Policy paper

UK-Switzerland Enhanced FTA Strategic Approach Chapter 1: Strategic Case

Published 15 May 2023

For further information, see the full UK approach to negotiating an enhanced free trade agreement with Switzerland.

Introduction

The United Kingdom and Switzerland have agreed to enter into negotiations for a new and bespoke free trade agreement (FTA). Our existing agreement provides a foundation on which to build, as we seek to upgrade to a deal which maximises opportunities for both economies and is fit for the global economy of the future. An upgraded trade agreement with Switzerland supports the UK government’s strategy of securing modern and comprehensive trading relationships with dynamic economies and nurturing long-term economic growth through innovation.

In February 2019, the UK and Switzerland signed the UK-Switzerland Trade Agreement which forms the basis of the current trading relationship. It is a continuity trade agreement, which replicates as far as possible the trade arrangements between Switzerland and the EU. This agreement provides a platform from which we can begin the process of negotiating a new and more ambitious trade deal.

Switzerland is already one of the UK’s most important trading partners and as a close European neighbour, it is a key market for UK businesses of all sizes. Total trade between the UK and Switzerland was worth £52.8 billion in 2022. Switzerland is also the UK’s 10th largest trading partner worldwide and our third largest services trading partner after the EU and US. A new FTA offers a unique opportunity to enhance trade and investment between both countries and open up new exciting opportunities for growth in all regions of the UK.

Although there are high levels of services trade between both countries, there is no comprehensive agreement on trade in services to replicate. However, in 2020 the UK and Switzerland secured the Services Mobility Agreement, which allows UK professionals to work in Switzerland for up to 90 days without a work permit. This came into force on 1 January 2021 and is set to expire on 31 December 2025. In 2022, the UK and Switzerland signed the Mutual Recognition Agreement (MRA) for goods, which was applied provisionally from 1st January 2023. This applies to a specific set of goods which when tested in the UK against Swiss regulations can be sold in Switzerland without additional testing in Switzerland.

An FTA with a like-minded partner

As 2 strong service-based economies and centres of global innovation, the UK and Switzerland have much to gain from upgrading our FTA. Switzerland has an advanced economy with high standards, and equally important is a like-minded partner with shared values, open markets, world leading research, education, innovation, and strong engagement on foreign policy and sustainable development.

A new FTA could help us work more closely on the most pressing global challenges, including combatting climate change, developing new technologies and promoting free trade.  It is also a chance for the UK to work with a close European ally outside the European Union to shape global trade rules in areas such as financial services, digital trade, climate and the environment. This will set a benchmark for cooperation between two prosperous and pragmatic European economies.

The benefits of an upgraded FTA could include:

Expanding the scope and depth of existing arrangements with an important trading partner

Trade between the UK and Switzerland has tripled over the past 20 years reaching over £50 billion a year in 2022.[1] Our current agreement is made up of a complex web of smaller agreements that have built up over 45 years. These agreements focus mainly on trade in goods (not services), which represent almost half of our trade with Switzerland. Renegotiations provide an opportunity to expand the agreement to cover a broader number of key areas of shared strength including services, investment, digital and the environment.

Increasing opportunities for services and investment 

There are significant opportunities to increase trade in services and investment, a key driver of economic growth in both countries.  With services representing over 70% of gross domestic product (GDP) for both economies, the UK has much to gain from extending the agreement to cover services. In 2022, services trade with Switzerland was worth £23.7 billion and Switzerland was the eighth largest direct investor into the UK, with the total stock of Swiss foreign direct investment worth £74 billion. Switzerland was also the ninth largest destination for UK outward foreign direct investment (FDI) in 2021, with a stock of UK FDI of £52 billion.

Despite this, the current FTA has no services or investment coverage. Instead, services and investment trade between the UK and Switzerland takes place on “General Agreement on Trade in Services” (GATS) terms which represents the minimum baseline for World Trade Organization (WTO) signatories. This offers no preferential access for UK businesses or investors to Swiss markets. The exception is business mobility where the UK and Switzerland have agreed enhanced business mobility arrangements through the Services Mobility Agreement (SMA).

A new FTA is a chance to remove barriers and secure new market access for UK service providers and investors. It will also provide the long-term legal certainty that businesses and investors need to take full advantage of the opportunities the Swiss market offers. There is also an opportunity to embed and build on existing rules that allow business people to travel and deliver services in both countries. This is a key priority for businesses in both countries. Strong mobility arrangements will fuel the growth of vital sectors such as finance, tech, and the creative industries.

The UK and Switzerland are also among the most competitive suppliers of financial services globally and strong FTA commitments will support this flourishing industry. UK financial services exports to Switzerland were worth £2.6 billion in 2022.[2] We will complement what is achieved in the unique UK-Swiss Financial Services Mutual Recognition Agreement, reducing costs and barriers for UK firms accessing the Swiss market and vice versa.

Strengthening goods trade 

The current agreement fully liberalises 79% of import tariffs into Switzerland.[3] A new FTA is an opportunity to pursue expanded commercially meaningful trade liberalisation and reduce or remove tariffs and quotas on agricultural goods. Swiss tariffs on some products, such as red meat, chocolate and baked goods, are currently very high, with businesses describing them as a key barrier to trade. It is also a chance to modernise trading rules, simplify bureaucracy and digitalise customs procedures to make it easier for businesses, particularly Small and Medium Enterprises (SMEs), to trade with Switzerland. Both countries produce high quality agri-food products and can work together to raise global standards.

Promoting innovation, including in digital and emerging technologies.  

As areas not covered by the current trade agreement, there are opportunities for the UK and Switzerland to agree to cutting edge digital and data provisions that support all sectors of the UK economy to trade online. Digitally delivered services accounted for 78% of all UK services trade in 2021, up from 68% in 2019.[4]

As 2 global science superpowers, the FTA is a chance to strengthen collaboration and drive innovation in areas of future economic growth, such as digital trade and data, green growth and emerging technology, that could transform global trade in the future.

Create economic opportunities for the whole of the UK and support SMEs across the country to benefit from trade.  

A new FTA will provide increased opportunities for businesses across the UK that are involved in trade with Switzerland. As well as supporting areas like Yorkshire and the Humber and North West export goods, a new agreement will benefit our world-leading services companies in Wales, Scotland and Northern Ireland. In 2021, 14,100 UK businesses exported goods to Switzerland, of which 86% were SMEs.[5]

Delivering for business 

We have huge scope to negotiate an ambitious deal that will boost both our economies, create high quality jobs and fuel economic growth in the UK. It is an opportunity to show the world what 2 like-minded and innovative nations can achieve by enhancing their trading relationship.

Our approach to these negotiations has been developed in close consultation with a wide range of stakeholders, including the public Call for Input on trade with Switzerland which received a large number of responses from the UK public, businesses and civil society. We will continue to work closely with stakeholders throughout the negotiations.

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[1] ONS (2023), UK total trade: all countries, seasonally adjusted, October-December 2023 edition

[2] ONS (2023), UK trade in services: service type by partner country, non-seasonally adjusted

[3] DBT calculates using tariff data from The Federal Office for Customs and Border Security (Tares) (2021), ad valorem equivalents (AVEs) from ITC Market Access Map (MacMap) for 2020 and average Swiss imports from the UK between 2018 to 2020 from ITC TradeMap

[4] ONS (2023), Imports and exports of services by country, by modes of supply, UK: 2021

[5] HMRC (2022), UK trade in goods by business characteristics 2021 data tables