Overview and position on relations with the EU

Due to their close economic ties, the Chemistry Pharma Life Sciences industries have a vital interest in preserving the bilateral agreements with the EU. From the perspective of the research-intensive, export-dependent chemical and pharmaceutical industry, the bilateral agreements with the EU are an important locational factor without any prospect of an equivalent alternative.

The classic market access agreements (Bilaterals I) between Switzerland and the EU are extremely important from both a sector-specific and a macroeconomic perspective. Two studies commissioned by SECO in 2015[1] show that Switzerland's gross domestic product (GDP) in 2035 would be 4.9% to 7.1% lower than if the Bilateral I agreements were to be continued. This corresponds to a cumulative decline in GDP of CHF 460 to 630 billion by 2035, or roughly equivalent to the annual income of the Swiss economy at that time. This would be due to lower labour supply, higher labour recruitment costs, new trade barriers and limited market access.

With an export share of 49%, the chemical and pharmaceutical industry is Switzerland’s largest export industry and thus a cornerstone of its economy. Accounting for 50% of the total exports and 75% of the total imports of Chemistry Pharma Life Sciences, the EU is the most important trading partner. The bilateral agreements are a prerequisite for regulated access to the EU internal market and therefore an important locational factor for international companies in Switzerland. In addition to the free trade agreement of 1972, which prohibits, among other things, customs duties and quantitative restrictions as well as measures with equivalent effect on industrial products, the agreements on technical barriers to trade, the free movement of persons and research in operational business play a key role.

The following analysis of the existing bilateral agreements between Switzerland and the European Union (see detailed list in the annex) shows the economic core content of the most important agreements from the perspective of the Chemistry Pharma Life Sciences industries.

1. Main findings on Bilaterals I

1.1 Free movement of persons

Thanks to the Bilaterals I, employees from Switzerland can take up a job in the EU and vice versa, which is particularly important for the research-based chemical and pharmaceutical industry with its highly specialised workforce. The ten largest companies in the sector alone employ around 101,000 people (31%) in Europe. The option of allocating the best-suited workers to the right place as unbureaucratically as possible makes research and business activities much easier. Recent years have shown that Switzerland is well positioned in this regard: the Agreement on the Free Movement of Persons (AFMP) has not resulted in the displacement of the local workforce.

The demand for highly-skilled and less-skilled workers cannot be met, among other reasons because of demographic trends in the country. The free movement of persons facilitates the mobility of workers and improves the chances of recruiting suitable personnel in Europe and thus better positioning Switzerland as a business location in the international competition for talent. Conversely, the AFMP makes it easier for Swiss companies to post their workers to the EU. Swiss citizens have unrestricted access to the EU labour market.

1.2 Technical barriers to trade

The Agreement on Mutual Recognition for Conformity Assessment (MRA) grants companies in the chemical and pharmaceutical industry rapid market access and reduces the administrative burden for inspection approvals - the cancellation but also just the suspension of this agreement would cause considerable extra work and expenses for these companies. From the point of view of scienceindustries, practically all chapters in the first annex of the agreement are important for imports and the following chapters in particular for exports:

• 4 (medical products): The legal uncertainty in connection with the institutional agreement between Switzerland and the EU (InstA) presents the medical technology industry with the urgent question of whether the Mutual Recognition Agreement (MRA) will be updated in good time.
• 14 (Good Laboratory Practice GLP - mutual recognition of GLP monitoring): Based on the OECD Guidelines.
• 15 (Good Manufacturing Practice GMP – certification of batches, mutual recognition of GMP controls): In particular, the agreement allows batch releases to be carried out by a qualified person either in the EU or in Switzerland, as the corresponding documents are mutually recognised. In addition, the results of GMP controls are mutually recognised, so there is no need to duplicate controls.
• 16 (building products)
• 18 (biocidal products)
• 20 (explosives for civilian use).

In the event of the termination of the agreement, additional costs for the certification of installations and product batches are to be expected. The cost of this duplication is estimated at around CHF 500 million per year, which corresponds to around one percent of the exports concerned.

1.3 Research cooperation

After the Swiss National Science Foundation, the EU framework programmes for research and innovation are the most important sources of public funding for research and development in Switzerland. Every year, around 600 new Swiss projects are approved. The main recipients of funding in Switzerland are the ETH Domain and the cantonal universities, but universities of applied sciences, companies and non-profit organisations also receive European funding.

For various member companies of scienceindustries, the “Horizon Europe” programme items are a very relevant source for the development of new technologies and the development of new products and new applications for existing products. They are also important for access to scientific networks. Due to the complexity of science, major developments and innovations are almost always developed in international networks of leading research institutes and companies.

A survey conducted by the State Secretariat for Education, Research and Innovation (SERI) shows that many Swiss researchers and companies are suffering from the lack of full association with the Horizon Europe framework programme for research. More than a third of the survey participants can provide specific examples to illustrate these negative consequences. More than half report a deterioration in the situation compared to the previous programme, where Switzerland was fully associated. A diversification strategy is needed in the area of research and innovation: the association of Switzerland with Horizon Europe remains the primary objective. At the same time, the Federal government must submit specific proposals for additional and replacement measures in the event of non-association.

1.4 Air transport agreements

Many member companies ship more than 50% of their freight by air and rely on good air connections from Switzerland.

The FOCA applies the "known consignor procedure" in the area of air cargo security, which complies with EU Regulation 300/2008 and Directive EU/185/2010. Should the agreement be discontinued, Switzerland’s “known consignor procedure” is likely to be unrecognised, which would require additional security checks for transshipment at EU airports before re-loading to overseas, increase the security costs for each air freight shipment and lead to delays.

In addition, the US would no longer be able to apply the "Regulated Agent Concept" of the TSA (Transportation Security Administration), as it is based on cooperation between the EU and Switzerland. This would increase the cost of air freight shipments to the US.

[1]SECO: Volkswirtschaftliche Auswirkungen eines Wegfalls der Bilateralen I (in German)