Free trade dream meets biggest challenge

Swiss exporters are hoping for more trade in developing markets Keystone

Switzerland’s strategy of brokering individual free trade agreements (FTAs) may not be enough to crack open the booming economies of China, India and Russia.

And if the World Trade Organization (WTO) fails to make progress on the most pressing problems this month, Switzerland may join forces with powerful economies to tackle issues which it cannot hope to solve alone.

While Switzerland has successfully developed a web of FTAs, with many like-minded countries around the world, the biggest developing economies present a new set of challenges that threaten to seriously limit the scope of any new deals.

Some observers believe Switzerland is too lightweight to overcome such hurdles as human rights issues, intellectual property disputes, opaque governance structures and protectionism.

“Switzerland is negotiating with very big trading partners who will feel no compulsion to make substantial concessions to Swiss interests,” Simon Evenett, professor of international trade and economic development at St Gallen University, told swissinfo.ch.

“I can’t imagine India or China giving Switzerland a particularly innovative deal. It might look good on paper, but I can hardly see them creating many jobs in Switzerland.”

Bar raised

Swiss exports to FTA partners grow twice as fast as with other countries while companies save SFr420 million ($443 million) in customs duties a year, according to the State Secretariat for Economic Affairs (Seco).

Switzerland has recently raised the bar by opening negotiations with the world’s most dynamic economies – China, India and the customs union of Russia, Belarus and Kazakhstan.

But as the rewards start to rise, so do the problems. The dream of securing an FTA with India before state elections are held there in 2012 are fading fast.

One of the main sticking points is the demand of Swiss pharmaceutical companies for patent protection against India’s generic drugs firms. Opponents have argued this would make medicines too expensive for poorer Indian patients.

Union opposition

On the other side of the bargaining table, India wants Switzerland to grant more work visas for service sector professionals, particularly in the IT industry. Swiss trade unions are afraid this could lead to an influx of cheaper workers.

“We cannot accept workers from other countries undercutting wages here,” Travail Suisse’s Denis Torche told swissinfo.ch. “We have already seen examples of wage dumping since Switzerland opened its borders to EU workers, and we do not want that to increase.”

Swiss negotiators are also compelled to demand that partner countries adhere to minimum human rights and environmental standards – a particular problem for doing business in China.

At the 2011 World Economic Forum in Davos, Chinese Trade Minister Chen Deming warned of a “delay in the negotiation process” if Switzerland pushed too hard on human rights.

Russia’s recent accession to the WTO – aided in part by Swiss sponsorship – has raised hopes of economic reform in the country, but with a degree of scepticism.

Russia has enacted more protectionist trade measures than any other country since 2008, according to the economic monitoring body Global Trade Alert (GTA).

Plurilateral path

Observers, including GTA leading light Simon Evenett, believe the WTO will have a tough task making Russia eliminate trade barriers, let alone Switzerland. “It is unclear whether Russia will stick to the rules,” he told swissinfo.ch. “I expect them to be a tough partner in terms of compliance.”

While FTAs benefit certain exporters – such as machine builders, watch makers and the pharmaceutical sector – Evenett believes that multilateral WTO trade negotiations would pack a far heavier punch if progress could be made.

But the 153 WTO members have failed to reach consensus on many issues, bogging down the Doha round of negotiations ten years after it was launched.

The impasse has led to talk of a group of frustrated nations breaking away from the Doha talks to launch fast track plurilateral negotiations. This new process promises faster and further-reaching progress on such issues as government procurement and coordination of customs regulation.

“The bilateral approach is good for a few select industries but if you want to advance serious Swiss commercial interests the plurilateral approach is the best route open,” Evenett told swissinfo.ch.

Ambassador Luzius Wasescha, Switzerland’s permanent representative to the WTO, said he was keeping an open mind about joining a plurilateral fast track. A decision would only be taken after WTO ministerial talks in January, he told swissinfo.ch.

“Switzerland’s preferred option is to proceed in talks with all WTO members,” he said. “But if there is little appetite to change the current agenda and move ahead then we would consider taking the less popular option.”

“Plurilateral talks are not a panacea for all things, but they might solve problems in one or two areas,” he added.

Swiss/Efta FTAs

Switzerland (mainly in cooperation with Efta states Norway, Liechtenstein and Iceland) has ratified 26 FTAs with 35 countries, along with the Efta Convention and the EU FTA.

These partners include Japan, Mexico, Canada, Egypt, Turkey and South Korea.

This number will be boosted in 2012 by treaties with a confederation of Arab states, Hong Kong and Ukraine. At this time, 16% of Swiss exports will fall under FTAs.

Negotiations have started with a number of other countries, including China, India and the Russian-Belarus-Kazakhstan customs union.

A proposed FTA with the US failed in 2006, mainly due to a failure to agree on agricultural subsidies.

Free Trade Agreements

Trade agreements have been in existence for many centuries and were first used most notably to cement political alliances between countries.

The age of colonialism saw a proliferation of treaties to  secure supplies of raw materials from colonies and gain monopoly for the return trade of finished goods.

The increase of such protective agreements, that also locked competitor nations out of new markets, was partially blamed for the outbreak of both world wars.

In 1947, 23 nations signed the General Agreement on Tariffs and Trade (GATT) that sought to replace protectionist treaties with a new liberalised system of global trade. In 1966 Switzerland joined the trade alliance that was named the WTO in 1995.

GATT established the “most favoured nation” principle that compels countries to offer the same trade terms equally to all member states.

Geneva hosted the first round of GATT talks in 1947 and was the venue for the fourth round nine years later. The Doha negotiations that started in 2001 are the eighth round of talks attempting to reconcile obstacles to open world trade.

Finding consensus among WTO’s 153 members on such a broad range of issues as tariffs, intellectual property rights, public procurement, agricultural subsidies and environmental benchmarks is proving a time consuming task.

With multilateral talks dragging on, WTO members are allowed to negotiate bilateral or plurilateral trade treaties that bypass the most favoured member rule. But such treaties must be submitted to WTO for approval before they come into force.