This paper analyzes the implications for net food importing developing countries of possible reform to State Trading Enterprises (STEs) through the World Trade Organization (WTO). Many African countries have not been able to maintain per capita food production since independence, and have hence had to rely on food (mostly grain) imports as part of their food security strategy. Historically, food aid has formed a significant percentage of required imports. Levels of food aid are however, declining and food deficit countries are instead having to rely increasingly on commercial sales for their food needs. At the same time the global grain industry has become concentrated in the hands of a few multi-national companies (MNCs), which now effectively hold an oligopoly position in the global grain market.

Since the early 1980s, many African nations have undertaken economic reform programs with policies such as trade liberalization (through membership of the WTO) and deregulation of the internal economy. State trading enterprises (STEs) have been disciplined under WTO rules, but not fundamentally reformed or abolished. Further reform, up to and including their abolition, may occur at the next round of WTO trade negotiations that are slated to begin in the year 2000. A global competition policy has also been discussed through a WTO Working Party, but the likelihood of an effective and enforceable WTO competition policy being implemented in the near future is small. It is much more likely that the WTO will mandate member nations to introduce their own domestic competition policy, applicable to both domestic and foreign firms equally.

Given that the global grain trade is dominated by a few large MNCs, agricultural STEs are the only effective control many African nations have over their grain imports, and hence a critical component of their overall food security. Reform and possible abolishment of STEs through the WTO would lead to this control being handed over to a global elite of MNCs and to private domestic grain traders where they exist. Whilst a global WTO competition policy could in theory control the power of MNCs, it appears unlikely to be introduced or to be workable. Furthermore, a domestic competition policy in many African nations would not necessarily be effective, due to weak legislative systems and a lack of experience with enforcement. Given the past ‘mixed’ response of many African nations to other economic deregulation programs, there is no guarantee that this process would help to improve food security.

1. Introduction Page 3

2. The trade versus food self-sufficiency debate for least developed countries Page 3

3. State trading enterprises Page 5

4. Competition policy and the WTO Page 7

5. The WTO's position on state trading enterprises Page 11

6. Market competition in the world's grain trade Page 13

7. Conclusion Page 14

8. References Page 15

This paper seeks to identify the implications for net food importing developing countries of possible reform of State Trading Enterprises (STEs) through the World Trade Organization (WTO). The moves toward global free trade have been rapid since the end of the Second World War but trade reform in agricultural goods has been slower in coming than in other products. This was largely because of a desire by industrialized nations to preserve their agricultural economy, and as a result their agricultural products have historically been highly protected and subsidized (Alexandratos 1995). As these subsidies are slowly removed and the global trade in agricultural products grows, certain nations have begun to rely on food imports more and more for their food supply rather than domestic production. This is especially so for certain least developed countries (LDCs) which have been unable to maintain per capita food production. Who controls the global and national trade in food (primarily grains) is therefore a key question in determining national food security. Certain countries which have a high dependence on food imports, or who use a large percentage of their foreign exchange to purchase imports, are especially vulnerable to any changes in the international grain market.

Together with the current ‘Washington consensus’ on the benefits of free trade, a similar orthodoxy is emerging on the benefits of domestic competition and competition policy. So far trade policy and competition policy have overlapped only occasionally but this is changing. What is the current level of competition in the world grain market? Will increased competition, including further reform of state trading enterprises (STEs), enhance or hinder national food security? This paper looks at the issues involved. Case studies of three African countries, Nigeria, Ethiopia and Zimbabwe are presented in the Appendix.

Should a nation be able to feed itself from its own production, or is it possible (and even desirable) to instead rely on imported food? This is a key moral, political and technical question that has become a cause for major debate especially with regard to developing countries attempting to maintain food security. The Second World War saw many industrialized nations come close to starvation especially in Europe, and therefore the post-War desire by those countries to maintain a viable agricultural sector was understandable. It would be logical therefore for developing countries to follow a similar route in the development of their agricultural sector, and yet increasingly they are advised to instead grow export crops, and with the revenue import required food (Barratt Brown & Tiffen 1992).

