Quarterly overview of Swiss Amcham issues (September 2018)
This is a working document summarizing the main issues currently covered by Swiss Amcham. Issues may belong to one and/or the other main thrusts of Swiss Amcham’s work, i.e. addressing economic policy issues between the USA and Switzerland or issues hindering optimal operations for multinational companies based in Switzerland – Swiss and foreign, large and small.
This paper is neither complete nor always fully correct. It is a working document that will be updated regularly and sent out to the US Chapters every quarter. It may be shared with members and friends of the Chamber, but only the whole document (including this caveat).
Swiss-American business relationship
In the last five years, Swiss exports to the USA grew 51% to CHF 33.7 bn. This compares well with growth to the EU (+4.8%) and to the BRIC countries (Brazil, Russia, India, China; +13.1%). During that time, imports from the USA also grew 38%. And the export success continued in the first half of 2018 (+14% on annualized basis)! USA and Switzerland maintain a great and balanced trade relationship of over US$100 bn annually (goods and services combined). The same success can be seen in foreign direct investments: In the last 5 years, Swiss investments in the USA grew 68% to US$ 334 bn, while US investments in Switzerland grew 65% to US$ 201 bn. USA is the second largest, but fastest growing key partner for Switzerland.
Overall, Switzerland enjoys a fast growing business relationship with the USA, with a large surplus in goods, and an equally large deficit in services, which leads to a balanced relationship with more than CHF 50 bn going both ways. It cannot be mentioned enough that under these circumstances Switzerland neither qualifies as a country with an unduly large trade surplus nor as a currency manipulator (as was suggested by Switzerland’s presence on two relevant lists by the Department of Commerce and Treasury).
Switzerland is still penalized by tariffs on steel and aluminum. While the export volume is small (total about US$ 85 mio), it is still very annoying. But as long as the EU exporter suffer the same tariffs, Swiss companies can live with it. Quite bothersome is that the letter from Federal Councilor Schneider- Amman (Switzerland’s Secretary of Commerce) to USTR Lighthizer of May 2019 has still not been answered.
Potential new trade order
On June 26, Donald Trump and Jean-Claude Juncker agreed to work toward “zero tariffs” on all industrial goods, except for cars. While this may seem a large order to some, we have to take into account that during the TTIP (Transatlantic Trade and Investment Partnership) negotiations, 97% of the tariff lines were negotiated down to 0%. That means that the technical work is done: definitions, exceptions, implementation, timing – all is ready. While TTIP as a whole is still in deep freeze, it would be easy to lift a large part of the negotiated zero tariffs into a new agreement. Timing is unclear, but US President Trump wants results fast and EU Commission President Juncker would love to avert all risks of trade war. Thus, timing could be short. A possible result could even be reached before the mid-term elections in the US (tough that is a rather improbable timing). What seems pretty certain, and was confirmed by Cecilia Malmström, European Commissioner for Trade, is that some kind of (partial) agreement could be tabled before the end of the year. Whatever the timing is, Switzerland is totally unprepared. If the EU and the US go for a zero-tariff agreement, Swiss exporters to the USA will face a massive handicap versus their EU competitors. Swiss exporters to the EU would also face discrimination due to the expected content rules. Switzerland needs to move fast, very fast!
Amcham has sent an e-letter to all its members, sketching out the future of trade, its chances and risks for the business location Switzerland.
Other topics of US-Swiss cooperation
Cooperation between the USA and Switzerland on the topic of vocational training continues in a very positive manner. In fall 2018, the current MoU is planned to be improved and extended another three years.
The Global Entry Program is still developing excellently: After two years, approx. 2700 applications have been processed and an additional 700 are currently pending. Only recently, the list of airports in the US, where conditionally approved Global Entry Applicants can now do their final approval interviews upon arrival and without prior notice, has been massively expanded. Please find participating airports under https://www.cbp.gov/travel/trusted-traveler-programs/globalentry/ enrollment-arrival/locations.
Switzerland is still on the USTR’s watch list for the Special 301 report due to its copyright laws allowing free downloads, making our country a haven for illegal downloads. Changes in the relevant Swiss laws are under way, but very slowly.
For some years, Swiss Amcham has pushed that Switzerland closes an agreement with the USA for mutual recognition of AEO (the European security process) and C-TPAT (the US equivalent). The EU and the USA have had such a mutual agreement for many years. A Swiss-US agreement would make life simpler for Swiss exporters to the USA (and vice-versa) as they would only need to comply with one of the standards for exports. The USA has demanded that Switzerland first agrees on an agreement on administrative assistance in customs matters. With most business organizations, Swiss Amcham has responded negatively to the proposal of the Swiss administration regarding such an agreement due to its vastly enhanced powers for US controls in Switzerland. This obviously pushes back implementation of the mutual recognition. In early September, the Swiss Federal Council has decided to continue negotiating with the USA.
