By Catherine McBride – 4 minute read
LET’S TALK about Switzerland.
First, let us remember, but it needs restating, the UK population voted to leave the EU. They voted to take back control of their laws, their money, and their borders. This is unlike Switzerland’s relationship with the EU, where it has to accept European Court of Justice rulings, has had to accept the free movement of people from the EU and even has to pay the EU. This is not what the UK voted for.
Switzerland is in a semi-detached relationship with the EU call EFTA, the European Free Trade Association. And while that may sound like something the UK would like – it isn’t. It also wouldn’t be the end of EU bullying. The EU doesn’t like the fact that Switzerland has about 140 separate bilateral agreements covering a myriad of issues, so the EU allowed Swiss Financial Equivalence with the EU to expire in 2019 in an effort to force Switzerland to give up its agreements with the EU by converting them into a single framework.
The Swiss economy is 72% services and, like the UK, heavily weighted towards financial services. If the UK similarly put its economy into the jaws of the EU, we should expect similar levels of bullying from the EU – just because it can.
Second. Switzerland is landlocked by EU countries with the exception of tiny Lichtenstein which is part of the European Economic Area. Switzerland is used as a land bridge from Italy to Germany, Germany to Italy, France to Austria and from Austria to France. So, besides trade between Swiss companies and EU companies, Swiss border controls have to deal with thousands of passing trucks with loads that are not destined for Switzerland but are merely passing through. This, in the main, explains why Switzerland has alignment with the EU, for to be entirely different would cause significant friction around all of its borders. The UK on the other hand has only one land border with the EU – between Northern Ireland and the Republic of Ireland, but traditionally this border sees relatively small amounts of trade, most of which is routine such as a dairy farm in Northern Ireland sending milk to the same butter processing plant in the republic every morning. This type of trade is easily monitored, unlike Switzerland’s multiple borders on major autostrade, autobahn and autoroutes. Even before the EU referendum, the majority of UK trade was with countries outside the EU, so there is not the same requirement to align with the EU.
Third. Switzerland has agreed to free movement of people with the EU, although many Swiss are not happy about it, they are stuck with it. One of the major causes of the UK population voting to leave the EU was to stop the free movement of people.
Unlimited supply of any commodity lowers the price, and labour is no different. The free movement of people allowed the working age population of the eastern EU countries to move to western EU countries with higher wages. This Pied Piper economics undercut the wages of UK workers and also left Eastern EU countries with shortages of labour and skills. Often EU workers were over-skilled for the jobs that they were taking in the UK and Germany, but these jobs were still paying more than they would earn in their real profession in their home country.
So, the UK had Czech schoolteachers working as nannies and Romanian dentists working on building sites. It was a disaster for everyone: UK workers with stagnant wages, EU workers not fulfilling their education, and EU countries who lost their educated young people after paying for their education.
The only short-term winners were UK companies who enjoyed short term profits from copious amounts of cheap and hardworking labourers – but this also meant UK companies didn’t need to innovate nor mechanise. So when the labourers returned home during Covid, many UK companies found that original UK labourers had left the industry due to the low wages, and the companies had not made the investment in mechanizing as had happened outside of the EU.
Obviously, these companies are screaming for the return of their over-skilled, hardworking, badly paid EU workers – but many of them now seem to prefer living back in their home countries. They have not returned to the UK – which is possible (despite Brexit) but now requires a work visa (which have been made available in increased numbers). And neither have they returned to work in Germany – even though this doesn’t require a work visa, and Germany hasn’t left the EU. I suspect many eastern EU workers have discovered that fulfilling work in their home environment is preferable to soul destroying minimum wage work in the UK and Germany and being away from their families.
Fourth. Switzerland does not get free access to the EU’s markets. Switzerland must contribute towards any EU programmes and agencies that it participates in. In the 2014-2020 EU budget period EEA and EFTA countries contributed Euro 460 million per year. EEA and EFTA countries must also pay a Cohesion Payment to Bulgaria, Croatia, Cyprus, Estonia, Hungry Malta, Romania and Poland. This year Switzerland paid 1.1billion Swiss Francs (£0.97bn) to help reduce economic and social inequalities between old and new EU countries. Last year they paid 1.3 billion Swiss Francs (£1.15bn).
Finally, it is worth mentioning that all agreements require both parties to agree and as far as I am aware the EU is not offering an EFTA style agreement to the UK. It would prefer to wait for our hapless politicians to blow up the UK economy so that the UK crawls back to the EU and signs up to full gimp status complete with Euro, Schengen, ECJ control and the free movement of people.
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Catherine McBride is an economist who writes about trade and agriculture. She is on the Government’s Trade and Agriculture Commission and is a fellow of the Centre for Brexit Policy.