DIRECTORATE-GENERAL FOR EXTERNAL POLICIES POLICY DEPARTMENT
IN-DEPTH ANALYSIS Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
Author: Aydan BAHADIR
ABSTRACT
EU-Switzerland relations have been strained since the anti-immigration initiative of February 2014 when the Swiss people voted to cap EU immigration, calling into question the fundamental principle of free movement underpinning EU-Switzerland bilateral relations and the EU Single Market. However, the recent ‘domestic preference light’ proposal, to implement the outcome of the vote by giving preference to Swiss residents in job recruitment in sectors with high unemployment, could provide a solution to the crisis. The EU sees the proposal as a step in the right direction as it removes quantitative limits. However, it still has concerns that some of the proposal’s provisions may not be compatible with the EU-Switzerland agreement on free movement and that its implementation could discriminate against EU citizens residing in Switzerland.
FOR EUROPEAN PARLIAMENT INTERNAL USE ONLY
DG EXPO/B/PolDep/Note/2016_212 EN November 2016 © European Union, 2016 Policy Department, Directorate-General for External Policies
This paper was requested by the Delegation for relations with Switzerland and Norway and to the EU-Iceland Joint Parliamentary Committee and the European Economic Area (EEA) Joint Parliamentary Committee English-language manuscript was completed on 18 November 2016. Printed in Belgium. Editorial Assistant: Ifigeneia ZAMPA Feedback of all kind is welcome. Please write to the author: [email protected] To obtain copies, please send a request to: [email protected] This paper will be published on the intranet site of the European Parliament's policy departments. The content of this document is the sole responsibility of the author and any opinions expressed therein do not necessarily represent the official position of the European Parliament. It is addressed to the Members and staff of the EP for their parliamentary work. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy. Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
Table of contents
1 Key issues and developments 4
2 European Parliament–Switzerland: Milestones 5
3 Political situation in Switzerland 5 3.1 Overview 5 3.2 Political system 8 3.3 Federal Assembly 8 3.4 The Swiss government and presidency 10 3.5 Foreign policy and international relations 12
4 Economy and trade 14 4.1 Overview of the economic situation 14 4.2 Trade 18
5 EU-Switzerland relations 19 5.1 Free movement of people 21 5.2 Institutional framework 26 5.3 Taxation of savings 27 5.4 Schengen and Dublin (migration issues) 27 Switzerland is part of the Schengen and Dublin systems. 28 Switzerland is becoming a transit country for refugees. 28 5.5 Other issues in bilateral relations 28 5.6 Policy options 30
6 Map of Switzerland 31
3 Policy Department, Directorate-General for External Policies
1 Key issues and developments
• The right-wing, anti-immigration Swiss People’s Party (SVP) won the biggest share of the vote (29.4 %) in the federal elections in October 2015, which were overshadowed by voters’ concerns about the migration crisis. The SVP also gained a second post in the government. The SVP’s increased presence in the parliament and government has shifted Swiss politics to the right and poses challenges in the discussions with the EU on free movement crisis. • The political agenda continues to be dominated by efforts to find a way to implement the outcome of the anti-immigration initiative of February 2014 that is acceptable to the EU while maintaining Switzerland’s bilateral ties with the EU. • Swiss politicians are now focusing on a recent proposal called ‘domestic preference light’, a light implementation of the initiative giving priority to Swiss residents in job recruitment in the sectors with above-average unemployment rates. The proposal is seen as the most promising solution so far to the dispute with the EU over freedom of movement as it does not impose immigration quotas or give preference to Swiss nationals and so would not compromise the Free Movement of People Agreement (FMOP). • The EU sees the proposal as a step in the right direction as it does not involve quantitative limits to immigration. However, it still has concerns that some of the proposal’s provisions may be incompatible with the FMOP and that in practice its implementation could discriminate against EU citizens residing in Switzerland. • The EU continues to insist that the complex set of bilateral EU-Switzerland agreements should be replaced with an institutional framework agreement before Switzerland is allowed further access to the Single Market. The EU’s position has hardened with a view to the negotiations on the UK’s withdrawal from the EU. Switzerland is resisting the EU’s pressures about the framework agreement because of sovereignty concerns and it does not want this linked to be linked to the FMOP. Nevertheless the negotiations on the framework agreement still, albeit sluggishly, continue. • The rise in the value of the Swiss franc has not been as damaging as was feared because the economy has adjusted well but the high franc is continuing to put pressure on the economy. • New tax reform that will replace the distorting tax regime with new competitive, internationally agreed tax measures will be voted in February 2017. • Switzerland has stepped up its domestic and international efforts to fight terrorism. It published its first ever national counter-terrorism strategy in 2015.
4 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
2 European Parliament–Switzerland: Milestones
23-24 November 2016 The 35th EU-Switzerland inter-parliamentary meeting (IPM) will be held in Strasbourg. The agenda includes the future institutional framework for EU- Switzerland relations; free movement of people; economic and political challenges to the future of the Single Market; free trade agreements; migration issues; combating terrorism. 12 June 2015 The 34th EU-Switzerland IPM was held in Zurich. The agenda included debates on institutional framework for EU-Switzerland relations, the free movement of people, migration issues (Schengen/Dublin) and the Transatlantic Trade and Investment Partnership (progress in negotiations and potential impact on the internal market). 18 December 2014 The 33rd IPM was held in Strasbourg with topics including the future institutional framework for EU-Switzerland relations, free movement of people, migration issues (Schengen/Dublin) and research cooperation (Horizon 2020 and Erasmus programmes). 14-15 October 1981 The first annual EU-Switzerland IPM was held in Strasbourg.
3 Political situation in Switzerland
3.1 Overview
The anti-immigration Swiss People’s Party (SVP) won the biggest share of Following its victory in the vote (29.4 %) in the federal elections in October 2015, which were dominated federal elections in October by voters’ concerns about the migration crisis. The party picked up 11 more 2015, the populist Swiss seats reaching 65 seats, a third of the 200-seat lower house. The SVP was People’s Party (SVP) now followed by the Social Democratic Party (SP) with 43 seats (three seats less), has 65 of the 200 seats in the Liberal Party (FDP) with 33 seats (three seats more) and Christian parliament and two posts in the government. Democrats (CVP) with 27 seats. These parties, often called the government parties, are represented in the seven-member Swiss Federal Council (Swiss government). While the configuration of seats in the upper house did not change much, the SVP won a second seat in the government in the subsequent Federal Council elections in December 2016. The SVP has been an unsettling force in the consensus-driven Swiss political system. Its increased presence in the parliament and government has shifted Swiss politics to the right and creates challenges in the discussions with the EU regarding limiting immigration from the EU.
Bilateral relations with the As in the previous year, the political agenda and the government continue EU have been severely to focus on finding an EU-compatible solution for the implementation of tested since Switzerland the anti-immigration initiative of February 2014, which has seriously voted in February 2014 to strained EU-Swiss relations. Implementing the results of the vote would curb immigration. This is severely undermine the free movement principle that EU-Switzerland incompatible with the EU bilateral relations and the EU Single Market are based on. Implementing principle of freedom of immigration caps would not only be incompatible with the Free
5 Policy Department, Directorate-General for External Policies movement. Movement of People Agreement (FMOP) but would also put at risk the whole series of Bilateral I treaties with the EU, essential for the functioning of the Single Market. The result of the popular vote has also disrupted the negotiations on a comprehensive institutional framework agreement, crucial for the future of EU-Switzerland relations. While the result of the vote stemmed from rising anti-immigration sentiment among the population, a survey conducted in May showed that the majority (54 %) of the Swiss people would prefer to preserve the country’s bilateral agreements with the EU even if that meant disregarding the result of the 2014 popular initiative1. In November 2014, Swiss voters also rejected an initiative called 'Ecopop' proposing stricter anti-immigration limits. Bilateral consultations on The Federal Council is having a hard time resolving the political and legal how to solve the freedom stalemate created by the February 2014 vote. On the one hand, it has to of movement dispute are implement the new constitutional provisions introduced in conformity with continuing on an informal the antiimmigration’ initiative by February 2017; on the other hand, it seeks basis. ways to maintain and further develop relations with the EU. The EU totally
rejected renegotiation of the FMOP with a view to introducing quotas and national preference. Consultations on how to solve the problem continue on an informal basis between the Commission and Swiss authorities with the most recent meeting taking place between President Juncker and President Schneider-Ammann in Zurich on 19 September 2016. While in Zurich, President Juncker stated that ‘even though many open issues remain, talks are moving in the right direction.’ Now in light of the heightened debate on the withdrawal of the UK from the EU, the EU has hardened its position of making no concessions to Switzerland by making clear that it will lose access to the Single Market if it goes ahead with plans to impose controls on the free movement of EU citizens. The EU is also insisting on replacing the bilateral track with an institutional framework agreement before allowing Switzerland further access to the Single Market (such as the electricity and financial services sectors). Because of sovereignty concerns, Switzerland is resisting pressures on the issue of the framework agreement and rejects the linkage between the FMOP and an institutional agreement (for more details see Chapter 5).
