RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/77/LIE
6 November 2000
(00-4544)
Trade Policy Review Body Original:  English
TRADE POLICY REVIEW
SWITZERLAND AND
LIECHTENSTEIN
Report by the Government of
Liechtenstein
Pursuant to the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), the policy statement by the Government of Liechtenstein is
attached.  The policy statement by the Government of Switzerland is contained
in document WT/TPR/G/77/CHE.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Switzerland and Liechtenstein.Switzerland and WT/TPR/G/77/LIE
Liechtenstein Page 3
CONTENTS
Page
I. INTRODUCTION 5
II. TRADE AND ECONOMIC POLICY ENVIRONMENT 5
(i) Economic growth 5(ii) The economic sectors 6(iii) State activities 7(iv) Prospects 8
III. TRADE POLICY DEVELOPMENTS AND FUTURE POLICY DIRECTIONS 8
(1) T
HE WORLD TRADE ORGANIZATION (WTO) 8
(2) T HE EUROPEAN ECONOMIC AREA (EEA) 9
(3) T HE EUROPEAN FREE TRADE ASSOCIATION (EFTA) 10
(4) C USTOMS UNION TREATY /ECONOMIC INTEGRATION WITH SWITZERLAND 10Switzerland and WT/TPR/G/77/LIE
Liechtenstein Page 5
I. INTRODUCTION
1. This is the first review of Liechtenstein under the TPRM arrangements. The review comes
after some key developments for the Liechtenstein economy have taken place. In 1995 Liechtenstein
ratified the European Economic Area Agreement and the WTO-Agreement. In parallel the customs
union treaty with Switzerland was changed in order to allow Liechtenstein to become a party to the
EEA Agreement and to make it possible at the same time to remain in the bilateral customs area with
Switzerland, the latter not being a member of th e EEA. In 1997 Liechtenstein joined the Government
Procurement Agreement of the WTO. These steps of new international obligations led to far-reaching
internal legal and organisational adjustments in Liechtenstein.
2. During the past years Liechtenstein’s broadl y diversified economy has grown rapidly as a
consequence of some vital ingredients such as the political stability, the close connection withSwitzerland (customs union, monetary union), its European integration through the EEA Agreement
and its robust entrepreneurial culture. One of the objectives of economic policy is to avoid that the
rapid growth will lead to imbalances between the different economic sectors. The existing constraints
for further growth, namely the very low supply of and the high prices for land and property as well as
the dried-out labour market dampen the danger of overheating.
3. A significant proportion of both Liechtenstein’s prosperity and employment is generated by
its manufacturing sector as well as by its financial services activities. Its manufacturing sector already
flourished before Liechtenstein took off as a financial services centre two decades ago.
4. At present one of the major tasks of Liechtenstein’s economic policy is to prepare
Liechtenstein’s economic environment to meet the cha llenges in view of a rapidly changing political,
economic and regulatory environment, especially due to the changes of the shape of Europe but also
due to new international developments for financial services.
II. TRADE AND ECONOMIC POLICY ENVIRONMENT
5. Liechtenstein is a small open economy heavily dependent on external relations. Industrial and
services exports constitute a major source of foreign earnings. As there is no significant domestic
market, production is almost entirely for export. Li echtenstein has always believed in the virtue of
free trade. Legally binding systems for international trade as the WTO-Agreements are of utmostimportance for Liechtenstein  due also to the fact that a small state  can defend its vital interests
primarily in the context of international fora with enforceable rules.
(i) Economic growth
6. The current economic situation of Liechtenstein can be considered as highly prosperous.
Since  no GDPfigures are available for Liechtenstein so far, the steady growth of the Liechtensteineconomy has to be shown by other data. During the past five years, the number of workplaces
increased in total by 12%, exports improved by nearly 40%, the total balance sheet of the banks rose
by about 32%. Income from gainful activity of both residents and commuters has grown since 1994
by 20.7%. Liechtenstein has the same low inflation rate as Switzerland (1999: 0.8%). Interest rates are
stable with only some slight increases. There are no figures available reflecting private consumptionor investments. An indicator of investments is the number of permissions for new constructions. The
permission for the construction volume given by the authorities has increased during the past five
years. The public finances have shown a surplus for some years now. (The public budget totals
approximately 650 million Swiss francs.) During the same time the unemployment rate has steadily
increased as new workplaces have been partially filled in by new immigrants or by cross borderWT/TPR/G/77/LIE Trade Policy Review
Page 6
commuters, and reached its peak of 2% at the end of 1998. The unemployment rate has then
constantly decreased and stands currently at 1.1%.
