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EFTA free trade agreements: past, present and future.

A Common Platform for Negotiations In these high days of preferential trade agreements, it is worth recalling that EFTA laid the foundations of modern post-World War II free trade agreements, offering an alternative to deeper regional integration within the customs union of the European Economic Community. Founded in 1960. EFTA provided a framework for European countries neither able nor willing to join the EEC. Within the two options provided for by Article XXIV of the GAT!. 1947--customs unions and free trade areas--EFTA responded to the latter and thus to the path of international cooperation as opposed to deeper integration and supranational structures. EFTA reflected the traditional precepts of sovereignty, maintaining full jurisdiction over foreign external relations and leaving domestic institutions without the supervision of international bodies. The EFTA Secretariat, until the signing of the EEA Agreement with the Member States of the European Union, would not engage in supervisory functions comparable to those performed by the Commission of the EEC.

From the outset, the main purpose of EFTA was not so much to foster trade between its members, although this was for a time of considerable importance, e.g. between Denmark. Ireland and the United Kingdom.

Trade between the EFTA countries, e.g. Norway and Switzerland, never developed to a level expected in a free trade zone. Rather, based upon the experience of failed efforts by single countries to bring about a bilateral association with the EEC in the early 1960s. EFTA developed in building a joint platform for multilateral negotiations with the six EEC members; joining forces led the EEC to the negotiating table. When Denmark, Ireland and the United Kingdom joined the EEC in 1972, this joint effort was most crucial for the conclusion of the 1972 landmark FlAs between individual EFTA States and the EEC on industrial goods and processed agricultural products. They gradually provided full market access in industrial goods to and from the EEC. While in the meantime most EFTA members left for the European Union or signed the EEA Agreement, the 1972 FTA continues to provide the main pillar in Swiss-EU relations after more than 40 years of existence. The format used then for trade negotiations--preparing jointly and concluding separately--has been a successful mantra of EFTA ever since.

The 1972 EFTA very much shaped long-term attitudes of the Association in subsequent negotiations. Strongly relying upon the disciplines of the GATT. EFTA focused on industrial goods and processed agricultural products, leaving basic agricultural products largely aside. Switzerland and Norway continue to be among the most protectionist agricultural producers even within EFTA trade. Likewise, EFTA did not strongly venture into trade in services prior to the 1995 GATS, despite the EFTA Convention having laid foundations to this effect. On the other hand. EFTA made major contributions to addressing non-tariff barriers. The 1988 Tampere Convention was a milestone in technical barriers to trade. It strongly influenced subsequent developments within the EEC and the GATT, providing the foundations for the code and subsequent WTO Agreement on Technical Barriers to Trade. The obligation to notify a draft regulation and allow for international comments has remained a unique feature originally developed by the EFTA countries.

EFTA-EEC relations were initially founded on the 1972 FTAs, but subsequent developments were no longer made in tandem. While Switzerland constantly upgraded its bilateral relations, resulting in more than 130 additional bilateral instruments, other EFTA members were less prepared when the European Union adopted the Single European Act and returned to majority voting in 1986 in matters relating to the Common Market. The Internal Market programme created fears among the majority of EFTA countries of facing market access restrictions. It led to the 1992 Agreement on the European Economic Area.

Splitting EFTA and Diverging Avenues to European Integration

The EEA Agreement completely reshaped relations between the EFTA States and the emerging European Union. Austria, Finland and Sweden eventually joined the European Union in 1995. Iceland, Liechtenstein and Norway stayed in the EEA. and Switzerland opted to stay outside of the EEA and to continue on its well-established path of sectoral bilateral agreements. The principal common raison d'etre of EFTA--defining common relations with the European Union--ceased to exist, and split EFTA into two different camps. Institutionally, the EFTA Secretariat was split into a Brussels office dealing with the EEA and a Geneva office dealing with external relations. The EEA Agreement brought about a solid institutional framework in dealings with the European Union, characterised by the EFTA Surveillance Authority (ESA) and the EFTA Court. including preliminary rules. It also brought about parallel control, by the European Commission and the European Court of Justice, of EEA Treaty obligations on the part of the EU Member States. Swiss-EU relations, on the other hand, remained without any common institutional framework beyond mixed committees. The divide could not be more prominent. EFTA ceased to exist as a common platform for dealings with the European Union. Moreover, it was reduced to four members. It had clearly lost the battle for a large free trade zone within Europe against a predominant customs union and deeper integration.

