RESTRICTED
WORLD TRADE G/STR/W/32
1October 1996
ORGANIZATION(96-3927)
Original: English Working Party onState Trading Enterprises
DRAFT ILLUSTRATIVE LIST
TheRelationships between Governments andState Trading
Enterprises andState Trading Activities
Thefollowingsubmissionhasbeenreceivedon25September1996,fromthePermanentMission
oftheUnited States, with arequest thatitbecirculated toallMembers.
_______________
OVERVIEW
1. The Uruguay Round Understanding ontheInterpretation ofArticle XVII calls forthe
establishment ofaWorking Party toreview theadequacy oftheexisting questionnaire onstate trading
andthecoverage ofstate trading enterprises notified. Onespecific taskoftheWorking Party identified
intheUnderstanding isthedevelopment ofanillustrative listshowing thekinds ofrelationships between
governments andenterprises andthetypes ofactivities engaged inbythese enterprises.
2. Thedevelopmentofanillustrativelistisimportantforimprovingthecompliancewithnotification
obligations. Anillustrative listwillprovide additional guidance tomembers concerning thescope and
activities ofentities tobedetailed inArticle XVII notifications. Discussions intheWorking Party during
thedevelopment ofanillustrative listalsowillhelp develop abetter understanding ofwhich types of
relationships andactivities areofparticular interest with regard totrade.
3. This paper presents listsofrelationships andtypes ofactivities thatcould beincluded onthe
illustrative list. Additionally, thispaper proposes how thislistcanbeused toincrease theutility of
thenotifications: firstbyidentifying thekeyelements intherelationships andactivities thatcharacterize
state trading enterprises andsecond bydistinguishing relationships andactivities ofparticular interest
from relationships andactivities oflessinterest.
DEFINITION OFSTATE TRADING ENTERPRISES
4. TheUruguay Round Understanding establishes thefollowing working definition inparagraph 1
forstate trading enterprises asfollows:
“Governmental andnon-governmental enterprises, including marketing boards, which
have been granted exclusive orspecial rights orprivileges, including statutory or
constitutional powers, intheexercise ofwhich theyinfluence through their purchases
orsales thelevel ordirection ofimports orexports. ”
5. Thekeyelements ofthisdefinition forthepurposes ofthispaper aretheterms “which have
been granted exclusive orspecial rights orprivileges ”and“influence through their purchases orsales
thelevel ordirection ofimport orexports. ”These elements establish thatforanentity tobeconsideredG/STR/W/32
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astate trading enterprise itmust satisfy twoconditions: (1)have aspecial right orprivilege and
(2)influence thelevel ordirection trade through purchases orsales.
6. Development ofanillustrative listwillhelpclarify these twoconditions. Alistofrelationships
between enterprises andgovernments would address theissue of“special rights orprivileges, ”and
alistofactivities would illustrate how activities ofstate trading enterprises might influence trade.
Additionally, examining thelistsofrelationships andactivities asapackage may result inidentifying
relationships andactivities thatareparticularly significant fortrade.
RELATIONSHIPS BETWEEN GOVERNMENTS AND ENTERPRISES
7. Paragraph101ofG/STR/2identifiesanumberofrelationshipsestablishedbetweengovernments
andenterprises thatmembers haddetermined were state trading enterprises. This listcanbeaugmented
byincluding relationships identified innotifications submitted since 1995 togive abroader picture
oftherelationships thatexist between state trading enterprises andgovernments (Annex 1).Annex 1
incorporates theinformation contained inparagraph 101ofG/STR/2.
8. Asnoted inG/STR/2, paragraph 101, anenterprise may beabranch ofthegovernment or
anentityseparatefromthegovernmentwhichwasestablishedtocarryoutgovernment-mandatedpolicies
orprograms subject tolegislated controls. Private enterprises tobeincluded under theArticle XVII
definition alsoinclude those which areestablished forcommercial purposes, butmaybegranted special
authority from thegovernment toengage intrade.
9. Theexistence ofaspecial right isimportant because itshows where entities aremaking decisions
inanenvironment ofreduced ornocompetition. Additionally, themanner inwhich theright orprivilege
isconferred shows howagovernment caninfluence thedecisions oftheentity. Thelackofcompetition
andthepresence ofgovernment influence may result intrade-related decisions being made forpublic
policy reasons instead ofcommercial considerations. Ingeneral, thebroader theauthority conferred
ontheentity, themore itsdecisions willbeinsulated from competitive concerns. Thecloser theauthority
isrelated totrading activities, thegreater thepossibility itcould beused todistort trade flows. The
closer therelationship theentity haswiththegovernment, thegreater thepossibility itsdecision-making
willbeinfluenced bypublic policy instead ofcommercial considerations.
