Distortionary Effects of State Trading in Agriculture: Issues for the Next Round of Multilateral Trade Negotiations

Abstract

The Uruguay Round agreements on agriculture were intended to move member countries toward a fair and market-oriented agricultural trading system. But in practice, state trading enterprises with monopoly power or exclusive rights in agricultural trade in major products still prevail in many countries. And significant price distortions still exist in trade in products subject to state trading.

The Uruguay Round agreements on agriculture were intended to move member countries toward a fair and market-oriented agricultural trading system. By progressively reducing domestic government support and export subsidies, converting nontariff barriers to tariffs, and reducing barriers to market access, members were committed to reducing distortions in world agricultural trade and in preventing new distortions from arising.

But state trading enterprises with monopoly power or exclusive rights in agricultural trade in major products are still prevalent in both industrial and developing countries. In many countries, the operations of these state trading agencies tend in practice to nullify the intended objectives of the concessions on market access reached in the Uruguay Round. And there are still significant price distortions in trade in products subject to state trading.

This paper - a product of the Development Research Group - is part of a larger effort in the group to evaluate the progress of trade liberalization and their effects on developing countries.

Keywords: State trading, distortionary effects of STEs