From trade volumes to geopolitics: what to make of the recent EFTA Free Trade Agreements

In just two years, EFTA has concluded or signed multiple free trade agreements with promising emerging markets, including India, Malaysia, Thailand, Mercosur and Vietnam. If the ratification processes are successful, the new trade agreements will likely boost trade and investment between the signatories. However, it is worth evaluating the new wave of EFTA free trade agreements in the context of not only their importance in foreign trade, but also key structural trends in the AI and energy race driven global economy as well as turbulent geopolitical developments. Rather than being game changers, the key word for the motives and impact of EFTA's new free trade agreements is likely to be resilience. 

Author: Gergely Varga 

Introduction

After years of arduous negotiations, recently EFTA concluded or signed four significant Free Trade Agreements (FTAs) with multiple emerging markets from the Global South within two years: with India in March 2024; with Malaysia in June 2024; with Thailand in January 2025; with Mercosur (Argentina, Bolivia, Brazil, Paraguay and Uruguay) in September 2025; and with Vietnam in July 2026. These FTAs are considered breakthrough agreements and, if the ratification processes are successful, they will make it much easier for EFTA countries to access populous, fast-growing markets in the Global South. Political leaders in EFTA countries presented the new FTAs as instruments that would help to diversify exports and boost economic growth. Assuming the FTAs enter into force, what benefits can EFTA expect from these FTAs?

The economic impact and value of FTAs is primarily evaluated based on their long-term direct effects on exports, imports, GDP growth and economic structure of the given country. This evaluation is conducted by examining relevant industries and market segments using complex economic models. However, certain basic trade indicators, such as the volume of existing trade relationships between the examined partners and their share of a given country's total external trade, together with global structural and economic trends affecting the relevant trade relationship, significantly influence the growth potential of the relationship. From this perspective, the accelerating transient changes taking place in the international system, driven by geopolitical tensions, shifts in global economic power and technological developments, cannot be overlooked. In this article, alongside placing the new EFTA FTAs into the context of the most significant existing trade relationships of EFTA countries, we seek to draw attention to some of these critical aspects of the international economic and geopolitical context in which the examined FTAs will be implemented.

EFTA Trade Relationships by the Numbers  

Although the topic falls outside the scope of our writing, it is worth beginning by referring to the rich academic debate on the actual trade effects of FTAs. While the overall benefits of FTAs are not in question, the actual trade impact of such agreements depends largely on factors outside the scope of FTAs, such as supply response and other indicators associated with the general competitiveness of the respective economy. Post-war history also supports this: some of the best years for Japanese, German and South Korean global exports occurred during volatile and tense international trade environments, such as in the 1970s and 1980s. The same is true for EFTA countries. While they are performing slightly better than the EU average in terms of GDP growth and the IMD global competitiveness rankings (Switzerland 3rd, Norway 18th, Iceland 22nd), they face similar structural economic challenges and weaknesses that are causing Europe's decline in comparison to the US and China. New FTAs will certainly not resolve these issues, particularly given the current geographical trade relationships of EFTA members with other major trade partners.

Based on the UN Comtrade database, EFTA countries' main partner nations' trade relationships have not changed significantly between 2015 and 2025; the EU, the US, the UK and China continue to dominate. As the tables below show, while India and the two largest Mercosur countries (Brazil and Argentina), as well as Malaysia and Vietnam, represent promising markets for EFTA countries, their share of EFTA members' overall merchandise trade compared to the aforementioned established partners will likely remain limited for some years. With respect to Switzerland, the total trade volume (exports and imports) nearly doubled between 2015 and 2025, reaching over $1 trillion. The largest increase, of almost four times, occurred in US–Swiss trade relations; Swiss–Chinese trade also tripled, and trade with the EU and UK grew considerably too. Consequently, trade with the EU represents over 40%, with the US accounting for nearly 20%, and the UK and China accounting for 6–7% each.

