In February of last year (2013), United States President Barack Obama stated in his State of the Union
address that his country would be launching negotiations on a Transatlantic
Trade and Investment Partnership (“T-TIP”) with the European Union. The aim of T-TIP is to:
- Eliminate or reduce conventional barriers to trade in goods, such as tariffs and tariff-rate quotas;
- Eliminate, reduce, or prevent barriers to trade in goods, services, and investment;
- Enhance compatibility of regulations and standards;
- Eliminate, reduce, or prevent unnecessary non-tariff barriers such as regulatory disharmonies; and
- Enhance cooperation for the development of rules and principles regarding global issues of common concern (e.g. environment, labor, intellectual property rights) and for the achievement of shared global economic goals.[i]
While the negotiations for T-TIP are anticipated to conclude as early as the end of 2014, both sides of the Atlantic are notably keen to reach a
deal. After all, while the existing
tariffs and trade barriers are relatively low – averaging less than 3% on
traded goods – the total volume of bilateral trade between the United States
and the European Union countries is massive, generating trade flows of
approximately $2.7 billion every single day in 2012.[ii] Even with the current tariff and regulatory
regime, European Union exports in goods to the United States in 2012 were
$380.8 billion, up a staggering 67% from 2000.[iii]
While much of this negotiation will look at the trade in
manufactured goods, and while many of the anticipated benefits of a successful T-TIP negotiation revolve around the elimination of duplicate or conflicting regulation of goods on either side of the Atlantic, what I personally find most interesting are the areas that
touch on services, investment, and regulation surrounding intellectual property
rights and cultural protection.
One only needs to walk down the street in my home city of
Berlin, Germany, to see legions of software development firms that are either
based in the United States and have offices here, or that are based here and
are looking to expand into the United States by courting venture capital
investors there. A prime example of this
is European music sharing company SoundCloud.
This company has been written about extensively already by others, and
will no doubt be written about again by me, because it stands out as a true
European success story in the information age, and because their operations are
run only two blocks from where Geyer Global Partners is located. Founded in 2007 in Stockholm, Sweden, by a
Swedish sound engineer and a Swedish musician as a tool to virtually share
music among collaborating artists, SoundCloud firmly established itself in
Berlin, Germany, soon afterward -- where it has quickly risen to become the
world’s preeminent music sharing service.
Now with over 40 million registered users and as many as 200 million
unique users worldwide, SoundCloud has most notably signed a Series-C funding
agreement with Silicon Valley venture group Kleiner Perkins Caufield &
Byers for a reported $50 million in early 2012.
SoundCloud is not alone.
Other notable European start-up standouts in Europe include barcoo, a
Berlin-based product research application featuring an integrated barcode
scanner that has over 1 million users; XING, a Hamburg-based social and
professional networking site that is a more Euro-centric version of LinkedIn that
has around 14 million users; and OpenSynergy, another Berlin-based company that
develops products that integrate automotive onboard software systems.
While these are all very different software and service
companies, they all share a European home, they all are ripe for (or have
already received) investments from United States-based venture capital
companies, they all have products that would potentially be very appealing in
the United States marketplace, and -- particularly in the cases of XING and
OpenSynergy -- are prefect for strategic partnerships or mergers with existing
United States companies. If T-TIP is
able to reduce or eliminate barriers to trade in services and investment, more
companies like these will be able to gain access to the funds and relationships
to help them grow and thrive.
The other area of discussion that I find of particular
personal interest relates to regulation surrounding intellectual property
rights and cultural protection. There
are a couple of issues here worth noting.
While the United States and Europe share strong intellectual property
rights protections, the idea behind their inclusion in the T-TIP negotiations
is to attempt to set a world standard that can then be copied in other regional
trade negotiations. Particularly in the
startup realm, anything that better codifies and enforces intellectual property
rights is a good thing. Negotiations
over regulations concerning protection of cultural or linguistic heritage are a
more complex issue.
Two notable, but not unique, examples of this are
regulations concerning product naming and regulations protecting indigenous
cultural products from being overwhelmed by globalized mass-media. In the first case, Europe maintains strict
rules regarding the naming of regional products, so that “Parmesan Cheese” is a
regulated name that can only refer to cheese made by the Parmigiano-Reggiano
cheese consortium, and “Champagne” is a regulated name that can only refer to
wine made in the Champagne region of France.
At the same time, the United States generally does not adhere to the
same strict naming restrictions for parmesan cheese, while it generally does
with increasing consistency for champagne.
T-TIP would seek to make regulations in this regard more consistent
across the Atlantic.