(ii) The economic sectors
7. Liechtenstein’s economic strength is often linked with its financial services activities. While
admitting that the growth of  these activities in th e past two or three decades has been important for
Liechtenstein’s „success story“, it is also important to underline that Liechtenstein is much more thana financial services centre. A significant proportion of both its prosperity and employment is
generated by its manufacturing sector, which already flourished before Liechtenstein took off as a
financial centre. Liechtenstein’s services companies as well as its industrial concerns rank among the
very best in their sectors, despite the fact that they have to cope with the absence of state support, a
deficiency of raw material, high salaries and a limited labour market.
8. Almost half of the workforce is employed in the second sector (industry and skilled trades). In
Liechtenstein there are around 1’700 commercial businesses established. It is worth  mentioning that
Liechtenstein’s industrial companies employ outside Liechtenstein almost as much personnel as the
total Liechtenstein workforce. In 1999 around 43% of the industrial exports went to other EEA-
countries, around 13% to Switzerland and 44% to other countries. Exports to the other EEA-countrieshave decreased by 5.5% compared to 1998, those to Switzerland and other countries increased by
8.5% and 25.5%, respectively. In the ranking of the main export destinations the United States of
America are followed by Germany, Switzerland, France, Italy, Austria, Great Britain, Taiwan, Spain,
Hong Kong and others.
9. Liechtenstein’s industrial manufacturers enjoy a worldwide reputation. Productivity is very
high by international standards. Due to the high sa lary level, simple mass production is not profitable.
The economic interests concentrate on niche products as well as on high-technology products.Therefore, the economy is dependent on the availability of a well--educated workforce. Liechtenstein
manufacturers mainly specialised in products of a capital- and research-intensive nature. Liechtenstein
is the source of items such as industrial fastenings, heating equipment, precision devices, coating
machinery and dental technology equipment, along w ith many other products requiring a high level of
technical expertise.
10. Around 50% of the labour force is involved in the third sector (trade and service). The branch
financial services employs one-seventh of Liechten stein’s total workforce. Liechtenstein’s financial
services providers have been competing successfully at international level for decades. Liechtenstein
is a high-quality financial centre in the fields of banking, insurance and investments.  The financial
services providers act in a liberal economic environment. But a liberal system can only survive in thelong run if high supervision standards are respected and enforcement of these standards is secured. To
further improve standards and their enforcement the Parliament of Liechtenstein passed in September
2000 some new legislation and government is in the process to reform the surveillance institutions in
the field of financial services.
11. Liechtenstein adopted some years ago  legislation to combat money laundering and organised
crime (Due Diligence Act, Law on International Legal Assistance in Criminal Matters, Criminal Code
articles on money laundering), partly as a transposition of relevant EU directives. The legislation in
Liechtenstein is therefore in compliance with European standards. The Due Diligence Act obliges
those subject to its provisions (including banks, financial institutions, lawyers, trustees, legal agents)
to identify the contractual party and the beneficial owner when entering into business relations. Under
the Act, a suspicious transactions reporting mechanism has been established. In order to further
improve the situation, various amendments and reinforcements of current provisions are expected toSwitzerland and WT/TPR/G/77/LIE
Liechtenstein Page 7
enter into force on 1 January 2001, e.g. in the future  lawyers and trustees will be obliged to disclose
the beneficial owner to the bank and the Due Diligen ce Act will be expanded to include internal and
external cooperation regulation and exchange of information.
12. In the area of legal assistance, where problems have arisen, the reform will accelerate the
applicable procedures and will also strengthen other aspects of the enforcement of the prevention of
and the fight against money laundering.
13. The steadily decreasing primary sector today employs 1.3% of the total workforce. Two thirds
of the gross agriculture return comes from the dairy industry.
