The European Free Trade Association was founded in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom. When the UK and Denmark left EFTA and joined the EEC on 1 January 1973, the remaining EFTA states entered into bilateral Free Trade Agreements with the Community (except that the FTAs of Iceland, which had joined EFTA in 1970, and of Norway, followed later in March 1973, and July 1973, respectively.)
By 1984, the process of removing tariffs and quotas between the EFTA states and the EC had been completed, and in April at an EFTA-EC Ministerial meeting in Luxembourg, it was agreed to strengthen cooperation with a view to creating a ‘dynamic European economic space’.
The single market
1985 saw the European Commission’s White Paper on the completion of the internal market, leading to the Single European Act, which was agreed in December the same year and came into force in July 1987, with the objective of creating a single market by 1992. The EFTA states did not want to be left out. Anders Olander, who became Sweden’s negotiator at the EEA negotiations commented later:
We all remember how the EEA came about: in the late 1980’s the EC was busy developing its internal market of which we desperately wanted to become part. 1
Likewise the Swiss academic René Schwok observed (p. 6) that the Single European Act:
raised in every EFTA country fears of being marginalised both economically and politically.
On 17 January 1989, Jacques Delors made a proposal for ‘a new, more structured partnership’ between the EC and EFTA, with ‘common decision-making and administrative institutions’. At the same time as offering common decision-making, he also asked:
Are our partners willing to transpose the common rules essential to the free movement of goods into their domestic law and, in consequence, accept the supervision of the Court of Justice, which has demonstrated its outstanding competence and impartiality?
The EFTA states expected that the EC would require them to adopt the trade acquis as it then was into their domestic legislation, but that there would be joint decision-making over future legislation. Sieglinde Gstöhl comments that ‘By “buying the past”, they hoped to be able to influence the future.’ 2 On 12 December 1989 the EFTA Council declared that (p. 9):
The establishment of a genuine joint decision-making mechanism in substance and form is a basic prerequisite for the political acceptability and the legal effectiveness of an agreement, and would be justified by the envisaged scope thereof.
One week later, on 19 December 1989, at a joint EC-EFTA ministerial meeting, it was decided to begin formal negotiations in the first half of 1990, and to:
seek jointly to define a more structured framework for cooperation between the EC and all of the EFTA countries together.
This framework should ‘respect in full the decision-making autonomy of the parties’. The negotiations should permit provision to be made for:
procedures which effectively ensure that both Parties’ views are taken into account, so as to facilitate the reaching of a consensus in decisions relating to the European Economic Space.
Clearly, this leaves much scope for interpretation. It would appear, though, to be very hard to reconcile Delors’ original proposal for ‘common decision-making … institutions’ or EFTA’s prerequisite of a ‘joint decision-making mechanism’, with full decision-making autonomy of each party.
Several of the ministers present made statements concerning the joint declaration. Particularly striking are these words from Jean-Pascal Delamuraz, Minister of Public Economy for Switzerland:
We wish to create an EES (European Economic Space) with joint bodies, not one which will be a mere juxtaposition of two pillars.
In our most recent discussions much was said about the decision-making autonomy that each party would retain in future co-operation. This autonomy will have to be defined very carefully together, for:
• either it will be a mere reminder of the principle of non-interference in the other party’s procedures – and we naturally agree with this traditional principle;
• or the words “full decision-making autonomy of the parties” would imply that each party would be free to go back unilaterally on EES decisions – and such acceptance would break the conventional link we are working to create.
It will be up to our negotiators to find a precise definition of this autonomy.
Delamuraz, therefore, seemed to be looking for powerful joint EC-EFTA bodies, standing over and above both the EC and EFTA, so far as decisions concerning the EES were concerned.
The Austrian Minister for Foreign Affairs, Alois Mock, stressed that:
the key issue … is institutional in nature. I am referring to the role of the EFTA countries in the decision-shaping and decision-making of the European Economic Space.
