The Negotiations of a Tax Agreement between Switzerland and Germany
|Introduction
Texte intégral
- 2 Peter B. Evans, “Building an integrative approach to international and domestic politics: Reflectio (...)
1This research paper is a tentative analysis of the negotiations of an agreement on tax cooperation between Switzerland and Germany in 2012. Although the principal objective was to concentrate on the double-level diplomacy that took place during negotiations (Level I) and ratification (Level II), the period under review stretches from January 2009 (Alfredo Gysi “Sostituto d’imposta”) to June 30, 2012 (call for a referendum). To grasp the challenges of these negotiations, a number of elements on the historical, cultural, legal, institutional or financial context are presented and analyzed. Our aim was to offer a thorough overview of the general context as well as, in the last section, put the case to the test of theory viewpoint. The paper looks at the importance of the balance of power and reveals how domestic constraints and a shrinking win-set can affect double level negotiations. It also offers an illustration of how governments can shape domestic politics by using international debates while still facing conflicting interests along the increasingly blurred line of domestic and international interests. It argues that the failure of international negotiations comes from actors misreading their own domestic political or ratification processes, rather than from parties’ incomplete information about each other’s political or ratification processes. Most of all, it shows how “politically constructed ideologies” and stereotypical views2 – in this case the definition of “fair” taxes or the concept of “privacy” – make it nearly impossible to reach an agreement.
2In days when the world discovers programs such as Prism – the sprawling spying system orchestrated by the US National Security Agency – when citizens are told that service providers such as Apple, Facebook, Yahoo!, Microsoft and Google have given access to government programs to spy and store their data, when Mark Zuckerberg, creator of Facebook, declares that privacy is an outdated concept, when South Korea faces the biggest data theft in world history (15 to 20 million people affected), citizens and world leaders alike are suddenly voicing concerns about their right to privacy. These are exciting times to research a case that battles with the very same concept of privacy.
3When I started working on this paper, the Level I negotiation on tax cooperation was finalized and the Swiss and German Finance Ministers had signed a formal agreement on tax cooperation. Observers seemed reasonably confident that the domestic ratification process would go through. But a number of factors changed the course of the process. First, domestic opposition in Germany was much stronger than anticipated – and partially triggered by the upcoming elections agenda – and cast a doubt in the Swiss public opinion; it also became one of the main contending issue in the German electoral campaign. Second, the Swiss ratification took place in the context of an unsuccessful ASIN referendum regarding a possible automatic Swiss referendum for all international negotiated agreements. And finally, following the agreement by Swiss Parliament, an improbable mix of left AND right wing political representatives launched a popular initiative. Pending gathering enough signatures by the end of September 2012, the agreement on tax cooperation with Germany would have then been submitted to popular vote.
4As the first version of this paper was finalized, in August 2012, ratification still remained on hold in Switzerland (pending the possible referendum), as well as in Germany (pending ratification by the Bundesrat at the end of the summer 2012 and at the Bundestag after the Swiss referendum). The agreement was planned to enter into force in January 2013. We know now that the Swiss referendum did not take place and that the Bundestag did not ratify the tax agreement with Switzerland in late fall 2012. German Chancellor Angela Merkel won a third term at the general elections in September 2013 and Peer Steinbruck gave up the SPD leadership. Speculations regarding the openings of new talks between Germany and Switzerland regarding a new round of negotiation on an agreement on tax cooperation have since been made.
5In addition to the last section – which contextualizes the case and tests it from the theory viewpoint – three main topics are examined in this paper:
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Actors at play and their role in the negotiations: states, international organizations and non-state actors;
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Foreign policy and tax issues: how globalization has also influenced tax sovereignty and shifted mandates of international non-state organizations;
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How domestic issues and shrinking win-set can threaten the successful outcome of an agreement.
