Latest Switzerland duty cuts erode FTA gains for India

Switzerland’s policy of allowing duty-free access for all industrial items from any country significantly affects the utility of a free trade agreement for India, a report by global think tank Global Trade Research Initiative (GTRI) said on Monday.

The policy shift, decided by the Swiss Federal Council and effective 1 January, involves the abolition of tariffs on all industrial products, including chemicals, consumer goods, vehicles, and clothing.

Switzerland is India’s top export destination in the European Free Trade Association (EFTA) and the end of import duty means that Indian products would face a higher degree of competition in Switzerland despite having a trade agreement with the EFTA.

India’s merchandise trade with EFTA countries—comprising Iceland, Norway, Switzerland, and Liechtenstein—in FY23 stood at $18.7 billion, including $1.9 billion in exports.

“Industrial goods, which account for 98% of India’s $1.3 billion merchandise exports to Switzerland in FY2023, are directly impacted,” the think tank said.

Due to the intricate web of tariffs, quality standards, and licensing processes, exporting agricultural produce to Switzerland remains difficult as EFTA members are showing no interest in lowering agricultural tariffs on most essential agricultural products.

As a result of low industrial tariffs and the difficulty in selling agricultural produce to Switzerland, India’s potential advantages in merchandise exports are practically null and void, the report said.

The trade imbalance between India and Switzerland further complicates the scenario. In FY2023, India’s imports from Switzerland stood at $15.79 billion, in stark contrast to its exports of $1.34 billion, leading to a substantial trade deficit of $14.45 billion.

India will open its markets wider to Switzerland’s big exports, but the overall benefits in trade will be negative as India will have to lower taxes on many goods imported from Switzerland.

India’s main imports from Switzerland include gold ($12.6 billion), machinery ($409 million), pharmaceuticals ($309 million), cooking and steam coal ($380 million), optical instruments and orthopedic appliances ($296 million), watches ($211.4 million), cotton ($81.3 million), soybean oil ($202 million), and chocolates ($7 million).

Gold, accounting for 80% of India’s imports from Switzerland, is a critical factor. If the trade agreement does not include gold, it may not meet the WTO Article XXIV condition for FTAs to have duty cuts on substantial trade.

India must tread cautiously, GTRI warned, adding that FTA in its current format will not help India’s exports and will result in higher imports and a wider trade deficit.

“EFTA countries’ request for ‘TRIPS Plus’ (high-level protection norms demanded by developed countries) protection for strengthening protections of Intellectual Property Rights (IPRs), especially patents and copyrights in India will conflict with India’s domestic regulations,” GTRI said.

EFTA’s trade team was in Delhi recently to finalize the trade and economic partnership agreement with India, amidst challenges for a balanced outcome.

“The ongoing negotiations for the FTA between India and the European Free Trade Association (EFTA) present a challenging landscape for India. The significant trade deficit, coupled with Switzerland’s policy of zero tariffs on industrial goods, places India in a difficult position,” said GTRI founder and head Ajay Srivastava.