Switzerland and WT/TPR/S/77
Liechtenstein Page 15
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
(1) INSTITUTIONAL FRAMEWORK
1. Under the 1999 Federal Constitution, which has replaced that of 1874, Switzerland is a
Confederation of 26 cantons.  With the exception of constitutionally specified areas, such as economic
(including commercial), civil, penal, and international affairs, which are under the exclusive
competence of the federal authority1, each canton has large autonomy.  Each canton has its own
constitution;  it is sovereign in areas and in the exercise of rights not constitutionally limited and
delegated to the Confederation.2  The status of the 3,000 Swiss communes is defined by the
26 cantonal legislations;  some of the legislation concedes large autonomy to communes.
2. The Federal Assembly (a bicameral legislature) consists of:  the National Council, with
200 members elected directly for four years (renewable) by popular vote and proportionalrepresentation;  and the Council of States, comprising councillors elected at the cantonal level.
3  The
National Council and the Council of States have the same powers;  they deliberate separately.  To be
adopted, any decision of the Federal Assembly must be accepted both by the National Council and the
Council of States.4  Executive authority is vested in the seven-member Federal Council (the top
governing and executive body) and the Federal Chancellery5;  the members of the Federal Council
(each of the federal councillors is the head of a federal department) and the Federal Chancellor are
elected by the Federal Assembly after every general election of the National Council.  The President
and Vice-President of the Confederation are elected from among the federal councillors.  The Federal
Assembly also elects the judges of the Supreme Court, which comprises the Federal Court and the
Insurance Court.6
3. People's initiatives and referendums are salient features of direct democracy in Switzerland.
Indeed, the entry into force of any amendments  to the Constitution and membership in some
international organizations are subject to a compulsory referendum;  a double majority (a popular
majority and a majority of the cantons) is required for their adoption.7  Citizens seeking a vote on a
total review or an amendment they wish to make to  the Constitution must collect the signatures of at
least 100,000 voters within 18 months;  in the case of federal laws and state treaties subject to optional
referendums, the number of signatures (to be collected within 100 days of publication of thelegislation) is 50,000 (or request from eight cantons).
4. Under the 1921 Constitution as amended up to 1996, the Principality of Liechtenstein is a
constitutional, hereditary monarchy (in the male line) on a democratic and parliamentary basis.  The
reigning Prince is the Head of State;  he represents the State in all its relations with foreign countries
and signs all laws passed by the Parliament (Landtag).  The Parliament comprises 25 members electedby universal adult suffrage (under proportional representation) for a term of four years, renewable.
                                                     
1 The exceptions include regulations on building products and pharmaceuticals, for which the
competence is still shared between the federal and the cantonal governments.
2 The Federal Constitution, Article 3.
3 There are two state councillors per canton and one per half-canton.  More precisely, Switzerland has
23 cantons, of which three are subdivided into half-cantons.
4 The Federal Constitution, Article 156.
5 Swiss Federal Chancellery (1999).  The Federal Chancellery assists and advises the Federal Council,
and coordinates inter-departmental affairs (Loi sur l'organisation du gouvernement et de l'administration,
Articles 32-33).
6 The Federal Court is the final instance;  it is responsible for all judicial areas.  The Federal Insurance
Court is an independent branch of the Federal Court;  it is responsible for social insurance cases.  See SwissFederal Chancellery (1999) for more detail.
7 A majority of the votes cast is sufficient for the adoption of all other matters through a referendum.WT/TPR/S/77 Trade Policy Review
Page 16
The Speaker and Deputy-Speaker are elected from among the members in the opening sitting for the
current year.  Participation in elections and referendums is compulsory.  The members of the
Government (i.e. the Head of Government and four Government Councillors) are elected by the
Parliament (subject to approval by the Prince) for a period of four years, renewable.
5. The judicial system comprises:  the Civil Cour t, the Criminal Court, and the Administrative
Court.  All courts provide several instances up to the State Court.  Single judges are generallynominated by the Prince on the recommendation of the Parliament.  Judges of the collegial courts (e.g.
second and third instances of the Civil Court, the Criminal Court) and the members of the
Administrative Court are elected by the Parlia ment.  The elections of the President of the
Administrative Court, and of the President and Vice-President of the State Court are subject to
approval by the Prince.  Citizens of over 18 years (i.e.  the age for voting and eligibility for election)can bring a parliamentary resolution to public vote by means of a referendum:  the minimum number
of signatures of eligible citizens required is 1,000 (or request from three of the eleven communes of
the Principality) in the case of legal and financial resolutions;  and 1,500 (or request from four
communes) in the case of constitutional amendments.  The possibility of such an initiative may be
excluded by the Parliament if it deems the situation urgent (e.g. public budget bill).
(2) P
OLICY FORMULATION AND IMPLEMENTATION
6. In both Switzerland and Liechtenstein, the right of initiative with regard to any issue pertains
to all citizens eligible to vote.  Each department of the Governments (the Federal Council in
Switzerland) formulates policies in its field of activities and drafts the related bills after consultation
with the interested groups (those likely to be affe cted by the proposed legislation), including cantons
in the case of Switzerland, private associations (e.g . chambers of commerce, industry, agriculture, the
Swiss Business Federation, labour unions) and communes (in the case of Liechtenstein).
7. In Switzerland, after examination by the relevant committee of one of the two Councils, draft
legislation – a bill – goes through introductory debate, discussion on each clause, and vote on its
entirety by this Council.8  This procedure is repeated in the second Council.  In case of disagreement
between the Councils, the bill goes through a conciliation procedure9, with the possibility of a
conciliation conference, until all differences are eliminated and a compromise reached.  The Councilsproceed separately to a final vote.
