Red Lines

Foreign Trade
Minimum Requirements of the Mechanical
Engineering Sector for the TTIP Negotiations
(“Red Lines”)
A. Introduction
VDMA strongly supports the negotiations on the planned Transatlantic Trade and Investment
Partnership (TTIP). The association has argued in favor of a comprehensive and wideranging free trade agreement since the beginning of the negotiations – after all, mechanical
engineering makes up an enormous proportion of transatlantic trade. 12.4 percent of all
exports from the EU to the USA are mechanical engineering products, with a product value
of EUR 45.9 billion (2015). About nine percent of imports from the USA to the EU are
mechanical engineering products, with a product value of EUR 22.8 billion (2015). The
United States is currently the largest exporting country for the German mechanical
engineering sector. In 2015, German machines valued at EUR 16.8 billion were exported to
the USA, making up a 14.8 percent share of the entire movement of goods. In addition, one
fourth of all foreign investments by German mechanical engineering companies are made in
the United States, making it the most important foreign market.
TTIP offers the opportunity for growth and employment. Furthermore, the German
mechanical and plant engineering sector expects that TTIP will result in the elimination of
tariffs for mechanical engineering products, the definition of consistent rules of origin and the
reduction of technical trade barriers. In the European Union, and in particular in Germany,
the negotiations have sparked a lively debate on the anticipated effects of the agreement on
the economy and society. In light of this debate, VDMA intends to shed light on the most
important demands and constraints that would help make TTIP a successful agreement from
the perspective of mechanical engineering.
VDMA (German Engineering Association) counts more than 3,100 mostly medium-sized
companies in the capital goods industry as its members, making it the largest industry
association in Europe. The association represents the common economic, technological and
scientific interests of the mechanical engineering sector, especially towards national and
international authorities and business circles.
The German mechanical engineering industry is an international leader – German
companies rank among the world’s top three suppliers in 25 out of 31 comparable
subsectors, and are global market leaders in half of them. Employing more than one million
people (January 2015), the mechanical and plant engineering sector is the largest industrial
employer in Germany. It develops and produces key technologies for the global market and
has an export quota of 76 percent. With a turnover of EUR 218 billion (2015), it is one of the
leading industry sectors in Germany.
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B. Demands and constraints from the perspective of mechanical
engineering
Part 1: Market access
a) Tariff elimination
Mechanical engineering companies have to pay import tariffs when exporting their products
to the USA or the EU. These import tariffs for companies are between 2.0 and 4.5 percent in
the USA, while the EU imposes import tariffs of 1.5 to 3.0 percent on mechanical engineering
products.
Due to the considerable trade volume in mechanical engineering products between the EU
and the USA of EUR 68.7 billion (2015), even low tariffs lead to substantial costs for the
companies affected. Calculations by VDMA show that eliminating tariffs on mechanical
engineering products could lead to cost savings of EUR 1 billion in bilateral exchange – let
alone the costs incurred for red tape for customs clearance!
VDMA demand
Elimination of tariffs when the agreement enters into force
VDMA demands that tariffs on all mechanical engineering products are eliminated when the
agreement enters into force.
Red line
No exclusion of mechanical engineering products from tariff elimination
TTIP should not exclude any mechanical engineering products from tariff elimination.
Transitional phases for tariff elimination may only be established in justified exceptional
cases. All mechanical engineering companies should be able to benefit from tariff elimination
immediately after the agreement has entered into force.
The companies would be able to pass on cost savings arising from tariff elimination to their
customers, which in turn would lead to reduced prices. Furthermore, these resources could
be spent on research and development, job creation and advanced training.
b) Rules of origin
Every free trade agreement contains provisions on determining the origin of goods. These
criteria are important in order to determine whether the goods in question are subject to tariff
concessions under the free trade agreement. If a company wishes to benefit from customs
concessions under a given free trade agreement, it needs to comply with the rules of origin
agreed therein.
VDMA demand
Definition of consistent rules of origin
The rules of origin to be agreed with the USA should be closely based on the regulations
already in place in other EU free trade agreements. VDMA demands that an exclusive or at
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least alternative Value Added Rule is implemented for all customs items relevant to
mechanical engineering.
Red line
No establishment of new provisions not known to mechanical engineering companies
The American “regional value content” approach is not known in other European free trade
agreements and would – if it became the commonly agreed rule in TTIP – result in
considerable strain on European companies, especially small and medium-sized companies.
There is reason to expect that companies would refrain from exploiting tariff advantages
resulting from TTIP.
For this reason, TTIP should not establish any new rules of origin that are not known to
mechanical engineering companies. Otherwise, there is an increased risk that the companies
will not apply the rules of origin laid down in TTIP and as a result will not benefit from tariff
elimination.
