|Despite a dearth of natural resources, the Swiss economy is among the world’s most advanced and prosperous. Per capita income is virtually the highest in the world, as are wages. Trade has been the key to prosperity in Switzerland. The country is dependent upon export markets to generate income while dependent upon imports for raw materials and to expand the range of goods and services available in the country. Switzerland has liberal trade and investment policies and a conservative fiscal policy. The Swiss legal system is highly developed, commercial law is well defined, and solid laws and policies protect investments. The Swiss franc is one of the world’s soundest currencies, and the country is known for its high standard of banking and financial services. Switzerland is a member of a number of international economic organizations, including the UN, the World Trade Organization, the International Monetary Fund, the World Bank, and the Organization for Economic Cooperation and Development (OECD).
Being so closely linked to the economies of western Europe and the United States, Switzerland has not been able to escape recent slowdowns experienced in these countries. During most of the 1990s, the Swiss economy was western Europe’s weakest, with annual GDP growth averaging 0% between 1991 and 1997. Beginning in late 1997, the economy steadily gained momentum until peaking inÊ2000 with 3% growth in real terms. But in 2001 the rate of growth dropped to 0.9%, and in 2002 and 2003 the economy virtually stagnated with real GDP up by only 0.1%. The Swiss Economic Ministry had said that both the lack of an upturn in the global economy — particularly in the Euro zone — and the still rather firm Swiss franc would continue to hold back the Swiss economy in 2003. Germany, which absorbs 20% of Swiss exports, was expected to grow by no more than 0.1%-0.2% in 2003.
In 2003, the dollar/Swiss franc exchange rate continued to be shaped by geopolitical tensions and the global weakness of the equity markets. The dollar depreciated further against the Swiss franc from SF 1.49 in October 2002 to SF 1.31 in 2003, and 1.22 in January 2004. The strengthening of the Euro, however, helped Switzerland to minimize the pressure from a weakening dollar. The Swiss National Bank lowered its interest rates to near zero in March 2002 to make the Swiss franc unattractive to foreign investors, and make borrowings cheaper.
The number of bankruptcies in Switzerland during the first quarter of 2003 reached an alarming rate unseen since 1996, numbering 1,157 companies — 21.9% more thanÊthe year before. Nevertheless, the Swiss Federal Institute of Technology believes that economic performance will be solid in 2004 and that GDP will increase by 0.9% in 2004, and by 1.2% in 2005.
The recent economic slowdown has had a noticeable impact on the labor market. Unemployment increased from 2.6% in 2002 to 4.1% in December 2003. Economic experts believe it could to rise further to 4.5% in 2005, still below the 5.7% level reached in February 1997.ÊÊOne-fourth of the country’s full-time workers are unionized. In general, labor/management relations are good, mostly characterized by a willingness on both sides to settle disputes by negotiations rather than by labor action. About 600 collective bargaining agreements exist today in Switzerland and are regularly renewed without major problems. However, the mood is changing. The massive layoffs that resulted from both the global economic slowdown and major management scandals have strained the traditional Swiss “labor peace.” Swiss trade unions encouraged strikes against several companies, including the national airline SWISS, Coca-Cola, and Orange (the French telecom operator), but total days lost to strikes remain among the lowest in the OECD. Uncertainties concerning under-funded pension funds, and the prospect of a potential hike in the retirement age have stirred further street protests.
Switzerland’s machinery, metals, electronics, and chemicals sectors are world-renowned for precision and quality. Together they account for well over half of Swiss export revenues. In agriculture, Switzerland is about 60% self-sufficient. Only 7.5% of the remaining imports originated from the U.S. Swiss farmers are one of the most highly protected and subsidized producer group in the world. OECD estimates show that Switzerland is subsidizing more than 70% of its agriculture, compared to 35% in the EU. According to the “2007 Agricultural Program” recently adopted by the Swiss Parliament, subsidies will increase by SF 63 million, thus totaling SF 14.092 billion from 2004 to 2007. Mill quotas, however, will be abolished starting in 2009.
