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European Free Trade Association (EFTA)

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The European Free Trade Association (EFTA) is the intergovernmental organization of Iceland, Liechtenstein, Norway, and Switzerland.

EFTA was created for the promotion of free trade and economic integration to the benefit of its four Member States and the benefit of their trading partners around the globe.

EFTA was founded by the Stockholm Convention in 1960. Relations with the EEC, later the European Community (EC) and the European Union (EU), have been at the core of EFTA activities from the beginning.

Since the beginning of the 1990s, EFTA has actively pursued trade relations with third countries in and beyond Europe.

What does the European Free Trade Association do?

The main tasks of the Association are threefold:

  1. Maintaining and developing the EFTA Convention, which regulates economic relations between the four EFTA States.
  2. Managing the Agreement on the European Economic Area (EEA Agreement), which brings together the Member States of the European Union and three of the EFTA States in a single market, also referred to as the “Internal Market”.
  3. Developing EFTA’s worldwide network of free trade agreements.

What countries are part of the European Free Trade Association?

The EFTA Member States are:

  1. Iceland
  2. Liechtenstein
  3. Norway
  4. Switzerland.

The four EFTA States are competitive in several sectors vital to the global economy and score among the highest in the world in competitiveness, wealth creation per inhabitant, life expectancy, and quality of life.

  • Switzerland is a world leader in pharmaceuticals, biotechnology, machinery, banking, and insurance.
  • Liechtenstein, like Switzerland, is highly industrialized and specialized in capital-intensive and Research & Development driven technology products.
  • Iceland’s economy benefits from renewable natural resources, not least rich fishing grounds, and has increasingly diversified into other industries and services.
  • Abundant natural resources also contribute significantly to Norway’s economic strength, including oil and gas exploration and production, and fisheries, as well as important service sectors such as maritime transport and energy-related services.

How does the European Free Trade Association function?

EFTA is an intergovernmental organization that acts as a free trading bloc.

It is governed by the EFTA Secretariat, which has offices in Geneva (Switzerland) and Brussels (Belgium).

Its activities are regulated by the ETFA Surveillance Authority (equivalent to the EU Commission), and the EFTA court (equivalent to the European Court of Justice).

As these bodies regulate EFTA’s activity in the EEA (of which Switzerland is not a member), Switzerland plays no part in the Surveillance Authority or the court.

Why is the European Free Trade Association important?

The four EFTA States are open, developed economies with trade figures that are substantially higher than might be expected from a total of fewer than 14 million people.

EFTA is the ninth largest trader in the world in merchandise trade and the fifth largest in trade in services.

EFTA is the third most important trading partner in goods for the EU and the second most important when it comes to services.

What’s the difference between the European Free Trade Area (EFTA) and the European Economic Area (EEA)?

The European Free Trade Area (EFTA) and the European Economic Area (EEA) are two international trading and economic organizations, separate from, but working in close conjunction with the European Union.

EFTA is made up of Norway, Liechtenstein, Iceland, and Switzerland. It provides a framework for free trade between member states, and for Free Trade Agreements (FTAs) to be made with other nations – notably the EU’s 28 member states.

The EEA binds three of the EFTA nations (Norway, Lichtenstein, and Iceland) in a SINGLE market with the EU member states.

EFTA and the EEA facilitate free trade and cooperation between member states but WITHOUT most of the political obligations and financial implications of EU membership.

The Tradeoff

The EU and the EFTA are “linked” by the EEA.

The EEA unites three of the EFTA nations (Norway, Liechtenstein, and Iceland) with the 28 EU member states in an internal market, where the economies of all the states are governed by the same basic rules.

Being a member of the EEA allows states to participate in the EU’s single market without having to become a member of the EU.

However, this means that they play no part in negotiating single market regulations.

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