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Switzerland and the European Union
The European Integration Office is a service provided jointly by the Federal Department of Foreign Affairs (DFA) and the Federal Department of Economic Affairs (DEA).
It has been assigned with the following tasks by the Swiss government:
- Monitoring the European integration process and analysing and assessing its likely consequences for Switzerland.
- Co-ordinating matters concerning integration law and policy and negotiating treaties with the EU, which involves sharing responsibility and working closely with the departments in charge of the relevant issues; EFTA relations; negotiation of EFTA -Third Country Agreements.
- Providing information on Switzerland's European policy and European integration.
The Bilateral Agreements of June 1999 between Switzerland and the EU entered into force on 1 June 2002. These Agreements strengthen Switzerland's position as an economic centre and facilitate access to the integrated market of the European Union. The revised EFTA Treaty, which extends the main provisions of the new Bilateral Agreements to the EFTA member countries, also took effect on 1 June 2002, as do several federal laws and ordinances with a bearing on the new provisions.
The Bilateral Agreements of June 1999 represent the largest package of contractual measures adopted with the European Union (EU) since the Free Trade Agreement of 1972. Opened on 12 December 1994 and concluded four years later on 11 December 1998, this first round of bilateral negotiations covered seven different fields: research, public contracts, technical barriers to trade, agriculture, civil aviation, land transport and the free movement of persons.
These Agreements create a solid foundation for exchanges between Switzerland and the EU, its main supplier and customer. Nearly 60% of Swiss exports go to the EU which is the source of just under 80% of Swiss imports. The new Agreements establish closer ties between Switzerland and the EU; they hold out new prospects for the younger generations in particular, by introducing free movement of persons.
Each of the two contracting parties is responsible for the implementation and application of the Agreements within its territory. With that end in view, Switzerland has amended many federal laws and ordinances and adopted new ones. These legislative changes took effect on the same date as the Agreements.
Moreover, various legal provisions have also had to be amended or newly adopted in connection with the implementation of the revised EFTA Treaty, which extends to the other EFTA member states (Norway, Iceland and Liechtenstein) the main provisions of the new Bilateral Agreements, in particular those on free movement of persons. These amendments also took effect on 1 June 2002.
Further information is available on the website of the European Integration Office
The Bilateral Negotiations II are the continuation of the Bilateral Agreements I of 1999 and thus constitute a further progression along the bilateral path. This was pursued after Switzerland rejected membership of the European Economic Area in 1992: it involves on the one hand the pragmatic settlement of outstanding specific issues and problems in our relationship with the EU through bilateral, sector-specific negotiations and agreements, and on the other hand involves improving on and structuring the existing treaty framework where this is in both sides' interest.
After the conclusion of the Bilateral Agreements I, the EU Commission was essentially sceptical regarding fresh negotiations with Switzerland. The reason why - despite this scepticism - a second round of bilateral talks came about, is that the EU itself discovered two fresh concerns. Firstly, Switzerland should be integrated into the system planned by the EU for cross-border taxation of savings. Secondly, Brussels wanted to increase cooperation with Switzerland with regard to the fight against fraud in the area of indirect taxes (especially against cigarette smuggling).
Switzerland acceded to the requests made by the EU, but also set three conditions:
- Negotiations should not only be conducted on the two dossiers specified by the EU, but should also extend to cover additional areas of importance for Switzerland. These include Switzerland's participation in Schengen/Dublin (cooperation in the fields of police and justice, asylum and migration) and the seven remaining dossiers ('leftovers') from the Bilateral Negotiations I. In a joint statement on the Bilateral Negotiations I, Switzerland and the EU had already come to an agreement on negotiations in the following areas: processed agricultural products, statistics, the environment, MEDIA, education, pensions and services.
- Negotiations should proceed in parallel in all dossiers and be concluded simultaneously. This parallelism of negotiations ensures that a balanced overall outcome is achieved which also takes account of Swiss interests.
- Switzerland's interests as a financial centre, i.e. banking secrecy, must be protected at all times.
From June 2002 negotiations between Switzerland and the EU were conducted in parallel for ten dossiers. On the one hand, these concern economic interests (e.g. the food industry, financial services and tourism). But they also extend to cover cooperation between Switzerland and the EU in other crucial political areas: e.g. domestic security and asylum policy (Schengen/Dublin) and in areas such as the environment, statistics, culture and training.
