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Introduction

A State Trading Corporation (STC) can be defined as a government-owned or controlled firm

which generally engages in procurement of important raw materials and/or export of

commodities and merchandise.

State trading is more prevalent in agriculture than in other industries because many countries use

State Trading Enterprises (STEs) as a means to achieve policy objectives such as domestic price

support, efficiencies in agricultural marketing, and affordable food supplies for low-income

populations. STEs account for significant shares of world trade in grains, dairy products, and

sugar.

In 1995 and 1996, more than 30 countries notified the World Trade Organization (WTO) of

almost 100 agricultural enterprises or other agricultural organizations that could be defined as

State Trading Corporations. Some of the largest export STEs reported to the WTO is in

Australia, Canada, Indonesia, Japan, South Korea, and New Zealand. Countries seeking

accession to the WTO (like China) also control their agricultural trade through STEs.

STEs are government or private enterprises that have been granted special or exclusive privileges

by their governments, such as exclusive trade authorities and government underwriting of

operational costs. The special domestic market, trade, and financial authorities allow STEs to

influence, through their purchases or sales, the level or direction of trade in their commodities.

STE activities affect trade by influencing domestic and international prices. An STE that restricts

imports into a country will have an effect on the domestic price just like that of an import tariff.

Similarly, an STE that expands exports will have an effect on domestic price that resembles an

export subsidy. Several factors influence the tariff/subsidy equivalents associated with an STE,

including its degree of control over the domestic market, its policy objectives, the extent of its

international market power, and its range of authorities and government support.te Trading

1.1 State Trading Corporation in India

State Trading Corporation of India Limited (STCL) is an international trading company owned

by Government of India. The company is involved in the export, import and domestic trading of

a range of products, both agricultural and non-agricultural commodities. They export food

grains, castor oil, coffee, cashew and tea and imports bullion, vanaspati and edible oils, pulses,

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hydro-carbons, metals and minerals and fertilizers. It was set up in 1956 primarily with a view to

undertake trade with East European Countries and to supplement the efforts of private trade and

industry in developing exports from the country. The Corporation is registered as an autonomous

company under the Companies Act, 1956 and functions under the administrative control of the

Ministry of Commerce & Industry, Government of India.

The company has one subsidiary, namely STCL Ltd (formerly known as Spice Trading

Corporation of India Ltd). As its trading activities have diversified a number of subsidiary

corporations, namely handicraft and handloom export corporation of India ltd. Projects and

Equipment Corporation of India Ltd., India Motion Pictures, Export Corporation Ltd., State

Chemicals and Pharmaceutical Corporation of India Ltd., Cashew Corporation of India Ltd. have

been formed to look after the specific areas of trading operations. The state trading corporation

has opened offices in many countries of the world so as to enable it to make effective marketing

and obtain better terms of trade. State Trading Corporation had 13 branch offices in India as of

March 31, 2012. During the year early years, the company dealt with the East European

countries, but now they trade with almost all the countries of the world. The company was

developed vast expertise in handling bulk international trade. During the year 1994-95, the

company started trading items rice, wheat, coffee, Indian-made foreign liquor, sandalwood and

oil and during the year 1995-96, they entered into new area of business like direct import of

fertilizers, non-ferrous metals and kerosene oil. In domestic trading, they expanded their

activities in areas like rice, wheat, coffee, cashew, tobacco and rubber. During the fiscal year

ended March 31, 2012 (fiscal 2012), the Company entered into a number of new areas of

business, such as stock and sale of soya seed, mustard seed, desi chana and retail sale of State

Trading Corporation brand tea in domestic market.

1.2 Functions

The Main Functions of the State Trading Corporation are:

1. To explore new markets for existing as well as new products.

2. To promote exports ‘difficult to sell’ items and promotion of long-term export operations.

3. To diversify and increase India’s export trade.

4. To undertake exports and imports where bulk handing is advantageous.

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5. To undertake import and /or internal distribution of commodities in short supply with a view

to establishing prices and rationalizing distribution.

6. To hold or assist in holding exhibitions in India and elsewhere of the products and articles in

which the company is interested.

The STC is also acting as an agent of the Government of India is controlling production,

distribution and export and import of a number of commodities such as cement fertilizers etc.

1.3 Objectives

1. To arrange for exports where bulk handling and long term contracting are advantages.

2. To promote the production of non-traditional items and open up new fields for the export of

traditional items.

3. To provide development finance for the production of export-oriented goods and boost exports

of small-scale sector.

4. To facilitate bulk purchasing for bulk selling abroad.

5. To undertake internal trade as and when the situation warrants it and to ensure adequate and

regular supplies at reasonable prices of essential commodities to meet local demand.

6. To facilitate the implementation of trade agreement and bilateral deals.

7. To organize production to meet export demands and to help production units to overcome

difficulties of raw materials and other essential requirements.

8. To act as a vehicle for the implementation of government trade policies and trade plans.

9. To undertake price support operations to support operations to protect the interest of growers.

10. To organize and affect exports from and imports into India of all such goods and commodities,

as the corporation may, from time to time, determine.

11. To organize and affect the purchase, scale and transport of such general trade in such goods

and commodities in India and abroad.

12. To do all such other acts and things, this may be helpful in achieving the above objectives.

13. Exploration of new markets for existing and new products, expansion and diversification if

India’s export trade and promotion of long term export operations and difficult to sell item are the

specific objective in relation to export promotion.

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1.4 State Trading Corporation and the Indian Economy

The Corporation has played a key role in the Indian economy. In the pre-liberalization era, it

acted as an arm of the Government of India not only to regulate foreign trade but also for

intervention in the domestic market. The Corporation handled canalized exports and imports of

large number of items varying from chemicals and drugs to bulk commodities such as edible oils,

cement, sugar, newsprint, wheat, urea, etc. thereby ensuring timely availability and equitable

distribution of mass consumption items as well as essential raw materials for the industry.

Canalization also helped the nation to benefit from economies of scale and keeping a close watch

on the scarce foreign exchange. It undertook price support operations to ensure remunerative

prices to growers for their crops such as raw jute, shellac, tobacco, rubber and vanilla as and

when called upon by the Government to do so. As part of its export development effort, STC

extended technical, marketing and financial assistance to exporters by arranging import of

machinery and raw material for export production, setting up design centers, providing testing

laboratories, taking products of small manufacturers to overseas markets by organizing their

consortia, participation in exhibitions and trade fairs, etc.

1.5 Company History

1956 - The Company was incorporated as a private limited company on 18th May, 1956 and

converted into a Public Ltd. Company on 31st January 1992. The Corporation was formed to

organize and affect exports from and imports into India of all such goods and commodities as it

may from time to time determine. The company has been entrusted with purchase, import and

distribution of cement as well as purchase and sale of imported cars. It also undertakes price

support and buffer stock operations in specific commodities as directed by Government.

1959 - 1, 00,000 shares subscribed for by the Government of India.

1963 - On 26th September, the State Trading Corporation was bifurcated by the establishment of

the Minerals and Metals Trading Corporation of India, Ltd. The new Corporation took over all

the assets and liabilities pertaining to the minerals and metals trade as on 1st October.

1969 - 3, 00,000 bonus shares issued.

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1975 - 5, 00,000 bonus shares issued.

1977 - 2, 00,000 bonus shares issued.

1978 - 3, 00,000 bonus shares issued.

