TTIP a Game-Changer for Trans-Atlantic Companies

by Louis Osmont and Eugene Ferraro

The Transatlantic Trade and Investment Partnership, commonly known as T-TIP, a proposal to banish regulatory barriers and improve the exchange of goods and services between the United States (US) and the European Union (EU), is generating buzz on both sides of the Atlantic. Begun in February 2013 under a shroud of secrecy, the treaty’s next round of negotiations is planned for February 2015, with the aim of getting a “bare bones” agreement by the end of the year. If enacted, it promises significant financial upside for manufacturers and service providers in both the US and the European bloc.

In 2013, US-European trade climbed to $787 billion, and each serves as the other’s primary source and destination for foreign direct investment. Together, they account for 56.7 percent of the inward stock of foreign direct investment (FDI), and a whopping 71 percent of outward stock of FDI. The transatlantic economy generates close to $5 trillion in total commercial sales a year. [1]

An ambitious undertaking, T-TIP is intended to increase competitiveness, promote growth, and create legions of high-paying jobs in both the EU and the US—500,000, according to some estimates. Providing greater transparency is also part of the package, as is maintaining high standards of health, safety, and environmental protection.

Currently, excessive regulation and tariffs make US-produced goods and services more costly to would-be EU purchasers. In agriculture alone, $10 billion worth of goods were shipped to the EU last year, reflecting about 20% of total US farmers’ foreign-derived income. That figure would be higher in the absence of tariffs and quotas. Reducing these barriers, or eliminating them altogether, will level the playing field, improving market access for the US, EU and their global trading partners.

Regulation is also expensive for EU businesses in terms of manpower and time that directly affect a company’s bottom line. It is particularly onerous for small- and medium-sized enterprises (SMEs), whose human and financial resources are limited. SMEs in the EU represent more than two-thirds of private sector jobs, and as the European economy stagnates, the US presents an important channel for developing business. Easing trade restrictions would give a badly needed boost to the bloc’s sluggish economy. “In the past, excessive regulation and other barriers have made it much too expensive,” notes Eugene N. Ferraro, WeiserMazars LLP’s International Tax Partner. “We had a client in Italy who wanted to operate in the US, but found the prospect of doing business here too complicated. T-TIP can change that. EU countries already have tax treaties with America, and in certain instances it may be possible for them do business here without creating a taxable presence,” he explains.

Other impediments T-TIP will resolve are non-tariff barriers between the trading partners. These include import quotas, special licenses, unreasonable standards for quality, unwarranted sanitary restrictions, bureaucratic delays at customs, and rules of origin. All mean higher costs for global companies.

The EU also will enjoy significant per capita income benefits once T-TIP passes, with those countries that now have the most trade with the US seeing the highest gains according to a study by the Bertelsmann Foundation. [2]

TTIP a Game-Changer for Trans-Atlantic Companies

 The EU’s overall GDP will also grow once T-TIP passes—by as much as €127 billion, by 2027, according to some estimates. Translated into household disposable income, an EU family of four could see benefits of up to €545 per year. Wages are expected to rise by roughly 0.5% for both skilled and unskilled workers. [3]

T-TIP also creates more uniform standards through greater transparency and compatibility, and consistent rules and guiding principles which are intended to engender greater co-operation on issues of global concern, particularly in terms of the environment. These benefits will accrue to the US and EU alike.

Change always spawns naysayers, and the chorus is loudest across the pond. Secret negotiations raise concerns that large companies will seek to dominate smaller ones, creating economic disruption as they have sometimes done in the pasts.

Europe also fears that a uniform trade and regulatory environment will permit suing the state, through the mechanism of investor-to-state dispute settlement (ISDS), something not permitted now. (In fact, France, the UK, and Germany have all stated they will not sign the treaty if that provision is included) [4]. Other protestors wonder whether a trade free-for-all will create environmental havoc. And some are apprehensive that employing looser US laws as the norm for the EU will mean less protection for EU consumers.

On the other hand, history provides many examples of countries being forced to open their markets, prefaced by initial reluctance and a natural fear of change and competition only to rapidly become more prosperous. Ultimately, removing trade barriers is better for all countries, not just the US and EU. Global trading partners should see an increase in GDP of nearly €100 billion, with benefits accruing to all parties.

Once T-TIP is passed, EU companies will need help in expanding their business in the US. A first step will be retaining experts in accounting, acquisition support, transfer pricing, reporting, and outsourcing. These professionals must be skilled in both local regulations and international concerns in order to best serve their clients. It is important for companies to get such advisors lined up in advance so that they are ready to hit the ground running.

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1 http://www.euintheus.org/what-we-do/eu-us-facts-figures/
2 http://americastradepolicy.com/what-are-the-benefits-of-the-ttip/#.VIB7AcmKi1l
3 http://trade.ec.europa.eu/doclib/docs/2013/september/tradoc_151787.pdf
4 http://rt.com/business/206455-france-will-not-sign-ttip/