Thank you, David and Dani, for that introduction. It is good to be back in Brussels, where I started my career.
I have believed in the European project as a force for good since I started studying the EU as a graduate student at Oxford and then Columbia Law School. I landed here in 1990 to work on competition policy at the European Commission and then was faced with an important professional choice: would I start my career in Brussels or go back to the U.S. to start work in a U.S. law firm? I decided to start here, an unusual choice, because Brussels was an interesting place to be: the single market was being completed and the EC was opening up to new members from the East. I feel the same sense of excitement and possibilities today.
I am delighted to be here today to talk to ESBA. I appreciate the role that you play in the European economy and I admire what you do. For six years prior to my arrival in Brussels three months ago I was Managing Director in a London-based private equity fund where I was responsible for all of the legal and financing issues related to our acquisitions and divestitures all over Europe. The fund focused on proving growth capital to fast-growing small and medium-sized businesses in a number of services sectors, especially financial services, healthcare services, business services such as specialty retail, and energy services.
And I’m also delighted to talk about T-TIP, which we will one of my key focus areas over the next few years. We will soon reach the one-year anniversary of the beginning of the T-TIP negotiations. The sixth round takes place in mid- July, and we’re making steady progress in all of the working groups. We have consolidated draft texts in five areas.
The U.S. and the EU have tabled an offer on tariffs; our ambition – which we hope is shared by the EU – is to eliminate all tariffs on all bilateral trade. We have tabled an ambitious offer to liberalize services on the basis of a so-called “negative list”, meaning that all services sectors would be covered by the deal’s obligations, except those that are specifically exempted. This includes commitments to open services sectors at the federal and sub-federal levels; at the sub-federal level, the current level of EU market access would be guaranteed and any additional future market opening by the U.S. states would be extended to the EU.
But make no mistake: this will be a long, detailed and sometimes difficult negotiation. That simply reflects the fact that this is a negotiation between equals that seeks a “high level, ambitious agreement” that goes beyond what has been achieved in prior trade agreements. For example, we are seeking to reduce the impact of the differences in our regulatory and standard setting systems. This is the area of greatest economic promise, especially for the small and medium-sized firms that you represent. But the regulatory chapter is also the area of greatest challenge.
As the U.S. Ambassador, my job is naturally to represent the U.S. and to fight for its interests. But that is not the only reason I am speaking out in favor of T-TIP. I also do so as a proud European. My mother was Italian; I have spent half my life in Europe; my wife is Spanish and my children are being brought up, like me, to be proud of their European and American heritage. I believe in Europe: I believe in its tremendous reservoirs of talent; and I believe in its ability to compete and to win in free international trade.
The Growth Imperative
But Europe is struggling. Although growth has returned, it’s anemic, uneven across the member states and is largely jobless. Unemployment remains high; stuck at nearly 11%. Youth unemployment hovers at 25%, and in southern Europe it is particularly high at over 40%. As a result, talented, ambitious, young people from many European countries are leaving the continent to go to the UK or to the U.S. or further afield, such as Brazil, China and Australia to make their futures.
There is one word which defines the imperative of T-TIP: that word is GROWTH. Countries that stagnate can’t: offer their young people jobs or a future; generate and tax the revenue base necessary to pay for pension funds for their retirees, or social and educational programs or protect the environment; fund the research and development that will drive innovation and improve competitiveness in a globalized economy; afford the defense spending that guarantees independence (recent events in Europe have shown the dangers of that). In a low-growth environment, especially one in which bank credit is restricted, small and medium-sized businesses suffer in particular. I know all about that from my prior career when I had to struggle to finance our portfolio companies.
Both sides of the Atlantic need growth, but let’s face it: Europe needs it more than the U.S. As you know, the U.S. has been experiencing an energy boom that has provided the country with a long-term economic advantage. We have overtaken Russia as the world’s largest gas producer; within a couple of years we will overtake Russia and Saudi Arabia as the world’s largest oil producer. This bounty – which could more easily be shared with the EU if an FTA were in place – has created hundreds of thousands of new high-paying, middle class jobs at home. This has contributed in part to an unemployment rate of 6.3%. And with a younger, growing population, the United States has a demographic advantage.
T-TIP would be a significant debt-free stimulus for jobs and growth available in Europe. There are several other levers of growth in Europe, such as the completion of the single market, especially in services; reform of its labor markets; and progress on the digital agenda. But according to all the serious studies done to date, T-TIP would make a large contribution.
Some critics of T-TIP claim that the beneficial effects of T-TIP may not be as high as estimated. The European Commission’s impact assessment states that T-TIP would boost annual economic growth by 0.5%. Even if the boost to GDP were half of the Commission’s estimates, i.e. a .25% increase in GDP, there would be a permanent increase in annual GDP in the EU and the U.S. of around 60 billion euro. According to another well-known study, “just” a transatlantic zero-tariff agreement could boost U.S. and EU exports to each other by 17%. Every billion euros of trade in goods support around 15,000 jobs in the EU; so even the lower estimate of the benefits indicates that roughly 1 million jobs would be created.
