Current Agriculture, Food & Resource Issues
G. N. Vlontzos
State Trading Enterprises
The GATT Agreement of 1994, Article XVII, defines STEs as follows:
Governmental and non-governmental enterprises, including Marketing
Boards, which have been granted exclusive or special rights or privileges,
including statutory or constitutional powers, in the exercise of which they
influence through their purchases or sales the level or direction of imports
or exports. (WTO, 1994)
STEs vary in terms of structure, operation, power and function. Attempts to classify
STEs until now have used criteria that measure market contestability, market
concentration, trade shares, price differences and rents. According to this approach to
classification, there are three types of STEs. Type I STEs are characterized by low
potential to distort trade. Type II STEs have the ability to distort trade flows, but in a way
that contestability can be retrieved without serious changes in the way they operate.
Type III STEs have adverse impacts on contestability and distort trade (WTO, 1996). The
latter category includes all import STEs (those that operate as monopolies for import of
goods into a country); this type gives rise to the most strongly worded protests against
STEs. The usual objectives of STEs are domestic price stabilization, market regulation
and control and promotion of exports. The issues surrounding STEs are not new for the
WTO. In order to monitor the operation of STEs, the GATT itself established the
International Trade Organization (ITO) in 1948. An entire chapter was created under the
title “Restricted Trade Policies”. During that period, the trading environment was not
mature enough to put obstacles in the way of developed-country STEs. STEs functioned
as one of the most effective means by which developed countries enlarged their market
shares on an international level. This was especially true for the United States, where the
pressure not to make changes to the operation of STEs was so strong that President
Truman withdrew the “Restricted Trade Policies” chapter (Veeman, Fulton and Larue,
1999). In 1957 the issue of STEs arose again under Article XVII of the GATT: reporting
requirements represented an attempt to monitor and evaluate the degree of distortion of
international trade that could be attributed to STEs.
STEs and the Competitive Environment
One of the most useful tools for evaluating the competitive environment in a market is
Michael Porter’s “five forces competitive model,” or FFCM (Day, 1984). The five
parameters the model examines are
• the threat of new entrants;
• the bargaining power of suppliers;
• the bargaining power of consumers;
• the threat of substitute products; and
• the intensity of rivalry amongst competing firms.
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