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What do these two paths of Brexit (see here and here) mean for Switzerland? The British divorce has a lot to do with the EU-Swiss discussions about their future relationship. But there is one main difference: The Swiss already have one, based on more than 120 bilateral treaties – and no vote to terminate it like the Brits. The Swiss have a bird in their hand and are discussing whether it sings sweetly or is just laughing at them. It’s the EU that wants Switzerland to have another bird, one that suits their interests. For almost ten years from the first package of bilateral treaties in 1999 the EU believed that these treaties would be a first step towards Switzerland full membership, either in the EU or at least in the EEA. And there are rumors that the Swiss even told them so. And deep in the bottom drawer of some Brussels office still was a solemn letter from May 20, 1992, in which the Swiss asked the EU for negotiations to become an EU-Member.

Around 2010 it became clear, that this was just a hope that would not come true for many years. In 2011 the EU proposed talking about a new institutional framework with the main goal to implement a new way for EU-laws to be adopted by Switzerland. The Swiss Government immediately said that this would be necessary to strengthen the so called „bilateral way“ in EU-Swiss relations. In 2012, discussions started between the EU and Switzerland about such a framework. According to some reports, the main cornerstones were fixed over a nice fondue in the old city of Fribourg. By May 2013 the two representatives signed a document, a so-called „non-paper”, as a base for the official negotiations. The Swiss acknowledged the ECJ to rule out the EU-Law but wanted another political step in a joint committee afterwards, to avoid a discussion about „foreign judges“ in Switzerland – something the EU has never accepted – and can not accept without hurting the credibility of its highest court. Since then, both sides have decided their mandates and have met for 17 rounds of negotiations on a framework, with no final agreement that suits both sides. In 2014 the Swiss voted in favor of a proposition to steer the immigration from EU-members, which contradicted an existing treaty between the EU and Switzerland and its principle of the freedom of movement of persons. The implementation was made without restricting migration and though harming the treaty. Growing voices in Switzerland, both in politics and business, say that there is no need for such a framework and if they sign one they want something for it, for instance a safeguard clause on immigration.

So even if the United Kingdom and Switzerland have a totally different starting point, the main difficulties in the case of a „soft-relationship“ are quite the same: the judicial control of the existing treaties and the common law, the implementation of future EU-Law, and immigration. Because Great Britain is a much bigger client for the EU and a much more important political power, and because there’s no immediate need for such an agreement with Switzerland, the Swiss can play for time, see what the Brits get and then ask for the same – or remain silent if they don’t like it.

But that means the two paths for Britain, Hard- or Soft-Brexit, might be the two options for the Swiss some day. Soft-Brexit would therefore mean another discussion about whether Switzerland would join the EEA. Such a proposition failed at a ballot 25 years ago. It would mean the same open borders for EU-migrants with a job as now, but a surveillance and judicial control not by EU-institutions, but by those of the EFTA, the EFTA Surveillance Authority (ESA) and the EFTA-Court, both supposedly with Swiss participation. And being a member of the EEA would mean the adoption of EU-Law anyway – something that happens today as well but is mostly well hidden in the terms of „eurocompatibility“ or „autonomous implementation“ of Swiss law – two quite orwellian descriptions of just doing what the bigger partner wants. The interesting thing for Switzerland is the possibility of a second phase of a Soft-Brexit, the two birds in the bush. If a stronger EFTA with Britain becomes something like a „continental partner“ of the EU where only the necessary rules for free trade in a common market have to be implemented and where there would be no freedom of movement of persons, this would certainly be an attractive solution for Switzerland. The country could preserve maximum of political sovereignty, and thus democratic participation of its citizens while having guaranteed access to the single market, without the regulations that damage its global competitiveness.

If Britain chooses the other path, to leave the EU with Hard-Brexit, or a transition deal that lacks the privileged access to the continent similar to the one the Swiss have right now, it would be the ultimate test for many experts who claim, that Switzerland and its economy are totally dependent on having treaties that guarantee access to the European single market. In times of accelerated globalization the words of Lord Harris of High Cross, the former director of the Institute of Economic Affairs, a famous think-tank based in London, might become truer and truer: If the European common market is globally open for free trade, Switzerland does not have to be part of it – and if it’s not, Switzerland shouldn’t.

