What is EFTA and how is it different from the EU?

The European Free Trade Association (EFTA) is an intergovernmental organisation, established in 1960 by the EFTA Convention for the promotion of free trade and economic integration between its Member States (today Iceland, Liechtenstein, Norway and Switzerland), within Europe and globally.

EFTA does not envisage political integration. It does not issue legislation, nor does it establish a customs union.

EFTA’s first objective was to liberalise trade between its Member States. In 1972, each EFTA State negotiated bilateral free trade agreements (FTAs) with the EEC. Currently, the EFTA States together have 29 FTAs in force or awaiting ratification covering 40 partner countries worldwide (outside Europe).

Since 1994, the EFTA Secretariat has assisted Iceland, Liechtenstein and Norway in the management of the EEA Agreement.

The EFTA Secretariat is not involved in the management of the bilateral agreements between Switzerland and the EU. Since 2001, the EFTA Convention has been updated continually in order to align its content with the Swiss-EU bilateral agreements and the EEA Agreement. This includes, for example, provisions on the free movement of persons between all of the EFTA States.

Can the EFTA Member States also sign bilateral free trade agreements?

Yes, the EFTA States are not obliged by the EFTA Convention to conclude preferential trade agreements as a group. They maintain the full right to enter into bilateral third-country arrangements.

What is the European Economic Area – EEA?

The European Economic Area (EEA) was established by the EEA Agreement, which entered into force in 1994. Its objective is to extend the Internal Market of the EU to the three participating EFTA States creating a homogeneous European Economic Area. This is based on common rules and equal conditions of competition and provides for the adequate means of enforcement at the judicial level. The EEA Agreement guarantees equal rights and obligations within the Internal Market for individuals and economic operators in the EEA. As of 1 February, the EEA comprises of 27* EU Member States and the three EEA EFTA States – Iceland, Liechtenstein and Norway.

What is covered by the EEA Agreement?

All relevant Internal Market legislation is integrated into the EEA Agreement so that it applies throughout the whole of the EEA. The core of these rules relates to the free movement of goods, capital, services and persons throughout the 30* EEA States. In addition, the EEA Agreement covers horizontal areas such as social policy, consumer protection, environment, company law, statistics, tourism and culture. In order to ensure equal conditions of competition throughout the EEA, the EEA Agreement mirrors the competition and state aid rules of the EU treaties. It also provides for participation in EU programmes such as those for research and education.

What is not covered by the EEA Agreement?

The EEA Agreement does not cover EU common agriculture and fisheries policies, although it contains provisions on trade in agricultural and fish products. It does not entail a customs union, nor does it include a common trade policy, common foreign and security policy, justice and home affairs, harmonised taxation or the economic and monetary union.

Schengen is not a part of the EEA Agreement. However, all of the four EFTA States participate in Schengen and Dublin through bilateral agreements. They all apply the provisions of the relevant Acquis.

How do the EEA EFTA States contribute financially to the EU?

The financial contributions of the EEA EFTA States to the EU related to the EEA Agreement are twofold.

First, the EEA EFTA States contribute towards reducing economic and social disparities in the EEA through the EEA Grants. Currently the beneficiary states include Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia and Slovenia. In addition to the EEA Grants, Norway has funded a parallel scheme since 2004 – the Norway Grants. The funding period covering 2014-2021 has a total financial envelope of approximately EUR 400 million per year. These contributions are not managed by the EU, but by the EFTA Financial Mechanism Office in collaboration with the beneficiary countries.

Second, the EEA EFTA States contribute towards the EU programmes and agencies that they participate in on the basis of the EEA Agreement. These contributions are added to the EU budget, increasing the total financial envelopes of the programmes and agencies in question. For the current 2014-2020 EU multiannual budget period, the total EEA EFTA contribution to EU programmes and agencies is approximately EUR 460 million per year.

How will the United Kingdom’s departure from the EU affect its membership in the EEA?

The United Kingdom (UK) ceased to be a Contracting Party to the EEA Agreement after its withdrawal from the EU on 31 January 2020. This follows from the two-pillar structure and Article 126 of the EEA Agreement, which states that the EEA Agreement applies to the territory of the EU and the three EEA EFTA States. Nevertheless, during the transition period the UK will continue to be treated as an EEA State (see below).

What is the transition period and what does it mean for the UK’s relations with the EEA EFTA States?

Article 126 of the Withdrawal Agreement between the EU and the UK provides for a transition period until 31 December 2020. It follows from Article 129 of the Withdrawal Agreement that, during the transition period, the UK shall be bound by the obligations stemming from the international agreements concluded by the EU, including the EEA Agreement. The EEA EFTA States have agreed to treat the UK as an EU Member State during this period. Accordingly, the rights and obligations contained in the EEA Agreement continue to apply between the UK and the EEA EFTA States until 31 December 2020.

What will be the UK-EFTA trade relationship after the transition period?

After the transition period has ended, the UK will be a third country in terms of the EEA Agreement. As the EEA Agreement does not establish a common commercial or a trade policy, this means that the trade relationship between the EEA EFTA States and the UK after the transition period will have to be agreed in negotiations between the EEA EFTA States and the UK.

How will the United Kingdom’s departure from the EU impact EEA EFTA and UK citizens that are already residing or working in the EEA EFTA States or the United Kingdom?

The EEA EFTA States and the UK signed a Separation Agreement on the 28 January 2020. The Separation Agreement mirrors the relevant parts of the EU-UK Withdrawal Agreement and secures the rights of EEA EFTA and UK citizens that are already residing or working in the EEA EFTA States or the UK, respectively. In addition to provisions on citizen rights, the Separation Agreement covers other separation issues – such as goods placed on the market before the end of the transition period, IPR, ongoing police and judicial cooperation, judicial procedures, data protection, and public procurement - and institutional provisions.

