Published:

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

Is the EU making a habit of alienating its neighbours? Last week, the Swiss government informed Brussels that after seven years of painstaking negotiations it was unwilling to sign a proposed “Institutional Framework Agreement” designed to consolidate and govern the Swiss-EU relationship. The breakdown between Bern and Brussels has obvious parallels with Brexit and has to some extent become intertwined with it.

Switzerland’s bespoke and often fraught relationship with the EU has developed more by accident than by design. In a referendum in 1992, Swiss voters rejected joining Norway, Iceland, and Liechtenstein in the European Economic Area (EEA). At the time, the Swiss government saw EEA membership as a precursor to joining the EU – a Swiss application for full EU membership remained dormant and was only officially withdrawn in 2016.

In the meantime, Switzerland and the EU concluded a patchwork of around 120 bilateral treaties, resulting in a high degree of Swiss integration into the Single Market – a bit less than those countries that joined the EEA but more than under the UK-EU agreement reached last year. Generally, while EEA countries are obliged to dynamically align their legislation to the evolving EU acquis, Switzerland’s arrangements have given it more autonomy over whether to adopt EU law, or equivalent standards, in order to access the Single Market.

The EU has long seen the Swiss arrangement as a problem, since it requires permanent political negotiation and, in Brussels’s words, “leads to a lack of legal homogeneity and uncertainty and ultimately to an unequal treatment of economic operators.”

Switzerland’s prized national independence and system of direct democracy notably clashed with the EU in 2014, when Swiss voters narrowly backed a referendum initiative to impose quotas on EU immigration, in violation of the Swiss-EU agreement on free movement. The Swiss government managed to implement the 2014 vote without too much collateral damage to the EU relationship (critics argued the referendum instruction was watered down), and a subsequent 2020 referendum backed free movement.

However, the 2014 episode spurred the EU into pushing for an overhaul of the Swiss relationship. The Brexit referendum and its aftermath probably encouraged the EU to be even more hard-nosed in its negotiations with the Swiss, particularly since Theresa May’s “Chequers plan” proposed a package of pick-and-choose alignment with the Single Market comparable to the “Swiss model”.

In 2018, after four years of talks, the EU informed Switzerland that it considered negotiations to have concluded. The proposed deal would see Swiss laws change in line with EU legislation, while an arbitration panel would resolve Swiss-EU disputes and, crucially, include a role for the European Court of Justice (ECJ) for the first time.

Mindful that the agreement would likely need public approval in a referendum, the Swiss government asked for more time to consult domestically, which resulted in additional demands, including exemptions from EU state aid and freedom of movement rules.

During the sporadic talks that followed, the EU sought to put pressure on Switzerland to ratify the deal by, for example, letting the “equivalence” status granted to Switzerland’s stock exchanges expire. Guy Parmelin, the Swiss President, said last week, however, that the Swiss government had concluded that the “necessary solutions” could not be reached, which is why it “decided to terminate the negotiations.”

What happens next is unclear. The Swiss say they wish to continue and develop the bilateral approach, even without an institutional agreement, which seems unlikely, since the EU appears confident it can exert further pressure to bring the Swiss back to the table. Brussels has said, that without the deal, new access to the Single Market would be impossible to negotiate and existing access agreements will “erode” over time as the body of EU law develops.

The conclusion of the UK-EU trade agreement has also changed the landscape. The UK does not have the same level of market access as Switzerland, but the UK-EU deal, with the important exception of Northern Ireland, sees no role for the ECJ or dynamic alignment with EU rules. If the post-Brexit UK is seen to be a success, Switzerland may ultimately judge that the “UK model” is better than accepting the EU’s current terms.

What lessons should post-Brexit Britain draw from the Swiss experience? Some Brexiters will feel vindicated in their view that the EU is ideological, uncompromising, and bullying. Some Remainers will no doubt say they always warned that the UK wouldn’t be able to pick and choose its access to EU markets. Ultimately, whatever one’s emotions, the effect is the same.

Unless there is a sea change in Brussels, the EU has demonstrated via its actions that the political bar for substantially closer UK-EU economic cooperation is likely to be a high one for any future UK government to pass. Now that Brexit is fact, few in the UK appear confident to make the political argument that the UK should submit to UK-EU arbitration arrangements involving the ECJ to remove some of the new trade barriers that have arisen.

Therefore, greater divergence with the EU is likely in the future, whether we like it or not. EU law will continue to change without the UK. The UK can seek to coordinate with Brussels but its agreement cannot be guaranteed. The UK should focus on exploiting the levers it can now control, be it using its own subsidy regime to encourage inward investment or to ensure the City is a leading non-EU financial centre (the UK has already reversed the EU ban on trading Swiss stocks).

Meanwhile, the UK must continue to cultivate its diplomatic relationships outside the EU. Among other things, this means implementing the Indo-Pacific tilt by developing the relationship with India and concluding trade deals with Australia, New Zealand, and acceding to the CPTPP. Yesterday, the CPTPP nations agreed to the UK’s bid to begin the formal accession process.

The UK might also find common cause closer to home with the Swiss. Not least in trying to convince EU nations that the European continent would be better served by a less short-sighted policy towards countries that have chosen a different path, but nevertheless should be some of their closest partners.