Switzerland exports 63% of its goods and services to countries outside of the EU – and this percentage will rise even more in case of a Hard-Brexit. A highly competitive country should not be restricted by the rules of a shrinking and over-regulated common market. And in addition to that Hard-Brexit would be a test for the EU as well. If it treats the Brits with hostility and seals off British business from the market, this would be a warning for Switzerland. If the test goes wrong in any kind of way, the Swiss know what to avoid – common market or any further approach to the EU.

Switzerland already has a bird in its hand. It can wait and see whether Great Britain get a better one from the bush or even two of them. „Wait and see“ has always been a part of Swiss foreign policy. It’s not an attractive one for politicians, but not surprisingly a quite successful one for a small country.

And after all, it’s a good strategy for observing birds as well.

(Picture: Davide D’Amico / flickr.com, Creative Commons, unchanged)

The other parts of this article:
Part 1: Soft Brexit
Part 2: Hard Brexit

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The hard way for Britain to leave the EU starts with the assumption that the United Kingdom will leave the EU by the end of March 2019 regardless, even if there isn’t a deal between Her Majesty’s Government and the EU. This is explicitly stated in article 50 of the Lisbon treaty, the so-called divorce article, which was triggered by the conservative Government last March.

Therefore Hard-Brexit means leaving without an agreement – or „transition deal“ as it is usually called – on future relations between the United Kingdom and the EU. There are those, mostly Soft-Brexiteers and Remainers, who think leaving the EU, the single market and the European Union Customs Union all at once will be a complete catastrophe for British business and its exports into the EU. They are not totally wrong, because there would obviously be a period of confusion about what rules British enterprises have to follow with while exporting goods and services to the continent. The City of London is especially scared about losing market share and jobs to Frankfurt or Paris. It would not be enough for British financial market regulations to be the same as in the EU, they’d have to be officially accepted as equivalent. British goods and services would have to pass a compliance test twice: first in Britain and then, because of the lack of a conformity agreement with Brussels, once more in the EU. And there’s another problem: During the two year grace period, the European treaties not allow Britain to negotiate bilateral free trade agreements with third-party countries like the US, Canada or Switzerland. British business is therefore threatened by a „gap“ between membership in the EU and a self-made global trade policy after leaving it.

For Hard-Brexiteers, and there are quite a few in the Prime Ministers own party, this is all just fear mongering to force Britain into a deal that does not suit British interests and honouring the vote of last June. They usually say that these arguments are from the same „experts“ who predicted a catastrophic downturn of the British economy after the referendum, and were wrong. They refer to the fact that a lot of countries from outside the EU are exporting their goods and services into the EU anyway – think of China or the US. On the other hand a lot of industries from the continent sell their products to Britain, for example the German car industry, which is traditionally important for German economy and has direct ties to politics. After Brexit, Britain will be the most important external destination for EU-goods. The financial market in the City is important for EU-members and its enterprises as well. As Hard-Brexiteers point out, neither the EU nor Britain are in favor of a divorce without any deal.

Besides that quite reasonable hope, no deal would not mean complete chaos. The basic rules of such relations without a transition deal would be the law of the World Trade Organization (WTO). In the EU there is an average maximum tariff of 4,8% – not enough to threaten British businesses as the Soft-Brexiteers say. WTO-rules were not established when the Customs Union was established in 1968 and the single market came into being in 1993. WTO includes all the advantages of both, but on a global scale. Different conformity tests have always been necessary to export globally. So there wouldn’t be a bottom-less „gap“ but probably a small one. And last but by no means least for the Brexiteers: leaving without a deal would mean getting rid of the European Court of Justice and its foreign judges and of free immigration for EU-Citizens, thus the true will of the British people. Recent plans of the British Government suggest that this is very important for them.

Hard-Brexiteers see the future of British business not on the continent but in the whole world. That’s an attractive approach. It’s true that the single market is not a free-trade heaven. Its rules do make British enterprises globally less competitive. Not being a part of any of the EU-related bodies would allow the Brits to make their own deals and foster the multilateral approach through WTO. Some Hard-Brexiteers even dream of a totally new tariff policy with fever to no tariffs for incoming foods and other essential goods. This would lead to falling prices from which most people, especially the ones with low income, would benefit. But there are serious doubts that a conservative government is able – or even willing – to bring something like that through parliament, especially not after the general election, that made the Prime Minister dependent on the Democratic Ulster Party and its Members of Parliament, a small conservative party widely supported by farmers of Northern Ireland.

