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STATE TRADING ENTERPRISES AND ASIA

STATE TRADING ENTERPRISES AND ASIA. Presented by Mr. Johann Human and Prof. Chang-fa Lo Material prepared by Rules Division of WTO Secretariat (1-29) and National Taiwan University College of Law ACWH with the help of Mr. Kea Lee, Ms. Ivy Yu And Ms. Isa Liu (30-103). INTRODUCTION.

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STATE TRADING ENTERPRISES AND ASIA

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  1. STATE TRADING ENTERPRISES AND ASIA Presented by Mr. Johann Human and Prof. Chang-fa Lo Material prepared by Rules Division of WTO Secretariat (1-29) and National Taiwan University College of Law ACWH with the help of Mr. Kea Lee, Ms. Ivy Yu And Ms. Isa Liu (30-103) RTPC-Hong Kong

  2. INTRODUCTION • Why do we need special rules on State Trading Enterprises (STEs)? • Danger that an STE because of its special position may have significant power in a given market • Preservation of principle of comparative advantage • Possibility for governments acting indirectly through STEs to create trade distortion • It would be relatively easy for Members to evade their WTO commitments through an STE RTPC-Hong Kong

  3. GENERAL PRINCIPLES • STEs not prohibited by WTO • Enterprise should abide by WTO commitments • Enterprise should operate on the basis of commercial considerations • Objective of WTO: place the STE in the same competitive position as the private enterprise RTPC-Hong Kong

  4. WHAT IS A STATE TRADING ENTERPRISE? • Article XVII describes three types of enterprises: • State enterprises • Enterprises granted exclusive privileges • Enterprises granted special privileges RTPC-Hong Kong

  5. WHAT IS A STATE TRADING ENTERPRISE? • Clarification in the WTO understanding – definition of STE: • Governmental and non-governmental enterprises • Granted exclusive or special rights or privileges • In exercise of which they influence through their purchases / sales the level / direction of imports / exports • Not necessary to be state-owned or have a monopoly • No STE prohibited if complying with WTO rules RTPC-Hong Kong

  6. PROBLEMS WITH THE DEFINITIONS • Differences in scope • State enterprise (ownership), exclusive rights and privileges (activities), influence on imports exports (trade distortion) • Which definition controls? • Substantive disciplines vs. notification obligation RTPC-Hong Kong

  7. OBJECTIVES OF STEs • Various objectives among them • income support for domestic producers • price stabilization • expansion of domestic output • continuity in domestic food supply • increase in government revenue, or decrease in government spending RTPC-Hong Kong

  8. OBJECTIVES OF STEs • Various objectives among them • rationalization and control of foreign trade operations • protection of public health and strategic control; • management of important domestic resources; • fulfilment of international commitments on quantity and/or price; • administration of quantitative restrictions RTPC-Hong Kong

  9. TYPES OF STEs • Statutory marketing boards • Export marketing boards • Regulatory marketing boards • Fiscal monopolies • Foreign trade enterprises • Boards or corporations resulting from nationalized industries RTPC-Hong Kong

  10. EXCLUSIVE RIGHTS OR PRIVILEGES • Examples of exclusive rights or privileges and STE activities: • Monopoly importer • Single desk seller • Statutory power to control imports or exports even if not exercised • Responsibility for issuing import/export licences • Responsibility for administering tariff rate quotas • Responsibility for distribution and/or pricing of imports • Intervention purchase sales • Preferential access to foreign exchange • Stocking of strategic/agricultural goods RTPC-Hong Kong

  11. WTO RULES ON STEs • Article XVII of GATT • Basic obligations for Members using STEs • Understanding on the Interpretation of Article XVII: • Clarifies the provisions of Article XVII and closes the “loophole” • Defines “STE” • Establishes a working party RTPC-Hong Kong

  12. REGULATION OF STATE TRADING ENTERPRISES IN THE WTO • Other Articles in GATT • Articles II, XI, XIII, XIV, XVIII, XX, and XXXVII • Agreed interpretations of these Articles - “interpretative notes” RTPC-Hong Kong

  13. GENERAL EXCEPTIONS - ARTICLE XX(d) of GATT 94 • Exempt from general WTO rules: • “Laws or regulations . . . relating to . . . the enforcement of monopolies operated under Articles II and XVII of GATT 94” • Provided that such measures are not discriminatory or a disguised restriction on international trade RTPC-Hong Kong

  14. WHICH ARE THE FUNDAMENTAL WTO PRINCIPLES STEs MUST FOLLOW? RTPC-Hong Kong

  15. WTO OBLIGATIONS CONCERNINGSTEs • Four main rules based on fundamental GATT / WTO principles: 1. Non-discrimination 2. No quantitative restrictions (on imports or exports) 3. Preservation of the value of tariff concessions 4. Transparency RTPC-Hong Kong

  16. NON-DISCRIMINATION • Members undertake that STEs shall act in a manner consistent with the principle of non-discriminatory treatment • All decisions to be based on “commercial considerations”: Price, Quality, Availability, Marketability, Transport, Other conditions of purchase or sale • Must allow other Members to compete freely for purchases or sales • “Tied loan” qualifies as a commercial consideration RTPC-Hong Kong

