American Swiss Foundation

Switzerland and the European Union: Balancing Sovereignty and Ever Closer Ties

Switzerland is located in the heart of the European Union, but is not a member itself. Trade, legal, and financial ties between Switzerland and the EU are strong, though the relationship is not without challenges. Negotiations on an EU-Swiss framework agreement, for instance, came to an impasse in 2018. In November 2020, Bern contacted the EU to resume negotiations.

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By Karina Rollins

The 27-member European Union is Switzerland’s main trading partner. More than half of Swiss exports go to the EU—and nearly three-quarters of Switzerland’s imports come from the EU.

Surrounded by four EU states—Germany, Austria, Italy, and France—Switzerland maintains a bilateral relationship with the EU, meaning that the EU and Switzerland negotiate separate agreements for separate issues.

Enter the proposed framework agreement between Switzerland and the EU—intended to replace the 120 existing bilateral agreements—which would bind Switzerland more closely to the EU.

Background of Swiss-EU Ties

Switzerland and what is today the European Union have cooperated on trade since the 1972 Free Trade Agreement between Switzerland and the European Economic Community (EEC), the precursor to the EU.

In a 1992 referendum, the Swiss narrowly rejected the plan for Switzerland to join the European Economic Area (EEA), which would have granted almost complete access to the European single market, but would have required Switzerland to adopt part of EU law. (The European Union was formally established by the Maastricht Treaty that same year.) In 2001, Swiss voters rejected the citizens’ initiative Yes to Europe!—which called for EU membership—with a resounding 77 percent.

It has become clear that the Swiss want close ties to, and cooperation with, the EU—in September 2020, nearly 62 percent of voters rejected a proposal to end free movement and immigration from EU countries—but that they do not want to give up their sovereignty and political independence.

The Swiss-EU Framework Agreement

Four years of negotiations—from 2014 to 2018—failed to result in the signing of the existing draft framework agreement, and negotiations came to a halt. After the stalled negotiations, Swiss-EU ties were strained, and the EU even ended its formal recognition of the Swiss stock exchange.

Public Opinion. The Swiss public is lukewarm about the framework agreement. In 2019, two-thirds of Swiss voters were skeptical of any agreement that would redefine Switzerland’s relationship with the European Union. In 2020, 65 percent of the Swiss favored expanding the relationship with the EU—but not through an overarching framework agreement. About half want to expand relations through bilateral treaties.

Entrepreneurial Opinion. In the Swiss business world, resistance to the existing draft agreement has been growing, and some entrepreneurs as well as some politicians have joined the new Autonomiesuisse initiative. As the name of the initiative suggests, its main concern is with “questions of sovereignty”—such as whether Switzerland would receive neutral verdicts before the Court of Justice of the European Union. The correction that Autonomiesuisse suggests is to allow Switzerland to opt out of new EU laws until there is a political resolution, such as through a referendum.

Government Opinion.The Swiss government, for its part, paints the current draft agreement as strengthening bilateral ties. In November 2020, Bern initiated contact with the EU to resume negotiations. The EU has been seeking a framework agreement with Switzerland for more than a decade.

While the Swiss government did not offer details, it is to be assumed that it will continue to seek clarifications on past sticking points, such as state subsidies, EU citizens’ access to Swiss welfare benefits, and protecting Swiss workers’ high wages from competition by cross-border workers on temporary assignments.

The agreement—officially titled the EU-Switzerland Institutional Framework Agreement—would more or less replace the existing bilateral treaties. The agreement would preserve the main market-access agreements between Switzerland and the EU, acting as a kind of “roof” for these agreements. They pertain to (1) free movement of persons, (2) technical and trade barriers, (3) agriculture, (4) surface transportation, and (5) air transportation.

Sticking Points. Two overarching issues had previously prevented agreement on a Swiss-EU framework treaty:

  • Misalignment of Swiss law with the evolving law of the EU’s single market. Misalignment of laws could lead to distortion of competition if Swiss companies were allowed continued access to the EU single market without having to abide by the same rules as their EU competitors; and
  • Lack of a regulated dispute-settlement mechanism. While both the EU and Switzerland can bring up conflicts with relevant committees, these committees allow the two sides only to make consensus decisions—which means that many a dispute remains unsettled for years.