1992 - The Company was nominated by the Govt. of India as its agency for sale of 47000 MTs

of crude degumming solvent extracted soya bean oil received under the auspices of USAID. The

Corporation entered into MOUs with a few selected industrial houses for making available to the

Corporation, their products for exports. STC was to render their marketing assistance. A Trade

Development Cell (TDC) was set up with the intention of developing non-canalised trade

including merchanting trade. Tea Trading Corporation of India Ltd. is the only subsidiary of the

corporation. The Cashew Corporation of India Ltd. (CCI), wholly owned subsidiary of STC was

merged with the Corporation as per notification dated 21st April. The Corporation has introduced

link, barter and parallel deals as an instrument of export promotion to augment exports and arrest

the downward trend in the export of certain commodities to specific destinations. Equity shares

subdivided on 31.1.1992. 150, 00,000 bonus shares issued in prop. 1:1.

1993 - The Corporation sold the oil recently from crushing operations under its own brand name

"Ragini" and "Darpan".

1994 - The Corporation entered into an agreement with COMARK, a multistate cooperative

federation of about 3000 coffee growers for handling their entire exports and part of domestic

marketing. As on 31st March, the Corporation, had disinvested 23, 93,200 shares to various

Mutual Funds/Financial Institution comprising 9% of the equity capital of the Corporation. The

Corporation decided to enter into joint venture in order to develop captive supply source for

exports. Five projects in the area of core competence viz. aquaculture, footwear, mushrooms, and

bio-technology were identified.

1995 - With a view to developing captive sources supply for exports, the Corporation entered

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into joint ventures with two aqua culture units - Bluegold Maritech International Ltd. &

Richfield Aquatech Ltd. Also, the Corporation finalised three more joint ventures two in the field

of grey fabrics and one in mushrooms involving a total investment of Rs 4 crores.

1996 - The STC ventured into import of gold/silver and export of jewellery in terms of present

export/import policy. It has set up vaults at New Delhi, Mumbai & Ahmedabad. The Company

entered into a MOU with Srilanka Pharmaceuticals Corporation (SPC) Colombo by which STC

would act as the modal agency for their purchases of drugs and pharmaceuticals from India.

Another MOU was entered into with Haffkeme Bio Pharmaceuticals, Mumbai by which STC

would act as the sole exporting arms of all Haffkeme products especially serums and vaccines; A

distributor was appointed at Turkey for serums and vaccines manufactured by Haffkeme.

2002- STC ties up with Power Finance Corporation to reduce the end cost of power.

2003- STC appoints Mr A S Arora, AS&FA, Ministry of Commerce as Part time Director on the

board of the company.

2005 -STATE Trading Corporation of India Ltd (STC) has signed a MoU with the Commerce

Ministry for 2005-06 to indicate its physical targets and other performance parameters for the

next fiscal.

2006- Government permits STC to export 1.5 lakh sugar STC to roll out regional brands

2008- The Company has issued Bonus Shares in the Ratio of 1:1.

2010- State Trading Corporation of India Ltd has informed BSE that Government of India,

Ministry of Commerce and Industry, Department of Commerce Vide its order dated January 13,

2010 has appointed Shri P. K. Chaudhery, Additional Secretary, Department of Commerce as

Director on the Board of STC with immediate effect vice Shri R. Gopalan.

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2011-Shri Udai N. Abhyankar, Former IFS Officer Board of Director of The State Trading

Corporation of India Ltd.

2012 -39th rank in terms of net sales among Top 500 Companies by Financial Express

(Feb’2012). Won award for Gentle Giant Miniratna - I (Largest Non-Manufacturing Company)

at the Third DSIJ PSU Awards 2011 ceremony held at New Delhi. It was honored rank 32 in

terms of net sales among Top 1000 Companies by Business Standard (Mar’2012).

Press Information Bureau

Government of India Ministry of Commerce & Industry

18-April-2013 14:17 IST

India’s Foreign Trade: March, 2013

Exports (including re-exports)

Exports during March, 2013 were valued at US $ 30849.65 million (Rs. 167836.31 crore) which

was 6.97per cent higher in Dollar terms (15.65 per cent higher in Rupee terms) than the level of

US $ 28839.36 million (Rs. 145123.41 crore) during March, 2012. Cumulative value of exports

for the period April-March 2012 -13 was US $ 300570.58 million (Rs 1635261.02 crore) as

against US $ 305963.92 million (Rs 1465959.40 crore)registering a negative growth of 1.76 per

cent in Dollar terms and growth of 11.55 percent in Rupee terms over the same period last year.

Imports

Imports during March, 2013 were valued at US $ 41164.71 million (Rs.223954.98 crore)

representing a negative growth of 2.87 per cent in Dollar terms and a growth of 5.01 per cent in

Rupee terms over the level of imports valued at US $ 42380.68 million ( Rs. 213265.08 crore) in

March, 2012. Cumulative value of imports for the period April-March, 2012-13 was US $

491487.22 million (Rs. 2673113.08 crore) as against US $ 489319.50 million (Rs. 2345463.25

crore) registering a growth of 0.44 per cent in Dollar terms and growth of 13.97 per cent in

Rupee terms over the same period last year.

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Crude oil and Non-Oil Imports

Oil imports during March, 2013 were valued at US $ 13327.1 million which was 16.56 per cent

lower than oil imports valued at US $ 15972.4 million in the corresponding period last year. Oil

imports during April- March, 2012-13 were valued at US $ 169253.0 million which was 9.22 per

cent higher than the oil imports of US $ 154967.5 million in the corresponding period last year.

Non-oil imports during March, 2013 were estimated at US $ 27837.6 million which was 5.41 per

cent higher than non-oil imports of US $ 26408.3 million in March, 2012. Non-oil imports

during April - March, 2012-13 were valued at US $ 322234.2 million which was 3.62 per cent

lower than the level of such imports valued at US $ 334352.0 million in April - March, 2011-12.

Trade Balance

The trade deficit for April - March, 2012-13 was estimated at US $ 190916.64 million which was

higher than the deficit of US $ 183355.58 million during April -March, 2011-12.

1.6 Major Deals

During the year 2001-02, the company entered into sugar export business after a gap of two

years and exported sugar to Sri Lanka, Indonesia and Sudan. During the year 2002-03, the

company's entire shareholding in Tea Trading Corporation of India Ltd was transferred to

Projects & Equipment Corporation, a public sector undertaking under the Ministry of Commerce,

at a notional price of Re 1 with effect from April 28, 2003. During the year 2003-04, the

company signed a Memorandum of Understanding with India Household and Healthcare Ltd, the

sole licensee LG Care, Korea in India, in which the company imports LG Care, FMCG products

like detergents, soaps, shampoos, tooth pastes, cleaning products, hair gels etc at different ports

for distribution all over India by IHHL. During the year 2004-05, the company signed a

Memorandum of Understanding with Mysore Minerals Ltd for export of iron ore fines on 50:50

profit sharing basis. Also, the company forayed into import of FMCG Goods and IT products.

During this period, the company launched retail sale of imported gold coins in denominations of

5 gm and 10 gm from their corporate office building at New Delhi. During the year 2005-06, the

company entered into domestic supply of various raw materials such as iron ore, steel, coke,

chemicals, etc. they executed the highest ever contract (Rs 800 crore) for supply of 1.9 million

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MTs of thermal coal to NTPC during the year. The company also entered into oilseeds market

and purchased soya bean and mustard seeds worth Rs 29 crore.

