Handbook on International Trade Policy
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Handbook on International Trade Policy

Edited by William A. Kerr and James D. Gaisford

The Handbook on International Trade Policy is an insightful and comprehensive reference tool focusing on trade policy issues in the era of globalization. Each specially commissioned chapter deals with important international trade issues, discusses the current literature on the subject, and explores major controversies. The Handbook also directs the interested reader to further sources of information.
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Chapter 30: State Trading Agencies

Bruno Larue and Jean-Philippe Gervais


Bruno Larue and Jean-Philippe Gervais Introduction State trading is a very controversial subject that has produced numerous frictions between countries.1 From the creation of GATT in 1947, state traders were ubiquitous enough to warrant a GATT Article entirely devoted to this form of government intervention. Some would say that Article XVII was necessary to ‘legitimize’ a valuable government policy tool while others would counter that it was imperative to ‘regulate’ agencies that should not exist in a first best world.2 In this spirit, Article XVII contends that state trading enterprises (STEs henceforth) must act in accordance with the general principles of non-discrimination and that commercial considerations only are to guide their decisions on imports and exports.3 Hence, STEs are invited to behave like private firms and they are not to be used by governments to implement country-specific trade policies. As such, STEs must comply with GATT’s Most Favored Nation principle and with the other GATT articles in which state trading is mentioned. The main concern is that STEs can shirk on their obligations due to difficulties in monitoring their behavior. It is feared that import STEs could provide greater protection for domestic factors of production than what their bound tariffs allow. On the export side, the concerns are about the potential to subsidize exports beyond a WTO member’s obligations. Schmitz et al. (1981) estimated that 91.3 percent of all wheat imports between 1973 and 1977 were imported by STEs. Abbott and Young (1999) present evidence that the...

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