In addition, the rules of origin defined in TTIP should be based neither on the rules of the
Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada nor
on the North American Free Trade Agreement (NAFTA), but instead should follow the rules
of the EU-Korea Free Trade Agreement (EUKOR), for example.
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Part 2: Regulatory cooperation
a) Technical regulations
Most technical trade barriers are the result of differing technical regulations in the USA and
Europe. European manufacturers need to go to great lengths to research the technical rules
applicable in the USA and retrofit their machines accordingly in order to comply with local
requirements. Additional costs arising from these retrofitting efforts are between 5 and 18
percent.
In addition, different technical rules apply in individual states, counties or even cities in the
USA. This makes it impossible to ensure that a machine retrofitted for the US market can be
sold or operated in the entire USA.
In contrast, US manufacturers benefit from the harmonized EU Single Market – machines
complying with European regulations can be marketed and operated in the entire European
Economic Area.
VDMA demand
Transparent development of consistent technical regulations
In order to harmonize the different technical regulations between the USA and Europe and
make retrofitting machines unnecessary, VDMA calls for the cooperation between regulatory
authorities at national level (e.g. OSHA for the USA, DG GROWTH for the EU). Cooperation
between these authorities should be supported by a permanent coordination body. The
objective of this body is to foster timely and continuous exchange of information with regard
to new regulatory projects and to support the joint and transparent development of
international technical regulations.
Red lines
No undermining of the regulatory autonomy of the respective economic areas
Democratic decision-making processes shall not be undermined by regulatory cooperation
between the EU and the USA. Each side must retain the ability to intervene on a statutory
and regulatory basis in the public interest. A free trade agreement must not challenge or
circumvent the principles of regulatory work, the regulators’ autonomy or their democratic
supervision.
No weakening of the European Single Market
The harmonization of relevant technical rules shall not lead to legal uncertainty or to the
dissolution of the European New Legislative Framework (NLF). Furthermore, VDMA also
claims to ensure that American companies are not granted one-sided easier market access
in Europe, while European companies are still faced with inhomogeneous and complicated
US requirements.
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b) Standards
Fundamental and conceptual deviations in technical requirements need to be taken into
account in mechanical engineering. American standards differ often significantly from
ISO/IEC standards applied in Europe and the rest of the world.
The USA does not have a generally consistent and coherent set of standards that is
comparable to the one of the EU. US standards are created by a number of sometimes even
competing institutions and without the mandatory involvement of all relevant stakeholders.
The incoherent American standardization system often causes difficulties for European
manufacturers, as they need to research the standard applicable for the specific application.
In addition, regional and local deviations in the implementation of these standards give rise to
a number of difficulties (example: implementation of the National Electrical Code (NEC or
NFPA 70)).
VDMA demand
Harmonization of technical requirements
VDMA demands the harmonization of technical requirements for machines on the basis of
coherent international standards. Many requirements dealing with the safety of products
have already been stipulated accordingly in international standards.
The objective is to establish internationally-recognized standards as accepted standards in
trade between the USA and the EU, in line with the VDMA principle: “One standard, one test
– accepted everywhere.” The USA is a member of the international organizations for
standardization ISO and IEC and actively contributes to the work of these standardization
committees. Therefore, it would be possible to adopt international ISO/IEC standards in the
American technical rules.
Red line
No weakening of the coherent European system of standards
In the European Union, harmonized and consistent standards serve to substantiate the
fundamental requirements of the corresponding product directive. Depending on the
jurisdiction, European standards are developed by the standardization bodies CEN,
CENELEC or ETSI in consensus with all interested parties. The coherent European set of
standards is a central element of the EU Single Market.
Recognizing US standards in mechanical engineering without prior harmonization would
mean weakening the coherent European system of standards. Many US standards do not
comply with the requirements for harmonized standards, and some have a differing level of
safety.
c) Requirements for test laboratories and mutual recognition of
test results
Subsequent mutual recognition is only possible where there are comparable requirements for
test laboratories and comparable procedures for product tests. These provisions can be
complied with by applying internationally-recognized rules and performing product tests in
line with consistent international standards.
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Until now, mutual recognition of NRTL test results and NRTL test marks among each other
was handled on a voluntary basis and was not mandatory. For this reason, during inspection
of the entire machine by NRTL X, it is not uncommon for individual components with test
marks by NRTL Y to be rejected or required to undergo further verification.
VDMA demand
Comparable requirements for test laboratories
To ensure equivalent competence of the test laboratories, international standards such as
the ISO/IEC standard 17025:2005, the ISO/IEC standard 17065:2012 and the internationallyestablished accreditation system by the International Laboratory Accreditation Cooperation
(ILAC) and the International Accreditation Forum (IAF) should be used.
