Position of the Technological Industry in the Netherlands on US Trade Relations and the Transatlantic Trade and Investment Partnership

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1 Position of the Technological Industry in the Netherlands on US Trade Relations and the Transatlantic Trade and Investment Partnership Analysis: Importance of the US for the Dutch technological industry The US has always been one of the main trading partners for both the Netherlands in general and the technological industry in specific. If you eliminate the European trading partners of the trade balance the US becomes the biggest trading partner for the Netherlands, for both imports, exports and investments. The Netherlands has a trade deficit with the US of 6,1 billion. In 2012 the Netherlands imported a total value of 26,4 billion from the US, while the Netherlands exported 20,3 billion to the US. That is an increase of 12% compared to 2011 ( 23,6 billion). Almost one third of these imports and exports consist of machinery (import from the US 31%, export to the US 28%). The technological industry in the Netherlands contains both the mechanical and the electrical industry, which accounts for more than one third of the total trade with the US. In 2012 the technological industry represents approximately 7,5 billion of the total exports (37%) and approximately 10,5 billion of the total imports (39%). Exports The yearly research of FME on international business shows that approximately 7% of the export goes to North- America, with the large majority being exported to the US. Export Destination (Region) Western-Europe 56% 53% 54% Eastern-Europa 6% 5% 6% Asia 17% 17% 16% China 5% 6% 5% Southeast Asia 7% 7% 6% Central Asia 5% 4% 5% North-America 6% 7% 7% Latin-America 5% 4% 4% Middle East 7% 8% 8% Africa 2% 4% 3% Oceania 2% 2% 2% N=576 (2012), N=505 (2013), N=520 (2014) Not surprisingly the US is in the top 5 of most important export destinations for the international active companies in the Dutch technological industry. Export Destination (country) Germany 1. Germany 1. Germany 2. Belgium 2. UK 2. Belgium 3. UK 3. Belgium 3. UK 4. France 4. US 4. US 5. US 5. France 5. France 6. China 6. China 6. Russia 7. Russia 7. Russia 7. China 8. Italy 8. Italy 8. Italy 9. Denmark 9. Denmark 9. Sweden 10. Spain 10. Swiss 10. Brazil N=473 (2012), N=474 (2013) Imports Off course the importance of the trade relation is not only determined by export but also by the import of raw materials, semi-manufactured goods and finished products. More than 80% of the exporters in the industry is also an importer, and almost a quarter of these companies is importing goods from North-America. So behind Europe and China it s the most important import market.

2 Import Region (2011) % Western Europe (incl. Scandinavia) 79% Eastern Europe 39% China 34% North-America 24% Rest of Europe 18% Eastern-Asia 16% Southeast-Asia 15% Middle-East 5% Central Asia 4% South-America 3% Oceania 3% Middle-America & Caribbean 2% Africa 1% N=213 (2011) Investments One other aspect of the trade relation is the investment relationship. The US and the Netherlands are large investors in each other s economy. We are the third foreign investor in the US ($217 billion in 2010) and the US is the biggest foreign investor in the Netherlands ($521 billion in 2010). In 2013 the US was the most important source of foreign investments in the Netherlands with 64 projects. For example, the number two on this list is China with (only) 26. With these projects the US has the highest impact if we look at the total invested amount and the number of jobs created. Investments from the Dutch the technological industry in