T-TIP Promises New Opportunities for U.S. and European SMEs

Anthony Luzzatto Gardner (Ambassador to the European Union, 2014-present)

Cross-posted from Ambassador Gardner’s special to the 2015 issue of European Entrepreneur.

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U.S. trade negotiators will “seek to strengthen U.S.-EU cooperation to enhance the participation of SMEs in trade between the United States and the EU.” These words are clearly stated in President Obama’s letter of March 20, 2013, to the U.S. Congress and the related fact sheet, spelling out for our legislators and the general public that our negotiators for the Transatlantic Trade and Investment Partnership (T-TIP) recognize the importance of small and medium-sized enterprises (SMEs) as engines of growth and producers of jobs. As the USTR fact sheet describing our negotiating priorities puts it, “SMEs are the backbone of the American and European economies…SMEs that export tend to grow even faster, create more jobs, and pay higher wages than similar businesses that do not. T-TIP will enhance already strong U.S.-EU SME cooperation and help SMEs on both sides of the Atlantic seize job-supporting trade and investment opportunities.

Shortly after I arrived in Brussels to start my work as the U.S. Ambassador to the European Union, in March 2014, President Obama came for an EU-U.S. Summit. During his press conference with then President Van Rompuy and then President Barroso, he noted that:“…part of the suspicion about trade is whether globalization is benefiting everybody as opposed to just those at the top… or large corporations as opposed to small- and medium-sized businesses. I think it is important for us as leaders to ensure that trade is helping folks at the bottom and folks in the middle and broad-based prosperity, not just a few elites. And that’s the test that I’m going to apply in whether or not it makes sense for us to move forward in a trade deal. I’m confident we can actually shape a trade deal that accomplishes those things.”

During the fourth round of negotiations two weeks earlier, the U.S. and EU lead negotiators for the SME chapter of T-TIP took part in a panel discussion that the U.S. Mission to the EU and the European Policy Center presented on the prospects for SMEs in T-TIP. Representatives of U.S. and European SMEs took part and spoke eloquently on how even reductions of seemingly low tariffs can make the difference between profit and loss for small businesses, who lack the trade volumes and teams of lawyers to absorb the costs of tariff and non-tariff barriers that large corporations have.

Despite this emphasis on SMEs right from the start, a myth persists in some quarters that T-TIP is being negotiated on behalf of large corporations, with no benefits for smaller businesses. This is true in part because some anti-trade activists focus their energy on spreading fear, regardless of whether it is true. But misinformation only works where the fears already exist, perhaps due to a misunderstanding of how important SMEs are to both of our economies – our “backbones” – and how engaged they are in trade already, with so much potentialto grow.

We engage in these negotiations well aware of the fact that, in the European Union and the United States, SMEs and start-up enterprises create jobs and drive growth. Ninety-nine percent of European and U.S. companies—over 20 million companies in the European Union and 28 million in the United States—are SMEs. In the European Union, SMEs provide two-thirds of all private sector jobs and have a tremendous capacity to create new employment: 85 percent of net new jobs between 2002 and 2010 were created by SMEs. Similarly, in the United States, small businesses have provided over half of all jobs and two- thirds of all net new jobs in recent decades. Approximately 97 percent of U.S. exporting companies are SMEs. On both sides of the Atlantic, SMEs are key sources of innovation, new products, and new services. Many already benefit from transatlantic trade, and we hope that T-TIP will enable many more to do the same.

How will SMEs benefit? Through T-TIP, we seek to provide businesses, especially small- and medium-sized businesses, greater opportunity to export and to have access to cheaper inputs so that they can grow and be more competitive. Tariff reduction not only reduces barriers to enter foreign markets at competitive prices, but can also help to reduce the cost of inputs, an extremely important objective in an increasingly globalized marketplace. Businesses based in Europe already face very high energy costs and, in some places, high labor costs; their ability to succeed in a global supply chain will depend in part on their ability to source goods at the lowest possible price. We’re also working to reduce customs paperwork, perhaps even eliminating it for lower-value shipments, and to reduce the amount of time that recipients have to wait for their goods to be released.