Swiss politicians are now After long and heated debates on how to solve the free movement focusing on a proposal problem in the past two years, Swiss politicians are now focusing on a called ‘domestic preference recent proposal called ‘domestic preference light’, giving priority to Swiss light’ that would give residents in job recruitment in the activity areas with high unemployment priority to Swiss residents in rate. This softer implementation of the ‘anti-immigration’ initiative is seen job hires in sectors with as the most reasonable solution to the free movement problem with the EU high unemployment. as it does not impose immigration quotas or give preference to Swiss nationals — hence it would not compromise the FMOP. The original version of the draft implementation law smoothly passed the National Council (lower chamber). However, on 7 November, the relevant committee of the Council of States (upper chamber) adopted a stricter version of the law
1 The Local CH, ‘Survey: tighten borders but keep EU accords, say Swiss‘, 19 May 2016
6 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
which obliges employers to first interview the candidates suggested by the local employment agencies and to justify it if they don’t hire these candidates; failing that would imply fines. The draft law will be voted by the The EU is concerned by the plenary on 30 November. However, the draft text may still change by then certain provisions of as business circles and some parliamentarians have serious concerns that its ’domestic preference light’ implementation would create an extra administrative and financial burden proposal and worried that this implementation in with no tangible benefits. The EU sees the current proposal as a step in the practice still discriminate right direction as it removes quantitative limits. However, it still has against EU citizens residing concerns with the compatibility of some of the proposal’s provisions with in Switzerland. the FMOP and is worried that its implementation in practice could still discriminate against EU citizens residing in Switzerland. Once the parliamentary process is over the Federal Council is expected to prepare a referendum on a constitutional amendment in line with the new law (for more details see chapter 5.1).
The impact of the Pension system reform, the impact of the strong Swiss franc on the appreciation of the Swiss economy, infrastructure problems in the French-speaking part and franc has been less severe boosting the counterterrorism-related security sector have been other than feared but it remains a topical issues in Swiss politics in the past year. On 15 January 2015, the risk. Swiss National Bank unexpectedly abandoned the exchange rate ceiling for the Swiss franc (CHF 1.20/EUR 1.00). This prompted a rapid appreciation of Swiss franc and economic indicators have worsened in 2015. The appreciation of the Swiss franc has not been as strong as feared, and economic activity and growth levels began to recover in 2016 because economic sectors managed to adjust well to the strong Swiss franc. But it still continues to put pressure on the economy and a further appreciation still remains a risk due to the global economic situation.
New corporate tax reform In June both chambers of the Swiss parliament approved the final package will be put to a corporate tax reform package (CTR III) which replaces privileged tax popular vote in February regimes — criticized by many, including the EU, because of their distorting 2017. It will replace the effect — with new attractive and internationally accepted tax measures. current distorting tax The reform package includes several notable tax reform measures related regimes with new to federal and cantonal tax laws which may have a significant impact on competitive and internationally accepted multinational enterprises doing business in Switzerland. The reform will be measures. put to a popular vote in February 2017 and if it passes it is expected to take effect on 1 January 2019.
The Federal Council has been dealing with the Nuclear Energy Exit strategy for a while. A ’nuclear phase-out initiative’ to accelerate the process will be voted on 27 November and seems likely to be accepted given the high approval rates in recent public surveys2.
Switzerland has stepped up In view of the increasing terrorist threat in Europe, Switzerland has taken its domestic and measures to prevent radicalisation and to boost counter-terrorism services international efforts to fight by modernizing the security services with a view to easing investigations
2 Tages-Anzeiger, Atomausstieg: Ungebrochen hohe Zustimmung, 04.11.2016
7 Policy Department, Directorate-General for External Policies terrorism. and electronic surveillance and by increasing the number of positions and funding for these services at federal and cantonal level3. Switzerland’s first ever national counter-terrorism strategy was announced in 2015. It involves measures for tackling radicalization and the phenomenon of foreign fighters. The country is also actively contributing to international counter- terrorism efforts and closely cooperating with the EU in this area.
3.2 Political system
The Swiss Confederation is a federal state consisting of 26 cantons4. It is a The Swiss political system is parliamentary democracy with pronounced features of a direct democracy. characterised by direct Many legislative initiatives are only adopted after a referendum, which has democracy and a led to a consensus-oriented approach. The Swiss emphasis on agreement consensus-oriented also contributed to the political continuity of the federal government from approach. 1959 until 2007, when it was jointly run by all four of the country’s major
parties. At that point, the SVP moved to become an opposition party for a period of one year after its key personality, Christoph Blocher, failed to receive Parliament's consent to become a member of the government. Executive and legislative powers are limited at the federal level. In The cantons enjoy constitutional terms, the cantons are sovereign in all areas that are not considerable political power and autonomy, in specifically entrusted to the federal government. Cantons therefore wield particular over public considerable day-to-day political power and enjoy a large degree of services and taxation. autonomy, in particular over public services and taxation. A prominent characteristic of the Swiss political system is its provisions for direct decision-making by citizens, which exist at the federal, cantonal and local level. At the federal level, laws and international treaties passed by the parliament are submitted to a referendum if requested by eight cantons or 50 000 individual votes. There are also provisions for 'citizens’/popular initiatives' proposing changes to existing legislation, including the constitution5. The number of popular initiatives and referendums has increased significantly in recent years.
3.3 Federal Assembly
The Federal Assembly The Federal Assembly consists of two chambers: consists of two chambers. • The National Council (the lower chamber) is made up of 200 members and represents the country as whole rather than cantonal
3 On 25 September 2016, the Swiss electorate also accepted a new Intelligence Service Act, providing the federal intelligence service with up-to-date means for gathering information adapted to the new threats and to technological advances. 4 20 of 26 cantons are considered full cantons, 6 are considered half cantons because they originated from internal divisions in three cantons. For more info see Switzerland's Political Systems, Direct Democracy 5 In Switzerland, two kinds of popular ballots exist: The votes initiated by the state are named as referendum, those initiated by citizens are named popular initiative. Any voter who manages to collect 100 000 signatures within 18 months is entitled to trigger a vote.
8 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
interests. It is elected for a four-year term by proportional representation.
• The Council of States (the upper house), with 46 members, represents the cantons: each canton elects two members6 according to various electoral systems.
The two chambers have identical powers: a bill is only passed when both
adopt it. Political groups in the Federal Assembly include members of the party or Five members are needed members of different parties with similar agendas. A political group is to form a political group. therefore not necessarily the same as a party, and party discipline is not
strictly enforced in the Assembly. To form a political group, at least five The Swiss Federal Assembly is not made up of members must band together. professional, full-time Unlike most parliaments, the Swiss Federal Assembly is not made up of politicians. professional, full-time politicians. The members of both chambers (Councils) exercise their mandates as an accessory activity, and are proud of being labelled a part of ‘militia parliament’, analogous to the country's militia army.
Figure 1: Distribution of seats in National Council and Council of States (Swiss Parliament)
6 Obwalden, Nidwalden, Basel-Stadt, Basel-Landschaft, Appenzell-Innerrhoden and Appenzell-Ausserrhoden each elect only one, being 'half-cantons' that evolved through the splitting of historical cantons.
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The balance of power The four major parties that dominated Swiss politics from the late 1950s to between the five main only a few years ago were the Social Democratic Party (SPS — left wing), parties has been largely the Christian Democratic Party (CVP — conservative), the Free Democratic maintained. Party or Radikal party (FDP — centrist liberal) and the Swiss People’s Party
(SVP — right wing). Following the 2007 elections, a new party, the Conservative Democratic Party (BDP), was formed from the members leaving the SVP party. The SVP, headed by Christoph Blocher, has established itself as a powerful radical right-wing party over the past decades and has been getting the largest shares of votes in the last five elections (around 27 % to 29 %). Although in the general elections on 18 October 2015 the balance of power among the five main parties was largely maintained, the SVP further increased its presence to 65 seats (+11 seats since the last elections) in the National Council. While as a political custom the SVP cannot directly oppose the majority decisions by the government, its political power hinges on a parliamentary majority and launching popular votes. The next federal elections will be held in October 2019, when a new National Council and a new Council of States and subsequently a new Swiss Federal Council will be elected.