Meanwhile, trade with India remains less than a third of Swiss-Chinese trade volumes, and trade with other new FTA partners is much smaller still. Norway and Iceland's trade reliance on traditional Western partners and China is even more obvious. Of the total Norwegian trade volume of $284 billion, more than 75% is covered by the EU, the UK and the US. In Iceland's case, the combined trade volume with the EU, the UK and the US was worth $12 billion out of a total trade volume of $18 billion in 2025. In both cases, trade with new FTA partners remains a very small fraction of this total. Liechtenstein, the smallest EFTA member, sent two thirds of its exports to the EU and more than 10% to the US, while more than 70% of its imports continue to originate from the EU.  

Merchandise trade relationships of EFTA with major partners and new FTA partners in 2015 and 2025, in billions of USD   

	Switzerland		Norway		Iceland
	2015	2025	2015	2025	2015	2025
EU	372	411	85	165	3,5	9,5
UK	45	69	25	34,5	0,8	1,1
USA	50	190	9,5	14,1	0,68	1,4
China	33	61	10,9	17,5	0,48	1,4
Argentina	2,1	3,2	0,25	0,11	0,003	0,001
Brazil	3,6	6,5	1,9	3,1	0,3	0,28
India	22,9	19,1	0,6	1,3	0,03	0,09
Malaysia	2,4	3,2	2,4	3,2	0,0009	0,02
Thailand	5,3	12,9	0,6	1,3	0,02	0,067
Vietnam	1,5	3,5	1,5	3,5	0,04	0,08

Source: UN COMTRADE Database (Liechtenstein is included in Switzerland’s figures)

The situation is very similar with regard to trade in services in 2024. According to WTO data, Switzerland’s total trade in services amounted to $387 billion, of which 40% was connected to the EU, 24% to the US, and 6% to the UK in 2024. In comparison, trade in services with India stood at $5.2 billion, accounting for around 1% of the total. All other examined free trade agreement (FTA) partners represented an even smaller share. Services trade with the EU was worth $58 billion to Norway, nearly half of a total of $121 billion. The US and the UK were by far the second and third largest trade partners for services, and new FTA partners represented only a minor fraction of these volumes. The dominance of the US, UK and EU in Iceland's services trade is also unquestionable. 

Trade in services relationships of EFTA countries with major partners and new FTA partners in 2024, in billions of USD (2024)  

	Switzerland	Norway	Iceland
EU	134	58	4
UK	33	12	1,3
USA	99	8,8	2,6
China	12,5	3,5	0,12
Argentina	-	-	-
Brazil	3,2	1,2	0,04
India	5,2	1,7	0,03
Malaysia	1,1	0,43	-
Thailand	2,3	0,79	-
Vietnam	-	-	-

Source: WTO-OECD Balanced Trade in Services dataset 

With respect to trade-related relationships, the foreign direct investment (FDI) stocks between the countries under review are also worth investigating. All new EFTA FTAs have FDI-related clauses, obviously with the aim of boosting FDI between participating countries. Regarding India, the largest economy among the new partners, the EFTA countries have pledged to increase their FDI stock in India to 50 billion USD within 10 years. Although this goal seems ambitious, even if it is realized, it will remain a small fraction of EFTA’s traditional FDI partnerships. The vast majority of FDI sources and destinations with respect to all EFTA countries are Western countries; even China lags far behind in this respect. Even Switzerland, the largest source of outward FDI among EFTA countries, has only 3–4% of its outward stocks in new FTA partners. 

