Switzerland and WT/TPR/S/77
Liechtenstein Page 1
I. ECONOMIC ENVIRONMENT
(1) MAJOR FEATURES OF THE ECONOMIES
1. Switzerland and Liechtenstein are neighbouring countries located in the heart of Europe, with
landmass of 41,285 km2 and 160 km2, respectively, and population of around 7.1 million and 33,000
inhabitants in 1999.  Several decades of economic cooperation (including customs and monetary
union, and arrangements on, inter alia,  branches of the services sector) have contributed to high
integration of the two economies.  Moreover, scarcity of natural resources and unfavourable
topography for farming have led to adoption of identical strategies in areas such as manufacturing, not
formally covered by their cooperation arrangements.  This high integration allows extension of
economic analysis made on Switzerland to Liechtenstein, due to the lack of statistical data on
Liechtenstein.1
2. Switzerland and Liechtenstein are among the richest countries in the world, with GDP per
capita of US$36,117 (Table I.1) and US$38,000 (estimation), respectively.  The major sectors of the
two economies are manufacturing and services.  Reflecting their comparative advantages, their
manufacturing sectors are largely specialized in the production of high-technology (capital-intensive)
goods (Chapter IV(3)(i)).  Given the small size of  the countries, the bulk of manufacturing production
is exported:  the sector contributes some 96% to the total value of merchandise exports from
Switzerland and nearly 100% from Liechtenstein.  It  accounts for around  one third of real GDP and
18% of total employment in Switzerland;  and 46% of total employment in Liechtenstein.  Due to the
nature of the products, price fluctuations, including appreciation of the Swiss franc, have limited
impact on their export demand (section (3)(i)).
Table I.1
Switzerland at a glance, 1995-99
1995 1996 1997 1998 1999
GDP per capita (US$) 43,645 41,864 35,985 36,875 36,117
Growth of population (percentage change) 0.7 0.4 0.3 0.3 0.5
GDP (current prices) US$ million 307,907 295,024 255,960 262,989 258,551
Exchange rate (annual average) Sw F/US$ 1.18 1.24 1.45 1.45 1.50
Share of employment (per cent)a
Agriculture 4.3 4.5 4.6 4.6 4.0
Mining and quarrying 0.2 0.1 0.1 0.1 0.1
Manufacturing 19.7 19.0 18.2 17.8 17.4
Electricity, gas and water 0.7 0.6 0.6 0.6 0.6
Construction 8.7 8.2 7.8 7.7 7.6
Services 66.5 67.5 68.6 69.1 69.5
Trade, restaurants and hotels 23.0 23.2 23.2 23.4 23.4
Transport and communications 6.5 6.5 6.5 6.4 6.5
Finance, insurance, real estate, R&D 13.8 14.1 14.5 14.9 15.1
Exports (f.o.b.) (US$ million) 97,139 95,536 95,040 93,866.7 91,735.9
Imports (f.o.b.) (US$ million) 93,916 93,286 92,247 92,933.1 91,018.5
Merchandise trade/GDP (per cent) 62.2 63.8 73.1 71.0 70.7
a Persons who have worked six hours or more during the reference week (annual average).  Data for 1999 are provisional.
Source : Office Fédéral de la Statistique, Annuaire Statistique de la Suisse, 2000 ;  and IMF, International Financial
Statistics  CD-ROM, July 2000.