10. These relationships relate tosection III.B ofthestate trading questionnaire, which requests
information ontheprivilege enjoyed bystate trading enterprises. Thisinformation isimportant because
itallows members todetermine ifaspecial privilege exists andnotification isrequired. Forexample,
ontheimport side, anentity thathasbeen designated toallocate shares ofatariff-rate quota receives
aspecial right orprivilege. Similarly, ontheexport side, anentity thathasaccess toexport channels
notavailable toother entities meets thiscondition.
11. Some countries have identified entities thatdonotengage intrade themselves, buttransfer
their special right orprivilege toentities thatdoengage intrade. Forexample, ontheimport side,
anentity thathasbeen assigned theresponsibility ofallocating shares ofatariff-rate quota may be
identified asastate trading enterprise, ortheentities thathave been allocated theright toactually engage
inthetrade may beidentified. Similarly, ontheexport side, anentity thathasbeen assigned the
responsibility tocontrol export activities ofseveral other entities, such asthrough setting prices or
terms ofsale, may beidentified asthestate trading enterprise ortheentities thatoperate underneath
thesupervision andtheauthority ofthisspecial right orprivilege may beidentified. While countries
have identified both types ofentities, theentity ofmost interest toother Members fornotification
purposes islikely tobetheentity with thepolicy-making roleortheclosest linktogovernment, since
itismost likely todistort trade. Additionally, such anentity ismost likely tobeabletoprovide the
breadth ofinformation required forthenotification.G/STR/W/32
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TYPES OFACTIVITIES ENGAGED INBYSTATE TRADING ENTERPRISES
12. Paragraph102ofG/STR/2identifiesanumberofactivitiesengagedinbystatetradingenterprises
based onhistoric notifications. This listcanbeaugmented byincluding activities identified in
notifications submitted since 1995 togiveabroader picture oftheactivities ofstate trading enterprises
engage. Annex 2contains thehistoric listofactivities from G/STR/2 plusadditional activities notified
since 1995.
13. These activities canaffect trade, astheentities arelinked togovernment andmaybeinfluenced
toengage inactivities toaddress policy-making concerns rather thancommercial considerations. These
activities relate tosection III.A ofthestate trading questionnaire, which requests information onthe
activities engaged inbystate trading enterprises. Any entity thathasaspecial right orprivilege and
engages intrade would provide details ofitsactivities, drawing onthelistprovided inAnnex 2.
14. Certainactivitiesmayberelativelyinnocuousinatradecontext,suchastheauthoritytodistribute
automatic licences orinspect product forquality inspection. Although such activities could have
significant implications fortrade iftheyareapplied inadistorting manner orundertaken inconjunction
with other activities inAnnex 2,adetailed examination ofcertain “stand alone ”activities maybebetter
examined aspartofthenotification process ofother WTO committees (e.g., licensing committee or
TBT committee). Incontrast, some activities could clearly have significant trade implications, such
asengaging intrade, andwould besubject toamore rigorous review intheWorking Party onState
Trading. (Asimilar procedure could apply totherelationships contained inAnnex 1.)
RELATION TONOTIFICATION FORMATS
15. Each oftheillustrative listsrepresents aspectrum ofinvolvement with trade, ranging from
closely related totrade topotentially minimal impact ontrade. Every entity thatmeets both criteria
ofthetwosteptestestablished intheUnderstanding should beidentified through thenotification process
(e.g., reporting onthename ofthestate trading enterprise, theproducts covered, thereason orpurpose,
andasummary overview ofitsoperations) andfallunder thedisciplines ofGATT Article XVII.
However, detailed information (asenvisioned under G/STR/W/30) may notberequired regarding all
entities. Distinguishing more relevant entities from lesstrade relevant entities could improve the
notification process byfocusing theattention andresources oftheWorking Party onentities thathave
asignificant effect oninternational trade.
