Swiss defence industry moving abroad to escape neutrality

Armies around Europe, including Switzerland, are ramping up spending Keystone / Alessandro Della Valle

Swiss entrepreneur Peter Huber is shifting most of his defense contracting business to Portugal, as the neutrality of his home nation threatens its arms industry.

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To sidestep a Swiss law that doesn’t allow locally made arms to be sent to conflict zones, Huber has expanded Systems Assembling’s operations near Porto, producing cables for armoured vehicles and military aircraft. That’s come at the cost of half the 120 jobs at the firm’s Boudry headquarters in the canton of Neuchatel. 

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“Defense customers only placed new orders with us if we could guarantee that our products were not manufactured in Switzerland,” said Huber, the company’s chairman and co-owner.

Russia’s full-scale assault on Ukraine exposed how Swiss neutrality imposes strict export rules for arms, threatening the small but symbolically important industry. Bern was criticised for blocking shipments of Swiss-made weapons to Ukraine, and now Switzerland risks missing out on lucrative contracts as European nations rearm in the face of Moscow’s aggression and tensions with the United States.

Re-export exemptions scrapped

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Switzerland’s arms industry generates just over 0.2% of the country’s economic output and about 14,000 jobs. However, the nation’s “armed neutrality” has magnified the sector’s importance, with Swiss law enshrining the need to maintain an industrial capacity “adapted to the requirements of its national defence.” 

That same law doesn’t allow other governments to re-export weapon systems with more than 50% value of Swiss-made components. Crucially, a clause that allowed the Swiss government to grant exemptions was scrapped by parliament in late 2021, just months before Russia invaded Ukraine.

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The fallout for the industry is being compounded as Europe – by far the biggest market for Swiss arms – ramps up military spending amid concern over US President Donald Trump’s commitment to NATO’s mutual defense clause.

Swiss arms exports slump

Global military expenditure rose more than 9% in 2024, the steepest year-on-year increase since at least the end of the cold war. The US – Switzerland’s number two buyer – has for now suspended the imposition of a 32% import tariff.

While the shares of European defence companies, such as Germany’s Rheinmetall and France’s Thales, have soared this year, the Swiss industry is in retreat. From a record high in 2022, Swiss arms exports slumped 30% to a six-year low in 2024. 

“I don’t know any Swiss defence firm that hasn’t already moved capacities abroad, or has at least a plan B ready,” Huber said.

Switzerland’s stance against the re-export of arms to Ukraine has seen its manufacturers shunned from Amsterdam to Berlin. Last August, Germany’s head of armaments sent a letter to his counterpart in Switzerland, saying Swiss companies would be deliberately excluded from certain purchases.

The outlook is set to worsen in coming years as existing contracts expire and neighbouring countries start producing components that are currently only made in Switzerland, according to Matthias Zoller, general secretary of Swiss ASD, an association representing the security, defense and aeronautics industries. 

Swiss arms blacklisted

“With the billions of European investments we’re set to see over the next years, countries are likely to deliberately cut Swiss-made products out of their supply chain,” he said.

The two Swiss-based companies that produce entire weapon systems — Rheinmetall Air Defence and GDELS-Mowag, a subsidiary of US defense contractor General Dynamics Corp, are increasingly considering other production locations.

“Products from our Swiss production site were blacklisted by many of our European clients,” said GDELS-Mowag Chief Executive Officer Giuseppe Chillari, whose firm specialises in producing armored fighting vehicles. “We can only participate in tenders if we can guarantee that the goods they are buying don’t fall under Swiss export laws.”

That’s forced GDELS-Mowag to move some of its final assembly to Germany, Chillari said.

Rheinmetall has expanded its operations in Switzerland over the past few years, highlighting the advantages of a skilled workforce, moderate taxes and political stability. But the company has built new ammunition-manufacturing capacity at its Unterluess site in Germany, rather than at existing facilities in Switzerland, while certain air-defense customers are supplied from Rome rather than Zurich. 

“The strict interpretation of neutrality as well as the current war material legislation hinder the re-export of war material manufactured in Switzerland on the one hand, but also the supply of NATO countries in the event of a conflict,” the company said.

Rules of warfare changed

Swiss neutrality, enshrined at the Treaty of Paris in 1815, was breached by a policy of granting Nazi Germany and its ally Italy credits to buy weapons during World War II. Now, the right-wing Swiss People’s Party – upset by Switzerland mirroring European Union sanctions against Russia – wants to enshrine “everlasting” neutrality into the constitution. 

That would buttress export rules that have been criticised by the country’s Western partners, and comes at a time when the Swiss government is contemplating closer cooperation with both the EU and NATO.

“Those rules were designed for a world that no longer exists,” said Antonio Barroso, a Geneva-based senior analyst at Bloomberg Economics. “They worked when conflict around the world was dominated by non-state actors, but not for an inter-state war at the edge of Europe.”

Even if Switzerland keeps manufacturing smaller components to circumvent the 50% rule, government agencies warn of national security concerns as the country’s industrial and technological base is hollowed out by an increasing reliance on arms imports. 

“That could potentially impact supply chain security for foreign-produced defense goods in times of crisis,” said Andre Mittmann, head of export controls for defense equipment at the State Secretariat for Economic Affairs.

Such fears have prompted the Swiss government to ask parliament to reinstate its former power for arms re-export approvals. A commission in parliament’s upper house suggested exempting 25 countries including most NATO members from having to obtain permission for re-exports. 

By the time those proposals could potentially take effect, it may be too late for many in the Swiss arms industry, according to Swiss ASD’s Zoller.

“They are aware that what has been lost in productive capacity is unlikely to ever return,” he said.

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