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What Britain can learn from Switzerland Switzerland's economy continued to be strong after it rejected EEA membership

Political Insider

Vintage suitcases in a pile

When the UK voted to leave the European Union on June 23 2016, many people could not understand how David Cameron could have allowed such an important decision to be made by, of all people, the voters.

Some saw the decision to call a referendum as an unnecessary move — especially on the pro-EU establishment side of the debate.

There is one country in Europe though where Britain’s decision to hold a referendum on its membership of the European Union was not only seen as understandable, but probably, in the fullness of time, as unavoidable.

I’m referring to the country of direct democracy and referendums : Switzerland.

A landlocked group of 26 proud cantons surrounded by the EU where citizens defiantly maintain a strong influence on their political class by holding regular referendums on a whole host of political issues. So deeply engrained in the national psyche is the idea of voters having a say that even relatively unimportant political decisions on issues such as VAT or TV licence fees are taken by plebiscite.

While the democratic tradition is also famously well established in Britain, the idea of holding national or regional plebiscites is less so. However, Britain has moved closer to Switzerland in recent years and embraced a more direct form of democracy when it comes to important constitutional questions. Referendums on North East England devolution (2004), Welsh devolution (2011), the UK parliamentary voting system (2011) and Scottish independence (2014) were all held just a few years before Britain’s referendum on EU membership.

It may be unavailing to speculate now, but had the British people been given an earlier say on their membership of the EU  – for example when the Maastricht, Constitutional or Lisbon treaties were passed by UK MPs without referendums – we might not have found ourselves in the difficult position we do today.

The Swiss political analyst Dieter Freiburghaus said something that will have resonated with many British voters when he was interviewed by the BBC before the Brexit referendum:

“Switzerland was only interested in the economic aspect of European integration, and that we got: we got access to the internal market. So our economy had a lot of gains. We have the cake and we eat it… at the moment.”

Today’s European Union is politically integrated well beyond the Common Market that the British electorate signed up to after the 1975 European Communities (EC) referendum. In fact, it has since then integrated politically well beyond what most would have agreed to, had their opinions ever been sought. Britain was always primarily interested in the commercial benefits of EU membership, rather than the political. In that sense, Swiss expectations from their relationship with the EU are very similar to British voters.

So, as Britain pushes on this week with negotiating a particularly British model of cooperation with the EU  – having categorically stated that it won’t seek membership of either the Single Market or the Customs Union  –  the Swiss model has once again risen to the fore and warrants some renewed attention.

To really understand the Swiss model, it is worth turning the clocks back to 1992. It was precisely as the British Conservative Party was tearing itself apart over the controversial implementation of the Maastricht Treaty that Switzerland held its most important EU referendum. On 6th December 1992, the Swiss narrowly rejected European Economic Area (EEA) membership in the last of 15 (15!) referendums it held that year.

By rejecting the EEA model, Switzerland was now destined to develop its relationship with the EU in an ad hoc, incremental manner. Greater cooperation may have been desired by both sides, but it was clear that the Swiss were more attached to their sovereignty than had been expected. The incremental model was also very appealing to officials who had found a new respect for the Swiss electorate after the shock 1992 referendum.

That referendum was as divisive for Switzerland as the 2016 referendum has been for Britain. The pro-EEA campaign managed to lose what was at one point more than a 50 per cent lead in the polls  –the country finally voting 50.3 per cent to 49.7 per cent against the proposal.

The vote split the country along “national” lines, just as the Brexit referendum would, 14 years later. French-speaking cantons backed deeper EU integration while the German and Italian-speaking parts of the country rejected it.

The vote also revealed another divide within the country that mirrored the Brexit result and also heralded the later manifestation of the anti-elite sentiment so prevalent in our politics today. By rejecting stronger ties with the EU, Swiss voters, particularly in more rural communities, ignored the recommendations of political, intellectual, industrial, business, banking and labour leaders.

It is this key rejection of deeper integration with the EU that laid the foundations for the “living agreement” that Switzerland currently enjoys with the EU  – a series of treaties developed incrementally in response to specific circumstances rather than being an off-the-shelf framework for cooperation like the EEA agreement.

Based on a number of comprehensive bilateral deals that cover the four freedoms of the EU as well as numerous sectorial agreements, the Swiss model currently comprises over 120 bilateral agreements designed to secure Swiss access to the EU market, and vice-versa. It is a relationship also secured by Switzerland’s participation in the European Free Trade Area (Efta), and it rejecting membership of the EU’s Customs Union.

