ECONOMY
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 investment and trade policies, notwithstanding agriculture, 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 World Trade Organization (WTO), the International Monetary Fund, the World Bank, and the Organization for Economic Cooperation and Development (OECD).
The Swiss economy expanded by 3.1% in 2007. GDP growth was primarily due to the
positive evolution of private consumption and expansion of investment in fixed
assets and software. For once, all export industries benefited from increased
demand from foreign markets. Bilateral trade in goods grew 11% in 2007, and the
U.S. ran a $2.2 billion bilateral surplus, up from $145 million in 2006. Overall, Switzerland's trade grew 11% in 2007, and its global trade surplus expanded to SFr. 14 billion. On the inflation side, import prices increased more rapidly than exports.
Switzerland was ranked as the second most competitive economy in the World
Economic Forum's 2007 Global Competitiveness Report, reflecting the country's
sound institutional environment, excellent infrastructure, efficient markets,
competent macroeconomic management, world-class educational attainment, and high
levels of technological innovation, which boost Switzerland's competitiveness in
the global economy. The country has a well-developed infrastructure for
scientific research, companies spend generously on research and development
(R&D), and intellectual property protection is strong. Business activity benefits from a well-developed institutional framework, characterized by the rule of law, an efficient judicial system, and high levels of transparency and accountability within public institutions. Higher education and training are rapidly growing in importance as engines of productivity growth.
Being a nation that depends upon exports for economic growth, and due to the
fact that it is so closely linked to the economies of Western Europe and the
United States, Switzerland was not 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 in
2000 with 3% growth in real terms. The economy returned to lackluster growth
during 2001-2003, but has been growing at or above potential since 2004--2.5%
per annum. The Swiss Economic Ministry reports that strong global demand,
particularly in the U.S. and Asia, and better Euro zone growth has helped
Switzerland's economic recovery. Long-run economic growth, however, is
predicated on structural reforms. In order to maximize its economic potential,
Switzerland will need to push through difficult agrarian and competition policy
reforms. These are essential if the government is to reduce its budget deficits
and meet its 3% growth target.
The recent economic upswing had some positive impact on the labor market.
Unemployment decreased from 4.1% in December 2003 to 2.7% in September 2007.
Swiss in the 15-25 age bracket continue to fight unemployment numbers with a
rate of 5.4%, and hotel and restaurant industry workers with 10.4%. One-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. Nevertheless, total days lost to strikes remain among the lowest in the OECD.
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
groups in the world. OECD estimates show that Switzerland is subsidizing more
than 70% of its agriculture, compared to 35% in the EU. The parliament agreed in
2007 to reduce the level of subsidies from SFr 14.1 billion (U.S. $14.1 billion)
to SFr 13.6 billion (U.S. $13.6 billion) from 2008-2011, approved value-added
tax (VAT) exemptions for local biofuel production, and accepted international
parallel imports for fertilizers and tractors--Swiss farmers will be allowed to
import tractors produced in China or India and sold in the EU, and could save up
to $50 million (SFr 50 million) annually. German fertilizer imports could save
another $25 million (SFr 25 million). The parliament also rejected the
government's proposal to reduce the subsidized price for cheese production, and
decided to keep the price at 15 centimes per liter.
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 2004, more than 285,000 Swiss came to the
United States as tourists.
The Swiss economy earns roughly half of its corporate earnings from the export
industry, and 62% 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 I" 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 non-membership by conforming many of its regulations, standards, and practices to EU directives and norms. Full access to the Swiss market for the original 15 EU member states entered into force in June 2004, ending as a result the "national preference". The Swiss agreed to extend these preferences to the 10 new EU members on September 25, 2005 but restrictions will remain until 2011. A facultative referendum against the Bilaterals I and the extension of the free movement of persons to Romania and Bulgaria is likely until mid-2009, and the SVP has threatened to derail the extension of the agreement unless the EU drops its demands on Swiss cantonal taxation (see below). The political campaign, aimed at collecting the required 50,000 signatures to call for the referendum, is likely to start in 2008.
