Switzerland: a way out for Britain?
Since Britain’s historic vote to leave the European Union on 23 June, world media outlets and analysts have been speculating how and what the UK’s divorce from the EU would look like.
The May Government has not disclosed details on the kind of relationship they want Britain to have with the EU when it eventually leaves. Will the UK still be in the single market? Will it still be in the customs union? Or will it resort to a simple free trade agreement similar to the one the EU Commission negotiated with Canada?
There are deep divisions in the May Cabinet on how an exit deal should look like. Ministers who backed the Leave Campaign such as Foreign Secretary Boris Johnson are pushing for a so-called hard Brexit, meaning an exit not only from the EU, but from all EU institutions as well. Ministers who backed Remain are calling for a much closer relationship with the European Union, a so called soft Brexit, which would entail continued membership of the customs union. Such a solution would surely guarantee economic stability but may potentially offset what Leave backers were campaigning for, namely unilateral management of trade policy, law making and immigration. European political leaders have repeatedly emphasised that imposing limits on the sacred EU principle of freedom of movement would be nearly impossible while retaining full access to the single market. As a result, the only solution for Britain to impose some limits on migration all the while retaining some sort of privileged access to the market would be a middle ground that would take into account the two diametrically different visions of hard and soft Brexit. In fact, there exists a country that has found such a solution in managing its relationship with the EU: Switzerland.
A bit of history
“The question is what political price Great Britain and Switzerland are willing to pay to limit migration” - Micheline Calmy-Rey, former Swiss President and Foreign Minister.
Switzerland first signed a free trade agreement with what was then known as the European Economic Community in 1972. It included the progressive elimination of all tariffs on imports of goods, which was completed in 1977. It also set up a joint committee whose duty was to oversee the functioning of the agreement. Switzerland was also a founding member of the European Free Trade Association (EFTA), which also included the United Kingdom before it joined the EU. Twenty years later, in 1997, the Swiss government signed a deal to enter the European Economic Area (EEA) and at the same time submitted an official application to join the EU. Later that year, the EEA agreement was rejected through a referendum and all negotiations stopped. In 2001, another referendum requesting the government to open negotiations on the county’s entrance in the EU was rejected by 76.8% of the electorate. In 1994, the EU and Switzerland started to negotiate a series of bilateral agreements that would be implemented on a sector by sector basis.
The first package (Bilateral Agreements I) was signed in 1999, approved via a referendum in 2000 and entered into force in 2002. These measures aimed at approaching the two parties in seven areas: free movement of people, product standardisation, easier access to each other’s public sector markets, agriculture, air transport, land transport and research. These were followed another series signed in 2004. It included among other things the ceasing of systematic border controls and Switzerland’s participation to EU funded programmes such as Erasmus. The first series of agreements were enclosed in a so-called guillotine clause, meaning that if one of the agreements were unilaterally terminated, then all of them would automatically collapse. This was intended to avoid a situation where the Swiss could “cherry pick” EU legislations that favoured them while discarding those that don’t.
In 2014, a referendum requiring migration quotas was approved, which almost directly contradicted the agreement on free movement. Since then, Swiss politicians have been struggling to find a way of reducing the number of people entering the country (which is now roughly five times as large compared to 2000) while being careful not to trigger the guillotine clause. In September 2016 a compromise was finally approved by the parliament. Swiss businesses would prioritise citizens living in the country over Europeans when looking to hire new workers. This proposal has been so far positively met by EU officials but does not respect at all the constitutional change approved in 2014 (which explicitly talks of quotas).
There are surely some drawbacks...
The Swiss model has certainly a number of disadvantages. Firstly, as a result of the bilateral agreements, Switzerland can theoretically choose which EU legislations to apply but usually, it simply “copies and pastes” European legislations without having a say on how they are designed. Despite being represented in a committee with an equal number of Swiss and European officials, the country usually finds it complicated to resist EU demands. In addition, the country does not have full access to the market: a number of Swiss banks and institutions currently operate through subsidiaries in London since they do not have passporting rights for the bloc. Since 2014, Switzerland and the EU have been negotiating a new institutional agreement through which the EU requests that Switzerland accepts any evolution of EU law automatically. Such an agreement would probably never be accepted in a referendum, meaning Switzerland could be cut off new EU developments such as the energy market.
...But some advantages too
Despite these disadvantages, the Swiss model also has some advantages. Since the country in not in the customs union, it has control over its trade policies. Over a number of years, Switzerland has signed a series of free trade agreements with more countries than the EU. These include China and several Middle Eastern countries, which in recent years have become very important clients for the Swiss watchmaking industry. Not being in the customs union also means that Switzerland has been able to deregulate certain segments economy, such as the financial industry, which has attracted investments from hedge funds. In addition, unlike Britain, Switzerland hasn’t enshrined the supremacy of EU law in its constitution, meaning that the country can terminate those agreements whenever it wishes. In terms of sovereignty, this would perhaps be more acceptable to Britain than its current agreement.
The Swiss model is far from perfect. Despite not being in the EU, the country is still greatly influenced by EU directives and regulations. However, Switzerland has also benefited from its limited access to the single market by forging strong commercial links with other countries. What is most important to note, however, is that the country’s relationship with the bloc has not been designed to last on the same terms forever. On the contrary, it has been constructed over many years of tough negotiation and endless bargaining. The difficulty that Switzerland is having to be involved in the evolutions of the single market without giving up any more sovereignty is a clear indicator of the difficulties ahead for Britain. Whatever the future UK-EU relationship is, it will also need to be constructed over time and, just like Switzerland, negotiations will without a doubt result in an infinite tug of war between the EU trying to attract the country in its orbit as much as possible on the one hand and Britain trying to stay out while retaining good access to the single market on the other.
WRITTEN BY ANDREA S. LIVERANI FOR BESA
PLEASE DIRECT ANY INQUIRY TO AS.BESA@UNIBOCCONI.IT