10 years of China-Switzerland Free Trade Agreement

10 years of China-Switzerland Free Trade Agreement

Patrick Ziltener said in an interview that the China-Switzerland bilateral fr

ee trade agreement has saved a lot of costs for Swiss companies exporting to China. At the same time, 42% of China’s exports to Switzerland have actually achieved zero tariffs.
Dr. Patrick Ziltener is an associate professor at the University of Zurich and a member of the Board of Trustees of the University of St. Gallen in Switzerland. His research areas include free trade agreements at bilateral and regional levels, involving the EU, ASEAN, RCEP, and

CPTPP. Currently, Patrick Ziltener serves as a visiting researcher at the National Research and Innovation Agency (BRIN) in Jakarta, Indonesia.
The following is the transcript of the interview:

Q: You have been researching the China-Switzerland Bilateral Free Trade Agreement (SSFTA) for more than 10 years, and your research began even before the FTA came into effect in 2014. What does this free trade agreement mean for Switzerland?                                                          Patrick Ziltener: Switzerland is the first European country besides Iceland to conclude a bilateral free trade agreement with China. The free trade agreement with China is Switzerland’s most important free trade agreement outside Europe. I first conducted an analysis of the cost savings potential of the SSFTA for Swiss companies exporting to China. I found very high savings potential, depending on the model specification, ranging from over $166 million in the first year of implementation to an estimated $500 million 10 years later when Chinese tariffs are completely eliminated. Not surprisingly, these figures aroused great interest among the Swiss public at the time.
Therefore, I am honored to work with our Chinese partners to prepare the 10th Anniversary Report. On the Chinese side, we are fortunate to cooperate with the team of Professor Cui Zhikun of Shanghai Customs College and the team of Professor Tu Xinquan (Dean of the WTO Research Ins

titute of the University of International Business and Economics) to jointly carry out this joint project between the two countries.
Five years later, China completely eliminated Swiss export tariffs, and during this process we c

onducted a first evaluation project at the University of St. Gallen in collaboration with Chinese colleagues. We found that, in value terms, 44% of Switzerland’s exports already take advantage of the SSFTA. The Swiss watch, machinery and pharmaceutical industries are currently particularly successful in utilizing SSFTA. Three-quarters of the watches have been exported to China under preferential tariffs stipulated in the SSFTA. On the other hand, Chinese companies’ exports to Switzerland have successfully switched from WTO GSP treatment to free trade area treatment. According to the SSFTA, 42% of China’s exported products have actually achieved zero tariffs, saving nearly 150 million Swiss francs in tariffs every year. Equally important, Chinese companies do operate on equal competitive terms with companies in other FTA partners, including Switzerland, South Korea and Japan.

Q: Now that tariffs on almost all Chinese exports to Switzerland have been phased out under the SSFTA, has FTA utilization increased?          Patrick Ziltener: Of course, this question is at the center of our new research report at the Sino-Swiss Competence Center (CCC-FIM) at the University of St. Gallen, led by Professor Thomas Casas. Zero tariffs are a strong incentive for exporters to take advantage of free trade agreements. In fact, our work with researchers at the Shanghai Customs College (SCC) found a utilization rate of 71%, meaning that nearly three-quarters of Swiss exports are effectively duty-free when entering the Chinese market. As a result, Swiss companies save USD 220 million or more every year.
However, the main beneficiary industries are the watch industry (utilization rate 93%, annual savings of US$133 million) and the metal motor industry (US$61 million). Why doesn’t Switzerland’s pharmaceutical industry, Switzerland’s most important exporter in terms of value, take this convenient route? Most pharmaceuticals imported into China are already exempt from tariffs under MFN conditions, so there is no incentive to take advantage of the SSFTA. But the SSFTA is also important for smaller industries such as medical technology and the Swiss food industry such as chocolate, confectionery and dairy products, for which FTA utilization is close to 100%.

