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Potential benefits of a Taiwan-Swiss FTA

On 14 June the ECCT arranged a Special Lunch with guest speaker Dr Patrick Ziltener, Associate Professor, University of Zurich.

The speaker presented some of the main findings from his recently-concluded study on the potential benefits of a bilateral trade deal between Taiwan and Switzerland for exporters on both sides, taking into account the effects of the new Information Technology Agreement (ITA). The full study will be published online in August.

Dr Ziltener's stressed that his study was an academic exploratory study, not an inter-governmental feasibility study.

A trade deal between Taiwan and Switzerland is feasible given the fact that are no sovereignty issues because both Switzerland and Taiwan are members of the WTO. Moreover, there are precedents in the form of Taiwan's trade deals with New Zealand and Singapore as well as Switzerland's FTAs with territories that are not universally recognized such as the Faroe Islands (a self-governing country within the Danish Realm) and the Palestinian National Authority (an interim self-government body established in 1994 to govern the Gaza Strip & West Bank).

Switzerland has had an FTA with the EU since 1973 and has since added 28 FTAs with 38 partners outside the EU.

Dr Ziltener's research on Taiwan is based on an ex ante analyses of annual maximum FTA savings potential using a similar to methodology to research he previously conducted on mainland China, the United States, India and several other countries.

He pointed out that this method only shows the maximum potential savings, which may or not be realized as his ex post evaluation of FTA utilization rates for countries including Canada, Mexico, South Korea, Japan and the EU have shown.

Ziltener's research is useful for gauging whether or not it is worth pursuing an FTA. For example, in his economic impact analysis of the Switzerland-Japan Free Trade and Economic Partnership Agreement (FTEPA), he found that 88% of all Swiss exports to Japan are already tariff free, which means that only 12% of exports could benefit from an FTA and only about 6% of exports were conducted under the FTEPA.

Dr Ziltener pointed out that when looking at Taiwan it is important to consider the Information Technology Agreement (ITA). The first ITA was concluded by 29 participants in December 1996. Since then, the number of participants has grown to 82, representing about 97% of world trade in IT products. ITA signatories are committed to completely eliminating tariffs on IT products covered by the agreement. In December 2015, over 50 members concluded the expansion of the agreement, which now covers an additional 201 products valued at over US$1.3 trillion per year. This is important for Taiwan since it is a major exporter of IT products and therefore the expected impact of the ITA needs to be factored in to FTA potential benefit calculations.

In the case of Taiwan's exports to Switzerland, 30% of products are already tariff-free while the elimination of tariffs under the expanded ITA will increase this percentage to roughly 40% of Taiwan's total exports to Switzerland (by value). However, tariffs on remaining items are already quite low, which means that the actual potential savings for Taiwan's exporters would be quite modest.

Nevertheless, the fact that Taiwan has to pay tariffs on a number of products still amounts to discrimination when considering the tariff-free status of similar items exported by neighbouring countries in Asia that have FTAs with Switzerland.

In terms of Swiss exports to Taiwan, the potential savings for Swiss exporters from an FTA in terms of value are quite substantial. Moreover, the potential benefits are comparable to those derived from an FTA with Indonesia (a much larger economy) and much larger than those of Australia, Malaysia and Vietnam.

For this reason, Ziltener concluded that Taiwan would be an attractive FTA partner for Switzerland. There is modest savings potential for Taiwan's exporters, especially of vehicles parts, metal goods and curtains and high potential for Swiss exporters, especially of watches, tobacco and food products, including chocolate and ice cream. While the ITA will have an impact, it would not make an FTA irrelevant.

Ziltener ended with the caveat that his analysis is based on historical data (from 2015). It does not consider dynamic effects. For instance, an increase in trade volumes, triggered by the implementation of an FTA, would result in a higher savings potential.