Of many disagreements on specifics, there were five major sticking points:

  • State subsidies. Switzerland’s cantonal governments, especially, worry that the subsidy rules of the framework agreement would have far-reaching effects on Switzerland’s economy;
  • Wage protections. Unions and parts of the Social Democratic Party do not want existing protections—such as “equal pay for equal work”—to be placed under framework rules; and the Swiss worry that their high wages may be in danger from cheaper EU competition, especially from temporary workers;
  • The EU’s “Union Citizens’ Directive.” The EU maintains that this directive is a progression of the existing right to free movement of persons in the Schengen Zone (of which Switzerland is a part), and that Switzerland should long since have adopted it. The directive places Switzerland in a precarious situation: It would extend entitlements of EU workers in Switzerland who become unemployed to claim Swiss social services; it would also make deportations more difficult;
  • Foreign law, foreign courts. Critics maintain that the framework treaty curtails Swiss sovereignty, as Switzerland would have to acquiesce to EU law; and
  • The “guillotine clause.” Should the framework treaty be agreed and later terminated, a termination clause (the guillotine clause) would also cancel any market-access agreements that were concluded while the framework treaty was in force. (This guillotine clause would not automaticallyterminate the existing market-access agreements. However, these agreements would be suspended if a settlement could not be negotiated within three months after a termination of the framework treaty.)

Major Swiss–EU Agreements 

Bilateral agreements allow Switzerland to work closely with the European Union. By entering into specific contractual agreements, both Switzerland and the EU gain market access, and collaborate on key issues:

  • The 2002 Bilateral Agreements I—a package of seven bilateral agreements—led Switzerland toward more economic integration with the EU. One of the most significant Bilateral I agreements is the Agreement on the Free Movement of Persons, which made it easier for EU citizens to work, live, and buy property in Switzerland, and vice versa.
  • The 2004 Bilateral Agreements II expanded economic integration to industries not included in the Bilateral Agreements I, such as food and tourism, and established political cooperation on security, tax and financial fraud, asylum laws, the environment, and retirement issues.
    • With the Bilateral II agreements, Switzerland paved the road to membership in the Schengen/Dublin Association Agreement, which Switzerland would formally join in 2008. The Schengen agreement, which took effect in 1995, established a group of European countries among which border controls were abolished. The 1990 Dublin agreement is an EU law that determines which member nation is responsible for processing asylum requests from non-EU refugees and migrants. (Click here for details.)
  • The 2012 agreement on Swiss cooperation with the European Defence Agency (EDA) in the armaments sector is intended to strengthen Switzerland’s economic, research, and technology position.
  • The 2015 Automatic Exchange of Information (AEOI) agreement is intended to prevent cross-border tax evasion. Since 2017, Switzerland and the 28 EU states (27 states, post-Brexit) have been collecting citizens’ account data; the exchange started in 2018.
  • The 2016 European Asylum Support Office (EASO) agreement is intended to support Schengen states whose asylum systems are especially strained, and to help make the Dublin system fairer and more efficient.

Before the European Union: Major Swiss–EEC Agreements

Today’s Swiss-EU trade relations are based on major agreements between Switzerland and the European Economic Community (EEC), the precursor to the EU:

  • The 1972 Free Trade Agreement (FTA) created a free trade zone for industrial products between Switzerland and the EEC, and governs the bilateral trade in processed agricultural products. This FTA remains one of the main pillars of trade between Switzerland and the EU today.
  • The 1989 Insurance Agreement allowed Swiss insurers to open agencies and branches in the EEC, and EEC (now EU) insurers have the same rights in Switzerland. The agreement applies to casualty insurance—such as homeowners, motor vehicle, or travel insurance. (Life and pension insurance are excluded from the agreement.)

Switzerland is—along with non-EU members Iceland, Liechtenstein, and Norway—a member of the European Free Trade Association founded in 1960.

What Now?

In 2019, Swiss Foreign Minister Ignazio Cassis said that a quick resolution of the stalled EU-Swiss deal would be a miracle. Might the resumed contact between the two sides now result in one? Sovereignty is a matter the Swiss take seriously—and ever-increasing ties with the EU require ever-more careful balancing of complex and intertwined issues. Stay tuned.

 

Additional information:

“Switzerland and the European Union,” Swiss Federal Department of Foreign Affairs

Trade with Switzerland, European Commission

“How should Switzerland position itself with the EU?” Five members of Switzerland’s Foreign Policy Commission present their views

EU-Switzerland Institutional Framework Agreement (as of March 26, 2019), European Parliament

“Switzerland’s European policy: Institutional agreement,” Swiss Federal Directorate for European Affairs

 
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