10  Once adopted by Parliament and approved (in a popular vote if a
referendum is requested), the law is published and comes into force on a stated date.
8. In Liechtenstein too, a bill goes through similar parliamentary procedures (preliminary debate
and two readings, followed by a final vote on the bill  as a whole), with the difference that there is only
one chamber;  detailed deliberations on bills take place in the plenary sittings of Parliament.  Uponassents of the Parliament and the Ruling Prince, the bill is countersigned by the Head of Government
and published in the National Legal Gazette .
9. In Switzerland, the Federal Council signs and ratifies international treaties, subject to
approval by the Federal Assembly.  Most internati onal treaties (mainly those of indefinite term that
cannot be denounced, or involving multilateral harmonization of laws or membership in aninternational organization) are subject to optional referendums;  the referendum is compulsory for
international treaties involving membership in co llective security organizations or supranational
                                                     
8 The Speakers decide on which Council must first process the bill.  In the text, the description
arbitrarily starts with the National Council.
9 The bill moves back and forth between the two Councils.
10 The result of the vote by each Council is based upon a simple majority.  See Swiss Federal
Chancellery (1999).Switzerland and WT/TPR/S/77
Liechtenstein Page 17
communities.  In Liechtenstein, the signature of international treaties requires the agreement of the
Prince and the Government.  Treaties involving sovereign rights and those causing a new burden or
encroaching on the rights of the citizens are subject to approval by the Parliament.11  Any decision of
the Parliament in this regard must be submitted to a referendum if it so decides, or if at least 1,500
citizens with the right to vote or at least four communes submit a petition to that effect within 30 days
of the official publication of the decision.12  The instrument of ratification or adhesion is signed by the
reigning Prince and the Head of Government.
10. Switzerland and Liechtenstein have monistic legal systems:  public international laws take
precedence over national legislation, of which they form an integral part.  Therefore, domestic
legislation must be construed and applied in conformity with international laws.  International
agreements are directly applicable if they establish rights and obligations of private persons and ifthey are clear and concrete enough to serve as legal base for a judicial decision.  These general
principles are also valid for the WTO Agreements.  However, the Swiss Federal Court has not so far
held any WTO provision as directly applicable.
11. In Switzerland, the decision-making process is mainly based on a consensus principle, which
has been translated into the external relations of the Confederation.  Under the authority of the FederalDepartment of Economic Affairs, the State Secretariat for Economic Affairs (seco) formulates and
coordinates economic policies, including trade.
13  Initiatives in this area may come from other
departments and institutions, including the private sector.  Four categories of extra-parliamentary
commission have been established under the Federal Department of Economic Affairs to advise or
deal with various issues, including trade-related matters:  twelve regional appeal commissions dealing
mostly with dairy products, and one federal independent appeal commission for economic and
competition issues;  a monitoring commission on the Compensation Fund for unemploymentinsurance (with decisional powers);  21 consultative commissions (advisory bodies) on issues such as
export and investment risk guarantees (two separate commissions), customs affairs, external economic
policy, and implementation of the Law on Agricult ure;  and five bodies with specified mandates,
including the Swiss Office for Trade Promotion (Chapter III(3)(vi)), and Swiss Tourism
(Chapter IV(4)(iv)).  As a general rule, the Federal Council has the competence to abolish or amendordinances concerning import systems, without legislative approval.  In some cases (e.g. customs
tariffs), it must submit the provisions to the Federal Assembly for ex-post approval
(Chapter III(2)(ii)(a)).
12. Under the Customs Union Treaty between Sw itzerland and Liechtenstein, trade policy
measures affecting imports are formulated by Switzerland.  Switzerland also formulates theagricultural policy of the customs union.  Therefore, few trade policy instruments are actually set up
by Liechtenstein.  The Office of National Economy formulates policies in areas not covered by the
Treaty or by other trade agreements to which Liechtenstein is a signatory.  The coordination function
for joining international agreements (including t hose on trade, such as the WTO Agreements and the
EFTA Convention), as well as their administrati on, usually lies with the Office for Foreign Affairs;
coordination units may be established to deal with new international agreements (e.g. the EEA Co-
ordination Unit).  Each office formulates policies in collaboration with other national offices or
institutions, including the Office of Customs Affairs and the Office for Agriculture, and in
consultation with the private sector (e.g. the Chamber of Industry and Commerce, the Chamber of
                                                     
11 Landtagssekretariat (1999).
12 The result of the vote is based upon an absolute majority (more than 50% of the valid votes).
13 The seco is the competent center of the Swiss Confederation for all main questions relating to
economic policy.  It is a merger of two Federal Offices (Article 46 of the "Loi sur l'organisation dugouvernement et de l'administration" provides for such groupings).WT/TPR/S/77 Trade Policy Review
Page 18
Trade and Commerce, the Agricultural Union, the Labour Union, and the Liechtenstein Association
for Environment).
(3) POLICY OBJECTIVES
13. Given the close relationship between Switzerland and Liechtenstein (e.g. Customs and
Monetary Union and common agricultural policies), the objectives of their trade, monetary and
agricultural policies are largely formulated by Switzerland.  Both Switzerland and Liechtenstein havemanufacturing sectors with the bulk of production being exported.  Therefore, they stress the need for
further strengthening the multilateral trading system and pursuing multilateral trade liberalization to
guarantee fair, sustainable, and better market access (section (5)(i)).  Full compliance by all members
to multilateral and regional rules are important for small countries.
14. Switzerland's main objective is the further development of an innovative, competitive, and
job-creating economy.  The achievement of this objective takes into consideration national, European
and world, and sustainable-development requirements.
