# 2 / 2022

Swiss – EU relations: it is now time to act

After the breakdown of negotiations: specific demands of Swiss business

For an active European policy

economiesuisse, in cooperation with its members, has drawn up key demands for Switzerland’s European policy. The central question is what the economy will need from European policy in the next two to three years and where exactly the priorities must be set. In order to achieve timely solutions in the prioritised areas, action must be taken now. A policy of ‘wait and see’ until after the federal elections in 2023 is clearly not acceptable. After unilateral termination of the negotiations on the Institutional Framework Agreement, the Federal Council is now responsible for ensuring the future viability of European policy.

The demands are divided into four thematic areas:

  1. Decisions of principle
  2. Priority areas and mitigation measures
  3. Institutional demands
  4. Call for a targeted structural policy to strengthen the export economy

Decisions of principle by the Swiss government on the unblocking of European policy

It is time to act now. A stalling of European policy will clearly put Switzerland at a political and economic disadvantage. Therefore, the Swiss business community demands that the Federal Council take immediate action to unblock its European policy. The pursuit of the bilateral approach is a recognised and widely supported objective of Swiss European policy – the EU has also expressed its interest in continuation of the bilateral path on several occasions.

Unblocking requires three fundamental decisions to be made by the Federal Council:

1. Continuation of the five market integration agreements

  • The Federal Council faces a basic question on the continuation of the five existing market integration agreements. If it wants to continue with these agreements, it must make a clear commitment to resolution of the institutional issues with the EU. After all, there has not been a single indication since 2018 that the EU is willing to extend the existing market integration agreements without clarification of the institutional questions.
  • If the Federal Council decides not to continue with the market integration agreements, it must develop an alternative European policy for the regulation of economic relations. This must also include an updated assessment of a comprehensive free trade agreement, with the advantages and disadvantages in terms of state policy and the economy.

2. Active development of a common agenda

  • Based on the common strategic interests of Switzerland and the EU, the Federal Council must quickly develop an agenda and a proposal for the EU. It should indicate both short-term priorities for the next two years and medium-term perspectives.
  • With a view to the medium-term timeline of this agenda, the economic issues of the bilateral path should be defined from the perspective of the fundamental, strategic goals of both sides. The Federal Council and the EU should define in concrete terms how they intend to cooperate on common strategic interests in industrial and financial sectors, research and innovation, infrastructure (land and air transport, electricity supply) and climate and health policy.

3. Active assertion of interests

  • The Swiss business community demands the continued application of all bilateral agreements already in force (pacta sunt servanda).
  • If the EU continues to refuse to apply the existing agreements, all legal measures must be examined and used. This includes legal support for companies and organisations willing to take legal action to defend themselves against discriminatory measures by the EU. In the event of continued or future discrimination, Switzerland should also make use of the existing option to take legal action before the European Court of Justice or the WTO.

Priority areas and mitigation measures

Priority areas

For economiesuisse, solutions in four areas are a priority for the next two years:

  • Equivalence recognition in financial regulations for third countries (stock exchange regulation, financial services) and market access for banking and securities services
  • Measures to reduce technical trade barriers in medical products, other industrial products and production processes for medicines
  • Research and industrial innovation promotion
  • Electricity market and supply security

The blockage in these four areas harms Swiss companies significantly as well as their suppliers and customers in the EU. Switzerland as a research location is also seriously damaged. The economic harm has already occurred and will continue to occur over the next two years if the EU continues its course of non-application of existing agreements. This damage cannot simply be passively accepted, but must be minimised through a package of measures.

Mitigation measures in the priority areas

The immediate and direct harm resulting from Switzerland’s unilateral termination of negotiations must be minimised as quickly as possible through the following mitigation measures:

  • Swiss stock exchange and financial sector: The fiscal and regulatory framework must be improved to strengthen its international competitiveness. Furthermore, improvements in cross-border market access for banking and securities services from Switzerland should be achieved through practicable approaches in accordance with the Federal Council’s financial market strategy (December 2020).
  • Medical devices: No rules will be introduced to MepV that go further than the MDR and render trade more difficult (no ‘Swiss Finish’).
  • Research and business innovation promotion: If the EU continues to refuse Switzerland association to the Horizon Europe research framework programme, Switzerland should invest additional funding in research and innovation promotion over the next 10 years. These funding resources are to be used to promote projects both in Europe and in third countries (for projects with a sufficient link to Switzerland). In-house innovation promotion must be rapidly expanded in cooperation with the leading business locations.
  • Energy policy: Without an electricity agreement with the EU, Switzerland needs a fundamental adjustment of its energy strategy. In addition, it needs investment in grid stability.

