The new agreements are significantly better than the framework agreement
Philipp E. Zurkinden was highly critical of the framework agreement in 2019 when advising Parliament. With the new agreements, the advantages are likely to outweigh the disadvantages, he says in an interview with NZZ journalists Katharina Fontana and Fabian Schäfer.
Mr Zurkinden, in 2019 you prepared two opinions for Parliament on the then framework agreement with the EU. Your conclusion was very negative. How do you assess the new agreements negotiated by the Federal Council?
They are significantly better than the framework agreement. The shift from a horizontal to a vertical approach is positive: each area, whether the free movement of persons or land transport, was negotiated separately. The Free Trade Agreement is no longer part of the package. The super-guillotine clause has been dropped, so future sectoral agreements could be terminated without the other agreements falling away. Research cooperation will continue, and Switzerland would also gain access to the European Union Agency for Railways and the relevant electricity trading platforms. All of this is advantageous and should be regarded as a success.
But?
Nothing has changed with regard to the dynamic incorporation of EU law or the role of the European Court of Justice, the ECJ. In the areas concerned, the initiative for new legislation will no longer come from the Federal Council or Parliament, but from the European Commission. There will be restrictions on direct democracy. If voters can say no to new EU law but must then expect compensatory measures, that is no longer the system we know today. These are certainly difficult changes for Switzerland and they should not be played down. On the other hand, they are limited to those areas in which the Swiss economy wants access to the internal market. Ultimately, politics must decide whether the advantages are worth this price.
You praise the vertical approach. But each agreement states that the institutional solutions are common to “all existing and future bilateral agreements”. Does that not amount to the same thing as the horizontal framework agreement?
The advantage is that Switzerland was able to negotiate specific provisions for each agreement and limit their scope. In land transport, for example, the scope is limited to international transport. There are also exemptions in electricity and land transport from the obligation to incorporate new EU law.
But if Switzerland accepts the agreements, that means future agreements will also have to provide for the same rules.
That is essentially the case. From the EU’s perspective, it is clear that the dynamic incorporation of EU law and supervision by the ECJ must also be included in future agreements. It is demanding the same, for example, of the United Kingdom, which is likewise negotiating sectoral access to the European internal market. There is no way around that.
What does it mean for Switzerland’s political system if it concludes the agreements?
We must accept that, in the areas in which we participate in the EU internal market, the EU has the right of initiative and uniform rules apply to everyone. At the same time, one must bear in mind that under the Bilaterals I Switzerland has incorporated more than a thousand EU legal acts – voluntarily. That puts the whole issue back into perspective.
But it is one thing for Switzerland to consider a rule sensible and adopt it voluntarily, and another to be contractually compelled to adopt even changes it does not want, under the threat of compensatory measures.
One can see it that way. I nevertheless assume that the EU will distinguish between a new EU legal act being rejected by the Federal Council, by the Federal Assembly, or by the people in a referendum. The Common Understanding states that the EU respects Switzerland’s system of direct democracy. On that basis, we have good grounds for asking the EU to exercise restraint in its response when the people reject something in a referendum.
There are other countries, such as Canada, that have concluded trade agreements with the EU without having to adopt the institutional superstructure.
But those are not integration agreements of the kind Switzerland wants on a sectoral basis. One must not forget: Switzerland wants access to the EU internal market, so it must also accept the conditions. That means the EU will, in principle, not treat us differently in the areas concerned from its own member states.
The Federal Council assumes that, as a third country, Switzerland will retain a certain degree of latitude in the interpretation of EU law.
This presumably refers to the so-called Polydor doctrine. I consider that expectation too optimistic. In my view, the Polydor doctrine is not a reliable safety net. If one assumes that the agreements are focused on sectoral integration, it will be difficult to justify special treatment for Switzerland. On that assumption, the ECJ’s case law on EU law is likely, in principle, to apply to Switzerland as well in the areas concerned.
Supporters of the agreements argue that the dispute-settlement procedure provides formal legal certainty. Opponents point to substantive legal uncertainty because no one knows which EU rules Switzerland will have to adopt in future. What is your view?