It is obvious that European integration will not cease with the completion of the Single Internal Market. There will be a continual process of decision-shaping and decision-making. It is imperative that the EFTA countries should be entitled to participate in both the preparation and the taking of decisions concerning future integration…
A month later however, on 17 January 1990, a year to the day since his speech to the European Parliament in which he proposed ‘common decision-making institutions’, Jacques Delors, in another speech to the same body, appeared to retract his offer:
the crux of the current debate is the decision-making process. There will have to be some sort of osmosis between the Community and EFT A to ensure that EFTA’s interests are taken into account in major Community decisions. But this process must stop short of joint decision-making…
According to Schwok (p. 7), Delors’ more generous proposal of 17 January 1989 was ‘largely individualist and improvised’. He had informed neither Willy de Clerq, the Commissioner for external affairs until 6 January 1989, nor Frans Andriessen, the new incumbent. 3 Moreover, Delors’ propositions were ‘badly written and even contradictory’ (ibid., p. 8). Probably they encountered opposition from within the Commission and EC member states as soon as they were put forward.
On 20 June 1990, negotiations on the creation of an European Economic Area began in Brussels between the six EFTA states (Austria, Finland, Iceland, Norway, Sweden and Switzerland) and Liechtenstein (which joined EFTA on 1 September 1991), on the one hand, and the European Commission on the other.
Community membership applications
On 26 October 1990, the Swedish government, as part of an economic crisis package, announced its intention to seek membership of the European Community. The announcement came as a surprise to many, including to Finland, which ‘had not been told about the decision beforehand, even though that had been promised’. According to Karvonen and Sundelius, part of the explanation for Sweden’s change of direction was that ‘The early expectations of the inchoate EEA agreement had diminished considerably during the drawn out negotiations.’ 4
Austria had already applied for European Community membership in July 1989, but Moscow’s opposition to it was not removed until the reunification of Germany during May to October 1990. For Sweden and Austria, therefore, the EEA was no longer to be seen as a permanent alternative to Community membership, but ‘the best way to prepare for it.’ 5 They therefore had little incentive to negotiate strongly for a framework that would be acceptable in the long term. In addition, according to Schwok, writing in 1991, while the negotiations were still underway, ‘most Norwegian, Finnish, and even Swiss diplomats acknowledge, off the record, that their own countries should apply for EC membership’. 6 Schwok went on:
For countries like Switzerland, Finland, and Norway, however, the EEA has lost its value as a means of avoiding EC membership because the “EC diktat” forces those countries to take almost all the EC rules without true co-decision. 7
The subsequent history suggests that this was indeed the direction in which the tide was turning. Sweden made its formal application for EC membership in July 1991, Finland in March 1992, Switzerland on 26 May 1992, and Norway in November 1992. The EEA Agreement, meanwhile, had been signed in Oporto on 2 May 1992 by all seven EFTA nations (now including Liechtenstein). Even before it was due to come into force on 1 January 1993, therefore, all the EFTA nations except Iceland and Liechtenstein had made applications for Community membership. These facts of history are commensurate with Schwok’s view that Finland, Norway and Switzerland in effect rejected the terms of the EEA Agreement except as a temporary pre-accession arrangement.
In December 1992, the Swiss rejected the EEA Agreement in a referendum. Perhaps because of the concurrent EC membership application, and because the result was accordingly interpreted as a vote also against membership, that application was itself suspended. Because of the rejection of the EEA Agreement, to which Switzerland would have been a party, certain changes had to be made to it, resulting in its entry into force being delayed by a year to 1 January 1994. 8
Austria, Finland, Norway and Sweden began accession negotiations on 1 February 1993, completed them on 30 March 1994, and signed the accession acts on 24 June 1994. Austria, Finland and Sweden acceded to what had by then become the European Union on 1 January 1995, but on 27-28 November 1994 the Norwegians had rejected membership in a referendum.
To recap, Norway had signed the EEA Agreement on 2 May 1992, and applied for EC membership on 24 November 1992, not long before the agreement was due to come into force. There is no doubt, therefore, that the Norwegian government intended the EFTA-EEA arrangement to be only a temporary state of affairs, but one that would be useful as a preparation for Community membership. The Agreement was already in force before EU membership was rejected in the referendum, and the Government preferred to continue with it, rather than end Norwegian participation in the EEA and the single market. This situation, which has endured to this day, must therefore be seen as an historical accident, rather than a matter of deliberate policy.
