Switzerland

SWITZERLAND

Swiss Confederation

Confédération Suisse

Schweizerische Eidgenossenschaft

COUNTRY OVERVIEW

LOCATION AND SIZE.

Located in west central Europe, bordered on the north by France and Germany, on the east by Austria and Liechtenstein, on the south by Italy, and on the west and south-west by France, this landlocked alpine country has an area of 41,290 square kilometers (15,942 square mi), making it slightly less than twice the size of New Jersey. The capital, Bern, is situated on the Aare River in the north-western part of the country; the largest city is Zürich in the north; other major cities include Geneva and Lausanne in the south-west, Basel in the north, and Lugano in the south.

POPULATION.

The population of Switzerland was estimated at 7,262,372 in July 2000; the population growth rate in that year was 0.3 percent, and the immigration rate was 1.38 per 1,000 population. Population density was among the highest in Europe, at about 176 persons per square kilometer (455 per square mile). The population is aging, and it has a high life expectancy79.6 years for the total population (76.73 for men, and 82.63 for women). Consequently, the median age increased to 42.6 years in 1999 from 37.2 five years earlier. Some 15.4 percent of the population are 14 years old and younger, and 16.7 percent are 65 and older.

The majority of the population, about 62 percent, lives in urban areas, and with the exception of Zürich, Geneva, Basel, and Lausanne, mostly in small towns. Most of Switzerland is mountainous and the population is unevenly distributed, concentrated in the valleys and the plains.

Switzerland's ethnic composition is complex and includes 3 major traditional language communities: German (about 64 percent of Swiss citizens), French (about 19 percent), and Italian (about 10 percent), along with the traditional Romansch (Rhaeto-Roman) language community (about 1 percent). Other ethnic groups include Spaniards, Portuguese, Turks, Albanians, former Yugoslavs, and others. Religious groups include Roman Catholics (46 percent), Protestants (40 percent), others (7 percent), and no religious faith is reported by 7 percent. The very slow population growth and the sizeable surplus of jobs in the economy (particularly in the services sector) have brought in many foreign guest workers from Italy, Spain, Portugal, the former Yugoslavia, and elsewhere. Guest workers are now estimated, with their families, to constitute nearly one-fifth of the entire population.

Switzerland has been the destination for many economic immigrants and asylum seekers, which has led to growing internal tensions. The fear of being overrun by foreigners has been a persistent Swiss topic in domestic political debate for decades. There have been many attempts to limit the number of foreigners by legislative means. In 2000, the Swiss electorate voted on a referendum to impose an 18 percent quota on the number of foreign workers in the country. They decided against the measure, although the supporters of the quota argued that the influx of foreigners in the 1990s was equal to the population of the 6 smallest (and politically most conservative) Swiss cantons (confederate units).

OVERVIEW OF ECONOMY

Switzerland, by all accounts one of the most prosperous and stable market economies in the world, has a gross domestic product (GDP) per capita of $27,100, roughly one-fifth higher than the average of the large Western European countries. Its per capita income remains the highest in Europe, even after a decade of comparative stagnation in the 1990s. Switzerland is traditionally considered a safe haven for foreign investors, because it has maintained political neutrality, an elaborate banking system with a high degree of bank secrecy, and it has maintained its currency's value through the instabilities of surrounding Europe's wars and crises. Switzerland is pursuing European Union (EU) membership only in the long runover a ten-year periodbecause of the widely-held suspicions of many Swiss that effective involvement with the rest of Europe could jeopardize their unique economic stability. Yet the EU is by far its largest trading partner and Switzerland has signed several agreements to liberalize trade ties with the union. Switzerland has also brought its economy largely into conformity with EU regulations to improve its international competitiveness.

Swiss industries, notably engineering and machinery, electronics, metals, chemicals, and pharmaceuticals, are renowned for their precision and quality and contribute to more than half of the country's export revenues. In agriculture, Switzerland is self-sufficient for almost two-thirds of its food and exports several world-famous delicacies, yet it also imports about $6 billion worth of agricultural commodities annually. Its mostly small-scale farmers are among the most highly protected and subsidized producers in the world. Tourism, banking, and insurance are traditionally leading sectors in the economy. Swiss trading companies have good expertise in many parts of the world, such as eastern Europe, the Far East, Africa, and the Middle East. Switzerland has a well-developed tourist infrastructure and the Swiss themselves are keen travelers. The country is the seat of many international inter-governmental and private organizations, from the United Nations (UN) and its associated organizations, to CERN, the European Laboratory for Particle Physics (which gave birth to the World Wide Web), to the International Red Cross, and is also host to numerous multinational corporations .

In the late 1990s, the Swiss economy emerged from several years without growth caused primarily by the strong Swiss franc, which made its exports too expensive abroad. The overall slowdown in Europe, which also hurt tourism, was another barrier to exports. Following the depreciation of the franc in 1997 and the stronger economic conditions in Europe since, Swiss growth reached 2.3 percent in 1998, fell off to 1.54 percent in 1999, and then hit 3.43 percent in 2000. Unemployment peaked at 5.2 percent in 1997 and was reduced to less than 2 percent by 2000. Domestic consumer spending is an important factor keeping the economy in good shape, and competitive pressures in the European markets are supporting extensive domestic capital spending.

After Swiss voters, doubtful of the benefits of more intimate ties with their neighbors, rejected the framework European Economic Area (EEA, providing for closer cooperation as a possible introduction to EU membership) in a referendum in 1992, the Swiss federal government started negotiating separate bilateral sectoral agreements with the EU. An agreement covering several sectors (including land and air transport and agriculture) was signed in 1998. The federal government has declared its commitment to EU membership as a long-term goal, although it is opposed by many citizens who fear such results as harm to heavily subsidized Swiss agriculture by letting in cheaper EU foods, increases in unemployment by flooding the country with more guest workers, and damage to the environment from heavier truck traffic through Swiss territory.

Yet a substantial majority of 67.2 percent in 2000 backed, in a referendum pushed through by anti-European nationalist groups, a new package of bilateral agreements with the EU. Only 2 of the 26 cantons, Ticino and Schwyz, voted against the package. The Italian-speaking Ticino was concerned about the influx of workers from neighboring Italy, and Schwyz, a German-speaking conservative stronghold, had stood in the way of every pro-European initiative. The agreements, which include the introduction of free movement of people between the EU and Switzerland and the removal of existing administrative barriers to EU trucking through Swiss territory, are designed to compensate for the country's non-member-ship in the EEA, with which it conducts over two-thirds of its trade. The prudent Swiss have negotiated a number of opt-out clauses in case the inflow of EU citizens and trucks gets higher than expected.

