Swiss synergy

Free Trade agreement likely to create more market access opportunities for Chinese, Swiss businesses

As beleaguered leaders from across the globe sat down for their annual economic deliberations in Davos, Switzerland, interest will also be centered on whether Switzerland will ink a lucrative free trade agreement with China.

The World Economic Forum in Davos has often been used to discuss global problems and find solutions to them. Swiss authorities, however, are confident that this time around the sessions will also have a positive outcome for the FTA with China.

The Swiss have always had a special relationship with China. The country was one of the first European nations to establish bilateral ties and recognize China in 1950. During the reform and opening-up process, Swiss companies were among the first foreign companies to float joint ventures with Chinese ones. Switzerland is also in the select bracket of nations that recognized China's full market economy status.

Switzerland's determination to sign an FTA with Beijing, however, is in direct contrast to the approach pursued by Brussels. The European Union is looking for ways to rein in Chinese exports.

"Overall good progress has been achieved. If the agreement is concluded in the near future, it would be the first of its kind between China and a European nation," says Jacques de Watteville, Switzerland's ambassador to China.

"It would be the most important bilateral economic agreement between both nations."

Analysts say the FTA talks, which started a year ago, envisage greater participation for Switzerland in the supply chain created by the robust demand from China. In return, China is expected to benefit from Switzerland's expertise in management and technologies, and gain a gateway for Chinese products in Europe.

Analysts, however, feel the Swiss decision may not provoke EU officials in Brussels to pursue a similar deal with Beijing, despite the latter's willingness to do so. Part of that stems from the view in Brussels that the timing is not right for FTA talks, and instead the focus should be more on investment pacts.

Insiders say negotiators from Beijing and Bern have already finished most of the FTA draft, with food and agriculture still being the thorny issues on which agreement has not been reached.

The Swiss contention is that it will protect the sector, as it is a net importer of agricultural products.

According to De Watteville, the main objective of the agreement is to promote trade and investment between both countries by eliminating or reducing tariffs on most goods, removing non-tariff barriers, improving market access for goods and services, and by intensifying economic cooperation.

"If these objectives are met, this would create favorable conditions for enterprises from both sides and boost two-way trade and investment," he says, adding that China and Switzerland have highly complementary economies and would therefore greatly benefit from such an agreement.

Academics, lawyers and industry leaders from Switzerland have also pinned high hopes for an early FTA. Rudolf Minsch, an economist at the Swiss Business Federation, says the FTA will benefit both nations.

Minsch says the FTA will make it easier for Swiss multinationals to decide on their global supply chains and decide which parts have to be produced in which country.

"As to their being reintegrated into the whole supply chain, if there is such an agreement, it makes it much more easier," he says.

It will also be beneficial for Swiss companies as they can choose China as a transfer location for exports to other countries. Minsch feels that the FTA would be particularly beneficial to Swiss companies in sectors such as machinery, pharmaceuticals and watches.

"Industrial sectors from both nations will benefit from the joint and convenient services that the Chinese and Swiss financial sectors will offer. In the longer term, this is of strategic importance when one talks about the internationalization of the renminbi," Minsch says, adding that China can learn from Switzerland's strengths in banking and financial management.

Minsch says China's growth has been mostly spurred by government investment, and that private savings have had very little impact on growth.

If China is changing its development model to a domestic consumption drive, then financial services are an important tool to achieve the goals. "I am convinced that the FTA is crucial for the development of China in the next decade."

Kaven Leung, the North Asia chief executive of Zurich-based Bank Julius Baer & Co Ltd, says his bank has already signed an agreement with the Bank of China in Switzerland after BOC stopped its operations in Switzerland and transferred the operations of BOC (Suisse) SA to Julius Baer.

"The purpose of the partnership with BOC is to partner with one of the top players in China and to gain further access to one of the world's most important and fastest growing wealth markets," says Leung, adding that Julius Baer will be able to provide BOC's clients with international private banking services outside China.

Julius Baer clients who require domestic banking services in China, or those who need specific non-private banking products and services offered by BOC internationally, will benefit from the bank's arrangement with BOC.

"China is a compelling market with an abundance of wealth management opportunities for Julius Baer," Leung says.

According to Leung, Julius Baer chose Shanghai as its China base as it is the main financial and business center in China.

"We will leverage on this foundation to explore more opportunities within China," Leung says.