I tend to see the advantages of formal legal certainty. When Switzerland scrapped the framework agreement in 2021, the EU caused us enormous problems in relation to technical barriers to trade. Nothing was updated any longer. Switzerland had no means of defending itself; it was at the EU’s mercy. With an obligation to dynamically incorporate EU law, the situation is different. Switzerland can refer matters to the Joint Committee and then to the arbitral tribunal.
And what about the uncertainty over which new rules from Brussels will apply to Switzerland in future?
They are limited to the scope of the agreements. That provides a certain degree of protection. In addition, a stronger presence in Brussels would make it possible to anticipate proposals that the European Commission is preparing.
Is that really so? The EU recently adopted new rules for unemployed cross-border commuters that would cost Switzerland several hundred million francs. Many people here were taken by surprise.
Under the new agreements, Switzerland will have to organise itself differently; that is absolutely essential. It must be present in Brussels, with the best experts it has. Decision-shaping cannot be done from Bern. Experts must be on the ground and contribute their expertise. They must know the languages, understand the close-knit world of the EU and build alliances with like-minded countries. That can make it possible to identify legislative developments, influence EU legislation and mitigate rules that would be harmful to Switzerland. Building up this staff is absolutely crucial. It will cost something, but it is worthwhile in every respect.
A possible dispute is already emerging: there are moves in the Swiss Parliament to continue requiring all EU companies posting employees to Switzerland to lodge a security deposit. The agreements do not permit this. How would the EU react if Switzerland nevertheless maintained the deposit requirement?
It is quite possible that the arbitral tribunal would require Switzerland to accept compensatory measures because the deposit requirement breaches the wage-protection rules. Perhaps in the first dispute the EU would not yet deploy its full arsenal and would grant Switzerland a longer transitional period. We do not know. In any event, the Federal Parliament should think very carefully about what it is doing here. Even under the existing system, Switzerland has interpreted the rules on the free movement of persons very much in its own favour through its far-reaching wage-protection provisions.
There were concerns that the framework agreement would have led to a renegotiation of the 1972 Free Trade Agreement. The EU has wanted this for a long time; Switzerland is opposed, among other reasons because of the farmers. What changes under the new agreements?
I see no indication whatsoever that the EU could demand a modernisation of the agreement on the basis of the new agreements. It is not mentioned anywhere in the package.
But the new agreements do not prevent the EU from putting political pressure on Switzerland, for example by threatening once again to exclude it from research programmes.
I see that differently. The fact that the Free Trade Agreement is no longer mentioned shows that Switzerland prevailed on this point and that the EU accepted it. If the EU nevertheless tried later to put us under pressure, that would breach the principle of good faith.
A major issue is state aid, such as subsidies or tax concessions: under the new agreements, Switzerland would have to adopt EU state-aid law in transport and electricity. How significant is that? What, for example, would the consequences be for SBB?
The principle that all purely domestic land transport is unaffected seems clear. My experience, however, makes me somewhat doubtful that matters are quite so simple. What happens if the Confederation subsidises a railway line that ends in Basel but clearly has effects on international connections? The EU could try to exert influence in such cases as well. SBB apparently sees no such risks. I assume it has studied these cases. Similar considerations apply to the electricity market.
Can you elaborate?
The electricity agreement contains many exemptions for subsidies, for example for reserve power plants or renewable energy. It is certainly a negotiating success that the EU agreed to this. However, most of the exemptions are limited to six years. That allows for an orderly transition but provides no lasting certainty. In the medium term, the same state-aid rules will apply in Switzerland as in every EU country.
Does that mean that, in the electricity sector, all state aid for which exemptions initially exist will eventually disappear?
I would like to know that too. All the authorities and industry associations I ask say they do not expect any problems. But so far there are no clear answers. I consider it unrealistic that Switzerland will have to abolish all state aid. The EU permits numerous forms of state aid, especially for renewable energy. But Switzerland will hardly be able to maintain every subsidy. At least one thing is guaranteed: even if individual aid measures were to be deemed inadmissible, the EU could not demand retroactive repayment.