14. Liechtenstein’s economic life has benefited from social harmony for many years. The
relationship between employers and employees is a peaceful and co-operative one. The country boasts
a fully-fledged social welfare system.
(iii) State activities
15. The liberal economic policy aims at keeping state interventions to a necessary minimum and
at offering attractive conditions for business activities. This is reflected in unbureaucratic legal and
administrative requirements and procedures for the foundation of enterprises, as well as in the tax
system. There is neither public funding for private undertakings nor a public policy specificallyintended to attract new foreign direct investments. On the contrary, the Government has always
encouraged Liechtenstein companies to also resort to expansion abroad.
16. Despite Liechtenstein’s liberal economic policy, the Government uses the instruments of
regulation of foreign direct investment
1 and immigration in order to preserve a balanced economic
growth, commensurate to the country’s small territory and in view of its relatively high proportion of
non-Liechtenstein citizens in the resident and in the working population. The  background of these
aims and the aim of the Government to preserve national identity can shortly be explained as follows.
17. First, Liechtenstein has a very special geographic situation. Liechtenstein is a rural,
mountaineous country with an area of 160 square kilometres. Liechtenstein consists of eleven village
communities. Even the capital, Vaduz, has less than 6’000 inhabitants. These facts reinforce
Liechtenstein’s rural character. By regulating foreign direct investments (also for non-resident
Liechtenstein citizens) the Government respects the existing geographic situation and preserves accessto real estate for the resident population.
18. Second, the striking facts of the Liechtenstein labour market deserve some special remarks.
By 1999 Liechtenstein’s population has risen to  some 33’000, and its labour force to just under
25’000, a third of whom commute daily from Austria and Switzerland. More than 60% of those
working in Liechtenstein in 1999 were non-Liechtensteiners (30 years ago, foreigners accounted forno more than a third of the work force.) Because of these facts Liechtenstein needs clear rules
concerning immigration and the working place. In view of this specific situation, Liechtenstein has
even in the European Economic Area (EEA) special rules as far as free movement of persons is
concerned.
19. Third, there is a danger of growing imbalances between the sectors, due to the attractive
conditions for doing financial services in Liechtenstein. The Liechtenstein Government is more than
ever aware of the need of a diversified economic structure.
                                                     
1 The regulations concern only market access but not national treatment of new foreign investments.WT/TPR/G/77/LIE Trade Policy Review
Page 8
(iv) Prospects
20. The economic prospects for the near future are good. There are however constraints for
further growth, namely the very low supply of and the high prices for land and property as well as the
dried-out labour market. These obstacles for growth are in principle welcomed by the political
authorities, since a too strong growth in a small country like Liechtenstein could lead to an
overheating of the economy. An external factor  that might have a slowing down effect on the
economic growth is the revaluation of the Swiss fr anc. Further potential constraints are mentioned
under the following titles.
III. TRADE POLICY DEVELOPMENTS AND FUTURE POLICY DIRECTIONS
21. For Liechtenstein trade policy means to find a balance between the economic operator’s
interests for progressive trade liberalisation in order to achieve further access to other markets and thetask to take care of Liechtenstein’s specific situation (limited area, limited human and natural
resources and the already high percentage of non-Li echtenstein citizens in the workforce) in order to
preserve its national identity.
(1) T
HE WORLD TRADE ORGANIZATION (WTO)
22. Liechtenstein is fully committed to the multi lateral rules-based trading system and will
continue to emphasise the importance of universal broad-based trade liberalisation.
23. Liechtenstein strongly supports progressive trade liberalisation at a multilateral level and the
further strengthening of multilateral trade rules, as such rules are very important for small countries
without their own means of enforc ing power. Thus, Liechtenstein is a strong advocate for the launch
of a broad and comprehensive round of multilateral trade negotiations in order to further improve
gradual opening of markets, predictability and transparency, which are of utmost importance for a
small open and outward-oriented economy. However, the active role of Liechtenstein in the WTOwill also in the future remain limited due to lim ited human resources in the public administration.
Also due to the customs union treaty by means of which Switzerland acts also on behalf of
Liechtenstein in customs union issues.
