In May 1992, the Agreement establishing the European Economic Area (EEA) was signed in Porto, Portugal, uniting the European Union, and the European Free Trade Association (EFTA) in a homogenous economic area. The EFTA Surveillance Authority (ESA) was created at the same time to monitor compliance with the Agreement on the European Economic Area by the EFTA States. The original plan for the European Economic Area did not include the EFTA Surveillance Authority, and instead had the European Commission exercising this role. However, during the negotiations for the EEA agreement, the European Court of Justice informed the Council of the European Union that they considered that giving the EU institutions powers with respect to non-EU member states would be a violation of the treaties of the European Union, and therefore the current arrangement was developed instead.
The aim of the EEA Agreement was to guarantee the free movement of persons, goods, services and capital, as well as equal conditions of competition and non discrimination of individuals in EEA States. The successful operation of the EEA was based on a uniform implementation and application of the common rules in all EEA States.
The tasks and competences of ESA and the EFTA Court are laid down in the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (Surveillance and Court Agreement) To this end, a two-pillar system of of supervision was devised: the EU Member States are supervised by the European Commission, the EFTA States who are party to the EEA Agreement, by the EFTA Surveillance Authority. With regard to its surveillance function, the EFTA Surveillance Authority was given powers corresponding to those of the EC Commission. A two-pillar structure was also established with regards to the judicial control mechanism, the EFTA Court operating as a parallel to the European Court of Justice.
The ESA is led three members, one from each EFTA State participating in the EEA. The College Members are appointed by common accord of the governments of the EFTA States for a period of four years. A president is appointed by common accord for a period of two years. All decisions that formally bind ESA are taken by the college. Although the college members are appointed by the member States, they undertake their functions independently and free of political direction. The college has assigned responsibility for the preparation and implementation of its decisions in ESA's various fields of activity. In addition to the college and administration, ESA consists of three legal departments. These are the Internal Market Affairs (IMA), Competition and State Aid (CSA) and the Legal and Executive Affairs Department (LEA). The working language of the Surveillance Authority is English. However, individuals and enterprises can address the ESA in any official EEA language.
There are currently three members of the ESA, Iceland, Norway and Liechtenstein. Despite being a member of EFTA, Switzerland does not take part in the EEA because it chose not to ratify the Agreement following a negative referendum on the matter.