The European Free Trade Association is a free trade organisation between four European countries
that operates in parallel with – and is linked to – the European Union. The EFTA
was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable
or unwilling to join the then-European Economic Community which has now become the EU. The
Stockholm Convention, establishing the EFTA, was signed on 4 January 1960 in the Swedish
capital by seven countries. Today's EFTA members are Iceland, Liechtenstein,
Norway, and Switzerland, of which the latter two were founding members. The initial Stockholm
Convention was superseded by the Vaduz Convention, which enabled greater liberalisation of trade
among the member states. EFTA states have jointly concluded free trade
agreements with a number of other countries. The EFTA countries are part of the European
Union's internal market; Iceland, Liechtenstein and Norway through the Agreement on a European
Economic Area and Switzerland through a set of bilateral agreements. This development
prompted the EFTA states to modernise their Convention to ensure that it will continue
to provide a successful framework for the expansion and liberalization of trade among
themselves and with the rest of the world.
History British reaction to the creation of the EEC
was mixed and complex. Britain was also preoccupied with the Commonwealth, which, at the time
of EFTA's formation, was in transition. Britain therefore brought together several countries,
including some bordering the EEC, to form the European Free Trade Association soon after
the establishment of the six-nation EEC. On 12 January 1960, the Treaty on European
Free Trade Association was initialled in the Golden Hall of the Prince's Palace of Stockholm.
This established the progressive elimination of customs duties on industrial products,
but did not affect agricultural products or maritime trade.
The main difference between the early EEC and the EFTA was the absence of a common external
customs tariff, and therefore each EFTA member was free to establish individual customs duties
against, or individual free trade agreements with, non EFTA countries.
Despite this modest initiative, the financial results were excellent, as it stimulated an
increase of foreign trade volume among its members from 3.5 to 8.2 billion US dollars
between 1959 and 1967. This was rather less than the increase enjoyed by countries inside
the EEC. After the accession of Denmark and the UK
to the EEC, EFTA began to falter. For this reason most countries eased or eliminated
their trade tariffs in preparation to join the EEC, but experienced declining revenue
which reduced the importance of EFTA. Four members remain: Switzerland, Norway, Liechtenstein
and Iceland. Iceland applied for EU membership in 2009 due to the 2008–2011 Icelandic financial
crisis. Membership
History
The founding members of EFTA were Austria, Denmark, Norway, Portugal, Sweden, Switzerland
and the United Kingdom. During the 1960s these countries were often referred to as the Outer
Seven, as opposed to the Inner Six of the then-European Economic Community.
Finland became an associate member in 1961 and Iceland joined in 1970. The United Kingdom
and Denmark joined the EEC in 1973, and hence ceased to be EFTA members. Portugal also left
EFTA for the European Community in 1986. Liechtenstein joined EFTA in 1991. Austria, Sweden and Finland
joined the EU in 1995 and thus ceased to be EFTA members.
Twice, in 1973 and 1995, Norway has tried to join the EU and by doing so, leave the
EFTA. Both times, membership of the EU was rejected in national referendums, keeping
Norway in the EFTA. Iceland currently is in negotiations as a candidate for EU membership.
If they were to complete negotiations and all countries ratified the accession treaty,
they would leave the EFTA and join the EU. As of June 2013 negotiations between Iceland
and EU stopped by request of the Icelandic minister of foreign affairs.
Current members Membership history
Future
The Norwegian electorate has rejected treaties of accession to the EU in two referendums.
At the time of the first referendum their neighbour Denmark joined. The second time
two other Nordic neighbours, Sweden and Finland, joined the EU. The last two governments of
Norway have been unable and unwilling to advance the question, as they have both been coalition
governments consisting of proponents and opponents. Since Switzerland rejected the EEA in 1992,
referendums on EU membership have been initiated, the last time in 2001. These were rejected.
Iceland may join the EU in the future, following the global financial crisis of 2008, which
has particularly affected the local economy. On 16 July 2009, the government formally applied
for EU membership. As noted, the negotiation process has been halted since mid-2013.
Between 1994 and 2011, EFTA membership has been discussed regarding Andorra, San Marino,
Monaco, Isle of Man, Morocco, Turkey, Israel and other ENP partners.
