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

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 Indias export trade and promotion of long term export operations and difficult to sell item are the specific objective in relation to export promotion.

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.

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 Bureau Government of India Ministry of Commerce & Industry 18-April-2013 14:17 IST Indias 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.

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

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 biodiesel 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.

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 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 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 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 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 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 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 be ing 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: GOLD

SILVER

Ten Tola Bars 1 kg Bars Purity : 0.995, 0.999 2.3Mineral and Metal Ores:

15 kg 28 kg to 31 kg Purity : 0.9999

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.

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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 STCs 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), 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 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 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) on
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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 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.

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Indicative List Of Items / Equipments Being Imported By State Trading Corporation For Various Central& State Government Ministries & Departments

CATEGORY Medical Equipments

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 Fire Fighting Equipments All equipments required for anti-terrorist & smuggling operations, Bugging Devices, NLJD, Counter Measure Devices Hydraulic Platform & Turn Table Ladders, High Pressure Fire Pumps, Fire Suits, Breathing Apparatus, etc. Avionics Laboratory Equipments/ instruments Helicopters, Planes & their Spare parts. 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 ReSurfacer, etc. Sports Equipments Winter Sport Equipments and Gear, Timing Equipments, Aquatic

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& 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

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

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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).
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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. 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 $ 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
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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 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. 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 the WTO, 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
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(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 credit
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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,
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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 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 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 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
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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 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 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
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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
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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 Partners (Boeing, Airbus, CFM & GE).

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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
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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.
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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 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
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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 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
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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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Webliography
1. 2. 3. 4. 5. 6. 7. 8. 9. www.indiainfoline.com www.in.reuters.com www.economictimes.indiatimes.com www.stc.gov.in www.citeman.com www.wto.org www.shareyouressays.com www.pdic.tamu.edu 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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