Switzerland is a country with a population of approximately 7.6 million people and generally has a small market as compared to its neighbors. In this regard, its prosperity is largely dependent on international trade. It is on this backdrop that the nation decided to sign bilateral and multilateral trade agreements with the EU as well as WTO. However, despite being surrounded on all sides by EU countries, it is very considerate and tactful in its economic involvement in Europe and the world at large.
Switzerland has considerable strength in financial services like banking and insurance that is highly developed. It also has a manufacturing industry that specializes in high technology. Over the past few years, its exports have been in conformity with EU regulations that ban the use of hazardous substances mercury and lead. This is mainly for the purpose of enhancing its financial competitiveness. Additionally, it has an international reputation of being a protected and secure haven for affluent investors.
Switzerland closely relates with the EU in economic, political, and cultural level. All these are on the basis of bilateral agreements that have taken place gradually over the past few years. In addition to this, it is also a member of WTO as well as having bilateral agreements with countries. In this regard, this paper focuses on Switzerland’s involvement with other countries in line with the trade agreements it has signed with them. The paper basically examines Switzerland’s reasons for joining the regional, bilateral and multilateral trade agreements, as well as the consequences that occurred after the treaties.
In the heart of Europe, Switzerland remains a strong business partner at regional and bilateral trade relations. It has highly contemporary and broad economic horizons. Additionally, it is supported by an effective legal framework. On the whole, Switzerland has become one of the most flexible and lucrative economies. This is mainly as a result of its candidness to global trade and investment. The government of Switzerland has largely been able to establish a dynamic entrepreneurial environment that upholds a favorable economic position. Some of the measures taken in this regard include aspects like establishing a special secrecy policy with regard to banking as well as a modernized financial system.
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In order to strengthen its economy, Switzerland has been involved in negotiating and entering trade agreements. As a small county, it has established trade agreements with larger partners like the EU as a way of obtaining more security for access to other markets. This has been done by signing bilateral agreements with the EU. Additionally, within the framework of EFTA, with regard to establishing free trade agreements with third countries, Switzerland upholds a preferential relationship with other countries.
These free trade agreements are meant to enable Switzerland to gain more profitable treatment than others. The scope of the trade agreements is largely to extend the diversification of economic interests to respective partner countries. According to Switzerland’s trade policy, it signs the trade agreements with countries that have stable economies in order to gain access into their stable markets.
In essence, the most conventional intention that motivates a nation’s involvement in any trade concession is the inspiration that as a result of mutual exchanges of concessions on trade barriers, there will be enhancement in access to the market from which all parties to the concession will gain. In this regard, Switzerland is no exception. In 1960, Switzerland, together with Austria, Norway, Portugal, Denmark, United Kingdom and Sweden met and formed the European Free Trade Association (EFTA). However, the organization only comprises of four states since others decided to be part of the EU. Apparently, this was inconsequential to Switzerland’s economy since the same countries became part of the EU.
Today, it comprises Iceland, Norway, Liechtenstein and Switzerland, with its headquarters being in Geneva and offices in Brussels and Luxembourg. The legal basis of the Association was signed on 4th January, 1960 under the Stockholm Convention. The main objective of the Convention provides for the agreement for full trade in manufactured products between the contracting parties. This is inclusive of provisions like quantitative restrictions as well as abolition of tariffs among EFTA members.
With regard to its membership in EFTA, Switzerland reported a trade surplus that was equivalent to approximately $ 2.4 billion monthly. By and large, trade has been key to the affluence of Switzerland. In most cases, the annual trade balance of Switzerland has always been well over $ 1.7 billion. This is mainly because of the fact that its economy relies on large quantities of raw materials like common wheat, skimmed milk, and fresh potatoes that it imports from EFTA member states (CEIBS 2012, p. 1-8).
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It mainly exports medicinal and pharmaceutical products, machinery for special industry and tools, as well as watches and clocks. On the other hand, it imports vehicles, textiles, chemicals, machinery and agricultural products. Switzerland’s largest trading partner still remains to be the EU. This is mainly because it accounts for 62% of exports and 79% of imports.
By and large, Switzerland is one of the richest countries in the world. It has a GDP per capita of more than $ 484.1 billion and a generally low unemployment of 3.7% of its population of 7.6 million people. All these are outlined on Table 1. According to the European Commission (EC), there are approximately 900,000 European Union (EU) citizens who live and work in Switzerland. As a matter of fact, many EU citizens travel through the borders of Switzerland on a regular basis. Most of the people who travel to Switzerland are tourists who enjoy the sights of the mountain meadows as well as the perfect looking towns.
Switzerland has a long history of unswerving democracy as well as a nonaligned status. In December 1992, citizens of Switzerland voted against the idea of joining the EEA. As a result, the government had to suspend all the membership talks with immediate effect. This referendum was actually a major blow to the government. In actual sense, it marked the beginning of the rise of the Swiss People’s Party (SVP).
