TCS Daily


Swiss Missed Opportunity

By Pierre Bessard - April 11, 2006 12:00 AM

Switzerland and the United States have long enjoyed mutual goodwill. A newly established Swiss-U.S. Trade and Investment Cooperation Forum should now strengthen those ties: The platform was recently set up by Swiss Economy Minister Joseph Deiss and U.S. Trade Representative Rob Portman following less than successful exploratory talks for a comprehensive free-trade agreement between the two countries.

The missed prospect -- at least for now -- of a more far-reaching agreement is cause for disappointment on both sides, and for good reason. With direct foreign investment amounting to more than $35 billion, Switzerland ranks among the top seven investors in the United States. Swiss corporations provide jobs for approximately 300,000 Americans throughout the U.S., and more than 500 U.S. companies have an established presence in Switzerland. The U.S. is also the most important exporter to Switzerland outside of Europe and, after Germany, the second most important worldwide.

More significantly, the potential for an increase in trade and investment remains substantial. A recent study by the Institute for International Economics found that a comprehensive agreement between Switzerland and the U.S. could boost bilateral trade by anywhere from 20 percent to as much as 100 percent. Although manufactured goods face for the most part low or zero tariffs, high barriers still apply in areas such as watches, precision instruments, or specialty chemicals, thereby penalizing producers and consumers in both countries. In the service sectors, non-discriminatory treatment for investors and mutual recognition of diplomas would help expand business opportunities. A free-trade agreement would enhance choice and lower prices for both household consumers and industrial users. According to the IIE study, the annual GDP gains to each partner could exceed $1 billion.

So what's preventing Switzerland and the U.S. from going ahead with the plan? The main party-pooper is agriculture. Switzerland protects its farmers more than any other country, so much so that a fast-track agreement was unacceptable to Washington. Swiss taxpayers spend $3 billion a year on farming, and the costs of other protectionist measures double that amount. The country's manicured fields and coquetted cows have become a major hindrance in trade liberalization efforts. They may attract tourists, but neighboring Austria has fewer cows, more forest and just as many tourists. Earlier this year in Davos, Daniel Vasella, the CEO of the Swiss pharmaceutical giant Novartis, suggested that farmers should be generously retired to clear the way for other sectors in trade negotiations: The World Trade Organization's "reciprocal", i.e., mercantilist approach to liberalization is increasingly embarrassing the Swiss government, which promotes free trade in all other areas. While farming makes up only 1.2 percent of the Swiss economy, farmer influence also appears ever more disproportionate to Swiss consumers and industry as the opportunity costs are becoming more obvious.

Still, the chances of significant progress in the near future are slim. The Swiss government insists on the "multifunctionality" of agriculture, an excuse for keeping tiny, unproductive, heavily subsidized farms producing everything from sugar to low-quality tobacco in absurdly small quantities. Switzerland ranks among the largest importers of agricultural products, and Swiss consumers would hugely benefit from serious liberalization in the farm sector. But for the time being, the Swiss-U.S. Trade and Investment Cooperation Forum will have to do. Although less ambitious than a full agreement, it could still open new opportunities.

Switzerland is already a favored headquarters destination for American businesses with operations in Europe, Africa, and the Middle East. The Forum could improve the investment environment in both countries, such as allowing easier access to expatriate employees. At the same time, it might promote better mutual understanding when specific issues emerge. Swiss banking privacy rules, for example, are regularly questioned by the U.S. government, keen as it is on taxing its citizens wherever they are located. Swiss law does not recognize tax avoidance as a crime, and it might become a concern again after the next U.S. elections: It's hardly news that governments everywhere are often more interested in maximizing their own revenues to buy electoral support than promoting economic well-being.

There is hope that the new Forum could go beyond commerce and help subdue disagreements. It could allow both countries to defend common interests in Europe and elsewhere. Switzerland currently serves as the protecting power for U.S. interests in Cuba and Iran, for example. As a European Union non-member, Switzerland is not entangled in Brussels's power shows or in its ongoing attempts to save the "European social model", which is keeping 20 million people out of work. The EU won't let go of its "common consolidated corporate tax base" project, either, a euphemism for its planned cartel in corporate taxation. Besides, Switzerland applies lower tariffs toward the outside world and is a founding member of the European Free Trade Association. It enjoys comprehensive free-trade agreements not only with the EU but also with Eastern European and Northern African countries, Turkey, Israel, Jordan, Lebanon, South Africa, Singapore, South Korea, Chile, Mexico, and many other places.

Switzerland and the United States don't start from scratch politically, either. They have been called "sister republics" ever since the Swiss politician and businessman Johann Valltravers wrote his American counterpart Benjamin Franklin in April 1776 over the proposed Declaration of Independence: The American colonies' revolt against the British crown was reminiscent of the Swiss struggle against the Habsburgs' tax policies 500 years earlier. As a result, the 1781 U.S. Articles of Confederation were based on the Swiss confederate model of 13 sovereign states. Later, the U.S. Constitution of 1787 served as the model for the Swiss Constitution of 1848. Despite obvious differences, both countries share similar institutions and traditions that distinguish them from the average European country, where government was -- and often still is -- seen as an omnipotent ruler rather than a servant.

Two centuries later, it looks as if the Swiss-U.S. relationship could grow a lot more to mutual benefit if only both governments would get rid of the last remaining fences.

Pierre Bessard is political editor of L'Agefi (www.agefi.com), the Swiss financial daily newspaper, and a founder of the Institut Constant de Rebecque (www.institutconstant.org), the Lake Geneva region's free-market think tank.

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3 Comments

Swiss Protectors
Three further missed opportunities in the article:

1) Swiss farmers obtain 70% of their income from subsidies.

2) Swiss consumers have the poorest choice in fruit and vegetables in Europe and the highest prices to protect Swiss produce.

3) The right wing SVP is behind farm protectionism, despite its false claims to liberal policies.

Farm subsidies are a taboo area in Switzerland, with no free discusion in the press at all.

Josep C. Verg├ęs
verges@valles.com

1.2%!
Apart from the fact that protectionism hurts the protected nation more than the foreign I cannot believe that US food exports to Switzerland or Toblerone exports the other way are sufficiently important (at 1.2% of the economy) to get in the way.

food
Not having been privy to the talks, I can only speculate.

But I do know that farmers in this country have an oversized influence on policy makers. I don't have a lot of trouble believing that farm state politicians have declared a carte blanc policy. No farm trade, no trade.

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