Restructuring our partnership with Switzerland

POSITION | EUROPEAN POLICY | EU FOREIGN RELATIONS

Restructuring our partnership with Switzerland A positive agenda for EU-Swiss relations

19 January 2022

German industry regrets that the negotiations on the EU-Swiss Institutional Framework Agreement have been terminated. The termination has already caused considerable economic disruptions in the bilateral trade between the EU and Switzerland. The certification of medical products is currently particularly affected. Further negative effects are already on the horizon for industries such as mechanical engineering. Steps need to be taken to prevent long-term strategic damage to the economic momentum of the whole European region.

Many SMEs and larger companies from Germany have in-depth economic relations with Switzerland established over many years. With a combined foreign trade volume of over 101 billion euros in 20201, Germany is Switzerland’s biggest trade partner 2 and Switzerland is the EU’s fourth largest trade partner.3 Switzerland is also one of the top five destinations and origins of foreign direct investment to and from the EU. 4 With 1.4 million EU citizens and around 344,000 cross-border commuters, Germany’s bilateral relations with Switzerland is also very important for German labour market policy, e.g. in research.5 It is therefore very much in Germany’s economic interests to maintain and strengthen the traditionally very good relations with its southern neighbour.

German industry calls on both sides to resume constructive talks swiftly. The EU should indicate that it remains open to a model that provides for the closest possible economic ties. It must be absolutely clear that the same rules have to apply to all members of the EU internal market and these rules need to be enforceable. Piecemeal agreements cannot meet this objective so there must be a package solution to govern the relations between the EU and Switzerland. This package deal must not fail to address core institutional issues. The rights and obligations of both sides set out in this deal need to be evenly balanced to ensure stability.

1

Ranking of trade partners in German foreign trade -2020 (destatis.de) Statistics of Swiss foreign trade 2020 | Swiss Federal Statistical Office (admin.ch) 3 What if there is no Institutional Framework Agreement (IFA)? - Publications Office of the EU (europa.eu) 4 Foreign Direct Investment stocks at the end of 2019 - Products Eurostat News - Eurostat (europa.eu) 5 What if there is no Institutional Framework Agreement (IFA)? - Publications Office of the EU (europa.eu) 2

Restructuring our partnership with Switzerland | A positive agenda for EU-Swiss relations

Both parties must agree to not dismantle the current framework (particularly the Bilateral I Agreements). Switzerland’s decision to pay its cohesion contribution is a positive indication of the country’s political reliability.

In future talks, the strategic policy aspects and technical operating measures should be weighed up carefully and measured against the interests of the European Union. Relations between the EU and Switzerland should be oriented towards the overall objective of the EU to contribute to shaping global policy and based on the principles of balanced mutual relations and Open Strategic Autonomy.

The EU’s new Switzerland strategy should be structured along the core priorities of the European Commission, which includes the twin transformation (green and digital), the organisation of strategic dependencies of the EU, and the global competitiveness of the European economy. On the Swiss side, it would be good if Switzerland could be more specific about its possible cooperation to these ends.

The talks need to sound out both institutional and substantive issues.

Collaboration going forward should be guided by the following principles: Green deal and transformation of the economy The transformation of European industry to carbon neutrality must be managed in such a way as to preserve its competitiveness. The depreciation of the large-scale investment required for this transition will place a massive economic burden on corporate balance sheets. Making efficient use of existing infrastructure on the continent is therefore all the more important and will require the following: ▪

Energy partnerships, e.g., in electricity, to increase market efficiency potential as part of an institutional package deal. Integrating Switzerland can optimise the design of the electricity market.

▪

Optimal integration of existing storage capacities in Switzerland into the EU infrastructure. This is particularly important on the path to making the energy supply on the whole continent carbon neutral.

▪

Minimisation of potential grid fluctuations and supply shortages by holding dialogue on regulations. Outages in the Swiss energy supply would quickly result in production downtimes and lead to unpredictable disruptions in supply chains involving German and European companies.

▪

Stepping up plans to expand infrastructure, particularly in areas close to the borders.

▪

Strengthening sustainable transport corridors. Germany, in particular, should prioritise and drive forward the expansion of rail transport via the Rhine rail route.