What is EFTA doing to prepare for a future trade relationship with the United Kingdom?

The EFTA States are engaged in numerous processes with the aim to maintain trade relations with the UK as close possible.

Intra-EFTA dialogue

The four EFTA States’ administrations have set up their own internal structures where work is not only focussed on the consequences of Brexit but also on building a new trade relationship with the UK. This includes the appointment of national coordinators at senior officials’ level and the establishment of inter-departmental working groups.

The EFTA States consult among themselves regularly in the EFTA Council and at ministerial level, as well as at dedicated meetings of national coordinators at senior officials’ level.

There is particularly close collaboration among the three EEA EFTA States at all levels, both in the regular meetings of official bodies such as the Standing Committee, and more frequently in dedicated ad hoc settings, also at ministerial level.

EFTA – UK dialogue

All EFTA States are engaging in bilateral dialogue with the UK with the aim to maintain close economic and trade relations after the country has left the EU. Discussions with the UK on the implications of its withdrawal from the EU for EEA EFTA-UK relations were launched in the immediate aftermath of the Brexit referendum.

Switzerland set up several dialogues with the UK: (1) a so-called Continuity Dialogue which deals with horizontal issues and oversees progress in each area, and (2) Specific Dialogues in areas currently covered by the Swiss/EU agreements.

Apart from the various dialogues and negotiations, there has also been considerable interest from the UK for information about EFTA and the EEA. Following requests from the UK, representatives from the EFTA States and the Secretariat have met with members of various committees of the House of Commons and the House of Lords, as well as from Scotland, Wales and Northern Ireland.

EFTA – EU dialogue

There is an ongoing close dialogue between the EEA EFTA States and the EU within the EEA Council and the EEA Joint Committee concerning the implications of the UK’s withdrawal from the EU for the EEA Agreement. The EEA EFTA States also have close bilateral contacts with EU institutions, both at ministerial level and at the level of senior officials and experts.

Switzerland also has regular exchanges with the EU and its Member States.

Since Switzerland is an EFTA Member State, but not a part of the EEA, what will be the future trade relationship between Switzerland and the United Kingdom?

Switzerland and the UK have concluded and signed several agreements in areas including trade, migration, air services, road transport, financial services and citizens´ rights. These agreements will be in place until a new FTA is negotiated and enters into force. Due to Liechtenstein’s participation in the Swiss customs territory, parts of these agreements have also been extended to Liechtenstein.

What does the EFTA Convention say about new member states?

According to Article 56 of the EFTA Convention, “any State may accede to the Convention provided that the EFTA Council decides to approve its accession, on such terms and conditions as may be set out in that decision.”

The EFTA Council is the highest governing body of EFTA, where the four EFTA States – Iceland, Liechtenstein, Norway and Switzerland – meet at ambassadorial or ministerial level. Each Member State is represented and decisions are taken by consensus.

If the UK were to apply to join EFTA, how would the EFTA States respond?

The UK government has clearly indicated that it does not intend to apply for membership of EFTA. However, if the UK were to seek to re-join EFTA, EFTA Member States would carefully examine the application. A request for membership of EFTA would be considered by the EFTA Council, where decisions are taken by consensus. It is not timely to prejudge what the outcome would be as EFTA remains open to examining all options to safeguard the interests of its Member States.

If the United Kingdom were to re-join EFTA, would it automatically become party to the EEA Agreement?

Not automatically, as each EFTA State decides on its own whether it applies to be party to the EEA Agreement or not. According to Article 128 of the EEA Agreement, “any European State becoming a member of the Community shall, and the Swiss Confederation or any European State becoming a member of EFTA may, apply to become a party to this Agreement. It shall address its application to the EEA Council.” The EEA Council takes political decisions leading to the amendment of the EEA Agreement, including the possible enlargement of the EEA. Decisions by the EEA Council are taken by consensus between all EU Member States on the one hand and the three EEA EFTA States - Iceland, Liechtenstein and Norway - on the other.

If the United Kingdom were to re-join EFTA, would it also become party to EFTA’s worldwide free trade agreements?

Any State that becomes a member of EFTA has an obligation to apply to become a party to EFTA’s existing free trade agreements according to Article 56 of the EFTA Convention. The accession of a new Member State to our FTAs can only be negotiated with the consent of the other Party or Parties to the agreement. All of our FTAs include provisions that regulate the accession to the FTA in question, stipulating that terms and conditions have to be agreed upon by the acceding Party and all existing Parties to the FTA.

If the United Kingdom were to re-join EFTA, how would it affect:

Fisheries –The EFTA Convention guarantees free trade in fish and other maritime products between the Member States. A UK membership would therefore mean better market access in the UK for these products than the current EFTA States have today.

Agriculture – When it comes to agriculture, the EFTA Convention has specific commitments for market access in agriculture for each Member State. These would have to be negotiated for any new member state as part of the accession process.

Migration –The EFTA Convention guarantees the free movement of people between the Member States. This would also apply between the UK and the current EFTA States in the event of a UK membership in EFTA.

If the United Kingdom remains in a customs union with the EU, could it still join EFTA?

Art. 56.3 of the EFTA Convention states that a new EFTA Member State “shall apply to become a party to the free trade agreements between the Member States on the one hand and third states, unions of states or international organisations on the other.” As a member of a customs union, a country acceding to EFTA could not comply with this obligation. EFTA membership does not preclude from entering into a customs arrangement with the EU; existing EFTA countries govern their relation to the EU through different instruments.

*Article 126 of the Withdrawal Agreement between the EU and the UK provides for a transition period until 31 December 2020 whereby the UK will continue to be treated as an EEA State.