EMBARGO: NOT FOR PUBLICATION
BEFORE 1300 GMT 29MAY 1996
PRESS/TPRB/31
22May1996
ECONOMIC REFORM INSWITZERLAND SPURRED ONBYURUGUAY ROUND
RESULTS AND STRONGER EUROPEAN COMPETITION
Since 1993, Switzerland hasacted onvarious policy fronts -specified inthecontext ofa
"revitalizationprogramme"anditsrecentimplementationoftheUruguayRoundagreements-toenhance
competition,shedinternalbarrierstofactormobilityandtrade,andreformulatepoliciesinsuchprotected
areasasagriculture andservices. According toaWTO Secretariat report onSwitzerland 'stradepolicies
andpractices, the"revitalization programme" wasmotivated mainly bytheperceived need, afterSwiss
voters 'rejected theEuropean Economic Area (EEA), tokeep pace with European regulatory
developments. Reforms arebeing implemented atatimeofsluggish growth andrelatively highand
persistent unemployment, withstrong currency appreciation exacerbating structural tensions intheSwiss
economy. While finance andinnovative manufacturing industries, including pharmaceuticals and
advanced electronics, areperforming well, many traditional industries andtourism areexperiencing
strong adjustment pressures.
According totheSecretariat 'sreport, Switzerland 'seconomic momentum hassuffered from
alegacy ofweak anti-cartel legislation, tightnational standards, certain investment restrictions, and
alackofinternal market integration. Reflecting both"private" or"informal" access barriers andhigh
levels offarm protection, retail prices formany goods andservices compare unfavourably with
neighbouring countries. Inturn,asheltered domestic sector, including many infrastructural services,
hashindered theeconomy 'soverall performance andcompromised thebenefits ofagenerally liberal
trade régime formanufactures. (Switzerland doesnotusequantitative restrictions, anti-dumping,
countervailing orsafeguard measures.)
Recent reform efforts havenotspared agriculture, which hastraditionally beensubject tohighly
interventionist policies forproduction, income andenvironmental objectives. Asafirststepin1992,
theGovernment announced agradual shiftinfarm support from price intervention towards direct
payments. Thereport states thatthenewpolicy gained momentum inthewake oftheUruguay Round
andistobestrengthened through the"Agricultural Policy 2002" initiative, released forpolitical
consultation inOctober 1995. Theinitiative seeks toabolish exclusive marketing channels, guaranteed
producer prices andproduction quotas, andtocondition public support onecological criteria. With
aview topromoting production, however, theauthorities haveearmarked sectors suchascereals,
potatoes, sugar andoilseeds forhighcontinued levels ofassistance.
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Amongservicessectors,thereportconsidersairtransportasparticularlyaffectedbySwitzerland's
non-participation intheEEA. Without EEA carrier status, Swissair cannot gaincabotage rights and
remains restricted initsroute strategies inthelarger European market. Swissair 'seconomic problems
contrast withtheperformance ofbanking andinsurance, where employment grewbyover10percent
between 1989 and1994. According tothereport, Swiss-based banks relyoninternational markets
forabout athirdoftheirassets andliabilities. Given theconcentration oftheirforeign activities on
investment banking andportfolio management, rather thanonrelatively unprofitable retail banking,
non-participation intheEEAhasnotseriously affected theirmarket position intheEuropean Union.
UndertheGeneralAgreementonTradeinServices(GATS),Switzerlandhasboundcommercialpresence,
consumption abroad andcross-border supply forafullrange ofbanking andinvestment services, but
hasnotincluded cross-border supply ofinsurance.
Parts ofthetelecommunications services market havebeenopened since thelate1980s and
liberalization ofallservices, including voice telephony, andofthebasicnetwork isscheduled for1998.
While PTTTelecom willberequired tooperate under commercial conditions, thereport notes that
itiscurrently aiming forstrategic acquisitions todevelop itsmarket position. Cross-subsidization is
prohibited between openandmonopoly activities but,according tothereport, mayprove difficult to
prevent inpractice.
