One explanation behind the sluggish growth in SME exports is the lack of clarity and conformity when it comes to international e-commerce regulation. Governments and customs authorities have taken notice – and are taking steps to both clarify and simplify regulation, to release the latent potential for cross-border online business.
The Transatlantic Trade and Investment Partnership (TTIP) is the most significant of these steps toward widening the international digital marketplace. In fact, it stands to become the largest regional trade agreement, with a potential combined market of over 800 million people.
The TTIP offers important provisions on e-commerce, presenting SMEs – including e-retailers, e-commerce and mobile commerce service providers – job-supporting trade and investment opportunities as it strengthens U.S.-EU SME cooperation. Here’s how it will impact SMEs and help them more efficiently reach customers in every corner of the world.
Eliminating Tariffs and Duties
To support U.S.-EU SME cooperation, the TTIP would eliminate all tariffs and other duties impacting consumer products and other goods, with substantial duty elimination when the agreement begins. Specifically, the U.S. seeks access to EU markets for textile and apparel products, “supported by effective and efficient customs cooperation and other rules to facilitate U.S.-EU trade in textiles and apparel.”
Reducing Non-Tariff Barriers
Beyond tariffs, the U.S. also looks to the TTIP to eliminate or reduce barriers that decrease opportunities for U.S. exports; provide a competitive advantage to EU products, or otherwise distort trade; or create unjustified technical barriers to trade (TBTs). Some examples include “behind the border” barriers like restrictive tariff-rate quotas, and licensing barriers. In addition, companies are often subject to duplicate assessments, testing or documentation requirements – making it costly, and sometimes even prohibitive, to compete internationally.
A good example is the product-care labeling regulations that companies must comply with in order to resell products in the EU. Although there’s a broad array of EU legislation that covers marketing, labeling and packaging, there is no central directive – which challenges businesses, especially SMEs and small e-retailers, to navigate the patchwork of regulation.
For its part, the EU and individual member countries have adopted a wide range of technical regulations and conformity assessment procedures. Between January 2011 and February 2013, the EU notified 154 of these regulations and procedures – covering everything from household appliances to textiles and cosmetics – to the World Trade Organization. As some WTO members have pointed out, this number of EU technical regulations and conformity assessment procedures can create obstacles to trade, especially for foreign SMEs.
It’s estimated that these non-tariff trade barriers increase the overall cost of business by between 10 and 20 percent. By removing them, the TTIP could ease the delays they present to cross-border e-commerce, saving SMEs time and money.
Creating Regulatory Consistency
Similarly, the creation of common standards when it comes to product safety and testing will strongly benefit companies physically moving goods across the region. Currently, U.S. companies whose products have met safety standards here must endure further testing of their products before they enter the EU marketplace – and vice versa.
For example, cosmetics products are subject to different categorization regimes in the EU and U.S.; some products sold as cosmetics in the EU are considered over-the-counter drugs, subject to higher controls, in the U.S. And U.S. companies must also comply with EU-specific regulations around product labels, disclaimers, additional import requirements and inspections. Hazardous substances, too, can be subject to multiples sets of definitions and restrictions.
Standardizing regulation will be a daunting task, considering the 35,000 cross-sector technical standards between the U.S. and EU. The EU has released a series of position papers outlining the potential impact of TTIP on industries like textiles, cosmetics and pharmaceuticals. For textiles and clothing, the articles point out that both sides “have already developed a constructive dialogue on labeling requirements.” These include minimizing requirements for labels on clothing and footwear; harmonizing care instructions symbols; and syncing regulations to guarantee product safety and reduce flammability.
All of these proposed solutions, along with the myriad others impacting other industries, will ultimately benefit e-commerce retailers by clarifying and simplifying labeling, marketing and testing requirements.
Establishing Customs Trade Coordination
Inefficient and varied customs procedures contribute to supply chain disruptions to trade. U.S. companies importing goods into the EU face different clearance requirements in each member state – ultimately raising costs and delaying the flow of goods.
The TTIP can help simplify the customs process by raising and coordinating the various de minimis thresholds for collection of import duties; introducing procedures of electronic pre-arrival clearance; and providing a customs clearance framework for a single point of contact. Ultimately, these measures will expedite the customs release of goods entering the EU market, particularly benefiting online businesses, which uniquely rely on express shipments, guaranteed delivery time-frames and predictable customs duties.
As negotiations toward the TTIP continue, SMEs can ensure they’re ready for the changes it would bring by taking preparative steps now, including:
• Become involved in the negotiating process through industry lobbying efforts or other trade activities
• Know which industries, sectors and commodities will be impacted – and how. For example, for regulated commodities, will the EU or U.S. standards be adopted? How will a company’s certification requirements and testing process change?
• Examine how the expected improved efficiencies and financial benefits will drive lower products price and higher demand, and whether the company is ready for more competition
• Fine-tune the duty rates used for landed cost calculations – either through automated tools or manual processes – to ensure that the expected tariff changes are accurately accounted for at check-out
• Re-examine the overall supply chain, from service providers to logistics processes, to optimize the expected benefits of customs facilitation and coordination
• Consider any potential changes to customers’ Terms and Conditions, to account for new data flow regulations around data privacy and companies’ data use
In addition, cooperation on data flows regulations remains a key pillar of the agreement to watch.
On one hand, firms in many service industries like e-commerce are increasingly using data to enhance customer experience, reduce costs and improve efficiency. On the other hand, data protection and privacy remain critical challenges. Through the TTIP, it’s important to avoid restrictions on cross-border data flows, which could hinder the competitiveness of service and manufacturing companies on both sides of the Atlantic. For example, measures aimed to protect the domestic production of goods and services at the expense of imported products could adversely impact cross-border e-commerce transactions and limit competition in foreign markets.
Despite these concerns, the TTIP promises to play an important role for the growing number of SMEs involved in cross-border e-commerce activities. By reducing tariff and non-tariff barriers and synchronizing industry standards, customs procedures and regulations, the agreement will enhance cooperation and help SMEs on both sides of the Atlantic seize the tremendous economic potential e-commerce offers.
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