Federal Council facilitates comeback of tied aid

From reading the title of the bill (Agreement between the Swiss Federal Council and the Cabinet of Ministers of Ukraine concerning cooperation in the reconstruction process of Ukraine), one could be led to think that it was about the entire 2025-2028 Ukraine country programme, which is being funded by Switzerland to the tune of 1.5 billion francs from the international cooperation budget.

Further perusal shows the preamble affirming the intent of the parties to strengthen the "resilience of the Ukrainian economy" and promote the "integration of Ukraine into the European market." The key role of the private sector in "efficient and sustainable reconstruction" is also highlighted. One might well assume that the agreement encompasses a wide range of economic cooperation activities by Switzerland that would primarily benefit Ukraine's economy and Ukrainian companies.

This is not the case, however. At its core, the agreement establishes modalities for non-reimbursable financial and technical assistance for the "purchase of goods and services from Swiss companies" for reconstruction projects in Ukraine, especially in the areas of energy, transport and mobility, construction and the provision of water. This "assistance" is being fully funded from the commitment appropriation of the State Secretariat for the Economy (SECO), and is subject to parliamentary approval during its budget debates. According to the Federal Council, one third of the 1.5 billion Swiss franc budget for the reconstruction of Ukraine in the period 2025-2028, i.e. 500 million Swiss francs, should be made available for this purpose.

Projects already approved

In August of this year, the first 12 Swiss private sector projects to be funded from the Swiss development cooperation budget were unveiled. Overall budget: 112 million francs, of which 93 million will be funded by Switzerland, and the remainder by Ukrainian companies and partners. The projects encompass the areas of infrastructure (energy, housing construction), public transport, health and humanitarian mine clearance. The companies being funded include Hitachi and Roche. Currently, only Swiss companies already active in Ukraine are eligible for such financial assistance from SECO.

Cooperation with no legal basis at all

Attentive readers will now rightly ask what legal basis underpins this "technical and financial assistance." The Federal Council's explanatory report is clear in that regard. These financial measures do not come under the Federal Act of 19 March 1976 on International Development Cooperation and Humanitarian Aid (FA IC), as they serve Switzerland's foreign economic policy interests. The report leaves no doubt whatsoever that Switzerland's private sector falls outside the scope of the FA IC. Could Switzerland's export support mechanisms, including the Federal Act on Export Promotion and the Swiss Export Risk Insurance Act, serve as the legal basis if need be? The answer is – no. First, the Federal Council makes clear that, in terms of purpose and object, they are entirely different. Second, these laws do not allow for Swiss export funding and subsidisation, as this would infringe the relevant agreement of the World Trade Organisation (WTO). This therefore leaves us in a legal grey area.

However, by means of a legal manoeuvre, the agreement was so drafted that purchases from Swiss companies – despite the lack of any explicit Swiss legal basis – fall under the Federal Act on Public Procurement (PPA). The need is underlined for the "legal certainty" of these transactions to be ensured. This approach is nevertheless flawed.

The PPA in fact requires Switzerland to admit companies from countries that offer reciprocity to Switzerland (in particular from the European Union and Ukraine) to public tendering. The agreement summarily nullifies this requirement; here, foreign bidders are excluded from public tendering so that it is reserved for Swiss companies. In this way the Federal Council runs the risk of other countries, in particular EU Member States, withdrawing reciprocity from Swiss companies when it comes to public contracts relating to their cooperation projects with Ukraine. The explanatory report remains silent on this, however.

An outdated and problematic mechanism

Apart from the legal intricacies, it is problematic from a development standpoint that the Federal Council is using a "cooperation agreement" as cover to facilitate the return of tied aid. This is a practice that has been sharply criticised by the Development Assistance Committee of the Organisation for Economic Cooperation and Development (OECD-DAC) and almost completely abolished from Switzerland's international cooperation owing to its deleterious impacts on partner countries. This agreement therefore constitutes a worrying precedent, by reinstating an outdated and widely discredited mechanism. During the latest peer review by the OECD Development Assistance Committee (OECD/DAC Peer Review Switzerland 2025), Switzerland was urged to end this type of tied aid. The OECD argued that this would enable recipient countries to purchase goods and services from virtually any country, thereby avoiding unnecessary costs.

Export subsidies at the expense of cooperation

Besides, there is also no apparent logical reason why this “Financial Aid in Specific Sectors” – or more precisely, these export subsidies for Swiss goods and services – should be fully funded from the international cooperation budget. Because they are meant exclusively for Swiss companies and are not based on the law on international cooperation, they cannot be considered a vehicle for Switzerland's international cooperation. This constitutes an insidious redistribution of poverty alleviation resources for the benefit of private sector players and is part of a negative trend that raises questions about the aims and purpose of international cooperation.

Alliance Sud is therefore calling for an end to the funding of such financial assistance from the budget for international cooperation. If the Federal Council wishes to maintain this kind of support for Swiss companies in connection with the reconstruction of Ukraine, it should identify new, separate funding sources for that purpose, so that international cooperation funds are not affected. As a matter of priority, these latter funds must go towards poverty reduction and supporting underprivileged social groups.