14  EU membership is a strategic objective of
the Federal Council.  In order to improve the euro-compatibility of its legislation and competitiveness
of its products, Switzerland has revised or amended its legislation on competition, internal market and
technical barriers to trade, and has been liberalizing the telecommunications services.  Liberalizationefforts are also taking place in rail transport and postal services, and electricity.
15. The gradual liberalization of the Swiss and Liechtenstein agricultural sectors is under way.
The reforms are aimed at making the sector more competitive and sustainable, and reducing the
excess over the price of agricultural products in the EU by one half by 2002.  The Swiss market is to
be promoted  through, inter alia , further legislative reforms, including on the labour market.  In order
to promote foreign direct investment into Switzerland, a federal marketing and communication
programme, "Location:  Switzerland", has been established.  The programme aims to provideinformation on Switzerland's main assets (e.g. high productivity, reliable infrastructure, skilled labour
force).  The business environment is to be impr oved through the simplification of incorporation
procedures.  A website for inter-active dialogue between the public administration and the small and
medium-sized enterprises is to be launched.  The reforms will also be socio-oriented and
environment-friendly.  Switzerland will further improve its institutional relations with regionaleconomic areas, mainly those with which the EU (its major trading partner) has bilateral trade
agreements.  Furthermore, it will collaborate with interested countries for a better integration of
transition and developing countries in the world economy.
(4) L
AWS AND REGULATIONS
16. Under the Customs Union Treaty between Switze rland and Liechtenstein, most Swiss laws on
trade in goods also apply in Liechtenstein.  The economic relations between the two countries have
been extended by various arrangements covering, inter alia , monetary issues and agriculture
(section (5)(ii)).  Therefore, with the exception of provisions of the EEA Agreement affecting trade
between the member countries (including Liechtenstein), the Swiss legislation on trade in goods is
largely applicable by Liechtenstein.15  The main laws governing trade in the customs union include:
the 1925 Swiss Federal Customs Law as amended and the related Ordinances and Orders, such as the
1987 Tares Orders;  the 1986 Swiss Federal Customs Tariff Law as amended up to 1999;  the 1995
Law on Technical Barriers to Trade;  the Federal Law on External Economic Measures, which
regulates non-tariff measures in emergency situations;  and the 1998 Federal Law on Agriculture and
                                                     
14 This section is largely based on Département Fédéral de l'Economie (1999).
15 Following the membership of Liechtenstein in the EEA, the legislation has been amended
accordingly to allow trade under the EEA Agreement with the other members.Switzerland and WT/TPR/S/77
Liechtenstein Page 19
the related Ordinances.  The Federal Customs Tariff Law also provides for contingency trade
remedies (Chapter III(2)(v)).  The 1995 Federal Law on Cartels and other Restraints of Competition
and the export-related laws (e.g. Federal Law on Export Promotion and the Federal Law on
Guarantees against Export Risks) are generally specific to Switzerland.
17. Investment is regulated under the Constitution of each country and under sector-specific Acts.
In Switzerland, acquisition of real estate is regulated by the so-called Lex Friedriech, substantiallyrevised in 1997 to encourage foreign investment in the branch.  However, the acquisition of real estate
by foreigners who are not permanently established in Switzerland and by enterprises with headquarters
abroad and/or under foreign control is subject to authorization.  Prohibited areas include construction,
and rental or leasing (on a profession basi s) of housing accommodation by non-residents.
18. Under the Code of Obligations (Civil Law), the majority of the board of directors of a joint-
stock company (except for holding companies) and of  the administrators of a co-operative society must
be Swiss citizens with domicile in Switzerland.  At least one manager of a corporation with limited
liability must have his domicile in Switzerland; to establish a branch in Switzerland, a natural person
with a domicile in Switzerland must be duly author ized by the company to fully represent it.  A
permanent residence permit of the associate(s) is required under cantonal laws for commercial presence
of enterprises without juridical personality according to  Swiss law (i.e. in a form other than joint-stock
company, corporation with limited liability or co-ope rative society) or for the supply of services by
natural persons.
16
19. Investment restrictions still apply in areas under state monopolies, including rail transport,
postal and certain insurance services, and commercial activities (e.g. trade in alcoholic beverages).
Licensing requirements apply to the supply of most services, including banking, insurance and
investment business, hotel and restaurants (in certain cantons), doctors, dentists, pharmacists, andlawyers.  Nationality requirements apply to specified services.  For auditing services, excluding
auditing of banks, at least one of the persons supplying the services to a joint-stock company must
have a commercial presence in Switzerland.  Swiss nationality is required for the supply
(independently) of veterinary (surgical), medical, and dental services.  Each canton may set its own
investment requirements in this regard, as is the case for, inter alia , Lucerne regarding building
activities and St. Gall for consultancy on home-country and international laws;  however,
harmonization is under way under the Federal Law on Internal Market and the Intercantonal
Concordat (Chapter III(2)(ix)).
20. With the exception of financial institutions (Chapter IV(4)(i)), the minimum capital
requirement ranges from Sw F 20,000 to Sw F 100,000 depending on the form of business;  amaximum of Sw F 2 million is set for limited liability companies.  The establishment cost for a
corporation or joint-stock company includes:  a stamp duty of 1% on the nominal capital
17;  and fees
(registration, notary, land registry) of about Sw F 2,000 (for small companies).  Establishment takes
about four weeks from the submission of the various papers.
21. As a general rule, manufacturing facilities or any kind of company must be registered at
cantonal or district levels.  The registration fees range from Sw F 240 to Sw F 600;  the fees may be
increased to Sw F 10,600 depending on the form of business and the capital endowment.18  For the
registration of a branch, the fees are 50% lower, with a maximum of Sw F 2,500.  If the headquarters
                                                     
16 Cantonal competence covers areas not regulated by the Confederation (e.g. technical regulations on
drugs, medical devices, and construction materials).