                                                     
1 The main economic indicator in Liechtenstein is the number of workplaces.  In general, other
economic data are not available.WT/TPR/S/77 Trade Policy Review
Page 2
3. The services sector is the major employer in both Switzerland and Liechtenstein.  The sector
contributes to about three fourths of total empl oyment and nearly two thirds of real GDP in
Switzerland, and to one half of total employment in Liechtenstein.  Financial services represent the
most important branch of the sector.  In Switzerland, the development of the branch has been
favoured by various factors, including political a nd social stability, prudent monetary management,
which has contributed to the world-wide confidence in the Swiss franc, and a tradition of bank secrecy(Chapter IV(4)(i)).  In Liechtenstein, the attractiveness of the branch has been favoured by, inter alia ,
its participation in the monetary union with Switzerland, its membership in the European Economic
Area (EEA) since 1995, its political stability, bank secrecy, and skilled labour.  Furthermore, in
Liechtenstein, low taxation and simplified incorpor ation procedures (among others) have attracted
holding and "domicile-establishing" companies.  Switzerland is a net exporter of services.  However,high production costs, including high wages and pric es of inputs from the highly protected sectors
(e.g. agriculture, food production in particular, energy, and certain branches of the services sector
such as construction and telecommunications, at least up to 1998), and low productivity growth due to
market rigidities, have negatively affected the development of branches such as tourism and
contributed to maintaining high prices (by in ternational comparison) in both Switzerland and
Liechtenstein.  In this context, liberalization of the highly protected sectors might enhance the
competitive framework, to the benefit of the economies.
4. Switzerland formulates policies (for the customs union territory) in areas covered by its
Customs Union Treaty with Liechtenstein (Chapter II (5)(ii)).  Agriculture contributes some 2% to real
GDP, 4% to total employment and less than 4% to the value of merchandise exports from
Switzerland, and around 1% to total employment in Liechtenstein.  The sector has remained highly
protected despite the reforms implemented in recent years (Chapter IV(2)(i) and (ii)).  Limited landareas that have led to the small size of farms, unfavourable topography, and structural factors have
maintained domestic prices of agricultural products high by international comparison, although
government assistance to the sector through various incentive schemes has remained considerable.
5. The exchange rate of the Swiss franc (also legal tender in Liechtenstein) is market-
determined, with the U.S. dollar as the main intervention currency.
2  Foreign workers represent
around 25% of total employment in Switzerland and 60% in Liechtenstein.  In Switzerland, the share
of social spending in the public budget has increased because of the ageing of the population.  Official
development assistance provided by Switzerland represents some 0.3% of its GDP.
6. In both Switzerland and Liechtenstein, the growing international dimension of policy setting
requires harmonization of policies.  In Switzerland in particular, the reforms launched to overcomethe economic crisis of the early 1990s and to address problems raised by the new environment are
showing signs of success.  Liechtenstein has responded to the new dimension of the world economy
by diversifying its participation in regional agreements.  In general, the growth rate of the Swiss
economy has followed closely that of the European Union countries, albeit at more than half a
percentage point below.
                                                     
2 Switzerland accepted the obligations of Article VIII of the Agreement of the International Monetary
Fund on 29 May 1992.  In February 1995, the authorization requirement for foreign and domestic bond issuesdenominated in Swiss francs was abolished and replaced w ith an obligation to report them to the Swiss National
Bank (SNB).  Moreover, in case of disturbances in the capital market, a permit may be required by the Federal
Government for outward capital transfers such as bond issues.  Certain limitations apply to foreign investment in
the insurance branch.  See IMF (1999) for details.Switzerland and WT/TPR/S/77
Liechtenstein Page 3
(2) EVOLUTION OF THE ECONOMIES
7. Since 1997, Switzerland has started to recover from its deep economic recession of the early
1990s.3  The growth rate of real GDP, which had remained under 1% (negative in 1992 and 1993, and
close to zero up to 1996), was 1.5% in 1999 after having exceeded 2% in 1998;  and inflation
(measured by changes in consumer prices) had been reduced from over 4% in 1992 to below 1%
(Table I.2).  Data on indicators are not available for an analysis of the evolution of the Liechtensteineconomy.
8. In Switzerland, the recovery was led mainly by exports.  Indeed, in 1997, domestic demand
was still fragile while exports increased substantially (Table I.2).  During 1998, the direct and indirect
impact of the Asian crisis contributed to a decline in merchandise exports.  However, the increase in
domestic demand (mainly private consumption and gross fixed capital formation) was strong enoughto maintain economic growth at a level even higher than that of the previous year.  Economic growth,
together with the tightening of the eligibility cr iteria for unemployment benefits and the shift from
passive earnings compensation to a system of active labour market programmes (e.g. job-search
counselling and assistance), has contributed to reducing the unemployment rate by nearly one half
over 1997-99.
