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.