# 13 / 2016

Free Trade Agreement with China – A Milestone for Swiss Business

The Swiss-Chinese Free Trade Agreement at a glance

Numerous provisions of this extensive Agreement give domestic companies better access to 1.3 billion potential customers in the Chinese market.

Reduction on customs duties

Overall most of customs tariff lines and Swiss export volumes (about 95 percent) have either been exempt from duties or enjoyed a reduced customs duty rate since the FTA entered into force, or they will be after a transition period of five or ten years, or in exceptional cases 12 or 15 years. Faround three percent of tariff lines, or around 16 percent of export volumes tariffs are reduced by 60 percent. Transition periods and partial exemption concern products for which China has claimed to have a specific need for adjustment due among other factors to substantially higher tariff levels for industrial products (8.6 percent versus 1.8 percent for Switzerland). For around five percent of Swiss export volumes there has been no reduction of customs duties up to now.

Certain differences exist in regard to industry sectors. Particularly affected by Chinese protection requirements are selected 'MEM' products (mechanical and electrical engineering and metals), chemicals and pharmaceuticals, textiles and clothing as well as watches, precision instruments and jewellery.

In 2015, precision instruments, watches and jewellery accounted for 27 percent of Swiss exports to China, totalling 2461 million francs in value. Watches comprised 14.9 percent of total Swiss exports to China, at a volume of 1337 million francs.

To strengthen cooperation in the watch sector, the Swiss and Chinese watch industry federations, SECO and the Ministry of Industry and Information Technology (MIIT) signed a Memorandum of Understanding (MoU) in May 2013. This provides for the creation of a working group comprised of business and administration representatives designed to function as a platform for economic dialogue and cooperation. The memorandum is aimed at promoting trade flows, intellectual property protections and appellations of origin. The working group has met twice in the meantime to constructively discuss these topics. The Swiss watch industry is interested in particular in the removal of tax obstacles and better enforcement of intellectual property laws in Chinese territory.

MEM: The 'MEM' sector – mechanical and electrical engineering and metals – comprised 38 percent of Swiss exports to China in 2015 at a volume of 3380 million francs.

Chemicals and pharmaceuticals: The chemical and pharmaceutical industries exported goods valued at 3358 million Swiss francs in 2015, comprising 37.5 percent of exports to China.

Textiles and clothing industry: The textiles and clothing industries exported approximately 105 million francs to China in 2015, comprising 1.2 percent of exports to China. Chinese textiles and clothing can be imported exempt from duty since entry into force of the Agreement (e.g. fabrication materials like yarns and finished products like home fabrics and fashions). Inversely, certain goods from Switzerland are subject to a tariff reduction schedule when imported into China, especially clothing items.

The majority of Swiss exports to China now enjoy a reduction on customs duty rates. By the end of the transition periods, roughly 80 percent of customs duties on Swiss export goods can be saved. This underscores the extent to which China is opening its markets. The Review Clause anchored in the Agreement provides for review of the agreed tariff concession lists every two years. Members of the Joint Committee on the FTA between Switzerland and China convened for their second meeting in Beijing on 14 September 2016 to discuss the further development of the Agreement. For Swiss exporters it is important that further tariff concessions on imports of their goods into China are concluded. Mutual advantages and benefits of improved/preferential access to the Chinese market for Swiss goods are to be highlighted: Chinese firms get better purchasing prices on high-quality intermediate consumptions and benefit from Swiss know-how, while Swiss firms are able to sell their products – in some cases high-tech niche products – in the Chinese market at competitive prices. Swiss goods complement Chinese and do not compete against it. economiesuisse accompanies this process in close coordination with its members and Swiss authorities.