RESTRICTED
WORLD TRADE WT/TPR/S/13
26April 1996
ORGANIZATION(96-1519)
TRADE POLICY REVIEW
SWITZERLAND
Report bytheSecretariat
Thisreport, prepared forthesecond Trade Policy Review ofSwitzerland, hasbeen
drawn upbytheWTO Secretariat onitsownresponsibility. TheSecretariat has,
asrequired bytheAgreement Establishing theTrade Policy Review Mechanism
(Annex 3oftheMarrakesh Agreement Establishing theWorld Trade Organization),
sought clarification from theGovernment ofSwitzerland onitstrade policies and
practices.
Document WT/TPR/G/13 contains thepolicy statement submitted bytheGovernment
ofSwitzerland.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onSwitzerland.Switzerland WT/TPR/S/13
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS xi
(1) TheEconomic Environment xi
(2) International Economic Integration xi
(3) Trade Policy Trends xi
(4) Sectoral Policy Developments xii
(i) Agriculture andfood processing xii
(ii) Manufacturing xiii
(iii) Services xiii
(5) Trade Policies andForeign Trading Partners xiv
I. THE ECONOMIC ENVIRONMENT 1
(1) Introduction 1
(2) TheRecession andSubsequent Recovery 1
(i) Composition andgrowth ofGDP andemployment 1
(ii) Prices 3
(iii) Exchange ratedevelopments 4
(iv) Thebalance ofpayments 5
(v) Developments intrade ingoods 5
.
II. TRADE POLICY INACHANGING ENVIRONMENT 10
(1) External Challenges andInternal Reform 10
(2) Trade Policy Objectives andRecent Initiatives 11
(i) Strengthening theWTO 11
(ii) Co-operation inother international fora 13
(iii) Upgrading regional andbilateral trade relations 13
(a) Relations withtheEuropean Union 13
(b) New preferential arrangements 15
(c) Preferences fordeveloping countries 15
(d) Non-preferential co-operation 16WT/TPR/S/13
Page ivTrade Policy Review
Page
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT 17
(1) Main Features 17
(2) Tariffs andTrade-related Taxes andCharges 19
(i) Border taxation 20
(a) Import tariffs 20
(b) Additional duties andcharges onimports 25
(c) Export taxes 26
(ii) Internal taxation 26
(a) Turnover tax 26
(b) Excise duties 27
(3) Other Policies Directly Affecting External Trade 27
(i) Licensing requirements 27
(ii) Trade controls, prohibitions andsanctions 27
(iii) Trade defence mechanisms 29
(iv) Rules oforigin 29
(v) Local-content andlocal-purchase requirements 30
(vi) Countertrade 30
(vii) Export facilitation andpromotion policies 30
(a) Export subsidies 30
(b) Export finance 30
(c) Export insurance andguarantees 31
(4) Policies Influencing Adjustment, Growth andTrade 32
(i) Internal market liberalization 32
(ii) Standardization policies 34
(a) General orientation 34
(b) Initiatives withanenvironmental background 35
(c) Labelling andother information requirements 36
(iii) Government procurement 36
(a) International obligations 36
(b) Domestic legislation 38
(c) Market structure 38
(iv) Regional andsectoral intervention 39
(v) Support forresearch anddevelopment 40
(5) Other Policies Affecting Market Allocation andTrade 41
(i) Competition policy 41
(a) Cartels andsimilar arrangements 41
(b) Price regulation andsurveillance 43
(c) Exclusivity rights (State trading) 43
(ii) Intellectual property protection 45
(a) Overview 45
(b) Policies inindividual areas 45
(c) Provisions affecting parallel imports 47Switzerland WT/TPR/S/13
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Page
IV. SECTORAL POLICY PATTERNS AND TRENDS 49
(1) Overview 49
(2) Direction ofStructural Change 50
(3) Agriculture 53
(i) Pressure towards change 53
(ii) Adjustments under theWTO Agreement onAgriculture 55
(a) Import protection 55
(b) Domestic support 58
(c) Export subsidies 58
(iii) Direction offuture reform 59
(iv) Sectoral policy patterns 59
(a) Milk anddairy products 60
(b) Livestock, meat andother animal products 63
(c) Cereals andcereal products 64
(d) Vegetal andprocessed products 66
(e) Wine 67
(4) Construction 68
(i) Economic background 68
(ii) Market access 69
(a) International obligations 69
(b) Rules governing internal competition 69
(c) Labour market regulations 69
(d) Standards andauthorization requirements 70
(e) Land ownership regulations 71
(iii) Outlook 71
(5) Financial Services 71
(i) Banking andfund management services 71
