It’s hard to ignore Switzerland’s experience when looking at Brexit.
Here we have another country that isn’t a member of the European Union, the single market or a customs union. It’s also a country that trades heavily with the EU. And it has an arrangement that avoids passport checks at its border. Last but not least, its decision not to join the internal market was met with grave warnings from its business community that trade would be disrupted.
So where is Switzerland’s experience with the EU instructive for Brexit Britain and where does it diverge?
Similarities between Brexit Britain and Switzerland
1. Switzerland isn’t in the single market
In 1992, the Swiss voted against joining the European Economic Area or single market, which was then about to be founded. In return for full access to the single market, non-EU countries like Norway and Iceland agreed to accept all the rules of the bloc without being able to vote on them.
There have been some numbers put about on how much of a “rule-taker” these countries really are. The only figure based on official data has come from the Icelandic government, which recently declared that Iceland had only taken on 13 percent of the internal market’s regulations. That’s twice as high as the figure cited back in 2006, but may still sound surprisingly low.
The explanation is simple: Iceland and Norway don’t have to implement single market rules when they aren’t relevant to them. For instance, they both enjoy an exemption from EU rules on beehives. The EEA is really a constant negotiation between the EU and the non-EU members of the single market on whether EU rules are relevant.
At the same time, Norway has just given in and agreed to adopt the EU’s updated “Energy Package” regulations – an indication that the haggling can only go so far. The Swiss voted against joining the EEA out of concerns over national sovereignty, and not a lot of explanation should be needed that this isn’t a sustainable place for Brexit Britain, even if it has more or less accepted to be a “vassal state” during the transition period until the end of 2020.
For Switzerland, there is another, more specific reason that automatically adopting the EU’s rules wouldn’t be acceptable. As the Swiss Finance Minister, Ueli Maurer, noted earlier this year, “to completely accept EU law would damage [the Swiss] economy”, as it would threaten the existing regulatory divergence between the country’s 26 cantons.
2. Switzerland isn’t in a customs union with the EU
The Swiss have their own independent trade policy and can set higher or lower tariffs on imports. They have a trade deal with China, unlike the EU. This does mean when goods cross the border they have to be inspected, which means delays and bureaucracy, particularly for small companies.
Still, only about two per cent of road freight is physically inspected, which is about the same as the number of containers entering Europe’s second biggest port, Antwerp.
The Swiss controls are often carried out away from the border. Small traders are often not checked and technology is increasingly being used to reduce the administrative burden. Indeed, the head of Swiss customs, Christian Bock, has told MPs that he thinks a soft border on the island of Ireland could be “possible”.
To make this happen, he suggested “common patrols between the United Kingdom and Republic of Ireland”, an intelligence-led strategy to ensure safety of cross-border trade, controls away from the border, a pre-qualification system for trusted traders, and a streamlined system to manage “low-risk” or regular trade. However it still isn’t entirely clear how much “physical infrastructure” the British government, Ireland and the EU are willing to accept, and there are a host of political and cultural sensitivities to bear in mind.
3. Switzerland has a passport-free travel arrangement with the countries it shares a border with
The Swiss are a member of the Schengen Zone, which allows travel without passport checks as a general principle, although in recent years the European Commission had to allow a lot of flexibility in the implementation of this, due to the refugee crisis. The Swiss backed Schengen in a 2005 referendum with a solid majority of 54.6 %.
In Britain too there is firm support for the Common Travel Area with the Irish Republic, which was established in 1923, long before either country joined the EU. It’s important not to confuse the right to settle somewhere, called “freedom of movement” in EU lingo, with the right to cross a border without being checked. The former has been subject to heated political debates, both in Switzerland and the UK.
4. Cross-border traffic between Switzerland and the EU is much heavier than between Northern Ireland and the Republic
Roughly 30,000 people cross the U.K.-Irish border every day, while the number of people crossing the Swiss-EU border is more than 300.000. There is also more than twenty times as much cross-border shopping in Switzerland compared to the EU’s future border in Ireland.
As for trade, one can safely say that EU-Swiss commerce is of a different scale and complexity to that between Northern Ireland the Republic. The Irish border sees only about 5 billion euros worth of trade a year, a figure dwarfed by the 184bn euros between Switzerland and its four EU neighbours.
Swiss authorities open more than 30.000 smuggling cases per year. In Northern Ireland this issue isn’t entirely absent either, especially when it comes to fuel laundering and tobacco smuggling. Of course, the key difference here is the history of the Troubles, but as much as one needs to keep this in mind, it is also worth looking at certain precedents that can be helpful to provide solutions.
5. Swiss-EU negotiations got off to a bad start
The EU leadership at the time wasn’t exactly delighted to see the Swiss reject their preferred model for involving non-EU member states economically, especially just after the Danes had just rejected the Maastricht Treaty and the French had come close to doing so.
It took the Swiss and the EU at least five years – from 1994 to 1999 – to work out a deal, whereby the Swiss basically agreed to voluntarily take over EU regulations in return for market access. For the Swiss, it was important this happened “voluntarily”, so as to respect the referendum result, while for the EU it was important to have some restrictions to avoid undermining countries like Norway which had agreed to automatically accept EU rules in return for full access.