With regard to the liberalisation of services, Switzerland and the EU agreed in March 2003 that, in view of the large number of issues still outstanding and the complexity of the dossier, negotiations in this area will be continued separately and concluded at a later date.
In the summer of 2003, seven of the remaining nine dossiers of the Bilateral Negotiations II were essentially completed: taxation of savings as well as the six 'leftovers'. An important step was taken in June 2003 with the political agreement on the taxation of savings. The agreement is based on the principle that Switzerland imposes a withholding tax of up to 35% on behalf of the EU states and pays back three-quarters of this to the EU states. This means that, on the one hand, income from savings received by EU citizens can be taxed efficiently in Switzerland, whilst the Swiss legal system and banking secrecy remain protected.
Politically sensitive differences were still outstanding in the closing phase for the dossiers relating to the fight against fraud and Schengen/Dublin. These concerned the exchange of information with regard to tax offences in the context of judicial and administrative assistance.
On 19 May 2004, at a summit meeting between Switzerland and the EU in Brussels, political agreement was also reached on these final questions. The agreement on the final points consisted of the following provisions:
- With regard to Schengen/Dublin, Switzerland receives a guarantee that, in the area of direct taxes, banking secrecy remains protected. In the event that a future Schengen provision revokes the principle of double liability with regard to direct tax offences, thus giving rise to an obligation for legal assistance for evasion offences, Switzerland receives an opt-out without the need to withdraw from Schengen cooperation.
- In the fight against fraud, i.e. matters relating to indirect taxes (customs duty, VAT, excise duty, for example on tobacco and alcohol) Switzerland makes available to the EU the same legal instruments as those used in Swiss proceedings (national treatment); i.e. cooperation is extended to include all cases involving serious offences. Cooperation in cases of money laundering is also extended. However the definition of money laundering according to the Swiss penal code remains unchanged. There are no new reporting requirements for Swiss financial intermediaries.
A balanced overall result
The Swiss Federal Council considers this Agreement to be well balanced, with Switzerland's key requirements (conclusion of all dossiers including Schengen/Dublin, protection of banking secrecy) being fulfilled. Switzerland provides reciprocal cooperation with regard to cross-border taxation of savings by deducting a withholding tax on income from savings earned by EU citizens (taxation of savings). Swiss cooperation is also extended to cover all serious offences relating to indirect taxation, i.e. smuggling, customs fraud and VAT fraud (fight against fraud).
The Bilateral Agreements provide Switzerland with the following benefits:
Firstly, the Agreements promote significant economic interests:
- Finance sector: the interests of the Swiss finance sector are protected (taxation of savings, fight against fraud), and banking confidentiality in relation to direct taxation is preserved (Schengen/Dublin).
- Food industry: reduced customs duties improve export opportunities for the food industry. This also benefits Swiss agriculture as a supplier (processed agricultural products).
- Tourism: the Schengen visa encourages tourism in Switzerland (Schengen/Dublin).
- Tax benefits for holdings: Swiss holdings operating throughout Europe pay less tax (taxation of savings).
Secondly, cooperation is extended to other important political areas:
- Security policy: cross-border crime can only be fought effectively by means of international police and judicial cooperation. Schengen provides the tools for this purpose.
- Asylum policy: the Dublin cooperation offers measures against asylum tourism and thus relieves pressure on the national asylum system.
- Environment: the European Environmental Agency is an important means of international cooperation on the protection of the environment. By being a member of the Environmental Agency, Switzerland can contribute towards this cooperation.
- Statistics: broad-based statistical information is essential to support key political and economic decisions. The statistical agreement harmonises and optimises the exchange of comparable statistical data between Switzerland and the EU.
- Culture: participation in the EU film promotion programmes (MEDIA) strengthens the role of film as an important part of Swiss cultural heritage.
- Education: cooperation within EU training programmes gives access to a wide range of training opportunities for Swiss nationals, and improves the quality of training. This provides enhanced opportunities in the employment market.
Effects of Bilateral Agreements II on the federal budget
The Bilateral Agreements II should not result in any additional below-the-line costs for the federal budget, though Switzerland will incur costs of around 80 million francs in the form of reduced customs revenue from processed agricultural products, contributions to the MEDIA programmes and the European Environmental Agency, and the implementation of the Statistics and Schengen/Dublin Agreements.
On the other hand, participation in the Dublin cooperation on asylum should reduce Switzerland's asylum costs by around the same amount, 80 million francs a year (source: Federal Council message concerning Bilateral Agreements II, 1 October 2004).
