Due to the historical decision by the Swiss government last week to stop negotiations with the EU over a new Institutional Framework Agreement, this week’s BIT is longer than usual. Readers not interested in the intricacies of Swiss politics may want to skip sections 3-5 and go right to the last two sections (although I do think that a lot can be learned from the Swiss experience as a third country).
As a British-Swiss dual national, for me last week’s Brexit-related news were overshadowed not by Dominic Cummings, but the decision of the Swiss government to put a halt to the negotiations with the EU about an ‘Institutional Framework Agreement’ (InstA) after eight years.
Many observers consider this decision as a historic moment in the Swiss-EU relationships, similar to the 6 December 1992 when Switzerland decided in a popular vote against joining the European Economic Area (EEA). This may not be directly a Brexit-related story (although Brexit certainly has made the EU more wary about what it offers other ‘third countries’), but I think anyone interested in Brexit should take notice of this significant event.
Indeed, this decision could jeopardise the very successful model called the ‘bilateral track’ that allowed Switzerland to remain outside the bloc, while benefiting from virtually complete access to the single market and participate in various EU programmes.
The Swiss case provides some lessons about what alternatives to membership and a ‘hard Brexit’ may exist, but also because the failure to reach an agreement with the Swiss may have an impact on how the EU deals with third countries more generally. There are also interesting parallels in the type of fake populist politics that drive Euroscepticism in various European countries.
The Swiss ‘bilateral track’
The model currently governing the relationship between the EU and Switzerland resulted from the Swiss voters’ decision in a historical popular referendum held on 6 December 1992 not to join the EEA. With full membership never having been a politically feasible option – although the government did deposit an accession demand after the failure of the EEA, but that demand laid dormant for 24 years and was finally officially withdrawn on 16 June 2016 [DE] – what emerged over the decades since 6 December 1992, was a complex web of 120 painstakingly negotiated bilateral (or ‘sectoral’) agreements.
Contrary to the UK-EU Trade and Cooperation Agreement (TCA), the Swiss ‘bilateral agreements’ allowed virtually unrestricted access to the EU market – without any tariff or non-tariff trade barriers in most cases – and far-reaching reliance on the famous ‘equivalence regime’ whereby Swiss rules were recognised as substantively equivalent to EU rules. Of course, that recognition of equivalence was ‘bought’ at the price of a far-reaching alignment of Swiss regulation with EU regulations. The Swiss even invented a word for dynamically aligning its rules to the evolving EU rules: Autonomer Nachvollzug in German, which roughly translates as ‘autonomous alignment.’
More generally, as EU integration deepened, the EU increasingly put pressure on Switzerland to subject the various Bilateral agreements under the above-mentioned ‘institutional framework agreement,’ which would solve questions of dynamic alignment and mutual recognition when either side’s laws evolve. The InstA was also meant to solve issues around dispute resolution over implementation (an excellent in-depth resource – in German – explaining the issues around the framework agreement can be found here).
The negotiations started in 2014 and had led to a first draft agreement in 2018, which the Swiss government now decided to scrap [FR] – mentioning unsolvable differences around ‘flanking measures’ in the area of social- and salary dumping when EU companies post workers to work in Switzerland, the directive on EU citizens’ rights (which has led to fears in Switzerland that EU citizens could benefit extensively from the generous welfare provision), and around state subsidies rules.
The rise of the Eurosceptic anti-immigrants – and the beginning of their fall….
The background to this momentous decision, which risks setting back the relationship between the EU and Switzerland for decades is a domestically at times acrimonious political climate driven by the populist, right-wing, anti-immigrant Swiss People’s Party (SPP).
As EU integration and expansion progressed and Switzerland continued participating in the development, Eurosceptics’ opposition to the arrangement grew as well. Successive SPP electoral successes meant that by the 2003 General Election it had become the largest party in the lower house of the Swiss parliament. Consequently, Eurosceptic voices became stronger too. After the entry into force of the Agreement on the Free Movement of People (AFMP) in June 2002, the SPP’s anti-EU platform mainly targeted this aspect of the relationship with the EU
The SPP marked an important victory on 4 February 2014 when the so called ‘popular initiative against mass immigration’ was accepted in a popular vote – albeit narrowly by 50.33% v. 49.67% of votes. This was a surprise to many and led to discussions over the end of free movement of people. But the implementation of this initiative remained difficult, as the EU clearly signalled that having your cake and eating it was not an option. Thus, right after the initiative passed at the ballot box, the EU suspended Switzerland’s membership in the Erasmus+ student exchange programme.
