Author: Prof. Dr. Dr. h.c. Carl Baudenbacher, Partner Baudenbacher Law, Door Tenant at Monckton Chambers, Former President of the EFTA Court
I. The ‘Ukraine’ model for Switzerland
On 20 December 2024, the Swiss Federal Council, the world’s only directorial government consisting of seven members, politically approved a treaty package with the EU without knowing its exact content. But the main features are notorious: seven sectoral treaties in the areas of air and land transport, free movement of persons, technical barriers to trade, agriculture, electricity, food safety, are to be institutionalised. Switzerland will be obliged to adopt new EU law dynamically. In the event of a dispute, the European Commission has the right to take Switzerland unilaterally, without its consent, before an arbitration tribunal with equal representation. However, if EU law or treaty law with the same content as EU law is involved, the panel must request a binding interpretative judgment from the Court of Justice of the European Union (“CJEU”). This model is well known to astute observers. It stems from the EU’s association agreements with the post-Soviet republics of Ukraine, Georgia, Moldova and Armenia and has therefore been dubbed the ‘Ukraine model’ in the UK. Theresa May’s government was determined to accept the ‘Ukraine model’ in both the EU Withdrawal Agreement and the Trade and Cooperation Agreement (“TCA”). The European Commission then did everything in its power to subdue the UK. Boris Johnson’s government accepted the model with the pro-forma arbitration panel in front of the curtain and the CJEU behind it in the Withdrawal Agreement, but not in the TCA. However, the UK has left the single market. Conflicts with the EU are resolved by genuine arbitration tribunals.
II. Distance to the EEC in the first 30 years
To be able to categorise the Federal Council‘s move, it is necessary to take a brief look back. Until the collapse of the Soviet Union and the completion of the single market, Switzerland kept its distance from the EU. In 1960, it was a founding member of the UK-led European Free Trade Association (EFTA). After the UK joined the EEC in 1972, Switzerland, like the other remaining EFTA states, concluded a bilateral free trade agreement (FTA) with the EEC. This treaty did not affect the country’s sovereignty. Although it was largely based on EEC law in terms of content, it did not provide for the dynamic adoption of new legislation and did not establish any supranational bodies. On the EEC side, the European Court of Justice was the highest judicial body; on the Swiss side, it was the Federal Supreme Court. Owing to the close economic ties, it was probably no coincidence that the most important judgments rendered under the FTA’s had a link to Switzerland. In two landmark cases, Stanley Adams (1978) and Omo (1979), the Federal Supreme Court refused to allow private individuals in Switzerland to invoke the competition and trade in goods rules of the FTA. These misguided judgments were never corrected. They gave the ECJ (today: CJEU) cause for reaction in two cases: In the Kupferberg judgment of 26 October 1982, the ECJ found that private individuals in the EEC (i.e. today’s EU) could very well invoke the provisions of the EEC-Portugal Free Trade Agreement. Of course, this applied to the entire Community. It made the Swiss Federal Supreme Court look narrow-minded. In the Polydor case, which also concerned the EEC-Portugal FTA, the ECJ ruled on 9 February 1982 that provisions in free trade agreements which, although identical in content to those of Community law, are in a different context, may have to be interpreted differently. This too was a response to the Federal Supreme Court’s approach in Stanley Adams and Omo. All four judgments, Federal Supreme Court Stanley Adams and Omo and ECJ Kupferberg and Polydor, were motivated by trade policy concerns. That the Polydor case law is unfavourable to Switzerland, contrary to the opinion of some commentators, was demonstrated in the Zurich aircraft noise dispute (below).
III. Moving closer to the EU after the end of the Cold War
After the end of the Cold War, the Swiss Government changed its stance on the EU. However, in a popular vote of 6 December 1992, a narrow majority of the people, but a clear majority of the cantons, rejected Switzerland’s accession to the multilateral EEA Agreement. The real reason for this was not the opposition of nationalists. The Federal Council had made a serious error of judgment by applying to join the EU six months before the referendum. Second-line bureaucrats had convinced a narrow majority of the government that the EEA was only acceptable as an intermediate step on the road to the EU. 3 out of 7 federal councillors were unable to read the original English documents. As an EEA Contracting Party in the EFTA pillar, Switzerland would in principle have adopted the entire internal market law and submitted to the supervision of the EFTA Surveillance Authority and the jurisdiction of the EFTA Court, with one member in each organ. Both bodies would naturally have been party-neutral towards Switzerland.
