China Switzerland Free Trade Agreement: New Gate Opened!

By Richard Hoffmann, ECOVIS Beijing China

Current news about the Free Trade Agreement (FTA)  between China and Switzerland might be your Chance to enter new markets and increase profit margins.  The ratification process of the FTA, signed in July 2013 will be before mid of 2014. There exists no other FTA between an European country and China, which means that this is an opportunity that hasn’t existed until now. Start to optimize your supply chain and re-organize certain processes within your company now to grow your business.

In an FTA, duty rate of imported and exported products between the participating countries is highly reduced or even Zero! This is particularly the case for goods, being fully produced in one of these countries. Phased tariff reduction will be used for products, whose origin is not 100% in either of these countries. That means a certain percentage of work must be done in these countries or a certain amount (up to 70%) of content for the manufacturing process has to be sourced from there.

The tight relationship between Switzerland and the EU also offers Chinese companies a whole new chance to get their products more efficient into other European countries.  This also implies, that you could probably import the products from your Chinese branches cheaper to their destination inside the EU, if you choose  Switzerland as their first destination. For both, Chinese and German companies this is a great way to access countries, which have previously been unprofitable or hard to enter because of eliminated or reduced duties between those countries. Trilateral trade is what opens new growth opportunities. In the chart above you can see the benefits of trilateral trade.

Thorough analysis and careful planning before transforming your business is essential. Optimized value chains are key for competing on the market and reducing costs. The importance of your headquarters location is decreased as you can now use the whole repertoire of trilateral trade options. Asia and Europe, this is a complete new chapter of free trade.

In certain industries and their value chains it might be possible to have suppliers from outside of China / Switzerland and only have final qualifying processes handled in one of these two countries. From a tax and operational standpoint it’s necessary to allow for variances in costs and therefore establish sensitivity thresholds to get the most out of possible FTA benefits. Having a Swiss Principal structure should definitely be taken into consideration.

Due to possible information exchange between all the involved countries, it’s risky to trade products illegitimately. It’s not enough to just have a middleman forwarding your products as the scrutiny of the tax authorities will be strict.

You should analyse your current trade and figure out how you can benefit from the respective provisions, that are the result of the FTA. The basis of the whole process is to show proof the origin of the goods that you trade with.

For further information please contact us.