Switzerland breaks off negotiations with the EU on the conclusion of an institutional framework agreement. This was announced by the Federal Council, as the government is called in Switzerland, on Wednesday afternoon in Bern. Foreign Minister Ignazio Cassis (FDP) justified the break-off in a press conference with "substantial differences" in central points of the agreement, which was negotiated for a total of seven years. The agreement was intended to secure Switzerland's access to the European single market and pave the way for the conclusion of new agreements in fields such as the electricity market and healthcare. Neither of these is now guaranteed.

Switzerland is linked to the EU via more than 100 bilateral agreements. These ensure that the export-strong country has largely barrier-free access to the European single market. The framework agreement would have affected the agreements on the free movement of persons, agricultural trade, air and land transport, and the removal of technical barriers to trade. In these fields, Switzerland should henceforth "dynamically" adopt EU law.

Until now, the agreements have had to be renegotiated each time EU law is changed, which sometimes happens only haltingly or not at all. In addition, the treaty, which has been on the table since the end of 2018, provided for the introduction of an arbitration procedure to settle legal disputes between the contracting parties.

Domestically, there was resistance from both the right and the left: The national-conservative Swiss People's Party (SVP) rejects any rapprochement with the EU anyway. Spurred on by the trade unions, the actually pro-European Social Democratic Party (SP) fought the agreement because it feared losing sovereignty over the competition-distorting toolbox to protect high Swiss wages. This, as Cassis confirmed, is one of the reasons for breaking off the negotiations.

A second reason is the disagreement with the EU on how to deal with the so-called EU citizenship directive. Its adoption could lead to an immigration of unemployed people into the Swiss social welfare system, Cassis said. The Federal Council believes that the current agreement on the free movement of persons should have been limited to EU workers and their dependents.In the short term, the failure of the framework treaty should not have any major consequences for Switzerland. The existing bilateral treaties are still valid. In the medium and long term, however, these are in danger of eroding. This will make market access more complex and more expensive.

The EU Commission indirectly announced on Wednesday that it would no longer update the agreements without the framework agreement. In the case of the medical technology industry, it has already done just that: after some legal changes in the service of patient protection, the EU refused to renew the agreement on mutual recognition of product certificates. This raises bureaucratic hurdles for exports of medical devices to the EU, but also for corresponding imports from the EU to Switzerland.

Important trading partner

Contracts that are important for the Swiss machinery, electrical and metal industries will expire in two years. With 300,000 employees, this industry is a backbone of the Swiss economy. It sells 55 percent of its goods to the EU. Its association president, Martin Hirzel, has already warned that without a framework agreement, companies would in future increasingly invest in other European countries rather than in Switzerland. Overall, around half of all Swiss goods exports go to the EU. The share of EU exports that end up in Switzerland, however, is only 7 percent.

The end of the framework agreement also means that the EU will not conclude any agreements in new fields for the time being. Among other things, this could lead to gaps in Switzerland's electricity supply. The national grid operator Swissgrid points out that without a corresponding agreement with the EU, Switzerland would be threatened with exclusion from the so-called balancing energy market. European grid operators use this to balance the grid in the event of unplanned power flows.

Swiss universities are also facing difficulties. In the future, they may no longer be allowed to participate in the EU's Horizon Europe research program, or only to a limited extent. At stake here is not only a great deal of money, but above all many groundbreaking research initiatives that take place in close cooperation among Europe's leading universities. Exclusion from this world would probably cause quite a few scientists to turn their backs on Switzerland. The many research-oriented companies that work closely with universities on a project-by-project basis and recruit staff from there time and again would also be affected.

In order to appease the EU and prevent punitive measures from Brussels, the Federal Council wants to push for the parliament in Bern to release the so-called cohesion billion. This is a CHF 1.3 billion, ten-year program to reduce economic and social disparities in the EU states. For the EU Commission, however, the cohesion billion is a kind of entry ticket for Switzerland to the European single market, which should have been resolved long ago.

Image by Erich Westendarp