European Free Trade Association EFTA

The European Free Trade Association (EFTA) is a trade organisation formed in 1960 which created a free trade area between the countries of the United Kingdom, Norway, Sweden, Austria, Portugal, Switzerland, and Denmark. It is also known as the 'Outer Seven' in comparison to the EEC’s six founding states who were known as the 'Inner Six'.

The formation of the EFTA in response to the EEC (European Economic Community) is an example of Britain's foreign economic policy during the British Economic Golden Age. Its principal goal was to aid with economic modernisation in Britain.

The formation of the EFTA highlights Britain's position in world affairs during the post-war period, as it attempted to consolidate its ties with the Commonwealth and the United States with the increasingly-appealing possibility of entering Europe's common market.

The European Economic Community (EEC)

The European Economic Community (EEC) was established by the 1957 Treaty of Rome, which was signed by six founding members: France, Italy, Luxembourg, Belgium, the Netherlands, and West Germany.

The Schuman Plan of 1950

The Schuman Plan paved the way for the formation of the European Economic Community. It was a proposal by French foreign minister, Robert Schuman, to place France and West Germany's coal and steel production under a single authority, what became the European Coal and Steel Community. The purpose of the Schuman Plan was to revitalise the European economy and to make strides toward world peace, eliminating the possibility of war between these nations, as their heavy material resources would be tied up together.

The EEC's common market and customs union

The treaty created a common market based on the free movement of goods, people, services and capital, and a customs union for these members.

• Common market: the six signatories of the treaty agreed to align their economic policies and to gradually abolish restrictions on trade through a common trade policy. This meant that members had to abide by trade rules established by the EEC and not by national government bodies. Thus, a common market of a net 200 million people was established.
• Customs union: the treaty established a common external tariff on imports from outside the EEC and abolished customs duties between the six.

The aim of the EEC was to strengthen both the economic and political relations between 'the Six', thereby moving towards the economic and political unification of Europe.

The EEC's trade rules were not based on principles of free trade, but on protectionist principles of restricting imports from non-EEC countries through the use of a common external tariff.

Common Agricultural Policy

The EEC's Common Agricultural Policy (CAP) established a common agricultural trade policy. The trade policy of the CAP is seen as a protectionist for two reasons:

• Subsidies: agricultural products produced within the EEC were to be subsidised to address rural poverty. The subsidies meant that farmers were guaranteed a fixed price for their products, regardless of cost or demand. This had the adverse effect of high prices for the consumer.
• Quotas and tariffs abolished: members of the EEC would not be limited to a certain amount of agricultural imports from other EEC countries; there would be no added tariff on agricultural goods produced by EEC states.
• Common tariff on imports: a common tariff on agricultural imports from non-EEC countries was established.

Britain's initial opposition to the EEC

Britain could have easily joined the EEC from 1951 to 1957, as the founding members of the EEC were still undergoing negotiations on the organisation. However, there was a consensus between the government and the public and within political parties that Britain should not join the EEC.

Euroscepticism

The British government and British people both shared a distrust in the EEC and the idea of European integration, which the EEC was based upon. This ideology is known as Euroscepticism and it was prevalent in post-war Britain.

One reason for Euroscepticism was the fresh memories of the roles Germany and France, now sitting at the head of the table in the EEC, had played in the Second World War. Britain was reluctant to hand over its sovereignty to ‘the Six’ and instead wanted to cling to its declining status as an Empire and a superpower.

Euroscepticism was shared by both the Conservatives and the Labour party. In 1962, Labour Party leader Hugh Gaitskell declared that if Britain were to join the EEC, it would be

Preserving trade links with the Commonwealth and the special relationship with the United States

The CAP made agricultural goods costly for EEC members, but Britain could get much cheaper food in the Commonwealth markets. There was a consensus between political parties to prioritise trade links with Australia, Canada, and New Zealand.

Joining the EEC would mean giving up these valuable trade links, as the EEC's common external customs tariff stipulated that members of the association could not pursue any agreements with non-EEC countries that would breach the trade rules established by the EEC.

The European Free Trade Association (EFTA)

Countries in continental Europe that did not join the EEC ran the risk of reduced economic growth, as they did not benefit from the Common Market. Therefore, in 1959, the United Kingdom took the lead in setting up the EFTA with Norway, Sweden, Austria, Portugal, Switzerland, and Denmark as a free trade rival to the protectionist EEC. The Convention of the EFTA was signed in 1960.

The Prime Minister who oversaw the creation of the EFTA was Harold Macmillan, Wikimedia Commons.

The goal of the EFTA was to promote closer economic cooperation and to liberalise trade in Europe.

Economic modernisation

The formation of the EFTA was part of Britain's efforts to modernise the British economy. On a basic level, economic modernisation refers to a country's efforts to keep up with the global frontier of economic developments and progress. In the post-war moment, one development in global economics was the move towards international cooperation in trade, as can be seen with the Marshall Plan, and of course, the EEC.

Therefore, the creation of the EFTA under the Macmillan government was an attempt to catch up with this new frontier of economic development without giving up Britain's sovereignty.