After the negative EEA vote, the Federal Council promised the European Commission that Switzerland would sooner or later join the EU. Based on this pledge, Switzerland was able to negotiate two packages of bilateral agreements with the EU, which were again institution-free apart from the air transport agreement. The first package includes an agreement on the free movement of persons. As a result, an important part of Swiss industry (but not the banks and insurance companies) has preferential access to the single market.
As it became increasingly clear that Switzerland’s accession to the EU was out of the question, the EU demanded from 2008 that the bilateral agreements be subject to a supranational supervisory authority and a supranational court. In 2013, it offered Switzerland so-called ‘docking’, known in the UK from the Brexit period. Switzerland would then have maintained its sectoral approach and placed its agreements with the EU under the monitoring of the EFTA Surveillance Authority and the jurisdiction of the EFTA Court, with one Swiss member on each body. The Foreign Ministry in Bern, eyeing still the long-term goal of EU accession, pushed for this offer to be rejected; in the end the Federal Council came out in favour of monitoring by the European Commission and a monopoly on interpretation by the CJEU.
When - after two years of negotiations - it became clear that this model would hardly pass in a referendum, the European Commission put the ‘Ukraine’ mechanism with its pro-forma arbitration panel on the table at the turn of 2017/2018. It was the same time that Brussels also proposed this mechanism to the British.
IV. Towards the ‘Ukraine’ model
The Federal Council welcomed the ‘Ukraine’ model’ in March 2018, and at the end of 2018, the European Commission declared the negotiations over. The Federal Council said that it was satisfied with draft treaty, but did not sign it. Talks then continued on three substantive side issues: wage protection, the adoption of the EU Citizenship Directive by Switzerland and a ban on state aid demanded by the EU. Negotiations were interrupted in May 2021. However, ‘exploratory talks’ were continued – behind closed doors and without a negotiating mandate - which led to the adoption of a de facto binding ‘Common Understanding’ between the parties on 15 December 2023. In this memorandum, Switzerland definitely accepted the ‘Ukraine’ model and promised regular cohesion payments to the less well-off EU states. At Switzerland’s request, the institutional issues are no longer dealt with jointly for all treaties, i.e. horizontally, but in the individual agreements, i.e. vertically. Negotiations were subsequently held in particular on possible exceptions to the jurisdiction of the CJEU, on the modalities of wage protection and on a safeguard clause on immigration. However, there was something grotesque about those negotiations, as their end was fixed in advance. Every beginner knows that you can only negotiate successfully if you are prepared to get up and leave the negotiating table and to say, “no deal is better than a bad deal”.
The circumstances under which the Federal Council adopted the Treaty Package were also strange. The President of the European Commission flew to Bern and gave a kind of victory speech in front of the TV cameras. Journalists were not allowed to ask questions. It turned out that the exact content of the agreement had not yet been finalised and not even the Federal Council had seen the text in full. The Foreign Ministry made excuses with the unconvincing explanation that the negotiations had been finalised in material terms, but not yet in formal terms. Malicious tongues commented that the government had agreed to an unread treaty.
When the ‘Ukraine’ model was being discussed in the UK during Prime Minister Theresa May’s time, members of the House of Commons criticised that it was a modern-day unequal treaty. Nobody knows better what an ‘unequal treaty’ is than the British. Historically, they were the ones who imposed such agreements on the Chinese and Japanese in the 19th century. One of the main features of the unequal treaties was the existence of extraterritorial courts. At that time, there was the British Supreme Court for China and Japan based in Shanghai. The ECJ would not be based in Switzerland, but it would still be an extraterritorial court for the land of William Tell. And while the British Supreme Court for China and Japan ‘only’ had jurisdiction in civil and criminal cases involving British subjects (and possibly in mixed cases), the ECJ would de facto rule on disputes under public international law between the EU and Switzerland.
V. ‘Would you buy an EU Treatyfrom this man’?
In diplomatic circles in Bern, there are doubts as to whether the Federal Council is serious about the treaty package. There is a suspicion that the Swiss government is not happy about the deal, but after all these years it did not dare to leave the agreement because it feared that the European Commission might take offence and play hardball. The dirty work to kill the agreement would then be left to parliament or the people and the cantons. Apparently 3 of the 7 members of the government have spoken out internally against the one-sided pact. But even the Foreign Minister Ignazio Cassis, who is officially in favour, is conspicuously reticent to make major supportive statements. A big Sunday newspaper published a photomontage with the old slogan from the Richard Nixon era with Cassis’ picture and the words: ’Would you buy an EU Treaty from this man?’ The President of the Swiss Confederation, Viola Amherd, whose obsequiousness at the photo opportunity with the Commission President was met with criticism (in Switzerland, the office of President of the Confederation rotates annually among the members of the Federal Council), resigned from the government less than four weeks later. The new President of the Confederation, Karin Keller-Sutter, said in a newspaper interview when criticised for the Federal Council’s lack of enthusiasm ‘it is not the Federal Council's job to be enthusiastic’. The only person who is passionately in favour of the project is the Minister of Justice, Beat Jans, an agronomist by training. Naturally, senior mandarins the Foreign Ministry, certain members of parliament and the export industry are doing everything they can to push the agreement through. They do not shy away from spreading ‘fake news’.
