WORLD TRADE
ORGANIZATIONWT/TPR/M/65
5 April 2000
(00-1374)
Trade Policy Review Body
2 and 4 February 2000
TRADE POLICY REVIEW
ICELAND
Minutes of Meeting
Chairpersons: H.E. Mr. Kåre Bryn (Norway), 2 February 2000, and
H.E. Mr. Jean-Marie Noirfalisse (Belgium), 4 February 2000
Page
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 3II. OPENING STATEMENT BY THE REPRESENTATIVE OF ICELAND 4
III. STATEMENT BY THE DISCUSSANT 6
IV. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY 8V. REPLIES BY THE REPRESENTATIVE OF ICELAND AND
ADDITIONAL COMMENTS 10
VI. CONCLUDING REMARKS BY THE CHAIRPERSON 15ANNEX I RESPONSES PROVIDED BY ICELAND TO ADVANCE WRITTEN
QUESTIONS AND TO OTHER QUESTIONS RAISED DURING
THE MEETING 17WT/TPR/M/65
Page 3
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON
1. The second Trade Policy Review of Iceland was held on 2 and 4 February 2000.  The
Chairperson, Ambassador Kåre Bryn of Norway , welcomed the delegation of Iceland, led by
Mr. Stefán Haukur Jóhannesson, and the discussant , Mr. John Adank (New Zealand).  As usual, the
discussant would speak in his personal capacity and not as representative of his country.  Inaccordance with the established procedures, the discussant had made available, in advance, an outline
of the main issues he intended to raise.
2. The Chairperson recalled the purpose of the Trade Policy Reviews and the main elements of
the procedures for the meeting.  The report by the Government of Iceland was contained in document
WT/TPR/G/65 and that of the WTO Secretariat in document WT/TPR/S/65;  the main issues to be
raised by the discussant were contained in document WT/TPR/D/45.  Copies of advance written
questions, submitted by Hong Kong, China, Japan, Australia, the United States and Canada (Annex I),had been transmitted to the delegation of Iceland.  If full replies could not be provided during the
meeting supplementary written replies could be provided later.WT/TPR/M/65
Page 4
II. OPENING STATEMENT BY THE REPRESENTATIVE OF ICELAND
3. The representative of Iceland emphasized the importance of the Trade Policy Review
Mechanism as a venue for dialogue between Members on their trade policies, enhancing transparency
and strengthening discipline.  Members were granted an opportunity to assess in a comprehensive way
the implementation of the WTO Agreements.  The Trade Policy Review Mechanism contributed inthe long run to more disciplined economic policies and therefore encouraged efforts to stabilize
economic development and achieve a faithful implementation of the WTO Agreements.
4. The last Trade Policy Review of Iceland had taken place in GATT in 1994.  At that time
Iceland's economic outlook was not promising and the economy was not in good shape.  Since then
however, some major changes had taken place.  Currently, Iceland's economy compared well with the
countries it generally measured itself against.  A reasonable macroeconomic balance had been
established, inflation had been low in recent years, and the economy had moved rapidly towardsmarket openness and liberalization.  Behind these improvements lay extensive economic reforms.
The most significant reforms related to the strengthening of markets, opening up of the financial
sector and more disciplined economic management.  Privatization was continuing at full steam;  since
the reports by the Secretariat and the Government of Iceland had been issued, the Icelandic
Investment Bank had been fully privatized.  Furthermore, 15% of the State's stake in the two bankspartly owned and controlled by the Government, had recently been sold.  The government planned to
sell its remaining 70% stake in the two banks in the next three years.
5. Distortions in the economic environment had been corrected by containing inflation and
allowing interest rates and the real exchange rate to be determined by economic conditions.
Furthermore, general attitudes towards the economy had changed.  There had been growingappreciation of the need for stability, and a consensus appeared to have emerged that economic
stability was the key to future prosperity.  Before the recovery started there had been a surplus in the
current account, but as investment increased it had turned into a deficit.  There were signs of
overheating in the economy;  it appeared that the economy had been testing the limits of
non-inflationary growth.  In response to growing demand, the Government had tightened monetaryand fiscal policies with the aim of slowing down the pace of economic activity.  This policy
tightening would be central to economic policies in the year 2000, since the Government's goal was to
achieve a "soft landing" for the economy.  Private consumption had increased more rapidly in 1999
than previously forecast, and with unemployment falling below 2% this had led to a more rapid
increase in prices than expected.  In 1999, prices had risen by 5.8%, instead of the 5% projected.  At
the same time, projections of GDP growth in 1999 had been lowered from 5.8% to 5%.