Free trade

The other key aspect of the EFTA was its promotion of 'genuine' free trade, in contrast to the protectionist nature of the EEC's trade policies. The EFTA did not impose import tariffs and import quotas on its members, who were free to seek their own trade agreements with nations outside of the EFTA.

Differences between the EFTA and the EEC

The table below outlines the main differences between the EFTA and the EEC, illustrating how the EFTA purposefully set itself apart from the political and protectionist nature of the EEC.

EFTA advantages and disadvantages

Let’s study some advantages and disadvantages of EFTA.

Advantages of the EFTA

The main advantage of the EFTA was its free trade policy which allowed Britain to keep its trade connections with the Commonwealth while also strengthening trade links with other European nations.

This aided with the project of the economic modernisation of Britain and contributed to an increase in economic growth in Britain.

Disadvantages and failure of the EFTA

The main disadvantage of the EFTA was its inability to match the influence and economic growth of the EEC. By 1972, most members of the EFTA had joined the EEC. The EFTA didn't give the UK economy enough of a boost to sustain its costly public or military expenditure.

GDP growth rate in European nations 1951-64:

A map of Europe depicting the founding member states of the EFTA. In dark green: remaining members of the EFTA and in light green: former EFTA members. Source: Júlio Reis, CC-BY-SA-2.5, Wikimedia Commons.

Britain's 1961 application to join the EEC

As Britain missed the opportunity to be a founding member of the EEC, by the time it submitted its 1961 application to join the organisation, it was four years late to the party. Not only was Britain late, it demanded to be let in on its own terms.

Motivations

Despite widespread Euroscepticism, Macmillan was driven to send Britain's application for mostly economic reasons:

• The EFTA was no match for the EEC.
• The Suez Canal Crisis and the decolonisation project set in motion by Macmillan both contributed to the decline of Britain's empire and harmed Britain's economy.
• The US was eager to see Britain join the EEC, as the US' close ties with Britain meant that the latter would act as a bridge between the US and the EEC.
• Joining the EEC would mean accessing a large scale trade network which would help significantly increase exports of British goods.
• The efficiency of British industry would also be increased as there would be greater competition.

Negotiations

Macmillan wanted Britain to join the EEC without giving up its links and this quote points to the emphasis on securing special exemptions for Britain's links with the Commonwealth:

However, the problem wasn’t that the EEC would not accept Britain's requests for special exemptions, it was that the EEC would not accept Britain at all.

The 1963 veto by De Gaulle

French Premier Charles De Gaulle in 1961, Wikimedia Commons.

Britain's unwillingness to give up its special relationship with the United States led to De Gaulle's veto. French Premier Charles De Gaulle used his veto to block Britain's entrance to the EEC in 1963. His reasons were:

• In the wake of the Second World War, it was important for France to reassert its power independently of Britain and the EEC was one way to achieve this end. If Britain joined and was granted special exemptions, this political goal would be compromised.
• Britain's special relationship with the US: De Gaulle didn't want the US to have a hand in the economic success of the EEC, with whom the EEC was in competition. De Gaulle was against America having economic or political control in Europe.
• He saw Britain's agricultural model as incompatible with the EEC's, especially as the EEC's members had to adhere to the Common Agricultural Practice (CAP).

Britain's 1967 application to join the EEC

Britain's second application to join the EEC was put forward by Prime Minister Harold Wilson in 1967. This was during the later years of Britain's Economic Golden Age. Wilson toured Europe visiting member countries and building a favourable relationship with leaders, only to also be met with rejection by De Gaulle in December of 1967.

Prime Minister Harold Wilson (1964–70) put forward Britain's second application to the EEC in May 1967, Wikimedia Commons.

Motivations

Wilson inherited an ailing economy from Macmillan and Douglas-Home. The sterling crisis that led to the devaluation of the pound in 1967 had seriously weakened Britain's economy, leading him to put forward Britain's second application.

Wilson was also prepared to move away from the solely economic goals of the EFTA, stressing the importance of European integration and unification. He shared the EEC's political goals:

Negotiations

Wilson was also prepared to accept the EEC's agricultural policies if Britain was granted a transitional period to adapt to these:

The 1967 veto by De Gaulle

Despite Wilson's goal to integrate Britain within the EEC, De Gaulle was still as reluctant to let Britain into the EEC in 1967 as he was in 1961 and he vetoed Britain's application in December 1967.

Joining the European Economic Community in 1973

Under the Edward Heath ministry, Britain left the EFTA to join the EEC in 1973, approved by France's Premier Georges Pompidou.

Harold Wilson returned to office after Heath, however, and he was unhappy with the terms of Britain's EEC membership, so he held a referendum in 1975. The electorate was overwhelmingly in favour of Britain's continued membership.

The European Union was formed in 1993 and the EEC was incorporated within it.

Sources

1. Arthur I. Cyr, Europe and the United States: change and continuity, International Affairs (Royal Institute of International Affairs 1944-), November 2012.