Switzerland's commitment to the MDGs


In some areas of its foreign policy, Switzerland does not earn the best marks for its contribution to the Millennium Development Goals. Although Switzerland has substantially increased its development budget and pursues good pro-poor development cooperation by international comparison, its finance and trade policy is driven by self-interest and contributes to restricting the policy space of poor countries.

Nina Schneider
Alliance Sud - Swiss Alliance of Development Organizations

As a donor country Switzerland is bound primarily by the eighth Millennium Development Goal (MDG). This means that it should support the developing countries in realizing MDGs 1-7, and adapt its trade, financial and tax policies to the needs of the developing countries. Its endeavors towards a coherent, pro-development policy have also remained rather modest.

Switzerland has made some headway regarding the import of goods from the poorest countries, which is no longer subject to customs duties and quotas, and in refunding “stolen assets.” In 2011, the Federal Cabinet arranged to block unlawful assets from Cote d'Ivoire, Egypt, Libya and Tunisia. These assets are to be returned as soon as possible. The goal nevertheless should be to prevent any more stolen assets from entering Switzerland. To date, urgently needed tightening in anti-money laundering and the exclusion of dictators' funds is still pending.

There was also little or no movement on policy coherence for development. In concert with other western countries, Switzerland continues to defend its own economic interests first and foremost, with little regard for the needs of the majority of the world's population in developing countries.

At the start of the millennium, the Government was extremely unwilling to increase its Official Development Assistance (ODA) to 0.7% of Gross National Income (GNI) in keeping with UN guidelines. The increase in development aid that was planned for the 2000/2001 budget was cancelled out by cutbacks made in response to the 2002/2003 recession. Instead, reductions of up to 30 per cent were being proposed. The civil society alliance "0.7% – Together against Poverty" was established, with a view to averting those cuts.

In 2007 this alliance of over 70 aid agencies, environmental and youth associations, trade unions, human rights and women's organizations launched a petition for ODA to be increased from the then 0.37% to 0.7% of GNI by 2015. Amongst the Swiss public, the MDGs and the international Stop Poverty campaign constituted a good reference framework for this demand.

With over 200,000 signatures, the petition was submitted after just 10 months. That carries significant weight – and made a deep impression on the Parliament. A coalition of parliamentarians from almost all parties reached agreement that an increase to 0.5% by 2015 was politically feasible. After much bouncing back and forth between the Parliament and Government, the decision to make the increase finally came in February 2011. In 2012, the parliament adopted the increase to 0.5% in its debate on the global credit lines for 2013-16, by a substantial two-thirds majority in both chambers.

Still a downside

The development budget will now grow by about 9% annually until 2015. Switzerland is thus bucking the trend towards reduction amongst OECD donor countries. However, it financed its 2010-2012 contributions to the fast-start financing package, which had been agreed at the Copenhagen Climate Conference, from the increased ODA budget. The Government also plans to use ODA to finance a significant part of its contribution to the long-term climate financing of USD 100 billion by 2020, on which UN member countries agreed at the Cancún Climate Conference. It argues that this is all new and additional money, as it had increased the ODA budget. Alliance Sud argues that this money is indeed new since it was earmarked for climate finance after the Cancún agreement but it is not additional as long as it comes from ODA.

In the run-up to the decision on credit lines 2013-16 a vociferous debate erupted about linking development assistance to the readmission of asylum seekers turned down in Switzerland. By a small majority, Parliament rejected any strict linkage. In order to combat irregular migration though, the Federal Council and the development agencies are directed to seek concrete quid pro quos or agreements with partner countries. The Swiss Association of Small and Medium-sized Enterprises for its part calls for ODA to be tied to commodity agreements – a call rejected by the Government.

No progress in trade and financial policy

Switzerland's free trade policy hardly differs from that of the EU and the US and is highly prejudicial to developing countries. Once it became clear that Switzerland would not be able to push through its maximum demands (full liberalization of investments, free access to government procurement and the services sector, etc.) against the majority of developing countries in the WTO, it opted for bilateral free trade agreements. The consequences are far reaching. Developing countries are being pressured, far beyond the stipulations of the WTO agreements, into radical market opening, the elimination of protective regulations and customs duties, and robust protection of intellectual property. Whilst the Swiss export sector benefits from the removal of trade barriers and access to the markets of partner countries, developing countries are losing considerable policy space to strengthen their domestic economies.

