Swiss seek China business boost as old trade links unravel   

The original Swiss-China FTA raised hopes of a trade bonanza Keystone-SDA

The prospect of upgrading an existing Swiss-China free trade agreement (FTA) comes at a critical juncture for Swiss companies that face volatile trading conditions in both the United States and the European Union.

Washington has announced tariffs of up to 12.5% on some Swiss goods, which is higher than for many other European countries. Brussels has ramped up duties on Swiss steel while Swiss access to the EU electricity market hinges on a new set of framework conditions to govern bilateral relations.

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Swiss firms are looking to diversify their businesses across other regional markets. The agreement between Switzerland and China to expand an existing FTA is therefore timely.

“The Swiss economy needs broad-based trade relations with all major export markets. Diversification reduces one-sided dependencies,” said the Swiss Business Federation, economiesuisse.

Successful trade negotiations with China, which contrast with the perceived failure of Swiss diplomacy in Washington over the last 12 months, have been hailed as a great success by the Swiss media.

The most recent punitive tariffs from the US have been “interpreted in Bern as a warning not to move any closer to Beijing,” said the Tages Anzeiger newspaper. “However, the Federal Council is signalling that it will not allow anyone to dictate with whom it trades.”

The current Swiss-China FTA has been running since 2014. The original treaty was optimistically forecast to save Swiss companies CHF290 million ($359 million) per year in duties. By 2017, actual savings were just CHF100 million.

Blizzard of paperwork

Both countries are now willing to exempt a greater variety of goods from tariffs, most notably Swiss watches and pharmaceutical products. If passed, the new deal would make 99.8% of Swiss exports duty-free within ten years of coming into force, up from 53.6% at present. This could bring annual savings up to around CHF244 million, states the Swiss economics ministry.

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The true value of the trade agreement will be influenced by a variety of factors, not least so-called ‘technical barriers’: a blizzard of permits and regulations that can stifle trade.

The most common barriers are “complex product registration and certification procedures, differences in standards and testing requirements, customs and licensing procedures, and variations in how regulations are implemented locally,” said Guillaume Joyet, executive director of the Swiss-China Chamber of Commerce (Swisscham) in Beijing.

Industry associations say they need more details of the proposed FTA upgrade before they can evaluate progress in this area.

The Swiss watch industry would be one of the biggest winners from the improved terms of the FTA. All Swiss timepieces would evade duties, compared to just 1% at present. Chinese tariffs cost watch companies around CHF100 million a year under the current FTA terms, said the Federation of the Swiss Watch Industry.

But other factors also need to be considered. Between the start of 2024 and the end of 2025, Swiss watch exports to China fell by a third. “The Chinese economy is being affected by difficulties in its real estate sector, which accounts for a significant share of GDP,” said watch federation chief economist Philippe Pegorar.

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In the first half of this year, 7.1% fewer watches were sold in China, which was “largely due to the deterioration in the financial environment and, more recently, to fiscal tightening affecting high-net-worth consumers,” Pegorar added.

US technology restrictions

Volatile economic conditions both globally and in China helps explain an overall dip in total trade volume between Switzerland and China from CHF36.3 billion in 2022 to CHF33.5 billion last year.

A further threat to enhanced China trade comes in the shape of Washington’s aggressive economic policy designed to put the brakes on Chinese growth. The US frequently imposes restrictions on the export of cutting-edge technology to China – and expects the rest of the world to comply.

“Against the backdrop of the ongoing US-China trade conflict, companies must stay well informed about the regulatory environment in all relevant markets and comply with applicable export control and compliance requirements,” said a spokesperson for Switzerland Global enterprise, a government agency that facilitates trade with other countries.

The proposed China FTA upgrade also faces the prospect of being watered down or blocked by parliament or Swiss voters, if the trade deal is put to a popular vote. Left-leaning political parties see no reason for trade disputes with the US and the EU to drive Switzerland blindly into the arms of China.

Referendum threat

The Green Party is threatening a referendum challenge. “China monitors and persecutes Tibetan and Uyghur minorities in Switzerland. And forced labour is a serious problem in China,” said party president, Lisa Mazzone.

The Social Democrats have also demanded proof that China will live up to its promises to safeguard workers’ rights and the environment.

The slow progress of a proposed FTA between the EFTA states (Switzerland, Iceland, Liechtenstein and Norway) and Mercosur countries Argentina, Brazil, Paraguay and Uruguay is a salutary reminder that the economy and politics are deeply entwined.

After eight years of negotiation, this deal remains bogged down after the House of Representatives rejected the FTA in June. Even if the deal eventually passes parliament, it could also be challenged by a referendum.

Edited by Reto Gysi von Wartburg/sb