Why did the EU-Switzerland Framework Agreement fail?

by Prof. Dr. Dr. h.c. Carl Baudenbacher*

(8 June 2021) On 26 May 2021, the Federal Council, Switzerland’s seven-member government, broke off the seven-year negotiations between the EU and Switzerland on the conclusion of an Institutional Framework Agreement (“InstA”). Swiss friends of the InstA had tried to prevent this until the end, in part with very questionable means.

Strictly speaking, however, it was the EU that declared the negotiations over in autumn 2018. Since then, absurdly, there have been disputes over three substantive side issues. Disappointment prevails in the EU and its member states. Politicians and the media tend to blame the Swiss. This is the result of the Brussels spin and the bullshit campaign that the Swiss Foreign Ministry has been running since 2013. The Commission reacted ungraciously to the Federal Council's decision and held out the prospect of countermeasures.

The EU concluded two packages of bilateral agreements with Switzerland from 1999 onwards, including in the areas of technical barriers to trade, free movement of persons, air transport and land transport. The latter secures the EU access to Italy. With the exception of the air transport treaty, all these treaties are institution-free and new EU law is generally only adopted statically. Conflicts are settled in joint committees. Nevertheless, according to the understanding of both sides, Switzerland has become a partial member of the internal market. If you want to understand the conclusion of the two packages, you have to look to 1992.

1992: no to accession to the European Economic Area (EEA)

Back then, a narrow majority of the people and a clear majority of the cantons said no to Switzerland’s accession to the EEA Agreement. The aim of this treaty is to extend the EU single market to the participating EFTA States. To this end, these states adopt EU law dynamically. They have a co-determination right in its development. Importantly, the EFTA States have their own surveillance authority (“ESA”) and their own court of justice. Experience shows that these institutions protect the sovereignty of the EFTA States to a considerable extent. In many cases, the EFTA Court has ruled as the first court in the EEA and the ECJ has frequently followed suit. However, the EFTA Court has sometimes gone its own way even where ECJ case law exists. The Federal Council had supported the EEA proposal. However, under pressure from the Swiss Foreign Ministry (“FDFA”), it submitted an application for EU membership six months before the EEA vote. It was thus was easy for the hardened opponents of integration to argue that the referendum was not about joining the economic EEA Agreement at all, but the EU, which sought political integration.

The Grand Courtroom of the Court of Justice of the European Union. The CJEU would have played a decisive role in dispute resolution under the failed Switzerland-EU Institutional Framework Agreement. Baudenbacher describes the CJEU as a world court with which he had worked closely as a judge and President of the EFTA Court. In the case of Switzerland, however, the CJEU would have lacked neutrality. (Picture Gerichtshof der Europäischen Union)

“Docking” of Switzerland with the EFTA Court?

The Federal Council officially pursued the goal of EU accession after the rejection of the EEA. However, there was never a majority of voters and cantons in favour of this. When it became increasingly clear that Switzerland would not become an EU member state, the EU demanded a change to dynamic adoption of the law and the establishment of an institutional framework for the bilateral agreements from 2008 onwards. As the Commission was aware of Switzerland’s thin-skinnedness in the matter of “foreign judges”, it made a generous offer: Switzerland should negotiate with the three EEA/EFTA States Iceland, Liechtenstein and Norway on the right to “dock” with the institutions of the EFTA pillar, ESA and the EFTA Court. This would have meant that the bilateral agreements between Switzerland and the EU would have been subject to these two bodies. Switzerland would have been able to provide one ESA college member and one judge in each of the cases concerning it. The EFTA Court would have been a party-neutral court for Switzerland. At the same time, the country could have maintained its sectoral approach; it would, unlike Iceland, Liechtenstein and Norway, not have had to adopt the entire internal market acquis. The traditional Swiss bilateralism would thus have mutated into a hybrid model with bilateral and multilateral elements.

Bullshit in the moral philosophical sense

In 2013, the FDFA, led by Foreign Minister Didier Burkhalter, rejected this proposal and relied on a different model. According to this model, no special supervisory body should be set up. In the event of a conflict, however, the Commission should have the right to bring Switzerland unilaterally before the ECJ. The Commission would thus be Switzerland’s de facto surveillance authority. Of course, the intention behind this plan was to set a “point of no return” towards EU membership.