VI. Fiction and truth about the ‘arbitration panel’
In the UK, the ‘Ukraine’ mechanism has been the subject of intensive study during the Brexit years. As a visiting professor at the LSE, I gave a lecture on the subject a few years ago. I don’t believe that knowledgeable British observers would have realised the absurd claims that are currently being made in Switzerland.
The options of joining the EEA on the EFTA side or docking to the institutions of the EFTA pillar were eliminated by the Foreign Ministry with absolutely ridiculous claims because they want to join the EU - now through the back door and as a passive member for the time being. The ‘arbitration panel’ is praised as if it would play the leading part and the CJEU - the second most powerful court in the world after the US Supreme Court! – being a mere sidekick. All sorts of semantic tricks are being used. It is claimed that the ‘arbitral tribunal’ will a priori ‘only’ refer to the CJEU if EU law is directly implicated. The Swiss negotiators are proud of the fact that some of the terms used in the treaties are not the same as those used in EU law and claim that this eliminates the role of the CJEU. One gets the impression that they believe that in case of doubt, the arbitration tribunal will ask in Bern whether it may bring the matter before the CJEU. Most of the cases, these people claim, will be decided by the ‘arbitration tribunal’ alone. Furthermore, it is not said that the ‘arbitral tribunal’ is obliged to seize the CJEU, but that it may ‘consult’ the CJEU depending on the factual and legal situation alongside other elements. The latter implies that the ‘arbitral tribunal’ could not be prevented from deviating from the CJEU’s judgment. It is also stated that the ‘arbitral tribunal’ must ‘take into account’ the judgment of the CJEU. This too insinuates that there is no obligation to comply. The binding judgment of the CJEU is referred to as ‘feedback’.
Alternatively, the fact that in most cases the CJEU must be asked for a binding judgment is omitted altogether. It is worth recalling Plato’s saying that omitting the other half of the truth is the worst form of lying. In this case, far more than half is being left out, because monitoring and dispute settlement are at the heart of the planned package of agreements. It should therefore come as no surprise that a leading member of parliament has started talking about the ‘arbitration tribunal’ as a “dialogue partner” of the CJEU. If you read this, you don’t know whether to laugh or cry.
From the fact that the ‘arbitration tribunal’ has the last word in terms of time, supporters of the agreement draw the conclusion that it also has this privilege in terms of substance. That is grotesque. A cantonal court whose decision has been overturned by the Federal Supreme Court and sent back for reassessment in line with the considerations too has the last word in terms of time. Nevertheless, no-one has yet come up with the idea that it also has the upper hand in material terms.
The issue of ‘omitting the other half of the truth’ also includes the systematic ignoring of the fact that no independent top lawyer from an EU or EEA/EFTA state describes the pro forma ‘arbitration tribunal’ as anything other than a means of camouflaging the transfer of sovereignty to the EU.
VII. The supposedly ‘benevolent’ CJEU
Armchair university professors, in particular, contend that the CJEU is a respected court that is not beholden to the European Commission, but to the law. There are enough examples in the case law on the existing bilateral treaties to show that Switzerland has nothing to fear from the CJEU. Of course, apples and oranges are being confused here. It is obvious that the CJEU is neutral when it comes to questions such as whether a Swiss farmer is allowed to lease land in southern Germany or whether Swiss hunters have to pay double hunting fees in Austria. But the new treaty package would not be about such cases. How the CJEU would possibly behave in conflicts under public international law has been shown in the Zurich aircraft noise dispute.
