Introduction

WTO members, both developed and developing countries, have traditionally engaged in state trading for various public policy goals such as income support for domestic producers, price stabilization, continuity in domestic food supply, government revenue generation, protection of public health and strategic control, etc.

It has long been recognized that state trading constitutes a ‘systemic challenge’ to the GATT/WTO system and ‘might be operated so as to create serious obstacles to trade’. This concern originates from the fact that the vehicle of state trading – state trading enterprises (STEs) – enjoys significant market power, quite often a monopoly, in purchasing or selling certain products or services. There are a number of ways that STEs may be used to circumvent certain WTO commitments with respect to non-discrimination, market access and tariff concessions. For example, they could circumvent the most-favoured-nation (MFN) and national treatment principles by discriminating between domestic and imported goods or among trading partners in their purchase or sale; an import monopoly could effectively restrict quantities of imports or use mark-up as covert tariffs; STEs in control of essential trading facilities such as telecommunications or transport may refuse to deal with foreign companies.

Despite these concerns, state trading has not been outlawed altogether or even discriminated against under the GATT/WTO regime. Instead, WTO agreements try to prevent the above-mentioned circumvention by incorporating a number of provisions with explicit reference to STEs.