6. In line with the Government's restrictive monetary and fiscal policies, the Central Bank had
raised interest rates four times in the previous 12 months, most recently by 0.8% in January 2000.  At
the same time, the Treasury's surplus had increased:  it was now expected to be ISK 15 billion
in 1999, or twice the amount expected in the report  prepared by the Government for the Review.  An
even greater surplus was envisaged in the Budget for 2000, of around ISK 16.7 billion, or 2.4% of
GDP.  Growth was expected to slow to a sustaina ble level of 2.9% in 2000, although some problems
remained:  in 1999, with higher private consump tion than earlier forecast, import growth was
expected to be higher than originally estimated;  at the same time, export performance had been below
expectations, thus leaving a greater deficit on the current account, which was not expected to improve
in 2000.  Furthermore, although inflation was expected to be lower than in 1999, at some 3.5% within
the year 2000, this estimate was higher than the earlier forecast of 2.5%.
7. Iceland had always been heavily dependent on imports.  Most first-need items had to be
imported and financed through the export of fish products.  Although a progressive diversification of
the economy had taken place in recent years, fisheries remained the mainstay of the economy.  For
this reason, Iceland's overriding foreign trade inte rests continued to be identified largely with free
trade in fish.WT/TPR/M/65
Page 5
8. An important step towards free trade had been taken when Iceland became a member of the
European Free Trade Association (EFTA), on 1 March 1970.  Through the agreement, Iceland had
obtained immediate duty-free access to the EFTA market for all products covered by the EFTA
Convention and in return had abolished its protective duties on imports from EFTA countries.  The
EFTA Convention covered nearly all industrial products, as well as all fish and other marine products.The European Economic Area (EEA) Agreement between the EFTA States and the European Union
(EU) had entered into force on 1 January 1994 and had directed new trends into Icelandic industries.
Under the agreement, the four fundamental freedom s of the internal market of the EU, the free
movement of goods, services, capital, and persons, was applied within the EEA in the same way as in
the EU.
9. Full free trade in fish products had been established not only within EFTA but also in a series
of free-trade agreements with countries in Central and Eastern Europe and in the Mediterranean basin.The EEA agreement, with some exceptions, secured preferential access for most Icelandic products to
the EU market.  However, Iceland could not depe nd exclusively on the European market.  In the
absence of any preferential trade agreements, trade with partners outside Europe relied on the
contractual framework provided by the WTO.  The establishment of the WTO with its improved
dispute settlement procedures and increased scope had not only provided more security for trade butalso a valuable forum for Iceland to develop its contacts and solve any potential trade disputes.
10. A profitable fisheries sector was vital for the Icelandic economy:  it would be ensured only by
long-term fisheries management that aimed at achie ving sustainable growth of the fishing stocks.
Considering this, the fisheries policy played an im portant role in keeping the economy in good shape.
The current quota system had succeeded in its goal of keeping the catch within specified limits, andthe fisheries sector on the whole had shown increasing profits in recent years.
11. The EFTA States had concluded free-trade agreements with fourteen States and issued
declarations of cooperation with six States in the past eight years.  The most intensive work currently
in progress within EFTA concerned the free-trade negotiations with Canada.  In the EFTA Council,
Iceland had supported cooperation with Mexico and the four MERCOSUR countries:  Argentina,
Brazil, Paraguay, and Uruguay.  In addition to those held with Canada, negotiations were also in
progress with Egypt, Jordan, Cyprus and Tunisia, and, recently, exploratory talks with Chile had been
initiated.  The agreement between the EFTA States and Morocco had been ratified on 4 June 1998.