The Swiss Government embarked in July 2001 on a second round of bilateral
negotiations with the EU known as "Bilaterals II". Talks focused on customs fraud, environment, statistics, trade in processed agricultural goods, media, the taxation of savings, and police/judicial cooperation (dubbed the Schengen-Dublin accords). Amid a fierce political debate over the essence of Swiss-EU relations and populist warnings against EU workers and criminals entering Switzerland, the Schengen-Dublin package was approved on June 5, 2005 by 54.6% of Swiss voters. Fears of cheap labor coming from new EU member states have prompted the government to provide for tripartite surveillance committees to ensure that decent wages are enforced. The EU still has to ratify the extension of Schengen to Switzerland, and implement the bilateral agreements on R&D and media cooperation. If ratified in time by EU member states, the Schengen agreement for Switzerland will enter into force on November 1, 2008
The Swiss federal government remains deeply divided over EU membership as its
long-term goal, and in a March 2001 referendum more than 70% of Swiss voters
rejected rapid steps toward EU membership. Switzerland nevertheless expressed
interest in reaching a third layer of bilateral agreements that would involve
energy, the Galileo satellite navigation system, health, and agriculture. But
recent harsh criticism by the European Commission against preferential cantonal
tax treatment for foreign holdings cooled the political climate surrounding the
EU.
The government also decided in November 2006 to once more consider adoption of
the EU "Cassis-de-Dijon" principle for trade after a first setback in 2004. If adopted, EU products could be imported in Switzerland without having to go through the burdensome Swiss certification and Swiss language requirement process. Currently, Swiss retail prices are on average 20-40% higher than in the EU. If parallel imports are allowed under adoption of the Cassis-de-Dijon principle, prices could drop by 10%. Possible exceptions have been reduced from 129 products to 40, but hurdles remain on some products.
The government has reaffirmed its wish to strengthen ties with other non-EU
trading partners in Asia and America. Exploratory talks on a Free Trade
Agreement between the U.S. and Switzerland failed to result in negotiations, due
to Swiss problems with free trade in agriculture, but the two sides did agree to
a new framework for economic, trade, and investment discussions. This new
agreement is the Swiss-U.S. Trade and Investment Cooperation Forum (the "Forum") and is currently assessing areas where the two governments could facilitate greater trade and investment flows.
Switzerland ranks 17th 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. In 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 increased from $15.33 billion during 2003 to $16 billion in 2004.
GDP (2007): $478 billion (478 billion Swiss francs [SFr]).
Government expenses (in GDP%): 29.1% (federal, cantonal, and local).
Annual growth rate (2007): 3.1%.
Unemployment (February 2008): 2.8%.
Per capita income: $63,198 (63,198 Swiss francs).
Avg. inflation rate (June 2007): 0.6%.
Natural resources: Water power, timber, salt.
Agriculture (1% of GDP): Products--dairy (24%), livestock (26%), grains (4%), fruit and vegetables, potatoes, wine (15%).
Arable land (1999): 26%.
Industry (est. 29% of GDP): Types--machinery, chemicals, pharmaceuticals, time pieces, precision instruments, textiles and clothing, pigment, transportation equipment.
Services (70% of GDP).
Trade: Exports (2006)--$177.2 billion (177.2 billion Swiss francs): food, beverages, and tobacco (20.5%); metal and chemical industries (14.5%); precision instruments (12%); watches (11%); machinery and electronics (10%); clothing (7.5%). Major markets--EU, United States, Canada, CIS, India, Brazil, Japan. Imports (2007)--$189.6 billion (189.6 billion Swiss francs): consumer goods (8%); equipment (10%); energy (25%); raw materials (12%). Major suppliers--EU, U.S., Canada, CIS, South Africa.
Exchange rate (April 2008): Swiss francs per U.S. dollar=1.0.
