Switzerland and the European Union: Can the Delicate Balance Continue?

Located in the heart of Europe, Switzerland has never been a member of the European Union. While trade, legal, financial, and cultural ties between Switzerland and the EU are strong, the relationship is not without challenges. Disagreements on the details of a Swiss-EU framework treaty have led to further challenges: Long-standing negotiations on the treaty came to an impasse in 2018. While Bern contacted Brussels in late 2020 to resume negotiations, the two sides once again did not agree on sticking points—and, as of May 2021, the Swiss-EU relationship faces unprecedented complications.

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By Karina Rollins

After seven years of on-again, off-again negotiations on a new framework treaty between Switzerland and the European Union, Switzerland pulled the plug on May 26, 2021, ending all negotiations.

Switzerland rejects jurisdiction of the European Court of Justice over Swiss matters, as well as a free-movement directive that would offer permanent residence to EU citizens, with access to social security benefits for non-employed residents, such as job seekers and students.

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.Switzerland is one of the most important trading partners for the EU, ranking fourth for exports of goods, third for services, and second for investment. Moreover, the EU has a trade surplus with Switzerland in the order of tens of billions. About 1.4 million EU citizens live in Switzerland, and roughly 340,000 people commute to Switzerland from the EU for work.

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 have bound Switzerland more closely to the EU.

What Now?

After ending the framework negotiations, Swiss Foreign Minister Ignazio Cassis said that parts of the Swiss economy would need to prepare for disruption due to the risk of emerging trade barriers as the existing bilateral agreements fail to keep up with developments. Of immediate consequence is the expiration on May 26, 2021, of regulatory permissions allowing Swiss-EU trade in medical devices. Switzerland had already been working on guaranteeing continued smooth supply of EU medical products.

Georg Riekeles of the European Policy Centre in Brussels has a hostile message for the Swiss: “Many in Switzerland have failed to recognise that after Brexit their exorbitant privileges could no longer be. The consequences of their denunciation will now be felt rather immediately. Bit by bit, the economies will decouple at a cost to Switzerland estimated at up to €1.2bn per year.”

The EU itself has circulated a fact sheet suggesting that Switzerland could lose its “privileged” connection to the bloc’s electricity system, and that the lack of a framework was “hampering access of Swiss air carriers to the EU’s internal market.”

Shortly before the collapse of negotiations, the EU had already warned Switzerland that an agreement was needed soon to avoid “erosion” of bilateral relations. The EU had also already frozen Switzerland’s participation in major EU rail project aimed at transforming the European railway system.

Foreign Minister Cassis’s view is that Switzerland wants “to be treated on an equal footing compared to other third-party states (outside the EU), whether it’s a question of cooperation or the recognition of equal standards.”

Cassis also stated that, “There will of course be a readjustment situation on the part of certain sectors of the industry which will find themselves facing some difficulties to overcome. The federal council will do everything possible to give them a hand, but it is undeniable that it is an effort that the whole of Switzerland must make and not just politics.”

It seems that the Swiss, who value their sovereignty, will have to make some difficult decisions.

As the Swiss Federal Council explains, the framework agreement “would have fundamentally changed Swiss-EU relations.” The Federal Council believes that it is in the shared interest of Switzerland and the EU to continue with their proven bilateral approach even in the absence of the framework agreement. The foundations for this cooperation include the 100+ bilateral agreements.

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. The stalled negotiations strained Swiss-EU ties, and the EU even allowed its formal recognition of the Swiss stock exchange to lapse in 2019.

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.

The Main Sticking Points. Of multiple disagreements on specifics, two major, and related, sticking points led to the collapse of talks on May 26, 2021:

  • “Free movement of persons.” The EU maintains that its Union Citizens’ 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. This issue of free movement of people is likely the main stumbling block preventing the framework treaty.
  • 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. The Swiss also worry that their high wages may be in danger from cheaper EU competition, especially from temporary workers.

Swiss Attitudes Toward the Framework Agreement

As of early May, the majority of Swiss were still inclined to favor a framework treaty with the EU.

Public Opinion. The enthusiasm for a framework agreement is lukewarm, however. 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.

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.

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.

 

Additional information:

No Signing of Swiss-EU Institutional Agreement, Swiss Federal Council, May 26, 2021

EU-Switzerland Relations Head for Trouble as Partnership Deal Unravels, by Hans von der Burchard, Politico, May 26, 2021

Switzerland Pulls Out of Negotiations to Redefine Relationship with EU Over Free Movement Directive, EuroNews, May 27, 2021

Switzerland’s Policy on the European Union, Mission of Switzerland to the European Union

Trade with Switzerland, European Commission

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