1This contribution analyses the relationship between Switzerland and the EC/EU through the process of EEA negotiations and the later bilateral agreements. It firstly discusses the path leading to the rejection of the EEA treaty by the Swiss citizens. Secondly, it deals with the bilateral agreements between Switzerland and the EU (1999-2002, 2004-...).

2For Switzerland, the Agreement on the European Economic Area (EEA) is the most comprehensive treaty ever negotiated and signed by Switzerland, and, one of the biggest challenges ever met by our democracy where the people and the 26 Cantons have the last word. In my remarks, I shall put this Agreement into retrospective and show how my country has learned to live in parallel to the EEA, staying very close to this concept and opening the economy and the society along its key lines.

3Let me first note that as a founding member of the European Organisation for Economic Cooperation in 1948, of EFTA in 1960 and of the OECD, Switzerland has shown in the aftermath of World War II significant interest in contributing to European prosperity and peace. Switzerland applied for association with the European Community as early as 1961 already and concluded a free-trade agreement in 1972. The close relationship with the EU was enhanced with a large number of bilateral arrangements and agreements mainly dealing with trade matters, products not covered by the Free-Trade Agreement and EU-enlargements.

4The most important among them dealt with insurance and thermo-nuclear fusion. Their negotiation lasted many years; their result reflected the needs of all parties, in particular on the institutional side, as far decision shaping is concerned1.

5With the background of the upcoming EC internal market the so-called “Luxembourg Process” was initiated in 1984 by EU and EFTA Ministers to strengthen their relations on a comprehensive and pragmatic multilateral basis.

6By 1989, EFTA-EC cooperation spread over more than twenty fields ranging from rules of origin to telecommunications. Nine agreements had been signed. Progress was nevertheless piecemeal and slow as EFTA countries had, on the basis of their economies, different interests.

7In addition, the EC policy toward EFTA was limited by three principles stated by Willy de Clercq, Commissioner for External Relations, in Interlaken (1987):

• Priority of the EC integration process to realize the internal market by 1992;

• Maintenance of EC autonomy of decision;

• Balance between rights and obligations.

8The growing attractiveness for EFTA countries of the EC-internal market, the interest of EFTA countries in joining the EC – Austria would file an application in 1989 –, the limited resources of the EC Commission and the search for a global solution led the President of the European Commission, Mr. Jacques Delors, to propose the concept of the EEA to the European Parliament on January 19, 1989, in terms of a new form of association with common decision-making and management bodies, the cooperation being based on two pillars consisting of both institutions, EC and EFTA, and covering the whole range of the internal market.

9One year later, Mr. Delors no longer alluded to common organs, reflecting the position of the European Commission in intensive exploratory talks with EFTA countries. The EU Commission reflected this stand in supporting Switzerland’s opposition to the concept of a customs union.

10For Switzerland, the EEA negotiations had two very difficult dimensions: first, the institutional part; second, the opening up of sectors such as movement of persons and road traffic, or the adjustment to EU competition policy.

11Referring to the institutional part, Switzerland had always had particular sensitivity linked with her own institutions based, amongst others, on the control of the legislative process by the people through the referendum. Is it not striking that already in 1947 during the negotiations of the text of the Organisation for European Economic Cooperation, Switzerland introduced in art. 14 the possibility for a Member not to follow a decision adopted by all the other members. In 1962, Switzerland clearly emphasized to the EC the need to find an arrangement safeguarding neutrality, the federal structure and the system of direct democracy2. This was reiterated throughout the 60s: Switzerland aimed at a right of co-determination corresponding to the importance of the economy and compatible with the structure of the state3.

12This implies that Switzerland had to put a very significant emphasis on the institutional part of the Agreement. She contributed significantly to the agreed “decision-shaping” which was considered as satisfactory. In case of disagreement as to a new “Acquis”, the Swiss position was also secured with the option of the mutual recognition of the equivalence of the existing legal regulation. These important Swiss requests were met at the latest stage of the negotiations; due to the fact that the institutional regime of the EEA had been seriously criticized in the Swiss press over the previous months, it was then very difficult to put it into a bright light, all the more since the text of the Agreement was very complex.

13Referring to the liberalisation of the domestic market, Switzerland had to cope with a foreign work force of 25% and a foreign resident population of 18%, a highly protected domestic services’ sector, a lenient competition policy and significant sensitivity referring to lorry traffic through the Alps to just name a few problems.

