30 Dezember 2020

Back to Start?

Switzerland, Great Britain and the Ukraine Mechanism

The UK won a major victory with the EU in the Draft EU-UK Christmas Eve Trade Agreement: It got the EU to renunciate the so-called Ukraine mechanism which, in effect, would have made the Commission the UK’s watchdog. This has caused some “Brexit envy” in Switzerland as this mechanism is part of the Draft EU-Switzerland Institutional Agreement. With a “bullshit” campaign, former Foreign Minister Didier Burkhalter, however, has led Switzerland into a cul-de-sac, making it likely that the negotiations will have to go back to start.

Approximating arbitration

The Union’s draft treaty with the UK of 18 March 2020 provided for an “arbitration panel” in the event of a conflict, which would have had to request a binding ruling from the ECJ whenever (i) EU law or (ii) treaty law identical in substance to EU law was at issue. The ECJ’s ruling would have been binding on the panel. Under this mechanism, the European Commission could unilaterally and at any time have taken the UK to its own court, the ECJ. In the Draft EU-UK Treaty, however, a genuine arbitration tribunal was agreed. In Articles COMPROV.13(3) and INST.29(4A), it is even explicitly stated “for greater certainty” that the courts of neither side have jurisdiction to decide disputes and that the judgments of the courts of one party are not binding on the courts of the other. That such clauses were included in the text of the treaty is extraordinary.

The provision on the mandatory involvement of the ECJ, that is part of the EU-UK Withdrawal Agreement, was taken from the EU’s association agreements with its eastern neighbours, the post-Soviet republics of Ukraine, Georgia, Moldova and Armenia. These countries receive large financial benefits from the EU. They approximate their legislation to EU law and have limited access to the internal market. Critics have, however, noted that the ECJ clause in these agreements goes very far as regards sovereignty. The Ukraine mechanism is furthermore envisaged for future agreements with southern neighbouring states, including former colonies of European powers Morocco, Libya, Tunisia and Egypt.

The Ukraine mechanism also remains part of the Draft EU-Switzerland Institutional Agreement (“InstA”). The purpose of the InstA is to provide an umbrella for five existing as well as all future EU-Switzerland “market access agreements”. The most important existing agreements are the ones concerning free movement of persons, technical barriers to trade and land transport. However, there the situation is a bizarre one. InstA negotiations ended on 30 October 2018 and the EU urged the Swiss Government, the Federal Council, to sign the treaty and ensure its ratification. The Federal Council said that its negotiators had achieved 80% of what they had sought. Nevertheless, it has been playing for time ever since. After a consultation of major stakeholders, the Government requested “clarifications” from the European Commission on three side issues: wage protection in the context of cross-border work, the relevance of the EU Citizenship Directive and the ban on State aid. At the same time, it seemed to have come to terms with the institutional core of the InstA – which besides the Ukraine mechanism includes the dynamic adoption of EU law and a “super guillotine” on termination. The latter means that if the InstA is terminated, all the agreements covered by the InstA end with it. The InstA would thus be virtually impossible for Switzerland to terminate. In private law, one would speak of a gagging contract.

The winding paths of Swiss EU policy

The Ukraine mechanism in the InstA has a strange history. Since 2008, the EU has demanded that the bilateral agreements with Switzerland, traditionally administered by joint committees, be subjected to a monitoring and court mechanism. Among other things, the Union proposed that these treaties should be surveilled by the EFTA Surveillance Authority (“ESA”) and controlled by the EFTA Court. The EU assumed that Switzerland would negotiate with the EEA/EFTA States Iceland, Liechtenstein and Norway the right to nominate one member of the ESA and one member of the EFTA Court in cases concerning Switzerland-EU matters. If necessary, the EU would have exerted gentle pressure on the three states to offer a hand. The technical term for this construction is “docking” to the ESA and the EFTA Court. By way of docking, Switzerland could have retained its sectoral approach to access to the internal market. However, under the influence of its Foreign Minister Didier Burkhalter, the Federal Council rejected this generous offer in 2013 and decided to seek direct subordination to the ECJ. The Foreign Minister was determined to set a “point of no return” on the road to EU accession. Other members of the Federal Council had a mental reservation and merely agreed on the assumption that one could give it a try. This would come back to haunt them.

