Five more questions… to US Trade Representative (USTR) and the European Commission
Here are some things we know already, thanks largely to the research commissioned by European Commission: We know that:
SMEs really matter to the European economy, and society
- Europe’s 20 Million+ SMEs produce nearly 55% of the added value of Europe’s GDP, over 25% of its GDP and are responsible for employing 60% of its employees.
- Of these 20 Million + SMEs only 13 % export beyond their national boundaries
- Of these 20 Million+ SMEs only 0.7% export to the USA today; therefore only 5% of all exporting SMEs are exporting to the USA
- It is estimated that only 10% of the revenue of exporting SMEs comes from their export sales
SMEs across Europe have not yet fully recovered from the Great Recession, and remain vulnerable
According to the Commission’s Annual Report on SMEs of 2014, by 2013 the performance of Europe’s SMEs was still below 2008 levels in terms of the:
- Number of firms
- Number of people employed
- Added value produced
The report also ranks European countries in terms of the performance of their SMEs. The group of “very weak performers” includes Croatia, Romania and our host, Slovenia, where the number of people employed declined by 9%. So, overall, the SME sector is one that is still in recovery mode from the Great Recesssion, and would be vulnerable should it be subjected to new competitive challenges before it is strong again.
TTIP may cause great harm to the SME sector in Europe
We cannot know for sure what impact TTIP will have on SMEs because the negotiations are not concluded and, even then, it may be difficult to know with any certainty how serious the harm may be to the different SME sub-sectors.
However, what is already known about the TTIP treaty under negotiation and what has been forecast in the European Commission’s studies lead us to believe that TTIP will be damaging to SMEs in two principal ways:
Trough trade diversion
According the 2013 study done for the Commission by CEPR, TTIP will lead to significant amounts of internal market trade (that is, trade within and between EU countries) being ‘diverted’ away from the EU. According to this study some €72 Billion worth of current trade would be redirected towards the USA, including €36 Billion from the automotive sector, €13 Billion each from the electrical and the chemicals sectors. A number of peripheral countries which have export-oriented economies, such as Slovenia, will suffer a loss of trade as a result. It is worth noting that significant %’s of Slovenia’s exports to other EU countries are in automotive and electrical components and chemicals, which sales Solvenian manufacturers may not be able to ‘re-direct’ in the USA. An official Slovenian Government report forecast that the increase in forecast trade with the USA would not compensate Slovenian manufacturers for the loss of trade with the EU and would lead to a net drop in trade of between 0.4% and 1.9%.
Through unfair price competition
Across a range of sectors, the regulations in the USA in health & safety, environment, labour laws, and nutrition are far less stringent than in the EU; this fact enables US manufacturers to produce their products more cheaply, and to sell these at lower prices than European manufacturers can, because of the tougher regulatory standards in Europe. Should TTIP lead to what is called ‘mutual recognition’ of standards (that is, the standards in both the USA and the EU would be deemed to be equivalent, without changes, however big the differences between them), then US companies would be able to compete unfairly with European companies. MORE is currently conducting research into the sub-sectors where this unfair competition may have the most damaging impact on European SMEs’ home markets.
This unfair competition could impact some 98% of the SME economy in Europe. We know from the Commission’s recent study about TTIP and SMEs that European SMEs export products and services to the USA with a value of some €74 Billion, which is less than 2% of the €3.6 Trillion which SMEs produced in terms of added value in 2013. It is self-evident that the remainder of this sum(98%) represents SMEs’ ‘home market’, made up of sales in-country or exported to other EU countries, which would be vulnerable to this unfair competition.
A drop in sales of, say, 10% overall due to this unfair price competition, in addition to the loss of sales due to trade diversion, could have a major depressive effect on SMEs and on the European economy as a whole.
So much for what we know or can reliably forecast. There is a lot we do not know, and this is deeply worrying because the potential for harm to the smaller companies of Europe which we described above. In April this year, MORE publicly posed five basic questions which SMEs should ask about TTIP (see our website More for smes than ttip).