14Through considerable efforts, Switzerland managed to conclude the EEA-negotiations with, in particular, a five-year transition period for the movement of persons and a special regime for lorries maintaining in particular the Swiss weight limit of 28 tons and concluding a separate bilateral agreement on transit through the Alps.

15The Swiss Parliament accepted the EEA with a comfortable majority. The public discussion was very tense due to the possible impact on key parts of the society, the complex institutional set-up and its consequences on direct democracy.

16The positions of the EFTA States during the negotiations of the EEA were affected by the basic changes in Europe with the fall of the Berlin Wall, the end of the Cold War and the dissolution of the Soviet Union. The reunification of Germany and the reuniting of Eastern and Western Europe eliminated some political barriers that had prevented some EFTA Members to apply for EU Membership. At the same time, EFTA Members realized that the EEA meant a partial accession to the EC-internal market with limited institutional rights. As we all know, most EFTA States drew consequences very quickly so that by the end of the EEA negotiations, Austria, Sweden, Norway and Finland had applied for EU Membership.

17In May 1992, six months before the EEA-referendum, the Swiss Government also applied for EC membership. This decision was a total surprise for the Swiss citizen and was never understood by public opinion; it transformed overnight the EEA into a transitory agreement. This new situation was not compatible with the Swiss mentality, which gives considerable value to trust, quality, security and durability. The thrust of the referendum was then changed by EU opponents into a referendum on EU Membership and was inevitably turned down.

18The Swiss Government did not, like Denmark in other circumstances, make a second try with the EEA-Agreement, which was a considerable mistake. Instead, the Government passed an impressive legislative package to liberalise the economy by creating a Swiss internal market (government procurement, liberal professions, technical barriers...) and reinforcing competition law.

19Our EFTA partners also took a significant part in supporting Switzerland, in particular regarding the inclusion of Switzerland in the EEA regime for rules of origin in 1993 and in the European cumulation system in 1995/96. Switzerland also obtained an observer status in the EFTA/EEA, which enabled us to follow very closely the evolution of the Agreement. We are thankful for this support in those difficult days. We also found appropriate arrangements with our close partner, the Principality of Liechtenstein, and we are very satisfied to notice that solutions could be devised to all issues with political vision.

20With the EC, the bilateral road has turned out to be a very long one. The 1990s became a lost decade for Swiss-EC relations with even a decline in integration; former agreements such as research and development were not renewed while the highly sought air transport agreement could not come into force, which had fatal consequences for Swissair.

21The first set of bilateral agreements, which mirrors to a large extend chapters of the EEA-Treaty, were finally signed in June 1999, approved by a large majority of the Swiss electorate in the referendum of May 2000, and came into force in June 2002 only after ratification of the Agreement on the free movement of persons in the 15 EC Member States. They cover the areas of free movement of persons, overland transport, air transport, agriculture, research, technical barriers to trade and public procurement. This strategy also aimed unofficially at the progressive elimination of obstacles to membership.

22The agreements were extended to EFTA through a major revision of the EFTA Convention. As such, the popular approval of the Swiss population was remarkable. It showed that the Swiss population could open up with the EC several sectors considered as critical as movement of persons and make decisive progress on the lorry issue.

23In that particular context, Switzerland had very long and difficult negotiations with the EC, which went beyond the EEA as they dealt with the fiscal regime to be imposed EC-wide on lorries. This agreement was a landmark as it entails a co-ordination of transport policy between Switzerland and the EC to ensure sustainable mobility, with protection of the environment. With this Agreement, Switzerland increases the fees for crossing the Alps, thereby promoting the transfer of heavy goods traffic from road vehicles to the rail, and influencing Europe-wide transport policy.

24For movement of persons, the Agreement took into account the Swiss sensitivities with a gradual opening of the Swiss and EU labour markets, with a trial period of seven years at the end of which Switzerland would be able to decide whether or not to continue with the Agreement. In case of Switzerland denouncing that Agreement, all the agreements would however be denounced. This translates the EC will to treat globally with Switzerland with a set of indissociable agreements bringing balanced and mutual benefits for both partners.

25The first set of bilateral agreements functions satisfactorily and has brought the expected economic benefits. No agreement requires the transfer of legislative authority to a supranational body; all of them – except civil aviation – are based on the equivalence between the laws of the contracting partners. Exchanges of information are foreseen to discuss modifications in existing legal provisions. This represents the model that Switzerland had proposed during the EEA negotiations under the “EEA light” terms.

