On 9 February 2014, the Swiss people and cantons adopted an amendment to the constitution designed to reduce the massive unbridled immigration from the European Union (EU) that started about six years ago.
A storm in a teacup
This EU-critical landmark vote passed with an extremely narrow majority of only 19,526 votes, or 0.6% of all votes cast (50.3% Yes against 49.7% No). Its widely unexpected outcome upset the EU, which warned Switzerland against implementing the new constitutional law in a manner non-compliant with the EU/Swiss treaty on free movement of persons. Some EU politicians even threatened that the EU might exercise its right to terminate all bilateral treaties integrating Switzerland in the EU market should one of them – including the treaty on free movement of persons – be breached.
As we realised that the 9 February popular vote created some misunderstanding on the part of Chinese investors and traders, we decided to dedicate this column to the removal of such misunderstanding.
No changes for Chinese investors
First and foremost, the new constitutional law will not give rise to changed rules governing Chinese applications for gainful employment, as the latter are already subject to a quota system of yearly changing cantonal and federal immigration quotas applying to all non-EU foreigners seeking gainful employment on the Swiss labour market.
Likewise, the new constitutional law is not expected to affect Switzerland’s General Agreement on Trade in Services commitments regarding temporary immigration for the performance of certain cross-border services, nor the relevant Swiss improvements granted under the new Sino-Swiss free trade agreement – expected to enter into effect in the course of the second half of this year – as such commitments are only applicable to employees on the payroll of service providers located in China, rather than to employees seeking employment with employers located in Switzerland.
The new constitutional law has not led and is unlikely to lead to a cancellation of the EU/Swiss treaties integrating Switzerland in the EU market. Let us explain this in some more depth.
The popular initiative proposing the new constitutional amendment was finally successful because in the past six years the yearly net immigration amounted to roughly 1% of the entire Swiss population – which meant every year a net immigration equal to the population of the city of Lucerne.
The result is a 23.5% proportion of foreigners, of whom roughly 68% are EU nationals, composed mainly of Italians (23.5%), Germans (23%) and Portuguese (19.8%).
Given the dominant immigration from the EU, it is not surprising that a majority of Swiss voters spotted the cause for the massive immigration of the past years in the treaty on free movement of persons between Switzerland and the EU under which, as a rule, the parties grant each other free access to their relevant labour markets.
Upside and downside
The upside of the massive immigration from the EU was a constant inflow of well qualified EU nationals and their families, who were not only good consumers, good taxpayers and good social security contributors, but also fuelled further growth and job demand. The downside was a dramatic increase in traffic on roads and rail between cities and suburbs, massive congestion during rush hours and an increasing shortage of affordable real estate and rental apartments in the metropolitan areas.
It appears that on 9 February 2014 about half of Switzerland feared that these disadvantages might soon outweigh the benefits of the free labour market access between Switzerland and the EU.
Room for manoeuvre
Nevertheless, although requiring that “Switzerland autonomously steers the immigration of foreigners” and that “maximum numbers apply to all immigration law permits” – including those for EU nationals – the wording of the constitutional amendment leaves enough room for implementation compliant with the EU/Swiss treaty on free movement of persons.
On the one side, the term “Switzerland” must not necessarily mean the Swiss government, but may also include the Swiss economy, which leaves room for self-regulation. On the other side, even if the implementing law – to be enacted within three years – would include EU work permits in the yearly maximum numbers of permits, the Swiss/EU treaty would not be breached as long as such maximum numbers are not exhausted.
Therefore, treaty compliance may be asserted by implementation laws prescribing: i) a largely sufficient growth rate for EU immigration permits when setting the relevant yearly maximum permit numbers; and ii) a permit fee structure pricing EU work permit dues in proportion to the demand.
Alternatively, the implementation law could leave the determination and enforcement of yearly maximum numbers for EU immigrants to self-regulation by the Swiss economy. As EU nationals looking for work have no right to immigrate unless they are actually offered a job, self-regulation would result in no (more) jobs being offered, rather than in governmental restrictions of job offers.
In such a self-regulated system, government need only intervene subsidiarily, but intervention could still be modelled in a compliant manner as discussed above. But even if not always compliant, the EU would be unlikely to cancel its treaties with Switzerland if such non-compliance occurred only every once in a while.
Therefore, and because the EU is the largest trade partner of Switzerland while Switzerland is the fourth-largest trade partner of the EU, there is no doubt that by 9 February 2017 Swiss lawmakers will have enacted implementation laws acceptable to, and accepted by, the EU.
Felix Egli is the senior partner and head of the China Desk at Vischer; Wu Fan is a counsel on Vischer’s China Desk
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