3.4 The Swiss government and presidency
The Federal Council (Bundesrat), Swiss government, comprises seven The fixed distribution of ministers of equal rank, individually elected by the Federal Assembly for seats among the main four-year terms. The Bundesrat takes the lead in determining Switzerland's parties — the Swiss overall economic and political direction. From 1959 until 2003, a fixed government's ‘magic distribution of seats among the main parties — the Swiss government's formula’ — is meant to ‘magic formula’ — was meant to ensure political stability: two Christian ensure political stability. democrats (CVP), two social democrats (SPS), two free democrats (FDP) and
10 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
one member of the populist Swiss People's Party (SVP). This distribution had to be adapted when the SVP became the biggest party in parliament in 2003 by taking one seat from the Christian Democrats, who were the smallest. However in December 2007 the SVP suspended its two councillors
in order to protest parliament’s refusal to re-elect SVP leader Christoph
Blocher to the council over the party's uncompromising approach and anti-
Following its election immigration election campaign. But the SVP regained a seat in December victory in October 2015, the 2008 through the formation of the Conservative Democratic Party (BDP), an SVP reclaimed a second SVP breakaway group. Eventually, following its election victory in October seat in the Federal Council. 2015, the SVP reclaimed its seat from the BDP in the December 2015 Federal Council elections.
Member of Council Party Function Vice President for 2016, Head of the Federal Christian Democrats
Doris Leuthard Department of Environment, Transport, Energy
(CVP) and Communications Swiss People's Party
Ueli Maurer Head of the Federal Department of Finance
(SVP) Free Democratic Party Head of the Federal Department of Foreign
Didier Burkhalter
(FDP) Affairs Head of the Federal Department of Justice and
Simonetta Sommaruga Social Democrats (SPS) Police President for 2016; Head of the Federal Johann Schneider- Free Democratic Party Department of Economic Affairs, Education and
Ammann (FDP)
Research
Alain Berset Social Democrats (SPS) Head of the Federal Department of Home Affairs Swiss People's Party Head of the Federal Department of Defence, Guy Parmelin (SVP) Civil Protection and Sports
The President is the head of the cabinet, which serves as the collective executive. The post is largely ceremonial, confined to chairing Federal Council meetings and to various representative roles. However, the profile of the post has begun to rise as Switzerland has become more internationally engaged, in particular since a 2002 referendum confirmed the country’s willingness to become a member of the UN. The positions of the president and vice-president of the Bundesrat are elected each year by the Federal Assembly and rotate annually among the Council members. Thus each Council member becomes vice president and then president every seven years while in office. Currently Johann Schneider-Amman from the FDP is holding the presidency post for 2016. He is Minister of Economic Affairs, Education and Research and a Federal Council member since 2010. His family owns the Ammann Group mechanical engineering company, and he has a background in business.
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3.5 Foreign policy and international relations
Swiss foreign policy is characterised by its strict policy of neutrality, which Switzerland has a long the Swiss Ministry of Foreign Affairs defines as not participating in tradition of neutrality, international armed conflict. Indeed, since its neutrality was established by which has reaped many the Treaty of Paris in 1815, the country has not fought a foreign war, political and economic including World War II. However, over time, Swiss neutrality has evolved as rewards over the years. the international context has changed stretching the definition of neutrality
to include not allowing military airplanes to fly over Swiss airspace, sending troops for peacekeeping purposes and promoting human rights and the rule of law — what is called 'positive neutrality'. Throughout the last century, neutrality provided Switzerland with many
economic and political advantages. Neutrality has become a safe haven for
commerce and capital inflows to Swiss banks especially in wartime. This also favoured the choice of Switzerland as the seat of a number of international organisations: more than 80 are based in Geneva (among them the UN, the WTO, the ILO and the WIPO). This is boosting the local economy thanks to large organisations’ procurement and the spending capacity of international officials. Neutrality also allows Switzerland to play a prominent mediator role and it has become a good meeting ground for negotiations between conflicting parties, such as in the case of Sudanese, Palestinian and Syrian conflicts. It has been a diplomatic contact point between many countries, including the US and Iran, that did not have diplomatic relations7.
Universality and the rule of Besides neutrality, the other basic principles of Swiss foreign policy are rule law are the other basic of law — respect for international law — and universality — fostering good principles of Swiss foreign relations with all states and having an open approach to the world by not policy. being a member of any close alliances such as the EU and the G20.
Nevertheless Switzerland has been a member of many global international organisations including WTO, OECD and OSCE. The country became a member of the UN only in 2002 after a referendum. Switzerland has been providing — mostly logistical — help to UN peacekeeping operations and following some of the UN sanctions, even before becoming a full member (e.g. sanctions against Iraq after the invasion of Kuwait).
Switzerland has four For the 2016-2019 legislative period, the Federal Council set four foreign strategic foreign policy policy priorities: consolidating and regulating relations with the EU and the priorities for 2016-2019. EU and EFTA countries; fostering global partnerships by intensifying its network of relationships; expanding mediation activities in the field of
7 This role was most prominent during World War II period, when Switzerland was representing the interests of a total of 35 countries, numbering around 200 mandates. Currently it has six protecting power mandates for the US in Iran and Cuba; for Cuba in the US; for Iran in Egypt; and for Georgia in Russia.
12 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
peace and security, and pursuing the commitment to sustainable development and prosperity8.
Switzerland's keeping its neutrality policy against some crises and not going along with the international sanctions (such as the sanctions against apartheid in South Africa) has been widely criticised throughout the years. It was the case again in 2014 during the Ukrainian crisis. Switzerland condemned the annexation of Crimea and the on-going Russian-backed war in Ukraine. But it does not join the EU sanctions regime initiated in March 2014 against Russia and adopted just an arms embargo and measures to ensure that Switzerland is not used as a hub to bypass the EU sanctions. Given its then OSCE chairmanship and acting as a mediator in the Ukrainian crisis, the Swiss government argued it was important to preserve
neutrality during the tensions between Russian and Ukraine9. But some EU Switzerland is not party to members claimed that the Swiss position was rather motivated by the international sanctions economic interest, particularly to gain advantage in the banking sector10. against Russia but has There is now an estimated USD15billion (2014) in Russian assets deposited adopted its own anti- in the Swiss banks and the country has strong energy dependency on circumvention measures Russia. Moreover bilateral relations between Switzerland and Russia have and arms embargo. become closer in recent years, which is also evident in the fact that
Switzerland helped Russia join the WTO in 2012. With the escalation of tensions and to respond to the criticism of circumvention, since August 2014 Switzerland has been closely following the EU sanctions towards Russia with its own anti-circumvention measures. In March and May 2016 Switzerland updated its sanctions list towards Russia. The list has repeated the first three portions of EU sanctions on Russia with 61 individuals and two companies on it. Restrictions on financial transactions in the Confederation were imposed against all these people. Most recently Switzerland was criticized for granting a visa and accepting the participation of the Chairwoman of Russia’s upper house, Walentina Matwijenko, in the Association of European Senate meeting taking place in Bern, though she is on the EU’s sanctions list (due to her public support for the deployment of Russian troops in the Ukraine).
Engagement against violent Switzerland has recently increased its efforts to tackle the rising terrorist extremism is a Swiss threat at both international and national level. In doing this Switzerland is counter-terrorism priority seeking to keep a balanced approach between individual freedom and and is part of its foreign security. Switzerland has also increased its international efforts through policy strategy for 2016- organizations such as the UN, the Global Counter-terrorism Forum (GCTF), 2019. the Council of Europe and the OSCE. Engagement against violent extremism is one of Switzerland’s counter-terrorism priorities and is part of the country’s Foreign Policy Strategy for 2016-2019. During its OSCE presidency, Switzerland also gave priority to the topic of returning jihadist
8 Swiss Foreign Policy Strategy 2016-2019: Federal Council report on the priorities for the 2016-2019 legislative period, 15 February 2016 9 BBC News 'Swiss Sanctions dilemma over Russia' 19 August 2014 10 BBC News 'Swiss Sanctions dilemma over Russia' 19 August 2014
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foreign fighters. Since 2015, Switzerland has also consistently emphasized the importance of Preventing Violent Extremism (PVE) and was a staunch supporter of the UN’s Action Plan on PVE. Additionally, Switzerland is one of the largest contributors to the Geneva-based Global Community Engagement and Resilience Fund (GCERF)11. Switzerland, together with Norway, is also a part of the EU Counter-Terrorism Group (CTG).