As a result, the government pursued a route that was labelled ‘implementation light’ of the Mass-immigration initiative. Rather than enforcing a strict ‘Inländervorrang’ (‘priority for nationals’) that would have forced employers in Switzerland to hire Swiss nationals over EU nationals, the parliament adopted a compromise – sometimes referred to as ‘priority for nationals light’ that satisfied the EU. In professions with above-average unemployment, employers are obliged to register open position with the regional job centre. The latter exclusively advertises these positions for five days to unemployed registered with the job centre (with the expectations that they are mostly swiss nationals). Only after the five-day period can people not currently registered as unemployed in Switzerland apply. The State Secretariat for Economic Affairs (SECO) considers these measures to be well implemented (although a systematic statistical analysis is lacking as of yet).
The Eurosceptic SPP’s party on the other hand talked of a betrayal of the people’s will and launched a Begrenzungsinitative (‘limitation initiative’ - as in limiting immigration) that would have led to the cancellation of the free movement of people agreement. Yet, in a popular vote in September 2020, voters clearly rejected the initiative with at 62% to 38% majority. The result was interpreted as a vote by Swiss citizens for the ‘bilateral track.’
Yet, it is interesting to note that it is the 2014 anti-immigration result that is the odd one out. The Swiss voters have time and again confirmed their support for the bilateral agreements with the EU – even when it means opening Switzerland’s borders to immigration. Since the introduction of the free movement of people in 2002, the SPP has launched one initiative or referendum after the other attempting to cancel the AFMP and related policies. Thus, in June 2005 54.6% of voters approved Switzerland joining the Schengen/Dublin agreement despite a SPP referendum against it. In September 2005, the SPP launched a referendum against the extension of free movement of people to the ten new EU member states after the East extension. 56% of voters backed the government’s decision to accept the extension. A referendum against Switzerland’s CHF1bn contribution to the EU’s “Cohesion Fund” also failed with 53% of Swiss voters accepting the payment. In February 2009 60% of Swiss voters accepted the extension of free movement of people to Romania and Bulgaria. In 2018, the SPP’s ‘self-determination Initiative’ – which carried the sub-title ‘swiss law instead of foreign judges’ (in a reference to William Tell’s mythical opposition to Habsburg judges). This initiative sought to place the Swiss constitution above international law and at the same time prevent any agreement with the EU that would establish the European Court of Justice (ECJ) as final arbiter in disputes under the agreement. This initiative was rejected by 66% of the voters. Finally, the above-mentioned Begrenzungsinitative failed in Sept 2020, again with a nearly 2/3rd majority of Swiss voters confirming their support for free movement of people. As such, the narrow 2014 vote can be seen more a s fluke.
What is interesting about this rather dry list of referenda result is this: Despite the fact that a long series of popular referenda show strong support of a (often large) majority of Swiss voters for the bilateral track and for free movement of people, for populists in various right-wing parties, it is the single instance of the 2014 result that is elevated to the ‘will of the people.’
Thus, Foreign Minister Ignazio Cassis – who is member of the FDP.The Liberals not the right-wing nationalists of SPP, but in many respects resembles a right-wing populist rather than a liberal – stated in a radio interview this week that the Swiss voters would have rejected the framework agreement and that it was hence the right thing for the government to pull the plug on the negotiations. The most recent polls speak another language though: The institute GfS’s found that 64% of voters would have said “yes” or “rather yes” to the agreement.
Fake Populism
In this context, Wednesday’s decision by the Federal Council – Switzerland’s 7-members governmental college – is very significant in many respects. Not only because it seems like a reckless decision to stop negotiations after eight years and thus jeopardise all current agreements with the EU without having a ‘plan B’ (see below). But it is even more significant that this decision was made by the government without consultation of the Parliament or the people, when Swiss political opposition to the EU is mainly driven by right wing populists. It very strikingly illustrates something that will be familiar to people following the British Brexit saga: Namely the fake populism of the populists.
The “will of the people” is set in stone. It cannot be changed. It is expressed in a quasi-mythical initial situation – such as the Brexit referendum in Britain and the 1992 vote against the EEA (which I continue to believe was the right decision, because there are better solutions for third countries than the EEA) and more recently the 2014 referendum. All other expressions of the ‘will of the people’ are disregarded (in Switzerland) or prevented (in the UK – Second referendum anyone?). The ‘will of the people’ is a great device to brandish at the ‘unpatriotic’ or ‘elitist’ opposition, but only as long as the people will what the fake populists want! In the process, divisions are created: The 50.66% percent of Swiss voters who voted for the limitation of immigration in 2014 become the ‘real people’ and the 66% of the voters who supported the continuation of free movement of people in September 2020 are being ignored. They are not the ‘real people.’
Wednesday’s decision is hence not explained by the ‘will of the people’ but by the particular power relations within the 7-headed federal government. As a ‘consensual democracy’ the Swiss government’s composition reflects the relative strength of different parties in the lower house of parliament (the National Council) and different regional, cultural and linguistic groups.