As far as the taxation of savings is concerned, it is difficult to estimate the revenue from Switzerland's 25% share of the withholding tax. Conversely, implementation of the Agreement will impose additional costs on the federal tax administration, but overall it should reduce the burden on the federal budget.
Table of effects on the federal budget
Next steps: signature and approval
There are nine negotiation results ensuing from the Bilateral Negotiations II. Eight of these are Agreements (processed agricultural products, statistics, pensions, environment, MEDIA, Schengen/Dublin, fight against fraud, taxation of savings), which need to be approved by Parliament. Three of the Agreements (MEDIA, Schengen/Dublin and taxation of savings) require amendments to legislation in order to be implemented. The ninth negotiation result (education/vocational training/youth) consists of a declaration of intent.
The Swiss Federal Council will submit the Agreements as separate proposals to Parliament. However, the Agreements will be submitted to Parliament collectively. At the same time the Federal Council will submit the application for an accelerated parliamentary approval process. The Agreements should be discussed in both parliamentary Councils in the same session.
The Federal Council will also submit seven of the Bilateral Agreements II (statistics, pensions, environment, MEDIA, Schengen/Dublin, fight against fraud, taxation of savings) to optional referendum in accordance with Article 141 of the Federal Constitution. The Federal Council bases this recommendation to Parliament on the constitutional clarifications provided by the interdepartmental approval process working group led by the Federal Office of Justice. The Agreement concerning processed agricultural products does not meet the requirements for optional referendum, as it is merely an adaptation of the existing protocol 2 of the 1972 Free Trade Agreement.
None of the Agreements meet the constitutional criteria for submission to compulsory referendum (Article 140 of the Federal Constitution). This would be necessary for accession to a supranational community or organisation for collective security. Nor are these conditions fulfilled with regard to the Schengen/Dublin Association Agreement. Switzerland's participation in Schengen does not amount to accession to a supranational community, but is instead a normal contract covering international cooperation. On the basis of the negotiation results achieved, it will only be possible for Switzerland to adopt any future Schengen law after conclusion of a new contract under international law. This requires a new Swiss approval process each time (Federal Council, Parliament, referendum). Consequently there is no transfer of sovereignty to a supranational community. Failure to adopt any new Schengen law would ultimately result in certain termination of the Agreement.
On 25 June 2004 the Agreements were initialled and then underwent consultation procedures. The results of this clearly showed that the Bilateral Agreements II were supported unanimously by industry and by the majority of parties, organisations and federations. The cantons, too, were unanimous in their support. The Agreements were strongly rejected only by the Swiss People's Party (SVP). The Federal Democratic Union (EDU) and the Campaign for an Independent and Neutral Switzerland (AUNS) expressed opposition to Schengen/Dublin. Numerous shooting associations criticised the proposed changes in weapons laws, and the Federal Council has dealt with the main concerns by altering its proposed amendments to the Swiss Weapons Act.
The Federal Council issued the message on the Bilateral Agreements II on 1 October 2004, and the Agreements were signed in Luxembourg on 26 October 2004. Parliament debated the message and the Agreements during the winter session. All the Agreements were accepted in the National Council with a clear majority, and in the Council of States, with the exception of Schengen/Dublin, the result was unanimous. The Schengen/Dublin Association Agreement met with rather more resistance. In the National Council, this Agreement was accepted with 129 votes in favour and 60 votes against, and in the Council of States with 36 votes in favour and 3 votes against.
In line with the recommendation of the Federal Council, the Federal Assembly submitted seven Agreements (statistics, pensions, environment, MEDIA, Schengen/Dublin, fight against fraud, taxation of savings) to optional referendum. None of the Agreements has been submitted to compulsory referendum. The countdown to the referendum started with the publication of the Federal Decrees on 21 December 2004, in the Federal Gazette. On 31 March 2005, on the expiry of the referendum period, only in the case of Switzerland's association agreement on Schengen/Dublin had a referendum been successfully requested. On 5 June 2005 the Swiss electorate voted on the issue and approved the Schengen/Dublin association agreement by 54.6%.
No referendum was requested in respect of the other Bilateral II agreements. They will come into force independently of each other in accordance with the normal procedures. The Agreement on Processed Agricultural Products, which was not subject to an optional referendum, came into full force on 30 March 2005.
Further information is available on the website of the European Integration Office