Bilaterals III: What is it all about?

On December 15, the Federal Council adopted the draft of the negotiation mandate for the Bilaterals III. The negotiation package of the Bilaterals III includes, among other things, the update of the five existing singlemarket agreements (Agreement on the Free Movement of Persons (AFMP), Agreement on dismantling technical barriers to trade (MRA), overland transport, air transport and farming). In addition, two new internal market agreements for electricity and food safetyare to be concluded. In the areas of research, education and health, the package envisages cooperation with the European Union (EU). The financial dialogue is also to be resumed with immediate effect.

economiesuisse welcomes the start of the negotiations with the EU. The institutional rules for the internal market agreements should be found/defined in the process. The package approach with vertical, sectoral solutions is supported. There is no doubt that the main goals of the Swiss economy with the Bilaterals III can be achieved. These include, in particular, securing Switzerland’s long-term participation in the EU single market, strengthening security of supply through the conclusion of an electricity agreement, as well as the participation in the European research program “Horizon Europe”. Without a regulated relationship with its most important trade partner, however, there is a risk of further erosion of the bilateral path to the detriment of Swiss companies and with serious consequences for Switzerland as a business location.

Federal Council adopts draft negotiation mandate

• At its meeting on December 15, the Federal Council announced the adoption of the draft negotiating mandate for the Bilaterals III.
• According to the Federal Council, the majority of outstanding issues were satisfactorily clarified during the exploratory talks. These now need to be concretised in the negotiations with the EU.
• economiesuisse supports the Federal Council in its efforts to secure and further develop the successful model of the bilateral path.

Main objectives for economiesuisse

In economiesuisse’s view, the following main objectives are to be achieved with the negotiations of the Bilaterals III:

1. Switzerland’s participation in the EU internal market should be secured in the long term with the Bilaterals III.
2. The ongoing erosion of the bilateral path must be reversed with the start of the negotiations.
3. New internal market agreements in electricity and food safetyneed to be concluded.
4. The conclusion of a specific agreement for program participation will create a clear framework for Switzerland’s future participation of Switzerland in EU programs in the areas of research, education and culture.
5. The financial dialogue needs to be resumed.

These objectives are important for the economy and thus for prosperity in Switzerland. In this dossierpolitik, the Bilaterals III package approach and its individual elements are explained, analyzed and assessed from a macroeconomic perspective based on the above-mentioned objectives. Based on this, economiesuisse’s priorities for the upcoming negotiations are formulated. Finally, an overview of the next steps is presented.

Package approach Bilaterals III

• A whole package is to be negotiated that includes the new singlemarket agreements and cooperation in Switzerland’s interest. This includes t electricity, food safety, research, education and health. In addition, the regulatory dialogue with the EU in the financial sector is to be resumed.
• All elements of the Bilaterals III negotiation package are shown in the following diagram:

• According to the Federal Council, the institutional issues are now to be solved individually in each agreement (vertical, sector-based approach).
• In this way, the dynamic adoption of EU law, dispute settlement and exemption clauses can be resolved individually in the five existing, as well as thetwo new internal market agreements and the cooperation agreement on health
   

economiesuisse’s assessment

• economiesuisse welcomes that Switzerland and the EU wish to conclude new bilateral agreements in the areas of electricity and food safety, as well as the cooperation agreement in the areas of research & innovation and health.
• In addition, updating the existing single market agreements, and in particular the Agreement on dismantling technical barriers to trade (MRA), is economiesuisse’s top priority. Without updating this agreement, with in total 20 product categories, up to 60% of Swiss export companies would lose their current participation in the EU internal market from 2026/2027.
• The Swiss medtech industry has already lost barrier-free access to the EU single market in 2021. As a result, Swiss medtech companies must now export their products to the EU under the more difficult conditions for third-country companies.
• The opportunities for Swiss banks to provide services from Switzerland for their clients in the EU are becoming increasingly restricted.
• economiesuisse welcomes the resumption of the regulatory dialogue in the financial sector . Rapid recognition of the equivalence of Swiss stock exchange regulation by the EU should be sought.

New single market agreement for food safety

• The single market agreement for food safety, focuses on access to EU early warning systems and risk assessments of the EU, the reduction of trade barriers, market liberalization and strengthening consumer protection.
• The Federal Council intends to protect the Swiss population even more effectively from potentially dangerous foods in the future.
• For those reasons, the Federal Council negotiates, among other things, the membership of the European Food Safety Authority (EFSA) and the
• Rapid Alert System for Food and Feed (RASFF).
• Switzerland's agricultural policy remains unaffected by the agreement.
• The aim of the negotiations will be to use exemptions to prevent a lowering of the standards applicable in Switzerland, particularly in the areas of animal welfare and food safety.
   
• economiesuisse’s assessment
• Full membership of RASFF would bring many advantages for Switzerland.
• Access to all notifications would allow to take measures to protect consumers at an early state.

