A profile on Switzerland

Just before the quarantine, I had the privilege of breaking bread with Swiss Ambassador Alain Gaschen and his lovely wife, Daniela. Over Filipino food at XO46 Heritage Bistro, we talked about the state of Filipino-Swiss relations and how Switzerland is maturing a neutral republic amid the EU.

Although diplomatic relations between the Philippines and Switzerland was formally established in August 27, 1957, relations between the two countries date back to the 1800’s when trade began. In 1862, Switzerland established its first honorary consulate in Manila, its first diplomatic outpost in Asia. In 1879, several Swiss insurance companies set up branches in the Philippines. By the second world war, some 15 Swiss companies established bases in the Philippines.

In the turn of the millennia, relations between the two countries deepened with the signing of three monumental treaties. In 2002, the Philippine-Switzerland Trainee Agreement was signed. The agreement gives qualified young Filipino and Swiss professionals the opportunity to work across borders. Hundreds of Filipinos have since been able to train with the best Swiss companies. The Philippines is the only country in Southeast Asia with such an agreement.

In 2014, the Philippine-Switzerland Joint Economic Commission was ratified. Its objective was to broaden economic cooperation between the two countries.

In 2016, the Philippines signed a Free Trade Agreement (FTA) with the European Free Trade Association (EFTA), a group consisting of Switzerland, Norway, Iceland and Liechtenstein. Collectively, EFTA nations’ GDP amount to some $1.3 trillion. They are the 9th largest trading bloc in the world and a rich source of foreign direct investments. Not only is the FTA designed to boost trade, it also made the Philippines the de facto portal of trade between ASEAN and EFTA.

Bilateral trade between the Philippines and Switzerland amounted to some $757 million in 2019, with the Philippines enjoying a surplus of $160 million. The Philippines exports precious stones, metals, machinery, optical products, agricultural products and textiles to Switzerland. For its part, Switzerland exports pharmaceutical and chemical products, watches and processed food to the Philippines.

There are about 50 Swiss companies operating in the Philippines today including Novartis, Nestle and Roche, all of whom employ some 14,000 Filipinos. Swiss companies have an investment stock of about US$1.9 billion in the Philippines.

While the FTA-EFTA was signed in 2016, the Philippines has yet to fully maximize its potentials. By virtue of bilateral agreements between Switzerland and the European Union (EU), Switzerland enjoys free movement of goods in the EU. Hence, Philippine exporters can use Switzerland as a jump-off point to access the European market. The Philippines only enjoys a Generalized Scheme of Preferences plus (GSP+) with the EU, not a full FTA.

Switzerland has existed as a sovereign nation since the adoption of the Swiss Federal Constitution in 1848. Thanks to its policy of neutrality, it was never invaded during World Wars 1 and 2. This has allowed the country to mature as a strong force in diplomacy, finance and of course, in economic affairs.

Switzerland tops the list of most innovative nations (it spends 3% of GDP on research); It is the 5th most competitive global economy; It has the second most complex economy; It has the 18th largest exports at $313 billion in 2019; And its people enjoy the second highest per capita income on the planet at $83,700.

The Alpine nation has managed its diplomatic affairs astutely. In 1992, it voted not to join the European Union and instead remained neutral. In a masterstroke, it forged hundreds of bilateral agreements with the EU to gain access to its unified market. As a result, it enjoys the economic benefits of having friction-free access to the European market while not being stymied by the politics, financial woes and “one-size-fits-all” policies of the European Commission.

Not being part of the EU yet being a part of the single market has served the nation well. It has benefitted the most among all European countries from the free flow of investments and trade. A study confirms that each Swiss citizen becomes richer by €2,914 every year on the back of trade and investments from the EU. Its small population, geographical position in the heart of the Europe and advanced export industries have worked to its advantage. For context, the Greek people are only enriched by €401 a year.

But rosy as the picture may be, Switzerland faces its fair share of challenges.

Relations between Bern and the EU is sometimes testy despite their deep economic and social linkages. The relationship is said to be provisional and fragile. As mentioned earlier, the relationship is based on a slew of bilateral agreements. However, the European Commission is insisting that these bilateral agreements be consolidated into a single institutional framework. Problem is, Switzerland still needs to resolve many internal concerns, not the least of which is wage protection. The failure to sign this agreement may put in jeopardy Switzerland’s access to the common market.

There are also challenges from the economic blowback of Brexit. Both countries have until the end of 2020 (unless otherwise extended) to forge new bilateral agreements in the areas of trade, migration, police cooperation, transport and insurance, etc. A number of agreements have already been signed but more needs to be expedited to beat the deadline.

The relationship between Britain and Switzerland is governed by a principle called, “mind the gap strategy.” It is designed to safeguard existing mutual rights and obligations.

Another challenge facing the country is the intensifying tensions over immigration. The share of foreigners within Switzerland’s population is among the highest in the world. Switzerland has an ageing population and so the intake of young foreign workers is vital to keep the economy growing. Immigrants contribute more to the Swiss pension system than they receive. Hence, they subsidize Swiss pension and contribute significantly to its sustainability.

There is growing concern among the Swiss middle class that foreign workers are crowding-out high level positions which would otherwise go to Swiss nationals. They have pushed-up housing prices and have muddled the Swiss identity. Maintaining social equilibrium is a challenge.

Another challenge is keeping up with its commitment to the Paris Agreement on Climate Change. Recently, the Swiss People’s Party (the most popular political party) refused to back proposals that may be harmful to the country’s economy. This has resulted to climate change legislation that many see as watered-down.

Despite all these, Switzerland remains to be a strong republic – sovereign, progressive, responsible and neutral. They are a strategic partner of the Philippines and long-time friend.