As moves toward global trade liberalization began following the Second World War, and as successive GATT agreements were implemented, the anomaly of the agricultural sector in this process began to be questioned. International negotiations on trade in agricultural products finally began with the Uruguay Round (UR) of GATT, which successfully reached agreement in 1994 and led to the creation of the WTO as GATT's successor. Commitments made in the UR are still being implemented by both developed and developing countries, however the WTO continues to carry out studies into possible areas of future work including further agricultural trade liberalization. Developing countries were afforded ‘special and differential treatment’ under the UR, such as smaller tariff reduction commitments, longer periods for adjustment and preferential access to developed country markets. Least Developed Countries are exempt from the obligations of the Agreement on Agriculture; this privilege, however, may not automatically be granted to LDCs seeking accession to the WTO (UNCTAD 1998). Part of the UR was a commitment to begin a new round of trade talks in 1999, focusing on (amongst other issues) further agricultural reform (UNCTAD 1997). Trade liberalization in Africa began in the early 1980s and in many countries was part of a Structural Adjustment Program implemented in conjunction with international donors such as the IMF/IBRD (Barratt Brown & Tiffen 1992).

Since the 1960s, Sub-Saharan Africa has been unable to maintain per capita food production (Chart 1). The reasons for this decline are many and varied (Alexandratos ibid.), including a lack of adequate farmer extension services, poor crop research, credit gaps, civil unrest and frequent drought. Similar factors have also caused food production to become increasingly erratic from year to year (Konandreas et. al. 1998). The result has been that many African countries have had to significantly increase their level of food imports and several nations have become net food importers. Together with this process has been the impact on world grain prices of the EU and USA's agricultural support programs which are both based on highly subsidized agriculture resulting in the over-production of many products, including grains. Excess grain has been sold onto the world market at below the cost of production (the term used is 'dumped'), resulting in low world grain prices. The argument has been made (by Barratt Brown & Tiffen ibid. and Lehman & Krebs 1996) that ‘dumping’ of grain products by the developed world and the subsequent lowering of the producer price available to domestic farmers, has in fact helped to cause per capita declines in food production in many developing countries. In this case cheap cereal imports are the cause and not the cure of inadequate domestic production.

Chart 1: Food Production per Capita in S-S Africa : Indices (1980=100) : 1962-1998.

Nations which rely on food imports for large parts of their total consumption are vulnerable to supply restrictions and price changes which are out of their hands (Timmer 1998, Jones 1998). Supply restrictions can come either from failures of the market (for example in the case of an oligopoly supply, discussed below) and/or from Government attempts to control the market (De Haan et. al. 1995). Price changes also affect the ability of a nation to import food, especially if those food imports account for a large proportion of that nation’s foreign exchange.

The completion of the UR resulted in specific fears of rising food import bills for net food importing developing countries in the medium term, as the EU and USA (amongst others) began to reform their agricultural support programs resulting in increased world prices. Coupled with this has been a decline in food aid volumes, because reformed agricultural support programs have resulted in less excess production. In 1993 food aid accounted for 36% of all imports to in net food importing developing countries (NFIDCs), but by 1998 that figure had fallen to 23% (Konandreas et. al. 1998). The FAO estimated that food import bills for NFIDCs could rise US$10 billion by the year 2000 due to the UR reforms (Fowler 1996). These fears were borne out in 1995 and 1996 when there were significant price increases for both maize and wheat, although in 1997 prices fell back. This resulted in net food importing developing countries (NFIDCs) having increased food bills of 62% again (Pinstrup-Andersen et. al. 1997). It was hoped that the passing of the GATT UR would reduce international price instability, as trading blocks such as the EU and USA reduced their volumes of ‘dumped’ grain. However, disappointingly there has been no significant reduction so far in price variability (Konandreas et. al. ibid.).

Such concerns led to the Marrakesh Ministerial Decision to monitor closely the food import situation for all least developed and net food importing countries and to review the process of food aid (UNCTAD 1997). A total of 18 WTO member nations declared themselves as net food importers, which were added to the forty-eight least developed nations benefiting from the measures. To this end, WTO members agreed to: review the level of food aid under the Food Aid Convention; to ensure that an increasing proportion of basic foodstuffs is given to affected countries in fully grant form and/or on appropriate concessional terms; and, in the context of their countries' aid programs, to give full consideration to requests for the provision of technical and financial assistance to least-developed and net food-importing developing countries so as to improve their agricultural productivity and infrastructure (WTO 1997).

For those developing countries which rely on imports for a significant proportion of their total food supply, exactly who controls global grain trade and national grain distribution is of paramount importance for food security. In many developed and developing countries the grain trade (both exports and imports) is handled by state owned and state run enterprises. Such state trading enterprises (STEs) are often termed 'Agricultural Marketing Boards' or ‘parastatals’.