With a “bullshit” campaign, Mr. Burkhalter managed to dispel the obvious criticism that the ECJ would lack impartiality. (According to the famous definition of the American moral philosopher Harry G. Frankfurt, “bullshit is “speech aimed at persuading without regard to truth”.) At the centre was the grotesque contention that the ECJ could not “sentence” Switzerland, but would only issue “advisory opinions”. The key stakeholders agreed, but after three years of negotiations it became clear in summer 2017 that the model with the ECJ would hardly fly in a referendum. Foreign Minister Burkhalter threw his hat, something that only happens once in a blue moon in Swiss political culture. His successor, Ignazio Cassis, promised to press the “reset button” – something that could only mean “docking” – but then the European Commission put the Ukraine model on the table. Mr. Cassis buckled, but he doesn’t share his predecessor’s enthusiasm for the dominant role of the ECJ.

The impact of the EU-UK Christmas Treaty

The fact that the UK managed to avoid the Ukraine mechanism in its Christmas deal with the EU had a huge impact on the Swiss debate. Some top politicians, who had so far loudly supported the Ukraine model, took the view that the Federal Council should also aim to achieve what Boris Johnson (or his chief negotiator Lord Frost) had succeeded in doing. InstA apologists, on the other hand, argue that it follows from simple logic that the solution reached by the UK must be irrelevant for Switzerland. Unlike Switzerland, the UK is not part of the internal market and thus its industry has less access to that market than the Swiss industry. Unlike Switzerland under the InstA, the UK is not obliged to adopt EU law dynamically. This, the InstA supporters say, explains the absence of the Ukraine mechanism. It is normal for the EU to claim a monopoly of the ECJ on the interpretation of EU law in the entire internal market, i.e. also beyond the territory of the EU.

It should be noted here that the other post-Soviet states of Georgia, Moldova, Ukraine and Armenia which have adopted the mechanism with the ECJ are only obliged to “approximate” their legislation to EU law and have only limited access to the EU internal market. The EU also knew that the UK wanted to leave the internal market and yet it tried to impose the ECJ on the British almost until the very end. The difference between the former Soviet Republics and the UK was just that the latter was the stronger negotiator. It is easy to imagine how the InstA proponents would argue if the EU had prevailed. The claim that the abandonment of the Ukraine mechanism in the Brexit deal was dictated by logic is again “bullshit”, as described by Harry G. Frankfurt.

The critical point it is not the ECJ’s competence to interpret EU law, but the claim that even treaty law that is identical in substance to EU law may only be interpreted by the ECJ. It is important to note that the EFTA Court has the right (and the duty) to interpret EEA law, which is largely identical in substance to EU law. However, this only works because the EFTA Court is a multilateral international court. The Ukraine mechanism is painfully reminiscent of the “unequal treaties” that the Great Powers imposed on Imperial China after the First Opium War of 1842. The main feature of those treaties was the establishment of extraterritorial courts on Chinese soil which had jurisdiction over foreign subjects in criminal and private law cases, and sometimes also in mixed cases involving foreigners and locals. The proposed InstA goes even further than these historic examples. It would give the ECJ extraterritorial jurisdiction in conflicts between Switzerland and the EU, i.e. in inter-state conflicts. What is more, the ECJ would become a kind of constitutional court of Switzerland. That is all the more remarkable seeing that the Swiss Supreme Court lacks the competence to review federal laws for their constitutionality.

I have described the genesis of the InstA with the ECJ model of the failed Foreign Minister Burkhalter, and I have pointed to his bullshit campaign. His successor Cassis, despite good intentions, did not have the strength to avoid the Ukraine mechanism, which is only a camouflage of the ECJ model. Rather, Mr. Cassis allowed his services, in yet another bullshit campaign, to claim that the “arbitration tribunal” would have considerable competences. It is telling that these assertions are not even shared by EU protagonists. In the summer of 2020, when the EU’s chief negotiator Michel Barnier tried to impose the Ukraine model on post-Brexit Britain, he only mentioned the ECJ. Numerous professors and legal practitioners from many EU member states, from Norway and Iceland are tooting from the same horn. To give three examples: When dealing with the Ukraine mechanism, the Norwegian professor Mads Andenas speaks of a “poor man’s EEA”, the Luxembourg business lawyer Joë Lemmer of the ECJ concealed within a Trojan horse and Dutch professor Dimitry Kochenov of incompatibility with the values of the international community. Most importantly, contrary to popular belief, there can no longer be any talk of “corporate Switzerland” pushing for the InstA. A new committee of entrepreneurs, remarkably made up of exporters, called “autonomiesuisse” in contrast to the InstA-friendly business organisation “economiesuisse”, is fighting the present InstA draft with great vigour.