Cooperation in research: Switzerland’s participation in “Horizon Europe”

• The package approach aims at a rapid full association of Switzerland in the EU research programme “Horizon Europe”. With a budget of almost 100 billion euros, it is the largest research programme in the world.
• The various funding instruments cover everything from basic research to applied research and technological innovation.
• It is currently not possible to lead EU research projects from Switzerland. In addition, Swiss researchers can no longer apply for grants from the European Research Council. This means that an important and prestigious funding instrument is no longer available to them.
• As a basis for a full association to “Horizon Europe”, a specific agreement must be negotiated that sets out the framework conditions for Switzerland’s current and future participation in all EU programmes (thus research, innovation, general and professional education, youth, sport and culture). The EU has already negotiated such framework conditions with other third countries such as the Faroe Islands and New Zealand, as well as with the UK as part of its Brexit agreement.
• However, Switzerland will still decide for itself on a case-by-case basis whether it wishes to participate in a specific EU programme. The specific agreement, however, should significantly facilitate and accelerate future negotiations on Switzerland’s participation in EU programmes.
   

eonomiesuisse’s assessment

• Switzerland as a research centre is of the utmost importance for the innovative capacity of the Swiss economy and is suffering from the current decoupling from “Horizon Europe”.
• Rapid full association with “Horizon Europe” is a top priority for economiesuisse. Since September 2023, the UK has also been fully involved in the programme again.

Cooperation in education: of Switzerland’s participation in “Erasmus+”

• Switzerland’s participation in the EU education programme “Erasmus+” is planned as part of the package approach. “Erasmus+” is the EU programme for the promotion of education, training, youth and sport in Europe. It has a budget of around 26.2 billion euros.
• The 2021-2027 programme focuses on social inclusion, the green and digital transitions and promoting young people’s participation in democratic life.

economiesuisse’s assessment

• Switzerland relies on an excellent education system in order to conduct high-quality research and promote innovation. Promoting international mobility is an important element of this.
• Switzerland’s full association with “Eramus+” should be pursued if it is financially viable and the cost-benefit ratio is favourable.

Health cooperation agreement

The package approach envisages a cooperation agreement between Switzerland and the EU in the health sector, containing following elements:

• Cooperation with the European Centre for Disease Prevention and Control (ECDC)
• Participation to the Early Warning and Response System (EWRS)
• Switzerland’s inclusion in the new EU-wide mechanism for dealing with cross-border health threats
• Participation in the multi-annual EU health programme
• The cooperation can later be extended to other areas of health if both parties decide to do so ("evolutive clause")

Cross-border patient mobility, tobacco and pharmaceuticals are excluded.

economiesuisse’s assessment

• economiesuisse welcomes the conclusion of a cooperation agreement in the health sector.
• Switzerland has an interest in participating in the EU risk assessment and rapid alert systems for health protection due to the short response times and high potential for damage in crisis situations.

Accompanying measures and wage protection

According to the Federal Council, most of the issues relating to wage protection for posted workers have been satisfactorily resolved. For example, the EU has accepted the following exceptions to the law on the posting of workers:

1. A non-regression-clause (should the EU reduce the wage protection in the law on the posting of workers, Switzerland would not have to adopt these rules),
2. an advance notification period of four working days based on an objective and industry-specific risk-analysis,
3. the obligation to provide a deposit for companies which have not met their financial obligations in the past and
4. Measures to combat false self-employment.

economiesuisse’s assessment

• economiesuisse supports maintaining the current wage protection level. The economy is fully behind the fight against wage dumping.
• However, the expansion of wage protection, the introduction of minimum wages or other inappropriate concerns are clearly rejected.
• The non-regression-clause fulfils one of the trade unions’ main demands. Additionally, the dual enforcement system (monitoring and sanctioning competence) by the Swiss social partners will not be restricted by the EU and the above-mentioned EU-related adjustments to the existing accompanying measures are offset by domestic measures in order to maintain the level of wage protection.
• According to the “Common Understanding”, the principle of “equal pay for equal work in the same place” also includes expenses. The expenses regulation in the EU must therefore not lead to unfair competition in Switzerland. At the same time, wage protection measures must be proportionate.
• The domestic discussions between the social partners, the business community, the federal government and the cantons will continue and solutions will be finalised.

Dynamic adoption of EU law

• Switzerland will be able to decide autonomously on each individual adoption of single market law within the single market agreements.
• Switzerland has two years for the dynamic adoption of legislation. Switzerland's direct democratic decision-making processes will be safeguarded. In the event of a legislative referendum, Switzerland is guaranteed an additional year for implementation.
• It is foreseen that Switzerland will be systemically consulted on the development of relevant EU legislation, in the same ways as the other member states, and will be able to actively contribute its concerns as part of the decision shaping framework.

economiesuisse’s assessment

• The dynamic adoption of EU law, together with the introduction of a dispute resolution mechanism, creates reliable framework conditions and legal certainty for Swiss companies, which economiesuisse welcomes.
• Today, for example, the EU Commission is blocking the updating of the agreement on dismantling technical barriers to trade (MRA) without Switzerland being able to defend itself against this in front of a joint arbitration panel (see next subchapter).
• Thanks to clear rules on countermeasures in the event of non-adoption of internal market law by Switzerland, this would no longer be possible in future. Switzerland could take such a case to the joint arbitration panel.