4  Construction was the last economic branch to bottom out in 1999.
Table I.2
Economic indicators, Switzerland, 1995-99
1995 1996 1997 1998 1999
Real GDP (% change) 0.5 0.3 1.7 2.3 1.5
Consumer prices (% changes) 1.8 0.8 0.5 0.0 0.8
Treasury bill ratea2.8 1.7 1.5 1.3 1.2
Discount rate (end of period) 1.5 1.0 1.0 1.0 0.5
Nominal effective exchange rate (% change)b6.6 -1.6 -5.8 1.9 -1.1
Real effective exchange rate (% changes)b6.0 -3.2 -6.9 0.3 0.1
Unemployment rate .. 4.7 5.2 3.9 2.7
Government finance  (Sw F million))
Revenue 32,202 35,279 34,695 39,359 37,741
Expenditure 37,474 39,417 38,151 41,634 40,839
Lending Minus Repayments -131 266 1,461 -2,638 -698
Surplus/deficit -5,141 -4,404 -4,917 363 -2,400
Monetary sector  (end of period) (% change)
Narrow Money (M1) 6.1 27.4 9.0 6.8 9.5
M2 4.6 9.6 6.6 5.1 13.3
M3 2.2 6.9 5.1 1.2 1.4
National accounts  (% changes)
Private consumption .. 0.4 1.3 2.5 2.2
Government consumption .. 1.4 0.6 0.4 -0.4
Gross fixed capital formation .. -2.7 1.5 4.5 1.8
- Construction .. -6.2 -1.5 0.4 -5.3
- Equipment .. 1.6 4.9 8.9 8.8
Table I.2 (cont'd)
                                                     
3 See WTO (1996) for details on the evolution of the Swiss economy up to 1996.
4 At around 5% in 1996 and 1997, the unemployment rate was high by Swiss standards.  See OECD
(1999) for details on the system of active labour market programmes.  T he improvement of the situation on the
labour market has also contributed to  acceleration of private consumption.WT/TPR/S/77 Trade Policy Review
Page 4
1995 1996 1997 1998 1999
Global demand .. 0.7 3.5 4.7 2.8
Total domestic demand .. 0.0 1.3 4.4 1.4
Exports of goods and non-factor services .. 2.5 9.0 5.3 6.3
- Merchandise exports .. 2.0 7.9 4.8 4.4
- Service exports .. 4.8 13.4 8.6 19.7
Imports of goods and non-factor services .. 2.7 8.1 10.8 5.9
- Merchandise imports .. 2 8.7 9.9 5.9
- Service imports .. 3.8 3.5 6.7 6.7
Public deficit (% of GDP) 0.0 0.1 0.6 1.3 0.3
External sector
International reserves (US$ million, end of period) 36,413 38,433 39,028 41,191 36,321
In of months of imports 4.7 4.9 5.1 5.3 ..
Foreign trade indexes (1995 = 100)
Exports unit value 100.0 101.0 104.7 103.7 105.1
Imports unit value 100.0 100.0 105.3 101.0 99.1
Terms of trade 100.0 101.0 99.4 102.7 106.1
.. Not available.
a Monthly average rate of interest on Federal Debt Register claims.
b A minus sign indicates a depreciation.
Source : Swiss authorities;  IMF, International Financial Statistics  CD-ROM, July 2000.
9. In Switzerland, the main objective of fiscal policy is a substantial reduction of public deficit.
To this end, a constitutional commitment was introduced in June 1998 to reduce the federal deficit to
no more than 2% of federal revenue by 2001;  the 2000 deficit must not exceed Sw F 2.5 billion.  Due
to the increasing share of social spending in public expenditure, the rates of the value-added tax
(VAT) were increased in January 1999 (Chapter III(2)(ii)(d)).  As a result of improvement in revenue
from federal direct taxes5, a lower level of public expenditure, and with the increase in the VAT rates,
the federal deficit was Sw F 9 million below budget.  A reform of federal and cantonal personal
income taxes is under way to replace the biannual income tax-collection system with one based on
annual assessment of current income.  The new system will eliminate the tendency towards pro-
cyclical effects of the variations in tax revenue on the economy by shortening collection lags.  It is
aimed at simplifying the fiscal system through the formal harmonization of bases and deductions for
the cantonal and federal direct taxes.  Furthermore, a new fiscal equalization framework may change
fiscal relations between the three levels of government (Confederation, cantons and communes).  InLiechtenstein, according to the authorities, the public budget has been in surplus since 1995.
