The Role of State Trading Enterprises and Their Impact on Agricultural Development and Economic Growth in Developing Countries



Current Agriculture, Food & Resource Issues

G. N. Vlontzos


Intensity of Rivalry amongst Competing Firms

Intensity of rivalry amongst competing firms is not high in the case of exporting STEs and
does not exist at all in the case of importing STEs. This lack is due to advance deals
arrived at between countries on the political level; such deals do not allow market forces
to operate.

From the above analysis it is obvious that the most trade-distorting type of STE is the
type that focuses on imports. Exporting STEs are not alone in the international context,
and they operate in a competitive environment; however, when they have to negotiate
with importing STEs they are victims of the distortion that characterizes the operation of
importing STEs. Since the last GATT agreement, the operation of STEs has been under
increased monitoring and evaluation. Article XVII of the GATT 1994, Paragraph 1 of the
Understanding, obliges all members of the WTO to submit annual notifications of their
state trading activities. Unfortunately, for the year 2003 only 12 members submitted their
reports (WTO, 2003a). There is deep concern among members of the WTO about the
reporting periods for notifications and updates. The common belief tends to be that the
current timetable is too tight. The failure of so many members to submit reports creates a
serious lack of information and gives rise to concerns about the ways in which STEs
affect or even distort international trade. These concerns take on a further dimension due
to the fact that the Doha Round has not yet been completed (WTO, 2003b).

STEs in Relation to Food Aid and Export Credits

During the previous GATT negotiations there were additional topics of interest that, under
more intense study, show another dimension to the role of STEs. Many developing
countries protested the food aid and export credit systems, and during the current
negotiations they have argued for structural changes to these systems at the operational
level. Food aid is a mechanism for providing, among other things, crucial agricultural
products to least-developed or developing countries. For developed countries, which
provide the food products, this mechanism allows the opportunity to manage both their
stocks and prices. The usual status for food aid operations is that when stocks are at high
levels, the quantities granted as food aid are high as well, and the international prices of
these products tend to decline. When stocks are at low levels, the quantities granted as
food aid are low, and the international prices tend to increase. There are several estimates
claiming that this way of managing stocks is a secret price stabilization mechanism that
uses the lack of production infrastructure in developing countries to continue to give
production incentives to agricultural producers in developed countries. Usually the quality
of the products concerned is low and the trading parties that the operational tasks fall to
are STEs focused on exports (IATRC, 2001).

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