III. ECONOMIC TRENDS AND OUTLOOK - Major Trends and Outlook After several years of recession, recovery in Switzerland began at the end of 1993. All indicators point to continued growth throughout 1994 and 1995. Recovery will not be robust, however; growth in real disposable income will be weak, so that even with a reduction in the savings rate, consumers will have little room to increase consumption. Investment growth will be more robust, particularly in residential construction and machinery and equipment, but the external sector will act as a drag on growth as the large import component in growing investment more than compensates for continued strength in exports. Government consumption will be virtually flat -- after a fiscal surplus as recently as 1991, all units of government were in serious deficit in 1993 (4.5 percent of GDP), and discretionary spending is being cut significantly. Overall growth in GDP should reach 1.4 percent in 1994, and 2.2 percent in 1995. Switzerland's balance of payments looked astonishingly good at the beginning of 1994. The current account surplus is projected to reach 7 percent of GDP in 1995, as the traditional surpluses in services trade and factor payments were reinforced by rare (and record) surpluses in goods trade. Swiss exporters did quite well during the recent recession, and they are well-poised to penetrate faster-growing markets. One of the two major negative elements in the economic picture is the government budget. The portion of government revenue tied to income has a two-year lag, meaning that receipts will drop in 1994. Discretionary spending has been cut, but the federal government and cantons have been forced to bail out the unemployment insurance fund, which is underfunded when the unemployment rate exceeds 2 percent (unemployment was 4.8% in May 1994). The introduction of a value added tax in January 1995 should improve the federal revenue outlook by SF 1 billion or more, but structural and cyclical deficits will remain. Cantons and communes have had to bear a larger social burden, but they can increase taxes somewhat more easily than the federal government, and have started doing so. At all levels of government, serious efforts were underway to bring the deficits down. Among other key variables, unemployment, which historically has averaged only one percent, peaked at 5.2 percent at the end of 1993 and is heading downward. The official unemployment rate (which excludes those who have exhausted their benefits) should drop steadily, averaging 4 percent in 1995. Inflation moderated quite rapidly, and the consumer price index (CPI) was running at about 1 percent in the first half of 1994; the underlying rate of inflation is about 1.3 percent. In 1995, however, the CPI will probably reach 2.7 percent due to the introduction of the value-added tax. Interest rates, both short and long-term, are predicted to decline slightly from levels reached at the end of 1993, and the Swiss franc should weaken against the dollar, German DM, and a trade-weighted basket of other currencies, as fundamentals produce a correction. Aside from the unemployment picture (which is quite serious by Swiss standards but still quite good by European standards) and its serious impact upon government finances, the Swiss economy is in good shape. It is poised to achieve the modest but steady growth, and healthy current account surplus, that Swiss people have come to know and expect. - Principal Growth Sectors As a country with no significant natural resources, Switzerland has focused its economy on the manufacturing and services sectors. Highlights of recent economic developments by sector and outlook for the near term are as follows: Manufacturing: The machinery industry, together with metals and electronics, employs 12 percent of the country's workforce and contributes 42 percent to Swiss export revenues. Emerging from a period of falling orders and declining production in recent years, the machinery industry (including metals and electronics) is expected to grow again from mid-1994 on. Restructuring efforts carried out over the last few years will leave machinery in a stronger position and increase competitiveness. Companies in this sector put high hopes on the effects of the revitalization program launched by the Swiss Federal Council in 1993 (put into place gradually, it should have a positive impact on the economy already by 1994), and the introduction of a value added tax system in 1995. The switch from a system of turnover tax to the VAT in 1995 will relieve the industry from a tax burden on investments (hidden tax) estimated at SF 1 to 2 billion per year. In addition, creativity and innovation will continue to play an important role. The field of environmental technology, for instance, is expected to have good growth potential. The entering into force of the GATT agreement is crucial for the Swiss machinery sector. The export-oriented Swiss machinery manufacturers will benefit from lower tariffs and the planned liberalization of public procurement. Other agreements included in the Uruguay Round, such as TRIM's and TRIP's will improve conditions for direct investments abroad, and bring better protection of patents, technical know-how, and the like. The GATT agreement will allow Swiss companies to compensate for price disadvantages by introducing more creative price and service policies. The chemical industry was one of the few sectors in the Swiss economy that performed well in spite of the 1991 to 1993 recession. Similar to the machinery sector, chemicals will also benefit from the GATT agreement; but because this sector is even more oriented toward the external side, the