10. Under the 1980 Monetary Union Arrangement with Liechtenstein, Switzerland formulates
monetary policy for the Union's territory.
6  The ultimate objective of the monetary policy has been
price stability;  monetary aggregates (M 1 and then a shift to M 0) were intermediate targets.  This
monetary policy had been effective until 1996 thanks to the relative stability of interest-rate elasticityof price and income:  inflation had remained low by international comparison.  Since February 1996,
there has been a shift in money demand due to structural changes in the financial system (massive
transfers between giro accounts and banknotes, and a high demand for Sw F 1,000 banknotes).  In
response, the Swiss National Bank (SNB) chose M
3 as an additional indicator.  Subsequently, the
                                                     
5 Direct taxes are levied and collected at federal,  cantonal and municipal levels, while indirect taxes
(customs duties, VAT, and excise taxes) are only federal.
6 According to the Swiss National Bank, Swit zerland does not have an exchange-rate policy.Switzerland and WT/TPR/S/77
Liechtenstein Page 5
monetary policy has become less expansionary (Table I.2).  Since the beginning of 2000, the SNB has
refrained from setting quantified objectives of monetary aggregates.  It has started to make public its
mid-term forecast of inflation (over periods of three years).7  The current forecasts are  1.5% in 2000,
2.1% in 2001, and 1.8% in 2002.8  The SNB has also defined price stability as corresponding to
annual increases in the consumer price index that are inferior to 2%.  A main policy instrument of the
SNB is currently the interest rate on the three-month deposits in Swiss francs that it keeps withincertain margins of fluctuations around the London Inter-Bank Offer Rate (LIBOR), depending on
monetary policy needs:  the interest rate bracket has thus become the new operational target.
9  The
bracket was set at 1.25%-2.25% in December 199910;  it has been fixed at 3%-4% since June 2000.
(3) TRADE PERFORMANCE AND FOREIGN INVESTMENT
11. Switzerland has traditionally run large current account surpluses, even when (in the period up
to 1992) its trade account was in deficit.  Its current account surpluses are largely attributable to
surpluses in investment income and in trade in serv ices (Table I.3).  With the exception of the early
years of the crisis (i.e. 1990-92), its earnings from merchandise exports generally exceeded the value
of imports during the 1990s (Chart I.1).  Reflecting its further integration into the world economy, its
ratio of merchandise trade to GDP has recorded an upward trend since the early 1990s.  Its current
account performance has helped to maintain interna tional reserves high by international comparison,
at around five months of imports (Table I.2).
Table I.3
Balance of payments, Switzerland, 1995-99(US$ million)
1995 1996 1997 1998 1999
A. Current account balance 21,561.6 21,220.5 26,960.3 26,560.6 29,123.7
Merchandise trade balance 3,222.9 2,249.9 2,792.7 933.6 717.5
Exports 97,139.1 95,535.6 95,039.5 93,866.7 91,735.9
Imports 93,916.2 93,285.7 92,246.8 92,933.1 91,018.5
Services balance 10,782.5 10,346.0 11,008.4 11,656.6 11.347.0
Exports 26,026.9 26,249.8 25,302.6 26,755.3 27,228.0
Transportation 2,521.0 2,475.7 2,815.4 2,972.8 3,093.5
Travel 9,459.0 8,890.7 7,945.2 7,998.4 7,799.9
Communications 526.0 516.2 488.5 623.4 837.4
Insurance 1,227.1 1,431.2 1,426.3 1,572.0 1,878.7
Other financial services 5,627.2 6,307.4 6,074.5 6,886.4 7,970.7
Other services 6,666.6 6,628.6 6,552.7 6,702.4 5,647.9
Imports 15,244.4 15,903.8 14,294.2 15,098.7 15,881.0
Transportation 3,792.1 3,902.1 3,652.6 3,656.2 3,558.7
Travel 7,420.1 7,625.3 6,987.5 6,820.0 6,896.1
Communications 721.4 726.5 681.5 775.3 844.5
Insurance 164.9 182.8 175.7 211.2 222.4
Table I.3 (cont'd)
                                                     
7 The forecast is currently based on the broad money (M 3) and other economic indicators such as the
exchange rates.
