Free trade does the trick
How important are preferential tariffs in economic treaties? Switzerland as a neutral country – be it ‘actively’ so or not – depends on imports and exports for its economy. It’s economics ministry has teamed up with Efta to investigate the effect free trade has on companies’s ability to make savings in recent years.
The geopolitical upheavals of 2022 so far would appear to favour trading barriers more than cooperation. The dimension of free-trade agreements between countries is soon forgotten.
In addition to the Efta Convention and its free-trade agreement with the EU, Switzerland currently has a network of 33 free-trade agreements with 43 partners, including Japan, China and Indonesia in the Far East, with the latter joining the club after a referendum in March 2021 and the agreement entering into force on 1 November 2021.
How much customs duty is saved?
Now Seco, Switzerland’s state secretariat for economic affairs (economics ministry) and the European Free Trade Association (Efta) have investigated the effect free trade has on Switzerland and Liechtenstein. The Principality of Liechtenstein is part of Switzerland’s customs territory and its foreign trade is included in Swiss trade statistics. Seco and Efta have jointly published a comprehensive analysis on the use of free-trade agreements (FTAs) on 15 June 2022.
This FTA monitor – now available for Switzerland and Efta – shows the extent to which companies save on customs duties thanks to FTAs. The analysis doesn’t include the commodity gold, however – amongst other things.
In 2020, savings for Switzerland amounted to CHF 2.3 billion on the import side. In 2018, before the anti-pandemic measures, this figure was even slightly higher at CHF 2.5 billion. By comparison, Switzerland imported goods worth CHF 214 billion in 2020 from countries with which it has free-trade agreements.
With a value of CHF 136 billion, incidentally, the greater part of these imports came from the European Union. In Switzerland, however, more than a third of all imports are basically duty-free, and the other duties levied are also considered comparatively low.
The most recent figures on exports to FTA countries that have provided data are from 2018, and they show tariff savings of CHF 1.8 billion in exports.
How are these benefits used?
In this context, the question arises as to which companies benefit most from these preferential tariffs through free trade, or make the greatest use of them. In this regard Seco, in cooperation with the University of St. Gallen (HSG) presented a study entitled ‘An analysis on the use of free-trade agreements’ in 2020.
The reassuring result is that both smaller and larger companies use free-trade agreements equally often, and achieve an almost identical savings rate of 88% and 87% respectively. Whilst corporations with more than 250 employees saved around CHF 728 million in customs duties in 2019 thanks to FTAs, the corresponding figure for SMEs was even higher, at more than CHF 1.1 billion.
Firms that didn’t provide any information on their size in terms of employees achieved a further CHF 221 million in tariff savings. For all enterprises the total effective savings rate thus comes to approximately 84%.
So every type of company benefits from FTAs – regardless of its effective size.