Switzerland WT/TPR/S/13
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IV. SECTORAL POLICY PATTERNS AND TRENDS
(1) Overview
1. Itisdifficult toidentify common rulesandprinciples governing structural change inSwitzerland
overthepastyears. While themanufacturing sector waslargely exposed tointernational competition,
others -inparticular agriculture, basicinfrastructural andlocalbusiness services -operated inahighly
regulated andprotected environment (Chapter III(1)). Thisinconsistency appears tohavetaken its
toll.Observers havepointed toasignificant gapbetween Switzerland 'shighincome level, measured
asGDPatcurrent prices andexchange rates, andsignificantly lower living standards interms ofGDP
atpurchasing power parities. Theprice effects ofweak competition havebeenmentioned, among
other factors, toexplain this"prosperity gap"which, afterJapan, wasthehighest intheOECD area
in1994 (37percent).1
2. Various tensions intheSwiss economy, exacerbated bytherecession, havehighlighted the
needforpolicy reform. These include:
(i) thedifficulties ofregulated industries, suchastelecommunications, toadjust flexibly
tonewtechnical challenges andmarket trends;
(ii) negative effects ofsectoral regulation onuserindustries and,thus,productivity growth
andcompetitiveness;
(iii) thepotential of"modern" industries torespond swiftly toeconomic changes by
relocation2;
(iv) theeconomic andecological costofover-intensive farmproduction; and
(v) theperceived needtoredefine policies, andreposition theSwiss economy, inarapidly
changing European andinternational environment.
3. TheUruguay Round negotiations andthenegative voteontheEEAhavecontributed tochanging
Switzerland 'spolicy agenda. Inaffirming thelinkbetween import liberalization andimproved market
access abroad, theUruguay Round gavepolitical impetus totheeconomic arguments forchange. This
hashelped topromote reforms onascale andpacegreater thanmight havebeenexpected, given the
potentially retarding impact ofdirect democracy andtraditional interests.
4. Asnoted inChapter III,thenewpolicies havenotyetbeenfullyimplemented and,inanyevent,
needtimetoproduce results. Inturn,theimplementation process willbeinfluenced bytheeconomy 's
overall performance andthegrowth ofalternative employment outlets inexpanding sectors.
5. Thefollowing section seeks totrace thegeneral direction ofstructural change overthepast
fouryears, while theremainder ofthechapter describes policy developments inindividual sectors.
Theselection ofsectors wasguided mainly bytheirimpact onoverall economic performance and/or
theirexemplary rôleinillustrating recent policy trends.
1GATT (1991); andOECD (1989/1990) and(1996).
2Theforeign assets ofNestlé andABB, Switzerland 'stwolargest multinationals, currently represent less
than9and14percent, respectively, ofthecompanies 'total assets.WT/TPR/S/13
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(2) Direction ofStructural Change
6. Recent sectoral developments intheSwiss economy havebeeninfluenced strongly bythe
recession of1991-93 and,since 1993, thesignificant realappreciation oftheSwiss franc (Chapter I).
Thefranc'sappreciation appears toreflect mainly capital inflows fortaxandspeculative, rather than
genuinely economic reasons. While these capital inflows havebenefited some activities andregions,
inparticular banking inmetropolitan centres, theresulting exchange rateeffects haveputanadditional
strain onother sectors, suchasclothing andtourism, andtheirlocations (Table IV.1). However, given
lagsoftwoyears andmore between monetary andrealdevelopments, thefullimpact ofthefranc's
strength throughout 1995isnotyetfullyreflected inemployment andproduction data(Tables AIV.1
andAIV.2).
Table IV.1
Sectoral impact ofcurrency appreciation
SectoraExport share Main features
Watchmaking, electronics,
information technology,
semiconductors60percent High value added; lowprice elasticity ofdemand; highly innovative;
strong inniche markets; price setter insome areas
Pharmaceuticals
Optics andopto-electronicsover80percent
ca.80percentTechnological leadowing tointensive R&D; patent protection; global
actors withsignificant production abroad
Chemicals
Machineryover80percent
40-90percentVulnerability tocurrency changes depending onmarket structure;
basechemicals generally more affected thanchemical products (except
forpaints andvarnishes which relystrongly onItalian market); cost
cutting andrelocation process under way(chemicals)
Electrical industry over60percent Increasing costpressure insome segments, favourable position in
others (switchboards, lifting andtransport gear, electric motors)
Printing andpublishing 7percent Fewexports; cost-intensive production stages partly relocated abroad,
remaining segments withstrong quality focus
Stones andminerals,
construction10percent Market distortions duetohighentry barriers andindustrial
concentration; fewproduction niches
Paper
Plastics andpacking material36percent
...Mass producers under costpressure; particular difficulties forsmall
firms; strong price pressure from rawinputs (pulp, plastics, ethylene)
Metal andsteel 25-36percent Declining scope forprice increases; nogenuine locational advantage;
sub-optimal firmsize
Textiles andclothing 40-70percent Seriously threatened; verylowprofit margins; nosignificant scope
forfurther productivity increases; relocation appears tobetheonly
realistic adjustment strategy
Wood andfurniture negligible Mass production increasingly unprofitable; export possibilities onlyin
niche markets orhigh-price segments
Food 11percent Strongly affected bycurrency changes (high demand elasticity)
Tourism, hotels andrestaurants ... Failure todevelop high-quality services; sectoral structure notyet
adjusted
... Notavailable.
a Sectors areranked, indescending order, according totheirperceived vulnerability toexchange ratechanges.
Source: Crédit Suisse Economic Research, December 1995.
7. Interms ofproduction, thechemical industry wastheSwiss economy 'sstrongest performer
inrecent years, recording realgrowth ofoveronethirdbetween 1990and1994. Theindustry 'srecord
appears toreflect mainly thedynamism ofitspharmaceuticals segment. Notsurprisingly, public or
semi-public utilities suchaselectricity, gasandwater alsofared wellinagenerally unfavourableSwitzerland WT/TPR/S/13
Page 51
environment. Services sectors recorded lessdramatic production changes, inbothdirections, than
individual manufacturing industries intheperiod.3
8. Throughout manufacturing, employment growth tended tolagbehind production growth; and
inshrinking industries, thedecline inemployment wasgenerally stronger thantheproduction cuts.
Forexample, theclothing andfootwear sector, withproduction down by14percent,shedalmost one
quarter ofitsworkforce between 1990and1994. Thispoints toacontinued process oflabour-saving
technical andorganizational change. Bycontrast, employment expanded significantly inavariety of
services sectors, including electricity, gasandwater, banking andinsurance.
9. Aggregated data,aspresented inTable AIV.1 andAIV.2, tendtomask thecontinued strength
ofSwiss firms inniche markets, forexample formachine tools, clocks andwatches. Asnoted inthe
initialTPRreport,Swisswatchmakingrecoveredfromadeepadjustmentcrisisintheearly1980swithout
significant public support. Relying onproduct innovation inlargevolume segments andahigh-quality
reputation inluxury markets, theindustry hascontinued toperform wellinrecent years.4Exports
totalled SwF7.2million in1994, accounting forover90percentofthesector 'sturnover, upfrom
some SwF6billion in1990. Recent datapointtoashiftintheexport basket towards more moderately
priced watches, andagradual reorientation fromtheNorth American towards theKorean andJapanese
markets. Exports totheUnited States declined byalmost 30percentin1995.
10. Theexpanding rôleofservices intheSwiss economy reflects acontinued trend, bothacross
andwithin branches, tofocus onheadquarters andrelated functions andrelocate simple manufacturing
activities abroad. Thisprocess hasalsoinfluenced thestructure offoreign direct investment. While
themanufacturing sector represents 48percentofSwitzerland 'soutward investment stock -thehighest
intheOECD areapercapita -itaccounts fornomore than11percentofinward investment
(Chart IV.I). Twelve companies, including Basel'schemical industry (Ciba-Geigy, Sandoz andRoche),
represent halfofSwitzerland 'sforeign investment stock.5
11. Inward investment concentrates onbanking andproperty management activities. Inflows have
suffered overtime, turning intodeficit (netdivestment) in1993. Arecent OECD report attributes
arecovery in1994 mainly tothereinvestment ofearnings forcurrency reasons. While recognizing
theliberal orientation ofSwitzerland 'sinvestment régime, thereport ascribes therelatively lowlevel
ofactual inflows tostructural factors suchasalarge share ofsmall andfamily-owned enterprises in
theeconomy, anti-takeover clauses incompany statutes, restrictions ontheacquisition ofrealestate,
andalackofcompetition. Inaddition, therefusal ofparticipation intheEEAmight havegenerated
fears thatexport market access would notbefullyensured.6
3However, thefigures inTable AIV.1 need tobeinterpreted withcaution, given theparticular difficulties
inseparating price changes from realdevelopments inservices sectors.
4Thewatchmaking sector currently comprises some 550enterprises with 31,000 employees. Formore
information seeBumbacher (1995).
5InMarch 1996, Ciba-Geigy andSandoz announced their merger intoanewcompany (Novartis).
6OECD (1995b).WT/TPR/S/13
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Switzerland WT/TPR/S/13
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(3) Agriculture
(i) Pressure towards change
12. Under awaiver granted atthetimeofitsProtocol ofAccession toGATT (1966), Switzerland
hasoperated avariety ofinterventionist policy schemes forproduction, income andenvironmental
objectives. Domestic producer prices wereunderpinned byquantitative restrictions onimports; high
tariffs, withseasonal variations; tariffsupplements; variable levies; localpurchase requirements under
the"prise encharge" system; exclusive production anddistribution rights; andexport subsidies for
some products. Chart IV.2suggests thatSwitzerland ranks topamong OECD countries interms of
bothfarmsupport andtheintensity ofproduction asmeasured byfertilizer use.7Lavish support has
not,however, prevented realfarmincome from falling gradually, given astagnant domestic market
andtheintrinsic inefficiencies ofasystem largely shielded from competition.
13. Since theearly 1990s, pressure foranoverhaul ofSwiss agricultural policy hasgrown, as
negotiating requirements intheUruguay Round coincided withinternal economic andenvironmental
constraints. Atthesame time, consumers havesought increasingly toevade, through cross-border
purchases, thehighprices caused byoneofthemostexpensive aidsystems intheworld (Box IV.1),
7Theapparent positive correlation between farm support andfertilizer use,suggested byChart IV.2, must
notbeoverstated. Additional factors, including climate, soilfertility anddifferences inproduction patterns,
maybeimportant. Forexample, theshare ofsectors relying strongly ontheuseoffertilizers andpesticides
-wine, fruitandvegetables, andcutflowers -issignificant inSwitzerland. Moreover, according totheSwiss
authorities, thedataprovided byFAO suffer from alackofharmonized collection methods.WT/TPR/S/13
Page 54Trade Policy Review
while press reports about ground water pollution haveraised questions about thecompatibility of
production andenvironmental objectives. Inaddition, theendoftheCold Warreduced theriskof
supply shortages, thuseroding public support fortraditional food-security policies.8
BoxIV.1 Food tourism inSwitzerland
Food purchases abroad bySwiss residents were thefocus ofarecent study byBenetti etal.,covering the
Canton ofGeneva, andofthree surveys carried outbythesecond largest Swiss retailer (Coop) in1990,
1992 and1994. IntheFrench speaking parts ofthecountry, according tothese surveys, 65percentof
households residing lessthan15km.from theborder shopped abroad in1994. Atthenational level, the
share ofSwiss households carrying outcross-border purchases increased from 30to42percentbetween
1990 and1994.
Cross-border expenditure isestimated tohave increased from SwF0.6billion in1990 to
SwF1.5billion in1994, with thelargest shares being spent onmeat (Sw F450million), alcoholic
beverages (SwF375million), dairy products (SwF300 million) and butter and vegetable oil
(SwF150million).
In1994, cross-border price differences amounted to60percentforvegetable oil,56percentforbutter,
49percent formeat, 45percent forcheese, 36percent formilk and33percent foralcoholic
beverages. Inmid-1995, theprice ofSwiss Gruyère (quality "surchoix") soldinSwitzerland bythe
leading retailer (Migros) was45percenthigher than theprice charged bythecompany 'soutlets in
neighbouring France forcomparable hardcheeses ofFrench origin and25percenthigher thantheprice
charged forthesame Gruyère. Thesmaller price difference found forgenuine Gruyère might bedue
largely toexport subsidies.
TheBenetti-study suggested thatthese price differences reflected mainly differences infarm-gate prices,
butalsoinlabour costs and,toalesser extent, landprices andconstruction costs. Thestudy alsofound
thatcustomers travelling toFrance tobuyfood products alsotended toshop forother items, regardless
ofprice differences.
Source: Benetti etal(1995) andNeue Zürcher Zeitung ,16February 1995.
14. Switzerland 'sProducer Subsidy Equivalent (PSE) -82percentofthevalue ofproduction -
ranked topintheOECD areain1994, forthesecond consecutive year.9Reflecting agradual shift
fromprice-based todirect fiscal transfers, theimplicit taxonconsumers (Consumer Subsidy Equivalent)
decreased from64percentofthevalue ofproduction in1986-88 to55percentin1994. TheTotal
8However, representatives ofthefarming community continue tobewellrepresented inParliament. Some
30ofthe246newly elected Parliamentarians, inOctober 1995, were farmers and/or members offarmers '
associations. Thiscompares withashare oflessthan4percentoffarmers inSwitzerland 'stotalworkforce.
9OECD (1995c). PSEestimates reflect theshare infarmincome thatisattributable toagricultural andtrade
policy measures.Switzerland WT/TPR/S/13
Page 55
Aggregate Measure ofSupport (AMS) forthesector wasintheorder ofSwF5billion in1993.10
Given some 100,000 full-time farmers atpresent, thisimplies aper-capita transfer ofslightly below
SwF50,000 annually.
15. According to1989 estimates, only40percentofthevalue ofassistance actually accrued to
producers, withtheremainder being captured bysuppliers ofbasic farminputs, suchasmachinery,
pesticides andfertilizers, andproviders ofprocessing andmarketing services.11Between 1990 and
1994, theaverage farm-gate priceofagricultural output fellbymore than6percent,while input costs
increased atabout thesame rate.12
16. Theprocess offarmpolicy reorientation inSwitzerland isenvisaged intwosteps. Thefirst
waspromulgated intheFederal Council 'sSeventh Report onAgriculture in1992, which explicitly
introduced theobjective ofgradually redirecting farmassistance from price measures towards direct
payments.13Thenewpolicy focus wasfurther strengthened through theUruguay Round implementing
legislationintroducedin1995.Thesubsequent"AgriculturalPolicy2002"initiative,releasedforpolitical
consultationinOctober1995,isaimed,amongotherobjectives,atincreasingthesector'scompetitiveness
byintroducing orstrengthening competition inagricultural andfoodmarkets andconfining State
assistance predominantly to"environmentally sustainable" production.14
(ii) Adjustments under theWTO Agreement onAgriculture
(a) Import protection
17. Themarket access provisions contained intheWTO Agreement onAgriculture require that
allMembers convert non-tariff border measures intocustoms duties ("tariffication") andbindthem.
