Turning point for Swiss with neighbouring EU giant

Pro-EU Swiss parties were being very careful. Their electorate was being asked this weekend to vote on very specific questions, and they did not include EU membership. Once bitten, twice shy, and they were not going to risk another 1992 when voters rejected even membership of the European Economic Area.

"The Swiss people only had to respond to one question," the Economics Minister, Mr Pascal Couchepin, said in Bern on Sunday, and that was whether to approve a series of seven bilateral accords with the Union. Polls show there are still deep divisions on accession.

But the reality of what the Swiss electorate has done is to reverse piecemeal its decision of 1992, in effect establishing a relationship of free trade with the EU largely equivalent to membership of the EEA.

Covered in the agreements, which took more than six years to negotiate, are free movement of people, land and air transport, agricultural products, research, public markets and technical obstacles to trade.

The 67.2 per cent vote in favour marks a major turning point in the relationship of the small state of 7.2 million to the economic giant that entirely surrounds it. Although the government promises it will not seek the reactivation of accession negotiations before the next election in 2003, it is willing to extend similar deals to other aspects of policy.

Only two cantons, the Italian-speaking southern Ticino and Schwytz in the centre of the country, rejected the accords. As in 1992, the French-speaking cantons showed the greatest enthusiasm for closer EU ties, with Geneva and Neuchatel leading the way.

The agreements, which now have to be ratified by the EU member-state parliaments, are likely to have a significant impact on Swiss economic life, not least in the controversial area of free movement of workers with the easing of quotas on foreign workers. An influx of cheap EU labour may contribute as much as 2 per cent to GDP, according to the University of Geneva, because of increased wage competition.

But the Swiss will retain quotas and the right after 12 years to reintroduce controls if too many EU citizens avail of the right to come and settle, although studies put the expected figure at around only 8,000 a year.

The agreement provides limits for five years on work permits for Union citizens - 115,000 "seasonal workers" and 15,000 long-term. Mutual recognition of professional qualifications will be extended.

The effect is most likely to be felt in the €13.4 billion pharmaceuticals industry, which has found it difficult to recruit skilled foreign labour. The sector will also benefit from recognition of product-testing standards which will make expensive duplication of testing for export unnecessary.

The decisions come at a time, however, when Swiss xenophobe tendencies have been under domestic and international criticism. Local referendums on a series of applications for citizenship from Balkan refugees appear to have shown a racially-based pattern of refusals.

In March, a court struck down the refusal by the town of Pratteln in north-western Switzerland to give citizenship to five Turks, while accepting Italians and Spaniards, on the grounds that it violated the Constitution's ban on discrimination. The town is considering an appeal to Switzerland's top tribunal, which would set the stage for a landmark ruling defining once and for all what is required to be a Swiss citizen.

The weekend referendum is likely to see rejoicing, however, in SAirGroup, Swissair's parent company, which recently upped its stake in Belgium's Sabena to 85 per cent. Under current rules the deal could not stand because it would have affected Sabena's national status, jeopardising its access to EU routes.

Although opposition to the package was surprisingly muted, considerable concern had centred on the road transport agreement, with its provision for access from 2005 by 40-tonne EU lorries to roads and tunnels through the Alps. In the end the deal was backed by the Swiss Greens, because the EU quota will be restricted to a ceiling of 400,000 trips a year, half the level previously projected for 2012 if the traffic was allowed to increase on an unfettered basis.

The cuts will be achieved by a combination of stiff pricing - €209 on average, or 13 times more than trucks currently pay - and heavy investment of the proceeds, some €962 million a year, in the railways as an alternative.

There is still also apprehension among farmers, particularly in the dairy sector, because lower EU prices, they claim, threaten as many as 40,000 jobs.

EU businesses will also see substantial advantages in the opening up of the public procurement process to WTO rules.