Switzerland and the United States - Solid Relations between the Sister Republics
Bern, 20.06.2005 - Speech by Federal Councillor Hans-Rudolf Merz; Swiss-American Chamber of Commerce; Annual General Meeting 20 June 2005 in Zurich
Madam Ambassador,
Mr. Ambassador,
Mayor,
Ladies and gentlemen,
Switzerland and the United States maintain very close relations at many different levels:
- More than 70,000 Swiss citizens - 10 percent of all Swiss living abroad - live in the United States. Over 20,000 Americans live in Switzerland.
- Switzerland ranks among the top six investors in the United States. And Switzerland is the fourth largest destination of US foreign direct investment.
- 600 Swiss companies provide jobs for approximately 430,000 Americans throughout the United States. 650 US companies have an established presence in Switzerland, employing 67,000 persons.
- After Germany, the United States is the second largest export market for Switzerland. 10% of our exports, amounting to CHF 14.2 billion, go to the United States. Products from the US rank in fourth place in our import statistics.
- Switzerland is representing the interests of the United States in both Iran and Cuba.
One could try to explain the manifold linkages with reference to the strongly developed business sense of our two nations. But the relations go even deeper: What happens in the United States often touches us Swiss much more directly than what happens in continental Europe. We admire America's power of innovation and its economic strength. But occasionally, we Swiss also quarrel with the superpower America. Since the end of the Second World War, there have repeatedly been phases of tension. This was certainly most strongly felt during the difficult confrontation with the role of Switzerland in the Second World War. But also at the beginning of the Iraq war, deep unease was felt among parts of the Swiss population. This can also be explained by the fact that we on this side of the Atlantic have never completely recognized the effects of September 11th on the self-understanding of the United States.
Our quarrels with America can be compared to quarrels with a big sister. The United States and Switzerland have always been and continue to be sister republics. Already at the end of the 18th century, the Bernese politician and businessman Johann Rudolph Valltravers and Benjamin Franklin laid the cornerstone for this exceptional relationship.
Our states and our societies are built on the same values and convictions. We are both committed to a liberal, pluralistic society and a federalist, republican democracy. Liberal values - in the classical sense of liberalism - are the foundation of this understanding of the state and society. Liberalism may at times not fit in with the zeitgeist, also in Europe and even in the US the concept is no longer so popular. A discussion of this value system is nonetheless important. This leads me to selected liberal values, and here I consciously refer to them as liberal cardinal virtues, that we Swiss and Americans share and that are always worth thinking about in more depth.
A first liberal virtue is self-responsibility. On airplanes, the use of oxygen masks used to include the instruction that adults should always protect themselves first, before assisting children with their masks. Self-responsibility requires that we take care of ourselves first. The great weakness of socialism is the constant reversal of this strategy. Socialism continually tries to weaken those who can still help the weak. And the great weakness of opportunism is that it fails to go beyond the justification of individuality and self-interest. The correct approach is rather to teach self-responsibility. Connected with this is the mutual role that Switzerland and the United States allocate to the state and the private sector. We believe in the principle of subsidiarity. Not only in the federalist sense, but also as a preference for solutions by civil society rather than by the state. Despite all developments, Switzerland and the US have essentially remained states from the great liberal era of the end of the 19th century.
Self-responsibility leads us to another liberal virtue, namely public spirit. Public spirit both in relation to the individual and in relation to the economy. The market economy constitutes the core of liberal economic policy. But it must also be committed to the social good. This rests upon the realization that competition is the basic principle of the economic condition, but that a strong state is also required to make competition possible and to protect it from overpowering economic potentials. Private property, freedom of contract, market access, and business competition are some of the keywords indicating institutions worth protecting. From a Swiss perspective, these also include fully-developed social policies. In this respect, we Swiss are always also continental Europeans. But too much welfare state leads to collectivism. Public spirit therefore also requires prudence and solidarity: In Switzerland, the discussions concerning the salaries of top managers and the benefit levels of social insurances have increasingly become symbols of a question of degree. On the other side of the Atlantic, these concepts may be dealt with in a more relaxed manner. At the same time, however, personal engagement on behalf of the public good also plays an important role in American civil society.
Moderation can be regarded as another cardinal virtue. Whoever wants too much, takes on too much, promises too much, renounces too much - in short, whoever does not find the right degree of moderation - fails. Moderation in politics is very difficult: Should one start out by aiming at a compromise, or should one deliberately explore the boundaries by making maximum demands? In the end, the outcome is more important than the method chosen. But before it is too late, the political actors must be willing to deviate from their course. In Switzerland, the current legislative period has so far not been characterized by an excess of moderation, but rather has demonstrated the danger of an inability to compromise.
