The 2004 amendment to Protocol 2 to the Free Trade Agreement (FTA) between Switzerland and the European Union (EU) governs trade in processed agricultural products such as chocolate and coffee. Since 2005, the EU has no longer imposed tariffs on imports or subsidised its exports in trade with Switzerland in this product category. In return, Switzerland has reduced its import tariffs.  The amendment facilitates access to the European market for the Swiss food sector, which also remains competitive at home. 

In 1972, Switzerland and the EU signed an FTA creating a free trade area for industrial goods. This led to a gradual abolition of trade barriers (tariffs) and quantitative trade restrictions (quotas) or measures with equivalent effect. The FTA does not, however, apply to agricultural products. Processed agricultural products find themselves in a unique position between industrial goods (free trade) and agricultural products (agricultural protection). They include chocolate, biscuits, baked goods, sweets, soups, sauces, pasta, ice cream, instant coffee and food preparations. These products are made from both agricultural commodities and industrial processing.

The 1972 FTA abolished tariffs on the industrial element of processed agricultural products traded with the EU starting 1 July 1977. For the agricultural commodities involved – flour, milk powder and butter, for example – a price compensation mechanism was introduced. This is because there is often a considerable difference in price for such commodities in Switzerland, compared to EU or international market prices.  For the Swiss manufacturing industry, this price difference is a competitive disadvantage (known as the 'commodities price handicap'). To compensate for this, Switzerland imposes import tariffs on processed agricultural products from the EU. Until 2004, these tariffs were in line with the price difference of agricultural commodities between Switzerland and the international market.

Amendment to Protocol 2: simplification of the price compensation mechanism

The 2004 amendment to Protocol 2 to the FTA between Switzerland and the EU also simplified the price compensation mechanism.

As of 2005, Swiss-EU trade is no longer based on the international market price difference but the smaller difference between Swiss commodity prices and corresponding EU prices. Because Swiss prices for agricultural commodities are generally higher than those in the EU, the amendment led to the following:

• The EU eliminated its tariffs for all processed agricultural products from Switzerland covered by the agreement. It also waived refunds on subsidised exports to Switzerland. The term export subsidies is used when governments subsidise domestic companies that export goods.
• Switzerland lowered its tariffs to the commodities price difference with the EU. This means that the competitive disadvantage Switzerland faces due to higher procurement costs domestically will continue to be taken into account. Switzerland also abolished all tariffs on processed products that do not contain any agricultural commodities other than sugar.

In accordance with a WTO decision from 2015, export subsidies had to be abolished by the end of 2020. To this end, in 2017 the Swiss Parliament passed an amendment to the Federal Act on the Import and Export of Processed Agricultural Products (the so-called Chocolate Act.)  Since the amendment came into effect on 1 January 2019, Switzerland no longer pays subsidies to exporters trading with the EU. However, it does continue to levy tariffs on processed agricultural products from the EU based on the agricultural commodities price difference.

Chronology

2005

• Entry into force of the amendment to Protocol 2 to the FTA (30 March, early application as of 1 February)

2004

• Adoption by Parliament (17 December)
• Signing of the agreement on the amendment to Protocol 2 to the FTA (26 October, under Bilaterals II)