Swiss Standoff With EU Belies Deep Economic Dependence

(Bloomberg) --

Switzerland exports more goods across the border to the southwestern German state of Baden-Wuerttemberg than to China.

That’s something for the 8.6 million people in Switzerland to consider as the country remains locked in a dispute with the European Union, the world’s largest single market, with more than 500 million people. The tiff is over a political treaty to replace a smorgasbord of agreements that govern their relationship -- touching everything from trade and agriculture to immigration and labor.

An EU attempt to compel Switzerland to agree to the treaty by denying the country’s bourse recognition under EU equivalence rules seems to have had little or no impact, with the benchmark SMI Index closing at a record high on Tuesday. There may be more salvos to come.

Read More: The EU-Switzerland spat explained

The EU could up the ante by refusing to revise an agreement on technical barriers to trade, which would hit several companies, notably in the medical-technology sector. There’s also Switzerland’s participation in EU research programs like Horizon 2020, which would thwart universities and research and development activity.

“They’re in a position where they’re highly dependent on the EU - just look at the map,” said Nicholas Veron a senior fellow at the consultancy Bruegel in Brussels.

Like Brexit

Switzerland’s issues with the EU are not that different from those of Brexit backers in the U.K. Many in Switzerland are upset about high levels of immigration and regard the 28-member bloc as a dysfunctional bureaucracy. Unlike the U.K., however, Switzerland was never part of the bloc, and instead has a special relationship based on 120 agreements, which the EU now wants to consolidate and streamline into one new treaty.

That’s proved to be a contentious undertaking. The EU made concessions on a dispute arbitration panel, but with labor unions up in arms about wages -- fearing they would face downward pressure in high-income Switzerland -- Bern wouldn’t sign on to the so-called framework deal. Certainly not ahead of a general election in October.

Here’s a look at how relations stack up:

Switzerland’s EU-skeptics like to argue that the government can take a tougher stance towards Brussels, because their country is a key trading partner of the EU.

That’s true, but the EU may be relatively more important to the Swiss than vice versa.

The lion’s share of Swiss exports goes to the EU. Germany is the biggest recipient, with more going to Baden-Wuerttemberg -- home to automakers Daimler AG and Porsche AG -- than to China or Japan. Pharmaceuticals top the list of goods to that region, followed by machines.

That’s hardly surprising, given Switzerland’s big healthcare sector, with local and foreign companies like Roche Holding AG, Novartis AG, Biogen Inc., Vifor Pharma AG, Eli Lilly & Co., GlaxoSmithKline Plc and Merck & Co.

Another hot button is immigration. For all its angst over foreigners, Switzerland depends on labor from beyond its borders to keep its economy chugging along. There was a plebiscite in 2014 to implement quotas for newly arriving EU citizens. Still, Swiss employers routinely complain that it’s difficult to find skilled workers.

More than 300,000 people live in EU countries but work in Switzerland, with roughly half of them coming from France.

There’s also the matter of foreign direct investment. With a big financial sector that has specialized in managing money for the wealthy, Switzerland is reliant on inflows of foreign capital. The country also counts on cross-border investments in local companies.

The European Commission has said its “door remains open to conclude the agreement” before the end of the current executive body’s mandate in October. Last month, while saying it was “broadly positive” on the treaty, Switzerland asked for some “clarifications.” That was seen in Brussels as an attempt by the country to renegotiate the accord, which the EU has ruled out.

The ball is once again in the Swiss court.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Vidya Root, Jan Dahinten

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