Customs duties aretobereduced overtheimplementation period from1July1995to1January 2000.15
After thefirstreduction stageinJuly1995, theadvalorem equivalents ofSwitzerland 'sspecific duties
onagricultural andfoodproducts averaged some 80percent,withpeaks ofseveral hundred percent
forproducts subject totariff quotas (Tables III.1andAIII.1).
10Conseil fédéral (1994e). TheTotal Aggregate Measure ofSupport, established inthecontext oftheUruguay
Round negotiations, isanindex measure ofdomestic support, based onabound Total AMS in1986-88. Itis
calculated asthesumofthedifferences, foreachproduct, between domestic andfixed external reference prices,
multiplied bytherelated quantities: Total AMS =i[Pdomi-PRef(86-88)i]*Qi.TheAMS includes market price
support foreachproduct, non-exempt payments (support notmeeting theexemption criteria ofArticle 6:5of
theWTO Agreement onAgriculture), andother product ornon-product specific support (e.g.fertilizer subsidies).
Total public expenditure infavour ofagriculture wasbudgeted atsome SwF3.7billion in1996 (8.5percent
ofthetotalBudget).
11Blankart (1989). Such effects arenotreflected inthePSEorAMS estimates.
12Office fédéral del'agriculture (1995).
13Conseil fédéral (1992).
14Office fédéral del'agriculture (1995).
15Switzerland hasnottariffied itsimport taxes onpoultry, levied under civillawprovisions, anddoesnot
intend totariffy certain import charges designed tofinance minimum reserve stocks (Chapter III(2)(i)(b)). The
import taxes areintended tosource a"Poultry Compensation Fund" which grants financial support forpoultry
production. Thecurrent taxrateisSwF1.60 perkg.WT/TPR/S/13
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18. While Switzerland iscommitted toreducing allbound duties byatleast15percentoverthe
fullimplementation period, several product categories aresubject toconsiderably larger cutsinorder
toachieve theagreed tariff reduction of36percentacross allagricultural items. However, thefocus
isonareas without significant domestic production astheauthorities havegenerally sought toexpose
Swissfarmersonlytoa"modestreduction"inprotection.16Groupsofproductssubjecttotariffreduction
of30percentormore include foiegras,frozen game, boar, hairandother non-edible animal products,
dried flowers, corn, pickled ordried vegetables, nutsdestined foranimal feed, bananas, citrus fruit
andother fruitnotcompeting withdomestic production, coffee, spices, riceandother non-indigenous
cereals, theirflours andbrans, mostoilseeds, andmostoilsandfats. Duties may, however, remain
substantial onmany ofthese products.
19. Aspartofthetariffication exercise, Switzerland hasopened 28tariffquotas atlower customs
duties ("in-quota" tariffrates).17Theconditions determining access tothesequotas (andanyassociated
rents) arepresented inTable IV.2. Import licences issued inthiscontext arenon-transferable andmay
begranted onlytopersons established inSwitzerland.18While the"prise encharge" system previously
made import entitlements forcertain products conditional onthepurchase ofdomestic output, itis
nowbeingappliedasaninstrumentfortariffquotaallocation.19Alternativemechanismsrelatetotraders'
pastimports, anauction procedure, thefirst-come-first-served principle, orpro-rata allocation.20For
some products, acombination ofthese mechanisms isused.
20. Under thetariff quotas forwine, meatanddairy products, specified quantities arereserved
forindividual supplying countries claiming "historical rights". Forexample, 300tonnes ofbeefare
reserved forU.S.suppliers, and170tonnes ofdried orotherwise prepared bovine meatallocated to
Italian exporters (thetotaltariff quota forbeef, horse, sheep andgoatmeat is22,500 tonnes). Out
ofthetariff quota forporkandpoultry (49,000), 3,470 tonnes areearmarked forEUproducers. The
tariffquota forfreshmilkisentirely reserved forsuppliers inthetwoFrench duty-free zones surrounding
theCanton ofGeneva; and2,624 tonnes ofcheese havebeenallocated toEUsuppliers.
16Conseil fédéral (1994b).
17AllWTO members arerequired tooffer minimum access opportunities forproducts subject totariffication
ofatleast3percentofdomestic production, rising to5percentby2000. Products inSwitzerland falling short
ofthe3percentthreshold include pork andpotatoes. Inareas where previous imports exceeded 3percent,
access isgranted atthehigher level.
18Producers offarm products andtheirmarketing organizations benefiting directly from import protection
donot"asageneral rule" have access totariff quotas. WTO document G/AC/N/CHE/1, 13December 1995.
19TheWTOAgreemen tonTrade-RelatedInvestmentMeasures(TRIMs)specifiespolicyincentivesconsidered
inconsistent withnational treatment provisions oftheGATT. These include mandatory orenforceable measures
conferring advantages onenterprises purchasing orusing products ofdomestic origin. TheSwiss authorities
donotconsiderthatthe"priseencharge"systeminitscurrentformfallswithinthescopeoftheTRIMsAgreemen t,
asitisusedonlytoallocate import entitlements within agiven tariff quota, without affecting overall market
access. Thisinterpretation presupposes that"prise encharge" hasnopositive impact ondomestic production
orthatthisimpact would notrestrict access foreither in-orout-of-quota supplies.
20Under thelatter approach, importers areinformed oftheglobal volume available andmayapply forshares.
Ifthesumofrequested shares exceeds theglobal volume, applicants obtain import entitlements inproportion
totheir request. Thesystem created problems intheSwiss wine market andwaschanged for1996
(seeSection (iv)(e) below).Switzerland WT/TPR/S/13
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Table IV.2
Implementation ofmarket access commitments viatariff quotas, 1995
(Advalorem equivalents ofspecific duties inpercent, unless otherwise indicated)a
Product Sizeoftariff
quotaBeneficiaries/
eligibility
requirementsAllocation procedure Bound tariff
(outof
quota)aIn-quota
tariffb
Livehorses, asses, mules 3,322 animals Commercial diploma
andminimum salesPrise encharge 114.2 1.4
Livebovines 20animals Breeders First-come-first-served 128.8 3.6
Liveswine 50animals 106.4 1.7
Livegoats andsheep 187animals 8.1 2.4
Meat (beef, sheep, goat, horse) 22,500 tonnes Established butchers,
meat producers and
traders.Pastimports; prise encharge;
auction135.0 15.0
Other meat (pork andpoultry) 48,889 tonnes 273.0 30.0
Dairy products (milk
equivalent)527,000 tonnes BUTYRA (butter) Prise encharge; pastimports;
first-come-first-served;
unlimited352.0 253.0
Casein 697tonnes Nolimitation Prise encharge 168.4 2.2
Eggs inshell 33,735 tonnes Companies involved in
wholesale trade and
transformation460.0 5.0
Dried eggproducts 977tonnes Unlimited 194.0 43.0
Other eggproducts 6,866 tonnes 147.0 29.0
Bullsperm 20,000 doses Recognized breeders First-come-first-served SwF10 SwF0.1
Cutflowers 4,590 tonnes Established profess.
traders, importers and
processorsPastimports; prise en
charge280.7 1.8
Potatoes andproducts 13,350 tonnes 123.5 17.6
Vegetables 166,076 tonnes Pastimports; prise encharge;
prorata404.8 8.5
Apples, pears, quinces 15,800 tonnes 231.5 7.5
Frozen vegetables 4,500 tonnes Prise encharge; pastimports 92.2 26.1
Apricots, cherries, etc.fresh 16,340 tonnes Pastimports; prise encharge;
prorata158.8 5.7
Other fruit 13,360 tonnes 165.0 2.0
Apples, pears forcider
production172tonnes Auction 231.5 7.5
Products from fruitwithpips 244tonnes 159.7 14.6
Grape juice 100,000 hlLicensed wine traders Unlimited 276.8 40.5
White wine inbottles 45,000 hl 180.0 15.0
Redwine 1,620,000 hl First-come-first-served
(however, seesection (iv)(e))242.0 26.0
White wine inbulk 30,600 hl 435.0 45.0
Durum wheat 110,000 tonnes Members oftheSwiss
Cereal andFodder
Co-operativeUnlimited 313.0 50.0
Bread cereals 70,000 tonnes Prise encharge 143.0 91.0
Other cereals 70,000 tonnes First-come-first-served 207.5 135.9
a Estimates based on1994 applied rates(seeTable III.1).
b Unweighted average across allitems intheindividual product categories.
Notes: Pastimports: quota shares allocated asafunction ofcommercial activity, purchases orimports during thepreceding year;
prorata: quota allocation depending onthequantities requested bytheindividual importer.
Source: Government ofSwitzerland; WTO Secretariat.
21. Anagricultural safeguard clause ("SSG") allows theimposition ofsupplementary tariffs in
theevent ofimport prices falling orimport quantities surging relative tospecified base-year levelsWT/TPR/S/13
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(1986-88). Switzerland hasreserved therighttoinvoke theclause foralltariffied products. There
havebeennosuchcases todate.
(b) Domestic support
22. Reflecting thespecialization ofSwiss agriculture, threeproduct groups -milk, beefandpork-
account for70percentoftotalsupport, inAMS terms, provided tothefarmsector. TheBaseTotal
AMS istobereduced by20percentover theUruguay Round implementation period, from
SwF5.321 billion in1986-88 toSwF4.257 billion in2000. While thedairy sector, representing
Switzerland 'ssingle largest farmactivity, experienced adecline inthemilksupport price by20per
centbetweenSeptember1993andMarch1996,strongimbalancesinthebeefandporkmarketstranslated
toprice reductions ofsome 15percentduring thesame period. Itappears thatSwitzerland would
havemetthefullAMS reduction target, should thecurrent situation persist.
(c) Export subsidies
23. Export subsidies aregranted mainly fordairy products (SwF461million in1993), processed
foodproducts (SwF187million), livestock (SwF29million), potatoes (SwF2million) andfruit
(SwF32million).21Switzerland hasnotbound reduction commitments onaproduct-by-product basis,
butestablishedtargetsforproductaggregates,thusleavingsomediscretionforsubsidizationinindividual
categories (Table IV.3).
Table IV.3
Export-subsidy commitments, 1995 and2000
ProductsAnnual outlay commitments
(SwFmillion)Annual quantity commitments
('000tonnes)
1995 2000 1995 2000
Dairy products 443.7 284.0 78,685 62,161
Livestock andhorses 35.0 22.4 14,307a11,303a
Fruit 26.2 16.8 12.0 9.48
Potatoes 3.6 2.3 10.68 8.44
Processed products 179.6 114.9 n.a. n.a.
n.a. Notapplicable.
a Units.
Source: Switzerland Schedule LIX.
24. Draft legislation inthecontext of"Agricultural Policy 2002" includes provisions thatwould
allow forexport licensing if"necessary tomeet certain price andquality criteria" (Article 412.2).
Presently, theonlyfarmproduct subject toexport licensing islivecattle. Incontrast, there areno
official mechanisms tocontrol theevolution ofsubsidized cheese exports which areeffected mainly
through asemi-private body, theSwiss Cheese Union (section (iv)(a) below).
21Under theWTO Agreement onAgriculture (Article 9:2), developed countries aretoreduce export subsidies
by36percentandsubsidized volumes by21percent, forindividual products orgroups ofproducts, overthe
six-year implementation period.Switzerland WT/TPR/S/13
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(iii) Direction offuture reform
25. Theprocess ofagricultural reform, initiated in1992, hasplaced increasing emphasis onincome
andecological, asagainst production, objectives.22Direct payments aretocompensate farmers for
reductions inpricesupport andencourage environmentally sustainable activities. Inkeeping withthis
general orientation, "Agricultural Policy 2002" seeks topromote market-driven adjustment while
progressively submitting thegranting ofdirect payments toecological criteria. Adecision bytheFederal
Assembly ontherelevant legislation isexpected inspring 1997.
26. Aspartofitsreforms tointroduce more competition intheagricultural sector, theGovernment
intendstoliberalizethemarketingsystem,notablybyabolishingexclusivemarketingchannels,guaranteed
producer prices andprocessing margins. Such guarantees arecurrently inplace fordairy products,
sugar, potatoes, oilseeds andbread grain. Inthecontext of"Agricultural Policy 2002", current official
andsemi-official marketing organizations would beabolished orreplaced byprivate bodies; theywould
administer, forexample, stock piling (e.g.forbeef) andother regulatory aspects.
27. "Agricultural Policy 2002" doesnotmark, however, acomplete departure from traditional
productionandself-sufficiencyobjectives.TheGovernmentseesacontinuedneedtopromoteproduction,
including insectors suchascereals, potatoes, sugar andoilseeds, withhighlevels ofassistance. For
example, noting thatpost-UR border protection would beinsufficient toensure continued cultivation
ofsugar beets, subsidies aredeemed necessary toreduce domestic sugar prices toEUlevels andbetter
usetheSwiss refineries 'capacity.23
28. Reflecting differences intraditional levels ofsupport, andtheinstruments used, adjustment
requirements differ significantly between individual sectors. They aremost pronounced insectors
likedairy,facinganoverhauloftheirincentiveschemeswithsizeablepricereductionsandashifttowards
non-production-related support. Bycontrast, pressures arelessevident inareaslikefruitandvegetables
andcutflowers, which hadpreviously beensubject tolessdirect government interference. Inthese
areas, hightariffs haveessentially replaced previous border restrictions andnoothernewpolicy elements
areenvisaged, apart from reduced out-of-quota tariffs forfruitandvegetables.
29. Recent estimates suggest thatcompensation fortheincome losses incurred after1994 under
thereform agenda could imply fiscal transfers ofuptoSwF500million in2002 (at1993 prices).
This, inturn, would correspond toanincrease infederal outlays foragriculture ofsome 20percent
overtheir1993 level.24
(iv) Sectoral policy patterns
30. Atpresent, animal products (dairy products, meatandother livestock products) account for
over70percentofSwiss farmproduction. Theimport basket ismade upmainly offruit, vegetables,
wine, plants andmeat, while dairy products andliveanimals areSwitzerland 'sonlysignificant
agricultural exports (Chart IV.3). Imports ofagricultural products totalled SwF7.14billion in1994;
22In1995, budgeted expenditure onecological direct payments wasestimated toreach SwF400million,
contrasting withover SwF1.1billion spent onthedairy account. Office fédéral del'agriculture (1995).