positive effects of the Uruguay Round will probably be of even higher magnitude. Because research plays a key role in the chemical sector, TRIP's and TRIM's represent the biggest improvements for this sector. Within the chemical branch, pharmaceuticals offer the biggest growth potential, since they will benefit most from longer and better patent protection. The introduction of the VAT in 1995 will also reduce investment costs in the chemical industry. Services: The two most buoyant components of the services sector have been banking and insurance. Within the banking sector, commercial and private banks show the biggest growth potential. The increase in world trade and industrial activity will naturally bring more business to commercial banks. With their global operations, the large Swiss commercial banks will get a fair share of the business and be able to expand their activities. Mutual funds and institutional investors have gained in importance, and represent good growth prospects for commercial and private banks. The insurance industry is equally important for Switzerland, and the Swiss are reputed to be the best-insured people in the world. There are well over 100 insurance companies in the country, approximately ten percent of which are specialized solely in the reinsurance business; of the latter, Rueckversicherung is the world's second-largest reinsurance company. The financial situation of the Swiss insurance companies is very satisfactory, and earnings are expected to grow strongly in 1994 and beyond. Agriculture: In recent decades, agriculture has lost its relative importance in the Swiss economy, and its preservation in current form has been due largely to governmental intervention and support. The Swiss system of protecting its farmers is now undergoing bold reforms, due mainly to pressure from consumers and Switzerland's trading partners. The Uruguay Round results require Switzerland to eliminate non-tariff barriers, reduce export subsidies, make binding commitments on its schedule of agricultural tariffs, and decrease levels of domestic support payments. Over the next six years, the reform period of the Uruguay Round, Switzerland will reorient its agricultural sector, making it more responsive to market forces and increasingly accepting of foreign goods. - Government Role in the Economy Switzerland has a free market economy based on the principles of free enterprise. Freedom of trade and of industry are guaranteed by the Federal Constitution, and state intervention is minimal. Government policy is primarily aimed at providing the economy with favorable market conditions -- stable currency and prices, an efficient infrastructure, and training opportunities for required skills. Under Switzerland's federal, cantonal and communal system of governing, the federal government is responsible for such national interest issues as foreign affairs, internal and external security, customs, communications, and monetary control, while the cantons control all other state functions. In many cases, the federal government simply legislates and supervises, while the 26 cantons implement the legislation. The cantons enjoy a high degree of administrative authority, with their own constitutions and laws. The communes, of which there are over 3,000, also enjoy a high degree of independence, control local issues, and even collect taxes. All three levels of government (federal, cantonal, communal) have little direct involvement in manufacturing and services. Indirect involvement is evident in the extensive number of government regulations, especially at the local level. Building codes, regulated hours of establishment, labor laws, zoning ordinances, garbage control, noise codes and administered prices are examples of areas where rules and regulations are more pervasive than in the United States. Mandatory health insurance is a typical example of the Swiss approach to government involvement in the economy: insurance and health care are provided privately, but the government requires employees to have the insurance (and subsidizes those who cannot afford it). While government regulation is generally quite extensive, in the area of competition law the situation is the opposite. As noted later in this Section, cartels are openly permitted and are only broken up when the government succeeds in proving that they are socially and economically harmful -- a daunting challenge which the government rarely attempts. Another anomaly is the agricultural sector. To protect its farmers and adhere to national security goals to remain 65 percent self-sufficient in food, the government has developed a complex system of protection which effectively blocks imports of many agricultural commodities. The Swiss constitution provides the foundation for agricultural policy. The two primary objectives are preservation of a viable farm sector and stockpiling to ensure the availability of food. Swiss producers, particularly those in Alpine and other difficult zones, are highly supported, with approximately 70 percent of gross farm income attributable to government intervention. Milk price support is one of the main ways that farmers are supported, and administered prices are over 300 percent higher than world prices. Agricultural reform has become a major issue in Switzerland due to the growing federal budget deficit, consumer pressures due to high food costs, and pressure from trading partners to decrease protectionism. The government's position has been that membership in the European Union is inevitable and, therefore, Swiss agricultural policies and regulations should be adjusted to adapt to this inevitability. The government