Austria, Denmark, Norway, Portugal, Switzerland and UK concluded the EFTA agreement in 1960. Its primary purpose was to liberalise trade in goods without pursuing the political integration objectives of the European Economic Communities; the EEC. Finland joined in 1961 followed by Iceland in 1970 and Liechtenstein in 1991.
Ultimately, all of these states joined the EEC (later the European Communities (EC) and the European Union (EU)) except Iceland, Liechtenstein, Norway and Switzerland who remained as EFTA members. Norway twice agreed to accession terms with the EEC in 1973 and the EC in 1995 but they were rejected on both occasions by its electorate.
The European Economic Area (EEA) Agreement came into force on 1st January 1994 between the EU and Norway, Iceland and Liechtenstein. Switzerland had been intended to participate in the EEA but in a 1992 referendum, slightly less than 50 per cent voted in favour. Subsequently, EU and Switzerland entered a large number of bilateral agreements establishing cooperation in several specific areas.
Some EFTA countries have evolved the EEA agreement further bilaterally in areas such as justice and home affairs, foreign and security policy and agriculture. Norway participates in common security and defence policy operations and missions and in the activities of the European Defence Agency.
The EEA countries have the option to have access to the single market in financial services. They may establish branches and subsidiaries in other EEA states without further regulatory approvals. This is based on the EEA freedom of establishment, free movement of services and adaptation of EU financial services legislation.
The EFTA countries became parties to the Schengen area arrangement with common immigration rules. The EFTA countries and most EU states (but not Ireland or the UK) implement Schengen laws and rules under the Schengen Agreement.
UK Joining EFTA
The EEA Agreement (Article 128) provides that members of the EU or EFTA states may apply to be members of the EEA. It seems clear from the wording that the UK will cease to be a member of the EEA upon withdrawal from the EU. It may be able to seek membership of the EFTA and then seek membership of the EEA thereafter. The UK would require the consent of the other EFTA states to join.
There are significant reasons why the UK is unlikely to join EFTA. The EFTA agreement requires accession to the four freedoms of persons, goods, services and capital.
If UK was to join EFTA, it could not readily enter its own trade agreements. It would be subject in all such trade agreement to regulatory compliance equivalence with the EEA standards if it wishes to have access to the single market.
UK could not have customs duties with other EFTA states.
EFA Joint Committee
The EEA agreement provides some input for EFTA states into the making of EEA legislation. The EU calls on experts from EFTA states as well as EU states for a preliminary exchange of
views in considering draft legislation. EFTA state representatives participate in various program committee analysing policy issues. In practice, EFTA states have been able to influence legislation of key importance for them through lobbying at the early stages.
EU law does not become binding on EFTA states until the EEA Joint Committee has incorporated it into the EEA agreement. The EEA committee comprises appointees of EFTA and the EU. On occasions, there have been negotiations for variations and exceptions.
An EFTA state may seek a reservation in relation to specific EU legislation. While this occurs the EEA agreement obliges all parties to work in good faith towards an agreement. If they fail to agree the matter is referred to the Joint Committee. If it is not resolved within six months the relevant proportion that relates to the disputed legislation is suspended. This may cause the relevant state to be excluded from the EEA in respect of that sector.
The EFTA court issues non-binding decisions only. It may not levy sanctions. The referring national court will then decide the case before it based on the EFTA Court’s answer. Judgments in the form of an advisory opinion are not legally binding on the national court. However, in practice, they carry the same force as the preliminary rulings rendered by the European Court of Justice under Article 267 TFEU.
Under these rules, the EFTA Court shall follow the relevant case law of the ECJ on provisions of Union law that are identical in substance to provisions of EEA law rendered prior to the date of signature of the EEA Agreement (2 May 1992) and shall pay due account to the principles laid down by the European Court of Justice’s relevant case law rendered after that date. The EFTA Court’s jurisprudence is in fact based on the case law of the European Court of Justice (ECJ).
The politically important distinction between old and new ECJ case law has largely been qualified in practice. The EFTA Court also refers to the case law of the General Court of the European Union (EGC). All three EEA courts (ECJ, EGC, EFTA Court) have not only emphasized the need for a uniform interpretation of EU and EEA law but have actively seen to it that homogeneity is preserved.
There are some precedents for EFTA states to be permitted limited derogations. The EEA joint agreement allowed Liechtenstein to restrict the number of residents permits it issued to other EEA nationals for a period. The agreement was renewed for five-yearly periods thereafter. There is a significant difference in size between Liechtenstein population at approximately 38,000 that that of the UK at approximately 60 million.
Norway succeeded in negotiating an exclusion from agricultural and fisheries products in order to protect its domestic sector. There is an obligation in principle to seek to negotiate liberalisation of this trade.