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CHALLENGES IN FREE TRADE AND FINANCIAL SERVICES

COMMUNIQUE DE PRESSE / Berne, le 12.2.2001

CHALLENGES IN FREE TRADE AND FINANCIAL SERVICES

Address by
Federal Councillor Pascal Couchepin,
Minister of Economic Affairs

Swiss Business Association
Singapore International Chamber of Commerce

Singapore, 12 February 2001

 Ladies and gentlemen, dear friends,

I would first like to thank you for organising this great event.
Indeed, it is a great pleasure for me to be here tonight among members
of the Swiss Business Association and the Singapore International
Chamber of Commerce. One of the main tasks of government is to ensure
good framework conditions for business. So we provide the theatre. But
a theatre without you, the actors, wouldn't be much fun …  Continuous
interaction between government and business, occasions such as this
one tonight, are therefore essential components of future success.

We are coming to the end of my official visit to Singapore and Brunei.
During my three days' stay, I have been able to discover for myself
what a dynamic country this is. Singapore currently faces some major
political and economic challenges. I am impressed by the determination
and  foresight Singapore has shown, seizing every opportunity to
ensure that it can meet the challenges ahead.

Leading citizens of Singapore have often taken Switzerland as a role
model. But there is no question that we have much to learn from each
other. Both of our countries are champions of a liberal economic
system. And despite being small and without natural resources, we have
established ourselves among the world's leading economies, with strong
financial centres. In both cases, success has been made possible by
excellence in human resources, ingenuity, an entrepreneurial spirit
and hard work, as well as political and economic stability.

I would like to focus my remarks on two specific areas. I shall begin
with a summary of Switzerland's external economic policy and why we
consider free trade agreements to be important. And secondly I shall
bring you up to date on Switzerland's policy in the financial sector.

Switzerland's foreign economic policy

Switzerland's foreign economic policy has three main components:

-	relations with the EU, our main trading partner
-	extension of our network of EFTA free trade agreements
-	development and extension of the multilateral trading system in the
framework of the WTO

First, there are Switzerland's relations with the EU, its most
important trade partner - 60% of our exports go to the EU and 80% of
our imports come from the EU. A set of seven bilateral agreements was
recently concluded between Switzerland and the EU covering scientific
research, public procurement, mutual conformity assessment,
agriculture, air and land transport, and the free movement of people.
These agreements, which were approved by 67% of the Swiss electorate
last May, are due to enter into force later this year. They will
substantially improve business conditions between Switzerland and the
EU and will also make Switzerland even more attractive for foreign
investors.

EU membership remains the ultimate objective of Swiss government
policy. But the road to membership is likely to be a long one. In a
couple of weeks, on the 4th of March, the Swiss electorate will vote
on a proposal which would force the government to start negotiations
with EU immediately. The government is against this proposal and,
indeed, it is likely to be defeated. Before we can start EU membership
negotiations, we need more time to experience the recently-concluded
bilateral agreements, particularly in the area of free movement of
people. We also need to carry out a wide range of internal reforms
without which EU membership would be impossible. These include
difficult issues such as increasing the number of government
ministers, reducing the scope of our model of direct democracy, and
doubling the rate of VAT from the current 7.6% to 15%, the EU minimum.

Nevertheless, our relations with the EU will not remain static by any
means. The EU wants to discuss customs fraud and EU residents' savings
held in Switzerland - I will  come back to this issue in a few minutes
- and Switzerland would like to join the EU's Schengen accord on
border controls and policing, and the Dublin convention co-ordinating
requests for political asylum. We would also like to discuss a number
of pending issues (processed agricultural goods, services, etc.).
Should these new negotiations succeed, they will be a further step
towards the ultimate goal of Swiss membership of the EU.
The second component of Swiss foreign economic policy is the gradual
build-up of a network of free trade agreements in the framework of the
European Free Trade Association (EFTA), which consists of Iceland,
Liechtenstein, Norway and Switzerland. This network was started in the
early 1990s, first covering central and eastern Europe and, later, the
southern Mediterranean rim. The main aim was to avoid that companies
based in Switzerland should be discriminated against on those markets
as compared to their competitors in the EU. Since 1998, when Canada
asked us to start free trade negotiations, the scope of the exercise
has widened somewhat.

We see that our potential competitors are no longer located just in
the EU but world-wide. This means we are negotiating free trade
agreements world-wide. Furthermore, these new, second-generation
agreements not only cover trade in goods, but also services and
investment which are particularly important for countries such as
Switzerland and Singapore.