12. The representative gave Members his assurance that Iceland would continue to emphasize the
importance of universal broad-based trade liberalization in the forum of the WTO, and to support the
efforts to launch a comprehensive round of negotiations in the WTO.WT/TPR/M/65
Page 6
III. STATEMENT BY THE DISCUSSANT
13. The discussant, noted that Iceland presented the remarkable picture of a small country that
had experienced a stunning economic recovery and growth over the past few years, resulting in a high
standard of living.  But it had not always been plain sailing for Iceland.  The situation at the time of
the last Trade Policy Review of Iceland in 1994 was quite different.  Iceland's economy hadhistorically gone through cycles of expansion and contraction.  The strong dependence on a narrow
range of exports had meant that the economy had been very susceptible to external shocks.  The
Government's efforts in the last decade had been a quest for greater economic stability to ensure
prosperity.  The Government had pursued a number of policies aimed at addressing inflationary
trends, and had adopted a range of structural reforms aimed at making the economy adapt better to
macroeconomic conditions.  The performance of the economy in the last few years appeared to have
been assisted by these measures.  Growth of 5-6% had been achieved, making Iceland the envy ofmost of its trading partners.  However, there were signs that the economy was overheating.  Growth
rates for 2000 had been reassessed at around 2.5% and the Government was keen to ensure a soft
landing for the economy.  He was interested to know  how the Government's efforts in facilitating this
objective were proceeding, and in particular how it was addressing the current account deficit and
encouraging greater savings.
14. He noted that since the last Review in 1994, Iceland had continued to pursue a number of
trade policy and trade liberalization initiatives, particularly at the regional level through its
participation in the EEA.  With some noteworthy exceptions, Iceland operated a generally liberal
trade regime, and trade was of crucial importance to the country.
15. Iceland and fisheries went hand in hand.  Fisheries accounted for 71% of merchandise exports
and 49% of foreign exchange earnings;  its fishing productivity was the highest in the world. With
97% of production exported, it was understandable that the pursuit of free and fair trade in fisheries
was a key government role.  The record that Iceland had established to support the calls it made in
that regard was impressive:  imports of fish entered the country duty free and there was no
subsidization of the industry.  Any attempt at s ubsidization would admittedly bankrupt the country,
given the extent of participation of the population in this sector.  Iceland had been at the forefront of
international efforts, both at the WTO and in other relevant fora, in calling for action by other fishing
nations to curtail their subsidization of fishing industries.  He noted the significant support achieved
for the proposals sponsored by Iceland in the context of the Seattle Ministerial Conference.  Iceland
had been a vocal proponent of the elimination of tariffs on fisheries, both at the regional level as well
as multilaterally, and had shown interest in initiati ves to eliminate tariffs in industrial/non-agricultural
products more broadly.  He believed that Iceland would continue to be an influential proponent ofreform of fisheries-related subsidies and tariffs in relevant fora.  The reforms carried out in recent
years in the Icelandic fishing sector had been significant and were having positive effects on the
conservation and management of fishing resources.  The discussant enquired about the ongoing
debate in Iceland with respect to the allocation of fishing quotas.
16. In contrast, protection in agriculture remained significant, through high tariffs with three-digit
tariff bindings, and substantial remaining subsidies.  However, the discussant noted that the on-going
process of reform, begun by Iceland as a result of the Uruguay Round, would lead to the total
elimination of administered prices by 2001.  There had also been a move in the past decade away
from export subsidies to direct payments for farmers.  He welcomed the virtual abandonment by
Iceland of export subsidies.  Yet high subsidization and protection in agriculture remained, andcontinued to cause concern among trading countries.  Direct payments under the Agricultural
Agreements programme had actually increased, as had subsidies to wool production, and support was
higher than the OECD average.  Moreover, payments based on output had increased substantially
between 1988 and 1998.  He noted that the financial burden on the population as a result of this
subsidization was considerable, in addition to any trade distortionary effects.  According to the
OECD, Icelandic consumers paid as much as twice the world price for agricultural products.  HeWT/TPR/M/65
Page 7
requested information with respect to the evoluti on of Iceland's support programmes, bearing in mind
the process of continuing reform of agriculture to be pursued from 1 January 2000 under the
mandated negotiations on Agriculture, and that Iceland would have exceeded its total Aggregate
Measure of Support commitment level for the calendar year 1998, if it had not unilaterally adjusted in
its external reference prices for inflation.  He invited Iceland to elaborate on the developments of itsgreen box programmes, and their possible trade distorting effects;  the "direct payments to sheep
farmers" programme, for example, appeared to require that producers held a minimum number of
winter-fed sheep in order to receive payments.