POLITICS, GOVERNMENT, AND TAXATION

Switzerland has developed a unique federal system with a weak collective federal government, local autonomy, and a strong, largely self-regulating civil society. Many powers are delegated to the 26 cantonal (confederate units) governments and the smaller communes (counties). For instance, it is the communes (and the population itself by referendums) that grant applying individuals Swiss citizenship.

The bicameral legislature, called the Federal Assembly, consists of a 46-member Council of States, or Standerat, whose members are elected in cantonal elections, and a 200-member National Council, or National-rat, whose members are elected by popular vote on the basis of proportional representation every 4 years. The members of the Federal Assembly select the 7 members of the Federal Council (cabinet), who lead the federal ministries for finance, foreign affairs, justice, economics, interior, transportation (with energy and environment), and defense (with sports). The mostly ceremonial position of president of the council (head of government) is rotated annually according to the seniority of the member councilors. Members sometimes exchange their responsibilities as new members are appointed, or new appointees may take over the portfolios of outgoing councilors. The council strives to present a collegial image and rule by consensus but its deliberations are private. Issues on which no consensus can be reached are determined by a secret cabinet vote and its results are not reported. The composition of the council parallels the traditional 4-party coalition that has ruled Switzerland since the late 1950s.

The 4 political groups, usually receiving 70-75 percent of the total popular vote at parliamentary elections, fill the seats on the council. These elections are held once every 4 years. These include the Free Democrats (FDP), the Christian People's Party (CVP), and the Swiss People's Party (SVP), all center-right parties, and the Social Democrats (SP), a left-of-center formation. The 3 largest parties by their popular vote, FDP, CVP, and SP, receive 2 seats each on the Federal Council; and the SVP gets one. In addition, there are at least 2 seats on the council reserved for French-speaking members from any party. This consensual combination of left and right wings and ethnic elements has allowed the coalition to maintain political, ethnic, and social peace, although it has been criticized by supporters of more radical moves.

Since the 1990s, the need for a more streamlined executive branch has led to the consideration of some revisions to the Swiss constitution that may eventually result in a strengthening of the president's powers. Any revision of the legislation, however, is slow and is subject to a referendum challenge before coming into force. Treaties and agreements approved by the 200-seat Nationalrat (parliament) are also subject to challenge by popular vote in the unique Swiss system of people's initiative and referendum. Virtually every major decision in the country may be put to vote by all the citizens. Only 100,000 signatures are required by law for a people's initiative (petition) to be put to a referendum. The system allows strong popular involvement in the federal and local government and keeps both branches under a close and constant civic scrutiny.

The approval of the bilateral agreements with the European Union (EU) and the rejection of the initiative to limit the proportion of foreigners at the 2 referendums in 2000 were welcomed with relief by the federal government. Given the fresh controversy over the treatment of Holocaust victims by Swiss banks during and after World War II (1939-45), a vote in favor of foreigners' restriction and against the EU agreements would have presented a serious embarrassment for the government and would gravely damage the country's reputation abroad.

European integration policy remains an important focus of political debates, as the government remains convinced that strategic national interests would be best protected by a complete integration into the EU. Switzerland is not economically disadvantaged by staying outside the EU. In the late 1990s, it has been doing better than EU leaders Germany or Italy, growing at a rate unseen since the 1980s, when Switzerland was regarded as Europe's economic model. It also has an uniquely massive balance of foreign payments surplus equal to more than 8 percent of its GDP.

Switzerland lies in the center of Europe, and almost two-thirds of its exports are shipped to EU members, and four-fifths of its imports come from the union. Consequently, Switzerland's future prosperity is definitely related to the development of the EU. Many Swiss feel that their country is becoming isolated in Europe. The fact that Switzerland submitted 16 proposals for negotiation to the EU headquarters in Brussels and had to be satisfied with finalizing only 7 of them might indicate that it needs the EU more than vice versa.

Some feel Switzerland is also losing its position in international financial circles. In 1983, the world's leading industrial countries invited Switzerland, as an exception, to share membership in the Group of Tenwith the world's largest economiesbut when the leading finance ministers decided in 1999 to form the Group of 20 of the "systemically most important countries," Switzer-land's name was missing. Thus the Swiss no longer have a reserved seat at the top table of the world's economic deliberations. Furthermore, Switzerland, along with small countries like the Vatican and Tuvalu, has so far refused to join the United Nations (UN), although it is a big financial contributor to the organization and hosts the UN office in Geneva plus many other international organizations. It also refuses to be drawn into peacekeeping and peacemaking operations on the grounds that this would jeopardize its neutrality. Still, Switzerland's influence in the world is far higher than its size and even its economic capacity might suggest.

Switzerland has long since developed a market economy based on free initiative, and government participation in the economy is rather moderate. Freedom of trade and industry are guaranteed by the federal and the cantonal constitutions; state intervention is limited, primarily aimed at providing a favorable economic framework, stable currency and prices, efficient infrastructures, and training the workers. In most areas, the federal government legislates and supervises, but the 26 cantonal governments implement the decisions and enforce the laws. The cantons enjoy a high degree of administrative authority, and their own constitutions and laws. The communes (counties), over 3,000 in number, also have independence, control over all local issues, and collect their own taxes. All levels of government have little involvement in manufacturing and services, but their role is considerable in agriculture protection and in trade regulation. Indirect involvement is particularly reflected in the large number of government regulations, especially at the local level. Rules concerning labor laws, business hours, zoning rules, building codes, environmental and noise codes, and administered prices may seem quite pervasive opposed to the United States or even the EU. Obligatory health insurance is another example of the local approach to state involvement in the economy: insurance and health care are provided privately, but the law requires employees to have the insurance. The government subsidizes those who cannot afford it. In the area of competition, unlike the United States and the EU, legislation is loose and cartels in Switzerland have been openly permitted and only broken up when the government has been able to prove that they are socially and economically harmful, which has seldom been the case. In 1996, a new law strengthened the government's antitrust position in mergers, shifting the burden of proof from the court to corporations engaged in anti-competitive activities. Even by EU standards, the new law was relatively weak.

