In economic terms, Switzerland’s bilateral treaties with the EU have served the country well. The winners have included not just big business, but small and medium sized companies and consumers too. Terminating the accords would be too risky, because they have created an unprecedented inter-relationship between Bern and Brussels, and Switzerland cannot turn the clock back. There are also no suitable alternatives: negotiating a deeper free trade agreement would be too time consuming and not necessarily guarantee adequate access to the internal market. Similarly, the advantages of joining the European Economic Area (EEA) would not justify the inevitable loss of sovereignty. Continuing the “bilateral path” is the best option – not least because Switzerland itself has an inherent interest in maintaining the free movement of people. So immigration should best be tackled by policy adjustments at home. 

The European Union is Switzerland’s most important trading partner. In 2014, EU countries took 55% of all Swiss exports and accounted for 73% of imports. The data for immigration is similar. In 2013 62% of all immigrants came from the EU, while 50% of all those emigrating from Switzerland headed for EU states. There is hardly an EU member as “European” as Switzerland. Over the past 13 years, the bilateral treaties have led to an unprecedented economic inter-relationship.

But for some time now, the “bilateral path” has been in limbo and losing support in Switzerland. Uncertainty has ruled about how to implement Switzerland’s February 2014 referendum calling for curbs on “mass immigration”.  Meanwhile, Brussels has pressed for bilateral relations to be develop a more institutionalised framework to ensure homogenous implementation of internal market law and unified legal interpretation and resolution of disputes.

In a comprehensive new book, Avenir Suisse looks at the costs and benefits of the bilateral treaties. Steering clear of party politics, it examines the alternatives by theme and sector.

A positive economic balance

Economically speaking, the result of the bilaterals has been unambiguously positive.

  •  The biggest beneficiaries of lower export barriers (agreements on technical trade barriers) have been small and medium sized businesses. Above all, these have included many innovative small companies. The broad mix of exports has stabilised foreign trade. But contrary to expectations, the agreements have not led to higher export volumes.
  • Swiss consumers have also gained from the accords on technical trade barriers. Lower obstacles – particularly the harmonisation of product norms – have facilitated imports, boosting competition in the domestic market. The EU has expanded its role as Switzerland biggest source of imports.
  • About 70% of Swiss air links involve transport to or from the EU. The bilateral air transport agreements have boosted Swiss liberalisation, lowering prices and improving connections for air travellers. The bilateral agreement on road and rail transport has seen the EU acknowledging Switzerland’s policy of encouraging rail over road for transalpine goods transport, opening the way for Bern’s performance-related heavy vehicle charge and two new transalpine rail tunnels.
  • Traditional trade is increasingly giving way to cross border value added networks with just in time production and delivery processes. They are totally dependent on uninterrupted exchanges of intermediate goods across frontiers. Abolishing the previous advance registration procedure (the so called 24 hour rule) in the bilateral agreement on easing customs restrictions was a foundation stone of Switzerland’s bilateral relations with the EU.
  • From a Swiss standpoint, allowing the free movement of people has reinforced the strong economic growth characteristic of global trade since 2003. Robust domestic consumption also helped the country to see through the “great recession” of 2009-9 better than most counterparts.
  • The slowdown in per capita growth since 2009 stemming from declining productivity improvements was a global phenomenon. As a result of the free movement of persons, Switzerland’s production processes became more labour intensive, which subsequently hampered productivity and per capita growth.
  • Although part of Switzerland’s improved productivity was countered by shorter working hours or more part time work – factors not visible in per capita gdp data – immigration partly compensated.
  • High immigration also helped to cushion some of the problems associated with an ageing population, such as the lower proportion of active citizens.
  • Immigration did not, as feared, lead to a displacement of existing staff but instead primarily reinforced the labour market and eased the shortage of skilled workers.
  • The “payoff” from immigration (in the form of additional growth) was not distributed equally. The initial beneficiaries of a more open labour market tended to be larger companies and immigrants themselves. But smaller and medium sized companies also gained, as higher growth compensated for lower demand for workers with mid level qualifications. Greater competition was most evident in the market for highly educated staff.

More flexibility through decentralised and steered immigration

Seen against the former quota system for immigration, the free movement introduced under the bilaterals has had only a very modest impact on rising foreign numbers. Three quarters of the new immigrants would have come anyway, because Swiss immigration policy was always based on economic need. The big advantage of free movement lies in the fact that it functions in a decentralised and un-bureaucratic way, leaving no room for otherwise harmful politically biased regional or structural policies.

The relatively high educational and vocational training standards of immigrants also underlines Switzerland’s self interest in preserving free movement – albeit with certain important adjustments.

Immigration should be controlled by combining a long term overall ceiling with short term curbs as required. Additional measures could reduce “pull” factors in the labour market and allow Switzerland to regain national control over immigration. Those could include increasing the proportion of women in the labour force, steps to allow greater flexibility for older people to work and a freeze on new public sector jobs. .

What else?

Another reason not to terminate the bilateral treaties is the lack of suitable alternatives:

  • The 1972 Free Trade Agreement (FTA) no longer meets the needs of business, as it is focused primarily on customs and based on now antiquated rules.
  • Not even the WTO is an appropriate fallback. It has itself lost importance, as regional trading blocs have progressively replaced multilateral trade arrangements. It remains to be seen to what extent the TTIP agreement between the EU and US might affect Switzerland.
  • Negotiating a new FTA would take a great deal of time and lead to great uncertainty.
  • Joining the EEA would provide only limited benefits to industry, though it would facilitate the Swiss financial sector’s access to the EU market. But it would involve a substantial loss of sovereignty.

In sum: a unilateral termination of the bilateral treaties would be risky. Swiss business is intertwined with the EU. Turning the clock back 15 years is not possible – and the costs of termination should not be underestimated. Future developments in the EU itself should also be born in mind. Although further political integration may grind to a halt given Britain’s threatened exist, the internal market looks set to deepen further in important areas, such as digital services and unified capital markets.

So there is no need to throw out the baby with the bathwater. Switzerland can implement the “anti-mass immigration” referendum legally and politically without terminating its agreement to free movement. The bilateral path has offered the greatest possible proximity to the EU, while maintaining national independence. For the time being, and for all its weaknesses, it remains the best alternative.