Dossiers - Relations with the EU
30 Years EU Single Market: Significance for Switzerland
The EU Single Market has been the most important foreign market for the Swiss economy since its founding 30 years ago. Free access to the European market is essential for the chemical, pharmaceutical and life sciences industries in particular. For this, sustainable long-term relations between Switzerland and the EU must be guaranteed.
The European Union's (EU) single market celebrates its 30th anniversary this year. Established in 1993, the Single Market elevates the EU to an economic global superpower. It is based on the so-called "four freedoms", which guarantee the free movement of goods, services, people and capital throughout the territory of the single market. This facilitates daily life, stimulates growth and prosperity, and promotes exchange and innovation.
Establishment of the EU internal market as a global economic power
Finally, in 1993, with the Maastricht Treaty and the creation of the European Union, the European Single Market was established, which initially included twelve countries, but has since grown to 27 EU member states. In addition, Iceland, Liechtenstein and Norway have participated in the EU single market since 1994 through the European Economic Area (EEA). Whereas Switerland negotiates its access bilaterally with the EU.
Today, the EU single market unites 447 million people, 23 million companies and generates a GDP of 14.5 billion euros, which represented 18 percent of the world's GDP in 2021, behind the U.S. (24 percent) and on par with China (18 percent). The single market makes the EU one of the most important international trading partners. Citizens and companies that are able to participate in the EU single market benefit from services and products with uniform and — seen on a global level — high standards at competitive prices.
Significance of the EU Single Market for Switzerland
Switzerland is first and foremost an export nation – its economy is heavily geared to foreign trade. Over the last few years, its annual trade surplus has amounted to around CHF 40 billion. Removing trade barriers to the EU's internal market therefore plays a central role for Switzerland, especially since it trades more than half of its goods with the EU in terms of trade volume (58 percent in 2021).
As a non-member of the EU, Switzerland regulates access to the EU internal market through various bilateral agreements in order to create internal market-like conditions by removing trade barriers. In 1992, the Swiss electorate rejected accession to the EEA, which meant that the path of bilateral sectoral agreements had to be taken. With the Bilaterals I (1999) and the Bilaterals II (2004), extensive mutual market access was guaranteed and discrimination of Swiss companies and their products on the EU internal market was removed.
Significance of the EU Single Market for Chemistry Pharma Life Sciences
With a share of over 48 percent of total Swiss export performance, the chemicals, pharmaceuticals and life sciences industries are Switzerland's export champions. Their most important sales market is also the EU single market with a share of just under 48 percent, while on the import side, 71 percent of imported chemical-pharmaceutical products come from the EU. For the chemical-pharmaceutical industry, the following aspects are of particular importance:
- Technical barriers to trade: The Agreement on the Elimination of Technical Barriers to Trade between Switzerland and the EU (part of Bilaterals I) is essential for Switzerland as a chemical and pharmaceutical location. The Mutual Recognition Agreement (MRA) facilitates market access to the EU market and eliminates discrimination against Swiss products. For Swiss companies, this also reduces costs and the administrative burden - in the case of chemicals and pharmaceuticals, due to inspection recognition.
- Free movement of persons: Switzerland's chemical and pharmaceutical industry is extremely research-driven and innovative, accounting for around 40 percent of private investment in research and development. Given the shortage of skilled workers in STEM fields, these industries are all the more dependent on highly qualified specialists from abroad. Foreign workers are strongly represented among employees with university degrees and in research and development. The quality of the economic location and the growth potential depend on it.
- Cooperation in research: However, the EU is not only of great importance to Switzerland as a market for sales and skilled workers, but also in the area of research, where Switzerland's economy and science depend on European cooperation. The Horizon Europe research program is the world's largest research and innovation funding program. Swiss researchers have so far been among the frontrunners in the prestigious ERC Starting Grants that are awarded annually. In the 2021 call, the European Research Council has awarded eleven grants to ETH researchers worth around CHF 17 million.
Termination of negotiations and its consequences
In addition to the sectoral agreements, the EU and Switzerland worked to clarify fundamental institutional issues by means of a framework agreement - the so-called Institutional Framework Agreement (InstA). However, due to differences, the Federal Council announced in May 2021 that the negotiations would be halted. Since then, all sectors of the export industry have felt the lack of planning and legal certainty.
A progressive erosion of relations between Switzerland and the EU threatens to create new trade barriers. If the agreement on mutual recognition of conformity assessments (MRA) were to cease to exist, or even if it were to be frozen, this would result in considerable additional expense for Swiss companies. The chemical-pharmaceutical industry would incur additional costs for the certification of equipment and product batches. The cost of this duplication is estimated at around CHF 500 million per year. With adjustments to MRA guidelines on the part of the EU and the refusal to update the MRA agreement, market access for Swiss companies will become more difficult. The MedTech industry has already experienced such problems.
In addition, with the breakdown of negotiations, Switzerland has been downgraded to a third country in the Horizon Europe research program. The lack of full association with Horizon Europe is damaging to research and innovation, and ultimately to Swiss innovation. It has become more difficult for Switzerland to acquire top researchers. This is because they cannot, for example, take on the lead on projects within the framework of Horizon Europe or receive awards and funding from the ERC grants. Furthermore, a collapse of the free movement of persons would aggravate the already prevailing shortage of skilled workers and have a drastic impact on the research and innovation sector.
Long-term sustainable relations necessary
Over the past decades, Switzerland has established itself as a global research and innovation stronghold. The chemical, pharmaceutical and life sciences industries are of great importance to the Swiss export economy. Industry and research are dependent on regulated relations with the EU.
Accordingly, science and industry hope that negotiations between Switzerland and the EU will begin soon, so that sustainable relations and thus legal as well as planning security can be guaranteed in the long term. Barrier-free market access, adequate free movement of persons and full association with European research agreements are central for Switzerland as a business location. Finding a solution with its most important trading partner is now more urgent than ever.
Interview by NZZ: Matthias Leuenberger, President scienceindustries
Opinion article Finanz & Wirtschaft: Director Stephan Mumenthaler