Workings of State Trading Enterprises and the WTO: A

Lesson for India

Shree Rahul
LL.M. Candidate (2015)
International
Trade and Investment Law

Index

I.

Introduction

II.

Statement of problem

III.

Research objectives

IV.

Research Questions

V.

Hypothesis

VI.

Research Methodology

VII.

Literature Survey

VIII.

Possible Contributions

Introduction

The General Agreement on Tariffs and Trade 1994 foists obligations on state trading

enterprises to facilitate the principle non-discrimination in international trade. This is given

effect in Article XVII of the Agreement. Read with the Understanding to Article XVII,
enterprises which are not state owned, but have been granted statutory powers, the exercise of
which would influence trade are also within the purview of this provision. Therefore, the
primary requirement of Article XVII is that member states do not indirectly violate their
obligations under the Agreement.

Statement of Problem
State trading has been dubbed as a popular mechanism to circumvent the rules of the GATT
1994.(Joachim Zietz, Agriculture in the GATT: An analysis of approaches to reform). It is
therefore necessary to examine the scope of Article XVII of the Agreement, and understand
its implications for international trade. Further, seventy per cent of the state trading enterprise
notifications to the WTO under Article XVII of the Agreement are involved in agriculture or
related sectors. (Grace Skogstad, Internationalization and Canadian Agriculture: Policy and
Governing Paradigms). Since agriculture continues to exert an influence on Indias economy
and by extension, her international trade policy, it is of urgent relevance to examine the
measures adopted by the government in fulfilling its obligations under Aricle XVII of the
Agreement.

Research Objectives

1. To outline the scope of Article XVII of the GATT 1994, and identify the nature of
responsibility it seeks to impose on member states.
2. To assess the measures taken by India in the fulfilment of this responsibility.

Research Questions
1. What is understood by the terms principles of non-discriminatory treatment, and
commercial considerations as used in the text of Article XVII of the GATT 1994?
2. Does the Agreement require specific measures to be taken by member countries in the
satisfaction of these obligations?
3. Whether India meets the requirements of the obligations as laid down in Article
XVII?
Note on the functioning of State Trading enterprises:
State trading enterprises in India are conferred with the exclusive right to import and
export under the countrys Foreign Trade Policy.
The Indian Trade Classification (Harmonized System) lays down the conditions
for import and export of goods for which state trading enterprises in India have been
granted rights.
Indias new Foreign Trade Policy 2015-2020 contains stipulations in respect of state
trading enterprises. The pertinent part of the Foreign Policy states as follows:
Import/ Export through State Trading Enterprises:
a. State Trading Enterprises are governmental and non-governmental enterprises,
including marketing boards, which deal with goods for export and/ or import. Any
good, import or export of which is governed through exclusive or special privilege
granted to State Trading Enterprises, may be imported or exported by the
concerned STE as per conditions specified in ITC (HS)
b. Such STEs shall make any purchases or sales involving imports or exports solely
in accordance with commercial considerations, including price, quality,
availability, marketability, transportation and other conditions of purchase
or sale in a non-discriminatory manner and shall afford enterprises of other
countries adequate opportunity, in accordance with customary business
practices, to compete for participation in such purchases or sales.
Thus, it is clearly evident that Indias foreign policy governing state trading
enterprises has been framed to meet the requirements of Article XVII of the GATT
1994.

Hypothesis

If the jurisprudence of Article XVII is changed to exercise greater control over state
trading enterprises, the effect of such change will be strongly felt in the Indian
agricultural sector.

Research Methodology
1. Nature of study:
The nature of this study is doctrinal.
2. Research design:
The research attempts to understand the jurisprudence of Article XVII of the
GATT 1994, and more specifically, examines its application in the Indian context.

Literature Survey
1. Interpretative note on Article XVII, Analytical Index of the GATT 1994.
This note details the formative history of the Article XVII of the Agreement
and also examines its relationship with other provisions. It is relevant to the
present study insofar as it clearly outlines the scope and application of Article
XVII of the Agreement in light of various Committee and Panel reports. The
legislative history of Article XVII is discussed comprehensively, in light of the
London and New York Drafts of the Charter, and opinions from the London
session of the Preparatory Committee and the 1960 Final Report of the Panel
on Subsidies and State Trading, and the Panel Report on Spain- Measures
Concerning Domestic Sale of Soybean Oil.

2. Canada- Measures relating to exports of wheat and treatment of imported

grain: Reports of the Panel (WT/DS276/R)
This dispute is the leading authority on the interpretation Article XVII of the GATT
1994. It examines threadbare, the text of XVII, and explains its implications both in
the context of the factual matrix, and for international trade. It defines the standards
applicable to the behaviour of State Trading Enterprises, in light of the Canada- FIRA
Case, and the Korea- Various measures on Beef Panel. It elebalorates the primary

objectives of Article XVII and also discusses the silence of certain clauses of Article
XVII, and how it affects a Member States choices. It also explains the need for a case
by case standard of interpretation of Aticle XVII, and states that this approach is of
necessity, since the language of subparagraph (b) of Article XVII requires it.
It also states that commercial considerations vary in each case, and the indicative
evidence that a State Trading Enterprise is not acting in accordance with such
considerations will also vary. It also underscores the importance of customary
practices of private traders and the nature of the international market in determining
these considerations.
This, this case is of vital importance in understanding the jurisprudence of Article
XVII of the GATT 1994.

3. Occasional Paper 20, 2002: Impact of WTO on marketing co-operatives, B.

Bhattacharrya (Indian Institute of Foreign Trade)
This paper examines Article XVII of the GATT 1994. It offers a synoptic view of
Article XVII and proceeds to outline the kinds of state trading enterprises
operating in the international market. Further, it elaborates the functions of, and
services rendered by state trading enterprises both in India and in the international
market, and follows this analysis with a detailed description of Indian state
trading enterprises. In particular, it examines comprehensively, with figures and
descriptive notes, the performance of the State Trading Corporation and the
Mines and Minerals Trading Corporation of India.

4. Indias Export and Import Policy, 2015-2020

This document outlines Indias most recent policy on international trade. It
provides the framework for increasing exports of goods and services and laid
down policies which help in increasing value addition in the country. Following
an evaluation of the global market, the policy has chosen the ease of doing
business and trade felicitation as its major objectives. It of particular significance
to the present study, since it lays down the legal framework for the involvement of
state trading enterprises in international trade in terms that ensure compliance
with Article XVII of the GATT 1994.

5. New and Full Notifications Pursuant to Article XVII:4(a) of the GATT 1994 and
Paragraph 1 of the Understanding on the Interpretation of Article XVII. (INDIA)
(G/STR/N/12/IND)
This report contains factual and descriptive information on Indias state trading
enterprises and their role in international trade, in the context of Article XVII of
the Agreement. It also states Indias reasons and purposes for the introduction and
maintenance of state trading enterprises, and explains the privileges granted to
them. It also describes, in brief, the functioning of certain state trading

enterprises, both in terms of import and export. It corroborates such analysis with
statistics.

Possible Contributions
Following the analysis, this paper will suggest how the compliance, of Indias
state trading enterprises, with Article XVII of the GATT 1994, will help facilitate
her international trade.