4 Economy and trade
4.1 Overview of the economic situation
The Swiss economy is one of the world's most stable and prosperous Switzerland has one of the economies. It is a modern economy with a strong current account surplus world's most stable and (since 1981), low unemployment and inflation rates, a highly skilled labour prosperous economies. force and one of the highest levels of GDP per capita in the world. The
economy is mainly based on a highly developed service sector, led by financial services, and a manufacturing industry that specialises in high value goods such as watches, chemical and pharmaceutical products. Its long-term political and economic stability, transparent legal system, efficient financial and banking sectors and low corporate tax rates have also made Switzerland highly attractive for foreign investment, which accounts for a considerable part of the economy. Given its small market, it is heavily export oriented (accounting for 70 % of GDP) and well integrated into the international economy. Although it's an open economy, in a number of sectors foreigners attempting to enter the market have suffered from 'private' or 'informal' barriers, which can be attributed to a legacy of weak anti-cartel legislation, specific and protective technical regulations, investment restrictions, and exclusive rights under intellectual property legislation. Its small agricultural sector is protected and heavily subsidised. Although not a member of the Euro area, Switzerland is landlocked by countries that are members of the Euro area and its economy is heavily interlinked with Europe.
Switzerland has historically Switzerland has historically been perceived as a safe haven for global been seen as a safe haven capital. On the one hand this enormously benefits the economy; on the for global capital. other hand, particularly in economic crisis times, it causes the strengthening of the Swiss franc as in crisis periods financial capital flows to safe havens. The strengthened exchange rate consequently burdens exports and leads to economic stagnation.
The Swiss economy proved its resilience during the global financial crisis
11 Merz, Fabien, Sicherheits politik-blog, Switzerland’s response to the new terrorist threat, 26.10.2016
14 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
The Swiss National Bank’s and subsequent Eurozone debt crisis. During the Eurozone debt crisis, abolition of the exchange capital flows again moved to Switzerland pushing up the value of the Swiss rate ceiling in January 2015 franc. The Swiss National Bank (SNB) tried to counter the appreciation by caused the Swiss franc to conducting an extremely expansive monetary policy and imposing an surge, which in turn put exchange rate ceiling at CHF1.20/EUR1.00 since September 201112. pressure on the economy. However, in mid-January 2015, the SNB unexpectedly abandoned the exchange rate ceiling on the grounds that estimates of Swiss franc over- valuation had declined since the ceiling had been imposed13. Following this, value of the Swiss franc rose to the parity of CHF 0.9 / EUR 1.00 and economic indicators worsened in the initial three quarters of 2015 affecting primarily exports and tourism sector. The GDP growth fell to 0.8 % in 2015 (2 % in 2014) and inflation fell to -1.4 % towards the end of 2015.
Figure 2: Monthly average exchange rate CHF/EUR
Source: European Central Bank
The Swiss economy is doing However, the impact of the strong franc on the economy seems to have better than feared despite faded in 2016. The SNB's expansive monetary policy has in the meantime the continuing constraints managed to curb the appreciation at parity of around 1.10-1.04, which imposed by the hugely limited the damage to the real economy. Swiss exporting firms and tourism overvalued Swiss franc. services providers also managed to adapt well to the new exchange-rate situation. Swiss firms are doing their best to restore price competitiveness — for instance, by boosting the share of inputs from the Eurozone, demanding discounts from suppliers, paying staff commuting from Eurozone countries in euros instead of francs, raising working hours but not pay, and cutting output prices as enabled by such cost reductions14. Yet Switzerland's specialisation in high value goods and services exports (with low price stability) together with the gradual strengthening of the euro area also averted stagnation in the Swiss economy. GDP growth is expected to rise to around 1.5 % in 2016 and to continue to do so in 2017. The inflation
12 IHS Country Report: Economic -Switzerland, 24 April 2015 13 Economist Intelligence Unit, Country Report - Switzerland 20 May 2015 14 IHS Country Report: Switzerland, 26 October 2016
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rate is predicted to remain negative (-0.2%) in 2016 but expected to return to above zero in 201715. The budget surplus in 2016 is expected to be CHF 2.2 billion owing to negative interest rates.
Figure 3: GDP Growth rate, 2013-2019 (projected)
Source: IHS Connect But the strong Swiss franc While the most feared did not happen, currency appreciation will continue will continue to put to strain the economy via trade effects (global demand is still weak) and pressure on the economy weaker business investment. Moreover the current crisis in the bilateral because of its impact on relations between the EU and Switzerland generated by the free movement trade and business dispute still fuels uncertainty and raises concerns about Switzerland’s future investment. competitiveness and long-term growth potential as integration with the EU plays a huge role in the Swiss economy.
Contrary to the fears of the majority of the Swiss public, which triggered the February 2014 immigration vote, unemployment rates have been around 3 % for the last five years. Only recently the unemployment rate reached a seasonal peak at 3.8 % at the beginning of 2016 but it decreased to 3.2 % in
the second half of the year. These levels are still below the EU-28 average of
8.5 %, and the Czech Republic (4.0 %) and Germany (4.1 %), which had the
16 lowest unemployment rates in September 2016 . In fact Switzerland, with an ageing economy, has been facing a labour shortage and the gradual Public fears of rising opening (subject to temporary quotas) of the Swiss labour market to EU unemployment were citizens following the 2002 bilateral agreements with the EU has been unfounded. Economic countering this labour shortage. But in 2011, partly linked to the Euro area activity and a growth in debt crisis, labour migration within the EU and to Switzerland has increased jobs generated by EU significantly by around 0.8 % of the Swiss population, which in turn led to integration have offset the job security fears among Swiss citizens. However, declining unemployment increase in foreign labour.
15 ibid. 16 Eurostat, Unemployment Statistics, September 2016
16 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
rates and economic activity and employment growth generated by EU integration compensate for the foreign labour increase, thus rendering the public’s fears on this issue unfounded.
Figure 4: Unemployment rates by nationality
Source: Federal Statistical Office of Switzerland
Figure 5: Employment figures by nationality (thousands)
Source: Federal Statistical Office of Switzerland Switzerland has long been under international pressure from individual Switzerland has responded neighbouring countries, the EU, the US and the OECD to reform its strict to international pressure to banking secrecy law (banking act of 1934), which made it a popular reform its banking secrecy. destination for tax evasion and money laundering throughout the decades. Consequently, in 2009 the Swiss government agreed to conform to OECD standards concerning the exchange of tax-related information between governments. Based on this, the government renegotiated its double taxation agreements with numerous countries. In October 2013 Switzerland signed an OECD agreement for information-sharing with 60 countries. Together with bilateral agreements (one with the USA and one with Germany, another being negotiated with Italy) this agreement severely
17 Policy Department, Directorate-General for External Policies
limited Swiss bank secrecy. Lastly, on 27 May 2015, the EU and Switzerland signed a new tax transparency agreement that will put an end to Swiss banking secrecy for the EU citizens. With the recent agreement both sides will automatically exchange information on the financial accounts of each other's residents from 2018 onwards17. The agreement ensures that Switzerland will apply stricter measures, equivalent to those in place within the EU since March 2014.
4.2 Trade
Switzerland is an important trading nation and a net exporter. The balance Switzerland's exports are of trade in Switzerland averages between EUR 40-50 billion each year and it concentrated in a few recorded EUR 45.4 billion in 2014 (7 % of the GDP)18. Switzerland's exports sectors, particularly are concentrated in a few sectors, particularly chemicals and medicinal chemicals and medicinal products, machinery, instruments and watches. The country imports mostly products, machinery, machinery, chemicals, vehicles, metals, agricultural products and textiles. instruments and watches. Developed countries are the main partners for foreign direct investment (FDI) in Switzerland. The United States is the main investor as well as the main destination, in terms of foreign direct investment stock.