has used the GATT multilateral trade negotiations to justify policy reform proposals. Pressure from consumers and trading partners involved in the GATT Uruguay Round negotiations has accelerated food policy reform. Signs of liberalization were evident in 1993 when the Swiss government succeeded in increasing direct payments to farmers in exchange for commodity price reductions as a means to reform the agricultural sector in conformity with new rules being developed in the GATT. The politically sensitive dairy sector was targeted for the first round of cuts, with fluid milk support prices being decreased (by about 10 percent) for the first time since World War II. The 1994 farm support package continues this process of reform. Direct payments decoupled from production will increase to approximately 24 percent of the Swiss federal budget for agriculture and amounts to an average of about $6,150 per year. Total coupled and decoupled direct payments to farmers amount to over a billion dollars in 1994, representing 56 percent of the total Swiss federal budget for agriculture. This early move toward conformity with new GATT disciplines means that the main modification Switzerland will have to make to conform to the final GATT agreement include reducing export subsidies, phasing out all non-tariff barriers such as quantitative restrictions and licensing systems, and speeding up scheduled price support decreases. In the case of products formerly subject to non-tariff measures, high tariffs will be implemented to continue protecting domestic production. However, the Uruguay Round agreement on agriculture will improve market access for many U.S. agricultural exports into Switzerland, despite the very high tariff equivalents which will replace non-tariff barriers. - Balance of Payments Situation Trade balance: In 1993, Switzerland achieved its largest trade surplus of the century -- SF 3.4 billion. Swiss exports more than held their own in spite of an appreciating franc and weak demand in Switzerland's principle European markets. Imports in 1993 declined for the second consecutive year as both private consumption and investment were weak. The import segment of both these GDP components is large, virtually guaranteeing that a weak domestic market will mean lower imports. Both improved terms of trade and changes in the relationship between export and import volumes explain the relatively rare trade surplus. In 1993, export volume was up 0.6 percent (2.8% for the second half of 1993) while import volume dropped by 1.3 percent. The terms of trade improved by 1.8 percent in 1993. 1994 should be a robust year for the external sector. In the first quarter of 1994, export volume rose 5.8 percent (year-over-year) and import volume climbed 9 percent. Exports grew sharply to the UK (17.7% in nominal terms - year-over-year), Asia outside of Japan (17.6%), and the U.S. (13.0%). Gains were even achieved in exports to Germany and Japan. On the import side, purchases of investment equipment contributed to the sizeable growth in volume, which should continue in 1994 and 1995. Due to a further significant improvement in the terms of trade in the first quarter of 1994, the growth in the value of exports exceeded import growth, leaving a trade surplus of SF 1.6 billion in the first three months of 1994 compared to SF 1.2 billion for the first quarter of 1993. Over the next few months, however, import growth should begin to approach that of exports. Due to an expected decline in fourth quarter 1994 investment (investors will delay spending until the first quarter of 1995, when they will be eligible for VAT refunds), import growth will slacken at the end of the year, so that for 1994 as a whole, export growth will slightly exceed that of imports. As a result, Switzerland should achieve another record trade surplus. For 1995, the trend is expected to continue. Anticipated improved world demand (and especially in Switzerland's traditional European markets) should assure continued growth in Swiss exports, and a slight decline in the trade-weighted value of the franc will bolster exports in those sectors that are exchange-rate sensitive. Stronger investment growth in 1995 than 1994 will stimulate imports of capital equipment and raw materials, and prices in local currency will be higher. The expectation, however, is that the growth in export value will slightly exceed import growth (7.4% vs. 6.6%), leading to another record trade surplus. The services account, which is dominated by tourism, has been remarkably steady in recent years, with a steadily growing surplus. Continued healthy growth in both exports and imports is expected, with export growth rates exceeding those of imports. As a consequence, the surplus in services trade will continue to increase. Current account: Switzerland has historically had a current account surplus, with positive balances on the services account and on factor payments, more than offsetting the deficit in goods trade. With the significant improvement in the trade account noted above, and growing surpluses in services and factor payments, Switzerland was in the somewhat embarrassing position of having a current account surplus which exceeded 8 percent of GDP in 1993 (by way of comparison, Japan's current account surplus in 1993 was reportedly only 3.1% of GDP). As the surplus increases from SF 21 billion in 1992 to a projected level above SF 35 billion in 1995, the GDP ratio increases to more than 9 percent. Beginning in 1996, this should have a favorable impact on the franc. The balance on factor payments should increase by 5 percent in 1994 and even more in the following year. On the expenditure