Swiss/EU Negotiations Grind To A Halt

by Ulrika Lomas, Tax-News.com, Brussels

22 April 2002

Negotiations between Switzerland and the EU over the vexed issue of banking secrecy and the second set of 'bilateral' agreements have ground to a halt, as Swiss negotiators refer back to their government after failing to dent the EU's demands.

Rudolf Dietrich, the head of the Swiss delegation negotiating a second series of bilateral agreements with the European Union, said he was disappointed that Brussels appeared to want Switzerland simply to conform to all EU financial legislation. "They want us to adopt their standards just as if we were an EU member state," he said. "In my opinion, Switzerland should be treated like a partner, and as long as we are not a member state, we should be able to have our own special rules."

A first set of bilateral agreements covering transport and freedom of movement among other subjects has been ratified by all 15 EU member states and will come into effect this summer. Negotiations over the second set of agreements, initiated at the EU's request, and concerned principally with customs fraud, the taxation of savings, liberalisation of services, and cooperation on asylum and security, has become tangled up with the EU's attempts to develop a harmonised regime for the sharing of information on savings taxation.

After six rounds of negotiations, the two sides have failed to agree on legislation governing tax evasion and money laundering. Apart from the savings taxation issue, the EU wants Switzerland to close loopholes that allow Switzerland to be used as a destination for the proceeds from cigarette smuggling and other customs frauds. Under Swiss law, cigarette smuggling is treated as a customs violation rather than a crime, which means that the Swiss authorities do not normally comply with requests for judicial assistance from other countries.

Dietrich, who as it happens is director general of the Swiss Federal Customs Office, said the main stumbling blocks to an agreement were now over fiscal crime. "Switzerland did make concessions," he explained. "We offered to cooperate fully with fiscal crimes which merit a prison sentence, but the EU wants us to cooperate with offences which only merit a fine as well. And now there is a new EU decision on tax evasion, which they want to be treated in a similar manner to money laundering."

The issue of banking secrecy underlies all the difficulties. "Banking secrecy has a long tradition in Switzerland," Dietrich explained, "and it is based on democratic decisions made in our country."

"I think people should look at what Switzerland has done rather than what it hasn't done," says Dietrich, "We act to solve real problems," he continued. "But the EU is acting in a more theoretical way: that in theory we should be treated as an EU member state, and adopt all EU laws."

The Swiss government, which has repeated endlessly that it will not budge on the issue of banking secrecy, will now have to decide what further concessions it is prepared to make to keep the negotiating process alive.

"It means the entire second set of bilateral agreements will have to be reconsidered," explained Dietrich. "But I don't think the agreements are genuinely at risk. It's just taking a lot longer than we expected."

In Brussels a senior EU negotiator was uncompromising: "The EU is not prepared to give Switzerland any special treatment, and Switzerland knew this right from the beginning," he said. "The EU wants an agreement which complies with European standards."

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