Where Next on Brexit? Lessons from the Swiss Model Policy Exchange, London 19 April, 2018 Prof. Dr. Michael Ambühl, ETH Zürich Prof. Michael Ambühl 19.04.18

Content The Swiss Model in a Nutshell Customs Union and Single Market Access Lessons Learnt Prof. Michael Ambühl 19.04.18

Free Trade Agreement (1973) The Swiss Model Goal: legal certainty and market access Free Trade Agreement (1973) Trade Bil 0 1 FTA Prof. Michael Ambühl 19.04.18

The Swiss Model Economy Trade Goal: legal certainty and market access Bilateral I (2002) 7 sectoral agreements (linked) Free movement of persons Technical barriers to trade (MRA) Public procurement markets Agriculture Land transport Air transport Research Goal: legal certainty and market access Economy Bil I 7 Agreements Trade Bil 0 1 FTA Prof. Michael Ambühl 19.04.18

The Swiss Model Politics Economy Trade Bilateral II (since 2005) 9 sectoral agreements (not linked) Schengen/Dublin (2009) Taxation of savings Combating fraud Processed agricultural products Environment Statistics MEDIA Education Pensions Goal: legal certainty and market access Politics Bil II 9 Agreements Economy Bil I 7 Agreements Trade Bil 0 1 FTA Prof. Michael Ambühl 19.04.18

Bil III (?) other Agreements The Swiss Model Goal: legal certainty and market access Institutional Bil III (?) other Agreements Politics Bil II 9 Agreements Economy Bil I 7 Agreements Trade Bil 0 1 FTA Dynamisation (?) «Static» Agreements (except «Air Transport», «Schengen/Dublin») Prof. Michael Ambühl 19.04.18

Legal certainty and better market access Advantages: Legal certainty and better market access Only relevant for selected policy sectors Certain level of freedom regarding legislation and politics that are not selected economic policy foreign trade policy monetary policy taxation and finance Disadvantages: No full participation in selected policy sectors No participation at all in the other sectors Unsatisfied market access demands EU seems to regret it (“mistake”) – true? social policy foreign policy agriculture main advantage for staying outside Prof. Michael Ambühl 19.04.18

Customs Union Swiss-EU broder crossings per day 2.2 mio persons; 23’000 lorries; 1bn goods (costs: 0.1% of trade); computerized declarations in advance; 1% physical controls Switzerland is not member of the Customs Union Advantage: Conclusion of Free Trade Agreements on its own e.g. with China (in force since 2015) or India (in negotiations) Disadvantage: Border controls (however: noticeability can be reduced by new technology; IRL and UK as non Schengen are free to determine density of controls) Prof. Michael Ambühl 19.04.18

Single Market Access Sectoral access only in selected policy sectors Something in between the Canadian FTA and the Norwegian Model More Single Market access than Canadian FTA More flexibility than in the Norwegian Model (à la carte instead of full menu) Prof. Michael Ambühl 19.04.18

Lessons Learnt In negotiations with the EU, one has a good chance if: You do not question fundamental EU-principles  hopeless Focus on flexibility in the implementation for which the EU is renowned (e.g. Maastricht Criteria, Stability Pact, refuges): UK could ask for safeguard clause in migration* * See Ambühl, M. and Scherer, D. (2018). Free Movement of Persons – Is Regulation Possible?. In: A. Kellerhals and T. Baumgartner, ed., New Dynamics in the European Integration Process—Europe Post Brexit. Schulthess, pp. 97-113. Prof. Michael Ambühl 19.04.18

Examples of existing safeguard clauses Article 10 Safeguard measures 1. Where, in connection with the application of Annexes 1, 2 and 3 to this Agreement and having regard to the special sensitivity of the agricultural markets of the Parties, imports of products originating in one Party cause or threaten to cause a serious disturbance on the markets of the other, the Parties shall immediately hold consultations to seek a suitable solution. Pending such a solution, the Party concerned may take any measures it deems necessary. 2. Where safeguard measures as provided for in paragraph 1 or in the other Annexes hereto are taken: (a) the following procedures shall apply in the absence of specific provisions: - where either Party intends to implement safeguard measures with respect to part or all of the territory of the other, it shall inform the latter in advance, stating its reasons, - where either Party takes safeguard measures in respect of part or all of its own territory or that of a third country, it shall inform the other as soon as possible, - without prejudice to the possibility of putting the planned measures into force immediately, consultations shall be held between the two Parties as soon as possible with a view to finding suitable solutions, - where safeguard measures are taken by a Member State of the Community with respect to Switzerland, another Member State or a third country, the Community shall duly inform Switzerland as soon as possible; (b) measures which least disrupt the way this Agreement operates must be given priority. Examples of existing safeguard clauses Art.10, Swiss-EU Agriculture Agreement, 21.6.1999 Art. 7(5a), Swiss-EU Schengen Association Agreement 26.10.2004 Art.10(4), Swiss-EU FMP Agreement, 21.6.1999 Art 112, EEA Agreement, 2.2.1992 Prof. Michael Ambühl 19.04.18

