The Future of the European Union: UK Government Policy

FEU 08

Written evidence from Professor Clive H. Church, Dr Paolo Dardanelli and Sean Mueller , Centre for Swiss Politics , University of Kent

The ‘Swiss Model’ of Relations with the EU and its relevance for the UK

Executive Summary

1. The idea that it would be advantageous for the UK to adopt the ‘Swiss model’ of relations with the EU instead of membership is neither new nor politically neutral.

2. The suggestion is based on a poor understanding of the features of such a ‘model’ and of the conditions within which it operates.

3. Actual Swiss relations with the EU have disadvantages as well as advantages.

4. A careful examination of the Swiss experience suggests that the Swiss ‘model’ is inferior to the status quo of UK-EU relations.

5. The UK should try to preserve a unified institutional structure for the EU in the face of pressures for a formalised two-tier architecture.

0. Submitters

Clive H. Church is Emeritus Professor of European Studies, Paolo Dardanelli Lecturer in European and Comparative Politics, and Sean Mueller a doctoral researcher in Comparative Politics, all at the University of Kent’s Centre for Swiss Politics . Prof . Church has been working on Switzerland since the 1970s and published three books, notably the edited volume Switzerland and the European Union (Routledge 2007). Dr Dardanelli is the author of a series of articles and book chapters on Swiss politics while Mr Mueller , a Swiss national, is completing a PhD on inter- government al relations in Switzerland.

1. Purpose

It is sometimes claimed that Switzerland’s relations with the EU might provide a better model for the UK than membership. The claim is generally based on a limited understanding of the Switzerland-EU ‘model’ and especially of the conditions within which it operates. The purpose of the present evidence is to outline key features of Switzerland’s actual relations with the EU and explore the extent to which these could profitably be adopted by the UK .

I. SWISS RELATIONS WITH THE EU

2. The Idea of a Swiss ‘model’

Those who suggest the UK adopts the ‘Swiss model’ proceed from admiration for Switzerland’s economic and political performance. However, the reasons for this are rarely spelled out. They have to be teased out of a series of broad statements about free trade and bilateral cooperation. Critics of UK membership tend to believe the main pillars of the Swiss model to be a popular refusal to join the EU; government intransigence towards ‘Brussels’; one-to-one free trade deals with the EU; co-operation in other areas of use to Switzerland; a separate currency; a limited/part time parliament; and referenda. However, whether all this amounts to a ‘model’, either in the sense of a single, deliberate Swiss creation or a template accepted by all those who urge the UK to follow the Swiss example, is far from certain.

3. Background

Membership of any supranational organisation was long considered incompatible with the country’s traditional policy of neutrality. Switzerland did not get involved in the early phases of European integration and stayed outside both the European Coal and Steel Community and the European Economic Community . It joined, however, the European Free Trade Association (EFTA) in 1960 and the Council of Europe in 1963 as these organisations were by then perceived not to encroach on neutrality and sovereignty. In 1972, along with the other EFTA states, it signed a treaty with the EU o n fr ee trade of manufactured goods.

4. EEA negotiations and EU application

The emergence after 1989 of a narrower conception of neutrality, and the changing international context led Switzerland to take part in the negotiations to create the European Economic Area (EEA) and to apply for EU membership in May 1992. Ratification of the EEA treaty, however, narrowly failed in a referendum in December 1992. The campaign exposed deep divisions within Swiss society and led to a rec ord high turnout . Subsequent events have confirmed the c aution of the Swiss electorate about further integration, although pragmatism has often won out over Europhobia.

5. The bilateral approach

After the EEA vote, the country embarked on a bilateral approach, aiming to sign separate treaties covering a range of policy areas so as to fill the gaps left by being outside the EEA. The first main package of bilateral treaties proved difficult to negotiate and only came into effect, after endorsement in a referendum, in 2002. It contained seven separate agreements on free movement of persons; technical barriers to trade; public procurements; agriculture; research; and overland transport. A second package was signed in October 2004. Its nine separate agreements entered into force at different times, according to different ratification requirements: processed agricultural goods, pensions, and taxation of savings (all three in force since 2005); environment and media/film industry (both 2006; renewed film agreement signed i n 2007 and in force since 2010); statistics (2007); Scheng en/Dublin (2008; airports 2009); education (2010), and fight against fraud (not yet ratified by all EU states; applied by Switzerland since 2009 with those that have). In these areas, EU law directly applies to Switzerland. At least 120 other technical agreements are also in place, some dating back to the post war years. Switzerland also contributes financially to EU cohesion and research policies.

6. Informal Integration

The EU’ s impact on Switzerland goes beyond the effect of formal treaties. In order to make its economy as EU-compatible as possible, the country has adopted a policy of ‘voluntary adaptation’ whereby Swiss law is aligned with the EU’s acquis communautaire . A prominent example is the incorporation of the Cassis de Dijon principle into domestic law in 2010. Recent research shows that around 55 per cent of the laws passed by the Swiss parliament concern transposition of international, including EU, law. The bilateral treaties and the country’s voluntary adaptation have led to Switzerland being much more deeply integrated with the EU than suggested by its formal status as a non-member. Indeed, in certain respects such integration is deeper than that of EU members such as the UK, as the case of Schengen shows.

