EU Observer | 26 April 2016
Small business still waiting for TTIP breakthrough
By Justus von Daniels and Marta Orosz
The company Code Mercenaries can be found in the south of Berlin, several miles outside city limits.
This is where Guido Koerber and his eight employees produce microprocessor chips for keyboards. Not for PC or Apple computers, but personalised orders for industrial machines.
Koerber’s company does exactly what Germany’s small and medium-sized enterprises are praised for: offering a highly specialised niche product that is successful overseas. Roughly 90 percent of Koerber’s merchandise stays in the EU, the other 10 percent goes to customers in the US.
But when it comes to exporting across the Atlantic, there is significant room for improvement. For Koerber, the biggest problem is various regulatory standards in America.
When it comes to permits and product licensing, the US is a patchwork of different rules and regulations. Each of the 50 states of the US sets its own safety standards.
When selling within Europe, it is straightforward. Koerber’s company produces its microprocessors according to CE-standards, which are accepted by all of the EU member states. He can bring his product to market anywhere in the EU as long as he complies with these regulations.
If he wants to sell a product in the US, he first needs to be certified by a US institute, despite already meeting the CE-standard of approval.
“In the US, there are multiple certification institutes, but not all certifications are recognised everywhere in the country. This can cost me upwards of €10,000,” Koerber said.
Seatbelts and headlights
There is no single industry standard in the US and there are 17 competing certifiers. What is approved in Arizona might not be accepted in Florida. This regulatory chaos isn’t only bad for international companies, but for American companies as well.
Ideally, this is where TTIP, the transatlantic trade pact, would step in. For example, indicators for cars have been proven safe in both regions of the world; US thermometer safety has been recognised and EU machines have proven to be fire-safe. The companies that produce these products were promised that the quality and safety standards would be recognised by both sides, thanks to TTIP. Meaning these businesses could export their products without dealing with the extra bureaucracy.
This has been one of the main pillars of argument in support of TTIP.
But it looks like this promise will go unfulfilled.
On Monday (25 April), the Hannover Fair, one of the world’s leading trade fairs for industrial technology, kicked off. President Barack Obama and German chancellor Angela Merkel opened the event. Other senior TTIP negotiators and European Commission President Jean-Claude Juncker will also visit the fair.
World leaders will be watching closely and looking for signs as to whether TTIP will be adopted by the end of 2016.
But what kind of TTIP will be adopted? Who stands to benefit from this trade pact?
After the last round of negotiations in February, EU trade commissioner Cecilia Malmstroem announced that progress had been made regarding car standards. “We have reached an agreement on seatbelts and headlights,” Malmstroem said.
Seatbelts and headlights. Nothing else after nearly three years of negotiations? Surely it should have been possible to address blinkers, rear view mirrors and crash tests during this same time period?
Public records from the last round of negotiations in Brussels show that things move slowly: “The parties exchanged detailed information on each of the issues, agreeing that more detailed inter-sessional work on technical details would be needed,” the chapter on cars read.
In other words: Nothing was accomplished.
This is also true in other areas. In many cases, progress is negligible. Take engineering for example. At an internal meeting, the European Commission cautiously suggested excluding this chapter from the negotiations due to the lack of progress made so far.
In an internal report from February 2016 obtained by Correctiv, the commission stated that negotiations related to the TTIP-Annex on machinery and engineering “failed to make substantive progress” and should be resumed, but “some member states have responded by demanding negotiations to continue”.
So far, German businesses associations are still supportive and standing behind TTIP. But the front is crumbling. There are growing doubts even within the larger organisations. The Federal Association of Medium-Sized Enterprises (BVMW) is less sure of the benefits.
According to the association, 62 percent of small or medium-sized enterprises had a “rather negative” or “very negative” view of the proposed agreement. Many companies feel like the wool is being pulled over their eyes.
The mutual recognition of standards was always a benefit of the trade agreement. The Federation of German Industries (BDI) even produced campaign videos featuring production managers explaining the cost savings that will follow if they no longer have to worry about the extra inspections and certifications when exporting to the US.
Even critics of TTIP agree this makes sense. But it is becoming more and more clear that these benefits are not likely to be included when the agreement is accepted.
Neither the negotiators nor other stakeholders will publicly state that the American side is unwilling to negotiate the removal of these extra inspections, but that is what it boils down to. The American side cannot mandate the removal because each individual state decides how products are approved.
According to an internal report obtained by Correctiv a commission official warned member states already in 2014 that “the US negotiation partners referred to the lack of legal opportunities” that would empower them to enforce the 17 testing laboratories to adopt unified norms.
