SWITZERLAND AND THE UNITED KINGDOM

SWITZERLAND AND THE UNITED KINGDOM ECONOMIC FOOTPRINTS 1

INTRODUCTION Switzerland and the United Kingdom are longstanding and firm partners whose common heritage of political and economic liberty forms the basis for successful co-operation in many fields. In the economic realm, the bilateral trade statistics speak for themselves; Switzerland is a top ten destination for UK goods exports, and the third largest non-eu export market, just after the USA and China. In terms of services exports, Switzerland is even a top five destination for the UK, with more than three times the value of UK services exports to China (2015). The UK s services exports to Switzerland are worth more than those of Brazil, Russia, India and China combined. The figures for Swiss foreign direct investment are impressive as well. With a net inward investment stock of 37.8 billion, Switzerland is the third largest non-eu foreign and seventh largest overall foreign direct investor in the UK. Swiss companies provide close to 93,000 jobs in the UK. The two countries also enjoy a long history of shared scientific and engineering research. Swiss and British universities tend to dominate the European league tables and the two countries often vie for the top international rankings on innovation and competitiveness. It is well known that Swiss transport and tourism owe a significant debt to early British visitors a legacy that lives on: British tourists still account for the third-largest group of foreign visitors to Switzerland, and there are currently 150 daily flights between Switzerland and the UK. With the UK forging its new position outside the European Union, there are more parallels than ever between the two countries, as well as new opportunities for trade and co-operation. But there are also serious challenges to address. A large part of UK-Swiss relations from trade to research has until now been managed by Switzerland s bilateral agreements with the EU. It is our responsibility to ensure that as the UK leaves the European Union, there are no legal gaps in our bilateral relationship. We have to ensure a smooth continuation of the vivid exchange between the UK and Switzerland, and indeed to strengthen these ties and take advantage of the shared opportunities that lie ahead. Ambassador Alexandre Fasel 3

TRADE IN GOODS Switzerland and the UK are longstanding and important trade partners and their economies are closely intertwined. In the 19th century, the significantly advanced British economy strongly stimulated industrialisation in Switzerland. By exporting manufactured products (mostly textiles), it put Swiss enterprises under pressure and prompted them to innovate. Swiss products presented at the Great Exhibition of 1851 in London impressed with their high quality (embroidery, silk, machines and timepieces). In 1855, a treaty of amity, commerce and establishment was signed between the two countries, reflecting their growing trade relations and further stimulating them. Nowadays various agreements facilitate the trade in goods and services between the two countries, mainly through the agreements between Switzerland and the EU. The 1972 Free Trade Agreement between Switzerland and the EU abolishes tariffs and quotas on industrial products. The Mutual Recognition Agreement assures the recognition of conformity ratings for most industrial products. The Public Procurement Agreement extends the scope of the WTO agreement to regions and municipalities and the sectors of energy, water supply and transport. The Agricultural Products Agreement reduces tariffs and quotas as well as non-tariff trade barriers for specific product segments (e.g. Stilton and dried meats). Sales of gold have significant potential to impact trade statistics. This is particularly relevant when it comes to Swiss-UK trade. While the London Bullion Market accounts for more than 80% of the global gold trade, Swiss gold refineries account for 65-70% of annual worldwide gold refinery output. In the final three months of 2016, UK goods exports to Switzerland increased by 282% to their highest level ever. During the previous quarter these movements flowed in the exact opposite direction as the UK became a net importer of gold.1 1 SOURCE: GAVIN JACKSON (24 FEBRUARY 2017), GOLD FINGERED FOR DISTORTING BREXIT BRITAIN S TRADE BALANCE, FINANCIAL TIMES KEY FIGURES 9.2 bn worth of UK goods exports to Switzerland 10th largest export market globally for the UK 3rd largest non-eu export market for the UK THIS MEANS Switzerland as an export market for UK goods is larger than Australia and Canada combined. It is 82% larger than Japan, more than twice the size of South Korea, and twice as large as Australia and New Zealand combined. It is even significantly higher than India, South Africa, Nigeria and New Zealand combined. 4

