Nicolas Mikolaj Kurek, PhD Candidate at the University of Zurich

Though neither is a European Union Member State, Switzerland and the United Kingdom share a common interest in maintaining good relations with the EU. Following Brexit, the UK's relations with the bloc are regulated by, on the one hand, the Withdrawal Agreement and, on the other, the Trade and Cooperation Agreement (TCA). Switzerland's relationship with the EU is anchored in a Free Trade Agreement adopted in 1972, as well as a series of bilateral agreements granting Switzerland sectoral participation in the EU's internal market and securing its association with the Schengen/Dublin regimes. At the time of writing, Switzerland and the EU have signed a new package of bilateral agreements, widely referred to as the Bilaterals III Package. On the one hand, it stabilises the relationship between the two jurisdictions by adding new institutional elements to existing bilateral agreements. On the other, it further develops it by introducing new bilateral agreements in three sectors not previously covered. At the heart of this new package are institutional provisions encompassing two major innovations. First, the introduction of dynamic alignment of Swiss legislation with EU law in the fields covered by the relevant single market participation agreements. Second, a new dispute settlement mechanism operating at two levels: a political level, where disputes are first addressed by a Joint Committee composed of representatives of the EU and Switzerland, and a judicial level, in the form of an arbitral tribunal that may be seized should political discussions in the Joint Committee fail to produce a mutually agreed solution — with the arbitral tribunal required to refer questions of EU law interpretation to the Court of Justice of the European Union (CJEU). A very similar mechanism already exists in the post-Brexit UK-EU relationship under the Withdrawal Agreement. Since both dynamic alignment and various forms of dispute settlement mechanism have been in place in EU-UK relations since 1 January 2021, early practice under the Withdrawal Agreement already provides valuable insights that may prove relevant to future practice under Switzerland's new Bilaterals III agreements – should it come into force following a referendum expected in 2027.

No Literal Interpretation of the Northern Ireland Protocol/Windsor Framework

Under the Windsor Framework/Protocol on Northern Ireland, new acts that fall "within the scope of the Protocol" must be dynamically aligned with. One question that arises is what happens when an EU legal act only partly falls within the scope of the Protocol. Unlike what is provided for under Switzerland's new Bilaterals III Package — and, for that matter, the EEA Agreement — the Windsor Framework contains no express provision allowing for technical adaptations to EU legal acts incorporated by dynamic alignment. While early Joint Committee decisions incorporating new EU legal acts into the annexes to the Protocol indeed contained no such adaptations, a more recent decision adding parts of the Critical Raw Materials Act to the Windsor Framework does include them. It remains to be seen how this practice will evolve, but it already demonstrates that, where both contracting parties enjoy good overall relations and share the political will, pragmatic solutions can be found even where they are not expressly foreseen by the text of an agreement.

Relevant Precedent When Reading the New Provisions on Swiss-EU Dispute Settlement

Both Switzerland's Bilaterals III Package and the EU-UK Withdrawal Agreement establish essentially the same dispute settlement mechanism. Its first step — of a political nature — consists in consultations within the Joint Committee, the launch of which must be formally notified in writing. Only if that process fails after three months may proceedings be brought before an arbitral panel, which refers questions of EU law interpretation to the CJEU; following the panel's ruling, proportionate measures may be taken by one contracting party should the other be found in breach of its obligations under the agreement and unwilling to remedy that breach within a set timeframe. This second step is of a judicial nature. In its five years of operation, this dispute settlement mechanism — similar in both the Withdrawal Agreement and Switzerland's Bilaterals III Package — has never been invoked. However, the Withdrawal Agreement foresees two constellations under which the European Commission may bring proceedings against the United Kingdom directly before the CJEU. The first concerns infringements of EU law by the UK during the transition period that followed its withdrawal from the EU (this period ended on 31 December 2020). The second concerns the incorrect application of EU law incorporated into the Windsor Framework/Protocol on Northern Ireland. Under both constellations, the EU has threatened to — and has sometimes actually initiated — proceedings against the UK before the CJEU.

It is difficult to draw clear and definitive conclusions as to what Switzerland can learn from the above. On the one hand, one could argue that the fact that the dispute settlement mechanism under the Withdrawal Agreement — which leads to the constitution of an arbitral panel — has not been invoked to date suggests that the EU only seeks to make use of the mechanism in extreme cases. This interpretation would be supported by the fact that, under existing Free Trade Agreements, the EU has followed through with proceedings before an arbitral panel on only five occasions. On the other hand, the fact that various proceedings remain pending before the CJEU demonstrates that the Commission reacts to the incorrect application of EU legislation by a non-Member State territory required to implement that legislation — at least by resorting to available CJEU jurisdiction, which remains a more readily accessible option than the activation of a full classical dispute settlement mechanism. What seems clear is that, in cases of fundamental importance to the EU, the Commission does not shy away from making use of the procedural tools at its disposal, which could ultimately include a request for an arbitral tribunal's judgment. For Switzerland, a case in point could concern the most recent changes in EU law stipulating that the country where a frontier worker was last employed — rather than their country of residence — should bear the cost of their unemployment benefits. Until now, it has been the frontier worker's country of residence that bore this cost. Should the Bilaterals III Package be accepted, Switzerland would be required to align with these changes under the Free Movement of Persons Agreement. However, by incorporating them into national law is likely to generate up to 900 million Swiss francs in additional costs relating to frontier workers' unemployment benefits, Switzerland could prove unwilling to adopt the changes, potentially triggering proceedings before an arbitral panel at the EU's initiative. Only time will tell how dispute-settlement practice between the EU and non-member Western European partners, including Switzerland and the United Kingdom, will develop.