6. The Swiss government was also split on ideological lines
Even after their deal with the EU was concluded, severe ideological differences persisted. These worsened after the Swiss narrowly voted against freedom of movement in 2014, a decision which was all but ignored. Regarding an updated relationship with the EU, the seven cabinet members from the four parties that compose the Swiss government only managed to agree in March 2018 on a unified platform for talks, “a major step forward after their squabbling hampered years of negotiations and frustrated the EU”, as Reuters put it.
In a nutshell: internal divisions and some healthy political discussions shouldn’t necessarily prevent a deal with the European Union.
Areas of difference
1. Switzerland accepts freedom of movement
The British government’s insistence that freedom of movement must end after Brexit will of course make it harder to obtain concessions in other areas. Given the importance of workers from Southern and Eastern Europe for the UK economy we might expect a degree of latitude here. Perhaps maximum quota per EU member state, or another arrangement that can reassure citizens there is sufficient control.
It’s likely the final deal will contain so-called “guillotine clauses” – explicit or implicit – meaning that blowing up one part of the deal scuppers the whole thing. This was the issue with the Swiss rejecting freedom of movement in 2014: the Swiss Parliament determined that this wasn’t worth sacrificing the whole arrangement with the EU, and it decided to ignore the referendum – apart from deciding some minor policy changes – and continue with business as usual.
2. Switzerland has a much smaller financial sector than the UK
If the Swiss experience is anything to go by, the UK will be involved in continuous negotiations and adaptation of any deal on financial services long after it has left the EU. Switzerland’s weak access to EU financial service markets would be a major issue if the Swiss deal were to be cut and pasted for Britain.
If it sticks to its so-called “three baskets approach”, the UK government is likely to suggest voluntarily shadowing EU regulations for goods, so as not to disrupt supply chains, while preferring regulatory divergence when it comes to services, which account for 80% of the British economy. The UK government would try to deal with that divergence by convincing the EU that its own regulations can be considered “equivalent” to theirs. Equivalence isn’t a perfect instrument to safeguard market access, as it’s shaky, dependent on the EU’s whims and not applicable to every kind of EU regulation – but it’s the best option out there. In its dealings with Switzerland, the EU has not shied away from aggressive negotiation tactics. For example, it decided to only grant Swiss stock exchanges access to EU markets for only one year, something which was protested by Germany, Austria the UK and 8 other member states.
The lesson here is that it will be a matter of trade-offs: is the EU’s market important enough to bend regulations? For the EU, the question will be if it will be wise enough to understand that cutting off UK financial services has the potential to damage both consumer choice and financial stability. there. In any case: continuous negotiations over market access and coordinating regulation can be expected.
3.The lingering hope of EU membership
Only six months before the Swiss held their referendum in 1992, the Swiss government had submitted an application to join the EU, which they only finally withdrew before the Brexit vote in 2016. While the Swiss public emphatically rejected EU membership in a referendum in 2000, during the trade negotiations in the 1990s there was still a lingering hope that the country would one day join. For all the wishful thinking of Remainers, that dimension isn’t really there in the Brexit negotiations. This may make the EU less flexible than it was with Switzerland.
Advantages for the UK
1.The UK has a much bigger economy
Switzerland is a very wealthy country, but it doesn’t have the kind of economic clout the UK enjoys. Britain’s economy is the same size as the 19 smallest EU member states put together, something many in the EU27 still do not fully appreciate.
2. The UK trades less with the EU than Switzerland does
Switzerland exports more than half of its goods to the EU – compared to only 43% for Britain, and almost three quarters of Swiss imports come from the EU, versus 54% for Britain. Switzerland, in turn, is an important trading partner of the EU, occupying fourth place after the United States, China and Russia. If you thought the British were desperate to keep good trading links with the EU, look at the Swiss.
3. The UK is a geostrategic and security player
Perhaps even more than its economy, its weight as a security player is a key difference between Britain and Switzerland. Britain is a nuclear power which France is eager to continue working with after Brexit. Cooperating with its security services is seen as paramount to counter Islamist terror.
4. Switzerland shows you can ‘have your cake and eat it’
After the 1992 referendum, Jean-Pascal Delamuraz, a member of the Swiss government, warned that that European economic integration would go ahead anyway and that Switzerland’s “defection” would result in discrimination. In the 25 years since, Swiss-EU trade has tripled. Key to this was flexibility on both sides.
Swiss political analyst Dieter Freiburghaus described it as follows: “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.”
The Swiss agreed to some restrictions in market access, especially on financial services, where they have refused to adopt EU rules. The EU in turn agreed to grant market access for areas where the Swiss were happy to align or even go further than EU regulations.
At the moment, the EU is refusing to give Britain market access for goods if it only aligns its regulations on goods. Instead the EU insists that market access means alignment on both goods and services, without “cherry-picking” – even if that’s exactly what the Swiss do.
The EU’s refusal to countenance this type of solution is clearly unreasonable and also makes a deal for the Irish border harder. A report prepared for the Swedish government has proposed Swiss-style bilateral agreements for different sectors of the economy as a possible way to deal with Brexit. It looks like it is becoming ever harder to avoid the Swiss precedent – despite the differences – when dealing with Brexit.