Eu-switzerland: Quo Vadis?

• Jurisdiction: European Union
• Citation: Vol. 39 No. 3
• Publication year: 2011

EU-Switzerland: Quo Vadis?

Marc Maresceau^*

Table of Contents

I. Introduction...............................................................................728

II. Background and Overview of the Bilateral Legal Framework...................................................................................729

III. Assessment of the Current Relationship..............................738

IV. Different Types of Integration Agreements: The Question of Reference to EU Law and the Development of EU Law............................................................742

A. Agreement on the Free Movement of Persons..........................743
B. Agreement on Air Transport.....................................................746
C. Agreement on Simplification of Inspections and Formalities in Respect of Carriage of Goods and Customs Security Measures....................................................................750
D. Agreements on the Association to the Schengen/Dublin Acquis.......................................................................................752

V. Conclusion...................................................................................753

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I. Introduction

It creates a feeling of unreality to write a contribution in a tribute publication for a dear colleague, who was above all a good friend and who left us totally unexpectedly a little more than a year ago. I knew Gabriel for many years. If my recollection is correct, it was in the early Gorbachev period that he asked me to lecture in the Brussels Seminar on the legal framework governing relations between the European Community and Eastern Europe. At the time, we were all thrilled about what was going on beyond the Iron Curtain. Certainly, among the many classic themes of European Community law at the Brussels Seminar, my intervention was somewhat exotic. However, slowly but surely, it became a well-established chapter in the annual meetings in Brussels. Moreover, my topic would later evolve to become "The EU Enlargement" while, after 2004, it even became "The Enlarged EU and its Neighbourhood." Gabriel, in fact, also wanted me to include the relations between the EU and Russia, Turkey, and the Western Balkans. Gabriel was always present among the Seminar's participants each year, and he was genuinely interested in everything that was taking place on the European continent. In particular, the EU's enlargement process and its implications for the EU's proximity policy struck a sensitive chord for him. A presentation at the Brussels Seminar always ended in an after-lecture drink or meal, during which we further explored the potential for and limits of the EU's policy making. Gabriel often asked me to travel to Athens, Georgia, as a visiting professor at the University of Georgia School of Law, to explain these important European complexities to American law students. Unfortunately, I was only once able to come, and I must confess that now I deeply regret not being with him in Athens more often, as I have an excellent memory of my stay there. It was my first teaching experience in the U.S., and I was very impressed with the excellent academic atmosphere, the students' eagerness to learn about Europe, Professor Sohn's legendary black desk (which I was allowed to use during my stay), and so many other things—but above all, the warm hospitality of Gabriel and Gisèle.

In the last Brussels Seminar I taught—the 2009 session—I briefly touched on the relations between the EU and Switzerland, and Gabriel was deeply fascinated by the uniqueness of that relationship. How could a European State in the heart of the European Union survive without being an EU member? I had the intention, and I promised Gabriel to include a more structured form of this special aspect of the EU's proximity relations in the 2010 Brussels Seminar. Sadly enough, instead of a presentation on this topic

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at the Seminar, I have prepared a contribution in the Dean Wilner Tribute Issue.

II. Background and Overview of the Bilateral Legal Framework

The legal framework of EU-Switzerland relations is particularly complex and not easy to summarize.¹ The reasons are diverse. In the first place, there is the Byzantine complexity of the EU's external decision-making process and of the legal structure of the EU's external relations—something that has increased considerably since the entry into force of the Lisbon Treaty. But there is, of course, also Switzerland's own specificity. Switzerland is not only one of the few countries fully enclosed in the heart of the EU, it is also a very important trade partner of the EU. Switzerland has concluded by far the largest number of bilateral sectoral agreements with the EU (more than 120).² Switzerland's membership in the European Free Trade Association (EFTA), but its lacking membership in the European Economic Area³ and its customs and monetary union with Liechtenstein, add a special perspective to this specificity. In addition, Switzerland's constitutional system, with its direct democracy and system of popular referenda, as well as its neutrality, are elements that impact its relations with the EU, but that, unfortunately, are not examined in this contribution.

