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Direct Foreign Investment in Switzerland: Legal Issues

Examines the economic prospects of Switzerland; analyzes the legal issues in direct investment in the country.

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Direct Foreign Investment In Switzerland: Legal Issues

Introduction: Investment Climate
Switzerland, a fundamentally prosperous and stable modern
economy with a per capita GDP roughly 10% above that of the big West European economies, is experiencing shortterm difficulties. After recovering slowly in 199495 from recession, the Swiss economy remains weak, mainly because of the strong Swiss franc and weak growth in Swiss export market, especially in other European countries. Over the near term, growth may average barely 1%, with more than onehalf of this increase resulting from growth in inventories. Weak domestic consumer demand is the principal culprit; stagnation in real disposable income is combining with a reluctance to reduce saving rates in the face of

5. However, as in many countries, real estatespeculation and ownership is explicitly controlled. [On-line]. In addition, the U.S.-Swiss bilateral agreement under the UruguayRound produced lower tariffs on several items of particular interest toU.S. [On-line].Available: http://www.cdci/CIA/publication/Insolo/factbook/sz.htm. The Economist. Switzerland: Foreign direct investments. On the otherside, import growth has been fueled by the strong franc; there are growingindications that Swiss manufacturers are substituting imported inputs fordomestic ones (Switzerland, 1996b). The Economist, 1 9. A wide variety of U.S. (1996). 4. There are no Swiss governmentpolicies or laws which regulate or limit the inflow or outflow of capital.Principal incentives provided by the federal government consist of low-interest loans and incentive packages to encourage investment in"economically fragile" areas of Switzerland (Switzerland: Foreign directinvestment, 1997) The rule of law is well established in Switzerland sothat direct foreign investment has much to gain and little to loose.Conclusion: Recommendations Investment in Swiss industry is definitely less risky from a financialand litigious point of view. American direct Investment in Switzerland topped $4 billion in 1995. Department of Commerce. Other certifying requirements apply to drugs (prescription and over-the-counter), which must receive approval from the inter-cantonal drugcommission. Until recently, the Swiss PTT maintained afull monopoly over the telecommunications industry and market. The World Fact Book on Switzerland. Switzerland will continue toblock trade through high tariffs (Switzerland: Trade regulations..., 1996). There are 578 companies that Americans have directlyinvested in, through the auspices if American banks (Switzerland: Foreigndirect investment, 1997). The dietetic and health food industry (including vitamins andminerals), which brought in over $176 million in 1996 with a projectedincrease of 5% over each of the next two years (Switzerland: Foreign directinvestment, 1997) Overall, the prospects for the Swiss economy are good, and barriers totrade are liberalizing. A continuing obstacle to U.S. Import licenses are also required for certain products not subject toquotas, but which are covered by special regulations concerned with publichealth, plant health, quarantine (plants), veterinary regulations, andregulations concerning the protectionof species, safety measures, prices control measures (for certain textileproducts), and measures for protection of the Swiss economy and publicmorality. Switzerland. Market access for U.S.agricultural exports into Switzerland will improve, despite the very hightariff equivalents replacing current non-tariff barriers. Such import licenses are also issued only to persons and firmsdomiciled in Switzerland (Switzerland: Trade regulations..., 1996). agricultural products,including wines, felt the effects of these barriers (Switzerland: Traderegulations..., 1996). Switzerland imposes technicalstandards and testing and labeling requirements for certain products; Swisselectrical safety standards (SEV-Standards) require that electricalequipment be tested before it can be marketed; tests may be costly and time-consuming. According to the United Stated department of Commerce barriers todirect investment in Switzerland are almost non-existent. (1996a). U.S. Under protection of the country's agriculture, Switzerland imposesquantitative restrictions in order to ensure the country's food supply inthe event that supplies from abroad are cut