local economies are primarily done for setting up local manufacturing plants or local sales offices. The US is in the top ten when it comes to investments in local business by Dutch companies in the industry. Investments China 1. China 2. Germany 2. Germany 3. Czech Republic 3. Poland 4. Poland 4. India 5. Hungary 5. US 6. India 6. Romania 7. Romania 7. UK 8. US 8. Belgium 9. Belgium 9. Czech Republic 10. UK 10. Vietnam N=280 (2011), N=478 (2012) Future opportunities Although the economic relation with the US is quite intense it is far from saturated. The Dutch technological industry still sees a lot of opportunities. The US is structurally in the top ten of interesting growth markets, and with the recovery of the economy the US jumped to the top of the table in the last two years. Growth markets Germany 1. Germany 1. Germany 1. Germany 1. Germany 2. Belgium 2. UK 2. UK 2. US 2. UK 3. UK 3. Belgium 3. France 3. China 3. US 4. France 4. France 4. China 4. UK 4. France 5. Russia 5. US 5. Brazil 5. Brazil 5. China 6. US 6. Russia 6. Russia 6. France 6. Russia 7. China 7. China 7. Poland 7. Belgium 7. Brazil 8. Brazil 8. Brazil 8. Belgium 8. Russia 8. Belgium 9. Poland 9. Italy 9. US 9. Poland 9. Poland 10. India 10. Poland 10. India 10. India 10. India N=432 (2010), N=236 (2011), N=478 (2012), N= 458 (2013), N=334 (2014)

3 For future investments the Dutch companies see quite some perspective in the US. They primary focus of future investments is on upcoming markets in which they are not yet or less active, but the US is steady in the top ten. Future Investments China 1. China 2. India 2. India 3. Brazil 3. Brazil 4. Turkey 4. Turkey 5. Vietnam 5. Germany 6. Poland 6. US 7. US 7. Poland 8. Germany 8. Vietnam 9. Russia 9. Romania 10. Romania 10. Indonesia N=123 (2011), N=219 (2012) Overall the Dutch technological industry values the trade relation with the US as very important for current activities and future possibilities. Importance of US trade relation for your company % Very Important 23% Important 27% Neutral 17% Unimportant 12% Very unimportant 10% No trade relation with the US at this moment 11% N=474 (2013) Trade Barriers: Difficulties in US-Dutch trade relations The US is a very attractive but difficult market for Dutch companies. If we look at the barriers to trade the US is completing the top 5 behind the BRIC countries. Countries with barriers to trade China 1. Brazil 1. Brazil 1. Brazil 2. Russia 2. China 2. China 2. China 3. Brazil 3. Russia 3. Russia 3. Russia 4. India 4. India 4. India 4. India 5. US 5. US 5. Germany 5. US 6. Germany 6. Germany 6. US 6. Iran 7. France 7. Saudi-Arabia 7. France 7. Saudi-Arabia 8. Turkey 8. Turkey 8. Argentina 8. Turkey 9. Iran 9. Belgium 9. Saudi-Arabia 9. Argentina 10. Ukraine 10. Iran 10. UK 10. France N=254 (2010), N=190 (2012), N=265 (2013), N=220 (2014) First of all there are some practical issues that companies encounter when they do business with the US. Product liability is one of those issues. European companies are often unfamiliar, unprepared and uninsured for dealing with product liability issues in the US. The system and way of thinking is totally different from the EU system. It s not only difficult to find liable and payable insurances and legal advice, but also to deal with it in practice. Technical barriers and standards One of the most pressing issues is the difference in technical standards and the trade barriers that these issues bring along: difficult custom procedures, extensive and expensive product registration, certification and testing. All these time consuming and money costing procedures are of big concern especially for companies in the technological industry.

