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Opaque Swiss commodities trade could be costing poor countries billions - study

Source: Thomson Reuters Foundation - Fri, 24 Jan 2014 04:42 PM
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LONDON (Thomson Reuters Foundation) – Developing countries may be losing between $8 billion and $120 billion a year due to the mispricing of commodities in the key trading hub of Switzerland, although the opacity of Swiss commodities trading prevents a clearer understanding of the picture, according to a new study.

The study by the Centre for Global Development analysed 244 jurisdictions and 2,596 commodity categories and found that the average price of commodity exports to Switzerland are lower than they are to other jurisdictions and that Switzerland declares higher re-export prices for those commodities than do other jurisdictions.

As a consequence of this price difference, developing countries may be losing out on billions of dollars-worth of tax revenue which could be spent on much needed public services.

“Switzerland has a uniquely important position for developing countries as a commodity trading hub; but the lack of transparency that characterises both the country’s financial sector and its commodity trading creates a serious risk of illicit capital movement,” the study said.

A more precise estimate of the funds lost to the tax collection agencies of developing countries due to trade mispricing of commodities into Switzerland is impossible due to the lack of reliable data, the study said.

“The range of estimates and the potential interpretations... means that the central conclusion of the study is not of a particular scale or direction of illicit flow,” the study said.

“Rather, it is... that the current lack of transparency of Swiss trade allows the possibility of illicit capital movements,” the study added.

The traded commodities never physically enter Switzerland and as a result are not registered by the Swiss Federal Customs Administration. Instead, this ‘transit trade’ of commodities through Switzerland is only recorded by the Swiss National Bank as an export of services.

“More than 90 percent of developing countries’ declared exports to Switzerland cannot be found in the data, because of the lack of comparable statistics on transit trade,” the study said.

Switzerland is the world’s biggest commodities trader with Swiss-based companies holding between 15 and 25 percent (by value) of the global trade in commodities, the study said, citing an earlier study by the Swiss-based organisation, The Berne Declaration.  

Switzerland’s rise to become the preeminent hub of commodities trading is due in part to very low corporate taxes, light regulation and strong banking secrecy laws, the paper said.

In the 2013 Financial Secrecy Index, an index compiled by transparency watchdog The Tax Justice Network, Switzerland was ranked the most secretive of the 82 jurisdictions included in the ranking. The index ranks financial jurisdictions according to their secrecy and the scale of their activities.

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