On 6 July 2013, the Chinese Minister of Commerce, Gao Hucheng, and the Swiss Federal Councillor, Johann N. Schneider-Ammann, signed a Free Trade Agreement (FTA) between the two nations. As a result, Switzerland will become the first country in continental Europe to enter in such an agreement with China. The Free Trade Agreement covers areas of trade in goods and trade in services. It also provides regulations on intellectual property, investment promotion, environmental issues as well as government procurement.
Positive effects on bilateral trade
Once the Free Trade Agreement will come into effect, the existing Swiss tariffs on Chinese industrial products will be abolished. Likewise, the vast majority of Switzerland’s industrial exports to China will enjoy full or partial tariff dismantling. Whilst the majority of Swiss export goods will enjoy immediate exemption from the tariffs, some industry segments will receive a 5-10 year reduction scheme, in exceptional cases up to 15 years. The FTA also includes tariff benefits for agricultural and food products.
… and on direct investments
Together with the new Double Tax Treaty between Hong Kong and Switzerland which entered into force in October 2012, Switzerland is now a top headquarters location for Chinese/HK companies as an ideal gateway to Europe, while foreign direct investments in China/HK via Switzerland are becoming even more attractive. Companies enjoy among other benefits 0% withholding tax on dividends qualifying investments.
Additional benefits of the agreement
Among other effects, the FTA will provide increased certainty regarding IP regulation or work and residence permits.
China is Switzerland’s largest trade partner for industrial products in Asia, while Switzerland is China’s seventh largest trade partner and the sixth largest source of foreign investment in Europe. “With the advent of FTA, Switzerland will become the first country in continental Europe and the first of the world’s top 20 economies to reach an FTA with China, the implications of which will be significant,” Chinese Prime Minister Li Keqiang stated during his visit to Switzerland in May. The FTA will likely come into effect in the second semester of the year 2014 (estimate). The new FTA might also significantly improve Switzerland’s advantages in becoming an attractive trading hub for the Chinese Yuan in Europe.
How can you profit from the new agreement?
In order to react appropriately and effectively, companies should start preparing now for changing regulations regarding customs procedures, rules of origin, trade facilitation, trade remedies, non-tariff barriers to trade etc. or for direct investments in order to fully benefit from the new FTA.
In case of any questions regarding the international business between Switzerland and China or Hong Kong, please do not hesitate to contact me or my colleagues from KPMG’s Swiss-Chinese Focus Group.
Additional information and legal framework: State Secretariat for Economic Affairs