IntroductionA 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 IndiaState 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 FunctionsThe 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 Indias 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
Objectives1. 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
Indias export trade and promotion of long term export operations
and difficult to sell item are thespecific objective in relation to
export promotion.
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1.4 State Trading Corporation and the Indian EconomyThe
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 History1956 - 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
(Feb2012). 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 (Mar2012).
Press Information BureauGovernment of India Ministry of Commerce
& Industry18-April-2013 14:17 IST
Indias Foreign Trade: March, 2013Exports (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.ImportsImports 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 ImportsOil 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 BalanceThe 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 DealsDuring 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 million8
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.
AwardsThe 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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COMMODITIES2.1 Agro- CommoditiesGrainsInternational trading in
food grains and other products has been one the major activities of
the State Trading Corporation, since its inception.
WheatThe State Trading Corporations 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 WheatState 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 Kazakhstans wheat exports, while
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large private grain producers and traders handle the remaining
40 percent of Kazakhstans 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 yearsKazakhstan (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.
RiceThe 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 RiceRice, 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 Indonesias 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), Chinas China
National Cereals, Oils and Foodstuffs Corporation (COFCO) (4
percent), the Iranian Government (5 percent), and Malaysias 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 ExtractionsSTC 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 GrainsMaizeThe 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.
TeaThe 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 MetalBullionThe 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:GOLDSILVER
Ten Tola Bars15 kg
1 kg Bars28 kg to 31 kg
Purity : 0.995, 0.999Purity : 0.9999
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 OreThe STC exports Iron ore to various clients mainly based
in China and East Asia.
Coal and CokeThe 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.14
2.4 FertilizerUrea Fertilizer GradeThe 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 UreaThe 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 STCs
empanelled Associate Suppliers.
2.5 World Report on State Trading in Other GrainsThe 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 termedcoexists. 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),
Indonesias 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 Arabias 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 ProductsThe 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 countrys 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. Mexicos
Compania Nacional de Subsistencias Populares (CONASUPO) largely
handled Mexicos 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) on16
March 31, 1999, the Mexican Government permitted another federal
agency, LICONSA, to import milk powder for the governments 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 SugarGovernments 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 ImportsState 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.
17
Indicative List Of Items / Equipments Being Imported By State
Trading Corporation ForVarious Central& State Government
Ministries & DepartmentsCATEGORYEQUIPMENTS
Medical EquipmentsAll requirements of Hospitals, Medical
Colleges & their
Laboratories.
Police / Security EquipmentsPistols, 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
Prin
Bureau, etc.
Intelligence/SurveillanceAll equipments required for
anti-terrorist & smuggling operations,
EquipmentsBugging Devices, NLJD, Counter Measure Devices
Fire Fighting EquipmentsHydraulic Platform & Turn Table
Ladders, High Pressure Fire
Pumps, Fire Suits, Breathing Apparatus, etc.
AvionicsHelicopters, Planes & their Spare parts.
Laboratory Equipments/All Instruments of Forensic Science Labs
& Finger Print Bureaus
instrumentsrequired for Crime Research, Scanners, X-ray
Equipments,
Microscope Analyzers, Laser Systems, Video Cameras, Finger
Pri
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 EquipmentsRafts, Skiing & Mountaineering Equipments
& Ski Lifts, Snow
Grooming Machines, Ice Skating & Rink equipments viz., Ice
Re-
Surfacer, etc.
Sports EquipmentsWinter Sport Equipments and Gear, Timing
Equipments, Aquatic
18
& Water Sports, Various Equipments for Muscle
Durability,
Agility, Flexibility Measurement, Sport Psychology, Sport Tester
&
Software etc.
Snow Clearance equipmentsVarious types of Snow Clearance
Equipments viz. Snow Cutters,
Snow Ploughs, etc.
Agricultural EquipmentsAll Equipments for Soil Testing
Laboratories, Pesticide
Testing and Fisheries (Fish Feed Mill Plants) , Equipments
for
Food Testing Laboratories, etc.
Multimedia EquipmentsDigital 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
19
Scientific Equipments for LaboratoriesBallistic 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 ImportsJapan Food Agency and Indonesia
Badan Urusan Logistik (BULOG) topped the list of import-oriented
STEs from 1993 through 1995 at valued more than $1 billion annually
on an average.
20
Average Annual Country STE Commodity(ies) import value ($
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 Koreas 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. Mexicos CONASUPO was
a monopoly importer of milk powder until 1998 when the Mexican
Government issued import licenses equal to about 20 percent of
Mexicos 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).
21
World Trade Organisation and State Trading
Corporation3.1Countries Reporting to WTOThe 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. Australias 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 Zealands farmers also
marketed livestock, dairy, and an extensive list of horticultural
products through marketing board.
Average annual Country STE Commodity(ies) export value $
millionGreater 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
22
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 WTOs Council for Trade in Goods once every 3 years. After
several years of intense debate in the WTOs 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 WTOMany
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. Chinas 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 theWTO, Chinas 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 Koreas Uruguay Round Agreement market access
commitments; and
23
(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
Koreas 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
credit24
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 STEsTo 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 EquivalentSeveral
factors influence the tariff/subsidy equivalent associated with a
state trading agency,
25
including the degree of control that the STE has over the
domestic market, the STEs policy objectives, the extent of the STEs
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 MarketsThe 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 STEs
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 STEs 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 STEs 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 ObjectivesThe 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
26
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 PowerThe 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 STEs
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 PrivilegesThe 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
27
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
28
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 & OffsetState 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-portalA 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 Partners (Boeing, Airbus, CFM
& GE).
29
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 the30
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.
31
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
countrys 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 TradingThe 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
32
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 countrys 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 countrys 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.
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Problems Related to State Trading CorporationLack of
TransparencyOne 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 EffectsState 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
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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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Webliography1. 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
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