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Utilizing Trade Policy to Help Small Businesses Export and Create Jobs: Key Findings from the USITC Reports on SMEs

As part of USTR’s Small Business Initiative, Ambassador Ron Kirk requested the independent U.S. International Trade Commission (USITC) to conduct a three studies analyzing the role of SMEs in generating U.S. exports and employment; highlighting barriers reported by SMEs and benefits to SMEs of increased export opportunities; and identifying trade barriers that disproportionately affect SME export performance in manufacturing, services and agriculture. These findings will help inform U.S. trade policy to better meet the needs of small businesses to grow their customer base and generate jobs through international trade:

Role of U.S. SMEs in exports and employment

  • SMEs play a crucial role in job creation. Over the last two decades, SMEs have accounted for almost two-thirds of new jobs in the U.S.
  • About a quarter million U.S. SMEs export to one or more foreign markets, but this is only a small fraction of total U.S. SMEs. U.S. SME exporters grow faster, increase employment faster, and pay higher wages than non-exporting SME firms.
  • U.S. SMEs play a larger role in the export economy than is suggested by traditional trade statistics, by exporting indirectly. SMEs export indirectly through wholesalers, and as producers of intermediate goods and services inputs to other exporting firms.
  • Direct and indirect exports by U.S. SMEs support about 4 million jobs, and account for over 40% of the total value-added of U.S. exports of goods and services.

Benefits to U.S. SMEs from Increased Export Opportunities

Through U.S. trade agreements, 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.

Trade Barriers which Disproportionately Affect SME Export Performance

Based upon surveys of thousands of U.S. SMEs across the country, ITC data indicates that SMEs regard many trade barriers as more burdensome than large firms do.

  • Tariffs in foreign markets on certain manufactured goods and processed agricultural products, in which U.S. SMEs are major suppliers, are substantial.

Manufacturing SMEs

  • Manufacturing SMEs report high tariffs, customs procedures, foreign regulations, and preferences for local goods as more burdensome than large firms.
  • Foreign standards, testing and certification requirements often impede exports by U.S. manufacturing SMEs.
  • Electrical products, machinery, and chemicals were the primary merchandise export categories for SMEs.

Services SMEs

  • Services SMEs report insufficient intellectual property protection, difficulty establishing affiliates in foreign markets, and preferences for local services in the foreign market as more burdensome than large firms.
  • Specific non-tariff measures such as nationality, licensing, and commercial presence requirements frequently constrain services SMEs from entering foreign markets.
  • Information services, finance, and professional, scientific and technical services were the largest services exporting sectors for SMEs.

Agriculture SMEs

  • U.S. farms, largely SME operations, are leading indirect exporters of agricultural products through other firms.
  • Non-tariff measures (NTMs) such as sanitary and phytosanitary measures, which affect all agricultural exporters, can have a greater effect on SMEs because it takes proportionately more time and resources for smaller businesses to address them.
  • Agricultural SMEs are concentrated in higher-value specialty products such as fruits, vegetables, and nuts, and specialty branded products, such as wine.