Althoughlegislationinmanytrade-relatedareashasbeenalignedwithinternational,inparticular
EUrulesandprinciples, thereport identifies regulatory problems preventing fullmarket integration.
Acaseinpoint areattempts bySwiss importers toinvoke intellectual property provisions withaview
toshielding exclusive arrangements from"unauthorized" supplies. ItisnowforSwitzerland 'sFederal
Court toclarify thescope oftrademark legislation intheseinstances. While theGovernment isprepared,
inprinciple, toconclude reciprocal agreements withtrading partners toremove intellectual property-
related barriers, autonomous legislative changes areapparently notenvisaged. According tothe
Secretariat report, market segmentation maybecompounded bysalesboycotts offoreign-based dealers
vis-à-vis Swiss residents.1
TheWTO Secretariat concludes thattheUruguay Round implementation programme,
complemented byintensified competition within Europe, willhelptoadvance economic liberalization
andderegulation. Building ontheUruguay Round results, Switzerland supports anambitious work
programme fortheWTO, including further negotiations inareas suchastrade-related aspects of
intellectual property rights, thetrade effects ofindustrial, environmental andsocial policies and
competition rules. While thisprogramme may, tosome extent, beinspired bySwitzerland 'snon-
participation intheEEA, italsoreflects thegenuine concern ofamedium-sized trading nation, with
advantages inservices andmodern manufacturing, todevelop policies andconduct itstrade ina
transparent, non-confrontational multilateral setting.
Notes toEditors:
TheWTO Secretariat 'sreport, together withareport prepared bySwitzerland, willbediscussed
bytheWTO Trade Policy Review Body (TPRB) on28and29May1996. TheWTO 'sTPRB conducts
acollective evaluation ofthefullrange oftradepolicies andpractices ofeachWTO member atregular
1Forexample, aGerman carmanufacturer wasreported recently tohaveprohibited itsItalian dealers fromselling tobothSwiss and
Austrian residents whosought tobenefit fromlower salesprices inItaly. While theEuropean Commission haslaunched aninvestigation
intothesalesbaninvolving Austria, covered byECcompetition law,nosuchinitiative appears possible inthecaseofSwitzerland. Incontrast,
while Swiss competition lawextends inprinciple toallpractices affecting domestic markets, regardless oftheplace ofimplementation,
enforcement could poseproblems. Effective international mechanisms forredress donotexist.
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periodic intervals andmonitors significant trends anddevelopments which mayhaveanimpact onthe
global trading system.
Tworeports, together withareport oftheTPRB 'sdiscussion andoftheChairman 'ssumming
up,willbepublished induecourse asthecomplete Trade Policy Review ofSwitzerland andwillbe
available fromtheWTO Secretariat, Centre William Rappard, 154ruedeLausanne, 1211Geneva 21.
Thereports cover development ofallaspects ofSwitzerland 'stradepolicies, including domestic
lawsandregulations, theinstitutional framework, trade policies bymeasure andbysector. Since the
WTO cameintoforce, the"new areas" ofservices tradeandtrade-related aspects ofintellectual property
rights arealsocovered. Attached arethesummary observations fromtheSecretariat andgovernment
reports. Fullreports willbeavailable forjournalists from theWTO Secretariat onrequest.
Since December 1989, thefollowing reports havebeencompleted: Argentina (1992), Australia
(1989 &1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995),
Canada (1990, 1992&1994), Chile (1991), Colombia (1990), Costa Rica(1995), Côted'Ivoire (1995),
Czech Republic (1996), Dominican Republic (1996), Egypt (1992), theEuropean Communities (1991,
1993 &1995), Finland (1992), Ghana (1992), Hong Kong (1990 &1994), Hungary (1991), Iceland
(1994), India (1993), Indonesia (1991 and1994), Israel (1994), Japan (1990, 1992 and1995), Kenya
(1993), Korea, Rep. of(1992), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993),
Morocco (1989 &1996), NewZealand (1990), Nigeria (1991), Norway (1991), Pakistan (1995), Peru
(1994), thePhilippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992),
Slovak Republic (1995), South Africa (1993), SriLanka (1995), Sweden (1990 &1994), Switzerland
(1991), Thailand (1991 &1995), Tunisia (1994), Turkey (1994), theUnited States (1989, 1992 &
1994), Uganda (1995), Uruguay (1992), Venezuela (1996) andZimbabwe (1994).