8 Commission pour les questions conjonturelles (2000).
9 Secrétariat d'Etat à l'Economie (2000).
10 In general, Swiss policy-makers are attentive to economic developments in the European Union
(EU), their major trading partner.  For instance, in April 1999, they reduced the discount rate to 0.5% in
response to an interest rate cut in the EU.WT/TPR/S/77 Trade Policy Review
Page 6
1995 1996 1997 1998 1999
Other financial services  -  - - 505.8 562.5
Other services 3,146.0 3,467.0 2,797.0 3,130.1 3,796.9
Investment Income 11,796.5 12,613.2 16,560.2 17,611.7 21,214.5
Exports 31,574.6 32,997.3 35,064.8 45,676.6 48,965.5
Imports 19,778.1 20,384.1 18,504.6 28,064.8 37,751.0
Transfers, net -4,240.3 -3,988.6 -3,401.1 -3,641.3 -4,155.3
Exports 2,996.3 2,960.3 2,625.9 2,788.5 2,767.0
Imports 7,236.6 6,949.0 6,027.0 6,429.8 6,922.3
B. Capital account, net -131.9 -123.0 -78.5 -300.9 -387.8
C. Financial account, net -13,041.4 -27,409.2 -26,687.6 -22,103.3 -36,145.6
Net errors and omissions -8,336.0 9,060.0 1,965.0 -4,156.4 7,409.7
Overall balance -52.3 2,748.3 2,159.1 764.2 1,881.3
D. Reserves and related items -52.3 -2,748.3 -2,159.1 -764.2 -1,881.3
Source :I M F ,  Balance-of-Payments Statistics, Yearbook , 1998 and 1999;  and information provided by the Swiss National
Bank.
0.800.850.900.951.001.051.10
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999Chart I.1
Ratio of merchandise exports to imports, Switzerland, 1990-99
IMF, Balance-o f-Payment Statistics, Yearbook,  1998 and 1999; and information provided by theSwiss
National BankSource :
(i) Trade in goods and services
12. Economic growth has induced a rise in imports in recent years:  the value of merchandise
imports has increased by about 25% with respect to its level of the early 1990s.  Imports have been
dominated by manufactured products, which still account for more than 80% of the total value in the
case of Switzerland.  The share of certain semi-manufactured goods, such as iron and steel products,
and diamonds, in total merchandise imports, has generally declined.  Imports of chemicals, machineryand transport equipment, and office machines and telecommunication equipment have relatively
increased.  The increase in imports of telecommunication equipment reflects the liberalization of theSwitzerland and WT/TPR/S/77
Liechtenstein Page 7
branch in recent years (Chapter IV(4)(ii)).  The share of agricultural products in total imports has
recorded a downward trend despite the reforms laun ched in 1993;  their share has remained under
10% of total imports (Chart I.2).  This trend is attributable mainly to a decline in imports of food and
agricultural raw materials.  This reflects the level of protection of the sector, which has remained high
(Chapter IV(2)(ii) and (iii)).  Moreover, agricultural raw materials have not been covered by regional
or bilateral trade agreements to which Switzerland and/or Liechtenstein are signatories.
13. The European Union has remained the largest supplier of merchandise to both Switzerland
and Liechtenstein.  Within the EU, a declining share of imports from Germany (the single major
supplier) has been compensated – at least partially – by rising imports from other EU Member States.