The Corporation also procured, for the first time, about 10,000 MT of castor seeds valuing Rs 15

crore for sale in the domestic market. During the year 2007-08, the company signed an offset

agreement with CFM, Boeing and GE for monitoring offset obligation of USD 69 million, 1.25

billion and 100 million respectively. They acquired a plot of land at Paradip port for facilitating

iron ore exports a plot of land at Paradip port for facilitating iron ore exports and also applied for

allotment of plot at Haldia Port. The company started tea operations in Nilgiri district of Tamil

Nadu. They also launched domestic sale of tea in own brand 'Tohfa' to Gujarat State Civil

Supplies Corporation for supply through PDS. During this period, the company signed a MoU

with company specializing in Research & Development activities on improving the yield of

Jatropha plants for production of bio-diesel. The company is in the process of starting trial

cultivation of bio-engineered, high yielding of jatropha in Namibia on an area of about 25

hectares. They are in talks to grow crop in Indonesia as part of a move to raise output of the bio-

diesel feedstock. The company through their subsidiary STCL Ltd set up a Chilli Processing

plant at Byadagi in Karnataka. They also set up two more plants for pepper processing and Chilli

Sterlisation in Siddapur, Karnataka and Chhindawara, Madhya Pradesh respectively. The

company in a joint venture with NAFED and STCL Ltd is setting up a Food Testing Laboratory

at Chindwara in Madhya Pradesh.

Awards

The company got second rank among trading companies of India and achieved first runner up

position in the Multi Category sector under the large exporters' category for the D&B-ECGC

Indian Exporters' Excellence Awards. The company was selected for Memorandum of

Understanding Excellence Award for the year 2006-07 by the Department of Public Enterprises.

Also, the company was awarded 'International Trade House of the year Award (2007-08)'

sponsored jointly by DHL and CNBC TV18.

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COMMODITIES

2.1 Agro- Commodities

Grains

International trading in food grains and other products has been one the major activities of the

State Trading Corporation, since its inception.

Wheat

The State Trading Corporation’s import / export of wheat depend upon the Government of India

regulations and policies. State Trading Corporation is exporting wheat from Food Corporation of

India (FCI)/Central Pool Stock since August 2012 from Mundra, Chennai and New Mangalore

Ports. A quantity of about One Million mega tonnes of Indian milling wheat has been exported

during Financial Year 2012-13. The exports are made by initiating global bids. Destination ports

to which exports were made during 2012-13 include Bangladesh, UAE, Qatar, Malaysia,

Tanzania, Mozambique, South Korea, Djibouti, Philippines, Thailand and Indonesia etc. meet

domestic shortages. During 2006-08, the State Trading Corporation imported about 6.8 million

tons of wheat on behalf of the Government of India to meet domestic shortages.

The wheat imported by State Trading Corporation is also required to satisfy phytosanitary

requirements, insecticides and pesticides limits, weed seed limits and other quality parameters.

World Report on State Trading of Wheat

State traders are important players in the world wheat market. STEs account for roughly 40

percent of world wheat exports. From 1993-94 through 1997-98, two large STEs, the Australian

and Canadian Wheat Boards handled 32 percent of global wheat exports. The governments of

Poland and other Central European countries (which held a 3 percent share of world exports)

authorize their STEs to export subsidized wheat, but private traders also can export wheat.

Kazakhstan, which held a 4 percent share of world wheat exports from 1993-94 to 1997-98, used

an STE, the State Food Contract Corporation, as its sole export agency, but opened trade to

private firms in the 1990s. The State Food Contract Corporation continues to handle

government-to-government transactions, about 60 percent of Kazakhstan’s wheat exports, while

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large private grain producers and traders handle the remaining 40 percent of Kazakhstan’s

exports.

The other two large wheat exporters, the United States and the European Union (EU), accounted

for 31 and 17 percent, respectively, of world wheat exports. Neither uses an STE to export

wheat, but both countries governments have regulated their wheat exports. The United States

maintains a government corporation, the Commodity Credit Corporation (CCC), which it

reported to the WTO Council on Trade in Goods in 1995 and 1996, including lists of the

programs which it administers and the commodities procured and exported under its programs.

The United States also reports its export subsidies to the WTO Committee on agriculture in

accordance with its commitments to cap and reduce export subsidies under the Uruguay Round

Agreement on Agriculture. The CCC operates as the financing agent for U.S. export programs,

including the Export Enhancement Program (EEP), which operated for wheat from 1985 through

1995. Under the EEP, the CCC paid generic certificates redeemable for commodities in CCC

inventories (until November 1990) and cash bonuses (after November 1990) to private exporters,

allowing them to sell wheat to targeted countries at prices below the exporters costs of

acquisition. The CCC did not itself export the wheat. The EU continues to approve export

subsidies to private sector exporters through the European Commission, Grains Management

Committee, which also issues orders for the export of grains from intervention stocks in EU

member countries.

Average for 1994-97 marketing years

Kazakhstan (3.0%)

East Europe (3.0%)

Others (6.1%)

Argentina (8.1%)

Australia (13.1%)

Canada (20.2%)

Wheat exports (Source: USDA, Economic Research Service).

EU (16.2%)

U.S. (30.3%)

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STE imports account for between one-third and one half of 1993-94-1997-98 global wheat

imports. Twelve countries account for just over half of world wheat imports, which are far less

concentrated than exports.

China and Japan import wheat through monopoly agencies, while STEs in Egypt, Morocco,

Pakistan, Turkey, the Eastern European countries, and others co-exist with private traders.

Indonesia Badan Urusan Logistik (BULOG) opened trade in wheat to private traders in 1998,

following in the footsteps of Israel, Mexico, the Republic of South Korea, the Philippines, and

others who opened their wheat imports to the private sector in the 1980s and 1990s. Algeria state

import agency has been an import monopoly in the past, but recently began to allow private

traders to import wheat. Pakistan banned private sector imports in June 1999 after allowing

private firms to import since late in 1991.

Rice

The STC is a regular supplier of rice to various destinations in Africa, Middle East, South East

Asia, Caribbean countries etc. However, export of rice is subject to Government of India

regulations and policies. In the recent years, the STC has exported large tonnage of rice to

Bangladesh, Myanmar, Madagascar and other African and South East Asian countries. STC also

supplies Rice under the World Food Programme.

World Report on State Trading of Rice

Rice, a staple food commodity for many Asian countries, is heavily regulated by government

policies to restrict exports and imports, which STEs often administer. STEs account for about

half of world rice exports and nearly a third of rice imports. Private traders export rice from

Thailand, the largest rice exporting country with over one-quarter of world rice exports, but rice

exports from Vietnam, the second largest rice-exporting nation (14 percent share of world

exports from 1994 through 1998), are handled by state agencies and are restricted by the

Government of Vietnam. Rice producers in New South Wales, Australia, use an STE to export

their rice, and the Chinese Government controls rice exports. Australia and China have global

rice market shares of 3 and 6 percent, respectively. Imports by Indonesia’s BULOG accounted

for 12 percent of world rice imports from 1994 through 1998. BULOG lost its exclusive

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authority to import rice in 1998, but continues to import rice as needed. Other import-oriented

rice STEs are the Philippines’ National Food Authority (4 percent of world imports), China’s

China National Cereals, Oils and Foodstuffs Corporation (COFCO) (4 percent), the Iranian

Government (5 percent), and Malaysia’s Bernas (3 percent).

Pulses:

India is a regular importer of pulses. STC undertakes import of pulses under various schemes of

the Government of India as announced from time to time for supply to state governments and / or

sales in the open market also imports on commercial account. State Trading Corporation imports

various types of pulses like black mapte, green moong, chick peas, dun peas, lemon tur, yellow

peas, etc. In addition, the imported pulses need to comply with Indian Phytosanitary Norms and

should be free from live infestation.

Oilseeds and Extractions

STC purchases various oilseeds from Mandies (wholesale markets) at the time of harvesting.

These are either sold back in the domestic market at an appropriate time or are crushed by taking

the crushing capacity on lease. The extractions are exported while the oil is sold domestically.

The seeds/oils in which STC deals include Soya bean, Sesame, Ground Nut, Rape seed and

Mustard seed.

