Global Connect Congress – US Forum

Stuttgart, November 4, 2014
Ambassador John B. Emerson

It is great to be back in Baden-Württemberg.  I have visited Baden-Württemberg more than 10 times in my 14 months here in Germany.  My wife and I visited Freiburg last week and at the end of September, we were in Heidelberg and Baden-Baden.

In each of our trips here, we have visited representatives of companies of all sizes:  both the Mittelstand of today, and the entrepreneurs and innovators who will create the Mittelstand of tomorrow.  We have also met with local government and civic leaders and learned about the positive synergies that exist in this state – both between the public and private sectors, as well as the innovative deployment of green technologies by both sectors.

And in that context, I would like to thank the state of Baden-Württemberg and specifically Peter Friedrich, Minister for the Bundesrat, Europe and International affairs, for supporting this forum.

Andreas Richter, I would also like to thank the IHK for its support of this event.

Constructive public-private sector dialogue has long been a factor in the success of our societies, and it has been an essential, foundational element of the transatlantic partnership.

At the end of World War II, leaders on both sides of the Atlantic made deliberate efforts to build a common future, based on the realization that peace, prosperity and democracy at home and abroad are necessary for a stable and prosperous world; one where opportunity is synonymous with promise.

Today that concept would be called “connected leadership.”  Then as now, success was just as much about building bridges as it is about climbing ladders.  That idea, of building bridges, has long been an underlying theme of the transatlantic relationship.  And as a result of some new initiatives that have been launched by President Obama, one of our principal goals at the Embassy and our Consulates throughout Germany is to help companies build bridges and connections across the Atlantic.

And we are pretty sure that when companies cross those bridges and bring their business to the United States, they will be very happy with what they find.

And by the way, if companies do encounter problems, ambassador Thumallapally’s SelectUSA team will be there to help out – not only in the early stages of the investment process, but throughout the duration of their U.S. operations.  For the first time, companies that want to do business in America have a single point of contact at the federal level to cut through red tape and help navigate national, state, local rules and regulations.

The United States offers one of the world’s best investment climates today.  We have one of the world’s most attractive consumer markets, one that is governed by a strong rule of law, a commitment to a protection of intellectual property, and to the transparency of commercial transactions.  We have a talented, innovative workforce, which ranks first in productivity among the world’s leading exporting economies.  And we have abundant sources of affordable energy.  The U.S. is on pace right now to be the largest oil producer in the world by 2020.  This allows us to also explore the promise of alternative fuels, including shale gas and, of course, renewables.

The global energy market is a $6 trillion market.  Today, it has 4 billion users – and it is growing.  Like Germany, the United States excels at the development of the clean technologies that will power the world of the future and protect our environment simultaneously.  Done properly, this is the ultimate solution to climate change.  And by the way, talking about public-private cooperation, when I was in Freiburg last week, one of the greenest cities in Germany, I learned about its environmental policies and its extensive use of solar energy and other renewable sources.  Coming from California, the greenest state in the U.S., in terms of both policy and technology, I feel right at home here in Baden-Württemberg.  And like California, you also have great wine here in the region.

In both of our countries, there is an incredible amount of opportunity.  There’s another kind of energy that drives both of our economies.  It’s the energy that fuels the private sector, and that is created by innovation and entrepreneurship.

The United States knows how to encourage and cultivate startups, because not too long ago, our country was a startup.  Innovation isn’t just in our interest; it’s in our DNA.  But let’s not forget how many German companies, both large and Mittelstand, began as startups.  Innovation is also in Germany’s DNA.  We both have a tradition of tackling new challenges, adapting to new circumstances, and seizing new opportunities.

And today, we need innovation and entrepreneurship more than ever.  No investment is about the past.  It’s about the future.  The world, as we all know, is getting more competitive, and so will we.  Capital chases confidence.  That means that in both of our countries, we will have to continue to make smart investments in research and development, education, infrastructure.

And that’s also why we believe the transatlantic trade and investment partnership, or T-TIP, is so important.

T-TIP is not just about eliminating tariffs and traditional non-tariff barriers.  It’s about promoting innovation and ensuring that our economies can lead and respond to the development of technology, which is happening at a pace unknown in human history.  It’s about promoting the competitiveness of the transatlantic economy in an increasingly competitive global economy.  We have inherent strengths.  T-TIP gives us an opportunity to build on those strengths.

And when it comes to Western values, like protection of intellectual property, rule of law, consumer health and safety, and the promotion of a clean environment, T-TIP will enable us to be standard-setters, rather than standard-takers when it comes to negotiating trade agreement with other parts of the world.

For companies on both sides of the Atlantic, perhaps the most economically promising – and challenging – area for cooperation in T-TIP is in reducing the impact of the differences in our regulatory and standard-setting systems.  The United States and the EU have the strongest regulatory protections in the world.  Nothing we do through T-TIP will change that.  But even though we achieve similar levels of protection in many, if not most areas, we often achieve those levels of protection through different routes, with different measures, and in immaterial differences that nevertheless create obstacles to trade.

