The Trade and Welfare Effects of State Trading in China

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 although there have been recent attempts to diminish its importance. In this paper, we review the role that the state trading enterprise (STE), 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 state trading enterprises. Finally, we apply that theory through a calibration exercise to measure the tariff equivalent of COFCO in China's import market for wheat. We find that the trade distortions created by COFCO remain important as do the associated welfare effects.