Two options with the same consequence

The Swiss are a shrewd people. The Federal Council’s tactic could be to sign off on EU concessions concerning the three side issues – wage protection in the context of cross-border work, the relevance of the EU Citizenship Directive and the prohibition of state aid – in order to save face vis-à-vis Brussels. This would pass the hot potato on to Parliament. If Parliament votes yes, there will likely be a mandatory referendum, requiring a double majority of the voters and of the cantons. The InstA supporters have been purporting that the majority of the cantons will not be required. However, in view of two precedents, the votes on the Free Trade Agreement with the EEC of 1972 and on the Agreement on the European Economic Area of 1992, this cannot seriously be doubted. In light of the general mood, it cannot be ruled out that the InstA would be rejected in a referendum. On the other hand, the EU could also be unwilling to accommodate Switzerland on the three side issues. In that case, the Federal Council would have no choice but to stop the negotiations. In both constellations, as in the Monopoly game, the Federal Council would have to go back to the start. Realistically, two options would then present themselves: Docking with the ESA and the EFTA Court or negotiating a trade agreement without institutions.

SUGGESTED CITATION  Baudenbacher, Carl: Back to Start?: Switzerland, Great Britain and the Ukraine Mechanism, VerfBlog, 2020/12/30, https://verfassungsblog.de/back-to-start/, DOI: 10.17176/20201230-201818-0.


  1. David Webb So 3 Jan 2021 at 13:43 - Reply

    Ukraine or not, the EU still has a big role to play in the future UK politics – more than I think the Swiss would be happy with if they try to emulate the EU-UK-TCA.

    I select a few quotes from the Q&A of the EU-Commission.

    Firstly the ability to cancel all or part of the agreement is not lacking.

    „Will the UK still be bound by EU climate change targets and policies?
    The UK will define its own climate change targets and policies.
    However, the Agreement establishes an ambitious framework for cooperation in the fight against climate change. Under the Agreement, both sides agree that the fight against climate change, and in particular the 2015 Paris Agreement on climate, constitute an essential element of their partnership. Any violation of this essential element by one Party gives the other Party the right to terminate or suspend all or parts of the Agreement.“

    Secondly, and not surprising given the UK’s oft repeated musings about getting a competitive advantage by lowering standards we have some of the LPF provisions which contain a commitment to non-regression.

    „How will you ensure that the EU’s high social and labour, as well as environmental and climate levels of protection will be upheld?
    Citizens in the EU and in the UK benefit from some of the highest labour and social standards and environmental and climate committments in the world. The respect of these standards and rules can come with costs for businesses, but since they are followed by the economic actors in the EU’s Single Market, there is no risk of distorted competition. Since the UK, as a neighbouring third country, gains access to the EU’s market without tariffs or quotas, the Parties have agreed to continue upholding the current high levels of protection to avoid unfair competitive advantages from the lowering of their levels of protection. To that extent, a binding and enforceable commitment of non-regression was included in the chapters dedicated to labour and social standards as well as environment and climate, ensuring that the current levels of protection in the EU and in the UK will continue to be upheld. Each Party also committed to seek to increase over time its levels of protection in these areas.“

    And other LPF enforcement provisions allow the EU to retaliate against any attempt by the >UK (and vice-versa) to circumvent the LPF provisions.

