Explainer: What is the European Free Trade Association?

Four countries in Europe have signed a landmark free trade deal with India.

Iceland, Liechtenstein, Norway, and Switzerland have made the deal through their regional trade organization, the European Free Trade Association (EFTA).

The deal, known as a Trade and Economic Partnership Agreement, would see $100 billion invested over the next 15 years in a range of industries, including manufacturing, machinery and pharmaceuticals, according to the Indian government. These investments would create 1 million jobs for India’s “young aspirational workforce”.

India said this was the first time it had signed a free trade agreement with four developed nations, and that these countries were “an important economic bloc” in Europe.

EFTA is an intergovernmental organization of four member countries that are not part of the European Union (EU): Iceland, Liechtenstein, Norway, and Switzerland.

The association was set up in 1960 to promote closer economic cooperation and free trade in Europe.

Free trade is an agreement to reduce barriers to trade, like tariffs and quotas.

Tariffs are taxes on imports or exports. Quotas are physical limits on the volume of goods that can be imported into a country. Typically, these benefit a country’s local producers by reducing potential competition for their goods.

Iceland, Liechtenstein, Norway and Switzerland have a combined population of less than 14 million. But their association punches above its weight in terms of trade figures, EFTA says.

In 2021, EFTA was the tenth-largest trader in the world in merchandise trade and the eighth-largest in trade in services.

The four countries in EFTA have developed one of the world’s largest networks of free trade agreements, according to EUR-Lex, the official EU law website.

These cover more than 60 countries and territories, including the EU.

Thirty of EFTA’s free trade agreements are with 41 countries and territories outside the EU, including Egypt, Jordan, Canada, Chile, India, Singapore and Ukraine.

EFTA was established in 1960 by seven countries: Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom.

Iceland and Liechtenstein joined EFTA in 1970 and 1991, respectively.

Denmark, the UK, Portugal, Austria and Sweden then left EFTA to join the EU between 1973 and 1995.

The deal, finalized after more than 15 years of negotiations, makes it easier for the partners to access each other’s markets. Customs procedures will also be simplified, making it easier for businesses in India and EFTA’s member states to expand their operations in each other’s markets.

It will also bring “significant economic benefits”, according to the EFTA, including new opportunities for businesses on both sides, leading to increased trade and investment flows, job creation and economic growth.

India said the benefits would include stimulating exports in its key service sectors, such as IT and business services. Another benefit was the potential for technology collaboration and access to “world-leading technologies” in precision engineering, health sciences, renewable energy and other areas.

Boosting international trade drives economic growth and opportunity for everyone – and this is the objective of the World Economic Forum’s Global Alliance for Trade Facilitation.

Part of the Forum’s Centre for Regions, Trade and Geopolitics, the Alliance is dedicated to helping businesses and countries trade more easily across borders.

Its projects are focused on supporting trade-led growth in developing and least-developed countries. By bringing together governments and businesses to develop trade reforms, the aim is to cut through red tape and end costly delays at borders.

“Ultimately, Alliance projects boost trade competitiveness and business conditions, which are key drivers of inclusive economic growth and poverty reduction,” the Forum says.

Country projects achieved or in progress include modernizing import licensing in Brazil, streamlining imports of key healthcare goods in Mozambique and streamlining the certification of agri-food exports in Tunisia.