Posted on by Peter Ungphakorn

The United Kingdom-Switzerland trade agreements

In this post Peter Ungphakorn assesses the trade agreements between the United Kingdom and Switzerland.

Since the beginning of this year (2021) much of trade between Britain and Switzerland has come under a new set of bilateral agreements. The rest is under the World Trade Organization (“WTO”) rules alone.

These new bilateral deals aim to provide as much continuity as possible, “rolling over” provisions of the Swiss-EU bilateral agreements, which are so numerous that the list of just the titles runs to 31 pages!

Switzerland, with a population of only 8.6 million is one of Britain’s major trading partners, ranking fifth for services trade and in the top 10 for goods. Total trade in goods is around £19.5 billion per year (pre-COVID-19), and for services about £13.2 billion, according to ONS figures.

For the Switzerland-UK agreements, three points stand out.

First is the close relationship between Switzerland and the European Union, which limits what London and Bern can agree when the UK wants to diverge from the EU, but in some cases could be convenient if the UK aligns with the EU.

Second, the main agreement on goods (the Swiss-UK “Trade Agreement”) is not a stand-alone text. It explicitly incorporates several EU-Switzerland agreements with some alterations. They all have to be read alongside the new text. Some incorporated parts are also then “disapplied”. Over half of the text is on rules of origin — the criteria for products to be labelled “made in the UK” or “made in Switzerland” and therefore eligible for preferential trade under the agreement.

Third, the Swiss-UK text does not contain hundreds of pages of tariff commitments, unlike some of the 30-or-so British continuity agreements. For example the UK-Japan text includes 40 pages on Britain’s tariff reductions and 222 pages on Japan’s.

Bern’s original agreements with the EU created free trade in industrial goods — technically, Chapters 25 to 97 of HS customs codes, with some exceptions and a lot of complex conditions — but not for agriculture, initially at least. Duty-free trade for those industrial products now applies. By default this is copied into Switzerland’s deal with Britain.

The new Swiss-UK text does contain some tariffs on agricultural products. They are written as tariff quotas — lower-than-normal or zero duty within limited quantities — presumably extracted from the Swiss-EU agriculture agreement, although comparing the two texts is not straightforward. In a report to Parliament, the British government says the quotas were “resized” for UK-Switzerland trade, based on shares of EU quotas used, trade flows and other adjustments.

Confusingly the quota sizes on several of these are “unlimited”, essentially meaning duty-free with no quota. There are over 40 on imports into Switzerland (out of almost 100 “quotas”) and over 20 (out of over 50) on the UK side.

The package

There are nine agreements in the full list of Swiss-UK agreements. Seven are on trade:

Two more are not on trade:

The House of Lords EU Select Committee noted on 13 March 2019 that the deal with Switzerland “differs significantly from the precursor agreement to which the UK is party as an EU Member State.”

The key differences, the committee said, are on cumulation of origin (to qualify a product as “made in” Switzerland or the UK), the scope of mutual recognition of standards, regulations and conformity assessment (only three out of 20 sectors carried over from the Swiss-EU agreement), agriculture (food safety and animal/plant provisions “disapplied”), and customs security (which is totally “disapplied”).

It concluded: “We are disappointed that the Government, in bringing forward the UK-Swiss Trade Agreement, has not provided an explanation of its plans for future UK-Swiss services trade, and call on it now to do so.”

Some key points

Cumulation: Content from the EU can be counted when determining whether a product originates in Britain or Switzerland, but only if the two have identical rules of origin agreements with the EU or suitable customs arrangements. The same applies for countries under the Pan-Euro-Mediterranean (PEM) Convention on cumulation of origin — their agreements with Switzerland and the UK must have identical rules of origin.

The deal includes provisions on direct transportation between the two, allowing consignments to be split en route, for example in France, Germany or the Netherlands. The cumulation provisions are temporary, only applying for three years, subject to review.

Mutual recognition: The three sectors rolled over into the continuity agreement are: the motor industry; good laboratory practice; and good manufacturing practice (GMP) for medicines and certification of batches. Britain remains bound by international agreements on these three, which is why they could be rolled over, according to a Swiss explanation. The 17 other sectors could not because “they are based on harmonisation or recognition of equivalence of rules between Switzerland and the EU,” the Lords’ committee report says. Professor Panos Koutrakos on the EU Relations Law blog concurs.