17 Establishment of corporations with nominal capital of, and increases in capital, up to Sw F 250,000
are generally exempted.
18 Ordonnance sur les émoluments en matière de registre du commerce (21 October 1997).WT/TPR/S/77 Trade Policy Review
Page 20
are located outside Switzerland, the registration of th e first Swiss branch bears the same costs as if it
were the establishment of principal business;  subsequent branches are treated accordingly.
22. In certain regions (e.g. in remote zones under economic renewal), the Confederation, jointly
with the cantons, may:  grant exemptions from profit and capital taxes for up to ten years maximum;
guarantee up to one third of the total cost of a project for a maximum period of eight years;  and
provide a contribution to investment credit interest expenses for up to one third of the total cost of aproject over a maximum period of five years.
19  In addition, other incentives are offered at communal
and cantonal levels.  Indeed, depending on the location of the undertaking:  buildings or land may be
made available under favourable conditions;  contributions may be provided for any new jobs created,
for retraining, and towards rent, charges for ground lease, and participation in planning costs.20  The
general precondition for financial aid from the Govern ments (Federal and/or Cantonal) is that private
financial institutions also make financial resources available.  For businesses that are active
internationally, certain risks can be covered thr ough the Swiss Government's Export Risk Guarantee
Scheme (Chapter III(3)(vii)).  Other incentive schemes, including duty and tax exemptions and
refunds, are available to investors in both Switzerland and Liechtenstein (Chapter III(2)(ii)(e);
(3)(iv)-(vii);  and (4)(i)-(ii)).
23. Under the Liechtenstein Law concerning Trade, the establishment of a commercial entity by a
natural person is subject to prior residence during:  five years for Swiss citizens (on the basis of a
1995 bilateral agreement between Liechtenstein and Switzerland);  and 12 years for other non-EEA
member countries.  Permanent domicile in Liechtenstein is also required.  These requirements do not
apply to EEA citizens.  The person must possess sector-specific government-recognized professional
qualifications.  For the establishment of commercial presence by a legal person (from a non-EEA
country), at least one of the managers must meet the residence and professional qualificationrequirements.  The majority of the administrators (authorized to manage and represent the legal
person) must be resident in Liechtenstein with EEA citizenship or prior residence in Liechtenstein
during a certain period.  These requirements also apply to associates.
24. Under the Law concerning Trade, at least one member of the administration authorized to
manage and represent a legal entity must be a Liechtenstein citizen domiciled in Liechtenstein and inpossession of the professional licence to act as a lawyer, legal agent, trustee or auditor, or with a
government-recognized business qualification.  A legal entity or a branch of a foreign company,
administered (in the majority) by foreigners, must nominate a Liechtenstein citizen domiciled in
Liechtenstein to represent it in administrative affairs.
25. The nationality requirement also applies to survey activities in the supply of engineering
services;  however foreign surveyors may work under the responsibility of a licensed Liechtenstein
surveyor (EEA citizens are treated like those of Liechtenstein).  For the supply of educational
services, foreigners may establish commercial presence only when organized as juridical persons
according to Liechtenstein legislation.  Companies supplying accounting, auditing and taxation
services must be more than 50% owned by EEA citizens.  The 1996 Liechtenstein Act on InvestmentUndertakings regulates investment by nationals (natural or legal persons) from non-EEA countries;  a
licence is required before they start activities in Liechtenstein.  The licence is granted if the
supervision of the State in which the investment undertaking is registered meets at least the same
standard as the supervision in Liechtenstein.  This regulation applies mainly to investment funds.
                                                     
19 The interest subsidies amount to one half (one quarter each for the canton and the Confederation) of
the normal interests to be paid over a maximum period of five years.
20 Federal Office for Economic Development and Labour (1999).Switzerland and WT/TPR/S/77
Liechtenstein Page 21
26. Acquisitions of real estate are subject to aut horization, which is granted only if the applicant
proves that these are needed for (personal) housing or business purposes.  For non-EEA citizens, a
certain period of residence is required.  The regu lation does not apply to the construction of social
residences and acquisitions of residences for recreational purposes.  Non-residents, including
Liechtenstein nationals living abroad, are excluded from acquisition of real estate.
27. All companies must be registered with the Public Registrar.  In general, foundations (e.g. with
family or ecclesiastical purposes) are not required to register;  however, they have to deposit their
status with the Public Registrar.  Processing by  the Public Registrar usually takes between two and
three days.  The registration fee depends on the capital endowment and the form of company:  it is, on
average, Sw F 700;  a lower fee of Sw F 350 applies to foundations.  With the exception of a
minimum tax of Sw F 1,000 for holding and domiciled companies, formation and administration costsvary from one trust company or lawyer to another.
21  Natural and legal persons from EEA countries
are treated like Liechtenstein citizens or companies.
(5) AGREEMENTS
(i) Multilateral agreements
28. Switzerland and Liechtenstein are original members of the World Trade Organization
(WTO).22  They accord at least MFN treatment to all WTO Members.  Switzerland and Liechtenstein
are signatories to the Plurilateral Agreement on Government Procurement.  In addition, Switzerland is
a signatory to the Plurilateral Agreement on Trade in Civil Aircraft, to the Ministerial Declaration on
Trade in Information Technology Products and to the Pharmaceutical Initiative;  the Agreement,
Declaration and Initiative also apply to Liechtenstein under its Customs Union Treaty with
Switzerland.  Switzerland also participated in th e latest negotiations on trade in financial and
telecommunications services.  Switzerland and Liechtenstein have monistic legal systems underwhich international laws (including the WTO Agreements) take precedence over national legislation
(section (2)).  Recent WTO notifications by Switzerland and Liechtenstein are presented in
Table AII.1.