side, a decline in wages paid to workers who commute from France and Germany accounts for the lack of growth. The income side will benefit from the expected increase in the value of the dollar, and an increase in the US/Swiss interest rate spread. - Trade and Investment Barriers With the possible exception of agricultural products, Swiss barriers to trade are more annoying than major roadblocks. Concerns for exporters include: 1. Agricultural Products -- Switzerland's highly subsidized agricultural sector operates behind a variety of import restrictions -- licensing, quotas, supplementary import charges, variable levies, conditional import rules, import calendars, and the like. Prices of most agricultural imports are raised to domestic levels by variable import duties and specific non-tariff requirements on importers of agricultural products. A wide variety of U.S. agricultural products, including wines, feel the effects of these barriers. Swiss food law has effectively prevented imports of some U.S. products. Wine coolers are prohibited because there is no definition under existing laws for this product. The food law has also artificially dampened demand for some meat products of particular interest to the U.S. For example, under current law, retail sales of horsemeat may only be made in horsemeat butcher shops. According to Organization for Economic Cooperation and Development (OECD) estimates, Switzerland has one of the most highly protected agricultural sectors in the world. Swiss consumers have one of the highest levels of per capita expenditures for food, totalling over $4,000 per year (11.7 percent in 1993), and Switzerland imports more than $6 billion of agricultural products each year. As a result, Switzerland offers particular challenges to U.S. agricultural exporters. This is exemplified by the fact that currently less than 5 percent of agricultural imports are shipped from the United States. However, in the next six years, Swiss agricultural policy will undergo a process of "reinstrumentation" in accordance with new agricultural disciplines worked out in the GATT Uruguay Round negotiations. This "reinstrumentation" requires Switzerland to change its non-tariff measures into tariff and to reduce its export subsidies and domestic support payments linked to production. U.S. exporters of agricultural products will face new market opportunities as a result of these changes. 2. Food Retailing System -- A continuing obstacle to U.S. exporters, particularly those of high value products, is the food retailing system. The structure of the retail market is characterized by two retail giants which account for nearly one-half of grocery sales. U.S. exporters are disadvantaged by this system because the two food chain stores emphasize their own store brand products and favor domestic products produced in their own processing plants. They are devoted to in-house brands, and, following that, to international brands to which they have exclusive rights to market in Switzerland. These two retailers are also particularly resistant to allowing U.S. in-store promotion programs. 3. Swiss Cartels -- Some 500 cartels have a strongly determining voice in what comes into the country, how it is packaged, where it is sold, who may sell it, and how much it will cost. Services are also affected. A recent OECD study found that average prices of goods and services for private consumption in Switzerland are 40 percent higher than in other OECD countries. Price fixing or exclusive supply contracts exist in 90 percent of 72 industrial activities, ranging from building products to health insurance. Agricultural products are similarly affected by cartel practices. The marketing of many domestic farm products, and of competing imports, is controlled by cartel-like organizations of producers, wholesalers, processors, and retailers. All of these organizations are involved in the implementation of non-tariff import restrictions, with government support. These groups will continue to have an important role in the formulating import policy in conjunction with the Swiss government following implementation of Uruguay Round results. Complaints regarding the system come primarily from consumer groups, because once a producer or exporter (through a distributor) joins a cartel, the protection afforded is appealing. The Swiss have recently established a Cartel Commission to review and draft further legislation on competition policy. Ongoing effort to make Switzerland's laws Euro- compatible should lead to further liberalization. 4. Testing and Certification -- Switzerland imposes technical standards and testing and labeling requirements for certain products; Swiss electrical safety standards (SEV-Standards) require that electrical equipment be tested before it can be marketed; tests may be costly and time- consuming. In most cases, procedures can be simplified for those manufacturers whose equipment has already been cleared in another country participating in the CENELEC (European Committee for Electrotechnical Standardization) Certification Agreement (CCA). Other certifying requirements apply to drugs (prescription and over-the- counter), which must receive approval from the inter-cantonal drug commission. There is also a requirement for labeling imported products in all three official languages (German, French, Italian). 