In mid-2005, representatives of the Faroe Islands hinted at the possibility of their
territory joining EFTA. However, the chances of the Faroes' bid for membership are uncertain
because, according to Article 56 of the EFTA Convention, only states may become members
of the Association. The Faroes already have an extensive bilateral free trade agreement
with Iceland, known as the Hoyvík Agreement. In November 2012, after the Council of the
European Union had called for an evaluation of the EU's relations with the sovereign European
microstates of Andorra, Monaco and San Marino, which they described as "fragmented", the
European Commission published a report outlining options for their further integration into
the EU. Unlike Liechtenstein, which is a member of the EEA via the EFTA and the Schengen Agreement,
relations with these three states are based on a collection of agreements covering specific
issues. The report examined four alternatives to the current situation: 1) a Sectoral Approach
with separate agreements with each state covering an entire policy area, 2) a comprehensive,
multilateral Framework Association Agreement with the three states, 3) EEA membership,
and 4) EU membership. The Commission argued that the sectoral approach did not address
the major issues and was still needlessly complicated, while EU membership was dismissed
in the near future because "the EU institutions are currently not adapted to the accession
of such small-sized countries." The remaining options, EEA membership and a FAA with the
states, were found to be viable and were recommended by the Commission. In response, the Council
requested that negotiations with the three microstates on further integration continue,
and that a report be prepared by the end of 2013 detailing the implications of the two
viable alternatives and recommendations on how to proceed.
As EEA membership is currently only open to EFTA or EU members, the consent of existing
EFTA member states is required for the microstates to join the EEA without becoming members of
the EU. In 2011, Jonas Gahr Støre, the then Foreign Minister of Norway which is an EFTA
member state, said that EFTA/EEA membership for the microstates was not the appropriate
mechanism for their integration into the internal market due to their different requirements
than large countries such as Norway, and suggested that a simplified association would be better
suited for them. Espen Barth Eide, Støre's successor, responded to the Commission's report
in late 2012 by questioning whether the microstates have sufficient administrative capabilities
to meet the obligations of EEA membership. However, he stated that Norway was open to
the possibility of EFTA membership for the microstates if they decide to submit an application,
and that the country had not made a final decision on the matter. Pascal Schafhauser,
the Counsellor of the Liechtenstein Mission to the EU, said that Liechtenstein, another
EFTA member state, was willing to discuss EEA membership for the microstates provided
their joining did not impede the functioning of the organization. However, he suggested
that the option direct membership in the EEA for the microstates, outside of both the EFTA
and the EU, should be given consideration. On 18 November 2013 the EU Commission concluded
that "the participation of the small-sized countries in the EEA is not judged to be a
viable option at present due to the political and institutional reasons", and that Association
Agreements were a more feasible mechanism to integrate the microstates into the internal
market. General secretaries
Institutions EFTA is governed by the EFTA Council and serviced
by the EFTA Secretariat. In addition, in connection with the EEA Agreement of 1992, two other
EFTA organisations were established, the EFTA Surveillance Authority and the EFTA Court.
Council The EFTA Council is the highest governing
body of EFTA. The Council usually meets eight times a year at the ambassadorial level and
twice a year at Ministerial level. In the Council meetings, the delegations consult
with one another, negotiate and decide on policy issues regarding EFTA. Each Member
State is represented and has one vote, though decisions are usually reached through consensus.
The Council discusses substantive matters, especially relating to the development of
EFTA relations with third countries and the management of free trade agreements, and keeps
under general review relations with the EU third-country policy and administration. It
has a broad mandate to consider possible policies to promote the overall objectives of the Association
and to facilitate the development of links with other states, unions of states or international
organisations. The Council also manages relations between the EFTA States under the EFTA Convention.
Questions relating to the EEA are dealt with by the Standing Committee in Brussels.
Secretariat The day-to-day running of the Secretariat
is headed by the Secretary-General, Kristinn F. Árnason, who is assisted by two Deputy
Secretaries-General, one based in Geneva and the other in Brussels. The three posts are
shared between the Member State. The division of the Secretariat reflects the division of
EFTA’s activities. The Secretariat employs approximately 100 staff members, of whom a
third are based in Geneva and two thirds in Brussels and Luxembourg.
The Headquarters in Geneva deals with the management and negotiation of free trade agreements
with non-EU countries, and provide support to the EFTA Council. In Brussels, the Secretariat
provides support for the management of the EEA Agreement and assists the Member States
in the preparation of new legislation for integration into the EEA Agreement. The Secretariat
also assists the Member States in the elaboration of input to EU decision making. The two duty
stations work together closely to implement the Vaduz Convention’s stipulations on the
intra-EFTA Free Trade Area. The EFTA Statistical Office in Luxembourg contributes to the development
of a broad and integrated European Statistical System.