(a) Economic background 71
(b) Regulation andsupervision 73
(c) Rules governing fund management activities 75
(d) International developments 75
(ii) Insurance 76
(a) Economic background 76
(b) Regulation andsupervision 77
(c) International commitments 79WT/TPR/S/13
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Page
(6) Telecommunications andPostal Services 80
(i) Telecommunications 81
(a) Economic background 81
(b) Current regulatory environment 81
(c) Pressure forchange 83
(ii) Postal services 85
(7) AirTransport 86
(i) Economic background 86
(ii) Domestic regulatory régime 87
(a) General features 87
(b) Access toroutes andairports 88
(c) Price approval 88
(iii) International developments 89
(8) Motor Vehicles (Imports, Sales andMaintenance) 90
(i) Economic background 90
(ii) Border measures 91
(iii) Technical regulations 92
(iv) Dealership arrangements 93
REFERENCES 94
APPENDIX TABLES 99Switzerland WT/TPR/S/13
Page vii
CHARTS
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Exchange ratedevelopments, 1989-95 4
I.2 Merchandise trade bysector, 1989 and1994 8
I.3 Merchandise trade bypartner, 1989 and1994 9
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT
III.1 Consumer prices inSwitzerland, France, Germany, Austria andItaly, 1994 18
III.2 Federal Budget, 1996 20
III.3 Tariffs onagricultural products, 1995 22
III.4 Tariffs onmanufactured products, 1995 23
III.5 Structure ofpublic expenditure (current purchases andinvestment), 1993 39
IV. SECTORAL POLICY PATTERNS AND TRENDS
IV.1 Switzerland 'sforeign investment position (stocks), 1993 52
IV.2 Agricultural protection (PSEs) anduseoffertilizers invarious OECD countries,
1987-90 53
IV.3 Production, imports andexports ofagricultural andfood products, 1994 60
IV.4 Producer prices formilk inSwitzerland, theEuropean Union andthe
United States, 1990-2000 63
IV.5 Foreign commercial presence intheSwiss banking sector, 1985-94 73
IV.6 Premium income ofSwiss insurance companies bysource, 1994 76
IV.7 Legal limits oninvestments ofinsurance andpension funds inindividual assets
(technical reserves) 79
IV.8 Tariffs forleased lines inEuropean countries, 1996 84
IV.9 Swiss passenger carmarket bymain suppliers, 1993 91WT/TPR/S/13
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TABLES
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Major features oftheSwiss economy, 1989 and1994 1
I.2 Economic developments, 1989-95 2
I.3 Balance ofpayments, 1989-95 5
I.4 Merchandise trade developments, 1989-95 6
II. TRADE POLICY INACHANGING ENVIRONMENT
II.1 Principal notifications inthecontext ofimplementing WTO Agreements, March 1996 12
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT
III.1 Advalorem tariff equivalents forselected farm products, 1995 24
III.2 Tariff escalation inselected sectors, 1995 25
III.3 GSPutilization rates, 1991-94 25
III.4 Technical barriers affecting imports from countries participating inthe
European Economic Area (EEA), 1995 34
III.5 Value thresholds under theWTO Agreement onGovernment Procurement by
typeofexpenditure, 1996 37
III.6 Exclusivity arrangements affecting production ortrade, 1996 44
IV. SECTORAL POLICY PATTERNS AND TRENDS
IV.1 Sectoral impact ofcurrency appreciation 50
IV.2 Implementation ofmarket access commitments viatariff quotas, 1995 57
IV.3 Export-subsidy commitments, 1995 and2000 58
IV.4 TheConfederation 'sdairy account, 1989-94 61
IV.5 Market access conditions forforeign-based insurance companies, 1996 78
IV.6 Competition among west European airports, 1994 87
IV.7 Tariffs andfiscal duties onselected motor vehicle categories, 1995 and1999 99Switzerland WT/TPR/S/13
Page ix
APPENDIX TABLES
Page
AIII.1 Agricultural andfood products carrying tariffs (advalorem equivalents) ofover
100percent, July-December 1995 101
AIII.2 Reports bytheCartel Commission andsubsequent policy changes, 1991 tomid-1995 104
AIV.1 Real production bysector, 1990-94 109
AIV.2 Employment bysector, 1990-94 110Switzerland WT/TPR/S/13
Page xi
SUMMARY OBSERVATIONS
(1) TheEconomic Environment
1. Since theinitial Trade Policy Review of
Switzerlandin1991,theeconomyhasundergone
asevere recession, putting anabrupt endto
eight years ofcontinuous economic growth.