23Office fédéral del'agriculture (1995).
24Rieder etal(1994).WT/TPR/S/13
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generating dutyrevenue intheorder ofSwF546million.25However, these figures donotreflect
themounting importance ofdirect purchases bySwiss residents abroad, estimated atpresent atsome
SwF1.5billion.
(a) Milk anddairy products
31. Reflecting itseconomic weight anditsmisalignment withmarket trends, thedairysector absorbs
about onethirdoftotalfederal spending onagriculture (Table IV.4). Currently, thesector isregulated
bythree federal lawsandnearly 70decrees (arrêtés )andordinances. They ensure milkandcheese
producers guaranteed prices forguaranteed quantities.
32. Switzerland istheworld 's9thlargest producer and4thlargest exporter ofcheese, withtotal
exports amounting to59,300 tonnes in1994. Significant export subsidies aregranted inthiscontext
(Table IV.3). TheSwiss Cheese Union administers several bilateral agreements affecting theseexports
25Direction générale desdouanes (1994).Switzerland WT/TPR/S/13
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(Box IV.2).26Cheese imports, some 30,000 tonnes in1994, cover about onequarter ofdomestic
consumption.27About 50percentofSwitzerland 'smilkproduction isprocessed intocheese.
Table IV.4
TheConfederation 'sdairy account, 1989-94a
(SwFmillion)
Purpose 1989/90 1990/91 1991/92 1992/93 1993/94b
Disposal ofbutter 363.5 420.7 420.6 419.8 377.7
Disposal ofcheese 571.5 604.2 670.6 718.7 564.5
Other measures (including valorization ofvarious
milkproducts)62.4 71.7 66.6 62.1 54.8
Contribution tofarmers delivering nomilk 101.0 194.1 121.3 121.9 105.0
Additional price reduction forsoftandsemi-hard
cheese50.7 48.9 53.4 ... 60.6
Total expenditure ondairy account 1,149.1 1,339.6 1,332.5 1,322.5 1,162.6
Memorandum:
Total expenditure onagriculture2,675.6 3,078.2 3,162.1 3,416.0 3,496.0
Total federal spending 31,615.7 35,501.4 35,501.4 40,600.0 41,341.0
... Notavailable.
a Accounting period: 1November to31October.
b Budget appropriations.
Source: Administration fédérale desfinances (1995), Finances publiques enSuisse 1992, Berne; Vieéconomique ,5/95; GATT documents
L/7162/Add.14, 19April 1994 andL/7375/Add.11, 7March 1995.
33. Butter production, absorbing some 20percentofdomestic milksupplies, isamong thedairy
account 'slargest loss-making activities (Table IV.4).28TheSwiss Butter Supply Board (BUTYRA),
aState-trading enterprise, takes overdomestic butter thatcannot besolddirectly inthemarket ata
price corresponding tothebaseprice formilk.29Draft legislation provides fortheabolition ofthe
Board which, under WTO implementing legislation, currently holds theimport monopoly forin-quota
supplies. However, these imports -nowunder anaggregated tariff quota of527,000 tonnes fordairy
products (milk equivalents) -arenegligible. In1995, theadvalorem equivalents ofthein-quota tariffs
onalldairy products wereestimated toaverage some 250percentasagainst 350percentonadditional
imports (Table IV.2); theout-of-quota tariff onbutter exceeded 800percent(Table III.1).
26Under anobligatory delivery scheme, theSwiss Cheese Union (USF), asemi-public body, purchases from
producers ofSwitzerland 'smain cheese varieties (Emmenthal, Gruyère, Sbrinz) atfixed prices. Thecheese
isresold domestically andinternationally atthebestpossible prices. TheUnion canrelyonaguaranteed
commission regardless oftheactual terms ofsales; losses arecovered bytheConfederation 'sdairy account.
27Switzerland 'straditional import régime relied onlicences, minimum prices, price supplements (i.e.import
surcharges) andvariable levies.
28GATT document L/7162/Add.14, 19April 1994.
29BUTYRA comprises organizations andfirms regularly engaged inwholesale trade inbutter.WT/TPR/S/13
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BoxIV.2 Status ofbilateral trade agreements concerning dairy products
Under anagreement concluded during theKennedy Round, theECagreed tolower itsimport levies on
Emmenthal, Gruyère, Sbrinz and Appenzell subject toSwitzerland 'scompliance with specified
conditions, including minimum export prices. These prices arerelated tothetarget price formilk inthe
EC.
Anagreement concluded with theUnited States during theTokyo Round currently provides forthe
allocation toSwitzerland ofaminimum annual tariff quota of6,500 tonnes ofcheese, including 3,430
tonnes forEmmenthal, 1,450 tonnes forprocessed cheese and1,620 tonnes fortable cheeses other than
Emmenthal.
Anarrangement withCanada concluded inApril 1981 allows Switzerland, inter alia,toexport cheese to
Canada within aglobal tariff quota of8,164 tonnes opened forimports from countries other than EC
member States. Switzerland iscommitted nottogrant subsidies thatwould undercut domestic prices of
Canadian cheese, provided thatCanada obtains thesame undertaking from Switzerland 'sprincipal
competitors.
Under anAgreement dating from theKennedy Round, BUTYRA must "take dueaccount, initsbutter
purchases, ofsources ofsupply existing intheEC. Totheextent thatquality, price andavailability of
theproduct permit, BUTYRA aims atanECshare ofnotlessthan20percentinSwitzerland 'stotal
butter imports".
Negotiations withtheEUwere going oninearly 1996 onbilateral liberalization oftrade incertain farm
products (including cheese, wine, cutflowers, fruitandvegetables).
34. PSEestimates fortheperiod 1986 to1994 suggest thatoverfourfifths ofthedairy farmers '
income isduetopolicy intervention.30However, theactual benefits tofarmers maybesignificantly
smaller, reflecting theintrinsic inefficiencies ofasystem based onnon-transferable production quotas
andrestrictive marketing arrangements.
35. Asguaranteed milkprices condition thedairy sector 'sexternal andinternal competitiveness
and,byimplication, itsclaim onpublic funds formarketing, theGovernment isseeking tonarrow
theprice gapwithneighbouring countries (Chart IV.4). In1993, themilkpricewasforthefirsttime
reduced bySwF0.10toSwF0.97perkgofmilk; asecond reduction toSw0.87tookeffect in
March 1996. While theUruguay Round implementation process isestimated torequire afurther decline
ofSwF0.10, therewould stillremain asignificant difference between Swiss andinternational prices.
30OECD (1994a) and(1995c).Switzerland WT/TPR/S/13
Page 63
(b) Livestock, meatandother animal products
36. Protected behind almost impenetrable import barriers, Switzerland 'sbeef, vealandpigmeat
producers havereached market shares ofover90percent(50percentforpoultry).31While domestic
producer prices forbeefexceeded EUprices byabout 60percentin1993, declining percapita
consumption andgrowing direct imports (Box IV.1) recently translated intosignificant cuts. In1995,
producers ofpork, beefandvealexperienced aprice decline ofover10percent, while retail prices
eased byabout 3percent. Thewidening gapbetween producer andconsumer prices maybedue,
atleastinpart,tothedominant position oftwolarge retailers, Migros andBell-Coop, which together
supply some fourfifths ofthemeatconsumed inSwitzerland (1994).32
37. InJuly1995, customs duties replaced apanoply ofimport restrictions previously regulating
meatimports. Advalorem equivalents estimated for1995 averaged 135and273percentfor"red"
and"white" meat, respectively (Table IV.2). Inorder nottodisrupt existing tradeflows, tariffquotas
havebeenopened. Onetariff quota of22,500 tonnes covers imports ofmeatproduced mainly with
non-concentrate feed(e.g.grass, silage), while asecond quota of48,900 tonnes isformeatessentially
produced withconcentrate feed.33Thelatter quota, applying mainly topigmeat andpoultry meat, is
31WTO document IMA/W/2, 15June 1995.
32Journal deGenève ,30November 1995.
33Switzerland hasreserved quota shares formeat supplies from theUnited States (HS0201, 300tonnes
annually) andItaly (HS0210.200, 170tonnes).WT/TPR/S/13
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toincrease from48,900 tonnes in1995to54,500 tonnes in2000; itscombined application toseveral
meatcategories affords theauthorities considerable scope forinfluencing import flows inindividual
market segments. Theallocation ofquota shares forbeef, vealandporkandmost processed meat
specialities ispartly based ontheimporters 'previous performance, thusdiscouraging newentrants.
Four additional tariff quotas havebeenopened forliveanimals.34
38. TheauthoritiesanticipatethatcommitmentsundertheWTOAgreementtoreduceinternalsupport
willaffect prices andproduction-related payments inthebeefandporksectors. TheAggregate Measure
ofSupport forthese sectors in1993 wasestimated atslightly lessthanSwF2billion.35
39. Switzerland didnotprovide anyexport subsidies formeat under Article 9:1oftheWTO
Agreement onAgriculture inthebaseperiod and,hence, iscommitted nottogrant suchsubsidies in
thefuture. Export subsidies were, however, provided forbreeding anddairy cattle.36Under WTO
commitments, subsidized exports oflivecattle aretofallfrom14,307 animals in1995toamaximum
of11,303 in2000, corresponding toadecline inexport subsidies from SwF29million to
SwF22million overthesame period.37
40. Theuseofhormonal growth andproduction promoters, including BST(Bovine somatotropin),
continues tobebanned inSwitzerland. Imports must befreeofresidues. Toprevent thespread of
"mad cowdisease" (bovine spongiform encephalopathy, BSE) onlyboneless beefmaybeimported
from theUnited Kingdom.
41. Theallocation ofthetariffquota established foreggsinshellisgoverned bya"prise encharge"
system. Traders arerequired topurchase eggsfrom small domestic farms equivalent to40percent
ofthequantities imported (Table IV.2); these purchases areatguaranteed prices, while other Swiss
productionissoldatmarketprices.38Althoughthereisnoofficialdefinitionofa"smallfarm",according
toaFederal Court ruling, farms withover2,400 hensareconsidered as"industrial producers" and,
thus, donotqualify under thesystem.
(c) Cereals andcereal products
42. Switzerland 'scereal policy, based ontheConstitution, hastraditionally stressed thestrategic
importance ofwheat production. Among other things, Article 23bis oftheConstitution provides for
compulsory stockholding, production quotas, price support, subsidies tomillers, consumer subsidies
andtheregulation ofimports, including thepossibility ofapublic import monopoly forflour. Protected
34Forexample, atotalof50livepigsmaybeimported annually atthereduced dutyrateofSwF33per
unit; additional imports willbesubject toadutyofSwF1,433.
35SwF1,093 million forbeef, SwF836million forpork andSwF159million forpoultry meat (Conseil
fédéral ,1994e).
36In1992/93, theConfederation funded thebreeding anddairy cattle sector withSwF335million. Ofthis,
80percentwasusedtosupport cattle-keeping inmountain andsub-alpine areas, andlessthan10percentto
subsidize exports; GATT document L/7375/Add.11, 7March 1995.
37Conseil fédéral (1994e); andTable IV.3.
38Aprice compensation fund issourced from dutyrevenue. Thefund isalsoused tofinance marketing
campaigns andcollecting cost.Switzerland WT/TPR/S/13
Page 65
byquantitative import restrictions andbenefiting fromguaranteed outlets, Swiss wheat producers were
abletorealize prices fourtimes above theEUaverage in1993.39While Switzerland isfully
self-sufficient insoftwheat forbreadmaking, some 15percentofdomestic consumption, totalling
some 460,000 tonnes, isimported forquality reasons andinview offoreign economic policy
requirements.40Alldomestic production ispurchased bytheFederal Office ofAgriculture atfixed
prices.41
43. Asinthefeedgrain sector, exclusive import rights havebeenretained forbread grain under
WTO implementing legislation. Onlymembers oftheSwiss Cereal andFodder Co-operative areeligible
toimport under thetariffquotas established fordurum wheat, bread grain andcoarse grains forhuman
consumption (maize, barley andoats; Table IV.2). Membership intheCo-operative isnotrestricted;
theCo-operative istobeabolished byend-1996.
44. Theprevalenceofsecurityoverefficiencyconsiderationsisalsoreflectedinahighlydecentralized
milling structure thathasemerged under Constitutional guarantees.42TheCartel Commission estimates
theover-capacity inthesector atsome 40to50percent; fourofthe130existing mills could cover
threequarters ofdomestic consumption ofsoftwheat. Under anagreement withthemillers 'association,
Swissbakershaveundertakentopurchaseasmuchflouraspossiblefromtheassociation.Theagreement,
aswellasa1992 arrangement among millers, hasprompted anenquiry bytheCartel Commission
(Table AIII.2).43
45. Apparently withaviewtolimiting theadverse effects ofsectoral protection ondownstream
activities, Switzerland 'sUruguay Round Schedule provides forsignificant tariff reductions onfeed
grain. They areestimated toresult inprice reductions of20percent.44However, despite average
tariffcutsofsome 30percentovertheimplementation period, theadvalorem equivalents ofthefinal
bound ratesaresettoremain above 100percent.
46. WTO implementing legislation provides forasystem ofminimum import prices (threshold
prices) forfeedgrains andother fodder. They arefixedbytheGovernment onanannual basis. Import
duties areadjusted periodically tobring actual import prices (c.i.f.) uptothethreshold level. According
totheauthorities, theminimum prices forfeedgrains andrelated products werereduced bymore than
20percent(30percentforoilseeds andotherprotein feed)between 1994and1996; further reductions
areenvisaged.
39OECD (1994a).
40GATT document L/7162/Add.14, 19April 1994.
41Aco-responsibility taxislevied onexcess production inorder toshiftthecostofdisposal ontotheproducers.
Durum wheat isnotproduced inSwitzerland.
42Forexample, invoking aConstitutional provision, theConfederation operates afreight equalization scheme
compensating higher transport costs tomills inremote areas.
43Commission suisse descartels (1994a).
