1.The Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and the Swiss Confederation was laid on 20 February 2019, and the scrutiny period is scheduled to end on 27 March. It was considered by the Internal Market Sub-Committee at its meeting on 7 March.
2.Trade between the EU and Switzerland is governed by over 100 bilateral agreements. Most are underpinned by the EU-Swiss Free Trade Agreement (FTA) of 1972, which progressively liberalised tariffs on industrial products. The UK-Swiss Trade Agreement (‘the Trade Agreement’) seeks to maintain continuity in the UK-Swiss trade relationship after the UK leaves the EU.
3.The Trade Agreement rolls over, within a single instrument, eight of the existing EU-Swiss Agreements:
4.The Trade Agreement incorporates these EU-Swiss Agreements mutatis mutandis. It comprises an ‘Umbrella Instrument’, setting overarching provisions, and Annexes that outline targeted modifications to the underlying EU-Swiss Agreements. The Agreements are incorporated as amended at the time immediately before they cease to apply to the UK. Four of the incorporated Agreements (the incorporated FTA, MRA, Agriculture Agreement and Customs Security Agreement) differ substantially from their precursors.
5.The EM states that the transitioned EU-Swiss Agreements have been identified by the Parties as those “relating to trade”. It is, however, important to point out that the rolled over agreements do not represent all the agreements between Switzerland and the EU that underpin or have an impact on trade. While they include some of the most significant EU-Swiss agreements, others have not been rolled over.
6.An overview of UK-Swiss trade is given in Box 1.
Switzerland is the UK’s 10th-largest trading partner, and the 3rd-largest non-EU partner after the United States and China, with bilateral trade amounting to £30.7 billion in 2017.
Just over half of UK-Swiss trade, however, consists of services, where Switzerland is the UK’s 7th-largest partner. The UK has a large trade surplus in services, overwhelmingly made up of financial services (£1.95 billion) and other business services (£6.5 billion).
Switzerland is the UK’s 15th-largest partner in goods trade, comprising 1.8% of total UK goods trade. Precious metals make up over two-thirds of UK goods exports to Switzerland, while imports are largely made up of precious metals and pharmaceutical products.
7.Our scrutiny of the Trade Agreement has been informed by helpful discussions and exchanges at official level. We are grateful to Department for International Trade (DIT) officials for their assistance, which has helped us to identify the following key areas where the treaty text is different.
8.The new Protocol 3 in the incorporated FTA contains extensive cumulation of origin provisions. The parliamentary report explains that these require each Party to recognise (in technical terms, ‘cumulate’) EU materials contained in imports coming from the other Party as originating in that Party. Moreover, EU working or processing will (under certain conditions) be recognised as UK working or processing in exports to Switzerland. These provisions will apply for three years from the point at which the Trade Agreement takes effect, provided UK-EU arrangements on administrative cooperation are in place. DIT officials did not foresee difficulties in securing basic cooperation arrangements with the EU in a ‘no deal’ scenario—this does not seem unrealistic, as the rules on cumulation also benefit European suppliers. The footnotes to Articles 3 and 4 of the Protocol state that the Parties will reconsider these arrangements no later than six months before the end of the three-year period.
9.The parliamentary report states that cumulation arrangements are “subject to satisfying certain conditions”, but does not set these conditions out in detail. In essence, for a product to be recognised as being of UK or Swiss origin, working or processing carried out in the UK or Switzerland should go beyond certain minimal operations, listed in Article 7 of Protocol 3. Alternatively, value added in the UK or Switzerland should be greater than that added in any other country.
10.Although not set out in the parliamentary report, the Trade Agreement also maintains cumulation provisions with some non-EU countries. In particular, materials from Liechtenstein, Iceland, Norway and Turkey will also be recognised, as will materials originating from countries listed in Annex A to the Protocol, which are Parties to the Regional Convention on pan-Euro-Mediterranean preferential rules of origin (PEM Convention). This, however, is conditional upon the UK and Switzerland having concluded FTAs with those other countries.
11.The incorporated MRA covers only three of the 20 sectors in scope of the EU-Swiss MRA: (i) motor vehicles; (ii) Good Laboratory Practices; (iii) medicinal products—inspection of Good Manufacturing Practices and batch inspection. The parliamentary report states that the transitioned sectors cover over three-quarters of exports in scope of the EU-Swiss MRA and 84% of imports.
12.The precursor EU-Swiss MRA rests on the EU and Switzerland recognising the equivalence of their respective product legislation in sectors covered. As a result, both EU and Swiss attestations of conformity can be used in both markets. The difficulty in rolling over these obligations stems from the fact that they are based on harmonisation or recognition of equivalence of rules between Switzerland and the EU.
