US chapter report H1, 2019

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• Aug 28, 2019
• Commerce Politics Uncategorized

Dear members of the local US Chapter Boards,

After a successful Annual General Meeting on June 24 (see the latest Businessnews https://www.amcham.ch/newsletters/BN_394_July2019.pdf), the final redaction of the upcoming Yearbook (will be with you at the end of August)  and some great vacations, I would like to give you an overview of the relevant topics currently on Swiss Amcham’s mind.

1. Business relationship USA-Switzerland

The business relationship between Switzerland and the USA continues to thrive. The trade figures for goods and services are perfectly balanced with approx. USD 55bn in each direction. Also, foreign direct investments are developing very nicely in both directions.

Trade between Switzerland and the USA kept flourishing. In 2018, Swiss exports to the USA grew 12.3% (after +7.3% in 2017 and 14.7% in 2016). In absolute terms, exports growth to the USA (CHF 4.2 bn) topped exports to all other countries (Netherlands +CHF 2.6 bn; Germany +CHF 1.5 bn; China +CHF 0.8 bn). Today, Switzerland exports more to the USA than to France, Italy and the UK combined! And twice as much than to the BRIC countries (Brazil, Russia, India, China), again combined! In 2018, imports from the USA unfortunately stagnated (- 1%).

In H1, the positive trend of Swiss exports to the USA continued though a bit slower (+3.9% compared with Q2 2018). Towards the end of H1 2019, we again saw a strengthening of Swiss exports, in spite of the trade frictions and tariffs around the world. June 2019 was a historic month: For the first time in history, exports to the USA were the biggest export to any countries, even surpassing exports to Germany!

While Swiss direct investments in the US grew by a massive 10% in 2018 to USD 339 billion (after growth of 9% in 2017), American direct investments in Switzerland decreased to CHF 243 billion (down 2.6%).

Overall, what these results tell us is that our countries enjoy a balanced business relationship – a large trade surplus in goods in favor of Switzerland, an equally large trade surplus in services in favor of the US, and a large investment surplus in direct investments in favor of the US, leading to the 2nd largest job surplus in favor of the US (Swiss jobs in the US minus US jobs in Switzerland). Swiss companies continue to be the 7^th largest foreign direct investor in the USA (nearly equal to 6^th-placed Germany). Swiss companies pay the highest average salaries, are the top spender for R&D expenditures and provide a large number of apprenticeship jobs to US youth. It is fair to say that this is a rich win-win relationship our two countries.

Against this constructive background we think that there should be possibilities to address a few open points that represent a clear nuisance.

• The Swiss-American Double Taxation Agreement (DTA) of 1996, amended in 2009 to reflect international exchange of information rules, was ratified in Switzerland in 2010. We very satisfied that a decade of lobbying in Switzerland and the USA resulted in the US Senate finally ratifying the DTA in July 2019. Ratification of the US-Swiss DTA is very important as it is a necessary step towards negotiating a 0% residual withholding tax on dividends and royalties, and a DTA on estate taxes. Affaire à suivre!
• The dispute over potential tax evasion support by Swiss banks is still unresolved for six category 1 banks, despite their concentrated effort to get to closure. Again, we’ve heard some positive signs, but we would like to see this issue come to a conclusion more quickly.
• Swiss exports of aluminum and steel are still charged with an additional tariff of 10%, resp. 25%. Although such Swiss exports account for only some CHF 80 mio per year, it is still a nuisance and creates serious damage for individual companies.
• And finally, we need to resolve the tensions over data protection and copy rights that have emerged due to the current lenient treatment in Switzerland of unauthorized downloads of films, music, games etc. for personal use.

Resolving these issues  will further strengthen the great relationship between our countries that has been intensified in the last few months.

• In December 2018, then-Federal Councilor Johann Schneider-Ammann visited Washington, D.C., to sign a Memorandum of Understanding for Apprenticeships. Attending the signing were Betsy DeVos, Secretary of Education; Wilbur Ross, Secretary of Commerce; and Alex Acosta, Labor Secretary, as well as Ivanka Trump, advisor to President Trump and leader of the apprenticeship program.
• In February 2019, Federal Councilor Ignazio Cassis met with Foreign Secretary Mike Pompeo and National Security Advisor John Bolton.
• In April, Federal Councilor Guy Parmelin met with US Trade Representative Robert Lighthizer.
• In May, Swiss President Ueli Maurer was received at the White House by President Donald Trump. This was the first time in history a Swiss President was received in the Oval Office!
• And in June, State Secretary Mike Pompeo visited Switzerland for three days with many great conversations, including a bilateral meeting with Swiss Foreign Minister Ignazio Cassis.

In all these meetings, a potential free trade agreement (FTA) between Switzerland and the USA played a very important role. We hope that an FTA will take shape in the coming months and that formal negotiations will start soon. This could lead the Swiss-US business relationship to new horizons. The time is right and we believe that this time the Swiss agricultural sector can be gained for a reasonable deal. The time is right! It now is primarily in the hands of the US Trade Representative and his willingness to “squeeze” in negotiations with Switzerland, especially in light of USTR’s many challenges with China, Russia and others, and free trade negotiations with Japan, the UK, and potentially with the European Union.