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TRADE POLICY REVIEW BODY
SWITZERLAND
Report bytheSecretariat -Summary Observations
TheEconomic Environment
1. Since theinitial Trade Policy Review ofSwitzerland in1991, theeconomy hasundergone a
severe recession, putting anabrupt endtoeightyears ofcontinuous economic growth. While expansion
resumed in1993 and1994, theeconomy wasstagnant in1995, andzerogrowth isexpected in1996.
Unemployment hasrisen toover4percent, unprecedented inrecent decades, andshows fewsigns
ofdeclining.
2. Strong currency appreciation, atsome 11percentinrealterms between 1993 and1995, has
slowed therecovery process andexacerbated structural tensions intheSwiss economy. While finance
andinnovativemanufacturingindustriessuchassomechemicalsandadvancedelectronicshaveperformed
well, traditional manufacturing sectors andtourism haveshrunk. Theexpanding share ofservices
inproduction andemployment reflects atrend, across andwithin branches, tofocus onheadquarters
andrelated functions andrelocate many manufacturing activities abroad.
3. Merchandise exports remain concentrated inafewsectors, particularly machinery, instruments,
watches, chemicals andmedicinal products. Exports ofcommercial services amounted tosome
US$20 billion in1994, onequarter originating inthefinancial sector. Withrecession, Switzerland 's
tradebalance swung intosurplus, although merchandise exports grewslowly, at4percentinrealterms
between 1993 and1995.
International Economic Integration
4. TheSwiss economy ishighly internationally integrated, capitalizing onanopentrade régime
forindustrial products. Tariffs onmanufactures aregenerally low,andthere arenoquantitative
restrictions, anti-dumping, countervailing orsafeguard actions.
5. Preferential suppliers, inparticular theEuropean Union andcentral andeastern European
countries, haverecently gained ground intheimport market. Trade under the1972free-trade agreement
withtheEUcurrently represents some fourfifths ofmerchandise imports andtwothirds ofexports.
Within EFTA, Switzerland hassince 1991concluded twelve preferential agreements withcentral and
eastern European andMediterranean countries toensure access conditions similar tothose available
totheEuropean Union.
6. Despite liberal access conditions, Switzerland remains ahigh-price country. Many retail prices
compare unfavourably withneighbouring markets, reflecting strong farmprotection andweak internal
competition forarange ofgoods andservices. Market entry haslongsuffered from "private" or
"informal" barriers which canbeattributed toalegacy ofweak anti-cartel legislation, specific and
protective technical regulations, certain investment restrictions, andexclusivity rights under intellectual
property legislation.
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Trade Policy Trends
7. Since theearly1990s, Switzerland 'stradepolicy environment haschanged rapidly. Theprocess
ofEuropean integration hasintensified, andtheUruguay Round hasoffered major opportunities for
further multilateral liberalization. Therejection oftheEuropean Economic Area(EEA) byreferendum
in1992increased theimportance oftheUruguay Round, prompted areconsideration ofthecountry 's
European links, andinspired anautonomous programme ofeconomic reform (the"revitalization
programme").
8. Participation intheEEA would haveresulted inSwitzerland 'simmediate adoption ofEU
legislation onservices, technical regulations, government procurement andcompetition. Thiswould
havehelped toharmonize standards andeliminate cartel-related access barriers and,inaddition, ensured
freecirculationofEEA-originatinggoods,servicesandpersonsbetweenSwitzerlandandothermembers.
