Minister sets sights on Swiss free trade deal with Mercosur

Farmers protest in Brussels against free trade accords. Keystone

A mission to South America led by Swiss Economics Minister Johann Schneider-Ammann hopes to advance free-trade negotiations between South America’s Mercosur bloc and the European Free Trade Association ((EFTA).

The trip that began on Sunday comes only three months after EFTA (Switzerland, Norway, Iceland and Liechtenstein) and Mercosur representatives signed a joint declaration in Bern, understood by Schneider-Ammann as “the launching of negotiations between both blocs”.

Upon welcoming swissinfo.ch into his office a few days before his trip, Schneider-Ammann had a cold, but joked that the importance of the trade mission would help him get over it.

swissinfo.ch: Just a few days ago the European Union and Mexico announced the signing of a free trade agreement. Has this given your trip even more urgency for Switzerland?       

Johann Schneider-Ammann: The goal of this trip is to allow representatives from diverse sectors of our economy to see what we are talking about when we want to sign a free-trade agreement with Mercosur. They will see how vehicles are assembled in Paraguay or how intensive livestock farming and wine production are organised in Argentina.

When I was in Buenos Aires last December, I heard from four foreign ministers from Mercosur countries that in a few weeks they would reach an agreement with the European Union. When this agreement comes into effect, European manufacturers will immediately have a market to sell their goods. And concretely a significant advantage on their Swiss competitors, as protectionist tariffs ranging from 5.3% to 35% will be substantially reduced.

swissinfo.ch: What are the consequences for Switzerland?

J. S-A: This represents a disadvantage for Swiss manufacturers, among them the producers of components for the automotive industry located in the Rhine Valley, who export to Brazil. However, we cannot settle for such disadvantages. One of the consequences could be the relocation of the industrial park from the Rhine Valley to Baden-Wüttemberg (Germany), from where the exports would then head to Brazil.

This would increase unemployment in Switzerland. I’m fighting to keep the jobs in the country and for full employment. I want to see the creation of value happening here and to remain competitive. If we manage to close a deal on a free-trade agreement with Mercosur, the competition conditions will remain equal to the European Union.     

Johann Schneider-Ammann © KEYSTONE / GAETAN BALLY

swissinfo.ch: Switzerland has 30 free trade agreements with 40 countries outside the EU. Which advantages and disadvantages have they brought to Switzerland to date?

J. S-A: There is a general rule. It says that a two-fold increase in the volume of trade occurs during the first five years after a free trade agreement is signed; this does not happen with a country which you do not have an agreement with. Another general rule says: the foreign direct investments also double with countries that sign free trade agreements. In other words, free trade means a larger volume of trade and greater value added, which means more jobs in Switzerland. That is why we have a great interest in signing bilateral agreements with preferential conditions with markets outside the European Union.   

swissinfo.ch: What are the concrete objectives of your visit to Mercosur countries?

J. S-A: There will be about 50 people taking part in the trip, which is good news. There are representatives from diverse backgrounds: economics, agriculture, science and also many politicians. We have a very heavy agenda. The objective is to make daily visits – in each of the four countries – the sectors where we are directly involved. This way we can form our own opinion and know which advantages and disadvantages we have in trading freely with Mercosur countries. We will get to know our competition and also the markets where we can sell our products.

Mercosur trip

Economics Minister, Johann Schneider-Ammann, along with a 50-strong delegation of Swiss business leaders and politicians is visiting Brazil, Paraguay, Uruguay and Argentina from April 29 to May 6.

They will meet representatives from local governments, industry, science and NGOs. Visits to manufacturing centres, plantations and research centres are also scheduled.

swissinfo.ch: The president of the Swiss Farmers Association, Markus Ritter, is not taking part in the visit. He strongly opposes a free trade agreement with Mercosur and the government strategy for agriculture. How do you respond to that?

J. S-A: I am sorry that he is not taking part, but it is clear that this would not be possible after the critical comments he made. Yet, we are already speaking again. The way to convince farmers of the advantages of an agreement, is to use the same technique I´ve employed when we negotiated a free trade agreement with China. The farmers stood by me for the year-and-half that the negotiations took. At that time I told them that there were limits to what we would accept, or not.

+ Read about concerns from the Swiss farm lobby

As long as those limits would not be surpassed, the farmers would not need to hear from me. And then, we managed to close the deal. This is what has happened: the agreement was completed and the farmers checked each item to verify if I had kept my word. In other words: we want to work in a constructive manner with farmers. We don’t want to cause them unnecessary pain. On the other hand, we know that it is necessary to ask for more flexibility from them in order to conclude such agreements.

The producers in Paraguay and Argentina want to export meat to Switzerland and Europe. If they are allowed to do so, then they will be willing to open their markets to our machines, pharmaceuticals and other Swiss products.

swissinfo.ch:  How do you explain that in a highly industrialised country like Switzerland, where agriculture corresponds to less than 1% of GDP, farmers have such a prominent role in local politics?

J. S-A: Agriculture is important for us. It doesn’t have to do with the fact that it corresponds to only 0.7% of GDP or 3% of jobs, but with the fact that it guarantees 60% of food self-sufficiency with high-quality products. Society acknowledges this. We gladly drink the milk or eat the cheese that our cows produce and we are willing to pay more for that than our neighbours do. We want to consume quality products. This gives a greater importance to our farmers than just simple statistics.

swissinfo.ch: So, are the Swiss sentimental about agriculture?

J. S-A: I would not say sentimental, but yes, for most Swiss citizens agriculture is an issue of the heart. Each Swiss has in one way or another his roots in the countryside. In my case, for example, all my relatives on my paternal side were farmers. My father was a veterinarian doctor.