The EU is Switzerland's main The EU remains Switzerland's main trading partner by far, absorbing more trading partner by far, than half of its exports (55 %) and supplying almost three quarters of its absorbing more than half its imports (73 %). In total the EU accounts for 64.7 % of Switzerland's foreign exports and supplying trade while Switzerland accounts for 7.7 % of the EU's foreign trade, almost three quarters of its occupying fourth place after the US, China and Russia. The economic ties imports. between the EU and Switzerland are even more pronounced with regard to services and investment. Around 79 % of foreign capital in Switzerland comes from the EU (2012: approx. EUR 516 billion); whereas around 43 % of Swiss direct investments abroad are in the EU (2012: approx. EUR 444 billion)19. 11 % of the EU’s FDI flows into Switzerland, making Switzerland the second destination after the US (34.5 %)20. Switzerland has been a member of the European Free Trade Association (EFTA) since 1960. It concludes free trade agreements (FTAs) on both bilateral and multi-lateral bases together with the EFTA. In recent years, both Switzerland and EFTA have vigorously expanded their FTA network. Together, they have so far signed over 27 FTAs with 37 states21; Switzerland
17 European Commission Press Release, 'Fighting tax evasion: EU and Switzerland sign historic tax transparency agreement', 27 May 2015 18 IHS Global Insight country Report, 19 May 2015 19 'Switzerland and the European Union', Report by the Swiss Federal Department of Foreign Affairs, 2014 20 Eurostat, Foreign Direct Investment Statistics, June 2016 21 Turkey (1992), Israel (1993), Morocco (1999), The Palestinian Authority (1999), Mexico (2001),Jordan (2002), Macedonia (2002), Singapore (2003), Chile (2004), Tunisia (2005), South Korea (2006), Egypt (2007), Lebanon (2007), The South African Customs Union with South Africa, Swaziland, Lesotho, Namibia and Botswana (2008), Canada (2009), Serbia (2010), Albania (2010), Columbia (2011), Peru (2011), Hong Kong ( 2012), Montenegro (2012), Ukraine (2012), The Gulf Cooperation Council with Saudi Arabia , the United Arab
18 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
has 4 bilateral agreements with 31 states (including 28 EU Member States)22 and new agreements are continually being negotiated23.
The Swiss government was concerned over the impact that the Transatlantic Trade and Investment Partnership (TTIP), between the US and EU, could have on its economy and particularly with regard to the potential abolition of non-tariff barriers between these countries. Even though not directly concerned, Switzerland also has concerns about the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada which was signed on 30 October 2016. Berne and Ottawa are considering adding some clauses to the existing free trade agreement and CETA could serve as the template, which is quite different from the other agreement templates of Switzerland24.
Figure 6: Switzerland's top five trading partners, 2015
Origin of imports Destination of exports Trade partners
# Origin € million % # Destination € million % # Partner € million balance
1 EU 28 146 533 64.6 1 EU 28 113 668 43.5 1 EU 28 260 200 -32 865 2 USA 18 307 8.1 2 USA 27 627 10.6 2 USA 45 934 +9 320 3 China 11 589 5.1 3 Hong Kong 22 611 8.7 3 China 29 683 +6 505 4 Turkey 5 489 2.4 4 India 19 182 7.3 4 Hong Kong 25 044 +20 178 United Arab 5 3 491 1.5 5 China 18 094 6.9 5 India 20 554 +17 810 Emirates All imports: 226 679 All exports 261 234 Balance of trade: +20 948 Source: DG Trade
5 EU-Switzerland relations
Located in the heart of Europe, Switzerland has very close political, Switzerland has very close economic and cultural ties with the EU and its Member States. The EU is by political, economic and far the most important economic and trading partner for Switzerland cultural ties with the EU and thanks to the significant degree of integration it has with the EU internal its Member States. market. Around 1.3 million EU citizens live in Switzerland (the Swiss
Emirates, Oman, Qatar, Kuwait, Bahrain (since 2014), Costa Rica and Panama (not in force yet) Bosnia and Herzegovina (2015) , Georgia (2016), Philippines (2016) 22 FTA with the EU and its 28 member States (1973), The Faroe Islands (1995), Japan (2009), China (2014), 23 Guatemala, Honduras, Algeria (currently suspended), The Russia Customs Union with Russia, Belarus and Kazakhstan (currently suspended), Thailand (currently suspended), India, Indonesia, Vietnam, Malaysia. 24 Alliance Sud, ‘CETA: Carte blanche for the private sector?’, 02.04.2015
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population is 8.1million) and another 300 000 cross the border daily for work. Some 450 000 Swiss citizens live in the EU25.
Switzerland’s application to The basis of EU-Swiss relations is the 1972 Free Trade Agreement with the join the EU was suspended then European Economic Community. Switzerland has been a member of following a referendum in the European Free Trade Association (EFTA) since 1960. At the beginning of 1992 that narrowly rejected the 1990s, Switzerland had moved closer to EU accession: it took part in the membership of the EEA. negotiations for the European Economic Area (EEA) agreement between EC
and EFTA countries and signed the agreement on 2 May 1992. Right after
that, the Swiss government submitted an application for accession to the EU on 22 May 1992. However following a Swiss referendum held on 6 December 1992 in which 50.3 % of voters rejected the country's accession to the EEA the Swiss government decided to suspend the EU accession application as well. The referendum came as a big defeat for the government and marked the rise of the populist right-wing Swiss People's Party (SVP) 26. Since then, Switzerland has retained observer status within the EEA and developed its relations with the EU through bilateral agreements in order to safeguard economic integration with the EU. However the decision to withdraw its membership application was only recently adopted in the Parliament and the Swiss government sent the official withdrawal letter to the EU in late July 2016.
Switzerland has two major Following the rejection of EEA membership by the Swiss people, the EU and sets of sectorial agreements Switzerland continued their relations through bilateral agreements. These with the EU: 'Bilateral I' relations are now based on over 120 bilateral agreements, including a free (signed in 1999) and trade agreement of 1972 and two major series of sectorial bilateral 'Bilateral II' (signed in 2004). agreements that align a large portion of Swiss law with that of the EU at the
time of signature. The first set of sectorial agreements (known as Bilateral I)
were signed in 1999 and entered into force in 2002. They comprise seven agreements covering the issues of free movement and opening of respective markets27. A further set of sectorial agreements (Bilateral II) were EU-Swiss relations are now signed in 2004 and entered into force in 2005. They are basically related to governed by more 120 strengthening cooperation in the economic sphere and the participation of sectorial agreements and Switzerland in the Schengen area and Dublin system28. In 2010 another relations continue to agreement was signed on Swiss participation in EU education, professional flourish. training and youth programs. EU-Swiss relations are now governed by more than 120 sectorial agreements and relations continue to flourish. There are
25 European Commission, Fact Sheet -Switzerland, 25 September 2016 26 Miserez, Marc-Andre, 'Switzerland poised to keep EU at arm's length'. Swiss info, 2 Dec 2012 27 7 agreements are Free movement of people; air transport, land transport, trade in agricultural products, technical trade barriers, public procurement and research cooperation 28 Switzerland's participation in Schengen and Dublin, agreements on taxation savings, processed agricultural products, statistics, combating fraud; participation in the EU Media Programme, the Environment Agency, and Swiss financial contributions to economic and social cohesion in the new EU Member States.
20 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
almost daily meetings between representatives of both sides on matters governed by the plethora of bilateral agreements29.
The dense sets of bilateral While these agreements intensified economic relations, they also created a agreements have created a complex and sometimes incoherent network of obligations, which are not complex and sometimes easy to sustain. Unlike the EEA Agreement, the nature of bilateral incoherent network of agreements with Switzerland is static without proper mechanisms to obligations which are not ensure the adaptation of the agreements to evolving EU legislation. There easy to sustain. are also no surveillance or efficient dispute settlement mechanisms. With
the increasing number of sectors covered by agreements, and new agreements envisaged in areas such as electricity, these shortcomings have The EU wants to replace become more pressing. It is increasingly difficult to effectively manage the these bilateral agreements significant number of separate agreements, which suffer from with a dynamic and legally discrepancies, and the task of keeping them updated is time and resource binding institutional consuming. Since 2008, the EU has been seeking to negotiate an framework. institutional framework agreement that will put an end to these problems before giving further access for Switzerland to the Single Market.
