Rhein on Energy and Climate

After almost two years of informal preparations, hardly noticed by anyone outside Switzerland or specialised trade policy circles, China and Switzerland have formally launched negotiations for a free trade agreement, in a meeting of their respective trade and economy minister that took place in Davos on January 28, 2011.

This event would not be worth noting if Switzerland were not completely surrounded by EU territory and more profoundly integrated economically with the EU than any other country. With the exception of air-freight, all goods imported or exported transit via EU ports. The Swiss borders are almost as open to the EU as those of member states among.

Since 1973 Switzerland and the EU are linked by a free trade agreement that has boosted trade among them. But unlike Norway Switzerland has persistently refused to join the European Economic Area. Its regulatory system is therefore not automatically aligned on the EU.

Nor has Switzerland envisaged to enter into a customs union with the EU. It is therefore formally free to conduct a separate trade policy, irrespective of potentially negative by-effects on on the EU.

A free trade agreement between Switzerland and China perfectly suit their respective trade interests. Their trade flows are largely complementary.

Swiss exports to China are composed of high-quality products like precision machinery specialised food stuff, pharmaceuticals, watches, computer soft-ware

banking, insurance and consulting services, where Swiss firms have a strong position.

Swiss imports from China are mainly standard consumption products like clothing, shoes, furnitures, computers, technical gadgets and inputs for manufacturing.

Swiss products and services will no longer be subject to tariffs or non-tariff barriers, giving them a competitive edge over EU companies, and Chinese companies may hope to replace European or emerging countries` countries products in the Swiss market.

Free trade between China and Switzerland may negatively affect EU interests in two ways:

  • Swiss firms may take market shares away from EU companies in China on products and services subject high tariffs import restrictions.
  • Duty-free imports of Chinese products may easily transit across EU borders unless customs checks are massively enforced. The temptation for smart Chinese dealers to use Switzerland as a Trojan horse in the “EU fortress” is evident. Chinese traders are already on the EU customs alert list for smuggling in all sorts of products. The Swiss – EU borders will therefore have to come under much stricter scrutiny and hurt EU-Swiss trade.

Whatever the motives behind the China free trade initiative, it is bound to hurt intra-European links and feelings of solidarity. It would have been preferable for Switzerland and the EU to join forces against Chinese discriminations and violations of WTO provisions on intellectual property and public procurement before offering China free entry to the heart of Europe in return for minimal trade advantages.

It is therefore welcome that Swiss non-governmental organisations have criticise the initiative and insist on China respecting human rights, labour and environmental standards.

The EU should rapidly define its position and enter into consultations with the Swiss authorities.

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