Swiss tax revenues accounted for 35 percent of GDP in 1998, far below the EU average of 41.5 percent and the Organization for Economic Cooperation and Development (OECD) average of 37.2 percent. The level of taxation has risen somewhat during the 1990s, reflecting higher social security and medical insurance costs, as well as a lack of economic growth. But the Swiss tax system is widely known in the world business circles for its fairness and is characterized by moderate local and foreign operating income taxation and tax exemption of holding-company income. For this reason, many foreign companies have set up holdings or mixed Swiss subsidiaries to conduct international operations from Switzerland in order to take advantage of lower taxes on their foreign income. Branches of foreign corporations are liberally taxed at the same rate as domestic corporations, unlike many other nations more protective of their national capital. Switzerland has undertaken to make itself even more fiscally attractive for corporate investors, and a corporate tax reform at the federal level removed the annual federal tax on capital in 1998, setting a fixed federal tax on profits at a rate of 8.5 percent.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Switzerland has a dense and efficient rail network and an extensive high-class road system with many tunnels to compensate for the mountainous terrain. Overall there are 4,492 kilometers (2,791 miles) of rail lines and 71,059 kilometers (44,156 miles) of roadways. There are 2 large international airports (at Zürich and Geneva) and a few smaller airports with international connections. Landlocked Switzerland also has a modern marine network with some 30 ocean-going vessels based abroad, and carries out river cargo services with connections to the North Sea via the Rhine river. The port of Basel on the Rhine is a major trading hub with efficient connections between rail, road, and water routes. Switzerland is located on strategic crossroads connecting some of the fastest-growing areas of the EU in France, Germany, and Italy.

The agreements with the EU, approved by the referendum in 2000, included the areas of air transport (providing for improved access for Swiss carriers in Europe and similar rights for EU carriers in Switzerland) and road transport (in return for better access to the EU's road haulage market, Switzerland's 28-metric ton truck weight limit will be relaxed in 2001, with full access for the EU's larger 40-metric ton trucks by 2004). Under the new system of taxing heavy trucks by weight, distance traveled, and pollution caused, big trucks will be required to pay a toll of up to US$200 to cross the country. The opening to bigger trucks prompts Swiss authorities to reexamine road infrastructure, and they have started installing electronic devices on trucks to record the mileage traveled in the country, so that tolls could be calculated correctly. In 2001, a 34-metric ton truck meeting the environmental standards is expected to pay about US$95 to travel from Basel on the German border to Chiasso on the Italian border (in 1999, the toll was about US$24).

Airlines also benefited after Swiss voters approved closer economic ties with the EU in 2000. SAirGroup, the holding company of the Swissair airline, got the opportunity to buy a controlling stake in Sabena Belgian Airlines. That will expand its scope of cooperation with foreign partners like American Airlines and boost its presence in France, where it also bought a 49 percent stake in a US$1.4 billion umbrella company that included 3 smaller domestic carriers (Air Liberte, Air Littoral, and AOM) that will have a 30 percent share of the domestic market and will be able to challenge the local giant Air France.

Switzerland has large resources of hydroelectric power in the mighty alpine rivers flowing down from glaciers; they are almost fully exploited. In 1996, hydroelectric plants supplied 54 percent of the Swiss electricity production of 55.1 billion kilowatt-hours (kWh), the lowest proportion for decades, while the country's 5 modern nuclear power stations provided 43 percent. Conventional thermal plants, burning fossil fuels, contributed for only

Communications
Country Newspapers Radios TV Sets a Cable subscribers a Mobile Phones a Fax Machines a Personal Computers a Internet Hosts b Internet Users b
1996 1997 1998 1998 1998 1998 1998 1999 1999
Switzerland 337 1,000 535 352.7 235 29.2 421.8 371.37 1,427
United States 215 2,146 847 244.3 256 78.4 458.6 1,508.77 74,100
Germany 311 948 580 214.5 170 73.1 304.7 173.96 14,400
Sweden 445 932 531 221.4 464 50.9 361.4 581.47 3,666
aData are from International Telecommunication Union, World Telecommunication Development Report 1999 and are per 1,000 people.
bData are from the Internet Software Consortium (http://www.isc.org) and are per 10,000 people.
SOURCE: World Bank. World Development Indicators 2000.

3 percent of the electricity. Switzerland usually exports and sometimes imports some electricity when in need, mostly from French nuclear power plants across the border from Geneva. During the 1990s, energy consumption declined slightly, relative to the population. This was possibly because of newer energy saving technologies. The government's 1991 "Energy 2000" program aims to stabilize overall energy consumption, following a referendum in 1990 in which the Swiss voted for a ten-year moratorium on the construction of nuclear power plants, but against abandoning nuclear power altogether.

In 2000, the government proposed the liberalizing of the electricity market (allowing many competing utilities to sell power directly to businesses and households), after an earlier reform version had been disapproved. The new plan envisaged a gradual liberalization of the sector starting in 2001, with complete liberalization 6 years later, at a faster pace than required by the EU rules. In the first 3 years of the reform, only the 110 largest Swiss electricity users (all large companies) will have a free choice of supplier, followed by smaller enterprises, and finally by individual consumers. The government holds that a single company must run the national electricity grid. However, critics of the reform, more suspicious of energy liberalization after the California blackouts in early 2001, stress that the new proposals do not provide remedies for the amortization (pay back) of existing sizeable investments in plant and equipment that may be made unprofitable by liberalization. The revenues from a new energy tax, the introduction of which is under consideration and has not yet been approved by parliament, however, may fund some of the required investments. Others may be funded by a surcharge on electricity bills for domestic consumers who are unable to change their suppliers and will be required to pay for the right to remain with their providers. Swiss industry captains pushed for a quick transition. This would cut their electricity bills, which are the highest in Europe, by as much as 25 to 30 percent. The liberalization program, nevertheless, makes a referendum challenge likely, given the political clout of the liberalization critics. The country has some 1,200-electricity producers, most of which are likely to go out of business when liberalization occurs. Many are small companies owned by mountain communes and still enjoy considerable political influence. In anticipation of liberalization, the electricity sector is already undergoing restructuring . In 2000, 3 electricity companies in western Switzerland struck a strategic alliance aimed mainly at providing electricity services to customers, including buying electricity for them in the European markets.

The Swiss telecommunications market was fully liberalized in 1998, in line with the EU telecom regulations. The state-owned telecommunications company, Swiss-com, was split off from the postal service and partly privatized through stock market offerings in 1998. Private companies such as Diax and Sunrise compete with Swiss-com in the full range of telecom services, though in early 1998 they were still arguing over the very high charges demanded by Swisscom to allow them to use its network. Rival private operators are not allowed to build competing networks for connection to private homes, and therefore the interconnection rates charged by Swisscom are crucial for them. By cutting rates for international long-distance calls, Sunrise has already begun to attract customers from Swisscom, which faces additional competition from numerous mobile phone operators.