24. What we need is a World Trade Organization adapted to modern economic and social
realities. Rapid economic and technological changes demand  a fitting common rules-based tradingsystem.
25. Experience with the WTO during the last 5 ½ years has revealed some shortcomings of the
system. Effective implementation of the WTO agreements must be kept as a central issue of the
agenda of WTO. Without faithful implementation of the present agreements, potential new rules have
less value and are not credible. Further efforts are necessary to integrate developing countries andcountries in transition in the global economy. The impact of trade liberalisation and globalisation on
employment and wealth distribution has to be addressed. Liechtenstein firmly supports all efforts to
further liberalise multilateral trade rules, to elimin ate protectionism, and to remove trade barriers and
trade distorting measures. Consistency between WTO rules and environmental protection measures
must be strengthened, as the fruits of an open trading system can only be fully enjoyed in a soundenvironment. Trade liberalisation and environmen tal conservation should be seen as mutually
reinforcing. Issues that are closely trade related such as trade facilitation, electronic commerce,
competition, TRIPS, investment or government procurement have to be tackled by the WTO. Public
awareness as well as transparency of the WTO should be key words of our work, in order to improve
the credibility of the system.Switzerland and WT/TPR/G/77/LIE
Liechtenstein Page 9
(2) THE EUROPEAN ECONOMIC AREA (EEA)
26. The Agreement on the European Economic Area ( EEA) extends most of the single market of
the EU to the three EFTA countries Iceland, Liechtenstein and Norway. This means that the four
fundamental freedoms of the internal market of the EU, the free movement of goods, services, capital
and persons2, apply within the EEA basically in the same way as in the EU. The EFTA-EEA-States
have the possibility to contribute to the shaping of this legislation. In addition, the Agreement includesflanking and horizontal policies in order to strengthen the internal market. These horizontal policies
include research and development, statistics, education, social policy, the environment, consumer
protection, tourism, small- and medium-sized enterprises, culture, information services and
audiovisual services. The EFTA-EEA States participate in EU programmes in these fields and have a
say in developing and managing them through participation in the respective committees. Thecommon rules ( aquis communautaire) are continuously updated by adding new EC legislation to the
EEA Agreement.
27. Liechtenstein became a Member of the EEA Agreement on 1 May 1995 in order to secure its
economic success on a long term basis. This was a radical step for Liechtenstein, requiring
concentrated action at the political and administrative levels over an extended period of time, as wellas far-reaching legal and organisational adjustments,  not least in order to preserve the customs union
between Liechtenstein and Switzerland. However, the efforts have been worthwhile – the outcome has
been largely positive. The beneficial economic impact has been recognised and the EEA Agreement is
well accepted as a form of integration adapted to Liechtenstein’s needs and possibilities.
28. Major adjustments were necessary or still are in progress especially in the field of public
services since the European policies as regards the liberalisation of the hitherto monopolised public
areas such as telecommunications, postal services , electricity markets etc. are part of the EEA
Agreement. However, the changes also have been regarded as chances to build up new business
activities in fields where Liechtenstein had no big experience up to that point. As regards
telecommunications and postal services the respective services had been provided by the then Swiss
monopolists on the basis of bilateral agreements. So the newly developed activities in these areas also
posed new challenges and offered new opportunities similar to those which were taken on muchearlier in the financial services sector. It is too early to draw any conclusions in these fields and it has
to be taken into account that the processes are still going on and are being extended to new fields. But
so far, the overall experience in general is positive.
29. Glimpsing ahead Liechtenstein’s integration policy will be challenged by some developments
that take place beyond the sphere of influence of Liechtenstein. The enlargement process of theEuropean Union continues. Also in the light of the process of further deepening the Union’s existing
policies and adding new areas to the European integration , the EU will develop significantly in the
years to come (Monetary Union, Establishment of an Area of Freedom, Security and Justice,
development of a more effective Common Foreign and Security Policy or the consolidation of the
EU’s existing system of government). Liechtenstein will have to develop forward-oriented strategies
in order to be ready for the challenges of various possible scenarios, taking into account the policies
of its EFTA- and EEA partners Iceland, Norway and Switzerland.
