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PRESS RELEASE
PRESS/TPRB/31
22 May 1996Economic
reform in Switzerland spurred on by Uruguay Round results and stronger european
competition Back to top
Since 1993, Switzerland has acted on various policy
fronts - specified in the context of a "revitalization programme" and its recent
implementation of the Uruguay Round agreements - to enhance competition, shed internal
barriers to factor mobility and trade, and reformulate policies in such protected areas as
agriculture and services. According to a WTO Secretariat report on Switzerland's trade
policies and practices, the "revitalization programme" was motivated mainly by
the perceived need, after Swiss voters' rejected the European Economic Area (EEA), to keep
pace with European regulatory developments. Reforms are being implemented at a time of
sluggish growth and relatively high and persistent unemployment, with strong currency
appreciation exacerbating structural tensions in the Swiss economy. While finance and
innovative manufacturing industries, including pharmaceuticals and advanced electronics,
are performing well, many traditional industries and tourism are experiencing strong
adjustment pressures.
According to the Secretariat's report, Switzerland's
economic momentum has suffered from a legacy of weak anti-cartel legislation, tight
national standards, certain investment restrictions, and a lack of internal market
integration. Reflecting both "private" or "informal" access barriers
and high levels of farm protection, retail prices for many goods and services compare
unfavourably with neighbouring countries. In turn, a sheltered domestic sector, including
many infrastructural services, has hindered the economy's overall performance and
compromised the benefits of a generally liberal trade régime for manufactures.
(Switzerland does not use quantitative restrictions, anti-dumping, countervailing or
safeguard measures.)
Recent reform efforts have not spared agriculture,
which has traditionally been subject to highly interventionist policies for production,
income and environmental objectives. As a first step in 1992, the Government announced a
gradual shift in farm support from price intervention towards direct payments. The report
states that the new policy gained momentum in the wake of the Uruguay Round and is to be
strengthened through the "Agricultural Policy 2002" initiative, released for
political consultation in October 1995. The initiative seeks to abolish exclusive
marketing channels, guaranteed producer prices and production quotas, and to condition
public support on ecological criteria. With a view to promoting production, however, the
authorities have earmarked sectors such as cereals, potatoes, sugar and oilseeds for high
continued levels of assistance.
Among services sectors, the report considers air
transport as particularly affected by Switzerland's non-participation in the EEA. Without
EEA carrier status, Swissair cannot gain cabotage rights and remains restricted in its
route strategies in the larger European market. Swissair's economic problems contrast with
the performance of banking and insurance, where employment grew by over 10 per cent
between 1989 and 1994. According to the report, Swiss-based banks rely on international
markets for about a third of their assets and liabilities. Given the concentration of
their foreign activities on investment banking and portfolio management, rather than on
relatively unprofitable retail banking, non-participation in the EEA has not seriously
affected their market position in the European Union. Under the General Agreement on Trade
in Services (GATS), Switzerland has bound commercial presence, consumption abroad and
cross-border supply for a full range of banking and investment services, but has not
included cross-border supply of insurance.
Parts of the telecommunications services market have
been opened since the late 1980s and liberalization of all services, including voice
telephony, and of the basic network is scheduled for 1998. While PTT Telecom will be
required to operate under commercial conditions, the report notes that it is currently
aiming for strategic acquisitions to develop its market position. Cross-subsidization is
prohibited between open and monopoly activities but, according to the report, may prove
difficult to prevent in practice.
Although legislation in many trade-related areas has
been aligned with international, in particular EU rules and principles, the report
identifies regulatory problems preventing full market integration. A case in point are
attempts by Swiss importers to invoke intellectual property provisions with a view to
shielding exclusive arrangements from "unauthorized" supplies. It is now for
Switzerland's Federal Court to clarify the scope of trademark legislation in these
instances. While the Government is prepared, in principle, to conclude reciprocal
agreements with trading partners to remove intellectual property-related barriers,
autonomous legislative changes are apparently not envisaged. According to the Secretariat
report, market segmentation may be compounded by sales boycotts of foreign-based dealers
vis-à-vis Swiss residents.See footnote 1
The WTO Secretariat concludes that the Uruguay Round
implementation programme, complemented by intensified competition within Europe, will help
to advance economic liberalization and deregulation. Building on the Uruguay Round
results, Switzerland supports an ambitious work programme for the WTO, including further
negotiations in areas such as trade-related aspects of intellectual property rights, the
trade effects of industrial, environmental and social policies and competition rules.