There is still a growing demand for telecom services, but they are subject to an already very competitive environment as more than 40 local and international carriers are competing in all areas of telecommunication services. Swisscom tries to keep its grip on the most profitable sectors of growth, such as mobile communications, voice transmission, closed user groups, and particularly large business accounts, value-added services, including private virtual networks, and design and operation (with its partners Cisco, Siemens, Alcatel, Ascom/Ericsson) of asynchronous transfer mode (ATM) computer networks. Foreign investment in the Swiss telecom sector is heavy, as many international carriers, such as the American MCI/Worldcom and Sprint-Global One, have established themselves locally, followed by other large players like British Telecom, France Telecom, and Tele Denmark. Vodafone, the British wireless giant, is expected to invest about 5 billion euros in Swiss mobile phone operators. Vodafone has agreed to acquire a 25 percent stake in Swisscom's mobile division but is waiting for final approval from the government, which still has a 65.5 percent stake in the company; the deal will be worth up to 4 billion euros. France Telecom has increased its stake in the Swiss operator Orange Communications by buying (for approximately 1 billion euros) 42.5 percent of Orange's stock from Eon, a German energy group. Massive foreign investment is not only beneficial for customers, but also helps Swiss companies keep up with the latest trends in the market. The introduction of telephone cards by AT&T, MCI, and Sprint-Global One, for example, prompted Swiss companies to introduce their own telecom cards to Swiss subscribers and international travelers.

The International Telecommunication Union, based in Geneva, is an important facilitator in world telecommunications, issuing standard recommendations and organizing important conferences and trade events, such as the quadrennial Telecom exhibition, which is a forum for multinational debates.

Switzerland has high computer usage rates and a large percentage of the population uses computers on a regular basis. 57 percent of the Swiss households owned personal computers and 38 percent had access to the Internet by 2000. This was less than Sweden's 53.5 percent but more than Germany, France, or Italy, where only around 18.1 percent of the population had Internet access. There are more than 150 Internet service providers (ISPs) in Switzerland. Some of the major firms include Blue Window, Iprolink, Infomaniak, Compuserve, and AOL Switzerland. There are also many smaller free services. E-commerce is also increasing rapidly, but the cautious and conservative approach of European consumers has meant that growth will be slower than in the United States in 1998-1999, particularly after the U.S. and European dotcom meltdown in late 2000.

ECONOMIC SECTORS

As a country deprived of large natural resources but abounding in skilled labor, Switzerland has concentrated on the financial services sector and on research-intensive engineering, world-famous for precision and quality. Both sectors together account for more than half of export revenues. In agriculture, Switzerland is about 65 percent self-sufficient and imports about US$6 billion of agricultural products annually. Swiss farmers, since World War II among the most heavily subsidized groups of producers in the world, are challenged as EU pressure mounts on Switzerland to liberalize food imports. Tourism is also a traditionally major economic power-house. International trade is a large contributor to the economy. In 1995, 2.8 percent of GDP was created in agriculture, 31.1 percent in industry, and 66.1 percent in services.

AGRICULTURE

The Swiss soils, terrain, and climate do not favor agriculture particularly and farms are usually family enterprises, mostly small in size. They produce cereals such as wheat and barley, root crops such as sugar beets and potatoes, and fruits such as apples and grapes. About 124 million liters (33 million gallons) of wine, at subsidized prices, are produced annually. Dairy products, such as cow's milk and world-renowned Swiss cheeses, make up a significant portion of the agricultural revenue. Livestock include cattle, pigs, sheep, horses, and poultry. After World War II, agriculture has lost its relative weight in the economy (though not its traditional clout in society or politics), and its preservation as a sector has been due largely to governmental intervention and support. To protect farmers and serve the national security goal to remain largely self-sufficient in food, the federal government has developed a complex system of protections effectively restricting imports of agricultural products, notably dairy and grains. High import tariffs and tariff rate quotas (limiting the merchandise quantities that can be imported from a certain country or generally) are maintained for most products which are domestically produced. Producers, particularly those in alpine and other difficult zones, are especially actively supported. Approximately 80 percent of gross farm income can be attributed to government intervention. Milk price supports are one of the principal staples of protectionism and that product's prices remain significantly higher than in the EU markets.

Since 1993, the Swiss system for protecting farmers has slowly begun a fundamental reform, due to the need to reduce costs for the budget and to the pressure from consumers and trading partners. Trade liberalization agreements require Switzerland to eliminate import barriers, reduce export subsidies , revise agricultural tariffs, and cut domestic support. Consequently, the Swiss agricultural sector will become less protected and more open to market forces and increasingly accessible to foreign goods. The government's position is that Swiss agricultural policy and regulations will be adjusted to be more in line with EU policies leading to reductions in administered prices. The process of agricultural policy reform started in 1993 when the prices of the politically sensitive dairy sector were first slightly reduced. The reform culminated in 1998, when the Parliament approved a new package of agricultural policy measures. According to the package, administrated prices will continue to decline and direct payments to farms will be gradually linked to their of use environmental production methods such as organic agriculture. On the other hand, trade agreements with the EU that lowered tariffs and other barriers to trade in agricultural goods will boost both exports of Swiss cheese and other delicacies and the imports of a range of EU-produced fruit, vegetables, and beverages into Switzerland.

INDUSTRY

Although raw materials are very limited in Switzerland, the country has a world-class manufacturing economy fabricating raw material imports into high-value added exports. The engineering industry, together with metals and electronics, employs about 9 percent of the country's workforce and contributes around 40 percent to Swiss export revenues. Leading areas in the sector include precision engineering, in particular the world-renowned Swiss clocks and watches (accounting for 8 percent of export revenues in the early 1990s); scientific instruments; heavy engineering and machine building, including specialized, custom-built equipment such as generators and turbines; food products, particularly specialized luxury goods such as chocolate and cheese; textiles; chemicals; quality pharmaceuticals; and fine handicrafts.

Moderate GDP growth, both domestically and in Europe, has been keeping manufacturing growth down over much of the early and mid-1990s, but restructuring efforts carried out over the late 1990s have left the sector in a better and more competitive position. The strong tradition for creativity and innovation demonstrated by the Swiss industry in the past continues to thrive, particularly in new materials technology, micromechanics, and microelectronics, and other research and development-based products. Environmental technologies are expected to have a very good growth potential. The entering into force of multilateral trade liberalization accords signed in the 1990s (under the former General Agreement on Tariffs and Trade, which was succeeded by the World Trade Organization, and also with the EU) will be very important for the Swiss machinery sector. Export-oriented engineering manufacturers will benefit from lower tariffs and the liberalization of public procurement procedures within the EU. They will also improve conditions for Swiss direct investments abroad, and bring better protection for Swiss patents and technical know-how in the international markets.

The chemical industry (including the valued Swiss pharmaceuticals) was one of the sectors in the Swiss economy that performed very well in spite of the 1991-1997 recession . As with the engineering sector, chemicals will also benefit from liberalization; the positive effects may be of even greater magnitude. Within the chemical branch, pharmaceuticals offer the biggest growth potential and they will benefit most from better patent protection abroad. Agreements with the EU on the elimination of technical obstacles to trade by mutual recognition of trademarks, technical regulations, other rules and procedures for the testing and certification of industrial goods, will also boost Swiss trade with the union.

SERVICES

FINANCE.