However both Britain and Switzerland have announced temporary unilateral recognition based on EU recognition, in Switzerland’s case for 13 industrial product sectors.

Customs security: This is incorporated in the UK-Switzerland agreement and then “disapplied” completely, while the two wait to see what Britain and the EU agree. “A key implication of this suspension is that Switzerland will no longer recognise the Authorized Economic Operator (AEO) status of businesses accredited as AEOs in the UK. These businesses will therefore lose the benefits of participation in the AEO scheme, for example fewer controls at the Swiss border,” the Lords’ committee says.

Agriculture: Here, the EU and Switzerland have a separate agreement. The Swiss-British trade agreement incorporates that as well. It provides at least a high degree of continuity for tariff quotas, cheese, wines and spirits, fruit and vegetables and geographical indications.

A temporary fix has been found for recognising organic labelling. That fix, for specifically listed products, is in a decision by the joint Agriculture Committee on January 4, 2021, which also includes Swiss recognition of UK certification and inspection bodies. Both apply for two years and will be reviewed.

However, provisions on live animals and animal products, plant health, animal feed, and seeds could not be rolled over since Switzerland is part of the EU common veterinary and phytosanitary zones while the Britain has left them (except Northern Ireland). This means the standards are subject to WTO disciplines. And therefore it means new inspections, certification and paperwork for imports into Switzerland. The UK appears to be treating imports from Switzerland as if they were from the EU, also under WTO disciplines.

Geographical indications: Britain and Switzerland implicitly copy into the deal each other’s names as listed in the EU-Switzerland agreement. Names from the EU’s 27 member states are not carried over except for “Irish Whiskey/Uisce Beatha Eireannach/Irish Whisky”, “Irish Cream” and “Irish Poteen/Irish Póitín”, which can be produced on both sides of the Irish border.

Without this, the UK would not be obliged to honour a large number of Swiss names currently protected in the EU. The Withdrawal Agreement requires Britain to continue to protect all geographical indications registered for protection in the EU at the end of the transition. That does not apply to names only protected through a bilateral agreement, for example Gruyère (cheese), which is only protected under the Swiss-EU deal, but not registered.

Services: Both Switzerland’s bilateral agreements with the EU and its new deals with the UK only cover a few services. The bulk of services trade is therefore under WTO’s General Agreement on Trade in Services and the commitments under GATS. In its deal with the UK, complete continuity has been agreed for: air services; passenger and goods transport by road; and non-life insurance (mainly defining the types of insurance covered, with provisions on authorisation and requirements for solvency and reserve).

The agreement on mobility of services professionals is new because freedom of movement of people ended with the Brexit transition on December 31, 2020. It is temporary, for two years unless extended.

This is specifically about time-limited access of services personnel to each other’s markets, known as “mode 4” of services delivery, ie, presence or movement of “natural persons” — and quite different from freedom of movement. Because Switzerland uses advanced vocational qualifications instead of university degrees, Britain will “endeavour” to recognise these as equivalent.

Switzerland’s commitments for visiting professionals cover all services and are considerably more liberal, although immigration and labour laws apply. The UK excludes some services, particularly for contractual service providers and independent professionals. Visas are required and can be expensive.

Britain and Switzerland have been talking about a new agreement on financial since June 2020.Their two finance ministers met (online) again on January 27, 2021. They launched talks at officials’ level, which the London said are “expected to cover a wide range of sectors such as insurance, banking, asset management and capital markets, including market infrastructure”.

It remains to be seen if WTO members query whether the limited coverage of services in the UK-Swiss deals complies with article V of the WTO agreement on services, which requires bilateral liberalisation to have “substantial sectoral coverage”.

Conclusion

As with many other continuity agreements, further negotiations can be expected over the coming months and years as temporary provisions expire and the two countries seek improvements. Negotiators will have their hands full.

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One Reply to “The United Kingdom-Switzerland trade agreements”

  1. Pingback: What have the UK and Switzerland agreed on trade post-Brexit? – Trade β Blog

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