6The Swiss banking industry, guilty of using “arms of tax destruction,” offers an interesting field of study. One of its trademarks, “banking privacy,” should have been long gone, surrendering to calls for tax transparency or to international exchange of information. But international exchange of information is still not considered an effective tool to recover unpaid taxes mainly because it is not an international standard. Thus, should it become so, all countries would adopt the same principle, including big countries such as the US. So far, these bigger countries do not seem to be very interested in applying the same standards they are requesting from smaller countries.
7In a world increasingly globalized, legal sovereignty has slowly given way, arbitrated by non-democratically elected actors, such as the OECD, the G7 or G20. Not part of any major coalition, isolated in Europe, Switzerland had to work its way and build alliances to keep up with rising internationalization. Bilateral agreements have often been the solution. Soft power – a Swiss tradition inherited from its passed neutrality and a tactical necessity to build alliances and survive – has long allowed Switzerland to remain competitive in a multilateral context.
- 3 Washington Agreement; source: Department of State, United States of America, United States treaties (...)
- 4 A delegate of the Stücki mission comments the agreement concluded on May 25, 1946 with the Allies; (...)
8The issues of legal sovereignty and protection of privacy are long-standing in Switzerland. For instance, at the end World War II, in order to finance the reconstruction of Europe after the war, the Allies (US, UK and France) collected German assets located abroad and assign them to a special repair fund. The Allies requested Switzerland to hand over German assets in their banks, as well as return “Nazi gold” which was allegedly held by the Swiss National Bank (SNB). During the war, the SNB, as part of its normal business, acquired Belgian gold which had been entrusted by Belgium to France, and had then been remitted by France to Germany and confiscated by Berlin. The Washington Agreement, signed in May 1946,3 stated that Switzerland would pay 250 million francs and in return the Allies would agree to waive future claims against the Swiss government and the SNB, in relation to gold transactions concluded with Germany during the war.4 250 million francs were paid out and banking secrecy was maintained.
9By reaching this agreement, Swiss diplomats and the Swiss financial center demonstrated their capacity to withstand domestic and international pressures. The head of the Swiss delegation, Walter Stücki, Special Affairs Minister for the Federal Council, negotiated over several weeks to reach an agreement. Switzerland contributed CHF 246 million in 1946 and CHF 125 million in 1952 to the reconstruction of war-stricken countries, through the Allies repair fund.
10Although quite different from today’s negotiations for a tax cooperation agreement with Germany, the 1946 Washington Agreement bears interesting elements of similarity. From the historical point of view, it offers an example of multi-level and multi-stakeholder negotiation: international, domestic, individual issues on one hand, and economic and legal on the other. Negotiators used internal contradictions amongst their counterparts to find a satisfactory solution to the crisis – they were able to put forward the payment of an immediate lump sum, versus tedious investigations with non-cooperative counterparts and multiple violations of legal frameworks. The Swiss negotiator stood strong on aspects of Switzerland’s legal sovereignty, an aspect that bears fewer echoes today, due to the multiplication of commercial cross-interests. In 1945, Switzerland seemed more isolated on the international scene than it is today, due to the extreme context. Switzerland’s neutrality during the war was contested, in a similar way – all things being equal – to the way the country is accused today of being a tax haven, using “arms of tax destruction.”
- 5 Robert D. Putnam, “Diplomacy and domestic politics. The logics of two-level games.” International O (...)
- 6 Robert Putnam, Op. cit., p. 427-460.
11It only seemed logic to use Robert Putnam’s metaphor of a two-level game,5 to assess the interconnection between domestic and international politics. The issues are reviewed according to their relevance to the international level (bargaining between negotiators leading to an agreement) or the domestic level (separate discussions within each group of constituents). The two-level game à la Putnam6 assumes that international agreements will only be successfully if they also result in domestic benefits. Diplomats engaged in international negotiations, must manage strategies at two different levels and therefore play at two separate tables: one game representing domestic interests and the other, international power games. Tactics and strategies at both levels – other countries as well as domestic actors who will eventually ratify the agreement – interact, are influenced and influence both levels in return.