As for Iceland, its membership of the EEA is perhaps best seen as a consequence of its membership of EFTA. At the meeting of EFTA heads of state in Oslo in March 1989, when Delors’s proposals for the European Economic Space were discussed, Prime Minster Hermannsson stated serious reservations about the free movement of services, of capital, and of people. 9 But as the smallest nation of the six, it would hardly have been in a position to halt the EC-EFTA negotiation process, even if it had so desired. That it did not apply for EC membership during 1991-92, when Sweden, Finland, Switzerland and Norway did, was largely due to fears about the effect of the Common Fisheries Policy upon the fishing industry, with fish accounting for three-quarters of Iceland’s exports. 10
Lichtenstein entered into a customs union with Switzerland in 1923, and then into an economic and monetary union, the Swiss franc being employed as its currency. When EFTA was founded in 1960, a special protocol of the EFTA Convention provided that the EFTA provisions applied to Liechtenstein, so long as the customs union with Switzerland persisted. 11 The same applied to the 1972 FTA between the EC and Switzerland. The proposed European Economic Area, however, with its four freedoms, extended into areas which the treaty-making power delegated to Switzerland did not cover. It therefore became necessary for Liechtenstein to join EFTA in its own right, and then become a party to the EEA Agreement. 12
The population of Liechtenstein voted to accept the EEA Agreement just a week after the Swiss rejected it. Complex arrangements then had to be put in place to ‘square the circle’ of participating in the EEA, while maintaining the customs union with Switzerland. Its small size made practicable what would have been unworkable for larger states. 13 For Liechtenstein to join the EU at the present time, however, while Switzerland remains a non-member, would re-open these matters in what would probably be a more difficult form. In addition, the EU itself has so far not found a satisfactory way to grant membership to micro-states. 14
Liechtenstein, therefore, has found itself in EFTA and the EEA as a consequence of Switzerland’s decisions to join EFTA and begin negotiating the EEA, followed by the consequent requirement for it to become a party to the EEA Agreement in its own right, and then its population’s choice to accept the Agreement, perhaps partly as a demonstration of its independence from Switzerland. 15
In conclusion, therefore, it may be argued that the EFTA-EEA arrangement, which involves the semi-automatic incorporation of new EEA-relevant EU legislation without any right to vote for or against it, is not one that has been deliberately chosen by any nation state as a permanent state of affairs. Norway did enter into it deliberately, but only on a temporary basis, with the intention of soon leaving EFTA and joining the EC. Iceland and Liechtenstein were drawn into it as a result of their assocation with EFTA, and with Switzerland, respectively. It may be doubted whether it is an appropriate arrangement for any sovereign state, and especially not for a larger one.
- ‘European Economic Area 1994-2009’, (EFTA 2009) p. 29 ↩
- Sieglinde Gstöhl, ‘The Nordic countries and the European Economic Area’ in ‘The European Union and the Nordic countries’ (ed. Lee Miles; London: Routledge, 1996) p. 57 ↩
- R. Schwok, ‘The EC/EFTA Economic Area: A Compass for Central Europe?’ (Program on Central and Eastern Europe Working Paper Series #14) p. 7 ↩
- L. Karvonen and B. Sundelius, ‘The Nordic Neutrals: Facing the European Union’, (in ‘The European Union and the Nordic countries’, ed. Lee Miles; London: Routledge, 1996) p. 238 ↩
- Schwok, ‘The EC/EFTA Economic Area’, p. 13 ↩
- Schwok, ‘The EC/EFTA Economic Area’, p. 13 ↩
- Schwok, ‘The EC/EFTA Economic Area’, p. 14 ↩
- Sven Norberg and Martin Johansson, ‘The History of the EEA Agreement and the First Twenty Years of Its Existence’ (in ‘The Handbook of EEA Law’, ed. Carl Baudenbacher; Springer, 2016) p. 31 ↩
- Gunnar Kristinsson, ‘Iceland and the European Union’ (in ‘The European Union and the Nordic countries’, ed. Lee Miles; London: Routledge, 1996) p. 150 ↩
- Kristinsson, ‘Iceland and the European Union’, p. 151 ↩
- C. Frommelt & S. Gstöhl, ‘Liechtenstein and the EEA: the Europeanization of a (very) small state’ (Europautredningen, September 2011) p. 13 Link. ↩
- Frommelt and Gstöhl, ‘Liechtenstein and the EEA’, p. 13 ↩
- Frommelt and Gstöhl, ‘Liechtenstein and the EEA’, p. 14 ↩
- Frommelt and Gstöhl, ‘Liechtenstein and the EEA’, p. 55 ↩
- Frommelt and Gstöhl, ‘Liechtenstein and the EEA’, p. 15 ↩