Frequently, a product built to high standards in the U.S. cannot be sold in the EU – and vice versa – due to often minor differences in regulations.  Then the product must undergo an entirely separate testing regimen, because we don’t recognize each other’s testing methods.

Large firms have the resources to maintain multiple production lines – allowing them to serve markets with different requirements – but small firms often cannot.  IBM knows how to work here in Baden-Württemberg.  Mercedes knows how to work in Alabama.  And while they will undoubtedly benefit from T-TIP, it is the medium and small sized businesses that really need the help that T-TIP can offer.  If we do it right, T-TIP will open the marketplace to those businesses which have found the American market or the European market too complicated and too costly to enter.  T-TIP will work to the advantage of these and other small businesses – both traditional and start-ups; and it can open our marketplaces to a new burst of innovation that can create the Mittelstand of tomorrow.

Much of the world’s scientific and technical innovation takes place within and between the U.S. and the EU.  By working together even more closely, we have the opportunity to accelerate the development of advanced technologies, and the industries that grew up around them.

Now I have learned firsthand over the past month that Germany’s southwest is Europe’s number one region for innovation.  Nowhere else in Europe is so much money and effort invested in the invention of new products and processes.  Growth opportunities within the economy of Baden-Württemberg extend beyond classical sector and industry boundaries, offering enormous potential for innovation, in such areas as sustainable mobility, environmental technology and resource efficiency, health and healthcare, as well as embedded systems and it services.  Again, this sounds like California!

But one aspect of investing here in Germany is not like California.

In the U.S., we have an “equity” culture when it comes to investing in start-ups. What I’ve heard from many entrepreneurs here in Germany is that even equity investments are made from the perspective of a debt culture.  A single failure to “pay back” an investment is an absolute disqualifier for future funding.  It taints those involved in the business as “deadbeats” who do not “pay back” the investment.  That attitude makes the kind of experimentation that is essential to a thriving entrepreneurial culture almost impossible.

In certain kinds of businesses, they say the axiom for success is “location, location, location.”  For success in start-up investing, the axiom is “experiment, experiment, experiment.”  The experimental process often entails more failure than success; but on the other hand, failure also can lead to success.  This is a natural part of doing business.  Venture capitalists say that failures come early; but successes take time.  Sometimes policy makers who encourage entrepreneurship as a strategy for economic development, see low failure rates as a sign that their policies are working.  They should, however, be looking for failures that generate lessons that can be turned into successes. In terms of venture capital and support for entrepreneurship, the acceptance that today’s failure may be tomorrow’s huge success is one of the biggest differences between the U.S. and Germany.

But we also need to think beyond capital requirements; and here, I am talking about implementing regulatory reform to update, modify, or eliminate excessive and costly rules – and in particular, when it comes to innovation.

Strength lies in combining our approaches to new technologies.  The first steps have already been taken by the automotive industry to settle on fast electric recharging points for electric vehicles.  In the area of information technology, the need for interoperable standards encouraged the EU and the U.S. to join together with the private sector in adopting standards.

In many cases, however, an inability to incorporate the best ideas from market-driven standard-setting processes has discouraged innovation and interoperability, increased costs and reduced competitiveness.  We need to create opportunities for our regulators to work together, to share information and best practices, to eliminate immaterial differences in regulations, and to work together to define common standards.  T-TIP can help us do that.

The real opportunity of T-TIP, and the real challenge, is to see whether we can take two advanced, industrialized, highly regulated economies and bring them closer together, bridging the differences in how we regulate without lowering the overall level of protection for health, safety and the environment.

There are a lot of myths that have been circulating about T-TIP.  I think it’s important to remember that both in the United States and Europe, we have a shared history that shows how trade agreements underscore the premise of shared prosperity.  Every single time we’ve embraced a trade agreement, we’ve done better.  Opposition to the Transatlantic Trade and Investment Partnership has become a symbol around which those who are afraid of globalization and those who distrust the concentration of power in Brussels have rallied.  Yet as Wirtschaftsminister Minister Sigmar Gabriel says, T-TIP is our opportunity to guide and harness the impact of globalization.  Those who understand both the challenges and opportunities of globalization and those who move most rapidly to embrace high standards and transparency are those who will be able to take advantage of the new marketplace and be leaders in the global economy.

T-TIP is a ‘once-in-a-generation opportunity’ to create a gold standard for other trade agreements that are negotiated, by Germany, the EU or the U.S., as we look to the south and the east and the developing world.  The world is not a static place; other countries are not standing still waiting for us.  The question is who will play a leadership role in helping to shape the rules of the road?  Will we be standard-setters or standard-takers?  And will we do everything we can to ensure that the global trading system reflects not just our interests, but also our values?  This is the time to act.

Making progress on the issues won’t be easy.  There will be, and have been, some bumps in the road.  But our experience tells us that nothing worth doing is ever easy.  The United States looks forward to working hand-in-hand with Germany and the EU to achieve this important goal.