What is TTIP and Why Does it Matter?

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What is TTIP and Why Does it Matter?

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The United States (“USA”) and the European Union (“EU”) are currently negotiating the Transatlantic Trade and Investment Partnership (the “TTIP”). The TTIP is expected to be a comprehensive and ambitious treaty that will eliminate all trade tariffs for goods and services, create harmonized regulations applicable to the USA and the EU, and implement efficient customs procedures. Small and medium enterprises (“SME”) have a lot to gain from the TTIP.  Harmonized and streamlined regulations and simpler customs procedures may allow them to sell their products across the Atlantic for the first time.

The USA and the EU are deeply engaged in negotiations for the TTIP. In April 2015 the ninth round of negotiations took place, and a final TTIP is expected by the end of this year. If the TTIP is signed, it will merge the two largest trading blocks in the world, creating the largest free trade zone in history.

The TTIP will create new opportunities for export of goods and services and investment in the USA and the EU. These opportunities will be especially valuable for SMEs, given that trade barriers impose a heavy burden on small enterprises that do not have the same resources as large enterprises to overcome those barriers.

The TTIP will affect all enterprises selling or seeking to sell their goods and services across the Atlantic, but it will principally benefit SMEs.

According to the USA chief negotiator, a main goal of the TTP is developing ways to facilitate the ability of SMEs to export and invest abroad. TTIP negotiators have engaged USA and EU SMEs directly to understand the barriers they face in trying to or exporting their products. In trying to tackle the barriers mentioned by the SMEs, the negotiators are working on the following proposals:

  1. Removing custom duties and tariffs. Even though the tariffs for import and export of goods between the EU and the USA are generally low, they affect the prices of products. For big enterprises, tariffs can be a considerable expense when large quantities of goods are exported. For SMEs, even small increases in a product cost due to tariffs can mean the difference between making or losing a sale. Eliminating these tariffs may allow SMEs to enter into either the USA or the EU market for the first time.
  2. Eliminating burdensome custom procedures that hold up products at borders creating delays and additional expenses. The TTIP intends to increase the cooperation and information exchanges between custom authorities so that the custom procedures may be expedited and transparent. Eliminating these procedures will benefit particularly suppliers of perishable goods like food products that will now be able to export their goods without the possibility of having their products detained for a long time and having to incur in extra expenses to avoid their destruction.
  3. Creating harmonized regulatory standards for goods and services. Differences in non-tariff trade barriers, such as technical regulations, specifications, standards, assessment procedures, and licensing procedures present major problems for enterprises that must comply with two different regulatory schemes to sell their products across the Atlantic. The USA and the EU have similar views in policies, safety, and health standards; the differences in the regulations generally derive from the fact that they were independently created. The TTIP intends to create comparable regulations that will protect consumers while saving exporters a lot of money. Currently most SMEs simply cannot afford to comply with two regulatory systems. A survey amongst leading German trade associations showed that a reduction in non-tariff barriers will be especially useful for SMEs. By creating harmonized regulations the TTIP will give SMEs an opportunity to expand their businesses.

The TTIP matters for two main reasons:

First, it will increase trade and investment between the EU and the USA. Enterprises that currently are prevented from entering into the USA market because of trade tariffs, custom procedures, or differences in regulations, will be able to enter the market at a competitive level.

Second, the harmonization of standards between the EU and the USA could provide the basis for global standards that will affect enterprises all over the world. The USA and the EU are the principal export, import, and investment destinations for many countries around the world. Negotiations between these two major economies have the potential to lead to the establishment of world class rules and standards in a number of areas including product safety, health safety, and environmental protection.

Manufacturers and suppliers of goods and services wishing to expand their businesses across the Atlantic should follow the negotiations of the TTIP. These enterprises should prepare and analyze the possible impacts that the TTIP will have on their capability to export their products. Also, enterprises should become aware of the regulatory changes being discussed in order to prepare new processes to comply with them. Finally European enterprises should start researching their business opportunities in the USA so that as soon as he TTIP is approved they can take full advantage of the new market they can expand into.