Switzerland takes part in EU Switzerland also participates in security and defence missions of the EU on security and defence an ad-hoc basis, in the absence of a framework participation agreement. At missions and the European present it is involved in EUFOR ALTHEA (21 troops), EULEX Kosovo, EUTM Defence Agency’s work. It Mali, and EUBAM Libya. Switzerland also participates in the European cooperates closely with the Defence Agency’s work. Both countries are active participants in the EU in international humanitarian-aid-based international fora and projects, such as the UN and humanitarian aid donor support and in fighting ICRC humanitarian donor support groups, and closely cooperate in such terrorism and climate matters The EU and Switzerland also closely cooperate in fighting terrorism change. and climate change matters. Negotiations on a cooperation agreement in competition law enforcement and on the emission trading scheme (ETS) were concluded recently. Switzerland also takes part in the Galileo satellite navigation.
5.1 Free movement of people
The Agreement on the Free Movement of People (FMOP) between the EU The Agreement on the Free and Switzerland was signed in 1999 as part of the Bilateral I set of Movement of People agreements. It gives EU and Swiss citizens the right to freely reside in the EU (FMOP) is part of the or Switzerland if they have an employment contract, are self-employed or Bilateral I set of agreements, have sufficient means at their disposal30. The agreement not only provides essential to the internal for free movement of workers, but also mutual recognition of qualifications, market. the right to purchase real estate and the coordination of social security
29 The issues under discussion range from foreign policy to motor vehicles to taxation, and a number of negotiations are currently ongoing: on public health cooperation, emissions trading (ETS linking), participation in the European Railway Agency, Creative Europe. 30 Although jobless EU citizens are free to move to Switzerland to look for work for three months, extendable by another three months, they do not have right to unemployment and social benefits. In addition it is also possible to provide cross-border services for up to 90 days per calendar year.
21 Policy Department, Directorate-General for External Policies
protection. It entered into force in 2002 with six other bilateral agreements essential for the functioning of the internal market. Bilateral I agreements are interconnected legally through a so-called 'guillotine clause':- if one agreement is terminated, the other agreements cease to apply31. Until the
accession of Croatia, the Agreement had been extended to all acceding EU
Member States by way of protocols to the original Agreement with phase-
32 in periods that ended in 2011 , and for citizens from Bulgaria and Romania 33 on 31 May 2016 . However, in the meantime the Swiss people have increasingly turned against migration and this sentiment has also affected the perception of The Swiss people have the free movement of people regulations with the EU. FMOP has come increasingly turned against migration and the FMOP under attack by political forces in Switzerland. Greater migration from the has come under attack by EU has been associated with salary dumping, rising living costs and other political forces in disadvantages. The SVP and environmental and population associations Switzerland. put pressure on the Swiss Council to limit immigration with fears of a growing crisis driven by immigration and related salary dumping. Consequently, on 18 April 2012, the Swiss Federal Council decided to activate the safeguard clause, foreseen in the treaty, to restrict the granting of long-term residence permits to citizens of eight of the new Member States (‘EU 8’)34 for one year and reintroduced these quotas in April 2013 for another year35.. The quotas expired in May 2014, and could not be renewed any more. The EU had not agreed to the invoking of the safeguard clause. 36
On 9 February 2014 a Eventually, on 9 February 2014, a slim majority of the Swiss population popular vote called the (50.3 %) voted in favour of amending the constitution to introduce annual FMOP and Switzerland’s quotas for the number of non-Swiss nationals (0.8% of the population) and entire relationship with the to give preference to Swiss citizens in employment. In conformity with the EU into question. vote, a new article 121a was introduced in the Swiss constitution. While the
result of the vote stemmed from rising anti-immigration sentiment among
the population, the Swiss government and business community were The Swiss government and strongly against the initiative. This was because it would have a significant business community were impact on the Swiss economy: Swiss industry relies heavily on highly skilled strongly opposed to the migrants and fears a loss of competitiveness and long-term growth February 2014 popular potential.
31 Art. 25 of the Agreement on the Free Movement of People Agreement between the EU and Wsitzerland, OJ L 114, 30.04.2002 32 The agreement was extended on 1 April 2006 to eight of the new EU Member States (so- called 'EU 8') with a phase-in period. Malta and Cyprus enjoyed immediately the complete free circulation granted to the old EU 15 member states (so this group is defined 'EU 17'). The phase-in period and its limitations ended on 1 May 2011. 33 Even after this date, Switzerland will have a safeguard clause to hand until 31 May 2019 to reintroduce restrictions concerning the EU 2 during a one year period 34 Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia — effective 1 May 2012. 35 The limits continued to apply to the EU 8 countries and to old EU members plus Malta and Cyprus (EU 17) with effect from 1 June 2013. Quotas were established at national level but permits were granted on a first come-first served basis by cantonal administrations. 36 See statement by HR/VP Catherine Ashton, 24 April 2013 http://europa.eu/rapid/press-release_IP-13-370_en.htm
22 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis? vote, fearing far-reaching The relations with the EU as a whole are put in question by the vote. repercussions for Implementation of the new constitutional provisions would eliminate EU businesses and citizens. citizens' free movement rights by subjecting them to quotas. In fact new quotas provision would implicitly target the EU citizens as third country nationals are already now subject to quotas. This would be totally incompatible with the FMOP agreement. If the FMOP is terminated, all Bilateral I agreements, linked to each other through the so-called 'guillotine clause', would fall. Fall of these agreements would also cast doubt on the association of Switzerland to the Schengen and Dublin acquis and the participation of Switzerland in other EU programmes. Eventually this situation would have far-reaching consequences for economic operators and citizens.
In June 2014, the Swiss Federal Council formally acknowledged that the The EU firmly rejected the popular vote was incompatible with the FMOP and in July 2014 requested Swiss Federal Council’s to renegotiate the Agreement. Former HR/VP Catherine Ashton rejected the request to renegotiate the request by her letter dated 24 July 2014 saying that the principles of non- FMOP with a view to discrimination, equal treatment in all Member States and the right to introducing caps on exercise economic activity and reside in the territory of the other party are immigration. not negotiable. The Federal Council nonetheless continued to pursue the talks with the EU whilst initiating work on a draft implementing law in parallel. The Federal Council is bound to implement the new constitutional provisions by February 2017 and has had quite hard time seeking a solution so far.
Until recently, Swiss internal debates on solving the problem had revolved around an interpretative implementation of Article 14 (safeguard clause) of the FMOP agreement as a basis for introducing quotas. The EU did not agree to this proposal.
The recently advanced‘domestic preference light’ proposal is seen as the most promising solution found so far. The proposal drops the idea of The ‘domestic preference’ introducing quantitative limits to immigration and instead focuses on light’ proposal is seen as a giving preference to employing Swiss residents. In its original version, way out of the freedom of which passed the lower chamber on 21 September 2016, the proposal movement crisis. requested the Federal Council to ensure that the domestic labour potential
is used more efficiently; if immigration still reaches a certain level, the Federal Council can oblige employers to notify local unemployment offices of job openings; where employers fail to comply, they may be subject to a fine of up to CHF 40,000. It also provided for the possibility of introducing quantitative measures in case of severe economic and social problems. A stricter version of the Nevertheless Council of States members were rather concerned that this draft implementation law proposal would fail to implement the new constitutional article and may was voted by the Council of not meet the aim of reducing foreign workers as it was too loose. Eventually States on 7 November 2016. a slightly stricter version of the draft law was approved in the Political
Institutions Committee (SPK) of the upper chamber on 7 November 2016.
According to the stricter version of the ‘domestic preference light’ draft law, in occupational categories with an above-average unemployment rate, companies would automatically be obliged to notify the local job
23 Policy Department, Directorate-General for External Policies
placement centres (RAVs) of job vacancies; the local centres would then be expected to propose domestic candidates whom the employer would be obliged to interview; should the employer still choose an applicant from abroad, they would have to justify this in writing; employers disregarding
the rules would risk fines of up to CHF 40.000. The committee also dropped The EU is still concerned the possibility of further quantitative measures foreseen in the lower that the draft law may not be compatible with the chamber’s proposal, as the latter provision was already included in the FMOP. FMOP and its repetition in the law would only cause confusion and increase the EU's disapproval. The EU had reacted to this provision in the previous draft. In its current version, the draft law allows for supplementary measures to be taken in case of need but stipulates that they must be compatible with Switzerland’s international legal obligations, meaning the FMOP. While seeing the proposal as a step in the right direction, the EU is still concerned that some of the draft provisions, particularly paragraph 3 (Art12a)37 may not be compatible with the FMOP and that their implementation in practice could still discriminate against EU citizens.