44Rieder etal(1994).WT/TPR/S/13
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(d) Vegetal andprocessed products
47. Switzerland isvirtually self-sufficient inpotatoes, effecting onlyminimal imports priortothe
WTO Agreement. Theminimum access quota of13,350 tonnes, equivalent to3percentofdomestic
consumption, istoincrease to22,250 tonnes by2000. Itisestimated thattheUruguay Round
implementation process, including reductions inexport subsidies (Table IV.3), willbring producer
prices down bysome 30percent.45Production notdirectly consumed, exported orprocessed into
foodisconverted intofodder. In1994/95, SwF45million werereserved fortheprocessing ofsurplus
potato andfruitsupplies.
48. About onehalfofSwiss consumption ofsugar isdomestically produced. Atthetimeofthe
1991TPRreport, production andimports inthesector weresubject tohighcumulative import charges
ofover100percent, anobligatory contribution byimporters toanational reserve fund, andprice
guarantees under asystem ofproduction quotas. Federal subsidies, destined tocover losses incurred
bythetworefineries, were conditional oncontributions bysugar growers.46
49. Under Uruguay Round commitments, allimport-related measures were replaced byatariff
ofSwF44.30 per100kg.ofrefined sugar, equivalent tosome 130percentadvalorem (1995). The
system ofprice andproduction guarantees has,however, beenretained. InJanuary 1996, theFederal
Council reduced thebuying-in price forsugar beets fromSwF13.50 toSwF12per100kg.,while
expanding theguaranteed quantities by30percentto1.1million tonnes.
50. According totheGovernment, thepost-UR levelofborder protection doesnotensure sufficient
domestic sugar beetproduction tomaintain thecapacity ofthecountry 'stwosugar refineries.47
"Agricultural Policy 2002" therefore provides fortheabolition ofproduction quotas onbeetsugar to
improve therefineries 'capacity useand,asaresult, theirreturns. Prices andsupply conditions would
benegotiated between refineries andsugar growers, withthelatter receiving subsidies tiedtocultivated
areafromtheConfederation. While theFederal Council considers thisasapositive steptowards limiting
andbetter controlling theGovernment 'sfinancial involvement, suchbenefits might come attheexpense
oftrading partners, mainly theEU,whose market shares areexpected todecline.48
51. Switzerland 'soilseeds sector isprotected mainly byhighimport duties shielding asystem of
guaranteed producer prices andproduction quotas. Border protection iscomplemented bysubsidies
forprocessors ofcolza, soybeans andsunflowers (SwF30million in1995) topartly offset thehigher
input costs. In1994-95, domestic producer prices were about fivetimes above theirworld market
equivalents. WTO-related reductions incustoms duties of30percent, forcolza andsoyaoil,are
expected tobring down producer prices atasimilar rate. The"Agricultural Policy 2002" initiative
would confine internal measures mainly tosurface-related production subsidies.
45Rieder etal(1994).
46Thesubsidies provided tobeetsugar producers totalled SwF25million in1992/93, about onesixth of
thedomestic production value. GATT document L/7375/Add.11, 7March 1995.
47Switzerland hasreserved theright toinvoke thesafeguard clause forimports ofsugar.
48Kassensturz ,17January 1996. Offer prices forEUsugar, benefiting fromexport subsidies, currently reach
SwF0.40 perkg.; Swiss prices areintheorder ofSwF1.55.Switzerland WT/TPR/S/13
Page 67
52. According toSwitzerland 'spresentation atthe1991 TPRreview, cutflowers were covered
bythecountry 'sfarmrégime astheycontributed tothepopulation 'swell-being indifficult periods
and,byforestalling alternative landuses, helped prevent production surpluses inother areas.49Under
theWTO Agreement, Switzerland 'sout-of-quota duties inthesector average 280percent(advalorem
equivalents in1995) asagainst some 2percentonimports under a4,590-tonne tariffquota. Thequota
wasincreased to40,500 tonnes onanautonomous basis. While 70percentisallocated according
toanapplicant 'simports during thepreceding year, theremainder islinked tothepurchasing and
marketing ofdomestic production (combination of"past imports" and"prise encharge" system;
Table IV.2).
53. Protection forthefruitandvegetable sector hastraditionally relied ona"three-phase system"
alternating between tariff protection andimport bans, depending onthedomestic harvest. With the
implementation oftheWTO Agreement, thesystem wasreplaced byseasonal tariffs andtariffquotas.
Forexample, thedutyonapricots inbulkisSwF4.20per100kg.from1September to30June(for
unlimited quantities), andSwF234inJulyandAugust. Thelatter rateiscomplemented byareduced
tariffofSwF4.20onimports within atariffquota of16,340 tonnes (combined quota forseveral fruit
categories).50
(e) Wine
54. Switzerland 'swhite wineproduction accounts forsome 90percentofdomestic consumption,
contrasting withlessthan25percentforredwine. In1995, theestimated advalorem equivalent of
theout-of-quota duties onwhite wineinbulkamounted to435percent,ascompared to240percent
forallredwineand180percentforwhite wineinbottles (Table IV.2).51In-quota tariffs varied between
15percent(white wineinbottles) and45percent(white wineinbulk).
55. Under theprevious import quota system forwhite wine, established traders hadtheexclusive
right toimport. InJuly1995, thesystem wasreplaced byatariff quota ofsome 7.5million litres
(white wineinbulkandbottles combined), withimport entitlements allocated toapplicants inproportion
tothevolumes requested ("pro-rata" system). Given aglutofapplications, actual entitlements amounted
tolessthan2percentoftherequests filed. Thisprompted theauthorities todouble thetariff quota
for1996andswitch toafirst-come-first-served system. Inthefirsttwodaysof1996, however, nearly
100percentofthe15million-litre tariff quota wasalready filled, andonly201ofthe800licensed
importers gotachance.52Inearly March 1996, theGovernment decided toreduce theout-of-quota
tariffs byalmost 50percent.
49GATT(1991). Thesame argument wasmade forwine.
50Thebound tariffs given inTable IV.2 arebased entirely onthehighrates applying inJulyandAugust.
51According totheauthorities, inthesecond halfof1995, actual advalorem equivalents forwhite wine in
bulkamountedto35percent(in-quota)and135percent(out-of-quota),ascomparedto11percentand38percent
forwhite wineinbottles. In-quota supplies ofredwine were assessed at24percentand10percent, depending
onwhether theyentered inbulkorinbottles; there were noadditional imports out-of-quota.
52Only companies established inSwitzerland withadequate storage facilities (asdefined intheOrdonnance
surlesdenrées alimentaires )andsufficient oenological andcommercial knowledge mayobtain alicence toimport
wine (permis général d'importer )under tariff quotas.WT/TPR/S/13
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56. Thedoubling ofthewinetariff quota islikely toimpart adjustment pressures inparticular on
thelower quality segment oftheSwiss market. Inturn,reduced and/or lessintensive domestic wine
production would notonlyopennewtrading opportunities (mainly forEUexporters) butbenefit the
domestic ecological system aswineproduction isrelatively fertilizer- andpesticide-intensive.
57. Since Government intervention inthewinesector relied mainly onborder protection, subsidies
forwine production required tobeincluded inthecalculation ofSwitzerland 'sAggregate Measure
ofSupport reached lessthanSwF5million, covering certain monitoring activities.53
(4) Construction
(i) Economic background
58. Accounting for17percentofGDP, theconstruction industry isanimportant contributor to,
andbeneficiary of,overall economic activity inSwitzerland.54After strong growth inthe1980s, the
sector experienced aserious setback. Hampered byinflation-induced over-investment inrealestate
andaflagging economy, realvalue added shrank by3percentbetween 1989 and1993.55Total
construction completed in1993 amounted tonearly SwF45billion, consisting ofprivate dwellings
(38percent), non-residential private construction (26percent) andpublic sector construction
(36percent).
59. Thesector 'sweak economic position intheearly 1990s mayhavecontributed tocontaining
construction costs. Provisional datafor1994show Swiss construction prices closer totheEUaverage,
withadifference of21percent,thantheoverall price index (39percent).56Theprice ofresidential
construction, adjusted forquality differences, waslower inSwitzerland thaninGermany, despite higher
wages, thesector 'slabour intensity and,asinmany other countries, thevirtual absence offoreign
competition.57In1993, imports ofconstruction services represented lessthan0.5percentoftotal
activity inthesector.58
60. Theconstruction industry hassuffered from various restrictive arrangements andother
anti-competitive practices among suppliers. They haveprompted enquiries bytheCartel Commission
intothemarkets forkitchen andbathroom equipment (1968, 1973 and1991), cables (1977), bricks
andconstruction stone (1978), wallpaper (1981), cement (1993) andconcrete (1994).59Inthebathroom
53Journal deGenève ,various issues.
54According toa1991 survey, theconstruction industry represents over11percentoftotalemployment
(including related services such asarchitecture andengineering).
55Office fédéral delastatistique (1994b).
56According todataprovided byEurostat (seealsoChart III.1).
57Swiss observers havesuggested, however, thateffective labour costs inthesector arelower inSwitzerland
thaninGermany ifindirect costs (social charges) anddifferences inworking time aretaken intoaccount.
Nell(1993).
58Felder (1993).
59SeeGATT (1991) andTable AIII.2.Switzerland WT/TPR/S/13
Page 69
equipment sector (excluding pipes andtiles), technical standards havebeenusedtorestrict imports,
affording themain domestic supplier amarket share ofover80percent.60
(ii) Market access
(a) International obligations
61. Under theGeneral Agreement onTrade inServices (GATS), Switzerland hasbound market
access andnational treatment inallconstruction sectors withtheexception ofcertain construction work
forcivilengineering (exCPC 513), special trade construction work (CPC 515), andrental services
forconstruction equipment (CPC 518). However, there arecertain qualifications, reflecting access
restrictions totheSwiss labour market, andexemptions. Theexemptions are:assembly anderection
ofprefabricated buildings andinstallation work forenergy, heating, water, communications andlifts.
Avariety ofactivities inthese fiveareas mayrequire permits orauthorizations bycantonal orlocal
bodies (section (d)below).
62. Inratifying theWTO Government Procurement Agreement (GPA), Switzerland hasopened
federal andcantonal construction contracts exceeding thespecified threshold (SDR 5million), to
international competition (Chapter III(4)(iii)(a)). TheIntercantonal Concordat onpublic procurement
isaimed atharmonizing regulations among cantons andensuring theirconformity withGPAprovisions.
Additional competition incantonal public construction hasbeenestimated aslikely toresult incost
reductions ofover6percent.61TheGPA does notapply toconstruction contracts awarded by
communes,whichaccountedfornearly50percentofpublicsectorconstruction(someSwF7.5billion)
in1993.
63. Under abilateral agreement withtheGerman StateofBaden-Württemberg, anumber ofcantons
arecommitted, onareciprocal basis, toextending national treatment inawarding construction contracts
(Chapter III(4)(iii)(a)).
(b) Rules governing internal competition
64. TheIntercantonal Concordat, inconjunction withthenewLawontheInternal Market (LMI,
Chapter III(4)(i)), should contribute toestablishing aunified construction market inSwitzerland. The
newrulesareexpected toincrease transparency andnarrow, oreveneliminate, barriers suchaslocal
residence andestablishment requirements andmembership obligations inlocal trade associations.62
TheLMIwillensure inprincipal thatgoods, services andlabour legally offered inonecanton may
beoffered inanyother partofthecountry. Thecreation ofalarger market should promote efficiency
through economies ofscale andgreater scope forcompetition.
(c) Labour market regulations
65. About twothirds ofallemployees intheSwiss construction sector areforeigners; 30percent
havetemporary work permits. Thefederal authorities determine anannual global quota ofpermits,
60Commission suisse descartels (1991).
61Felder (1994).
62OECD (1994b).WT/TPR/S/13
Page 70Trade Policy Review
distributed tocantons anddown toindividual firms.63Under certain cantonal regulations (e.g. in
Geneva), allocation byfirms ismade onahistorical basis.
66. Aforeign company wishing toperform aconstruction contract inSwitzerland mustobtain a
temporary permit foreach"imported" worker. Ingeneral, these permits arevalid onlyforthesite
forwhich theyhavebeendelivered.64Incertain cantons, established firms areconsulted prior to
delivery; theconsultations normally involve tripartite commissions comprising employers, workers
andgovernment representatives.65According totheauthorities, aconsiderable share ofwork permits
issued forforeign firms concern civilengineering contracts orspecialized trade construction work.
(d) Standards andauthorization requirements
67. National construction standards aresetbytheSwiss Society ofEngineers andArchitects (SIA),
thecompetent standardization body. While some observers have considered Swiss standards as
particularly strict andcostly, SIAhasindicated studies suggesting -atleastforroadconstruction -
thatuseofGerman orEuropean norms would notimply significant savings.66Asamember ofCEN,
theEuropean Standardization Committee, Switzerland iscommitted tosubstituting European for
conflicting national standards. Approval procedures forinfrastructure projects (drainage, electricity
orroads), where environmental andgeneral landuseconsiderations playarôle,havebeendescribed
asparticularly lengthy.67
68. Connectionofinstallationstotheelectricitygridissubjecttoauthorizationbythelocalelectricity
distributor (BoxIV.3). Theauthorization isvalidonlyfortheareacovered bythedistributor; supplying
theentire Swiss market could require approximately 30authorizations. Asaresult, theinstallation
sector tends tobehighly segmented, made upofsmall andmedium-size enterprises operating inlocal
markets.
69. Special permits mayberequired forcompanies carrying outinstallation work. Thepermits -
e.g.forconnecting kitchen orbathroom equipment tothewater orgassystem -arenormally delivered
bythefederal authorities. Therelevant feeischarged ataflatrate,irrespective ofthetotalnumber
ofconnections.
63Felder (1993).
64IntheCanton ofGeneva, therelevant rules arecontained in:Arrêté du2juin1986 relatif àl'entrée dans
lecanton deGenève destravailleurs étrangers occupés dans lesecteur delaconstruction pardesentreprises
établies àl'étranger.
65Theprocedures forGeneva arelaiddown in:Règlement d'application del'ordonnance duConseil fédéral
limitant lenombre desétrangers du2février 1977.
66OECD (1994b) andstatement inthecontext ofthisTrade Policy Review. Asinother countries, buildings
must alsoconform tolocal zoning regulations defining, forexample, landutilization ratios, theminimal size
ofrooms,theratioofwindowstogroundsurface(mainlyinurbanareas),insulationandfloorheights.Inaddition,
abomb shelter must beavailable.
67OECD (1994b).Switzerland WT/TPR/S/13
Page 71
BoxIV.3 Procedures toobtain thegeneral authorization forelectricians (autorisation générale
d'installer )intheCanton ofGeneva.