Since the government’s defeat at the referendum, any kind of dealings that Switzerland has had with the EU has always been taken from a bilateral perspective. Once again, in March 2001, the country’s cynicism about the idea of being part of the EU was confirmed in a referendum in which well over 76% of the citizens voted against a popular initiative dubbed ‘Yes to Europe’.
In February 2009, the confederation of Switzerland was almost at a point of being in a crisis with regard to its relations with the EU. This was in relation to a referendum that was carried out with the aim of opening Switzerland’s labor market to Bulgarian and Romanian workers. Fortunately, well over 59% of its citizens approved an expanded labor deal with the EU that allowed Bulgarians and Romanians to work in Switzerland. Otherwise, a ‘no’ result would have put some of the trade agreements on the edge. July 2010 saw the European Commission and the government of Switzerland establishing a functioning agreement that would assist in governing and making simpler the bilateral dealings.
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Two series of sectoral agreements between Switzerland and Europe were negotiated in 1999 and 2004. As a result, a number of treaties were signed, aligning a huge segment of Swiss law with that of the EU. In this regard, Basel I and Basel II Accords were adopted by Switzerland that in effect means that Switzerland has a similar standard adopted by the European Union. This in turn regulates the relationship between capital requirements as well as asset risk. As a result, the Swiss government was of the view that no distortion to completion would arise for international banks.
Ever since December 2008, Switzerland has taken part in the EU’s Schengen area. This assists member states when it comes to travelling since it led to the removal of identity controls at the common borders. Switzerland also participates in the EU’s Dublin agreement when it comes to dealing with asylum seekers. The economy of Switzerland is highly modernized and diversified. This is especially in the financial and agricultural sector (CEIBS 2012, p. 1-8).
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Switzerland’s financial services are very developed. It has a manufacturing industry that specializes in technology as well as knowledge based production. Additionally, its conformity with the EU economic standards augments its competitiveness. As a matter of fact, the banking sector’s contribution to the Swiss economy stands at approximately 11% (FDFA 2012). In 2009, Switzerland’s financial sector employed approximately 195,000 people, making 5.8% of the entire Swiss workforce. As a result, the financial sector makes a contribution to many sectors of the Swiss economy (FDFA 2012).
As a result of its openness to international trade and investment, it is a very flexible and competitive economy in the world today. It has a highly developed tourism infrastructure, especially cities and the mountainous regions. Tourism accounted for 3% of the Swiss GDP in 2008. Tourism is vital in the economy since it contributes about 5% of the total Swiss workforce (FDFA 2012). According to the World Economic Forum, Switzerland has the most competitive travel and travel sector in the world (WEC, 2012). Table 3 outlines some of the salient features of the Swiss economy.
With a population of approximately 7.6 million, Switzerland has a labor force of approximately 4.08 million, with the majority being concentrated in the services sector. One of the bilateral agreements with the EU was on the free movement of persons. This basically lays down the rules for the free movement of persons between Switzerland and the rest of the EU. In this regard, it gives the citizens of Switzerland and EU states the right to live and work in the territory of any of the counties they choose. In this regard, there are agreements in connection with mutual recognition of professional diplomas. Additionally, the agreements also establish frameworks that coordinate national social security schemes.
Currently, regional trade agreements (RTA) take up almost half of the international trade. They also function alongside international transnational agreements under the World Trade Organization (WTO). One of the key reasons why nations engage in regional trade agreements is because they are attractive. This is as a result of the reduced tariffs. Additionally, counties join regional trade agreements because it is more secure. It binds the country to the masthead of an international trade treaty. This is actually the preoccupation behind Switzerland’s negotiating position on EFTA. As a result, Switzerland is concerned with the protection of its economy (FDFA 2012).
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Regional trade agreements also act as a springboard that grant countries access to global markets. Additionally, the RTAs assist countries to integrate with the global markets, although no agreement provides guarantees. For instance, in the case of Switzerland, its strong position in EFTA has made it possible for it to export industrial products like pharmaceuticals to the member states as well as to the EU (CEIBS 2012, p. 1-8). Trade figures indicate that Switzerland has greatly benefited from its close relations with the EU. It is currently the forth largest trading partner of the EU. In 2008, Switzerland exported goods worth $126.9 billion against $104 billion Euros worth of imports. With regards to imports, it was EU’s 5th most important trading partner in 2008, after US, China, Russia, and Norway respectively (EC 2012).
Another key reason why countries join trade agreements is to increase morbidity and improve communication. One of the positive consequences of opening up borders as well as the development of the internet including other technologies is that it becomes increasingly easier to travel from one country to another (EC 2012). Communication between citizens of different countries becomes easier. For instance, as a result of the bilateral agreement between the EU and Switzerland, almost one million EU citizens live and work in Switzerland with many more travelling across the borders on a regular basis (FDFA 2012).