The importance of this policy can hardly be overstated. While total
Swiss exports increased by 25% between 1995 and 1999, they increased
by over 40% with the 14 free trade partners we had at the time.

Today, the EFTA countries, including Switzerland, have concluded free
trade agreements with no less than 16 countries, and contacts have
been established with a further 22 countries. A free trade agreement
was concluded with Mexico last November, I very much hope that I will
able to say the same about Canada in the very near future, and further
talks are underway with Chile, South Africa, Mercosur and the Gulf
Co-operation Council (GCC).

Last but not least, we have agreed to start exploratory talks on a
free trade agreement between the EFTA States and Singapore in Geneva
in three weeks' time, on 5 and 6 March. This is something I had
already discussed with BG George Yeo in Davos over a year ago.
Negotiations are likely to be quick since there are no major problems
between the two sides, most notably in the area of agriculture.

The agreement, which should also cover services and investment, will
be a first between a European regional grouping and an Asian country.
While it will bring many tangible benefits to both sides, it could
also be a precursor to further agreements with other Asian countries
such as South Korea and Japan.

The third component of Swiss foreign economic policy is the further
development of the WTO.

Regional trade agreements are complementary to further trade
liberalisation in the framework of the WTO. Indeed, they are
specifically allowed by GATT Article 24.  But there are dangers. While
they are obviously beneficial to rich, medium-sized economies such as
Singapore and Switzerland, they effectively exclude most developing
countries. The WTO is the only forum where developing countries have a
real say in world trade matters.

It is therefore vital that a new WTO round be launched as soon as
possible.  I sensed an emerging consensus on the issue in Davos two
weeks ago. Countries which were strongly opposed to the early launch
of a new round a year ago have recognised the dangers and are coming
round. I therefore very much hope that it will be possible to launch a
new round at the next WTO Ministerial Meeting in Qatar in November.
But this meeting will have to be well prepared if it is to succeed. A
number of preparatory meetings will have to be held beforehand, all
over the world.

While I am on the subject, I would like to express my strong hope that
China will soon join the WTO - a view I know I share with my
Singaporean friends. On behalf of Switzerland, I concluded our
bilateral negotiations with my Chinese counterpart last September.

Relations between Switzerland and Singapore

Economic relations between Switzerland and Singapore are excellent.
The first Swiss presence on the island dates back to the middle of the
19th century, and there has been no looking back. Today the Swiss
community in Singapore consists of 1,200 individuals and 260
companies, 160 of which are members of the Swiss Business Association.

It therefore comes as no surprise that Singapore is our first trading
partner in ASEAN, and our third export market in Asia, after Japan and
Hong Kong, serving as a hub for trade between Switzerland and
Southeast Asia. Switzerland is also the eighth largest foreign
investor in Singapore.

In the year 2000, Swiss imports from Singapore increased by 35 per
cent compared to the same period the year before, to 285 million Swiss
francs, while Swiss exports to Singapore were up by 25 per cent over
the same period, to 1.6 billion Swiss francs. This means we are now
back to pre-1998 Asian crisis levels.

Singapore is increasingly becoming a knowledge-based economy. Among
the sectors in which Singapore clearly intends to play a major role -
in addition to financial services and IT- is the area of life
sciences, including pharmaceuticals, biotechnology, medicine, and the
agro-chemical sector.

Financial services and life sciences are sectors in which Switzerland
has established an international reputation for excellence. It
therefore seems logical that there must be considerable potential for
co-operation between our two countries in these areas.

High on the list of the Swiss government's priorities is the promotion
of small and medium-sized enterprises (SMEs). I therefore very much
welcome the signature of a Memorandum of Understanding between the
Singapore Productivity and Standards Board (PSB) and the Swiss Company
Pool. This is the result of an initiative of the Swiss embassy here
and now involves major Swiss banks and corporations. The aim is to
create a platform for Swiss SMEs interested in developing their
activities in Asia using Singapore as a hub.

The Swiss financial sector

The Swiss financial industry is a vital part of the country's economy.
It accounts for 11% of GDP (roughly the same as in Singapore) and
consists of 372 institutions with a balance sheet total of more than
2,200 billion Swiss francs. At the end of 1999, Swiss banks managed
private assets amounting to 5,000 billion Swiss francs. About half of
this sum is managed on the behalf of foreign clients. It is estimated
that over a quarter the world's private wealth deposited outside the
country of residence is managed in Switzerland. Our two biggest
banking groups - UBS and Credit Suisse - rank among the top ten in the
world.