29. Switzerland and Liechtenstein stress the need for further development of the multilateral
trading system through the strengthening of the WTO rules and disciplines in various areas that affecttrade, as well as the setting of new rules and additional initiatives to secure market access for goods
and services.  Switzerland and Liechtenstein are in favour of progressive multilateral trade
liberalization and increased coherence between trade policies and other policies affecting growth and
development.  Switzerland has stressed that future negotiations in the multilateral trading system
cover all trade-related issues, and be global and comprehensive to ensure benefits to all WTOMembers.
23
30. Switzerland has been involved as complainant in three disputes in the WTO:  against the
Slovak Republic on measures concerning the importation of dairy products and the transit of cattle24;
against Australia on anti-dumping measures on imports of coated woodfree paper sheets25;  and
                                                     
21 Liechtenstein Company Law of 1926 (LGBI. 1926/4), as revised up to 1980, Article 180a.
22 Switzerland became a contracting party of the GATT on 1 August 1966;  it has been a WTO Member
since 1 July 1995.  Liechtenstein became a WTO Member on 1 September 1995;  it had been a contracting party
of the GATT since 29 March 1994.
23 Département Fédéral de l'Economie (1999).
24 The request was made on 11 May 1998 (WTO document WT/DS133/1).
25 The request was made on 20 February 1998 (WTO document WT/DS119/1);  a mutually agreed
solution was notified.WT/TPR/S/77 Trade Policy Review
Page 22
against India on quantitative restrictions on imports of agricultural, textile and industrial products.26
Switzerland has participated as a third party in the dispute settlement proceedings against Canada on
patent protection of pharmaceutical products27, and the United States on Section 110(5) of the U.S.
Copyright Act.28  Switzerland has joined consultations requested by the United States with regard to
measures taken by Argentina on the Protection of Patents and Test Data.29  To date, Liechtenstein has
not been involved in any disputes in the WTO.
31. Switzerland and Liechtenstein are members of the International Telecommunication Union
(ITU), the United Nations Conference on Trade and Development (UNCTAD), and the World
Intellectual Property Organization (WIPO).  Switzerland is a member of, inter alia , the International
Monetary Fund, the World Bank, the Organization for Economic Cooperation and Development
(OECD), and the International Labour Organization (I LO);  it is an observer to the United Nations
Organization (UNO).  Liechtenstein is a member of the UNO.
(ii) Bilateral agreements
32. In 1923, Switzerland and Liechtenstein concluded a Customs Union Treaty under which the
Principality acceded to the Swiss customs territory.  In addition to trade policies, the Swiss
agricultural and environmental policies also apply to Liechtenstein.  According to the Liechtensteinauthorities, their country has adopted identical policies to the extent necessary for the proper
functioning of the customs union.  A 1980 agreement allows the formal application of Swiss monetary
policies (including credit and exchange rate regulations) in Liechtenstein, the latter having been using
the Swiss franc as legal tender since 1924.  Other areas of cooperation between the two countries
included foreign affairs, postal and telecommunications services, patent protection, reciprocal
treatment of their citizens, and police and judicial matters.  Accordingly, Swiss legislation is binding
on Liechtenstein to the extent necessary for the proper functioning of the customs territory;  allcommercial treaties and trade agreements concluded by Switzerland also apply to Liechtenstein (the
so-called Liechtenstein clause included in the treaties and agreements).
33. The Customs Union Treaty has been modified several times (the first time in
November 1990) to allow Liechtenstein's participati on in international agreements on trade, including
those to which Switzerland is not a signatory.
30  The Swiss-Liechtenstein arrangements in certain
areas, including postal and telecommunications services, have been amended or terminated
accordingly.
34. In a referendum of 6 December 1992, the Swiss population voted against the membership of
Switzerland in the EEA.31  Switzerland has since then concluded seven bilateral agreements with the
EU.32  The agreements cover:  agriculture;  government procurement;  technical barriers to trade;
road transport;  air transport;  free movement of persons;  and research.  This package of bilateral
agreements was ratified by the EU Parliament on 4 May 2000 and accepted by the Swiss population
                                                     
26 This request was made on 18 July 1997;  a mutually agreed solution was notified.
27 WTO documents WT/DS114/1, 12 January 1998, and WT/DS114/4, 27 January 1998.
28 WTO documents WT/DS160/1, 4 February 1999, and WT/DS160/4, 17 February 1999.
29 WTO documents WT/DS171/1, 10 May 1999, WT/DS171/2, 26 May 1999, WT/DS196/1,
6 June 2000, and WT/DS196/3, 21 June 2000.
30 See Nell (1996) for a detailed analysis of the evolution of the bilateral relations between Switzerland
and Liechtenstein.
31 Switzerland has not ratified the EEA Agreement.  Swiss relations with EU members on trade in
services are currently regulated by bilateral agreements on an individual basis.
32 The bilateral agreements were concluded in December 1998, signed in June 1999 and approved by
the Swiss Parliament in October 1999.Switzerland and WT/TPR/S/77
Liechtenstein Page 23
through a referendum on 21 May 2000.  The package is to come into force in 2001, subject to its
ratification by the EU Member States.33
35. The agreement (with the EU) on agriculture will provide for gradual liberalization
(dismantling of tariffs and non-tariff measures) of bilateral trade in certain products:  e.g. customs
tariffs on cheese will be phased out over five years, and will be reduced on fruit and vegetables,
horticultural and dairy products, and meat specia lities.  The agreement on government procurement
will extend the discipline contained in the WTO Plurilateral Agreement on Government Procurement
to cover all concessionary companies in energy, water, transport, and telecommunications, and to
purchases by local and regional public authorities.  The agreement on technical barriers to trade
foresees mutual recognition of technical rules and procedures, including tests, certificates and
approvals with regard to standards on industrial products.  However, it falls short of the provisions ofthe EEA agreement (e.g. the so-called "Cassis de Dijon" principle would not apply).
