Switzerland's policy of allowing duty-free entry of all industrial goods from all countries significantly limits India's prospects of gains from the Free Trade Agreement (FTA) between India and the European Free Trade Association (EFTA) currently under negotiation, the Trade Research Initiative (GTRI) said in a report by think tank Global on Monday.

Switzerland's decision, which came into effect on January 1, 2024, eliminated tariffs on chemicals, consumer goods, vehicles, clothing and other products.

Switzerland is India's largest export destination in the European Free Trade Association (EFTA) and the elimination of import tariffs means that Indian products will face a higher degree of competition in Switzerland despite the free trade agreement with the EFTA.

It is worth noting that the EFTA countries are not part of the European Union. The EFTA consists of Iceland, Liechtenstein, Norway and Switzerland and is an intergovernmental organization that promotes and strengthens free trade.India's exports to the EFTA countries stood at $1.92 billion in 2022-23 as against $1.74 billion in 2021-22. Total imports in the last fiscal year were $16.74 billion as against $25.5 billion in 2021-22.

"Industrial goods, which account for 98% of India's $1.3 billion merchandise exports to Switzerland in FY2023, are directly affected. Moreover, exporting agricultural products to Switzerland remains challenging due to complex tariffs, quality standards and approval requirements. The European Free Trade Association (EFTA), which includes Switzerland, has shown no inclination to reduce agricultural tariffs to zero for most basic agricultural products. As a result, the expected gains from India's commodity exports are effectively offset by zero industrial tariffs and difficulties in exporting agricultural products to Switzerland," the think tank said.

The trade imbalance between India and Switzerland further complicates the situation, GTRI said.India's imports from Switzerland stood at $15.79 billion in FY2023, in sharp contrast to its exports of $1.34 billion, resulting in a huge trade deficit of $14.45 billion.

"Gold accounts for 80% of India's imports from Switzerland and is a key element of the FTA. If the FTA does not include gold, it may not qualify for the WTO Article XXIV duty reduction on substantial trade under the FTA. Switzerland has historically accumulated large quantities of gold and mainly refines imported gold. Such gold does not even satisfy the minimum 5 per cent value added condition in the rules of origin. Switzerland may insist on replacing value-added or tariff-switching conditions with specific processes such as refining conditions. India has to be careful," GTRI said.