Swiss option: no passport for banks

in | by Hugo Dixon

Would the Swiss option suit Britain? Switzerland is neither an EU nor an EEA member. But it has negotiated access to parts of the single market. What’s more, it doesn’t adopt the EU’s social rules. Hasn’t it got the perfect balance?

Not so fast. For a start, Switzerland has access to only parts of the single market. A big omission is the vast majority of services, including finance. This is despite the fact that the Swiss have spent years trying to get a deal covering them. Its banks, therefore, do not enjoy a passport allowing them to offer their services anywhere in the EU. To do so, they have to locate themselves inside the EU. That’s why so many of them have large operations in London.

If we adopted the Swiss option, both domestic and foreign banks based in the UK would shift parts of their operations across the Channel in order to gain access to the single market.

The Swiss government has itself acknowledged the drawback: “The existing barriers to market access place Switzerland at an economic disadvantage… Swiss financial intermediaries can only expand their EU business by way of subsidiaries in the EU, which means that Switzerland loses out in terms of jobs, value creation and tax receipts.”

The idea that Switzerland doesn’t have to follow EU rules is also misleading.

It doesn’t have to adopt the social legislation. But in general it does have to adopt the same or equivalent product regulations – and it gets no vote on what those rules are. There is also no dispute mechanism so, if it gets into a fight with the EU over whether its companies have been fairly treated, there’s nothing it can do. The Swiss government has commented that it is “generally necessary to adopt developments of relevant EU law” to keep regulation equivalent. Switzerland also finds itself reacting to EU law in sectors where there are no agreements so as to keep its firms competitive.

What’s more, Switzerland maintains its access to EU markets only insofar as it keeps up with EU regulation. When Brussels changes its rules, Switzerland loses access – until it changes its laws too. That means its companies often suffer a delay in exporting when EU rules change.

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    It must also adopt equivalents to EU legislation in areas like employment and the Schengen area. This includes more controversial regulation like the Working Time Directive (see our briefing). Relations between the EU and Switzerland are governed by over 120 agreements. These have created a “complex and sometimes incoherent network of obligations, which are not easy to sustain”. The EU may not be keen to replicate this state of affairs.

    The agreements are also “static”; they don’t adapt to changes in EU legislation. So Switzerland doesn’t immediately benefit from deepening of the single market.

    Switzerland is also required to allow immigration from the EU. Economically, this benefits Switzerland just as it does Britain. But for those who want to stop EU immigration, the Swiss option isn’t a good one.

    In a referendum in early 2014, the Swiss voted narrowly to cap EU immigration. The government now has until 2017 to implement the people’s wishes. The problem is that the Swiss referendum violates one of its agreements with the EU.

    It’s too early to tell how things will play out but the early noises from the EU were uncompromising – to the effect that, if Switzerland wishes to interfere with the free movement of people, it puts at risk every single bilateral agreement it has with the EU on issues such as trade, asylum and travel.

    Like Norway, Switzerland is not part of the EU customs union. While this gives it more flexibility in cutting trade deals with other countries, it also makes it vulnerable to being pushed around by bigger powers.  Eurosceptics are fond of pointing out that Switzerland and China began operating a free trade deal in 2014, something the EU has yet to do. But it is important to look at the detail of this deal. Switzerland agreed to eliminate tariffs on the vast majority of Chinese imports immediately, while China phased out tariffs on Swiss imports over periods of up to 15 years.  We could probably negotiate a similarly unbalanced deal with China if we quit the EU. But we’d have a great chance of getting a balanced one if we worked with our EU partners.

    It’s true that Switzerland does not have to carry the burden of the Common Agricultural Policy. But the flipside it that its agricultural exports to the EU face tariffs as well as having to following EU health regulations.

    Meanwhile, Switzerland still ends up paying quite a lot to keep its big neighbour happy. Since 2008, it has contributed SFr1.3 billion (£880 million at January 2016 exchange rates) for development of eastern Europe.  It has also funded major infrastructure projects for the EU’s benefit, most notably a €15 billion (£10.9 billion) transalpine railway network which allows EU countries to transport their goods through Switzerland but doesn’t do much for the Swiss themselves.

    Despite all this, Switzerland gets only second-class access to the single market. The absence of a deal on services, which account for 78% of our GDP, would make this option a bad one for Britain.

    This is an excerpt from “The In/Out Question: Why Britain should stay in the EU and fight to make it better” by Hugo Dixon. 

    Factchecking by Sam Ashworth-Hayes