In the standoff between the federal government and the European Commission on wage protection, the former has right on its side.
The decision of the Swiss government on May 26th to end the seven-year negotiations on an institutional framework agreement with the European Union came as a surprise to many—if moreso in Brussels than in Berne.
At the heart of it was Switzerland’s wage-protection policy. For their consistent resistance to wage dumping, the Swiss trade unions have been sharply attacked as ‘left-wing nationalists’, despite their manifestly pro-European stance. For the unions the rejection of the draft framework agreement was not however about any ‘Swissexit’ but about advancing social Europe.
In the aftermath of the announcement, a series of text messages were published in Blick—Switzerland’s best-selling tabloid—between Swiss parliamentarians from the Foreign Affairs Committee and Andreas Schwab, a German Christian-democrat MEP and business lobbyist, in which they schemed together and lambasted the federal government. As chair of the European Parliament’s delegation for relations with Switzerland, Schwab had led the EU’s charge against the wage-protection policy.
Some have meanwhile described the government’s move as a victory for the radical-right-populist Swiss People’s Party (SVP). Yet, thanks to a strong alliance of centre-left, pro-European forces, the SVP referendum initiative to end free movement of people with the EU was convincingly rejected in a popular vote only a few months earlier.
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The decision is, in fact, consistent with the mandate parliament gave the Swiss government in 2019 to maintain wage protections and extend them as needed. It thus cannot approve any framework agreement overriding this obligation.
Following the Swiss electorate’s rejection of membership of the European Economic Area in 1992, the bilateral agreements of 1998-2000 constituted a breakthrough in Switzerland’s relationship with the EU. The core agreement is on the free movement of persons.
New wage-protection measures, previously unthinkable in Switzerland, were decisive for the success of the popular vote on those agreements. At the Davos convention in 1998, the Swiss Trade Union Confederation (SGB) declared that it would not back the agreements unless they protected Swiss wages.
Already then, trade associations, centre-right parties and the Swiss government chafed at such rules, primarily because they ran contrary to the wave of deregulation and liberalisation sweeping Switzerland in the 1990s. During the same period, the governing red-green coalition in Germany had launched its ‘Agenda 2010’ and set about weakening wage regulations and pushing for a low-wage sector.
As the referendum drew closer, the moderate centre-right forces in Switzerland finally caved in and accepted the wage-protection measures. The combination of market liberalisation and social protection proved a winning formula, not only in 2000 but during succeeding extensions of the bilateral agreements.
Switzerland’s wage-protection policy is non-discriminatory. As such, it does not contravene the Agreement on the Free Movement of Persons (AFMP). It covers workers from the EU and from Switzerland. No EU institution objected to these wage controls at the time.
The EU, however, changed its stance. The shift began in the mid-2000s during talks on the Bolkestein directive (2006) on a single market for services. As part of its eastward enlargement from 2004, the EU promoted a neoliberal agenda. Its approach was reflected in four rulings of the European Court of Justice in 2007-08 which, to promote the freedom to provide services via posted workers, declared that the working conditions of the country of origin applied.
This was the opposite of what Swiss wage protection requires: if work is carried out in Switzerland, domestic working conditions—not those in the country of origin—apply. Workers live on local wages, so it stands to reason that people who work in Switzerland should earn a Swiss wage.
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Switzerland’s wage-protection policy has come in for criticism from the European Commission, which takes the view that business opportunities for posting companies from the EU take precedence over the wages and working conditions of their employees. Trade unions will however never accept watered down wage protections. For workers in the low- and middle-income brackets, this is existential.
The wage-protection debate is not limited to Switzerland. It is a live question in the wider Europe—wage protection is a social, not a national, issue. Already in 2007, the SGB had introduced the principle of ‘equal pay for equal work in the same place’ to the European Trade Union Confederation (ETUC), of which it is a member. Swiss and European trade unions stand united on these issues—and on the framework agreement.