Inward and Outward FDI stocks of EFTA countries of selected major FDI partners and new FTA partners, in Billions of USD (2024)  

	Switzerland		Norway		Iceland
	Inward	Outward	Inward	Outward	Inward	Outward
EU	840	680	112	122	4	5,5
UK	55	57	6,9	5,7	0,19	0,08
USA	410	264			3,6	0,05
China	20	29	2	2
Argentina	-	3,5	-	1	-	-
Brazil	-	18	-	14	-	-
India		10	-	0,9	-	-
Malaysia	-	3,8	-	-	-	-
Thailand		4	-	2,3	-	-
Vietnam	-	1,89	-	-	-	-

Source: OECD Inward and Outward FDI Stocks by partner country

To conclude with the trade statistics, while certain EFTA members have managed to triple their trade volumes with some of the countries examined, and FDI is expected to grow, especially with the new FTA partners, it is clear that, even under the best-case scenario, the weight of Mercosur and the other countries examined will remain very limited in the overall trade and FDI relationships of the EFTA countries for years to come. Even after a decade of overall trade growth, the combined share of selected Mercosur and Asian partner countries in EFTA members' external merchandise and services trade stands at 2–4%, and they are even less important in terms of FDI destination and source.

Structural Economic Factors Impacting EFTA Trade

The above outlined trade dependencies are unlikely to change dramatically in the short term also given the structure of the EFTA countries' economies. To highlight just a few aspects: in Switzerland's case, the pharmaceutical sector — the leading export industry, generating together with the chemicals over half of Swiss exports — must be mentioned. Not only is the US the largest export market for Swiss pharma-branch, it also serves as a vital base for R&D and production for these firms, none of which could easily be replaced. In the case of Norway, oil and natural gas exports continue to dominate the Nordic country’s exports, the vast majority of which are destined for European partners. This is also unlikely to change in the near future. With respect to Liechtenstein, the small principality's size and location predestine its continued reliance on European markets.

Key structural trends in global trade also indicate that a significant change of the trade relationships of EFTA in the short terms is unlikely. The years 2025 and 2026 have reaffirmed that the global AI and energy race will accelerate and significantly influence trade in the years to come. While Switzerland remains a leader in certain AI-related technologies, EFTA countries suffer from the same general shortcomings as Europe when it comes to the future of the digital economy, such as insufficient AI investment, high energy costs, manufacturing lagging behind China or the poor state of public digital infrastructure. Even if Europe accelerates much-needed investments in these areas, this would likely result in increased imports, at least in the short term, from China and Taiwan — from chips and computers to industrial equipment and fiber cables — as well as continued growth in imports of IT-related services from the US.

Alongside the new EFTA FTA partners examined, India is particularly well-positioned to play an increasing role, although it will continue to lag far behind China and Taiwan. In terms of the global energy race, China is the dominant global supplier of hardware for all forms of renewable energy. While India is performing well in this sector, it still lags far behind China. Regarding fossil fuels, the new FTA partners do not have much to offer EFTA. Based on the outlined trade relations and structural forces, incremental gains in trade through the new FTAs are a realistic goal, but they are not game changers. In summary, based solely on existing economic and trade indicators, the new FTAs are a positive step towards diversifying EFTA's trade relationships, but they are unlikely to dramatically alter these countries' external economic relations. Nevertheless, the “known knowns, the known unknowns and the unknown unknowns” of geopolitical developments will also, of course, shape the trajectory of global trade, including that of EFTA.    

Trade in the Grips of Geopolitics

FTAs have never been exclusively trade instruments; they are highly political as well. Consider recent history. In the context of the backlash against globalization in the West over the past decade, FTAs have become politically toxic in Europe and the United States. However, the growing protectionism of the US even under the Biden presidency and especially under the Trump administration’s new trade wars, played a significant role in the sudden proliferation of concluded FTAs around the World. Many countries, including EU, EFTA and Mercosur countries, India, Malaysia, Vietnam and Indonesia, felt the urgency to diversify their trade relationships and demonstrate their objection to this new level of US protectionism. 2024-2025 is a classic example of how band-wagoning play out in international affairs. It is reasonable to assume that US policies also played a part in accelerating FTA negotiations between EFTA and other global partners. Therefore, alongside trade interests, domestic political and geopolitical considerations also played a role in this development.

