Internal Market Barriers: Switzerland Matthias Oesch University of Berne Toronto, 1 February 2010

2 Contents 1.Historical background 2.Legal framework 3.Actors 4.Current Developments 5.Lessons learned

3 1.Historical background 2.Legal framework 3.Actors 4.Current Developments 5.Lessons learned

4 1. Foundation of the Swiss Confederation (1848) => elimination of tariffs instead of 25 customs offices from North to South 2. Marked efforts to gradually reducing inter-cantonal barriers to trade (19 th century) => freedom of establishment (1848) and of commerce (1874) => active role of the Federal Council (majority of liberals) 3. Period of relative neglect (large parts of 20 th century) => “dual economy” 4. Paramount influence of EC law in completing the Swiss internal market (from mid-1990) => “autonomer Nachvollzug”

5 1.Historical background 2.Legal framework 3.Actors 4.Current Developments 5.Lessons learned

6 Federal Law  Constitution (1999) —freedom of establishment (Art 24) and of commerce (Art 27) —mandate “to create a unified Swiss economic area” (Art 95) => elimination of unjustifiable inter-cantonal barriers to trade | no unification | no comprehensive power to regulate government procurement  Federal legislation —Internal Market Act (1996) —Act on Technical Barriers to Trade (1996) —Act on Cartels and other Restraints of Competition (Competition Act, 1996) —Government Procurement Act (1996)

7  Administration of federal law —implementation | application of federal (framework) legislation by Cantonal authorities => differences between Cantons (little incentives to combat privileges granted to local constituencies) —Cantonal courts as adjudicatory bodies of first instance => weak judicial supervision => additional layer of regulatory competition in areas essentially harmonized by federal law

8 Inter-Cantonal and Cantonal Law  Competences vested with the Cantons —professional qualifications (unless centralized, e.g., medical professions) —education, health care, direct taxes  Inter-cantonal law (concordats) —Accord inter-cantonal sur les marchés publics (1994|2001) —Accord inter-cantonal sur l’harmonisation de la scolarité obligatoire (“HarmoS”, 2007) => Strategy to avoid granting powers to the federal government => Coordination likely to remain “piece-meal”

9 1.Historical background 2.Legal framework 3.Actors 4.Current Developments 5.Lessons learned

10 Federal Branches of Government  Executive —power to adjudicate cases on freedom of commerce until 1912 => prime motor against inter-cantonal barriers to trade  Judiciary —power to adjudicate cases on freedom of commerce since 1912 —analysis of case law: favoring federalism over market integration  Legislative —Internal Market Act (1996) => Legislation has taken the lead (legislative response: revision of the Internal Market Act 2004) => Paramount impact from without (EC, GATT|WTO)

11 Special Case: Competition Authority  Powers of the Competition Authority —mandate to monitor the enforcement of the Internal Market Act => "Competence Centre for the Internal Market" —right to file law suits before Cantonal courts and the Federal Supreme Court (complainant or intervener) => role as “public prosecutor”

12 1.Historical background 2.Legal framework 3.Actors 4.Current Developments 5.Lessons learned

13 Market Access Restrictions  Barriers restricting inter-cantonal market in the field of services, in particular professional qualifications => removal based on the Internal Market Act  Examples —no necessity for an attorney-at-law to have more than five years of work experience in the Canton of Vaud in order to employ trainees (BGE 134 II 329) —right of a psychotherapist admitted in the Canton of Grisons to offer services in Zurich (BGE 135 II 12)

14 Uneven Playing Fields  Governmental measures which result in uneven playing fields => legislative action needed  Example —tax competition between Cantons and communes with respect to direct taxes (tax scales, tax rates, tax allowances) —popular initiative submitted by the Socialist Party to restrict tax competition: “For fair taxes. Stop to the abuse of tax competition” (salaries > SFR 250’000 to be taxed at least 22%) => general vote in 2011

15 Other Barriers  Barriers not directly concerning market freedoms as such => traditional market access instruments fail to work  Example —26 school systems => efforts to harmonize curricula (entry age, duration, objectives) —Accord inter-cantonal sur l’harmonisation de la scolarité obligatoire (“HarmoS”, 2007), based on Art 62 of the Constitution – joined by 11 Cantons => put in force in August 2009 – rejected by 6 Cantons – eventually: intervention by the federal government necessary?

16 1.Historical background 2.Legal framework 3.Actors 4.Current Developments 5.Lessons Learned

17 1. Long and deeply rooted traditions of federalism and decentralized governance => does not necessarily prevent economic prosperity => persistent existence of non-traditional barriers (labor mobility) => necessity to assess economic costs 2. Paramount impact from without (EC law, GATT|WTO) 3. Deferential role of the judiciary => necessity to set up the Competition Authority as “public prosecutor”

18 Thanks for your attention!