Assessing the distortionary impact of state trading in China


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E-mail address: (D. MacLaren).


State trading is a common feature in the management of imports and exports of agricultural products and it has been a long-standing feature of China's agricultural trade regime. While the use of state trading was modified by China's accession to the WTO, it remains a dominant feature for some commodities, even though there have been recent attempts to diminish its importance. In this article, we review the role that the state trading enterprise (STE), China National Cereals, Oils and Foodstuffs Import and Export Company (COFCO), continues to play in the importing and exporting of some agricultural commodities. We then review the economic theory that has been developed to measure the tariff equivalent of importing STEs. Finally, we apply that theory through a calibration exercise to measure the tariff equivalent of COFCO in China's import market for wheat. The distortionary impact of COFCO depends on the bias in government policy toward agriculture, the competitiveness of the domestic procurement market, and also the number of firms that are allocated licenses to import alongside COFCO.