MILE 11 Thesis | September 2011 Past Achievements and Future Challenges of the European Free Trade Association – Twenty Years of Trade Relations and Beyond (1991-2011…) Darius Rao Supervisor: Pierre Sauvé This thesis is dedicated to my dearest and beloved grandfather, Bhaskar Vasudev Rao. Acknowledgements First and foremost, my sincere thanks to Professor Pierre Sauvé for being this well-oiled academic machine that is constantly ready to save students at paroxysm of despair, and that, throughout the year, always assisted me in a very valuable and constructive manner. If Professor Sauvé was the assisting apparatus, the entire staff at the EFTA Secretariat in Geneva was the fuel. They helped me to move towards the right direction, take off and fly comfortably through the thick cumulonimbus of EFTA’s network of free trade agreements. I would also like to distinctively express my gratitude to the patient Trade Relations Division staff that had to endure my unceasing inquisitiveness. Last but not least, I warm-heartedly thank my family and friends who provided this unconditional support that is crucially needed. Thank you all. Notwithstanding this precious support, any errors in this paper remain my own. iii TABLE OF CONTENTS LIST OF TABLES, CHARTS AND FIGURES.................................................................................vi LIST OF ABBREVIATIONS ........................................................................................................... vii ABSTRACT......................................................................................................................................viii INTRODUCTION................................................................................................................................1 I. WHAT IS EFTA? ORIGINS, INSTITUTIONS, RATIONALE AND RELATIONS WITH THE EUROPEAN UNION..................................................................................................................4 A. Snippets of fifty years of history .................................................................................................4 1. Back to the basics: the origins....................................................................................................................4 2. From Stockholm to the EEA Agreement ................................................................................................5 3. 1994‐2011: from the EEA until today.....................................................................................................7 B. The skeleton of the beast: legal foundations and institutional framework.................8 1. Legal basis...........................................................................................................................................................9 2. Functioning ..................................................................................................................................................... 10 C. EFTA’s raison d’être ..................................................................................................................... 12 D. Relations with the European Union........................................................................................ 13 1. The EEA as a whole...................................................................................................................................... 13 2. Bilateral relations between Switzerland and the European Union ........................................ 15 II. THE GLOBAL STATE OF PREFERENTIAL TRADE IN THE WORLD AND EFTA MEMBER STATES IN 2010­2011 .............................................................................................. 17 A. Trends in the world economy in 2010­2011....................................................................... 17 B. Evolution of global preferential trade in the late 2000s ................................................. 19 C. Overview of EFTA States’ macroeconomic environment in the late 2000s............... 21 III. TRADE POLICY PROFILE OF FOUR ALPINE AND NORDIC NATIONS ................... 24 A. Trade and investment performances..................................................................................... 24 1. Overall data ..................................................................................................................................................... 24 2. Economic characteristics of Iceland, Norway, Switzerland and Liechtenstein ................. 30 (a) Iceland..........................................................................................................................................................................30 (b) Norway ........................................................................................................................................................................31 (c) Switzerland.................................................................................................................................................................32 (d) Liechtenstein.............................................................................................................................................................32 B. EFTA’s trade policy....................................................................................................................... 33 1. Why such an active third‐country policy? ......................................................................................... 33 2. The three main phases ............................................................................................................................... 35 (a) First phase ..................................................................................................................................................................35 (b) Second phase.............................................................................................................................................................35 (c) Third phase ................................................................................................................................................................36 3. The three pillars............................................................................................................................................ 37 C. Individual trade policy profiles................................................................................................ 40 1. Iceland: not only about fish...................................................................................................................... 40 2. Norway: not only about oil (and fish too).......................................................................................... 41 3. Switzerland: not only about cheese and chocolate........................................................................ 42 4. Liechtenstein: close ties with its alpine brother............................................................................. 44 IV. FREE TRADE AGREEMENTS: SCOPE, RULES AND FLAGSHIP EXAMPLES........... 45 A. Legal basis of EFTA Free Trade Agreements ....................................................................... 45 1. WTO law ........................................................................................................................................................... 45 2. International treaties.................................................................................................................................. 46 B. Scope and Coverage...................................................................................................................... 47 1. Free Trade Agreements of first generation type............................................................................. 51 (a) Trade in goods ..........................................................................................................................................................51 (b) Basic agricultural products and processed agricultural products.....................................................51 iv (c) Rules of origin ...........................................................................................................................................................52 (d) Trade remedies and disciplines........................................................................................................................52 (e) Intellectual property rights.................................................................................................................................53 2. Free Trade Agreements of second generation type....................................................................... 53 (a) Services........................................................................................................................................................................53 (b) Investment .................................................................................................................................................................54 (c) Government or public procurement ...............................................................................................................55 (d) Competition rules....................................................................................................................................................55 (e) Dispute settlement..................................................................................................................................................56