Now, I would like to ask five more questions on MORE’s behalf, and direct these specifically to my fellow panelists from the US Trade Representative (USTR) and the European Commission.
In July 2015 the EESC (European Economic and Social Committee) condemned the studies done by the European Commission on SMEs and TTIP, because these “do not provide an exact, evidence-based and detailed assessment, by sector and Member State, of the impact that TTIP could have on exporting and non-exporting companies”.
Do the Commission and the USTR have information about the impact of TTIP on SMEs which has not been made public? If so, may we have sight of it?
The EESC also said it “is crucial to be able to anticipate how these businesses will be affected by…(TTIP), as…the major economic impact of (TTIP) in terms of added value and creation of links will come from SMEs…The EESC considers it essential, particularly in the light of the implications for employnment, to have an impact assessment…”
Will the Commission carry out an impact assessment of TTIP on SMEs? If so, will it involve SME trade associations which have expressed doubts about TTIP, such as the BVMW in Germany and the UCM in Wallonie?
A European Parliament study in 2014 concluded that “Some EU sectors (the beef and suckler cows sector, Ethanol, poultry and cereals) could face serious competition if trade with the US is liberalized, with serious adverse consequences. Compared to their US counterparts, EU producers may be disadvantaged by the extra costs involved in complying with EU regulations”. (‘Risks and opportunities for the agri-food sectors in a possible EU-US Trade agreement” 2014)
Will the Commission protect EU agriculture by insisting that only US produce which meets existing EU standards will be allowed to be imported?
According to the US Census Bureau, “US small firms’ exports to Mexico and Canada under NAFTA grew less than half as much as large firms’ exports to NAFTA partners (47 percent vs. 97 percent in the 1996-2012 period). As a result, U.S. small businesses’ share of total U.S. exports to Mexico and Canada has fallen under NAFTA. U.S. firms with fewer than 100 employees saw their share of U.S. exports to NAFTA partners decline from 15 to 12 percent from 1996 to 2012”.
Will the European commission and the USTR give us the information behind their claim that SMEs will benefit “disproportionally” from TTIP in comparison to large companies, as the data from NAFTA suggests that the opposite is true?
Publicly the trade associations representing large corporations are saying that TTIP will benefit SMEs. But behind closed doors, in their conversations with the European Commission, they are saying very different things. Thanks to Europe’s freedom of information legislation, we can find out what was discussed in these meetings, but not much more! For example, we now know that the UK’s Confederation of British Industry told the DG Trade that it believes “the benefits of TTIP for SMEs remain hypothetical”. France’s MEDEF met Commissioner Malmstrom on 26 March 2015 and asked her how she would “reassure the 19 million European SMEs which do not export and which will face increased competition (in their home markets)”
What did Commissioner Malsmstrom answer to the MEDEF’s question?
These are five questions to which we would like answers. Nothing would give us, and the SMEs we work with, greater pleasure than to close up MORE and to get back to doing what we love doing most – making Europe’s businesses and communities prosper! Thank you!
Author: Richard Elsner, MORE GmbH
Complete News can be found here: http://projekt-more.info/five-more-questions/
Something about MORE :
MORE is a growing network of SMEs in Europe (in Germany, Austria, soon in France and who knows… maybe Slovenia next?) which are deeply worried about TTIP’s potential impact on SMEs. MORE is collaborating closely with national SME associations which represent upwards of 350,000 SMEs. MORE was created earlier this year to challenge the narrative being propagated by TTIP’s main advocates, namely the European Commission and the USTR in the USA, that TTIP was created primarily to help SMEs, and that it will bring ‘disproportionate’ benefits to SMEs. This narrative sounds entirely speculative to us, based on available knowledge. We believe in trade, but we believe that making unjustified claims about TTIP’s impact could hurt TTIP, and may eventually sink it in the court of public opinion.