Interview by NZZ: Matthias Leuenberger, President scienceindustries

"Our companies are trapped here in a sense. They can't just leave"

The chemical-pharmaceutical industry is central to Switzerland's prosperity. What does it mean for them if the talks with the EU fail again? Matthias Leuenberger, President of scienceindustries and Novartis Switzerland, comments in the NZZ.

Mr Leuenberger, last week the Federal Council decided on key parameters for new negotiations with the EU. How important is it for Novartis Switzerland and the entire pharmaceutical industry that the bilateral problems are solved?

Very important. There is a lot at stake for our industry. Switzerland and above all the Basel area have always been of great importance to us in research, development and production. To keep it that way, we need regulated relations with the EU - in exports, in research and in the recruitment of skilled workers. This is also crucial for the Swiss economy. There is a tendency in this country to lose sight of the dimensions. The chemical-pharmaceutical industry in Switzerland invests about as much in research and development as it generates in sales, about 7 billion Swiss francs. It accounts for almost half of all Swiss exports - over 134 billion Swiss francs. We sell over 90 percent of everything our industry produces here to other countries. The framework conditions for exports and research are of paramount importance, and here the EU plays a central role. That is why we are very pleased that the Federal Council is moving forward.

In the talks with Brussels, difficult topics such as wage protection or sovereignty are up for debate. Why should Switzerland get involved? We are doing well, or at least better than other countries in Europe.

Well, we are talking about Plan B. Plan A was once accession to the EEA, but that didn't work out. Plan B is the bilateral way - and there is no Plan C in sight. So we should try to continue with Plan B, with which we have had good experiences. One should not underestimate this. The conditions for access to the EU market are match-deciding.

The share of EU countries in the industry's sales is constantly decreasing. Is Europe still that important?

Sure, sales to the USA and China have increased strongly. But that doesn't change the fact that at the end of the day 48 per cent of our industry's exports go to the EU. Europe will remain our most important market for a long time.

What are the concrete problems if no solution can be found with the EU, for example if the agreement on the mutual recognition of products expires in a few years?

Quite simply: Switzerland as a production location becomes more expensive in one fell swoop compared to other countries. Suddenly, multiple controls and inspections have to take place again, which are not necessary today. The result is unnecessary additional costs and complications. That's annoying, but I wouldn't say it's an absolute killer. The additional costs for the entire pharmaceutical industry would amount to an estimated 500 million Swiss francs a year. At the same time, fortunately, there are simplifications with other countries, recently with the USA, for example. Our goal is for countries to mutually recognise their inspections (?). For this reason, we must prevent losing the existing agreement with the EU.

But if it's not an "absolute killer criteria": why should Switzerland then enter into a deal with the EU where it has to swallow a bitter pill?

That is a short-sighted view. The pharmaceutical industry is big, our companies have locations all over the world. They can come to terms. That doesn't mean that production sites in Switzerland will be closed immediately if we don't find a solution with the EU. That would not even be possible from a legal point of view, because licences are also involved. But these are gradual processes. We are committed to ensuring that Switzerland continues to have a high status within the companies. This is only possible with good location conditions. We owe this to the relatively new members.

What do you mean by that?

Many companies have come to Switzerland in recent years, established themselves here and invested in new plants. They depend on the framework conditions not deteriorating. Otherwise, at some point the head office will ask whether Switzerland is still the right location, especially in view of the high personnel costs. And corporations that are planning a new branch office will think twice about whether they still want to come to Switzerland. We should not take these risks. We have achieved so much; in northwestern Switzerland, for example, a great life science cluster has emerged, with pharmaceutical companies, universities, many companies and start-ups. For it to continue to thrive, the conditions have to be right.

Nevertheless, if we understand you correctly, the consequences of a failure of the talks with the EU would be bearable for the industry.

What does bearable mean? We have no choice - somehow we would have to deal with it. Our companies that research, develop and produce in Switzerland are trapped in a certain sense. They can't just leave, they have invested too much. I don't want to paint the devil on the wall either. Switzerland would still be a good location with many advantages. But the advantage over other countries would diminish. This development has already begun. If no solution can be found with the EU, the consequences will not be felt immediately, but only in the medium term. But then it will be too late and certain companies may have organised themselves differently.

Have the disruptions in the bilateral relationship so far led to fewer companies from your industry settling here?

No, we continue to have relatively many new investments. Switzerland is still attractive as a production location, despite these uncertainties. Our industry can deal with such problems better than others because we have a relatively high added value. We can live with additional costs to a certain extent. It would be worse if we could no longer recruit the necessary skilled workers because the free movement of persons would cease.