Long regarded as the country of the bankers, Switzerland has a robust finance services sector and its most vibrant components are banking and insurance. Within the banking sector, commercial and private banks have the largest influence and growth potential. Swiss banks have been historically renowned for their stability, strictly enforced secrecy policies, privacy, personalized service, and reliability. The increase in world trade and industrial activity after World War II brought more business to commercial banks, particularly to their global operations. With the merger of the Union Bank of Switzerland and Swiss Bank Corporation in 1998, the new United Bank of Switzerland (UBS) is now Europe's second largest bank by total assets. Mutual funds and institutional investors have also vastly gained in importance, and represent very good growth prospects for commercial and private banks. The insurance industry is equally important for Switzerland, and the Swiss are by all measures the most heavily insured people in the world. There are over 100 insurance companies, approximately 10 percent of which specialize solely in the reinsurance business; of the latter, Rueckversicherung is the world's second-largest reinsurance company. Swiss insurance companies have been consistently very strong performers with steadily growing earnings.

TOURISM.

A country of scenic landscapes and enterprising people, Switzerland has one of the most robust tourist industries in the world, with extensive facilities and centuries-old traditions, a sector that is one of the leading sources of foreign exchange and employment in the economy. Although the country is a humming crossroads between some of the fastest-growing regions in the EU, foreign visitors usually enjoy lengthy stays instead of simply transiting through. Foreign tourists spent US$11.355 billion in 1998 and over 69 million overnight stays were recorded in the sector offering slightly more than 1 million hotel, chalet, campsite, and youth hostel beds. Foreign tourist positive credit balance reached US$1.046 billion in 1998, and revenue from domestic tourists exceeded US$9 billion. Expenditures in the foreign tourist sector, including investments, surpassed US$10 billion. The country attracted the widest possible range of guests, from affluent elderly people visiting the spas to low-budget young backpackers trekking or "canyoneering" across its numerous mountains. Switzerland has a long list of world-renowned alpine (skiing and hiking) and lakeside tourist resorts, spas, and casinos; world-class cultural events; and many important international organizations and conferences, drawing huge numbers of participants, activists, and observers.

RETAIL.

The structure of retail trade in Switzerland has been changing since the 1980s. Independent retailers are decreasing in number, giving way to self-service and discount stores and supermarkets, and a tendency toward specialization in food distribution has been particularly noticeable. Department and chain stores, consumer cooperatives, discount stores, and supermarkets account for a large part of local trade. The tendency in those companies is to deal in a wide range of products and services. Their centralized buying gives them a competitive advantage over independent retailers (they are given a discount by suppliers due to the vast scale of their purchases). Retail traders continue to streamline their operations in order to counter their stiff competition. Scanner cash registers for bar-coded articles are ubiquitous, and the use of electronic cards to ease payment transactions is growing (cards are issued, among others, by the Swiss Post, where numerous Swiss have bank accounts, and are becoming increasingly popular). In 1987, Swiss retail groups united to form an Electronic Payment System Association.

Yet, faced with the competition of large retail establishments with nationwide coverage, individual retailers also set up organizations to provide wholesale purchasing, importing, and other services. Functioning as cooperatives, most of these small retailers' buying groups and associations operate in the foodstuffs business but also in textiles, leather goods, sports articles, pharmaceuticals, toys, and hardware. Home shopping, or the direct sale from a private location, is becoming increasingly popular and has recorded enormous growth. The turnover for direct sales companies has doubled after 1995. The home-shopping boom has reached a record high and products sold range from Tupperware to lingerie to new recipes and cleansing agents. More than 5,700 salespeople are members of the Swiss Association of Direct Marketing Companies (VDF), mail order companies not included. They can count more than 1 million client-contacts yearly, generating a turnover of US$195 million (in 1998). Most of the products sold at "Home Shopping Parties" are top quality and innovative and cannot be found at retail stores. The advantages of home shopping are the advice offered by the sales persons, the relaxed and friendly atmosphere of the private location, the combined shopping and meeting friends experience, and the possibility of testing the products on the spot.

INTERNATIONAL TRADE

International trade has long been the key to prosperity in Switzerland. Traditionally, its merchandise trade deficit has been generously compensated by a surplus trade in services. This surplus amounted in 1999 to US$18.7 billion or 7.5 percent of GDP. The country is heavily dependent on export markets to maintain its large export sector, supply raw materials for the domestic manufacturers, and diversify the array of goods and services available locally. Switzerland has traditionally very liberal trade and investment policies, its commercial law and legal system are highly developed, and foreign investments are protected by solid domestic policies. The Swiss franc is one of the strongest currencies in the world and the country is known for the soundness of its banking industry, so it has all the major factors benefiting international trade.

Chief Swiss exports include machinery, chemicals, metals, watches, textiles, agricultural products, and imports include raw materials, machinery, chemicals, vehicles, metals, agricultural products, and textiles. Principal economic partners in 1998 included the EU, 80 percent (Germany, 33 percent; France, 12 percent; Italy, 10 percent; the Netherlands, 5 percent; Britain, 5 percent); the United States, 6 percent; and Japan, 3 percent. Trade with the EU in 2000 fell below average by 9.9 percent, while exports to the U.S. went up by 15.9 percent and to Japan by 16.4 percent. Export growth was also impressive to the Commonwealth of Independent States (CIS, the former USSR), South Korea, China, and Turkey, each

Trade (expressed in billions of US$): Switzerland
Exports Imports
1975 12.958 13.305
1980 29.632 36.341
1985 27.433 30.696
1990 63.784 69.681
1995 78.040 76.985
1998 75.431 73.877
SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.

with growth of more than 40 percent, although from a low base in 1999. Irrespective of the fluctuations, the EU remained the crucial economic partner for Switzerland. The strong and flexible Swiss economy reacts to international market fluctuations with an elaborate precision, keeping itself competitive.

Contrary to its traditionally positive foreign trade balance, Switzerland accumulated a trade deficit of nearly US$554 million in the first 9 months of 2000, compared to more than a US$1 billion surplus for the same period of 1998. Such negative trade balance is typical, however, in periods of strong economic growthlike the one Switzerland went through between 1998 and 2000 when higher local incomes boost domestic consumption and imports consequently outgrow exports. The 2000 imbalance, however, was caused by foreign price changes rather than by the strong domestic demand. It is almost certain that if international crude oil prices had remained unchanged over that period, the Swiss trade balance would have accumulated probably a surplus of more than US$500 million. Import growth during the same period was 13.2 percent and the value of imports of energy rose by 87 percent also largely due to increasing oil prices. Export growth was driven by the expansion of the EU and other foreign markets, and strong export growth product categories included precision instruments, watches, and metals. The traditional Swiss watch industry in late 1990s was very successful in exporting mostly watch parts, while exports of ready-made watches were somewhat shrinking. Exports of food (notably cheese and chocolate) were rather weak, as were the international sales of the troubled Swiss textile industry.

