How TTIP Could Become a Game-Changer for SMEs
Lena Muxfeldt and Matthias Goetz respond to our recent article about SMEs. "With the outcome of the negotiations still open, we argue that TTIP still has the potential to become a "real deal" for SMEs. However, TTIP benefits for SMEs will not happen without innovative solutions for rules of origin, real progress on custom facilitations and new communications channels between negotiators and the SME community."
There has been much controversy in public, but also academic debates whether the Transatlantic Trade and Investment Partnership (TTIP) would also benefit small and medium-sized enterprises (SMEs). With the outcome of the negotiations still open, we argue that only under certain conditions TTIP- if it is to be successfully concluded- has the potential to be a "real deal" for SMEs. More specifically, we argue that tangible benefits for SMEs rest on three crucial points:
- Firstly, we agree with Tess Snodgrass (TTIP for SMEs) that the design of rules of origin in TTIP is essential for the benefit any negotiated agreement can deliver to SMEs. Rules of origin determine which products can benefit from the preferential market access conditions on which negotiators agree. Experiences from the implementation of existing bilateral agreements show that utility rates of preferential market access offers are particularly low by SMEs. To make sure that TTIP market access can be used by SMEs, rules of origin need to remain simple and should restrict sector-specific rules to a necessary minimum. Besides, compliance with TTIP rules of origin should avoid adjustments for both US and EU businesses in current invoicing practices. As compliance with US and EU rules of origin currently presupposes different methods for the calculation of content origin, a best-case deal for SMEs is likely to see some form of mutual recognition of the other side's rules of origin. Given the high volume of intra-industry trade and the already low levels of transatlantic tariffs- which can be expected to be even lower with a negotiated TTIP- negotiators may even wonder why transatlantic trade needs rules of origin at all.
- Secondly, we propose that actual opportunities for SMEs through TTIP rely at least as much on tangible progress in the area of customs facilitation. While large firms are able to share production over both continents and can thus service US customers with products produced in the US and EU customers with products produced in the EU, SMEs mostly need to export products that they produce in their home continent. Unless customs procedures are easy and efficient, it is difficult- if not impossible- for foreign SMEs to compete with large firms and domestic SMEs. Industry, notably the Chambers of Commerce, has made various proposals on the issue of customs facilitation. Streamlining customs procedures and raising "de minimis" thresholds are only some of them. Customs facilitation should be treated as a high priority by negotiators, if TTIP is (also) to be an agreement for the benefit of SMEs.
- Thirdly, the European Commission and its US counterparts must reach out more intensively to the SME community, both during and after the TTIP negotiations. We disagree with Tess Snodgrass's call regarding anti-TTIP sentiment among some German SMEs that "German SMEs should look at the big picture a little more". Business surveys demonstrate that an overwhelming majority of German "Mittelstand" companies support TTIP. Rather, the mobilisation by some SMEs against TTIP should be understood as a call that trade negotiators need to increase their accountability towards their constituencies, especially SMEs. The – given the large number of SMEs in the EU- relatively modest participation rates by SMEs in the TTIP SME survey of the European Commission imply that the current consultation format may not be the best way to do so. Many SMEs may simply be unaware of the consultations. Besides, our selective interviews with German SMEs also suggest that current consultations likely ask the wrong questions. While many SMEs may not have the technical knowledge of specific trade barriers that are inquired in the consultations, some of our interview partners indicated they felt unable to raise crucial challenges they face in exporting. More promising, although resource-consuming, alternatives, or complements, to the current consultations may be locally organised roundtables with SMEs and trade officials to discuss trade challenges.
We do not claim that all SMEs will or can equally benefit from TTIP. If, however, all or at least most of our three crucial points materialise, TTIP has the potential to be a "real deal" for SMEs. Otherwise, the benefits may at least in the short-run concentrate on larger, multinational firms.
Lena Muxfeldt studied Political Science and International Relations at Leiden University and was a Research Fellow at the EU-Japan Centre for Industrial Cooperation in Tokyo.
Matthias Götz studied European Political Economy at the London School of Economics and is now PhD Candidate at the Cologne Graduate School in Management, Economics and Social Sciences, University of Cologne.
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