1 OECD WPTGS (Oct. 2010) The Role of SMEs in US and EU Exports Alexander Hammer and James Stamps Office of Economics U.S. International Trade Commission

2 What is the USITC? Independent and objective U.S. government agency with broad investigative responsibilities on matters of trade Mission: (1) Administer U.S. trade remedy laws (2) Provide President/USTR, Senate, and House of Representatives with independent analysis on trade issues (3) Maintain U.S. Harmonized Tariff Schedule Connection to Policy: Informs but does not prescribe Used at many stages in trade policy formulation & deliberation NEVER determines policy, but is 1 input to policy process

3 USTR Requested USITC: Framework Study 1 Inv. No January 12, 2010 Study 2 Inv. No July 6, 2010 Study 3 In. No October 6, 2010 Whats known & unknown about U.S. SME exports Compare US & EU SME exports Reported views of barriers Role of FTAs Identify barriers that disproportionately affect US SMEs Estimate role of services

4 USTR Requested USITC: Framework Study 1 Inv. No January 12, 2010 Study 2 Inv. No July 6, 2010 Study 3 In. No October 6, 2010 Whats known & unknown about U.S. SME exports Compare US & EU SME exports Reported views of barriers Role of FTAs Identify barriers that disproportionately affect US SMEs Estimate role of services

5 What is an SME? No universally accepted definition by U.S. Government Even common definition is different from EU

6 SME Role in U.S. Economy SMEs: ~50% U.S. private nonagricultural GDP ( ) ~99% nonemployer- based firms (2006) Largest share: wholesale/retail trade, real estate, professional services. Large Firms: Dominant sector: manufacturing (23.3%) Finance sector bigger than SMEs Real estate & prof. service, & construction smaller

7 SME Role in U.S. Economy U.S. Nonfarm Private Employment (2006) U.S. Nonfarm Private Employment Growth ( )

8 Data Limitations 1.Services Sector: No published SME exports data 2.Merchandise Sector: Data can be distortive

9 SME Account ~30% U.S. Exports Source: U.S. Census.

10 SME Merchandise Exports: By Country Largest in value: Canada & Mexico Largest share: HK, Israel & Switzerland Source: U.S. Census.

11 SME Merchandise Exports: By Sector Largest in value: Electrical Largest share: Wood products product, machinery, & chemicals apparel & accessories Source: U.S. Census.

12 Smaller the Firm More Export Growth Dependent on Market Entrants Source: U.S. Census.

13 Findings (Study 1) No universal U.S. Government SME definition (common <500) Data problems Lack of published services data inhibits analysis Data limitation on wholesale trade source inhibits analysis Despite ~50% U.S. GDP & employment and ~99% U.S. firms, only ~ 30% U.S. merchandise exports SME merchandise exports Growth comparable to large firms, but more dependent on new entrants Mostly to NAFTA partners Canada & Mexico Mostly electrical products, machinery, & chemicals SME Services data Preliminary research using firm-level data suggest majority to EU, Asia, Canada, w/professional services to UK and Canada.

14 Three Objectives (Study 2) Compare exporting activities of U.S. and EU SMEs. Report U.S. SMEs views on barriers to exporting, and strategies to overcome them. Identify the benefits to U.S. SMEs of improved export opportunities from FTAs and other trading arrangements.

15 U.S.-EU SME Data Comparisons: Definitions of SME Employment threshold* United States: generally <500 workers European Union: generally <250 workers * In addition to employment thresholds, financial thresholds (annual revenue, turnover, or balance sheet total) are also used.

16 U.S.-EU SME Data Comparisons: OECD Trade by Enterprise Characteristics (TEC) Database 5 Datasets Dataset 1: Trade by activity sector and enterprise size. Dataset 2: Concentration of trade by activity. Dataset 3: Trade by partner countries and activity. Dataset 4: Trade by number of partner countries and activity. Dataset 5: Trade by commodity and activity.

17 U.S.-EU SME Data Comparisons: Data comparability and data limitations Data on U.S. and EU firms with <250 workers. U.S. exports compared to EU exports outside of the EU. Data are for EU data are for EU-17. a USITC used econometric estimate to provide data for EU-24. Data are for firms in manufacturing industries, and exclude sectors such as agriculture, wholesalers, and financial services. a Austria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Hungary, Italy, Latvia, Lithuania, Luxembourg, Poland, Portugal, Slovak Republic, Slovenia, and Sweden.

18 Role of SMEs in Exporting and Manufacturing SMEs (<250 workers) play a less prominent role in both exporting and manufacturing in the United States than in the European Union.

19 Role of Wholesalers/Intermediaries Exporting SMEs in the United States (<250 workers) are more likely to be wholesalers/intermediaries than in the European Union.

20 Exports by Firm Size and Major Industry U.S. export-oriented wholesale firms are larger then EU wholesale firms. SME manufacturers (<250 workers) in the European Union had larger exports than those in the United States.

21 SME Exports by Sector The export share of U.S. SMEs (<250 workers) is lower than that of the EU in nearly every sector. –Greater export intensity of EU SMEs relative to U.S. SMEs might be, in part, related to a difference in U.S. and EU industry composition. –SMEs in the European Union accounted for more than 50 percent of exports in 7 manufacturing sectors: furniture manufacturing; metal products; publishing, printing, and reproduction of recorded media; leather; textiles; wearing apparel; and wood products.

22 Findings (Study 2) SMEs play a less prominent role in both manufacturing and exports in the United States than in the European Union. However, the export/sales ratios for U.S. and EU manufacturing firms are similar. The role of SME wholesalers/intermediaries is greater for the United States than for the European Union. U.S. export-oriented wholesale firms are larger than EU wholesale firms. The data suggest that U.S. SME manufacturing firms may benefit from the export services of large wholesalers to a greater extent than do SMEs in the European Union. The export share of U.S. SMEs was found to be lower than that of the EU in nearly every sector.

23 Next Steps 3 rd USITC report on SMEs: Due in October 2010 Report focus on U.S. SMEs only

24 Major components of study Profile of services SME exporters: new data –Uses customized U.S. BEA and Census data –Questionnaire Top trade barriers that disproportionately impede SME exports Exports and SME performance Indirect exports by SMEs SME operations as multinationals