In this post Carl Baudenbacher (Monckton Chambers, Visiting Professor at the London School of Economics, former President of the EFTA Court) examines the institutional and dispute settlement agreements between the EU and Switzerland, and the impact of and on EU-UK relations.
With the exception of the United Kingdom, Switzerland is the only one of the former and current EFTA states to regulate its relations with the EU bilaterally. An attempt to join the multilateral EEA Agreement failed on December 6, 1992. After the EEA-No, Switzerland succeeded in concluding two packages of bilateral agreements with the EU (“Bilaterals I” and “Bilaterals II”). Conflicts are resolved by consensus through mixed committees or they remain unresolved. The EU offered its hand in this, because it was told by Berne that this was only a temporary solution. The goal was Swiss EU membership.
When the EU realized in the mid-2000s that Switzerland’s accession was out of the question, it wanted to alter traditional bilateralism to one where the individual treaties were to be redesigned with a monitoring and judicial mechanism. To this end, the EU proposed a second EEA vote or docking with the institutions of the EFTA pillar of the EEA, the EFTA Surveillance Authority and the EFTA Court. In both cases, the opinion was that Switzerland could provide one member each in these institutions. In material terms, docking would mean that Switzerland would not have to adopt the entire internal market acquis, but could stick to its sectoral approach and successively expand it.
However, the Swiss Federal Council (apparently by 4:3 votes) opted for the court of the other side, the ECJ, which of course could not include a Swiss judge. Both parties should have the right to bring a conflict unilaterally to the ECJ. This was obviously intended to create a “point of no return” on the road to the EU.
The Swiss thought they could negotiate with the EU forever. However, after the Brexit decision of the British people on 23 June 2016, Switzerland became, to a certain extent, the Brexit whipping boy. When in the course of 2017 it became clear that the ECJ model would not stand a chance in a referendum in Switzerland, the EU put on the table the model of dispute resolution it had designed for Ukraine and the other post-Soviet republics of Georgia, Moldova and Armenia. According to this construct, each side, the EU and Ukraine, can in case of conflict unilaterally appeal to an arbitration tribunal with equal representation. However, whenever the interpretation of EU law or treaty law with the same content as EU law is in question, the arbitration panel must make a request to the ECJ for a binding judgment.
Whether the Ukraine model is appropriate for the four post-Soviet republics may remain open to question. At least that is doubted by Belgian researcher Guillaume van der Loo, a specialist in the field. It is, however, important to note that the Ukraine mechanism was developed with the goal of introducing the states mentioned to the ideas of democracy, the rule of law and a market economy. Switzerland does not need any assistance in this respect.
In spring 2018, the Federal Council spoke out in favour of the Ukraine model. In autumn 2018 the negotiations were concluded, but the Federal Council did not sign the agreement. The supporters are not so particular about the reality. With the help of friendly media people and some university professors, unsubstantiated claims are being made that Switzerland has wrested the Ukraine model from the EU or that the arbitration tribunal will have considerable decision-making powers of its own. Moreover, it is claimed that the ECJ is a respected court from which Switzerland has nothing to fear and that the Ukraine mechanism will guarantee legal certainty.
The assertion that the arbitration panel will have considerable decision-making powers of its own is without foundation. According to the clear wording of Article 4(2) of the Draft Treaty, the ECJ must always be called upon to answer a question relating to EU law or treaty law that is based on EU law. There is no doubt that the ECJ is a reputable court. But that is not the point. As the court of the other side it lacks impartiality. The further argument that the Ukraine model provides Swiss actors with legal security is also untenable. On the one hand, there is a lack of a guarantee of justice if one side is able to bring the referee to the game. According to Article 13(1) TEU, the ECJ is an organ of the EU and judging is not an exact science. One does not have to go as far as Martin Howe QC, who fears that the ECJ would always rule against the third country. But especially in big cases, the ECJ’s being part of the EU may have an impact. On the other hand, legal certainty includes reasonable procedural deadlines. However, the proceedings would take many years because if Switzerland lost and did not accept the verdict, the EU could impose compensatory measures, the proportionality of which Switzerland could have examined in a second arbitration procedure. This is the opposite of legal certainty; it does not help businesses.
Unequal treaty
All in all, the Draft Treaty is by no means “a good Swiss middle course”, as the hard core of supporters who want to join the EU claim. Rather, the one-sided distribution of rights and duties deserves to be reminiscent of the “unequal treaties” imposed on China by the Western imperialist powers in the 19th century. These gagging treaties were characterized in particular by the establishment of extraterritorial courts on Chinese territory. The ECJ would also be an extraterritorial court under the Draft Treaty. It would even have more extensive powers than the Western courts in China had. These instances – the British Supreme Court for China in Shanghai and the US Court for China in Shanghai – were called upon to decide civil and criminal cases involving their nationals. The ECJ, on the other hand, would decide inter-state disputes between the EU and Switzerland. It would be a kind of Swiss constitutional court.
In the recent past, the EU leadership has ultimately asked the Federal Council to sign the Draft Treaty. There are threats to refuse to adapt existing bilateral agreements to new regulatory developments. The EU also does not want to conclude any more market access agreements with Switzerland. However, there is growing resistance in the country. Of the governing parties, the anti-European Swiss People’s Party has always been against the Institutional Agreement. The centrist Christian Democrats were divided, the Liberals and the Social Democrats were in favour. Now the former liberal minister of economics Johann Schneider-Amman has taken a clear stand against the treaty and the party leader of the Christian Democrats Gerhard Pfister has called the treaty “dead”. A former top civil servant is also among the critics. And even the party leader of the EU-friendly Social Democrats Christian Levrat said that a failure of the institutional agreement would not be a drama. As far as the economy is concerned, the large associations support the treaty. Recently, however, a financially strong network of companies has formed that wants to fight it with all possible means. The social partners are not amused, the reason being that the EU does not accept Switzerland’s rules on wage protection and State aid.
The Federal Council had nothing against the Ukraine model in the past and whether it will now question it is open. But even if it would sign the agreement and Parliament would agree, it is uncertain if it would pass in a referendum.
Impact on the EU-UK relations
This is interesting from a British perspective because the EU also wants to impose the Ukraine model on the United Kingdom. One must even say that Switzerland has done Britain a disservice. Those who ultimately want to lead the country into the EU have prevailed in the Berne government. In consequence the EU told No. 10 that Ukraine was also OK for those who leave the EU. Whether Great Britain will finally agree to the Ukraine mechanism is open. However, it is included in both the Withdrawal Agreement and the Political Declaration.
Switch to multilateralism as a way out
The EU will not accept a new bilateral institutional agreement without the ECJ. The only alternative is a shift to multilateralism. Since Swiss EU accession is out of the question, this could only mean moving closer to the EEA. The Brussels think tank Bruegel proposed on August 29, 2016, a good two months after the Brexit vote of the British people, to create two cooperating structures in Europe. This would lead to a Europe with an inner circle, the EU, which strives for deep and political integration, and an outer circle with economic integration. The starting point for cooperation could be the EEA, but some control over immigration should be given. Obviously, the UK and Switzerland could be part of the outer circle.
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