Uncompromising tax policy requires freeing enterprises from any and all non-causal taxes. In contrast, a reasonable fiscal policy of moderation claims that criteria such as justice, creating incentives, tolerability, and competitiveness exist. Moderation must be the measure of all things, not absoluteness. Right now in Switzerland, moderation will be necessary in the reform of company taxes and the taxation of families.
In the next few days, I will recommend adjustments to the Federal Council in the area of company tax reform, namely:
1. alleviating economic double taxation
2. removing so-called nuisances, especially for small and medium-size businesses, according to the motto: Where no money flows, no taxes should be levied.
3. crediting the profits tax against the capital tax at the cantonal level.
In Swiss tax policy, the demands of the private sector, family policy concerns, the acceptability for the cantons, and the interests of the federal budget must all be reconciled. We are, after all, talking about an expected non-funded revenue shortfall of almost two billion Swiss francs.
Financial policy must do justice to the criteria of common sense and therefore also of moderation. For instance, we must undertake large investments in phases. We must increasingly gear the social infrastructure to the needs and the ability to be financed. The recovery of state finances is the starting point for all political action.
Thanks to its commitment to the social market economy and to competition, classical liberalism also enables economic progress. Without a liberal economic policy, there is no prosperity. History unambiguously demonstrates this. Progress comes from moving forward. Liberals have never been afraid of experimentation. They are the ones standing up for education and research today, by granting them the necessary freedoms, for instance in gene technology, and allowing them the necessary resources. To mention two current examples: In education and research, exchanges between Switzerland and the United States have proven fruitful, building on a long tradition. With the Swiss House for Advanced Research and Education in Boston and the swiss nex in San Francisco, universities, researchers, students, and companies of both countries are networked together. The San Francisco - Zurich town twinning initiative is also exemplary, it has allowed, amongst other things, the exchange to take place of students who are present here.
Across all eras and all developments, liberal forces have shaped the state into what it is today. This is true both of the United States and of Switzerland. By looking back to our origins, we are able to gather strength for the solutions to the challenges we face. But at the same time, our origins should not blind us. Switzerland is an old country because of its history. Switzerland should not become an old country because of it behaviour. At times, more of the American faith in the future would do us good.
For these virtues actually to unfold, society and the economy require appropriate framework conditions. Among these conditions, I include freedom of research, flexible terms of employment, first-class educational opportunities, a low tax burden, free trade, and well-developed infrastructure. The United States and Switzerland are marching in step with respect to these goals.
******
The intensive relations between our two countries are developing and must accordingly always be adjusted and cultivated. For this purpose, the Federal Council dealt intensively with the foreign policy of our country in mid-May. Traditional elements of our foreign policy are the representation of our interests and the universality of our relations. This should remain the case in the future. With our most important partner, the European Union, we have been able to secure many of our interests over the long term through bilateral arrangements. Still pending is the extension of the free movement of persons to the new EU member countries. Especially to this audience, I do not need to explain how important this vote is for our country. I am also building on your support in this voting campaign.
The Federal Council now wants to deliberately spread the foreign policy fan a bit further. Our generally good political relations with the United States provide a good foundation in this respect. Our foreign policy in relation to the United States has so far rested on three pillars: First, trade policy; second, our common fight against terrorism and its financing; and third, human rights. The Federal Council now wants to strengthen these pillars in a targeted manner.
The economic relations between Switzerland and the United States have intensified significantly since 1990. This is demonstrated by the strong growth of trade in goods and services, of investments, of technological exchange, and of travel by business people, tourists, and students. The sustained economic growth in the United States and the additional opening of the markets in the framework of the Uruguay Round have contributed to a further convergence of the two national economies.
Today, the bilateral relations between Switzerland and the United States are very extensive and complex. Both countries are engaged in a constant dialogue. This is particularly true of security topics such as the transmission of air passenger data, the inclusion of biometric data in passports, and the fight against corruption and terrorist financing. Good relations also exist in the areas of export controls, the commodity trade, administrative assistance with respect to customs, and science and technology. Economic relations are currently governed by several agreements, above all by the Double Taxation Agreement. At the multilateral level, we work together in particular within the WTO and the OECD. With the Joint Economic Commission, which was created in 2000 and which meets once a year, we also have a useful platform at our disposal for the discussion of our economic interests.
From the Swiss perspective, it should be kept in mind that the potential for discrimination in relation to the Swiss economy is growing, in view of numerous American initiatives. In this regard, I would like to mention the transatlantic dialogue of the United States with the European Union and the numerous free trade agreements that the US has already concluded with competitors of Switzerland.