TheIndustrial Services ofGeneva (Services industriels deGenève) aremandated toissue thegeneral
authorization forfitters. Since theentry intoforce ofthe1989 Ordonnance fédérale surlesinstallations
électriques basse tension (OIBT), itisnolonger necessary forapplicants tobeestablished intheCanton
ofGeneva. Theauthorization isgiven toanycompany which hasamong itsstaffaqualified member of
theprofession ("personne demétier ")ortopersons having adiploma recognized bythecompetent
federal authorities (Inspection fédérale desinstallations àcourant électrique fort)andtwoyears of
professional experience. TheOIBT requires companies toemploy oneauthorized "personne demétier"
per20workers. Foreign companies canrequest therecognition ofhome-country diplomas formembers
oftheir staff. InGeneva, oneforeign company hadobtained ageneral authorization forfitters bytheend
of1995.
(e) Land ownership regulations
70. Property purchases bynon-residents, including foreign-based andforeign-owned companies,
arerestricted under theLexFriedrich (Box III.2). Thismayposeproblems forforeign property
developers asitisnormal foradeveloper toownapartments under construction untilcompletion.
Aproposed revision oftheLexFriedrich, easing suchlimitations, wasrejected bypopular referendum
inJune1995.
(iii) Outlook
71. TheGovernment 'srevitalization programme contains various elements thatarelikely toinject
morecompetitionintotheconstructionindustry,includingitssupplychannels,andaccelerateadjustment.
ThenewCompetition Lawoffers newopportunities toprevent oreliminate anti-competitive practices
(Chapter III(5)(i)(a)), andtheLawontheInternal Market should create amore homogeneous and
efficient market environment. These changes arecomplemented bythepartial opening ofpublic
constructiontointernalandinternationalcompetition,underfederallawandtheIntercantonalConcordat,
while fiscal constraints arelikely toencourage more careful consideration ofpotentially attractive bids.
However, thepositive effects ofregulatory change oncompetition needtobesetagainst "traditional"
restrictions operating against higher import penetration, suchasbarriers tocross-border transfer of
personnel (Box III.2).
(5) Financial Services
(i) Banking andfundmanagement services
(a) Economic background
72. Thebanking sector isamong thestrongholds oftheSwiss economy, currently accounting for
some 10percentofGDP. Theshare ofbanks 'aggregated balances toGDP istwice ashighasin
Germany orJapan, andoverfivetimes higher thanintheUnited States.68Thethree leading Swiss
banks (Swiss BankCorporation, Union BankofSwitzerland, andCredit Suisse) represent approximately
68Association suisse desbanquiers (1995).WT/TPR/S/13
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62percentoftotalbankassets, andrankamong theworld 'sthirty largest banks. The25cantonal
banks,formingasecondlayerintheretailbankingsystem,accountforabout20percentofbankassets.69
73. Thebanking sector ishighly internationally integrated, capitalizing onSwitzerland 'spolitical
andsocial stability, prudent monetary management andatradition ofbanksecrecy. About 40percent
oftheworld 'sprivate savings heldabroad, around SwF3,000 billion, aremanaged bySwiss-based
banks.70In1994, the120largest banks established inSwitzerland relied oninternational markets for
37percentoftheirassets and31percentoftheirliabilities.71European countries were thesource
ofapproximately halfofbothforeign liabilities andassets.72
74. After abuoyant period inthe1980s, ariseindomestic interest rates, arealestate crisis and
increased competition prompted considerable restructuring inthesector. Thenumber ofSwiss-based
institutions fellfrom625in1990tolessthan500in1994. Although mostofthereduction tookplace
among smaller regional banks andsavings institutions, theshare offoreign-controlled entities inthe
sector 'saggregated balance sheet declined from 12.7to11percent(Chart IV.5). Contrasting with
some rescue operations atcantonal level, theConfederation hasnot,overthelast50years, extended
public funds tosaveabank.
75. Most banks areuniversal, andthere arefewlimitations onbanks 'participation innon-bank
commercial activities. Affiliations between banks andinsurers arenotrestricted inprinciple, but
engagements bybanks ininsurance companies hasbeendiscouraged bythebanks 'obligation todeduct
theentire bookvalue oftheinvestment fromtheirowncapital.73Recent alliances andmergers between
Swiss- andforeign-based banks andinsurance companies havefrequently beenorganized intheform
ofnewcompanies orpartnerships.74
69Nobel etal(1995).
70Financial Times, 6December 1994.
71Banque nationale suisse (1995).
72Banque nationale suisse (1995). These shares have remained stable since theearly 1980s. However, a
large number ofbanking services arenotrecorded inbalance sheets, suchasfundmanagement, bond issuance,
stock market operations, currency andprecious metal trading, letters ofcredit, bank guarantees, andfiduciary
operations.
73Article 11c,Ordinance onBanks. Current draft legislation requires banks tomatch anyinvestment in
insurance companies withasignificant increase intheir capital baseinorder tocomply withastandard capital
adequacy ratioof8percentofweighted assets. Theweighting factor forinsurance companies is500percent.
74Financial Times, 26October 1995.Switzerland WT/TPR/S/13
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(b) Regulation andsupervision
76. Theactivities ofbanks operating inSwitzerland areregulated bythe1934 Banking Law, as
amended, andarelated Ordinance.75TheFederal Banking Commission (FBC) istheprudential and
regulatory authority forallbanks, including subsidiaries offoreign banks.
77. Cross-border supply ofbanking services through domestic intermediaries iscurrently subject
toFBCauthorization.76Under a1994amendment totheBanking Law, intended toimplement GATS
provisions, theFederal Council mayconclude bilateral treaties toauthorize theestablishment ofbranch
offices, agencies orrepresentative offices andtheprovision ofcross-border services onthebasis of
home-country control. Theprerequisite ismutual recognition ofequivalent standards ofcontrol and
75Loifédérale surlesbanques etlescaisses d'épargne du8novembre 1934,asamended; Ordonnance sur
lesbanques etlescaisses d'épargne du17mai1972.
76Ithasbeensuggested thatcross-border business involving loans andpayments would notbedeemed illegal
ifnopayments aresolicited through anaddress inSwitzerland, andifnoloans aredisbursed from anaccount
inaSwiss-based bank(Nobel etal,1995). According totheauthorities, however, theauthorization requirement
referred toabove willbeabolished inthecontext ofanimpending revision oftherelevant Ordinance. With
itsentry intoforce, allcross-border activities without commercial presence willbefully liberalized.WT/TPR/S/13
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regulation.77While nosuchtreaties havebeenconcluded todate, negotiations areunderway with
Germany todispense branches ofSwiss banks from certain prudential requirements. OntheSwiss
side,similar provisions forbranches offoreign-based banks haveexisted since 1984 (seebelow).
78. Commercial presence maytaketheform ofaheadoffice (siège) ,subsidiary (filiale ),branch
(succursale ),agency (agence )orrepresentative office.78According totheauthorities, prudential
requirements donotdiffer between Swiss-based banks anddomestic subsidiaries offoreign banks. By
contrast, under theOrdinance onForeign Banks (Ordonnance surlesbanques étrangères enSuisse,
OBE), special rules apply tobranches, agencies andrepresentations offoreign banks. Branches are
notsubject toSwiss regulations concerning theirownfunds andriskstructure, butmust maintain
10percentoftheirassets inSwitzerland.79Foreign banks arenormally authorized toopenasubsidiary
iftheheadoffice hasanadequate organizational structure andfinancial resources, isabletomaintain
adurable activity, andissubject toappropriate surveillance. Aforeign bank having established a
subsidiary isentitled toopenbranches or(unincorporated) agencies, subject toFBCapproval.
79. FBCauthorization isalsorequired foranypurchase, byanon-resident, ofmorethan50percent
ofthevoting rights ofaSwiss-incorporated bank; thethreshold maybelowered ifcontrol canbe
achieved otherwise. Asageneral provision, the1994amendment totheBanking Lawrequires banks
tonotify theFBCofanyacquisition oftheirshares by,orsalesto,amajor shareholder (i.e.persons
owning atleast10percentofthebank'scapital orvoting rights).
80. Some additional changes toSwiss banking legislation, initially envisaged inthecontext of
Switzerland 'saccession totheEEA, wereintroduced in1994. They concerned, among other things,
thelevelofminimum capital aswellasthenature ofconfidential information thatforeign banks may
communicate totheirparent company forconsolidated surveillance (e.g. identity ofmanagers and
important shareholders, andtypes ofactivities abroad).
81. Fortheirprincipal business parameters (own funds, riskstructure, etc.), cantonal banks are
subjecttosupervisionbytheFederalBankingCommission.Cantonalcontrolisconfinedtoorganizational
matters andtheconduct ofsenior officials; following arecent revision oftheBankLaw, thesefunctions
mayalsobetransferred totheFBC. Strongly engaged inmortgage andcommercial lending, thecantonal
banks havebeenparticularly affected bytherecent decline intherealestate market.80
82. Reciprocity considerations havebeenkeytothelicensing offoreign bankentities. Reportedly,
Switzerland hasrelied more actively onsuchconsiderations thanother OECD members topromote
77Paragraph 3oftheAnnex onFinancial Services totheGATS provides that: (a)Members mayrecognize
prudential measures applied byother countries indetermining theapplication oftheir ownmeasures andthat
suchrecognition, which maybeachieved through harmonization orotherwise, maybebased onanagreement
orarrangement oranautonomous decision; and(b)thatMembers shall afford adequate opportunity forother
Members tonegotiate their accession tosuch agreements orarrangements ortonegotiate comparable ones.
78Unlike subsidiaries, branches andagencies, representative offices arenotentitled toenter into, negotiate
orconclude anybusiness deals.
79TheOBE iscurrently undergoing arevision, according totheauthorities, toincrease flexibility.
80Cantonal banks have been thesubject ofareport bytheCartel Commission (Table AIII.2).Switzerland WT/TPR/S/13
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itsrôleasaninternational financial centre andfacilitate theSwiss banks 'international operations.81
However, implementing WTO commitments, the1994 amendment totheBanking Lawlimited the
application ofprevious reciprocity provisions tocases notsubject tointernational obligations.82
(c) Rules governing fundmanagement activities
83. Securities trading inSwitzerland ismostly carried outbybanks. TheFederal LawontheStock
Exchange (Loifédérale surlabourse etlecommerce desvaleurs mobilières ),approved byParliament
inMarch 1995, laysdown general principles forself-regulation bythefinancial sector.83Replacing
previous cantonal regulations, thenewlawrequires thedisclosure ofinterests ofshares oflisted
companies ifspecified thresholds (interms ofvoting rights) areexceeded.84Persons holding onethird
ofacompany 'sshares must normally publish anoffer forallshares.85
84. AnewLawonMutual Funds (Loifédérale surlesfonds deplacement )of1994 isintended
toalign Swiss legislation withrelevant EUrequirements.86TheLaweased restrictions onthetypes
ofassetsmutualfundscanhold.ThemarketingwithinorfromSwitzerlandofunitsofforeigninvestment
funds maybeauthorized iftherelevant home-country standards forregulation andsupervision are
consideredequivalent.87TheFederalCouncilismandatedtoconcludebilateraltreatiesonmarketaccess,
based onreciprocal recognition ofexisting standards. There arenosuchtreaties atpresent.
(d) International developments
85. Initsspecific commitments under theGATS, Switzerland has,withcertain limitations, bound
cross-border supply, consumption abroad, aswellascommercial presence forthefullrange ofbanking
andinvestment services.88
86. Switzerland 'snon-participation intheEEAmayhaveimplications forthecompetitive position
ofSwiss banks andthestructural formoftheirrepresentation (subsidiaries rather thanbranches) inside
81OECD (1995b).
82WTO document GATS/SC/83 andSuppl.1.
83Thelawistoenter intoforce byJanuary 1997 attheverylatest.
84GATS document S/IGFS/W/2, 30November 1994.
85An"opting-out" clause, under which nosuchoffer mustbemade, mayunder certain conditions beincluded
inthecompany 'sstatutes (Association suisse desbanquiers ,1995).
86OntheEUside, activities ofcollective investment funds aregoverned byCouncil Directive 85/611. See
alsoWTO (1995).
87TheLaw onMutual Funds covers foreign-based funds, regardless oftheir structure, whose purpose is
collective investment andwhose investors maywithdraw atanytime ("open-end investment funds").
88InitsGATSschedule,Switzerlandhasspecifiedanumberofserviceswhoseprovisionrequiresacommer cial
presence: participation insettlement andclearing networks; thelead-marketing ofmutual funds (collective
investment funds); andthelead-management ofSwiss franc-denominated issues.WT/TPR/S/13
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theEEA.89Forexample, while aSwiss-based bankmaynotbranch directly intoFrance, Germany
oranyother EUmember State, anEEA-based bankmaydosounder theEU'ssingle banking licence.
According toindustry experts, theimmediate economic disadvantage maybelimited, however, asSwiss
banks tendtofocus oninvestment andother wholesale banking activities abroad. These arenormally
conducted, evenbyEU-based banks, viaanincorporated subsidiary inthemember State concerned.
(ii) Insurance
(a) Economic background
87. Percapita expenditure oninsurance ishigher inSwitzerland thaninanyother OECD country.
In1994, Swiss insurance companies realized gross premiums ofoverSwF34billion intheirhome
market andanadditional SwF69billion abroad (Chart IV.6). Participation inforeign, inparticular
EUmarkets hasincreased recently; premiums taken intheEUgrewby12percentin1994asagainst
4to5percentinSwitzerland. Reflecting theirtraditional focus onEuropean markets, Swiss insurers
havesome 180outlets inother European countries (including subsidiaries andbranches aswellas
composite firms). Bycontrast, theshare offoreign suppliers intheSwiss market, 8.3percentin1993,
isoneofthelowest intheOECD area.90
89WTO (1995).
90OECD (1995d). Recent estimates suggest thatthisshare mayhave nearly doubled in1994 (Journal de
Genève ,25January 1995).Switzerland WT/TPR/S/13
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88. TherelativelylimitedrôleofforeigncompaniesinSwitzerlandmayreflectthepreviousoperation
ofcartels which, byfixing ratesandlimiting product diversification inmany sectors, havereduced
thescope forentry. Perhaps notaccidentally, theshare offoreign-based suppliers inthelessregulated
reinsurance market, some 10percentin1992, isfourtimes above theirshare inthehighly regulated
lifeinsurance sector.91Thelifting ofcartel-type conventions among insurance companies, intheearly
1990s, isleading toaprocess ofprice adjustment andrestructuring inlarge segments oftheindustry.
Reports bytheCartel Commission haveplayed animportant rôleinadvancing deregulation inthecivil
liability, health, life,andmotor vehicle insurance sectors.
