United States | Brussels, 31 March 2013
EU SMEs and the Transatlantic Trade and Investment Partnership
Helping small and medium-sized enterprises (SMEs) get involved in transatlantic trade is a key joint EU-US objective of the Transatlantic Trade and Investment Partnership.
SMEs are essential motors of job creation, innovation and growth in Europe and account for an significant share of the EU's exports around the world, including to the United States - the most important destination for all European exports.
However, they are disproportionately affected by trade barriers: Since they have fewer human and financial resources to overcome those than larger firms, the costs for SMEs to export or invest outside the EU often outweigh the gains. Just getting information about regulatory and other requirements in export markets is already a major challenge for smaller firms.
To make sure SMEs can take full advantage of an eventual agreement, negotiators need to understand the real barriers that they face when doing business across the Atlantic.
The Commission will therefore be seeking input from SMEs on the types of barriers they encounter in the United States as part of the sustainability impact assessment currently being carried out on the TTIP negotiations.
In advance of that process, we have also been in contact with a range of SMEs and their representatives to get a preliminary view of their concerns. Though, the TTIP may not solve all issues faced by SMEs, these examples provide a good indication of the kinds of issues the negotiators need to address.
Food and drink
SMEs play an important role in EU food and drink exports in general. In 2011, SMEs exporting manufactured food and drink products accounted respectively for 44% and 40% of the total value of exports in these categories. 88% of the enterprises exporting manufactured food products and 93% of those exporting beverages were SMEs.
In addition to high tariffs (e.g. 139% for some dairy products) a range of other issues affect these companies in the United States:
European SMEs in the fruit juice sector are affected by a lack of consistency in the way US government-approved laboratories measure pesticide residue levels in fruit juice. This variation in results makes it difficult to predict whether their products will comply with the US rules or not.
European exporters of canned peppers and artichokes are at a tariff disadvantage of 15% in the United States, compared to their competitors from countries with free trade agreements or other duty free access. This has led to a significant decline in market share.
A number of small European firms export frozen pastry to the United States. They face a tariff of 6% that will likely be removed by the TTIP. In addition, products that use cream, like profiteroles, cannot be exported to the US because its approval programme for dairy products – known as the Grade A system – is extremely difficult for foreign companies to comply with.
SMEs cannot export cream cheese or yoghurt to the US due not only to the Grade A issue, but also to outdated requirements specifying particular types of machinery and piping in dairies.
Oyster producers cannot export to the United States because of differences in EU and US requirements for bacteria testing - the US tests the water in which oysters are reared while the EU requires testing of the oyster flesh itself. However, a comparison of the approaches by a European Union reference laboratory has found they offered the same level of protection.
Small breweries in the United States pay less than half the federal excise duty that larger companies pay, but this discount only applies to US beer producers – not their many high-quality European rivals. Small European breweries are also obliged to go through an importer in order to access the US market, as opposed to selling their product directly to a distributor like their American counterparts.
More than half of the value of EU worldwide exports of professional, technical and scientific services around the world comes from SMEs, who make up 87% of exporting firms.
An important part of that sector is the engineering business. In the United States, however, qualified European engineers who want to offer their service in the US have to register with each state they want to work in. This requirement does not apply to their American counterparts in almost all European countries.
Small firms play an important role in the transportation services sector. Almost 60% of the value of the EU's exports of transportation and storage services worldwide are by SMEs.
In the United States, maritime transport services are particularly restricted by a piece of legislation from 1920 known as the Jones Act. It bans foreign service providers not only from US domestic shipping services, but also from high-tech support sectors like dredging and ice breaking, which involve smaller firms.
A quarter of the value of the EU global exports of electrical equipment come from SMEs, and they make up more than 90% of exporters.
For instance, burdensome customs requirements for shipping demonstration products are a problem for at least one EU-based company producing specialised industrial cameras used in the American oil exploration industry.
Furthermore, European producers of electronic components find it difficult to sell their products in the US. They follow international standards set jointly in the International Electrotechnical Commission by more than 70 countries. The US uses different standards, meaning products have to be adapted. Even where a US standard is almost identical to international norm, companies still need to have their product tested twice, once by European and once by American testing bodies.
Pharmaceuticals and chemicals
Although often associated with larger firms, SMEs also play an important role in EU exports in both of these sectors, accounting for a quarter of the value of all basic pharmaceuticals exports and 30% of chemicals exports.
Smaller medicines firms – often at the technological cutting edge – would benefit if the current system of factory inspections were rationalised. EU and US authorities have agreed on a common set of good manufacturing practices. However, they do not recognise each other's inspections to verify compliance with these rules. That means small European firms who export to the US have to go through the same process twice.
SMEs in the chemicals sector would benefit from regulatory cooperation on classification and labelling, for example. They would also gain from a lifting of US restrictions on energy exports to the EU, which may help to address energy cost differences between Europe and the United States.
The wood and wood products sector is heavily dominated by SMEs. They make up 58% of the value of Europe's exports to the world and account for 95% of the firms exporting.
However, small exporters of some parquet flooring panels to the US today face customs duties of 8% on their exports, despite a prior US commitment in the World Trade Organisation to import these same products duty free. The change happened through a revision of the tariff classification system in 2007. US customs is also reviewing past declarations of shipments of wood flooring and charging importers heavy penalties.
Textiles, clothing and footwear
SMEs are the backbone of EU exports in these sectors, responsible in value terms for 64% of Europe's textiles exports, 56% of our clothing exports and 54% of leather and related products, which include footwear.
Tariffs are a major issue across all three sectors. A specific example comes from the footwear sector, where many products are taxed at 37.5%, making high-quality Italian shoes, for instance, less competitive in the US market.
SMEs export a wide range of other niche products, many of which also face barriers. More than half of Europe's exports in a statistical category that groups these products together ("other manufacturing") are by SMEs.
Barriers faced can include the extensive customs formalities for makers of pianos, who have to submit a detailed wood list to US customs, or the duties and customs formalities faced by makers of earplugs. Customs formalities also affect makers of eyeglasses, whose products are often held for inspection by the US authorities for up to six weeks.
Further information on SMEs & TTIP