Switzerland and the EU – a sectoral relationship

The previous step in our course week has provided an overview on the Swiss–EU sectoral/bilateral law. We now turn to the nature of this legal system, beginning with its substantive content. At this point in time, our focus is on the economic agreements and on their selective nature with respect to the extension of the European Union’s (EU) internal market to Switzerland, notably if compared to European Economic Area (EEA) law.

Indeed, the Swiss–EU agreements provide for only partial participation of Switzerland in the EU’s internal market. For example, of the ‘four freedoms’ that characterise that market, the Swiss–EU law does not include the free movement of capital, though it should be added that, to a certain extent, the Union’s rules on the free movement of capital also apply to the movement of capital between the EU and third countries. This is a special characteristic that does not exist with respect to the other freedoms. So, from the unilateral perspective of Switzerland, the lack of an agreement on this issue does not have the same consequences as in other fields.

With respect to the other three freedoms (goods, persons, services), the Swiss–EU agreements do address them, though none of them fully. For example, long-term economic activities (ie freedom of establishment, as a sub-aspect of the free movement of persons) of companies and firms are covered only very selectively. There is a special agreement on insurance, and the agreement about air transport covers (among other issues) the establishment of air transport companies. In contrast, the agreement about the free movement of persons grants that freedom only to natural persons (ie human beings).

As for the free movement of services (ie economic cross-border activities that are carried out only for a short period of time or occasionally), the Swiss–EU agreements in this respect include air and land transport. However, other services are covered only to a certain extent. In particular, there is no agreement that would fully cover financial services, such as those of banks and insurance businesses. We will return to this issue in our last course week.

In fact, not even with respect to goods is there total free movement. There are Swiss–EU agreements about industrial, agricultural and processed agricultural goods. In particular for the latter restrictions remain, with the exception of cheese for which there is real free movement. In practice, this means that there may be legal limits on ‘shopping tourism’ in terms of the quantities of goods that can be bought. For example, people can import only up to 1 kg of butter and 1 kg of meat (except venison) from an EU country into Switzerland without having to pay customs duties. (Note that the question of what value-added tax (VAT) needs to be paid is an additional issue.)

Further, in some fields the EU has adopted detailed common rules that harmonise the hitherto diverging national laws of the Member States. Such legislation may contain rules that make economic activities of businesses in non-Member States difficult. An interesting example is the EU’s environmental legislation on the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). Switzerland has a strong chemical industry that is affected by these rules. Another example is the Union’s common legislation on trade in electricity. Switzerland plays an important role in this field and for that reason has been negotiating for many years with the Union on an agreement on this issue.

In all of these cases, the lack of common rules may have an adverse effect on the chances of Swiss businesses to be active on the large market of the EU – and of course also vice versa, though obviously the Swiss market is a lot smaller and the effect for the EU Member States of a missing agreement is considerably lesser than for Switzerland.

At the same time, it may also be positive not to have common rules, at least from a certain perspective. For example, there are no common VAT rules, ie on the internal taxation of goods and services. This means that Switzerland remains free to maintain its comparatively low VAT rates. Also, the lack of a customs union and of other common external trade law means that Switzerland remains free to conclude trade agreements with other countries. However, it also means that Switzerland is not automatically a party to the negotiation of very large agreements such as the EU–US Transatlantic Trade and Investment Partnership (TTIP) (now abandoned) or to agreements such as those concluded by the EU with Canada and Japan.

Overall, it is important to understand that the Swiss–EU bilateral agreements cover only a fraction of the many areas that are, today, part of EU law. In our next step, we will invite you to reflect on whether Switzerland should aim at concluding new agreements, and if so, in what areas.

Further reading

Check out the website of the Federal Customs Administration (FCA) for more information on what can be imported into Switzerland custom free.