Its composition evolves only slowly and tends to lag behind the evolution of voter preferences as expressed in the elections to the National Council (for instance the right-wing FDP obtained 15.1% of votes in the 2019 GE and has 2 Federal Councillors, the Christian Democrats obtained 11.4% and have one Councillor, The Greens with 13.2% have none). The composition of the Swiss government is hence tilted towards the right-wing parties: There are 2 ministers from the formerly dominant FDP.The Liberals, 2 from the now largest party SPP, 2 social democrats (SP) and 1 Christian Democrat (CVP). The SPP ministers were of course always likely to oppose the agreement. The two representatives of the FDP.The Liberals – traditionally the party of business interests who were in favour of the InstA – would normally be more supportive. However, perhaps not insignificantly, Foreign Minister Ignazio Casiss, represents the Italian speaking canton of Ticino which has a strong anti-immigration majority. Indeed, Ticino is particularly exposed to labour market pressures and high unemployment due to the proximity to Italy. At least 3 of the five right-wing and centre-right councillors are hence firmly anti-immigration.
In addition, the two social democratic councillors face a paralysing dilemma that will be well-known to observers of British politics: Torn between their traditional, working-class and trade union basis and the increasingly important urban middle-class voters, the Swiss social democrats have essentially stopped taking any position on Europe. The trade unions vocally rejected the framework agreement [FR] – due to the justified fear that it might undermine labour protections and put pressure on salaries – while much of the middle-class SP voters are in favour of a close integration of Switzerland in the EU. The SP councillors are said to have wanted the InstA to simply go away [DE] so that they would not have to face a potentially bruising referendum campaign that would expose the contradiction’s in the party. With the Green Liberals and the Greens the only parties unequivocally in favour of the InstA, but not represented in the government, it is easy to see how the government reached the decision it did. But it is not a story of the government defending the will of the people, but rather a conservative coup against an increasingly progressive Swiss population [DE].
Consequences and alternatives
The FT reported on the Swiss government’s decision saying that “[m]any Swiss are also optimistic Brussels will come around to Bern’s plan B — referred to as the “bilateral track” — whereby existing agreements can be rolled over individually.” That assessment is somewhat misleading. The ‘bilateral track’ is the current system not a new Plan B. Yet, Brussels has made it very clear that it is unwilling to accept this status quo any longer. That was precisely why the negotiations on the InstA were launched back in 2013/2014. Just like Brexit, the government halted the negotiations without any obvious plan of what comes next.
The EU has already reacted by cancelling the equivalence recognition for medical equipment manufacturers [DE]. Swiss companies in this sector thus lose EU single market access unless their products are also certified in an EU country (which increases costs). Other branches now fear that their industry may be next. Thus a speaker of SwissMem [DE], the employer association of the machinery industry, which is exports 80% of its products, 56% into the EU, expressed fears that the Mutual Recognition Agreement (MRA) covering that branch will not be renewed when it expires, making exports to the EU more difficult and costly.
It remains to be seen what will happen next in the relationship between Switzerland and the EU. There is the possibility that a pro-European organisation launches a popular initiative that asks for the voters to get a say in what happens with the InstA. Similarly, there was a petition pending asking that Parliament not the government [DE] got to decide about the next steps with the InstA negotiations. It is unclear what will happen if the Parliament decides to pass this petition in spite of the government’s decision.
The root cause of all problems: A misunderstanding about sovereignty
Yet, the really depressing fact about all this, is that the Swiss’ struggles with the EU are essentially due to a misunderstanding. The same misunderstanding that explains Brexit: namely a misunderstanding of what ‘sovereignty’ means in today’s world. Indeed, at the heart of much right-wing Euroscepticism in Europe lies an ill-conceived and outdated notion of sovereignty (see for instance here and here). Rather than acknowledging the (increasing) economic, cultural, and political interdependence of countries in Europe, which make cooperation across borders inevitable, Euroskeptic forces pretend that it is possible to go back to a ‘simpler time’ when each country could live in a state of autarky where it did not rely on others for is prosperity. It is doubtful that such a simpler time ever existed – given that the territorially defined nation-state is not that old by historical measures and that trade, migration, and cultural exchanges have been part of human society for millennia. But the interpretation of sovereignty as meaning the undivided and absolute control over one’s borders and the attitude ‘we won’t be told by others how to live our lives’ has certainly become a complete illusion in the 21st century. Given the advances in information technology, travel, and communication. Given the science-driven technological progress and the technical opportunities to split companies’ value chains into ever more specialised steps, interdependency across national borders has simply become a fact of life. It seems difficult to imagine that it can be avoided – other than in extreme cases such as North Korea and perhaps Cuba until a few years ago.
Accepting that does not mean that we have to unthinkingly buy into a supra-nationalist project that seeks to replace national processes of democratic legitimation with supra-national ones. That is neither realistic not desirable. As Anthony Barnett aptly put it a few years ago: “Democratic nation-states are not going to fuse into a superstate”. But it does require us to acknowledge that a simplistic view of sovereignty needs to be replaced with something else.