Coarse Grains

Maize

The STC imports significant quantities of maize (for popcorn) under Tariff Rate Quota (TRQ)

based on specific requests received from actual users from time to time.

Tea

The STC has been in tea business for more than three decades. Presently, tea operations of STC

are centralized at Coimbatore / Bangalore Branch. The entire tea operation viz purchase of

leaves, processing, blending, storage, inspection and dispatch is monitored and inspected by

experienced professionals to maintain high standards of quality and freshness. The tea produced

by STC is sold in the domestic markets and is also exported. The STC has also forayed into retail

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sales by launching the retail packets of tea in 250gms under the brand “State Trading

Corporation Tea” for sale in domestic market. The distribution is being expanded to Karnataka,

Andhra Pradesh & Kerala, the response is very good. A retail outlet for selling tea in retail

packing was also opened in the office premises of State Trading Corporation Bangalore. The

Corporation also plans to expand the operations in North India and in other states by supplying

North-East Tea.

2.2Precious Metal

Bullion

The STC is one of the agencies nominated by the Government of India to import gold, silver and

other precious metal into the country. The STC imports Gold in 100gms and 1 Kg bar from

LBMA members as well as silver for traders / jewelry manufacturers.

Typical Specifications for Gold & Silver:

2.3Mineral and Metal Ores:

The STC has been regularly importing various types of mineral ores and concentrates into India

to meet the requirements of actual users in the country.

Iron Ore

The STC exports Iron ore to various clients mainly based in China and East Asia.

Coal and Coke

The STC is a regular and large importer of coal and coke. The coal is supplied mainly to power

generation companies like NTPC, GSECL, APGENCO, NALCO, TNEB etc. It has imported

27.15 Million Metric Tonnes of Coal & Coke valued Rs 16,869 crore in the past few years.

GOLD SILVER

Ten Tola Bars

1 kg Bars

Purity : 0.995, 0.999

15 kg

28 kg to 31 kg

Purity : 0.9999

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2.4 Fertilizer

Urea Fertilizer Grade

The STC as one of the nominated canalizing agencies is regularly importing Urea on behalf of

the Department of Fertilizers, Ministry of Chemicals & fertilizers, Government of India by

issuing the global tenders. In last three years STC has imported 4 Million Tonnes of Urea valued

at Rs 8500 crores.

Technical Grade Urea

The STC supplies Technical Grade Urea as an industrial chemical to various industries i.e. actual

users as well as Indian traders who have valid authorization for such imports from Department of

Fertilizers. These imports are done based on (i) Back to back basis, or (ii) Through limited

tenders issued to STC’s empanelled Associate Suppliers.

2.5 World Report on State Trading in Other Grains

The profile of world barley exporters closely resembles that of world wheat exporters, although

the United States holds a much smaller share of world barley trade. The Canadian Wheat Board

and Australian state-level STEs handled 38 percent of world barley exports from 1993-94

through 1997-98. Other smaller exporters (the Eastern European countries, Russia, Syria, and

Turkey) exercise some degree of state control over their barley exports. The U.S. and EU barley

export regimes are similar to those countries export arrangements for wheat. The EU, the largest

barley exporter, held a 30-percent share of world barley exports over the 5 year period, while the

United States accounted for only 8 percent of world barley exports. STEs in China and Japan

held 10 and 9 percent, respectively, of world barley imports over the same period.

The EU Commission has the exclusive right to determine the amounts of export subsidies,

without which exports of wheat cannot take place; to authorize sales from intervention stocks;

and to grant export and import licenses required for trade of some commodities.

However, the Grains Management Committee does not directly purchase or sell commodities.

Intervention agencies in EU member countries, acting as agents of the Commission, purchase

products for intervention and sell them with the authorization of the Commission. Private traders

carry out all exports and imports. The EU also agreed to reduce its export subsidies for wheat

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and other commodities under its URAA export subsidy commitments.

A STE that is the sole importer for its country is classed as a monopoly. If the STE is an

importer, but private firms also are allowed to import, the import arrangement is termed

“coexists”. If imports are conducted by private firms only, the import arrangement

is “private”. The coexists category can be applied to many countries where trade has been

opened to private trade, but where the STE may import under certain conditions.

Ex. Japan allowed private firms to import feed wheat through a simultaneous buy-sell tender

system in the Japanese 1999-2000 (April/March) fiscal year. It opened import tenders for feed

barley to private importers for the first time in 1999.

Ex.Indonesia terminated Badan Urusan Logistik (BULOG), Indonesia’s import STE, monopoly

import authorities over several agricultural commodities in September 1998.

Ex. Pakistan opened trade to the private sector in 1991, but government pricing policies

restricted trade until 1998, when the private sector imported 1 million tons of wheat. However, in

June 1999, Pakistan imposed a ban on private sector wheat imports.

Ex. Saudi Arabia’s Grain Silos and Flour Milling Organization (GSFMO) handled 27 percent of

world barley imports from 1993-94 through 1997-98. Saudi Arabia allowed private traders to

import barley for the first time in 1998.

World Report on State Trading of Dairy Products

The chief dairy export STE, the New Zealand Dairy Board, handles about 30 percent of world

dairy product exports. Smaller dairy export STEs, the Australian Dairy Corporation, the

Canadian Dairy Commission, and the Polish Agricultural Marketing Agency handle some, but

not all, of their country’s exports. The largest dairy exporter, the EU, does not use an STE to

export dairy products, but the EU Commission administers export subsidies for private sector

sales of dairy products, particularly butter, milk powder, and cheese. Mexico’s Compania

Nacional de Subsistencias Populares (CONASUPO) largely handled Mexico’s milk powder

imports, which accounted for about 31 percent of global nonfat dry milk imports from 1993

through 1997, until private firms began to import large quantities of milk powder in 1998. After

announcing that it would close National Company of Popular Subsistence (CONASUPO) on

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March 31, 1999, the Mexican Government permitted another federal agency, LICONSA, to

import milk powder for the government’s social programs, and began auctioning import permits

for milk powder to the private sector July 7, 1999. U.S. private firms export U.S. dairy products,

although the CCC exported dairy products from its inventories prior to 1996. The CCC also

continues to approve direct export subsidies on sales of eligible dairy products under the Dairy

Export Incentive Program (DEIP).

World Report on State Trading of Sugar

Governments heavily regulate the pricing, marketing, and trade of sugar, although STEs are not

the sole administrators of national policies, and the STE with the largest share of world exports,

the Queensland Sugar Corporation (QSC), is owned by its producers. In addition to QSC, which

accounted for 11 percent of world sugar exports from 1994 through 1998, Cuba (8 percent of

world exports) and Ukraine (4 percent of world exports) also use STEs to export their sugar.

Exporting countries that do not use STEs to administer their pricing policies are the European

Union, Brazil, and Thailand, although the EU and Brazil heavily regulate the pricing and

marketing of sugar. India, a net exporter in some years but a net importer in others, allowed

private firms to export sugar in 1997. Among the much larger number of importing nations,

China uses an STE to import its sugar, as do other smaller importers such as Morocco. The

European Union, Canada, and the United States heavily regulate sugar prices and imports

through tariff-rate quotas, but do not conduct trade through STEs. Indonesia revoked the

exclusive sugar import authorities of its chief agricultural STE, BULOG, in September 1998.

General Imports

State Trading Corporation has been importing various types of equipments / instruments on

behalf of Central and State Government Departments and their entities has also been executing

projects on turnkey basis.

18

Indicative List Of Items / Equipments Being Imported By State Trading Corporation For

Various Central& State Government Ministries & Departments

CATEGORY EQUIPMENTS

Medical Equipments All requirements of Hospitals, Medical Colleges & their

Laboratories.

