# 04 / 2018

Brexit: a “moving target” for the Swiss business sector too

Ongoing uncertainty for Swiss companies

The progress of the Brexit negotiations between the EU and the UK also has impacts on Switzerland. Swiss companies will remain closely tied to both partners in future, either directly or via their integration into international value chains. However, in many regulatory fields, Switzerland is oriented on the legislation of the EU, which is by far its most important and closest trade partner. This is demonstrated, for instance, by the fact that roughly half of Switzerland’s imports and exports are semi-finished products. For example, it may be that primary materials from China are processed in Poland and turned into a machine part in combination with other components from Germany. This item is then integrated into a system in the UK and subsequently exported to the USA as a finished product.

Figure 5

Greater regulatory divergence and new trade barriers between the EU and the UK would thus represent a challenge, especially for small and medium-sized Swiss companies, and would create additional costs and red tape. The potential consequences include multiple certifications for products to be admitted to the market, complex customs formalities, delayed deliveries and in some cases even the loss of orders. From an economic point of view, the more a contractual solution between the EU and the UK differs from the present-day status, the more problematic it becomes. The following scenarios are possibilities:

Table 3

Switzerland also has to rely on an interim solution with the UK because it is currently not possible to negotiate the future relationship. This is important because many Swiss companies are currently being confronted with legal uncertainties in the bilateral relations with the UK. For example, the conclusion of agreements and partnerships with a duration beyond Brexit entails legal uncertainties. On the other hand, investments and decisions regarding business locations cannot be put off indefinitely.

Hence, in the context of Brexit the future competitiveness of Switzerland as a business location and its companies will be determined by three central questions:

  1. Will Switzerland be able to conclude suitable bilateral agreements with the UK without delay (e.g. in the areas of land transport, civil aviation, trade in goods and services, movement of persons)?
  2. Will the EU and the UK be able to structure their future trade relations so that new obstacles can be avoided wherever possible?
  3. Will Switzerland, the UK and the EU be able to minimise the divergence with respect to regulatory and technical issues relating to cross-border value chains (e.g. mutual recognition of standards, rules of origin and data protection)?

Figure 6

Clearly, not all the levers for securing at least the status quo in bilateral relations with the UK lie within Switzerland’s direct sphere of influence. It is not only a bilateral solution with the UK that is of central importance, but also the outcome of the negotiations between the EU and the UK. The agreement reached between the EU and the UK on a transitional period until the end of 2020 is an important positive signal, but its ratification can only be effected shortly before March 2019. Until then, uncertainties will continue to exist with regard to the transitional period.

Action by the federal administration and the business sector

In the wake of the Brexit decision, the Federal Council acted swiftly and formulated specific objectives in the framework of a “mind the gap” strategy. The goal here is to replace the legal foundation of Switzerland’s bilateral relations with the UK in good time. The legal foundation at present is rooted in the existing agreements with the EU. A steering group headed by the Directorate for European Affairs and comprising representatives of the affected federal departments is responsible for coordinating these activities within the federal administration. The main focus of its activities and periodical talks with the British administration is on maintaining the status quo in Switzerland’s contractual relations with the UK. The aim is to keep the ongoing dialogue sufficiently flexible so that solutions can be found in good time that are based on a legal harmonisation with the EU. Additional issues are to be addressed as necessary, for example in the area of finance.

economiesuisse is following the activities of the federal administration and maintaining close contacts with partner associations in the UK, as well as with the relevant administrative units on both sides of the Channel. It is also actively involved through the Confederation of European Business (“businesseurope” for short). Immediately after the result of the Brexit referendum of 23 June 2016, economiesuisse set up a workgroup and, together with various industry associations, drew up a comprehensive outline plan defining the priorities from the point of view of the business sector. Another workgroup is focusing on the specific interests of the financial services sector in the context of Brexit.