THE BEGINNING OF JAPAN-SWITZERLAND RELATIONSHIPS

The origin of Japan-Switzerland relationships goes back to the far 1859 when official delegation from Switzerland was sent to open negotiations with Japanese authorities. Despite the failure of the first attempt the second Swiss mission funded by the Swiss Confederation andpersonally led to Japan by AimHumberthave been successful to launch the negotiations with Tokugawa shogunate in Edo and ended up with the Treaty of Amity and Commerce between the Swiss Federal Council and His Majesty the Takun of Japan. In 1869 after the Meiji Restoration the new The Japanese government declared its willingness to open the whole country to foreigners as long as their extraterritorial right (trials by their respective consulates) were abolished. It took until the 1890s before the Japanese government was successful in these negotiations. Switzerland again followed the example of the great powers and renegotiated a new Treaty of Amity, Establishment and Commerce in 1896, on the basis of equity and mutual profits. At the time of the opening of Japan, the range of goods available for export wasextremely limited. In 1892, silk was still the predominant commodity in Japans tradewith both Europe and America, accounting for nearly 59% of exports. The remainder ofexports consisted mainly of Japanese tea, porcelain, coal, and copper.The silk export trade was focused on Yokohama, with six Swiss companies accounting for 45% of all trade. Switzerland in turn exported fabrics and watches in significant quantities, followed in timeby chemicals and condensed milk. With the rapid modernization of Japan that began withthe Meiji restoration, Swiss machinery manufacturers quickly expanded their business tosupply railway engineering, electrical power plants and spinning mills. Thus, strengthening good economic ties since entering into a treaty of friendship and commerce both Japan an Switzerland share a long history of developing together, based on the complementary and cooperative relationship they share on the international trade and economics stage as trade- and technology-oriented nations. The advance of second half of the 20thcentury, was marked by decrease in Japaneseexports to Switzerland since the end of the 1980s. This is not only a reflection of thecontraction of the Japanese economy with the burst of the real estate and stock marketbubble, but also the impact of globalization, as many Japanese companies transferredproduction to low-cost countries in Asia or Eastern Europe. As a result, cars, computersand other goods made by Japanese manufacturers are now exported to Switzerlanddirectly from these countries, so they do not appear in Japanese trade figures. In recentyears, direct Japanese exports to Switzerland have again risen significantly. Review of Japanese-Swiss Trade before the signing of FTA In 2008, exports of Japanese goods to Switzerland grew by 19.0 % to 375 bn.(2.1% of all Swiss imports). The main Japanese exports to Switzerland are vehicles,precious metals and jewelry, machinery and chemicals. These figures do not take intoaccount exports to Switzerland by Japanese companies from other countries._ In 2008, Japanese imports from Switzerland grew by 4.9 % to 633 bn. (3.3% of all Swiss exports). The main Swiss exports are chemical and pharmaceutical goods,watches and machines. Japan remains the most important export destination in Asiafor Switzerland, and the second most important source of imports into Switzerlandfrom Asia, after China.

