European Free Trade Association

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After World War II the introduction of free trade was discussed on and off in Western Europe. It could take the form of either a customs union—with common external tariffs—or a free trade area with the abolition of internal tariffs and national trade policies. Free trade was strongly advocated by the United States and also favored by trade-dependent low-tariff countries such as Belgium and Sweden. In 1947, Western European countries for the first time studied the possibility of creating a customs union or free trade area in the context of the Marshall Plan. During the 1950s, the Scandinavian countries Sweden, Norway, and Denmark discussed the formation of a customs union, but failed to bridge major differences, especially over the inclusion of agriculture. The main incentive for the formation of the European Free Trade Association (EFTA) came from the creation of a continental European customs union with strong supranational political dimensions in the form of the European Economic Community (EEC), the present-day European Union (EU), in 1957–1958. As the EEC was to abolish internal tariffs and impose common external tariffs, it would give its member-states—France, Italy, West Germany, the Netherlands, Belgium, and Luxembourg—privileged access to the newly created internal market. This in turn threatened to undermine the competitive position of industrial producers from other European countries. When the British plan to create an all–Western European free trade area as a roof over the EEC failed at the end of 1958, when the French President Charles de Gaulle vetoed the ongoing negotiations in the OEEC, Britain, Sweden, Norway, Denmark, Switzerland, Austria, and Portugal opted for the creation of the small EFTA in 1959–1960. Finland became associated with EFTA in 1961 through the FIN-EFTA treaty.

Unlike the EEC, EFTA was characterized by strictly intergovernmental market integration in the form of an industrial free trade area with weak institutions. It had limited provisions for majority voting to enforce treaty provisions, a general consultation and complaints procedure, escapeclausesintended mainly for balance-of-payments problems, and a set of rules of origin. The EFTA treaty defined industrial commodities in a set of process lists and lists of basic materials. Commodities could claim EFTA treatment when containingmore than50percentvalue added in EFTA. In agriculture the EFTA treaty merely included a general commitment to the removal of agricultural export subsidies and to consultations about the expansion of agricultural trade among member states. The signing of the treaty was combined with the conclusion of bilateral treaties, especially of Britain, Sweden, and Switzerland with Denmark, to accommodate the economic interests of the agricultural export countries.

With the creation of EFTA the so-called Outer Seven European states demonstrated that an industrial free trade area was technically feasible and could operate with a loose institutional framework. The EFTA states actually succeeded in abolishing internal tariffs one and a half years before the EEC, by 1 January 1967. This helped to increase trade among them at a faster rate than trade with the EEC in a period of rapid trade expansion in the 1960s. From 1959 to 1969 EFTA's trade with the EEC grew by 130 percent, but intra-EFTA trade grew by 186 percent. Trade among the Scandinavian countries even rose by 284 percent during the same period. Yet none of the member-states regarded EFTA as an aim in itself. Rather, they hoped that it would act as a bridge to the EEC to reopen negotiations about the creation of a larger Western European free trade area. This strategy failed, however, as the EEC was preoccupied with developing its institutions and policies and strengthening its internal cohesion, and because de Gaulle was strongly opposed to a greater political role for Britain in the integration of Europe.

Compared to the EEC, EFTA suffered from a number of weaknesses. Its economic cohesion was relatively low as it was geographically disparate and lacked reciprocal export advantages in agriculture, which the Common Agricultural Policy (CAP) provided within the EEC. British leadership was weak, too. Britain actually broke the EFTA treaty in the autumn of 1964 when it imposed a tariff surcharge to deal with balance-of-payments problems, provoking the organization's most severe crisis, comparable to the "empty chair" crisis in the EEC in the following year. Moreover, the United States was hostile to EFTA and to a wider settlement between the EEC and EFTA. As U.S. balance-of-payments problems intensified during the 1958–1961 period, it led to fears that a larger Western European free trade area would effectively exclude U.S. goods from the European market without the compensatory political benefit of strengthening the cohesion of the West in the Cold War.

The conflict between EFTA and the EEC was finally resolved in 1972–1973 when Britain and Denmark as well as Ireland became members of the EEC in its first round of enlargement. Norway stayed outside of the EEC after a marginally negative referendum result. It, as well as the other EFTA states, concluded free trade treaties with the EEC to safeguard their core trade interests. EFTA continued to exist, but it increasingly developed into a waiting room for future full EEC/EC/EU membership. Portugal joined the EC in 1986 and Austria, Finland, and Sweden in 1995. In the early twenty-first century, only Switzerland, Liechtenstein, Norway, and Iceland, which joined EFTA in 1970, remain. Of the four, only Liechtenstein and Norway (after a second negative EU referendum in 1994) are associated with the EU through the European Economic Area. The present-day EFTA sees its main role in advancing global trade liberalization, although its member-states actually have highly protectionist agricultural and fisheries policies, but it no longer plays a significant role in European politics.

See alsoEuropean Union.


Kaiser, Wolfram. "Challenge to the Community: The Creation, Crisis and Consolidation of the European Free Trade Association, 1958–72." Journal of European Integration History 3, no. 1 (1997): 7–33.

——. "A Better Europe? EFTA, the EFTA Secretariat, and the European Identities of the 'Outer Seven,' 1958–72." In Institutions européennes et identités européennes, edited by Marie-Thérèse Bitsch et al., 165–184. Brussels, 1998.

——. "The Successes and Limits of Industrial Market Integration: The European Free Trade Association 1963–1969." In Crises and Compromises: The European Project 19631969, edited by Wilfried Loth, 371–390. Baden-Baden, Germany, 2001.

Kaiser, Wolfram, and Jürgen Elvert, eds. European Union Enlargement: A Comparative History. London and New York, 2004. Includes chapters on the postwar European policies of the EFTA member-states Britain, Denmark, Austria, Sweden, Finland, and Portugal.

Malmborg, Mikael, and Johnny Laursen. "The Creation of EFTA." In Interdependence versus Integration: Denmark, Scandinavia and Western Europe, 1945-1960, edited by Thorsten B. Olesen, 197–212. Odense, Denmark, 1995.

Wolfram Kaiser

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European Free Trade Association (EFTA). The idea of an intergovernmental organization to reduce tariffs on trade between the non-communist European countries was put forward by Britain in 1956. It hoped to prevent the formation of the EEC, and even after ‘the Six’ had signed the treaty of Rome, Britain persisted in attempting to draw the EEC into a wider free trade association. De Gaulle vetoed the idea in 1958. Following this veto, the Swiss government invited those countries who would not join the EEC (Iceland, Norway, Britain, Denmark) or, because of Soviet disapproval of the EEC and considerations of neutrality, could not (Finland, Sweden, Switzerland, Austria) to negotiations which resulted in the Stockholm convention setting up EFTA (3 May 1960). Finland became an associate member and Portugal joined the others as full members, who managed to eliminate mutual tariffs by the end of 1966. Yet Britain applied to join the EEC in 1961. In the 1990s EFTA reached agreements with the EEC, but by 2000 only Norway, Switzerland, Iceland and Liechtenstein remained members.

Christopher N. Lanigan

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European Free Trade Association (EFTA) Organization promoting free trade among its European members. Established in 1960, it comprised Austria, Denmark, Ireland, Norway, Portugal, Sweden, Switzerland, and the UK. By 1995, all but Norway and Switzerland had joined the European Union (EU), while Iceland and Liechtenstein joined EFTA in 1970 and 1991, respectively. See also European Economic Area (EEA)


European Free Trade Association