2. Swiss domestic issues and their impact on internationally active companies

The continued competitiveness and attractiveness of Switzerland as a country and business location is dependent on a number of upcoming decisions. A positive outcome can be achieved if Swiss voters and policy makers continue to demonstrate and support two success factors, namely:

• A constructive attitude toward the international economy that makes Switzerland strong and prosperous
• A constructive attitude toward a balanced and mutually respectful relationship between Switzerland and the EU

On May 19, Swiss voters accepted Switzerland’s STAF (Steuerreform und AHV Finanzierung) a key corporate tax reform for Switzerland to remain competitive – it will be paramount for the future of the business location Switzerland. The May 2019 vote was an important milestone for Switzerland. But there are still many hurdles to clear. For international companies (Swiss and foreign, large and small), the following three decisions will be paramount for the future:

• The EU-Swiss framework agreement has been discussed for about 12 years and negotiated for the last 5 years. It would now be ready to be signed. On December 7, 2018, the Swiss Federal Council decided not to allow thje signing of the agreement, but rather send it to all stakeholders for comments, delaying any decision by at least 4 months, much to the displeasure of the EU Commission. A passage of the agreement through the Swiss Parliament, and ultimately success in a referendum looks very unlikely. It seems that a solution is at least 1-2 years away, something the EU partners will not see with a friendly eye. After having given Switzerland two shots across the bow last December, it seems naïve to think that the EU will just accept the Swiss position. On July 1, the EU suspended Switzerland’s stock market equivalency, making it more difficult for the Swiss stock markets to compete with their European competitors. Other sanctions against Switzerland are possible, such as exclusion from the resarch program Horizon 2020, the education program Erasmus and others.
• The economically very harmful “Corporate Responsibilty Initiative” will undergo an intensive negotiation round in Parliament during H2, 2019, as the politicians have to decide whether to meet the leaders of the initiative (more than 80 NGOs) half-way and propose an indirect counterproposal, or whether to fight this initiative without any counterproposal. Both directions are risky for Location Switzerland and Swiss-based companies. Voting is expected in May 2020.
• And finally the “Termination Initiative” (a.k.a. SwissExit) from the right wing party SVP demands a renegotiation of the Agreement on Free Movement of People with the European Union within 6 months of the vote. Otherwise termination of this agreement is required, leading to a break down of the bilateral agreements between Switzerland and the EU. Voting on this initiative is expect in Q2 or Q3 2019.

3. Two key reports by Swiss Amcham

The title of the April 2019 report, jointly published by Swiss Amcham, McKinsey, economiesuisse and SwissHoldings, still holds true: “Switzerland Wake Up” (https://www.amcham.ch/news/downloads/190428Switzerland_wake_up_full_report.pdf). The report calls for a fast resolution of the many open issues discussed above and it especially calls for an evident desire to solve these in a democratic, but also in a fast and pragmatic way. Further, the report calls for a distinct approach to talent availability and talent mobility. We need to develop dedicated processes and decision mechanisms to attract highly qualified talent to Switzerland. Such initiatives will strengthen not only the long-term future of Switzerland as a business location, but through taxes and social contributions, also help strengthen the Swiss social system.

In October 2018, Swiss Amcham, together with Boston Consulting Group, issued a report on “The Swiss Aviation Ecosystem – Flying Blind after 2030” (https://www.amcham.ch/news/downloads/BCG-AmCham_Report_The_Swiss_Aviation_Ecosystem.pdf) . In this report, we illustrated the eminent importance of the airport system for the success of the Swiss society, for business, but also for research, arts, education, sports and many other facets that make Switzerland such a great country. Railroad and road systems are planned for the next 40 years and more. For airports, it is well-known that capacities are already very tight and will be clogged up by 2030 at the latest. But politically there is no willingness to address this important question. On the contrary, the operations of the international airports are rather impeded through restrictions and short-sighted regulations. The report calls to urgently address this evident gap in planning to ensure the long-term viability of this key infrastructure element.

4. Timing, players, elections and complexity

All these issues will have to be dealt with in H2 2019 and H1 2020. Not an easy task in light of the national elections on October 20, 2019. The entire 200-person National Council (equal to the House) and the 46-person State Council (equal to the Senate) will be elected or re-elected. A shift to left and green is widely expected.

Swiss Amcham will follow these developments closely and forcefully speak out in favour of international companies and the Swiss-US business relationship

5. Chamber in the Media

In the last six months, Swiss Amcham was featured in more than 30 newspaper articles and five TV shows. All media contribution are available on https://www.amcham.ch/media/.

6. Personal remarks

On August 1, I celebrated 15 years as the CEO of the Chamber. I would like to thank the many well-wishers (LinkedIn is great!). Responding to many inquiries, let me make clear that I will be around for many years. No plans to retire!

Please let me know any questions you have regarding the topics above or any other points you would like to have covered.

I would like to take the opportunity to thank you for your engagement and support. Next year will be exciting and your continued support is highly appreciated.

Best wishes

Martin Naville
CEO