Police / Security Equipments Pistols, Sub-Machine Guns, Rifles ,Full range of Bomb Disposal

Equipments & accessories, Explosive Detectors, Portable X-rays,

Digital scan, Dust Enlarger, Bullet Proof Jackets, Helmets, Shields,

Fire Arm Training Simulator, Kits and equipments for Finger Print

Bureau, etc.

Intelligence/Surveillance

Equipments

All equipments required for anti-terrorist & smuggling operations,

Bugging Devices, NLJD, Counter Measure Devices

Fire Fighting Equipments Hydraulic Platform & Turn Table Ladders, High Pressure Fire

Pumps, Fire Suits, Breathing Apparatus, etc.

Avionics Helicopters, Planes & their Spare parts.

Laboratory Equipments/

instruments

All Instruments of Forensic Science Labs & Finger Print Bureaus

required for Crime Research, Scanners, X-ray Equipments,

Microscope Analyzers, Laser Systems, Video Cameras, Finger Print

Identification Kits, XRD, etc.

Atomic Absorption Spectrophotometer, U.V. Spectrophotometer,

Ion Selective Analyzer, Infrared Spectrophotometer, High power

Liquid Chromatography, High Power Thin Layer Chromatography,

etc. Equipments for Physics, Biology, Ballistics, Chemistry,

Documentation, Toxicology, DNA Labs and other Divisions.

Tourism Equipments Rafts, Skiing & Mountaineering Equipments & Ski Lifts, Snow

Grooming Machines, Ice Skating & Rink equipments viz., Ice Re-

Surfacer, etc.

Sports Equipments Winter Sport Equipments and Gear, Timing Equipments, Aquatic

19

& Water Sports, Various Equipments for Muscle Durability,

Agility, Flexibility Measurement, Sport Psychology, Sport Tester &

Software etc.

Snow Clearance equipments Various types of Snow Clearance Equipments viz. Snow Cutters,

Snow Ploughs, etc.

Agricultural Equipments All Equipments for Soil Testing Laboratories, Pesticide

Testing and Fisheries (Fish Feed Mill Plants) , Equipments for

Food Testing Laboratories, etc.

Multimedia Equipments Digital Camcorders, Recorders, SLR Cameras, Video Editing

Systems, Broadcasting Tools etc.

Machineries Imported for Jammu & Kashmir

A Snow Plough Imported by State Trading Corporation

for Mechanical Engineering Department, Government

of Jammu & Kashmir clears a road after a heavy

snowfall in Srinagar.

Snow Cutter & Blower Imported by STC for Mechanical Engineering Department,

Government of J & K in action in interior parts of Kashmir.

Import of Arms for State Police Departments

20

Scientific Equipments for Laboratories

Ballistic Items

State Trading Corporation has been supplying Bullet Proof Jackets & Bullet Resistant Helmets to

Security Personnel stationed at vital installations and centers of High importance in India. ISRO

Headquarters, Bangalore, BARC Trombay, Mumbai International Airport, Tarapur Atomic

Power Station in Maharashtra, Rashtriya Ispat Nigam Ltd, SAIL, NTPC, HPCL are our few

esteemed customers. With state-of-the-art manufacturing facilities of our Associate Manufacturer

for Body Armouring solutions i.e. TATA Advanced Materials Ltd, Bangalore State Trading

Corporation has provided customized solutions of Bullet Proof Jackets & Bullet Resistant

Helmets for the end User Departments understanding their threat level perception. With use of

special Composite Solutions, STC along with its manufacturing associate is trying to achieve

more cost effective solutions, meeting the prescribed threat level and saving the lives of Security

Personnel.

State Trading Corporation is also supplying the Customized Ballistic Protection Kevlar Carpet

Kits to TATA Motors for the armored version of TATA Safari which is being supplied to Elite

Forces protecting the lives of VVIPs.

2.7 World Reports on Imports

Japan Food Agency and Indonesia Badan Urusan Logistik (BULOG) topped the list of import-

oriented STEs from 1993 through 1995 at valued more than $1 billion annually on an average.

21

Average Annual Country STE Commodity(ies) import value ($ millions)

Greater than $1 billion:

Japan (Japan Food Agency Barley: wheat, rice)- 2,003

Indonesia (Indonesia Badan Urusan Logistik Garlic, rice, soybeans, sugar, wheat, wheat flour)-

1,335

More than $500 million - $1 billion:

Egypt [Egypt General Authority of Supply Commodities (GASC): Wheat]- 713

Japan (Japan Tobacco Agency Leaf: Tobacco)- 593

$100 million - $500 million:

Korea (Korea Livestock Products Marketing Organization: Beef)- 432

Pakistan (Pakistan Ministry of Food, Agriculture, and Cooperatives: Wheat)- 378

Mexico (Mexico CONASUPO: Milk powder)- 329

Tunisia (Tunisia Grain Board: Wheat, Barley, Maize)- 227

Morocco (Morocco National Sugar and Tea Office Raw sugar)- 125

Malaysia [Malaysia Padiberas Nasional Berhad (Bernas): Rice]- 121

Indonesia terminated Badan Urusan Logistik.s (BULOG) monopoly over imports of garlic,

soybeans, sugar, wheat, and wheat flour and opened imports of those products to private firms in

1998. BULOG imported rice for the first time through an open import tender in September 1998.

Egypt opened imports of wheat to private firms in 1993. GASC handled an estimated 60 percent

of wheat imports in 1997. The LPMO purchased 90 percent of Korea’s beef imports in 1993, 84

percent in 1994, and an estimated 70 percent in 1995. The Korean Government allocated up to

60 percent of the beef tariff-rate quota to private traders in 1998. Pakistan opened imports of

wheat to the private sector in 1991, but government pricing policies restricted private sector

imports until 1998 when the private sector imported 1 million tons of wheat. In June 1999, the

Government of Pakistan imposed a ban on private sector wheat imports. Mexico’s CONASUPO

was a monopoly importer of milk powder until 1998 when the Mexican Government issued

import licenses equal to about 20 percent of Mexico’s milk powder imports to a multinational

firm. The Mexican Government closed CONASUPO on March 31, 1999. The Republic of South

Korea designated 8 STEs to import 18 agricultural products, including beef, citrus fruits, and

rice, under its WTO tariff quotas. STEs for several agricultural commodities also were reported

by Malaysia (rice), the Philippines (rice and corn), and Thailand (potatoes, tea, and tobacco).

22

World Trade Organisation and State Trading Corporation

3.1Countries Reporting to WTO

The largest export-oriented STEs reported to the WTO in 1995 and 1996 were the Canadian

Wheat Board, the New Zealand Dairy Board, the Australian Wheat Board, and the Queensland

Sugar Corporation. The four largest STEs each exported more than $900 million annually of

their designated agricultural commodities between 1992 and 1995. Other export-oriented STEs

marketed grains, dairy products, meats, sugar, fruits, and vegetables. Australia, Canada, New

Zealand, and South Africa reported numerous marketing boards. Australia’s States maintain

marketing boards for commodities such as barley, sugar, and rice, although the Australian Wheat

Board is a federal-level board. Canada reported federal-level marketing boards for grains and

dairy products, as well as numerous provincial-level boards for beer, wine, and distilled liquor.

New Zealand’s farmers also marketed livestock, dairy, and an extensive list of horticultural

products through marketing board.