Comparable requirements for accredited test laboratories and their consistent approach in
line with internationally accepted rules are essential for ensuring acceptance of test results in
accordance with the VDMA principle: “One standard, one test – accepted everywhere.”
Mutual recognition of NRTL test results
To ensure mutual acceptance of test results of NRTLs among each other, it is conceivable
that OSHA could join the International Laboratory Accreditation Cooperation (ILAC) as an
accreditation body and sign the ILAC’s Mutual Recognition Arrangement (MRA). This MRA
serves to ensure that the accredited test laboratories accept one another's data and test
results. The long-term objective is to achieve full mutual recognition of test results, including
test results from accredited laboratories in other countries. Opening the market for third-party
certifications issued by test laboratories outside the USA would also improve competition
between NRTLs.
The introduction of a consistent “NRTL mark” to foster mutual recognition of NRTL test
results would also be conceivable. Such a mark could be used to verify that the test
laboratory complies with respective requirements. In addition, it would improve acceptance
among the relevant economic participants, users and inspectors and increase mutual
recognition between NRTLs.
Red line
Retention of currently not practiced mutual recognition of test results between the recognized
test laboratories (NRTL)
Mutual recognition of test results and marks issued by the NRTLs should be regulated on a
mandatory basis. With OSHA acting as the accrediting body and the signature of a
corresponding recognition agreement, mandatory mutual recognition of test results could be
achieved and competition among the laboratories improved.
d) Conformity assessment
In Europe, conformity with the relevant technical rules can usually be verified by the
supplier’s self-declaration of conformity in combination with the CE marking of the product.
Third-party certification is only required for particularly hazardous machines, for certain
pressure equipment and in the field of explosion protection.
In contrast, the system of third-party certification is widely used in the USA, particularly in the
area of electrical safety. To verify that a product complies with the requirements,
manufacturers often need to obtain test marks from independent test laboratories (NRTL).
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However, third-party certification does nothing to enhance safety, as legal liability for product
safety largely remains with the manufacturer.
While there are consistent guidelines across Europe governing the placing of products on the
market, market surveillance is still regulated at national level. Market surveillance serves to
protect citizens from unsafe products that have already been placed on the market, while
also fostering fair competition in the European Single Market by establishing identical starting
positions for all market players.
VDMA demand
Mutual recognition of Certificates of conformity
VDMA demands that the TTIP free trade agreement includes an element of regulatory
cooperation in the drafting of common technical rules. Mutual recognition of the
corresponding Certificates of conformity can be achieved if regulations and requirements are
identical and the test laboratories’ prerequisites are comparable.
The objective should be to avoid duplicate and thus unnecessary certificates on both sides.
In line with the principle “One standard, one test – accepted everywhere”, transatlantic trade
could be simplified considerably.
Red lines
No weakening of the European Single Market
The harmonized European Single Market and its consistent regulations on product safety
must not be weakened or even abolished due to the mutual recognition of Certificates of
conformity. Furthermore, VDMA demands to ensure that US companies are not granted onesided easier market access in Europe, while European companies are still faced with
inhomogeneous and complicated US requirements.
No increase in third-party certifications
The European principle of the supplier’s self-declaration of conformity as a proof of product
conformity in line with relevant legal provisions and the associated identification with CE
marking must not be undermined with the TTIP negotiations.
No undermining of market surveillance regulated at national level
The principle of national market surveillance must not be weakened by a free trade
agreement such as TTIP. The responsibility for strong and efficient market surveillance must
remain with the member states.
Market surveillance aims to ensure that products on the market meet the relevant high safety
standards with regard to health and general safety, safety at work, consumer and
environmental protection and public safety.
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Part 3: Rules
a) Investor protection
TTIP will probably include a separate chapter on investor protection. Provisions on investor
protection in free trade agreements or bilateral investment promotion and protection
agreements generally include protection against discrimination, protection against
compulsory expropriation without compensation, protection against unfair treatment and a
guarantee of unhindered capital transactions.
Many existing investment promotion and protection agreements include investor-state
dispute settlement (ISDS). Investors are able to claim their rights before arbitration courts at
the level of international law, independently of national legal proceedings. Provisions for the
proceedings and the composition of the courts are specified in the corresponding
agreements.
Due to public criticism of existing ISDS, in particular in Europe, the European Commission
submitted a proposal for a reform of investor protection under TTIP and other free trade
agreements on November 12, 2015. This proposal includes a public jurisdiction system for
investment consisting of a trial court and an appeal body. The chamber is to comprise highlyqualified, publicly-appointed judges. Furthermore, an appeal body with principles similar to
WTO dispute settlement is envisaged.
