Measuring the Degree of Market Distortion through Price Discrimination for Hidden Export Subsidies Generated by State Trading Enterprises

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Several state trading enterprises (STEs) currently exist in the world, which act as export monopolies. Examples include the Canadian Dairy Commission (CDC), Canadian Wheat Board (CWB), Australian Dairy Corporation (ADC), Australian Wheat Board (AWB), and the New Zealand Dairy Board (NZDB). One of the most important roles of these enterprises is the implementation of price discrimination between domestic and export markets, and/or price discrimination among export markets, to maximize the total sales values. When there are higher prices for some markets, lower prices for other markets, and pooled revenues distributed to farmers, the system is equivalent to a "consumer financed" export subsidy. Indeed, the CDC's "special" milk class system, which creates substantially lower prices for milk used for exporting products, was already judged to be an export subsidy by the WTO court. Legal questions still remain as to whether other exporting STEs such as the CWB, ADC, AWB, and NZDB are exempted from rules for eliminating export subsidy schemes under the WTO agreements. In examining the issue of whether existing STEs violate the WTO agreement, it is useful to have a theoretical and empirical measurement of the degree of market distortion caused by price discrimination practices of the STEs. Several studies have analyzed price discrimination by STEs, but a practical measure of market distortion caused by these enterprises has not yet been developed. In this research project, we developed a theoretical and practical measurement of the degree of market distortion due to price discrimination for hidden export subsidies by STE, and we also developed a practical generalized definition of Export Subsidy Equivalents (ESEs) applicable to "consumer financed" hidden export subsidies as well as ordinal "taxpayer financed" export subsidies.