Review of Japanese-Swiss investment before signing of FTA According to the JETRO (Japan External Trade Organization), Switzerland is an important investor in Japan. Statistics from the Swiss National Bank (SNB) show that Swiss direct investment in capital stock in Japan totaled 1.332 trillion by the end of 2008, accounting for 1.8% of Switzerlands total overseas investments. This also represents 2.9% of total foreign direct investment in Japan, which ranksSwitzerland 7th among all nations in Japan. The SNB calculates Swiss direct investment flows into Japan in 2008 were a record-high 117 bn., with Swiss companies employingover 64,000 people in Japan. From the Japanese side, direct investment in Switzerlandhas been declining since 1994, amounting to less than 56.5 bn., and accounting forjust 0.1% of all foreign investment. Analyzing foreign investment according to their realcountry of origin, however, leads to a different picture. Including indirect investment,Japanese investment totaled 630 bn. in 2005. On the other hand, Japanese companies invested 102.1 billion JPY (about 1.2 billion CHF) in Switzerland. In recent years, Switzerland has become the country of choice for multinational companies including Japanese looking to set up European, International and even World headquarters.In the last 10 years, more than 180 regional headquarters of large Japanese companies have relocatedto the country. These companies have been attracted by the benefits that Switzerlandhas to offer, including a stable and investor-friendly business environment, an excellentinfrastructure in the heart of Europe, a highly skilled and productive labour force, highquality of life, and competitive taxes. Japanese companies that have takenadvantage of these benefits comprise worldwide known Japanese companies such as: Japan Tobacco International, Nissan International, Kanebo Cosmetics (Europe) Ltd.,EizaiPharma AG, Hitachi Medical Corporation and some others. Thus since the year 1995, both countries started to seek for the ways of closer economic collaboration, bilateral economic consultations between the Japanese and Swiss governments have been held on a regular basis. In the framework of those consultations and in other bilateral contacts, strengthening of the economic relations between the two countries was discussed regularly. Both Japan and Switzerland are strongly committed to the multilateral trade framework and see FTAs and EPAs as complementary, not alternative to its further development. By following WTO rules regarding regional trade agreements, FTAs/EPAs can be building blocks for the development of the world trade system. Since 2003 two separate feasibility studies on a possible bilateral comprehensive Free Trade Agreement (FTA) were carried out respectively by Japan External Trade Organization (JETRO) and the State Secretariat of Economic Affaires (SECO). The research of Joint Governmental Study Group heralded that a bilateral FTEPA between Switzerland and Japan would considerably enhance the existing economic relations, especially in the fields of goods, services and investment, and strengthens the competitiveness of both countries. The report recommended a rapid start to negotiations to form an agreement. This recommendation was publicly supported by major private sector organizations in both countries, such as economiesuisse in Switzerland and Nippon Keidanren in Japan. The Agreement was signed on February 19, 2009, following a total of eight rounds of negotiations since the first round in May 2007. It was then approved by the Federal Assembly of Switzerland and the National Diet of Japan. In Switzerland, National Council and Council of States approved it respectively on May 25 and June 8. In Japan, House of Representatives and House of Councilors approved it respectively on May 28 and June 24. The following effects in the respective areas were given the imperative consideration while preparing the optimal FTA that could perfectly fit the unique trade structure between two countries. Trade in goods The JSG (Joint Study Group) shared the view that possible FTA between Japan and Switzerland can improve market access for trade in goods, eliminating and reducing the tariffs, thus strengthening economic cooperation between two countries. According to case study of JSG, more

than 70% of Japanese exports to Switzerland were subject to Swiss customs duties, while less than 20% of Swiss exports to Japan were subject to Japanese customs duties in 2005. Therefore, with the entry into force of the JSFTEPA, almost all tariffs on industrial goods have been eliminated. Most industrial goods benefited immediately from the dismantling of tariffs at that point of time. For a small number of industrial goods, the Japanese tariffs will be dismantled after a transitional period. As SSIJ states, Swiss exports to Japan amounted to CHF 6.8 billion (3.8 % of all exports according to Swiss customs). in 2009 after the signing of FTA. Moreover, the volume of Swiss imports from Japan was valued at CHF 3.6 billion (2.1 % of all imports according to Swiss customs). The most important Swiss export products to Japan are chemical products (58.7 % of total exports), machinery and electronics products (7.1 %), instruments, watches, jewelry products (20.2 %). Main groups of products imported by Switzerland from Japan are chemical products (17.4 % of total exports), machinery and electronics products (10.8 %), vehicles (27.7 %), instruments, watches, jewelry products (16.5 %). Trade in agricultural goods The JSG deepened understanding on the efforts of increasing food self-sufficiency ratio and the structural reform of agriculture in Japan, on agricultural policy reform and enhancing relative competitiveness of agricultural products of Switzerland and on the present state of agricultural trade between the two countries. The JSG also noted indicative export interests in the area of agriculture, forestry and fisheries expressed by both sides. As a result, Switzerland and Japan have granted each other tariff concessions on a selected range of basic and processed agricultural goods. Japan granted Switzerland preferential market access in particular for Swiss cheese specialties, dried meat, chocolate, wine and cigarettes. Switzerland granted Japan preferential market access inter alia for ornamental plants Bonsai, high quality gift fruits, sake (rice wine) and cigarettes. Trade in Services Both Japan and Switzerland have a highly developed services sector constituting a large part of their GDP. In multilateral and bilateral trade negotiations, Japan and Switzerland have progressive position and are aiming at further opening up services markets. Both countries have recently implemented reforms in their services sectors, which contributed to economic growth and enhanced welfare. According to the stated above, FTA/EPA between Japan and Switzerland brought about a comprehensive and high standard framework for bilateral trade in services. It provided business with a more open, stable and predictable environment. Provisions in this area are built on the WTO services agreement (GATS) and include a number of GATS-plus elements in certain areas. Annexes on financial services, telecommunication services, disciplines on domestic regulation in services, and the recognition of qualifications of service suppliers contain additional sector-specific provisions that go beyond the GATS level. Thus trade in services between Switzerland and Japan also grew substantially. Swiss service providers are active on the Japanese market inter alia in the areas of financial and engineering services, tourism and commodities trading. The provisions for trade in services in JSFTEPA cover two broad areas. The first relates to the services, including their regulation, recognition of qualifications and service suppliers, and market access. The second is the movement of natural persons for business purposes. The JSG considered the movement of natural persons to be an important aspect of a possible FTA/EPA between Japan and Switzerland. In this regard, the conditions of FTA complied with modern bilateral framework that suits the needs and situation of Japan and Switzerland and facilitated business relations and brought benefits to businesses on both sides. Both countries, when negotiating FTAs/EPAs, focused on specific categories of persons in professional and technical fields, and both were interested only in temporary entry and stay, not covering permanent access to the labor market. Investment Japan and Switzerland are both members of the OECD and have international commitments to