UK Exports - Top Ten Goods Trading Partners (% of Total UK Exports) 1. USA 2. Germany 3. France 4. Netherlands 5. Republic of Ireland 6. China 7. Belgium & Luxembourg 8. Italy 9. Spain 10. Switzerland 2016 SOURCE: OFFICE FOR NATIONAL STATISTICS, UK TRADE: JULY 2017 43 Germany 36 USA 32 UK 27 China 18 Hong Kong Swiss Export Markets 2016 (in billion CHF) including precious metals, precious stones, art, antiquities 40 Germany 31 USA 14 France 13 Italy 11 UK Swiss Export Markets 2016 (in billion CHF) excluding precious metals, precious stones, art, antiquities SOURCE: SWISS CUSTOMS STATISTICS 5 FDFA, PRESENCE SWITZERLAND

TRADE IN SERVICES In Switzerland, the services sector accounts for over 70% of gross value added and for 80% of all newly created jobs. Financial services (banking and insurance) represent the most important services industry, followed by wholesale and retail trading activities. Thanks to its position as an international financial and insurance centre with a large nonresident client base, Switzerland is a large exporter of services. In 2016, Switzerland recorded total exports of services in the amount of CHF 112.64 billion ( 88.34 billion) and a positive trade balance in services of CHF 18.86 billion ( 14.79 billion).2 Switzerland is an open market for services, hence it imports significant amounts of services from abroad. In 2016 Switzerland s imported services totalled CHF 93.78 billion ( 73.55 billion), of which more than one seventh was imported from the UK alone. Switzerland is the UK s fifth most important market for services globally. The most important sectors of service imports from the UK in 2016 were consulting services, followed by telecommunication services, financial services and licence fees. The most important sectors of Swiss service exports to the UK, on the other hand, were financial services, followed by telecommunication services, consulting services and insurance services. Switzerland s export volume in services to the UK amounted to 3.85 billion. The UK is one of the few countries with which Switzerland has a large trade deficit in services. 2 SOURCES: SWISS CUSTOMS STATISTICS, SWISS NATIONAL BANK, SWISS FEDERAL STATISTICAL OFFICE AND STATE SECRETARIAT FOR ECONOMIC AFFAIRS KEY FIGURES 11.6 bn worth of UK services exports to Switzerland in 2015 That is almost as much as to all of the BRICS combined (around 12 bn). 5th largest services export market for the UK Switzerland as an export market for UK services is larger than all services exports to Australia, Canada, India and New Zealand combined. It is more than twice as large as Australia or Canada and three times as large as India. Both Switzerland and the UK host world-class financial centres. After London, Zurich and Geneva rank as second and fifth in the 2017 Global Financial Centres Index in Europe. Switzerland as an origin market for UK imports is equally important (eleventh overall, representing 2.3% of all imports). Switzerland is the global leader in wealth management for foreign clients, managing 24% of the world s cross-border wealth. There are 261 banks in Switzerland which differ in terms of size, business model, ownership structure and regional focus. Several of these have sizeable presences in the UK. A total of ten British banks are present in Switzerland, holding 18.5% of the aggregated balance sheet of all foreign banks in Switzerland. Switzerland has a dynamic fintech system which significantly enhances the quality and competitiveness of the Swiss financial centre. The Swiss government has eased regulations to reduce barriers to market entry for fintech firms. London and Switzerland (mainly Geneva and Zug) are the two major European commodity trading hubs. 6

SWITZERLAND AS A COMMODITY TRADING HUB3 550 companies with activities directly related to commodity trading and shipping 13,000 direct employees and a further 20,000 jobs generated indirectly 33% of world trade in crude oil and products 22% of global movement of commodities 1st worldwide in grains and oil seeds trading 1st worldwide in the finance of commodity trading 1st worldwide in inspection and certification 1st in Europe in sugar trading 1st (tied with London) in cotton trading 3 SOURCE: SWISS TRADING & SHIPPING ASSOCIATION 7 G. PETREMAND