While this programme may, to some extent, be inspired by Switzerland's non-participation
in the EEA, it also reflects the genuine concern of a medium-sized trading nation, with
advantages in services and modern manufacturing, to develop policies and conduct its trade
in a transparent, non-confrontational multilateral setting.
Notes to Editors:
The WTO Secretariat's report, together with a
report prepared by Switzerland, will be discussed by the WTO Trade Policy Review Body
(TPRB) on 28 and 29 May 1996. The WTO's TPRB conducts a collective evaluation of the full
range of trade policies and practices of each WTO member at regular periodic intervals and
monitors significant trends and developments which may have an impact on the global
trading system.
Two reports, together with a report of the TPRB's
discussion and of the Chairman's summing up, will be published in due course as the
complete Trade Policy Review of Switzerland and will be available from the WTO
Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover development of all aspects of
Switzerland's trade policies, including domestic laws and regulations, the institutional
framework, trade policies by measure and by sector. Since the WTO came into force, the
"new areas" of services trade and trade-related aspects of intellectual property
rights are also covered. Attached are the summary observations from the Secretariat and
government reports. Full reports will be available for journalists from the WTO
Secretariat on request.
Since December 1989, the following reports have been
completed: Argentina (1992), Australia (1989
& 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon
(1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990), Costa Rica (1995),
Côte d'Ivoire (1995), Czech Republic (1996), Dominican Republic (1996), Egypt (1992), the
European Communities (1991, 1993 & 1995), Finland (1992), Ghana (1992), Hong Kong
(1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and
1994), Israel (1994), Japan (1990, 1992 and 1995), Kenya (1993), Korea, Rep. of (1992),
Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 & 1996),
New Zealand (1990), Nigeria (1991), Norway (1991), Pakistan (1995), Peru (1994), the
Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992),
Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994),
Switzerland (1991), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United
States (1989, 1992 & 1994), Uganda (1995), Uruguay (1992), Venezuela (1996) and
Zimbabwe (1994).
The
Secretariats report: summary Back to top
TRADE POLICY REVIEW BODY:
SWITZERLAND
Report by the Secretariat Summary Observations
The Economic Environment
Since the initial Trade
Policy Review of Switzerland in 1991, the economy has undergone a severe recession,
putting an abrupt end to eight years of continuous economic growth. While expansion
resumed in 1993 and 1994, the economy was stagnant in 1995, and zero growth is expected in
1996. Unemployment has risen to over 4 per cent, unprecedented in recent decades, and
shows few signs of declining.
Strong currency
appreciation, at some 11 per cent in real terms between 1993 and 1995, has slowed the
recovery process and exacerbated structural tensions in the Swiss economy. While finance
and innovative manufacturing industries such as some chemicals and advanced electronics
have performed well, traditional manufacturing sectors and tourism have shrunk. The
expanding share of services in production and employment reflects a trend, across and
within branches, to focus on headquarters and related functions and relocate many
manufacturing activities abroad.
Merchandise exports remain
concentrated in a few sectors, particularly machinery, instruments, watches, chemicals and
medicinal products. Exports of commercial services amounted to some US$20 billion in 1994,
one quarter originating in the financial sector. With recession, Switzerland's trade
balance swung into surplus, although merchandise exports grew slowly, at 4 per cent in
real terms between 1993 and 1995.
International Economic Integration
The Swiss economy is highly
internationally integrated, capitalizing on an open trade régime for industrial products.
Tariffs on manufactures are generally low, and there are no quantitative restrictions,
anti-dumping, countervailing or safeguard actions.
Preferential suppliers, in
particular the European Union and central and eastern European countries, have recently
gained ground in the import market. Trade under the 1972 free-trade agreement with the EU
currently represents some four fifths of merchandise imports and two thirds of exports.
Within EFTA, Switzerland has since 1991 concluded twelve preferential agreements with
central and eastern European and Mediterranean countries to ensure access conditions
similar to those available to the European Union.