off. [On-line]. Products under theserestrictions include cattle, meat, milk and dairy products, indigenousfresh fruit and vegetables, seasonal cut flowers, cereals and forageproducts, wine and grape juice. Consequently, growth in machinery andequipment investment, for example, is expected to taper off. Prior to Switzerland's implementation of itsUruguay Round commitments in 1995, these organizations were involved in theimplementation of non-tariff import restrictions, with government support. Products subject to quota may not beimported without an import license, and licenses are granted only toimporters established in Switzerland. Pricesof most agricultural imports were raised to domestic levels by variableimport duties and specific non-tariff requirements on importers ofagricultural products. Over the near term,growth may average barely 1%, with more than one-half of this increaseresulting from growth in inventories. Swissbarriers to direct import (American export) include: 1. A 1992 lawcontinues to give the PTT a dominant role in basic (voice) services andnetwork technical aspects of broadcasting, but a separate federal office(BAKOM) now certifies equipment. Le Defi Americain, again./The American way of business is winningconverts in continental Europe. (1996b). Available:http://www.fawpir.com/sample/switzerland.htm. Banks,manufacturing plants, financiers, labor unions, and trade organizations allexist in a closely held cross hatch of interests (Le Defi America...,1997). products (Switzerland: Traderegulations..., 1996). In agriculture, the myriad non-tariff barriers currently in place willbe "tariffed" or changed into tariff-only protection as an outcome of theUruguay Round negotiations on agriculture. (1997). Afterrecovering slowly in 1994-95 from recession, the Swiss economy remainsweak, mainly because of the strong Swiss franc and weak growth in Swissexport market, especially in other European countries. With this in mind, potential direct investments should beinstigated through the institutions that work best, banks. 3. In some cases, importers may be required to take a certainquantity of domestic products of equal quality (Switzerland: Traderegulations..., 1996). Switzerland: Trade regulations and standards. (1997, April 26). Authorization ofownership is usually waved when a purchaser intends to use the property tooperate a long term establishment (Switzerland: Foreign direct investment,1997) There is also complete freedom of transfer of investment income,royalties, and reparation of capital. A hopeful sign for American exporters is that the system of importlicensing for agricultural products was significantly modified in 1995,following implementation of the GATT Uruguay Round reforms for agriculture. Switzerland's leading sectors, including financial services,biotechnology, pharmaceuticals, and special-purpose machines, willtherefore be more reliant on export markets at the same time they are beingsqueezed by the strong franc. The new licensing system associatedwith Switzerland's white wine tariff-rate quota will provide significantnew opportunities to U.S. Direct foreigninvestment is neither actively encouraged nor unduly hampered. In addition there is no screening of foreign investment nor are thereany investment screening mechanisms nor sectoral or geographicalpreferences prescribed. The lawn and garden equipment market which grossed $24 millionin 1996 with an estimated 4.5% growth rate for 1997-98 (Switzerland:Foreign direct investment, 1997) and 2. exporters,particularly those of high value products, is the food retailing system.The retail market is dominated by two retail giants who account for nearlyhalf of grocery sales. Direct Foreign Investment In Switzerland: Legal IssuesIntroduction: Investment Climate Switzerland, a fundamentally prosperous and stable moderneconomy with a per capita GDP roughly 1 % above that of the big WestEuropean economies, is experiencing short-term difficulties. It makes much more sense, considering Swiss legalrestrictions on foreign imports, to invest directly and reap profits afterthe fact.Legal Restrictions to Direct Investment Direct investment, like many technical terms, is easily misunderstood. IMI961 21 MarketResearch Reports. The Swissfederal government has adopted a relaxed attitude of non-interferencetowards direct foreign investment. Most quotas vary from year to yearaccording to the size of harvests, volume of stocks and marketrequirements. Foreign banks play a significant role in Swiss banking. Thus, direct investment in Switzerland is a safeinvestment. The mostimportant U.S. wine importers. Themarketing