The Shift to Third-Country Relations

While relations with the European Union henceforth were defined by the EEA Agreement and a separate Swiss agenda, third-country relations emerged as a new common theme for the four remaining EFTA countries. Since 1990, EFTA's members have jointly. concluded 26 FTAs (2). These agreements were negotiated as a group in the traditions of the 1972 FTAs and a common template. In some cases, countries preferred to go on their own, depending on prevailing and potentially conflicting interests. Thus, FTAs with Japan, China and the Faroe Islands were concluded separately by Switzerland. Likewise Iceland. Liechtenstein and Norway concluded separate agreements with the Faroe Islands, and Iceland concluded a separate agreement with China.

EFTA thus was reduced to a marriage of convenience and each partner reserved the right to go it alone. Nevertheless, all of these agreements show common traits in terms of structure and content. As before, they rely strongly upon WTO disciplines and exclude agriculture to the extent possible. They venture cautiously into services, yet without major breakthroughs compared to the level of liberalisation in GATS. They entail elements of "TRIPS plus" (Agreement on Trade-Related Aspects of Intellectual Property Rights). in particular on the part of Switzerland, and expand into protection of investment in line with current trends.

Overall, the template of EFTA agreements remains classic. They are not uniform, and are tailored to each member. Yet we search in vain for new and pioneering approaches to current and impending challenges. For example, recent EFTA free trade agreements contain a chapter on trade and sustainable development, yet without offering innovative rules on key issues such as Process and Production Methods (PPMs) of transfer of technology in the operative part on trade in goods. Liberalisation in services remains cautious and intellectual property protection largely follows "WTO plus" rules. The template and model of the North American Free Trade Agreement has been more influential in shaping new approaches, for example to labour relations, environment and investment protection. The world no longer looks to EFTA agreements for guidance. Their main function, it would seem, is to prevent or remedy potential discrimination on third markets in relation to the European Union. The EFTA agenda is synchronised with the EU's external relations agenda with emerging economies. Partly. EFTA succeeds in passing the line ahead of the European Union. Partly, it follows suit.

EVTA and EU agreements, however, differ considerably. While EFTA agreements focus on classical areas of market access. EU agreements are more elaborate and comprehensive. EU templates are closer to association and overall development agreements, with an important component on trade and investment. This is particularly true for agreements concluded under the economic partnership agreement (EPA) framework. Moreover, the geographical scope varies considerably. The European Union currently has 20 association agreements in place (3), many of which are in regions where the EFTA countries are completely absent. This is particularly true in respect of Africa. except for North and South Africa. Pressing problems on immigration, which equally affect the EFTA countries, remain without a proper response in terms of economic and commercial cooperation. In the long run, EU association agreements offer deeper relations and are likely to marginalise the current generation of EFTA agreements to the extent that they exist. The same is true in relation to trade agreements concluded by the United States, using NAFTA templates. These agreements arc more comprehensive. They offer a broader scope of cooperation than can be observed in EFTA agreements. They do not engage in burden sharing in terms of development and focus on an agenda of trade promotion.

The Prospects of TTIP and TPP

Ongoing negotiations between the United States and the European Union, encompassing 50 States in North America and the 28 EU Member States, and thus some 50% of world trade and 30% of world GDP, risk creating a major and perhaps final blow to EFTA. It is much too early to discuss potential outcomes. The challenges are formidable, and the prospects of finding common ground in terms of non-tariff barriers and regulations, mainly addressing behind-the-border issues, remain questionable. Yet, to the extent that the European Union and the United States, in light of changed geopolitical constellations, are willing and able to agree even in selected areas and sectors such as the chemical, pharmaceutical or automotive industries, new global standards will emerge. The EFTA countries will be able to adjust to those unilaterally. To the extent, however, that they depend upon mutual recognition, the EFTA countries will face formidable discrimination. Efforts to latch onto TTIP agreements may be successful, yet may also fail in light of the fact that most countries around the world seek equal treatment. It is more likely therefore that those results will eventually be multilateralised within the WTO. This will take time, however, and may force industries to relocate to the European Union in the meantime in order to avoid trade distortions. Likewise, the implications of the Trans-Pacific Partnership which is currently being negotiated between 12 American and Asian countries, including the United States and Japan, are likely to produce market access restrictions and discrimination even where EFA free trade agreements exist with TPP members. It is unlikely that the TPP will extend accumulation of origin and mutual recognition to external free trade partners and thus allow market access to the TPP by way of an EFTA free trade agreement with one of its members.