4 Companies complain about the misuse of power by standardization organisations. Due to the different American system and the perception of companies that the certification market has a monopolistic nature foreign companies are forced to go through extensive and expensive processes. Also the registration at the FDA for medical equipment and food-contact products is very strict and unclear for a lot of companies. Buy American The protective attitude of the US is not only a problem in the technical areas but also for market access. Due to legislation foreign companies are more or less forced to register or invest local and set up an entity in order to do business. In some sectors it is impossible to enter the US market via direct exports. These so called Buy American clauses forbid certain exports or demand local content in order to protect the local companies and employment. The problem with these kind of legislations is that they are old fashioned and out-dated, as is the technology and knowledge used locally as a result of these legislations. For example the Jones Act, established in 1920, prohibits specialized ships and maritime equipment which do not originate from the US. The same problem holds for public procurement. Dutch companies have a lot to offer when it comes to infrastructural solutions, supply to (renewable) energy solutions, healthcare and hospital buildings, defence and aerospace. But they are often excluded from procurements since certain local content is demanded. These issues also have their reflection on related topics like getting work permits, juridical issues and fiscal laws forcing you to act local. The difficulty with the US market is that it was never meant to be a single market. So when you look at the rule of law there is a lot of diversity. Protective measures appear in varieties of ways depending on region, state and even city level. A real burden for foreign companies who want enter the local market. On the other hand we can see the international impact of US-regulations in the field of export control and sanctions. The extraterritoriality of the US laws in this area is very difficult to cope with. European companies do not only have to be aware of the European legislation, which are already tough, but also have to take the US laws into account and look at their dollar transactions and at the involvement of US persons and entities. Especially for SME s this is a real burden and highly complex. Solutions and the role of the TTIP 1 The mentioned problems are difficult for companies but off course most of them will find their way. Sometimes there is just a practical solution or it takes more time for the company to figure it out. And off course the same burden that European companies experience are also experienced by American companies entering the EUmarkets. However the Transatlantic Trade and Investment Partnership (TTIP) is trying to bridge the gap. Especially for the Dutch industry this is very important. The impact for the Netherlands of a comprehensive trade and investment partnership can be quite significant. Research indicates that it can structurally add between 1.8 billion en 4.1 billion a year to the Dutch GDP. In a more macroeconomic perspective; this agreement will cover approximately one third of the World trade, so the TTIP will be one of the largest agreements and a defining moment in trade policy. A comprehensive agreement between the EU and the US will not only mean a cooperation in trade and investments but also a strategic alliance in the World economy with new economic players and shifting political powers. Together we can set standards for the World and stay ahead in innovation and worldwide competition, which is key for the technological industry in the Netherlands. Quick Wins Customs Duties and Trade Facilitation FME strongly supports the elimination of customs duties in trade between the US and the EU. The tariffs for importing products of our industry are on a 1.5% - 3% level on average, and the tariffs for export of EU engineering products to the US are around 2% - 4.5%. Even though tariffs are not the major obstacle to 1 This paper exists of arguments and elements of the ORGALIME position paper on TTIP on which FME, as a member of ORGALIME, agrees on. FME added facts, figures, arguments and topics which are specifically relevant for the Dutch technological industry in order to complete our view. The current position of ORGALIME can be find here:

5 transatlantic trade for our industry, a full elimination of tariffs would result in direct savings of hundreds of millions euros for our industry. The existing customs procedures and border enforcement cause high additional costs for companies on both sides of the Atlantic. Therefore the EU and US should work together to enhance electronic customs procedures and cooperate towards implementing a system of standardised customs processes. This could include efficient central customs clearance, taking into account the participation in international supply chain programs, the harmonisation of pre-shipment notifications and reporting requirements and the harmonisation of customs and security related standards. Required documentation and information obligations should be reduced to a reasonable minimum. Rules of Origin FME fully supports the objective of simplifying and modernising customs legislation and procedures in the EU and worldwide. A set of coherent rules of origin should be introduced in FTA negotiations and that there should not be difference in the rules of origin in respective trade negotiations. The TTIP negotiations therefore needs a harmonisation of the rules of origin (based on those of the EU) to avoid the costly bottlenecks at the US border for European