Strategic dependencies of Europe in the global economy The European economy is facing considerable challenges caused by disruptions to global supply chains. Europe will only be able to stand tall against other economic regions if it manages to stabilise its supply chains. Relations between the EU and Switzerland must remain dependable. Talks with Switzerland must therefore work towards:

2

Restructuring our partnership with Switzerland | A positive agenda for EU-Swiss relations

▪

Maintaining the common customs security area between the EU and Switzerland and ensure that both sides implement security-related developments (including ICS2). The common customs security area may otherwise break down through failure to act and negligence. The common customs security area should be addressed separately from the market access issues that commonly form part of traditional free-trade negotiations.

▪

Ensuring that Switzerland, which is strong in research and innovation, continues to be a key partner for European companies. Research collaboration with Switzerland can contribute to the sovereignty and open strategic autonomy of Europe. In Horizon Europe, the EU’s largest current funding programme for research and innovation, and related programmes and initiatives, Switzerland is treated as a non-associated third country, much to the detriment of industry. Switzerland and the EU have been collaborating successfully in the area of research and innovation for many years. The participation of Switzerland in the EU funding programme for research and innovation is important for German companies and for a flourishing European innovation ecosystem. A full association of Switzerland to Horizon Europe should therefore be the objective of both Switzerland and the EU to ensure that this highly innovative country with a strong research sector can continue to be an important partner for European companies.

Switzerland should be able to participate on a par with other third countries (such as Israel, Turkey, and EEA countries) irrespective of the overall relations between the EU and Switzerland.

▪

Securing the continuation of the agreement on technical barriers to trade between Switzerland and the EU (Mutual Recognition Agreement, MRA). The MRA greatly reduces technical barriers to trade and ensures equal market access conditions in key industries. The foreseeable further erosion of the MRA threatens to undermine the stability of supply chains and with it the strategic autonomy of the EU. If the relations between Switzerland and the EU unravel in this way, competing economic regions stand to benefit, further weakening the strategic autonomy of the EU on a global level.

▪

That both parties pursue solid, innovation-friendly regulations to protect intellectual property at the WTO level.

Competitiveness and industrial policy The intense and reciprocal exchange of goods also exemplifies the close collaboration between European and Swiss companies. Minimising the economic fallout of more difficult political parameters will require: ▪

The continuation of an effective regulation of products. As mentioned above, dismantling technical barriers to trade and preserving the system coherence for placing products on the market necessitates mutual recognition in relation to conformity assessment. Bilateral talks should hold on to the preference of multilateralism in setting standards as an essential foundation for the mutual recognition of conformity assessment and the corresponding certification. The EU side should, in particular, be aware of the importance of preserving production and supply chains for medical products in the short term to ensure comprehensive patient care during and after the pandemic.

▪

Improved transparency in relation to state subsidies. Both parties are called on to keep subsidies that have a negative impact on the other party’s market as transparent and low as possible. With no binding or legally enforceable bilateral agreements, one-sided but

3

Restructuring our partnership with Switzerland | A positive agenda for EU-Swiss relations

diplomatically coordinated steps are an option. This could and should pave the way to a political solution in the form of a mutually binding procedure for subsidy policy.

6

▪

A level playing field for all important partners of the EU in Europe. The introduction and structuring of LPF rules should not stand in contradiction to the EU-UK TCA. The rules should be designed to achieve an appropriate balance of rights and obligations. Internal market regulations must continue to be set out by the ECJ.

▪

Reinstating stock market equivalence with the objective of making financial market regulation as congruent as possible throughout Europe. Such congruency would also provide for macroprudential stability in the future.

▪

Close collaboration in structuring the internal market for data – also with an adequacy decision6 and supported by a robust political agreement.

▪

Dismantling unfair barriers to the freedom to provide services in the form of disproportionate wage protection regulations and comparable bureaucratic requirements, notification lead times and limited deployment contingents. This would result in efficiency gains on both sides in cross-border value chains as European suppliers have faster response times.

See Art. 45 Regulation (EU) 2016/679.

4

Restructuring our partnership with Switzerland | A positive agenda for EU-Swiss relations

Imprint BDI – Federation of German Industries Breite Straße 29, 10178 Berlin, Germany www.bdi.eu T: +49 30 2028-0 Authors Paul Maeser Senior Manager T: +49 30 2028-1545 p.maeser@bdi.eu

BDI publication number: D1486 This translation is based on “Die Partnerschaft mit der Schweiz neu gestalten | Eine positive Agenda für die EU-Schweiz-Beziehungen” as of 19 January 2022.

5