Under the existing Air Transport Agreement, Switzerland has recognised the monitoring competence of the European Commission and the jurisdiction of the CJEU. Germany unilaterally issued air traffic regulations by decree that seriously restricted landings and take-offs at Zurich-Kloten Airport and low-level flights over German territory. Northern approaches, i.e. approaches over the South Baden area, were to be reduced by 30%. Approaches to Kloten in the evening and early morning therefore always had to be from the east or south. Switzerland lodged a complaint with the Commission. It argued that the regulation in question for the Swiss hub in Zurich-Kloten was stricter than that for Lufthansa’s hubs in Frankfurt or Munich. The Commission decided that Germany could maintain its legislation. Switzerland appealed against this decision to the CJEU. The latter referred the case to the then Court of First Instance (now the General Court), although the Treaty clearly mentions the CJEU. The CJEU thus needlessly humiliated Switzerland without a legal basis. Switzerland subsequently lost before the Court of First Instance and a five-judge chamber of the CJEU upheld the judgment. The CJEU applied the Polydor formula, according to which provisions in free trade agreements that are identical in content to those of EU law but in a different context can be interpreted differently, to the Air Transport Agreement. It held that Switzerland could not invoke the freedom to provide services, the principle of proportionality or even fundamental rights (C-547/10 P). The fact that people in Bavaria and Hesse were less protected against aircraft emissions than those in the Black Forest was deemed irrelevant. Switzerland had lost all along the line.
Another example of how the CJEU may deal with a third country is provided by the judgment of 14 March 2024 in case C-516/22 Commission ./. United Kingdom. From Switzerland’s perspective, one can speak of an indirect precedent. Even after Brexit, the UK had to accept the jurisdiction of the ECJ for a certain period in the withdrawal agreement with the EU. In Commission ./. UK, the CJEU treated the UK Supreme Court in a manner unthinkable in the case of the highest court of an EU member state.
In 2005, under pressure from the European Commission, Romania cancelled a state aid scheme as a precondition for its accession to the EU. As a result, the Swedish-Romanian investors Ioan and Viorel Micula initiated ICSID arbitration proceedings under a bilateral investment protection agreement concluded between Romania and Sweden in 2003.
In 2013, the arbitration tribunal ordered Romania to compensate the claimants because they had not benefited from the investment agreement to the extent contractually agreed. In 2015, the European Commission decided that any compensation paid by Romania under the award was in breach of EU state aid rules and ordered Romania to recover the compensation paid to the beneficiaries of the award. However, on 19 February 2020, the British Supreme Court allowed the arbitration award to be enforced, according to which Romania had to compensate the investors. In doing so, it placed general international law above EU law. The Supreme Court considered that the European Commission could bring an action against the UK before the CJEU but described the likelihood of this happening as low. In July 2022, the Commission brought an infringement action against the UK.
Commission v UK is a second case that clearly shows where the ECJ’s heart lies when the EU and a third country are confronted as parties in a conflict. I am not saying that the judgment is wrong, but the case could have been decided differently. Judging is not an exact science. Judicial pre-understanding or attitude can play an important role, especially in politically sensitive cases. The Commission v UK case was politically sensitive, and the cases that would reach the CJEU under the Switzerland-EU Treaty package would be too.
The situation can be summarised with the following words: The CJEU corrects discrimination against market participants from other contracting parties. But like any court of last instance, it would easily rule in favour of the vital interests of the state (in casu: of the European Union). It will tend to prioritise the interests of the EU in relation to a third country and its citizens. The CJEU cannot be blamed for this, it is simply a fact. And it is explicitly prescribed in Article 13 TEU. It is no coincidence that the Romans already stated that no one can be a judge in his own cause (“nemo iudex in causa sua”).
VIII. Conclusions
The treaties are to be submitted to Parliament by the end of this year together with 30 legislative amendments and 150 amendments to regulations. The federal administration intends to bring the package to a vote as quickly as possible, which would be possible by the end of 2026. Most political parties want to postpone the referendum on the package until 2028 after the parliamentary elections in 2027.
By endorsing the treaty package unread, the Federal Council has created a peculiar situation. The government is divided, but it seems to believe it has no choice in view of the policy pursued over the past 30 years and the expectations it raised in Brussels. The new Federal President Karin Keller-Sutter who is said to be opposed to the deal will thus most probably sign it in the course of 2025. The political parties are also divided, as is the business community. The unions are critical because wage protection seems to be weakened.
It should also not be overlooked that by switching from a horizontal to a vertical approach, the proponents have lost one of their most important arguments: the claim that the agreement creates legal certainty. Under the vertical method a big mess is imminent.
So, it’s not all evening yet. The EU is impatient after all these years, but it is striking that there is hardly an independent expert outside Switzerland who believes the fairy tale of the independent arbitration tribunal. Such a tribunal would also be incompatible with the CJEU's established case law on the autonomy of EU law. British commentators have always agreed that the arbitration tribunal would be a mere cover for the non-party-neutral CJEU.
Many people are wondering whether Switzerland should make a cohesion payment of CHF 350 million every year for this unequal treaty. The Swiss have always been good at arithmetic. They can’t have forgotten that.
If the treaty package were to fail in the referendum, Switzerland might be able to work more closely with the UK. This could build on the first of its kind Financial Services Agreement of 21 December 2023.
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