EU Neighbourhood Watch – Monitoring EU relations with the UK and Switzerland – February 2022

"Neighbourhood Watch" by exfordy is licensed under CC BY 2.0

Every month, Brussels Report’s editor-in-chief Pieter Cleppe provides an update on how EU interactions with its economically most important neighbours, the United Kingdom and Switzerland, have been going.   

Over the last month, a welcome development in EU-Swiss relations was Germany’s employer federation issuing a call for better relations between the EU and Switzerland, just ahead of the visit of new Swiss President Ignazio Cassis to his German counterpart Frank-Walter Steinmeier and new German Chancellor Olaf Scholz – where the German dignitaries merely encouraged Switzerland to stay on the path of rapprochement with the EU.

According to the BDI, there were “significant economic disruptions in trade between the EU and Switzerland, especially of medical products and, in the foreseeable future, in machinery”, warning that “in view of geopolitical tensions, a protracted conflict with Switzerland is unnecessary.”

Perhaps this may help to relaunch serious talks between the EU and Switzerland, which is the EU’s fourth trading partner, after the Swiss government blew up negotiations over a new institutional mechanism that would see Switzerland – indirectly – subject to the highest EU Court. If no agreement is found, this could “make our relationship obsolete at some point”, European Commission vice-President Valdis Dombrovskis has commented. Still, the BDI sided with EU Commission demands, arguing that “a binding dispute settlement mechanism and the uniform interpretation of internal market law by the European Court of Justice are imperative.”

“A slap in the face for the European Commission”

At least an early Swiss victory was just secured, as medical technology products that are certified in Switzerland will continue to be recognized by Germany in the future, despite the European Commission’s objections. According to NZZ, this constitutes “a slap in the face for the European Commission, but a victory for economic reason”.

Another point of contention is Swiss access to the EU’s “Horizon Europe” research programme. Unlike other “third countries” like Turkey, Israel, and Moldova, Switzerland only enjoys partial access to this programme, an EU sanction imposed on Switzerland for not accepting the EU’s demands on the institutional relationship. Swiss researchers receiving Horizon Europe cash for research must now conduct their work outside Switzerland. Swiss universities and business federations just issued another call urging the Swiss government to make sure full access is restored, but this may be easier said than done. One glimmer of hope is that the Austrian Member of European Parliament tasked with the EU-Swiss relationship, Lukas Mandl, has criticized the EU’s move over Horizon.

A “step-by-step” Swiss Brexit?

According to Markus Notter, the President of the “Europa Institute” at the University of Zurich, “every year that Switzerland doesn’t make a fresh start with the EU plays into the hands of those who just want a free trade agreement [with the EU]. A step-by-step Swiss Brexit is in progress”, as “the UK is serving as a model post-Brexit for some voices on the right and left.”

Swiss President Cassis has issued a call for a new package of bilateral agreements, but details on what the Swiss want remain scarce. This is also the case because Swiss political parties remain divided on the matter. While the Christian Democrats and the liberals consider sectoral agreements a better alternative to an overall institutional framework, the social democrats want a proper, more comprehensive “stabilisation agreement”. The right wing Swiss People’s Party is closer to the idea of a “Swiss Brexit”, while the greens plan to launch a popular initiative to enshrine closer cooperation with the EU into the Swiss constitution.

UK-Swiss joint opposition against EU initiatives is anyhow already visible with the opposition coming from both countries against the European Union’s attempt to end protections for investments in fossil fuels in the Energy Charter Treaty (ECT), as they have pledged not to withdraw from the treaty in case the EU’s proposed reforms are rejected. In my view, it is likely that ultimately, the EU will follow the UK and Switzerland here, given how the high energy prices are completely changing the debate on energy policy in the EU, not only forcing a more positive attitude towards gas, following the failure of renewables to become a reliable energy source, but also driving renewed appreciation for nuclear energy, particularly in France and the Netherlands, which have now both announced to build new nuclear plants.

On the EU-UK front, tensions continue

Meanwhile, the tensions between the EU and the UK on the implementation of the Brexit deal continue, resembling some kind of an eternal loop, with similar patterns returning. The latest skirmish was UK PM Boris Johnson – embattled at home over the so-called “partygate” scandal accusing the European Union of implementing part of the Brexit agreement covering trade with Northern Ireland in an “insane and pettifogging way”, complaining it was stopping some food deliveries and creating other difficulties.

At the end of last year, UK Brexit negotiator David Frost resigned over potential UK concessions. British Foreign Minister Liz Truss took over his role, but personalities do not seem to matter all that much here. Fundamentally, intrusive intra-UK checks between Great Britain and Northern Ireland – to which the UK signed up in order to avoid checks and a hard border on the island of Ireland – will always be sensitive for any UK government. Now that the Northern Ireland Assembly Elections are coming up in May, a deal will become even harder to reach. The European Commission thinks that therefore, the deadline for a deal really is the end of February. Unfortunately, according to the latest reports, “zero progress” would have been made on the matter.

Post-Brexit bureaucracy

Meanwhile, the entry into force of more post-Brexit bureaucracy has led to more queues of lorries around Dover, which is the hub lorries need to pass to get from the UK to the EU. Many businesses, smaller ones especially, are struggling to cope with all of that. New bureaucracy was also introduced for businesses wanting to bring food into the UK from the EU.

Still coming up are new EU biometric checks, which will be introduced in nine months time. The chief of Dover port has warned that this may lead to huge disruption to holidaymakers and could see tourist traffic at the crucial ferry port grind to a halt.

When it comes to finance, an area where the UK is general more liberal than the EU, the UK seems to have implemented new Basel capital rules more strictly than the EU. Those new rules are reportedly expected to enable EU banks to use less capital when they make loans to corporates without a credit rating than their UK competitors. This should reduce their lending costs, disadvantaging the UK’s financial sector.

Still, however, in other areas, the EU is taking a more restrictive approach than the UK, which may help London consolidate its position as the world’s leading financial centre, something which was only just confirmed by a new City of London Corporation report, despite many predicting London would lose its gold medal here due to Brexit.

At least one great development over the last month was the removal of Covid travel restrictions between the EU and the UK, as in the UK pretty much all Covid restrictions were scrapped. Let’s hope this may inspire ongoing negotiations over the reduction of Brexit bureaucracy.

A version of this article was originally published by Swiss magazine Nebelspalter.