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Second Report on Small- and Medium-Sized Enterprises Shows Trade Benefits, Identifies Key Export Barriers

07/16/10

Source: USTR Weekly E-Newsletter
Related Topics: International Trade

Washington, D.C. - United States Trade Representative Ron Kirk said today that the new report from the U.S. International Trade Commission (ITC) identifies top export barriers reported by U.S. small- and medium-sized enterprises (SMEs), and highlights the benefits of U.S. trade agreements to American small businesses.  The report found that U.S. SMEs account for a smaller share of U.S. manufactured goods exports than SMEs in the European Union (EU), reflecting the relatively larger economic role of SMEs in the EU.  Kirk requested this study from the ITC in 2009 to help guide our trade policy activities to boost American SME exports.

"America's small businesses are engines for our economic growth.  Small- and medium-sized businesses that export grow faster, add jobs faster, and pay higher wages than non-exporting firms," said Ambassador Kirk. "This second ITC report provides us with a deeper understanding of the leading challenges that our U.S. SMEs face as they seek new global customers, and highlights the types of barriers that SMEs identified themselves as their biggest hurdles to exporting.

This is the second of three reports that the USTR commissioned to inform and focus SME-related trade policy initiatives.  It draws upon information gathered from three public hearings held in St. Louis, Portland, and Washington, DC, and testimony and comments from over 250 companies and organizations.  The report compares the exporting activities of SME exporters in the U.S. and EU, describes the major barriers our SMEs face, SME strategies to overcome these barriers to trade, and identifies the benefits American SMEs reported from enhanced export opportunities stemming from U.S. participation in trade agreements. 

Ambassador Kirk noted, "USTR's continued mission is to create better trading opportunities for all American firms.  We are ready to help our small- and medium-sized businesses take advantage of those opportunities and continue to provide jobs to Americans who need them."

The third ITC report will examine U.S. SMEs engaged in providing services, and will identify how data gaps might be overcome to enhance our understanding of the role of SMEs in service sector exports.   USTR expects to receive it by October 6, 2010.  

The full text of the second report can be found at http://www.usitc.gov/publications/332/pub4169.pdf.

Key Findings:

Comparison of U.S. and EU SME export activities

  • U.S. SMEs account for 13 percent of the value of U.S. manufactured goods exports, while EU SMEs account for approximately 31 percent of the value of EU manufactured exports' 
  • U.S. and EU SMEs are about as equally export-intensive in terms of exports as a share of their sales, with U.S. SMEs exporting 7.1 percent of sales and EU SMEs exporting 8.2 percent of sales.
  • The relatively larger role that EU SMEs play in EU exports can be explained, in part, by the fact that historically, the U.S. market has been more integrated than Europe's, and has produced comparatively larger firms. 
  • Exports of U.S. SME manufactured goods are more likely to be routed through wholesalers than are EU SME exports.  In the United States, exporting wholesalers are more likely to be large firms.
  • In terms of government assistance, the United States provides a wider range of pre-export and short-term credit support to SMEs than is available in the EU, whereas EU SMEs have relatively more support for participation in international trade fairs.
U.S. SME Views on Trade Barriers and Strategies to Overcome Barriers to Exporting
  • Domestic barriers:  Leading domestic barriers to exports as reported by U.S. SMEs included limited access to trade financing and working capital; export controls; restrictions on obtaining foreign visas; high transportation costs; tariffs on intermediate inputs; and the small scale of SME production.
  • Foreign barriers:  Leading foreign barriers to exports as reported by U.S. SMEs included costly and nontransparent foreign government laws and regulations; unreliable protection of intellectual property; foreign tariffs and government support programs; exchange rate fluctuations; lack of knowledge of foreign markets; and language and cultural barriers.
  • Strategies: U.S. SMEs have developed a number of strategies to overcome some barriers to exporting.  These strategies principally involve: (1) pooling resources with other small firms through trade associations or less formal coalitions; (2) collaborating with a larger firm in the same industry or working with a broker or distribution agent; and (3) taking advantage of government programs designed to help exporters.  

U.S. SME Recommendations for Increasing Exports

SME's most frequent policy recommendations are to:

  • increase focus on free trade agreements (FTAs) and other trading arrangements;
  • devote additional resources to enforcing existing agreements;
  • provide greater assistance with market access, particularly in India and China;
  • offer more information, outreach, and educational opportunities about exporting;
  • streamline and reform export processes and export control regulations; and
  • expand and improve export loans, grants, and other financing programs.

Benefits to U.S. SMEs from Increased Export Opportunities

Through FTAs, U.S. membership in the World Trade Organization (WTO), mutual recognition agreements (MRAs), Trade and Investment Framework Agreements (TIFAs), bilateral investment treaties (BITs), and other trading arrangements, SMEs obtain improved market access, better trade facilitation, and a more favorable regulatory environment.  The reported benefits to U.S. SME exporters of these agreements include:

  • Reduced costs through tariff reduction, standards harmonization, mutual recognition of certification, easier information access;
  • Reduced time to deliver products or services to markets or customers through customs facilitation and cross-country certification and standardization;
  • Reduced risks through stronger IPR protection and enforcement, dispute settlement procedures, increased regulatory transparency and more predictable regulatory and legal regimes; and
  • Enhanced access to more and diverse markets and foreign customers.
     






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