INVESTMENT AND JOB CREATION The lively trade in goods and services between the UK and Switzerland is accompanied by the fact that Switzerland is a notable job creator in high-valueadded industries in the UK. Switzerland, in turn, represents a valuable investment opportunity for the UK, especially in the Life Sciences, IT and Precision Engineering sectors. This is borne out by a 2015 survey of UK companies in Switzerland commissioned by the Swiss Business Hub UK & Ireland. Given its high concentration of companies, laboratories, R&D centres and world-class research universities, Switzerland is considered the best Life Sciences ecosystem in Europe by UK companies. Likewise, the availability of highly qualified IT specialists and world class engineering, along with the high concentration of multinational corporate headquarters, make Switzerland attractive to UK investors. While high costs are cited regularly as a barrier to enabling growth for companies, all respondents agreed that the benefits of operating in Switzerland in knowledge-intensive activities are worth the cost burden. KEY FIGURES 37.8bn Swiss net inward FDI stock. That is 27 billion more than from Australia 3rd largest non-eu and 7th largest overall foreign direct investor in the UK (ahead of Canada, Australia, India, China) 93,000 jobs provided by Swiss companies in the UK4 4 SOURCE: SWISS NATIONAL BANK 252 140 75 66 51 41 38 USA Netherlands Luxembourg France Germany Japan Switzerland FDI positions in the UK 2015 (in billion GBP) SOURCE: OFFICE FOR NATIONAL STATISTICS, FOREIGN DIRECT INVESTMENT, 2015 8 FDFA, PRESENCE SWITZERLAND

SCIENCE AND INNOVATION Switzerland is a major European Life Sciences hub and therefore a crucial partner of the UK, Europe s leading cluster. As a small country, Switzerland s absolute number of Life Science companies (over 250 in biotech alone and many more in medtech and related fields) may not seem remarkable at first glance, but in terms of quality and ability to raise finance, Swiss biotech is a major force in Europe: in 2014, Swiss publicly listed Life Science companies accounted for approximately 40% of the Life Sciences market capitalisation across Europe s major stock exchanges.5 The Swiss biotech sector is going strong: public and private companies raised almost CHF 823 million in 2016. There were three Swiss biotech IPOs including Europe s largest biotech IPO of 2016 by AC Immune. Deals and acquisitions between British and Swiss biotech companies (e.g. CellMedica UK s acquisition of Delenex Therapeutics or Heptares buying up Swiss G7 Therapeutics) illustrate the close interactions between the two countries in the Life Sciences.6 5 SOURCE: SWISS BIOTECH REPORT 2015 6 SOURCE: SWISS BIOTECH REPORT 2017 KEY FIGURES The UK and Switzerland host the only three global 'top ten'- ranked universities in Europe. The top fifteen universities in Europe according to the Leiden ranking by cited papers are all either British or Swiss. The impact of Swiss and British science publications puts the two countries in the top four worldwide (17 and 16 points above average impact respectively). In 2016, the UK and Switzerland were the second and third most popular location for holders of advanced ERC grants. Swiss universities rank seventh in number of European research projects coordinated under Horizon 2020. Switzerland consistently tops the Global Innovation Index, often closely followed by the UK, demonstrating that innovation is the driver for both knowledge economies. The UK is Switzerland s fifth strongest collaboration partner after the US and the neighbouring countries. The UK is Switzerland s third most important partner, after the US and neighbouring Germany, in strategically important sectors like the Life Sciences. 9 FDFA, PRESENCE SWITZERLAND

TRANSPORT AND TOURISM The development of Swiss tourism owes a great deal to Switzerland s early British visitors; Swiss tourism really began in 1858 when the British entrepreneur Thomas Cook organised the first package holiday through Europe. From around this time, the Alps were conquered by mainly British visitors who founded the Swiss Alpine Club. The Swiss mountains have held a special fascination for the British ever since. This exploration paved the way for tourism in Switzerland and at the same time provided an incentive for the construction of the railway network in Switzerland, with heavy involvement from British engineers. As a consequence, Swiss trains run on the left as they do in the UK. 150 daily flights between Switzerland and the UK Citizens of the UK can visit Switzerland visa-free, and vice versa. They still account for the 3 rd largest group of foreign visitors to Switzerland today Visitors from Switzerland spend 1.3 million nights in British hotels and guest houses each year FDFA, PRESENCE SWITZERLAND SWITZERLAND TOURISM - IVO SCHOLZ 10

IMPRINT PUBLISHED BY Embassy of Switzerland in the United Kingdom 16-18 Montagu Place, London W1H 2BQ ABOUT CONTENT AND SOURCES Please consult the references within the report DESIGN AND LAYOUT Federal Department of Foreign Affairs, Presence Switzerland PHOTOGRAPHS Please refer to the credits beside the photographs PRINTING Jost-Druck AG, Hünibach October 2017, FDFA. All rights reserved. 11