The text of the EC Trade Commissioner’s letter to Member States[⇒ related story] has now been released. In it Lamy explains the origins of the latest EC proposal. bq. It is clear that the objective of eliminating all forms of export subsidies is one which is shared by the great majority of participants. Before Cancun, the EU already offered to eliminate export subsidies on a list of products of interest to developing countries, and we subsequently made clear that there would be no a priori exclusions, so all our export subsidies are effectively on the table. However, the list approach has not worked. This is why the EU has taken the decision to be ready to move on export subsidies, if an acceptable outcome emerges on market access and domestic support and non-trade concerns, and if we get strict parallelism for all forms of export subsidisation in return. (“EU Trade Directorate”:http://europa.eu.int/comm/trade/issues/newround/pr100504_en.htm) The “acceptable outcome” on market access is elaborated later in Lamy’s letter: bq. The EU believes that a blended formula could, with the necessary modifications, meet the concerns of all participants as well as sensitivities of developing countries. Such a blended formula could include sharp tariff cuts, while at the same time providing flexibilities for countries to address their most sensitive tariffs through a combination of tariff cuts and Tariff Rate Quotas (TRQ) expansion. A “blended formula” is an approach similar to that put forward by the EC and USA at the Cancún Ministerial Meeting. I provided a [[wrongMarketAccessEU-USA detailed analysis]] of that proposal in an earlier posting. Briefly, a blended forumula contains different approaches to cutting tariffs and expanding tariff quotas including * simple average cuts to tariffs
* ‘harmonizing’ tariff cuts that cut the highest rates faster than lower rates
* safe harbors for so-called “sensitive” (that is, highly protected) products which would escape significant reform
* expansion of tariff quotas The biggest problem with a blended formula is that it becomes a menu of options for each participating economy, opening up opportunities to achieve apparent reform with minimum actual change. This has been the main game played by the industrial countries—with the connivance of high-farm-protection developing countries such as India—since the 1960s. I have little doubt the EC will combine it’s gesture on export subsidies with demands for an accommodating ‘blend’.
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