89. Accepting recommendations made bytheCommission in1989, theSwiss National Insurance
Association undertook todissolve acartel which hadrestricted price andproduct competition inthe
property, liability andlifeinsurance markets.92AnewLawonProperty andLiability Insurance entered
intoforce inJanuary 1993, providing formarket-based premium calculation incommercial insurance
andabolishing previous approval requirements forratesandgeneral policy conditions incommercial
non-life insurance.93InOctober 1993, ninemonths before asimilar move intheEU,most non-life
mass riskswerealsomade exempt from suchrequirements. Rates andgeneral conditions formotor
vehicleliabilityinsurancewerederegulatedinJanuary1996.94Withapremiumincomeofapproximately
SwF4billion in1993, motor vehicle insurance represents thelargest segment oftheSwiss non-life
insurance market. Cartel arrangements inthehealth insurance sector were abolished in1995
(Table AIII.2).
90. Lifeinsurersbenefitfromcertaingeneraltaxprovisionsencouragingtheconclusionofcontracts.
Forexample, taxpayers maydeduct uptoSwF5,400 fromtheirannual taxable income forinvestments
inlong-term lifeinsurance policies thatdonotallow forearly withdrawal offunds.
(b) Regulation andsupervision
91. With theexception offireandnatural damage insurance, where cantonal monopolies exist,
insurancesupervisionisafederalcompetenceundertheConstitution.Virtuallyallcompaniesestablished
under Swiss lawandcarrying onbusiness inSwitzerland arecontrolled bytheFederal Office ofPrivate
Insurance (Office fédéral desassurances privées ).95Industry experts havenoted, inthiscontext, the
strong reliance oftheFederal Office ontheSwiss National Insurance Association, theumbrella
organization oftheindustry. Itwassuggested that,since nocompeting lobbies orother sources of
91ZweifelandKleeb(1993).By1995,noforeigncompanieswereoperatingintheSwisslifeinsurancemarket.
92According totheauthorities, thenewrégime provides foramarket-based premium structure andawider
range ofproducts.
93Loisurl'assurance dommage s,du20mars 1992; Ordonnance surl'assurance dommages du
18septembre 1993.
94Aconvention preventing companies from enticing customers away from competing firms intheevent of
rateadjustments wasdescribed asparticularly anti-competitive bytheCartel Commission in1995 (Table AIII.2).
95Exemptions are:foreign insurance companies onlycarrying outreinsurance business; insurance companies
of"little economic importance"; certain pension funds; andsickness funds (supervised bytheFederal Office
ofSocial Insurance).WT/TPR/S/13
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adviceexisted,membershipintheAssociationwasvitalforforeigncompaniestocounterbalancedomestic
lobbying pressure.96
92. In19cantons, fireandnatural damage insurance forbuildings isreserved forpublic monopoly
suppliers.97Insurance against workplace accidents intheindustrial sector, alsounder monopoly, is
conferredonafederalbody(Caissenationalesuissed'assuranceencasd'accidents,CNA).Theresulting
access barriers mayhaveinduced Swiss companies toenter anddevelop markets abroad.98Abolition
ofthecurrent monopolies would require Constitutional changes.
93. Inorder toofferinsurance services inSwitzerland, foreign-based companies musthavealegal
andcapital structure intheir home country which isdeemed equivalent toSwiss requirements
(i.e.organization asajointstock company ormutual association). Inaddition, thecompanies must
havebeenauthorized toconduct insurance business, andhavedonesoforaminimum ofthree years,
intheirhome countries. Therequired forms ofcommercial presence aredescribed inTable IV.5.
Withtheexception ofreinsurance activities andcertain typesoftransport insurance, cross-border supply
ofinsurance services isnotcurrently possible.
Table IV.5
Market access conditions forforeign-based insurance companies, 1996
Sector Form ofcommercial presence Cross-border supplya
Lifeinsurance Branch oragencybNotcurrently possible
Fireandnatural damage
insurancePublic monopolies in19cantons, branch oragency in
other cantonsNotcurrently possible
Workplace accidents
(industrial sector)Federal monopoly
Other non-life insurancecBranch oragencybNotcurrently possible
Reinsurance Unrestricted, withtheexception ofaircraft liability insurance
(commercial presence required)
a Including supply viabroker, telephone ormail.
b Theheadoffice ofthecompany must beestablished inaform comparable toaSwiss jointstock company oraSwiss mutual
association.
c Including supplementary private health insurance.
Source: WTO Secretariat based onWTO document GATS/SC/83/Suppl.1, 28July1995; andinformation provided bytheSwiss authorities.
94. Swiss-based insurance companies andpension funds mustmaintain reserves asguarantees for
claims (with sector-specific structural variations); branches andagencies ofEU-based non-life insurers
aresubject tothesamerequirements (Chart IV.7).99Lifeinsurance companies withheadoffices outside
96Zweifel andKleeb (1993).
97Zürich, Bern, Luzern, Nidwalden, Glaris, Zug, Fribourg, Solothurn, Basel-Stadt, Basel-Landschaft,
Schaffhausen, Aargau, St.Gallen, Graubünden, Appenzell Außerrhoden, Thurgau, Vaud, Neuchâtel, andJura.
Inthecantons ofNidwalden andVaud, thepublic monopoly onfireandnatural damage insurance alsocovers
movable property located inthebuilding. WTO document GATS/SC/93/Suppl.1, 28July1995.
98According toWyniger (1993).
99Therequired reserve structure, favouring realestate, mayhaveinfluenced resource allocation intheSwiss
economy.Switzerland WT/TPR/S/13
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Switzerland aswellasnon-life insurance companies based outside Switzerland andtheEUmustdeposit
partoftheirassets withtheSwiss National Bank.
(c) International commitments
95. Under theGATS, Switzerland hasbound market access andnational treatment fortheinsurance
services covered bytheUnderstanding onCommitments inFinancial Services, withtheexception of
aircraft liability insurance.100Asinother sectors, horizontal limitations reflect current restrictions on
themovement ofnatural persons andonpurchases ofrealestate byforeigners andforeign-owned
companies established inSwitzerland (Box III.2).101
96. Anagreement withtheEuropean Union which entered intoforcein1993grants non-life insurers
freedom ofestablishment andtheright tooperate agencies andbranches from theirhome base.102
100The"Understanding" covers cross-border trade onlyinthefollowing insurance categories: insurance of
risksrelating tomaritime shipping, commercial aviation, space launching andfreight (including satellites), and
goods ininternational transit; andreinsurance.
101Switzerland 'sGATS Schedule stated that"nonewhealth insurance... shall ...(participate) inthebasic
health insurance system until 31.12.95". According totheauthorities, thismeasure wastaken inthecontext
ofatotalrevision ofhealth insurance legislation. Itwasdesigned toprevent newmarket entrants from attracting
mainly young andhealthy persons tothedisadvantage ofexisting companies.
102WTO (1995).WT/TPR/S/13
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Solvency ratios aredetermined bytheprudential authority ofthehome country foralloperations.103
According totheauthorities, while themostobvious consequence oftheagreement istheremoval of
deposit andlocation requirements, itsoverall economic effects aredifficult toassess. Although the
market share ofSwiss firms intheEUisconsiderable (seeabove), theengagement ofEUinsurance
companies inSwitzerland hasremained small. Recent increases inforeign presence havebeenmostly
intheform oftakeovers.104
97. After thenegative referendum ontheEEA, some oftheimplementing measures were taken
upina"follow-up" programme. Itincluded legislation corresponding tothesecond generation ofEU
lifeandnon-life insurance directives, easing, inparticular, controls oninsurance operations concerning
large risks andintroducing EU-type solvency requirements forlifeinsurance.105Thecross-border
provision ofservices hasremained conditional onbilateral agreements onthemutual recognition and
application ofsupervisory legislation. Sofar,nosuchagreement hasbeen concluded. Further
liberalization modelled onthethirdgeneration ofEUinsurance directives, would require theabolition
ofcantonal monopolies.
98. Switzerland 'snon-participation intheEEAmayhavenegative consequences fortheoperation
ofSwiss-based lifeinsurance companies inEUmarkets.106Toqualify forthesingle EUlicence, they
mustmaintain acapitalized subsidiary inatleastonemember State. Contrasting withdirect branching
under thebilateral agreement onnon-life insurance, thisimplies theimmobilization ofadditional
resources. Moreover, several member States havemaintained restrictions oncross-border supply of
certain services, e.g.insurance bytelephone, ifthecompany 'sheadoffice isnotintheEU.
(6) Telecommunications andPostal Services
99. Switzerland'spostalandtelecommunicationssectorisheadingforsignificantregulatoryreforms.
They aremotivated mainly bytheperceived needtoallow thesector anditsusers todevelop inamore
dynamic andefficient environment and,atthesame time, avoid aregulatory splitwiththeEuropean
Union 'semerging newrégime.107While current draft legislation isintended toopen alltelecom
equipment andservices categories tocompetition byJanuary 1998, liberalization ofthepostal sector
issubject tosignificant exemptions.
103Swiss-based insurance companies havetoestablish asolvency margin inrespect oftheirentire business.
While branches oragencies ofEU-based non-life companies must giveproof ofasufficient solvency margin
intheirheadoffice (seealsosection (b)above), branches andagencies ofallnon-EU-based non-life companies
aswellasofallforeign-based lifeinsurers arerequired toestablish inSwitzerland asolvency margin based on
their Swiss portfolio.
104Forexamplein1994,Switzerland'sfifthlargestinsurancecompany,Elvia,wasacquiredbytheGerman-based
Allianz.
105WTO (1995).
106Wyniger (1993).
107SeeWTO (1995).Switzerland WT/TPR/S/13
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(i) Telecommunications
(a) Economic background
100. Representing lessthan2percentofpublic telecommunications revenue intheOECD area,
Switzerland 'stelecom sector ranks topinterms ofrevenue perline(US$1,383 in1992) andpercapita.108
Thepublic operator -PTT-relies more oninternational traffic thananyofitscounterparts intheOECD
area. International voice anddatatransmission accounts foroveronequarter ofitstelecom-related
revenue and,depending onthelevelofinternal cross-subsidization, mayrepresent anevenhigher share
inprofits. Theprofits arebeing usedinparticular tosupport postal andnon-voice telecommunications
services.109
101. Theprofitability ofPTT'stelecom activities appears underpinned byefficiency andnot,or
notexclusively, byhighcharges. Withtarifflevels forbusiness andresidential services hovering around
theOECD average, PTT'srevenue peremployee, which nearly doubled between 1982and1992, ranks
second intheOECD area. However, highlabour productivity maynotonlyreflect efficiency-driven
business strategies, butorganizational andtechnical changes duetopublic sector constraints on
recruitment andcompensation ofpersonnel.110
102. OECD dataindicate astrong increase inSwitzerland 'stelecom costsintheearly1990s, mainly
in1992.111Itwasparticularly pronounced forfixed charges, asagainst usage charges, andfocused
onprivate (residential) users. Thecostincrease wenthandinhandwithachange intariff structures,
reducing charges forinternational calls relative tolocal calls and, thus, thepotential for
cross-subsidization. While localcharges were78percenthigher in1994thanin1990, long-distance
rateshaddeclined.
103. Innetwork transmission, PTTcollaborates withSprint (United States) and,since 1992, has
beeninvolved inanalliance ("Unisource") withTelecom PTToftheNetherlands, Telia ofSweden,
Telefónica ofSpain andAT&T oftheUnited States.
104. In1994,Swissproducerssoldtelecommunicationsequipment,includingsoftwareandinformation
systems worth SwF4.6billion. Ofthis,onehalfconsisted ofexports andsalesbysubsidiaries abroad;
theindustry 'sdomestic turnover hasshrunk since 1991.112
(b) Current regulatory environment
105. Under Article 36oftheSwiss Constitution, postal andtelegraph services areafederal domain;
thetariffs should befixed according tothesame principles andbeasequitable aspossible throughout
108OECD (1995e). However, thispartly reflects thestrength oftheSwiss franc; inpurchasing power parities,
Switzerland isplaced seventh among OECD countries.
109PTT'scurrentshareintheSwisstelecommunicationsmarketisintheorderof99percent(SwF9.85billion
in1994). With some 21,000 employees in1994, PTTaccounted for94percentofemployment inthesector.
110Mansion andThalmann (1994).
111OECD (1995e).
112ProTelecom (1994).WT/TPR/S/13
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thecountry. While these provisions would notnecessarily prevent amarket-based structure, the1922
Telecommunications Actconferred onthePTTtheexclusive right tooperate "machinery forthe
transmission ofelectric andradio-electric signs, pictures andsounds". ThePTT'smonopoly position -
covering network, services andterminal equipment -remained unchanged foroversixdecades.
106. Gradual opening ofequipment markets started inJanuary 1988withtelephone handsets (except
thefirst), tobefollowed byfaxmachines andmodems inJuly1989 andfinally, inMay1992, full
liberalization ofallterminal equipment anduserswitchboards. Themarket forswitchboards hassince
beenexamined bytheCartel Commission; theCommission criticized restrictive arrangements between
thePTTand,respectively, suppliers andinstallers ofequipment (Table AIII.2).113
107. TheLawonTelecommunications (Loisurlestélécommunications ),which entered intoforce
inMay1992, confirmed PTT'sexclusive righttooperate thebasic telecommunications network and
provide voice transmission (including viamobile radio, satellite andleased linesforthirdparties).
TheLawprohibits cross subsidization between monopoly andliberalized areas. While domestic rates
must beapproved bytheFederal Council afteraconsultation procedure, thePTTsetstariffs for
international calls; theyarenotsubject toindependent review. However, theexpansion ofcall-back
andcalling cardservices hasintroduced adegree ofcompetition.114
108. TheFederal Office forCommunications (Office fédéral descommunications, OFCOM), the
regulator inthesector, monitors market developments, isinvolved inimplementing andfurther
developing legislation, andgrants operating licences innon-exclusive areas, mainly radio-based
communications. TheOffice actswithin thepurview oftheFederal Department ofTransport,
Communications andEnergy; itscurrent staffconsists ofsome 100professionals.115
109. "Open" services, i.e.allareas other thanbasic voice transmission, represented 12percent
ofthemarket in1993. These services areprovided either through thePTT'sswitched network, on
leased lines, oronradio communications networks which maybeinterconnected.116FiveSwiss
companies andnineforeign-owned companies werelicensed, in1993, tosupply database andsimilar
services (some 12percentofallEuropean databases arelocated inSwitzerland).117
110. Since July1995, thepossibility ofprivate voice services hasexisted for"closed usergroups",
based onleased lines. While there arenolicensing requirements, current regulation requires thatthe
groups share "durable common economic interests".118Themereobjective ofreducing telephone costs
113PTTemploys itsowntechnicians andinstallers toestablish newcable lines orsetupswitching centrals.
