The activities of the European Free Trade Association (EFTA)
(reply to the 33rd and 34th annual reports)Doc. 7526
22 April 1996REPORT[1]
Rapporteur: Mr BUZATU, Romania, Socialist Group
Summary:
The European Free Trade Association (EFTA) today has only four member states -Iceland, Liechtenstein, Norway and Switzerland - following the departure of Austria, Finland and Sweden to the European Union at the beginning of 1995. This notwithstanding, EFTA continues to promote close economic relations on behalf of its member states with the European Union, as well as with numerous other European and even non-European countries.
The report examines EFTA's recent activities and plans for the future. In particular, it recommends a deepening of the European Union-EFTA "cumulation agreement" for free trade in goods assembled in different European countries and its extension to the whole of central and eastern Europe. It also calls for better market access for exports from central and eastern Europe to the European Union-EFTA area, and for EFTA's co-operation agreements with various countries to be turned into free trade agreements as early as feasible.
I. Draft resolution
1. To its four member states - Iceland, Liechtenstein, Norway and Switzerland - the European Free Trade Association (EFTA) remains a valuable instrument for trade amongst them, as well as with the European Union, other European countries and the rest of the world. It illustrates that increasingly close economic and trade relations may be pursued without their political counterpart, thus providing the European countries concerned with an alternative to the European Union.
2. The Assembly welcomes EFTA's close relations with the European Union - in the case of Iceland, Norway and Liechtenstein through the European Economic Area - and its recent free trade agreements with numerous countries in central and eastern Europe. They constitute a major contribution to free and open trade in Europe as a whole, as well as to the work of the World Trade Organisation in favour of global trade liberalisation.
3. The Assembly, in conclusion, asks the member states of EFTA and the European Union further to adapt the cumulation agreement they have reached on a technical level, by which agreement materials originating from the European Union, EFTA and associated countries in central and eastern Europe can be combined within a large European free trade area - and generally do their utmost to ensure better market access for exports from central and eastern Europe to the European Economic Area.
4. The Assembly furthermore asks the member states of EFTA:
i. to continue to expand and intensify their links especially with the countries in central and eastern Europe, thereby assisting them in their economic development and facilitating entry into the European Union for those among them who so wish;
ii. to work towards transforming its co-operation agreements with various countries into free trade agreements as early as feasible.
II. Explanatory Memorandum
by Mr BUZATU
Contents
II. EFTA relations with the European Union
III. EFTA's relations with countries in central and eastern Europe
1. The present report seeks to portray EFTA following the large reduction in its membership, Austria, Finland and Sweden having acceded to the European Union on 1 January 1995. Despite the considerable reduction, however, the remaining countries - Iceland, Liechtenstein, Norway and Switzerland - are left with very much the same tasks as before, and EFTA's role has not changed. EFTA has over the last few years refocused its activities from intra-EFTA trade towards administering a number of free trade agreements with third countries, mainly in central and eastern Europe and, for all except Switzerland, to the management of the Agreement on a European Area with the European Union. The four countries are relatively wealthy, but with a population amounting to a mere 3% of that of Western Europe, and only 5% of the EFTA-European Union combined GDP, EFTA's economic weight is of necessity reduced.
2. The present report aims to review the main developments within and surrounding EFTA since the Parliamentary Assembly's last debate on the subject in April 1994 (Resolution 1028 (1994); Doc. 7047). It will be recalled that the Parliamentary Assembly has served as a parliamentary forum for EFTA almost since its foundation in 1960.
3. Few intergovernmental organisations have greater flexibility than EFTA, which this year celebrates its 35 years of existence. Unlike the European Union, which has only enlarged, EFTA has, on the whole, undergone constant shrinking since the time when, in 1960, it was created at the initiative of the United Kingdom, with Austria, Denmark, Norway, Portugal, Sweden, Switzerland as the remaining founding members.
4. EFTA's purpose has always been, and continues to be, economic rather than political. The 1960 Stockholm Convention makes it clear that it is there to "promote in the area of the Association and in each member state a sustained expansion of economic activity .... [and] to contribute to the harmonious development and expansion of world trade and to the progressive removal of barriers to it."
5. For many years it upheld precisely this mission, and in so doing it significantly contributed to European prosperity and international understanding. Being non-political - simply stipulating free trade among member countries regardless of their trade conditions vis-�-vis third countries - it has over the years welcomed any new members prepared to play by its rules, while wishing success to those joining the European Union.
6. EFTA's importance for its present members continues to be in their economic and trade relations with the European Union, in particular through the European Economic Area (EEA) Agreement, and with a number of other countries in the world, mainly in central and eastern Europe.
II. EFTA relations with the European Union
7. There is no real need to recapitulate here EFTA's increasingly close relations over the years with the Union, culminating in 1994 with the entry into force of the European Economic Area agreement between the Union and all EFTA countries except Switzerland. (Switzerland, it will be remembered, decided to remain outside the EEA after the proposal was rejected in a popular referendum in 1992. This does not, however, prevent Switzerland from in practice fulfilling most of the EEA provisions without, on the other hand, enjoying its benefits in terms of market access.) The last country to join the EEA was Liechtenstein, following a positive referendum result in April 1995. The accession, which came into effect on 1 May 1995, succeeded in reconciling the country's customs union with Switzerland with the Confederation's remaining outside the EEA.
