Short Overview of the EFTA Convention

The European Free Trade Association (EFTA) was established by a Convention signed in Stockholm on 4 January 1960. The main objective of the Association was to liberalise trade among its Member States, and the Convention thus contained basic rules regarding free trade in goods and related disciplines.

In 1990, EFTA established a third-country policy to mirror the European Union's external economic relations approach after the end of the Cold War. Since then, EFTA has established an extensive network of contractual free trade relations all over the world. The EFTA Member States also developed close trade relations with the EU, as reflected in the EEA Agreement (1994) and the EU-Swiss Bilateral Agreements (1999). These developments prompted the EFTA States to modernise their Convention at the end of the 1990s to reflect an increased level of ambition in trade liberalisation.

The updated EFTA Convention, the Vaduz Convention, was signed on 21 June 2001 and entered into force on 1 June 2002, in parallel with the EU-Swiss Bilateral Agreements. It included several significant changes, of which the most important was the integration of the principles and rules established between the EU and the EEA EFTA States in the EEA Agreement, and between the EU and Switzerland in the EU-Swiss Bilateral Agreements. Important new provisions included the free movement of persons, trade in services, movement of capital and protection of intellectual property. 

The Vaduz Convention covers all the important aspects of modern trade and considerably reinforced the ties between the EFTA countries. The revised Convention strengthened the cohesion in economic relations between the EFTA Member States and provides for an enhanced common platform for developing their relations with trade partners around the world.

The EFTA States now benefit from virtually the same privileged relationship among themselves as they do with the EU. The Convention effectively applies to the relations between Switzerland and the EEA EFTA States, since the EEA Agreement applies to trade relations between Iceland, Liechtenstein and Norway. It is updated by the EFTA Council regularly to reflect developments under the EEA Agreement and the Swiss Bilateral Agreements.

Below you will find short summaries of the following areas covered by the EFTA Convention:

• Trade in goods
• Services and investment
• Land and air transport
• Intellectual property rights
• Government procurement
• Movement of persons, social security and mutual recognition of diplomas
• Technical barriers to trade
• Competition, public undertakings and monopolies, and state aid

 

Trade in goods
To liberalise trade in goods among its Member States, has been the main objective of the Association as from its establishment. The EFTA Conventions establishes a free trade area between the partners by:

- Providing for free trade in industrial goods, including fish and other marine products;
- Improved market access for agricultural products;
- Including trade disciplines; and
- Establishing rules on customs and origin matters.

The EFTA States have a highly developed and diversified industrial sector, and under the EFTA Convention, the Member States grant total elimination of customs duties for all industrial products. The fisheries sector is of major importance to both Iceland and Norway. Free trade in these products constitutes an essential element of the Convention, and as in the WTO, these products are considered industrial goods.

In the Convention, EFTA distinguishes between basic agricultural products such as grain, milk and sugar, and processed agricultural products such as bread, chocolate and soup. In principle, the EFTA States liberalize trade in processed products. Certain measures are maintained, however, to compensate for higher costs of raw materials used by the EFTA food processing industry in the respective EFTA States. For basic agricultural products, the EFTA States grant each other preferential market access as set out in a separate Annex, taking into account that the EFTA States do not have a common agricultural policy.

Services and investment

The EFTA Convention provides for the general liberalisation of trade in services and investment (including establishment and movement of capitals) among EFTA States. Specific rules govern the supply and consumption of services by natural persons, as well as liberalisation of the land, rail and air transport markets in the EFTA States.

Subject to national reservations, a company or firm formed in accordance with the law of a Member State and with a real and continuous link with the economy in that Member State may set up and operate its business in the territory of any other Member State. For both cross-border trade and investment, EFTA States were allowed to lodge one-off national reservations before the entry into force of the Convention. They agreed not to introduce any new limitation, to the gradual reduction and, ultimately, elimination of any reaming reservation. Existing reservations largely reflect the EFTA States’ commitments undertaken under the General Agreement on Trade in Services (GATS) of the WTO.

Finally, the Convention further stipulates that EFTA Member States undertake to extend to each other benefits that may accrue from any new agreement that they conclude with the European Union.