  17. NON-DISCRIMINATION • Non-discrimination = MFN principle tempered by commercial considerations • Scope of the non-discrimination principle • Non-discrimination principle does not apply to imports for governmental use • Differential prices for exports are not prohibited • MFN (Art. I) and National Treatment (Art. III) • Negotiating history • GATT panel reports (Belgian family allowances, Canada - FIRA, Canada - Provincial liquor board) • Uruguay Round proposal by the US • Korea - Beef RTPC-Hong Kong

  18. NO QUANTITATIVE RESTRICTIONS • Interpretative note to Articles XI, XII, XIII, XIV, and XVIII: • “Throughout these Articles, the terms ‘import restrictions’ and ‘export restrictions’ include restrictions made effective through state trading operations.” RTPC-Hong Kong

  19. NO QUANTITATIVE RESTRICTIONS • Not just because imports are conducted through an STE and there are no imports you have a quantitative restriction (India-Quantitative Restrictions) • Ad Article XI prohibits an STE that enjoys a monopoly on importation and distribution from imposing internal restrictions against the imported products (Korea-Beef) RTPC-Hong Kong

  20. PRESERVATION OF THE VALUEOF TARIFF CONCESSIONS • Article II: GATT schedules of concessions (MA) • Main obligation in Article II.4 • Monopoly on any product must not result in protection greater than what the bound tariff provides • (Means that “import mark-up” charged by the monopoly cannot yield more protection to the domestic industry than the tariff rate does) • Reference to Article 31 of the Havana Charter RTPC-Hong Kong

  21. PRESERVATION OF THE VALUEOF TARIFF CONCESSIONS • “Import mark-up” definition in Ad Article XVII:4(b) • Need to preserve the value of negotiated tariff concessions • Inform Members of import mark-up or of resale price for import monopoly products where there are no concessions • Applies to import monopolies whether or not they are STEs RTPC-Hong Kong

  22. NOTIFICATION • Article XVII, paragraph 4: • Members shall “notify . . . the products that are imported into or exported from their territories by” state trading enterprises • Revised questionnaire developed in 1998 is basis for notification RTPC-Hong Kong

  23. WHAT INFORMATION DOES THE QUESTIONNAIRE SEEK? • Enumeration of STEs • Identify state trading enterprise • List products for which it has exclusive or special rights or privileges • Reason and purpose • State reason or purpose for establishing / maintaining STE • Summarise legal basis for granting exclusive or special rights or privileges RTPC-Hong Kong

  24. WHAT INFORMATION DOES THE QUESTIONNAIRE SEEK? • Description of the functioning of the STE • Give overview of operations of STE • Identify exclusive or special rights or privileges enjoyed by the STE • Other entities engaging in import/export • How are import / export levels established? RTPC-Hong Kong

  25. WHAT INFORMATION DOES THE QUESTIONNAIRE SEEK? • Description of the functioning of the STE • How are export prices determined? • How is the resale price of imported products (“import mark-up”) determined? • Are long-term contracts negotiated by the STE? Is the STE used to fulfil obligations entered into by the government? • Describe market structure RTPC-Hong Kong

  26. WHAT INFORMATION DOES THE QUESTIONNAIRE SEEK? • Statistical information • Provide statistics on quantity and value of imports, exports, and national production for products concerned (Tables I-III) • If no foreign trade has taken place, explain why • Any additional information RTPC-Hong Kong

  27. WHAT HAPPENS ONCE ANOTIFICATION IS MADE? • Frequency of notifications New and Full every two years, with no updating (G/STR/5) • Distribution to all WTO Members as a WTO document • Examination by the Working Party on STE (a standing WTO body) • Additional information from notifying Member if requested RTPC-Hong Kong

  28. WHAT HAPPENS IN THE WORKING PARTY? • Each notification comes before the Working Party for review: • Members may ask questions of the notifying member about the notification • Notifying member may respond orally if possible; if not, a written response may be submitted later • For transparency, all questions and responses are circulated as WTO documents • Possibility of counter-notifications RTPC-Hong Kong

  29. WHAT HAPPENS IN THE WORKING PARTY? • Other tasks mandated by ministers at Marrakech: • Revision of 1960 questionnaire on state trading • Accomplished in 1998 (G/STR/3) • Development of illustrative list of: • Relationships between governments and STEs; • Kinds of activities engaged in by these enterprises • Accomplished in 1999 (G/STR/4) RTPC-Hong Kong

  30. STEs in East and South-East Asian Members RTPC-Hong Kong

  31. The Sources of Data • Accession Report • Notification • Coverage of STEs • Reasons • Functioning • Trade Policy Review Policy RTPC-Hong Kong