17. A number of other aspects of the agricultural regime were cause for comment.  These
included questions regarding the operation of minimum access tariff quotas for certain agricultural
products.  The discussant wondered whether there were any plans to change the system of auctioning
of quotas.  He noted that imports of meat and dairy products were restricted for sanitary reasons andthat, with the exception of poultry and cheese, no imports had taken place under minimum access
commitments in 1998.  While he understood sanitary considerations, coming from an island-state, in
view of the requirements of the Agreement on Sanitary and Phytosanitary Measures aimed at
facilitating trade, subject to relevant safeguards against risk, he sought clarification regarding the risk
assessment method used for imports of meat and the economic costs of the "zero risk" programme,which Iceland seemed to implement.
18. Regarding regional agreements, which covered over two thirds of Iceland's trade, while the
preferential trade with other EFTA countries and with the EU had brought positive results, it had also
resulted in highly complex trade relations.  He wondered whether in all cases the differentiation
resulting from implementing preferential arrangements was a useful feature of trade policy, andwhether, in terms of streamlining its policy delivery, Iceland might see scope in multilateralizing
concessions at least to some extent.
19. The immediate challenge for the Icelandic authorities was to continue the process of structural
reform.  Further regional integration policy development were likely to be considered in the future;
the question of EU membership might also arise, although the divergence between Iceland's interests
and the EU's Common Fisheries Policy would seem to complicate this.  At the multilateral level,
resumed negotiations on agriculture and services could provide the opportunity for Iceland to pursue
ongoing agricultural reform and liberalization, as well as its interests in promoting free and
unsubsidized fisheries trade.WT/TPR/M/65
Page 8
IV. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY
20. The representative of Hong Kong, China, noting that the difference between bound and
applied tariff rates in Iceland was still significan t, encouraged the authorities to reduce the gap in
order to enhance the predictability of Iceland's tariff regime.  He expressed his appreciation that some
95% of import consignments were handled using a new electronic clearance system.  Noting that anumber of indirect taxes were levied by Iceland, he urged the Icelandic authorities to review these,
with a view to reducing and simplifying them, so as to create a more facilitating environment for
trade.  Iceland maintained some 1,000 technical regulations and standards.  He encouraged Iceland to
harmonize these rules with international standards.  His delegation welcomed Iceland's application for
accession to WTO Agreement on Government Procurement, and look forward to its early accession.
21. The representative of Japan stated that trade between Iceland and Japan amounted to some
US$300 million.  Iceland placed great importance on the multi-functionality of agriculture, and Japan
expected that the two countries would continued to work together in the future, with a view to making
a constructive contribution to the negotiations on agriculture.  Japan appreciated Iceland's open
foreign trade policy, especially in maintaining low tariff rates;  however, it had some queries with
regard to export subsidies, sanitary and phytosanitary measures, and trade-related aspects of
intellectual property rights.  On services, the representative enquired about the need for Iceland tocontinue maintaining MFN exemptions on audio-visual and air transport services.  He expressed
appreciation for the steps undertaken by the Government of Iceland to liberalize investment,
however, there were still some sectors where national treatment was not extended to foreigners,
especially the fisheries sector.  He encouraged Iceland to grant this treatment to foreigners.  Japan had
requested further information from the Government of Iceland concerning the size of the fishing fleet.
22. The representative of Australia noted Iceland's strong support for the multilateral trading
system.  He pointed to the contrast between the open trade regime for industrial products and the high
continuing levels of protection for the agricultural sector.  Australia and Iceland had a small but
healthy trade relation in a limited number of products.  A recent decline in Australian wine exports to
Iceland was, however, cause for concern.  He expressed Australia's appreciation for Iceland'sleadership in ongoing efforts to commence work within the WTO concerning subsidies that contribute
to fisheries over-capacity and over-fishing.
23. The representative of India appreciated Iceland's achievements in restoring macroeconomic
balance by undertaking extensive economic reforms.  He expressed concern, however, regarding the
still strong dependence on export earnings from the fisheries sector, and encourage Iceland to take
steps to further diversify the economy.  This was important for a sustainable fisheries management in
the long run, and also to give stability to the balance of payments.  Iceland was a member of EFTAand in this framework had signed various free-trade agreements with other countries.  He was
concerned about the differential treatment to third countries that resulted from these agreements.