As a result of increased cooperation between the European Free Trade Association (EFTA) member
countries (including Switzerland and Liechtenstein) and Eastern European countries, the share ofimports from the latter has generally increased.  The share of imports from the two other EFTA
members is low.  Massive devaluations by Asian countries as well as imports of gold jewellery for
melting purposes contributed to a surge in their share in 1998.  Chart I.3 presents the evolution of the
geographical structure of imports to Switzerland:  the European Union supplies around 78% of total
merchandise imports.  From 1994 to 1999, merchandise imports from the EU recorded a growth ratelower than that of the total.  This performance contributed to a decline in the EU share in total
merchandise imports to Switzerland.  Imports under bilateral or regional trade agreements accounted
for some 79% of the total in 1998, down from nearly 82% in 1995.
14. Manufactured products represent the bulk of merchandise exports from both Switzerland and
Liechtenstein, respectively some 96% and nearly  100%.  The share of high-technology products in
their total exports has increased in recent years. The increasing share of these products has helped to
limit the impact of world price fluctuations (including changes in exchange rates) on exports fromSwitzerland and Liechtenstein.  In consequence, the shares of products such as chemicals, (including
pharmaceuticals), and machinery (including appliances, precision instruments, telecommunication and
other transport equipment) have increased in recent years.  Exports of traditional products, with price-
elastic demand (e.g. textiles and clothing, agricultural products, mainly food and agricultural raw
materials, and other consumer goods), have not so far recovered from the economic crisis of the early1990s.  Moreover, the increase in the share of hi gh-technology products had not been high enough to
offset the price effects on traditional exports that re sulted from mainly the Asian crisis;  the total value
of merchandise exports declined in 1998.  Chart I.2 presents merchandise exports (by main
commodity) from Switzerland.  The share of agricultural products in total exports had slightly
declined;  it had remained under 4% of the total value of merchandise exports from Switzerland.
15. The EU is the major destination for exports from both Switzerland and Liechtenstein.
Germany is the single largest destination;  according to the Liechtenstein authorities, the United States
was the single largest destination for exports from their country in 1999.  The share of exports to thetwo other EFTA members is low.  Moreover, the early 1990s upward trend in the share of exports to
Asia was temporarily interrupted by the Asian crisis.  The evolution of Swiss exports by destination is
presented in Chart I.3.  The increase in its exports to the United States and the Eastern European
countries reflects the continuation of the geographical diversification of its exports and its trade
agreements with the Eastern European countries under the scope of the EFTA (Chapter II(5)(iii)(a)).The increase in exports to the United States in recent years is also attributable to the economic
recovery in the United States and intensification of intra-firm supplies (e.g. chemical, including
pharmaceutical, industries).  The share of merchandise exports under bilateral and regional trade
agreements remained at around 67% of the total over 1995-98.  This means that the geographical
diversification had mainly affected exports that were not formerly made under preferentialagreements.  The destinations for Swiss merchandise exports are more diversified than the sources of
its imports.WT/TPR/S/77 Trade Policy Review
Page 8
0.010.020.030.040.050.060.070.080.090.0100.0
1994 1995 1996 1997 1998 19990.010.020.030.040.050.060.070.080.090.0100.0
1994 1995 1996 1997 1998 1999Chart I.2
Composition of trade by main commodity, Switzerland, 1994-99
Imports Exports
Source : WTO Secretariat calculations , based on SITC Rev.3 data extracted from UNSD , Comtrade database.Per cent
Agriculture Non-electrical machinery Other transport equipment
MiningOffice machines and 
telecommunication equipmentTextiles and clothing
Other semi-manufactures (incl. iron and steel)Automotive products OtherOther electrical machines Chemicals Other consumer goodsSwitzerland and WT/TPR/S/77
Liechtenstein Page 9
0102030405060708090100
1994 1995 1996 1997 1998 19990.010.020.030.040.050.060.070.080.090.0100.0
1994 1995 1996 1997 1998 1999Chart I.3
Direction of trade, Switzerland, 1994-99
Imports Exports
Source : WTO Secretariat calculations , based on SITC Rev.3 data extracted from UNSD , Comtrade database.Per cent
Germany Japan Other Europe
United States Other Asia France, Italy, UK, Austria
Other EU Middle East OtherWT/TPR/S/77 Trade Policy Review
Page 10
16. Switzerland has traditionally been a net exporter of services.  In Switzerland, services exports
have contributed more than 40% to current account surpluses.  The services balance increased by
nearly 17% between 1994 and 1998 despite a relatively higher growth rate of services imports
compared with exports.  The relatively high increase in services imports partially reflects the rise in
services costs related to the rise in merchandise imports as a result of economic growth.
