Switzerland and the European Union this week started negotiations on new bilateral agreements governing issues such as cross-border crime and trade. Brussels wants Bern to clamp down on cigarette smuggling, which is treated only as a customs offence.
The EU's budget commissioner, Michaele Schreyer, says the Union loses "billions" of euros annually to cigarette smuggling, and that Brussels has made Swiss concessions a precondition for future bilateral negotiations on other issues.
Switzerland has agreed, in principle, to meet the EU's demands. "We have no interest in harbouring criminals and in depriving the EU of income that is rightfully theirs," Hermann Kästli, deputy director of the federal customs office, told swissinfo in a recent interview.
However, correspondents say a key sticking point between Bern and Brussels concerns the scope of any future anti-fraud agreement.
The EU would like to obtain cooperation in every case that is considered fraud under EU law - which includes not only smuggling, but also the evasion of indirect taxes and illegal claims to subsidies.
Switzerland, on the other hand, wants to retain its distinction between an "evasion" of regulations (which includes tax evasion as well as smuggling), and their "fraudulent" violation. To be classified as "fraudulent", cases must involve criminal activities such as forgery.
At present, Switzerland permits judicial assistance to foreign investigators only when the case involves "fraudulent" activity. To meet the EU's demands, Swiss negotiators have offered to extend the list of specific offences which qualify for cooperation and enforcement measures.
Kästli says that in the case of cigarette smuggling and other offences, the deciding factor could be whether an illegal operation is pursued in a "businesslike manner" - rather than whether it is considered fraudulent.
The spokesman for Switzerland's ministry of finance, Daniel Eckmann, told swissinfo that the EU wanted an agreement as quickly as possible. But he said Brussels had to understand that any deal that altered the fundamentals of Swiss law was bound to be overturned by Swiss voters in a referendum.
Swiss banking secrecy, one such fundamental, also hinges on Switzerland's tolerant attitude towards the "mere" evasion of tax laws, as opposed to tax fraud. Banking secrecy laws can only be set aside where fraud or similar major offences such as money laundering can be proven.
Cigarette smuggling has a long history in Switzerland, where tobacco prices have traditionally been much lower than in neighbouring countries. For years before and after the Second World War, families in the south of Switzerland made their living carrying contraband cigarettes across the border to Italy.
In the past decade, however, the illegal trade in cigarettes, and to a minor extent in spirits and subsidised EU meat, has become much more sophisticated. Typically, while the trade is organised from Switzerland, the contraband goods never actually reach the country itself.
Instead, they are directed from producer country in the EU to the Balkans, and then transported by speedboat across the Adriatic into Italy, from where they are sold cheaply in other EU member states.
by Markus Haefliger