Despite liberal access
conditions, Switzerland remains a high-price country. Many retail prices compare
unfavourably with neighbouring markets, reflecting strong farm protection and weak
internal competition for a range of goods and services. Market entry has long suffered
from "private" or "informal" barriers which can be attributed to a
legacy of weak anti-cartel legislation, specific and protective technical regulations,
certain investment restrictions, and exclusivity rights under intellectual property
legislation.
Trade Policy Trends
Since the early 1990s,
Switzerland's trade policy environment has changed rapidly. The process of European
integration has intensified, and the Uruguay Round has offered major opportunities for
further multilateral liberalization. The rejection of the European Economic Area (EEA) by
referendum in 1992 increased the importance of the Uruguay Round, prompted a
reconsideration of the country's European links, and inspired an autonomous programme of
economic reform (the "revitalization programme").
Participation in the EEA
would have resulted in Switzerland's immediate adoption of EU legislation on services,
technical regulations, government procurement and competition. This would have helped to
harmonize standards and eliminate cartel-related access barriers and, in addition, ensured
free circulation of EEA-originating goods, services and persons between Switzerland and
other members. Questions of bilateral market integration, extending to areas such as
technical regulations, ground and air transport and movement of persons, have since been
addressed in negotiations with the EU. They are considered to form a single package and
had not been concluded at the time of this report.
The revitalization
programme, adopted in 1993, aims to remove distortions in the incentive system, eliminate
regulatory barriers to trade, improve internal factor mobility and inject more competition
in previously protected markets. The main elements are:
- a thorough overhaul of
competition policy which, under a new Competition Law from mid-1996, is to gain
significantly in strength and coverage;
- removal of
standards-related barriers and harmonization of domestic with international requirements
under the 1995 Law on Technical Barriers to Trade;
- further integration of
domestic product and factor markets under the new Law on the Internal Market, which
entitles Swiss residents and Swiss-based companies to offer goods, services and their
labour in any canton or commune;
- improved access to public
procurement markets following the adoption of the Federal Law on Government Procurement
and the ratification of an Intercantonal Concordat, based on the provisions of the WTO
Agreement on Government Procurement; and
- the introduction of
value-added tax, which has removed an implicit premium on vertical business integration
and a bias against exports.
Further measures building on
the revitalization programme and aimed at eliminating, curtailing or streamlining
monopolies are planned in areas such as agricultural marketing, telecommunications and
postal services, electricity and railways.
While these reforms should,
in time, remove many traditional obstacles to factor mobility and trade, other
restrictions remain, including limitations on foreign access to Swiss land and labour
markets. Such limitations, originally designed to protect employment or the country's
identity, continue to undermine the resilience of factor markets and inhibit the economy's
flexibility to adjust.
In the absence of a ruling
by the Federal Court, it is not clear whether Switzerland's trademark legislation, revised
in 1992, can be used to exclude parallel imports. While the Federal Council has indicated
the possibility of concluding reciprocal agreements with trading partners to remove
intellectual property-related trade barriers, autonomous changes to achieve the same end
are apparently not envisaged. Market segmentation may be compounded by private trade
restrictions designed to underpin high import prices. Some evidence of this has recently
emerged from a prohibition by an EU-based car manufacturer on its dealers in Italy to sell
to Swiss residents, following the removal of regulatory import barriers by Switzerland.
Swiss competition law provides little scope for remedial action in such cases, and no
effective international mechanism for redress exists.
Sectoral Policy Developments
Agriculture and food processing
Switzerland has long
operated a variety of highly interventionist agricultural policy schemes with production,
income and environmental objectives. However, since the early 1990s pressures for reform
have grown as negotiating requirements in the Uruguay Round coincided with internal
economic and ecological constraints.
As a first step, in 1992,
the Government announced a gradual shift in farm support from price intervention towards
direct payments. The new policy gained momentum through the Uruguay Round implementing
legislation and is to be strengthened through the "Agricultural Policy 2002"
initiative, released for political consultation in October 1995. This seeks to abolish
exclusive marketing channels, guaranteed producer prices and production quotas, and to
condition State support on ecological criteria. However, the authorities see a continuing
need to promote production in sectors such as cereals, potatoes, sugar and oilseeds with
high levels of assistance. Recent estimates suggest that full income compensation for
WTO-related reforms (including tariffication) could lead to an increase in federal outlays
of between 17 and 24 per cent over their 1993 level.
