Back in 2013, several dozen Swiss business representatives traveled to Beijing to attend the signing of a free-trade agreement between Switzerland and China, toasting the success with champagne.

Implemented the following year, the FTA was hailed in a PricewaterhouseCoopers LLP report at the time as a landmark accord that “recasts the international trade landscape” and might even contribute to “a re-industrialization of Switzerland.”

Ten years on, the deal is due for an update but the euphoria has gone, a reflection of the changed geopolitical environment defined by US-China competition. Some now question whether the talks will even yield a result.

Concern over the trade agreement’s fate is one sign of how Switzerland is being squeezed between rival global powers, casting a pall over its traditional exceptionalism in spheres from neutrality to its solo economic efforts. With the US moving to hinder China’s access to advanced technology and the European Union aligning more closely with Washington, Swiss companies in particular risk getting caught in the middle.

Zurich-based industrial giant ABB Ltd. faced US scrutiny earlier this year over what a Congress committee cited as potential “cybersecurity risks, foreign intelligence threats, and supply chain vulnerabilities” related to its involvement with Chinese state-owned enterprises in supplying cranes for US seaports. ABB said it responded to the committee’s requests “with care.”

Now, Switzerland’s vaunted pharmaceuticals industry with its attendant biotechnology sector is nervously eyeing proposed new US legislation that could curb its ability to collaborate with China.

“There is an uneasy feeling,” said Jean-Philippe Kohl, deputy director of Swissmem, the association for Switzerland’s mechanical and electrical engineering industries. “Geopolitical tensions are particularly sensitive for companies that manufacture high-tech products,” like those at which Swiss excel, he said. “Five to ten years ago, such concerns were not yet an issue.”

More recently, Switzerland’s been feeling the heat. It was criticized by Western partners for refusing to allow its weaponry to be sent to Ukraine to defend against Russia’s invasion as well as for allegedly lax implementation of sanctions against Moscow over the war. The fact it joined EU sanctions in the first place was viewed by many Swiss as a de facto end of the country’s century-old neutrality principle.

Its engagement with China has been similarly mixed. Beijing lifted visa requirements for Swiss tourists and business travelers in January when Premier Li Qiang visited and laid the foundations for a memorandum of understanding formalizing both sides’ intention to modernize the FTA. That didn’t stop China rebuffing the Swiss government by skipping Switzerland-brokered talks on Ukraine in June. Meanwhile, Syngenta Group — a Swiss agrichem giant owned by Sinochem Holdings Corp. of China — withdrew its long-delayed application for a $9 billion initial public offering in Shanghai, in a sign of the regulatory risks foreign companies have to deal with in China.

Yet while others move to “de-risk” business with Beijing, Swiss exports — notably of products like machines, pharmaceuticals and watches — destined for China have outstripped those from either the EU or the US, growing by three-quarters since the trade deal was implemented compared to the EU’s 54% and the US with 20% in the same period, according to Swiss customs data.

“That the US will one day say that we have to stop this transfer of technology is a primal fear of many companies,” said Kohl of Swissmem, adding that it would be “a disaster” if they had to choose between the US or China. “Withdrawing from China would be impossible and would be tantamount to a ‘partial amputation’ of their company,” he said.

AfriPrime App link:  FREE to download...

https://www.amazon.com/Africircle-AfriPrime/dp/B0D2M3F2JT

The Swiss government is careful to maintain good relations with China. But it’s increasingly confronted by domestic resistance, with criticism fueled by reports of Chinese interference. The Swiss Federal Intelligence Service said in its latest annual report that it is “highly likely that the Chinese intelligence services make greater use of non-diplomatic cover than the Russian services do,” with personnel often working undercover as scientists, journalists or businesspeople.

The Chinese embassy in Bern rejected such assertions, saying in an e-mailed response to questions that “recent reports about so-called China’s spying in Switzerland are all hypes aimed at smearing and hitting China.” Rather, it said, China “advances mutually beneficial cooperation with Switzerland in accordance with laws and regulations.”