24. The representative of Norway emphasized the close ties that existed between Iceland and
Norway, not only economically but also in their participation in international organizations.  She
noted that Iceland's economy had benefited from economic reform and increased trade, but that therewere some signs of inflation.  She enquired about the possible effects of the high interest rates
resulting from tight monetary policy on Iceland's long-run competitiveness.  She expressed support
for the policy of dismantling subsidies for the fisher ies sector.  She was interested in hearing further
details with respect to the character of the envir onmental impact assessments carried out in Iceland.
In 1998, Iceland had applied to become a member of the WTO Plurilateral Agreement on GovernmentProcurement, and she hoped that negotiations would soon be completed.
25. The representative of the European Union noted that Iceland had a transparent and open trade
regime, and that the relationship between Iceland and the EU was a close one.  Iceland had fully
benefited from international specialization in fisheries and energy.  The impact of the fisheries sectorWT/TPR/M/65
Page 9
in the economy was very positive and Iceland was one of the most productive countries in the world
in this sector.  The EEA had intensified trade re lations between Iceland and the EU, but Icelandic
trade policy remained distinct from that of the EU.  The representative of the EU expressed concern
with regard to Iceland's restrictions to foreign investment in the fisheries sector.
26. The representative of the European Union regretted that a General Council meeting had been
scheduled at the same time as the Trade Policy Review meeting of Iceland, preventing a larger
attendance to the latter, and hoped that situations of this kind would be prevented in the future.
27. The representative of the Czech Republic commended Iceland for its remarkable economic
recovery, resulting from the implementation of structural reform, sound macroeconomic policies,
foreign direct investment, and the development of services.  Iceland's participation in the EEA and
EFTA had had an effect on these achievements, as had the bilateral taxation agreements signed by
Iceland.  From the Czech Republic's perspective, Iceland was a very reliable and traditional trade andeconomic partner;  bilateral relations between the two countries were based on the free-trade
Agreement between the EFTA States and the Czech Republic.  The agreement had proved its value in
providing stability in trade between the two partie s, contributing to the expansion of world trade.
Both Iceland and the Czech Republic were working together with the aim of expanding the
contractual basis of their bilateral relations.  The recent signature of an agreement on prevention ofdouble taxation was a good example of these efforts.
28. The representative of Canada said that, while the fiscal situation in Iceland had achieved a
remarkable improvement, the current account deficit had increased;  he hoped that the situation
regarding the current account deficit would turn around in 2000.  Canada was also reassured that the
current threat posed by inflation was being addressed by tighter economic policies.  Iceland hadmaintained a traditionally liberal trade regime, but agriculture represented something of an exception
in this respect.  Canada encouraged Iceland to liberalize the agricultural sector as it had done with
other sectors.  Regionally, Canada, Iceland, and other EFTA countries were negotiating a free-trade
agreement consistent with WTO rules.  Canada looked forward to working with Iceland on the agreed
negotiations on agriculture and services, and to building the foundation and momentum for expandingthe WTO negotiating agenda.
29. The representative of the United States emphasized the growth of the U.S.-Iceland trade
relationship in the last six years, which was due in part to Iceland's commitment to free trade,
relatively low tariffs, an efficient Customs system, and transparent trade policies.  He commended
Iceland for proposing an elimination of fisheries subsidies that led to overcapacity and overfishing, as
well as for its active participation in the Agreements on Financial Services and Basic
Telecommunications.  He recommended Iceland to further liberalize on an MFN basis.  The UnitedStates appreciated Iceland's efforts to reform its agricultural policies, particularly its decision to
abolish export subsidies at the wholesale level and replace them with direct payments to farmers, and
to phase out administered prices in the sheep and dairy sector.  However, he encouraged Iceland to
further reduce protection in the agricultural sector, since applied tariffs in the sector, at an average
level of 10.8%, were high compared with an average 2.5% tariff for imports of manufactured goods.The United States was pleased that Iceland was in the process of acceding to the WTO Government
Procurement Agreement and had several questions regarding the status of Iceland's application.