STEs can perform a variety of functions, both regulatory and commercial (Box 1 from Ingco & Ng 1998). Their regulatory operations (such as ensuring quality control and providing market information) which are non-price affecting are mostly considered acceptable and justified (Young & Abbott 1998). However, most STEs handling agricultural commodities also undertake commercial activities, such as importing and exporting, and other operations designed to influence domestic supply and distribution. For example, many STEs attempt to stabilize prices for consumers and producers, in order to promote increased production. It is the commercial activities of STEs which are so controversial (Ingco & Ng. ibid.).

Most trade distorting:

• Protecting consumers from high prices (often seen as being caused by exploitative private traders)
• Stabilizing (sometimes subsidizing) producer prices so as to encourage production;

• Purchases and sales of all or a significant percentage of domestic production and imports
• Authorizes or manages production and processing of domestic goods
• 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

• Administration of global or bilateral agreed quotas, phytosanitary regulations and restraint arrangements

Least trade distorting:

• Marketing agro-products both locally and abroad

• Quality control and grading 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

• Maintaining buffer stocks to enhance food security
• Licensing of private traders.
• Being used as vehicles for taxation purposes

Source: Ingo & Ng (1998)

Often, but not always, STEs are given exclusive trading rights for domestic and/or international. The argument has been used by certain WTO members such as Canada, that the nature of internationally traded agro-products is such that they require collective marketing (Konandreas et. al. ibid.). Canada originally established its Wheat Board in the 1930s to protect farmers from fluctuating prices by pooling purchases and spreading risk (Economist 1996). Exporting STEs which operate at a loss, or which receive other exclusive government assistance, essentially subsidize exports and in these case the effect is very similar to other forms of domestic support such as market intervention buying (OECD 1996).

STEs which export products are the most controversial of all, and it is these which are under the most critical attack from certain members of the WTO (see Section 5). In the UR of GATT the USA especially, was keen to ensure that export orientated STEs were not used a vehicles for agricultural subsidies, and as such wanted them to be reformed under the authority of the GATT. In the end STEs were not significantly disciplined by GATT in the UR Agreement (Section 5) and as such remain a target for future reform. The USA has gone as far as threatening to use its Export Enhancement Program (EEP), a tool used primarily to compete with subsidized exports from the EU, against countries operating export STEs, particularly Canada, Australia and New Zealand (Inside US Trade 1994). This approach by the USA is strategic given that it does not operate any STEs, and instead uses the EEP, Export-Import Bank and (to a lesser extent) Commodity Credit Corporation as vehicles for indirect agricultural subsidy (Inside US Trade 1995).

STEs which import products can also affect the quantity and price of imports. The level of influence of STEs is determined by the various ‘regimes’ under which it operates (Ackerman 1997). These regimes are:

a) Ownership regime: STEs are (by definition) at least partly state owned. The objective of the state is therefore manifested through the operations of the STE. Some may import at a low price and sell at a high one, in order to raise government revenue and/or to protect domestic industry. The effect is much the same as an import tariff. Alternatively the STE may run at a loss (which is common in many developing countries) if its remit is to subsidize consumer prices, for example.

b) Product regime: The range of products the STE deals in is critical. If a wide range of complementary products are covered then the STE has more power, as it restricts consumers ability to switch buying preferences.

c) Market regime (market share): This refers to the level of control of imports, domestic procurement, and domestic marketing. 100 per cent control of all three of these activities gives a STE almost total control. Alternatively a STE may have less than 100% control of any one of these activities, and may compete openly with the private sector. Clearly, STEs are more likely to have market dominance (up to and including a monopoly situation) in national markets rather than international. This is especially so for STEs of developing countries, which are much smaller players in world markets than developed countries’ STEs or large MNCs. In contrast the STEs of large producer nations can often play a significant role in shaping international market prices and quantities traded.

In Africa many STEs were set up following independence, often (as in the case of Ethiopia) with the assistance of the World Bank. During this period of the 1950s and 1960s the role of the state in the economy was far greater, and as such STEs were seen as appropriate government tools. During this period the agricultural sector was perceived as being a ‘resource’ to be exploited in order to boost the industrial sector, and STEs were part of that process. The goals of STEs included price stabilization (or even subsidy) for consumers and/or producers, the operation of food security stocks, and a ‘fair trader’ to stop what where seen as exploitative middle-men.