36. The bilateral agreement on overland transport will provide for gradual and reciprocal
liberalization of road and rail transport of both goods and persons, except national cabotage.  It will
gradually increase the weight for truck axle allowed to enter Switzerland from the present limit of
28 tonnes to a maximum of 40 tonnes in 2005.  In order to make rail transport more competitive andinduce a transfer of heavy-goods transit traffic from road to railways, Switzerland will gradually
increase the average levy on trucks in transit from Sw F 40 to Sw F 325 on 1 January 2008 (at the
latest) for the reference distance from Basel to Chiasso
34;  it will also improve its rail infrastructure
through the construction of two transalpine railway tunnels (through Gotthard and Lötschberg).
Switzerland may further increase the levy (safeguard actions), and prohibit Sunday and night traffic.
The agreement on air transport foresees reciprocal access to, and equal rights in, internal markets to
both Swiss and EU air companies within two years (e.g. free access to EU air travel market, majorityshareholding in EU air companies without the latter losing their status as EU companies and the
related rights, suppression of prior approval requirements for schedules and tariffs).
37. Under the agreement on free movement of persons, Swiss citizens will, on a reciprocal basis,
have access to residence or a work permit in any EU country.  The agreement will also provide for
mutual recognition of diplomas as from 2001 and coordination of social security provisions;  it will beimplemented gradually.  The EU will grant Swiss citizens access to its labour market as from 2003.
Switzerland has two years to eliminat e the preferential treatment granted to indigenous workers;  five
years to phase out its quota system for work permits to EU citizens;  and seven years to reintroduce
the quota system for work permits if it deems the resultant immigration excessive.  The agreement on
research will grant equal rights to Swiss and EU citizens to participate in research projects andstrategic scientific committees.
38. The seven agreements are subject to the principle that if one of them (with the exception of
the agreement on research) ends the whole package becomes null and void;  the package may only
come into force again through new negotiations.
35
                                                     
33 Studies carried out on behalf of the Swiss Federal Council indicate that, in addition to direct positive
effects through, inter alia , road taxes, the agreements will induce an export-led GDP growth of an extra two
percentage points (i.e. some Sw F 8 billion) while costing the federal budget about Sw F 600 million as from its
implementation;  the cost will then decline to Sw F 300-400 million per year.
34 The levy is based on the weight, the distance, and the level of pollutant emission.
35 See Conseil Fédéral Suisse (1999);  Conseil Fédéral Suisse (1999); and Conseil Fédéral Suisse
(1999) for more details on the agreements.WT/TPR/S/77 Trade Policy Review
Page 24
39. Disputes under bilateral agreements to which Switzerland and/or Liechtenstein are signatories
are addressed by Joint Committees.  The WTO Secretariat is not aware of any such disputes in which
Switzerland and/or Liechtenstein may have been involved.
(iii) Regional and other agreements
(a) European Free Trade Association (EFTA)
40. Switzerland and Liechtenstein are members of the European Free Trade Association
(EFTA).36  The other members of EFTA are Iceland and Norway.  The EFTA Convention (i.e. the
1960 Stockholm Convention) provides for free trade in industrial products since 31 December 1966,
and in fish and other marine products since 1992.  EFTA has a Council (a consultation and
negotiation forum) that meets twice a month at the level of officials and twice a year at ministerial
level, Committees and Expert Groups that deal with special issues, and a Secretariat.  EFTA has anetwork of bilateral trade agreements among its members (on unprocessed agricultural products), and
with third parties, including the EC
37, on industrial goods, fish, marine products, and processed
agricultural goods.  Bilateral trade protocols between individual EFTA members and third countries
cover unprocessed agricultural products.  Bilateral agreements with third countries include
evolutionary clauses and are generally asymmetric, with EFTA members liberalizing upon entry intoforce of the agreements and their partners dismantling gradually their restrictions to trade.  As a result
of successful negotiations between the EEA/EU, EFTA, and central and eastern European countries
on a common set of rules of origin, pan-European cumulation of origin currently applies;  Turkey
joined the system in 2000 (Chapter III(2)(vi)).
41. The EFTA members are negotiating bilateral free-trade agreements with Canada, Cyprus,
Egypt, Jordan, Mexico and Tunisia.
38  Negotiations with the Former Yugoslav Republic of Macedonia
have been completed but the agreement has not yet entered into force.  The EFTA members alsoenvisage entering into bilateral negotiations on free-trade agreements with, inter alia , Chile, Croatia,
Lebanon, and the Republic of South Africa.  All bilateral free-trade agreements concluded between
the EFTA States (under the EFTA scope) and third countries have been notified to the GATT/WTO
(Table II.1).  In addition, Switzerland has concluded some thirty bilateral cooperation agreements
with countries that are not currently WTO Members, e.g. People's Republic of China, Russia,Saudi Arabia, Ukraine, and Viet Nam.
39
42. As at September 2000, neither Switzerland nor Liechtenstein have been involved in any
dispute under the EFTA Convention.
                                                     
36 Switzerland is a founding member of the EFTA while Liechtenstein acceded in 1991.  Up to 1991,
Liechtenstein had been covered by the EFTA Convention through a Protocol under which its interests wererepresented through Switzerland.