    „What happens if one side unilaterally distorts the level playing field?
    The EU and the UK agreed to effective tools and mechanisms for the enforcement of their level playing field commitments, namely:
    Effective implementation domestically, including the control of subsidies by domestic authorities and courts, and a role for an independent authority or body, and appropriate administrative and judicial proceedings in the areas related to labour and social standards, environment and climate;
    Appropriate and effective governance and dispute settlement mechanisms for solving disputes between the EU and the UK over the application of the Agreement, including through the horizontal dispute settlement mechanism or tailored panel of experts;
    Unilateral remedial measures to react quickly where a subsidy creates a significant negative effect on trade or investment between the EU and the UK. would retain appropriate level playing field commitments.“ In such cases, a Party would be able to adopt measures to rebalance the competitive advantage of the other Party.
    By addressing the possibility of regulatory divergence at any point in time, this mechanism allows for the future-proofing of level playing field provisions to maintain open and fair competition over time. …
    Each Party could also, at regular intervals and if rebalancing measures have been taken frequently or for more than 12 months, seek a review of the trade and other economic parts of the Agreeent to ensure an appropriate balance between the commitments in the Agreement on a durable basis. In this case, the Parties could negotiate and amend relevant parts of the Agreement. Any trade or economic part of the Agreement, including aviation, that would remain in place or be renegotiated would retain appropriate level playing field commitments.

  2. Baudenbacher Carl Mo 4 Jan 2021 at 13:21 - Reply

    Thank you for these explanations. I realise that under the TCA, the UK is not free in its decisions regarding appropriate regulations and that this places limits on systemic competition. But it makes a difference whether in the event of a conflict, an arbitral tribunal composed on a parity basis decides or the court of one party, which, for all the quality of its jurisprudence and irrespective of its historical achievements, is nevertheless an organ of that party. This is even expressly stated in Article 13 TEU.

    • David Webb Mo 4 Jan 2021 at 19:06 - Reply

      Thank you for your reply. I accept your point.

      I would still be very surprised if the Swiss would find a commitment to the Paris Climate Agreement, the non-regression and the level-playing-field provisions anything more than an infringement on their Sovereignty.
      Those who voted for Brexit in the UK are likely not perturbed because they
      probably haven’t noticed yet. I wonder if those who are proposing the EU-UK TCA as a model for CH instead of the InstA have read it either?

      • Carl Baudenbacher Do 14 Jan 2021 at 01:08 - Reply

        Switzerland ratified the Paris Agreement on October 6, 2017. For the rest, the big issue in Switzerland at the moment is the following: Should Switzerland reject the ECJ as a dispute settler under the InstA because the UK successfully defended itself against it in the TCA? Those who want to have the InstA at any price (especially parts of the export industry) claim that this agreement is fundamentally different from the TCA. Switzerland, they say, has much broader access to the EU’s internal market for the movement of goods than the UK because it has concluded a mutual recognition agreement with the EU in 1999. In my opinion, this is no reason to accept the court of the other side, which of course lacks impartiality.

  3. GHartman Mo 4 Jan 2021 at 13:36 - Reply

    Perhaps it would be good to question the premise that the EU-UK Trade and Security Agreement and the EU-Switzerland InstA are to be likened in this respect?

    The United Kingdom and Switzerland appear to be moving in opposite directions in terms of integration with the European Union.

    England, Wales and Scotland no longer enjoy full access to the EU single market (e.g. free movement of persons and free movement of services have been lost). Whereas the Swiss have recently reaffirmed the need to maintain free movement of persons in the September 2020 referendum.

    Where the UK and the EU have sought to maintain a closer relationship in lieu of membership, they have also concluded arrangements for CJEU rulings regarding questions of EU law. Northern Ireland remains within the EU single market and subject to CJEU rulings under the provisions of the Northern Ireland Protocol to the EU-UK Withdrawal Agreement (with a mechanism to refer questions of EU law to the CJEU similar to the Ukraine or Moldova model). In addition, the EU-UK Trade and Security Agreement makes provision for the European Commission and the CJEU to render decisions that are enforceable in the United Kingdom with respect to certain EU programs (e.g. Horizon Europe).

    Where Switzerland seeks to maintain its closer relationship with the EU and the EU single market, negotiating an agreement without a role for institutions including the CJEU does not appear to be a viable alternative.

