When it comes to economic activity in the U.S and EU, size is not a disadvantage. Small and medium-sized enterprises (SMEs) generate the majority of domestic employment and job growth on both sides of the Atlantic. But when it comes to doing business across borders, those same companies typically run into rock-solid obstacles.
A new Atlantic Council study on the Transatlantic Trade and Investment Partnership (TTIP), which remains under negotiation by U.S. and EU representatives, explores those challenges, using case studies to illustrate the difficulties SMEs face in navigating the complexities of cross-border trade. The study, which was commissioned by FedEx, also provides policy recommendations on ways to make it easier for SMEs to go global.
Here are four key takeaways from the study.
Relatively few U.S. and EU SMEs export
There are 20 million SMEs in the EU, but only 25 percent export beyond their national borders — and only 13 percent export outside of Europe. The percentage is even smaller in the U.S. Of its 23 million SMEs, only 1.3 percent export.
Exporting offers tangible benefits for SMEs
The study compared U.S. SMEs that export against non-exporters over a five-year period. The exporters saw their revenue grow by 37 percent. The non-exporters contracted by 7 percent. The story was similar in the EU. SMEs that export are now expanding their payrolls by 7 percent annually. Their counterparts that focus strictly on domestic markets are expanding at a 1 percent annual rate.
Exporting-related challenges are remarkably similar on both sides of the Atlantic
The study found that the barriers fall into several well-defined categories. One is a lack of clarity on how to get started, thanks to such issues as out-of-date government websites. Inconsistent rules on labeling, shipping, and certification requirements are another factor. On top of that, dealing with what the study calls a “confusing mix of regulatory differences” drives up compliance costs for SMEs — and often drives them out of the exporting business altogether.
The right policy changes could make a tangible difference
The study offers several recommendations. For instance, doing away with transatlantic tariffs and raising duty-free exemptions could make a significant difference for SMEs that are already operating with thin profit margins. Streamlining customs procedures would help SMEs get their products to markets more efficiently. And making the regulatory process easier to understand and more transparent would free up valuable staff time for smaller companies.
One bright note is that the TTIP is the first international trade agreement for the EU that includes SME-specific provisions. As the study points out, that emphasis underscores the commitment all parties have to the issue.
“With the tremendous increase in online shipping, it is critically important to our small and medium-sized business customers in America and Europe that we streamline rules, cut red tape, lower tariffs, and harmonize regulations to make transatlantic trade simpler, cheaper, and more seamless,” says FedEx Executive Vice President, Global Strategy, Marketing and Communication Rajesh Subramaniam. “The goal of TTIP is to create a mutually beneficial agreement that will open up more economic growth and opportunities on both sides of the Atlantic.”
A full version of the study, Transatlantic Trade and Investment Partnership: Big Opportunities for Small Business, is available here.
Tell Us Your Opinion
- What challenges have you faced trying to export goods from the U.S. or EU?