Swiss – US relations: The Way Forward

Swiss-American Chamber of Commerce, Rüschlikon, 22 June 2009

Speeches, FDJP, 22.06.2009. The spoken word is imperative

Lecture by Federal Councillor Eveline Widmer-Schlumpf, Guest Speaker at the General Meeting of the Swiss-American Chamber of Commerce in Rüschlikon on 22 June 2009.

Mr. Chairman,
Dear Members of the Board,
Ambassadors, Ladies and Gentlemen,

I was pleased to receive the invitation to come here and speak today as your guest of honour. I thank the Swiss-American Chamber of Commerce for this opportunity.

At present, the Swiss-US relations are facing crucial times, even challenges, which have implications for business relations too. Business people and investors need a stable and predictable political and legal environment to develop their activities. They need to be confident that Switzerland as well as the US will remain safe and convenient places to do business.

Our economy and especially the banking sector are feeling the effects of the worldwide economic downturn, and Switzerland is in the middle of a severe recession. Moreover, it looks like a number of critical aspects of Switzerland’s relations with large parts of the world are coming to a head. In particular, Switzerland is under intense pressure from abroad to amend what is by some quarters perceived as overly strict laws protecting banking secrecy.

There are uncertainties in the air about these developments, and perhaps concern that they might cast a cloud over Swiss-US relations. I wish to address some of them today.

In looking at Switzerland’s relations with the rest of the world, a bit of introspection is probably a good starting point.

Switzerland is geographically a small and landlocked country. Our influences in international affairs, as well as our global political ambitions, are modest. We do not try to engage in power politics – and not just for lack of power. We are perhaps more reluctant than other countries to join multilateral organisations and often prefer to conduct our relations bilaterally instead. Our ways of decision-making are not exactly tuned for quick action. We spend time and efforts to consult, consolidate and seek consensus, and we distrust strong and personalised leadership. We are fond of our federalism and cherish our system of direct democracy which grants significant powers to our citizens to shape policy. We have a strong commitment to the rule of law and watch over our sovereignty.

All in all, we think that Switzerland is a country that works well. Some people think this is because of our characteristics, others think it is in spite of our characteristics.

Switzerland is far from being a hermit internationally. We strive to be a good world citizen, to act responsibly and to contribute our share to the solution of global challenges. We do this in many multilateral organisations and focus especially on human rights, international law, conflict resolution and humanitarian aid.

We are heavily interlinked with the international economy. Our exports account for 40% of our GNP. While there is no such thing as eternal economic prosperity, especially after the global economic downturn, it is safe to say that the fundamentals of our economic and financial sectors are sound. Our economy is highly competitive and has a strong high-tech sector. Covering an area of 0.03 % of the world’s land surface, with a population of a 0.11 % of the world’s total, Switzerland makes up almost 1 % of the world’s economy, in which it is firmly embedded.

Obviously, we are interested in basing our relations with our partners on mutual respect and reliability, the rule of law, including the integrity of our laws, and our sovereignty.

The United States and Switzerland are linked by strong bonds. We uphold the same values, such as freedom, democracy, entrepreneurship, the rule of law and cultural tolerance.

75’000 Swiss citizens live in the US, while 16’000 US citizens live in Switzerland. More than one million US citizens have Swiss ancestry. The US provides Switzerland with key talents – some of you present today are the proof of this.

Our business and trade relations have been developing beautifully. In terms of trade in goods, the US is our second largest customer and our fourth largest supplier. Since 1990 Swiss exports to the US have tripled, and the imports have doubled. The US is by far the most important destination of Swiss foreign direct investments, and the second largest foreign investor in Switzerland. Swiss companies employ around 340’000 persons in the United States.

There are good reasons to take good care of our bilateral relations. Switzerland and the US know each other as dependable partners. This is a solid foundation. We should not put it in peril.

As Swiss Minister of Justice and Police, including migration matters, I lead a Department that is heavily involved in many issues of the Swiss-US relations, including topical ones.

One area of cooperation is security. The US and Swiss authorities cooperate intensively in security, especially in combating terrorism and international crime, including drug dealing and money laundering. For instance, our law enforcement authorities concluded in 2006 an arrangement to set up joint investigative teams in cases involving terrorism and its financing.