As a result of the specific geographical position of Switzerland, the European Community rapidly accepted the idea that bilateral sectoral ad hoc agreements with Switzerland were necessary after the establishment of the

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European Economic Community (EEC). By the 1960s, various agreements of this nature had already been concluded; for instance, agreements on clocks and watches⁴ and on certain cheeses,⁵ but the first bilateral agreement of a more comprehensive nature was no doubt the 1972 Agreement Between the European Economic Community and the Swiss Confederation (1972 Agreement) which basically aimed at establishing free trade for industrial products.⁶ This Agreement was one of a series of agreements that the EEC signed with all the EFTA Member States before the 1973 accession of the two EFTA States—the U.K. and Denmark—to the European Community. The 1972 Agreement with Switzerland, which has been the main legal basis for the development of mutual trade relations, is still in force today and remains an important framework for mutual trade.⁷ It must be said that it has even gained new momentum as a result of a sharp divergence in the

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interpretation of the Agreement's provisions on state aid. The European Commission believes that certain tax regulations applied by Swiss cantons with regard to holding companies, mixed and management companies, offering tax advantages to companies established in Switzerland for profits generated in the EU, are a violation of Article 23 of the 1972 Agreement.⁸ This provision states that "any public aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods" is "incompatible with the proper functioning of the Agreement in so far as [it] may affect trade between the [European] Community and Switzerland."⁹

According to the European Commission, these tax advantages "are not related to specific investments which could justify granting an advantage to compensate for specific costs incurred by the beneficiaries but, instead, constitute a reduction of charges that should normally be borne by the firms concerned in the course of their business."¹⁰ They are, therefore, forms of aid which, in its view, are "public operating aid" and "discriminate against multinational enterprises which do not establish their holding or management activities in Switzerland."¹¹ For this reason, a considerable number of multinational companies have decided to relocate their headquarters from the EU to Switzerland.¹² The Swiss response to the EU's interpretation of Article 23 is that Switzerland is not a part of the EU's Internal Market and that the EU interpretation of the competition rules, including those on state aid, are not applicable in Switzerland.¹³

In addition, in the Swiss view, the 1972 Agreement only covers trade of certain goods and cannot be a proper legal basis for judging company

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taxation laws. The dispute settlement procedure foreseen in this Agreement does not provide for a smooth outcome of this controversy since it is up to the Joint Committee to put an end to the conflict, which implies "mutual agreement" between the parties (pursuant to Article 30, paragraph 2 of the Agreement).¹⁴ Logically enough, the Joint Committee has so far been unable to take such a decision. From a strictly legal point of view, however, the EU could have considered unilaterally adopting safeguard measures (a possibility foreseen in Article 27, paragraph 3 of the Agreement)¹⁵ but this was probably a bridge too far, and until now, diplomatic channels have been followed trying to solve the matter, yet without success. Recently, the Council (of Ministers) of the EU expressed renewed concern about these tax regimes, regretting "the lengthy dialogue on this issue [which] has not yet led to an abolition of the state aid aspects of these regimes."¹⁶ This controversy needs to be kept in mind when attempting to make a global assessment of the bilateral relations.

Another important issue for the EU-Switzerland relations was the EC's initiative on the Completion of the Internal Market. This was one of the major EC policy programs launched in the second half of the 1980s that aimed to achieve an area without borders with free movement of goods, persons, services, and capital by 1992.¹⁷ Needless to say, this project seriously affected the EC's EFTA partners, as close neighbors of the Internal Market, and this explains why in the course of implementation of this project, the idea of a European Economic Area (EEA) was also launched to establish an Internal Market between the EC and the EFTA countries. In 1992, during the final phase of the preparation of the conclusion of the EEA Agreement, Switzerland...