There are growing concerns The draft law will be put to vote in the Plenary of the Council of States on 30 that the new November 2016. Nevertheless the upper chamber is still working on the implementation law would draft law. The debate is now revolving around the growing concerns in inflict a huge administrative business circles and amongst parliamentarians that the new and financial cost. implementation law would inflict huge administrative and financial cost without yielding the desired benefits. Basically the business associations were proposing to keep the obligation to notify vacant jobs to unemployment offices, but to drop the obligation to justify the recruitment of a foreigner instead of the candidates proposed by the offices38. On the other hand, the SVP is also infuriated by the government’s and parliament’s efforts to save the bilateral agreements and not implement the result of the anti-immigration’ initiative. Although SVP mentions launching a new initiative to abolish FMOP it is not expected to challenge the ‘domestic preference’ initiative directly39.
Once the parliamentary Pending the completion of the parliamentary process, the Federal Council process is over, the Federal recently rejected a RASA popular initiative which calls for a new vote on Council is expected to plans to limit immigration, as approved by the February 2014 vote, on the initiate a new popular vote grounds that it is too early to put in question the outcome of the February to align the constitution 2014 vote and suggesting that it would instead develop a counter-proposal with the last version of the by April 2017. Now the Federal Council is expected to use this counter- ‘domestic preference’ proposal. proposal to initiate a new popular vote to align the constitution with the last version of the ‘domestic preference’ proposal once it is approved by the Council of States.
37 Implementing draft law Art 21a paragraph 3: Vacancies in occupational groups or fields of activity with an above average unemployment rate must be communicated by employers to the employment services. Access to the posts in question is restricted for a limited period to persons registered with a public employment service in Switzerland. 38 St Galler Tagblatt , Arbeitgeber Krebsen zuruck, 18.11.2016 39 Le Matin Dimanche, ‘L’UDC n’ose pas lancer le referendum‘ 30.10.2016
24 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
In the meantime, without waiting for the federal legislative process, the canton of Ticini at the Italian border has already adopted‘ the Prima i nostri’ (first our own people) initiative in a cantonal referendum on 25 September with 58.02 % yes votes. The legality of this referendum on such a topic under the remit of federal responsibilities is under question though.
Croatia Protocol
As an immediate consequence of the referendum of February, the Swiss government refused to sign the 'Croatia Protocol', extending the FMOP to If the Croatia Protocol is not Croatian citizens. However this excluded them from some EU programmes ratified by 9 February 2017, such as the Erasmus + and Horizon 2020 programs. On 30 April 2014 the Switzerland will be Swiss government unilaterally decided to introduce a separate quota excluded from Horizon system for Croatian nationals, which allowed for the partial and time- 2020. limited association of Switzerland to Horizon 2020 and the start of negotiations on the institutional framework. Switzerland is currently associated with some parts of the EU Framework Programme for Research (Horizon 2020), the Euratom Research and Training Programme and ITER project until the end of 2016. Switzerland has to ratify the Protocol on the extension of the EU-Switzerland FMOP to Croatia before 9 February 2017 in order to be re-included in the entire programme by 1 January 2017. Failing that, Switzerland’s association with the programme will cease to apply with retroactive effect, as of 31 December 2016. The protocol was signed in March 2016 and is now awaiting ratification by Switzerland. While the EU has called for this to be done as soon as possible, Switzerland is waiting for the resolution of the free movement problem as the new constitutional article introduced by the February 2014 vote does not allow the government to sign a new agreement allowing free access to Switzerland. Until the signing of the Protocol, Switzerland will not be able to join the Erasmus+ programme on an equal footing with Member States as initially envisaged but will rather enjoy the same status as other third countries.
Flanking Measures
Additional problems with the implementation of the FMOP stem from a 'Flanking measures' number of its 'flanking measures'. These measures were introduced introduced unilaterally by unilaterally by Switzerland after the entry into force of the Agreement. The Switzerland after the FMOP measures include a notification requirement, which obliges EU service entered into force create providers to give eight days’ prior notice if they wish to provide services in additional problems. Switzerland; the requirement that EU operators pay contributions to Swiss tri-partite commissions to cover the costs of controls that these commissions carry out on businesses; further contributions to different funds; and disproportionate sanctions. The European Commission has repeatedly requested a revision of these discriminatory provisions, but without success so far.
25 Policy Department, Directorate-General for External Policies
5.2 Institutional framework
The EU and Switzerland are bound by more than 120 bilateral agreements The EU is insisting on which have created a complex and unpredictable system of agreements. 40 41 concluding a framework As in its 2008 and 2010 Conclusions on EU relations with EFTA agreement allowing the countries, the Council's Conclusions in 2012 and 2014 reiterated that the individual agreements to be sectorial approach had reached its limits and underlined the need for a updated in line with evolving legally binding mechanism to adapt the agreements to the evolution of EU law and to be subject to the acquis and for international surveillance and judicial control international surveillance and mechanisms; preferably by involving the Court of Justice. The Council judicial review. made the conclusion that any further access to the internal market would not be granted unless a new institutional framework is in place. The EP has expressed similar views on the institutional issues in its three resolutions, adopted in 201042, 201243 and 2015.44 In the current context Given the firm stand on the EU side, the Swiss government agreed to negotiate the framework agreement as it needs the agreement to finalize ongoing sectorial negotiations on electricity agreement and creative Europe. Consequently, negotiations for a framework agreement started in 22 May 2014, following the adoption of the EU (6 May 2014) and Swiss (December 2013) mandates. The aim of the negotiations is to establish a predictable and binding institutional framework with proper surveillance and dispute settlement mechanisms.
Although they were Negotiations on an institutional framework stalled for most of 2014 disrupted by the February because of the repercussions of the FMOP crisis but they are still 2014 vote and the elections, continuing, though sluggishly . The most recent negotiating round took negotiations on an place in July 2016. Outstanding issues in the negotiations include: (i) the institutional framework scope of jurisdiction by the European Court of Justice (ECJ) in interpreting agreement are still bilateral agreements and in dispute-settlement; (ii) the role of the continuing. Commission, and (iii) state-aid control provisions. The Swiss are trying to find a fine balance between complying with internal market rules and preserving national sovereignty. The Swiss population is especially concerned about coming under the full ECJ jurisdiction, which is interpreted as ceding national sovereignty to the EU. In the current context of the discussions on the UK’s withdrawal from the UK, linking the possible deal on FMOP to the conclusion of an institutional
40 Council conclusions on EU-EFTA relations, 8 December 2008, see: http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/gena/104617.pdf Council conclusions on EU relations with EFTA countries, 14 December 2010, http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/118458.pdf 42 EP resolution of 7 September 2010 on EEA-Switzerland: Obstacles with regard to the full implementation of the internal market. 43 EP resolution of 24 May 2012 on Swiss quotas on the number of residence permits granted to nationals of Poland, Lithuania, Latvia, Estonia, Slovenia, Slovakia, the Czech Republic and Hungary. 44 EP resolution of 9 September 2015 on EEA-Switzerland: Obstacles with regard to the full implementation of the internal market (2015/2061(INI))
26 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
framework agreement has gained importance for the EU as there are fears that this deal might prejudice the upcoming negotiations with the UK. On the contrary the Swiss government regards the two issues as separate.
5.3 Taxation of savings
The need to complete the single market led the EU to approve the savings Under the 2004 Taxation of tax directive, aimed at tackling cross-border tax evasion with an Savings Income Agreement, information exchange system. Bilateral agreements with neighbouring Switzerland imposed a countries, namely Switzerland, complete the external dimension of the withholding tax of 35 % on saving tax directive. The Taxation of Savings Income Agreement was the savings income of EU signed in 2004 as part of the Bilateral II set of agreements. Under the citizens holding secret bank accounts. Agreement, Switzerland levies a withholding tax of 35 % on the savings income pertaining to natural people of the EU who decide not to declare their actual income to their national authorities. 75 % of this tax income is allocated to EU member states and 25 % to the Swiss Federal Government (which devolves 10 % of it to the Cantons). Account holders remain anonymous. This tax generated EUR 315 million in 2013, mainly from German, French and Italian taxpayers, an amount returned to member states. Despite the existence of this EU-Swiss agreement, some EU Member
States, namely the UK and Austria, chose to sign bilateral tax agreements
with Switzerland in 2011 and 2012; the so-called 'Rubik agreements, which
45 include interest taxation but are more extensive than the Savings Directive .
