The cost of neutrality: Swiss defense industry ‘just losing our market’ amid Ukraine conflict

PARIS — How do you ensure your defense industry remains competitive and, at the same time, tow a hard line on historic “neutrality”? This is the quandary currently facing the Swiss parliament where there are heated debates over waiving a ban on the re-export to Ukraine of Swiss-made weapons.

That quandary is already affecting the local defense industry as war rages in eastern Europe, and by extension is making traditional customers for Swiss arms wary. Or, as a top industry official put it, “we are just losing our market.”

The official, secretary general of the ASD Swiss defense industry federation Matthias Zoller, told Breaking Defense that in a recent meeting with Swiss economics minister Guy Parmelin, a dozen CEOs of defense companies had given recent examples of situations in which they had expected to have been asked for requests for proposals from abroad and didn’t get them.

“Some even got letters asking if their company could guarantee that they could share and deliver weapons in case NATO allies had to invoke Article 5 of its founding treaty … but no Swiss company can give this guarantee because Swiss law not only prohibits giving to other countries but also prohibits delivering to countries involved in an internal or external armed conflict,” Zoller said.

So far, there’s no indication the war in Ukraine will spill into a conflict directly involving NATO and its Article 5 mandate to collective self-defense. But while other Western nations have given generously to Kyiv’s military defense, pressure is increasing on Switzerland to, at least, allow Swiss-made arms already sold to foreign militaries to be re-exported to Ukraine.

“Nobody is asking Switzerland to deliver arms directly to Ukraine. We understand that this is not compatible with neutrality,” Frédéric Journès, the French Ambassador to Switzerland told the German-language paper NZZ am Sonntag on Sunday. “This is about the re-export of Swiss weapons and ammunition that are in the stocks of our European partners. If these are blocked, that is a problem for Europe.”

A History Of Neutrality

The issue is giving lawmakers a headache as they consider the philosophical ideas of “neutrality” and what constitutes a “defensive” against an “offensive” weapon. “If Ukraine loses the war, European security will be at risk,” Journès said. His comments were echoed by Dutch Ambassador Hedda Samson who said she understood the debate over neutrality but that Swiss authorities should explore all possibilities to support Ukraine.

But the Swiss government wants to make sure it cannot be seen to be taking sides — it has been neutral for over 200 years, ever since the 1815 Treaty of Paris — and that military equipment manufactured in this small, land-locked, Alpine nation does not end up in the wrong hands.

A few high-profile cases over the past years have made it wary. Swiss hand grenades sold to the UAE were purportedly used in the Syrian civil war, Swiss munitions sold to Qatar ended up in Libya and in 2008 Pilatus PC-9 turboprop-trainers were said to likely have been armed in Chad.

With regard to the Ukraine conflict, Switzerland already made headlines in November after refusing to allow the German army to send 12,400 Swiss made shells for its Gepard anti-aircraft tanks to Kyiv. (Germany found a workaround by simply ordering directly from domestic producer Reinmetall.) Since, a new dispute has arisen, this time over the 96 mothballed Leopard 2 battle tanks — originally made in Germany — in the Swiss inventory. Germany would like to buy them back to replace those Berlin has sent to Kyiv.

German Defense Minister Boris Pistorius and his economic affairs counterpart, Robert Habeck, wrote to Swiss Defense Minister Viola Amherd at the end of February assuring her the tanks would not be sent to Ukraine. Rather, they would either remain in Germany or with NATO and EU partners “in order to close the gaps created by the delivery of Leopard 2 tanks [to Ukraine] and to improve the supply of spare parts.”

But in a sign of Swiss squeamishness toward what could be construed as second-hand military support for Ukraine, Amherd responded that the sale can only go through if the tanks are formally decommissioned by the Swiss parliament. Renato Kalbermatten, head of communications of the Swiss Ministry of Defense told liberal German daily Der Tagesspiegel that “what [Leopard-maker] Rheinmetall then does with the tanks is a matter for this company.”

In the case of the tanks, however, the Swiss military also must deal with its own security concerns. Swiss daily Blick reported this weekend that Lt. Gen. Thomas Süssli, chief of the Swiss Armed Forces, believes that “from a military standpoint we need every tank but in the end the decision as to whether or not to sell battle tanks is a political one.”

The Swiss parliament’s security committee will discuss the issue on March 27. Like the general, some lawmakers are expected to argue that Switzerland needs the tanks. But the neutrality argument won’t be far behind. Philipp Matthias Bregy, head of Amherd’s own party, the Centre, said that the committee will not only have to decide whether the tanks are needed but also whether such a sale could be considered as a circular trade “which is delicate from the point of view of the law of neutrality.”

The larger question of the nuance of neutrality is one with which the Swiss population also appears to be struggling. A poll published last week showed 50 percent approved allowing foreign governments to re-export Swiss military equipment to Ukraine, while 46 percent were against and 4 percent undecided. The same poll showed a strong majority in support of the nation’s neutrality with 58 percent believing the country is still neutral and 68 percent believing this stance has a future.

An Industry Stuck In The Middle

The political and philosophical wrangling has left Swiss industry in a tight, confusing position.

There are roughly 1,000 Swiss defense manufacturers and suppliers, many owned by US and European primes, that sell some $2.57 billion worth of equipment annually and provide 14,000 jobs, according to ASD. The Stockholm International Peace Research Institute (SIPRI) reports that Switzerland was the world’s 12th biggest arms exporter in 2019 just behind Italy, Israel and the Netherlands.

Zoller also remarked that export data published today in Switzerland point to a 12.25 percent rise on 2021 figures “but this is deceptive firstly because 2021 figures were 20 percent down on 2020 and secondly much of the 2021 rise is attributable to the air-defense systems we sold to Qatar for the World Cup, so a more realistic figure is a 5 percent rise”… which still points to a 15 percent drop since 2020.

As for Swiss-made equipment being re-exported, Zoller explained there are six different propositions in the works to allow it, “but this is an electoral year and nobody wants to compromise on the solution they have suggested.” He said three proposals were in the form of motions — one of which was discussed Monday and another will be discussed Wednesday — to change the current legislation “but the law would have to be written and then discussed by parliament which is likely to take a long time.”

The other three are in the form of parliamentary initiatives which contain precise wording that would be introduced into the law “and that would be much quicker but will only be discussed in the summer.”

In the meantime, as the neutral nation lies in the shadow of the largest land conflict in Europe since the Second World War, economic minister Parmelin in a statement acknowledged the concerns of industry leaders that “the reputation and image of Swiss reliability could suffer from this situation…”

Or, as Zoller put it:

“We don’t need an exception to a law, what we need is a clear regulation because our problem today is how foreign states see us. If they don’t see us as reliable partners they won’t buy from us.”