Will Prime Minister Theresa May really risk a Hard-Brexit and the status quo of the many but stable regulated relations with the EU? The last documents published by Her Majesty’s Government indicate a certain kind of compromise on the British side, at least about issues that were not that important during the referendum campaign such as the British-Irish border. Let’s not forget: Talking about a Hard-Brexit could also be a good negotiating tactic for Prime minister Theresa May and her Brexit minister David Davies, because no transition deal would mean at the very least no further money for the EU after 2019. That would tear a huge hole in the EU-Budget. In the first negotiation rounds there were figures of 30 to 60 billion euros as a divorce bill on the table. Without that money the EU would have some serious problems, because the coffers are empty.

Even Hard-Brexiteers admit that leaving without any deal is the „second-best option“. But article 50 has a small exit door: the European council and the UK can decide to extend the grace period – if they both agree. And there are more and more Hard-Brexiteers openly admitting that there will be such a „transition-period” of further negotiations.

For its supporters a Hard-Brexit might not be a bird in the hand, to stay with this picture from part 1, but the hope of getting one later and the guarantee of getting two birds already singing in the bush. (Picture: Davide D’Amico / flickr.com, Creative Commons, unchanged)

The other parts of this article:
Part 1: Soft Brexit
Part 3: Meaning for Switzerland

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While negotiations have started between Her Majesty’s Government and the European commission on how Britain leaves the EU, it has become clearer and clearer that there are two ways to get out, the soft way and the hard way.

The so called „Soft-Brexit“ had long been a formula for remainers to rescind the vote of last June. That has changed since the only true remainers, the Lib-Dems and the Scottish nationalists fell flat in the general election, even harder than the Conservatives, while Labour has remained at least ambiguous about Brexit.

Soft-Brexit now means leaving the EU but keeping access to the single market on the continent and staying within the European Customs Union. The easiest way to achieve this would be with a membership of Britain in the European Economic Area (EEA) through the European Free Trade Association (EFTA). EFTA is the organization which Great Britain helped to found 1960 as a European body for free trade without politics of the then European Community (EC). Thirteen years later the British turned their backs on their free-trade friends on the continent and joined the EC, who became the EU in 1992. There’s some irony that the Brits might need to return to EFTA 45 years after they left it for the EC, something supposedly to be better, but now unwanted. This would be the easiest way to leave the EU within the two years grace period fixed in the european treaty (Article 50) – which already ends in March 2019.

And there would be some economic advantages too. Since 1992 the EU and EFTA together form the European Economic Area (EEA), the largest economic free-trade area in the world, where almost 400 million people in 31 countries live and work, and where around a third of global GDP is produced. Being part of the EEA would mean the same access to the European single market for British businesses as now, because of the three principles based in the EEA-Agreement of freedom of the movement of capital, goods and services. By entering the EEA through EFTA, Britain would be able to leave the jurisdiction of the European Court of Justice (ECJ), a main argument of the Brexiteers, but become accountable to the EFTA-Court, the second pillar of the legal structure of the EEA. The EFTA-Court has an equal footing with the ECJ, but is composed of judges of the EFTA-Members who joined the EEA. That would mean a foreign court for the Brits, but one with a British judge. Koen Lenaerts, former President of the ECJ said last week in an interview that would be the best solution for both Great Britain and the EU. But there is a huge however: being a member of EFTA and the EEA means accepting the fourth principle of the single market, the freedom of movement of persons. This implies free immigration to the UK for all other members of the EEA – and that’s the opposite of what most Brexiteers wanted last year when they voted to leave.

But Great Britain back in the EFTA would strengthen the organization and its idea of free trade in Europe without further centralization and help discussions on which principles are really necessary for trade – and which are not. A paper of Brueghel, a well known think tank based in Brussels, noted last year that while the first three freedoms of movement of goods, services and capital are necessary for free trade, free migration is not. It proposed a new institutional framework for Europe instead. There should be a „continental partnership“ around the EU, argued the paper, where only the necessary rules for free trade would apply. While the paper, signed by high ranking personalities in Germany and France was officially ignored within the EU, it was widely read through administrations in Europe. The absurdity of the EEA right now is the fact that the three necessary freedoms for free trade are still not fully implemented in the single market, while the freedom of movement of persons has been implemented completely and has caused problems not just in Great Britain.

So the EEA could become a short term solution for Brexit while the EEA without free migration would be long-term paradise, not just for Soft-Brexiteers. Soft-Brexit could therefore be one bird in the hand – and two in the bush. (Picture: Davide D’Amico / flickr.com, Creative Commons, unchanged)

Preview on the further parts of this article:
Part 2: Hard Brexit
Part 3: Meaning for Switzerland

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