European Union: The Future Of UK-EU Trade: The Swiss Model

In the aftermath of Brexit, the United Kingdom is faced with the challenge of negotiating a relationship with the European Union that balances Single Market access with national control over the movement of goods and workers. This article is the third of a four-part series examining the three models for a future U.K.-EU relationship.

Previously, we have provided an overview of the three models and a closer look at the " Norway Model." Here, we analyze the "Swiss Model."  We identify the main features, benefits and drawbacks. Our final post in the series will address the "Bilateral Trade Agreement Model."

What is the Swiss Model?

The Swiss Model is a patchwork quilt of dozens of ad hoc sectoral trade agreements with a complex history. Switzerland is a member of the European Free Trade Area (EFTA) along with Norway, Iceland, and Liechtenstein. The latter three countries joined the European Economic Area (EEA) with the 28 EU member states1 in 1994, creating the Single Market. However, Swiss voters voted not to approve the ratification of the EEA Agreement by popular referendum in 1992. This left Switzerland reliant on a 1972 free trade agreement with the European Economic Community that was unsuitable for the new state of European relations.

After seven years of contentious negotiations, Switzerland and the European Union signed a package of seven agreements known as the "Bilaterals I" in 1999. The keystone agreement traded access to the Single Market for Swiss acceptance of the fundamental EU principle of free movement of workers. Other agreements in the package concern technical barriers to the trade of goods, public procurement, agriculture, research, civil aviation and ground transportation. In 2004, Swiss and EU officials signed an additional package of nine agreements, the "Bilaterals II." These agreements primarily concern cooperation in technical areas, fraud, taxation, border control and asylum. There have been more than 100 other Swiss-EU sectoral trade agreements put in place between 1990 and the present.2 These agreements have collectively had more than 200 revisions to date. All of the above agreements concern goods only. Switzerland has no bilateral agreement with the European Union on services or capital beyond a limited 1989 agreement on non-life insurance services.

What are the benefits for the United Kingdom?

Following the cues from the bulk of the Swiss-EU agreements, the United Kingdom could maintain partial access to the Single Market. It could also engage in internal trade for most goods without customs fees.

Annual U.K. contributions to the EU budget could fall by approximately 50 percent with an exit under Swiss-like terms. According to a House of Commons research paper, annual Swiss contributions have averaged the equivalent of £53 per capita in recent years.3 In comparison, InFacts pegged last year's U.K. contribution at approximately £96 per capita.4

What are the drawbacks for the United Kingdom?

Financial services are the United Kingdom's largest export to the European Union, yet the Swiss Model offers no template for an agreement on services or capital with the European Union. The Swiss have never successfully negotiated a services agreement with the European Union, despite the similar relative importance of its financial industry. After exit, U.K. financial firms would likely face licensing and other barriers that do not apply to firms incorporated and otherwise licensed to do business in the European Union.

Despite a relative reduction in EU budget contributions under the Swiss Model, the United Kingdom would still need to contribute a significant amount to EU coffers without any representation in EU bodies in return. Like Norway, Switzerland has negotiated participation rights in some foreign policy initiatives, but this low level of influence is unlikely to satisfy the United Kingdom.

The key Swiss-EU agreements are amended regularly, some even several times a year. This process involves a large bureaucracy of several Swiss government committees, as well as mixed committees of Swiss and EU officials. The United Kingdom would need a similarly sized and structured administrative process to handle these constant revisions, likely at a high cost.

Under the Swiss Model, U.K. decision-making power would still be limited to blanket acceptance of some EU policies. Switzerland was able to gain partial Single Market access only by accepting the fundamental principle of free movement of workers. For continued access, Swiss law on policy areas and product standards must remain consistent with EU law. While the United Kingdom could refuse to incorporate future EU regulations into sectoral agreements, any noncompliant products could not enter the Single Market.

Overall Assessment

The United Kingdom would need to prepare for a decade-long process of negotiations and market uncertainty, since the Swiss Model is far from an "off the shelf" solution. The Swiss must continually renegotiate their agreements to maintain compatibility with shifting EU policies. Without representation in Brussels, this revision process is largely an administrative one. The United Kingdom would thus likely need to simply accept EU rules and regulations. The lack of a template agreement on services, particularly financial services, is a critical weakness for the powerful U.K. services industry, which currently enjoys full Single Market access.

Finally, it should be noted that EU relations on the Swiss Model may not be viable for much longer. EU representatives increasingly look down upon the constant renegotiation efforts required with Switzerland, and they continue to insist on a set of formal rules for integrating and enforcing the agreements. Since Switzerland has been reluctant to cede this point, Swiss and EU officials have been unable to agree on even the terms of negotiation in recent years. Further, a Swiss referendum in 2014 resulted in a vote to restrict immigration, a policy also important to U.K. "Leave" supporters. But if the Swiss government implements this policy, Switzerland would violate the keystone Bilaterals I agreement on the free movement of workers. Because that agreement underpins all other Swiss-EU agreements, the European Union could pull the plug altogether.


Footnotes

1 The remaining EU member states after a formal U.K. exit are Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

2 Visit this link for a presentation on Swiss-EU agreements by the Swiss Federal Department of Foreign Affairs, Directorate of European Affairs: https://www.eda.admin.ch/dam/dea/en/documents/folien/Folien-Abkommen_en.pdf.

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/RP13-42#fullreport 

https://infacts.org/norwegians-pay-same-brits-eu-access/#

*This blog post was originally on Beyond Brexit.

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