India’s FTA prospects hit as Switzerland wipes tariffs on Industrial Goods

Switzerland’s recent decision to eliminate tariffs on industrial goods from all countries, effective January 1, 2024, poses challenges for India’s potential gains from the ongoing free trade agreement (FTA) negotiations with the European Free Trade Association (EFTA), according to a report by the Global Trade Research Initiative (GTRI). .

The decision has resulted in abolition of tariffs on products, including chemicals, consumer goods, vehicles, clothing.

Despite being a key export destination for India within EFTA, the tariff abolition increases competition for Indian products in Switzerland, impacting the prospects of the FTA. EFTA consists of Iceland, Liechtenstein, Norway, and Switzerland, and is not part of the European Union. 

India’s exports to EFTA countries totaled $1.92 billion in 2022-23, while imports amounted to $16.74 billion during the same period.

“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.

As per GTRI, the imbalance in Switzerland and India’s trade is further complicating the scenario. 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.

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