In the second case, the European Union’s Audiovisual Media
Services Directive (“AVMSD”), as it currently exists, is designed to counteract
a trade media content deficit between the European Union and the United States
of between €6 and €7 billion per year.[iv] It does this by requiring European Union
broadcasters to reserve a majority of their broadcast time (excluding the time
appointed to news, sports events, games, advertising, teletext services and
teleshopping) for European-produced content, and that “on demand” broadcasters
must dedicate significant resources to the production and acquisition of
European content. Of this, at least 10%
of broadcast time (with the same exclusions listed previously) must be recent
(within 5 years) productions by “independent” producers.
Needless to say, with €6 to €7 billion per year on the line,
audiovisual media producers in the United States are very keen to eliminate as
many of these barriers as possible. What
the European Union would get in return for removing these barriers is less
clear. That having been said, an
interesting 2010 report by the Swedish Agency for Growth Policy Analysis[v]
uses empirical data to demonstrate that highly regulated and protected
industries have a strong tendency to adapt more slowly to changes in consumer
tastes and other economic imperatives than more lightly regulated and protected
industries. If we can take this
deduction at face-value, rather than providing an easier opportunity for
American mass culture to overwhelm more locally produced media, perhaps the
lowering of trade restrictions on audiovisual content is a blessing for smaller
European producers in that it will compel them to be more flexible and
responsive – not necessarily to the world marketplace but to their own
preexisting markets.
In support of this idea, I am reminded of the 1996
Telecommunications Act in the United States, which eliminated many of the
existing restrictions on the number of television and radio stations a single
company could own. In response to this
deregulation, there was a massive wave of consolidation, in which many small
broadcasters were bought out (many making extremely handsome profits on the
sale in the meantime). One of the
driving principles behind this consolidation was that large group owners could
create economies of scale by eliminating duplicative facilities and duplicative
tasks across multiple stations, and even by “centralcasting” programming
created in one or two broadcast hubs and then sending them to their dozens (or
even hundreds) of stations nationwide.
This consolidation was admittedly an extraordinarily painful time. There were vast layoffs in sales,
engineering, on-air talent, and even management.
Over time, though, an interesting thing happened. These new large group owners realized that by
eliminating everything that made their stations “local,” they were eliminating
the very reasons why consumers viewed or listened to their stations in the
first place. With the Internet, cable
television, and satellite broadcasting, nationwide or worldwide content is
easily and relatively cheaply available to all consumers in the developed
world. But only local broadcasters could
speak to local consumers in a manner that was meaningful and that met their
needs. Over the course of ten years, as
I visited radio stations in small and medium sized markets, I saw them go from
empty studios that served only to rebroadcast content sent from New York or Los
Angeles, to being re-staffed with new talent broadcasting new and more relevant
content.
This rather long anecdote is meant only to describe how the
loss of local and regional regulations on protecting content is not necessarily
destructive in the medium- to long-term.
In fact, with distribution of audiovisual content now easier than it has
been at any point in the history of the world, producers of high-quality
regionally or linguistically specific content, distributed by aggressive
entrepreneurs, could have potentially significant opportunities in a
de-regulated trans-Atlantic marketplace.
With substantial French-speaking populations in Maine and Louisiana,
with substantial Polish-speaking populations in Pennsylvania and Illinois, with
substantial German-speaking populations in Wisconsin and Texas, and even with a
substantial Slovene-speaking population in Ohio, the United States has a large
and mostly untouched consumer base for niche non-English European-produced
audiovisual content.
Deregulation on the scale of what is being discussed with
T-TIP can potentially be very disruptive to well-established patterns of
producer and consumer behavior. However,
with its growing entrepreneurial spirit, and with the incredible creativity and
innovation of its culturally and linguistically diverse products, the European
Union has more to gain -- in terms of new opportunities for growth through
increased investment from and expanded trade with the United States -- than it
has to lose, in terms of protected industries having to face new competition.
For more information on how Geyer Global Partners can help your business to "Go Global," visit our website at www.geyerglobal.de.
For more information on how Geyer Global Partners can help your business to "Go Global," visit our website at www.geyerglobal.de.
[i]
United States-European Union High Level Working Group on Jobs and Growth. “Final
Report: High Level Working Group on Jobs
and Growth.” February 11, 2013.
[ii]
Office of the United States Trade Representative. “European Union,” http://www.ustr.gov.
[iii]
Office of the United States Trade Representative. “European Union,” http://www.ustr.gov.
[iv]
European Commission. “Audiovisual and Media Policies.” http://www.ec.europa.eu. April
12, 2012.
[v]
Swedish Agency for Growth Policy Analysis.
“The Economic Effects of the Regulatory Burden.” Growth Analysis: Östersund, 2010.