Tourism, banking, engineering, and insurance are significant sectors of the economy and heavily influence the country’s economic policies. Swiss trading companies have unique marketing expertise in many parts of the world, including eastern Europe, the Far East, Africa, and the Middle East. Not only does Switzerland have a highly developed tourism infrastructure (making it a good market for tourism-related equipment and services), the Swiss also are intrepid travelers. Per capita, more Swiss visit the United States every year than from any other country. Tourism is the most important U.S. export to Switzerland (earning almost $1.5 billion). In 2002, more than 300,000 Swiss came to the United States as tourists.
The Swiss economy earns roughly half of its corporate earnings from the export industry, and about 70% of Swiss exports are destined for the EU market. The EU is Switzerland’s largest trading partner, and economic and trade barriers between them are minimal. In the wake of the Swiss voters’ rejection of the European Economic Area Agreement in 1992, the Swiss Government set its sights on negotiating bilateral sectoral agreements with the EU. After more than 4 years of negotiations, an agreement covering seven sectors (research, public procurement, technical barriers to trade, agriculture, civil aviation, land transport, and the free movement of persons) was achieved at the end of 1998. Parliament officially endorsed the so-called “Bilaterals” in 1999, and the Swiss people approved them in a referendum in May 2000. The agreements, which had to be ratified by the European Parliament as well as legislatures in all 15 EU member states, entered into force on June 1, 2002. Switzerland has so far attempted to mitigate possible adverse effects of nonmembership by conforming many of its regulations, standards, and practices to EU directives and norms.
The Swiss Government has embarked on a second round of bilateral negotiations with the EU (known as Bilaterals II). Talks on the four dossiers of customs fraud, environment, statistics, and trade in processed agricultural products started in July 2001. Negotiations on pension funds, student and youth exchange programs, media, the taxation of savings as well as police and judicial cooperation (under the Schengen and Dublin accords) also are underway. While most issues are not really contentious, talks on customs fraud are moving slowly. Police and judicial cooperation and the taxation of savings also are controversial, mostly because of possible adverse effects on Swiss bank secrecy.
Swiss and EU finance ministers agreed in June 2003 that Swiss banks wouldÊlevy a withholding tax on EU citizens’ savings income. The tax would increase gradually to 35% by 2011, with 75% of the funds being transferred to the EU. Swiss President Pascal CouchepinÊwas expected to meet Italian Prime Minister Silvio Berlusconi, who currently chairs the rotating EU presidency, by the end of 2003. Recent estimates value EU capital inflows to Switzerland to $8.3 billion.
The Swiss federal government is deeply divided over EU membership as its long-term goal, and in a March 2001 referendum more than 70% of the voters rejected rapid steps toward EU membership. The issue of EU membership is, therefore, likely to be shelved for several years, if not a decade.
Switzerland ranks 18th among the main trading partners of the U.S. worldwide. The United States is the second-largest importer (11.5%) of Swiss goods after Germany (20%). The U.S. exports more to Switzerland each year than to all the countries of the former Soviet Union and Eastern Europe combined, and Switzerland imports more U.S. products and services than does Spain.ÊIn addition, the United States is the largest foreign investor in Switzerland, and conversely, the primary destination of Swiss foreign investment. It is estimated that 200,000 American jobs depend on Swiss foreign investments. Total U.S.-Swiss bilateral trade, nevertheless, decreased by 12% to $17.16 billion during 2002 compared to the previous year.
The third full year of cooperation under the U.S.-Swiss Joint Economic Commission (JEC) (2002-03) invigorated further bilateral ties by recording achievements in a number of areas covering anti-terrorism financing and the prevention of terrorist acts. That includes further consultations on anti-money laundering procedures and the seizure of al-Qaeda accounts, and as well as the development of a code of conduct for the pharmaceutical industry, led initially by Swiss and U.S. companies to prevent the spread of technology falling into the hands of terrorists. U.S. and Swiss environmental chiefs also met on January 24, 2003, and discussed possible areas of cooperation in the fields of environment and sustainable development. Both countries also approved the JEC agenda for 2003, which includes counter-terrorism, the nonproliferation and export control regimes, bilateral trade and investment issues, and advances in science and technology.