For some businesses, especially SMEs, less customs paper work and lower duties could mean the difference between growing through exporting overseas or remaining confined to local markets. Consumers could choose from a wider variety of products and gain from lower costs. Producers could spend less time and resources on meeting duplicative testing requirements and filling out unnecessary customs paperwork.

U.S. and EU negotiators continue to work to ensure that SMEs are in a position to take full advantage of the opportunities that an agreement would provide. As part of this effort, negotiators are discussing the inclusion of a SME chapter in T-TIP. Such a chapter could establish mechanisms for both sides to work together to facilitate SMEs’ participation in transatlantic trade after T-TIP takes effect. Provisions could also include an SME committee that would engage with the small business community and the development of other resources to help SMEs understand the provisions of the agreement and how they can benefit from it. A chapter on SMEs could also strengthen existing cooperation between the U.S. Department of Commerce and the European Commission to help SMEs benefit from transatlantic trade and investment through workshops and other programs. Future cooperation under a T-TIP SME chapter could help SMEs take better advantage of commitments in other parts of T-TIP that may have particular importance for them.

Both the Office of the U.S. Trade Representative and the European Commission spend a significant amount of time talking to SMEs on both sides of the Atlantic to determine the greatest obstacles they face to expanding or breaking into transatlantic trade. A recent report by USTR and the European Commission collects some of their stories.

Paulson Manufacturing Corporation of Temecula, California, helps illustrate how duplicate business processes and standards can impact a company’s ability to stay competitive. The company develops, manufactures and distributes personal protection equipment for industry, firefighting, military, police and penitentiary personnel. It has 170 employees, including a location in Frankfurt, Germany, and exports of about $4 million, distributing its high quality products throughout the world. Its president notes that “Paulson Manufacturing can potentially benefit from T-TIP through the reduction of customs delays and improved, harmonized business processes and standards.”

Here in Europe, France’s Medi Thau Maree SAS hopes to sell its high quality oysters and mussels to exclusive restaurants in the United States, as it does in much of the world, but this is not currently possible due to minor differences between EU and U.S. legislation. Its president hopes that T-TIP will enable his company to satisfy U.S. food safety regulations: “If the so-called T-TIP could help on that matter, we would gain access to a new, lucrative market, it would mean for us some additional turnover of 400-500 thousand euro by 2020 and brighter prospects for our company and people that work for us.” The situation is similar for ARTICOmed, a small, innovative European company with headquarters and manufacturing facilities in Germany and a distribution center in Poland. Its products—innovative bone and joint surgery instruments—use a diamond hollow grinding technology that does not require any implants, which speeds up the healing process. Its founder states that “Our Germany-made products went through a very strict safety assessment procedure. But the European certification of medical devices is not recognized in the US and vice versa, so this is not enough to make our technology available to the interested American surgeons. I hope that T-TIP will make it easier for companies like ours to get products approved in both markets, so that patients can benefit more easily from our innovative and safe technology.”

The Transatlantic Trade and Investment Partnership will create new opportunities for companies like these in both the United States and the European Union. Reductions to barriers to trade will be especially valuable for SMEs, given that such barriers tend to disproportionately burden smaller firms. The elimination of tariffs could allow many SMEs to sell their goods across the Atlantic for the first time. Increasing regulatory and administrative transparency and ensuring that impacts on SMEs are taken into account in the regulatory process, will reduce small companies’ costs, and potentially open up new markets for them. Customs and trade facilitation reforms through T-TIP would make it easier for SMEs to participate in transatlantic trade and to support jobs through that trade. The T- TIP negotiations will also seek to open opportunities for SMEs in services, government procurement, and electronic commerce and reduce the red tape of customs procedural barriers.

So don’t let anyone tell you that T-TIP is just for big corporations. In the end, the agreement itself will refute such claims and provide concrete and meaningful benefits for SMEs, which are, after all, the most important engines of economic and job growth in both of our economies.

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