While expansion resumed in1993and1994, the
economy wasstagnant in1995, andzerogrowth
isexpected in1996. Unemployment hasrisen
toover4percent, unprecedented inrecent
decades, andshows fewsigns ofdeclining.
2. Strong currency appreciation, atsome
11percentinrealterms between 1993 and
1995, hasslowed therecovery process and
exacerbated structural tensions intheSwiss
economy. While finance and innovative
manufacturingindustriessuchassomechemicals
andadvanced electronics haveperformed well,
traditional manufacturing sectors andtourism
haveshrunk. Theexpanding share ofservices
inproduction andemployment reflects atrend,
across andwithin branches, tofocus on
headquarters andrelated functions andrelocate
many manufacturing activities abroad.
3. Merchandiseexportsremain
concentrated inafewsectors, particularly
machinery,instruments,watches,chemicalsand
medicinal products. Exports ofcommercial
services amounted tosome US$20 billion in
1994, onequarter originating inthefinancial
sector. With recession, Switzerland 'strade
balance swung into surplus, although
merchandise exports grewslowly, at4percent
inrealterms between 1993 and1995.
(2) International Economic Integration
4. The Swiss economy ishighly
internationally integrated, capitalizing onan
open trade régime forindustrial products.
Tariffs onmanufactures aregenerally low,and
there arenoquantitative restrictions, anti-
dumping, countervailing orsafeguard actions.5. Preferential suppliers, inparticular the
European Union andcentral andeastern
European countries, have recently gained
ground intheimport market. Trade under the
1972free-tradeagreementwiththeEUcurrently
represents some four fifths ofmerchandise
imports andtwothirds ofexports. Within
EFTA, Switzerland hassince 1991 concluded
twelve preferential agreements withcentral and
eastern European andMediterranean countries
toensure access conditions similar tothose
available totheEuropean Union.
6. Despite liberal access conditions,
Switzerlandremainsahigh-pricecountry.Many
retail prices compare unfavourably with
neighbouring markets, reflecting strong farm
protection andweak internal competition fora
range ofgoods andservices. Market entry has
long suffered from "private" or"informal"
barriers which canbeattributed toalegacy of
weak anti-cartel legislation, specific and
protective technical regulations, certain
investment restrictions, andexclusivity rights
under intellectual property legislation.
(3) Trade Policy Trends
7. Since theearly 1990s, Switzerland 's
trade policy environment haschanged rapidly.
Theprocess ofEuropean integration has
intensified, andtheUruguay Round hasoffered
major opportunities forfurther multilateral
liberalization. Therejection oftheEuropean
Economic Area (EEA) byreferendum in1992
increasedtheimportanceoftheUruguayRound,
prompted areconsideration ofthecountry 's
European links, andinspired anautonomous
programme ofeconomic reform (the
"revitalization programme").
8. Participation intheEEAwould have
resulted inSwitzerland 'simmediate adoption of
EUlegislationonservices,technicalregulations,
government procurement andcompetition. This
would havehelped toharmonize standards and
eliminate cartel-related access barriers and,inWT/TPR/S/13
Page xiiTrade Policy Review
addition, ensured freecirculation ofEEA-
originatinggoods,servicesandpersonsbetween
Switzerland andother members. Questions of
bilateral market integration, extending toareas
suchastechnical regulations, ground andair
transport andmovement ofpersons, havesince
been addressed innegotiations withtheEU.