8. The EEA agreement considerably helped European Union negotiations with Austria, Finland, Norway and Sweden aiming at membership. The negotiations were concluded in little more than a year, in large measure because the European Economic Area had already extended the Union's acquis communautaire to the EFTA countries. Even for Norway, which decided not to apply for membership following a negative referendum result in November 1994, the EEA has helped consolidate fruitful economic relations with the Union, including the three EFTA countries that joined.
9. Most of the EEA legislation relates to the so-called four freedoms, that is the free movement of goods, services, capital and persons across the EEA. Their establishment should lead to greater competition and stimulate growth through economies of scale and the elimination of remaining trade barriers. The most obstinate and subtle trade barriers are, nowadays, the indirect or non-tariff obstacles, such as differing technical standards or customs procedures. The reasons proffered for such obstacles are often public health and safety concerns, but they are sometimes also signs of residual protectionist pressures. Although most such barriers disappeared through the EEA, some problems remain to be solved, especially those concerning raw materials which are subject to price compensation, including reference prices for various products.
10. In order to guarantee the free movement of goods, the EEA introduced common standards or, where this was not possible, minimum requirements for EFTA states as well as well was for the European Union. The EEA also removes or reduces a number of administrative barriers through simplified customs and border formalities and improved rules of origin for all goods. It is heartening to note that the origin rules complications arising from Switzerland's non participation in the EEA were solved by the end of 1993, especially considering that country's very intensive trade relations with its surrounding European Union neighbours. Full cumulation in the EEA context means that processing steps carried out in all countries within the EEA, added together, confer originating status on the final product, even if the intermediate product is a non-originating product. EFTA countries have also been instrumental in the work towards a system of European cumulation, whereby materials from the European Union, EFTA and the associated countries of central and eastern Europe can be combined alike in order to obtain European origin.
11. However, it should be remembered that the EEA is not a customs union. This means that there is no such thing as a common EFTA-European Union trade policy. Nor are there common tariffs toward third countries, ie countries outside the EEA. (Needless to say, this consideration has become less important over the years, as tariffs around the world have come down as a result of successive GATT Rounds, especially the Uruguay Round.) Furthermore, the EEA does not include the European Union's common agricultural and fishery policies. This notwithstanding, the EFTA countries have individually agreed to improve market access for some agricultural products, especially those originating from less advanced regions within the European Union.
12. As regards the free movement of persons, the full acquis, i.e. the same substantive rules, prevail in the European Union-EFTA states as well as in European Union states. Activities related to the free movement of persons focus on the European Employment Services (EURES), launched at the end of 1994. EURES is a central data base which collects and diffuses information regarding job vacancies through electronic mail. The system also contains information about living and working conditions in all EEA countries. Finally, EURES provides specially trained advisers for job-seekers. The participation of EEA-EFTA states in the work of the Community's Administrative Commission on Social Security and in the European Union Co-ordinators Group for the mutual recognition of professional diplomas is of great practical importance for facilitating the free circulation of workers across the entire EEA area.
13. The free movement of capital and services is of special significance for the EFTA (as well as the European Union) countries. Services account for close to 50% of the gross domestic product of EFTA countries. While trade in goods has been largely liberalised in Western Europe and through the world, certain obstacles have remained in the field of services and capital. The EEA helps the situation, and further assistance can be expected through the forthcoming work of the new World Trade Organisation, which oversees the new GATS system (General Agreement on Trade in Services).
14. The issue of transport is vital for the EFTA countries in their relations with the European Union. The rail and road networks linking them to each other run largely through European Union member states. The harmonisation of land transport, the liberalisation of maritime and inland water transport and the ongoing deregulation efforts for air transport within the European Union (the so-called Third Package) are vital for the economy, and the EEA agreement ensures that EFTA countries are full partners in this pan-European economic development process.
15. The EEA agreement also includes well-functioning procedures for consultation and decision making. They allow for the extension of new European Union legislation to the entire EEA, thus ensuring that the two groups of countries do not drift apart legally and economically. The EFTA countries enjoy and do use the possibility of participating actively in the shaping of European Union legislation, notably in the fields of research and development, employment, environment protection and education. Even the possibility of tackling new areas such as justice and home affairs jointly has been discussed by EFTA and European Union ministers.
16. Political guidance is provided through the EEA Council, composed of the competent ministers from all the 18 EEA countries. A Joint Committee, whereby the European Commission represents the Community, oversees the implementation and smooth functioning of the EEA and takes the decisions to amend the Annexes and certain Protocols of the Agreement in order to safeguard homogeneity with the European Union legislation. An EFTA Surveillance ensures the observance of EEA rules together with the European Commission. An EFTA Court, soon to be relocated from Geneva to Luxembourg, home of its more well-known counterpart, the European Union Court of Justice - is competent for actions concerning the surveillance procedure regarding the EFTA states, appeals concerning decisions of the EFTA Surveillance Authority in competition matters and the settlement of disputes involving only EFTA countries.