Our goal in negotiating T-TIP is to enable the U.S.-EU economic partnership to do more of what it already does well. Affiliates of EU firms already employ 3.8 million workers directly in the U.S., and affiliates of U.S. companies already employ 4.2 million workers in the EU. T-TIP aims to make it possible for both of those numbers to grow, through increased trade and investment.
Governments in Europe understand this. I am pleased to see that Italy has made growth and T-TIP a key focus for their upcoming EU presidency. But there is a lack of trust at the grass roots level about what we are negotiating. A growing drumbeat of negative commentary, especially among some elements of civil society, assumes the worst about the agreement.
There are numerous criticisms of T-TIP:
We stand accused of wanting to force European consumers to eat hormone treated beef and genetically modified foods; the truth is that we simply want the EU to follow the advice of its own scientific bodies, including the European Food Safety Agency, rather than allow some member states to block decisions and abuse for political ends clearly defined decision-making procedures. This is not just an American interest. This is in the interest of European business as well, especially in the interest of SMEs who often don’t have the money to pay for well-connected lobbyists.
We stand accused of wanting to give a hand-out to big business, especially through the investor state dispute resolution provisions; the truth is that we are particularly focused on the benefits of T-TIP for small and medium-sized businesses and that investor-state dispute settlement is an important component of a 21st century model trade agreement that will give business, including small businesses, the confidence to commit the long-term risk capital that will create growth and jobs. The historical record shows that the EU investors benefited from these provisions, and in a litigious U.S. environment I would have thought that European SMEs would welcome the opportunity to submit their disputes to arbitration.
We stand accused of wanting to lower health and environmental standards; the truth is that in many areas U.S. standards are higher than those in the EU and that there is no appetite among the U.S. administration, regulators or Congress to lessen the protections that U.S. citizens expect.
I want to spend a little time talking about the deregulatory agenda myth, which is often code for “the EU’s approach to health, safety and environmental regulation is inherently better, more protective and more cautious than the U.S. approach.” This is a particularly damaging myth, because no one wants to engage in a regulatory compatibility exercise with a partner that has uniformly less protective standards.
In some EU member states, there is a widespread belief that U.S. standards are uniformly weaker than European standards. Some of the 13 million Europeans who visited the U.S. in 2013 presumably share this belief. And yet on these visits they eat American food, drive American cars and use countless other products without fear and without incident. The belief is false: in some sectors the U.S. is in fact more cautious than the EU.
For example, we require batch testing for some color additives in cosmetics but the EU does not; we require independent third party testing of toy safety, but the EU does not; in the U.S. the surface of toys may only contain 90 milligrams lead per kilogram, whereas in Europe the ceiling is 160 mg/kg; we require third party certification of electrical safety, whereas the EU allows companies to self-certify that their products are safe; we require seven different crash tests to be performed by automotive manufacturers, whereas the EU only requires two of those tests; and in the U.S. organic cattle may not be exposed to any antibiotics, whereas European farmers may treat sick cattle with antibiotics and then sell their meat as organic. I could go on.
But in some sectors the EU. is clearly more cautious than U.S.; and in many other sectors the U.S. and the EU simply have different approaches while achieving broadly similar levels of protection. We agree with the Commission that it makes little sense to get into a beauty contest over the quality of our respective regulations. The goal is increased transparency, openness and, where possible, better convergence in regulatory approaches and related standards-development processes.
The U.S. and the EU already cooperate on standards. Through our joint efforts, toys manufactured for our markets in China are safer thanks to the U.S. and EU having worked together to set the standards. Thanks to an agreement between the FAA and the EU on cooperation in the regulation of civil aviation safety, specifically promoting reciprocal acceptance of repair and maintenance standards, you can fly on an airplane and be confident of its safety, regardless of whether it has been serviced in the U.S. or in Europe.
There is no “one size fits all” approach; in some instances we may be able to agree on common standards where the existing differences are modest. While this is difficult, it is not impossible. The US Department of Agriculture and the Office of the Trade Representative signed an organic equivalence arrangement with the EU in February 2012. This arrangement will expand market access for organic producers and companies by reducing duplicative requirements and certification costs on both sides of the Atlantic while continuing to protect organic integrity.
In other areas, such as telecommunications and electrical safety, we might be able to agree on mutual recognition where the standards provide equivalent degrees of protection; in yet other areas we may also be able to achieve significant savings by encouraging our regulatory agencies to work together, for example, allowing industry to request parallel scientific advice during the development phase of breakthrough medicinal products.
Just the other day I was seated next to an executive of a large global motor vehicle manufacturer who pointed out to me that the NOx and particularate matter limits set by the EPA and the EU are almost the same, but the standards are different. The problem is that even minor differences in regulations impose huge extra costs in terms of research and development, testing, tooling and certification. Australia, New Zealand and Mexico have accepted both emissions standards. We need to review whether we can do the same in the United States and the EU.