MONEY

The Swiss National Bank, the central bank and the institution which issues currency, has been successful in maintaining the arguably most stable currency in the world but also very skeptical of the benefits of integrating Switzerland with the EU or with its euro currency. With its private banks and insurance companies active globally and rated among the world's best, the Swiss financial services industry is traditionally one of the largest employers and an important export revenue source. Swiss banks, with their firm reputation for financial solidity and respect for privacy, are leaders in global asset management. More than one-half of the US$1.76 trillion in assets managed by Swiss banks are thought to be of foreign origin (according to the Swiss National Bank).

The local banking scene, however, has undergone some serious structural changes in the 1990s, following global consolidation trends. Many small local banks closed or merged and many large ones streamlined their Swiss retail networks while expanding their overseas operations.

Exchange rates: Switzerland
Swiss francs, franken, or franchi (SwFR) per US$1
Jan 2001 1.6303
2000 1.6888
1999 1.5022
1998 1.4498
1997 1.4513
1996 1.2360
SOURCE: CIA World Factbook 2001 [ONLINE].

The total number of banks dropped from 495 in 1990 to 403 in 1996 and the number of regional banks was cut by more than one-third. In 1990, the Swiss banks had also, under pressure from the federal government, to abandon a series of price-fixing arrangements they were indulging in, increasing competition for customers and funds. The domestic recession between 1991 and 1997 and the cuts in spending and borrowing it initiated helped send out of business a number of regional banks with limited deposit bases relying heavily on mortgage lending and loans for local businesses. All these developments have increased the concentration of the Swiss banking sector where the 4 largest banks, including the merged Union Bank of Switzerland (UBS) and Swiss Bank Corporation (SBC), account for half the total combined balance sheet. Nevertheless, Switzerland maintains a high bank density, with 1 branch for every 1,400 inhabitants (compared with 2,000 in Germany or 4,700 in the United States), although bank employment decreased from 127,626 in 1990 to 119,771 in 1996. In the long run, the Swiss Bankers' Association fears, up to one-third of the 1996 bank employment could be lost due to consolidation and the use of new technologies in the sector.

Zürich has traditionally been a major international banking center and its equivalent to the New York's Wall Street is the renowned Bahnhofstrasse where the headquarters of the UBS and the Credit Suisse, 2 of Europe's leading banks, as well as many smaller private banks, are located. Although the majority of the UBS staff is based in Switzerland, almost one-third of it is located internationally throughout the world; its global investment banking operations are in London, and its fund management head office is based in Chicago. Credit Suisse has an equally strong presence in both the United States and Europe. But the robust growth and restructuring of Zürich's 2 big banks has generated new opportunities for smaller competitors as well. For example, seasoned bankers that were laid off in the UBS's 1998 merger with SBC have helped the management teams of smaller banks build up their skills. Furthermore, Zuercher Kantonalbank (ZKB), the third-biggest bank in Zürich that subscribed 75,000 new customers in 1999, holds that over 30 percent of those new customers were due to the effects of the merger. And many of the even smaller banks have performed at an even better rate. Julius Baer, for instance, the biggest independent private bank in Zürich, attracted the same amount of new funds in 1998 as did UBS, more than 16 times larger. Vontobel, Zürich's second-largest private bank, increased its profits almost 2 times in 1999 and its return on equity was over 30 percent. The numbers of bank employees, previously decreasing, have stabilized, the leading banks have enlarged their international market share, and a large number of small fund management and corporate finance boutique firms have flourished.

But, in the longer term, there still may be serious threats as Switzerland's big banks and insurance companies have long since outgrown the size of their country, and Zürich's relative importance as an international financial center has decreased as business has moved to major international centers like London, Frankfurt, and New York. A united Europe, with the emergence of the single European currency, the euro, also contributes to the country's increasing financial isolation. But it is still the world's top offshore banking center for private customers, attracting many offshore affiliates of major international firms that use Switzerland as a tax haven . Its success, however, receives the attention of European officials who believe that Switzerland's bank secrecy laws and loose tax rules give it an unfair competitive advantage in attracting offshore capital and also that it is harboring major tax evaders from other countries.

Money laundering allegations and related banking scandals have disturbed the Swiss public opinion throughout the 1990s. To combat transnational organized crime, abusing the liberal Swiss banking system, and partly responding to international pressures, Switzerland gradually relaxed its banking secrecy policies and allowed foreign investigators access to bank records in cases where illegal acquisition or use of funds were suspected. In 1998, new strict money laundering laws were introduced and a significant number of high-profile international money laundering cases were investigated by magistrates in many cantons, particularly in Geneva. In the late 1990s, Swiss prosecutors investigated some serious allegations of money laundering by former top Russian officials through the Swiss company Mabetex. In January 2001, Pavel Borodin, former head of Russian President Boris Yeltsin's administration, was detained by U.S. authorities in New York on request of the prosecution and may be turned over to the Swiss judiciary. Following the Mabetex scandal, the Swiss government launched a political campaign abroad over Switzerland's reputation as a financial center, defending banking secrecy yet emphasizing its willingness to join international efforts to fight transnational organized crime. The government has even quietly encouraged the new government of Nigeria to take legal action in Switzerland to recover national assets allegedly siphoned off by the previous government. It is not certain, however, how the Swiss government will react to pressures from the EU to fight tax evasion that is not a criminal offence in Switzerland. Although unwilling to change its tax and secrecy laws, it is reassuring to many that Swiss laws on fraud and money laundering are so extensive that they effectively cover cases of major tax evasion as well.

In the mid-1990s, the Swiss Banking Association, under pressure from world Jewish organizations, agreed to search its vaults for unclaimed bank deposits allegedly containing assets belonging to Jewish victims of the Holocaust during the World War II. In 1997, the Swiss government endorsed a proposal by several leading banks and businesses to establish a memorial fund for compensating Holocaust survivors and their descendants, although many individuals and groups claimed Switzerland was not doing enough to aid the victims and their descendants. In 1998, class action suits and potential U.S. sanctions against Swiss banks prompted 3 large private banks to agree to participate in a global settlement of all claims and suits against them. The banks agreed to a settlement of US$1.25 billion, allowing Holocaust survivors and their descendants to receive compensation.