In order to disparage the idea of docking with the institutions of the EFTA pillar, the leadership of the FDFA launched a campaign putting out countless allegations, which were meant to convince regardless of their truthfulness. It was bullshit campaign as defined by the American moral philosopher Harry G. Frankfurt. The two biggest deceits were:

1. If the EFTA Court ruled in favour of Switzerland in an infringement case brought by ESA, the EU would not be bound by the ruling.

2. The ECJ would, if required, merely issue “advisory opinions” for the attention of the Joint Committee.

Surprisingly, this met with the approval of the foreign policy commissions of parliament, the cantons and the trade associations. Negotiations were conducted on this basis from 2014. In the spring of 2017, however, it became clear that the non-party-neutral ECJ would not be able to command a majority in Switzerland. Foreign Minister Burkhalter resigned, something that only happens once in a blue moon in Switzerland. His successor Ignazio Cassis promised to “reset” the EU dossier. As things stood, this could only mean “docking” and thus the renunciation of the “point of no return” towards EU accession.

Under the influence of his bureaucrats, however, the new foreign minister did not find the reset button. Brussels, of course, was not unaware that the ECJ model was based on untenable assumptions, but when Bern indicated once again that it did not want docking, the Commission put on the table a monitoring and judicial model it had developed for the former Soviet republics of Georgia, Moldova, Ukraine and Armenia and which is also foreseen for the former colonies of European powers in North Africa.

The “Ukraine model” provides that in the event of a conflict, the Commission was to be entitled to appeal to a an “arbitration panel”, which, however, would have had to ask the ECJ for a binding ruling whenever EU law or treaty law with the same content was at stake. That means basically in every case.

The Federal Council accepted this in March 2018 and presented it as a great breakthrough. In July 2018, the UK Government under Theresa May also swallowed the Ukraine model. From then on, the FDFA claimed that the “arbitration panel” under the EU-Switzerland agreement would have considerable powers of its own because Bern had negotiated more successfully than London. This was the prelude to other mendacity.

Switzerland’s university professors, including some who in 2013 had rejected the ECJ in a letter to the Federal Council, sided with the majority of the Federal Council. Some of them repeated the fairy tale about the alleged independence of the “arbitral tribunal”. Others conceded that the ECJ would call the shots, but consoled themselves with the sentence that it was a respected court. The latter is undeniable, but it does not change the fact that the ECJ lacks neutrality.

Differences on three side issues

Then, in the course of 2018, it became clear that there were differences on three substantive issues that, at the EU’s insistence, were also to be addressed in the Framework Agreement: On wage protection in the case of working across the border, on whether the EU Citizenship Directive is part of the free movement of persons, and on the ban on state aid.

At the end of 2018, the EU declared the negotiation process complete and asked the Federal Council to sign. The latter published the draft text took refuge in a “consultation” of key stakeholders and sent the chief negotiator on a PR tour with the mission to sell the Ukrainian mechanism to the Swiss public. After the conclusion of the consultation, the Federal Council informed the Commission in June 2019 that it saw a need for clarification on the three points mentioned. The Federal Council accepted the Ukraine mechanism despite considerable criticism. Given its questionable role in 2013/2014, this was probably an attempt to save face.

The Federal Council subsequently did nothing more to defend the model with the sham arbitration court. However, the chief negotiator, who had praised the mechanism all over the country, was dismissed and his successor was instructed to conduct renegotiations on the three side issues. The fact that Boris Johnson’s Government was able to avoid the Ukraine model in the Christmas Eve 2020 Trade and Cooperation Agreement, despite pressure from the Commission, caused some irritation even among supporters of the Framework Agreement.

At a meeting between the President of the Swiss Confederation, Guy Parmelin, and the President of the Commission, Ursula von der Leyen, on 23 April 2021, it was found that a solution was not even possible with regard to the three side issues.

Positions of the actors in Switzerland

The major political parties were almost all split on the InstA issue. The SP, which is pro-EU in itself, has its hands tied because of the unions’ resistance to a relaxation of wage protection. The Greens are in a similar situation. The conservative SVP is against any agreement. In the FDP, the party of foreign ministers Burkhalter and Cassis, there is a diametric contradiction between a delegate resolution rejecting the Ukraine model and a parliamentary group resolution supporting it “out of common sense”. The centre party is also divided, although its leader has called the InstA “toxic” because of the role of the ECJ. Unreserved support for the InstA came only from the Green-Liberals. The main business associations have long campaigned for the signing of the InstA, but in the last year the debate has been dominated by new groupings of successful global companies opposing the treaty. Even the powerful Swiss Trade Association has joined the movement.

