countries could impose restrictions on imports and exports of agricultural products to support domestic policy objectives. Agriculture was exempt from GATT rules that made export subsidies illegal. The URAA applied prohibitions on nontariff import restrictions to agricultural state traders. Countries also agreed to consider the effect of export restrictions on importing countries' food security and to notify the WTO of potential export restrictions for agricultural products.

The nature of STEs creates the possibility for the provision of an export subsidy (Horlick and Mowry, 1998, p. 101). If the government or an agency of the government operates or controls the procurement and the sale of the product, it would be ideally placed to support producers by subsidizing exports over domestic sales. The URAA substantively restricted countries' use of export subsidies in agricultural trade, but did not link the export-marketing practices of STEs to those disciplines. Countries notified the GATT of their agricultural subsidies contingent on export performance, including direct cash or in-kind export subsidies, sales or disposal of noncommercial stocks at a price lower than the domestic market price, and subsidies financed by producer levies. Subsidized sales by agricultural STEs were included in some countries' export subsidy notifications.

However, some of the export marketing practices of agricultural STEs are not defined as export subsidies in the Uruguay Round Agricultural Agreement, but could allow countries to circumvent their export subsidy commitments. Without more substantive GATT rules on the marketing practices of STEs, the complainant country currently has little recourse in countering their adverse trade effects.

Appendix B: STEs Reported to the WTO in 1995 and 1996

The following information represents individual countries' notifications of their STEs to the WTO in 1995 and 1996. Countries are required to report their STEs to the WTO's Council for Trade on Goods under Article XVII once every 3 years on the basis of a questionnaire that was adopted in 1960 and revised in 1998. Some countries told the WTO that they had no agricultural STEs, and others did not send in reports.

Some of the STEs reported to the WTO have been dismantled or their responsibilities have been changed since the 1995 reporting period. Countries are expected to report these changes to the WTO.

Appendix C: Complexities in Analyzing State Trading Practices

The tariff/subsidy equivalent approach that has been proposed to analyze the distortionary impacts of STEs is relatively simple. It transforms the entire set of policies and activities associated with state trading into one easily understood summary measure that can be compared over time, and across commodities, policies, and countries. But is the analytical framework completely adequate for addressing the economic concerns associated with state trading?

A primary concern with state trading enterprises is their ability to distort trade by cross-subsidizing across markets. Does the tariff/subsidy equivalent approach capture this potential to distort trade? The answer is yes, if the tariff/subsidy equivalents are measured in two or more markets rather than in a single market. Hence, cross-subsidization between the internal and external markets could be measured as higher protection (tariff equivalents) in the domestic market and greater subsidization (export subsidy equivalents) in foreign markets. The same would be true for cross-subsidization across commodities. Tariff/subsidy equivalents could be measured in different markets. [22]

Price pooling, where the final price paid to producers is a blended price based on the net revenue from all sales in the foreign and domestic markets, is often cited as another STE activity that distorts trade. Is the impact of price pooling reflected in the tariff/subsidy equivalent? We believe that it is because the analytical issue is no different from cross-subsidization across markets or products. Where the analysis becomes more complex is in cases of price pooling across time (between years). In this situation, the tariff equivalent should be calculated over the length of time in which the policy is applicable. Pooling across time may affect stocks and hence trade. But even here, it is difficult to argue that pooling has an unequivocal effect on the volume of trade.

Does the price gap capture the competitive advantage that STEs might secure from governmental association? Tax benefits, transport subsidies, and preferential exchange rates are some of the provisions that are most often cited. If we assume that the objective of the STE is to maximize profits with price as the decision rule, then conceptually these facilities do not pose any problems for the analytical framework. Clearly, if the STE sets prices to maximize its profits taking into account the effects of these provisions, then the price gap will capture provisions that facilitate STE activities. However, if profit maximization is not the goal or if there are cases where the tariff equivalent does not capture the effects of certain special privileges, then it will be necessary to calculate the tariff or subsidy equivalents of the policy and come up with alternative measures such as producer and consumer subsidy equivalents (OECD, 1987). Input subsidies, or policies that are defined as part of WTO internal support disciplines, may fall in this category.