liberalise cross-border capital movements in accordance with the OECD Codes. However, according to OECD, prior to the conclusion of the EPA there was no bilateral investment protection treaty between Japan and Switzerland. The investment chapter in JSFTEPA increases legal security for Japanese investors in Switzerland in two ways: 1. It extends the liberalization commitments of the OECD Codes. 2. It includes standards for the treatment and protection of investments. As a result, Japanese investors in Switzerland have a stronger legal position than investors from other countries that have not concluded an EPA (with liberalization commitments for investments) or a bilateral investment protection treaty with Switzerland. As the SSIJ holds, Swiss overall direct investments (capital outflows) in 2009 amounted to CHF 36 billion. This was 39 percent lower than a year before according to the Swiss National Bank data. CHF 2.0 billion or 5.5 percent of the total Swiss foreign direct investment outflow are directed to Japan. According to the same statistics, as the impact of FTA in Japan, about 75,000 persons are employed by Swiss companies. With regard to the country ranking, Japanese statistics put Switzerland in 9th position as foreign direct investor with USD 4.9 billion. This accounts for 2.5 percent of the total inward foreign direct investment stock in Japan at the end of 2009. According to Japanese statistics, Swiss financial firms disinvested worth about US-Dollar 1.17 billion from Japan in 2009. The JSFTEPA marks a new era of economic partnership between Japan and Switzerland and provides a solid basis for further strengthening bilateral relationships between the two countries, especially through trade and investment. Tariffs for more than 99% of the total trade in goods value between the two countries shall be eliminated within 10 years. It also provides frameworks for an origin declaration by an approved exporter, which is a new system in Japan, for further expansion and facilitation of cross-border investments and for services trade. It facilitates free movement of persons. Both governments committed to enhance conditions for effective protection of intellectual property rights and not to use anti-dumping measures for protectionist purposes.

References: Joint Study Group.``Report of Joint Governmental Study Group for strengthening economic relations between Japan and Switzerland``.Jetro.go.jp. Switzerland-Japan Relations. May 20th 2011. <http://www.jetro.go.jp/switzerland/relations/index.html> Swiss Chamber of Commerce and industry in Japan. ``Trade between Switzerland and Japan strong in2010``.SSIJ.JP. May18th2011. <http://www.sccij.jp/jobs/positionwanted/detail/article/2011/01/27/trade-between-switzerland-and-japan-strong-in-2010/> Federal Department of Foreign Affairs. ``Bilateral relations between Japan and Switzerland ``.Eda.admin.ch. Bilateral relations. <http://www.eda.admin.ch/eda/en/home/reps/asia/vjpn/biljap.html>