                                                     
2 In the EEA Liechtenstein has special rules as far as free movement of persons is concerned, by which
nationals of EEA States are still subject to a permit from the Liechtenstein authorities to take up residence inLiechtenstein.WT/TPR/G/77/LIE Trade Policy Review
Page 10
(3) THE EUROPEAN FREE TRADE ASSOCIATION (EFTA)
30. Liechtenstein became a full EFTA member on 1 September 1991. Hitherto, Liechtenstein had
been covered by the EFTA Convention through a particular Protocol under which the interests of
Liechtenstein were taken care of by Switzerland.
31. The EFTA Convention as well as EFTA’s free trade agreements cover free trade in industrial
products, fish and marine products and processed agriculture products. In addition, the EFTA-countries have concluded bilateral agriculture protocols with each of the third country partners. (Due
to the customs union treaty, Liechtenstein is cove red by the bilateral protocol between Switzerland
and the third country partner.) The agreements include rules on state aid, public procurement,
competition and intellectual property. In addition, the agreements contain evolutionary provisions for
services and investment.
32. EFTA’s network of contractual relations is continuously expanded according to its policy of
making a dynamic and independent contribution to improving economic conditions across Europe and
beyond and of forging strong links with trading partners outside the continent. Starting in 1992, the
EFTA States have concluded free-trade agreements with 15 countries. They have in addition
declarations of cooperation with nine states or group of countries, respectively. Free trade negotiationswith Canada and Jordan are nearly finalised. First rounds of negotiations with Mexico have just taken
place; formal negotiations with Chile are going to be opened in autumn. Negotiations are in progress
with Egypt, Jordan, Cyprus and Tunisia. The EFTA-States are actively studying the regional trade
arrangements developments in Asia.
(4) C
USTOMS UNION TREATY /ECONOMIC INTEGRATION WITH SWITZERLAND
33. Switzerland is a key partner of Liechtenstein in many respects. The customs union treaty
between Switzerland and Liechtenstein of 1923 has strongly influenced the political and economicdevelopment of Liechtenstein in the 20th centu ry. The economic integration between the two
countries has been deepened through the conclusion of further 50 agreements between the two
countries in the course of the years (e.g. the Postal Treaty of 1978 (dissolved in 1999), Currency
Treaty of 1980 (the Swiss franc has been introduced as legal tender in Liechtenstein already in 1924),
the Patent Protection Agreement of 1978, several agreements on the Movement of Persons and SocialSecurity, the Treaty on Value Added Taxes of 1994, Agreement on direct insurance of 1996.)
34. The customs union treaty has long been the basis for Liechtenstein’s integration in Europe,
manifested through the application of the free trade agreement between Switzerland and EU to
Liechtenstein and Liechtenstein’s participation in EFTA. Since Liechtenstein  became a member of
the EEA in 1995 but Switzerland  refused that member ship, the integration paths of the two countries
are somewhat different now. With the support of  the EU and Switzerland it became possible for
Liechtenstein to belong to two economic areas - the EEA and Switzerland - at the same time.
35. The main provision of the customs union treaty between Liechtenstein and Switzerland lays
down that the Swiss customs legislation – as well as any other Swiss federal legislation whose
application is called for by the customs union – is applicable also to Liechtenstein, as long as thecustoms treaty is in force and with the exception of  law incompatible with the EEA rules. In addition,
all trade and customs treaties signed and ratified by Switzerland with third countries are automatically
applied  to Liechtenstein under the customs trea ty. At the same time Switzerland is empowered to
represent Liechtenstein in matters of this nature and to sign such treaties on behalf of Liechtenstein as
well (article 8 of the customs treaty). This article 8 has been changed twice: First in 1990 in order to
enable Liechtenstein to become party or member on its own to international treaties and inSwitzerland and WT/TPR/G/77/LIE
Liechtenstein Page 11
international organisations in the areas covered by the customs treaty; second in 1994 in order to
enable Liechtenstein to become a party to the Agreement on the European Economic Area (EEA)
while remaining part of the bilateral customs area with Switzerland, the latter not being a member of
the EEA.
36. Future developments of the existing close links between the two countries will strongly
depend on the integration policy Switzerland will choose towards the EU.
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