The Swiss Referendum: What it Means for EFTA, the EU and ASEAN

This weekend Switzerland goes to the polls to determine the country’s participation in the Indonesia European Free Trade Association (EFTA) Comprehensive Economic Partnership Agreement (IE-CEPA). Although the vote covers the entirety of the agreement, it is imports of palm oil that have triggered the referendum. This will have implications for other EFTA states – Norway, Iceland and Liechtenstein. The referendum is, however, shaping up as a test for Swiss – and European – dealings with Southeast Asia going forward. Here’s why.

Farmers – not environmentalists – kicked off this debate. Swiss farming union Uniterre originally kicked off the petition that led to the referendum. Uniterre represents both rapeseed farmers and sunflower farmers, and have been campaigning against the use of palm oil products in food products, biofuels and animal feed since 2017. Willy Cretegny, a famous Swiss winemaker and campaigner, is the public face of the campaign, and has explicitly focused on issues related to trade.

In other words, the campaign against the trade deal is really about agricultural protectionism.

But there is no consensus among the Farmers’ Unions, one union the Swiss Farmers’ Union representing 52,000 families of farmers, is also fighting for safeguarding Swiss agriculture. They are not against this agreement and see an opportunity to promote sustainable practices in the oil palm production in Indonesia.

Swiss entrepreneurs and government still back the agreement. This agreement was negotiated over a seven-year period. The ‘yes’ campaign is supported by the prominent Swiss business leaders, exporters and all major political parties. They understand the importance of this deal as part of a broader trade strategy. Of course, Swiss leaders are used to such referendum campaigns – but this is the first such referendum on an EFTA trade deal and so it carries wider significance.

Other agreements are also in the works. EFTA has ongoing negotiations with Mercosur, Malaysia, India and Vietnam: all of these would provide new markets for Swiss exporters, and would create jobs. It’s worth underlining that Switzerland is the most-important market in EFTA; its economy is double the size of Norway’s, and Liechtenstein and Iceland are economic minnows.

This prompts a bigger question around how Switzerland wants to manage its recovery. Although Switzerland hasn’t been impacted as severely as its EU neighbours by the COVID crisis, recovery still requires careful management. Analysts have pointed out that existing links with Asian markets have assisted Swiss exporters. The Indonesia-EFTA deal could help the post-COVID recovery; a loss in the referendum would send a damaging signal about the business climate.

Trade deal imposes most aggressive sustainability regime in history. The Indonesian-EFTA agreement contains probably the most onerous and granular detail on palm oil sustainability of any trade deal ever negotiated. There is an absolute cap on imports; a binding demand for certified sustainable product; and a guarantee that palm oil imports overall will not increase. It’s hard to see what else could be done to allay any fears (however unfounded they are) stopping short of a total ban. It simply is not credible to remove palm oil from the agreement altogether. As the Indonesian Ambassador to Switzerland recently said of palm oil: “Its contribution is the second biggest in export revenue and is bigger than the Swiss watchmaking industry is for Switzerland. How can this be excluded from decisions concerning the whole economy?”

Will there be an effect on the EU-Indonesia negotiations? Brussels needs to increase its trade ties with Southeast Asia if it wants to have any economic or political relevance in the region. Last week Singapore’s ISEAS issued a survey of Southeast Asian attitudes to its economic and security partners/organizations. The EU’s economic influence in Southeast Asia ranked a distant fifth after China, Japan, ASEAN and the US, with just 0.6% of respondents considering it the most influential – down from 1.7% in 2020. It’s worth noting that no Indonesian respondents considered the EU to be the most influential power in the region. In terms of political and strategic influence, it did not fare much better at 1.1%, despite how some analysts perceive it.

There is majority support for an EU-ASEAN trade agreement across the region.  This can – in part – be attributed to the EU having no significant geopolitical influence in the region. This bodes well for a relationship. The EU-ASEAN Working Group met in January after signing a Strategic Partnership in December, with special consideration given to palm oil. It will meet again in April, though it is likely that Myanmar will dominate discussions. Similarly, Southeast Asians have considerable faith in the European Union as being a champion of global free trade, with 25.5% saying they have the most confidence in the EU to lead a free trade agenda, just after Japan. Where Switzerland places on that list could depend on the result of this referendum in the coming days.