Why Swiss struggles do not bode well for UK after Brexit

Why Swiss struggles do not bode well for UK after Brexit

Britain is not the only country agonising about the nature of its future relationship with the European Union.

Switzerland has been negotiating with the EU for the last five years about a treaty for which Brussels has been pushing for the last decade.

The treaty would tidy up the relationship between Switzerland and the EU and sit above 120 individual bilateral accords governing specific sectors.

Switzerland currently enjoys a unique relationship with the EU.

It is a member of the European Free Trade Association (EFTA) but, unlike other EFTA members such as Norway, is not a member of the European Economic Area (EEA).


As such, unlike the other members of the EEA, it enjoys access to the EU's single market while being under no legal obligation to adopt new EU legislation.

It is outside the EU's customs union and so able to strike individual trade deals as it pleases.

Image: Switzerland wants a new deal to cover processed farm products

Were it not for the fact that Switzerland accepts freedom of movement with the EU, as the price of its membership of the single market, the arrangement it has with the EU is one many Brexiteers would probably quite like for the UK.

Yet the nature of this relationship has long been a source of irritation to the EU, which regards Switzerland as having been able to "cherry pick" the best parts of EU membership, something Brussels was desperate to avoid in its Brexit negotiations with the UK.

The relationship means that the European Court of Justice (ECJ) may only intervene in trade disputes between EU members and Switzerland where Swiss law and EU law is incompatible.

It means that, on occasions, Swiss companies have been operating within the single market but have not been bound by its rules.

Accordingly, the EU has been pushing Switzerland towards a treaty, obliging the Swiss to adopt changes to the rules governing the single market.

Switzerland, too, has reasons for wanting a treaty.

While the Swiss are opposed to closer ties with the EU, the country is hugely dependent on the EU as a trade partner, with more than half of all Swiss exports going to the EU and nearly three-quarters of Swiss imports coming from the EU.

Image: The Swiss stock exchange could lose out if a deal is not reached by the end of the year

The Swiss are also keen to see the single market extended to financial services.

This was something they originally avoided, due to the secrecy of Swiss banking rules, but now that the global banking sector has become more transparent, Switzerland wants its banks and insurers to be able to enjoy unfettered access to EU markets.

So it has said it is happy to come to terms with the EU, provided the treaty covers five specific areas, namely aviation, rail traffic, processed farm products, the free movement of people and mutual recognition of standards.

However, with elections looming in 2019 in Switzerland and for the European Parliament, there is a need to conclude a treaty before the end of the year.

And the two sides have hit a brick wall due to Switzerland's desire to maintain its existing labour laws in a country where hostility to migration from the EU is intense.

Brussels is now piling the pressure on the Swiss.

It has warned that, without a deal before the end of the year, it will no longer recognise Swiss stock exchange rules that allow the cross-border trading of shares.

This would deprive the SIX exchange in Switzerland, the fourth-largest stock exchange in Europe, of more than half its revenues.

Image: Angela Merkel says talks with the Swiss should carry on 'as if the Great Britain issue never existed'

It would also make it harder for Swiss companies to attract money from EU investors when listing on the stock market.

The Swiss are threatening to retaliate by barring EU exchanges from allowing Swiss-listed stocks to be traded on them.

No deal by the end of the year would also mean no enhancements in Swiss access to the single market, depriving Switzerland of the chance to form an "electricity union" that would enable cross-border energy flows and provide power to the Alpine country in an emergency.

Swiss medical devices manufacturers, one of the country's largest employers, might find their access to the single market restricted as agreements on the mutual recognition of standards lapse.

What has this to do with the UK and Brexit? Plenty.

For a start, many in Switzerland suspect the EU has driven such a hard bargain with because it did not wish to encourage the UK into thinking it would be able to strike "cake and eat it" terms comparable to those the Swiss enjoy.

The EU denies this.

Angela Merkel, the German chancellor, said two years ago: "If I tried to put myself in the shoes of a Swiss citizen, I wouldn't be pleased if it [the treaty] was suddenly cast in a new light because of another decision in another country.

"That's why we should conduct these talks with Switzerland as if the Great Britain issue never existed.

"I can only say that the German position hasn't changed with Great Britain's decision [to leave the EU].

"These are two completely different issues."

Yet the fact that Britain and Switzerland have been seeking to strike bespoke deals with the EU at the same time means few Swiss people believe this and particularly after Jean-Claude Juncker, the European Commission president, warned earlier this year of the need to wrap up a deal before the Brexit negotiations hit their crunch period.

Secondly, the agonised haggling over these negotiations does not bode well for the trade relationship the UK hopes to agree with the EU once Britain has left the bloc next March.

Britain is a much bigger economy than Switzerland and its exports to and imports from the EU are of a different magnitude.

Trade negotiations between the two sides are accordingly likely to take far longer - and particularly if the mood has been poisoned by a no-deal Brexit that has led to a slowdown in both the UK and EU economies.