This article is part of our special report Free Trade for Growth.
SPECIAL REPORT / Countries in the 50-year-old European Free Trade Association (EFTA) seem to be more successful at striking free trade deals with third countries than the EU. But the ambitious second-generation agreements lately negotiated by Brussels might tell a different story.
Since the early 1990s, the European Free Trade Association (EFTA) – which today includes Switzerland, Norway, Iceland and Lichtenstein – has signed 24 free trade agreements (FTA), covering 33 countries.
In comparision, the EU has only concluded four fully-fledged deals, while seven are being negotiated and two are association agreements with an FTA component.
Approximately 80% of EFTA's total merchandise trade is today covered by FTAs. The first broad-based EFTA free trade agreement was concluded in 2000 with Mexico. Since then, more such agreements have followed.
“The case of EFTA is different from the one of the EU. We are smaller economies. We can focus more on the key areas of interest, which are not as numerous as those of the EU,” Ambassador Didier Chambovey, Switzerland’s negotiator for trade agreements, told EurActiv.
The leading objectives for EFTA countries are to improve market access for industrial and agricultural products, and also in the area of services, added Chambovey.
The last EFTA FTA agreement which entered into force on 1 October with Hong Kong covers indeed a wide range of areas including trade in goods and services, as well as investment, and other trade-related issues such as protection of intellectual property.
“The EU has more red lines than we do. Lines you cannot cross,” added Chambovey.
The complexity of 27 trade policies has indeed prevented the EU for reaching out to a bigger number of countries in the past, and part of the difference resides in the fact that the EU until recently has had a different strategic approach.
Ambassador Norbert Frick, senior chief negotiator for Lichtenstein, told EurActiv that EFTA’s strategy from very early on was to secure the countries’ own economic needs following a country-per-country approach, while the EU preferred a bloc-to-bloc approach with the ASEAN or Mercosur.
First-generation deals need upgrade
Confronted to deadlocked negotiations with some regional partners, the EU has started to turn to individual countries.
That was the case with the EU-South Korea trade agreement, which entered into force in July last year. Both the EU and EFTA have negotiated a second-generation agreement with South Korea. The one with EFTA entered into force in 2006, five years earlier than the one with the EU.
“We did it earlier, but the EU concluded a more ambitious deal,” conceded the Swiss Ambassador, saying that the Brussels went further in some areas like innovation, services and investment.
The EU sees its FTA with South Korea as a ‘state-of-the-art model, benchmark and reference point to emulate, said Marc Vanheukelen, Head of cabinet for EU trade commissioner Karel de Gucht.
“It is comprehensive, and has structures that allow the words of the FTA to become a reality, for example annual gatherings and on-going working groups,” Van Heukelen added.
EFTA countries are now considering upgrading their agreement with South Korea, taking into consideration some of the elements of the EU-South Korea deal, said Chambovey.
The South Korea FTA is the EU first FTA with Asia. The Commission has said it hopes to conclude a deal with Singapore, the first with an ASEAN country by the end of the year.
“We would have like to conclude an EU-ASEAN FTA, but it’s not feasible at the moment, because the economic development of countries like Singapore and Laos is so different,” added Van Heukelen.
Chambovey concedes that many of EFTA FTAs, including the one with Canada, with which the EU is also close to striking a deal, are first generation FTAs, focusing mainly on trade and goods.
“Depending on the outcome of the EU-Canada negotiations, we may be interested also in upgrading our agreement,” the Swiss ambassador added saying that EU and Canada are discussing also to open up markets on services and public procurement.
The Communication "Global Europe: Competing in the World" from 2006 sets out that trade policy can contribute to creating growth and jobs in Europe.
Traditionally, barriers to trade were addressed mainly through reductions in tariffs (first generation Free Trade Agreements). But to create open markets in the 21st century, Europe had to look beyond tariff reduction to the trade barriers that lie behind borders--such as restrictive regulations or standards.
The European Commission is now working to achieve a new generation of competitiveness-driven bilateral free trade agreements, in which economic criteria is a primary consideration.
The European Free Trade Area follows suit. Although it has signed many more first-generation deals with third countries, it is now considering an upgrade of these new economic relations, taking stock of the work being done by the EU.
- By the end of 2012: Expected end of negotiations between the EU and Canada and the EU and Singapore.
- By the end of 2012: EU-US High-Level working group on growth and jobs to deliver repor on whether start negotiations for a transatlantic free trade agreement.
- Press release: European Commission levels the playing field for European business in international procurement markets (21 March 2012) [FR] [DE]
- The Single Market Act: International access