27 April 2015

Report on SMEs and TTIP deeply flawed

Business network survey not sufficient proof TTIP presents only positives for small companies.

Rikard Allvin Policy Advisor on Trade, Swedish Greens

The original piece was published on the blog and is available in English and Swedish  

It's no secret that Trade Commissioner Cecilia Malmström is keen on reaching a deep and comprehensive trade agreement with the U.S. But as the criticism against the Commission's claims that the deal would bring growth and jobs is growing fiercer by the day, the Commission is changing its strategy. Now they want to hail the agreement's impact on SMEs. In a newly produced report by the Commission itself, Malmström claims that ”they who claim that TTIP would only benefit big business is totally wrong…TTIP will help small business on both sides of the Atlantic”.

So is it true? Would SMEs benefit from TTIP? Is there evidence to support this claim? Not at all, according to our review of the report.

To begin with, the Commission's report does not build on any essential research nor simulations of the impact of TTIP. Instead, the Commission has, through a business network, sent out a survey asking about perceived non-tariff barriers (NTBs) for export from the EU to the U.S. Citing the responses, the Commission is claiming that TTIP would have a significant positive impact on SMEs. But claiming that this survey ”proves” this is no way close to serious research. Here is why:

Using surveys as a means of qualitative research is done all the time, but then the survey needs to address the actual field of research. In this survey, the Commission asks enterprises about whether they see any restrictions on trade to the U.S. Several enterprises say ”yes, we do”. Then, the Commission draws the conclusion that TTIP would greatly benefit SMEs. See where it went wrong? The only thing that the report actually does is support the claim that enterprises perceive trade barriers for EU exports to the U.S (on the grounds that we accept the statistical sample, validity and reliability of the study, more on this later).

The conclusion that TTIP would benefit SMEs on the grounds of SMEs perceiving trade barriers to the U.S is deeply flawed. Will TTIP remove these barriers? In what way would removing these perceived barriers increase net export in real terms? In what way would it have more than a marginal effect? How could ISDS, regulatory cooperation and other aspects of the treaty tilted in favour of large enterprises affect SMEs and their competitiveness? None of these questions is answered in this report.

Survey not representative of SMEs

Looking at the methodology, the report falls short yet again. There is no statistical sample, the responses are simply from companies and sectors that got the survey and decided to respond. The absence of a sampling technique is dismissed in an arbitrary way. The survey is constructed to identify perceived non-tariff barriers, yet alternative areas with potentially counter-productive effects are not mentioned (such as ISDS, which has been repeatedly criticized by SMEs). Furthermore, not even half of the respondents answered questions regarding NTBs, and the sectors that have responded on this topic are not specified (meaning the replies are necessarily not representative for the amount of sectors and enterprises concerned).

Another significant problem is the way that the Commission is defining SMEs. In order to be considered an SME, a company can have no more than 250 employees and a turnover not exceeding €50 million. Not generally what you would consider as a ”small business”. Furthermore, despite the reports focus on SMEs, 142 large enterprises has responded to the survey, almost a fifth of the total amount of replies. 97 of these has more than 500 employees.

TTIP won't impact our regulations? Think again. 

So, what non-tariff barriers are being perceived as limiting EU exports? Well, on goods, the three most cited areas of barriers are directly linked to environmental and consumer protection. Also, the majority of replies are from medium and large companies. The barriers are described as ”rules to protect human or animal health from toxic substances”, technical barriers that affect the product like environmental rules, and border measures like determining the origin of the product. In the more thoroughly defined measures for each area (p. 40), aspects like maximum limit on amount of pesticide residue in a product, animal welfare standards and labeling requirements (country of origin or environmental labeling) are all mentioned. On services, where a significantly larger amount of small and micro enterprises responded, one of the barriers is defined as when the ”U.S government or local government controls at least one major firm in your sector”.

But isn't all this exactly what TTIP was not  supposed to be about? Wasn't protecting environmental rules, consumer protection, animal welfare standards, regulations on chemicals, country of origin labeling and the public sector a core objective for the Commission? Are these ”barriers” to be removed in order for SMEs to benefit? And if these barriers are not to be removed, what exactly is the benefits for SMEs that TTIP will bring according to this report? The report states that its ”important to note that the submissions of SMEs do not necessarily represent the position of the European Commission, either in the TTIP negotiations specifically, or as regards the measures highlighted in general”. Yet it's apparently possible to combine promises of protecting environmental and consumer standards with promises of benefits that is dependent on their removal!

To conclude; the claim that TTIP would benefit SMEs is not necessarily wrong, but there is nothing in this report that proves that this claim is more than wishful thinking.

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Jörg Wiedemann

I very much like your post on how the Commission is trying to establish the (false) notion that SMEs will benefit from free trade à la TTIP. However, I would like to see the Greens in Europe to also apply their findings to the general concept of free trade and what it means for European companies that are not involved in global trade. If you were to consider that all EU companies gain access to the Single Market by applying certain Process and Production Methods (PPMs), which include provisions such as minimum wage, environmental standards and contributions to health-, pension- and social security systems, you would find that trade agreements that do not include PPM standards are pe se unjust and damaging to the EU's economy. The Commission's strategy to lower standards (REFIT) to adapt the EU's economy to low global standards is not the right approach. The founder of a small non-profit organisation that endorces citizen and corporate responsibility, I would appreciate it if the Greens would develop ideas for a trade system that is better for the EU and developing countries.

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