Europe wants to become more digital. But for this to happen, barriers slowing down innovation and trade in the digital economy must be removed.

In 2015, the then EU Commission President Jean-Claude Juncker developed the Digital Single Market (DSM) strategy to do just that via measures to promote innovation and trade. The EU wants to harmonize digital commerce rules in the European Economic Area and determine ways to promote digitization. The measures cover areas such as cyber security, free data traffic and consumer protection, ranging from general guidelines such as ethical ground rules for artificial intelligence to concrete laws, such as the General Data Protection Regulation (GDPR). EU institutions, for instance, are debating the responsibility of online intermediaries, such as YouTube or TikTok, regarding content posted on their platforms.

Switzerland’s role as a third-party country

Cultural and social networking with EU member states has gained new dimensions through digitization and access to the internet. With the EU as Switzerland’s most important trading partner, the Swiss must ask themselves what role the development of the DSM plays for them? Switzerland would value both participating in this digital economic area and in research for new technologies.

The last official report on Swiss strategy regarding the DSM dates from 2019. In it, the government emphasized many DSM regulations already adopted or planned were relevant for Switzerland and that, depending on the field a dialogue, an association or even a bilateral agreement with Brussels would be needed. However, the collapse of talks on a broader framework agreement governing relations between Switzerland and the EU have complicated matters, as updating existing agreements and concluding new ones has become considerably more difficult.

In the areas of 5G telecommunications and electronic identity national solutions compatible with EU regulations are needed. (Ben Vaughn, Unsplash)

Areas of current special interest for Switzerland

Online commerce: One focal point of the DSM strategy is online commerce. Take the modernization of online purchase contract rules to promote access to digital content and simplify online trade. Consumers are increasingly buying on digital platforms and becoming less interested in a product’s country of origin or where a given service is provided.

Thanks to simplified online trade, companies can sell across the entire EU area. A 2020 survey by the Zurich University of Applied Sciences showed that around a quarter of Swiss online retailers exported. The fact that this figure was not higher was partly due to customs hurdles. Foreign online retailers found it equally unattractive to ship to Switzerland. That limited supplies to Switzerland and helped maintain relatively high domestic prices – to the detriment of Swiss consumers. An agreement with the EU could ease matters, but negotiations are blocked by the impasse over the framework agreement.

Ban on geoblocking: In the past, online stores were allowed to sell the same product at different prices in different EU countries. Since December 2018, this practice, enabled by so-called geoblocking, has been banned under the DSM. The EU regulation on measures against unjustified geoblocking and other forms of discrimination based on nationality obliges retailers to treat online shoppers from other EU member states like domestic consumers and grant them access to the same prices and terms.

The rule does not affect Swiss buyers, as it applies only to the EU market. However, the rules do apply to Swiss suppliers operating within the EU – meaning different conditions exist in Switzerland and the EU for companies and consumers. The situation could to be clarified with an agreement, but this is now apparently blocked too.

Adjusting data protection: A perennial issue in the digital economy is data protection. Data is particularly important in the services sector, which accounts for 30 percent of total foreign trade in Switzerland. To ensure smooth trade, data protection rules applicable in Switzerland must be compatible with those of the EU. In 2018, the EU adapted its data protection directive – known as the GDPR (General Data Protection Regulation). Based on this, the Commission can decide whether non-member states provide adequate protection. If the answer is positive, personal data can flow from the EU (and Norway, Liechtenstein and Iceland) to the third-party state (such as Switzerland) without any further protective measures.

Switzerland’s data protection law was last classified as equivalent in 2000, before GDPR. That meant Switzerland had to adapt its rules to continue to be recognized – a step taken in 2020. However, the new Swiss rules probably won’t come into force until mid-2022 at the earliest. It also remains to be seen whether the law will be recognized by the EU. If not, Swiss companies risk being prohibited from processing EU customer-related data (or at least will face greater difficulties in doing so). Consequently, Switzerland’s strong digital links with the EU have led many Swiss companies to already adapt to GDPR to continue supplying EU customers.

Research and new technologies: To boost further development of the DSM, part of the research funds for the EU’s Horizon Europe program – around four billion euros – will be invested in the further development of new technologies next year. The Commission has also launched Digital Europe, a complementary funding scheme aimed specifically at digitization. This is intended to channel strategic funding into the development of supercomputing, artificial intelligence, cybersecurity, better digital skills for citizens and greater dissemination of digital technologies in society and the economy. The budget: 7.5 billion euros. Switzerland (named the most innovative country in Europe by the Commission in June 2021) would especially benefit from participation. But here too, Bern has been excluded because of the failed framework agreement and been classified as a non-associated third country in Horizon Europe.

Not only is it of interest to Switzerland – as a center of research – to take part in these schemes, it is also important not to be excluded from discussion about future rules. As with online trading, the intensity of bilateral economic links means the Swiss benefit variously from regulatory harmonization with the EU. That applies equally to ethical guidelines on artificial intelligence and standards of cyber security. Swiss companies operating in or exporting to the EU must comply with EU regulations. Bilateral cooperation on such issues also makes sense geopolitically. Just think, for example, about projects such as a European cloud solution for data storage.

The lack of framework agreements

In many areas (unlike data protection law) Swiss companies cannot adapt to EU rules on their own. In 5G telecommunications, or electronic identity, for example, national solutions are needed. But in both areas, development in Switzerland has been slow. Cantonal and regional moratoria are hindering the roll out of 5G, while voters recently rejected the bill on the legal basis for an e-ID.

Participation in digital trade and research has been further complicated – and in some cases even made impossible – by the breakdown of negotiations on the framework agreement. In these circumstances, it is all the more welcome that the federal administration stated its intention to carry on talking to the EU about new regulations in its DSM report in 2019. In that report, the authors anticipated that some new EU rules would come into force in 2021–22. It is now crucial that Switzerland takes up discussions and does not fall behind.