On exporting by import state traders and peculiar effects of negotiated minimum access commitments

It has been alleged that exportation by import state trading enterprises (I STEs) must involve unfair trade practices. We show, that such exporting may result from a rational use of market power by a sufficiently protected pri ce discriminating ISTE. We argue that the flawed design and implementation of the tariffication process initialed in the last GATT agreement is provid ing ISTEs with incentives to export. The tariffication of import quotas and other related import restrictions was dirty in the sense that it permitted the setting of prohibitively high tariffs on many commodities. More import antly, it failed to eliminate quantitative trade barriers as the previous i mport quotas were replaced by minimum access commitments (MACs). In this pa per, we use a simple partial equilibrium framework to explore the trade and welfare consequences of trade liberalization through tariff reductions and MAC enlargements under the small country assumption when domestic producti on and imports are con trolled by an ISTE. We show that tariff reductions a nd MAC enlargements have very different effects on the behavior of the ISTE . MAC enlargements induce inefficient trade by encouraging the profit maxim izing ISTE to increase its exports. In terms of welfare, MAC enlargements a re immiserizing. We conclude that tariff reductions are to be preferred to MAC increases as a means to liberalize trade.