Switzerland’s decision to eliminate import duties limits FTA utility for India’

NEW DELHI : Switzerland’s policy to allow tariff-free entry for all industrial goods from all countries significantly limits India’s prospects of gains from India and the European Free Trade Association (EFTA) Free Trade Agreement (FTA) that is currently being negotiated, a report by think tank Global Trade Research Initiative (GTRI) said on Monday.

Switzerland’s decision that took effect on January 1, 2024 has resulted in abolition of tariffs on products, including chemicals, consumer goods, vehicles, clothing.

Switzerland is India’s top export destination in EFTA and the import duty abolition means that Indian products would face a higher degree of competition in Switzerland despite a FTA with EFTA.

Notably, EFTA countries are not part of the European Union. EFTA comprises Iceland, Liechtenstein, Norway and Switzerland which is an intergovernmental organization for the promotion and intensification of free trade. India’s exports to EFTA countries during 2022-23 stood at $1.92 billion as against $1.74 billion in 2021-22. Imports aggregated at $16.74 billion during the last fiscal as compared to $25.5 billion in 2021-22.

“Industrial goods, which account for 98 per cent of India’s $1.3 billion merchandise exports to Switzerland in FY2023, are directly impacted. Additionally, exporting agricultural produce to Switzerland remains challenging due to the complex web of tariffs, quality standards, and approval requirements. EFTA, including Switzerland, has shown no inclination to make agriculture tariffs zero on most basic agricultural produce. Consequently, with zero industrial tariffs and the difficulty in exporting agricultural produce to Switzerland, India’s prospective gains in merchandise exports are effectively nullified,” the think tank said.

The trade imbalance between India and Switzerland further complicates the scenario, GTRI said. 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.

“Gold, accounting for 80% of India’s imports from Switzerland, is a critical factor for the FTA. If the FTA does not include gold, it may not meet the WTO Article XXIV condition for FTAs to have duty cuts on substantial trade. Switzerland has large historical accumulations of Gold and it primarily refines imported Gold. Such Gold cannot meet the Rules of Origin conditions of Minimum value addition of even 5%. Switzerland may insist upon replacing value addition or tariff transformation conditions with specific processes like refining conditions. India must tread cautiously,” GTRI said.