./.WORLD TRADE
ORGANIZATIONWT/GC/W/172
27 April 1999
(99-1700)
General Council Original:  English
PREPARATIONS FOR THE 1999 MINISTERIAL CONFERENCE
State Trading Enterprises
Communication from Hungary
The following communication, dated 23 April 1999, has been received from the Permanent
Mission of Hungary.
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Issue
1. Article XVII of GATT 1994 dealing with the activities of state trading enterprises stipulates
the right of Members to grant special rights or privileges to a limited number of governmental or non-
governmental enterprises.  At the same time, it reminds Members that through their operation state
trading enterprises can erect significant non-tariff barriers to trade.
2. Despite some decrease of the incidence of state trading in world trade over the years, it is still
applied on a wide range of products by numerous Members as well as by several countries in the
process of acceding to the WTO.  The latter factor, together with the significant new concessions and
obligations brought about by the Uruguay Round, underl ines the necessity to review the adequacy of
the present rules governing the activities of stat e trading enterprises in order to ensure that
concessions are not nullified or impaired and commitments not circumvented.
3. The potential for trade distortion and the likelihood of the existence of non-tariff barriers is
arguably the highest when state trading enterprises benefit from monopoly import/export rights.  Thisis the instance where actual decisions of the state trading enterprises are although to varying degrees,
directly or indirectly, but still influenced by government objectives which are not solely in accordance
with commercial considerations.  Furthermore, the need for granting such rights is seriously called
into question as they do not seem to be indispensable for attaining their stated objectives.
4. Present rules that apply to state trading enterprises do not seem to be adequate, since unlike
many other provisions of the WTO which constitute exceptions to general rules, they not only lack the
necessary precision that would ensure that their enforcement is feasible but also do not take account
of the implications of the new disciplines introduced as a result of the last round of multilateral trade
negotiations.  During the Uruguay Round there was an attempt to address the shortcomings of
Article XVII, but the Understanding on the Interp retation of Article XVII of GATT 1994 that was
negotiated appears to fall short of clarifying and strengthening the substantive requirements of
Article XVII and focuses exclusively on the enhancement of transparency of state trading activities.
Although there can be no denial of the importance of  transparency in ensuring compliance with WTO
rules in general, it has to be pointed out that in the particular case of state trading enterprises, such anWT/GC/W/172
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approach, if applied exclusively, does not seem to be sufficient since it is rather unlikely that any
given government would notify that with or without its active involvement a state trading enterprise
within its jurisdiction engages in activities that are c ontrary to the relevant rules of the WTO.  In view
of the special character of the relationship between governments and their state trading enterprises and
of the fact that the burden of proof is at present on the aggrieved party, in the absence of strengthenedrules, the latter will almost never be in the position to successfully challenge those practices that are
not in conformity with the relevant rules.
Proposal
5. Participants shall review Article XVII of GATT 1994 and related provisions of the WTO
(Understanding on the Interpretation of Article XVII of GATT 1994, Article II.4 of GATT 1994,
Article 4.2 of the Agreement on Agriculture) with  the aim to ensure non-discrimination (MFN and
national treatment) and the balance of concessions and obligations, including through the eliminationof de jure and de facto monopoly import/export rights.
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