7. Advantages

7.1 The resulting relationship clearly has many attractions for Switzerland. If initially it was a f allback option in the face of a lack of popular support for membership, it has come to be seen by both the elite and the electorate as the best way of managing the c ountry’s relations with the EU.

7.2 The bilateral way essentially enables Switzerland to benefit from access to the single market while retaining a degree of political autonomy in other spheres. Compared to EU membership, such autonomy is particularly significant in monetary, fiscal, trade, and agricultural policy. It also exempts the country from making a contribution to the EU budget commensurat e with the size of its economy.

7.3 Symbolically, the bilateral way preserves the formal trappings of state sovereignty and allows the unencumbered exercise of direct democracy. T he bilateral way has so far served the country rather well. After a difficult period in the early 1990s, the economy has been highly success ful over the last 15 years . At least some of this success can plausibly be attributed to its pragmatic p artial integration with the EU.

8. Disadvantages

8.1 The most fundamental disadvantage is that Switzerland finds itself directly or indirectly compelled to adopt much of EU law without having any say in the process of making such law. The EU has made i t clear that access to decision- making can only come with membership, so this is unlikely to change. The paradox is thus that an arrangement meant to protect Switzerland’s autonomy is actually eroding it. Indeed, some say Switzerland is a vassal or satellite of the EU.

8.2 The legal framework of the bilateral approach is cumbersome, fragmented and static. The linked nature of most of the treaties makes individual agreements potentially hostage to others . This complicates their adaptation to the evolving acquis communautaire . A subsequent negative vote in a referendum might endanger the whole initial package. Moreover, while the Swiss government has contemplated negotiating a third set of treaties, the EU has made it plain that it believes the bilateral road has come to an end and that in the future the relationship would have to be based on quasi-automatic acceptance of EU law. The government has aired proposals on the basis of which Switzerland would ‘provisionally’ adopt the evolving acquis under the supervision of a Swiss monitoring agency and subject to direct democracy challenges . B ut the EU has already signalled its opp osition to such an arrangement.

8.3 Some of the advantages also have a negative side to them. F reedom of movement has led to a substantial influx of labour and exacerbated tensions around the high percentage of non-nationals in the country (22 per cent). In April 2012, t he Swiss government decided to cap immigration from the post-2004 EU states under a safeguard provision, attracting vocal EU criticism. The rapid appreciation of the Swiss franc in the context of the Eurozone crisis has also created problems. The Swiss National Bank tried to cap the currency’s rise by committing itself to maintaining a lower bound of Sfr 1.20 to the euro, a stance now being tested by the markets.

9. Conclusions

9.1 The Swiss ‘model’ of relations with the EU is one of considerable integration without membership. It would be erroneous to interpret it as ‘market access without the burden of regulation’ as the impact of EU law on Switzerland is very extensive. Equally , the idealized view of an intransigent and wholly aloof stanc e is not born e out in practice. Moreover, while bilateralism has served the country well so far , t here are serious doubts as to whether it can continue to do so. Switzerland thus finds itself in an impasse, with the bilateral room for manoeuvre increasingly narrow, on the one hand, and severe domestic obstacles in the way of a more comprehensive agreement – or membership – on the other .

9.2 Switzerland has not ruled out membership altogether. Although joining is no longer active government policy, the application submitted in 1992 has not been formally withdrawn despite much pressure for this. A fundamental obstacle is presented by negative public opinion and high constitutional hurdles. Under the country’s federal system, membership would have to be approved in a referendum by a double majority of citizens and cantons. As some of the latter are very small and strongly anti-EU, observers estimate that close to a 60 per cent popular majority would be needed to clear the cantonal majority requirement. The present state of publi c opinion is very far from that: only around 20 per cent favour EU entry , al though attempts to insert a ten- year moratorium on entry into the Constitution have recently failed.

9.3 Switzerland thus faces a fundamental trade-off, pitting the autonomy derived in some areas from staying outside the EU against the costs of not having access to EU decision-making. The viability of the bilateral model rests on the former being greater than the latter. While this might have been true in the past, as the country’s de facto integration continues – hence its autonomy shrinks – there are increasing concerns that costs might soon outweigh benefits.

II. THE MODEL’S RELEVANCE FOR THE UK

10. Origins of the idea

The idea that the UK should adopt the Swiss model of relations with the EU is neither new nor politically neutral. It has its roots in calls for the UK to rejoin EFTA and was advocated in the late 1980s by the Bruges Group. More recently, it has been advanced by Daniel Hannan MEP, Sir Rocco Forte and others. Thus David Campbell Bannerman MEP told the EP that the UK should replace membership by ‘a free trade agreement, an arrangement very successfully adopted by Switzerland, saving it CHF 3.4bn.’ In other words, the idea has come mainly from critics of the EU. Some have also called for the adoption of features of the Swiss system in the UK, notably direct democracy and decentralisation.

