Last week, the Swiss government announced that it would not agree to the so-called “framework agreement” which was supposed to replace the bilateral deals the Alpine country negotiated with the European Union in the 1990s, and whereby it has secured selective market access in return for selectively aligning with EU rules. This “pick and choose” arrangement has always worked fine, but the EU wanted to harmonise everything into a single agreement, in a bid to increase its regulatory influence over Switzerland.  

Three sticking points had remained between both partners, relating to the cross-border workers, free movement of persons and state aid. The main reason why the Swiss ultimately declined to sign up, however, was the role of the European Court of Justice. In the draft agreement, it was foreseen that an arbitration panel would sort out any differences of opinion that may arise, but that it would need to refer to the European Court of Justice, the EU’s top court, in case an issue relates to EU law, which is, of course, a frequent occurrence. 

It is simply odd that the top Court of one of the trade partners would serve as the ultimate arbiter. Just imagine the EU’s reaction if the US Supreme Court had been proposed as the referee in disputes relating to any EU-US trade deal. Nevertheless, this is what the EU managed to negotiate with Ukraine. It is also what Theresa May accepted during Brexit negotiations, before Parliament rejected it. For the Swiss, this was more than one bridge too far.

One possibility is that the Swiss now negotiate to “dock” to the institutional machinery of EFTA

What happens next? There will not be a “cliff-edge”, as the more than 100 bilateral deals simply continue to apply, but after they lapse Switzerland loses the trade access provided. Last month, for example, the mutual agreement of industrial standards (MRA) lapsed. As a result, Swiss medical firms are facing new bureaucracy to trade, something which would ultimately cost 75 million Swiss francs annually.

At the moment, no arbiter is expected in the context of the Swiss-EU relationship. It would have been sensible to agree one, and to negotiate the opening up of Swiss-EU trade, but the EU’s obsession to constrain trading partners into its regulatory machine by attempts to impose its own top court as the arbiter caused the whole deal to collapse. The EU somehow does not understand that even if it had prevailed, such an arrangement would not have been a good basis for a sustainable relationship. 

In an article for BrusselsReport.eu, Swiss legal expert Carl Baudenbacher, the former President of the EFTA Court, writes that “for some years now, the European Commission has practiced a policy of punishment that is difficult to reconcile with good faith and which is out of place for an old friend like Switzerland”. He lists the measures the EU has been taking, including “the discriminatory refusal of stock exchange equivalence”, “discrimination against Switzerland with regards to the control of trade in COVID-19 vaccines” and “the threat to exclude Switzerland from the Horizon 2020 research programme”.

The similarities with Brexit are evident. Protectionism that also hurts EU citizens and businesses in a lame attempt to increase the power of the Brussels regulatory machine is being justified with claims that this would be to “protect the single market”, as if recognising the stock exchange standards of Switzerland, a well-run Western country as equivalent, would endanger the EU’s single market in any way.  

One possibility is that the Swiss now negotiate to “dock” to the institutional machinery of EFTA, the European Free Trade Association. In the past, the EU has proposed this, but the Swiss government has declined. It would mean that Switzerland remains outside of the “European Economic Area” (EEA) department of EFTA. This department counts Norway, Iceland and Liechtenstein among its members, and involves them aligning with all relevant EU rules in return for full market access. “Docking” would mean that Switzerland uses the EFTA Court, which is tasked to sort out disputes on EU law that Norway, Iceland and Liechtenstein have pledged to take over, whenever there is a dispute on EU law, in cases where Switzerland follows EU law in return for EU market access. In such cases, the Swiss would then get the right to have a Swiss judge sitting on the EFTA Court. Oddly, perhaps, there wouldn’t be an EU judge, but the EU is relaxed about the EFTA Court, given that it is a trusted brother of its own top Court, the ECJ.  

With the UK’s clout, EFTA could truly force the EU to become more sensible towards its neighbours

Another option is that the Swiss simply lose ever more market access to the EU while also gaining sovereignty, as they would no longer be obliged to take over EU law, as bilateral deals lapse.

In any case, however, lots and lots of negotiation will remain necessary between Switzerland and the EU, just as it is needed between the EU and the UK, given the intense trade. In an ideal scenario, both Switzerland and the EU should negotiate on how to expand and update the number of bilateral deals, to break down trade barriers.

Perhaps it is not a bad idea for the UK to explore more formal cooperation with Switzerland, now that it is clearly in need of some negotiation backup. Now that the UK has just agreed a trade deal with Norway, Iceland and Liechtenstein,  the UK could perhaps explore joining EFTA. Although it should, of course, stay out of the sovereignty-eroding EEA arrangement, whereby Norway & co. copy and paste EU rules over which they have no democratic say. In Norway, the political opposition against this arrangement is becoming more intense, so perhaps Norway may opt to join the non-EEA department of EFTA itself. In any case, it would be back to the old days, as the UK is a founding member of EFTA. With the UK’s clout, the club could truly force the EU to become more sensible when negotiating trade with its immediate neighbours that have opted to remain out of the sovereignty-eroding European Union.

In Switzerland there was also a referendum on their relationship with the EU. In 1992 a majority rejected becoming a member of the European Economic Area. It is odd that despite their deep-seated democratic instincts, the UK and Switzerland haven’t yet found each other to coordinate how to improve their trade ties with the European Union.