37 The 1972 bilateral trade agreements between individual EFTA members and the EC remain in force
for the countries that are currently EFTA members, i.e. Iceland, Norway and Switzerland (the agreement withSwitzerland applying also to Liechtenstein).
38 WTO (2000).
39 See WTO (1996) Volume II, for an full list of agreements concluded by Switzerland up to 1996.Switzerland and WT/TPR/S/77
Liechtenstein Page 25
Table II.1
Swiss and Liechtenstein  participation in free-trade agreements, January 2000
Date signed Entry into force Notified to GATT/WTO Name of agreement
04.01.1960 03.05.1960 Yes:  L/3328 Convention establishing the European Free Trade Association
(applies to Iceland, Liechtenstein, Norway, and Switzerland)
22.07.1972 01.01.1973 Yes:  L/3893 Agreement between the EEC and Switzerlandb
10.12.1991 13.07.1992 Yes:  L/6989/Add.1 Agreement between the EFTA States and Turkey
04.03.1992 01.01.1993 Yes:  L/7041/Add.1 Agreement between the EFTA States and the Czech and Slovak
Federal Republicc
02.05.1992 01.01.1994 YesaAgreement on the European Economic Area (applies to:  Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Iceland,
Ireland, Italy, Liechtenstein, Luxemburg, the Netherlands, Norway,
Portugal, Spain, Sweden, and the United Kingdom)
.. 01.03.1995 Yes:   WT/REG24/N/1 Free Trade Agreement with the Faroe Islandsb
17.09.1992 01.08.1993 Yes:  L/7129/Add.1 Agreement between the EFTA States and Israel
10.12.1992 01.09.1994 Yes:  L/7372/Add.1 Agreement between the EFTA States and Poland
10.12.1992 01.06.1994 Yes:  L/7215/Add.1 Agreement between the EFTA States and Romania
29.03.1993 01.06.1994 Yes:  L/7257/Add.1 Agreement between the EFTA States and Bulgaria
29.03.1993 01.06.1994 Yes:  L/7360/Add.1 Agreement between the EFTA States and Hungary
13.06.1995 01.09.1998 Yes:  WT/REG20/N/1 Agreement between the EFTA States and Slovenia
07.12.1995 01.06.1996 Yes:  WT/REG29/N/1 Agreement between the EFTA States and Latvia
30.08.1995 01.01.1997 Yes:  WT/REG30/N/1 Agreement between the EFTA States and Lithuania
07.12.1995 01.10.1997 Yes:  WT/REG28/N/1 Agreement between the EFTA States and Estonia
19.06.1997 01.12.1999 Yes:  WT/REG91/N/1 Agreement between the EFTA States and Morocco
30.11.1998 01 07.1999 Yes:  WT/REG79/N/1 Agreement between the EFTA States and the PLO for the benefit of
the Palestinian Authority
.. Not available.
a Covered by individual free-trade agreements between the EU and EFTA members (excluding Switzerland) as notified to the
GATT.  Liechtenstein became a member on 1 May 1995.
b The agreements also apply to Liechtenstein under the Customs Union Treaty.
c Liechtenstein has been applying the agreements on a provisional basis since 1 January 1997.
Source : WTO documents;  and information provided by the Swiss and Liechtenstein authorities.
(b) European Economic Area (EEA)
43. The EEA Agreement came into force on 1 January 1994;  Liechtenstein ratified the
Agreement and became a member on 1 May 1995.  The Agreement has extended to Iceland,
Liechtenstein, and Norway, provisions of the EU legislation on:  free-trade in goods (industrial
products of HS Chapters 25-97 and very limited aspects of trade in agricultural and fishery products)
and services40;  and free movement of capital and persons.  Therefore, EU legislation applies to a wide
range of trade policy issues, including competition (agriculture and fisheries are excluded), technical
barriers to trade, public procurement, state trading and state aid.  The EC acquis communautaire
principle also applies to all areas covered by the Agreement.  However, the EFTA members of theEEA have their own MFN and preferential trade arrangements, and contingency trade remedies.
44. The surveillance mechanism of the EEA is characterized by a two-pillar structure (the EFTA
members of the EEA on the one hand and the EU on the other).  The Council of Ministers (the
supreme body) provides po litical impetus and guidelines for th e implementation of the Agreement.
                                                     
40 The Agreement does not cover the Common Agricultural and Fisheries Policies of the EU;  however,
it contains an evolutionary clause on progressive liber alization of trade in agricultural products.  Common
procedures for imports of live animals and animal products entered into force on 1 January 1999.WT/TPR/S/77 Trade Policy Review
Page 26
The Agreement also provides for:  a Joint Committee that takes decisions extending the EU legislation
(including Directives) to the EFTA members of the EEA;  a Joint Parliamentary Committee;  and a
Consultative Committee between the social partners on each side.  The EFTA Surveillance Authority
is responsible for monitoring the implementation of the Agreement on behalf of the EFTA members
of the EEA;  and the EFTA Court of Justice examin es complaints with respect to competition policy
involving the EEA Agreement, independently and in  parallel with the European Court of Justice.41
45. Following its EEA membership and in order to  guarantee the marketability of goods under
either the Swiss or the EEA rules, Liechtenstein has established a Market Control and Surveillance
Mechanism (MCSM);  its Customs Union Treaty with Switzerland was accordingly amended in 1994.
The MCSM applies to goods subject to technical regulations and/or customs tariffs under the EEA
Agreement that are different from those prevai ling under the Customs Union Treaty, and to salt
(Box II.1).  In general, Swiss legislation on trade in goods applies in Liechtenstein's relations with all
countries, except the EEA members;  EEA legisl ation applies in EEA-Liechtenstein relations.42  On
rules of origin, Liechtenstein has the choice betw een the provisions of the 1972 Swiss-EU free-trade
agreement (under the EFTA scope) with the possibility of full cumulation with Switzerland, or the
EEA Agreement with the possibility of full cumulation with the other EEA members.
