Having reached a deal with the EU on Christmas Eve, the UK will want to make use of its new-found freedom through deregulation. The agreement might also prompt Switzerland to reconsider its finalised, but unsigned, Framework Agreement with the EU.

The British people’s narrow “yes” to Brexit in the referendum of 23 June 2016 was initially not understood in Brussels. The EU’s leadership was too hurt and anxious about imitators. According to the Berlin daily “Der Tagesspiegel”, Commission President Jean-Claude Juncker und Parliament President Martin Schulz behaved like cuckolded husbands. The Brexiteers were accused of having deceived voters, and many in the EU hoped for a second referendum.

Voting until the ‘right’ outcome is achieved is a tried and tested EU method. However, the problems lie deeper. For a long time, the British had felt abandoned in the EU Council. When it came to regulating the financial and labour markets, France led the pack with its centralist and interventionist ideas and Germany agreed. Over time, the EU came to terms with the British leaving, and on Christmas Eve 2020, at the last possible moment, a deal was struck. The St. Gallen Symposium’s theme for 2021 is “Trust Matters”. The following considerations should be seen in the light of this maxim.

After Serious Upheavals Between Brussels and London, Rebuilding Trust Will Not Be Easy

The UK-EU Trade and Cooperation Agreement (“TCA”) is structured on a WTO basis. It includes provisions on free trade, investment, intellectual property, competition, energy, public procurement, subsidies, transport and logistics, fisheries and judicial cooperation in criminal matters. In addition, there are joint declarations on areas such as taxes or data protection. A Joint Partnership Council oversees the monitoring of the treaty. 

The basic principle of the EU’s Single Market is that competition may only be conducted with parameters such as price, quality, business conditions or sources of supply. The EU fears that the independent UK will rely on regulatory, i.e. systemic competition to attract business. In the TCA, the UK committed itself to safeguarding a robust level playing field by maintaining a high degree of protection in areas such as the environment, including combating climate change and carbon pricing, social and labour rights, tax transparency and state aid. The British also made a pledge to respect fundamental rights. Enforcement will occur on the domestic level. 

However, unlike the EU Member States and the EEA/EFTA States, the UK has the right to deviate from said standards in the future. That is the crucial point: the UK will want to make use of its new-found freedom through deregulation. However, if it goes too far and breaches its obligations, the agreement provides for the possibility of retaliation through the imposition of rebalancing, remedial, compensatory and safeguard measures. Given that the EU is continually issuing new regulations, a conflict may also arise if the UK does not follow suit. After the serious upheavals between Brussels and London, it will not be easy to rebuild trust. Perhaps on both sides of the Channel, the motto of a certain Vladimir Ilyich Ulyanov, better known by his alias Lenin, will be followed, according to which trust is good but control is better. 

Arbitration Could Be Decisive

Disputes will certainly arise between the parties, prompting the question of who will decide such cases. Theresa May’s government in summer 2018 accepted the so-called Ukraine mechanism which foresees that conflicts are decided by an “arbitration panel” undeserving of its name as it must ask the ECJ for a binding ruling whenever EU law or treaty law identical in substance to EU law is affected. This mechanism, which is found in the EU’s association agreements with four post-Soviet republics, is reminiscent of the unequal treaties that the Great Powers imposed on China, Japan and the Ottoman Empire in the 19th century. The Ukraine mechanism is part of the EU-UK Withdrawal Agreement. The EU insisted on it also for the TCA and only gave in after fierce British resistance. Now a genuine three-member arbitration tribunal has jurisdiction to settle disputes. 

Consequences for Switzerland’s Framework Agreement With the EU

The Swiss Federal Council has politically accepted the Ukraine mechanism for the finalised, but unsigned, Framework Agreement with the EU. Originally, it even wanted to give the competence to decide disputes directly to the ECJ. Berne was not concerned with achieving a solution for Switzerland that respects sovereignty, but sought instead to create a “point of no return” on the road to EU membership. To achieve that goal, the Federal Council allowed the Foreign Ministry to run duplicitous campaigns. At the core were grotesque contentions, including that the ECJ could not “sentence” Switzerland but would only issue “advisory opinions”, and that judgments of the EFTA Court are not binding on EU States. The Commission had proposed Switzerland dock to the EFTA Surveillance Authority and the EFTA Court and to negotiate the right to nominate a member of these institutions for cases concerning the country – an idea rejected by the forces in the Swiss administration seeking EU accession. 

The Ukraine mechanism was created for post-Soviet and North African states. In the face of growing opposition, in the meantime the Federal Council has likely second thoughts. In October 2020, it made it clear that it does not want to take up the issue with the EU again. The question is whether the Government is prepared to reconsider this position in the light of the British success. Or whether it prefers to pass the hot potato to parliament and the people. One way or another, it cannot be ruled out that, as in “Monopoly”, the game will end with the order: Back to start.