17. With the exception of transportation and communication services, Switzerland has
traditionally run surpluses in trade in the other services.  Financial services, including insurance, have
been among the best performing branches:  their net exports reached some US$7.7 billion in 1998
(Table I.3).
(ii) Foreign investment
18. Political and social stability, low level of taxation and interest rates, reliable infrastructure,
traditional bank secrecy, and research facilities, together with high wages and input prices, and
stringent environmental protection requirements have specialized both Switzerland and Liechtenstein
as destinations for foreign direct investment (FDI) in specific branches.  Nevertheless, the small size
of the two countries and the non-participation by Switzerland in major regional agreements havelimited the investment opportunities and contributed to maintaining low gross fixed capital formation
(at around 20% of GDP since 1996 in the case of Switzerland).  Restrictions on foreign acquisition of
real estate (at least up to 1997 in the case of Switzerland) have also played their part.
11
19. Economic growth has favoured an increase  in inward FDI in both Switzerland and
Liechtenstein since 1997.  The 1997 depreciation of the Swiss franc with respect to the U.S. dollar
(Chart I.4) also played a role (at least regarding FDI from the United States).  In general, reinvested
benefits, i.e. non-distributed benefits from foreign branches, represent the largest component of
inward FDI in Switzerland (around 60%), followed by  acquisitions (mainly by EU and U.S. holdings
and financial companies).  The services sector is the major recipient of inward FDI in Switzerland;
financial institutions account for some 70% of the total (Chart I.5).  The main recipients in the Swiss
manufacturing sector are:  electronic, energy, optic and watchmaking industries;  and chemicals and
plastics.  The increase in the share of chemicals and plastics reflects the ongoing shift in manufactured
production (Chapter IV(3)(i)).
20. The EU is the major origin of FDI in Switzerland, accounting for more than 60% of the total
(Chart I.5).  With a share of around one quarter of to tal inward FDI, the United States is the largest
single source.  Inward FDI in the manufacturing se ctor is mostly from the EU.  The services sector
attracts FDI from all sources.
21. The stock of outward FDI from Switzerland has in creased significantly since 1994;  it rose by
nearly 70% to some Sw F 250 billion in 1998.  Acqu isitions of shares or foreign companies currently
account for over 50% of the total amount of outward FDI, followed by reinvested benefits (over one
quarter of the total) and credits.
22. The EU is the major destination for outward FDI from Switzerland;  its share increased from
some 45% of the total in 1994 to 47% in 1998 (Chart I.6).  However, the United States remains the
largest single destination, accounting for more than one fifth of the total, followed by the
United Kingdom.  Outward FDI by Swiss companies in the United States is mostly acquisitions orincreases in the capital of existing firms.  Swiss companies have invested abroad in, inter alia ,
financial services, chemicals and plastics, and resear ch and development.  Outward investment in the
                                                     
11 These specificities partially explain why the Asian crisis did not discourage outward FDI from both
Switzerland and Liechtenstein.Switzerland and WT/TPR/S/77
Liechtenstein Page 11
insurance branch surged during 1994-98;  it had declined or remained broadly stable in other branches
(Chart I.6).
8090100110120130140
I
1995II III IV I
1996II III IV I
1997II III IV I
1998II III IV I
1999II III IV I
2000£FF
US $REERaDM
Real effective exchange rate, based on the fifteen ma jor trade partners (average weighted by exports).
Banque Nationale Suisse, Bulletin mensuel de statisti ques économi ques, various issues.a
Source: Chart I.4
Real exchange rate developments, 1995-00
November 1977=100
23. Data for Liechtenstein on inward and outward FDI are not available.
(4) OUTLOOK
24. The implementation of the ongoing reforms (including the "Agricultural Policy 2002") by
Switzerland is to be pursued and new reforms are planned in sectors such as energy.  Further
harmonization of technical regulations with those of the major trading partners, and legislativereforms (e.g. transfer of regulatory competence for some products and services to the Confederation)
are intended to increase competition.  The tightening of monetary and fiscal policies are to be upheld.