The conversion of non-tariff
import restrictions into tariffs has increased transparency, but is unlikely to translate
into brisk expansion of trade. The average ad valorem equivalent of Switzerland's farm
tariffs, capturing both in-quota and out-of-quota supplies, was estimated at over 80 per
cent in 1995. Import entitlements under tariff quotas are awarded under various
mechanisms, including the traders' past imports, an auction procedure, a
first-come-first-served approach, and pro rata allocation. Under the "prise en
charge" system, quota access is contingent on the purchase of domestic output.
Manufacturing
The chemical sector has been
the strongest performer in recent years, relying mainly on pharmaceuticals, with real
growth of over one third between 1990 and 1994. Swiss firms have also shown strength in
specialized areas such as precision engineering, clocks and watches, contrasting with
strong adjustment pressures in heavy engineering, clothing and electrical equipment. These
trends, although accentuated by currency appreciation, reflect moves in comparative
advantage towards education- and skills-related production and away from traditional
capital-intensive activities. As in the past, structural change in Switzerland is
essentially market-driven, without significant policy intervention.
Current efforts to establish
pan-European rules of origin, covering the EEA, Switzerland and central and eastern
European countries, may facilitate greater outsourcing and ease pressures on clothing and
other "sensitive" industries.
Services
Air transport is among the
industries mostly affected by Switzerland's non-participation in the EEA. Without EEA
carrier status, Swissair cannot gain cabotage rights and remains restricted in its route
strategies in the larger European market. In turn, higher travel costs and fewer
connections than among EEA members have an adverse impact on the sector.
Profitability problems in
aviation contrast with the performance of banking and insurance, where employment grew by
over 10 per cent between 1989 and 1994. Swiss-based banks rely on international markets
for about a third of their assets and liabilities. Given the concentration of their
foreign activities on investment banking and portfolio management, rather than on
relatively unprofitable retail banking, non-participation in the EEA has not seriously
affected their market position in the EU. Under the General Agreement on Trade in
Services, Switzerland has bound commercial presence, consumption abroad and cross-border
supply for a full range of banking and investment services, but has not bound cross-border
supply of insurance.
Parts of the Swiss
telecommunications services market have been opened since the late 1980s; and
liberalization of all services, including voice telephony and the basic network, is
scheduled for 1998. Mainly for constitutional reasons, the Confederation is to retain a
majority share in PTT Telecom which, however, is required to operate under commercial
conditions. In anticipation of the new environment, PTT is currently seeking to develop or
expand strategic positions through acquisitions. Cross-subsidization is prohibited between
open and monopoly activities, but this may prove difficult to prevent.
Trade Policies and Foreign Trading Partners
Switzerland's support for
the multilateral trading system is rooted in its tradition of independence. Thus, although
the greatest part of its merchandise trade is with one preferential partner, the European
Union, the country has played a significant, autonomous rôle in the WTO and the
development of the Uruguay Round Agreements. Swiss trade policies have not given rise to
GATT/WTO dispute settlement cases for many years, and Switzerland's WTO implementing
legislation was not challenged domestically by referendum, despite its impact on
agriculture and the lack of immediate employment alternatives in a faltering economy.
The Uruguay Round
implementation programme, complemented by intensified competition within Europe, will help
to advance economic liberalization and deregulation. Building on the Uruguay Round
results, Switzerland supports an ambitious work programme for the WTO, including further
negotiations in areas such as trade-related aspects of intellectual property rights; the
trade effects of industrial, environmental and social policies; and competition rules.
While this programme may, to some extent, be inspired by Switzerland's non-participation
in the EEA, it also reflects the genuine concern of a medium-sized trading nation, with
advantages in services and modern manufacturing, to develop policies and conduct its trade
in a transparent, non-confrontational multilateral setting. Back to top
Footnote:
1 For example, a German car manufacturer was reported recently to have prohibited its
Italian dealers from selling to both Swiss and Austrian residents who sought to benefit
from lower sales prices in Italy. While the European Commission has launched an
investigation into the sales ban involving Austria, covered by EC competition law, no such
initiative appears possible in the case of Switzerland. In contrast, while Swiss
competition law extends in principle to all practices affecting domestic markets,
regardless of the place of implementation, enforcement could pose problems. Effective
international mechanisms for redress do not exist. |
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