Theyareconsidered toformasingle package
andhadnotbeenconcluded atthetimeofthis
report.
9. Therevitalization programme, adopted
in1993, aims toremove distortions inthe
incentive system, eliminate regulatory barriers
totrade, improve internal factor mobility and
inject more competition inpreviously protected
markets. Themain elements are:
- athorough overhaul ofcompetition
policy which, under anewCompetition
Law from mid-1996, istogain
significantly instrength andcoverage;
- removal ofstandards-related barriers
andharmonization ofdomestic with
international requirements under the
1995 LawonTechnical Barriers to
Trade;
- further integration ofdomestic product
andfactor markets under thenewLaw
ontheInternal Market, which entitles
Swiss residents and Swiss-based
companies tooffergoods, services and
theirlabour inanycanton orcommune;
- improved access topublic procurement
markets following theadoption ofthe
FederalLawonGovernment
Procurement andtheratification ofan
Intercantonal Concordat, based onthe
provisions oftheWTO Agreement on
Government Procurement; and
- theintroduction ofvalue-added tax,
which hasremoved animplicit premium
onvertical business integration anda
biasagainst exports.10. Further measures building onthe
revitalization programme and aimed at
eliminating, curtailing orstreamlining
monopolies areplanned inareas such as
agriculturalmarketing,telecommunicationsand
postal services, electricity andrailways.
11. While these reforms should, intime,
remove many traditional obstacles tofactor
mobility andtrade, other restrictions remain,
including limitations onforeign access toSwiss
landandlabour markets. Such limitations,
originallydesignedtoprotectemploymentorthe
country 'sidentity, continue toundermine the
resilience offactor markets andinhibit the
economy 'sflexibility toadjust.
12. Intheabsence ofaruling bytheFederal
Court, itisnotclear whether Switzerland 's
trademark legislation, revised in1992, canbe
usedtoexclude parallel imports. While the
Federal Council hasindicated thepossibility of
concluding reciprocal agreements withtrading
partners toremove intellectual property-related
trade barriers, autonomous changes toachieve
thesame endareapparently notenvisaged.
Market segmentation maybecompounded by
private trade restrictions designed tounderpin
highimport prices. Some evidence ofthishas
recently emerged fromaprohibition byanEU-
based carmanufacturer onitsdealers inItaly
toselltoSwiss residents, following theremoval
ofregulatory import barriers bySwitzerland.
Swiss competition lawprovides littlescope for
remedial action insuchcases, andnoeffective
international mechanism forredress exists.
(4) Sectoral Policy Developments
(i) Agriculture andfoodprocessing
13. Switzerland haslongoperated avariety
ofhighly interventionist agricultural policy
schemes with production, income and
environmental objectives. However, since the
early 1990s pressures forreform havegrown
asnegotiating requirements intheUruguay
Round coincided withinternal economic and
ecological constraints.Switzerland WT/TPR/S/13
Page xiii
14. Asafirststep,in1992, theGovernment
announced agradual shiftinfarmsupport from
priceintervention towards direct payments. The
newpolicy gained momentum through the
Uruguay Round implementing legislation and
istobestrengthened through the"Agricultural
Policy 2002" initiative, released forpolitical
consultation inOctober 1995. Thisseeks to
abolishexclusivemarketingchannels,
guaranteed producer prices andproduction
quotas, andtocondition State support on
ecological criteria. However, theauthorities
seeacontinuing needtopromote production in
sectors suchascereals, potatoes, sugar and
oilseeds withhighlevels ofassistance. Recent
estimates suggest thatfullincome compensation
forWTO-relatedreforms(includingtariffication)
could leadtoanincrease infederal outlays of
between 17and24percentovertheir 1993
level.
15. Theconversion ofnon-tariff import
restrictions into tariffs has increased
transparency, butisunlikely totranslate into
brisk expansion oftrade. Theaverage ad
valoremequivalentofSwitzerland'sfarmtariffs,
capturing both in-quota and out-of-quota
supplies, wasestimated atover80percentin
1995. Import entitlements under tariff quotas
areawarded under various mechanisms,
including thetraders 'pastimports, anauction
procedure, afirst-come-first-served approach,
andprorataallocation. Under the"prise en
charge" system, quota access iscontingent on
thepurchase ofdomestic output.