Although initially created as self-sustaining entities, many STEs soon became loss making especially when ‘price stabilization’ became ‘price subsidization’ for urban dwellers (Jones 1996 and 1998). Advocates of privatization and liberalization (World Bank 1981) sought to contrast the poor performance of many STEs with the apparent efficiency and dynamism of private marketing activity by traders and farmers, often operating illegally in parallel with the state system. When in the 1980s free-market economics became the doctrine in restructuring programs, STEs became the target for reform, ironically enough often with the financial assistance of the World Bank/IMF who helped set them up. Instead, privatizing agricultural marketing, together with appropriate macroeconomic and trade policy reforms, was expected to increase producer prices and bring forth a strong production response and contribute to reducing rural poverty. After almost twenty years of ‘structural adjustment policies’ in Africa (including reform of STEs), the reality has proved far more complex and the economic response has been mixed (Duncan & Howell 1992 and Jones 1996). The response of the private sector within countries undertaking liberalization has been far less dynamic than expected.

Competition policy primarily seeks to prevent firms from protecting or expanding their market shares by means other than greater efficiency in producing what consumers want at the lowest possible prices. Globalization has made competition an international issue because of both the impact of one nation’s firm in another (through foreign direct investment) and because firms are increasingly global in structure (Shelton 1998). The large scale global influence of MNCs has caused considerable debate and controversy because of their increasing global market power, and their ability to abuse that power (see Mander & Goldsmith 1996).

The WTO thus began reviewing the interaction between trade and competition policy. This process was initiated by the Ministerial Conference held in Singapore in December 1996: a Working Group on the Interaction between Trade and Competition Policy (WGTCP) was formed as a result. The WTO 1997 Annual Report also contained an academic overview of the subject. The remit of the WGTCP has been to investigate areas of interaction and to "identify areas that may merit further consideration in the WTO framework" (WTO 1998). The Group has met seven times and received 104 written contributions from members, only 24 of which were from developing countries. The substantive work of the Group has been on the anti-competitive effects of government domestic policies, trade policies and private companies (both national and international. A compromise agreement for the future work of the WGTCP was reached on December 3^rd 1998, but no deadline for the Working Group to complete its work was set (Inside US Trade 1998).

The text of the Report by the WGTCP covered areas of agreement and disagreement. It is interesting to note that one area of agreement was recognition of the need for national competition policy (and possibly also competition legislation) before domestic economies are deregulated. In many developing country cases, deregulation and liberalization have taken place in an economic environment without a comprehensive competition policy and without the experience of a competitive business environment. For the agricultural sector in particular, this has often meant that the ‘winners’ were not consumers or producers, but middlemen and traders. This situation may help explain the disappointing response of many developing countries’ agricultural sectors to deregulation and liberalization as a result of structural adjustment policies, such as trade liberalization. Most developing countries do not have competition or anti-monopoly legislation although the number is rising (UNCTAD 1997, WTO 1997). Most developed countries in contrast do have some sort of competition policy and legislation. The USA and Germany for example, both have legislation to protect consumer welfare by prohibiting cartel price-fixing agreements and regulating corporate mergers.

4.1 Existing legislation

There is no clear set of rules within the WTO which address anti-competitive practices specifically, however the preamble to the Safeguards Agreement states that Members recognize "...the importance of structural adjustment and the need to enhance rather than limit competition in international markets" (Shelton ibid.). Trade liberalization itself has imposed competitive forces on domestic firms in member countries. Furthermore, articles in several agreements do refer to anti-competitive practices, such as Articles VIII and IX of GATS, Article 9 of the TRIMS Agreement and Section 8 of the TRIPS Agreement. However, the impact of these Articles has been limited because they do not specifically address competitive issues and because there are so many allowed exceptions. Competition policy therefore has largely been left to member nations.

4.2 Areas of Work

Both the WTO 1997 Annual Report and the Report of the Working Group analyzed a wide range of trade and competition issues including: a theoretical overview of the issues; descriptions of existing domestic competition policies; competition policy in international markets; issues in international trade relations with a competition policy dimension and existing international agreements and activities. With regard to this paper, which is looking at imports as an element of food security, the most pertinent analysis was of the possible restrictions on market access (by governments, individual firms or cartels) which may affect food import supply.

