The European Free Trade Association, EFTA was established in 1960 by the Stockholm Convention. The original members were Great Britain, Norway, Denmark, Austria, Portugal, Sweden and Switzerland, otherwise known as the “Outer Seven” as compared to the “Inner Six” which were the signatories of the European Coal and Steel Community (ECSC) and the European Economic Community (EEC). Later, Iceland (1970), Finland (associate member in 1961 and full member in 1986) and Liechtenstein (1991) joined. Denmark, Great Britain, Austria, Portugal, Sweden and Finland are no longer members of EFTA as they have since joined the European Union (EU). The current members of EFTA are Iceland, Liechtenstein, Norway and Switzerland.

The beginnings of EFTA lay in the plan by Members Countries of the Organisation for European Economic Cooperation, (OEEC) who weren’t members of the EEC to create a Free Trade Area for the removal of trade barriers in industrial goods among themselves, but with each country maintaining its own national commercial policy to countries outside the proposed FTA. However, this plan was vetoed by General de Gaulle in 1958 so the “Outer Group” decided to press ahead and create an association which would maintain and develop the cooperation instituted by the OEEC to facilitate the establishment of a multilateral body for the removal of trade barriers and promote closer cooperation between members of the OEEC and members of the EEC with regard for GATT procedures. In this manner the Seven could strengthen their bargaining power in relation to the EEC by establishing a wider FTA.

The Stockholm Convention establishes a free trade area for the movement of goods among the EFTA States under the terms of Article XXIV of the General Agreement on Tariffs and Trade (GATT). Contractual relations between the EFTA States were for a long time limited to trade in industrial products. The Convention was later supplemented by an economic integration agreement for the services sector according to Article V of the General Agreement on Trade in Services (GATS).
On 21 June 2001 in Vaduz, Liechtenstein the EFTA member States Iceland, Liechtenstein, Norway and Switzerland signed an agreement on the revision of the EFTA Convention. The sectorial agreements between Switzerland and the EU from 1999 ("Bilaterals I") served as a point of reference for the revision of the EFTA Convention.

As a result, the EFTA founding provisions of 1960 were completely revised. The revised EFTA Convention establishes legal relations between Switzerland and the other EFTA States comparable to those contained in the seven bilateral agreements concluded between Switzerland and the EU in 1999. New provisions include, for example, the free movement of persons between Switzerland and the other EFTA States (with specific arrangements for the movement of persons between Switzerland and Liechtenstein). The Vaduz Agreement also added provisions regarding trade in services, movement of capital and protection of intellectual property. The Agreement amending the EFTA Convention came into force on 1 June 2002, at the same time as the seven sectorial agreements between Switzerland and the EU, signed in 1999. The EFTA Convention has been regularly amended since then in order to take into account the development in the bilateral relations between Switzerland and the EU (amendment of the bilateral sectorial agreements of 1999, conclusion of new agreements). The objective is to ensure, wherever possible, the parallel development of contractual relations among EFTA States and between EFTA States and the EU (bilateral agreements between Switzerland and the EU, EFTA Convention, European Economic Area, EEA).

The administrative structure of EFTA is simple and was laid down by the original convention with meetings at the Ministerial level usually being held twice yearly and meetings at the official level take place regularly. With EFTA having no supranational powers decisions are implemented by the individual governments.