Free Trade Agreements
Free trade agreements are international treaties concluded between two parties (individual countries or transnational groupings) in order to safeguard free trade.
Free trade agreements are designed to improve business links with important partners around the world. They aim to eliminate or at least minimise barriers to international markets for the Swiss economy. Customs duties and non-tariff trade barriers (e.g. technical regulations, packaging and labelling regulations, import quotas) are to be reduced.
In addition to the EFTA agreement and the free trade agreement with the European Union, Switzerland currently has a network of 28 free trade agreements with 38 partners outside the EU, and new agreements are continually being negotiated.
Most of the Swiss agreements are concluded within the context of the European Free Trade Association (EFTA). In addition, Switzerland is also entitled to negotiate free trade agreements without the involvement of EFTA, as was the case, for example, with China, Japan and the Faroe Islands.
A current overview of the network of Swiss free trade agreements can be found in the section www.seco.admin.ch.
Content of the agreements
The essential component of every agreement is trade in merchandise (in particular the reduction of customs duties and other trade restrictions). These regulate trade in industrial products (HS Chapter 25-97), fish and processed agricultural products. Trade in unprocessed agricultural products tends to be regulated in separate bilateral agricultural agreements.
In addition to trade in merchandise, other aspects which are often covered in new agreements include the protection of intellectual property rights, trade in services, investments, public procurement and technical regulations. These are the so-called «second-generation agreements».
Benefits of the agreements
In 2013 agreements concluded with free trade partners, with the exception of the FTA with the EU, cover 22.6% of Switzerland's total exports. This corresponds to 51% of Switzerland's exports to markets outside the EU. Free trade agreements promote in particular the growth, added value and competitiveness of Switzerland as a business location.
Free trade agreements have reduced the price of products for Swiss consumers and have increased the range of products available. At the same time, Swiss producers benefit from more advantageous prices for semi-finished goods and raw materials.
Application within the SME field
It is often the case that not enough attention is paid to the topics of free trade agreements and declarations of origin by export companies. When determining the country of origin, coordination between company management, the export department, procurement, quality assurance, logistics and finances is required. If, for example, the purchasing department switches suppliers on the grounds of lower prices (previous country of origin Switzerland; new country of origin China/third country), then the export department also needs to be informed, because this could cause the country of origin to change. Price and production changes or exchange rate fluctuations can also have effects on the assessment of the country of origin. As a consequence, if the calculations are not checked regularly and if incorrect declarations are made as a result, this can lead to the retrospective payment of customs duties and substantial fines being imposed on companies.
The responsible export managers or export administrators should at least be familiar with the basic principles underpinning the application of free trade agreements, and need to know which rules are applicable. Further information about country of origin rules and country of origin products is to be found in the Country of origin.
An authorised exporter can issue country of origin declarations on the invoice in all agreements, irrespective of the value of the consignment. These do not have to be signed by hand. The exporter requires a permit from the responsible district customs bureau; this permit will be issued provided that the applicant guarantees that he will adhere to the country of origin provisions, and has produced correct country of origin declarations in the past. Further information: SCA – Authorised exporters.
Cumulation makes it possible to use country of origin products of a signatory country, insofar as these have already been imported with country of origin certificates from the respective countries of origin. This consequently means that primary materials which are already country of origin products of another signatory country do not have to be adequately processed once again in Switzerland.
Types of cumulation:
Bilateral cumulation: only with primary materials of both (bilateral) free trade partners (e.g. Switzerland-Japan or EFTA-Columbia).
Diagonal cumulation: possible with primary materials from several free trade partners, insofar as all apply the same country of origin rules (e.g. EU-EFTA-Turkey).
Euro-Med cumulation: this is also possible with primary materials from Mediterranean states, insofar as all of the free trade partners involved apply the same country of origin rules and insofar as agreements exist between them. Participating countries: Egypt, Algeria, Israel, Jordan, Lebanon, Morocco, Syria, Tunisia, West Jordan and the Gaza Strip as well as the Faroe Islands.
With effect from 1 January 2012 the following West Balkan countries have also been included in the Euro-Med cumulation zone: Albania, Croatia, Macedonia and Serbia. Cumulation is not yet possible in respect of trade with the EU, and it is moreover not applicable to the agricultural products set out in Chapters 1 – 24.
Pan-European cumulation: with primary materials from the EFTA, the EU or Turkey.
Full cumulation: the adequate processing does not have to be performed within the customs territory of an individual country, but may be performed within the overall territorial territory of a free trade agreement. Provision has only been made for full cumulation within the EFTA-Tunisia free trade agreement.
The signatories to a free trade agreement form a free trade zone (e.g. Switzerland-EU). This does not constitute a customs union, meaning that the signatories to the agreement retain their own external customs duties.
In the case of a customs union, by contrast, only common external customs duties exist. Once goods have passed this border and reached the market, they may circulate freely between the individual countries – without further customs duties being incurred.
Examples of customs unions: European Union or Switzerland-Liechtenstein.
It is essentially the case that goods delivered from Switzerland must be delivered directly to the country of destination. This therefore means that they cannot first be marketed in another (third) country before reaching the country of destination. This would cause the goods to lose their preferential origin status.
When manufacturing products with a Swiss country of origin, no primary materials may be used, which do not meet the country of origin criteria, which are the subject of a reimbursement or non-imposition of customs duties (e.g. goods imported and re-exported in the finishing business). This rule is not applicable to the agreements with Singapore, South Korea, SACU, Canada, Japan, Columbia and Peru.
The «ex works price» is the price of the goods including the value of all utilised primary materials paid to the manufacturer in whose company the final processing was performed. Not included in the “ex works price” are all internal duties which are reimbursed once the goods are delivered (e.g. VAT) as well as all costs incurred once the goods have left the factory such as, for example, for transport and insurance.
Most (but not all) Swiss free trade agreements contain a rule of this nature. This means that when determining the country of origin of goods, primary materials which originate from a third country are not taken into account, provided their value does not exceed 10 per cent of the ex works price. However, if a percentage rule is stipulated in the list, this may not be exceeded by the application of the general value tolerance. For this reason, this tolerance is of relevance above all to those goods for which the list makes provision for a jump in position.
The general value tolerance cannot be applied to goods listed in Chapters 50 to 63 of the Harmonised System, and also does not apply to products which have received only minimal processing in Switzerland.
The following treatment constitutes minimal treatment (not definitive):
Compilation of pack units, washing, cleaning, ironing, painting, polishing, shelling, colouring sugar, grinding, sieving, sorting, filling, printing, simple mixing, butchering of animals.
Third-country goods which only receive the aforementioned treatments in Switzerland are never deemed to be country of origin goods, even if the listed conditions are fulfilled.
Position jump means that all utilised primary materials which do not meet the country of origin criteria must be included under other numbers than the final product. For this purpose, the numbers of the primary products as well as that of the final product must first be known. The numbers are the first four digits of the customs tariff numbers of the harmonised system (HS).
The purpose of preferential origin is to make goods customs-exempt or subject to reduced customs when exported to a free trade agreement country. This is documented with a movement certificate or country of origin declaration on the invoice.
Fulfilment of the non-preferential country of origin regulations does not exempt the goods from customs when these are imported to a third country – these country of origin rules are only applicable, if the country of destination demands a country of origin certificate for the import.
This should not be confused with the question of Swissness («Made in Switzerland»), which is subject to a different set of rules.