Land and air transport

Special rules govern liberalisation of trade in services and investment in the areas of land and air transport. The EFTA Convention integrates elements of the “EU-acquis” well as of the relevant bilateral Switzerland-EU agreements.

In the field of land transport, the EFTA Convention provides for a gradual reciprocal opening of the markets for the transportation of both persons and goods by road and rail between all the EFTA States. Regarding air transport, the EFTA Convention lays down the terms on which EFTA airline companies will have access to each other’s market, including establishment in the territory of another Member State. Other provisions concern the granting and surveillance of state aid, fares and rates, computer reservations systems, environmental regulations, licensing issues and slot allocation, groundhandling, air carrier liability, technical harmonisation and air safety.

Intellectual property rights

The revised EFTA Convention provides for high standards of protection of intellectual property rights. The provisions afford adequate and effective protection of intellectual property rights, building on the principles of national treatment and most-favoured-nation (MFN) treatment as stipulated in the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.

The Convention defines the areas of intellectual property to which it shall apply and specifically includes substantial provisions as regards patents, designs and geographical indications. Furthermore, the Convention specifies certain multilateral agreements in the field of intellectual property to which the EFTA States reaffirm their obligations.

Finally, the Convention provides for measures for the enforcement of intellectual property rights against infringement thereof, counterfeiting and piracy.

Government procurement

The EFTA Convention does not contain any obligations regarding government procurement, see art. 34. All four EFTA States are members of the WTO plurilateral agreement on government procurement (GPA). Through this agreement, the EFTA States take on obligations both regarding the rules governing procurement, sectors covered and thresholds. The commitments under the GPA are the most favourable conditions that the EFTA States offer to any partner, and therefore provide the EFTA States with non-discriminatory access to each other’s markets.

Movement of persons, social security and mutual recognition of diplomas

The Vaduz Convention introduced the free movement of persons by opening the labour markets of the EFTA States. The Convention specifies the rights of entry, exit and residence and the right to work for the employed, the self employed and service providers. Special rules govern individuals living in border areas and working in Switzerland as well as public service activities and the acquisition of real estate in Switzerland.

All lawful residents have the right to equal treatment with nationals in respect of access too, and in the pursuit of, an economic activity, and living, employment and working conditions.

The free movement of persons also covers social security issues by establishing a system of coordination between the EFTA States. The objective is to apply common principles and rules so that differences in national legislation do not hinder the mobility of persons who move within the EFTA area. Additionally, the mutual recognition of professional diplomas has been introduced under the EFTA Convention, which further facilitates the free movement of persons.

Technical barriers to trade

The EFTA Convention facilitates the free movement of goods between the EFTA States through mutual recognition of conformity assessments and notification of draft technical regulations.

The EEA Agreement extends the Union’s internal market rules to the three EEA EFTA States. This comprises the entire body of technical regulations determining the requirements products need to fulfil concerning safety, consumer protection, health and the environment, as well as the procedures for testing conformity with such requirements.  The Convention incorporates the rules established under the bilateral agreement between Switzerland and the EU in this area, as well as the corresponding provisions of the EEA Agreement.

Competition, public undertakings and monopolies, and state aid

The EFTA States recognise that anti-competitive business practices of private or public undertakings have the potential to undermine the benefits of liberalisation (Articles 17 and 18). The Convention text provides for consultations and safeguard measures to deal with possible difficulties resulting from anti-competitive practices of another EFTA State.

The Convention also contains detailed rules on public undertakings and monopolies aiming to prevent government authorities, public enterprises or other public undertakings from undue protection of domestic production or discriminatory measures against nationals of the other EFTA States that would undermine the benefits of liberalisation (Article 17).

Referring in principle to Article XVI of the GATT 1994 and the WTO Agreement on Subsidies and Countervailing Measures (Article 16), the EFTA States aim to ensure that subsidies granted by the authorities to private entities, which trade in goods, do not distort, or threaten to distort, competition among undertakings in the EFTA States. However, the EFTA States abstain from applying countervailing duties among themselves (Article 36).

Rules on admissible forms of state aids regarding the air transport sector have been laid down in an Annex to the Convention (Article 29 of Annex Q). The EFTA States committed themselves to conducting annual reviews about a possible extension of the disciplines mentioned above to other services (Articles 17 and 18).