13.The UK and Switzerland have been able to transition arrangements for the three sectors that are underpinned by international standards. The Parties have, moreover, signed a Memorandum of Understanding (MoU) whereby they undertake to continue discussions on the disapplied chapters of the MRA. Simplified arrangements are being considered that would allow for attestations of conformity issued by UK bodies against Swiss rules to be recognised in Switzerland and vice versa.
14.The parliamentary report also notes that the Information Exchange system with regard to the MRA has been changed. Where under the EU-Switzerland MRA both Parties were obliged to notify each other when legislation within the scope of the MRA changed, the UK and Switzerland only have to inform each other when they expect that legislative, regulatory and administrative provisions “shall deviate” from the corresponding provisions in the MRA. The other Party may then forward the matter to the Joint Committee, which will review the significance of any deviation and its implications (if any) for continued equivalence.
15.The Trade Agreement transitions the annexes of the precursor EU-Swiss Agriculture Agreement on: (i) tariff rate quotas (TRQs); (ii) wine; (iii) spirits; (iv) marketing regulations for fruit and vegetables; and (v) geographical indications (GIs). As for other trade agreements considered by this Committee, TRQs have been resized based on a range of evidence, including historical usage data and trade flow data, to reflect that the UK is a smaller import/export market than the EU. Where the UK or Swiss usage of TRQs was very low or zero, proxy indicators (indirect measures) have been employed. This is intended to allow for a buffer should UK or Swiss businesses decide to make greater use of TRQs in the future.
16.The disapplied annexes concern organic products and sanitary and phytosanitary measures in relation to plant health, animal feed, seeds, and animal health and trade in animals and animal products. The parliamentary report observes that these annexes contain “requirements for equivalence or harmonisation with EU law and systems” that have made their immediate application impossible.
17.The disapplication of sanitary and phytosanitary provisions for the cited agricultural products does not in itself imply that trade in these products will have to stop. But facilitations provided under the precursor EU-Swiss Agreement may fall away. We note that guidance published by the Swiss Government indicates that, in a ‘no deal’ scenario, Switzerland will only be able to accept imports of animals and animal products from the UK once the UK is ‘listed’ by the European Commission as a third country for animal health purposes. DIT officials confirmed this assessment.
18.The parliamentary report states that the provisions in the excluded annex on organic products “enable certified organic products to be labelled and sold to consumers in the UK and Switzerland”. The Government has laid draft Statutory Instruments (SIs) for the continued recognition of organic products from Switzerland as equivalent. This will address only domestic law, and DIT officials have confirmed that without a reciprocal arrangement, the UK will not be able to export products marketed as organic to Switzerland.
19.The Trade Agreement incorporates the Customs Security Agreement but disapplies it entirely. The parliamentary report explains that its application would require the UK to have an agreement with the EU on safety and security. It states that upon entry into force of the Trade Agreement, the Joint Committee will examine whether the Customs Security Agreement should be applied “following consideration of the UK-EU relationship”. Committee staff asked officials whether, if a decision were made to adopt a replacement Customs Security Agreement in the Joint Committee, this agreement would be subject to the CRAG Act process. In response, we were informed that the UK would revisit its approach to transitioning this agreement once its relationship with the EU had been agreed.
20.In our report Scrutiny of international agreements: Treaties considered on 26 February 2019 we noted that most international agreements made provision for amendment and modification, but that it was far from clear in which circumstances such changes would be subject to the scrutiny procedures required by the CRAG Act. In response to further inquiries, the DIT told us that where a treaty does not expressly provide for the decision that amends the treaty to be subject to completion of domestic procedures the CRAG procedure will not apply. This, according to the Government, would allow modifications to be made on less important matters. Given the lack of clarity identified above, in respect of the Customs Security Arrangement, we remain concerned that significant amendments to agreements may be made without adequate parliamentary scrutiny. The fact that the Government would be obliged to implement such amendments in domestic law is not an adequate safeguard, given that this is generally done by way of secondary legislation.
21.The report also notes that a key implication of this suspension is that Switzerland will no longer recognise the Authorized Economic Operator (AEO) status of businesses accredited as AEOs in the UK. These businesses will therefore lose the benefits of participation in the AEO scheme, for example fewer controls at the Swiss border.
22.Joint Committees provided for under the precursor EU-Swiss Agreements are replicated by the Trade Agreement. Responsibility for the proper operation of the Umbrella Instrument rests with the Joint Committee under the incorporated FTA. Article 7 of the Umbrella Instrument empowers Joint Committees to amend Annexes, Appendices, Protocols or Notes to the specific Incorporated Agreement for which they are responsible, subject to the relevant provisions of the Agreement concerned.
23.Like the other Brexit-related treaties we considered so far, the Trade Agreement will take effect when the UK ceases to be a Party to the precursor EU-Swiss Agreements—either at the end of the transition period under the Withdrawal Agreement or, if no agreement on withdrawal is reached, upon exit. Should the necessary domestic ratification procedures not be completed in time, the Trade Agreement will be applied provisionally.