Safety and truck standards
“Normalising standards has played a smaller role in free trade agreements because most countries move products within the international standardisation system,” said Sybille Gabler of the German Institute for Standardisation (DIN).
“This is not the case in the United States where international standards are used less, if at all. That is why this issue in TTIP is particularly important.”
But there are areas where the US government can negotiate, like motor vehicles.
The German Automotive Industry Association (VDA) estimates that German car manufacturers would save the equivalent of a 26 percent custom duty if vehicles from both sides of the Atlantic had the same standards.
However, given differences in road conditions, equivalence could be dangerous for motor industry. This is why the sides are miles away from coming to a consensus.
In 2014, the US motor industry commissioned a study by the University of Michigan that suggested the risk of accidents in Europe and the US varied. European roads are more winding and narrower than US roads and cars in Europe go at a higher speed.
Furthermore, recognising one another’s standards would raise the risk of accidents on the respective countries’ roads, the study said. “In more than one way, these vehicles are not equal. Recognising them is not advisable,” said Carol Flannagan, lead researcher of the study.
Negotiators are also facing other difficulties. Sorting out the details that would allow recognition is extremely tricky.
The EU negotiators have done case studies in which they compared both governments’ protocols for seatbelt and headlight approval. The results after two years?
Approval can be met, but only after both sides make adjustments. To date, other car-related issues like crash tests, brakes and car frames have yet to be negotiated in detail.
Even the industry issues occasional warnings. The Association of European Auto Suppliers (CLEPA) is for TTIP, but has still voiced concern and issued warnings about recognising certain safety standards. They are concerned that doing so could reduce the overall safety of vehicles.
In an email sent February 2014, the association wrote to the EU Commission about brakes for heavy-duty transport trucks: “It must be asked from a European perspective, whether the EU Commission and the member states would be able to support a reduction in safety standards and allow FMVSS-certified [a US standard] vehicles into the European Union.”
The email goes on to say: “Drivers would be confronted with various options that in an emergency situation could lead to more problems.” The association is of the opinion that recognising US standards “won’t make sense once put into practice”.
After nearly three years of negotiations, it is becoming clear that there are no easy answers. When it comes to testing methods, admission procedures and safety precautions, the markets are too different.
The invested agencies are almost at a standstill. We would need 10 years to make any real progress, said an EU negotiator who is currently dealing with this issue.
Didn’t the negotiators know this before? Koerber thinks that they were naive and “underestimated the difficulties associated with regulating the standards”. In any case, TTIP negotiators should put in extra effort to try to improve the sluggish collaboration with the US.
From the industry perspective, there is a very specific dilemma when it comes to working with the US. The reason for the differing systems is that the US does not accept the internationally approved standards, such as those issued for the motor industry or the ISO standards for appliances.
Around the world, most countries have agreed to adopt the ISO committee’s common standards. Although the US is officially a part of this committee, they have yet to change rules at home to allow for acceptance of these standards.
“Harmonisation can and must ... be carried out by the international ISO and IEC standards organisation,” said the German Electrical and Electronics Industry. Companies like Siemens also stand behind this demand.
The European negotiators are therefore trying to convince the US to particulate at the international level, but before the Americans can join in, they first need to change the internal structure.
Does this mean that corporations are losing their interest in TTIP?
Most corporations retain interest, despite the likelihood many of their concerns will remain unresolved after TTIP is adopted. This is partly because within the TTIP framework, an “expert panel”, the so-called joint regulatory body will be formed. Comprised of officials and stakeholders, together they will discuss and prepare future standards and go on to present these standards to policy makers. Once a major concern, this could now be the most influential factor for both regions’ economies.
Some critics see this panel as a potential threat to democracy.
When it comes to safety or all around health, preliminary decisions could fall to the TTIP panel. This would be very difficult for parliaments to prevent, said Klaus Mueller, Chairman of the Federation of Consumer Organisations.
And once industrial lobbyists join the mix, their ability to influence policy makers’ decisions will only grow.
Ultimately, TTIP could now simply become an agreement that focuses strictly on developing standards and appropriate approval mechanisms for future trade between the EU and the US. And while negotiators reject the term "TTIP light,” because it implies there is not enough benefit for either side, when it comes to the direct effects on businesses, the only way to describe the impacts is, in fact, light.
Justus von Daniels and Marta Orosz are reporters for the non-profit investigative newsroom correctiv.org in Berlin, which first published this article.