In Singapore, the strong presence of Swiss financial institutions is
particularly visible. The measures which Singapore is taking to
liberalise its financial markets are naturally of great interest to
the Swiss. In particular we have taken note of Singapore's efforts to
free up compulsory savings, to deregulate brokerage commissions, to
bring disclosure and corporate governance requirements into line with
international standards and even more importantly, to allow foreign
banks and insurance companies greater freedom on the domestic market.

Over time, many factors have contributed to the success of the Swiss
financial industry. Switzerland enjoys a high level of political and
economic stability in the heart of Europe. Its currency is strong and
taxes are moderate. Staff in the financial sector are highly
professional, high-tech, multilingual and open to the world.  Last but
not least, there is banking secrecy.

Swiss banking secrecy is often misunderstood. In fact, what is at
stake is really financial privacy. The protection of individual
privacy is deeply imbedded in the Swiss sub-conscience. It is the
philosophical expression of private citizens' reluctance to trust the
authorities, which is found in many liberal societies. In Switzerland,
this expression has found its way into law. Swiss bankers are thus
legally bound to act with discretion in relation to the affairs of
their clients. But Swiss financial privacy laws are not absolute and
are definitely not designed to protect criminals.

Swiss legislation to prevent the criminal misuse of our financial
institutions has been re-enforced over the past few years and is now
among the toughest in the world. New measures have been adopted to
combat organised crime. The penal code has been amended, making the
corruption of foreign civil servants a criminal offence. Switzerland
plays a major role in the Financial Action Task Force on Money
Laundering (FATF) and the OECD, and closely monitors EU efforts to
combat tax crime.

Swiss law makes a clear distinction between tax fraud, for which it
can waive financial privacy rules and provide information to the
authorities of other countries, and tax evasion, which is the failure
to properly declare one's income. Tax evasion is a civil offence in
Switzerland (as opposed to a criminal offence), and can lead to severe
penalties. But it is not considered sufficient grounds for infringing
financial privacy laws.

The Swiss authorities do not like tax evasion any more than other
governments.  This is why, fifty years ago, they introduced an
effective tool to fight it without infringing financial privacy laws.
The withholding tax is levied on the income of securities issued by
debtors in Switzerland. Its current rate is 35%, the highest in the
OECD.

Switzerland does its best to strike a balance between the protection
of privacy and the interests of the state. Generally speaking, we take
the view that tax evasion is easier to prevent when taxation is
moderate and efficient use is made of government resources.

Switzerland is always ready to discuss the legitimate interests of
third parties, in particular the interests of the EU. If the EU were
to establish an effective way of taxing interest on capital,
Switzerland would have no interest in attracting transactions the sole
aim of which would be to get round the EU's new fiscal regulations. We
would be willing to find effective ways of discouraging such
transactions by introducing some kind of withholding tax of EU
residents' savings in Switzerland. But for such measures to be
effective, equivalent efforts would also have to be made by other
financial centres, both in EU dependent territories and outside the
EU. In any case, we cannot accept solutions involving the exchange of
information. Our financial privacy laws are not negotiable.

We are not blind to the fact that a weakening of Switzerland's
traditional financial privacy laws would be welcomed by competing
financial centres. They would be happy to welcome the assets that
would leave Switzerland as a result. The Swiss government is ready to
defend this important part of its economy and help it grow.
Regulators are not alone in facing strong pressure from competitors.
Service providers also face strong competition. Switzerland is ready
to deal with all such challenges in a spirit of dialogue, confident
that solutions can be found to satisfy all concerned.

Finally, I feel certain that we shall find allies in other countries
which share our interests. Indeed, I am convinced that Switzerland and
Singapore have plenty of good reasons to work more closely together in
meeting the challenges of the future, for our mutual benefit.

Dear friends,

Singapore and Switzerland are strong partners. Both are committed to a
liberal economic order and free trade. When Switzerland and Singapore
were founded, the basic need to survive was what drove them to
eventual economic excellence.  We had to try hard to be the best.
Today, we are both among the most internationally-minded countries in
the world. Our economic success is based on continuous
forward-thinking.

During my short stay, I enjoyed a very stimulating environment here in
the Switzerland of Asia. My country, as well as the Swiss business
community, are committed to Singapore and Asia which, in terms of
economic growth, will most probably be the continent of the 21st
century.

Thank you.