Possible UK-Safeguard Clause for Migration Current foreign population of MSFMPA Current foreign population of third countries Macroeconomic parameters of the job market m average of the net migration rate σ standard deviations of the distribution n multiply of standard deviation (normally n = 1, 2, or 3) αi factor of current pop. of MSFMPA βi factor of current pop. of third countries γi factor of job market di = m + (αi ∙ βi ∙ γi )∙ n ∙ σ e.g., n=2 Prof. Michael Ambühl 19.04.18

Examples of «technical» solutions 1) 2) 3) 4) 1) Regulation (EU) No 253/2014 of the European Parliament of 26 February 2014 2) Commission Delegated Regulation (EU) No 134/2014 of 16 December 2014 3) Proposal for a Regulation , 9.9.15, Distribution Key for Refugees 4) Implementation Regulation (EU) Nr. 602/2014 of the Comission, 4 June 2014 Prof. Michael Ambühl 19.04.18

Lessons Learnt In negotiations with the EU, one has a good chance if: You do not question fundamental EU-principles  hopeless Focus on flexibility in the implementation for which the EU is renowned (e.g. Maastricht Criteria, Stability Pact, refuges): UK could ask for safeguard clause in migration* You have a certain nuisance value In the Swiss case: transportation, electricity, financial market You do not only use the nuisance value but also contribute in a constructive way to the solution See Ambühl, M. and Scherer, D. (2018). Free Movement of Persons – Is Regulation Possible?. In: A. Kellerhals and T. Baumgartner, ed., New Dynamics in the European Integration Process—Europe Post Brexit. Schulthess, pp. 97-113. Prof. Michael Ambühl 19.04.18

Thank you

CH-UK: A Comparison CH UK Population: 8.5m 1.3m EU/EFTA citizens live in Switzerland  16% of its population 440’000 Swiss citizens live in the EU CH - EU: ~250 bn € export/import of goods (2014) 2’200’000 persons and 23’000 lorries cross the Swiss border per day Population: 65m 3m EU/EFTA citizens live in the UK  4.6 % of its population 1.2m people born in the UK live in the EU UK - EU: ~500 bn € export/import of goods (2014) GB-NIR ~30’000 persons per day Prof. Michael Ambühl 19.04.18

2.4. Exemplification of the model: UK case Preliminary estimate for UK* Assumptions: EU-25 area parameters included for current foreign population of MSFMPA current foreign population of third countries job market not considerd (γi =1) number of standard deviations n=2 note again: the migration numbers of the different countries are not weighted by the countries population size small and big countries have the same influence Prof. Michael Ambühl 19.04.18 * Data taken from EUROSTAT

Calculation for an 1-year period, 2015  net migration EU-25 per 1000 inhabitants: UK: 2,83 m: 1,02 σ: 1,27 αUK : 0,52 βUK : 1*  What does that exactly mean for the UK? dUK = m + (αUK ∙ βUK )∙ 2 ∙ σ = 1,02 + 0,52 ∙ 2 ∙ 1,27 = 2.33 Prof. Michael Ambühl 19.04.18 * βUK set to 1

The difference of 183’618 – 151’129 = 32’489 (≙ 17,7%) dUK = m + (αUK ∙ βUK )∙ 2 ∙ σ = 1,02 + 0,52 ∙ 2 ∙ 1,27 = 2.33 The UK net migration 2015 was 183’618, corresponding to a migration rate of 2.83. With a UK threshold dUK = 2.33, the threshold in absolute numbers for the UK in 2015 would have been (2.33/2.83) x 183’618 = 151’129. With the application of this threshold, UK would have had the possibility to limit the immigration for the upcoming year to 151’129 persons The difference of 183’618 – 151’129 = 32’489 (≙ 17,7%) Prof. Michael Ambühl 19.04.18

Net migration EU-25 per 1000 inhabitants (2015 / EUROSTAT): Results for 2015 dUK m 1.02 σ 1.27 m dUK 2.33 dUK,abs 151’129 αUK 0.52 βUK 1* σ σ frequency UK 2.83 UK Net migration * βUK set to 1 Prof. Michael Ambühl 19.04.18

Calculation for a 3-year period, 2013 – 2015 In order to have well smoothed thresholds: take a 3-years period Results for 2015 Results for 2014 Results for 2013 m 1.02 σ 1.27 m 0.93 σ 1.31 m 0.78 σ 1.26 dUK 2.33 dUK,abs 151’129 αUK 0.52 βUK 1* dUK 2.38 dUK,abs 153’303 αUK 0.55 βUK 1* dUK 2.22 dUK,abs 141’773 αUK 0.57 βUK 0.99 UK 2.83 UK 2.71 UK 1.93 Average 2013-2015 m 0.91 σ 1.28 dUK 2.31 dUK,abs 148’735 αUK 0.55 βUK 1 UK 2.49 Prof. Michael Ambühl 19.04.18 * βUK set to 1

Net migration EU-25 per 1000 inhabitants (2013 - 2015 / EUROSTAT): dUK m Average 2013-2015 σ σ m 0.91 σ 1.28 dUK 2.31 dUK,abs 148’735 αUK 0.55 βUK 1 26.06.17 22 UK 2.49 UK The average absolute net migration 2013/14/15 was 160’421 corresponding to a migration rate of 2.49. With a UK threshold dUK = 2.31, the threshold in absolute numbers for the UK in 2013/14/15 would have been (2.31/2.49) x 160’421 = 148’824. Prof. Michael Ambühl 19.04.18