Dispute resolution

The package approach envisages a dispute settlement mechanism to be used in the event of disagreements between Switzerland and the EU when implementing a single market agreement. This mechanism is described in detail in the following diagram:

• The arbitration tribunal responsible for settling the dispute will be composed of equal numbers of judges, e.g. three judges appointed by Switzerland and three by the EU, as well as an independent presidium.
• This is in line with established principles of international law: Switzerland has concluded such parity arbitration proceedings in many of its agreements.

economiesuisse’s assessment

• Switzerland’s position is improved by the dispute settlement mechanism. It has an instrument to effectively assert its interests in relation to the single market agreements concerned through legal channels.
• Compensatory measures can go as far as to the suspension of agreements. Termination is excluded. However, a suspension of entire agreements by the EU is unlikely to be proportionate if Switzerland does not wish to adopt individual legal developments.

State aid and competition rules

• The package approach contains the inclusion of rules on state aid in the existing single market agreements on air and land transport and in the new electricity agreement.
• The aim is to create a level playing field for Swiss and EU players in the internal market and avoid distortions of competition through state intervention.
• All other agreements, the promotion of economically disadvantaged regions or the realisation of important projects in the interest of the country are not affected by the ban on state aid.

economiesuisse’s assessment

• economiesuisse welcomes that the EU state aid law will only apply to the air and land transport, as well as electricity agreement. It is also important that Switzerland will monitor state aid itself (Two-pillar model)
• From a business perspective, increased transparency of subsidies and grants in Switzerland is generally desirable.

Citizen’s Rights Directive (CRD)

• Since 2004, the CRD has regulated the free movement and residence of EU nationals. As a legal act, the CRD summarises most of the regulations in force to date in the area of the free movement of persons.
• For the negotiations, the Federal Council aims to minimise the risks for the social welfare system by adopting the CPR. Freedom of movement is also focussed on employees.
• Additionally, according to the draft mandate and the results of the exploratory talks, a conflict with the valid Federal Constitution on the issue of expulsion from the country is ruled out.

economiesuisse’s assessment

• In economiesuisse’s view, an extension of the applicability of the CRD beyond the free movement of persons is inadmissible.
• For the negotiations, it is essential that the regulations relevant to the single market that must be adopted by Switzerland are clearly distinguished from those that do not have to be adopted.

Stabilisation of the Swiss cohesion contribution

• The package approach foresees a regular contribution of Switzerland to the cohesion within the EU. This involves autonomous financial aid provided by Switzerland to certain EU member states.
• Switzerland has been participating in selected projects to reduce economic and social disparities in the EU since 2007. In doing so, it contributes to the promotion of cohesion and stability in Europe.

economiesuisse’s assessment

• The stabilisation of the contribution is to be welcomed if the outcome of the negotiations is satisfactory from a macroeconomic perspective.
• It is also in Switzerland's interest to reduce the economic differences in the European internal market so that the participating countries become attractive target markets with greater purchasing power.
• It is in Switzerland's political and economic interests to expand relations with the recipient states in Central and Eastern Europe.

The analysis of the package approach of the Bilaterals III und its individual elements shows that the positive aspects for the Swiss economy clearly outweigh the negative ones. Swiss diplomacy has been able to achieve important improvements in the exploratory talks with the EU. The main objectives defined by economiesuisse with a view to the upcoming negotiations can undoubtedly be achieved with the Bilaterals III.

It is now important that the few outstanding questions are clarified quickly. economiesuisse has the following priorities for the upcoming negotiations:

1. The dynamic adoption of EU law within the five existing and two new single market agreements should only apply if there is a clear link to the original core of an agreement. For example, the extension of the applicability of the CRD beyond the FMPA is not permitted.
2. The current wage protection in Switzerland should be maintained. The economic significance of posted workers, who account for just 0.7 per cent of total employment in Switzerland, must be correctly classified.
3. Time is of the essence. Without a regulated relationship with the most important trading partner and without legal certainty, there is a risk of further erosion of the bilateral path to the detriment of Swiss companies and with serious consequences for Switzerland as a business location.

Even if the above priorities 1 and 2 cannot be resolved to the complete satisfaction of all stakeholders in the upcoming negotiations, the final outcome of the negotiations must be assessed from a macroeconomic perspective. Based on current knowledge, it is clear that the Swiss economy is in a much better position with the Bilaterals III than without them.