Last month I was at the annual Seafood Expo in Brussels and was told that oyster producers in the U.S. and EU cannot ship to each other because of differences in the requirements for bacteria testing: the U.S. tests the water in which oysters are reared while the EU requires testing of the oyster flesh. Are these different approaches really necessary or do they offer the same level of protection?
We also are aiming to promote greater compatibility in our future regulations by enshrining the principles of transparency, participation and accountability in the regulatory process. As the U.S. Trade Representative Mike Froman has argued:
“…we should be able to publish an agenda of our upcoming regulations, and highlight the ones that have an impact on trade. We should be able to publish the text of the proposed regulations when they are still in draft form, and state the input from the beginning. We should be able to provide for all stakeholders…from any country…the opportunity and time to comment on these draft regulations. And when our regulators take a final decision, they should be able to respond to the substantive comments and explain how their regulations are grounded in science and evidence.”
These are not uniquely American principles. This issue is not about forcing “our way” of regulation on the EU. These principles are respected in many European countries and are part of the EU’s regulatory reform agenda. And I can tell you that not only many EU Member States, including the UK, but also many European businesses — especially small and medium sized ones — want to see these principles respected.
The Benefits for SMEs
That brings me to the opportunities that T-TIP may provide for SMEs. The claim that T-TIP is designed exclusively to help big business is another myth: SMEs are a major focus of the negotiations, and for good reason.
Both the EU and the U.S. realize how crucial SMEs are as motors of growth and job creation. We know that 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% of net new jobs between 2002 and 2010 were created by SMEs. In the United States, small businesses have provided over half of all jobs and two-thirds of all net new jobs in recent decades. On both sides of the Atlantic, SMEs are an important source of innovation, new products, and new services, and are already benefitting from transatlantic trade.
USTR and DG Trade developed together an outreach document that tells the story of U.S. and European small businesses currently exporting and hoping to expand their transatlantic trade, and it describes the potential benefits of T-TIP to SMEs. You can find it on USTR’s website, http://www.ustr.gov/, and I’m sure on DG Trade’s site as well.
The elimination of tariffs would help to reduce the cost of inputs and to access new markets. Although transatlantic tariffs are already low, there are peaks in several areas such as textiles, shoes and foods such as dairy products. Even low tariffs can make a significant difference in sectors which operate at low profit margins, such as the automobile industry.
In public consultations SMEs have pointed to the particular burden that regulatory differences pose for their activity. The difficult paperwork, conformity assessments and administrative costs of dealing with divergent regulatory environments pose sometime prohibitive costs. It is obvious that SMEs often do not have the legal and administrative resources that big businesses have to cope with burdensome bureaucratic procedures and red tape.
SMEs are also expected to gain significantly from T-TIP because SMEs tend to dominate the sectors where increased trade is expected to result from an agreement. For example SMEs account for more than 95% of the processed food, machinery and motor vehicles and parts sectors. Even those SMEs who do not sell to the U.S. market may benefit from increased sales to customers who do.
I’m confident that we can get to a successful conclusion in these trade negotiations. But we need to return to basics and explain why we are pursuing this ambitious undertaking. We need to do a better job to remind people, including small business and civil society, that we have a common interest in seeing T-TIP succeed. I have given variations of this speech to business organizations here in Brussels, in Spain and in the UK, and I’ve urged them to be more vocal. I am going to do the same now to you. In fact, I believe that your voices are even more important.
As small business owners and representatives you are trusted leaders in your communities. By speaking out on the benefits of freer trade and by countering the myths and mischaracterizations of T-TIP with facts, you can play are role in giving U.S. and European negotiators the space they need to negotiate an ambitious agreement, enabling T-TIP to stand or fall on its merits.
Supporters of T-TIP at conferences like this are often keen to hear details of technical negotiations, hoping to get insight into what will be in the final agreement. A refrain I have heard from businesses in particular is that they do not want to commit resources to supporting T-TIP publicly until they see what is in the final agreement and understand exactly how they will benefit from it.
That is a dangerous game. The political fight over T-TIP has already begun in earnest. The public is watching T-TIP, and the European Parliament –which must approve any EU trade agreement — will be influenced by what their constituents are saying. People who understand the imperative of growth, and the importance of trade and investment to delivering growth, need to do a better job now of explaining these issues to the public. The governments are negotiating complex and difficult agreements. This is a challenging task, made more challenging if politicians doubt public support for concluding the deal.
If you support T-TIP, I urge you to do more now to explain why, and to do so in terms that ordinary people can understand. If business leaders, whether they are from large or small enterprises, wait to fully engage in the public debate until the negotiations are completed, they may find that the opposition has won before they even show up to the game. The fate of the Anti-Counterfeiting Trade Agreement, which some of you may recall, is a good lesson.
I look forward to engaging actively with the SME community in Europe on T-TIP on other issues during my tenure. If you have suggestions, I’d like to hear from you. And if your members want to hear more about what we are doing in the negotiations, we’d like to speak to them.