Thanks to the work of the ETUC, this principle is now also widely recognised at EU level. Unfortunately, the same cannot be said of the instruments to enforce it.
In Switzerland today, foreign employers have to notify eight days in advance any work they plan to undertake, to ensure effective control of the payment of wages. Bipartite wage control units regularly inspect workplaces, to ensure foreign workers receive collectively-bargained Swiss wages when working in Switzerland.
In economic sectors with a high risk of wage dumping, both foreign and domestic companies undertaking work in Switzerland need to place a deposit with the authorities to ensure workers can be compensated for unpaid work, even if the company declares bankruptcy or changes its legal status. This bundle of measures, agreed and implemented by trade unions and employer organisations, ensure effective wage protection in Switzerland while allowing foreign companies and their employees to operate.
In June 2018, however, Switzerland’s then chief negotiator, Roberto Balzaretti, signalled to the EU that Switzerland was willing to make concessions on wage protection. And two members of the Swiss cabinet, from the right-wing Free Democratic Party, were to cast doubt on the accompanying measures.
The trade unions protested, which prompted the Federal Council to reaffirm that wage protection was indeed a ‘red line’ in its negotiations with the EU. Nevertheless, Balzaretti continued to negotiate in contravention of this mandate—which left the Swiss government with no choice but to reject any agreement negotiated on such a basis.
Unsurprisingly, Schwab praised Balzaretti, as a ‘top guy’, in the Blick article. Switzerland’s chief negotiator adopted the commission’s position on wage protection rather than sticking to the Swiss government’s, thereby instigating a fight with Swiss trade unions.
The commission’s tough, ultimately intransigent, stance on the subject is therefore not as surprising as it might have seemed at first. Equally, uncritical media reporting of the commission’s position on wage protection didn’t help. Given these conditions, the project was destined to fail before it began.
The neoliberal critics of wage-protection measures in the EU and Switzerland may be able to thrash out an agreement with no regard for those affected by their decisions—as the leading Swiss newspaper Neue Zürcher Zeitung recently recounted in detail, focusing on a high-level meeting between Switzerland and the commission in November 2018. Politically, however, the outcome will not fly, especially in a direct democracy where there is a price to pay for riding roughshod over social interests.
What next? The current agreements must remain in place. The Swiss government has neither consented to nor signed the unacceptable proposals from the commission. Any relationship can thrive only if both parties comply with mutually agreed rules. And the commission’s demands on Switzerland regarding wage protection were supported by the European Parliament in 2019 by the narrowest of margins (330 votes to 302).
Experience within the EU shows that Germany plays a decisive role on these issues. If the Greens were to win the federal election in the autumn, there could be a major shift in the coming years. There is a possibility that positions will no longer be defined by anti-trade union hardliners, such as Schwab, but by political forces which place a different value on social issues.
In recent months, the Covid-19 crisis has led the EU fundamentally to revise its stand on matters of greater economic import, such as state intervention. Given this change in direction, the future may bring risks but also offer greater latitude. In the scheme of things, the agreements with Switzerland, which have worked well so far, are not a major cause of concern for the EU.
There are also many signs that environmental and social issues will move higher up the Swiss and EU agendas. Recent developments in the United States seem to point in this direction too.
Internationally, the Organisation for Economic Co-operation and Development is spearheading efforts to steer tax policy down a new and interesting path. Switzerland will not be immune to these eventual changes, which may finally culminate in fairer tax rules.
Whatever happens, the left must continue to defend and expand social justice. Interesting times lie ahead for a left that is clear-eyed, focused and neither over-confident nor faint-hearted. The left was and is key to guaranteeing Switzerland’s openness to Europe, mentally and substantively. It must act as an effective and credible social advocate.
Paul Rechsteiner is a Social Democratic Party member of the Council of States in Switzerland and was president of the Swiss Federation of Trade Unions until the end of 2018.