The European Single Market & Transatlantic Trade
Last week I was invited by Chambers Ireland to speak at their conference “Making the EU Work for Irish Business”. I shared some of my thoughts on the business opportunities that exist in the Union today, and the possibilities for the future.
Small and medium sized businesses in Ireland are largely ‘pro-European’ as a group, although increasingly they tend to question the composition of the Union and the benefit of Ireland’s membership. This reflects the questioning of the European project we have seen from citizens all over Europe, culminating with the potentially catastrophic exit of Britain on June 23rd.
Small businesses, however, who employ the vast majority of Irish citizens (over 70%) have benefitted, and continue to benefit more than any other group, from Ireland’s membership of the Union. They are right, of course, to constantly challenge and question the evolution and operation of the Union. This is healthy in any functioning democracy. It is by challenging and disrupting that we achieve excellence.
The unquestionable stand out achievement of the European Union from an Irish business perspective is the Single Market. The deepening and integration of the single market, which now allows access to a market of 500 million people is key to creating opportunities for small Irish companies. It also provides a major attraction for the countless multinationals based in Ireland. Their presence has a knock on effect for Irish indigenous business who are of course an essential part of the FDI ecosystem, providing foreign companies with goods and services, thus creating further employment down the food chain.
Work remains to be done on the Single Market. In 2011, the European Commission launched the European ‘Single Market Act’ designed to make it easier for SMEs to trade across the Union. Particular focus was placed on public procurement, services and the digital single market. Some important progress was made in the following five years, but today the Juncker Commission places an enhanced and urgent focus on this key priority, recognising the immense growth potential for small business, and thus job opportunities across the Union at a time when such a boost is badly needed. This is evident in particular in Juncker’s ambitious plan for the Digital Single Market.
Transatlantic Trade and Investment Partnership
While the Single Market presents further opportunities for Irish small business, a new opportunity has opened up in the past few years in the shape of the Transatlantic Trade and Investment Partnership. Liberalising trade between the two most important trading blocs on the planet is a smart way to ensure new opportunities for business of all shapes and sizes. A total of $5.5 trillion dollars is generated in commercial sales across the Atlantic each year, with 15 million people employed as a result. This is the largest economic trading bloc in the world – but there is potential to do more.
When, as European Affairs Minister, I was working with my colleagues in Government to set out priorities for the Irish Presidency of the Council of the European Union, one of the key issues which I ensured was top of our agenda was TTIP. Our task was to finalise the negotiating mandate for the European Commission by the end of our Presidency on June 30th 2013. There were times when this seemed impossible due to the protectionist tendencies of some member states, but after intense negotiations on both sides of the Atlantic, we managed to get it across the line. This gave the green light for the beginning of TTIP negotiations.
This trade deal is critical for Europe, for America and for global trade. It is also of major importance to Ireland, which is the EU Member State that stands to gain most from a successful deal finally being struck. This should come as no surprise since the United States investment amounted to a whopping €310 billion euro in 2014 – making Ireland a bigger destination for US inward investment than China or Africa.
TTIP is not without its problems however. The hard left and hard right across Europe have mobilised rather effectively to oppose this deal. Likewise, opposition is mounting in the United States. Both political wings appear to want to turn back the clock on globalisation and prevent advances in global regulatory convergence. This is both wishful and destructive thinking. Globalisation is a reality. Undoubtedly it presents major challenges to political leaders in liberal democracies all over the world, but burying our heads in the sand will not turn around globalisation. If the EU and the US fail to lead in setting standards for themselves and the rest of the world, trade liberalisation and regulatory convergence will still happen – just on the terms agreed by Brazil, Russia, India, China and others, rather than terms agreed by Europe and the United States. This would be bad for all concerned. We have an opportunity to positively shape regulation, ensuring high quality and high standards in areas as diverse as agriculture, food security, pharmaceuticals and financial services. It would be irresponsible for the EU and the US not to step up to that challenge.
Irish businesses are generally hugely enthusiastic about TTIP, with representative bodies such as IBEC and Chambers Ireland strongly advocating in its favour. This enthusiasm is easily understood, upon a cursory examination of the potential benefits of the agreement.
TTIP, like all Free Trade Agreements, will deal with both traditional and non-traditional trade barriers. It may be assumed that traditional tariff barriers no longer exist to any great degree, given the largescale trade which already occurs across the Atlantic. In fact, many barriers do still exist – some as low as 1% of product value, but in some cases tariffs are applied at rates as high as 6%. This is particularly the case in the contentious agri-food sector. TTIP presents a unique opportunity to finally eliminate tariffs and reduce the cost of trade for producers and suppliers on both continents.
The non-traditional barriers are arguably more interesting and account for the real substance of any potential trade deal. The liberalisation of services across the Atlantic presents a unique opportunity. Growth in the services industry in Ireland has been robust over the past number of years, so opening up services markets in the United States will offer new opportunities for Irish firms.
A major focus of the TTIP negotiations is on mutual recognition of regulatory standards. This particularly stands to benefit SMEs, who struggle to absorb the cost of delays and bureaucracy. The key here is not the harmonisation of regulation, which itself might be cumbersome and overly complex, but rather the mutual recognition of standards by authorities on both sides of the Atlantic. This would serve to reduce the burden and workload of regulators, ending the current duplication that exists whereby providers must comply with two sets of standards. A single system of assessment and compliance would speed up trade and reduce red tape. This is important for all business, but would have a particularly positive impact on the agri-food sector, where many perishable goods simply cannot be exported to the US due to time lags caused by the current duplicate system.
Another key objective of TTIP is to open up public procurement in the United States to European tenders. This would mean that the US state sector would be open to European bidders for the first time, who are currently discriminated against by the “buy America” rules. Small and medium sized enterprises in Ireland and across the EU would potentially benefit from this rather enormous opportunity. US public contracts in 2015 amounted to almost $500 billion, to put it in context.
TTIP is also important in the wider context of the global economy at a time when growth is generally sluggish. After decades of stalled WTO negotiations, a transatlantic trade deal would foster growth globally, as well as in the EU and the US.
Notwithstanding the obvious potential benefits of a successfully negotiated trade agreement, there is no doubt that the current TTIP negotiations could very easily be derailed. A recent opinion poll in Germany showed that public support for the deal has plummeted to just 17%. This poses a major political problem for Angela Merkel or whoever the next Chancellor will be. One thing is for sure – if German support for TTIP is withdrawn, there will be no deal. The challenge for political leaders and business leaders all over Europe and the United States is to present a convincing and passionate case for this trade agreement. So far they have failed abysmally to do so.