Average annual Country STE Commodity(ies) export value $ million

Greater than $1 billion:

Canada (Canadian Wheat Board: Wheat, Barley)- 3,213

New Zealand (New Zealand Dairy Board: Dairy products)- 1,805

Australia (Australian Wheat Board: Wheat)- 1,401

More than $500 million - $1 billion:

Australia (Australia Queensland Sugar Corporation: Raw Sugar)- 925

$100 million - $500 million:

Australia (New South Wales Rice Marketing Board: Rice)- 361

South Africa (Unifruco for the Deciduous Fruit Board Apples, apricots, grapes, nectarines,

peaches, pears, plums, prunes)- 286

New Zealand (New Zealand Kiwifruit Board: Kiwifruit)- 237

Turkey (Turkey Soil Products Office: Wheat, Barley)- 194

South Africa (South Africa Maize Board: Corn)- 194

New Zealand (New Zealand Apple and Pear Marketing Board: Apples, Pears)- 192

South Africa (South Africa Citrus Board: Citrus Fruits)- 184

23

Israel (Israel Ornamental Plants Board: Cut Flowers)- 129

Australia (Australian Dairy Corporation Dairy Products)- 128

Countries reported information about their STEs to the GATT and its successor, the WTO, on

the basis of a questionnaire that was adopted in 1960. Reports of STEs, called notifications, are

due to the WTO’s Council for Trade in Goods once every 3 years. After several years of intense

debate in the WTO’s Working Party on State Trading Enterprises, negotiators updated and

expanded the 1960 questionnaire in 1998. Countries were required to follow the revised

questionnaire as they reported their STEs to the WTO by September 30, 1998.

3.2 STEs in Countries Seeking Accession to the WTO

Many applicants to the WTO conduct their trade of grains and other agricultural products

through state agencies. In principle, STEs in the former Soviet republics have been eliminated,

but regional and national governments continue to procure commodities from farmers and

restrict commerce between regions. Foreign trade companies in these countries continue to be

directly or indirectly controlled by the government and are akin to state traders. STEs maintain

control over grain trade in other countries seeking accession to the WTO, including Algeria,

Saudi Arabia, and Vietnam. China, the largest country seeking accession to the WTO, has

several enterprises that fit the WTO definition of state trading enterprises. In 1978, China

decentralized foreign trade rights beyond the handful of centrally controlled foreign trade

corporations. However, China maintained its agricultural STEs. China’s National Cereals, Oil

and Foodstuffs Import and Export Corporation (COFCO) and China National Textiles Import

and Export Corporation to conduct foreign trade in grains and cotton. If China accedes to the

WTO, China’s leaders have agreed to expand import access for many sensitive agricultural

commodities, including soybean oil, wheat, corn, rice, cotton, and barley; to designate and

expand shares of the proposed Tariff Rate Quotas (TRQs) for private sector importers; and to

open state trade shares of the TRQs to private importers of wheat, corn, and rice if the state

traders do not fill the TRQ during the year.

The Republic of South Korea designated STEs to administer some of its WTO TRQs to serve the

following objectives:

(1) To stabilize domestic markets faced with low priced imports;

(2) To fulfill Korea’s Uruguay Round Agreement market access commitments; and

24

(3) To use the revenue from differences between domestic and import prices for public

objectives such as research and market development of artificial honey and cocoons which were

removed from Korea’s list of state trading items in June 1996, and silk was removed from the list

in June 1997. It is worth noting that the WTO Agreement on Agriculture disciplines export

subsidies in terms of total expenditures and not on a per unit basis as with tariffs.

3.3 Why Do Countries Pursue State Trading of Agricultural Products?

Both developed and developing countries establish state trading enterprises to attain domestic

policy objectives. Countries cite support for domestic producers, price stabilization for producers

or consumers, and the assurance of reasonably priced food supplies as major policy objectives

for STEs in their reports to the WTO. Among developed countries, support for domestic

producers appears somewhat more frequently as an objective of state trading, while among

developing countries, the assurance of reasonably priced food supplies for consumers ranks high.

Governments of developed countries attempt to boost domestic producer prices by granting

exporter STEs monophony power to procure domestic production and by giving them exclusive

authority to export. Importer STEs may be established to increase producer returns by restricting

imports. To stabilize producer prices, an STE may purchase or sell stocks, pool returns for

domestic and/or export sales (for STE exporters), or charge markups on imported products

(STE importers).

In developing countries, STEs may administer domestic food policies that hold retail prices

below producer and/or world price levels. In these cases, producers are taxed to subsidize

consumers. Price stabilization policies in developing countries may subsidize both consumers

and producers (and all of the participants along the marketing and processing chain for the

supported commodities). The STE controls the procurement, distribution, marketing, and

processing of the covered commodities either by procuring, processing, and distributing the

products itself or, more frequently, by contracting with or licensing traders and processors.

Generally, the STE has authority to choose its suppliers, customers, and processors. Other

reasons countries pursue state trading include achieving economies of scale in trading operations

(for example, transportation, insurance, foreign market development, and quality control

improving terms of trade, and fulfilling international commitments on quantity, price, and credit

25

requirements). Economies of scale in trading operations reduce costs to producers in exporting

countries and to consumers in importing countries. Improvements in terms of trade raise prices

received by producers when an STE exporter achieves higher prices on the world market or an

STE importer restricts imports. Improvements in terms of trade benefit domestic consumers

when an STE importer can command lower import prices. Agricultural trading countries argue

that, by designating an STE to export into a higher value market regulated by a tariff-rate quota,

producers benefit from the higher prices. Governments also establish STEs to provide capital

funds to initiate entrepreneurship, ration foreign currency reserves, and generate revenue for the

treasury.

Monopoly rents garnered by STEs may fund other government programs. For example, several

governments that hold a monopoly on imports of alcohol and tobacco use the markups from

domestic sales of these products to finance health and education programs. Though not stated

explicitly in any of the country notifications, many governments prefer STEs because STEs

allow them flexibility to carry out political mandates expeditiously. Hence, it is not uncommon

to see governments use STEs to implement policies that would otherwise receive parliamentary

scrutiny (treasury- financed subsidies). Similarly, state trading is often preferred to

taxes/subsidies for redistributing incomes among different groups because it is more convenient

and less likely to give rise to political protests. Indeed, it is the nontransparent nature of STE

activities that makes them preferable over other policy instruments.

3.4 Evaluating the Market Impacts of STEs

To study the market impacts of state trading activities, one approach would be to examine the

effects that such enterprises have on domestic and international prices. For instance, a state trader

that restricts imports into a country will increase domestic prices in the same way an import tariff

does. Similarly, an STE that expands exports will have an effect on domestic price that

resembles an export subsidy. Thus, one can explain the market effects of STEs by expressing

their impacts on prices in terms of tariff or subsidy equivalents.

3.5 Factors Influencing the Tariff or Subsidy Equivalent

Several factors influence the tariff/subsidy equivalent associated with a state trading agency,

26

including the degree of control that the STE has over the domestic market, the STE’s policy

objectives, the extent of the STE’s international market power, and the range of privileges that

are exclusive to the enterprise. These factors not only influence the tariff equivalent associated

with the state trader but also determine the type of policy instrument the STE might use.

Degree of Control Over Domestic Markets

The principal factor that influences the magnitude of the tariff/subsidy equivalent associated with

an STE is its degree of domestic market power. In general, the greater the market power an STE

possesses, the more it can influence prices and the volume of products traded. An STE’s

domestic market power depends on both the array of market activities that it controls as well as

the range of commodities that it regulates. An STE’s control over four specific activities:

domestic marketing, procurement (i.e., sales and purchases), imports, and exports determine its

capacity to exercise domestic market power. There are several possibilities in this regard. At one

end of the spectrum is an STE that maintains complete control over each of these activities. All

transactions, whether in the domestic or international markets, have to be channeled through the

STE. The other extreme is an STE that has no control over any of these activities. Presumably,

the STE in this situation behaves no differently from a competitive private firm, and the

possibilities for an STE to influence the domestic market are very limited. Thus, an STE that

controls the full gamut of marketing activities will affect prices and the tariff/subsidy equivalents

much more than a state trader that controls only one of these activities.