As for migration, the introduction of a Swiss passport with biometric data was an important project this spring. The outcome of the popular vote in May was a relief, as it allows us to introduce the new passport by March next year. Just as important, Switzerland will meet a key requirement for remaining in the US Visa Waiver Program. For business and tourism it is essential that people can travel visa-free between Switzerland and the US. Frequent travellers such as you will appreciate this. I also thank the Swiss-American Chamber of Commerce for your support in this matter.

The free movement of people with the European Union, which the Swiss voters recently decided to continue and to expand, is very important to the Swiss labour market. It is clear that the EU remains our most important trading partner and therefore the free movement of persons is indispensable. But I understand that there may be concerns about how this might affect immigration from countries like the US.

I can however reassure you on this point: The Swiss economy still relies on labour market recruitment from outside the EU to find skilled specialists and highly qualified individuals. As a matter of fact labour immigration from outside the EU has grown over the past years, due to the growth of the Swiss economy and the creation of new jobs. The free movement of people with the EU has not displaced qualified labour market immigration from other countries.

Another issue my Department is currently working on is Guantanamo. The Swiss Government welcomed the announcement by President Obama to close down the camp. We are in principle willing to help.

Currently we are studying the US files of some inmates who have been cleared for release. We are paying special attention to security and to the potential for integration. Accepting detainees moreover requires the consent of the canton where the person would be resettled. That is all I can say today.

There has been coordination with other European countries on this issue. Recently, the member states and associated members of the Schengen area, which Switzerland recently joined, agreed to share information on detainees they might consider taking. This is a welcome step that takes into account the security concerns of the involved countries.
Our decision to help close Guantanamo is in line with our humanitarian tradition and our conviction that the detention camp in Guantanamo violates international law. However, I do hope that the US will accept detainees as well – after all the responsibility for the facility lies with the US themselves. This would certainly help explain why we should accept inmates in Switzerland.

I would like to dwell briefly on some current issues in our relations to the EU. As you know, Switzerland and the EU have different views regarding our corporate tax system. The EU claims that our cantonal tax regimes are inconsistent with the Free Trade Agreement. In our view this agreement does not apply to tax policy.

Like most countries, Switzerland wants to create competitive investment conditions to promote Switzerland as a business location. It is our clear preference to apply tax incentives rather than subsidies to achieve this.
In November last year, the Swiss government launched a reform of the corporate tax law. This review will allow us to address some of the concerns the EU has raised.

We have had good discussions with the EU on this dispute. Both sides want to avoid confrontation, and it is safe to say that our positions are closer today than they used to be. We are ready to continue this dialogue, should there be a need for it. We will also pursue our efforts to modernise our tax system. But we shall do so autonomously, without interference from outside.

It is worth noting that we have an impressive cooperation with the EU in other areas and have indeed accommodated the interests of EU countries in tax collection. We withhold a percentage of the interests paid to EU residents and remit this tax. It is certainly not commonplace that a country collects taxes on behalf of others and hands over the revenue. Furthermore, our cooperation in combating fraud with respect to indirect taxes is exemplary - Switzerland was determined to apply the anti-fraud agreement provisionally as of 8 April this year despite the fact that all EU members have not ratified it yet.

This leads me to the core issues on tax and finance, related to current Swiss-US relations. On 13 March the Swiss Government decided to adopt the OECD standard on international administrative assistance in tax matters. This means that Switzerland will share information, including banking information, with foreign tax authorities on a case to case basis in response to specific requests. The distinction made between tax fraud and tax evasion in our internal law will no longer apply to the cooperation with foreign tax authorities. This major change of policy in giving access to information will be implemented through our double taxation treaties, which are to be revised accordingly. Moreover, we want to streamline procedures for administrative assistance to ensure a speedy response to requests made in accordance with the revised treaties. The change in policy will eventually also be reflected in legal assistance.

We are determined to meet the international requirements and are implementing the new policy without delay. Negotiations with several countries to amend the double taxation treaties are under way.

Let me be very clear: The off-shore banking business has in the past involved misconduct. There is no excuse for flawed business practices and mistakes that have occurred. We take this issue very seriously. If Swiss banks want to engage in off-shore banking they must properly address, manage and mitigate the legal risks going along with this business. Unless Swiss banks take appropriate measures, foreign regulators and prosecutors as well as Swiss regulators will force them to do so. This is why we should try and find satisfying solutions in treaties that we are currently reviewing with the US and other partners.