VDMA demand
Establishment of reformed investor protection
VDMA believes that companies that invest in a foreign country should enjoy legal
safeguards. For this reason, reliable protection of investments made in the USA should form
an integral part of the TTIP agreement. Among other things, TTIP should protect foreign
investors from unfair and unequitable treatment and compulsory expropriation without
compensation.
VDMA considers TTIP an opportunity to implement the reform measures for investor
protection proposed by the European Commission. The regulations on investor protection
should also be manageable for small and medium-sized companies, meaning that the
duration and costs of the associated proceedings should be reasonable for these companies
as well.
The USA is the most important foreign investment location for German mechanical
engineering companies. Foreign investment must be protected, even in a democratic country
like the USA. There is no legal provision in the USA that forbids discrimination against
foreign investors. Investment provisions in the agreement would help fill this gap – but only if
these obligations can be enforced.
Red line
No omission of investor protection
Investor protection should not be left out of the agreement.
However, an overall agreement on TTIP should not be put into question because of the
provisions of investor protection. The German mechanical engineering sector expects
significant cost savings, especially due to complete tariff elimination, consistent rules of origin
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and the reduction of technical trade barriers. These issues should be regulated in TTIP in the
form of extensive provisions.
b) Worker mobility
According to current US immigration restrictions, it is possible to deliver services in
connection with the fulfillment of purchase contracts between German and US business
partners without applying for a visa or work permit in many cases. These services, for
example, may include the commissioning, maintenance, repair and servicing of machines,
and even the organization of training programs. In such cases, it is possible to spend up to
90 days in the USA without a visa.
In practice, however, there are numerous circumstances that are not included in the
purchase contract – examples include repair work after the expiry of the warranty period or
on already installed machines. A constellation in which the main and sub-suppliers are
involved in the delivery to US customers is common; here, the German machine supplier
may not have a direct contractual relationship with the US customer.
Another issue revolves around transfer of company employees to the USA, which is subject
to visa restrictions and only possible for a limited group of employees. Only employees in
leading positions, executives and specialists can be transferred. In many cases, the future
employer has to obtain a work permit from the US Citizenship and Immigration Services
(USCIS), which involves filing a petition and submitting comprehensive documentation.
German companies also have the option of applying for a trader or investor visa in order to
transfer employees to the USA. All employees of German companies applying for a visa
under these rules must be German citizens. In addition, the company must verify that it was
not possible to find a qualified US employee or holder of an alien registration card to fill the
position.
VDMA demand
Simplification of travel regulations for the delivery of services encompassing the entire life
cycle of a machine and facilitation of staff transfers within a company
Therefore, VDMA demands that immigration regulations be simplified in a practical way for
the delivery of services encompassing the entire life cycle of a machine bought in the EU.
The common situation in which there is no direct contractual relationship between the
business partners should also be taken into account.
Furthermore, transfer of staff within the company should be simplified. The limitation of the
group of employees who are eligible for transfer to the USA within the company must be
removed. Approval procedures and the need to verify that there were no eligible US citizens
to fill the position should be dispensed with.
Red line
No tightening of current travel regulations for entry into the USA
The current options for entering the USA legally to provide services related to the purchase
of a machine abroad must not be reduced under any circumstances. For example, limiting
visa-free entrance to 90 days within a period of 12 months – as is currently planned in the EU
proposal for the chapter on services included in the TTIP – would represent such an
impairment.
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C. VDMA contacts for TTIP
Ulrich Ackermann
Managing Director
Foreign Trade
Lyoner Straße 18
60528 Frankfurt
Phone: + 49 69 6603 1441
Email: [email protected]
Naemi Denz
Managing Director
Technical and Environmental Affairs
Lyoner Straße 18
60528 Frankfurt
Phone: +49 69 6603 1226
Email: [email protected]
Jessica Göres
Advisor TTIP
Foreign Trade
Lyoner Straße 18
60528 Frankfurt
Phone: + 49 69 6603 1132
Email: [email protected]
Thomas Noll
Advisor Technical Regulations
Technical and Environmental Affairs
Lyoner Straße 18
60528 Frankfurt
Phone: +49 69 6603 1895
Email: [email protected]
Friedrich Wagner
Advisor Customs Regulations
Foreign Trade
Lyoner Straße 18
60528 Frankfurt
Phone: +49 69 6603 1438
Email: [email protected]
Gabriele Welcker-Clemens
Advisor NAFTA Region
Foreign Trade
Lyoner Straße 18
60528 Frankfurt
Phone: +49 69 6603 1437
Email: [email protected]
Date: April 2016
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VDMA
Außenwirtschaft
Lyoner Straße 18
60528 Frankfurt am Main
www.vdma.org
DesignStudio
Titelbild: © promesaarstudio, Fotolia
Kontakt
Jessica Göres
Telefon +49 69 6603-1132
+49 69 6603-2132
Fax
E-Mail [email protected]