of many domestic farm products, and of competing imports, iscontrolled by cartel-like organizations of producers, wholesalers,processors, and retailers. Testing and Certification. These tworetailers are also particularly resistant to allowing U.S. Document ID 3238. Foreign banksand bank-like finance companies comprise about 41% of total bankinginstitutions in Switzerland, accounting for about 11% of total assets(Switzerland, 1996a). Washington, DC: National Trade Data Bank and EconomicBoard. Preferencetherefore exists for equipment procured from companies domiciled inSwitzerland. in-storepromotion programs (Switzerland: Trade regulations..., 1996). Considering Switzerland's status as a rock-solid financial center,investment in Switzerland is still an excellent opportunity. Theseconcessions could result in significant market growth, particularly if thehighly concentrated Swiss retail sector would provide more opportunitiesfor branded and generic promotions of U.S. Until July 1, 1995, Switzerland's highlysubsidized agricultural sector operated behind a variety of importrestrictions -- licensing, quotas, supplementary import charges, variablelevies, conditional import rules, import calendars, and the like. Switzerland, like many European economies, is more verticallyintegrated insofar as how financial instruments are used to invest. The Swiss government confines itself tocreating and maintaining the general conditions that are favorable to bothSwiss and foreign investment (Switzerland: Foreign direct investment,1997). (1997, April 5). exporters are disadvantaged by this systembecause the two food chain stores emphasize their own store brand productsand favor products produced in their own processing plants. They aredevoted to in-house brands, and following that, to international brands towhich they have exclusive rights to market in Switzerland. Imported products must also be labeled in all three officiallanguages (German, French, Italian) (Switzerland: Trade regulations...,1996). Switzerland's foreign reserves, according to International MonetaryFund standards, stood at $35.1 billion in February of 1997 (Financialindicators, 1997, 1 9).Current Investment Issues The differences between direct investment in Swiss manufacturing andinvestment in manufacturing for export to Switzerland are paramount. These groups will continue to have an important role in formulating importpolicy (Switzerland: Trade regulations..., 1996). exporters, including sweet corn, fresh berries, dried fruits, peanuts,oilseeds, parboiled rice, and grapefruit juice concentrate. exports to Switzerland are currently fruits and nuts (mainlyalmonds and walnuts for processing), vegetables, cotton, tobacco, and meat(Switzerland: Trade regulations..., 1996). Available: http://www.tradeport.org/ts/countries/switzerland. U.S. The telephone set market has beenderegulated, but all equipment connected to the public networks, whichremain under PTT monopoly, must be tested and certified. Agricultural products are also affected by cartel practices. Telecommunications. References Financial indicators. Agricultural Products. Weak domestic consumer demand is theprincipal culprit; stagnation in real disposable income is combining with areluctance to reduce saving rates in the face of an uncertain employmentoutlook (Switzerland, 1996b). Import Licenses. Import licenses are required only for alimited number of products, and generally fall into two categories:measures for the protection of the country's agriculture and measures ofstate control (Switzerland: Trade regulations..., 1996). [On-line].Available: http://www.economist.com/cgi-bin/lookup-cgi. For example, Switzerland made sweeping changes to the licensingrequirements for its $37.4 million import market for white wine (red wineimports are virtually unrestricted). 2. Tradesport. While it may be possible for a non-citizen to find ways to take Americandollars and direct how those dollars are invested in Swiss manufacturing,Swiss law militates against controlling interest being other than Swissdirected (Switzerland: Trade regulations..., 1996). Switzerland'smarket capitalization stands at $15 .1 trillion, seventh highest in theworld. Some of the best industries to invest in are: 1. Food Retailing System. In most cases, procedures can be simplified for thosemanufacturers whose equipment has already been cleared in another countryparticipating in the CENELEC (European Committee for ElectrotechnicalStandardization) Certification Agreement (CCA) (Switzerland: Traderegulations..., 1996). Switzerland.

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