State economic development would be jeopardised

State economic development would be jeopardised

Interview by Oliver Washington with lawyer Simon Hirsbrunner (SRF 4 News of 13 December 2018)

The draft framework agreement with the EU has been known in detail since the beginning of December. The Federal Council has made the draft public so that it can be widely discussed. And there is actually a lot to discuss: the role of the European Court of Justice, for example, or Switzerland’s compliance with the accompanying measures, but also the rules as to when and how the state may support companies; all these topics will also have to be assessed. Together with an expert, Oliver Washington has examined all these regulations on state aid. His assessment is not very positive.

Oliver Washington: Simon Hirsbrunner is Swiss and works as a lawyer at a law firm in Brussels. During the negotiations on the framework agreement he advised the cantons, and wrote an expert assessment of what consequences would accrue to them for adopting the EU state aid rules. About what is now laid down in this framework agreement, especially in the passages on state aid he personally says:

Simon Hirsbrunner: I’m surprised, and I’m also a bit disappointed. In the communication with the public, we’ve always heard that it’s all only about adopting certain guidelines. But in fact the basic EU rules have been adopted in a way that is binding for Switzerland.

States can support companies in various ways. They can subsidise them, they can grant tax relief, they can accommodate them regarding social security contributions, and so on. This is generally prohibited in the EU, although there are exceptions, for instance in the case of companies situated in regions where unemployment is particularly high. Strikingly, the European rules have been incorporated almost verbatim into the framework agreement, including bans and exceptions.

Yes, that would be mandatory under the agreement.

Of the existing agreements, only the air transport agreement is to be subject to these rules. This is a success for Switzer­land. It is, however, no success that the EU rules would apply to all future agreements, for example a new electricity agreement, and: If Switzerland and the EU were also to update the 1972 free trade agreement, as it has been announced, then the new rules would also apply to these.

This would be an complete paradigm shift. We currently have a very much more relaxed approach to the state’s economic development activities.

In concrete terms, for example a canton wishing to support a certain company would have to report this to a new supervisory authority. This authority would then decide. The same applies to our parliament, if it wanted to create new subsidy regulations in the energy sector. Under certain circumstances, these would also have to be approved by a parallel authority. All this would have a massive impact, if also the free trade agreement would be covered by the framework agreement […].

Industrial production would be affected because the free trade agreement has an extremely wide scope of application. In the future, the free trade agreement is also to cover services, which could, for example, lead to all promotion of economy and trade at cantonal level being put to the test. I am not saying that this would no longer be possible afterwards, but the corset that we would have to observe would be much tighter.

You, Simon Hirsbrunner, are afraid that measures to promote economy and trade at cantonal level in order to attract companies would practically no longer be possible – tax relief, for example, or the cheap transfer of building land to companies. […] It will principally be up to the Federal Council to present an analysis of the impact they expect, so that we will be able to have an open discussion.

It is interesting to note that the Federal Council has already presented a similar analysis once, before the EEA referendum in 1992. At that time, the Federal Council saw no major problems between European law and Swiss practice. But this past analysis must be questioned. The EU has always justified its attack on Swiss corporate taxes by stating their opinion that these were illegal state aid. The consequences are well known. Switzerland is about to give in to the pressure. So it will be very interesting to see what effects the Federal Council will expect today in the case of Switzerland saying yes to the framework agreement.    •

“Was genau steht im Rahmenabkommen? (What exactly does the framework agreement involve?”, SRF 4 News of 13 December 2018. Interview with the lawyer Simon Hirsbrunner: Oliver Washington

(Translation Current Concerns)

Framework agreement between Switzerland and the EU: prohibition of state aid

Article 8a, 2. (a) Any aid granted by Switzerland or the Member States of the European Union or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods is incompatible with the proper functioning of the internal market in so far as it affects trade between the parties under the […] agreements referred to above.
 (Agreement to facilitate bilateral relations between the European Union and the Swiss Confederation in areas of the internal market in which the European Union participates, 23 November 2018 – final version)

(Translation Current Concerns)

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