Iceland's open trade and investment regime was well appreciated, as well as its active participation in
the WTO.  The United States encouraged Iceland to continue to examine areas where greater
liberalization would complement efforts already unde rtaken and ensure that Iceland's consumers had
access to the widest selection of industrial and agricultural products, while continuing to enjoy the
benefits of a healthy economy.WT/TPR/M/65
Page 10
V. REPLIES BY THE REPRESENTATIVE OF ICELAND AND ADDITIONAL
COMMENTS
30. The meeting was reconvened on 4 February by the Chairperson, Ambassador Jean-Marie
Noirfalisse of Belgium.  The presentation of the representative of Iceland and the subsequent
discussion was organized in three parts:  economic environment; trade policy by measures, and tradepolicy by sector.
(i) Economic environment
31. The representative of Iceland focused his presentation on the current economic situation in
Iceland and the steps taken by the Government to maintain a stable economic development.  The
exchange rate policy had led to an appreciation of the Icelandic krona, and the high current account
deficit was a cause for concern.  Referring to the strong increase in private consumption, he observed
that a substantial part had been in durable goods, and that this would lead to a saturation.  The savingsrate was low, but had been rising, as an effect of privatization.  Also, a third pillar had been added for
pension schemes.  Monetary policy was tight, the Central Bank had raised interest rates again when
the Government passed the budget for the year 2000.  Considering the current high levels, the forecast
was for a significant lowering of rates in 2000, thus returning to levels comparable to those of
Iceland's main trading partners.  During the current upswing, inflation remained low, whileproductivity grew at a faster pace, thus improvin g the competitive position of Iceland production.
With the tightening of labour markets, inflation had edged upwards in the last few months.  In
response, the Central Bank had raised interest rates, while the Government passed the budget for 2000
with a record surplus.  Taking into account the ti ght monetary and fiscal policies, the current forecast
was for a significant lowering of the inflation rate during the year 2000 and in the following year
returning to levels comparable to those of Iceland's main trading partners.
32. He noted that the marine sector was more diversified than it appeared at first sight.  The fish
catch was diversified, and a wide variety of products had been developed.  Some of the processes in
the industry were using high manufacturing tec hnology.  Diversification on production had been
extended not only to the methods of the processing but also to marketing.  Icelandic fish products hadbeen successfully marketed to the United States, Japan, and other countries in Asia.  The
diversification of the fisheries sector has limited the risks of a negative impact on the sustainable
fisheries management in the long run, associated  with the Icelandic economy's dependence on marine
exports.
33. In recent years, power-intensive industries had been growing substantially, particularly in the
production of aluminium and ferro-silicate.  At the same time a substantial growth had been seen in
several small industries such as software and genetic research, as well as in services, especiallytourism.  With the signature of the EEA agreement, Iceland had adopted the EU's legislation, and
there was no doubt that this legislation had created the framework for sustainable development.  Since
the last Trade Policy Review of Iceland in 1994, further liberalization had brought an increase in
economic competition.
34. Under the auspices of the Ministry of Commerce and Industry, a Committee had been set up
to compile recommendations for the amendment of the investment legislation.  The Committee had
not yet completed its work.  In 1997, the Government had decided to grant to all residents in OECD
countries the same exemptions granted to EEA re sidents when Iceland signed the EEA agreement.
Residents of OECD countries could establish or be on the board of directors of a limited company, or
be managers of branches of foreign limited companies.  This exemption did not apply to unlimitedcompanies.
35. Through participation in the EEA, and through the EFTA free trade agreements with Eastern
European and Mediterranean countries, Iceland had achieved greater market access and enhancedWT/TPR/M/65
Page 11
prospects for greater trade development.  The aim was to create a competitive playing field for
Icelandic economic operators.  Free-trade negotiat ions were now under way with Canada.  Iceland
supported faithfully the multilateral trading system, taking into account its situation as a small country
and the concentration of its export partners.  Iceland was willing to consider all possibilities to
simplify import procedures.  In many cases, import duties had been reduced or abolished on an MFNbasis to the same extent as negotiated in Iceland's trade agreements.  Iceland had also made efforts to
simplify Customs procedures.
36. The discussant stated that it was obvious from Iceland's presentation that Iceland had
undertaken a commitment for long-term prosperity.  He noted that there had been some concerns
about the current account deficit;  however, there were expectations of controlling it and of increasing
savings.  One of the main issues was the challenge to diversify the economy.  Iceland had a strong
commitment to finding value-added ways to ensure that fish products generated more revenue.  Hewas interested in hearing whether Iceland had explored possible ways to generate more valued added
from the diversification in the fisheries sector, and in  other sectors such as tourism, civil services and
energy, and of the development in these fields.  He enquired about the terms of reference of the
investment committee recently set up by the Icelandic Government.
