Poor countries finance Swiss emergency stockpiles

On 1 April 2007 Switzerland instituted free market access for goods from the poorest countries . All duties and quotas were removed as of that date. For two «sensitive» products, namely sugar and broken rice for feedstuffs, they were only eliminated this year.
In so doing, Switzerland joined in with the EU «Everything but Arms» initiative for the benefit of the poorest countries and complied with an important decision taken at the 2005 WTO Hong Kong Ministerial Conference. On that occasion, Federal Councillor and Minister for Economic Affairs Joseph Deiss had made the following call: «The developed world and emerging countries must eliminate their quotas and duties for all products from the least developed countries.»

Hidden tax

All of this sounds wonderful on paper. In truth and in fact however, Switzerland does levy a hidden tax on all imports of sugar, rice, coffee, edible oils and edible fats – including imports from the poorest countries. This border levy is known as the «guarantee fund contribution» and serves to finance the compulsory food stockpiles meant to guarantee the country's supplies in times of war, natural disasters and other crises. The levy forms part of the customs tariffs notified to the WTO. The fees vary: for each 100 kg of rice the charge is CHF 4.25, for coffee CHF 3.75 and for sugar CHF 16. Swiss farmers in contrast do not have to pay this tax.
The levy originated in 1948 when the system of emergency stockpiles was being reorganized in the light of the supply problems experienced during the Second World War. Today, the private company réservesuisse is responsible for managing the compulsory stocks. It acts on behalf of the Federal Department of Economics, which determines the volume of the stocks and the tax level. The stocks (which belong to the importers) must cover national consumption for a particular period: three months for coffee and four months each for edible fats and edible oils, rice and sugar (75,000 tons). The last time Switzerland had to release emergency stocks was during the 1973 oil crisis.

Protectionist and incoherent

In development policy terms this border levy is unacceptable. It contradicts Switzerland's formal commitments and circumvents the supposedly duty-free and quota-free market access for products from the poorest countries. It is incomprehensible that the emergency stocks of one of the world's wealthiest countries are being funded with mandatory levies on imports from very poor countries like Ethiopia, Cape Verde or Bangladesh.
The levy is also in stark contrast to the development cooperation work of the State Secretariat for Economic Affairs (Seco), which strives to give economic support to poor countries by promoting their exports to the countries in the North and enhancing their competitiveness. An import tax for the funding of emergency stocks, however, weakens the competitiveness of the poorest of those countries by artificially raising the prices of their products. The market access preferences granted to them are again circumvented in this way.
In the case of sugar, Switzerland also uses the border levy as a protectionist weapon. There is no other explanation for the massive increase from CHF 10 to CHF 16 per kilo of sugar in June 2007. It came precisely at the juncture when the Swiss Government decided to temporarily remove preferential customs duties on sugar from developing countries owing to a massive increase in imports. In October 2007, the levy represented a 50-per cent duty. This is all the more disadvantageous to the poorest countries considering that sugar is one of their few agricultural products with market potential.

Urgently needed reform

Without putting into question the entire system of compulsory emergency stockpiles, some adjustments should be done. Switzerland should fully respect the principle of free market access for the poorest countries. That would mean immediately eliminating the levies on sugar and other food imports for the purposes of the emergency stocks. It would restore a small comparative advantage to the poorest countries now that their tariff preferences for sugar are all but non-existent. Effective 1 November 2009, Switzerland reduced the sugar customs duty to CHF 2 per 100 kg – it had still been CHF 40 two years ago. This was done because the price of sugar in Switzerland (which is tied to the EU price) had fallen, whilst world market price had increased massively (USD 60 per thousand kilograms) owing to failed harvests in Brazil and India and demand from biofuel producers.
Switzerland should also overhaul its general system of preferences. Imports from all developing countries, not just the poorest, should be exempted from the emergency supplies tax. Lastly, the fundamental question is posed as to whether Switzerland has any need whatsoever for such import-funded sugar stockpiles, all the more so since the country itself produces more than it consumes. A record harvest of 270,000 tonnes is expected this year, which is 45,000 tons more than national consumption. Sugar beet production has doubled in 15 years, and the areas under cultivation have expanded by 50 per cent.
The removal of the compulsory tax on imports from developing countries could easily be absorbed financially (see box). What is more, there are alternative ways of funding emergency reserves, for example from tax revenue, as is done by countries like Japan or South Korea. Removing the import levy on agricultural goods from the poorest countries would be an important step towards greater coherence for development in trade and agricultural policy.
Michel Egger, Alliance Sud

Article published in: Alliance Sud News No.  62, Winter 2009/10

Box

Affordable loss

In 1989 the Federal Cabinet decided to implement preferential duties for sugar imports from developing countries. This had a limited impact: until 2006, such imports comprised a mere 5-10 per cent of overall imports, the bulk of which came from the EU. In 2008, 19.8 per cent of imports came from the South, of which 12 per cent from Brazil, a country that did not benefit from preferential duties owing to its market position.
Of the 240,000 tonnes imported by Switzerland in 2008, only a small portion (303 tonnes) came from very poor developing countries (Cape Verde, Djibouti, Ethiopia and Bangladesh). The poorest countries export more to the EU because it guarantees a price higher than the world market price. The EU is nevertheless set to eliminate these guaranteed prices for very poor countries in September 2012. Duty-free and quota-free access to the Swiss market could then be of greater interest to them. Besides, the EU wants to reduce its exports, a development that could prompt Switzerland to import more sugar from the South.
However, waiving the compulsory supplies tax on imports of food products from developing countries would represent a shortfall for Switzerland of CHF 12.3 million (7.6 million for sugar; 3.7 million for coffee and 1 million for rice). This represents slightly more than CHF 1.50 per inhabitant.
Michel Egger