These mitigation measures must be introduced now, as it will take several years before European policy is fully deblocked.

Furthermore, in the area of free movement of workers, the business community is calling for efficiency gains in wage protection and accompanying measures by means of digitalisation. Digitalisation should simplify registrations, verification and controls, increasing the effectiveness of the measures and reducing costs. For instance, thanks to digitalisation, the pre-registration period for EU companies that offer services in Switzerland can be shortened considerably.

Institutional demands: economy needs legal certainty

Swiss companies need legal certainty in terms of economic relations with the EU. Thus, clarification of the institutional aspects is essential.

Sectoral approach in combination with general agreement to regulate market participation

  • It is the Federal Council’s responsibility to strive for and negotiate institutional solutions with the EU. Here, there are several possibilities.
  • Since the institutional rules concern only the existing five market integration agreements (free movement of persons, overland transport, air transport, technical barriers to trade, agriculture), these can be regulated through specific agreements.
  • In addition, basic rules applicable to all market integration agreements can be laid down in a general market participation agreement.

Synchronisation of market integration agreements and equivalence recognition

  • For companies, the timely updating of the market integration agreements to the relevant EU law is central to participation in the internal market. Problems arise for companies if the EU blocks the updating process.
  • This synchronisation is particularly important in the case of technical trade barriers and land and air transport.
  • Timely recognition of Swiss rules is also important in equivalence procedures.

Dispute resolution procedure in the interests of Switzerland

  • A dispute settlement mechanism is equally important: if Switzerland and the EU cannot reach political agreement on a contentious issue, a balanced legal procedure to settle disputes is necessary.
  • Politically motivated retaliatory measures by both sides at the expense of companies must be avoided at all costs.

Call for better framework conditions for the export industry

Since the export economy is affected the most by the continued EU irritants, structural measures are needed to strengthen the export industry in a targeted manner. This becomes all the more urgent the longer the EU refuses to apply existing agreements. For Switzerland's foreign trade, in addition to relations with the EU, multilateralism (WTO) and bilateral relations with other important trading partners are also strategically highly relevant. Among the latter, the US and China in particular are likely to continue to gain in importance. On these grounds, the following fields of action can be outlined:

  • Improvement of the good framework conditions for taxation in Switzerland as a business location, taking into account OECD standards.
  • Consistent expansion of Switzerland's free trade network: conclusion of new agreements (in particular Mercosur, Malaysia, Vietnam, US, India, Australia) and modernisation of existing free trade agreements (in particular Canada, China, Mexico, Japan, South Korea). In the case of free trade agreements, the linking of rules of origin (cumulation) with partner countries should be sought.
  • Agreements in the field of digital trade (multilateral and bilateral, stand-alone or as part of free trade agreements).
  • Prompt and proactive exploration of participation in plurilateral free trade areas with a focus on the Pacific/Asia/Africa (e.g. RCEP, CPTPP, AfCFTA).
  • Participation in relevant plurilateral and trade facilitation WTO initiatives (e.g. Healthcare Products Initiative).
  • Reduction of non-tariff trade barriers through global harmonisation (e.g. GHS).
  • Greater emphasis on foreign trade priorities: as Switzerland depends on a strong export economy, purely domestic interests must be considered to a lesser extent in future, such as agricultural protectionism, renunciation of technology bans (e.g. genetic engineering bans), renunciation of unilateral measures (‘Swiss Finish’, food regulations), renunciation of export bans/restrictions (e.g. plant protection products), examination of trade union power and financial interests, to name just a few.
  • Rapid implementation of the agreed abolition of all import duties on industrial products.
  • Increased attractiveness of Switzerland as a business location for foreign direct investment. Renunciation of state investment controls and other protectionist measures.
  • Digitalisation of administrative procedures in order to reduce costs for export companies.
  • Expansion of export promotion.
  • Further development of consular protection for companies.