Questions ofbilateral market integration, extending toareas suchastechnical regulations, ground and
airtransport andmovement ofpersons, havesince beenaddressed innegotiations withtheEU.They
areconsidered toform asingle package andhadnotbeenconcluded atthetimeofthisreport.
9. Therevitalization programme, adopted in1993, aimstoremove distortions intheincentive
system, eliminate regulatory barriers totrade, improve internal factor mobility andinject more
competition inpreviously protected markets. Themain elements are:
- athoroughoverhaulofcompetitionpolicywhich,underanewCompetitionLawfrommid-1996,
istogainsignificantly instrength andcoverage;
- removal ofstandards-related barriers andharmonization ofdomestic with international
requirements under the1995 LawonTechnical Barriers toTrade;
- further integration ofdomestic product andfactor markets under thenewLawontheInternal
Market, which entitles Swiss residents andSwiss-based companies tooffer goods, services
andtheirlabour inanycanton orcommune;
- improved access topublic procurement markets following theadoption oftheFederal Law
onGovernment Procurement andtheratification ofanIntercantonal Concordat, based onthe
provisions oftheWTO Agreement onGovernment Procurement; and
- theintroduction ofvalue-added tax,which hasremoved animplicit premium onvertical business
integration andabiasagainst exports.
10. Further measures building ontherevitalization programme andaimed ateliminating, curtailing
orstreamlining monopolies areplanned inareas suchasagricultural marketing, telecommunications
andpostal services, electricity andrailways.
11. While these reforms should, intime, remove many traditional obstacles tofactor mobility and
trade, otherrestrictions remain, including limitations onforeign access toSwiss landandlabour markets.
Such limitations, originally designed toprotect employment orthecountry 'sidentity, continue to
undermine theresilience offactor markets andinhibit theeconomy 'sflexibility toadjust.
12. Intheabsence ofaruling bytheFederal Court, itisnotclearwhether Switzerland 'strademark
legislation, revised in1992, canbeusedtoexclude parallel imports. While theFederal Council has
indicated thepossibility ofconcluding reciprocal agreements withtrading partners toremove intellectual
property-relatedtradebarriers,autonomouschangestoachievethesameendareapparentlynotenvisaged.
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Market segmentation maybecompounded byprivate traderestrictions designed tounderpin highimport
prices. Some evidence ofthishasrecently emerged fromaprohibition byanEU-based carmanufacturer
onitsdealers inItalytoselltoSwiss residents, following theremoval ofregulatory import barriers
bySwitzerland. Swiss competition lawprovides littlescope forremedial action insuchcases, and
noeffective international mechanism forredress exists.
Sectoral Policy Developments
Agriculture andfoodprocessing
13. Switzerland haslongoperated avariety ofhighly interventionist agricultural policy schemes
withproduction, income andenvironmental objectives. However, since theearly1990s pressures for
reform havegrown asnegotiating requirements intheUruguay Round coincided withinternal economic
andecological constraints.
14. Asafirststep,in1992, theGovernment announced agradual shiftinfarmsupport fromprice
intervention towards direct payments. Thenewpolicy gained momentum through theUruguay Round
implementing legislation andistobestrengthened through the"Agricultural Policy 2002" initiative,
released forpolitical consultation inOctober 1995. Thisseeks toabolish exclusive marketing channels,
guaranteed producer prices andproduction quotas, andtocondition Statesupport onecological criteria.
However,theauthoritiesseeacontinuingneedtopromoteproductioninsectorssuchascereals,potatoes,
sugar andoilseeds withhighlevels ofassistance. Recent estimates suggest thatfullincome compensation
forWTO-related reforms (including tariffication) could leadtoanincrease infederal outlays ofbetween
17and24percentovertheir1993 level.
15. Theconversion ofnon-tariff import restrictions intotariffs hasincreased transparency, but
isunlikely totranslate intobriskexpansion oftrade. Theaverage advalorem equivalent ofSwitzerland 's
farmtariffs, capturing bothin-quota andout-of-quota supplies, wasestimated atover80percentin
1995. Import entitlements under tariff quotas areawarded under various mechanisms, including the
traders 'pastimports, anauction procedure, afirst-come-first-served approach, andprorataallocation.