- 7 Richard Eichenberg, “Dual Track and Double Trouble: the two-level politics of INF” in International (...)
12This paper will also touch upon the theory suggested by Richard C. Eichenberg,7 and according to which “primary determinant of agreement is the size of the domestic win-set.”. As we will see, the initial domestic win-set was large regarding the consensus on what could be achieved, i.e. “negotiate a tax cooperation agreement while gaining access to the German market.” When win-sets are large, leaders and negotiators are free to pursue personal preferences, as the number of possible approaches is high. The win-set partly shrunk at Level I of the negotiations, and very much more at Level II, during the ratification process of the agreement.
13As we would like to demonstrate, the manipulation of the win-set as well the final ratification process were different in Switzerland and Germany; interests at play, political agendas, political power of domestic interest groups, preferences of the negotiators, power asymmetry, as well as their impact on the win-sets, make this case study an interesting field of analysis for classical theory of political science and the two-level game metaphor.
- 8 Ibid, p.65.
14“Leaders have two alternatives when faced with an eroding domestic consensus. They can challenge constituents and attempt to build support for their own preferences, expanding the win-set. Or they can shift their acceptability-sets in the direction of constituent preference.”8 But both domestic polarizations also mean that the agreement risked failure in the ratification process.
15Although officially bilateral, this negotiation can be seen as a multilateral process, considering the number of parties/stakeholders involved, or as two simultaneous two-level games. Indeed, at least two sets of tax negotiations took place in parallel in 2011: between Switzerland and The United Kingdom and between Switzerland and Germany. This paper concentrates primarily on the negotiations between Switzerland and Germany. Indeed, Level I negotiation with Germany was more documented – for instance through articles in the media or primary sources. The second reason was that the ratification process of the Switzerland-Germany agreement (Level II) had raised public debates, both in Switzerland and Germany, at the local political level, at the parliamentary and federal levels. In this sense it appears illustrative of the “double trouble” such a double level negotiation can hit. Nevertheless, when appropriate for comparison or illustrative purposes, the paper will also mention the Switzerland/United Kingdom negotiations, as they were critical to achieve progress in the German negotiations. The starting point of both countries was quite different and brings interesting insight to the negotiations; the UK draft agreement was built on “dealing with the past,” while Germany was aiming at “finding a solution for future non taxed German assets in Switzerland.” Both countries had fundamentally different visions about how to address the issue; but both combined made it possible to consider two different but pragmatic agreements.
Notes
2 Peter B. Evans, “Building an integrative approach to international and domestic politics: Reflections and projections,” in International Bargaining and Domestic Politics: Double-Edged Diplomacy, Edited by Peter R. Evans, Harold K. Jacobson & Robert D. Putnam, University of California Press, 1993, p.401
3 Washington Agreement; source: Department of State, United States of America, United States treaties and other International agreements, Volume 13, Part 1, US Government Printing Office, Washington, 1962, p. 1118-1152.
4 A delegate of the Stücki mission comments the agreement concluded on May 25, 1946 with the Allies; Swiss Radio, (transcript and translation MNA) http://www.ideesuisse.ch/254.0.html?&no_cache=1&L=0&tx_ttnews%5Btt_news%5D=434&tx_ttnews%5Blist%5D=69%2C434%2C1410%2C1904&tx_ttnews%5BbackPid%5D=112.
5 Robert D. Putnam, “Diplomacy and domestic politics. The logics of two-level games.” International Organization. 42, Summer 1988 p. 427-460.
6 Robert Putnam, Op. cit., p. 427-460.
7 Richard Eichenberg, “Dual Track and Double Trouble: the two-level politics of INF” in International Bargaining and Domestic Politics: Double-Edged Diplomacy”, Peter B. Evans, Harold K. Jacobson and Robert D. Putnam (eds.), University of California Press, 1993, p.46.
8 Ibid, p.65.
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