State Aid Rules and Cantonal Sovereignty
Summary: The Bilateral Agreements III introduce for the first time sectoral state aid rules in the areas of air and overland transport as well as electricity. Critics fear that these rules could restrict cantonal subsidy policy and impinge on Swiss federalism. Supporters emphasise that the rules are limited to three sectors and that no general EU state aid law applies.
¶ What Are State Aid Rules?
EU state aid law generally prohibits state subsidies that distort competition in the single market. It regulates the conditions under which public funds may flow to companies [5][3].
Under the Bilateral Agreements III, sectoral state aid rules are introduced in three areas [5]:
- Air transport: Rules for state support of airlines and airports
- Overland transport: Rules for road freight and rail transport
- Electricity: Rules for the energy sector
¶ The Point of Criticism
¶ Cantonal Sovereignty
The cantons have extensive competences in Switzerland in the area of economic promotion and subsidy policy. Critics argue [1]:
- EU state aid rules could restrict cantonal subsidy programmes in the affected sectors [1]
- The Swiss tradition of decentralised economic promotion is impinged upon by a centralist EU regulatory framework [1]
- Tax competition between the cantons -- a cornerstone of Swiss federalism -- could come under long-term pressure if EU state aid law sets a precedent [1]
- Four cantons expressed reservations about the overall package in the consultation, partly due to the state aid rules [5]
¶ The InstA Problem
State aid rules were one of the three sticking points that led to the failure of the Framework Agreement (InstA) in May 2021. Switzerland feared that a general state aid law would restrict cantonal tax policy [5].
¶ The Counter-arguments
¶ Sectoral Limitation
Supporters emphasise that the state aid rules are limited to three sectors and that no general EU state aid law applies [3][5]:
| Area | State aid rules | General EU state aid law |
|---|---|---|
| Air transport | Yes (sectoral) | No |
| Overland transport | Yes (sectoral) | No |
| Electricity | Yes (sectoral) | No |
| All other areas | No | No |
¶ No Tax Competition Affected
The sectoral state aid rules do not affect cantonal tax policy. They regulate exclusively direct state subsidies to companies in the three named sectors [3][5].
¶ Negotiating Success Compared to InstA
Compared to the failed InstA, Switzerland was able to significantly restrict the scope of the state aid rules. The InstA would have provided for comprehensive state aid law for all market access agreements [5].
¶ Consultation Concerns: Cantons and Business
The consultation (autumn 2025) brought specific concerns to light that go beyond general criticism.
¶ Cantonal Banks and State Guarantees
Die Mitte (The Centre party) demands an independent authority for monitoring state aid rules and expresses concerns about the impact on cantonal state guarantees -- particularly those of the cantonal banks [11]. Since EU state aid rules restrict public subsidies that distort competition, the question arises whether the traditional state guarantee of cantonal banks could be classified as impermissible aid [11].
Supporters emphasise that the sectoral state aid rules are limited to air transport, land transport and electricity and do not affect the banking sector [3][5].
¶ Hydropower and Cantonal Sovereign Rights
The Canton of Uri explicitly demands guarantees for water royalties and the right of reversion (Heimfall) in its consultation response [12]. Uri fears that EU state aid rules could in the long term be extended to hydropower, which would jeopardise the revenues of mountain cantons from hydropower exploitation [12].
The Federal Council has repeatedly clarified that the electricity agreement does not affect cantonal sovereignty over hydropower and that water royalty regulation remains a domestic matter [5].
¶ Missing Double Majority (Standemehr)
A structural point of criticism concerns the voting procedure: the Bilateral Agreements III are subject to the optional referendum (simple popular majority), not the mandatory referendum (double majority of people and cantons) [5]. Critics, including several cantonal governments, argue:
- With a mandatory referendum, the cantons would have an effective veto right (cantonal majority required)
- The optional referendum weakens federal participation, as only the popular majority decides
- Given the far-reaching implications for cantonal competences, a mandatory referendum would be appropriate
Prof. Andreas Glaser (University of Zurich) has raised the question of whether the Bilateral Agreements III -- particularly the partial adoption of the UBRL with the right of permanent residence -- are compatible with Art. 121a para. 4 of the Federal Constitution, which stipulates that "no international treaties may be concluded that contradict this article" [13].
Supporters point out that the Federal Council has examined and confirmed constitutional compatibility, and that the existing procedure is standard for bilateral agreements [5].
¶ Sources
[1] UNSER RECHT (2026). Bilateral III -- what is it about? Information platform. [Open Access]
[3] FDFA (2026). Fact sheet: Institutional elements. Federal Department of Foreign Affairs. [Open Access]
[5] FDFA (2026). Switzerland-EU Package (Bilateral III). Federal Department of Foreign Affairs. [Open Access]
[11] Die Mitte (2025). Consultation Response on the CH-EU Package. The Centre Party.
[12] Canton of Uri (2025). Consultation Response on the CH-EU Package. Government Council of Canton Uri.
[13] Glaser, Andreas (2025). "Bilateral III" and Art. 121a para. 4 FC. Jusletter. [Open Access]
Last updated: March 2026