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U.S. Small Businesses See Multiple Barriers to Exporting to EU

Tuesday, April 01, 2014
Sandler, Travis & Rosenberg Trade Report

A new International Trade Commission report finds that U.S. small and medium-sized enterprises see a number of trade barriers that make it harder for them to export to the European Union than their larger competitors. The Office of the U.S. Trade Representative requested this report as part of an effort to ensure that the Transatlantic Trade and Investment Partnership agreement enhances the ability of SMEs to participate in U.S.-EU trade by addressing barriers that may have a disproportionate impact on them.

Cross-cutting Issues. Many SMEs claimed that the costs of complying with EU technical regulations and other standards-related requirements, which can include hiring representatives in the EU and performing extra tests, tend to affect them more than large exporters because these costs are the same regardless of the quantity of goods shipped. Respondents also cited difficulties protecting trade secrets and the high cost of obtaining patents, although the ITC notes that the EU has issued a draft directive on trade secret protection and is working toward lowering patent costs by creating unitary patent protection. Logistics challenges, especially navigating numerous different customs requirements, consistently obtaining correct Harmonized System classifications, understanding and complying with the EU’s value-added tax system, and distributing products within the EU, were also cited as a problem.

Chemicals. One of the most frequently cited barriers is the EU’s chemical regulatory system (Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)). While U.S. exports of chemicals to the EU are fairly large and SMEs have accounted for 30-35% of those exports by known value in recent years, SMEs described a number of  problems related to REACH, including that compliance can add over 20% to the cost of the product and can require firms to reveal too much about their products, especially those protected by trade secrets. Another problem is the requirement for non-resident companies to have a special representative in the EU.

SMEs also cited a new regulation covering the marketing and use of biocides and noted that such products can also be restricted under the Water Framework Directive. SMEs exporting cosmetics expressed concerns about difficulties meeting the EU’s cosmetic directive, including the high cost of testing and the need to deal with member-country regulations that differ from EU requirements.

Apparel. The primary complaint in this sector was the May 2013 increase in the EU duty on U.S. women’s denim jeans from 12% to 38%. However, that increase will be all but wiped out as of May 1, 2014.

Machinery, Electronics, Etc. SMEs in the machinery, electronics, electrical equipment, transportation, and miscellaneous manufacturing industries pointed to the safety certification process, the need to meet numerous regulations and standards, and complexities with the VAT as principal barriers to exporting to the EU. Complications obtaining Conformité Européenne certification were described as particular barriers for SMEs, as were inconsistencies in clearing goods through customs in different countries and at different times as well as a lack of harmonized international standards. Independent U.S. resellers of computers and electronic products asserted that trademark owners’ right to control the sale of branded products in EU secondary markets prevents U.S. exports to the EU and that opening the EU secondary market could increase their exports by 30-50%. SME representatives reported that the VAT is difficult for them to navigate because it is complex and rates vary among EU countries.

SMEs also described other standards-related concerns as being important, including lack of mutual recognition for conformity assessment and divergent technical regulations between the U.S. and the EU, particularly REACH, the Restriction of Hazardous Substances Directive and the Waste Electrical and Electronic Equipment Directive. Other challenges included differences between U.S. and EU intellectual property protection regimes, tariffs and market access problems for some products, divergent data privacy rules, and high-burden customs processes.

Agriculture. While SMEs account for only a small portion of direct agriculture exports, they supply many inputs to large exporting companies and are important exporters of some specialized and processed products. Respondents in the corn, dried fruit, animal feed, cheese and wheat industries cited high tariffs, stringent and inconsistent EU rules and testing mandates, non-science-based regulations (especially for genetically modified traits), lack of harmonization between U.S. and EU standards, and the EU’s protected designations of origin. The U.S. poultry and lamb industries reported that they are effectively banned from exporting to the EU. Meeting standards and obtaining certifications, especially those involving food safety, were said to be difficult and expensive. SMEs also reported that packaging issues and a lack of cohesive labeling requirements were additional obstacles to exporting agricultural products to the EU.

Services. Recent literature indicates that non-tariff measures affecting U.S.-EU trade in services may be less severe than those affecting trade in goods. Nevertheless, SMEs and other interested parties representing professional and information services reported that the following measures impede their exports to the EU: lack of mutual recognition of medical credentials and varying licensing and credentialing requirements between EU member countries, licensing issues related to lack of reciprocity in recognizing engineering licenses, lack of transparency in EU regulations on testing and different testing standards between the U.S. and the EU, and broadcasting and film quotas, language dubbing requirements and government subsidies.

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