Preferential bilateral tariffs are agreed contractually under free trade agreements (FTA). They apply to products that are manufactured entirely in the territory of the state party, or sufficiently worked or processed there to fall within the scope of the agreement. In addition, under the Generalized System of Preferences (GSP) Switzerland unilaterally applies lower duties to products from states it recognises as developing countries.
The origin criteria that these products must fulfil to qualify for preferential tariffs are set out in the origin protocol to the FTA in question or in the Ordinance on Rules of Origin for Preferential Tariffs for Developing Countries (SR 946.39).
Cumulation practice in relation to origin
Cumulation means adding together all of the value creation – such as the production of primary materials or processing at individual stages of manufacture – that is generated in different free trade partner countries. It is used to establish whether a good fulfils the criteria for 'originating product' status. Product origin can be cumulated in a number of ways: (i) bilateral cumulation between two parties to a single FTA; (ii) diagonal cumulation between three or more parties to FTAs that apply the same rules of origin; (iii) extended cumulation between three or more partners to FTAs with different rules of origin; and (iv) full cumulation, in which the different stages of manufacture in different parts of a free trade zone are added together.
Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin (PEM Convention)
The Regional Convention of 15 June 2011 on Pan-Euro-Mediterranean Preferential Rules of Origin (the 'PEM Convention'; SR 0.946.31) came into force in Switzerland on 1 January 2012. The object of the Convention is to determine standard rules of origin between PEM partner countries to ease trade and to integrate supply chains within the zone without changing the substance of the FTAs that already exist in the zone. The Convention creates a diagonal cumulation zone.
Rules of origin under the revised PEM Convention
By adopting the PEM Convention in 2011, partner countries undertook to revise the old rules from the 1970s that no longer correspond to today's manufacturing chains. It has not yet been possible to achieve the unanimity that is required to adopt the revised version of the Convention, however. The overwhelming majority of states parties has therefore decided to apply the revised rules bilaterally as a transitional solution so that their business sectors can benefit from the revision nonetheless. The revised rules have been applied to trade with the EU since 12 August 2021. During the transitional period, exporting companies can choose to apply either the rules of the current Convention or the revised rules of origin. The revised rules simplify the legal framework and certification of origin, permit more flexible supply chains, and thus ensure a better fit between the rules of origin and actual production chains in the PEM zone.