Strategic issues for Switzerland
The following three issues keep challenging Switzerland’s relationship with both the US and the EU:
A) Corporate tax reform (Switzerland and USA)
The implementation of the US Tax Reform has made investments in the US a lot more attractive again – for Swiss and for US companies. The tax reform has also encouraged US companies to repatriate the vast sums of money booked outside the USA, all to the detriment of Location Switzerland. The Swiss-American Double Taxation Agreement of 1996 was amended in 2009 to comply with international exchange of information rules. It was ratified in Switzerland in 2010. But, unfortunately, not in the USA. It is still pending in the US Senate, blocked by the veto of Sen. Rand Paul. This ratification is important for a full normalization of the situation in banking matters between the two countries.
One additional issue with the Double Taxation Treaty CH-USA is the residual 5% withholding tax. Switzerland is one of only three European countries with a 5% residual withholding tax, increasing the costs on repatriated profits by 5% points. This makes many Swiss locations uncompetitive, even after the Swiss tax reform Tax Proposal 17. A renegotiation of the DTA is urgently necessary, but it is unclear whether the US is ready to renegotiate an unratified DTA.
Switzerland’s Tax Proposal 17 (Steuervorlage 17) is another decisive factor in order to remain competitive – this central corporate tax regime change will be paramount for the future of the business location Switzerland. While Swiss Parliament did its job (among enormous noise!) and passed a reasonable proposal, a referendum seems quite certain (probably in May 2019) and passage without full support of SVP right wing party, the largest party in the Swiss Parliament) will be a tricky affair.
B) Relationship between Switzerland and the EU
Negotiations between Switzerland and the EU regarding a framework agreement seem to have failed when the Swiss union representatives refused to even discuss changes in the labor regulations. It now seems that a solution is at least 1-2 years away, something the EU partners might not see with a friendly eye. After having given Switzerland two shots across the bows last December, it seems naïve to think that the EU will just accept the Swiss position. Especially the stock market adequacy, given to Swiss stock markets for a year only, seems to be at risk. This would rechannel some 60-80% of the trade at Six and threaten its existence. On September 13, Jean-Claude Juncker, Head of the EU Commission, clearly stated on Swiss TV that time was “running short” for Switzerland.
C) Upcoming votes on initiatives
The upcoming 24 months will be quite challenging for the future of the business location Switzerland with regards to the following seven looming public votings (in roughly chronological order):
- Fair Food Initiative demanding that only food products produced in a “fair manner” can be imported. This would result in a massively protectionist measure making future free trade agreements very difficult.
- Ernährungssouveränität: Initiative to get „food sovereignty“ into the Swiss constitution. Same effect as Fair Food initiative.
- Tax Proposal 17: Possible vote (see above).
- Self-determination Initiative: Initiative to define Swiss constitutional rules to be prioritized in legal conflicts with international law and international agreements. This would bring Switzerland into a difficult situation with regards to their international engagements.
- Responsible Business Initiative: see above
- Initiative for the abolition of the free movement of people: This would cause the probable annulment of the Swiss-EU bilateral agreements.
All these initiatives are negative for business, mostly non-compliant with Switzerland’s international engagements and threaten the Swiss reliability in international relationship. Not a good thing for a country massively dependent on exports and foreign direct investments!
US midterm elections
In early November, US voters will elect all 435 members of the House and 35 members of the Senate (33 in regular elections plus two seats being contested in special elections: Minnesota and Mississippi). We expect the Senate to remain Republican while the outcome of the elections for the House is not predictable. But clearly it will define what President Trump will be able to do in the coming 2 (or maybe 6) years.
The world clearly faces some tough challenges. In foreign policy, the numbers of constructions sites (North Korea, Syria, Iran, Russia, and China; refugees in Europe, Brexit and other EU issues) clearly make economic planning more difficult. The trade squirmishes between the USA and their key trading partners (China, EU, Canada and Mexico) increase the uncertainties. And new realities in the global corporate tax environment (reforms in USA, UK, China; major activities in the EU and OECD) make corporate planning even more of a three-dimensional chess game.
For Switzerland, this complexe environment brings great challenges. As one of the most globalized economies, Switzerland is dependant on stable relationship with its key partners. We will need to address the trade issues with the USA, the political framework issues with the EU and the internal issues regarding immigration and domestic taxation fast and efficiently to retain the current status of a higlyl competitive and highly innovative country that is a great location for foreign companies.
News from the Chamber
Annual General Meeting 2018: On June 11, 2018, we celebrated a great AGM in Rüschlikon above the lake of Zurich. Guest of Honor was Federal Councilor Ueli Maurer, Minister of Finance, and US Ambassador to Switzerland Edward T. McMullen, Jr.. Nearly 300 people joined the event and came out very happy.
Ticino Annual Dinner 2018: On September 7, 2018, the Ticino Chapter Board celebrated its 30 year jubilee with a great Annual Dinner at TASIS (The International School in Switzerland) in Lugano. Guest of Honor Federal Councilor Ignazio Cassis, Minister for Foreign Affairs, US Ambassador to Switzerland Edward T. McMullen, Jr., and Swiss Amcham’s President Sergio P. Ermotti. A great affair celebrating our “southern outpost”.
Chamber in the Media
Swiss Amcham and its CEO is regularly featured in the Swiss media (print, radio and TV). If you are interested, pls. check out http://www.amcham.ch/media/. Sorry, mostly in German. Please direct your questions, inputs and ideas to firstname.lastname@example.org. All input is highly welcome!