Close Relations with EU Boost Export Opportunities

TRANS-ATLANTIC TIES: CLOSE RELATIONS WITH EU BOOST EXPORT OPPORTUNITIES August 11, 2008 WILLIAM ARMBRUSTER Shipping Digest

Despite growing economic integration, U.S. companies still face some entry barriers Europe is often an afterthought in many trade circles. It shouldn’t be. The U.S. relationship with the European Union is a partnership between equals, with enormous amounts of trade and investment that bring substantial economic benefits to people on both sides of the Atlantic.
For example, U.S. merchandise trade last year with the 27 members of the European Union totaled $600 billion, a 47 percent increase over the $409 billion in two-way trans-Atlantic trade in 2003.

Much of that trade is between parent companies and subsidiaries on the other side of the pond. That’s largely because of the huge levels of foreign direct investment — an even bigger indicator of economic integration than trade statistics alone would indicate. As of the end of 2006, U.S. companies had invested about $1.1 trillion in the European Union’s 27 member states, while EU companies had invested about the same amount in the United States. U.S. companies employ about 7 million people in the EU, while European companies employ about the same number in the U.S.

For example, Siemens, the German conglomerate, employs about 70,000 people in the U.S., according to Kathryn Hauser, executive director of the Trans-Atlantic Business Dialogue.
“The similarities (between the U.S. and EU) are obvious. The U.S. and Europe are very large markets, have people with very similar values, high quality standards and regulations on things that matter to consumers, such as food safety,” Hauser said.

The TABD is a private-sector group that seeks to establish a trans-Atlantic market with the freest possible exchange of goods, capital and people between the U.S. and EU.
A barrier-free market would make it easier for all companies, especially small and medium-sized enterprises that don’t have a lot of resources, she said. The cost of complying with some current regulations is “really, really high” for them, she added.

Hauser cited mutual recognition of security programs and accounting standards, and a task force aimed at easing restrictions on business travel, as examples of cooperative steps that will benefit companies on both sides of the Atlantic.

The EU’s creation of a single market means that U.S. exporters no longer need to tailor a product to meet regulations and standards in each country. Rather, said Gary Litman of the U.S. Chamber of Commerce, “it’s the EU market. That reduces the cost of entry for American companies tremendously.”

Litman, the chamber’s vice president for Europe and Eurasia, said the adoption of the euro by 15 EU members — the U.K. is the most notable exception — has helped U.S. companies. The euro is “simple, uniform and transparent,” he said.

Calculating costs and pricing was far more challenging before the introduction of the euro.
Without the euro, the dollar would be overpriced relative to the individual currencies of some eurozone countries, such as the Spanish real, he said.

The strong euro — the flip side of the weak dollar — has boosted U.S. exports by making them more price-competitive in the EU. Last year, they totaled $247 billion up from $214 billion in 2006, a 15 percent increase. The pace has been slightly less robust thus far this year, perhaps reflecting the spread of the U.S. economic slowdown across the Atlantic. Still, U.S. exports in the first five months of 2008 were up 14 percent, totaling $117.3 billion, compared with $103 billion in the same period last year.

Paul Dyck, the Commerce Department’s deputy assistant secretary for Europe, said he expects U.S. exports to Europe to continue to grow at double-digit rates next year.

The strong euro has taken its toll on European exports in other markets, such as Asia and Latin America, because European goods are too expensive compared to U.S. goods.

Meanwhile, the weakening of the dollar has led to a surge in acquisitions of U.S. businesses by bargain-hungry foreign companies. In a blockbuster deal last month, InBev, a Belgian brewery whose brands include Bass and Beck’s, bought Anheuser Busch, maker of Budweiser, the icon of the U.S. beer industry.

Besides acquiring U.S. companies, European companies, including IKEA, BMW and Michelin, have been busy building U.S. factories or expanding their existing manufacturing operations to take advantage of lower costs in the U.S., as well as to be closer to their customers and to cut transportation costs.

“I think there has been an amazing number of advances in terms of economic integration,” said Kimberly McLaughlin, director of EU affairs for the U.S. Council for International Business.
The size and wealth of the EU member states, which have a combined population of about 500 million, make Europe an attractive market for U.S. entrepreneurs, Litman said. “If you have a new idea, a new product, energy and passion, you are no longer confined to the U.S. market. You can count on a very sophisticated, very deep European market with high expectations of value, quality, product safety, and with very substantial purchasing power,” Litman said.

U.S. exporters will also benefit from the EU’s new customs code, a step that will simplify various procedures and introduce a paperless environment. Some of the code’s provisions took effect on June 24, while others will be phased in over the next several years. The provision regarding customs charges, for example, will not take effect until Jan. 1, 2011.

Overall, the best opportunities for U.S. companies in the EU are at the upper end of the technology scale, according to the U.S. Department of Commerce. “U.S. goods are well regarded, and demand is driven more by quality and performance than by price,” the department said in its country guide for the EU.

The guide warns, however, that the single market is not a uniform one. “The market of the European Union is a differentiated one, with each member state market having supply, distribution, demand, cultural and legal characteristics that merit individual attention. Specific tactics for market entry or expansion should be considered for each country,” the guide observed.

Moreover, implementation of many European Commission directives is up to individual countries.

The EU country guide contains a wealth of information and can be found on the Web site for the U.S. Commercial Service, Commerce’s export arm. The Web site, www.export.gov, also has country guides for each member state, detailing the best prospects, the investment climate and other economic, political and commercial information for the country or countries of interest.
The EU is currently facing an economic slowdown, although it may not be as severe as in the United States. Growth in the eurozone was probably flat in the second quarter, but is expected to rise to 1 percent in the second half of the year, said Michael Andrews, chief economist for PIERS, a sister company of Shipping Digest.

Andrews attributes the slowdown to the spillover effects of the U.S. housing and credit crises, in addition to surging oil and food prices. Moreover, the European Central Bank has been raising interest rates in an effort to curb inflation — a move that also has a depressing effect on economic growth.

The slowdown in the U.S. may limit the growth in EU exports to the U.S. Surprisingly, however, in dollar terms, EU exports to the U.S. grew in 2007 and in the first five months of this year. Exports to the U.S. last year totaled $354 billion, up from $330 billion in 2006. And in the period from January through May 2008, imports totaled $154 billion, compared with $141.8 billion in the same months last year. As a result, the U.S. deficit with the EU fell by a relatively small amount, dropping from $38.6 billion to $36.8 billion. The deficit last year was $107 billion.