114There arenolegal restrictions oncall-back services inSwitzerland. Inaddition, digitalization allows for
voicetelephonyonalternativenetworks(e.g.Internet),andmobilephonescouldbeusedtobypassPTT'smonopoly
viaforeign-based networks.
115Bycontrast, PTTcurrently employs some 150persons solely forthetechnical management offrequencies.
116Accordingtotheauthorities,thePTTcurrentlyhastwo(Swiss-based)competitorsforradiopagingservices,
andone(foreign-based) competitor forradio dataservices.
117Blankart andSchwandt (1993).
118Ordonnance surlesservices detélécommunication, modification du23janvier 1995.Switzerland WT/TPR/S/13
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would notmeetthiscriterion. Therelevant linesmaybeconnected tothepublic network, butmust
notbeusedforconnections between external subscribers.
111. TheCartel Commission hasemphasized thecrucial rôleoftechnical regulations andapproval
procedures indetermining access toequipment markets.119TheLawonTelecommunications introduced
anumber ofchanges; according totheauthorities, approval requirements werereduced totheminimum
needed toachieve interoperability, ensure thefunctioning ofthenetwork andprotect itsusers.120In
order toobtain conformity approval, potential suppliers maypresent aconformity certificate from a
recognized laboratory oranOFCOM-approved manufacturer (Swiss orforeign), ortheymayproduce
acertificate endorsed byforeign authorities. Inthelatter case, however, reciprocity considerations
appear tohavecreated problems.121
(c) Pressure forchange
112. Summarizing itsexperience withcurrent rules, OFCOM hashighlighted inparticular structural
rigidities resulting from theexistence ofaState monopoly.122These include administrative inertia
preventing rapid rateadjustments tochanging market conditions andtheinability toexploit existing
network alternatives (e.g. cable TV,therailcommunications system, andnetworks maintained by
electricity suppliers). Monopoly-related access barriers intodynamic market segments, such as
multimedia services andmobile radio communications, havehampered theirexpansion.123According
tothePrice Inspector, several large companies havemoved theircommunications centres abroad in
order tolower costs, shedregulatory constraints, andbeabletoresell excess capacity; theensuing
revenue lossisestimated atsome SwF200million annually. Inaddition, theSwiss authorities have
conceded theadverse impact ofcurrent legislation ontheirinternational negotiating position.124
113. While mandated toprevent PTTinternal cross-subsidization between monopoly andopenareas,
OFCOM haspointed tovarious difficulties inpractice.125Forexample, although PTTisrequired to
leaseoutlinesatcost-based prices, noinstrument exists toensure thatthiseffectively happens. While,
in1993, thePTT'sprofit onthese lineswasintheorder of45percentofturnover, services open
tocompetition wereunprofitable.126However, thetariffs forPTT'sleased lines, previously among
themost expensive inEurope, havecome down recently (Chart IV.8).
119Commission suisse descartels (1994b).
120Département destransports, descommunications etdel'énergie (1995).
121Commission suisse descartels (1994b).
122Office fédéral delacommunication (1995).
123However, since May 1995, OFCOM maygrant licences tobuild andmanage cable networks onatrial
basis, provided thetrials arelimited intimeandspace, andcarried outbyspecified persons (Ordonnance du
DFTCE surlesconcessions enmatière detélécommunications, Modification du14mars 1995).
124Office fédéral delacommunication (1995a).
125SeeSwitzerland 'sresponse totheGATS Questionnaire onBasic Telecommunications; GATS document
S/NGBT/W/3/Add.1, 3October 1994; WTO document S/NGBT/W/12/Add.9, 16October 1995; andOffice
fédéral delacommunication (1995).
126Commission suisse descartels (1995).WT/TPR/S/13
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114. Usergroups haveaccused PTTofemploying monopoly rentstofinance strategic acquisitions
inanticipation ofmarket liberalization.127Inits1996 budget, PTTreserved SwF1.5billion for
participations indomestic andforeign firms.128Recent moves reportedly include theacquisition of
afirmspecializing innetwork operations (XMIT) andofshares inacable broadcasting company
(Cablecom). While confirming thatmonopoly rentswereusedtoprepare aheadstartforliberalization,
thePTT'sPresident noted thatanyresulting advantages were more than offset bycontinued
cross-subsidization ofpostal deficits andtheuniversal service obligation.129
115. Theneedtoaligndomestic withinternational regulation hasalsobeenstressed bytheindustry 's
association, ProTelecom. Theassociation hasidentified sixconditions foreconomic success: an
environment allowing forfaircompetition withforeign trading partners, notably through bilateral
agreements withtheEU;access toEuropean public procurement markets; recognition abroad ofSwiss
testsandcertificates; co-decision rights insome 200European research projects inwhich Switzerland
127Swiss Association ofTelecommunications Users, Press Communiqué, 23March 1995.
128Nachrichten fürAußenhandel ,7February 1996.
129Facts, 29February 1996. Inits1995 account, thePTT recorded asurplus ofSwF2.06 billion in
telecommunications services asagainst losses, including restructuring cost, ofSwF0.68 billion inthepostal
area. Domestic andinternational voice telephony achieved surpluses ofSwF2.06 billion andSwF0.61 billion,
respectively, while thedeficit attributable to"open" telecom services amounted toSwF0.24 billion.Switzerland WT/TPR/S/13
Page 85
participates; arevision ofcurrent Swiss legislation toachieve compatibility withEUlaw;andarevision
ofthePTT'sorganizational structure toallow ittocompete internationally onalevelplaying field.130
(d) Reform programme
116. InAugust 1995, theSwiss Government circulated acomplete revision oftheLaw on
Telecommunications forpolitical consultation. Thestated objectives aretoencourage competition in
telecom services; guarantee theefficient provision ofuniversal services forallpopulation groups
throughout thecountry; andensure undisturbed communication flows andtherespect ofprivacy.
Allservices, products andtypesofinfrastructure aretobeliberalized by1January 1998(corresponding
tothetarget dateintheEU). There arenoreciprocity provisions affecting access offoreign-based
suppliers.
117. Theprovision oftelecommunications services isinprinciple subject tolicensing; exceptions
forlesssignificant activities maybedecided bytheFederal Council.131Thelicences aregranted for
limited periods andcanbetransferred, partly orentirely, toother companies. There arenoquantitative
ceilings, andlicence holders arenotobliged toestablish ormaintain networks. Companies considered
asdominant bytheCompetition Commission arerequired toguarantee interconnection attransparent
prices andconditions. Therevenue from licence feesmaybeusedtofundunprofitable investments
incurred bytheuniversal service operator incertain regions.
118. Thelicence foruniversal services must beallocated bypublic tendering132;applicants must
meetspecified criteria interms oftechnical capacity, financial background andreliability. Thelicence
istobeawarded tothecompany relying leastoncompensatory payments forunprofitable investment.
According totheauthorities, while thenetcostofproviding universal services inSwitzerland may
reach uptoSwF500million atpresent, itwould notexceed SwF200million under draft law
provisions.133Licence transfers must beapproved bytheregulator.
119. Licences forradio communications areallocated oncondition thattheydonotresult inthe
elimination orsignificant reduction ofcompetition; theCompetition Commission istobeconsulted
inthiscontext (Article 30).
(ii) Postal services
120. Asinmost other OECD countries, virtually allpostal services arecurrently provided bya
public monopoly; courier services andnewspaper distribution areamong thefewexceptions. Adraft
Postal Law, currently inpreparation, foresees athree-tiered organization ofthemarket. Inanopen
area, PTT'spostal branch would compete withprivate suppliers; arange ofgeneral services would
beprovided either under public monopoly or,again, incompetition between PTTandprivate operators;
130ProTelecom (1994).
131Thelicensingrequirementappliesonlyfortechnicalreasons,accordingtoobservers(NeueZürcherZeitung,
24/25 February 1996). Press reports suggest thattheFederal Railways, Swiss Bank Corporation andMigros,
thecountry 'slargest retail chain, have formed analliance preparing formarket entry.
132Universal services arevoice telephony; packed-switched datatransmission; emergency calls; telephone
directories andpublic payphones. TheFederal Council maydeclare additional services asuniversal.
133Office fédéral delacommunication (1995).WT/TPR/S/13
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andasignificant range ofcoreservices, including letters andparcels uptospecified weight limits
(possibly 2kg.), would remain anexclusive public domain.134Theperpetuation ofsome current
monopoly arrangements isintended tohelpfundPTT'suniversal service obligation throughout the
country.135Toprevent private providers ofgeneral services from"cream skimming", theycould be
required toco-fund thisobligation; cross-subsidization between telecommunications andpostal services
would nolonger bepossible.
(7) Airtransport
(i) Economic background
121. TheSwiss aviation industry comprises threecompanies performing scheduled flights -including
Swissair, thenational flagcarrier -andfourcharter airlines. Among these, Swissair hasamarket
share of83percentforpassengers onscheduled flights (9.9million passengers in1994) and9per
centforpassengersoncharterflights(1.6million).136Intermsofpassenger-kilometres,with18.3billion
in1994, Swissair ranks fifthinEurope andsixteenth worldwide. TheGovernment holds aminority
stake inthecompany.137
122. Inaddition tothedomestic carriers, over80foreign airlines offerconnections withSwitzerland.
Reflecting theoperation ofbilateral aviation agreements, theirmarket share isintheorder of50per
centforscheduled international flights, contrasting with54percentforcharter andlessthan30per
centforfreight transport (1994). There isonlyweakcompetition between carriers onindividual routes,
reflecting mainly Switzerland 'snon-participation intheprocess ofEuropean integration andderegulation
inairtransport (Table IV.6). Bythesame token, Swissair islargely excluded from anincreasingly
dynamic market onitsdoorstep.
123. External business constraints havecoincided withinternal costproblems. Intheearly1990s,
Swissair ranked topinterms oflabour costs peremployee andoperating costs pertonne-kilometre
among themajor European airlines.138Although thecompany hasbeenabletoavoid losses since1990,
thisappears tobeduelargely torevenue from non-flight activities, suchascatering, andsales of
aircraft.139Between 1989and1994, Swissair 'sflight-related turnover grewby2.4percentperannum
asagainst costincreases forlabour of5.5percentandmaterial of6.1percent.
134Neue Zürcher Zeitung ,24/25 February 1996.
135Since thelate1970s, theSwiss PTT hassought tooffset mounting deficits initspostal branch with
telecom-related profits
136Office fédéraldel'aviation civile (1995). Thecharter lines are: Balair/CTA, TEA Basel, AéroJetand
Classic Air. Swissair owns Balair aswell asCrossair, thesecond largest scheduled carrier.
137FederalandcantonalparticipationinthecapitalofSwissairamountsto6percentand14percent,respectively.
138McGowan (1994).
139CréditSuisse (1995).Switzerland WT/TPR/S/13
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Table IV.6
Competition among westEuropean airports, 1994
Flights from/to Number of
observationsShare ofconnections withcarriers
other thanthenational flagcarrierConnections withprices below IATA
rates (business class)
Nosignificant competition
Zürich
Amsterdam
Helsinki
Rome20
24
22
225percent
17percent
10percent
18percent0percent
17percent
14percent
18percent
Newmarket entrants, butnosignificant price competition
Paris 25 28percent 8percent
Price competition among established flagcarriers
Frankfurt
Lisbon24
208percent
10percent29percent
40percent
Newentrants andprice competition
Copenhagen
Stockholm
Vienna
Madrid24
22
24
2221percent
45percent
33percent
32percent38percent
41percent
25percent
27percent
Fullcompetition
London 24 67percent 50percent
Source: Lüking etal(1995).
124. AirfaresinSwitzerland arereportedly thehighest inEurope. Forexample, inFebruary 1995,
flights from Zürich toLondon orParis were 86and52percentmore expensive, respectively, than
thereturn flights.140Inturn, thehighcostofairtransport hasadeterrent effect onSwitzerland 's
attractiveness fortravel-intensive business activities.
(ii) Domestic regulatory régime
(a) General features
125. According totheauthorities, Swiss airlines donotreceive anygovernment subsidies. Public
support isprovided mainly through thegranting ofexclusive route access, price controls andsome
additional regulatory measures.141Allnational airlines areprivately operated, without government
interference inbusiness decisions. Theregistration ofaircraft issubject tonational ownership and
management requirements.142
140Lüking etal(1995).
141Forexample, civil servants onduty must flySwissair whenever appropriate connections areavailable. Like
shareholders, they aregenerally entitled toadiscount of21percent.
142Thecraftmustbeownedbyeither:(i)Swissnationals;(ii)foreignersresidinginSwitzerlandandassimilated
toSwiss citizens byvirtue ofinternational accords concerning capital participations in,andthemanagement of
airtransport service firms; (iii)companies orco-operatives incorporated inSwitzerland andinscribed inthe
commercial register; (iv)collectives orcompanies established under Swiss public law; or(v)associations
constituted under Swiss commercial lawiftwothirds oftheir members andoftheir governing board, aswell
astheirpresident, areSwiss citizens orforeigners whoareassociated withthem byvirtue ofinternational accords
andwhoreside inSwitzerland.WT/TPR/S/13
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126. Policy implementation andenforcement ismainly through theFederal Office forCivilAviation
(FOCA), which operates under theFederal Department ofTransport, Communications andEnergy.
FOCA 'stasks include thedrafting oflegislation andinternational agreements.
(b) Access toroutes andairports
127. TheDepartmentofTransportmaydeclaretheoperationofroutestobein"thecommoninterest".
Thisimplies thatonlysemi-public ("gemischtwirtschaftliche ")carriers areadmitted ontheSwiss side.143
Allroutes currently served bySwissair aresubject tosuchadeclaration, access ofother carriers would
require bothSwissair 'sandtheFederal Railways 'assent.144Thestatus ofacommon-interest carrier
iscombined withtheobligation toregularly operate andoffer capacity onthedesignated route.