Market access constraints can come from several areas. Vertical market restraints involve contractual arrangements that link firms at successive levels of the product distribution chain. For example, one company may provide the crop inputs (seeds, fertilizers etc.) and also buy the crop once harvested. Such cases of vertical market integration in the food distribution chain are common in developing countries, and common in Africa especially (Jones 1998). Horizontal market constraints exist when one company, or a colluding group of companies, account for a large market share of a product, and use that market share to exclude new entrants. 'Hard' cartels can collude to act as a monopoly and therefore control both the quantity and price of certain goods in the market, including food. The WTO has also looked at domestic import cartels which, if there is sufficient market domination, can collude and act as a monopsony buyer for a food importing country and/or as a monopoly seller within that nation's borders. Such hard cartels are widely viewed as the most damaging and egregious violations of market dominance (Shelton ibid.). Opportunities for abuse are heightened when there is a lack of substitute goods and the cartel controls scarce infrastructure facilities which are necessary for imports to occur. Currently cartels can be controlled loosely via Article 40 of the TRIPS Agreement and Article X of the GATS Agreement, but these measures are directed at trade in services rather than goods (WTO 1998).

Positions of monopoly power which are held by individual companies have also been addressed by the WTO but the focus of existing Agreements is on companies (whether they are state-owned or not) which have been granted exclusive import permits and therefore restrict market access (WTO 1997 & 1998). Although exclusive permits to import are not outlawed by the WTO they are controlled and regulated. Control of upstream and downstream market facilities are also loosely covered by existing WTO Agreements, but due to the vagueness of the legislation, and poor notification, enforcement of rules has proved extremely difficult, especially with regard to multi-national company (MNC) operations.

The WTO also looked in detail at the role of STEs (with or without exclusive privileges or monopolies) in distorting trade in imports. The role of STEs within the WTO framework is discussed in Section 5.

The result of the work by the WTO has been a strong suggestion that the introduction of a WTO Competition Policy is imminent. For example in the 1997 Annual Report "...The issue is not whether competition policy questions will be dealt with in the WTO context, but how" and in the Report by the WGTCP "...it would be desirable to consider whether elements of competition policy thinking could usefully be incorporated into trade policy formulation." A consensus is therefore forming around the concept that if there were to be a continued expansion of global trade and global business, it would be sensible and consistent to first of all introduce a tenable system of international competition policy and legislation.

4.3 Developing Countries

Moves by many developing countries to deregulate their economies in an effort to stimulate domestic competition in the economy, together with rapid growth in foreign direct investment (ODI 1997), has meant that the need for domestic competition policy/legislation has become increasingly urgent. The importance of not only domestic but also international competition policy was recognized by developing countries in the early 1980s, and developing countries were the driving force behind UNCTAD moves toward drawing up a set of international rules in this area (UNCTAD 1997). However, most developing countries have not introduced domestic competition policy for reasons of sovereignty, the need to protect infant industries, lack of technical capacity, and for socioeconomic objectives.

The WTO's position (1997) is that for competition policy/legislation to be effective it needs to be implemented as part of broad range of reform measures such as deregulation, de-monopolization and trade reform. Furthermore, it requires a business environment that respects the legal system and in many developing country cases this is not necessarily so, due to a lack of resources devoted to the legislative system and widespread accusations of corruption.

Even if all developing countries were to introduce a domestic competition policy it would not necessarily be effective in introducing a ‘perfectly competitive market’ given the large role of MNCs within their economies. As UNCTAD (1997) states "it was not enough to have strong domestic competition law, as this could not address international anti-competitive practices by private firms ... This requires clear international rules". The WTO (1998) has recognized that its existing rules in this area are insufficient saying "...although international cartels posed barriers to market access, WTO rules had no mechanisms in place to deal with this kind of anti-competitive practice ... it was not clear how the interests of Members could be protected against business practices by private firms". The Report by the WGTCP goes on to say "Private anti-competitive conduct could exist and block market access in markets characterized by liberal trade policies, especially if there were no competition laws", and concludes that the threat which existed from the anti-competitive practices of international firms would be very hard to control from an international level with a multi-lateral approach. The WTO 1997 Annual Report agrees "These (developing) countries are at a disadvantage in combating certain enterprise practices with an international dimension, both because multinational enterprises are likely to be more responsive to the competition authorities of major economies where such practices are concerned and because of their greater need for accessing information outside the jurisdiction". The global power of MNCs in either helping or hindering the implementation of existing international agreements has long been recognized (Gleckman & Krut 1995).

