Switzerland drops institutional agreement talks with the EU

News Europe David Brunsden in Brussels MAY 26 2021

Thwarted by unbridgeable differences over wages and immigration, the Swiss government pulled the plug on a new framework agreement with the European Union in a move that will resonate in Britain as it seeks to recalibrate its own relationship with the EU.

There was deep frustration in Brussels that Bern had decided to junk years of negotiations. But the Swiss government has long wrestled with how to sell an agreement at home.

Under Switzerland’s consensual political model, any deal would have to be agreed in a nationwide referendum, with approval from both a majority of the overall population and a majority of the country’s 26 cantons.

Swiss abandon talks on closer ties with EU: Why Switzerland Don’t Want a New EU Deal

The decision by the Swiss federal council on Wednesday will probably have far-reaching consequences for Europe’s fourth-biggest trade partner, which is also home to 1.4m EU citizens. It led to a rapid rebuke from the European Commission, which warned of an inevitable deterioration in co-operation.

“We regret this decision,” Brussels said in a statement. “Privileged access to the single market must mean abiding by the same rules and obligations.” Switzerland exported about €160bn of goods and services to the EU last year.

Bern’s decision to withdraw followed stiff domestic political opposition to the draft treaty, which was seen as infringing Swiss sovereignty, despite a broad desire in the country to maintain close EU ties.

In 2019, the impasse with the EU led to Swiss stock markets losing rights to serve EU customers. Unions, meanwhile, worried the new pact would erode high wages, while differences remained over state aid — both of which Bern labelled as key concerns.

“The conditions are thus not met for the signing of the agreement,” the federal council said in a statement, adding that it hoped existing trade arrangements could be preserved “in the interests of both sides”.

On currency markets, the Swiss franc was broadly unchanged on the day at 1.09 to the euro.

The unique state of EU-Swiss relations has been a longstanding source of frustration in Brussels. Based on more than 100 bilateral treaties, it gives the wealthy Alpine nation access to the single market in exchange for open borders and alignment of Swiss and EU law.

Talks to overhaul these arrangements began in 2014 but became more urgent after Brexit because of EU concerns the UK could seize on the Swiss model as evidence it should be able to cherry-pick benefits of the single market while remaining outside formal EU structures.

Switzerland’s decision to abandon the talks means that as existing treaties lapse, trade and immigration between Europe and a country at the heart of the bloc could be dramatically restricted.

The Swiss government said it had begun stockpiling medical equipment and taken other “preventive measures” such as legal protections for listed Swiss companies in expectation of barriers being thrown up with the EU imminently.

Crucial regulatory permissions allowing Swiss-certified medical devices to be sold in the EU expired on Wednesday.

What about the FDP?
Foreign Minister Ignazio Cassis defended the institutional agreement for a long time, and then demanded a clear Plan B — in vain. The depressing realization that you don’t get very far riding a doomed horse may be one of the reasons why he, too, has recently joined the conservative alliance of the Swiss People’s Party (SVP) and the Liberal (FDP) representative in the Federal Council.

For supporters of the bilateral approach and a business-friendly institutional agreement in the FDP and beyond, however, this may raise the question of whether they would not be better served in future by a Green Liberal Party representative, as the Green Liberals were the only party on the right that unanimously supported the bilateral approach and the InstA. In addition, the Federal Councillors of The Centre and the Social Democratic Party had also reportedly pleaded for a further search for a compromise.

Since 2008, the EU has understandably been insistent on the need for uniform laws in a common internal market. It therefore requires a defined mechanism for the dynamic adoption of changing rules and regulations, and a dispute settlement mechanism, as prerequisites for the further development of its bilateral relations with Switzerland. Because it is only a question of ensuring that competition in goods and labor in the internal market remained as undistorted as possible, the EU was willing to limit this institutional agreement to the issues of market access. The dispute settlement mechanism, certainly, would have offered Switzerland definite advantages.

It remained unclear on Wednesday why and how the EU, which has been slapped in the face, is supposed to continue negotiating with Switzerland the way the Federal Council would like, even though the Federal Council no longer considers such an institutional agreement feasible. Obviously, the principle of hope reigns supreme: Both parties have a lot of economic interests in common, after all. But the EU’s 27 members are no longer made up mostly of Switzerland’s neighbors.

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