The new tax agreement On 27 May 2015, the EU and Switzerland signed a new historic Taxation of signed in May 2015 will give Savings Income Agreement which will significantly improve the fight a major boost to the fight against tax evasion. Under the agreement both sides will automatically against tax evasion and put exchange information on the financial accounts of each other’s residents an end to Swiss banking from 2018. The agreement puts an end to the Swiss banking secrecy for EU secrecy for EU citizens. residents and will prevent tax evaders from hiding undeclared income in Swiss accounts. The agreement also closes loopholes in order, for example, to prevent the taxation of savings income from being circumvented by the use of intermediary companies and to broaden its scope and reflect international developments in the field of tax transparency, e.g. by including additional financial instruments such as security-like instruments, certain life insurances, structured products, and investment funds.
5.4 Schengen and Dublin (migration issues)
In 2004, the EU and Switzerland concluded a Schengen association agreement and a Dublin association agreement. These agreements
45 Rubik Agreements regularise past tax liabilities by levying a lump sum amount and tax future income streams by applying a withholding tax at the domestic rates of the Member States concerned. Germany also negotiated a Rubik agreement with Switzerland, but the German Parliament rejected it. France also rejected Rubik negotiations on a number of occasions.
27 Policy Department, Directorate-General for External Policies
Switzerland is part of the entered into force on 1 March 2008 and Switzerland was connected to the Schengen and Dublin systems. Schengen Information System (SIS) on 14 August 2008. The application of the Schengen agreement generally runs smoothly. Switzerland has continued to incorporate new acts of the Schengen acquis and has participated financially and operationally in FRONTEX since 2009. Switzerland also accepted the Schengen Borders Code, the Visa Code, the Return Directive and the Regulation on Rapid Border Intervention Teams (RABITs). On the basis of an association agreement signed in 2004, Switzerland is associated to parts of the EU asylum acquis (the Dublin Regulation and the asylum aspects of the EURODAC Regulation —-the EU database of fingerprints of asylum seekers). The agreement for the participation of Switzerland in European Asylum Support Office (EASO) was signed in June 2014 and ratified by Switzerland on 1 March 2016. This agreement will allow Switzerland to participate in EASO work and deploy Swiss experts in EASO operations including those in the hotspots in Italy and Greece.
Switzerland is becoming a Switzerland announced that it would accept fewer asylum requests (a total transit country for refugees. of 35,000 down from about 39,500 in 2015) in 2016 after a clampdown on migrants crossing the Italian border. Switzerland has been criticized for closing its borders and causing a pile-up in northern Italian towns including Como46. The Swiss authorities were criticized for sending refugees back to Italy, including unaccompanied minors. The country is also becoming a transit country for refugees as the illegal border crossings from Switzerland to Germany have increased significantly since the beginning of the year. Against the criticism, at a press conference, Justice Minister Sommaruga emphasized that Switzerland didn't want to become a transit country, and that this was the reason why refugees who had Germany or Northern Europe as their destination were sent back to Italy in accordance with the Dublin rules47.
5.5 Other issues in bilateral relations
Swiss enlargement contribution
Since 2007, Switzerland has been paying an ‘enlargement contribution’ to
support specific projects and programmes in the new EU Member States that joined in 2004 and 2007. With a view to reducing disparities in the EU 48. The EU expects Switzerland 27 A total of approximately EUR 1.250 billion was spent between 2007 to continue paying an and 2014 by the Swiss Agency for Development and Cooperation (SDC) enlargement contribution
46 Reuters, Switzerland expects fewer refugees after border clampdown, 16 September 2016 47 Sonntagszeitung, Grenze zu: Schweiz weist Asylsuchende ab, 16.08.2016 48 Most of this amount —approximately EUR 821 million — was allocated to the ten states that joined the EU in 2004: Estonia, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, the Czech Republic, Hungary and Cyprus; the remainder — CHF257 million — went to Bulgaria and Romania, which joined the Union in 2007.
28 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis? under a permanent, binding and the State Secretariat for Economic Affairs (SECO). framework agreement. Switzerland regarded these financial contributions as voluntary solidarity gestures whereas the EU considers that such a contribution should reflect the benefits Switzerland draws from its participation in the Internal Market. The most recent contribution for the ‘EU 10’ expired in June 2012 and for Bulgaria and Romania in December 2014. In January 2013 the Council reiterated its expectation for a renewal which should be binding and permanent, as part of the negotiating mandate for the institutional framework, and should include Croatia in the programme. However, let alone a permanent contribution, Switzerland refuses to discuss even a further non-binding financial contribution before there is significant progress in the overall context of bilateral relations.
In June 2015, the Swiss Nevertheless on 30 June 2015 the Swiss government signed a bilateral government signed a Framework Agreement with Croatia with a EUR 42-million budget. The framework agreement with Swiss Parliament also adopted the renewed Federal Act on cooperation Croatia (EUR 42 million) and with Eastern European countries on 30 September 2016. The Act is part of the Swiss Parliament passed the framework of the Federal Council Dispatch on international the renewed Federal Act on cooperation 2017–2020 and is considered as the new legal basis both for cooperation with Eastern European countries. Switzerland’s EU enlargement contribution and for the ongoing transition cooperation with the Eastern European countries outside the EU49.
Negotiations on further bilateral agreements: state of play
Below is a non-exhaustive summary of the negotiations on further sectorial agreements. All these agreements are waiting now for a solution on FMOP Negotiations on further and an institutional Framework Agreement: bilateral agreements are on Electricity. This issue remains a priority for Switzerland and has major hold pending a solution to ramifications for the country’s economy. However, after five years of FMOP and an Institutional Framework Agreement. negotiations on an electricity agreement, two major institutional issues remain: the absence of a state aid control regime in Switzerland, and the need for an independent arbitrator. Switzerland's future participation in the EU internal energy market would require the liberalisation of the country's electricity market, which may possibly involve a referendum in the country. Agriculture. Negotiations for further liberalisation in the trade of agricultural and processed agricultural goods started in 2008. However, in March 2012, the Federal Assembly instructed the Federal Council to suspend these negotiations as a result of the country's divided interests. Supporters of this suspension maintain that opening the agriculture market to the EU would have a disastrous impact on Swiss farmers struggling to survive against foreign competition. Finalising this agreement will also require solving the institutional issue.
49 Swiss Agency for Development and Cooperation (SDC) ‘Enlargement Contribution to the States that joined the EU in 2004, 2007 and 2013‘, October 2016
29 Policy Department, Directorate-General for External Policies
Health, food safety and product safety, and consumer protection. The negotiations have been put on hold following the Swiss refusal to discuss consumer protection issues (as a means to press for a wider negotiation on the mutual recognition in the non-harmonised areas) and the Swiss parliament's blockage of the negotiations on the liberalisation of trade in agricultural and processed agricultural products. However, negotiations on cooperation in public health were re-launched in 2014.
5.6 Policy options
The delegation could consider the following policy options:
• Express the expectation that Switzerland will honour its obligations arising from the agreements concluded with the EU, including the Free Movement of People Agreement, and that a satisfactory solution to the FMOP issue will soon be found; • The current ‘domestic preference light’ proposal is a step in the right direction as it removes quantitative limits to immigration but there are still serious legal concerns:
o about the compatibility of the proposal with the FMOP; o the mplementation of the draft law might still lead to discrimination towards EU citizens residing Switzerland;
o positive, specific measures to facilitate the situation and rights of cross-border workers should be examined; • Highlight the importance and mutual benefits of structured relations, legal certainty and a level playing field in the context of Swiss participation in the internal market (no 'cherry-picking'); in that respect underline the importance of concluding an institutional framework agreement; • Emphasise the importance of the free movement of people between the EU and Switzerland as part of any institutional settlement; • Reiterate the EU's expectation that Switzerland ratify the Croatia protocol without precondition; the current discrimination against Croatian nationals must end; • Reiterate the EU's expectation that Switzerland’s enlargement contribution will evolve into a permanent and binding one.
30 Switzerland: ‘Domestic preference’ as a possible solution to the freedom of movement crisis?
6 Map of Switzerland
Source: United Nations, Cartographic Section, Map library
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