When I was young I used to have a lot of contact with cow breeders. That is why I believe the farmer´s lobby must work. Yet, they also need to be conscious that they cannot damage other sectors of the economy, but support the manufacturers of automotive component to export and consequentially increase their income and therefore pay more taxes. Such taxes provide for subsidies that support the agricultural sector. 

swissinfo.ch:  The farmers also criticise that only some dairy and cheese producers will benefit from a free trade agreement.  

J. S-A: Look for instance at Indonesia. A country with some 260 million inhabitants. During an official visit its president told me that 40 million of its citizens belong to the middle class and are craving for high quality European products, and can afford to pay for them. He also added: another 40 million will make it into the middle class in the next decade. Imagine if we can bring to this market our food products? At the bottom of this production chain are the farmers and they will surely be well rewarded for their work.

swissinfo.ch: The strategic plan for agriculture by the Swiss government has been rejected by parliament’s economic commission. The critics highlight the message ingrained in it; that the price of agricultural products will fall by 50% upon the opening of the markets. How do you respond to that?

J. S-A: As part of this strategy we have said that in order to maintain Switzerland´s competitiveness with the European Union in third markets, we may have to accept a reduction of up to 50% in agricultural tariffs. However, we did not speak of volumes or prices, but of taxation. This declaration was initially misunderstood. Everybody went mad about it.

We are not yet aware of how much we might need to reduce our tariffs, in order to remain competitive. This will only be known when we evaluate the conditions of the free trade agreement that will be signed between Mercosur and the European Union.

swissinfo.ch: How relevant is Mercosur’s market for Switzerland? Currently these countries correspond to only 1.54% of Swiss exports.

J. S-A: Mercosur is a market with some 275 million consumers, which for Switzerland represents a great potential for high-quality products. If currently our exports are still modest, it may be because the relation between price and quality is not yet ideal.

Also, it must be considered that we had other good opportunities to sell our products in other markets. Last but certainly not least, the Mercosur members are still very protective of their markets. The objective, however, is to open more markets through preferential treatment. When this happens, the volume of business increases. If we currently export very little to Mercosur, it means there is huge potential for growth.     

swissinfo.ch: And from Mercosur’s perspective, what could attract them to a market of only eight million, like Switzerland?

J. S-A: The Paraguayan Minister of Economics said to me once: “Yes, we know that Switzerland is a very small market with eight million inhabitants. But we are not worried only about volume, but indeed we want to have intense commercial relationships with countries that are leaders in technology and innovation like Switzerland”. This is the true interest of Mercosur.

swissinfo.ch:  Which concessions are Switzerland willing to offer?

J. S-A: That is still to be negotiated, covering a range of issues. We have to discuss intellectual property and technical standards before we can come to the question of mutual market liberalisation. 

What is important is that the agreement must be broad and based on the standards already in place at EFTA, which includes discussing sustainability. We have already concluded the third round of negotiations with Mercosur. The talks are progressing very well. The mutual interest is to try to find an agreement on each one of the issues. We want to have a state-of-art agreement, which means the conditions are ambitious, but realistic. I am convinced that the agreement will propel our trade relations.           

swissinfo.ch:  Environmentalists and small farmers see in free trade a threat of yet an even greater expansion of extensive soy production and cattle farming, which can be detrimental to the environment. Where is the sustainability in all of this?

J. S-A:  You are right. We have to pay attention not to foster developments that would have a negative impact on the environment and local communities. A free trade agreement compels us to take the respect for the environment and social standards into consideration. This is an issue that we are currently negotiating. 

During the exploratory phase we considered if it was even worth starting negotiations. Finally, both, EFTA and Mercosur concluded that such aspects should be taken into consideration. With this common ground, we overcame the initial barrier. As we speak, we haven’t yet concluded these negotiations, but I am pretty sure that soon we will have the same kind of base that we have in other agreements. 

swissinfo.ch: Switzerland wants more free trade, but it is known as very protectionist of its agricultural market, and putting up other barriers to trade.  Isn’t that a contradiction?

J. S-A: Switzerland is not protectionist. We are in fact one of the most liberal markets in the world. We look for other markets – while respecting the WTO [World Trade Organization] rules, the European Union agreements and any other third-country agreements. In the agriculture market Switzerland has remained conservative. Maybe this is an issue that can be criticised. That is why this subject is extremely delicate and needs to be dealt with care. But look, Switzerland has almost completely abolished customs tariffs for industrial products. We differentiate ourselves from the competition not by making use of isolationist instruments, but rather through innovative leadership.

swissinfo.ch:  If voters approve in votes later this year two initiatives on food, stricter import regulations and higher tariffs will be the result. Wouldn’t that put free trade agreements at risk?

J. S-A: Yes, we are a direct democracy. As part of that, you can take any question to the people, but the people usually vote rationally. I am convinced that the people will not approve the inclusion of these proposals into the constitution, knowing that they may benefit only isolated sectors of our society. We, the government, will say that they are unnecessary and against the free-trade policy. In this way we hope to convince voters.

Johann Schneider-Ammann 

Schneider-Ammann is a member of centre-right Radical Party. Born in 1952 in the village of Sumiswald in the Emmental cheese-making region, he studied electrical engineering in Zurich at the Federal Institute of Technology ETHZ. Afterwards, he completed an MBA at INSEAD, in Fontainbleau, France.  

In 1981 he started working in his wife´s family business. From 1990 onwards he became the director-president of the Ammann Group, a position he kept up until being elected to the Federal Council (Switzerland’s seven-member executive body) in 2010.

For several years he was also president of Swissmem, the association representing the engineering, electronics and metallurgy industries.