The creation of the European Free Trade Association was a milestone in the move toward economic integration in Europe, forming the first “free trade” area in economic history. The association led to a common tariff even if it did not create a full-scale customs union, and it paved the way for some of its members to make the big leap and join the European Economic Community, and then the European Union.
The European Free Trade Association (EFTA), comprising seven member nations with a combined population of some 80 million people, was established in Stockholm on January 4, 1960. The multilateral association addressed the economic concerns of several Western European nations, who questioned the economic convergence implied in the European Economic Community
The United Kingdom, the leading industrial power of Europe after World War II, saw its economic preeminence slipping in the 1950’s. The revival of the economies of Western Europe—aided by the Marshall Plan, which helped finance their recovery—left Britain in a position of uncertainty. France, Germany, and the Low Countries (the Netherlands, Belgium, and Luxembourg) had recovered from their wartime losses and were gaining in economic security. The “urge to merge” that was common in Western Europe, and the success of the Benelux Customs Union
The successful Rome negotiations left Britain in a very difficult spot. The British had retained special economic preferences with many of the independent countries that had evolved out of the British Empire of the nineteenth century, which made it impossible for Britain to join a customs union with the countries of the EEC, also known more commonly as the Common Market. At the same time, the British were eager to benefit by the free-trade (or virtually free trade) policy that the EEC was espousing. British prime minister Harold Macmillan would soon promote negotiations between his government and those of the EEC in the hope of creating a much looser grouping dedicated to low tariffs that would promote trade among the countries of Western Europe. Throughout much of 1958 the president of the EEC’s board of trade, Reginald Maudling, chaired a committee that was attempting to negotiate such a vision, but at the end of 1958 the committee died at the behest of French president Charles de Gaulle. De Gaulle’s goal was to make France the leader of the new economic grouping, and he harbored a deep-seated distrust of the British.
Unable to reach an agreement with the EEC countries, Britain turned to the other Western European nations that likewise were unwilling to accept the tight links the EEC proposed for its members. Britain pulled in six more states—Austria, Denmark, Norway, Portugal, Sweden, and Switzerland—to negotiate what came to be called the European Free Trade Association (EFTA). Over the years its membership fluctuated (Iceland joined in 1970 and Finland became an associate member first, fearful that Russia would object to full membership; it became a full member in 1986). Switzerland actually represented itself and the small principality of Liechtenstein, with which it had a long-standing customs union.
In November, 1959, the seven founding members of EFTA met in Saltsjöbaden, near Stockholm, Sweden. Negotiations proceeded swiftly, and on January 4, 1960, the members signed the Treaty of Stockholm, creating EFTA. The treaty, which went into effect on May 3, created a simple administrative structure: a council represented all members of the EFTA, and each member had one vote. Under the council were several committees: the Committee of Trade Experts, whose role was to do all the preliminary work on trade agreements submitted to the council; the Committee of Origin and Customs Experts, which advised the council on customs issues, notably questions of origin on which the council had to rule; the Economic Committee, designed to evaluate the economic policies of the member countries and the implications of those policies for the association; and the Consultative Committee, comprising representatives of the private sector, including trade associations, unions, and industry.
A small permanent administration was established in Geneva to carry on the business of the EFTA on a day-to-day basis. Council meetings took place twice each year, with ministers in the government of the member country serving as member representatives. The chairmanship of the council rotated among the members. By contrast with the EEC, however, the permanent bureaucracy of EFTA remained small (less than one hundred persons).
Because many EFTA members were already low-tariff countries, producing a common tariff was a relatively easy task. However, the difference between the EFTA tariff and those of nonmembers was not great. The tariff harmonization process gradually eliminated other trade barriers, such as quotas for various products. The plan, according to the treaty of 1960, was to produce a common tariff within ten years, but a common tariff was found much more quickly: By December 31, 1966, the process was complete. The common tariff among EFTA members contributed to the economic growth experienced by EFTA in the 1960’s. In 1967, the ECC became part of the European Community (called the European Union as of 1993). A common value-added tax (VAT), a type of sales tax included automatically in a product’s or service’s price, was added in 1970.
One unusual feature of EFTA was its development funding, which was part of its policy to encourage economic development in underdeveloped areas. This effort began with Portugal, which had some difficulty in bringing its tariff into harmonization with the tariffs of the other EFTA members. Subsequently, EFTA created special trade arrangements with Spain and Yugoslavia.
Even though EFTA originated out of the unwillingness of its constituents to accept the trading restrictions imposed by the EEC on its members, EFTA did negotiate a number of agreements with the EEC to facilitate trade among members of both groups, especially in industrial products. At the core of EFTA was the commitment of its members to the “most-favored-nation” concept, under which concessions made to one nation were extended to all other nations with which the negotiators had such agreements. This helped establish an acceptance of the idea of free trade, but it gradually reduced the negotiating opportunities for EFTA members.
The resignation of de Gaulle as president of France in April, 1969, changed the economic landscape in Europe. The EEC had established a full customs union among its members by July 1, 1968. Meanwhile, the British government had changed and had been rethinking its policies toward Europe. With de Gaulle (who had persisted in blocking any attempt to bring Britain into the EEC) out of the picture, Britain again applied for membership to the EEC in 1969, along with Denmark, Norway, and Ireland. In January, 1972, the Treaty of Accession was signed by all four countries, but a referendum held in Norway denied popular support for joining the EC. The other three countries joined. The transfer of Britain in January, 1973, to the EC from EFTA seemed to make the trade association pointless. Nevertheless it continues to exist as a monument to the desire of European nations to integrate their economies.
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European Free Trade Association. Economic Integration and Free Trade in a Changing World Economy. Saltsjöbaden, Sweden: Author, 1980. Provides a detailed history of the organization. -
_______. The European Free Trade Association. Geneva: Author, 1980. An official commemorative publication that outlines the association’s focus. -
_______. This Is EFTA. Geneva: Author, 2006. Available at http://secretariat.efta.int/. A forty-page handbook on the organization’s history, structure, and activities. Highly recommended. -
Leonard, Dick.“The Economist” Guide to the European Union. 9th ed. London: Profile Books, 2005. This revised work is an excellent starting point for those interested in the history and workings of the European Union, which includes the former EEC. -
Lewis, David W. P. The Road to Europe: History, Institutions, and Prospects of European Integration, 1945-1993. New York: Peter Lang, 1993. A comprehensive and detailed account of economic integration in Europe after World War II. -
Urwin, Derek W. The Community of Europe: A History of European Integration Since 1945. New York: Longman, 1995. A compact yet detailed history of the various organizations carrying out European integration after World War II. -
Vanthoor, Wim F. V. A Chronological History of the European Union, 1946-2001. Cheltenham, England: Elgar, 2002. Provides a useful time line of the history of the European Union, and its predecessors, the European Economic Community and other entities.
European Payments Union Is Formed
European Coal and Steel Community Is Established
Value-Added Taxes Begin in Europe
European Common Market Is Established
Organization for Economic Cooperation and Development Forms
Agency for International Development Is Established
European Economic Community Adopts the Common Agricultural Policy
Johnson Restricts Direct Foreign Investment
Birth of the European Monetary Union Project