5. Telecommunications -- Until recently, the Swiss PTT maintained a full monopoly over the telecommunications industry and market. A 1992 law continues to give the PTT a dominant role in telecommunications basic (voice) services and network technical aspects of broadcasting, but a separate federal office for telecommunications (BAKOM) now certifies equipment. The telephone set market has been deregulated, but all equipment connected to the public networks -- which remain part of the PTT monopoly -- must be tested and certified. Preference therefore exists for equipment procured from companies domiciled in Switzerland for accessibility to support, maintenance and service. Investment barriers are also more nuisance factors than serious block to investing in Switzerland. Investment concerns include: 1. Work Permits -- All foreigners working in Switzerland, including managers, white-collar and blue-collar employees, require work permits. The Federal Government establishes an annual quota, divided among the cantons which are responsible for allocating the permits. The employer applies to the cantonal authorities, which forward the application for final approval to the Federal Office for Industry, Trade and Labor in Bern. A residence permit is issued once a work permit is approved, but this may not cover the applicant's family. New firms from abroad may experience difficulty in obtaining work permits in certain cantons. A permit is also required for foreign executives visiting their Swiss operations for more than eight days in a three-month period. 2. Real Estate -- Foreigners must obtain government approval to purchase real estate, either directly or through a real estate holding company, based on a cantonal quota system. Non-resident foreigners are generally not permitted to purchase residential real estate for investment purposes. This barrier is not aimed at limiting investments in general, but rather attempts to contain real estate speculation. 3. Taxation -- Sections of the Swiss tax code are, if not investment barriers, at least needless irritants. These include the tax on capital gains on purely paper profits when subsidiaries are sold or transferred during restructuring. Dividends paid by a subsidiary to its parent firm are also subject to withholding tax. The Swiss stamp tax, although revamped in 1993, still applies on a majority of securities transactions. Some foreign employees are subject to a withholding of their income taxes, to ensure payment, to which Swiss are not. 4. Corporate Boards -- The Swiss Code of Obligations stipulates that boards of corporations registered in Switzerland must consist of a majority of Swiss nationals. Exceptions may be granted to holding companies whose major business is conducted outside of Switzerland, but at least one director entitled to represent the company must be domiciled in Switzerland. This law is intended to protect creditors' and shareholders' interests. - Labor Force Switzerland's labor force consists of approximately 3.5 million people, of which over 60 percent are employed in the services sector (primarily tourism, banking, insurance, consulting, public administration and health care). Industry employs 33 percent of the workforce, of which machinery and electronics, chemicals and pharmaceuticals, textiles, watchmaking, and food processing comprise the largest shares. The remaining 5.2 percent work in the agricultural sector. Foreign workers represent about 26 percent of overall manpower. By nationality, Italians represent 30 percent of the foreign workforce, followed by workers from the former Yugoslavia (14%), France (12%), and Germany (10%). In 1993, the number of unemployed (annual average) increased by 76 percent to 163,135, and the unemployment rate went from 2.5 percent to 4.5 percent. Geographical disparities remained significant, with an unemployment rate of 3.7 percent in the German-speaking part and 6.5 percent in the French and Italian-speaking parts of Switzerland. The unemployment rate for foreigners was 7.8 percent, explained by the fact that a majority of foreign workers in Switzerland are unskilled or lower- skilled. This category, together with highly specialized skilled workers at the opposite end of the scale, had the highest proportion of unemployed. The first signs of economic recovery have already influenced the situation on the labor market. The rate of unemployment levelled off in February 1994 at 5.2 percent, and has declined moderately since then. Nonetheless, this improvement results partly from the fact that many long-term unemployed (those who have exhausted their unemployment benefits) are no longer counted in the statistics. Virtually non-existent unemployment in the past has enabled Switzerland to afford a "luxury" insurance system that paid large benefits over a period of up to one year. Although Switzerland still has a low unemployment rate compared to most industrial countries, the surge in the number of people receiving unemployment benefits has left the unemployment insurance scheme with a large deficit. Half of it must be provided by the federal budget, the other half by cantonal governments. The current situation has forced authorities to revise the insurance scheme by cutting benefits, increasing the period during which benefits are paid out, and also by increasing contributions. In 1993, the unemployment contribution by employers and employees was raised from 0.4 to 2 percent of salary received, and an increase to 3 percent is scheduled for the end of 1994. The increases were part of two partial revisions to unemployment insurance. The first was enacted by the government on an urgent basis, but because of diverging interests between employers and employees, the resulting agreement did not resolve the underfunding problem. The growing deficit of the unemployment insurance scheme was reduced only slightly. The second package of revisions involving a more comprehensive revision of the system will be presented to