Switzerland could still bring in as many skilled workers as it wants. If there were quotas again, it could set them as high as it wanted.

Our industry needs highly qualified personnel, and the Swiss labour market cannot cover all of that. This is especially true for research-intensive companies, whose innovative strength is crucially dependent on skilled workers. In addition, demographic developments will further exacerbate the labour shortage. Since 2020, more people will retire than new workers will enter the Swiss labour market. Therefore, a quota system is probably obsolete anyway.

The EU has downgraded Switzerland in the Horizon research cooperation and only wants to reverse this if an agreement is reached. Does this have noticeable consequences for your sector?

We are hearing from the universities that there have been initial cases of top-class scientists not coming to Switzerland because of these problems. Even that does not have immediately dire consequences. It's always the same: the consequences come gradually. If our universities suffer, at some point our industry suffers, then value creation suffers, and prosperity decreases.

Is Switzerland dependent on the EU for research? It could cooperate more with British or American universities.

We should do one thing and not the other. But let's not fool ourselves: The EU's research programme is the largest and most important in the world. It's probably no coincidence that the British have done everything they can to rejoin Horizon at the end of the year.

A fundamental question: Is the impression that the political influence of your industry in Switzerland is not proportional to its economic importance deceptive? Other forces such as the Farmers' Association or the Trade Association, which are much more defensive in the EU dossier, have more influence.

I see that in exactly the same way. And yes, that is sometimes frustrating. But we have to distinguish between the Federal Council and the administrations we deal with, which know exactly what is at stake. Unfortunately, not everyone in Parliament does. But we are working on it. After all, the pharmaceutical industry now contributes a total of around 9 per cent to the total value added in Switzerland. That is quite a lot.

One could speak of a cluster risk . . .

... I would say it is a cluster opportunity. The health market will continue to grow worldwide, if only because we are getting older and older. If we manage to keep the pharmaceutical industry in Switzerland at the forefront, we can secure our prosperity for decades to come.

The EU has taken steps against Switzerland in areas such as research or electricity, with which it is also harming itself. Don't you sometimes have to shake your head at such behaviour?

Let's put it this way: It's important that we in Europe - and Switzerland is part of that - don't let ourselves be divided. The war in Ukraine should lead to this realisation growing. Then hopefully the EU will also deal with us a little more openly and pragmatically. But the same applies to Switzerland. The Federal Council cannot regulate this alone, everyone must make their contribution, including the trade unions and the centre parties, which should take a clear position. I understand that they don't want to expose themselves before the elections. But we expect things to move forward quickly afterwards.

Politically, wage protection plays a central role. The Federal Council is considering autonomous intervention in the labour market to get the trade unions on board. One issue is the extension of collective labour agreements (CLAs). Would you support such a step to make a solution possible?

In our sector, which is not known as a low-wage sector, we have a well-established social partnership with internal staff representatives in the companies. This works very well. There are a few areas with collective agreements, especially in production, and that also works well. We have practically no disagreements. So I don't see why anything should change.

Obviously, the trade unions want to use the EU dossier to expand their influence and gain a foothold in sectors to which they have so far had difficulty gaining access. For example, in the pharmaceutical industry. Would you pay this price to get a politically viable deal?

I don't think our industry is in the focus. There are no such signs. Therefore, this question does not arise.

Do you think other industries should pay this price?

This question comes too early. We still know too little. What is clear is that wage protection must be secured at the current level. There are signals that our negotiators will largely achieve this goal in the talks with the EU. In this case, no major concessions to the trade unions are needed beyond that. But of course it is also clear to me that all sides must move: the EU, the trade unions - and perhaps also the employers, if that is necessary.

There are not only sceptics on the left, but also on the right. Individual exponents from the business world are fundamentally opposed to a dynamic adoption of law and dispute settlement involving the European Court of Justice. What do you say to them?

I take my cue from the cantonal governments that have analysed these issues. They are willing to make these concessions so that Switzerland and the EU can stabilise and further develop the bilateral path. In the areas where we adopt EU law in order to have unhindered access to their market, we can hardly avoid recognising the legal interpretation of the European Court of Justice. Should there ever be disputes, they will in the vast majority of cases concern technical issues that are hardly politically relevant. In the few sensitive areas, we need binding guarantees, and the EU should understand that.

There will probably be further delays because the Federal Council does not want to adopt a mandate before the elections. Is that bad?

(Throws up his hands) It's just the way it is. It is certainly not good, but we have to deal with it. Our expectation is that the EU will show good will and let Switzerland participate fully in Horizon Europe again as soon as the negotiations begin.