Measuring the Effects of Eliminating State Trading Enterprises on the World Wheat Sector

The objective of this paper is to present a comprehensive, multi-regional trade model which includes all types of state trading enterprises (STEs) as well as other domestic and trade policies. The model is applied to measure the effects of STEs on the world wheat sector, where exports and imports by STEs are dominant. The STE model is based on a trade and policy simulation model by Maeda, Suzuki, and Kaiser (MSK). The MSK model is a nonlinear imperfectly competitive spatial equilibrium model formulated as a mixed complementarity problem (MCP). The MSK model can be used to evaluate the following various trade and domestic support policies: specific duties, ad valorem tariffs, tariff-rate quotas, export subsidies, production subsidies, production quotas, consumption taxes and price floors, combined with various imperfectly competitive market structures. However, it does not explicitly incorporate STEs. We incorporate both Canadian and Australian types of exporting STEs into the model. Importing STEs, like the Japanese Food Agency, are treated as specific duties in the model since their mark-ups are imposed on imports within tariff-rate quotas. In addition, we introduce Chinese and Indian STEs (COFCO and FCI) which act as an exclusive importer and prohibit exports. The effects of relaxing the export prohibition due to China’s entry to the WTO is one of the focal points to be analyzed. The main empirical findings are as follows. In the base case where all STEs are active with the committed 2000 levels remaining the same, Canada, the United States, the European Community, and Australia would be the largest net exporters. By explicitly incorporating the roles of the CWB and AWB into the world wheat trade model, Canadian and Australian net exports became larger than previous estimates. Hence, it is important to include STEs in trade simulation models. In the case where CWB is no longer a monopoly buyer of domestic wheat, compared to the base case, Canada would reduce exports, increase domestic sales, and therefore reduce imports. While the European Community, Australia, and Argentina would increase net exports, only the United States would decrease net exports because decreases in Canada’s imports results in a decrease in the United States’ exports to Canada. Under the scenario where the CWB and AWB are eliminated, Canada would reduce net exports. The largest gains of eliminating the CWB and AWB would go to the European Community in the form of increased exports, while other exporters would have only minor increases in net exports. Interestingly, there would be almost no changes in Australia’s situation after eliminating AWB. This is partly because the AWB was already deregulated in 1997 and it is no longer a monopoly buyer of domestic wheat. Also, there would be only small differences in Canada’s situation between a case assuming the CWB with no monopoly buying right and a complete elimination of the CWB. These results imply that being a monopoly buyer is more important for the exporting STE than only being a monopoly exporter. The simulation results also revealed that export prohibition by COFCO and FCI would have almost no effects on world wheat trade.