parliament sometime in 1994. The estimated shortfall for 1994 will cost the federal budget SF 1.9 billion (with a like amount due from the cantons). - Major Local & Third Country Competitors in Specific Sectors As overviewed in Section I, both domestic and third-country producers and suppliers pose potential competition for U.S. companies on the Swiss market. The degree to which this competition impacts U.S. companies, and from where it primarily comes, is illustrated in the following matrix. For each of the industry and agriculture goods and services identified in this report (complete listing in Appendix B) as having the best prospects for American firms, the matrix shows high, medium and low competition from local and third-country sources, and of the latter, which are the top three competitor countries. BEST PROSPECT COMPETITION Local 3rd-Country Top Three Computer Software medium medium Germany, France, U.K. Computers & Peripherals low high Taiwan, Japan, Germany Telecom Services medium medium France, U.K, Germany Telecom Equipment high high Sweden, Finland, Germany Travel & Tourism Services high high Asia, Caribbean, Africa Aircraft & Parts low high France, Germany, U.K. Electronic Components medium high Japan, Korea, Germany Medical Equipment medium medium Germany, Italy, France Pollution Control Equipment high medium Germany, France, Sweden Laboratory Scientific Instruments medium medium Germany, Japan, U.K. Analytic Process Control Instr. medium high Germany, France, Japan Quality Control Instr. (non-chem) high medium Germany, U.K., Japan Renewable Energy Equipment low medium Germany Security & Safety Equipment medium medium-high Germany, France, Italy Sporting Goods & Recreation Eq. low high Germany, Taiwan, Italy Apparel low high Germany, Italy, China Industrial Chemicals medium medium Germany, Italy, France Dental Equipment & Supplies medium medium Germany, France, Far East Drugs & Pharmaceuticals high high Germany, France, Italy Automotive Parts & Service Eq. low high Germany, France, Italy Plastic Materials & Resins low high Germany, France, Italy Electrical Power Supplies high medium Germany, Japan, France Building Products high low Italy, Germany, France Horsemeat low high Canada Australia Argentina Wine Coolers low medium (not yet avail. on market) Wine medium high France, Italy, Spain Fresh Green Asparagus low low Italy, Spain Sweet Corn low high France, Hungary, Italy Pet Food medium high France, Germany, Denmark Beef high high Brazil, Argentina, Uruguay Raw Tobacco low high Germany, Brazil, Italy - Infrastructure Situation Re: Goods/Services Distribution Switzerland's infrastructure is as modern and well-developed as any in the world. The country has an extremely dense and efficient rail network, an extensive road system (complete with tunnels to compensate for the mountainous terrain), two major international airports (Zurich, Geneva) and several smaller airports also with international connections, and even a marine with some 30 ocean-going vessels, and a more extensive riverain service with connections to the North Sea via tugs and barges on the Rhine river. The port of Basel is a major terminus for goods handling, with efficient connections between rail, road and water. Custom bonded warehouses and duty free areas exist in and around all major cities. - Major Infrastructure Projects Underway As noted in section I, current Swiss major projects are intended to upgrade or enhance the already existing infrastructure, and are focused on the transportation sector. These include: NEAT -- Construction of a transportation tunnel for enhanced movement of goods and persons on the European-wide north-south transport axis, valued at some $12 billion. Swiss voters approved construction of the NEAT in a referendum in September 1992, and construction of a first "test tunnel" began in September 1993. The project has become even more important following another Swiss referendum in the spring of 1994, which will limit international truck traffic on Swiss highways. Due to the European nature of the project, competition from European companies will be stiff, but U.S. companies competent in computerized traffic control systems, related signalization, and software, as well as heavy construction and drilling machines may find a competitive niche. The project will likely be ongoing through the year 2006. Swissmetro -- Construction of a high-speed, magnetic underground passenger transportation system, valued at some $8.3 billion. The ambitious project has attracted considerable attention, due to the magnitude of the project and the nature of the as yet unproven technologies. Nay-sayers equate the project to a pipe dream, but there are several strong supporters in high levels of the Swiss government. The fact that the German government recently approved funding for a similar mag-lev line in Germany gives hope to the Swiss project proponents. The Swissmetro project is currently in the feasibility study phase. Rail 2000 -- Upgrade of the highly-developed and extensively-used Swiss rail network, valued at some $5.3 billion. Work is expected to continue through the year 2005. The potential for U.S. company participation is particularly promising in computerized traffic control systems, related signalization, and software. FLORAKO -- A project to upgrade the Swiss military early warning and air traffic control systems by the year 2000 is well underway. U.S. company Hughes was shortlisted, along with French company Thompson CSF, in March 1994, and the two are currently preparing their proposals. A final decision by the Swiss is not expected before 1995. The estimated value of the project is $200 million.