Thank you to Dr. Heitz and SME Europe for the invitation to participate in this timely and important discussion today. SMEs lie at the heart of what we are seeking to achieve in TTIP.
More and more European SMEs are speaking out in favor of what a transatlantic free trade agreement could mean for them. Here are just a few examples:
From its humble beginnings in Sweden, Revent has grown to become one of the leading rack oven producers in the world, with 125 employees…Lengthy, burdensome customs processing and the resulting delays persuaded the company to begin manufacturing for the North American market at its New Jersey plant. Although duties on the company’s US imports are low at around 3.5 percent, tariff elimination through TTIP would nevertheless make a difference because “that is still an important margin for us in a highly competitive market,” according to Revent Incorporated CEO Daniel Lago…The largest potential gains from TTIP for Revent, however, lie in greater regulatory coherence and cooperation across the Atlantic. “A small company like ours spends a lot of resources and time to ensure our products comply with different and divergent standards, from safety and electrical to energy efficiency requirements. It is a major cost driver to have to design two different versions of the same product to two different specifications in the EU and the [United States],” Lago says.
Feuer Powertrain in Nordhausen, Germany, produces more than one million crankshafts each year for the transportation and automotive sectors on both sides of the Atlantic and around the world…it has recently started building its first overseas plant in Tunica, Mississippi. When trading between the United States and the EU, Feuer ends up paying double duties—first on imports of materials from the United States, and then again on the reexport of finished products from Europe. The company hopes that TTIP will not only eliminate transatlantic tariffs, but will also address the duplication of certification requirements for production machinery—a costly and time intensive burden Feuer faced when getting approval for its highly automated production line at its new US factory in Mississippi.
Asselin, a French family business founded in 1957, specializes in wood, iron and cabinet work in the restoration of historic monuments and construction projects. In late 1999, Asselin saw a market in the United States, not only for its restoration services, but also for authentic windows and doors for French-style homes. A year later, the company’s president decided to open an office in Atlanta to be closer to potential customers. Asselin faced a long and costly certification processes for ensuring that their windows and doors would comply with US building codes. This process required the company to retest products that had already been certified in France, which was not only costly but took almost five years to complete.
The stories are noteworthy because they cover a diverse range of companies from diverse locations. And though they note some current obstacles to increased exports to the other side of the Atlantic, they also radiate confidence about these companies’ ability to compete and win in international trade.
It is vital that we talk about such stories widely, especially in Europe. TTIP is about helping such companies, not just about multinationals. That stands to reason. Both the European Commission and the US Administration appreciate very well the importance of SMEs for job creation and the role that trade plays in the creation of higher-paying jobs. According to a Commission report on European SMEs, in 2014 SMEs in the EU accounted for 71% of the 1.5 million net jobs created in the non-financial businesses sector. In the EU, SMEs that export are growing their payrolls by 7 percent annually as compared to only 1 percent for those that focus exclusively on their domestic market.
The time is now for more SMEs to go international and take advantage of these opportunities – especially in the digital age where the internet has significantly diminished scale advantages. According to a recent study, SMEs with a strong internet presence earn twice as much from exports as those without one; the same study revealed that connected SMEs also created more than twice the number of jobs as others
We are not just saying we care about SMEs in our free trade agreements. We are actually showing this care in practice. As you know, we recently finalized the Trans-Pacific Partnership Agreement (TPP). This historic agreement among countries that represent nearly 40 percent of global GDP helps small businesses benefit from global trade. TPP addresses trade barriers that pose disproportionate challenges to small businesses, such as high taxes, overly complex trade paperwork, corruption, customs “red tape,” restrictions on Internet data flows, weak logistics services that raise costs, and slow delivery of small shipments.
We think the potential for TTIP to help SMEs is even greater because there are so many SMEs in Europe and the United States, many of whom have not exported. These SMEs continue to face obstacles when seeking to export to the other side of the Atlantic. Even in modern, developed trade relationships with low average tariffs, barriers to trade still exist.
These barriers can have a disproportionate effect on SMEs. In today’s competitive global marketplace, even small increases in a product’s cost due to tariffs can mean the difference between making and losing a sale for SMEs. In some cases, the removal of tariffs could allow SMEs to sell their products across the Atlantic for the first time.
Our goal in T-TIP remains to eliminate all tariffs on goods trade. Removing tariffs levels the playing field for all businesses, but particularly helps small firms. The many small businesses that supply larger exporting firms will also benefit directly from increased exports – and more jobs.
Tariff reduction can also help reduce the cost of inputs, an important objective in an increasingly globalized marketplace. Businesses based in Europe face high input costs; their ability to survive in a global supply chain will depend in part on sourcing goods at the lowest possible price.
Another key goal of T-TIP is to reduce trade barriers that can disproportionately burden SMEs, like customs paperwork, which have fewer resources to overcome them than larger firms.
It also includes other non-tariff barriers, such as variations in product and procedural requirements. Many of the stories in the joint USTR-Commission SME documents are precisely about this issue. Such barriers currently disadvantage smaller companies in selling the same product in different markets, since only larger companies can afford the costs of multiple production lines and separate compliance departments.
According to a study by the Dutch institute Ecorys, the additional costs arising from having to duplicate product approval, testing and conformity procedures when importing goods into the EU amount to an average markup of 21.5 percent. Non-tariff barriers were found to increase product costs on average by about 35 percent in the cosmetics sector, 26 percent in the automotive sector, 19 percent in the textiles and clothing sector, and 57 percent in the food and beverage sector. The German manufacturing industry estimates that costs for a German machine are increased by 15-20 percent due to redundant testing, certifications and the production of components just for the U.S. market.
Introducing more transparency and opportunities for greater public participation in regulatory development will also help SMEs understand plans for future regulations and provide a chance for timely written input and information to ensure that the interests of SMEs are taken into account.
Furthermore, providing the online tools for SMEs to participate in our regulatory processes in a predictable manner at a point in time where they can provide the most value to regulators can lead to savings that can be reinvested in people and technology. T-TIP commitments to “good regulatory practices” could fundamentally change how all small stakeholders contribute to policy development.
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 (as we have done for the first time in TPP). 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 SMEs to help them understand and benefit from the provisions of the agreement.
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. Programs like SelectUSA Tech are currently very successful in assisting SME’s cross the Atlantic, but future cooperation under a T-TIP SME chapter could help SMEs take even better advantage of commitments in other parts of T-TIP that may have particular importance for them.
T-TIP negotiations will also seek to open opportunities for SMEs in services, government procurement, intellectual property rights, and electronic commerce.
As we look toward the 12th round of negotiations next month, I want to reiterate that the United States remains committed to a comprehensive transatlantic trade and investment partnership agreement that will benefit SMEs, and we are committed to finalizing the agreement under the Obama Administration.