companies. We support simplified and rational rules of origin that are easy to use and verify. Facilitation of Transatlantic Mobility As part of the acquisition of foreign products (machinery, components, etc.) by US customers and the assembly or installation in the US of systems purchased abroad, assembly or installation, commissioning and repair and servicing work are generally agreed upon. There is a lack of transparency over the extent to which foreign specialists can perform these tasks within the scope of US legal provisions on entry and employment. This also applies to arrangements where foreign parent or affiliated companies provide the service for a US subsidiary or affiliate or where the service is provided for other foreign contract partners of the US customer in the US. The TTIP should therefore aim to ensure the facilitation of short-term entry for business purposes and temporary assignments in order to provide such after-sales service and perform repairs, as well as assignments of intra-company transferees. TTIP could also address enhanced transatlantic cooperation on the recognition of professional qualifications. So getting tariffs to 0%, simplification and harmonization of rules, documentation and procedures, facilitation of trade and mobility and a single window for EU and US exporters can do a lot for the ease of doing business for both the US and EU companies. In FMEs opinion these should be the first important goals to achieve in the negotiations. Difficult topics Regulatory issues and technical barriers to trade The technical barriers to trade are twofold: 1) Different technical standards between the EU and the US, partially with a longstanding history, 2) The lack of mandatory recognition of test results by NRTLs, which forces foreign companies to undergo revolving certification processes with heavy cost burden. These barriers cannot be removed by mutual recognition of US and EU standards since it would cause disadvantages for our industry and it would not remove the cost intensive bottleneck of repeated testing by NTRLs, whereas suppliers could use CE marking in the EU without further testing and certification procedures. So prior harmonization of standards is needed. Overall, the European industry believes that tackling regulatory divergences between the EU and the US will benefit businesses of all sizes and increase transatlantic trade flows. Currently the lack of regulatory convergence forces companies to invest time in diverging procedures in order to demonstrate compliance. This constitutes for companies, especially small and medium-sized companies, an extra cost and a barrier to trade. Therefore the EU-US agreement should develop processes and mechanisms to achieve regulatory coherence on a global level. It s difficult but negotiators and authorities should face this situation as an opportunity in which industry could adopt procedures that would ensure coherence and streamlining of requirements in future legislation. This could include early consultations between the trade partners whenever legislation is to be adopted or reviewed, including an estimation of the impact on trade before proposing any regulatory

6 change. This can be strengthened by an institutional process and procedural requirements for a regulator to regulator cooperation after negotiations have been concluded, in order to establish a living agreement. Moreover, the issue of transparency (open, clear and predictable procedural requirements) should be at the heart of TTIP. The two partners should share data with each other that would enable regulatory comparisons, more solid impact assessments and mutual compliance. The ORGALIME 2 paper presents concrete analysis of areas of regulatory divergence, with suggestions on how progress towards convergence could be made. Standards The EU and the US have different standardisation models, which have been shaped over many decades taking into account both sides history, culture and values. Nevertheless, there is interest of the European business community, as well as among regulators, to avoid incoherency at international level and unnecessary duplication of work. Unfortunately, until now the US attempts to align international and US standards are still at the very beginning. TTIP negotiations should aim at overcoming discrepancies. To date, we see it as achievable via regional agreements with ISO and IEC that already constitute an international platform open to both European and American stakeholders in an open, transparent and democratic manner. The ideal ultimate situation would mean having fully transposed international standards that are applied globally, without regional or national deviations. Alignment along with cooperation on regulatory issues can achieve the overall goal of European business, which is global market access on the basis of one standard, one test, accepted everywhere. Recognition of test results Where technical provisions are identical, the results of testing should be mutually recognised. Where third party involvement is required in the electrical sector the IEC CB Scheme, based upon IEC standards, has been established internationally and should be used. In our view, the US administration should establish a NRTL mutual recognition system which would provide for the full and mandatory mutual recognition of test reports between the NRTLs within the US, similar to the European accreditation system set in place within the EU under Regulation. This would avoid de-facto monopolistic behaviours from US certification providers. Issues of transparency Effective transparency in the field of standards supporting compliance with public policies is crucial. In the EU the development of formal standards supporting compliance