Overview and position on relations with the EU

Due to their close economic ties, the Chemistry Pharma Life Sciences industries have a vital interest in preserving the bilateral agreements with the EU. From the perspective of the research-intensive, export-dependent chemical and pharmaceutical industry, the bilateral agreements with the EU are an important locational factor without any prospect of an equivalent alternative.

The EU common market has been the most important foreign market for the Swiss economy since its establishment 30 years ago. Unrestricted access is crucial for the survival of Chemistry Pharma Life Sciences in particular. To this end, sustainable long-term relations between Switzerland and the EU must be guaranteed. This is because new trade barriers are looming should relations between Switzerland and the EU continue to deteriorate.

Importance of the EU for the Swiss export economy

Switzerland is primarily an export nation whose economy is strongly geared towards international trade. With a share of over 49% of total Swiss exports, the Chemistry Pharma Life Sciences industries are Switzerland’s export champions. Their most important sales market is also the EU common market with a share of just 50%, while on the import side, the lion’s share of imported chemical and pharmaceutical products comes from the EU (75%).

As a non-member of the EU, Switzerland regulates access to the EU common market through various bilateral agreements in order to create conditions similar to the internal market by removing trade barriers. In 1992, the Swiss electorate rejected accession to the EEA, making it necessary to follow the path of bilateral sectoral agreements. The Bilateral Agreements I (1999) and the Bilateral Agreements II (2004) guaranteed extensive reciprocal market access and removed discrimination against Swiss companies and their products in the EU common market.

Removal of technical barriers to trade

The agreement on the dismantling of technical trade barriers between Switzerland and the EU (part of Bilateral I) is essential for Switzerland as a centre for the chemical and pharmaceutical sectors. The Mutual Recognition Agreement (MRA) simplifies the conditions for accessing the EU market and eliminates discrimination against Swiss products. For Swiss companies, this also reduces costs and administrative input – in the case of chemicals and pharmaceuticals due to inspection approvals.

Practically all chapters in the first annex of the agreement are important for imports, and the following chapters in particular are relevant for exports:

• 4 (medical products): The legal uncertainty in connection with the negotiations between Switzerland and the EU (InstA) presents the medical technology industry with the urgent question of whether the Mutual Recognition Agreement (MRA) will be updated.
• 14 (Good Laboratory Practice GLP - mutual recognition of GLP monitoring): Based on the OECD guidelines.
• 15 (Good Manufacturing Practice GMP – certification of batches, mutual recognition of GMP controls): In particular, the agreement allows batch releases to be carried out by a qualified person either in the EU or in Switzerland, as the corresponding documents are mutually recognised. In addition, the results of GMP controls are mutually recognised, so there is no need to duplicate controls.
• 16 (building products)
• 18 (biocidal products)
• 20 (explosives for civilian use).

If the Mutual Recognition Agreement were to be discontinued or even frozen, this would entail considerable additional costs for Swiss companies. The chemical and pharmaceutical industry would incur additional costs for the certification of installations and product batches. The cost of this duplication is estimated at around CHF 500 million per year. The EU’s amendments to the MRA guidelines and its refusal to update the MRA agreement have made it significantly more difficult for Swiss companies to access the market. The medtech industry has already had experience with this.

Research collaboration

However, the EU is not only of great importance to Switzerland as a market for sales and skilled workers, Switzerland as a centre for business and science is also dependent on European cooperation in the field of research. The Horizon Europe research programme is the world’s largest research and innovation funding programme. To date, Swiss researchers have been among the top performers in the prestigious ERC Starting Grants awarded annually.

With the suspension of negotiations, Switzerland was also downgraded to a third-party country in the Horizon Europe research programme. The lack of full association with Horizon Europe is damaging to research and innovation and thus ultimately to Switzerland’s innovative strength. It has become more difficult for Switzerland to attract top researchers because they cannot, for example, take on project management as part of Horizon Europe or receive awards and grants in the form of ERC grants.

For member companies of scienceindustries, the “Horizon Europe” programme items are a very relevant source for the development of new technologies and the development of new products and new applications for existing products. They are also important for access to scientific networks. Due to the complexity of science, major developments and innovations are usually developed by leading research institutes and companies in international networks.

Free movement of persons

At around 40% of private investment in research and development, the chemical and pharmaceutical industry in Switzerland is highly research-intensive and innovative. In view of the shortage of skilled workers in the STEM fields, these industries are all the more reliant on highly qualified workers from abroad. The quality of the location and the growth potential depend on this.

According to the structural survey conducted by the FSO, 65% of those employed with a university degree in the pharmaceutical industry resident in Switzerland are of a foreign nationality. In the chemical industry, too, more than one in two employees with a university degree holds a foreign passport. In the economy as a whole, the corresponding proportion is much lower at 33%. A similar picture emerges in the area of research and development. The proportion of foreign researchers in the pharmaceutical industry is very high at 70%.

The free movement of persons has significantly increased the qualifications of immigrants, but has not led to a displacement of the local labour force. The collapse of the free movement of persons would exacerbate the already pronounced shortage of skilled workers in the country and have a severe impact on the research and innovation sector.

Air transport agreements

Many member companies ship more than 50% of their freight by air and rely on good air connections from Switzerland. The FOCA applies the "known consignor procedure" in the area of air cargo security, which complies with EU Regulation 300/2008 and Directive EU/185/2010.

Should the agreement be discontinued, Switzerland’s “known consignor procedure” is likely to be unrecognised, which would require additional security checks for transshipment at EU airports before re-loading to overseas, increase the security costs for each air freight shipment and lead to delays. In addition, the US would no longer be able to apply the "Regulated Agent Concept" of the TSA (Transportation Security Administration), as it is based on cooperation between the EU and Switzerland. This would increase the cost of air freight shipments to the US.

Electricity agreement

An electricity agreement between Switzerland and the EU is very important for the Swiss Chemistry Pharma Life Sciences industries, especially in light of the experiences made in winter since the energy crisis caused by the outbreak of the war in Ukraine. The close interconnectedness of electricity markets and infrastructure with neighbouring countries, particularly in Europe, not only ensures the implementation of Switzerland’s energy policy objectives, but also guarantees a secure supply of electricity in the country.

Switzerland strives for a secure, economical and environmentally compatible supply of electricity and sees its integration into the European electricity market as a decisive contribution to this. Without an electricity agreement with the EU, Switzerland’s participation in the European common electricity market would be more difficult. Such an agreement would not only promote the integration of renewable energy sources, but also open up new prospects for flexible hydropower, thereby strengthening Switzerland’s long-term position in the European electricity market.

Long-term, sustainable relationships required

In its relations with the EU, barrier-free market access, appropriate freedom of movement, full association with European research agreements as well as electricity and air transport agreements are of key importance for Switzerland as a business location. For the chemical and pharmaceutical industry swift action is crucial, because without a regulated relationship with the EU the bilateral approach risks further erosion – with lasting negative consequences for the Swiss economy and society.