Thanks to parliamentary initiatives and NGO lobbying, Switzerland is slowly accepting the consideration of labor rights and environmental standards when negotiating new bilateral free trade agreements. It has thus begun offering to its negotiating partners the possibility to include the European Free Trade Association (EFTA) voluntary provisions on environmental and labor rights. There has been less progress however on investment protection agreements. Under pressure from Parliament, Switzerland now includes principles of sustainable development in the preamble of agreements, but still lags far behind the European Union in the anchoring of human rights.

In patent protection, the Government firmly represents the interests of Swiss chemical and pharmaceuticals industry. Apart from very few humanitarian supplies of medicines, Switzerland's patent protection policy continues to prevent access to medicines and to limit small farmers' use of seeds. Empowered by Swiss policy, Swiss pharmaceutical enterprises in India are taking legal action against the production of generic medicines, thereby preventing access for poor people to affordable drugs.

Because of advantageous investment and fiscal conditions, Switzerland became a major center for commodity companies over the past ten years and is today home to the largest number of multinational enterprises per capita. Firms headquartered in Switzerland such as Glencore, Xstrata or Trafigura make headlines for human rights violations and environmental pollution, thereby jeopardizing Switzerland's reputation. This prompted some 50 NGOs, trade unions and church groups to launch the "Corporate Justice" campaign in 2011. They are calling for clear and binding rules to force international corporations to comply with human rights and environmental standards worldwide. So far, the Parliament and Government have been giving preference to voluntary rules first and foremost, and even the OECD guidelines for multinational enterprises are only being implemented half-heartedly in Switzerland.

Some movement on taxes

At the 2010 MDG Summit, Switzerland opposed all initiatives in the realm of financial transparency and international cooperation on tax matters. Whilst Switzerland seems willing to cooperate with industrialized and emerging-market countries, it has not yet concluded any agreements with low-income countries providing for any effective exchange of information about possible tax dodgers. Yet such information exchange is indispensable to poor countries if they are to stop illicit financial outflows and generate more funds of their own for poverty reduction. Conservative estimates put the amount of untaxed funds from developing countries in Swiss banks at USD 400 billion. The real amount is more likely to be around 1,000 billion. If only the interest on these sums were taxed, the countries concerned would stand to have roughly an additional USD 6 billion at their disposal each year for poverty reduction. That is more than twice Switzerland's development aid.

In the wake of the financial crisis, the long-standing engagement of civil society against international tax avoidance gained new momentum amongst G20 and OECD member countries. Since 2009, most of these countries have concluded agreements with Switzerland providing for the exchange of information on tax evaders upon request. In the framework of the Foreign Account Tax Compliance Act (FATCA), the US has even reached an agreement with Switzerland on a form of automatic information exchange. In a press release dated 21 May 2014, the Swiss Government announced the possible expansion of automatic information exchange to “countries with which there are close economic and political ties and which… are considered to be important and promising in terms of their market potential for Switzerland's finance industry.” In contrast, there are still no effective measures to end tax flight from developing countries. According to information from banking circles, the magnitude of the assets flowing from developing and emerging countries into Switzerland is growing markedly.

Responding to civil society and political pressure, however, the Swiss Government in April 2012 declared its readiness to offer Tax Information Exchange Agreements (TIEAs) to poor developing countries. In so doing, it gave up its demand for information exchange to be built into very complex Double Taxation Agreements (DTAs). Moreover, in February 2014, it began drafting a bill on the unilateral application of information exchange upon request to all DTAs that are not yet in line with this standard. This means that Switzerland's entire DTA network will swiftly be adapted to the current international standard. The draft bill, however, is still pending and will require parliamentary approval.

Erstwhile debt reduction pioneer

Switzerland was one of the first countries to champion debt relief measures. It was reacting to demands from NGOs like Alliance Sud, which as early as the 1980s called for the cancellation of the debts of the poorest countries. The "Development needs Debt Relief" petition garnered considerable popular support in Switzerland and laid the groundwork for the bilateral debt relief program. In 1991 the Government allocated 500 million Swiss francs for debt relief for insolvent and highly indebted countries. What was new about the initiative was that the cancellation of Switzerland's bilateral debt claims was tied to the creation of counterpart funds to finance civil society development projects.

