Brexit casualty

Switzerland becomes Brexit casualty

Brussels doesn’t want to set a Swiss precedent for future trade talks with UK.

By  Carmen Paun  and Priti Patnaik

The U.K. vote to leave the European Union threatens to claim collateral damage in Switzerland, whose own negotiations with the bloc have become much more difficult as a result.

The Swiss, who voted to cap immigration in a 2014 referendum, are approaching crunch-time in their relationship with the EU, which is based on a myriad of bilateral agreements. The parliament in Bern needs clarity on how to apply the referendum result by December — or dynamite Swiss trade ties with the EU.

With the EU painfully aware that the deal could set a precedent for talks with the U.K., the balance of power has shifted to Brussels.

“Basically, Switzerland will get a ‘Cameron minus minus’ deal,” said an EU source close to the talks, referring to the agreement struck in February between the former British prime minister and the EU to restrict some welfare benefits for migrant workers in the (vain) hope of persuading Britons to vote in favor of continued membership.

Britain and Switzerland now face a similar dilemma: Both want control over the number of EU citizens on their territory, while keeping access to the single market and other bilateral deals with the bloc. The EU, however, maintains that freedom of movement for workers and access to its markets are inseparable.

A deadlock on freedom of movement could cut Switzerland off from the bloc, with far-reaching consequences in many areas.

“It was clear to everyone that things have not become easier after the Brexit vote,” said European Commission spokeswoman Mina Andreeva in July after the most recent set of talks.

European Commission President Jean-Claude Juncker and Swiss Confederation President Johann Schneider-Ammann are due to meet in Zurich on September 19, when they are likely to discuss a draft resolution for the dispute before the Commission consults EU governments. Talks with EU countries are expected to start in October, with the aim of a consensus by December.

“That is already an ambitious schedule,” the EU source said.

At stake are several of the bilateral deals giving Switzerland access to EU markets in air and road traffic, agriculture, and public procurement, among others. These pacts are linked, so if one falls, so do the others — the so-called guillotine clause.

That means a deadlock on freedom of movement could cut Switzerland off from the bloc, with far-reaching consequences in many areas, not least its financial services sector. Switzerland would then have to renegotiate the deals one by one — in addition to the migration arrangement.

At a mid-July meeting between Juncker and Schneider, neither side concealed how much Brexit has changed the dynamic. Juncker tweeted that the “difficult negotiations will continue,” while the Swiss government said in a statement: “The two sides acknowledged that the outcome of the U.K. referendum had complicated efforts to find a solution within the timeframe set out in the constitution.”

No cap possible

Long before migration turned into arguably the biggest challenge facing Europe, the Swiss held a referendum on February 9, 2014 to “stop mass immigration.” The motion, initiated by the right-wing Swiss People’s Party, narrowly won the day with 50.3 percent of the vote.

The country must now impose annual limits on residency and working rights for non-Swiss and restrict their social benefits. Swiss businesses will also have to prioritize Swiss residents over newcomers when hiring staff, as a result of the referendum.

Problem is, this would violate fundamental EU principles that link free movement and access to the single market.

“No quantitative cap [on the number of EU workers in Switzerland] is possible, the EU side is making that very clear,” said the EU source close to the talks.

The Swiss Federal Council submitted draft legislation in March with a “unilateral safeguard clause” setting annual limits on permits issued to those from the EU and the European Free Trade Association countries — Iceland, Liechtenstein, Norway — if immigration exceeds a certain threshold.

When setting these limits, the Federal Council would take Switzerland’s general economic interests into account and consider the recommendations of a newly established immigration commission.

But Juncker told Schneider that he is not on board with this option, according to the EU source and several Swiss sources.

Neither side wants to see the plug pulled on existing agreements: Switzerland is the EU’s fourth-largest trading partner and the EU is Switzerland’s largest trading partner. About a million EU citizens live in Switzerland, another 230,000 cross the border daily to work there, and some 430,000 Swiss citizens live in the EU, according to the EU’s External Action Service.

Swiss citizens opposed to imposing a cap on immigration have now gathered enough signatures to potentially trigger a new referendum on the issue. Backers of the initiative believe the outcome could be different because Brexit has raised the stakes for the Swiss.

“The initiative is a last resort measure to let Swiss people choose between immigration quotas for EU citizens versus the freedom of movement and the [bilateral agreements] tied to it. Only the Swiss people have the legitimacy to make this choice,” said Sean Serafin, a founder of the initiative that has gathered 130,000 signatures.

The Swiss government is obliged to call a vote within three years, unless a committee representing backers of the initiative retract it.

What the Swiss won’t get

Cameron’s February agreement with the EU, which was nullified when the U.K. voted to leave, gave Britain the right to apply an “emergency brake,” allowing it to withhold access to benefits for new EU migrants for a one-off period of seven years.

Post-Brexit, that option seems off the table. While there have been media reports suggesting one way out for the Swiss would be to impose quotas in areas where the unemployment rate goes above the national average, the EU source said that the talks have not yet reached that level of detail.

Jacques de Watteville, the Swiss chief negotiator, and Christian Leffler, his EU counterpart, declined to comment on the current status of the talks.

The Swiss banking sector is very eager to preserve so-called “passporting rights” which give access to the entire EU single market. Paradoxically, while Brexit has made it harder for Switzerland to negotiate with the EU, some in the Alpine country have looked at Britain as a potential ally in the talks.

“We are in regular touch with the U.K. as far as market access discussions are concerned,” said Beat Werder, ‎spokesman at the ‎Swiss Federal Department of Finance.

Swiss banks will follow closely the discussions between the U.K. and the EU, to make sure they don’t miss any opportunities to improve market access, according to Sindy Schmiegel Werner, a spokesperson for the Swiss Bankers Association.

But at the same time, while Brexit could have negative repercussions for Swiss banks in London in the short term, the banks are also used to Switzerland’s situation as a non-EU member and have organized themselves accordingly, she said.

If the British get an agreement on access to the EU single market for their financial firms, any concessions they secure will also be demanded by the Swiss.

“We would not want to be treated worse than the U.K.,” a Swiss government source said.

This story has been corrected to note the Swiss government must schedule a second referendum unless its backers retract their bid.