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GTAP Resource #1689

"Market Access and the Reform of State Trading Enterprises"
by Mccorriston, Steve and Donald MacLaren

Much of the focus on trade liberalisation in the agricultural sector in the Doha Round relates to identifiable trade policy instruments such as subsidies, tariffs and tariff rate quotas. However, market access can also be influenced by other methods of government intervention that are less readily identifiable in terms of their trade distorting effect. One example is state trading enterprises. While state trading is an element in the current round of negotiations, there is however little analysis of how state trading enterprises may distort trade and how their reform may expand market access and enhance the benefits of trade reform.

State trading enterprises arise in exporting and importing countries, the focus in this paper being on the latter. The specific issue with state trading is the nature of the exclusive rights the government bestows on the enterprise rather than its ownership per se. These different rights gives rise to alternative characterisations of the way in which a state trading enterprise may affect market access. Specifically, the enterprise may have single desk authority over domestic procurement and sales or it may compete with private sector firms and have exclusive rights with regard to imports only. As such, the impact of the reform of state trading on market access and welfare will therefore depend on the nature of these exclusive rights, how these rights are changed in the process of de-regulation and the extent of private sector competition that subsequently arises.

The paper is divided into two parts. First, a theoretical model is presented that provides a direct tariff equivalent measure of the trade distorting effect of state trading enterprises that is contingent on the nature of the exclusive rights that apply. In the second part, we use a partial computable equilibrium model to apply this theoretical framework to evaluate the impact of a state trading enterprise and the potential effect on market access and welfare following de-regulation. The case study relates to the wheat sector in Japan. This is of relevance since the Japan Food Agency has traditionally been the main mechanism for managing the wheat market both in relation to domestic sales and procurement as well as imports. Recent reforms mean that the exclusive rights now apply to imports only. We provide a measure of the trade distorting effect of the state enterprise in the Japanese market that applies to both these cases and we evaluate the welfare effects of these reforms.

Overall, the paper provides several important insights into the current trade negotiating round. First, market access and the welfare effects of trade reform can be influenced by the way the government influences market structure. Second, we provide a framework that is based on solid theoretical foundations for identifying these effects that can also be calibrated with data to provide an empirical assessment of these effects. Third, it illustrates the importance of state trading in importing countries and their influence on the gains from trade reform that appears contrary to the stand taken by many countries in the current negotiations, i.e., one of ignoring importing state trading enterprises.

Resource Details (Export Citation) GTAP Keywords
Category: 2005 Conference Paper
Status: Published
By/In: Presented at the 8th Annual Conference on Global Economic Analysis, Lübeck, Germany
Date: 2005
Created: MacLaren, D. (4/25/2005)
Updated: MacLaren, D. (4/25/2005)
Visits: 2,294
No keywords have been specified.

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