The use of so-called "hidden" or implicit subsidies associated with certain STE activities has played an important role in the debate on STEs. To the extent that these are not reflected in either domestic or trade prices, it could suggest that the tariff/subsidy equivalent does not adequately represent the trade impacts of STEs. For instance, it may be difficult to quantify the benefits for STEs in making long-term agreements with other public enterprises or governments. But such cases are likely to be few and far between, and the concerns relate not necessarily to the appropriateness of the analytical framework but rather to the availability of data about these activities.

The proposed tariff/subsidy equivalent approach measures the effect on prices and quantities traded by comparing the behavior of STEs against competitive standards. Some would argue that this is not an adequate description of agricultural markets and it may be inappropriate to assume that these markets would behave competitively in the absence of state trading. Under these circumstances, they argue, the estimation procedure will overestimate the subsidy equivalent unless the removal of the state trading activity will also change the structure of the market in question to a perfectly competitive one (Veeman, Fulton, and Larue, 1999). This suggests that our approach provides a more accurate representation of the benefits of deregulating state trading activities in cases where market concentration is minimal.

The tariff/subsidy equivalent approach is designed exclusively to capture the overall trade effects of STE activities. It represents a summary measure of the impacts of a multitude of objectives and activities, and does not allow a one-to-one mapping between objectives/activities and the trade impacts. But, we know that state traders may pursue several activities/objectives. For instance, some STEs have been established to ensure price stability in the domestic economy. Others may have been created to help implement health and sanitary guidelines, facilitate acquisition of rents for the government, or expedite political mandates. The tariff/subsidy equivalent approach cannot isolate the impacts of such specific activities. Hence, alternative approaches would have to be developed to measure the trade impacts of individual objectives or activities.

Endnotes

1 The United States reported the CCC as an STE to the WTO Council for Trade in Goods in 1995 and 1996, including lists of the programs which it administers and the commodities procured and exported under its programs. The United States also reports its export subsidies to the WTO Committee on Agriculture in accordance with its commitments to cap and reduce export subsidies under the Uruguay Round Agreement on Agriculture. For more discussion about the CCC, see box, p. 19, i9Does the U.S. Commodity Credit Corporation Function as an STE?

2 The EU Commission has the exclusive right to determine the amounts of export subsidies, without which exports of wheat cannot take place; to authorize sales from intervention stocks; and to grant export and import licenses required for trade of some commodities. However, the Grains Management Committee does not directly purchase or sell commodities. Intervention agencies in EU member countries, acting as agents of the Commission, purchase products for intervention and sell them with the authorization of the Commission. Private traders carry out all exports and imports. The EU also agreed to reduce its export subsidies for wheat and other commodities under its URAA export subsidy commitments.

3 U.S. private firms export U.S. dairy products, although the CCC exported dairy products from its inventories prior to 1996. The CCC also continues to approve direct export subsidies on sales of eligible dairy products under the Dairy Export Incentive Program (DEIP).

4 Until this year, countries reported information about their STEs to the GATT and its successor, the WTO, on the basis of a questionnaire that was adopted in 1960. Reports of STEs, called notifications, are due to the WTO's Council for Trade in Goods once every 3 years. After several years of intense debate in the WTO's Working Party on State Trading Enterprises, negotiators updated and expanded the 1960 questionnaire in 1998. Countries were required to follow the revised questionnaire as they reported their STEs to the WTO by September 30, 1998. Most countries did not submit notifications, and not all of the submitted notifications responded to the more detailed questions of the 1998 questionnaire. A more comprehensive listing of WTO country notifications for agricultural STEs can be found in Appendix B.

5 Many of the export marketing boards in Australia and New Zealand are not government agencies, but are owned by their producers. However, their governments continue to grant them authority to act as sole exporters of one or more commodities for their State or country.

6 The Republic of South Korea designated STEs to administer some of its WTO tariff-rate quotas (TRQs) to serve the following objectives: (1) to stabilize domestic markets faced with low-priced imports; (2) to fulfill Korea's Uruguay Round Agreement market access commitments; and (3) to use the revenue from differences between domestic and import prices for public objectives such as research and market development (Choi, Sumner, and Song, 1998).

Artificial honey and cocoons were removed from Korea's list of state trading items in June 1996, and silk was removed from the list in June 1997.

8 If marketing costs account for a relatively important part of the export price, pooled arrangements can have an impact on the market.

