This study on the “Significance of autonomous tariff dismantling for industrial products for future negotiations of free trade agreements”, which is part of the framework topic “for studies on the potentials and economic impact of the unilateral easing of import restrictions for Switzerland”, is carried out by the World Trade Institute (WTI) for SECO, the Swiss State Secretariat for Economic Affairs. Unilateral tariff dismantling has been practiced by various countries in the world, like Norway, Singapore, Canada, New Zealand and Iceland. Switzerland has not done so, but SECO has set-out a range of studies under the framework topic to get a better understanding of the issues related to unilateral tariff dismantling. This specific project focuses on the relationship between unilateral tariff cuts and bargaining leverage in future Free Trade Agreements (FTAs). In case such a policy were to be pursued by the Swiss government, it would be important to get more insights into the different (potential) effects and related bargaining aspects that matter in order to draw conclusions about the viability of such policy for Switzerland. What also matters is how important this issue would be in terms of Swiss trade potentially affected (since a large share of Swiss trade is already covered by existing trade agreements – see section 2.2 – and would thus not be impacted).
The questions we are asked to investigate as part of this study, are:
Question 1:What is the likely effect on Switzerland’s negotiating position for subsequent free trade agreements? Are there alternative ‘bargaining chips’ that are just as attractive or might be made so?
Question 2:To what extent could autonomous tariff dismantling for industrial goods increase the pressure on agricultural products and foods in negotiations?
Question 3: How great is the potential of future free trade agreements, particularly regarding tariffs?
Question 4: How can the interests of future trade agreements be balanced against autonomous tariff dismantling?
We are looking at these questions by working through four clear methodological steps:
1. Step 1:Where we identify prospective Swiss agreement partners and key agenda items for these partners. This helps us to examine the potential effects of unilateral tariff cuts on the negotiation position for subsequent FTAs (not for existing ones).
2. Step 2:Based on the country categorization resulting from Step 1, we make an initial assessment of if and how priorities would change, should Switzerland autonomously dismantle its tariffs on industrial products (Question 1): for what trade partners do tariffs still matter for negotiations and for which ones they do not. For those countries where tariffs still matter, it may be important to look at alternative bargaining chips to tariffs – which we do in Step 3.
20 |P a g e 3. Step 3:Building on the analysis of Step 2, we look at alternative bargaining chips Swiss
trade negotiators could offer after autonomous tariff dismantling, including their viability.
We also report experiences from Norway, Hong Kong and Singapore who have gone down this road before, as well as Iceland who has unilaterally dismantled industrial tariffs recently, and of the EU to depict how Switzerland’s main trading partner looks at unilateral tariff dismantling.7This assessment allows us to infer under which settings autonomous tariff cuts on industrial products would need alternative bargaining chips or would increase the pressure on agricultural products and foods (Question 2).
4. Step 4:The results from the analysis in the previous steps will be used to make more informed predictions about the scope for future trade agreements in terms of number and depth (Question 3 and Question 4).
The steps are conceptually connected as presented in Figure 1.1 below.
Figure 1.1 Conceptual approach to the study
Source: Own compilation
This report is structured as follows:
7 Hong Kong, Singapore, Norway and Iceland have most consistently and across sectors engaged in unilateral tariff dismantling for industrial goods. That is the reason these countries were selected for interviews and gathering evidence.
We opted not to look at Canada in this study, because Canada – though having done down the unilateral tariff dismantling road in part in 2010, did not do so consistently and still has (low) tariffs on industrial goods (as well as significant tariff on some agricultural products) as shown by Ciuriak and Xiao (2014). We also did not include New Zealand for a similar reason as shown by NZIER (2010): New Zealand has unilaterally reduced tariffs, but has since 2010 adopted the policy that further reductions would only happen as part of multilateral or bilateral trade negotiations.
21 |P a g e x In Chapter 2, we present shortly the background and context of unilateral tariff
dismantling and some views regarding this policy;
x In Chapter 3, we look at the results of Step 1: the identification of potential Swiss FTA partners and their main issues;
x In Chapter 4, we look at the results of Step 2: unilateral tariff cuts on industrial products (for most important sectors to highlight tariffs that would have most impact, for peak tariffs to look at niche products where tariffs still matter, and for non-tariff issues) and negotiating dynamics that could result (setting the stage for whether alternative bargaining chips (Chapter 5) are needed or not);
x In Chapter 5, we look at the results of Step 3, focusing on alternative bargaining chips, including inter alia country-experiences from countries that have already pursued unilateral tariff dismantling strategies before. We look at the water in between applied and bound rates, the EFTA premium, rules of origin and non-tariff measures (i.e. deeper trade issues) as the four possible alternative bargaining chips and assess their potency for Switzerland;
x In Chapter 6, we present Step 4 of our approach: the conclusions regarding how unilateral tariff dismantling may affect prospective Swiss FTA negotiations.
WTI research team Bern, 29 August 2017
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