Switzerland, one of the most expensive countries in the world, has decided to abolish import duties on almost all industrial goods from 1 January 2024. This move is expected to reduce costs for consumers and businesses, and improve the competitiveness of the Swiss economy. However, it also poses a challenge for India, which has been negotiating a free trade agreement (FTA) with the European Free Trade Association (EFTA), of which Switzerland is a member.
Background
The Swiss Federal Council announced the abolition of industrial tariffs on 2 February 2022, after the necessary amendment to the Customs Tariff Act was passed by Parliament on 1 October 2021. The decision was based on a package of import facilitation measures adopted by the Federal Council on 20 December 2017, with a view to reducing trade barriers and lowering prices. According to the State Secretariat for Economic Affairs (SECO), removing industrial tariffs will strengthen Switzerland’s position as a business and industrial location, and generate welfare gains of about CHF 860 million. Industrial tariffs are currently levied on various consumer goods such as cars, bicycles, personal care products, household appliances and clothing.
Implications for India
Switzerland is India’s third-largest trading partner in Europe, after Germany and Belgium. In 2020-21, bilateral trade between India and Switzerland amounted to USD 19.29 billion, with India having a trade surplus of USD 13.29 billion. The main exports from India to Switzerland are precious stones and metals, organic chemicals, textiles and clothing, while the main imports from Switzerland are precious stones and metals, machinery, pharmaceuticals and chemicals.
India and EFTA (which comprises Switzerland, Norway, Iceland and Liechtenstein) have been negotiating an FTA since 2008, but the talks have been stalled due to differences over issues such as intellectual property rights, data security and market access for agricultural products. One of the main benefits of the FTA for India would be preferential access to the Swiss market for its industrial goods, especially textiles and clothing, which face high tariffs of up to 12%. However, with Switzerland’s decision to eliminate import duties on industrial goods from 2024, this benefit will be eroded, as Indian exporters will face the same tariff regime as other countries. This will reduce India’s bargaining power in the FTA negotiations, and limit the scope of achieving a balanced and comprehensive agreement.
Effect on Indian economy
The elimination of import duties on industrial goods by Switzerland will have both positive and negative effects on the Indian economy. On the positive side, it will lower the cost of importing machinery, pharmaceuticals and chemicals from Switzerland, which are essential inputs for many sectors of the Indian economy. It will also increase the competitiveness of Indian exports in other markets where Switzerland has preferential trade agreements, such as the European Union. On the negative side, it will reduce the incentive for Switzerland to offer concessions to India in other areas of trade negotiations, such as services, investment and digital economy. It will also expose Indian industries to more competition from Swiss products in the domestic market, which may affect their profitability and employment.