The Swiss Exchange was 1 of the 8 European exchanges to sign a memorandum of understanding, formally confirming a commitment to work towards a pan-European equity market with one single electronic trading platform for blue-chip stocks (of large and creditworthy companies renowned for the quality and wide acceptance of their products or services, and for their ability to make money), with common rules and regulations. In addition, the exchange is strengthening ties to London, Europe's leading financial center. In 1999, the exchange granted remote membership for the first time to an institution based in Britain. From its London office, the American securities firm Donaldson, Lufkin & Jenrette (DLJ) International Securities became a remote member that can participate in trading on the Swiss electronic exchange from outside the country. DLJ's remote membership followed the admission of Germany's Mees Pierson and Hull Trading. The exchange is trying to make its membership more attractive and to promote the country as a trading area, lowering its admission fee for new members to SwFr25,000 (from SwFr350,000) as the old fee was prohibitive for many brokers. The high fees were intended to pay off the expenses for installing an electronic exchange system in the 1990s.

The Swiss government sees eventual membership into the EU as a core foreign policy target over the next 10 years. However, the SNB has been skeptical of the rewards of integrating with the euro currency. Many Swiss believe that such a move would result in Switzerland

GDP per Capita (US$)
Country 1975 1980 1985 1990 1998
Switzerland 36,154 39,841 41,718 45,951 44,908
United States 19,364 21,529 23,200 25,363 29,683
Germany N/A N/A N/A N/A 31,141
Luxembourg 21,650 23,926 26,914 35,347 46,591
SOURCE: United Nations. Human Development Report 2000; Trends in human development and per capita income.

importing the risk of instability associated with the eastward enlargement of the EU. Others hold that linking the Swiss franc to the euro would be risky. If the Swiss franc remained independent, they suggest, it would gain in importance as a diversification currency for international investors.

POVERTY AND WEALTH

The Swiss traditionally enjoy one of the highest living standards in the world although they also have an exceptionally high cost of living. Although there are many large private fortunes of local and foreign persons, Switzerland's Gini index score (which measures economic equality, with 0 standing for perfect equality and 100 for perfect inequality) of 33.1 is quite a bit lower than that of the United States (40.8) or the United Kingdom (36.1). The structure of consumption and the quality of life are also among the world's most advanced, according to UN studies. Switzerland's government is working hard to improve its environmental policies and to fight organized crime, reducing the impact of these 2 threats to modern life everywhere in the world.

But there is also some growing sense of insecurity in Switzerland, manifesting itself in a rising concern about immigration, unemployment, and the higher levels of foreign ownership of Swiss property and firms, although such concerns are largely overstated. An in other

Distribution of Income or Consumption by Percentage Share: Switzerland
Lowest 10% 2.6
Lowest 20% 6.9
Second 20% 12.7
Third 20% 17.3
Fourth 20% 22.9
Highest 20% 40.3
Highest 10% 25.2
Survey year: 1992
Note: This information refers to income shares by percentiles of the population and is ranked by per capita income.
SOURCE: 2000 World Development Indicators [CD-ROM].

affluent countries in which unemployment is very low (less than 2 percent), the perception of job insecurity is much greater than unemployment itself. The average period employees remain in a job hasn't changed since 1980, and moreover, labor shortages, rather than high unemployment, are likely to be more prevalent in Switzerland, at least over the next 5 years. Likewise, the concern about the influx of refugees is grossly exaggerated. Eastern European countries remain the main source of potential refugees, but as they narrow the GDP per head gap with western Europe, the already quite low levels of migration are likely to be decreased further. The political processes in the former Yugoslavia after the toppling of Slobodan Milosevic in late 2000 may also contribute to a more stable condition and less immigrants from the Balkans region.

Recent takeovers of Swiss firms by large foreign companies have also led to misplaced concerns. As firms denationalize, becoming increasingly international and global in character, the competitiveness of the business environment as a location for firms becomes more important. With Switzerland's highly educated workforce and other positive assets, the result may rather be a long period of high value industrial development and there is little reason to believe that foreign ownership will lead

Household Consumption in PPP Terms
Country All Food Clothing and footwear Fuel and power a Health care b Education b Transport & Communications Other
Switzerland 19 6 9 3 18 8 36
United States 13 9 9 4 6 8 51
Germany 14 6 7 2 10 7 53
Luxembourg 17 8 9 3 7 5 52
Data represent percentage of consumption in PPP terms.
aExcludes energy used for transport.
bIncludes government and private expenditures.
SOURCE: World Bank. World Development Indicators 2000.

to money flight from the country. If feelings of economic insecurity grow, there may be further calls for protection for Swiss industry in order to preserve domestic employment. Also, there may almost certainly be further tightening of legislation to curb immigration, with the potential for a backlash against government's plans to integrate the Swiss and EU labor markets.

WORKING CONDITIONS

The educated and skilled Swiss workforce, the elaborated laws promoting labor flexibility and safety, and the agreements between the influential trade unions and employers' associations have protected Switzerland from significant labor unrest. The unemployment rate dropped to 1.7 percent in September 2000 and the rate is likely to stabilize, as the principal component of unemployment was caused by the disparity between the required and offered qualifications and mostly unskilled workers continued to have problems in finding jobs. This rate of unemployment was the lowest one since December 1991 and substantially below levels prevalent in EU countries (the most favored of which, Luxembourg, had a rate of 2.2 percent in July 2000, while the preliminary EU rate for August was 8.3 percent).

The economic stagnation from 1991 to 1997 had a major impact on the labor market. Over this period, 255,000 jobs (in full-time job equivalents) were lost. Surprisingly, however, the unemployment situation improved dramatically from a rate of 5.7 percent in February 1997 (the highest in decades) to the low level found in 2000. Indeed, statistics tend to underestimate the real level of unemployment, and if the number of persons in active labor market programs, retraining schemes, and temporary jobs are added, that would raise the underlying rate of unemployment by probably 1 percentage point. Rising employment has also enabled the government to almost halve the number of publicly sponsored jobs, to 7,106 in August 2000 from 13,095 just a year earlier. The ratio of long-term unemployed among all unemployed remained relatively high at 20.9 percent in August 2000, and this number did not include those who fell out of the statistics after reaching the end of the benefit entitlement period (a total of 1,078 persons).

Mutual recognition of academic degrees, diplomas, professional certifications, and social security entitlements was an important element of the recent agreements with the EU aimed at increasing labor mobility . The government envisages the scrapping, over a 6-year period, of the Swiss quota system for work permits for EU and European Free-Trade Association (EFTA) citizens, although limits may be introduced again if inflows of immigrants are stronger than expected. After 7 years, Switzerland can opt out of the pact or continue with it for another 7 years. At this point, freedom of movement for EU and EFTA citizens will become permanent.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

4TH CENTURY A.D. Germanic tribes conquer ancient Roman Helvetia, the site of present-day Switzerland.

9TH CENTURY. Most of Switzerland joins the Duchy of Alemannia (Swabia), one of the feudal units of the German kingdom; the southwestern part of the area is taken over by the feudal kingdom of Transjurane Bourgogne.