A set of international competition rules appears currently a long way off although proposals have in the past been put forward by the European Union, Japan and Hong Kong for such a set of internationally agreed standards and guidelines. However, it has been recognized that getting a detailed international binding agreement and dispute settlement agreement (based on existing multi-national agreements such as the EU’s Competition Policy) is unlikely in the medium term. Shelton (ibid.) advocates instead (for OECD countries), the international adoption by each nation of a sore set of principles enforceable under a dispute settlement process and a group-wide set of non-binding common approaches. This system assumes that each member nation has a viable competition authority and associated legal system, which for OECD countries is a valid assumption. As discussed above, this is not necessarily so for many developing countries, and thus if they were to adopt such a system through the WTO there is a strong likelihood it would be unworkable.

Developing countries have been wary of moves (by the EU and Japan) for an early deadline for the Working Group to reach definitive conclusions and recommendations, fearing that specific competition policy issues may be on the agenda at the next WTO Round or negotiations. Developing country submissions to the WGTCP have been far briefer than those of developed countries, and whilst in favor of competitive markets per se, are concerned with the possible effects of their rapid implementation on their economies which are only just beginning to liberalize. Specifically several developing countries’ submissions have mentioned a desire to maintain ownership of STEs, whilst accepting the need to remove exclusive licensing agreements. In contrast, the USA’s submissions have been focused on securing the acceptance of the Most Favored Nation principal for domestic competition policy; that is, firms trading in foreign countries having equal treatment under that nation’s competition law as do domestic companies. The USA has opposed moves to include within the Working Group’s remit those issues of trade remedy law which affect competition, such as Special Safeguards and Anti-Dumping legislation (USTR 1998).

Article XVII of GATT (1947) mandated that STEs be run according to "commercial considerations" and that their transactions are transparent and notified to the WTO (Ingco & Ng ibid.). Therefore, it is not the issue ownership per se which brings STEs into the jurisdiction of WTO rules, but rather if they are granted special or exclusive privileges, or their operations are subsidized so as to affect trade quantities or prices (UNCTAD 1998). In a similar manner, STEs were also addressed indirectly under article VIII of the GATS which referred to the abuse of a monopoly position, however this article has not been effectively implemented.

What constituted a STE was ill-defined until the UR when a Memorandum of Understanding on Interpretation of Article XVII clarified them as "governmental and non-governmental enterprises, including marketing boards, which have been granted exclusive or special 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". This Memorandum also established a Working Party in 1995 to provide a practical understanding of state trading as defined by 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 STEs, has reformulated country notification requirements and established an illustrative list of state trading activities (Ingco & Ng ibid.). The Working Party reports annually to the WTO Committee on Goods and Services.

STEs were a particularly contentious topic in the UR agriculture negotiations. Those STEs which exported products were viewed as providing hidden subsidies; those STEs which imported products were viewed by some as restricting the level of imports and/or making import decisions based on political not commercial considerations (Young & Abbott 1998). Agricultural STEs were therefore incorporated into commitments under the Agreement on Agriculture for market access, export subsidy and domestic support. If a STE affected any of these then due notification to the WTO was required together with appropriate action. It is however, a matter for further debate and research as to how much trade distorting impact agricultural STEs really have, and it may well be overstated (GAO 1996, Young & Abbott ibid.).

As discussed previously, in many developing countries the import and distribution of grain has tended to be under the control of such state owned and state run enterprises, which now face reform or abolition through the WTO. The WTO Secretariat has recognized the potential risk for STE monopolies to be replaced by private MNC monopolies but argues that the "national champion" firms very rarely provide a more efficient or equitable service than private companies. However, it is worth noting that many developed countries (such as the USA, Japan, Germany, UK and EU) exempt agriculture from all or parts of their respective competition policies (OECD 1996, WTO 1997). Clearly, developed countries feel that the role of the market in delivering agricultural products needs to be controlled. Indeed, calls for the reform of STEs have largely been as a result of their continued activity in the agricultural sector when they have largely been abolished elsewhere in the economies of developed economies.