In the Swiss case, Swiss historian André Holenstein pointed out after Wednesday’s decision that since the foundation of the modern Swiss federal state in 1848, the country’s political system has been – very successfully – based on a conception of divided sovereignty. Sovereignty is distributed across the local level of communes, the regional level of cantons, and the national level. Competences depend on the matter at hand, but clearly it is not a fundamental problem that interdependent territorial units with distinct histories, cultures, and languages share sovereignty. It is not obvious why something similar cannot apply to the EU. Yes, there is no European demos – but equally Swiss people continue to have strong local and cantonal identities, which – I would argue – can be as strong as their national one. Such multiple identities are precisely what makes it possible to share sovereignty across units.
Regardless, I suspect that these discussions around notions of sovereignty will not worry the false populists anyways. For them ‘sovereignty’ is a political tool to help their power grab, not a constitutional concept that needs to be taken serious to provide a solid foundation to the country. The call for sovereignty by the false populists often seems more like a power grab than a real concern for people having their voices heard. Thus, it is beyond ironic that the TCA for instance by creating the Partnership Council has in some respects moved power away from the UK Parliament to the government, when Brexit was done in the name of giving the UK Parliament – and hence supposedly its citizens – back its sovereignty.
Time for the EU to rethink its approach to third countries?
On the other hand, the EU’s struggles with third countries like Switzerland and the UK does suggest that the EU itself may need to rethink what it can offer countries who are seeking close economic and cultural ties with the EU, but who are not ready to commit to the political integration project. Indeed, the EU is currently not very successful establishing stable and productive relationships with such countries, including not just Switzerland and the UK, but also Turkey and – to some extent – the Ukraine for instance.
Since its inception in the 1950s, the European project has considerably moved towards more supranationalism. With the deepening economic and political integration, joining the club – or getting a ‘guest membership’ - has become more costly in terms of commitment for third countries. The EU insisting for guest members to sign up to its rules can hardly be seen as ‘bullying.’ Rather it is a perfectly legitimate consequence of the EU exercising the ‘pooled sovereignty’ of its member states in certain areas and guaranteeing the integrity of the single market. Doing so guarantees that members states – who commit to adapting to EU legislation – do not get a worse deal than non-member states. But of course, third countries’ reluctance to sign up for a full membership is also a legitimate position to have. Indeed, in certain cases – most notably Turkey – it is the EU who reluctant to offer anything else than an associate status. Yet, this position of ‘associate third country’ is becoming difficult and onerous not only because of the deepening and widening of integration, but also because of a tendency driven by the European Court of Justice, to insist on uniformity across European economies rather than allowing the co-existence of different varieties of capitalism.
This leaves countries with a very stark choice of joining and adapting their institutions very extensively or staying outside at the cost of losing access to the single market. None can really blame a more deeply integrated Europe for asking compliance with its rules; nor can anyone blame third countries for shying away from the increasing commitment required for joining the club. The Swiss example illustrates that this dilemma poses serious problems to some of the EU’s closest partners. The EU may have to come to terms with the fact that it will not be enough to simply provide third countries with an ‘in or out’ choice. The more the EU integration progresses, the more third countries may be politically unable or reluctant to accept that choice. And the ‘take it or leave it’ approach is not in the interest of the EU either. As Andrew Duff recently argued, it might be time for the EU to think about a new model for affiliate members.
Such a model cannot be of a ‘have-your-cake-and-eat-it’ type. Remaining outside the EU cannot offer all the advantages of full membership without any of the duties and commitments. Gaining access to the single market necessarily needs to imply conforming with EU standards. But a new model for affiliate members could solve two key problems without undermining the integrity of the single market: Firstly, the model would need to provide more flexibility for third countries to have higher social and labour standards; one of the key sticking points in the Swiss negotiations. Within the EU, such higher standards have increasingly come under attack from the ECJ which seeks to remove them in pursuit of an ill-conceived notion of ‘competition.’ Yet, these attacks on social standards are not intrinsically related to the integrity of the single market. Rather they are imposed in pursuit of a different goal; that of promoting competition. The EU needs to reign in the ECJ in this respect. Secondly, the model would need to provide a creative alternative to direct ECJ jurisdiction over the agreement (the TCA and the InstA both contain elements of such an alternative). This is necessary, because the ECJ’s evolving jurisdiction may mean that new demands on third countries emerge that it did not initially sign up for. It seems to me that both these issues could be solved without compromising the integrity of the single market (which essentially only requires alignment on a common set of minimal regulatory standards). Such a new model of affiliate membership would allow it to pacify increasingly fraught relationships with some of the EU’s closest neighbours – including the UK.