128. International traffic rights forpassengers andfreight aregoverned bybilateral agreements.
Inorder tocarry outoperations inSwitzerland, theforeign carrier musthavebeendesignated byits
home country. Current agreements areeither ofa"single designation" type, allowing onlyforone
carrier persignatory (e.g.withDenmark, Luxembourg, Norway, andSweden) orprovide for"multiple
designation". Most agreements arebased oncapacity sharing, barring some recent exceptions such
asanagreement withtheUnited Kingdom andan"open sky"agreement withtheUnited States.145
129. TheSwiss-internal cabotage market, mainly between Zürich andGeneva, isverylimited, given
therelatively small sizeofthecountry anditswelldeveloped railandroadlinks. Foreign-based carriers
areallowed onlytotakeonpassengers orfreight forcommercial flights between Swiss airports, if
theflights areatatimewhen nocapacity isoffered bySwiss-based companies. In1994, foreign carriers
transported lessthan120,000 passengers onSwiss-internal routes, incontrast withoveronemillion
passengers taken bySwiss airlines.
130. Swiss airports areowned andmanaged bythecantons. Theairport authorities regulate access
andtheallocation ofslots; according totheauthorities, grandfather rights generally apply. In1993,
Swissair lostitsground handling monopoly. Cantonal legislation nowallows airlines exceeding a
specified traffic share -4.5percentinGeneva and1.5percentinZürich -toprovide fortheirown
ground-handling, including check-in. Thecompanies mustnot,however, offersuchservices tothird
parties.146
(c) Price approval
131. Mostfaresinintra-European traffic aresubject todouble approval, i.e.theymustbeauthorized
byFOCA andtheother country 'scompetent authority. However, anincreasing number ofagreements
arebased onthecountry-of-origin principle, andthetariff régimes withtheUnited States, Singapore
andCanada provide fordouble disapproval.
143Thedeclaration isbased onArticle 103oftheLaw onAirTransport (Luftfahrtgesetz ,LFG).
144InJuly1994, alicence application bythecharter company TEA fortheGeneva-Z ürichroute wasrefused
onthegrounds of"common interest". Office fédéraldel'aviation civile (1995).
145Theagreement withtheUnited Kingdom allows formultiple designation, imposes norestrictions oncapacity,
andapplies thecountry-of-origin principle totariffs.
146OECD (1995b).Switzerland WT/TPR/S/13
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132. While seeking toprevent "grey market" pricing aswellas"private" or"negotiated" fares,
FOCA considers itsapproval practice asliberal.147Fares forincoming traffic are"nearly always"
authorized, andspecial faresforoutgoing flights mayundercut theIATA reference ratesforaneconomy
classreturn ticket byupto25percent(higher discounts maybeapproved ifrequired bythemarket
situation).148However, FOCA rejects faresthatwould leadtotraffic diversion. InSeptember 1995,
FOCA thusobjected toratesfiledbyBritish Midland, aprivate UK-based carrier, foraZürich-London
service; theproposed rateswere 26percentcheaper thanforaSwissair orBAflight.149
133. Similar considerations apparently apply inthecharter segment ofthemarket. InOctober 1994,
aTurkish carrier 'sflight programmes wasdisapproved byFOCA which noted, interalia,thatthe
envisaged pricing strategy would havehampered theSwiss companies 'market access.150
(iii) International developments
134. Swissair maintains various forms ofco-operation withother international airlines. In1989,
itentered intoanalliance withDelta (United States) andSingapore Airlines providing, among other
things, forcode-sharing, common flight numbers, andpooled frequent flyerarrangements. Asimilar
alliance exists withAustrian Airlines.
135. In1995, Swissair acquired a49.5percentstake inSabena, theBelgian national flagcarrier.
Given acontinued Belgian capital majority, theacquisition didnotaffect Sabena 'sstatus asa"domestic"
carrier under EUlegislation and,thus, itscabotage rights.151Bythesame token, thecommercial
advantages forSwissair seemtoconsist mainly ofcostsavings viacloser route planning andthepooling
oftechnical facilities, equipment andstaff. Swissair doesnotqualify forEUorEEA carrier status
and,thus, isdeprived oftheefficiency gains resulting from cabotage rights andunconstrained route
strategies inalarger European market.152While thistends toaffect Swissair 'sattractiveness asapartner
forcommercial alliances, Swiss passengers areconfronted withhigher prices andfewer connections
147Office fédéraldel'aviation civile (1995).
148Allspecialfaresaresubjecttothesameconditionsconcerningminimumstay,reservation,ticketing,payment
method, advance reservation foroutgoing andincoming flight, andsanctions forrebooking, rerouting and
cancellation.
149Financial Times, 12September 1995.
150Office fédéraldel'aviation civile (1995).
151Within theEU,national exclusivity rights andmost restrictions onbusiness decisions have disappeared
incommer cialairtransport.Ifprescribedconditionsaremet,memb erStatesarerequiredtolicenceanyEU-based
airline,grantfullrightstocabotage(withvariousexemptionsuntilmid-1997),andaccep talmostanyfarescharged.
SeeWTO (1995).
152However, inthecontext oftheacquisition, aninitial "single designation" agreement forflights between
Switzerland andBelgium wasabolished; anySwiss- orBelgian-based carrier mayhenceforth beauthorized.
Furthermore, fourEEA-based carriers haveobtained therighttoinclude theSwitzerland-Belgium route inflights
starting orending inside theEEA ("fifth freedom").WT/TPR/S/13
Page 90Trade Policy Review
thanpassengers inside theEU. Theprice disadvantage hasbeenestimated atsome SwF80million
perannum.153
136. Bilateral negotiations withtheEUontheliberalization oftraffic rights, licensing andfares
arecurrently under way. Thenegotiations donotapparently cover cabotage.
137. Intheareaofairtransport, Switzerland 'sGATS commitments arelimited toaircraft repair
andmaintenance services. Switzerland hasnotbound consumption abroad ofthese services, thus
retaining thepossibility ofrequiring carriers tousedomestic repair andmaintenance facilities. The
selling andmarketing ofairtransport services andcomputer reservation system services havebeen
listed asm.f.n. exemptions under Article IIoftheGATS; Switzerland hasreserved therights towaive
obligations under therevised Code ofConduct oftheEuropean Civil Aviation Conference (ECAC)
ifnoequivalent treatment isaccorded inthehome country ofthesystem vendor 'sparent carrier.
(8) Motor Vehicles (Imports, Sales andMaintenance)
(i) Economic background
138. Although Switzerland hasnomotor vehicle production onacommercial scale, activities related
tothesector amount toover3percentofGDP. Some 70,000 persons arecurrently engaged incar
trade, repair andmaintenance activities (representing anannual turnover ofSwF23billion in1993),
bodywork andrelated sectors (SwF1billion) andpetrol stations (SwF7billion).154Reflecting a
highlevelofmarket penetration andtheeconomic recession, salesofpassenger cars,buses andtrucks
consist mostly ofreplacements andhavenotexceeded anannual volume of270,000 since 1992. Most
international manufacturers share inthemarket, withthetwolargest firms, Opel(GM) andVolkswagen-
Audi, accounting for15and14percent, respectively, oftotalsalesin1993 (Chart IV.9).155
139. Despite lowlevels ofborder protection, carprices inSwitzerland donotcompare favourably
withother European countries. A1993survey quoted bytheCartel Commission showed that,while
luxury models were4percentcheaper thaninselected EUmember States, Swiss prices forlarge-volume
vehicles were 8percenthigher.156Arecent prohibition onsales toSwiss residents, imposed bya
German producer onitsItalian dealers, testifies tosizeable price differences intherelevant market
segment.157
153Lükingetal(1995).Theestimatesdonottakeintoaccountcustomsproceduresforpassengersandformalities
forfreight.
154Estimates bytheAssociation ofSwiss CarImporters (Association desimportateurs suisses d'automobiles,
AISA).
155Handelszeitung ,10March 1994.
156Thereference countries were Belgium, Denmark, Germany, France, Italy, Spain andtheNetherlands.
Theprice comparisons given inChart III.1arebased onactual retail prices (including tariffs, sales andexcise
taxes) and,thus, notcomparable withtheabove estimates which arenetofduties andtaxes.
157LeNouveau Quotidien ,2November 1995. SeealsoChapter III(5)(ii)(c).Switzerland WT/TPR/S/13
Page 91
140. Significant pricegapsalsoexistforspare parts. Astandard basket ofparts(bumpers, bonnets,
doors, generators, radiators, etc.), compared forsixdifferent models in1995, wasbetween 31and
46percentmore expensive inSwitzerland thaninGermany.158Notsurprisingly, theAssociation of
Swiss Bodyworkers hascomplained about anincreasing share ofcarrepairs doneabroad.159
141. A1994study bytheCartel Commission focused ontheimpact ofprivate business arrangements
andtechnical regulations oncompetition inthesector; mainfindings aresummarized inTable AIII.2.
(ii) Border measures
142. There isnoevidence ofsignificant border measures inthesector apartfrom-relatively modest -
tariffs andfiscal duties oncarsandcertain carparts. Thefiscal duties alsoapply toimports from
Switzerland'sfree-tradepartners,includingtheEuropeanUnion,EFTAcountriesandcentralandeastern
European countries. Under current draftlegislation, theyareduetobeconverted intoa4percent
consumption taxin1997.
158Thecomparison wasmade forOpelAstra (1.4i GLS), BMW 325i, VWGolfGTI, Audi 80(2.0E),Toyota
Corolla 1600 (GLI), andMercedes 190E 2.6. Theprice gap,netofduties andtaxes, washighest fortheOpel
andlowest fortheMercedes andToyota models. Kassensturz ,6September 1995.
159Commission suisse descartels (1994c). Thepresentation inthissection relies strongly onthisstudy.WT/TPR/S/13
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143. Import duties -i.e.tariffs andfiscal duties -across allcarcategories averaged 5.5percent
in1995(HS87;Chart III.4).160While under Switzerland 'sUruguay Round commitments, theduties
oncars(HS8703) aretobereduced by15percentonaverage by1999, certain items arenotscheduled
foranyreduction (Table IV.7). Given thatallduties arespecific, theirincidence isconsiderably higher
atthecheaper endofthemarket; duties onsecond-hand vehicles mayreach deterrent levels.
Table IV.7
Tariffs andfiscal duties onselected motor vehicle categories, 1995 and1999
(Swiss francs andpercent)
Tariff anddutyrates
(SwFper100kg.)Advalorem
ratea
(percent)
1995 1999 1995
H.S. Products M.f.n.bEUandEFTAcM.f.n. M.f.n.b
8702.10.10 Passenger vehicles fortransport ofat
least10persons <1,600 kg.
Passenger cars(engine volume:
1500 to3000 cm3)81 81 15 4.3
8703.23.20 (a)weight :1,200 -1,600 kg. 81 67 81 5.8
8703.23.30 (b)weight: above 1,600 kg. 96 81 15 1.2
a Bound asalternate rateinSwitzerland 'sUruguay Round Schedule.
b Tariff plusfiscal duty.
c Fiscal dutyonly.
Source: Schedule LIX-Customs Union Switzerland -Liechtenstein.
144. Under theGATS, Switzerland hasbound market access andnational treatment forwholesale
andretail trade across many product areas, including motor vehicles andparts, subject tospecified
limitations.161RepairandmaintenanceserviceshavenotbeenincludedinSwitzerland'sGATSSchedule.
(iii) Technical regulations
145. Allmotorvehiclesandspecifiedpartsmustbetype-approved(homologated)toensurecompliance
withtechnical regulations.162Since October 1995, vehicles conforming totheEuropean Union 's
type-approvalsystemcanbedirectlyregisteredinSwitzerlandwithoutundergoing(potentiallyexpensive)
individual testandcertification procedures. Some 50newcarmodels arecurrently covered bythe
160Asexplained inChapter III(2)(i)(a), theadvalorem equivalents given inthisreport have generally been
estimated onthebasis of1994 customs data. According totheauthorities, passenger carsunder HS8703.23.20
actually carried arateof4.14 percentinthesecond halfof1995.
161Natural persons wishing tooffer retail services inSwitzerland must establish acommercial presence; and
somecantonsmayrestrictgeographicalsalesareas.Inaddition,therearetheusualhorizontallimitationsconcerning
thepresence ofnatural persons etc.
162Thestated purpose ofthehomologation requirement istoensure thatvehicles aresafeandcorrespond
totheinformation supplied bymanufacturers.Switzerland WT/TPR/S/13
Page 93
EUsystem. Bycontrast, vehicles approved byindividual EUmember States andbythirdcountries
remain subject toanindividual homologation procedure.163
146. Individual consumers importing EU-homologated carsmayrefer totherelevant documents
prepared by,andapproved for,acompany 's"official" agent inSwitzerland. Allcommercial importers
(i.e.persons importing more thanonecarperyear) aresubject toanimporter 'slicensing feewhich
israised ataflatrateofSwF300,ifthecarhasalready beenhomologated inSwitzerland.
(iv) Dealership arrangements
147. While there arenolegal restrictions preventing foreign firms from establishing their own
distribution systems inSwitzerland, therequired investment inphysical andhuman capital mayimply
significant costs. Arange ofmanufacturers thusoperate viacommercially independent importers and
retailers, insome cases eventhrough thesame company. Forexample, EmilFreySAimports Rover,
severalJapaneseandothermakesandrepresents,asretailer,Mercedes,BMWandsomeotherproducers.
Private andcommercial imports outside official supply channels didnotexceed 1percentin1993.164
148. Distributioncontractswithforeignmanufacturersnormallyprohibitparallelimportsbyimporters
andtheirgarages.165Thelatter areobliged topurchase allsupplies through "official" channels and
nottouseparts other thanthose labelled as"original" bythemanufacturer. Thismayinclude parts
suchasairbags, which areproduced inSwitzerland, exported, packed andlabelled, andre-imported.
Garages arenormally obliged bymanufacturers orimporters tokeepaspecified range andlevelof
stock; prices anddiscounts aredetermined onthebasisofsalesvolumes. Despite stiffening cross-border
competition, there isthuslittlescope foractive pricing strategies.
149. Withthegradual disappearance ofstandards-related protection, foreign manufacturers andtheir
"official" distributors mayseekandusealternatives -including exclusivity rights under trademark
legislation orexport prohibitions -todefend their current prices andrents intheSwiss market
(Chapter III(5)(ii)(c)).
163Forexample,inNovember1993,registrationofa1993MazdaCronosESpurchasedinCanadawasobtained
only after tests forexhaust andnoise emissions, atacostofSwF1,250 andSwF200, respectively, and
adjustments tothelighting system (SwF2,000). Total costamounted toover10percentofthecar'sinitial
retail price.
164Commission suisse descartels (1994c).
165TheCartelCommissionhasrecommen dedeliminatingthepossibilityofsanctionsagainstgaragesimporting
orre-exporting products ofthebrand theyrepresent.WT/TPR/S/13
Page 94Trade Policy Review
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