26The second set of bilateral agreements was concluded on a political level on May 19, 2004. The second set relates not only to some economic interests such as those of the food industry and the financial sector but also extends cooperation to other central policy areas such as the environment, customs fraud (limited to indirect taxes such as customs duty, VAT,...) subsidies and offences in government procurement, statistics and culture and, in particular, to internal security and asylum policy under Schengen/Dublin.

27Let me point to two critical elements of these agreements, which highlight the specificity of Swiss interests and the political willingness on both sides to reach an agreement:

28First, the close interdependence between Switzerland and the EC came to the forefront with the Agreement on Taxation of Savings. A tight cooperation with Switzerland was necessary for the EC to adopt its relevant legislation. After long negotiations, an agreement was reached protecting Swiss banking secrecy and deploying the effects sought for, as the EU Directive cannot be circumvented.

29Second, thanks to a special clause in Schengen/Dublin, Switzerland has received the guarantee that, in the area of direct taxes, banking secrecy in the context of mutual legal assistance will not be challenged in the future regardless of legal development in the EC.

30On May 1, 2004, ten new member countries joined the European Union. This largest extension in its history is an important step to promote peace, stability, democracy and welfare in Europe, which is one of the key objectives of Swiss foreign policy. Over the years, Switzerland has made substantial contributions to the transition to democracy and market economy of the former communist States of Central and Eastern Europe (totalling over CHF 2.5 billion since 1991). This process being a lengthy and difficult one, Switzerland continued to act with solidarity by supporting the social and economic cohesion of the expanded EU. To that effect, Switzerland has earmarked CHF 1 billion over a period of five years for autonomous bilateral projects.

31As a consequence of the recent EU-enlargement, Swiss-EC Agreements have been extended to the new member countries, automatically for most of them. Only the Agreement on Free Movement of Persons has required new negotiations and contractual adaptations. These provide for a gradual introduction of the free movement of persons with separate transitional periods up to 2011 and have been adopted by a popular vote.

32The extension of the bilateral agreements provides Switzerland with a privileged access to the 75 million potential consumers in the growing markets of Central and Eastern Europe, which have a great need to catch up with Western Europe.

33The most important reasons for the growing attractiveness of the new EU members of Central and Eastern Europe for our economy are:

• The quasi-elimination of numerous technical barriers to trade;

• The liberalisation of public procurement;

• The possibility to post Swiss staff to these countries and recruit qualified and less-qualified workers from there;

• The favourable investment climate, with low labour costs, skilled work force, rigorous legal and judicial framework and stable political and economic environment; our geographical proximity will reinforce our interest to delocalise for competitive reasons our activities as compared to Far-East;

• Last but not least, the high economic growth prospects, the exceptional historical destinations for business conventions and tourism.

34In the coming years, the European Union will strengthen its position as Switzerland’s most important partner – economically, politically and culturally, the EU accounting already for 60% of Swiss exports and 80% of Swiss imports. Switzerland is also the EU’s second largest trading partner after the United States, and intends to maintain this position.

35In the short to medium terms, Swiss integration policy will focus on the full implementation of the first set of bilateral agreements, and, the ratification and the implementation of the second set. Swiss European policy will continue to follow the bilateral path with enhanced cooperation in areas of mutual interest and the pragmatic settlement of outstanding specific issues through bilateral negotiations. This bilateral strategy has nevertheless clear limits, in particular after the last EU-enlargement. Switzerland will also continue to take an active part in extending EFTA’s network of free-trade agreements as well as further liberalise world trade and strengthen rules at the WTO level under the aegis of the Doha Round.

36According to the Swiss Government, EU membership remains the long-term goal of its European policy. The Swiss Government has submitted a comprehensive report on the implications of Swiss accession. This overview of advantages and disadvantages of EU-membership (which have been analysed and known for years) has formed – once again – the basis for a detailed political and economic debate.

37However, broad domestic support for EU accession will be a precondition before negotiations may be opened. The Swiss membership will have to emerge from a collective will to share sovereignty and participate thereby in the political construction of Europe. Member or not, Switzerland belongs to the European family with her multicultural society and location at the heart of the Alps.

38In a growingly interdependent world, issues such as homeland security, non-proliferation of weapons of mass destruction, geopolitical stability in the Middle East and in Asia, poverty in the Third World, environment, warming up of the planet, to name a few, can only be dealt with efforts at a regional and global level. The voice of Europe must be strengthened in order to be heard and to have a decisive impact on world affairs.

39At the end, it means, for us to leave a better world to our children. Our common responsibility goes beyond economic agreements. Switzerland, in the tradition of the International Red Cross, is eager to continue to make significant contributions, in concert with all its European partners for a safer and better planet we all cherish.