37. The interaction between the regional and MFN regimes was a very interesting issue.  He
noted the recognition by the Icelandic authorities that in some cases the requirements under a regional
preferential regime could be more burdensome compared with the MFN regime, for example the
requirement of supplying proof of the origin.
38. The representative of the United States thanked the delegation of Iceland for its complete
written answers.  He acknowledged that free trade agreements could result in greater bureaucracy, but
that this should not be used as a justification for granting preferential treatment.
39. The representative of Iceland replied that new ways were being developed concerning further
diversification in fisheries;  Iceland recognized the importance of generating more value added out of
the marine resources, and was trying to find the right way to do so.  There had been seen some
opportunities to diversify, for example, in bluefin tuna fish and blue whiting.  He believed thatwhaling could be exploited in a sustainable manner due to the adequate current stock.  The Icelandic
fishing industry had also been investing abroa d, for example in Germany and other EU countries.
Concerning the Investment Committee, its aim was to simplify the rules and procedures in the field of
investment.  With respect to the limitations on investment in fisheries, Iceland did not see any
possibility, for the moment, to open the fisheries sector to foreign investors.
(ii) Trade policy by measure
40. Iceland welcomed the recommendation from some Members to reduce or remove excise
duties on some products;  however, income from excise duties was a very important source of
revenue, amounting to ISK 35-40 billion a year, or about 20% of total tax revenues.  Thus, the effect
on revenue had to be taken into consideration when debating the reduction or abolition of excise
duties.  Also, no new excise duties had been applied since the last Trade Policy Review, and duties
had been eliminated on a number of products, such as films, buses, and some electrical equipment.The rates of other excise duties had been lowered, such as in the case of some electrical products,
private cars, small buses, and small trucks.
41. With respect to questions raised about li censing requirements for telecommunications
operations, the representative confirmed that, in accordance with the Telecommunications Act, these
requirements were in place.  However, changes in telecommunications legislation and regulations,including licensing, were pending.WT/TPR/M/65
Page 12
42. Iceland had a derogation from the EEA agreement as regards sanitary and phytosanitary
measures for agricultural products.  Iceland was in a unique geographical situation and therefore was
particularly sensitive to animal diseases that did not exist in Iceland.  For this reason, some protective
measures needed to be applied in the case of m eat.  Imports of dairy products were allowed only if
produced with pasteurized milk, for human health reasons.  This requirement applied also to Icelandicdairy products.
43. With respect to government procurement, Iceland was a member of the EEA and had
amended its procurement legislation in accordance with EU legislation;  all tenders were published
according to EU directives.  Iceland had applied to the WTO Plurilateral Agreement on Government
Procurement.  There were no special clauses proh ibiting foreign participation in local procurement
unless the value was lower than the EU threshold;  public tenders were published internationally when
values exceeded the threshold.  Iceland had made commitments in its negotiations for accession to theAgreement on Government Procurement to derogate country-specific procedures if other member
countries did the same for Icelandic entities.  Procurement in Iceland covered by the WTO Agreement
on Government Procurement would be between 17% and 20% of total government procurement.
44. The discussant, referring to Iceland's reply to the question on sanitary and phytosanitary
measures, remarked that it would be useful to lear n about risk analysis in Iceland and how the current
regime had been developed, especially with respect to raw meat, since special conditions seemed to
prevail in Iceland.
45. The representative of Iceland stated that it was difficult to analyse the risks, but referred to
negative past experiences following importation of live animals into Iceland.  Iceland was also
extremely sensitive regarding the importation of meat products.  More details would be provided inthe Committee on Sanitary and Phytosanitary Measures.
46. The representative of Japan asked for the criteria under which Iceland may reject a product
accepted by the European Union.  He wondered whether these criteria were provided concretely in the
EEA agreement.  He was interested to know whether the percentage of tariffs lines bound by Iceland
was 85% (as per old information) and requested the Secretariat to provide more information on thismatter.