In 2022, the Swiss government decided behind closed doors not to follow EU sanctions against China over allegations of human rights abuses in Xinjiang province. More recently, it opted against extending its current China strategy once it expires at the end of the year. In both cases, members of parliament criticized the government for taking a soft line to avoid triggering economic repercussions.

To Simona Grano, a China expert at the University of Zurich, ditching the China strategy which would inevitably have to touch upon sensitive topics such as human rights or labor conditions is aimed at keeping relations with Beijing sweet ahead of the 75th anniversary of Swiss-Chinese diplomatic relations in 2025. Modernizing the trade agreement that same year would be “of great symbolic importance for China,” she said.

“Switzerland continues to live in the outdated mentality that it can keep crafting its own foreign policy and navigate a middle path in which the economic sphere isn’t influenced by political issues or geopolitics,” she added.

It’s an approach that looks increasingly untenable as the US expands its use of export controls against China, roping in allies for bans on technology like chipmaking equipment. That deepening standoff with China is a rare point of agreement between the Democratic and Republican presidential campaigns, suggesting no let up for Switzerland or anyone else after the November election.

“The next stage of protectionism in America”

The Swiss chemical-pharmaceutical industry — accounting for almost half the nation’s exports at $157 billion — could be an early focus. The bipartisan Biosecure Act now making its way through Congress foresees a ban on state agencies collaborating with Chinese biotechnology firms on national security grounds.

While the US remains the most important single country export market for Swiss pharma companies, Chinese firms have become key throughout the supply chain from pre-clinical research to licensing — and that interdependency is a red flag for some US lawmakers. It’s all the more provocative since one of the main Chinese biotech firms named in the legislation, Shanghai-based Wuxi AppTec Co., has a subsidiary in Switzerland.

The company objects to “any unjustified allegations or preemptive actions against WuXi AppTec without due process, including the proposed designation in the draft Biosecure Act,” a spokesperson said. The Chinese embassy accused the US of having “repeatedly overstretched the concept of national security,” moves it said “seriously violate” the principles of the market economy and fair competition.

For Michael Altorfer, chief executive officer of the Zurich-based Swiss Biotech Association, the Act “is the next stage of protectionism in America.”

“Even if it is still unclear whether and how the Act will actually be implemented, there is a risk of a spill-over effect or an adjustment of behavior in ‘anticipatory obedience,’” he said.

Switzerland has longstanding ties to China: It was one of the first Western countries to recognize the People’s Republic under Mao Zedong in 1950. Thirty years later, elevator maker Schindler Holding AG became the first Western firm to establish a joint venture in China with a state-owned enterprise.

New geopolitical realities are changing the outlook for that kind of engagement, according to Alain Graf, senior consultant and China expert at Switzerland Global Enterprise.

“The key concern for companies in certain sensitive industries is whether their business with Chinese customers and especially state-owned companies may affect their US business,” Graf said. “Since the rules are not clear and are changing, it is quite a headache.”

It also complicates moves to update the FTA with China. Any renegotiated text would likely be put to a referendum under the country’s system of direct democracy, and it’s questionable whether a new deal could pass without sections guaranteeing adherence to human rights and labor conditions.

For Beijing, revising the agreement has broader political significance in what it sees as a time of rising protectionism directed against China. The state-backed Global Times said in a recent piece that strengthening cooperation with Switzerland “offers a prime example for Europe to avoid trade frictions and focus on mutually beneficial cooperation.”

Back when it was signed, many saw the Swiss-China FTA as the precursor for a trade deal between China and the EU, “but then things changed and now Switzerland is going its own way,” said Peter Bachmann, executive director of the Swiss Chinese Chamber of Commerce from 2014 until last year. The EU and China concluded a comprehensive agreement on investment in 2020, only for it to be shelved amid tit-for-tat sanctions related to Xinjiang.

The reality now is that Switzerland needs the free trade agreement more than China does, said Bachmann.

“Switzerland has often focused on adaptation and deal-making, which has worked well until now,” he said. “But now other values are becoming important.”

AfriPrime App link:  FREE to download...

https://www.amazon.com/Africircle-AfriPrime/dp/B0D2M3F2JT