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New Report Details Impact of T-TIP on Small and Medium-Sized Businesses

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The United States International Trade Commission (USITC) released a new report detailing the impact the Transatlantic Trade and Investment Partnership (T-TIP) would have on small and medium-sized enterprises (SMEs).

The report, entitled “Trade Barriers That U.S. Small and Medium-Sized Enterprises Perceive As Affecting Exports to the European Union,” was specifically requested by the Office of the United States Trade Representative (USTR). Compiled over the last six months, the study exhaustively represents a wide-ranging collaboration between the USITC, USTR, the U.S Small Business Administration (SBA) and the U.S. Department of Commerce. In order to better understand the T-TIP’s significance for SME’s, twenty-eight small business roundtables were convened in cities all across the U.S., with particular attention paid to the trade barriers the free trade agreement would eliminate or diminish. The result is that the study “catalogs trade-related barriers that U.S. small and medium-sized enterprises (SMEs) perceive as disproportionately affecting their exports to the European Union (EU) relative to large exporters to the EU. Various approaches were used to gather information directly from SMEs and other interested parties (“respondents”).”

According to the report, SME’s have been more restricted by trade barriers with the E.U. than previously thought, meaning that the T-TIP’s final resolution could be expected to deliver significant cost-savings. “Respondents reported that numerous EU trade barriers, particularly standards-related measures, limit SMEs’ exports to the EU more than those of large exporters. They explained that while complying with standards, technical regulations, and conformity assessment procedures is costly for larger firms, it is potentially prohibitive for SMEs because many costs are fixed regardless of a firm’s size or revenue. Respondents also cited difficulties involving trade secrets, patenting costs, and logistics challenges, especially customs requirements, Harmonized System classifications, and the EU’s value-added tax system. Trade financing in the EU was reported to be a lesser problem.”

While the scope of the report is broad, there are several sections that deal in minute detail with specific industries, including apparel. “Besides these cross-cutting issues, the report describes many industry-specific barriers. Many respondents involved with chemicals and related products singled out high compliance costs for the EU chemical regulation, while SMEs exporting cosmetics expressed difficulties meeting the EU’s cosmetics directive. Respondents in the apparel industry highlighted the recent retaliatory increase in EU duties on U.S. exports of women’s denim jeans, since most affected producers are SMEs. SMEs producing machinery, electronic, transportation, and other goods cited a lack of harmonized international standards and mutual recognition for conformity assessment, as well as problems complying with technical regulations and conformity assessment procedures.”

In addressing the imprint the settlement of T-TIP would have on the apparel industry in particular, the report discussed the controversial duties the E.U. maintains on the importation of U.S. denim products. “An apparel industry association contended that a recent sharp increase in the EU duty on U.S. exports of women’s denim jeans–from 12 percent to 38 percent–damages U.S. producers’ ability to export to the EU. The increase in duty is part of a retaliatory action taken by the EU following litigation at the World Trade Organization. Many of these producers are SMEs, which supplied about 94 percent of the known value of U.S. apparel exports to the EU in 2010—11.”

Duties and tariffs are not the only problem SMEs noted. Unwieldy regulation, and the lack of harmonization between the U.S. and the E.U. from the perspective of compliance, has been costly. “In response to the Commission’s queries, many SMEs reported that to export to the EU, they must meet a large number of EU technical regulations and other requirements. The cost of meeting these requirements is particularly high because in many cases they require U.S. firms to hire representatives in the EU and perform extra tests. SMEs contended that these rules tend to affect them more than large exporters because they relate mainly to the approval process for the product itself; the costs must be borne regardless of the quantity of goods shipped. Large firms have a greater volume of sales over which to spread these costs. Although the situation with tariffs is somewhat different in that the tariff paid varies directly with the value of the goods shipped, SMEs also perceived that tariffs affect them disproportionately.”

The full report can be found here.

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