The EFTA Statistical Office in Luxembourg contributes to the development of a broad
and integrated European Statistical System. The EFTA Statistical Office is located in
the premises of Eurostat, the Statistical Office of the European Union, in Luxembourg,
and functions as a liaison office between Eurostat and the EFTA National Statistical
Institutes. ESO's main objective is to promote the full inclusion of the EFTA States in the
European Statistical System, thus providing harmonised and comparable statistics to support
the general cooperation process between EFTA and the EU within and outside the EEA Agreement.
The cooperation also entails technical cooperation programmes with third countries and training
of European statisticians. European Economic Area
A Joint Committee consisting of the EEA-EFTA States plus the European Commission has the
function of extending relevant EU law to the non EU members. An EEA Council meets twice
yearly to govern the overall relationship between the EEA members.
Rather than setting up pan-EEA institutions, the activities of the EEA are regulated by
the EFTA Surveillance Authority and the EFTA Court. The EFTA Surveillance Authority and
the EFTA Court regulate the activities of the EFTA members in respect of their obligations
in the European Economic Area. Since Switzerland is not an EEA member, it does not participate
in these institutions. The EFTA Surveillance Authority performs the
European Commission's role as "guardian of the treaties" for the EFTA countries, while
the EFTA Court performs the European Court of Justice's role for those countries.
The original plan for the EEA lacked the EFTA Court or the EFTA Surveillance Authority,
the European Court of Justice and the European Commission were to exercise those roles. However,
during the negotiations for the EEA agreement, the European Court of Justice informed the
Council of the European Union by way of letter that they considered that giving the EU institutions
powers with respect to non-EU member states would be a violation of the treaties, and
therefore the current arrangement was developed instead.
Norway Grants The EEA and Norway Grants are the financial
contributions of Iceland, Liechtenstein and Norway to reduce social and economic disparities
in Europe. They were established in conjunction with the 2004 enlargement of the European
Economic Area, which brought together the EU, Iceland, Liechtenstein and Norway in the
Internal Market. In the period from 2004 to 2009, €1.3 billion of project funding was
made available for project funding in the 15 beneficiary states in Central and Southern
Europe. The EEA and Norway Grants are administered by the Financial Mechanism Office, which is
affiliated to the EFTA Secretariat in Brussels. Locations
The EFTA Secretariat is headquartered in Geneva, Switzerland, but also has duty stations in
Brussels, Belgium and Luxembourg. The EFTA Surveillance Authority has its headquarters
in Brussels, Belgium, while the EFTA Court has its headquarters in Luxembourg.
Portugal Fund The Portugal Fund was established in 1975
when Portugal was still a member of EFTA, to provide funding for the development and
reconstruction of Portugal after the Carnation Revolution. When Portugal left EFTA in 1985
to join the EEC, the remaining EFTA members decided to nonetheless continue the Portugal
Fund, so Portugal would continue to benefit from it. The Fund originally took the form
of a low-interest loan from the EFTA member states to Portugal, to the value of 100 million
US dollars. Repayment was originally to commence in 1988, but EFTA then decided to postpone
the start of repayments until 1998. The Portugal Fund has now been dissolved by the Member
States. European Union
Except for Switzerland, the EFTA members are also members of the European Economic Area.
The EEA comprises three member states of the European Free Trade Association and 28 member
states of the European Union, including Croatia which is provisionally applying the agreement
pending its ratification by all EEA countries. It was established on 1 January 1994 following
an agreement with the European Community. It allows the EFTA-EEA states to participate
in the EU's Internal Market without being members of the EU. They adopt almost all EU
legislation related to the single market, except laws on agriculture and fisheries.
However, they also contribute to and influence the formation of new EEA relevant policies
and legislation at an early stage as part of a formal decision-shaping process. One
EFTA member, Switzerland, has not joined the EEA but has a series of bilateral agreements,
including a free trade agreement, with the EU.
The following table summarises the various components of EU laws applied in the EFTA
countries and their sovereign territories. Some territories of EU member states also
have a special status in regard to EU laws applied as is the case with some European
microstates.
International conventions EFTA also originated the Hallmarking Convention
and the Pharmaceutical Inspection Convention, both of which are open to non-EFTA states.
International relationships EFTA has several free trade agreements with
non-EU countries as well as declarations on cooperation and joint workgroups to improve
trade. Currently, the EFTA States have established preferential trade relations with 24 states
and territories, in addition to the 28 member states of the European Union.
Free trade agreements
Ongoing free trade negotiations
Declarations on cooperation or dialogue on closer trade relations
See also Central European Free Trade Agreement
Euro-Mediterranean free trade area European Union Association Agreement
European Union free trade agreements Free trade areas in Europe
References