The Governments’ proposal to amend the Swiss corporate law, recently debated in the Council of States, should provide further safeguards against unsavoury business practices and unsound risk-taking. We do not seek a heavy-handed, intrusive government role in corporate business, nor are we simply guided by the public outrage about the compensation of executives. But recent excesses in pay and bonuses of top executives do call for a greater, if measured, regulation. Shareholders must have a greater say in company affairs.

These are the lines of action the Swiss Government has embarked on. These bold measures, amending laws and treaties, will enhance information sharing in tax offence cases and help prevent incorrect business practices in the future.
This is what we are offering, and now I am coming to what we expect. As for the legal action against Switzerland’s largest bank, we expect other governments to respect their international treaty obligations. We cannot accept unilateral attempts to compel the release of information from Switzerland which is not covered by any existing international treaty, and would moreover force Swiss companies to break Swiss law. There are established procedures and authorized channels for sharing information.

We reject the use of coercion. We rely on the rule of law, the doctrine of territorial jurisdiction and judicial sovereignty. Pursuing unilateral legal action in violation of bilateral treaties, while we are doing our best to amend those same treaties – in line with our new, more open policy – is not helpful. The unilateral action in question goes, in its vagueness and its scope, far beyond the OECD standard for the exchange of tax information. This is troubling.

We believe it is in the common interest of Switzerland and the United States to avoid a conflict between our sovereign laws. It is certainly in the best mutual interest to amend the double taxation treaty according to the new standard, and to accommodate in this way legitimate interests of the US. Last week, the negotiations to revise the agreement were successfully concluded on a technical level. Before entering into force, the agreement must be approved by Parliament – and perhaps even by popular vote. It stands to reason that the chances of approval will increase if the legal pressure against a Swiss bank to release data is resolved. We are keen on a speedy and mutually satisfying conclusion of this matter, and will keep the intergovernmental channels open to find a compromise.

There is one consistent diehard myth I want to address: Switzerland is not, has not been, and will not be a “tax haven”. Our tax burden compares quite well with the OECD average and that of the US and is in stark contrast to actual off-shore centers. Labelling Switzerland a tax haven is groundless and unfair. We were upset by the publication of an OECD list on tax cooperation on the day of the G20 summit in London. In our view Switzerland does not deserve to be on the list, and we were never informed beforehand of the list, which was never submitted to formal approval of the OECD – of which Switzerland is a founding member. This is disturbing.

We also feel that the Congress initiative Stop Tax Haven Abuse Act, if enacted, would complicate our efforts to keep our bilateral relations on track and to address mutual concerns in a constructive way. We have made decisive moves to enhance cooperation, and are always ready for talks.

I wish to recall that Swiss banking secrecy does not protect criminals or terrorists. It should be borne in mind that Switzerland regularly seizes and returns – more than any other country has done in the world – fraudulent assets to their rightful owners. We have effective instruments to uncover and seize illicit money, and apply them. This is a top priority of Swiss foreign policy in financial matters. Over the last 20 years, Switzerland has returned about 1.8 billion US $ to their countries of origin.

Ladies and Gentlemen, let me come to my concluding remarks. I recognise the instrumental and growing role of the Swiss-American Chamber of Commerce in promoting business, trade and investment in Switzerland and in the US. I want to thank you for your consistent efforts which benefit our economic relations with the US. I encourage you to continue your valuable work. I thank you specifically for your recent support for the Swiss Government’s position in the current case involving a large Swiss bank and a court in Florida. Such actions do not go unnoticed, and will not be forgotten by the Swiss Government.

As I mentioned in the beginning, several elements that will influence Switzerland’s attractiveness as a place for business and finance are in motion. Some of them, by their implications for business and for Swiss-US relations, might cause concern to some of you. However, I trust that the changes we are undergoing will make the Swiss market and financial center stronger than before. There will be more transparency and more predictability as a result of our cooperation.

Things do not always turn out as bad as they may look in prospect. What appears first as a daunting and abstract obstacle becomes a task to be dealt with. It becomes a challenge that must and can be solved. The Swiss Government has responded to the challenge and is embracing sweeping change in international cooperation on tax offences.
However, we do not intend to abandon our fundamental values, such as the rule of law and the sanctity of international commitments and treaties. We are a reliable partner in this regard and expect nothing less from our friends. We believe in good faith and honour our commitments. Since these are values that both Switzerland and the US hold in high esteem, there is little to fear. Switzerland will remain a safe, competitive and prosperous location for business.

Thank you for your attention.

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