Swiss emergency stocks on the expense of the poor

Article as analysis
The new draft of the National Economic Supply Act endorses the funding of Switzerland's mandatory stocks through taxes on imports of products from other countries, including the poorest ones.

Switzerland has constituted food stocks for its own security in times of crisis and shortages. They are managed by the private law cooperative réservesuisse and funded by means of a tax at the border levied on various food imports, namely rice, sugar, coffee, edible oils and fats, cereals for bread making, durum wheat and feedstuffs. Known as the "guarantee fund contribution", this tax is additional to customs duties and is limited by Switzerland's WTO commitments. It is not levied on domestic production.

Pattern of incoherence

For many years now the Federal Council has had doubts about the durability of this system, which is ultimately incompatible with market liberalization, especially with the European Union. In 2010 for example, the Federal Council stated: "In future, we will have to look at eliminating the link between guarantee fund contributions and customs duties." The ongoing revision of the National Economic Supply Act, which dates back to 1982, was the occasion for such reform. Unfortunately, this will not happen. The Federal Council has failed to draw the right conclusions from its own reasoning. The draft discussed at the beginning of November by the Council of States Security Policy Committee retains the current method of financing. There is an undoubted pattern of incoherence between policies on supplies, agriculture, trade and development.

(1) "Security of supplies is in the nature of a public good," says Bernard Lehmann, Director of the Federal Office for Agriculture. He endorses the discourse of many researchers and international organizations. The question is – why is invoking the public good to justify agricultural subsidies by Switzerland not applicable to mandatory stocks? Logic would dictate that they be funded by from the government budget, as in other countries, and not by the consumer through higher food prices. It would therefore be more consistent with the notion of public good and socially more equitable for food stocks to be funded from Federal coffers. It would also be entirely feasible in budget terms: from 1995 to 2010 the costs declined from 307 to 116 million, in other words, from CHF 43 to CHF 15 per inhabitant.

(2) "National economic supply was conceived for coping with crises and not for pursuing structural policy aims. The latter is up to traditional sectors such as […] agricultural policy." This is well said! But why then is a guarantee fund contribution for sugar – 140 CHF per tonne – 3 to 4 times higher than that for the other foodstuffs not produced in Switzerland, such as rice or coffee? Why do these taxes remain stable while that of sugar has changed constantly depending on world market price movements, irrespective of the effective cost of the reserves? Why was it that on 1 June 2007, in response to a sharp increase in sugar imports from the South, the Federal Council raised the amount from 100 to 160 francs? The answer, in a word, is protectionism. This is an obvious misuse of the National Economic Supply Act for agricultural policy purposes, with negative implications for exporting developing countries. Swiss farmers do not contribute to the food reserves even though Switzerland has become virtually self-sufficient in sugar production.

(3) "The developed world and emerging countries should eliminate tariffs and quotas on all products from least developed countries", said then Federal Councillor Joseph Deiss in 2005 at the Ministerial Conference of the World Trade Organization (WTO) in Hong Kong. In 2009, in parallel with the European Union, Switzerland granted duty and quota-free access to all imports from the poorest countries. Yet réservesuisse continues to levy a guarantee fund contribution on imports from these countries, on products such as milled and semi-milled rice, broken rice, edible oils and fats, certain sugars, and feedstuffs. This raised more than CHF 3.3 million in 2013. This practice is contrary to Switzerland's international commitments. It is also ethically questionable as it amounts to funding the security of supplies to one of the richest countries on earth through taxes on imports from the poorest countries.

Criticisms by Alliance Sud

"The easing of market entry for products from disadvantaged countries contributes significantly to the promotion of trade, the increase of export revenues and thus also the economic development of partner countries" – this is stated on the website of the State Secretariat for the Economy. One tool is the granting of tariff preferences to these countries. Yet a tax for the funding of mandatory stocks runs counter to these aims and to statements of intent made by Switzerland. It robs developing countries of some of their natural competitiveness and the comparative advantage acquired through tariff preferences. Depending on the product, it specifically affects fair trade initiatives such as Max Havelaar, which are trying to gain market share.

During the consultation process on the new draft law, Alliance Sud pointed out these inconsistencies and conflicts of interests between the envisaged functioning and some undertakings by Switzerland vis-à-vis developing countries. Where a change in the method of funding of mandatory stocks seems, a priori, out of the question, it urges Parliament at least to eliminate the guarantee fund contribution for products from least developed countries and from developing countries benefiting from tariff preferences.