Following the events of the past few years, including the outbreak of the Coronavirus pandemic, major interstate wars in Europe and the Middle East, and the weaponisation of trade and critical raw materials, the era of 'laissez-faire' in global trade, where comparative advantage was the ruling paradigm, has come to an end. EFTA countries are adjusting to this new geopolitical reality, as evidenced by the following examples. Regarding Norway as a NATO ally, the security and defence dimension is particularly pertinent. As a NATO member bordering Russia, Norway considers its defence relationship with the US and its European allies to be vital to its national security interests. This leads not only to close Norwegian–US and Norwegian–EU defence industrial cooperation and armaments procurement, but also to the prioritisation of alliance-related geopolitical interests in the Nordic country's general economic and trade strategy. Even neutral Switzerland is finding that geopolitical considerations are becoming an increasingly important factor in trade and economic policy, from increasingly rigorous investment screening to increased cooperation with NATO and the EU in the security and defence sector.

Furthermore, the pandemic demonstrated the national security dimension of the pharmaceutical sector, a dimension that will only become more significant as biotechnology advances. The question goes well beyond production capacity for critical pharmaceutical products. Data protection rules and R&D regulations are just two additional areas where political factors will increasingly influence trade-related strategies. Security and geopolitical considerations will emerge across all tech industry segments, particularly in those economic sectors with the most growth potential in the coming years, and none of the EFTA countries will be exempt from this trend. While this will not hinder trade with new FTA partners, there will certainly be many examples in these sectors where EFTA countries will prioritise cooperation with the US or European partners over others, not least due to geopolitical and security-related aspects.  

While FTAs are not necessarily connected to geopolitical alignment, such international agreements also have a systemic dimension. In his now famous Davos speech in early 2026 about the rupture of the global system and the necessity for middle powers to cooperate more intensely, Canadian Prime Minister Mark Carney referred to FTAs as an important component in strengthening the collective resilience that underpins international order. A recent World Economic Forum (WEF) publication described the evolving international trade landscape as a patchwork of trade agreements centred on four key nodes: the US, China, the BRICS+ group (excluding China), and the 'Plurilateralists', comprising many Western-oriented middle powers such as Canada and Australia, as well as multiple ASEAN members, and the EU and EFTA. According to this WEF framework, the US is “going it alone” on trade, China prioritises market access, BRICS+ prioritise sovereignty and trade as a growth engine, and the Plurilateralists enable rule-based trade via FTA agreements and clear market access standards. The result is an increasingly fragmented global trade system with no clear spheres of influence or distinct blocs. As in the geopolitical sphere, a mosaic order of overlapping trade regimes is developing in the global economy.

Conclusions

For the Plurilateralists, including EFTA, the new FTAs are more than just trade instruments. FTAs that are in line with WTO rules and other trade arrangements under the UN system are also viewed as part of a broader strategy to preserve the remaining institutional and normative fabric of the liberal international order. From this perspective, from the perspective of their proponents, FTAs have a geopolitical value by themselves independent of their true economic potential, an instrument which strengthens the resilience of the international system and demonstrates political support for a rules-based world order.

However, similar to the much stronger EU, EFTA countries cannot escape the dominant forces of the global economy, which are leading to increasing fragmentation of international trade. This includes the shadow of the two behemoths and their rivalry: the protectionism and trade bullying of the US, the predatory industrial policies of China as well as a likely continued dependence on key technologies, industries or critical raw materials on these two superpowers. In light of this post-liberal World order and the above-outlined trade relationships of EFTA, rather than being huge potential economic game-changers in the short term, the examined FTAs are much more to be seen as important but limited tools for strengthening the trade and geopolitical resilience of EFTA countries. 

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About the Author

Dr. Gergely Varga, political officer at the Embassy of Hungary in Bern, former Euroatlantic program leader at the Hungarian Institute of International Affairs

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How to cite

Varga, Gergely (2026): From trade volumes to geopolitics: what to make of the recent EFTA Free Trade Agreements. Blog. EFTA-Studies.org.