9 Carter, Loyns, and Berwald cite the following as marketing costs that might be reduced if the private sector carried out marketing activities: excessive handling charges, overage credits (credits paid out of the pools by the CWB because the average quantity of grains company terminal sales marginally exceeded purchases), demurrage costs (costs levied against the shipper when a ship is not loaded on time), excess grain cleaning, and free barley storage for maltsters.

10 It is worth noting that the WTO Agreement on Agriculture disciplines export subsidies in terms of total expenditures and not on a per unit basis as with tariffs.

11 These represent some of the basic preconditions for STEs to influence domestic prices and trade. They are by no means exclusive, and other factors relative to the structure and behavior of STEs also would influence the market. We point out some of these factors when we classify major STEs later in the report and in Appendix C.

12 In economic parlance, the trader would equate its excess supply schedule with the export revenue function and impose an optimal export tax.

13 This is tantamount to introducing an optimal import tariff.

14 For example, the Canadian Wheat Board (CWB) does not make public information on transaction prices and quantities of individual wheat and barley sales. Without these data, it is very difficult to establish meaningful domestic and export prices for Canadian wheat since the CWB publishes only its pool prices derived from a combination of domestic and export prices.

15 Many of the major export STEs seem to follow export expansion objectives, while STE importers are more interested in restricting trade. The concern with exporting STEs is whether they circumvent the Uruguay Round Agreement on Agriculture export subsidy disciplines. The issue with importing STEs is whether they use nontariff barriers to trade to protect domestic industries. A dichotomy between exporters and importers, therefore, allows us to emphasize that the trade balance of an STE is an important element to consider in designing rules and disciplines for such enterprises.

16 Japan established an over-quota tariff for rice on April 1, 1999, in accordance with Annex 5 of the Uruguay Round Agreement on Agriculture, which allows a developed country (Japan) to 'tarrify' its barriers at the beginning of any year. According to Annex 5, Japan must continue to meet its existing minimum access amount (in this case, 606,000 tons in 1998), but annual increases in 1999 and 2000 are allowed at 0.4 percent of base period consumption, rather than 0.8 percent. This means that imports in 1999 will be 644,000 tons (instead of 682,000) and in 2000, they will be 682,000 tons (instead of 758,000). Until another agreement is made, Japan's annual minimum access after 2000 will remain at 682,000 tons (Dyck, Childs, Ackerman, Skully, and Hanson, Agricultural Outlook, April 1999, pages 13-16).

17 The Food Agency announced on June 7, 1999, that it would introduce an SBS tender system for wheat for feed and barley for feed in the April 1999/March 2000 Japan fiscal year. The 1999/2000 SBS import tenders will cover 80,000 tons of wheat and 360,000 tons of barley.

18 The United States filed a complaint with the WTO against Korea's beef import regime on February 1, 1999. The complaint alleges that Korea discriminates against imported beef by confining imported beef sales to specialized stores and by limiting the display of imported beef. The United States also alleges that Korea imposes a markup on sales of imported beef, limits import authority to certain Super Groups (industry organizations) and the LPMO, and provides domestic support to the cattle industry in amounts that cause Korea to exceed its aggregate measure of support as reflected in Korea's WTO schedule (WT/DS161/1). Australia also will ask the WTO to establish a dispute settlement panel to examine its complaint over import restrictions on beef exports to South Korea.

19 The description of China's state control over grain marketing is summarized from F.W. Crook, S. Langley, F.C. Tuan, and H. Colby, "State Trading and Management of Grain Marketing in China," Agricultural Outlook, U.S. Dept. Agr., Econ. Res. Serv., June-July 1999, pp. 27-30.

20 Prior to 1989, COFCO had exclusive authority to export and import grains for the central government and exercised autonomy in the logistics and pricing of traded commodities. COFCO also maintained branches throughout China to carry out its marketing activities. After 1992, some of the Provincial governments began to direct their Provincial branches of COFCO to import grains. As provincial COFCOs began to compete with the central COFCO, tensions arose. In 1998, China's central government sought increased control of its grain production and marketing operations and has allowed only the central COFCO to trade.

21 In March 1999, China's central government allowed the Jilin Province to set up its own export company to export corn from Jilin and possibly other Provinces. The Chinese Government will cap exports even once the company is established since China's high domestic corn prices require the Government to subsidize exports.

22 This section draws heavily on Dixit and Josling's State Trading in Agriculture: An Analytical Framework, International Agricultural Trade Research Consortium Working Paper No. 97-4, July 1997.