(c) Other agreements
46. Switzerland has concluded a Mutual Recognition Agreement on conformity assessment
procedures with Canada.43  It has concluded 96 bilateral agreements on the promotion and reciprocal
protection of investments (double taxation avoidance agreements), of which 86 are in force;  recently
signed are those with Armenia, Kuwait, the Kyrgyz Republic, Mauritius, Nicaragua, the Democratic
People's Republic of Korea, and the United Arab Emirates.  Switzerland ratified the Multilateral
Investment Guarantee Agency (MIGA) Convention in 1998.  Liechtenstein has not so far concludedany bilateral agreements on the protection of investments.
47. Switzerland and Liechtenstein have accorded non-reciprocal tariff preferences to developing
countries, under the Generalized System of Prefer ences (GSP), since 1972.  The system was revised
in 1997 and certain former beneficiaries have been graduated on the basis of criteria developed in the
OECD Development Assistance Committee (Chapter  III(2)(ii)(c)).  The system distinguishes
developing from least developed countries;  the latter receive the largest tariff preferences.
48. Switzerland has concluded non-preferential bilateral agreements (providing for, inter alia ,
MFN and national treatment, and protection of intellectual property rights) with several countries,
including Albania, Armenia, Belarus, Croatia, Ge orgia, the Former Yugoslav Republic of Macedonia,
Kazakhstan, the Kyrgyz Republic, Moldova, Russia, Ukraine, and Uzbekistan.
                                                     
41 EFTA (2000) and EFTA Surveillance Authority (2000).
42 Nell (1996).
43 The agreement entered into force on 1 May 1999 (WTO document G/TBT/10.7/N/26,
30 August 1999).Switzerland and WT/TPR/S/77
Liechtenstein Page 27
Box II.1:  Liechtenstein's Market Control and Surveillance Mechanism
The 1923 Customs Union Treaty provides for the application of Swiss legislation on trade in goods in
Liechtenstein (Article 4 of the Treaty).  The Treaty has been extended by various arrangements (includingon agriculture).  As a consequence of its EEA membership since 1 May 1995, and in order to maintain theCustoms Union with Switzerland while also participating in the EEA (Switzerland is not EEA member),Liechtenstein has to guarantee within its territory the marketability of goods under both the Swiss and the
EEA rules.  To this end, it has adopted a mechanism for the parallel application of Swiss and EEA
regulations, the so-called Market Control and Surveillance Mechanism (MCSM).  The MCSM is aimed atpreventing goods solely destined for Liechtenstein being  put on the Swiss market (via the open border).
The MCSM applies to professional traders, i.e. dist ributors/dealers (but not to small importers), and to
three categories of goods:  products on which the Swiss and EEA technical regulations are different,
e.g. dangerous goods, fertilizers, foodstuffs, feedings tuffs, seeds, medicinal products, cosmetics, tobacco,
and telecommunication equipment;  goods carrying different tariffs under the 1972 free-trade agreementbetween Switzerland and the European Community on the one hand, and the EEA Agreement on theother, e.g. fish, flax, and cork;  and salt because, in accordance with the EEA principle of non-discriminatory state monopoly, Liechtenstein no longer participates in the Swiss state monopoly over thisproduct (Liechtenstein has replaced the monopoly with an excise duty).  In the case of differences in
technical regulations, the goods destined for Liechtenstein (in transit in Switzerland) are registered at any
Swiss customs office, which reports to the Liechtenstein Office of Customs Affairs by means of a copy ofthe customs documents.  The customs documents are processed in Liechtenstein where a final decision ismade with regard to the imports.  When in doubt (e.g. whether an importer has obtained a wrongfulreimbursement of customs duties, or has paid the required customs duties in the case of re-exportation ofgoods to Switzerland), the Liechtenstein administration may launch further investigations.  For this
purpose, any undertaking involved in the production and importation of the goods must appoint an official
contact person with the necessary professional skills. Wholesalers and retailers must specify in their storesthat the use of the products is limited to the Liechtenstein territory and must keep proofs of sales.
Under the MCSM, the Swiss Federal Customs Administration clears imports to Liechtenstein, collects the
duties (except on salt), and informs the Liechtenstein Office of Customs Affairs.  In the case of
differences in customs tariffs, the Office reimburses importers the duties paid and informs them of their
obligations, including proofs of sales in Liechtenstein to be submitted to the Office by wholesale traders.In case of re-exportation of the goods to Switzerland, the Office collects the corresponding customsduties.  In the case of salt, a similar MCSM applies without duty collection on imports to Switzerland.
The MCSM is accepted by the other EEA members (EEA Council Decision No 1/95 and Article 3 of the
Act on the marketability of goods) with a view to avoiding restrictions on trade with Switzerland that
would have resulted from the membership of Liechtenstein in the EEA.  For imports subject to licensing
requirements (e.g. fertilizers and medical products), the Liechtenstein importer must obtain an importpermit from the Swiss Customs Administration, which informs it (through the Liechtenstein's competentadministrative branch) about the MCSM.  Infringers of provisions of the MCSM are liable to fines of upto twenty times the amount of the customs duties that have been wrongfully reimbursed or that have notbeen paid, or to imprisonment for up to six months.  The infringements identified so far have not entailed
any criminal action.  They have led only to written reprimands.
For the purpose of confirming the Liechtenstein origin of exports, the Office of Customs Affairs,
established following its EEA membership, verifies th e certificates of origin (EUR1);  these are then
processed by the Swiss Federal Customs Administration on behalf of the Office.