(ii) Manufacturing
16. Thechemical sector hasbeen the
strongest performer inrecent years, relying
mainly onpharmaceuticals, withrealgrowth
ofoveronethirdbetween 1990and1994. Swiss
firms havealsoshown strength inspecialized
areas suchasprecision engineering, clocks and
watches, contrasting withstrong adjustment
pressures inheavy engineering, clothing and
electrical equipment. These trends, although
accentuated bycurrency appreciation, reflect
moves incomparative advantage towardseducation- andskills-related production and
awayfromtraditionalcapital-intensiveactivities.
Asinthepast,structural change inSwitzerland
isessentially market-driven, without significant
policy intervention.
17. Current efforts toestablish pan-
European rules oforigin, covering theEEA,
Switzerland andcentral andeastern European
countries,mayfacilitategreateroutsourcingand
easepressures onclothing andother"sensitive"
industries.
(iii) Services
18. Airtransport isamong theindustries
mostly affected bySwitzerland 'snon-
participation intheEEA. Without EEAcarrier
status,Swissaircannotgaincabotagerightsand
remains restricted initsroute strategies inthe
larger European market. Inturn,higher travel
costs andfewer connections thanamong EEA
members haveanadverse impact onthesector.
19. Profitability problems inaviation
contrast withtheperformance ofbanking and
insurance, where employment grew byover
10per cent between 1989 and 1994.
Swiss-based banks relyoninternational markets
forabout athirdoftheirassets andliabilities.
Giventheconcentrationoftheirforeignactivities
on investment banking and portfolio
management, rather than onrelatively
unprofitable retail banking, non-participation
intheEEA hasnotseriously affected their
market position intheEU.Under theGeneral
AgreementonTradeinServices,Switzerlandhas
bound commercial presence, consumption
abroad andcross-border supply forafullrange
ofbanking andinvestment services, buthasnot
bound cross-border supply ofinsurance.
20. Parts oftheSwiss telecommunications
services market havebeenopened sincethelate
1980s; andliberalization ofallservices,
includingvoicetelephonyandthebasicnetwork,
isscheduled for1998. Mainly forconstitutional
reasons, theConfederation istoretain a
majority share inPTTTelecom which, however,WT/TPR/S/13
Page xivTrade Policy Review
isrequired tooperate under commercial
conditions. Inanticipation ofthenew
environment,PTTiscurrentlyseekingtodevelop
orexpand strategic positions through
acquisitions. Cross-subsidization isprohibited
between openandmonopoly activities, butthis
mayprove difficult toprevent.
(5) Trade Policies andForeign Trading
Partners
21. Switzerland'ssupportforthemultilateral
trading system isrooted initstradition of
independence. Thus, although thegreatest part
ofitsmerchandise trade iswithonepreferential
partner, theEuropean Union, thecountry has
played asignificant, autonomous rôleinthe
WTO andthedevelopment oftheUruguay
Round Agreements. Swiss trade policies have
notgiven risetoGATT/WTO dispute settlement
cases formany years, andSwitzerland 'sWTO
implementing legislation wasnotchallenged
domestically byreferendum, despite itsimpact
onagriculture andthelack ofimmediate
employment alternatives inafaltering economy.22. TheUruguay Round implementation
programme, complemented byintensified
competition within Europe, willhelptoadvance
economic liberalization and deregulation.
Building ontheUruguay Round results,
Switzerland supports anambitious work
programme fortheWTO, including further
negotiations inareas such astrade-related
aspects ofintellectual property rights; thetrade
effects ofindustrial, environmental andsocial
policies; andcompetition rules. While this
programme may,tosomeextent, beinspired by
Switzerland 'snon-participation intheEEA, it
also reflects thegenuine concern ofa
medium-sized trading nation, withadvantages
inservices andmodern manufacturing, to
develop policies andconduct itstrade ina
transparent, non-confrontational multilateral
setting.