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Switzerland - European Union

The upper house of the Swiss parliament on 16 June 2016 voted to invalidate its 1992 application to join the European Union, backing an earlier decision by the lower house. The vote came just a week before Britain decides whether to leave the EU in a referendum. Twenty-seven members of the upper house, the Council of States, voted to cancel Switzerland’s longstanding EU application, versus just 13 senators against. Two abstained. In the aftermath of the vote, Switzerland will give formal notice to the EU to consider its application withdrawn, according to the country’s foreign minister, Didier Burkhalter.

Switzerland is not a member of the EU, but has signed more than 20 major bilateral treaties with the Eurozone. Switzerland is the EU's 4th largest trading partner, and the EU is Switzerland’s largest trading partner. In 2011, the EU imported €91.2 bn in Swiss goods (5.4% of total EU imports) and exported €121.7 bn worth of goods to Switzerland (7.9% of total EU exports). The EU accounts for 68% of the Switzerland's foreign trade. More than 1 million EU citizens live in Switzerland, and another 230,000 cross the border daily to go to work. Some 430,000 Swiss citizens live in the EU.

Expansion of the EU zone and criticism of the Swiss financial and tax regimes have put further pressure on Switzerland to become a full member. Swiss voters turned down joining the European Economic Area – a halfway house to EU membership - in 1992. The three other members of the European Free Trade Agreement (Efta) - Iceland, Liechtenstein and Norway - did choose to join the EEA, although Efta still exists. And nine years later they also rejected the idea of Switzerland opening talks to become a full EU member. Switzerland lodged an application with Brussels to join the EU in 1992, but it has been put on ice.

In 1999 the EU and Switzerland signed an agreement on the free movement of persons, giving each other's citizens the right to enter, live and work on their territories. The first set of Swiss-EU bilateral agreements came into force in 2002, including the free movement of EU and Swiss workers between borders and other trade and transport issues. A second set of treaties, that included Switzerland subscribing to the Schengen/Dublin accords, were signed in 2004. The rightwing Swiss People's Party challenged the Schengen/Dublin accords on closer security cooperation to a nationwide vote. But the electorate approved the treaties at the ballot box in June 2005. A separate vote, on whether to extend an existing labour accord to include the ten new EU member states, was approved by voters in September 2005. Despite a campaign led by the far-right Swiss Democrats and parts of the far left, voters accepted the extension of the treaty. In February 2009 the electorate approved the continuation of a key labour accord and its extension to the latest EU members, Bulgaria and Romania.

To ensure Switzerland does not suffer discrimination as a non-member, Swiss legislation in many fields, including trade, has been brought into line with that of the EU. However, the relationship between Switzerland and the EU is not always cordial. Brussels is opposed to Switzerland’s corporate tax regime that allows cantons to set low rates to attract holding companies or regional HQs from other countries. Several EU member states vociferously denounced Switzerland’s banking secrecy code that restricted the exchange of information in international tax evasion investigations. Switzerland gave ground, but not sufficiently enough for some countries.

Under the Swiss system of direct democracy, an actual application to join the EU would entail a national referendum, and a majority of voters and cantons in favour of joining. The lukewarm attitude to the EU is based on a number of factors. The union is perceived as falling short in democratic institutions. Switzerland's frequently used system of initiatives and referenda would need drastic reform and curtailment to comply with EU rules. There is also a concern about the cost: Switzerland would be a net contributor to the EU coffers, and there are doubts about whether neutrality would be compatible with EU membership. Swiss trade and industry is not convinced of the benefits of EU membership. Switzerland has traditionally traded with the whole world, with every second franc being earned through exports.

With the EU contemplating new laws that could squeeze out competition from non-member states, particularly in the field of alternative investments, Switzerland had a new incentive to engage with Europe in this sector. “The Swiss economy has an interest in opening up the market for financial services,” Claude-Alain Margelisch, deputy chief executive of the Swiss Bankers Association, told journalists in Zurich on May 19, 2010. “An integrated Swiss finance sector would strengthen Europe’s competitiveness with the large and dynamic finance sectors of the Americas and Asia,” he added.