Interview
with Doris Leuthard

Switzerland Correspondent for the Financial Times

Doris Leuthard*, Head of the Swiss Department of Economic Affairs and lead speaker at the 2008 OECD Forum ©Swiss government

International trade is very prominent right now. Can we start by looking at Switzerland's position?

As a very export orientated country, trade is extremely important to us. Switzerland has for years been open to trade deals, both as a member of the European Free Trade Association and through bilateral agreements, with 19 in all now.

This year alone, we have agreements ready for signing with Colombia, the Gulf Cooperation Council and Japan. In the latter case, we're the first European country to do so, by the way.

Looking ahead, in January, we opened talks with India, with a formal round to begin in June. And in May, we deepened contacts with China. Both are extremely important countries for us.

What about broader international trade issues?

We are very active in backing free trade, especially in the current Doha round. We share the European Union's position that a deal should be reached as quickly as possible—and ideally by the end of this year. I believe this is a last chance, and say, it's not just a window of opportunity, it's a window of necessity.

Reaching an agreement is essential for integrating emerging markets. In the previous WTO round, agriculture was left a little to one side. It hardly seems fair to concentrate on industry and services and somewhat ignore farming. We see industry, services and farming as three equal pillars. But, the stress of the G20 countries on market access in agriculture, while remaining tentative on industrial products, let alone services, seems unbalanced to us.

But doesn't Switzerland, with its protected agricultural sector, share such concerns?

You forget agriculture accounts for just 1% of our gross domestic product. Services, by contrast, amounts to 60%. Obviously, agriculture has a special resonance for Switzerland from a tourist and environmental point of view. And our preference for quality foodstuffs inevitably comes at a cost. But we've always said we're ready to make our contribution to a world trade deal. Our priority, however, is that it must be balanced.

Will Swiss farmers go along?

We have to support them by adequate measures. We understand we'll lose some domestic production and imports will go up. That's partly why we've proposed an agricultural free trade agreement with the European Union—our biggest trading partner, accounting for more than 70% of imports and exports. We see this as a great opportunity for Swiss farmers, given prosperous consumers' interest in high quality foodstuffs and readiness to pay slightly more for such products. The cheese market has already been liberalised: now we'd like to do the rest.

Turning to the broader economy. Switzerland has seen impressive growth recently. But it's not always been like that. What is different now?

It's true that, after 1992, we had a period of slow growth. But matters have changed in the past three years. A major reason has been the government's decision to initiate a medium term growth strategy. That's now become standard policy: in April, we submitted the latest four year programme as part of a permanent policy to go for growth, which we've also proposed to the 26 cantons.

We've outlined three priorities. To benefit consumers, we need to develop the domestic market and stimulate competition. We also need to ensure and develop Switzerland's role as an economic centre, building on the advantages we have, such as competitive taxes, an excellent infrastructure, a flexible labour market, high standing research and a reputation for safety and stability. And finally, we need to look at our labour market. We face, like other countries, longer term demographic issues and the risk of skills shortages.

But isn't it the buoyant world economy that has been the real reason behind Switzerland's recent growth spurt?

Obviously, strong world growth has played a role. But the steps we've taken to open up our labour market to people from outside Switzerland following the bilateral treaties with the EU have been very significant. We've created 86,000 new jobs. Clearly, we're a winner from globalisation.

Can we switch to climate change, another big world issue. It's not just the risk of less snow that's important to Switzerland?

We have strong views here too. As a very services orientated country, we have among the lowest CO2 emissions. But that means our potential for further reductions is limited, although still possible.

We've set out two ways to proceed: First, through national targets, in areas such as construction or traffic. We've favoured an incentive system offering, for example, tax breaks for investments reducing harmful emissions. And we're looking at further measures, such as incentives to encourage energy efficiency in new houses.

Our second priority is agreement on post- Kyoto goals. We'd like to join the European Union's emissions trading system. And we think developed countries need to think much harder about technology transfer and other methods to keep emissions down. For example, “climate neutrality” is one of the options to work against high emissions.

We've also emphasised the need for climate issues to be given due weight in multilateral organisations, such as the World Bank or the EBRD. And at the WTO talks in Bali, we backed the idea of “rewarding” efforts through lower tariffs for ecological products.

Sovereign Wealth Funds have come very much to the fore, I know your own department has done some work on this. Can you tell us more?

Indeed. We brought out a paper in January for approval by the Federal Council. Basically, Switzerland is very liberal. We encourage investment and make clear one can't make distinctions based on the nationality or origin of funds. Don't forget Switzerland is one of the world's biggest investors, with about CHF632bn (US$ 600 bn) invested outside the country at the end of 2006.

But we recognise transparency is an issue. We think there must be agreement at international level, and reckon there's a role here for multilateral agencies, such as the IMF or the OECD.

Obviously, any guidelines must include some basic principles, such as that an investor has to observe national laws. But we oppose any calls for quotas or restrictions.

What about Switzerland itself? In spite of the country's many strengths, the domestic market has often attracted criticism for being too rule bound and protected?

We have done a lot to open the home market. For example, 1 January saw the liberalisation of the electricity market, in the first step of a two stage process. We've started with supplies for big customers. In January 2011, the market will be opened to retail customers too. Other changes have included opening the postal market. Deliveries of parcels is already unrestricted. In April 2006, the Federal Council agreed to open the market for letter weighting more than 100gms. Next April, the threshold will fall to 50gms and the aim is to achieve full liberalisation by April 2012, subject to parliamentary approval.

It's true that there are some areas that are proving more difficult. We've regularly been criticised for running a health system that's too expensive. But making changes here is very difficult. We're trying to make progress through small steps: the health insurers are supportive, but there is strong resistance in the medical community.

I've already mentioned progress in agriculture, with the planned free trade agreement with the EU. And remember, farm export subsidies will be completely abolished next year.

To conclude, can we discuss briefly Swiss politics—a subject that is pretty obscure for most foreigners, given the tradition of coalition governments and priority of referendum based direct democracy?

When we analyse Switzerland's strengths, political stability definitely emerges as one of our strongest assets. True, Swiss politics may be complicated to outsiders. But working via coalitions means you're always obliged to seek allies. You always have to find ways for dialogue and for reaching consensus. That may seem cumbersome, but it enjoys broad support among citizens, resulting in Switzerland's high degree of implementation.

I can't imagine any change to direct democracy. Admittedly, nothing is ever perfect, and we always need to work on it. But, if anything, I see the trend abroad going more our way, with countries increasingly trying to encourage greater political participation.

*Doris Leuthard is a leading speaker at the 2008 OECD Forum.
Visit www.oecdforum.org/

©OECD Observer No 267 May-June 2008





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