Similarly, an STE’s market power depends on its capacity to differentiate products and regulate

use of substitutes. Hence, the larger the number of substitute products over which an STE has

regulatory control, the greater its ability to manipulate the market and influence the tariff/subsidy

equivalent. This capacity is likely to be even greater if the STE controls upstream and

downstream marketing and processing activities and engages in transfer pricing as a consequence

of vertical integration.

Breadth of Policy Objectives

The policy goals of an STE influence the magnitude of its tariff/subsidy equivalent. For instance,

an STE importer that seeks to maximize its own profits can do so by exploiting consumers,

producers, or both. The tariff equivalent of the policy set in each case would be different. If the

27

objective is to maximize profits by taxing consumers, the tariff equivalent is the difference

between the world price and the higher price at which imports are sold to consumers.

Conversely, if the objective of the STE is to tax producers, the tariff/ subsidy equivalent is the

difference between the world price and the lower acquisition price offered to producers.

Extent of International Market Power

The tariff equivalent is defined as the difference between domestic and world prices, taking into

account all associated transaction costs and tariffs. Hence, the tariff equivalent attributable to an

STE also depends on the extent of its international market power. For instance, a few large

sellers dominate the global wheat market. Thus, an STE exporter with market power could hold

back sales in the international market to achieve higher world prices and increased total revenue.

As before, the tariff/subsidy equivalent of the STE is the difference between the domestic price

and world price, though the difference is likely to be lower because the state trader could raise

international prices as well. Similarly, an STE importer with international market power could

force purchases at lower prices by restricting purchases. The difference between the domestic

and international price is the tariff equivalent, and the gap is likely to be greater with

international market power because of the STE’s ability to lower world prices. In general, the

greater the international market power that a state trader enjoys, the more it can influence the

tariff/ subsidy equivalent.

Range of Exclusive Privileges

The range of exclusive or special privileges available to an STE can substantially affect the

tariff/subsidy equivalent. Special privileges might include the financial benefits that accrue to an

STE as a result of governmental association, such as underwriting of producer payments, interest

rate subsidies, tax benefits, and preferential foreign exchange rates, or nonfinancial privileges

such as the authority to establish long term trade agreements with other governments. These

privileges, in general, are likely to be affected by the ownership structure of the STEs; that is, the

extent of managerial control that the government exercises over the enterprise. For instance, an

STE that is owned by the government and has been established to provide income and price

stability may behave differently than an STE owned by producers determined to maximize

28

profits. Or, an STE that is owned by the government and is guaranteed against bankruptcy is

likely to follow different trading practices than a commercial firm operating without government

assistance. Exclusive privileges, particularly financial support, allow STEs to undertake pricing

risks beyond what a commercial enterprise might, especially if the state trader has goals other

than profit maximization. Such privileges could lead to prices and tariff equivalents different

from those that would exist in the absence of such privileges. The greater the array of privileges

available exclusively to the STE, the more it can influence prices and the tariff/subsidy

equivalent.

Creating a Classification Scheme for STEs (One the basis of a single product)

The classification scheme helps policymakers to identify enterprises that have the greatest

potential to distort trade, to compare agricultural STEs in terms of their broad economic traits,

and to provide a framework for the development of a dynamic inventory of STEs as their powers

and institutional structures change.

Type I: STE operates without any controls on either domestic markets or international trade. In

other words, the STE is competing with private firms on a level playing field. Clearly, Type I

STEs have little, if any, capacity to affect the market, and their potential to distort trade is

negligible.

Type II: STE operates without any restrictions on external trade but maintains control over the

domestic market. Market controls may take the form of price regulation, supply control,

procurement, and domestic marketing. Domestic consumers (producers) can resort to

international markets for purchases (or sales), suggesting that domestic controls without trade

restrictions do not significantly violate competitive norms. The potential to distort trade for a

Type II state trader is low.

Type III: STE competes with private firms to procure and sell domestic production in the home

market, but maintains quantitative controls on external trade. These STEs have the potential to

moderately distort trade, but the actual extent of distortion would depend on factors such as the

extent of international market power, the range of exclusive privileges available to the firm and

the policy objectives of the STE. For example, the Canadian Wheat Board (CWB) does not make

29

public information on transaction prices and quantities of individual wheat and barley sales.

Without these data, it is very difficult to establish meaningful domestic and export prices for

Canadian wheat since the CWB publishes only its pool prices derived from a combination of

domestic and export prices, importance (share) of external trade in domestic consumption and

production.

Type IV: STE imposes quantitative restrictions on imports or exports and maintains control over

the domestic market as well. These STEs are more able to distort trade than the other three

groups. But, whether a Type IV STE distorts trade much more than other types of STEs depends

on factors that influence the magnitude of the tariff/subsidy equivalents, similar to those

indicated for Type III STEs. Thus, a Type IV STE that has a small share of the global market

may distort trade less than a Type III STE that is a big player in world trade.

3.6 Counter Trade & Offset

State Trading Corporation has been a nodal agency to monitor counter trade commitments

arising out of purchases made by various departments of Government of India and has monitored

such offset transactions worth over 1 billion USD in the last two decades. The international

partners with who counter trade transactions were handled by State Trading Corporation in the

past include Bofors, Boeing, British Aerospace, General Electronic, Pratt & Whitney etc. Air

India and Indian (Erstwhile Indian Airlines ) have entered into purchase agreements with the

Boeing Company, USA, Airbus, France, General Electric Company, USA & CFM International,

France for supply of 111 aircrafts/ engines. These agreements have commitment from these

overseas manufacturers to fulfill offset obligations/ counter trade programme to the extent of

agreed percentages. In line with this STC has entered into agreements with these companies for

implementation and monitoring of such offset obligations/ counter trade programme.

3.7 E-portal

A Web-based e-portal for online monitoring of the Offsets programme has been developed to

digitalize the processes involved in counter-trade administration that were performed manually

between STC & Offset Partner’s (Boeing, Airbus, CFM & GE).

30

Rationale of State Trading:

State trading is a common feature of many economies where agriculture is an important sector of

trade. Thus, state trading enterprises are found in developed countries with significant

agricultural trading interests, as well as in agriculturally-based developing countries. The heavy

emphasis on agriculture in state trading activities would seem to indicate governments' belief that

state trading is an appropriate means of implementing agriculture-related policy objectives, such

as providing price support for important agricultural products or ensuring food security. In the

area of industrial goods, state trading may arise as a by-product of the nationalization of an ailing

industry or as a means of pursuing government policies on products or industries considered to

have strategic importance.

State trading is resorted to for a number of reasons. In the centrally planned economies, foreign

trade as a matter of state policy is nationalized. Foreign trade in those countries is to be

conducted by State trading organizations because otherwise the central planning mechanism will

not function properly. In the developed free enterprise economies, State trading sometimes is

practiced as a source of revenue. That is why it is found that trade in products like alcohol and

tobacco is subject to State monopoly. Similarly, trade in drugs and arms and ammunition is

managed through State bodies in the interest of health and national security of the country. State

trading in a number of agricultural products is quite common because State intervention is

necessary to avoid fluctuations in the prices and preventing deterioration in the income of the

agricultural producers.