with legislation has always been an open process where all interested parties can participate through their relevant national standardisation body. American companies with an office in the EU could (and are already doing so) influence the development of European standards either indirectly, by participating in the work of National Standards Bodies (NSB) members of CEN, CENELEC or ETSI, or directly by participating in the work of a technical Committee under the mandate of a European trade association that has a partnership agreement with the European Standards Organisations. The European Commission publishes its standardisation work programmes and notifies stakeholders of its draft standardisation requests to ESOs. This enhances transparency of the process because it enables stakeholders to anticipate standardisation work, to get a facilitated access to the internal market and make knowledgeable decisions about becoming active in the European standard setting process. However, in the US the decentralised nature of the whole system makes it difficult for European companies, in particular SMEs, to participate in the development of standards. In practice this means that European companies would need to spend much more time and efforts to continually monitor new standardisation work items initiated by American SDOs, spreading scarce resources over multiple chess boards. This also results in the need to purchase standards from more sources which could become increasingly complex and costly. The solution could be to establish a transparent system detailing how legislation and standards interact, including notifications of planned developments. The European Standardisation System already largely meets this need for transparency. It is our view that the US Administration should introduce a similar level of transparency and predictability to the best achievable level within the existing framework. In the short term, we suggest that the US establishes a single source of information in form or a portal - which should list in a transparent way the applicable legislation, all accredited SDOs, their relation to applicable 2

7 Federal or State legislation per industrial sector, where to apply for active participation in standardisation work, and where to buy available standards. In the n a longer term, the US and EU regulators should commit that only standards developed in close connection with IEC and ISO could be used for supporting compliance with both EU and US legislation. Mutual Recognition of conformity assessment procedures Direct mutual recognition of conformity assessments procedures cannot be implemented at the present time without significant disadvantages, owing to the completely different regulatory philosophies in the EU and the US. However, we believe a living agreement can gradually produce solutions acceptable to both sides. FME values the European system whereby EU authorities rely on the manufacturers declaration for a wide range of products and require third party conformity assessment reports or certificates for only certain groups of products. This is a cornerstone of the European competitiveness, as it saves time and costs to European manufacturers. It is equally a trade facilitation measure for importers of products from US or other origins. For the US, such mechanisms will improve the efficiency of markets since testing costs will decline. Therefore, it is essential to ensure that the liberal nature of the successful European market access system is not jeopardised or abandoned in a streamlining process of the EU and US regulatory systems. Buy American and Public Procurement Public procurement in the US should be liberalised on all levels, including at state and local level. Regulations governing local content, "buy national" clauses and other restrictions (depressed areas and minority clauses, where still in force) should be withdrawn for suppliers from the EU member states. The EU's negotiators must obtain firm clarification of the degree to which any concessions by the US administration in Washington D.C. regarding public procurement will automatically apply in all individual states, and how existing regional exemption provisions, where they apply, can be rescinded for companies in EU member states with the aid of the agreement. In any case, federal procurement procedures, including those bids co-funded by the federal budget, should give equal rights to contractors and suppliers from the EU. Jones Act The U.S. cabotage laws, commonly referred to as the Jones Act, require all commercial vessels transporting merchandise between ports or via a foreign port in the US to be built, owned, operated and manned by US citizens and to be registered under the US flag. The law applies to any vessel operating between two US ports, whether in the continental United States, or non-contiguous states of Hawaii and Alaska, and also Puerto Rico. As a consequence of the Jones Act, the European shipbuilding industry, including ship repair and maintenance, has been effectively excluded from selling vessels to be used in American coastwise trades. Although some European marine equipment manufacturers have managed to sell certain products to US shipbuilders, the Jones Act prevents them from offering integrated marine equipment systems more widely in the US, because the use of foreign parts for ship construction is heavily restricted. On the contrary, the EU does not exclude US maritime manufacturers or any other third countries. The major criticism of the EU maritime industry against this regulation is that it has created a severe distortion of the international level playing field. Such a restriction also raises a lot of problems for the competitiveness of the US merchant marine