UPDATE 1-Swiss stop short of tightening commodities trading rules
* Government seen wary of driving companies to Asia
* NGOs had pushed for binding transparency measures
* EU and U.S. pursue tough anti-corruption rules
By Emma Farge
GENEVA, March 27 (Reuters) - A Swiss government investigation into the country's $20 billion commodities sector has stopped short of proposing any new or tighter rules on trading companies as it seeks to prevent departures to Asian finance centres.
The long-awaited report published on Wednesday said that the sector's 500 or so companies and about 10,000 employees contributed roughly 3.5 percent of Switzerland's GDP and that the country needs to regulate the sector without chasing them away.
Switzerland, home to commodities giants such as Glencore and Cargill, commissioned the report last year after left-wing politicians said that the traditionally secretive sector exposed the country to risks to its reputation.
Geneva alone accounts for about a third of daily volumes of physical oil.
"There is no evidence, at present, of a general trend amongst companies to move away from Switzerland, but much will depend on whether Switzerland succeeds, also in the future, in providing a competitive legal and economic setting for conducting business," the report said.
"Switzerland thus faces the challenge of maintaining and strengthening the features that make it an attractive and reliable business location, including the competitiveness of its tax regime and the efficiency of its financial centres."
The content of the report is in line with previous comments from Swiss officials, who have said that commodities companies should police themselves.
Yet it comes as a disappointment for non-governmental organisations that had sought tough transparency measures for the commodities trading sector.
"Just a dialogue without a final goal for binding measures for the trading sector doesn't make much sense," said Lorenz Kummer, policy adviser at SWISSAID.
"There have been some threats that other centres like Singapore are becoming more attractive and I think that is playing a role for the government."
The Geneva Trading and Shipping Association, which had previously said it was willing to help develop non-binding transparency standards for the sector, said in a statement: "Given the international character of commodity trading activities, unilateral regulation from Switzerland would be ineffective."
The report's 17 recommendations, which were adopted by Switzerland's Federal Council, mainly sought to reinforce existing standards and support international efforts to strengthen transparency without promising unilateral action.
The report said the industry faces real and reputational challenges, such as human rights, environmental protection, transparency and corruption, but that such questions must be dealt with "in a constructive and sufficiently nuanced manner".
Switzerland also has a strategic interest in supporting the sustainable development of the industry, it said.
The pressure to regulate the sector comes as the United States and the European Union pursue tough new rules for resource companies in an attempt to reduce corruption.
The Swiss cabinet in December rejected a motion that would force miners and private trading companies to declare payments made to resource-rich countries.
Some Swiss commodities traders have in the past made headlines for trading with Iraq during the United Nations' oil-for-food programme.
More recently, Swiss authorities launched an investigation last year into a former employee of Gunvor for suspected money laundering in the Republic of Congo's oil sector.
Gunvor is a plaintiff in proceedings and is not itself a subject of the investigation.
Switzerland also faces criticism from the European Union for its system of cantonal, or state, tax regimes that offer lower taxes to companies such as commodity trading houses sourcing revenue from abroad.
It is due to present the EU with a proposal on Swiss tax reform by the middle of this year.
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