Under the"prise encharge" system, quota access iscontingent onthepurchase ofdomestic output.
Manufacturing
16. Thechemical sector hasbeen thestrongest performer inrecent years, relying mainly on
pharmaceuticals, withrealgrowth ofoveronethirdbetween 1990 and1994. Swiss firms havealso
shown strength inspecialized areas suchasprecision engineering, clocks andwatches, contrasting with
strong adjustment pressures inheavy engineering, clothing andelectrical equipment. These trends,
althoughaccentuatedbycurrencyappreciation,reflectmovesincomparativeadvantagetowardseducation-
andskills-related production andaway from traditional capital-intensive activities. Asinthepast,
structural change inSwitzerland isessentially market-driven, without significant policy intervention.
17. Current efforts toestablish pan-European rulesoforigin, covering theEEA, Switzerland and
central andeastern European countries, mayfacilitate greater outsourcing andeasepressures onclothing
andother "sensitive" industries.
Services
18. Airtransport isamong theindustries mostly affected bySwitzerland 'snon-participation inthe
EEA. Without EEAcarrier status, Swissair cannot gaincabotage rights andremains restricted inits
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route strategies inthelarger European market. Inturn,higher travel costsandfewer connections than
among EEA members haveanadverse impact onthesector.
19. Profitability problems inaviation contrast withtheperformance ofbanking andinsurance,
where employment grew byover10percentbetween 1989 and1994. Swiss-based banks relyon
international markets forabout athirdoftheirassets andliabilities. Given theconcentration oftheir
foreign activities oninvestment banking andportfolio management, rather thanonrelatively unprofitable
retail banking, non-participation intheEEAhasnotseriously affected theirmarket position intheEU.
Under theGeneral Agreement onTrade inServices, Switzerland hasbound commercial presence,
consumption abroad andcross-border supply forafullrange ofbanking andinvestment services, but
hasnotbound cross-border supply ofinsurance.
20. Parts oftheSwiss telecommunications services market havebeenopened since thelate1980s;
andliberalization ofallservices, including voice telephony andthebasic network, isscheduled for
1998. Mainly forconstitutional reasons, theConfederation istoretain amajority share inPTTTelecom
which, however, isrequired tooperate under commercial conditions. Inanticipation ofthenew
environment, PTTiscurrently seeking todevelop orexpand strategic positions through acquisitions.
Cross-subsidization isprohibited between openandmonopoly activities, butthismayprove difficult
toprevent.
Trade Policies andForeign Trading Partners
21. Switzerland'ssupportforthemultilateraltradingsystemisrootedinitstraditionofindependence.
Thus, although thegreatest partofitsmerchandise tradeiswithonepreferential partner, theEuropean
Union, thecountry hasplayed asignificant, autonomous rôleintheWTO andthedevelopment ofthe
Uruguay Round Agreements. Swiss tradepolicies havenotgiven risetoGATT/WTO dispute settlement
casesformany years, andSwitzerland 'sWTO implementing legislation wasnotchallenged domestically
byreferendum, despite itsimpact onagriculture andthelackofimmediate employment alternatives
inafaltering economy.
22. TheUruguay Round implementation programme, complemented byintensified competition
within Europe, willhelptoadvance economic liberalization andderegulation. Building ontheUruguay
Round results, Switzerland supports anambitious work programme fortheWTO, including further
negotiations inareas suchastrade-related aspects ofintellectual property rights; thetrade effects of
industrial, environmental andsocial policies; andcompetition rules. While thisprogramme may, to
some extent, beinspired bySwitzerland 'snon-participation intheEEA, italsoreflects thegenuine
concern ofamedium-sized trading nation, withadvantages inservices andmodern manufacturing,
todevelop policies andconduct itstrade inatransparent, non-confrontational multilateral setting.
END