And now?

There was great consternation in the Berlaymont [Headquarters of the European Commission in Brussels]. The European External Action Service ("EEAS") had shown the Swiss all the tools of torture via Twitter the night before in an embarrassing action for the case of non-signing and threatened with an ice age. It was the low point of a campaign that the EEAS has waged since 2019. The Commission practices a policy of punishment that is difficult to reconcile with good faith and alienating towards an old friend like Switzerland.

Without claiming to be exhaustive, the following may be mentioned: The discriminatory denial of stock market equivalence as of July 1, 2019; the exclusion of Switzerland from the European System of COVID apps; the discrimination against Switzerland in the control of the (already controversial) vaccine trade; the threat, expressed contrary to explicit commitments, to exclude Switzerland from the Horizon 2020 research program; the threat, expressed contrary to explicit commitments, to no longer update the existing bilateral agreements, in particular the agreement on technical barriers to trade, without the conclusion of the InstA.

The refusal to agree to the U.K.'s accession to the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters is an unfriendly act toward the EFTA states of Switzerland, Iceland, and Norway, which have agreed to the U.K.'s accession. In all these cases, the EU is also harming itself. In refusing to accept the Swiss COVID app, it is even endangering the lives of its own citizens. But that doesn't seem to bother the Brussels hardliners.

Secret report of the federal administration is leaked

The Helvetic InstA friends were similarly desperate. A secret report from the federal administration listing possible negative consequences of an exit was leaked to state television. A criminal investigation is now underway because of it. Members of the Foreign Policy Committee of the National Council, the Grand Chamber of Parliament, entered into side negotiations with Eurocrats and promised to ensure that in a referendum only a popular majority would be required, not a majority of the cantons. On social media, there were also calls for criminal proceedings. The tabloid “Blick” reported a "Europe chat" in which Swiss parliamentarians and professors joined EU representatives in criticizing Justice Minister Karin Keller-Sutter and disparaging Migration State Secretary Mario Gattiker. German Ambassador Michael Flügger was also part of the chat.

Underestimated influence of Swiss civil society

The InstA stood on feet of clay from the very beginning. The FDFA's attempt to smuggle the country into the EU through the back door, so to speak, failed. The FDFA overlooked the fact that questions of sovereignty have been part of every foreign policy debate in Switzerland since the Second World War. It overlooked that the separation of economic cooperation and political integration is deeply rooted in Swiss civil society – much like in the UK. To the haughty DFA officials, the desire for the "point of no return" toward EU accession was more important than the sober analysis of how Switzerland's relationship with its most important trading partner could be further developed while safeguarding its own interests. The Commission for its part could not resist the temptation to subject recalcitrant Switzerland to de facto supervision by itself and the jurisdiction of the ECJ. In doing so, it overestimated the assertiveness of the FDFA and underestimated the influence of Swiss civil society on European policy.

According to the opinion expressed here, Switzerland should now rely on the docking model. But whether docking would still be an option in 2021 is an open question. Should this not be possible, Switzerland would probably only be left with a path similar to that of Great Britain: leaving the Single Market with dynamic adoption of law, supranational surveillance and supranational judicial control, and retreating to a mere free trade model. By sticking to their deficient negotiating strategy for years and years, the Federal Council and the Commission would then have failed to integrate Switzerland permanently into the single market. Even from such a “Swexit” the world would not end, and nor would Switzerland. But it would not be good news for the further cohesion of the EU.

(Reproduced with kind permission of the author, 3 June 2021)

* Carl Baudenbacher is a Swiss lawyer. Since May 2018, he has worked as an independent arbitrator and consultant to companies, law firms, governments and parliaments, inter alia at Monckton Chambers in London. In 2020, he was appointed Visiting Professor at the London School of Economics (LSE). In May 2021, he became Senior Partner of Baudenbacher Law, Zurich. From 1995 to April 2018, Baudenbacher served as a judge of the EFTA Court in Luxembourg, and its president from 2003 to 2017. From 1987 to 2013, he was a full professor at the University of St. Gallen (HSG) and between 1993 and 2004, he was a Permanent Visiting Professor at the University of Texas (UT) in Austin.