In general, the existing WTO rules on STEs have not been very effective in curtailing their supposed trade distorting activities. Ingco & Ng (ibid.) put this down to the vagueness of provisions and poor compliance on STE notification requirements. Referring back the Report by the WGTCP the EU goes as far as saying that "the limitation of the applicability of WTO rules to enterprises that enjoyed state-conferred monopolies or privileges, when the operations of private firms could have similar effects on market access, constituted a significant gap in the multilateral trading framework". The EU goes on to advocate that WTO Members apply basic competition law to all types of enterprises, both public and private.

The WTO 1997 Annual Report and the Report by the WGTCP also devoted considerable attention to the matter of STEs, including whether they hold exclusive rights or not, and their effects on competition within international trade. The majority of submissions to the WGTCP were on the negative effects on competition of state monopolies, "It was noted that the WTO recognized that enterprises enjoying such privileges might create serious obstacles to trade" (WTO 1998). There were however, also dissenting voices to this approach, for example in the areas of natural monopolies, equity considerations and the lack of market-economy experience held by many developing country economies.

The WTO Secretariat and certain Members are therefore hardening their position on STEs in general and agricultural STEs in particular. New WTO members are increasingly putting STEs up for negotiation under their Schedule of Commitments for entry (WTO 1997). The Report by the WGTCP (WTO 1998) concluded on the issue "...it would be desirable to develop a common language with regard to the application of competition rules to government activities with international implications, building ... exemptions or exceptions from competition regimes merited further examination in the Group to see whether the rights and privileges which might therefore be conferred could impede market access and thereby undermine non-discriminatory conditions of competition".

Pressure for reform of STEs through the GATT/WTO has come mostly from the USA, with their focus on exports of the Canadian and Australian Wheat Boards, and the New Zealand Dairy Board in particular (GAO 1996). Although the USA has targeted these exporting STEs specifically, importing STEs are also viewed as discriminatory. Many developed and developing countries such as Japan, Indonesia, Korea, Pakistan and Malaysia, operate STEs with an exclusive license to import certain products. For example, Indonesia, which is potentially a very large market for US rice exports, grants an exclusive rice import permit to the Badan Urusan Logistik, a parastatal trading (Ackerman 1997).

Reform to STEs is also a relatively easy and straightforward target because they can be easily identified and attacked, in contrast to general agricultural policies which are harder to focus on (Young & Abbott ibid.). It looks increasingly likely that STEs in the agricultural sector will be part of the next WTO Round of negotiations (Shanahan 1999), with "potentially significant implications for the agrofood sector" (OECD ibid.).

The market domination of international trade in agricultural products by a few large MNCs has been recognized as a growing and worrying phenomenon (Lehman & Krebs ibid.). For African countries attempting to export agro-products this has severely limited their choice of markets. Barratt Brown and Tiffen (ibid.) have estimated that between 85-90% of world agro-exports are controlled by six of the largest transnational corporations, and refer to such commodity markets as either 'controlled' or 'closed'. The problems caused by limited sales options are compounded for African countries by their reliance on one or two export-bound cash crops, increasing their exposure to price changes and production problems.

The global trade in grain products is especially concentrated, being dominated by a few large (mostly American) MNCs. Cargill, Continental Grain, Louis Dreyfus, Bunge, Mitsui/Cook and Andre & Co. together control roughly 60% of the world's grain trade, and in effect hold an oligopoly position capable of controlling price and supply (Krebs 1992). The market concentration is also set to increase with the proposed acquisition of Continental Grain Co. by Cargill, although the deal may be blocked by the US Congress in 1999 (Tait 1999). Companies such as Cargill also control large proportions of grain imports to African countries, as well as being significantly vertically integrated into the supply infrastructure (Davies 1994). Michiel Keyzer recognized this potential situation of risk for net food importing countries and goes as far as saying, "Even if one assumes complete trade liberalization ... this would by no means ensure perfect competition. Countries and multinational corporations might engage in strategic alliances to turn terms of trade in their favor, and use monopoly margins as substitute for tariffs." Keyzer's argument is that if a global market is to be established, then global market rules (including a global competition policy) need to be implemented first. He went on to say, "Without rules of competition, free trade is an illusion. ...if EU Commissioner Sir Leon Brittan complains that this leaves the EU at the mercy of the cartels, small developing economies have even more reason to worry".