16. There areseveral possible ways todistinguish entities ofparticular interest forthenotification
process. Onepossibility istodifferentiate entities based onthetypes ofactivities they engage inand
relationships with thegovernment. Under thisapproach theillustrative listsaredivided intodifferent
categories. Distinctions could beestablished todifferentiate thecombinations ofactivities and
relationships thatareclearly ofinterest totheWorking Party (and requiring afullnotification) and
those thatareoflessinterest (requiring areduced notification). Forexample, anyspecial right combined
with theactivities ofmonopoly exporter ormonopsony importer would fallintothecategory offull
notification. Activities such asissuing licences andengaging inquality inspection would only require
afullnotification iftheentity engages incertain other activities deemed tobeofpossible interest, and
iftheentity hasdiscretionary authority toexclude trading activities ortopromote domestic agricultural
products. Alternatively, these entities could berequired tonotify only ifanother member makes a
special request through thechair thattheentity besubject toafullnotification.G/STR/W/32
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Annex 1-Relationships Between Governments andState Trading Enterprises
Identified inG/STR/2
• Exclusive right toexport orimport oneormore products
• Authority totrade incompetition with private traders
• Authority tocontract with exporters/importers
• Authority toissue export orimport licences subject toenterprise-established guidelines or
conditions
• Authority tosubsidize exports
• Authority tostabilize domestic supply anddemand situations andprices through domestic
purchases, stock-holding orsales
• Authority toadminister GATT market access commitments bycontrolling prices, quantities
anddistribution ofimported products
• Authority toobtain government financing fordomestic andtrade operations, including payments
toproducers
Additional suggestions
• Designated toimport anallocated quantity ofproduct under aTRQ
• Government-designated exporter orrecipient ofaconditional export licence
• Authority tocontract fortransportation, storage, insurance orother export-related operations
• Authority toestablish andenforce grades andstandards, including sanitary andphytosanitary
requirements
• Authority tosignlong-term supply andimport agreements withthegovernments ofother nations
• Authority toestablish subsidiaries inexport markets
• Exclusive orspecial rights toprocess domestically-produced orimported commodities for
domestic consumption orexportG/STR/W/32
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Annex 2-Types ofActivities Engaged inbyState Trading Enterprises
Identified inG/STR/2
• Serves assoleexporter/importer oftheproduct
• Contracts with private exporters/importers tohandle allorpartoftheexports/imports
• Issues export/import licences toallapplicants who apply (noquantity restrictions)
• Determines price andquantity oftheproduct tobeexported/imported
• Issues export orimport licences based onpredetermined export/import quantities
• Administers contractual obligations forexports tocountries with import quotas
• Negotiates oradministers long-term supply orimport contracts
• Handles theprocurement andshipping ofcommodities forfood aidcontracts
• Funds orconducts services related toexports, including shipping, handling, insurance
• Offers export credits orguarantees credit toimporters
• Conducts export market development activities financed byproducers through assessments
and/or government grants, export levies
• Purchases orprocures allorpartofthecommodity from producers inthedomestic market
and/or forexport
• Establishes minimum producer prices, pooled prices, orother payment arrangements
• Establishes orcontrols prices orother delivery terms forproducers
• Holds ordisposes ofemergency orother stocks orfinances stockholding activities
• Establishes orcontrols grades andstandards forproducts marketed inthedomestic market
Additional suggestions
• Prices aredetermined bytheenterprise according tocommercial considerations, auction or
simultaneous buy-sell pricing system
• Determines domestic saleprices based onimport prices, management costs, domestic consumer
prices, other economic conditions, through anauction system
• Issues export orimport licences based onother conditions such asanindustry product marketing
strategy
• Administers import regime, including quotas, TRQs
• Issues import quota allocations orTRQs onafirst-come, firstserved basis, anauction basis,
historical basis, other criteria
• Collects over-quota tariffs
• Conducts import tenders
• Determines thelevel ofmark-up onimported goods
• Maintains and enforces sanitary, phytosanitary and technical grades and standards for
exported/imported products; inspects exports orimports toseethatthey meet theestablished
standards
• Collects anddisseminates information toexporters
• Controls and/or conducts marketing ordistribution ofprocessed products through subsidiaries
orjoint ventures inimport markets
• Establishes orcontrols domestic wholesale orconsumer prices
• Owns and/or operates processing facilities
• Provides credit, other financial assistance toproducers forproduction inputs such asfertilizer
orseed
• Assess producers fordomestic andexport promotion, research, information activities