Q: But that’s still less than the potential you calculated. Why is this happening?                                                                                                        Patrick Ziltener: True, but that’s true of all free trade agreements. Actual savings are always lower than the total savings potential. The reasons are manifold: some goods do not meet the requirements of “Swiss” or “Chinese” origin and are therefore excluded from SSFTA conditions. In addition, companies have compliance costs, such as the paperwork associated with proving the origin of goods, and calculate the benefits associated with these costs. If the applicable tariff is quite low, then it may not pay off. In some cases, where tariffs are already zero, as in the case of the above-mentioned pharmaceuticals, then there is no incentive to use a free trade agreement. For example, under complex regulations, proof of origin can be so difficult that expensive software solutions must be obtained. Some companies, particularly small and medium-sized enterprises, simply do not have the expertise or human resources required to apply a free trade agreement. Direct shipping rules can also be a challenge for Chinese exporters.

Q: Overall, how have Chinese exporters performed in utilizing the SSFTA?                                                                                                                  Patrick Ziltener: Although Swiss tariffs on almost all goods are quite low, the savings achieved by Chinese exporters using the SSFTA are huge. Five years ago, Chinese exporters saved 148 million Swiss francs, a figure that has since increased to 213 million Swiss francs per year. This is not surprising as trade volumes increased by almost 50%. However, free trade zone utilization has not increased over time and has declined in most commodity categories, such as a 5% decline in machinery and textiles. In 2022, we found that the total free trade zone utilization rate was 39.3%, down from 42.2% five years ago.
Our colleagues in China spent considerable time investigating the reasons, and they identified six main reasons. Most importantly, but not surprisingly, Swiss tariffs are generally low, so there is little incentive to take advantage of the SSFTA. Under the World Trade Organization Information T


echnology Agreement, China’s major exports such as computers, smartphones and other information technology products are already tariff-free.
Some Chinese companies say that obtaining, retaining and preparing the documents required to apply for a certificate of origin is very time-consuming and complicated. In order to minimize transportation and distribution costs, Chinese products exported to Switzerland may first be shipped to warehouses located in the EU, which poses challenges in complying with direct shipping rules under the SSFTA. Reducing the rules of origin restrictions may increase the utilization of free trade agreements, which applies to products such as clothing and footwear.

Q: Apart from commodity trading, what is the focus of your research?                                                                                                                        Patrick Ziltener: With this 10th anniversary report, we strive to provide original insights on emerging topics related to SSFTA. For example, the first analysis of service trade between China and Switzerland found that Switzerland had a surplus of US$1.18 billion in services trade with China, focusing on information and communication technology, intellectual property, financial services and digital delivery services. But in some areas, China is in the process of catching up quickly. The topic of trade in services is very important and will become even more important in the future.

Q: Do you have any plans for future SSFTA-related research?
Patrick Ziltener: We are determined to continue our bilateral research collaboration with our Chinese colleagues in Shanghai and Beijing – and we are grateful for the achievements based on this successful collaboration! As a next step, further research is needed to understand China’s low utilization of FTAs ​​for exports to key industries such as textiles and footwear to Switzerland and possible measures to help companies achieve greater tariff savings. On the Swiss side, the medical device industry appears to have some special issues that need to be addressed with regard to the utilization of the SSFTA.
In addition, there are signs that China and Switzerland will negotiate on upgrading the free trade agreement between the two countries. One topic may involve the investment provisions in the SSFTA, which lag far behind those set by China in the new agreement. In this way, new research topics will emerge, and we look forward to conducting new work on these topics.
Ouyang Hanzhen: PhD in management, postdoctoral fellow at School of Management, Fudan University. The main research areas cover industrial technological innovation, industrial policy and science and technology policy. Dr. Ouyang has rich experience in studying abroad and academic exchanges. Her study experience in France and South Korea has given her a unique international vision and innovative thinking. Her research background in public administration and business administration allows her to analyze both macro and micro aspects. Analyze industrial policies and corporate behavior.
Wang Yingliang: Columnist of “Capital and State” on the Chinese website of the Financial Times. He is currently promoting the “100 People, 100 Interviews” series of high-end interview projects involving Chinese and foreign scholars, striving to present the signals and dynamics of the interaction between the world and China from a novel perspective.


Leave a Comment