It is assumed that the exchange rate of the Swiss franc with respect to the U.S. dollar and the euro as
well as long-term interest rates will remain at the autumn 2000 levels.  Given that the manufacturing
sector in both Switzerland and Liechtenstein is low energy-intensive, the current increase in worldprices of petroleum products will have a limited impact on their economies.
12
                                                     
12 See OECD/IEA (1999) for a comparison of energy intensities in member countries of the
International Energy Agency.WT/TPR/S/77 Trade Policy Review
Page 12
Chart I.5
Inward foreign direct investment stock, Switzerland, 1994 and 1998
1994Per cent
1998
EU 67.2
United States
26.9Japan 2.2
EFTA 0.02Other 3.7
Total:  Sw F 63,827 million Total:  Sw F 95,922 million
Source:  Ban que Nationale Suisse (1999 ), Bulletin trimestriel , April.(a)  Distribution by origin
(b)  Distribution b y activit y
Chemicals and 
plastics 
5.9Other 1 9
Insurance 
6.8
Banks 17.5
Other financial 
societies, holdings 
45.8Electronic, energy, 
optic and watch 
6.6Machinery and 
metalworking 
2.6 Commerce
12.9EU 61.6
United States
24.3Japan 5.6
EFTA 5.8 Other 2.7
Chemicals 
and plastics 
3.8Other 1.8 
Insurance 
3.4
Banks 24.1
Other financial 
societies, holdings 
42.1Electronic, energy, 
optic and watch
7.0Machinery and 
metalworking 
0.6
Commerce
17.2Switzerland and WT/TPR/S/77
Liechtenstein Page 13
1994Per cent
1998
EU 45.1
Canada 2.9United States
22.1Brazil 3.1
Japan 2.8EFTA 4.2
Singapore 
0.5Other 12.3
Asia 7.0EU 47.0
Canada 2.5United States
23.1Brazil 1.75
Japan 1.5Singapore 3.9Asia 9.2
EFTA 1.0Other 10.5
Total:  Sw F 147,656 million Total:  Sw F 249,884 million
Source:   Banque National Suisse (1999), Bulletin trimestriel, April.(a)  Distribution by destination
Chemistry and plastic
17.3 Other 23.9
Insurance
13.0
Banks 9.0
Other financial 
societies, holdings 
20.3Electronic, 
energy, optic 
and watch
9.6Machinery and 
metalworking 
6.9Chemistry and plastic 
17.1Other 17 1
Insurance 
22.3
Banks 7.5 Other financial 
societies, holdings 
21.5Electronic, 
energy, optic 
and watch 
7.7Machinery and 
metalworking 
6.8(b)  Distribution b y activit yChart I.6
Outward foreign direct investment stock, Switzerland, 1994 and 1998WT/TPR/S/77 Trade Policy Review
Page 14
25. On the basis of the above assumptions, total disposable income in Switzerland is forecast to
grow by nearly 4% in nominal terms in 2000.  Howe ver, given that the private car fleet was largely
renewed in the past two years, real consumption growth  is to be lower in the near future:  it is to grow
by not more than 1.8% per year over the three-year period to 2003.  Under the 1998 constitutional
commitment, fiscal reforms are to curb public defic it (section (2)).  Public consumption is not to grow
by more than 0.5% as from the year 2000.  Nevertheless, inflation is to increase to 1.5% in 2000,2.1% in 2001 and 1.8% in 2002:  in accordance with the definition of the Swiss National Bank, "price
stability" is thus to be ensured in 2000 and 2002, but not in 2001.
26. The Swiss real GDP is forecast to grow by 2%  in 2000 and by at least 1.5% in the following
years to 2003.  The entry into force of the bilatera l agreements between Switzerland and the EU may
(in the long term) increase the growth rate of real  GDP by two percentage points (Chapter II(5)(ii)).
Economic growth, as well as employment programmes under implementation (section (2)), are to
reduce the unemployment rate to 2.3% in 2000 and then gradually lower it further.
27. The outlook for the Liechtenstein economy is not available.