The bilateral debt relief program became the model for the Heavily Indebted Poor Countries (HIPC) initiative, which was later extended to multilateral debts under the Multilateral Debt Reduction Initiative (MDRI). At Gleneagles in 2005 and pursuant to MDG 8, the G8 countries decided to cancel debts of the poorest countries worth USD 76 billion by 2044/54. On that occasion too, the Swiss Government gave its approval in principle to a Swiss burden share of some USD 866 million in the World Bank’s International Development Association (IDA) and USD 305 million in the African Development Fund (AfDF). This general approval was followed by the first specific commitments, totaling USD 225 million up to 2016/17. These have been regularly honored since 2011 thanks to the ODA increase to 0.5%, and half the amount has already been disbursed.

It is commendable that Switzerland is making its contribution to the MDRI, as many OECD countries are lagging behind. However, MDG 8 calls for debt reduction measures to be financed in addition to ODA, which is expressly intended for pro-poor development programs. It is all the more urgent to find this additional money, as the volume of the MDRI funding agreed on by the international donor community, including Switzerland, will increase markedly in the decades ahead.

Many countries whose debts were partially canceled through the HIPC and MDRI are now again on the brink of insolvency, and debt problems have also gripped southern Europe. Various parliamentarians therefore called for a government report on the possibilities for a regulated and fair State insolvency procedure. According to this report, published in September 2013, the Federal Council is reluctant to advocate internationally for the introduction of such a procedure. It will rather advocate for possible international agreements on collective action clauses and aggregation clauses in sovereign bond contracts.

Promoting the MDGs through development programs

The Millennium Development Goals have also urged donor countries to concentrate their aid even more on the poorer countries. Swiss development cooperation always had a strong humanitarian and poverty reduction focus and unlike other countries, was never withdrawn from rural development. It is known for its hands-on cooperation with local authorities and civil society organizations. Switzerland has repeatedly garnered international praise in that regard. Yet the picture today is somewhat mixed but Switzerland is still profiting from its past reputation.

In real terms, only a quarter of Swiss development aid has been targeting low-income countries (LICs) for many years now. Moreover, in 2008 the Swiss development agencies expanded the scope of development cooperation and started the ”Global Programs” which entail pro-development globalization activities in addition to poverty reduction. They cover for example the two thematic programs of climate change, and finance and trade, which are being implemented in emerging countries like China, India and Brazil. As Switzerland lacks a specific budget for entering into "strategic partnerships" with these countries, there is reason to fear that ODA might be diverted towards foreign policy ends in these instances. On the same basis, the State Secretariat for the Economy (Seco) withdrew from the LICs to focus on some middle income countries instead, with which Switzerland is keen to develop stronger trade relations. Its justification for this reorientation is that poverty needs to be addressed in those countries as well. However, it remains open whether Swiss development agencies are effective in addressing poverty pockets in those countries, as the economic aid overlooks peripheral regions, micro-enterprises and women.

The SDC has indeed used the MDG wording to head off any greater exploitation of ODA. The MDGs have so far only marginally influenced the orientation of Switzerland's programs. According to an external evaluation, the MDGs did not “lead to significant changes in program areas, strategies or project content. The link between MDG and SDC projects has mostly been drawn in the aftermath and used to justify accountability and resource mobilization or the selection of focus countries and sectoral programs.” Moreover, some critical NGOs warn that official development assistance is focusing ever more on "development diplomacy" and losing touch with the field.

Interestingly, the external evaluation gives the SDC good marks precisely for the fact that it has not given up its engagement in the areas of governance and peace building in favor of the MDGs. „In a country like Nepal, characterized by armed conflicts, staying engaged meant focusing on non-MDG sectors (peace building, rural infrastructure, and natural resource management). The decision for these sectors was guided by pragmatic criteria. It was found that the Swiss program could reach the poor best by focusing on a few geographic areas where Switzerland had a long history of collaboration with local authorities.” In Mozambique too, the policy to stay engaged and the multi-agency approach to peace building, development and human rights have yielded good results. In Benin or Nicaragua in contrast, where Switzerland is implementing programs in important MDG areas, success has been tarnished by the lack of ownership on the part of the Government. Not least amongst the reasons for this is that the governments have used the implementation of the MDGs primarily to gain access to funding for urgently needed development and debt relief.

Looking beyond 2015

In summer 2012, a special ambassador and an interdepartmental task force were mandated to draft the Swiss position for the post-2015 agenda. The Swiss Agency for Development and Cooperation (SDC) has the overall lead. From scratch, the task force ran broad public consultations on MDG outcomes, the general scope of the post-2015 agenda and the guiding principles and a participatory process to develop the goals and targets with representatives of all ministries, academia, the private sector and interested NGOs. The process was largely transparent and inclusive, and numerous suggestions and recommendations by Alliance Sud have been taken up. Still, the Swiss position that will be submitted to the Federal Council in June 2014 has its ambiguities.