24.We note that the Government’s Explanatory Memorandum (EM), while making reference to the Government’s ongoing engagement with the private sector and the devolved administrations on trade policy matters, does not clarify if specific consultations have taken place on the Trade Agreement. We reiterate the recommendation in our report Scrutiny of international agreements: Treaties considered on 12 February 2019 that the Government’s explanatory material should state clearly whether there has been consultation with the devolved administrations, industry or other stakeholders.
25.DIT officials told us that the Government had not received specific feedback from industry stakeholders on the excluded chapters of the MRA and the Agriculture Agreement but had offered further meetings.
26.The parliamentary report indicates that trade in services accounts for a sizeable share (52%) of overall trade between the UK and Switzerland. The EM states that the transitioned EU-Swiss Agreements have been identified by the Parties as those “relating to trade” and that “there is no comprehensive agreement on trade in services to replicate”. In our report Brexit: trade in non-financial services we noted that there were several bilateral agreements between the EU and Switzerland supporting trade in services. Indeed, the Government has laid before Parliament two related ‘roll-over’ agreements with Switzerland, a UK-Swiss Agreement on Direct Insurance other than Life Insurance and a UK-Swiss Agreement on Citizens’ Rights and the Free Movement of Persons. Beyond this, the DIT’s position appears to be that trade in services between the UK and Switzerland will continue on a WTO basis.
27.We are disappointed that the Government, in bringing forward the UK-Swiss Trade Agreement, has not provided an explanation of its plans for future UK-Swiss services trade, and call on it now to do so.
28.We draw special attention to the Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and the Swiss Confederation, on the grounds that:
1 Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and the Swiss Confederation, CP 55, 2019: [accessed 7 March 2019]
2 Règlement (CEE) n 2840/72 du Conseil, du 19 décembre 1972, portant conclusion d’un accord entre la Communauté économique européenne et la Confédération suisse, (1972), p 188. English translation (reflecting subsequent amendments) at: [accessed 10 March 2019]
3 Links to English versions of the consolidated texts of these various EU-Swiss sectoral agreements are given in the Parliamentary Report, published alongside the UK-Switzerland Agreement: see Department for International Trade, Continuing the United Kingdom’s Trade Relationship with the Swiss Confederation, February 2019, para 20: [accessed 10 March 2019]
4 The Latin term mutatis mutandis is used when comparing two or more things to say that, although changes will be necessary in order to take account of different situations, the basic point remains the same. For more detail, see our report (31st Report, Session 2017–19, HL Paper 300).
5 We note that there were two typographical errors in the English language version of the Agreement. These related to the precise extent of the provisions of the MRA and agricultural agreements that were to be rolled over. We were informed that the correct information had been provided in the Parliamentary Report and that there had since been an exchange of diplomatic notes with Switzerland to correct the version of the Agreement which contained the error.
6 More detail on cumulation of origin is available in Box 2 of our report (31st Report, Session 2017–19, HL Paper 300).
7 A footnote to Article 3 explains that due to the Customs Treaty between Liechtenstein and Switzerland, products originating in Liechtenstein are considered as originating in Switzerland.
8 The PEM Convention is a multilateral agreement between the EU and members of the pan-Euro-Mediterranean zone, notably: Iceland, Liechtenstein, Norway, Switzerland, Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the Palestinian Authority, Syria, Tunisia, Turkey, Albania, Bosnia and Herzegovina, Macedonia, Montenegro, Serbia, Kosovo, the Faroe Islands, Moldova, Georgia and Ukraine. See [accessed 12 March 2019]
9 The wording of the main text and footnotes to Article 3 of the Protocol is complex, but our understanding is that the FTAs required for cumulation arrangements with Parties to the PEM Convention will depend on the export destination of the product.
10 Department for International Trade, Continuing the United Kingdom’s Trade Relationship with the Swiss Confederation, February 2019, para 104: [accessed 10 March 2019]
11 European Union Committee, (31st Report, Session 2017–19, HL Paper 300)
12 Swiss State Secretariat for Economic Affairs, Economic relations between Switzerland and the United Kingdom after Brexit: [accessed 1 March 2019]
13 , , . Only part 4 of the latter SI relates to organic products.
15 Article 6(2) of the Umbrella Instrument
16 European Union Committee, (29th Report, Session 2017–19, HL Paper 287)
17 European Union Committee, (18th Report, Session 2017–19, HL Paper 135)
18 The UK-Swiss Agreement on Direct Insurance other than Life Insurance was laid on 30 January 2019. We reported it for information in our report (29th Report, Session 2017–19, HL Paper 287). The UK-Swiss Agreement on Citizens’ Rights and the Free Movement of Persons Agreement was laid on 28 February 2019; the Committee will report on it in due course.