We’ve lost that loving feeling.
Five years ago if someone had asked me whether Switzerland was business-friendly I would have said ‘What kind of a question is that? If Switzerland isn’t business-friendly then who is?’ That question is harder to answer today,” says Martin Naville.
As CEO of the Swiss-American Chamber of Commerce, Naville is in a unique position to understand the mood of business, hearing regularly from 2,200 member companies. In his view, Switzerland is still one of the best locations for conducting multinational business, but several recent events raise question marks; and question marks, as he says, are poison for business planning.
Four issues are on Naville’s watch list: taxes, immigration, Switzerland’s relationship with the European Union, and the Transatlantic Free Trade Agreement (TAFTA).
Regarding taxes, Naville laments the agreement reached in October with the EU in which Switzerland agreed to eliminate ring-fencing, which applies different tax treatment for domestic and foreign business revenue.
“In other words, the basis of our current competitiveness is gone without any certain alternative,” Naville says of the change. There is a proposal on the table, he says, which can keep Switzerland competitive internationally, but it is still too soon to know. There is no guarantee it will survive public discussion, the parliamentary process and then a public referendum. So for companies there is uncertainty about their tax costs after 2018. The shape of the proposal will become clearer through 2015, and business-minded people think it is headed in the right direction, but there are still many unanswered questions.
Like taxes, immigration policy—discussed in this column last issue—hangs in the balance at the moment. It’s a source of anxiety because, for international businesses, Swiss or foreign, it is absolutely critical that they have access to the people they need.
“For all those multinational businesses, people are absolutely key,” says Naville. “They are all service or knowledge-driven value chains. All the other things we have—tax benefits, great quality of life—are really only in service of bringing great people here.”
Businesses that hire specialised people—scientists, for example—are particularly concerned that quotas will be expended before their high-value employees get in. There is also the risk that the EU will negotiate a pass for its citizens, leaving any reduction to come from the non-EU employees who populate laboratories and offices directing operations in the Middle East, Asia and Africa. Other contentious issues were already brewing between Switzerland and the EU before the mass immigration vote, and they still need to be resolved. One is the dynamic takeover of EU law, in which policy changes in Brussels trigger automatic changes in bilateral treaties. Another is the EU desire that Switzerland accept the same dispute resolution mechanism that exists among EU states. Switzerland has said it will not accept foreign law or foreign judges, so the question might become whether Switzerland wishes to keep its quasi-EU status or not.
A fourth issue on Naville’s mind is the ongoing Trans-Atlantic Free Trade Agreement (TAFTA) negotiations between the EU and US. “Nobody knows but my highest probability scenario includes an agreement in about a year and a half. If so, it will have a huge impact on Swiss agriculture. It will need to pass parliament and referendum and,” he guesses, “that won’t be easy.”
The US-Swiss banking issues also need resolution. Next year will bring movement, according to Naville, and he expects a lot of negative public sentiment. Then there are what Naville terms the symbolic issues, such as the referenda of the past year on minimum salary and executive pay.
“If you lack an understanding of Switzerland’s unique democracy where 2% of the people can ask for a constitutional amendment vote, it puts into doubt whether the Swiss people are business-friendly,” he says. Naville thinks most of these questions are moot. But he admits there is uncertainty in the medium and long term which becomes an issue for companies committing investment over 7 to 10 years. “I still think Switzerland has it,” he says, “but we need to be careful not to throw it away.”
Article by Peter Carson