Medical Devices: Switzerland as a “Third Country”

The Institutional Framework Agreement

 Some five years ago, on the initiative of the EU, the parties started negotiating an Institutional Framework Agreement (IFA) with the objective of simplifying the contractual relationship. A final draft was agreed upon in 2018, but the Swiss government was not willing to initiate the internal procedure for signature of the treaty, instead subjecting the draft to a wide internal political consultation. On May 26, 2021, the Federal Council decided that this draft is not acceptable to the Swiss parliament and the electorate and that further negotiations would not lead to an acceptable agreement.

With its decision to step away from the negotiating table, Switzerland put a stop to any development on bilateral treaties. Already after the draft of the IFA had been finalized, the EU signaled that it was willing neither to review existing treaties nor to negotiate new treaties with Switzerland as long as the IFA was not signed.

The Mutual Recognition of Medical Devices Regulations

Based on an agreement on the mutual recognition of regulations in various sectors of the economy (MRA) concluded in 1999, the EU and Switzerland mutually accepted the equivalence of, inter alia, their respective regulations on medical devices. Based on the MRA, the medical devices manufactured in the two territories were considered as if they had been manufactured in each of the respective areas: Swiss devices could freely move to the EU (as well as the Member States of the European Economic Area (EEA) and Turkey), and EU devices could freely move to Switzerland. In effect, the two parties shared a common market, thus creating an even playing field for the economic operators on both sides of the border.

The first consequence of Switzerland walking away from the IFA negotiating table is that the MRA regarding medical devices regulations will not be adapted in order to cover the EU Medical Devices Regulation (MDR). This means the end to the common market — there is no longer any free movement for medical devices. Both parties anticipated that the IFA would not be signed before the MDR application date on May 26, 2021. Therefore, the last couple of months have seen initiatives by both sides to find a transitional solution, such as allowing for medical devices assessed by a Swiss notified body to be kept on the EU market.

EU’s Response to the Swiss “No” to the IFA

With the Swiss Federal Council’s latest step, these attempts to avert the worst case scenario have also been aborted. As a partial answer to the Federal Council’s rejection of further negotiations, the EU, also on May 26, 2021, issued a Notice to Stakeholders alerting them to the following consequences, effective immediately:

• For all new devices, Swiss manufacturers will be treated as any other third-country manufacturer intending to place their devices on the EU market. In particular, this means that Swiss medium- and high-risk devices must be certified by conformity assessment bodies established within the EU in order to be placed on the market.
• Existing certificates issued under the MRA by conformity assessment bodies established in Switzerland will no longer be recognized as valid in the EU.
• For existing certificates issued under the MRA by conformity assessment bodies established in the EU, Swiss manufacturers and third-country manufacturers whose authorized representative (AR) was previously established in Switzerland must designate an AR established in the EU.
• On May 19, 2021, the Swiss Federal Council adopted an amendment to the Swiss Ordinance on Medical Devices (MedDO) establishing conditions for trade of medical devices covered by EU-issued certificates on the Swiss market. These conditions include the recognition of existing certificates issued under the MRA by conformity assessment bodies established in the EU and transitional timelines for the designation of a representative in Switzerland for EU/EEA manufacturers of medical devices.

Hence, the EU no longer accepts the equivalence of the Swiss MedDO, which had been reviewed in its entirety and streamlined alongside the MDR. The impact of the EU’s refusal to formally recognize the equivalence of the two (inherently identical) regulations is substantial — not only for the Swiss medical device manufacturers that, inter alia, will have to appoint (and pay) an EU AR if they want to continue to access their most important market, but also for the EU manufacturers exporting their products to Switzerland and manufacturers outside of Switzerland that, so far, could rely on their EU AR in order to put their devices on the Swiss market. Both now have to appoint a Swiss AR to (continue to) do so.

Mitigating Measures in the Swiss Regulation

For its part, Switzerland has put in place measures to mitigate these negative effects. Switzerland notably continues to accept (unilaterally) the equivalence of the Swiss rules on medical devices to those of the EU. Therefore, medical devices with a CE mark will still be allowed on the Swiss market — at least for the time being.

Additionally, economic operators importing medical devices to Switzerland will be given transitional periods to appoint a Swiss AR, adjust labeling, and perform registrations with Swissmedic, the Swiss competent agency. 

Fallout for Patients to Be Expected

Switzerland is one of the biggest manufacturers of medical devices in Europe, with exports worth CHF12 billion (€10.5 billion) and an affluent market for such devices, absorbing imports of CHF6 billion (€5.2 billion) per year, half of which, respectively, go to or come from the EU. In view of these figures, the consequences for trade in medical devices between Switzerland and the EU will be substantial.

Significantly, EU and Swiss patients and their doctors and nurses may well experience shortages in medical devices in the near future.

Consequences for the Swiss Economy

The costs for Swiss manufacturers are also expected to rise due to the new MedDO and the MDR. This rise in costs will have to be shouldered by all medical device manufacturers wanting to access the EU market, and in addition, Swiss manufacturers will have to carry further costs for new trade barriers (technical barriers), long thought to be eliminated, between Switzerland and the EU. These additional costs will put Swiss manufacturers at a clear disadvantage in comparison to their EU competitors. Further, it is to be expected that the new “third-country status” of Switzerland will not reflect positively on strategic decisions to be taken by global players, notably with regard to the site of production facilities, distribution centers, and headquarters.

Remedies Under WTO Rules?

Swiss companies affected by the EU action could work with the Swiss government to find a remedy under the law of the World Trade Organization (WTO). Both the EU and Switzerland, being members of the WTO, are bound by its treaty obligations toward each other in trade matters. Were Switzerland to allege a breach of WTO law by the EU, the matter could be resolved through formal dispute settlement before a WTO panel or through more informal WTO committee procedures.

Substantively, mutual recognition is a matter covered by the WTO’s Agreement on Technical Barriers to Trade (TBT Agreement). That agreement allows members the freedom to pursue legitimate nontrade public objectives while ensuring that measures in pursuit of these objectives do not raise unnecessary barriers to trade. Mutual recognition agreements are “encouraged” under Article 6.3 of the TBT Agreement, given their role in trade liberalization.

Switzerland will likely maintain that its own regulations achieve the objectives of the EU regulation. Based on this premise, Switzerland may argue that the EU’s conduct in not permitting goods compliant with Swiss regulation is more trade restrictive than necessary, violating Article 2.2 of the TBT Agreement. Furthermore, Switzerland may claim that the EU is violating Article 2.7 of the TBT Agreement, under which WTO members have to “give positive consideration” to accepting as “equivalent” other members’ technical regulations. Switzerland may also explore the possibility of claims of unlawful discrimination under Articles 2.1 and 5.1.1 of the TBT Agreement if the EU gives other countries (e.g., Turkey) better treatment in matters of mutual recognition.

What To Do?

We suggest that

• all companies based in Switzerland assess the possible negative consequences the rejection of further negotiations on a EU-Swiss IFA may have on their business;
• the Swiss and foreign medical devices manufacturers assess the impact of the MRA no longer being applicable and carefully and swiftly plan the measures to take in order for them to continue placing their products on the EU and Swiss markets;
• Swiss industry associations of sectors concerned by the MRA framework evaluate legal steps based on international trade law to be initiated to maintain the recognition of Swiss regulations by the EU.