III. EFTA's relations with countries in central and eastern Europe
17. EFTA has concluded free trade agreement, some of them more recently, with 12 countries, whereof 10 CEE countries: Bulgaria (entry into force in 1993), the Czech Republic (1992), Estonia (1996), Hungary (1993), Latvia (1996), Lithuania (1996), Poland (1993), Romania (1993), Slovakia (1992) and Slovenia (1995). Earlier, free trade agreements were also established with Turkey (1992) and Israel (1993). Furthermore it has co-operation agreements with four countries: Albania (1992), Egypt (1995), Morocco (1995) and Tunisia (1995), on the understanding that these could constitute a first step towards free trade arrangements between the parties in due time, if the countries so wish.
18. Will any of these countries, including that of the Rapporteur (Romania) apply to join EFTA? It should be recalled that Mr Jacques Delors, the former President of the European Commission, in 1993 suggested that this might indeed be a worthwhile option, not least because it would facilitate subsequent membership of the European Union. This would also prolong the "useful life" of the EEA agreement. However, this course of events seems less likely, in particular considering the historical ambition of most CEE countries to join the European Union as early as possible.
19. It is often forgotten that EFTA membership is as demanding, from the viewpoint of economic performance and market access, as is that of the European Union. For in addition to fully free trade between the member countries, EFTA requires full conformity with the Uruguay Round and the World Trade Organisation in member countries' trade relations with the outside world.
20. EFTA has shown a great willingness to promote free trade with the CEE countries. It has agreed to an "asymmetric" approach as regards the abolition of customs duties and qualitative restrictions - with EFTA obstacles falling quickly but those of CEE countries to be achieved only after a decade-long transition period.
21. And surely EFTA welcomes the conclusion of a Central European Free Trade Area (CEFTA) among the Czech Republic, Hungary, Poland and Slovakia, joined by Slovenia on 1 January 1996. With CEFTA and EFTA pursuing such similar goals, it must be expected that they will co-operate closely in the future.
22. EFTA, having fulfilled its original mandate to contribute to the economic wellbeing of its member countries and of Europe as a whole, is still of significance to the countries remaining inside it. In its relations with the European Union, including through the EEA, it should work to forestall any risk of re-emerging trade barriers within Europe. In co-operating closely with CEFTA, it should work in favour of better market access for exports form central and eastern Europe to the European Union area.
23. Other EFTA tasks include a deepening of the already established cumulation agreement with the European Union, and its extension to the whole of central and eastern Europe. EFTA will no doubt also do its utmost to transform, in due course, its co-operation agreements into free trade agreements.
24. Finally, and this also holds for the Rapporteur's own country Romania, countries in central and eastern Europe should not disregard the potential benefits of even closer relations with EFTA. Membership may not be on the domestic political agenda, and yet EFTA represents a noble thought in European international co-operation, namely that close trade relations do not preclude - but need nevertheless not include - political co-operation. As such, EFTA continues to serve as an appreciated complement to the equally noble principles of the European Union. This was underlined at the unanimous adoption of the present report by the Committee on Economic Affairs and Development, especially by members coming from the EFTA countries. They pointed to EFTA's role as a stabilising influence at a time of considerable economic uncertainty in Europe.
Reporting committee: Committee on Economic Affairs and Development
Budgetary implications for the Assembly: none
Reference to committee: standing mandate
Draft resolution unanimously adopted by the committee on 25 March 1996.
Members of the committee: Mr Davis (Chairman), Mr Pavlidis, Mrs Degn (Vice-Chairmen), MM. Andreoli, B�rsony, Behrendt, Benetatos, Bili_ski, Billing, Mrs Blattmann, MM. Bloetzer, Bog�r, Mrs Burbien�, MM. Buzatu, Caballero (Alternate: Ms Guirado), Ms Calner, MM. Cerqueda Gispert, Coviello, Dokle, Mrs Durrieu, MM. Elo, Eyskens, Fenech, Dame Peggy Fenner (Alternate: Sir John Cope), MM. Figel, Frey, Goop, Grimsson, Gusenbauer, Kirilov, Kir�teins, Kol�r, La Loggia, Latronico (Alternate: Benvenuti), Le Grand, Leers, Liapis, Malinowski, Mautner-Markhof (Alternate: Schwimmer), Merkushov, Minkov, Muravschi, Nov�k (Alternate: Kouck�), Pahor, Poppe, Puche, Radulescu Botica, Rippinger, Siebert, Telgmaa, Townend, Tribunovski, Valleix, Van der Maelen, Mrs Verspaget, MM. Wallace, Yaroshynsky.
N.B. The names of those members present at the meeting are printed in italics.
Secretaries to the committee: MM. Torbi�rn and Bertozzi.
[1]. by the Committee on Economic Affairs and Development