Multinational grain companies also face the fortunate prospect of a growing market in developing countries. Total annual cereal demand in the developing world is expected to increase 40% by 2020, to 2,490 million tones. This is due not only to their increasing population but also changing dietary habits. Urbanization for example, is resulting in an increased demand for wheat and meat - with a consequent increase in demand for feed grain. The 'dumping' of cheap subsidized wheat on developing country markets has helped many multinational grain companies 'secure market leverage' by changing the dietary habits of the importing country (Misser 1995). Once dietary preferences have been formed they are very hard to reverse.

In order to meet this growing cereal demand the developing world will continue to increase grain imports to make up for shortfalls in production; their cereal imports are predicted to double by 2020 to a total of 229 million tones annually. An increasing proportion of this increase will be maize. Sub-Saharan Africa is predicted to increase cereal imports by 150% between now and 2020, and yet will also have proportionately the worst malnutrition problem in the world. At the same time as this trend toward growing import demand, food aid is declining due to changes in the geopolitical and agricultural situation in the West (Fowler ibid.). This will result in a larger role for purely commercial grain sales, and an increased role for companies such as Cargill, who in fact have already identified Africa as a major market for the next century (Cargill 1998, Muirhead 1998).

Foreign direct investment in Africa may become even easier for American companies if the proposed African Growth and Opportunity Act is passed by the US Senate (having already passed through the House of Representatives). This Act is partly a response to declining US aid to Africa. It will make it far easier for foreign firms to invest in Africa and will afford them equal treatment with local firms. There is a strong belief amongst many observers that the Act will result in foreign investment driving local firms out of business (South Centre 1999).

Much of the increase in imports is expected to come from the USA, which is predicted to increase cereal exports 60% by 2020. The USA's grain exports to the developing world, including Africa, began with the its foreign policy in the 1950s and 1960s, that of "food for peace". Under the USA's Public Law 480 program (1954) over-supply at home was sold at subsidized prices to the developing world, and often companies such as Cargill and Continental Grain were used as the broker. Krebs (ibid.) argues "the results of the early years of the PL480 program are manifest: Cargill, Continental, Bunge, Louis Dreyfus, and Andre control a variety of export-import facilities, operate large shipping and transportation networks and maintain a close working relationship with foreign bankers, financial institutions and government officials." Most food aid continues to be sourced from developed nations. In 1997, 41% of global deliveries were financed by the USA, 32% by the European Union and its Commission, 8% by Canada, 5% by Australia, 5% by Japan, 2% by China, 1% by Switzerland, 1% by Norway and the rest by other donors (WFP 1999).

The close relationship of multinational grain companies with the USA government was highlighted by the USA’s challenge to the EU Banana Protocol to the Lome IV Convention in the WTO. This process, which resulted in the WTO declaring the Banana Protocol illegal, has largely been seen as driven by the powerful American banana companies Chiquita Brands International Inc. and Dole Food Co. (New York Post 1999). The current US position is focussed almost entirely on "eliminating distortions due to government intervention" although "the United States has been working on the idea of a code of practice for trade in food products" (Goldthwait 1998).

A few major European and American grain companies already have oligopoly control of the world grain trade and WTO-driven reform of STEs would allow international corporations increased access to developing country markets. These companies already have a significant presence in many food deficit countries. It is perfectly possible therefore, for such companies to effectively establish control of food supply and distribution in many African countries. Whilst it is accepted that many STEs in developing countries are badly run and hinder rather than help national food security, it could be dangerous to hand over control to MNCs which have monopoly positions in global food trade.

It would appear logical therefore, that a global competition policy be should introduced by the WTO to ensure that such MNCs do not abuse their market power. Yet the WTO Secretariat itself, as well as many commentators, argue that such a set of international rules and controls on global market dominance would be unworkable in practice. Instead it seems likely that member nations will be required (through the WTO) to introduce domestic competition legislation, applicable equally to local and foreign companies. But a domestic competition policy in many African nations would not necessarily be effective due to weak legislative systems, and a lack of experience with enforcement.

For many African nations STEs are the only control they have on food trade in the face of powerful MNCs. Without a global competition policy, STEs may be necessary to ensure that decisions on imports for food security purposes are not decided on a purely commercial basis. Given the past ‘mixed’ response of many African nations to other economic deregulation programs, there is no guarantee that reforming STEs would help improve food security. If STEs are to be part of the next WTO Round of trade negotiations, developing countries should consider negotiating themselves special and differential treatment as has been in the case in previous GATT/WTO Agreements.

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