11. Applicability to the UK

However , the model has significant limitations even for Switzerland . A ny discussion over its applicability to the UK must also take into account the major differences between the two countries. While some of them would work in favour of the UK , others would make the model even less attractive for the country than it is for Switzerland.

12. Levels of interdependence

A first important aspect is the different level of interdependence with the EU. Because of its size, economic structure, and geographical location, the UK is less dependent on (the rest of) the EU than Switzerland is – the EU buys 60 per cent of Swiss exports. A hypothetical UK-EU bilateral relationship would thus be less asymmetrical tha n the Switzerland -EU relationship at present. This could mean that the UK would find itself in a stronger bargaining position vis-à-vis the EU and be better abl e to secure advantageous terms.

13. ‘Withdrawal’ versus ‘rapprochement’

A fundamental difference, however, is that Switzerland has come to the present model through progressive rapprochement to the EU. The UK would have to adopt it after having left the EU . The two dynamics are obviously very different and might produce different attitudes on the pa rt of the EU. While the EU has been more accommodating in its approach to Switzerland than might have been expected , this is now changing, and could rub off on attitudes to the UK aft er renegotiation or withdrawal.

14. No such thing as ‘free trade withou t regulation’

As outlined, the Swiss model is essentially one of considerable integration without membership, not of rejection of integration. Crucially, it includes acceptance of EU economic regulation without a say in shaping such regulation. If support for the Swiss model in the UK is motivated by a des ire to escape EU regulation, the n the former certainly is not the way to pursue that objective. If the UK left the EU, it could only retain access to the single market by also accepting regulation, and would have no influenc e over the making of such rules – or certainly less than a t present .

15. Savings versus influence trade-off

The UK already enjoys a tailor-made, semi-detached form of EU membership – which leaves it outside two of the key areas of integration, monetary union and Schengen, but with the option of joining them any time – while Switzerland has joined Schengen. Hence, the Swiss situation’s chief attraction for the UK essentially rests on the savings the country would make if it did not have to pay member-level contributions to the EU budget. While such savings would be substantial, they should be set against the loss of influence the UK would suffer from withdrawing from the EU. In broad, as opposed to narrow accounting, terms, the costs of the latter would almost certainly be greater than the benefits of the former .

16. The impac t of possible EU restructuring

It is possible that the EU will restructure in the direction of a two-tier, core and periphery, architecture as a response to the Eurozone crisis. If so, the key question for the UK would be what level of acce ss to institutions and decision- making the ‘outer’ members would have. Should restructuring go as far as effectively marginalising the non-core countries, membership of such ‘periphery’ would come to resemble membership of the EEA. This would raise questions in the UK as to whether the terms of the trade-off outlined above would still be in the country’s interests. In such a scenario, the Swiss model might become more attractive for the UK. It would be premature, though, to assume a restructuring along these lines. While the ‘remorseless logic’ of integration, as the Chancellor put it, is certainly at play in the Eurozone, there are powerful obstacles in the way of fundamentally changing EU membership into separate ‘classes’.

17 . Conclusions

Many of the advocates of the Swiss model in the UK have an imperfect understanding of the features of actual Swiss practice and the challenges it is currently facing. In particular, they fail to appreciate that the model does not deliver free trade without regulation and that it carries high costs in terms of influence. The ‘selective’ form of membership the UK currently enjoys appears clearly superior to the Swiss model, even from a narrow cost-benefit analysis, let alone from wider considerations such as the UK’s place in the world etc. Unless the ‘constitutional’ architecture of the EU changes dramatically in the wake of the Eurozone crisis, this situation is unlikely to cha nge for the foreseeable future.

III. RECOMMENDATIONS TO THE COMMITTEE

18 . Swiss m odel unsuited to the UK

Our central recommendation is that the Committee should consider the Swiss ‘model’ of bilateral treaties as unsuited to the UK. It would be an inferior form of pursuing the country’s interests in its relations with the rest of Europe compared to the status quo, because it would mean giving up political leverage over fundamental EU decisions.

19 . December 2011 European Council and the ‘fiscal compact’

We would not over-emphasise the significance of the December 2011 European Council. While the ‘fiscal compact’ is important , it has not so far greatly impinged on thinking about the Swiss model or on actual Swiss relations with the EU. The latter continue to focus on banking secrecy, tax policy and the question of finding a mutually acceptable form of institutional an d policy cooperation. However, in line with much Swiss opinion which sees the history and structure of Swiss nation building as something which the Union should adopt, one think tank has seen it as another potential case where the EU might use Switzerland as a model. This points to the fact that the fiscal compact, assuming it comes into effect in its present form, and especially if it is incorporated into the treaty base, could well introduce a new element of EU -directed control of national e conomic and financial policies.

20 . UK position on a ‘two-tier’ EU

The UK is already in a de facto special form of membership but has full access to the i nstitutions and formal decision- making. A more formalised division into two tiers that would limit institutional a ccess and influence on decision- making would be unlikely to be in the country’s interests. The UK should thus try to retain a unified institutional structure for the EU.

21 May 2012

Prepared 18th June 2012