Switzerland’s decision to pull the plug on seven years of painstaking negotiations with Brussels that were meant to forge a closer, more stable trading relationship with the EU has none of the drama of Brexit. But it could do long-term harm to the Swiss economy which has benefited enormously from almost full access to the EU’s internal market. Inevitably it also underlines the difficulties the EU seems to have regarding living with its neighbours. To lose your biggest European trading partner, Britain, may be viewed as a misfortune. To lose your second biggest, Switzerland, may look like carelessness.
Swexit is like Brexit in that two ancient democracies, chafing at the price tag and conditions of market access, have chosen a looser, more distant relationship, the costs of which have been grossly underplayed by their political elites. Britain banked on commercial interests in other EU countries pushing Brussels to preserve the terms of trade. Switzerland has fallen for the same delusion.
There are also differences. Switzerland actually wants closer ties with the EU, in energy or health for example. British trade with the EU has slumped this year. The consequences of Berne’s decision to junk talks with the EU will be a gradual degradation in its market access: a slow-motion Swexit.
In 1992, Swiss voters decided against upgrading their two-decade free trade agreement into full single market membership. But in the years since that landmark decision, Switzerland has joined many aspects of the market and other areas of co-operation under a patchwork of bilateral agreements. The country enjoys among other things frictionless trade in goods, trade in services, travel free of border checks, the right to live and study across the EU, mutual recognition of professional qualifications and access to EU research and education programmes.
When the EU tired of endless negotiations and haggling by Bern — such as withholding budget contributions as a bargaining chip — it insisted on a framework agreement. This would have upgraded and updated Switzerland’s market access agreements while establishing new governance arrangements, requiring Switzerland to align its rules whenever the EU updated its regulations. There would have been a mechanism for resolving disputes.
The Swiss government signed this agreement but then failed to sell it back home. Critics began to pick it apart, saying it would undermine Switzerland’s immigration policy and wage protections. Brussels made some special concessions to meet Swiss concerns, including a 90-day limit on foreign companies providing services to protect Swiss labour markets. But Switzerland’s nationalist right and the trade union supporting left in effect joined forces to kill it off.
Some Swiss opponents of the framework agreement claimed the EU’s insistence on dynamic alignment of rules would have overturned Switzerland’s cherished system of local and direct democracy. But the country has been an EU rule-taker for decades. And unlike the UK, which secured more flexibility in its trade deal with the EU, Switzerland enjoys practically full integration in the single market. According to one study, it benefits more from it per capita than any EU country.
Those benefits will now erode as the EU updates its rules and Switzerland loses equivalent status. It has already lost it in stock exchanges and medical instruments. Swiss companies are resilient. A strong currency is probably a bigger headache than regulatory disruption. One of the richest countries in the world will become a little less rich. That is Switzerland’s sovereign decision. But it can no longer expect special treatment.