State trading however, is more commonly practiced in the developing economies. The reasons

behind this are varied. First, such countries may not have adequately developed private sector

trading bodies which can effectively participate in international commerce and also protect the

national interest. Secondly, the private sector bodies, though possessing adequate trading

expertise, will be solely motivated by profit consideration. However, it may be necessary from

the national standpoint to promote new export items and cultivate new export markets even by

sustaining short terms losses. This can be done only by government bodies having a development

role and which are backed by the government so that the financial losses do not hamper the

31

pursuit of long term objectives. Thirdly, the centrally planned economies have emerged as

important export markets for a large number of developing countries including India. Since the

foreign trade of these countries is invariably conducted through State trading organizations, it is

found that government trading bodies are in a better position to negotiate with their counterparts

in the certainly planned economies.

Canalization of Imports:

State participation in imports is generally motivated by some other considerations. These are:

(1)To reap the advantage of bulk buying.

(2) To mop up any excess profit which the private sector firms might enjoy in import business

(3) To ensure proper internal distribution of the imported items and to maintain stable domestic

price level.

Advantage of Bulk Buying:

There are essentially three elements which can be associated with the advantage of bulk

purchase. They are:

(1)A bulk purchaser may get better discount and trading terms.

(2) Since the bulk purchaser will be monopolist, the possibility that prices of commodities in

short supply can be pushed up by competitive bidding by the Indian importers, is eliminated.

(3)Since the international markets of many importable items are monopolistic, state trading will

give rise to countervailing power which may mitigate to some extent the ill effects of the

monopolistic market structure.

There may be other purposes behind the state participation in the field of foreign trade. Another

few important purposes could be:

1. State trading agencies are considered to be rational tools and potentially powerful weapons

for preserving the foreign exchange equilibrium and safeguarding the external Balance of

Payment of the country.

1. By monopolizing foreign trade, state trading strengthens the bargaining power of the

state.

32

2. During the process of development economic planning, state trading in commodities can

be resorted to for increasing the government revenues.

3. State may participate in international trade for stabilizing the prices of essential raw

materials and for diversifying the country’s foreign trade.

4. State may also establish monopoly over foreign trade for providing protection to the

domestic industries against unfair foreign competition.

5. State trading explores greater and new export outlets and earns profit for financing the

development projects in the country.

6. State trading is a powerful tool for the elimination of malpractices adopted by the private

traders in the sphere of foreign trade.

Advantages of State Trading

The rationale of state trading in foreign trade lies in the benefits which it confers on the

countries. The principle advantages of state trading are:

1. The development of a proper vision of international trade and a continuous watch.

2. For safeguarding the national interests are possible only through a state- owned

trading agency.

3. State trading can bridge the gap between the demand price and the cost price

because the state is usually aware of the demand and supply situations and can

suitably adjust the price of the products in which it trades so as to minimize the

gap between the demand and supply of the goods handled by the state trading

agency. Thus, state trading in strategic commodities can serves as an effective

concomitant of comprehensive development planning programme in a backward

33

economy. In an inflationary situation, the technique of state trading can be utilized

for adjusting the supply price to the demand price and the profit so obtained may

be spent for financing the various development projects in the economy.

4. State trading coordinates the entire country’s trading machinery and assumes

added responsibility for rationalization and institutionalization of trade policies.

5. It eliminates several evils like tax evasion, unauthorized dealings in foreign

exchange, speculation, black marketing and other such malpractices indulged in

by private traders.

6. State trading encourages export promotion by supplying essential raw materials at

reasonable prices and at assured time, and selling the country’s export goods at

better prices through enhanced monopolistic bargaining power.

7. State trading in the capitalist and mixed economies is intended to overcome the

difficulties encountered while the country is trading with the socialist countries

where foreign trade is a monopoly of state.

Among the benefits of state trading the inculcation of a sense of financial discipline is more

important. By making its management more efficient and careful, state trading minimizes the

cost of inputs and maximizes output.

34

Problems Related to State Trading Corporation

Lack of Transparency

One of the main problems relating to State trading in the context of a rules-based international

trading system is the lack of transparency of the existence and activities of State trading

enterprises. While the obligation to notify such enterprises has been “on the books” — that is to

say, in the General Agreement — since 1947, and the first deadline for such notifications was

February of 1958, compliance with this obligation has been, until only very recently, very poor.

This situation, coupled with the fact that the relationship between governments and State trading

enterprises and the activities of the latter may give rise to trade distortion, means that a

significant area of potentially WTO-inconsistent practices may be escaping WTO scrutiny and

regulation. Much more needs to be known about State trading enterprises so that Members can

assess the impact of their operations on international trade, and, perhaps, as time goes on,

develop further the disciplines necessary to regulate this area of trade.

Possible Negative Trade Effects

State trading enterprises may be used as a vehicle for implementing a number of trade policy

measures which are not consistent with WTO provisions. The most common is a violation of

market access obligations. For example, a State Trading Corporation might be used to provide

protection for the domestic market in a given product by setting resale prices of imports at very

high levels, thus negating tariff concessions bound in WTO Schedules and violating Article II of

GATT 1994. The provision of subsidies to State Trading Corporations which are mainly

involved in exporting may run afoul of export subsidy disciplines. Even in cases where the

objective of the government acting through the State Trading Corporation is not intentionally

trade-distorting, the State Trading Corporations operations may nevertheless distort trade. For

example, the protection of public health, which is a frequently stated rationale for the

maintenance of monopolies on alcohol and alcoholic beverages, may seriously distort trade in

35

those products. It is only when the activities of State trading enterprises can be examined that

their impact on trade can be analyzed and, ultimately, more effective rules developed.

Defects of STC:

It is disheartening to note that the STC has the following defects in its working as found by the

Economist Intelligence Unit (EIU) London and by other critics:

1. It is generally, observed that deliveries from STC side have been constantly behind schedule.

2. STC is found to be extremely slow in taking decisions and actions.

3. STC could not work fruitfully with buyers and producers to solve the technical problems

involved in foreign trade.

4. STC lacks a business point of view. Its activities are governed by bureaucratic attitudes and

systems.

5. Periodic changes in staff of STC seem to have affected the efficiency and continuity of

functions.

6. STC has been crowned with failure in executing foreign orders fully and carefully, e.g.,

Russian shoe order in the recent past.

7. STC is entrusted with the task of canalisation of imports of important raw materials in the

belief that it would be able to secure supplies at a lower cost through bulk buying. But, the

Corporation has not been able to arrange the import of raw materials at competitive prices and

supply them to industry at the right time. Thus, under this system of canalisation, in many cases,

industry has had to pay higher prices than under direct imports. In fact, the higher costs of

canalisation are attributed to the heavy commission charged by the STC, its failure to buy the

materials at the right time and its inability to locate the correct source of supply.

We may thus, conclude that since STC has a significant and increasing role in the planned

economy of the country with its socialist goal, its working, functioning and attitudes must be

revised and reorganised. Further, the STC should concentrate more on promoting the export of

new items on a long-term basis, as there is an urgent need to develop new markets for our

foreign trade. It should also help the private sector to export items that are difficult to sell. It

must work hard for diversification and rationalisation of our exports. Its fundamental task should

be to impart dynamism to our export drive. Under the new wave of liberalisation, however, STC

is gradually losing its importance.

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Webliography

1. www.indiainfoline.com

2. www.in.reuters.com

3. www.economictimes.indiatimes.com

4. www.stc.gov.in

5. www.citeman.com

6. www.wto.org

7. www.shareyouressays.com

8. www.pdic.tamu.edu

9. www.businessdictionary.com

Economic Research Service/USDA:

An Introduction to State Trading in Agriculture

Foreign Agricultural Service, Grain: World Markets and Trade, Jan. 1999.

Books

1. International Economics- By Vaish

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