How Swiss SMEs Profit from Free Trade Agreement with China

On July 1, Switzerland signed a free trade agreement with China. Following Iceland, Switzerland is the second country in Europe that has the benefit of such an agreement. This gives Swiss SMEs a major advantage over their competitors in the EU. According to estimates, this will mean savings in duties totaling CHF 5.8 billion by the year 2028. In a video interview, Alberto Silini, Head of Consulting for Switzerland Global Enterprise and Bettina Rutschi, Senior Economist for Credit Suisse, talked about the key results of the SME export indicator for the third quarter of 2014.

Raquel Forster: The free trade agreement between Switzerland and China took effect a few days ago. How will this agreement affect Swiss exports?

Bettina Rutschi: Over the next few years the free trade agreement will gradually reduce the import duties, which are relatively high in China. So we assume that the free trade agreement with China will have a very positive effect on the Swiss export industry in the years ahead. The agreement can also be subsequently negotiated if China offers more favorable trading conditions to other countries.

Alberto Silini: We assessed the potential of the agreement with China and found that by 2028, Swiss companies will have saved about CHF 5.8 billion in duties – this is roughly equivalent to the GDP (gross domestic product) of the Canton of Schaffhausen. It was created under the realistic assumption that the agreement will be applied to 60 percent of Swiss exports and that export volume will grow by an average of 5 percent annually. Because the only countries in Europe to have a free trade agreement with China until now are Iceland and Switzerland, these savings represent a considerable advantage over the competitors in the EU.

You surveyed Switzerland's small and medium-sized enterprises (SMEs) in the third quarter of 2014 about their export expectations. How do SMEs currently see the export business with China?

Alberto Silini: China is already a key export destination for Swiss SMEs. Thirty-four percent of them are planning exports to China in the next six months. This is a slight increase versus the previous quarter. Thus, China takes the lead among the Asian countries, ahead of Japan (24 percent). However, in general our SMEs remain strongly focused on Europe for now. Ninety-two percent of the companies we surveyed intend to export to Europe in the next six months – about the same as in the prior quarter. The most important European export market remains Germany, to which 80 percent of the SMEs surveyed export their goods or services, followed by Austria (50 percent), France (49 percent), and Italy (44 percent). Forty-six percent of SMEs are likely to export to North America in the next six months, 28 percent to the Middle East/Africa region, and 21 percent to South America.

How do Swiss SMEs feel about their export opportunities overall?

Alberto Silini: The outlook of Swiss SMEs remains sunny at the start of the third quarter in 2014: All industries anticipate export growth in the next months. While the SME export perspectives are slightly lower than the prior quarter at 65.3 points (second quarter: 69.5 points), the trend is definitely moving toward export growth. Only 9 percent of the SMEs surveyed are concerned about declining exports. Most are anticipating increased, or stagnant, sales to foreign countries.

What about foreign demand for Swiss goods in the third quarter?

Bettina Rutschi: The outlook for the demand for Swiss goods remains well above average. Our export barometer is currently at 1.13. So while export forecasts have declined slightly for the third quarter of 2014 (previous quarter: 1.17), they are still well above the growth threshold of 0 and above the long-time average of 1.

Which countries and regions import the most from Swiss SMEs?

Bettina Rutschi: According to our export barometer, the export outlook for the US is particularly positive. It's at the highest level in four years. Exports to the United Kingdom are also expected to increase greatly. In the euro zone too, the leading sales market for Swiss exports, signs also continue to point to growth. However, momentum has slowed in the euro zone. We even anticipate a slight decrease in demand for Swiss goods in France. The impetus for export growth in the next months is likely to come from the major emerging markets again, mainly Asia.

SME Export Indicator

The SME Export Indicator is a publication of Economic Research at Credit Suisse in cooperation with the export organization Switzerland Global Enterprise (S-GE). The SME Export Indicator reports on a quarterly basis about the current export sentiment among Swiss SMEs. The next issue of the Export Indicator will be published in October 2014.

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