    Docking with the ESA and the EFTA Court has been offered by the EU to Switzerland in the past and could indeed work like it has for Norway, Iceland and Liechtenstein. Yet, the EEA Agreement and its protocols likewise contain provisions intended to ensure homogeneous application and interpretation of EEA rules corresponding to EU rules. These include the hitherto unused possibility to allow courts of an EFTA State to refer questions of EU law to the CJEU (another optional route is that the contracting parties may agree to request the CJEU for a ruling on the interpretation of the relevant rules if a dispute concerning the interpretation of the agreement is not resolved by the Joint Committee within three months). The facultative character of this reference mechanism may be preferable for non-EU States seeking to preserve greater decision-making autonomy. Yet, realising that no such reference has ever been made since 1994, the Ukraine model might be more practical.

    • Baudenbacher Carl Mo 4 Jan 2021 at 15:57 - Reply

      You are right: docking with the ESA and the EFTA Court was offered to Switzerland by the EU in the past and the Federal Council rejected it for one reason only: it hoped to set a point of no return on the road to Switzerland’s accession to the EU. In the meantime, it is clear that this cannot be a goal for Switzerland, after the exit of Great Britain, which in many respects thinks similarly to Switzerland, even less so. It is true that the EEA Agreement also contains provisions to ensure homogenous interpretation of EEA rules. However, EEA homogeneity is not a one-way street. The Union courts and the ECJ Advocates General have relied on EFTA Court jurisprudence in countless cases. The possibility for courts of an EEA/EFTA State to refer questions of EEA law (not EU law) to the ECJ is dead letter and will continue to be dead letter. Nor is it likely that the EEA/EFTA States will ever agree to entrust the ECJ with the interpretation of the relevant rules in the event of a conflict. This is precisely an important difference to the InstA, where the Commission can at any time take Switzerland unilaterally to its own Court. What it means to have your own Court was experienced by the Icelanders in the Icesave case. Quite a few commentators from the EU have said that if the ECJ had had jurisdiction, Iceland would have lost, with the likely consequence of state bankruptcy. Finally, that the Ukraine model could be „practical“ may be true, the question is for whom.

      • GHartman Do 7 Jan 2021 at 19:36 - Reply

        It appears that there is a wider reluctance on part of the courts to request preliminary rulings with the aim to preserve greater decision-making autonomy, as also illustrated by the criticism with regard to the relatively limited number of referrals from the Norwegian Supreme Court to the EFTA Court (cf. https://verfassungsblog.de/loyalty-vs-sovereignty/). By the same token, a more constructive dialogue could be struck with the CJEU. Instead of discarding Article 107 EEA Agreement and Protocol 34 as dead letter, these could be instrumentalised in order to avoid a difference in the case law of the EFTA Court and the CJEU (instead of leaving conflicts up to the Joint Committee to resolve). Possibly in complex principal cases where the courts are called upon to interpret EEA law corresponding to EU law which is not acte clair or acte éclairé and is to be interpreted for the first time, the EFTA Court could also open this dialogue as it qualifies as a court common to the EFTA States. Perhaps such reference mechanism allowing the CJEU to give a ruling on corresponding EU law is appropriate in agreements concluded to extend EU single market laws to a wider European area such as the EEA. Effective judicial protection by independent and impartial courts should in any event be provided to stakeholders within the whole EEA. What if Icesave had conversely concerned Icelandic depositors harmed by an EU Member State’s action regarding a private bank seated in that EU Member State, effectively excluding such depositors with deposits in the bank’s subsidiaries in other EU or EEA States (incl. Iceland) from compensation under the deposit-guarantee scheme? Would the interpretation of the relevant rules have been the same? Perhaps you are right that the CJEU would not have ruled out a breach of the State’s obligations under similar circumstances (cf. by analogy, Hogan, C-398/11), as – in independent and impartial justice – the correct interpretation of the relevant common rules should not be informed by the nationality of certain stakeholders in a specific case.

        • Carl Baudenbacher Do 14 Jan 2021 at 00:57 - Reply

          Article 107 was included in the EEA Agreement in order to calm down the ECJ after its negative Opinion 1/91. At the same time, it was decided to create an EFTA Court structurally independent of the ECJ. The ECJ agreed to this solution in Opinion 1/92. The idea of activating Article 107 EEA after all those years was put forward by a Norwegian scholar who obviously wanted to delegitimize the EFTA Court. I am not a Norwegian constitutional lawyer, but I assume that entrusting the ECJ (where there is no Norwegian judge) with the competence to give preliminary rulings in the EFTA pillar would be unconstitutional. The same is probably true for Iceland.

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