Bottom line: US SME exporters seek more certainty and predictability in selling products overseas.
On May 16, 2012, the House Small Business Committee held a hearing entitled “US Trade Strategy: What’s Next for Small Business Exporters,” in order to address the unique problems faced by American Small and Medium Enterprises (SMEs) in exporting their products to markets abroad.
The hearing highlighted the challenges faced by small business owners in taking advantage of exporting opportunities in overseas markets. In fact, while 95% of consumers live beyond the borders of the United States, only 1% of American small businesses are actively targeting those markets by exporting their goods. One key reason that more small business owners are foregoing overseas sales is simply that the obstacles to exporting can be daunting. Often, small businesses are not in a position to address the hurdles of customs compliance, tariff schedules, regulatory obligations, phytosanitary standards, and the often unpredictable enforcement of regulations in each target market.
Mark Luden, CEO of Guitammer Co., testifying on behalf of the Consumer Electronics Association, noted that navigating the true cost of moving goods across borders can be difficult for SMEs. While free trade agreements (FTAs) may reduce import tariffs or eliminate them completely, figuring out which countries have an FTA in place, which products are covered, what the preferential duty rate is, whether there are applicable rules of origin to consider, and multiple other factors may deter SMEs from entering a market. Ambassador Miriam Sapiro, Deputy US Trade Representative, responded that the Administration remains committed to helping SMEs engage in trade, and highlighted available tools, such as the FTA Tariff Tool, which can help SMEs find relevant information necessary to export their goods. The Administration seeks to increase the level of participation of SMEs in the trade process by allowing increased participation in the free trade negotiation process.
Non-tariff measures can be complex and costly, especially for SMEs. For example, certain agricultural products may be restricted or banned in one market and unregulated in another; packing materials surrounding a product may be subject to separate regulation in some places; some countries require that a product be marked “kosher” or “halal” or that a plant be inspected prior to export; and product standards may differ market to market. To further complicate matters, each country’s regulations may change from time to time. Most SMEs do not have the resources or manpower to devote to regulatory monitoring that impact cross-border transactions. Ambassador Sapiro reiterated the US Government’s position that regulations should be even-handed and not arbitrary, and that any sanitary or phytosanitary standards be science-based. A fair, predicable regulatory scheme would allow for SMEs and other exporters to confidently do business in the international market. Unfortunately, much work to simplify the regulatory environment for remains and more resources are needed to support US SME exports.
Ambassador Sapiro highlighted Brazil as a target market for expansion of US trade. US SMEs agree, but continue to request assistance from the US Government to level the playing field with Brazil in light of prohibitively high tariffs. One SME health care company in Massachusetts cited Brazil tariffs as high as 65% versus single digit for Brazilian imports into the United States. US SMEs want to compete in the Brazilian market, but remain at a competitive disadvantage when tariffs act as de facto barriers and erode any potential profit margin for smaller manufacturers. Ambassador Sapiro noted that Brazil is a “challenge,” in that it does not have an FTA or Foreign Investment Agreement, and that the Administration’s is exploring ways to find common ground in order to facilitate an improved trade relationship. Opportunities like the trade hearing allow US SMEs to continue to put pressure on the Administration to find leverage with Brazil and other important export markets. It is our experience as an SME that works with US SMEs that Brazil is one country that seems more focused on advancing its developing country status rather than embracing global trade opportunities that are more balanced and encourage competition.
Overall, the hearing touched on many aspects of trade which greatly affect the way an SME does business, both at home and abroad. Generally, those involved in the hearing agreed on the obstacles faced by small businesses and that balancing “free” and “fair” trade by ensuring that regulations are even-handed and not arbitrary, generally applicable, and not protectionist should be a priority. While the tools necessary to conduct business internationally are generally available, finding them can be a challenge even for those who know where to look, as information constantly changes. While the United States does offer help to small businesses in exporting, panelists criticized the Small Business Development Center’s inability to offer trade promotion assistance. Those testifying on behalf of small businesses had one overreaching need: certainty and predictability in conducting business in overseas markets. Last week’s hearing, while instructive in delineating a clear path forward for small businesses trading abroad, left many questions unanswered.
Clearly, as seen in the hearing, international trade can be complex. If you have questions regarding selling your products overseas, strategic sourcing, customs compliance, or regulatory changes, do not hesitate to contact TradeMoves for assistance. We are here to help you succeed.
Elena Aceves / EAceves@trademoves.net / 443.668.8683
Shawn Marie Jarosz / SJarosz@trademoves.net / 240.242.8108