SWEXIT-PROOF

Soon after the initial shock over Britain's exit from the EU settled down, a new problem emerged in the very heart of Europe.

Switzerland announced that it was withdrawing from the negotiation process to conclude a framework agreement with the EU, which was intended to make their relations systemic and lay a unified legal basis for the future.

Distant collaboration

Switzerland and the EU have concluded 120 agreements since the signing of the Free Trade Agreement in 1972 with the European Economic Community (the predecessor of the EU) and after the Swiss voted in a referendum against joining the European Economic Area (EEA) in 1992. These agreements give Swiss companies access to various sectors of the EU's single market. Moreover, the access is so wide that it is Switzerland (together with Belgium and Ireland) that occupies the highest ranks among the EU and EFTA countries (Switzerland is a member of the European Free Trade Association) in terms of the degree of their integration into the EU internal market.

According to a 2019 study, no country receives more from the EU single market than Switzerland. The increase in income received through participation in the single market for an EU citizen is $1,008 per year, while for a Swiss it is $3,499.

The EU is Switzerland's most important trading partner - 42% of exports and 50% of imports. Switzerland, in turn, is the EU's fourth largest trading partner after China, the US and the UK. More than 1.4 million EU citizens live in Switzerland and about 400,000 Swiss have settled in the EU. All this shows that Switzerland only benefits from access to the EU market.

Yet, for 30 years in Switzerland, there have been discussions about whether to deepen cooperation with the EU right up to joining it, or to stay away from the integration process. The issue of cooperation with the Union has already been put to referendums several times, and each time the result was the same: to closely cooperate with the EU, but stay aside from it as much as possible without compromising own economic interests.

Agreement of discord

As historian Claude Longchamp writes in his book on the history of relations between Switzerland and the EU, “from the very beginning, everyone understood that one day the number of bilateral agreements would exceed a reasonable number. You can, of course, try to literally put every aspect of such a diverse and unpredictable life in the cage of a separate legal act. But how viable is such a strategy? The presence of a certain common document, which would formulate the basic principles of cooperation between two so different counterparties, suggested itself. "

There was a need for a basic agreement because there was an understanding of how difficult it was to manage bilateral agreements. They constantly need to be updated, which means endless negotiations. Moreover, if one of the parties cancels or violates one bilateral agreement, the others automatically collapse.

This happened in February 2014, when a majority of Swiss citizens voted in a referendum to restrict immigration from the EU. The decision complicated the relationship. Only then did Bern and Brussels begin to look for ways to stabilise existing agreements and provide conditions for future ones.

As a result, by 2018, when the negotiations were completed, a draft document appeared that covers the five most important areas: free movement of people, mutual recognition of industrial standards, agricultural products, air and land transport.

However, it turned out that the agreement, which was supposed to bring the two parties closer, in fact, alienated them even further. Switzerland has requested a number of conditions that run counter to EU rules, including protecting high wages for Swiss citizens, restricting Europeans' access to the Swiss social security system, and cancelling rules governing state aid.

Brussels, in turn, said that access to the single market requires that all its participants comply with the same rules and have equal obligations, and therefore nothing will be revised.

Brexit’s bad karma

At first glance, the situation has nothing to do with Brexit. Indeed, while the UK is distancing itself from the EU, Switzerland agrees to a rapprochement.

But there are still similarities - in an effort to expand its relations with the EU, Switzerland, like the UK, wants to preserve its sovereignty.

There is another connection with Brexit. When London, like Bern, tried to achieve maximum access to the EU market with minimal compliance with the rules, the 27 member states did not agree to such conditions also because they wanted to demonstrate to everyone else that these requirements were meaningless.

Many generally believe that the negotiations between Brussels, on the one hand, and London and Bern, on the other, are so interconnected that they should be considered as a whole. The difficulties of Brexit are largely related to the dispute over the negotiations with Switzerland, and the EU's divorce from the British complicated Bern's negotiations with Brussels. The EU did not want to encourage Britain to follow the Swiss path of concluding "bilateral agreements", and Switzerland did not want to show weakness in front of London, so that there were no temptations to "learn from experience."

As a result, Switzerland has been deprived of the opportunity to obtain the individual agreement to which it believes it is entitled. And which, quite possibly, under other circumstances, it would have achieved.

Thus, two years passed in complete uncertainty. When the Swiss population voted for freedom of movement between Switzerland and the EU last fall, it seemed that negotiations between Bern and Brussels could finally get off the ground.

But it seems that opposition to the agreement within Switzerland still prevailed, and the government decided to completely abandon it.

No one is sure

Both the right and the left in Switzerland criticise the agreement. The radical right-wing Swiss People's Party, which has a majority in parliament, opposes the agreement. According to its leaders, it is about "restarting the neo-colonial European economic space", and this treaty is nothing more than "subordination" and "surrender of Switzerland."

In turn, social democrats and trade unions are afraid that the inflow of cheap labour without appropriate measures to protect salaries (the highest in Europe) will hit the interests of many citizens of the country.

In addition, sceptics say, according to the draft agreement, the European Court will be the last instance in resolving disputes. This means that "foreign judges" will impose EU laws on Switzerland.

Any decision of a nationwide scale in Switzerland is made by referendum. Therefore, to understand the actions of the country's government, one must know the mood of the people. According to the latest polls, although almost two-thirds of Swiss consider it necessary to develop relations with the European Union, only half agree that a framework agreement is the best way to achieve this. So no one is sure of the results of the vote.

New mandate is necessary

Switzerland's withdrawal from the agreement, which would strengthen ties with theEU, its largest trading partner, will decrease the country's economic growth, according to Fitch. One of the reasons is that the uncertainty in relations with the EU will make Switzerland less attractive for doing business.

The EU has already stated that it was not interested in the endless extension of each of the 120 sectoral agreements. In May, for example, an agreement on standards for medical devices expired, and Swiss exporters immediately lost their privileged direct access to the European market.

Any new access to the common market, such as the connection to the electric power sector, can also be blocked for Switzerland.

There is one more problem. Due to Switzerland's unilateral termination of negotiations on the agreement, the mandate of the European Commission to negotiate with Bern will automatically expire. And if Switzerland wants to negotiate again, Brussels will first have to get a new mandate from all the 27 EU member states, which can take years.

Plan B

The Swiss government is actively engaged in the analyses of how the current bilateral relations between Switzerland and the EU "can be stabilised through the introduction of possible changes and additions to the national legislation of the Confederation." In other words, Bern is now concerned with the development of a mechanism for unilateral adaptation of Swiss legislation to EU norms, which the government of Confederation entrusted to the Ministry of Justice. This is the so-called Plan B, which was launched in mid-May, literally a week before Bern's official announcement of the refusal to negotiate with Brussels on a framework agreement.

The idea behind this strategy is to try to win over the EU and win its favour by unilaterally implementing those provisions of the framework agreement that have not previously caused disagreements between Bern and Brussels.

Muscle flexing

There is one significant difference in this whole story from the EU-UK conflict. On both sides, there is no doubt that Switzerland in the very near future will have to go through a "period of frost, when Bern will feel cold from Brussels. But unlike Brexit, Bern and Brussels will be able to return to "existing agreements that allow one to breathe and not panic."

In the coming weeks and months, both sides are likely to flex their muscles to strengthen their bargaining power. But no one will go to weaken ties, and even more so to break them. Thus, the situation is Swexit-proof.