manufacturers and operators: high building and fleet costs which lead to less competitiveness and a declining market share. But also a lack of qualified and specialized vessels, lack of skilled labour, higher operating, repair and maintenance costs and a negative safety and environment impact. Especially for the Dutch technological industry, which is very active in maritime equipment and manufacturing specialised vessels, the Jones Act should be on the TTIP negotiation table in order to restore level playing field. Dual-Use items and Export Controls In the framework of the transatlantic negotiations we should also achieve a removal of the extraterritorial application of the US regulations on the export of dual-use goods (EAR). A solution could be to recognise the export controls of these products in order to avoid duplication of costly formalities. National laws and regulations with extra-territorial effect not only violate international law, as they disregard the political sovereignty of other states, but they are also a huge obstacle to global economic cooperation. Anyone who assumes the ultimately incalculable risk of trade restrictions that apply extra-territorially through

8 the installation of foreign components into machinery will inevitably consider switching to unencumbered suppliers. There are cases where companies have restricted supplies from the US to an absolute minimum to avoid the extra-territorial US export controls as far as possible. The TTIP should therefore ensure that no export restrictions with direct and indirect extraterritorial effect can be issued and that existing regulations with extra-territorial effect are rescinded. This applies both to trade and economic sanctions as well as to regular export control provisions for capital goods (dual-use export controls). Extra-territorial-oriented re-export restrictions (both in embargos and in regular export controls), supplier and performance restrictions directly aimed at extra-territorial companies as part of national embargos and business activity restrictions aimed at certain citizens working for companies headquartered abroad as expatriates should be abolished. Role of FME and the European industry FME prioritises the TTIP as number one on the current trade policy agenda because of the huge benefits it could have for our member companies but also because of the impact it could have on the Dutch industry. That s why FME is influencing the negotiations through national, European and international channels. On a national level FME is cooperating with the Ministry of Foreign Affairs and VNO-NCW in order to protect the interests of the Dutch companies and find solutions for problems in the negotiations. Internationally FME tries to make the connection with US industry representatives to discuss TTIP topics and come to terms on industry related issues. The work done on a European level is of great importance. In Brussels FME is represented in the Orgalime working groups active on TTIP, both in the Trade Policy and the Technical working group. The European engineering industry accords very high priority to the TTIP and the objective of formulating a comprehensive, exemplary transatlantic agreement for the liberalisation of trade in products and services. The reality within large companies and now also many medium-sized companies is already shaped by their locations on both sides of the Atlantic: in other words, from the companies' perspective, progress in liberalisation pays off twofold if both sides benefit from the agreement. The aim is to get engineering industry high on the political agenda with respect the TTIP and help the negotiators to understand the difficult (technical) issues of our industry. A specific industry chapter in the TTIP agreement would be an interesting end result off our efforts. On the other hand Orgalime is also working together with industry organisations in the US (NAM and NEMA) in order to come with a joint statement. The US is currently one of the world's largest markets for our industry, and our companies hope that the overcoming of tariff and non-tariff barriers to trade will yield tangible cost benefits. For the European engineering industry standardisation and conformity assessment barriers exist. That s why we support the transatlantic negotiations in order to improve the technical cooperation by minimising existing differences in the respective regulations and minimising the competitive standards for the same product. Process Free trade negotiations are often non-transparent for the ones who should in the end profit from the agreement: the companies. Not only the outcome but also the process is very unclear and far away from the day-to-day practice of companies. That s why FME emphasises that TTIP should demonstrate more openness and transparency in comparison to other negotiations in the past. While governments rely on the input from the private sector they often forget to involve the business side in the political process of negotiations. The secrecy which is already surrounding the TTIP negotiations should be removed and the private sector should be frequently and broader informed by both the European and the national governments of member states. The image surrounding and communications about the TTIP are also very important. The public debate should be focussed on the gain for our companies and the people living in the EU. The negative publications should off course be discussed but should never dominate or delay the end result. That s why FME emphasizes the importance of the TTIP throughout the whole process and FME will communicate with a positive attitude by informing member companies and stakeholders on the status, new developments and positive outcomes.