Switzerland supports a quite ambitious global and universal framework. It will be anchored in all existing international development, human rights and environmental declarations and balance all three dimensions of sustainability in every goal and target. Sustainable development is a State objective enshrined in the Constitution (Arts.2 & 73) and will be a crosscutting issue for all policy areas in the future. It is planned to reflect the final SDGs in the Swiss strategy on sustainable development and in several other sectoral policies and action plans, as well as in the dispatch on Swiss international cooperation 2017-2020. However, Switzerland does not have the best marks when it comes to policy coherence for development. Despite all verbal commitments, it is not very likely that the universal sustainability commitments will have a major impact on sectors most critical to the Swiss economy such as the financial market, or that foreign policies will be aligned with the needs of the least developed.

As the overarching objective, the Swiss position calls for a framework that achieves sustainable development and eradicates extreme poverty while respecting planetary boundaries as well as fostering peace and security. Regarding principles, Switzerland calls for emphatic reference to be made to human rights, including economic, social and cultural rights and for a national action plan to implement the UN Guiding Principles on Business and Human Rights. It mentions the guiding role of the Human Rights-Based Approach (HRBA) in Swiss development cooperation but fails to make a strong case for its incorporation into the post-2015 agenda in its statements to the Open Working Group (OWG). Further guiding principles mentioned in the Swiss position are social inclusion and justice, universality and policy coherence. However, in spite of intense advocacy work by Alliance Sud, Switzerland refused to mention common but differentiated responsibility. Therefore, it is doubtful whether Switzerland is ready to eliminate the donor-recipient dichotomy through a true mutual partnership and substantial financial assistance.

Regarding the means of implementation, Switzerland follows the canon of the western donors calling for intense cooperation with the private sector and rejects many of Alliance Sud’s recommendations. Switzerland is open to a liberal ODA reform fostering concessional loans, guarantees, private investment mobilization, etc. but shows little commitment to supporting innovative public development finance.

Some of Alliance Sud’s inputs regarding stronger regulation of international trade and capital markets in favor of the developing countries, as well as the need to tackle illicit capital flight and harmful tax practices, have been taken up by the task force. However, it is doubtful that at UN level Switzerland will be a driver in this regard, rather than hide behind the blockage of other developed countries.

Regarding targets and goals, Switzerland claims to play a bridge-building role in the OWG. Generally, the broad consultation has brought about quite ambitious propositions. Nevertheless, the devil lies in the details. Whereas poverty eradication and the multidimensionality of poverty are underlined, the Swiss position evades sound commitments with respect to reducing inequality. The proposed goals on sustainable and inclusive growth, and green economy are so vague and general, that it is unclear whether Switzerland ultimately supports social and ecological equity or merely economic growth. Regarding climate justice, Switzerland explicitly rejects a stand-alone climate goal and favors transversal implementation of climate-relevant targets.

Quite puzzling is the Swiss support for the “Global Partnership on Effective Development Cooperation” (GPEDC) to become an important pillar in the implementation of the SDG-agenda. The HLM in Mexico has demonstrated its lack of global legitimacy and the institutional weaknesses of the joint OECD-DAC and UNDP secretariat. Despite the shift away from the OECD, many countries still view the GPEDC as a donor-driven process that is not as inclusive as it claims to be. The absence of China and India and the half-hearted engagement by other major emerging donors speak to its declining relevance. Obviously, the inclusion of the private sector and the emerging donors at the HLF in Busan has weakened the development effectiveness agenda and there is nothing to celebrate except the fact that there has been no regression since 2010. The GPEDC could make a contribution in terms of capacity and experience, but would need to get back on track with its core business of monitoring progress in achieving development effectiveness if it wants to become an important player in the post-2015 agenda beyond being a trade conference or industry talking shop. 

On paper, the Swiss position for the sustainable development agenda looks progressive and largely coherent. In the OWG, Switzerland supports many calls from civil society and the global south. However, paper is patient. It remains to be seen whether Switzerland will have the political courage and willingness to be a driving force in the upcoming UN intergovernmental negotiations. It could do so by striving for fair and rights-based global burden sharing, for the introduction of laws which commit transnational companies to accepting their environmental and social responsibilities, and, eventually, for a true ecological and social transformation of the global economy, including the effective regularization of tax, trade and financial market regimes.

Alliance Sud will closely monitor whether the good intentions of the Swiss task force lead to appropriate reforms in all ministries as well as in international politics.