The Future of EFTA

The EFTA "split" and the challenges in third-country relations in light of the TTIP and TPP projects call for a rethink of the future role of the organisation in Europe and worldwide. For the time being. Europe will evolve at four speeds. Two are within the European Union, entailing the Monetary Union and the Internal Market. A third one is the EEA Agreement. There is a need to provide for a fourth circle of countries that are unwilling or unable to join the European Union or the European Economic Area. There is also a need to provide a proper and coherent framework for thc European "micro-states", in particular Andorra, Monaco, San Marino and perhaps the Vatican. EFTA is a suitable platform to this effect and perfectly able to shape the relations of its Member States with the European Union through a common and shared institutional framework.

If the institutional architecture of the EEA Agreement were to be extended to non-EEA countries, then EFTA would be particularly well placed to accommodate even the complex Swiss-EU relations. Arguably, the European Union's legitimate objective of overcoming current institutional deficiencies in Swiss-EU relations by way of introducing international surveillance and judicial review can best be served by recourse to the EFTA institutions--ESA, the EFTA Court and the joint Council--developed for the EEA. These mechanisms can equally be used for existing and future sectoral agreements. Switzerland's path of integration may also be extended to other countries outside the European Union which, for their own reasons, may be interested in joining EFTA on comparable terms. These may include the "micro-states" and perhaps others, such as Ukraine. In some cases, countries may be seeking a close relationship with the European Union, but may fall short of being accepted for membership or may themselves be reluctant to accept supranational structures of deeper integration.

The European Union should stand ready to engage in shaping what may be called the fourth circle of European integration, in addition to the layers of the Monetary Union, the Internal Market and the EEA. It should be interested in developing coherent and common forms of cooperation with common institutions of surveillance and judicial review as countries wait to enter the EU or decide to remain outside. The European Union should also be interested in an organisation engaged in burden sharing.

EFTA could thus develop into an institutional host for existing and future EU association with states wishing to maintain the traditional perceptions of national sovereignty within Europe. EFTA could expand its function of surveillance and adjudication in the spirit of international cooperation on the basis of agreements that may vary from country to country. Unlike the EEA, relations would not be uniform but rely upon tailor-made agreements. EFTA could engage in technical assistance and knowledge transfer within the community of these countries. It could develop a voice to speak for the countries in the third and fourth circles of integration vis-it-vis the European Union and the world. This would enhance its chances of latching onto the TT1P on the side of the European Union, and would increase the voice of EFTA in international organisations, in particular the WTO.

An expanded membership would change the nature of EFTA. Differences in social and economic development, as well as governmental structures, would require a rethink of the scope and level of commitments and would imply a departure from traditional approaches. The integration of new members would need to entail progress in agriculture, as many countries depend upon agricultural exports for stability and prosperity. It would require the enhancement of components of focused assistance, technical cooperation and migration policies, so far largely absent from EFTA. EFTA, in other words, would move closer to the templates and types of agreements concluded by the European Union with developing and emerging economies. It would engage in European burden sharing.

Increasing the number of EFTA members would reinvigorate the tradition of a common platform of negotiations with the European Union and other countries. Negotiations between the EU and EFTA members would entail the support and involvement of the EFTA Secretariat. The increase in membership would reinforce the standing of EFTA vis-A-vis the European Union, within the WTO and with other international organisations. An extended membership would also increase the potential for concluding substantial FTAs with third countries and for finding solutions in latching on appropriately to future systems of preferential trade, encompassing major markets.

Structuring the fourth circle of European integration calls for common institutions within EFTA, but does not require uniform agreements. Divergent needs and levels of social and economic development can be taken into account under a common roof The structure allows for tailor-made solutions, and the bilateral avenue pursued by Switzerland is an example in point. The main focus of EFTA will again be on European integration and its relations with the European Union. Third-country relations, given the nature of the free trade zone. may continue to be pursued jointly or in isolation. Joint efforts, where possible, will increase leverage. Isolated agreements between single EFTA States with third countries may be easier to achieve depending on the interests at stake. Yet only an EFTA speaking with one voice will render it a respected partner and a lasting alternative to fully fledged integration within the European Union for those states that prefer to stay away or are unable to join.

(1.) Professor of European and International Economic Law, Managing Director, World Trade Institute, University of Bern, Switzerland. I am indebted to Gabriela Wermelinger, MLaw, and Charlotte Sieber, MLaw, World Trade Institute, for their most valuable assistance. The views expressed here are those of the author.

(2.) See http://www.efta.int/free-trade/free-trade-agreements for a list of concluded agreements.

(3.) For the complete list of association agreements, see http://eeas.europa.eu/association/docs/agreements_en.pdf.

Professor Thomas Cottier (1)
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Title Annotation:European Free Trade Association
Author:Cottier, Thomas
Publication:EFTA Bulletin (Switzerland)
Geographic Code:4EXSI
Date:Dec 1, 2013
Words:2717
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