Until now, Switzerland has regulated subsidies politically; now it would adopt EU law. In cultural terms alone, that would be a major step, particularly for the cantons. Is that a good idea?
I would have greater concerns if the incorporation were not limited to transport and electricity and to cross-border situations. Switzerland can take this risk. EU state-aid law has developed enormously over the decades, and the rules have steadily become more complex and comprehensive. Over roughly the past five years, however, I have observed a consolidation and the number of legal acts is declining. Today I consider state-aid law manageable. Here too, the decisive point is for Switzerland to position itself well in terms of expertise: the Confederation and the cantons need excellent lawyers who fully understand EU law and can clearly demonstrate to Brussels that Switzerland is complying with the rules.
But it is clear that Switzerland would also have to adopt the same state-aid rules in future agreements on other subjects.
That is likely to be the case. Switzerland would then have to decide, with regard to the agreement in question, whether it is willing to accept that. In principle, state-aid rules make sense; they enable fair competition. And despite everything, the effects are not as serious as they are often portrayed. In my view, for example, the vast majority of cantonal banks would have nothing to fear: their tax concessions or state guarantees would hardly be at risk because they operate only domestically. If the aid were nevertheless considered inadmissible, the issue could probably be remedied through an appropriate payment to the canton as compensation for the guarantee. A legal dispute in the EEA concerning the state guarantee of Liechtensteinische Landesbank demonstrated this years ago.
You have pointed to risks concerning state aid, as well as restrictions on direct democracy. In your view, does the Federal Council communicate these disadvantages of the package clearly enough?
In my perception, the information today is more restrained and more candid than it was with the framework agreement. There are certainly still points that are presented too imprecisely, but compared with the half-truths that were sometimes circulated in the past, that seems less serious to me. I also expect Parliament, in the forthcoming debates, to press the Federal Council to clarify open questions. For example, it should be possible to say approximately how many incorporations of EU law are to be expected under the individual agreements.
What is your overall assessment of the package now on the table?
It is certainly a difficult balancing exercise, with open questions. It is true that direct democracy is affected. But this is limited to a few specific areas in which we already incorporate large amounts of EU law today. Above all, one must also see the advantages: access to the internal market, which is important for the economy, and cooperation in areas such as research, education and electricity. Overall, I think the benefits outweigh the drawbacks. If we want to retain integration into the internal market, we must accept the incorporation of law limited to the economic sectors concerned. Opponents of the agreements are right on individual points, but they too cannot offer a credible alternative.
If we vote no, the existing agreements will remain in force. Is that not an alternative?
No, because the status quo would not last long. The EU’s reaction would be fierce. I thought it was right for the Federal Council to abandon the framework agreement. But after years of negotiations, the EU regarded that as an affront. If we now give it the cold shoulder for a second time, it will not simply accept that. At the very least, I expect it once again to block the agreement on the removal of technical barriers to trade and to exclude us from research programmes.
Would that be so bad? The economically most important agreement, the free movement of persons, is hardly likely to be terminated by the EU because it is important to the EU as well. The same applies to land transport.
I would not be so sure. Given how the EU’s view of Switzerland has changed, I would not rule out a reaction driven partly by pique. In any event, it has a number of levers it can use to harm us – just think of the electricity market. We should not push things too far.
But ultimately cooperation is also in the EU’s interest. What alternatives to the present package do you see in the medium term?
The EEA is the option most likely to come back onto the agenda at some point. However, I am not sure whether Norway, which tends to act rather self-centredly and today dominates the EEA, would even want Switzerland to join.
Would the disadvantages for Switzerland in the EEA be smaller than under the current package? Integration would go further, and direct democracy would also be restricted.
Yes, but we would no longer be alone; we would form a “club” with three other countries. That has disadvantages because coordination is necessary. But if that succeeds, the negotiating position vis-à-vis the EU is stronger. Switzerland would also be represented on the EFTA Court. From today’s perspective I cannot envisage another path, but I am happy to be surprise