  32. Notifications of Asian Members RTPC-Hong Kong

  33. Notifications of Asian Members RTPC-Hong Kong

  34. Notifications of Asian Members RTPC-Hong Kong

  35. STEs in China Accession process of China in 2001: • Some concerns were provided in the accession process of China : • Not sufficient transparency of the STEs; • Governmental influence to the STEs; • The allocation of import quantities of fertilizers and oil products; • Trading right of raw materials in the textile sectors; • Mark-up of agricultural commodities.[1] RTPC-Hong Kong

  36. STEs in China • Pursuant to her Protocol of Accession, China committed: “China shall ensure that import purchasing procedures of state trading enterprises are fully transparent, and in compliance with the WTO Agreement, and shall refrain from taking any measure to influence or direct state trading enterprises as to the quantity, value, or country of origin of goods purchased or sold, except in accordance with the WTO Agreement.” • China also committed that she would observe the obligations of notification pursuant to WTO rules. RTPC-Hong Kong

  37. STEs in China • Import: • 96 items of products are subject to 97 importing STEs. • Products: grain, vegetable oil, sugar, tobacco, crude and processed oil, chemical fertilizer, and cotton. RTPC-Hong Kong

  38. STEs in China • Export: • 142 items of products are subjects to 60 exporting STEs. • Products: tea, rice, corn, soybean, tungsten ore, ammonium paratungstates, tungstate products, coal, crude and processed oil, silk and unbleached silk, cotton, antimony ore, antimony oxide, antimony products, silver, cotton yarn, and woven fabrics of cotton. RTPC-Hong Kong

  39. RTPC-Hong Kong

  40. RTPC-Hong Kong

  41. STEs in China • Reasons: • To ensure thestable supply of the products subject to state trading; • To prevent the interests of the consumers from being affected by drastic price fluctuations in the international market; • To safeguard the food safety of the nation; • To protect the exhaustible and non-recyclable natural resources and the environment. RTPC-Hong Kong

  42. STEs in China • Functioning of STEs • The STEs maintained by both central (e.g. China National Cereals, Oil and Foodstuff Import and Export Co.) and sub-national governments (e.g. Jilin Grain Group Import and Export Co.). • Export and import prices are determined by the STEs themselves. They are usually construed based on the costs and the international markets prices. RTPC-Hong Kong

  43. STEs in China • Functioning of STEs • Domestic procurement price basically is the domestic wholesale price. Delivery terms of domestic procurement usually are same as those generally applied to domestic trade. • In cases where financing is needed, state trading enterprises turn to commercial banks for commercial loans. • Export volumes of STEs are determined taking into account the demand and supply situation in both the international and domestic markets. RTPC-Hong Kong

  44. STEs in India • Export: • 17 enterprises are granted special privileges on export of 36 items of products. • Products: onions and Niger seeds; iron ore, manganese ore, chrome ore, low silica, friable ore, mica scrap, kerosene, rare earths and other minerals; crude oil. RTPC-Hong Kong

  45. STEs in India • Import: • 6 enterprises are granted special privileges on import of 26 items of products. • Products: wheat, and other cereals; urea and ammonium Sulphonitrate; processed oil and fuel oil; vegetable oil. RTPC-Hong Kong

  46. STEs in India • Reason • Export: • For better marketing some agricultural and minor forest products. • For conservation and proper utilization of some ores of metals and rare earths • Import: • Agricultural products: to support small farmers and to ensure food security. • Petroleum products: to maintain a system of cross subsidisation of fuels. • Fertilizers: to ensure the availability for farmers. RTPC-Hong Kong

  47. STEs in India • Functioning • The Indian Export and Import Policyrequires that any listed good may be imported or exported by the STEs subject to the conditions specified therein. • The Director General of Foreign Trade may grant a licence to any other person to import or export any of these goods. RTPC-Hong Kong

  48. STEs in India • Functioning (Export) • Onion, Niger bean and other forest produce: • Minimum price system of onion is maintained by STEs • STEs provide marketing assistance to poor tribes. • Minerals and ores: • Prices of iron ore may be fixed under long-term contracts. • Quantities available for export of minerals are restricted keeping in view of the domestic requirement as well as the need to conserve exhaustible natural resources. RTPC-Hong Kong

  49. STEs in India • Functioning (Import): • Agricultural products: Domestic and int’l prices as well as supply conditions are the main determinants of quantities of imports. • Fertilizers: The STE imports or procures domestically keeping in view of the int’l prices, the domestic demand and the necessity of assured supply to farmers. • Petroleum products: India imports a major portion of its requirements, with the STEs following the normal commercial practices. RTPC-Hong Kong

  50. STEs in India • In Trade Policy Review in 2002, the Paper of Secretariat stated that: “Since the last Review of India [in 1998], there has been a significant reduction…of products subject to state-trading, mainly involving edible oils, seeds, and some petroleum products…. The value of imports by state trading companies… has been declining, and was estimated to be some Rs 55 billion in 2000/01 (2% of merchandise imports, down from 19% in 1996/97); the main import was petroleum, which accounted for around 98% of all imports by state trading companies.” • India stated that the condition of export of kerosene and LPG through STE has also been removed. RTPC-Hong Kong

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