European Free Trade Association

The European Free Trade Association is a regional trade organisation and free trade area consisting of four European states: Iceland, Liechtenstein, Norway and Switzerland. The organisation operates in parallel with the European Union, and all four member states participate in the European single market and are part of the Schengen Area. They are not, however, party to the European Union Customs Union.
EFTA was historically one of the two dominant western European trade blocs, but is now much smaller and closely associated with its historical competitor, the EU. It was established on 3 May 1960 to serve as an alternative trade bloc for those European states that were unable or unwilling to join the then European Economic Community, the main predecessor of the EU. The Stockholm Convention, to establish the EFTA, was signed on 4 January 1960 in the Swedish capital by seven countries. A revised Convention, the Vaduz Convention, was signed on 21 June 2001 and entered into force on 1 June 2002.
After 1995 only two founding members remained, namely Norway and Switzerland. The other five, Austria, Denmark, Portugal, Sweden and the United Kingdom, had joined the EU at some point in the intervening years. The initial Stockholm Convention was superseded by the Vaduz Convention, which aimed to provide a successful framework for continuing the expansion and liberalisation of trade, both among the organisation's member states and with the rest of the world.
While the EFTA is not a customs union and member states have full rights to enter into bilateral third-country trade arrangements, it does have a coordinated trade policy. As a result, its member states have jointly concluded free trade agreements with the EU and a number of other countries. To participate in the EU's single market, Iceland, Liechtenstein, and Norway are parties to the Agreement on a European Economic Area, with compliances regulated by the EFTA Surveillance Authority and the EFTA Court. Switzerland has a set of multilateral agreements with the EU and its member states instead.

Membership

History

On 12 January 1960, the Convention establishing the European Free Trade Association was initiated in the Golden Hall of the Stockholm City Hall. This established the progressive elimination of customs duties on industrial products, but did not affect agricultural or fisheries products.
The main difference between the early EEC and the EFTA was that the latter did not operate common external customs tariffs unlike the former: each EFTA member was free to establish its individual customs duties against, or its individual free trade agreements with, non-EFTA countries.
The founding members of the 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 a full member in 1986, 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 the EFTA in 1991. Austria, Sweden, and Finland joined the EU in 1995 and thus ceased to be EFTA members.
Twice, in 1972 and in 1994, the Norwegian government had tried to join the EU and by doing so, leave the EFTA. However, both the times, the membership of the EU was rejected in national referendums, keeping Norway in the EFTA. Iceland applied for EU membership in 2009 due to the 2008–2011 Icelandic financial crisis, but has since dropped its bid.

Current members

Contracting party	Accession	Population	Area	Capital	GDP in millions	GDP per capita
	1 1 1970			Reykjavík
	1 9 1991			Vaduz
	3 5 1960			Oslo
	3 5 1960			Bern

Former members

State	Accession	Left EFTA	Joined EEC/EU
	3 5 1960	31 12 1994	1 1 1995
	3 5 1960	31 12 1972	1 1 1973
	1 1 1986	31 12 1994	1 1 1995
	3 5 1960	31 12 1985	1 1 1986
	3 5 1960	31 12 1994	1 1 1995
	3 5 1960	31 12 1972	1 1 1973

Other negotiations

Between 1994 and 2011, EFTA memberships for Andorra, San Marino, Monaco, the Isle of Man, Turkey, Israel, Morocco, and other European Neighbourhood Policy partners were discussed.

Andorra, Monaco, and San Marino

In November 2012, after the Council of the European Union had called for an evaluation of the EU's relations with Andorra, Monaco, and San Marino, which they described as "fragmented", the European Commission published a report outlining the 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:

A Sectoral Approach with separate agreements with each state covering an entire policy area.
A comprehensive, multilateral Framework Association Agreement with the three states.
EEA membership, and
EU membership.

However, 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 member states, 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, 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 from those of larger 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 would be open to the possibility of EFTA membership for the microstates if they decided 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 organisation. However, he suggested that the option of direct membership in the EEA for the microstates, outside of both the EFTA and the EU, should be considered. 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.

Norway

The Norwegian electorate had rejected treaties of accession to the EU in two referendums. At the time of the first referendum in 1972, their neighbour, Denmark joined. Since the second referendum in 1994, two other Nordic neighbours, Sweden and Finland, have joined the EU. The last two governments of Norway have not advanced the question, as they have both been coalition governments consisting of proponents and opponents of EU membership.

Switzerland

Since Switzerland rejected the EEA membership in a referendum in 1992, more referendums on EU membership have been initiated, the last time being in 2001. These were all rejected. Switzerland has been in a customs union with fellow EFTA member state and neighbour Liechtenstein since 1924.

Iceland

On 16 July 2009, the government of Iceland formally applied for EU membership, but the negotiation process was suspended in mid-2013, and in 2015 the foreign ministers wrote to withdraw its application.

Faroe Islands (Kingdom of Denmark)

was a founding member of EFTA in 1960, but its membership ended in 1973, when it joined the European Communities. The autonomous territories of the Kingdom of Denmark were covered by Denmark's EFTA membership: Greenland from 1961 and the Faroe Islands from 1968. In mid-2005, representatives of the Faroe Islands raised the possibility of their territory re-joining the EFTA. Because Article 56 of the EFTA Convention only allows sovereign states to become members of the EFTA, the Faroes considered the possibility that the "Kingdom of Denmark in respect of the Faroes" could join the EFTA on their behalf. The Danish Government has stated that this mechanism would not allow the Faroes to become a member of the EEA because Denmark was already a party to the EEA Agreement.
The Faroes already have an extensive bilateral free trade agreement with Iceland, known as the Hoyvík Agreement.