The intensity of our relations therefore speaks in favour of a significant strengthening of the bilateral framework. The preservation and improvement of the competitiveness of the Swiss economy require a review of the relations between Switzerland and the United States and an analysis of all options. These also include a free trade agreement, which many among you in particular strongly support. The conclusion of bilateral free trade agreements corresponds to the strategic alignment of our foreign economic policy, as articulated by the Federal Council in January 2005 in its report on foreign economic policy. Such an agreement with the US would lift the import duties averaging 4.5% for processed goods and would create preferential access to one of our most important markets. Large parts of our export economy, namely the chemical industry, the machine industry, the watch industry, the plastics industry, and the textile industry, are affected by high tariff rates. Competitiveness is restricted accordingly. The United States is also an important market for the service sector. Significant barriers to trade exist in this area as well.
Free trade would also confront Switzerland with challenges, however, especially with regard to agriculture. Technical barriers to trade concerning foodstuffs could indeed be reduced, and protected designations of origin and geographical indications (AOC/IGP) could be recognized, which would increase the export opportunities of Swiss farmers. However, farmers fear that concessions would have to made in the area of non-tariff barriers to trade. All of this must now be considered carefully. The Federal Council is convinced that a free trade agreement would make the political and economic relations between Switzerland and the United States more dynamic. A free trade agreement with the US would allow Switzerland to build up free trade relations with all of North America. A free trade agreement with Mexico is already in force; we are currently in negotiations with Canada.
The Federal Council therefore wants to initiate exploratory talks with the United States on opening free trade negotiations. So far, the United States has shown interest in principle in considering negotiations with Switzerland. After all, Switzerland can play the role of an economic bridgehead for the US in Europe. In this regard, I am optimistic that the preliminary discussions could lead to real negotiations.
In addition to a free trade agreement, other topics are also currently on the bilateral agenda.
1. Firstly, we are in negotiations on mutual administrative assistance in customs matters. My department is currently negotiating an agreement whose content should follow the existing administrative assistance treaty between Switzerland and the European Union. This means that Switzerland rejects the use of coercive measures in administrative assistance and the circumvention of Swiss legal assistance policy in the fiscal area. Against the backdrop of the American Container Security Initiative and the Bioterrorism Act, Switzerland is paying particular attention to the protection of confidential information. As soon as the text of the agreement is available, the Federal Council will decide on signature. The agreement must then also be approved by the Federal Parliament.
2. Secondly, the Federal Council aims to improve the existing regulations on auditing by amending the provisions on reporting obligations and through authorisation of auditors. Switzerland thereby is adopting the newest international developments with respect to auditing and audit supervision. The Federal Supervisory Audit Authority is conceived so that it can function as a link between Swiss auditing companies and foreign supervisory audit authorities. So far, it does not appear that recognition by foreign partner authorities such as the American PCAOB should pose a problem. Parliament adopted the proposal in the summer session. The new regulation limits the effects of the Sarbanes-Oxley Act to those Swiss companies that are listed on US stock exchanges or that are regarded as significant subsidiaries of US companies.
3. Thirdly, Switzerland is aiming to conclude a Science and Technology Framework Agreement with the United States. This agreement, which is kept very general and does not involve financial consequences, amounts to a first step in the direction of structured cooperation. Since the relations in this area are already very intensive, the Federal Council views this framework agreement as an important element on the way to a more in-depth relationship.
4. As the fourth element in the area of economic cooperation, Switzerland is aiming for a revision of the Air Transport Agreement with the United States. In principle, the existing treaty of 1995 constitutes a liberal open skies agreement. The revision is necessary because of the "ownership and control” clause enshrined in the agreement. The agreement provides that the granted air traffic rights can only be claimed by companies that are either state-owned or that belong to citizens of the state party in question. After the sale of Swiss to Lufthansa, the agreement must now be revised with respect to this point.
In addition to economic cooperation, Switzerland also cultivates an intensive exchange with the United States in the area of security policy. Terrorism must be combated at different levels. The fight against obtaining the financial basis for terrorist activities is a central element of the fight against terrorism. Switzerland has a wide and efficient range of tools at its disposal in this regard, as is explicitly acknowledged by the United States. In this area, it must be reviewed whether the current efforts at the multilateral level should be strengthened by additional bilateral efforts.
The various projects are running in parallel. Their common umbrella is the declared intention of the Federal Council to secure and intensify relations with the United States. In this way, we want to create the best prerequisites for trade and mutual exchange. In the view of the Federal Council, the various existing relations create favourable prerequisites for additional - qualitative and quantitative - improvements in the cooperation between the sister republics. The Federal Council therefore also wants to take advantage of this opportunity. This does not mean moving away from Switzerland's European policy. Nevertheless, it is time to supplement our bilateral path with targeted additional priorities.
Publisher
Federal Department of Finance
https://www.efd.admin.ch/efd/en/home.html