This patchwork of agreements makes the Swiss model the most complex. Yet despite this complication, and despite the fact that over 55 per cent of Swiss exports go to the EU (compared with around 45 per cent of the UK’s), Switzerland has never reversed its 1992 referendum result on EEA membership.

As the graph below also shows, Switzerland continues to be one of the world’s best performing economies. It did not fall into years of recession as some threatened it would during the 1992 referendum campaign. When it chose to reject the EEA in preference for an independent trade policy and a freer hand in making its laws, the Swiss economy continued to perform strongly. In fact, since the 1992 referendum, the Swiss economy has regularly been labelled the world’s most competitive and many of the world’s most successful companies  –  such as Novartis, Nestle and Glencore  – continue to thrive in Switzerland under its bilateral agreements with the EU and the trade deals it has signed with non-EU countries.

It is also notable to point out that the Swiss government has never re-applied for outright membership of the EU. In fact, the opposite is true. One week before Britain’s EU referendum, Swiss MPs voted to officially withdraw the country’s application to join the EU  – an application that had lain dormant since the 1992 referendum.

However, while the Swiss may have lost interest in deep political integration with the EU, that is not to say that they are happy with the level of commercial access their current bilateral relationship with the EU grants them.

The Swiss economy’s strong focus on banking and financial services mirrors closely that of the UK, but given that cross-border cooperation in these areas remains underdeveloped in the EU, the Single Market benefits in these sectors remains unsatisfactory for economies weighted towards services.

The Swiss Council  –  the country’s federal parliament  – prioritises “broad and secure access to the Single Market, and a clearer legal status” but the Swiss government is disapproving of the current agreement where “existing barriers to market access place Switzerland at an economic disadvantages”.

While existing sectoral deals in goods have proved highly advantageous to both sides, and Switzerland’s ability to sign free-trade deals with whomever it chooses appeals greatly to the more global-minded “leave” supporters, it is clear that the UK, like Switzerland, would find an EU agreement that does not sufficiently incorporate services as inadequate.

As Switzerland sought to address this and improve its access to the EU market, it initially sought to sign new agreements with Brussels in the banking and financial services sectors. However, the EU had by then firmly lost patience with the ad hoc, Swiss model of negotiating and signing agreements.

In December 2012, the EU Council stated in its conclusions on EU relations with Efta countries that: “[…] the approach taken by Switzerland to participate in EU policies and programmes through sectoral agreements in more and more areas in the absence of any horizontal institutional framework, has reached its limits and needs to be reconsidered. Any further development of the complex system of agreements would put at stake the homogeneity of the Internal Market.”

A House of Commons report released after the Foreign Affairs Committee visited the Swiss capital in 2012 also found that the likelihood of the EU entertaining a Swiss type deal for the UK was highly unlikely: “Since December 2010 the EU has been refusing to move forward on any further bilateral agreements that Switzerland might seek until the Swiss Government agrees to establish an overarching institutional framework that would ensure the homogenous interpretation and application between the EU and Switzerland of the relevant Single Market rules.”

But what is it in particular that the EU has come to so dislike about the Swiss model, and which it is therefore highly unlikely to offer to the UK in Brexit negotiations?

Well, in the first instance, the sheer complexity of the bilateral deals has lead to institutional deadlock in a number of areas. Furthermore, the EU is concerned that the addition of new agreements would escalate complexity to an unsustainable level, threatening the homogeneity of the Single Market, increasing legal insecurity and potentially undermining EU relations with third parties.

The EU is particularly concerned by the lack of a suitable legal framework that is applicable to all existing and future agreements and that would ensure the consistent interpretation and application of Single Market rules. It is also troubled by the lack of a mechanisms for monitoring and judicial control, although, as has been suggested for the UK, a compromise does appears to be forming around the idea of arbitration panels to resolve such disputes.

Another serious concern is the weak legal footing on which the entire Swiss-EU relationship rests. Switzerland’s strong democratic tradition threatens its bilateral agreements with the EU (as well as its other international agreements, for that matter) because of the possibility that it may unilaterally contravene clauses previously agreed to. This is particularly dangerous because EU-Swiss bilateral treaties on Single Market participation include “guillotine clauses” that threaten to terminate all agreements if just one is discontinued.

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