What Is the European Free Trade Association (EFTA) and its Relationship with the European Union (EU)

EFTA

The European Free Trade Association (EFTA) is a free trade area and trade organisation formed in the year 1960 which consists of 4 European states namely:

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

While EFTA is not a customs union, i.e., there is no common external tariff, and member states have full rights to enter into bilateral third country trade agreements, the EFTA does have a coordinated trade policy due to which its members have concluded free trade agreements (FTAs) with the European Union (EU) and some countries. 

Objectives of EFTA

The objective of the formation of the EFTA was to act as an alternate trade body for those European states that were not able to or willing to join the EU [earlier known as the European Economic Community (EEC)]. These include seven countries namely: Austria, Switzerland, Denmark, Portugal, Norway, Sweden, and the United Kingdom (UK). 

However, since the year 1995, only Norway and Switzerland remain in the EFTA while the other founding members subsequently joined the EU. The EFTA is governed by EFTA council which makes decisions regarding development of EFTA with third countries, manages FTA and negotiates and decides policy issues, usually through consensus. 

Relationship with the European Union with Respect to Trade and Freedom of Movement in 1992

Relationship with the European Union with Respect to Trade and Freedom of Movement In 1992, the European Economic Area (EEA) agreement was signed by the EFTA and the EU in Oporto, Portugal. Along with the 3 member states of the EFTA (Norway, Iceland, and Liechtenstein), the EEA comprises 28 member states of the European Union (which may later come down to 27 after the United Kingdom‘s confirmed departure from the EU popularly known as ‗Brexit‘). 

The European Economic Area (EEA), established in 1992 under the EEA agreement, links the EU member states and the three EFTA states into an internal market (so that these three states can participate in the EU‘s single market) while Switzerland has its own set of bilateral agreements including a free trade agreement with the EU. 

The EFTAEEA states follow almost all EU legislation related to the single market except for laws on fisheries and agriculture. They also contribute to the formation of new EEA policies and programmes as well as to the reduction of economic and social disparities in the EEA through the EFTA grants. 

Consequences

Currently, the beneficiary states include The Czech Republic, Estonia, Bulgaria, Croatia, Latvia, Hungary, Poland, and Portugal amongst a few others. The EFTA member states‘ nationals enjoy the freedom of movement in each other‘s territories as well as in the European Union. This means that both the EFTA nationals and the EU citizens are legally allowed to enter and reside in each other‘s countries. 

In other words, a citizen of an EFTA country can live and work in other EFTA countries and the EU countries and a citizen of an EU country can live and work in the EFTA countries. This legal entitlement is governed under the Citizens‘ Rights Directive, also known as the Free Movement Directive, which defines the right of free movement for citizens of the EEA. Since Switzerland is not a member of the EEA, it is not bound by this directive but has a separate bilateral agreement on free movement with the EU.

Written By - Nidhi Verma