John Worthington Managing Director, ibt partners
Originally published in ibt partners newsletter. For more blogs on TTIP see here.
Just over two years ago in July 2013, the Transatlantic Trade and Investment Partnership (TTIP) negotiations began; relatively recent in the grand scheme of the past 500 years of transatlantic trade relations. Practiced in the art of international trade negotiations, US and EU trade teams run permanent parallel trade negotiations, currently with more than 20 other countries and trading blocs (including China, India, ASEAN…), and consider TTIP progress as “very good”. Back in July 2015, trade teams met in Brussels for the 10th TTIP Round of Negotiations, described as low key. EU chief negotiator Ignacio Garcia Bercero, summed up the week’s work: “At their last meeting in June, the leaders of the G7, including Presidents Juncker, Tusk and Obama, gave the EU and US clear indications to intensify our discussions on TTIP and identify the way forward on all areas”and that this has now been achieved. However, today TTIP is about politics, and finding that way forward. A political review has been convened for later this September 2015 between EU Commissioner Cecelia Malmström and US Trade Representative Mike Froman, and is understood to be critical as to where TTIP goes next in terms of timing and action. The other takeaway from round #10 as Bercero aptly put it: “we want to make the life of SMEs easier”.
The SME context is of overwhelming importance to both the EU and US economies. The starting point is that 99% of EU and US companies (+20 million companies in the EU and +28 million in the US) are SMEs. For employment, notably in the EU that struggles to create new jobs, the role of the SME is of paramount importance. In the EU, SMEs provide 2/3rds of private sector jobs and are responsible for >85% of all net jobs created. In the USA, the respective figures are over ½ of all private sector employment and 70% of all net jobs created. EU Commissioner Cecelia Malmström set the tone when she emphasised that the, “Small and medium-sized enterprises are the backbone of the European economy. These companies will channel the benefits of TTIP back to their local communities.” So 2015 has seen a definite uplift in TTIP SME related supportive actions on both sides of the Atlantic. An EU SME survey published in April 2015, showed that “150,000 SMEs exported to the United States in 2012, accounting for 28% of all EU exports there” and that “SMEs stand to benefit most when we reduce non-tariff barriers and cut red tape”,highlighting where efforts will be intensified by both EU and US trade negotiation teams. The report cited the following main EU SME challenges in exporting to the USA:
- Complying with technical rules and regulations for all goods, which is the most frequently cited issue;
- Accessing information about what regulation applies to their product. Close to a third of the respondents were unable to identify the actual source (i.e. the US federal government of US states) of the regulatory issue they face;
- Being legally excluded from the market, as in many parts of public procurement;
- Compliance with customs rules, which can become very costly and act as de facto trade barriers;
- Differences in regulation between US states
This reads as almost identical to those barriers faced by US SMEs as they export to the EU; substitute the U.S. federal government with the EU Commission and the US states with the 28 EU countries.
The EU Publications Office recently released (04.2015) their excellent report entitled “The opportunities for small and medium-sized enterprises” (check it out! Click here to download). The booklet tells us that “On both sides of the Atlantic, SMEs are an important source of innovation, new products and new services. They are already benefiting from transatlantic trade or hope to be able to benefit from it thanks to the TTIP. Here are some examples. Small company stories: – seizing transatlantic opportunities”. The report cites examples of fabulous exporting SMEs from Alabama (Alignment Simple Solutions), to Austria (Montavit), and back to Oregon (High Impact Technology (HIT)).Thanks to our client Business Oregon, the Economic Development Department of the government of the state of Oregon, we are also proud to have worked with HIT helping to grow their exports in the EU.
The last and one of the more unusual anecdotes in the catalogue of export successes is from the UK (GoldCrush Hair Vitamins). All great case studies for the TTIP cause. TTIP clearly will bring many benefits for SMEs and the report details the following:
- Tariffs. There are millions of small manufacturers and producers in Europe and the United States. They produce some 30% of goods exported from both markets. As a result, SMEs are very well-placed to gain from the elimination of tariffs that TTIP aims to achieve. In sectors where tariffs are still relatively high, those gains could be significant. In today’s competitive global marketplace, for SMEs even small increases in a product’s cost due to tariffs can mean the difference between making and losing a sale. In some cases, the removal of tariffs could allow SMEs to sell their products across the Atlantic for the first time.
- Regulatory issues and non-tariff barriers. Smaller businesses on both sides of the Atlantic can be disproportionately affected by non-tariff barriers, which can take the form of requirements applied at the border or “behind-the-border” barriers.
Going forward, the TTIP rounds of negotiation will address areas of specific regulatory focus for the express benefit of SMEs, including: services, government procurement, customs and trade facilitation, intellectual property rights, electronic commerce, as well as gains through value chains.
Ecommerce is clearly the most immediately evident to both EU and US SMEs. Ecommerce has had a huge impact on everyday lives, and SMEs can now get in front of otherwise inaccessible target audiences, in their own home market as well as internationally. The shear heady growth of ecommerce, averaging 20% per annum on both sides of the Atlantic, has changed exporting and transatlantic business development. I am sure that the single largest opportunity for small and medium-sized enterprises can be summed up as:
“The Internet is empowering millions of US and EU SMEs to reach foreign customers, thereby increasing their revenues and supporting jobs in local communities. Online SMEs are much more likely than their offline counterparts to export to customers in multiple countries. TTIP provisions that promote the duty-free treatment of digital products, and consumer access to services and applications of their choice on the Internet can help American and European SME retailers and service providers thrive in the online marketplace”.
Back to the Report on the #10th Round of TTIP Negotiations: Under the heading SMEs it states that progress has been made in the consolidation of the text proposal, with the section on cooperation provisions nearly agreed. Equally, constructive discussions have been held on the exchange of information and the presentation of different EU and US websites. The US presented a proposal on institutional set-up, which will be discussed further in the next round. Bercero in his conclusion speech, informs us that significant work has been completed for the SMEs, supporting the much debated TTIP SME Chapter. The highlighted objective will be “reducing the costs of complying with unnecessary and often duplicative technical regulations, while safeguarding the standards of protection” as the most effective way to facilitate SMEs exports across the Atlantic. This reads like good common sense – now just have to do it. Clearly, the objectives for TTIP SME are constructive and well understood. The EU and US negotiating teams have their clear SME mandates and it is now down to politics. I will be following the SME story within the TTIP program and reporting back to you. Watch this space.