Home > State Trading and International Trade Negotiations

State trading is a topic which evokes radically different reactions from different people. Some see state trading as inconsistent with a liberalized trading environment. For example, Sir Leon Brittan commented:

"I should at this point raise a related issue concerning state, in other words, where a government has a special right to a designated corporation to import or export or to distribute certain goods . . . I think that, if we are to look at international competition rules seriously, the time is ripe to consider whether this antiquated form of monopoly trading can be phased out altogether."

At the other end of the spectrum are those who feel that such institutions are essential for producers in markets dominated by a small number of multi-national traders. Representative of these views are two Australian wheat producers who writing in The Land, an Australian periodical claimed:


"If the export market were deregulated, we would lose a great deal of our clout. The world market is not a level playing field and without a single desk we would be depowering a valuable marketing arm . . . export market deregulation would give a dangerous amount of market influence to large multi-national traders. They could force down the market price to suit their own mean."
HISTORIC CONTEXT

With the advent of another round of multilateral trade negotiations, there is a renewed interest in state trading. The issue has existed as long as the GATT itself. The Havana Conference on Trade and Employment on March 24, 1948 was to have established the International Trade Organization (ITO). At that time state trading had expanded as a result of the war and there were efforts in the drafting of the Havana Charter to include provisions relating to state trading enterprises (STEs). Those drafting the GATT-ITO also recognized that a private firm may have significant market power and that power may be abused.

Therefore, they put into the ITO Draft Charter a whole chapter on "restrictive trade practices". However by 1950, U.S. President Truman withdrew the Havana Charter from congressional consideration and the ITO died as a result. The GATT which had been adopted as a temporary interim agreement in 1947 survived. Although the chapter on restrictive trade practices died with the ITO, most of the provisions on state trading survived as Article XVII (paragraphs I and II) and Article II:4 of the GATT. In 1957, Article XVII was amended to introduce requirements for reporting specified activities and a provision that the contracting parties "recognize" the importance of negotiations aimed toward lessening the level of protection provided by state trading.