1033. The Bourguignon part of Switzerland is taken over by Emperor Conrad II and becomes a part of the Holy Roman Empire of the German Nation, consisting of small feudal states ruled by lords, bishops, and abbots, and many independent city-states, which later become cantonal commonwealths.

1276. Emperor Rudolf I Habsburg of the Holy Roman Empire attempts to assert his feudal rights in a threat to the traditional liberties of the Swiss. Three forest cantonsSchwyz, Uri, and Unterwaldenbased around the Lake of Lucerne form a league for mutual defense in 1291. During the 14th century, the cantons of Zürich, Glarus, Bern, Lucerne, and Zug join the league, and in the 15th century Fribourg and Solothurn follow suit.

1474. The Habsburgs, unable to tame the militant Swiss mountaineers, abandon their attempts to acquire their territory, and their confederation becomes directly dependent on the empire.

1499. Emperor Maximilian I attempts to abrogate various Swiss rights; he is later defeated, and, by the Treaty of Basel of the same year, recognizes the virtual independence of the Swiss.

1513. The cantons of Appenzell, Schaffhausen, and Basel enter the confederation and send 2 delegates each to the federal assembly. Swiss mercenaries gradually become famous throughout Europe (and still constitute the papal guard in the Vatican City). Swiss troops annex Italian towns that now form the canton of Ticino in the south of Switzerland. In 1536, Bernese Swiss take Lausanne on the Lake Geneva and various other territories from the duchy of Savoy.

1515. Swiss troops are defeated by the French in 1515 and Switzerland's neutrality policy is then adopted.

1648. Swiss cantons preserve their neutrality in the Thirty Years' War of 1618 to 1648 and achieve formal recognition as a completely independent state by the Peace of Westphalia in 1648. The union of the cantons is still quite weak, but a modern market economy develops as Swiss craftsmen win reputation across Europe for quality and skill, and financial services develop.

1798. French-backed revolutionaries occupy Swiss territory. Napoleon Bonaparte, the future emperor of France, unifies the country under the name Helvetic Republic and imposes a written constitution, which, like the French military occupation, is bitterly resented by most of the Swiss.

1803. Napoleon withdraws French troops and by the Act of Mediation grants a new constitution with Swiss approval.

1815. The Congress at Vienna recognizes the perpetual neutrality of Switzerland, and Swiss territory is expanded to include 22 cantons (Geneva is ceded by France), acquiring its modern form.

1847. Political struggles between autocratic and democratic elements and between Roman Catholic and Protestant areas culminate in a civil war between the Sonderbund, a Catholic league, and the federal government, which takes the upper hand. The new constitution of 1848 greatly increases federal power.

1874. A new constitution is passed, which, with modifications, is still in force; it completes the development of Switzerland from a group of cantons to a unified federal state.

1940s-1950s. Switzerland develops its powerful modern economy and, although maintaining its neutrality, becomes a member of the General Agreement on Tariffs and Trade (GATT), the international trade organization replaced in 1995 by the World Trade Organization (WTO), headquartered in Geneva. Also joins the Organization for European Economic Cooperation (1948), the European Free Trade Association (1959), and the Council of Europe (1963).

1971. Switzerland grants women the right to vote in federal elections and to hold federal office.

1992. Switzerland joins the International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF). However, Swiss voters reject joining the European Economic Area, a free-trade zone linking many Western European countries.

1994. A referendum declares racial discrimination, racist propaganda, and denial of the Nazi Holocaust illegal.

1995. Under international pressures, Switzerland begins to relax its banking secrecy policies to help fight organized transnational crime.

1997. The Swiss government endorses a proposal to establish a memorial fund to compensate Holocaust survivors and their relatives for funds allegedly retained by Swiss banks.

1998. In December, the parliament elects Social Democrat and former labor union leader Ruth Dreifuss as Switzerland's first woman and first Jewish president.

2000. The Swiss voters approve by referendum a bilateral agreement with the EU and turn down a proposal to limit the quota of foreigners allowed in the country to 18 percent.

FUTURE TRENDS

By all accounts, Switzerland is likely to maintain and develop its stable and prosperous economy in the foreseeable future but its role in the changing world is likely to be strongly dependent on its gradual integration with the EU. The debates between Euro-skeptics and Euro-enthusiasts will most likely dominate domestic policies, along with the foreign workers controversy. The Swiss economy and society will be trying hard to reformulate their unique identity in the globalizing world.

EU integration will benefit the leading Swiss industries, particularly in manufacturing, but offshore banking and agricultural firms may suffer, which, given their strong political clout, may further disturb the integration process. The participation of the Swiss in the European political process may generate new domestic controversies over time. But in the long run, the benefits of the single European market of goods, capitals, persons, and ideas will outweigh the drawbacks for Switzerland.

The Swiss financial industry will overcome the scandals that have been plaguing in throughout the 1990s, and although a radical change in the tax laws is not likely, will cooperate with the EU and other countries in combating organized transnational crime and tax evasion. The Swiss will preserve their unique system of self-governing and their high standard of living with rising level of employment but the fear of unemployment and of being "overrun" by foreigners will continue to influence the domestic political debate and will often raise the issue of solidarity with the people of less fortunate countries.

DEPENDENCIES

Switzerland has no territories or colonies.

BIBLIOGRAPHY

Confoederatio Helvetica. <http://www.admin.ch/ch/index.en.html>. Accessed August 2001.

Economist Intelligence Unit. Country Profile: Switzerland. London: Economist Intelligence Unit, 2001.

Embassy of Switzerland in the United States. <http://www.swissemb.org>. Accessed August 2001.

Enright, Michael J., and Rolf Weder, editors. Studies in Swiss Competitive Advantage. Bern and New York: P. Lang, 1995.

New, Mitya. Switzerland Unwrapped: Exposing the Myths. London and New York: I.B. Tauris, 1997.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. FY 2000 Country Commercial Guide: Switzerland. <http://www.state.gov/www/about_state/business/com_guides/index.html>. Accessed January 2001.

Valentin Hadjiyski

CAPITAL:

Bern.

MONETARY UNIT:

Swiss franc (SwFr). One Swiss franc equals 100 centimes, or rappen. There are coins of 1, 5, 10, 20, and 50 centimes and 1, 2, and 5 francs, and notes of 10, 20, 50, 100, 500, and 1,000 francs.

CHIEF EXPORTS:

Machinery, electronics, chemicals, pharmaceuticals, metals, watches agricultural products, textiles, and handicrafts.

CHIEF IMPORTS:

Raw materials, machinery, chemicals, vehicles, metals, agricultural products, textiles.

GROSS DOMESTIC PRODUCT:

US$197 billion (1999 est.).

BALANCE OF TRADE:

Exports: US$98.5 billion (1999 est.). Imports: US$99 billion (1999 est.).