47. The representative of the Secretariat stated that the issue was being looked into with a view to
issuing a corrigendum as not all items in Iceland's tariff schedule were bound, as mistakenly stated in
the Secretariat Report.  The difficulty seemed to be in the transposition of the bindings made during
the Uruguay Round using the old HS 92 nomenclature to the HS 96 nomenclature currently in use.
He believed the actual tariff binding was no longer 85% but around 96-97%.
48. In response to the question about the existence of specific criteria for the rejection of products
accepted by the European Union, the representative of Iceland noted that Iceland applied autonomous
criteria on an MFN basis to all countries, regardless of whether they were member countries of theEuropean Union.  With respect to the question of whether the HS heading 7182 was bound or not, the
statement that only part of the heading was bound a ppeared to be correct, but he could not confirm
this with certainty.  He believed the explanatio n to lay in the transposition of the bindings made
during the Uruguay Round using the old HS 92 nomenclature to the HS 96 nomenclature currently in
use.
(iii) Trade policy by sector
49. The representative of Iceland noted that increased efficiency in agriculture would prepare
farmers to face competition.  He stressed that imported food products accounted for more than 50% of
total consumption of food in Iceland.  Import rules for food products were therefore generally liberal.
Ecologically clean products would probably become of major importance in Iceland and inWT/TPR/M/65
Page 13
international trade.  Icelandic agricultural products would compete in international markets based on
quality and speciality rather than price.  Agricultural policy was transparent and was not seen to be in
contrast with general government policy on development.  Iceland had expressed to other Members its
views on the multi-functional role of agriculture.  Agricultural policy goals included self-sufficiency,
maintaining habitation of rural areas, and a high standard of living.  In addition, the impact ofagriculture in GDP was high.  The agriculture sector had experienced many changes during the past
years;  dairy, meat and poultry production had been rationalized;  Government expenditure in
agriculture had been reduced by half between 1989 and 1997;  and support to producers had been
curtailed, the OECD's Producer Subsidy Equivalent  had fallen to 68% in 1997 from 82% in the 1986-
88 period.
50. Iceland was aware of the positive effects of the liberalization of trade in agricultural products;
this had been reflected in the free-trade agreements concluded with different countries and within theWTO where Iceland had undertaken the commitment to reduce export subsidies in agriculture.  The
trend was towards further liberalization.
51. In fisheries, the Government's main concern was to ensure an efficient management system;
for that reason, a Committee had been established to carry out a review.  Fisheries were vital for
Iceland's economy and therefore important to its economic independence.  The authorities believedthat it was necessary to retain limitations on foreign ownership:  fish resources were not inland and
could easily be exploited by foreign countries.  This was the main reason for the prohibition of foreign
investment in fisheries.
52. Regarding the concern of some Members about the change in the number of vessels, he
explained that there had been changes in the number of active commercial fishing vessels under thequota system, but not in the tonnage of the fishing fleet.  Iceland's fisheries experience suggested that
the quota system enhanced rational behaviour and the removal of excess capacity.
53. With respect to telecommunications, Iceland in tended to privatize the main operator within
the next two years.  The only limitation that would remain after privatization was the restriction on
investment by foreign States, foreign local authorities, or foreign public entities.  These restrictionswere applied in all sectors, not only in telecommunications.
54. The discussant expressed his appreciation for the comprehensive answers provided with
respect to fisheries.  He requested more information on how Iceland had faced the problem of
overcapacity and overcapitalization in fisheries in the 1970s.  In agriculture, there had not been
sufficient import penetration in certain areas, and  there were some challenges to be addressed.
Subsidies remained in the agricultural sector;  although the Icelandic authorities had stated that direct
payments had not increased in real terms in recent years, this did not take the broader view ofsubsidization into account.  The Icelandic authorities had not mentioned whether there would be
further liberalization,  however this remained the main issue of possible future negotiations on
agriculture.
55. The representative of the United States clarified that under the Memorandum of
Understanding between Iceland and the United States, signed in 1986, Iceland was permitted to
participate in transport of military cargo to the U.S.  military facilities based in Iceland.  The issue was
not of cargo sharing, but national security.  U.S. law required that all military cargo be transported on
vessels with a U.S. flag except when U.S. vessels were not available, or where there was an
agreement with a foreign country.
56. The representative of the European Union noted that it had raised two questions:  one had
been answered through the reply given to the representative of Japan, while he still sought
confirmation with respect to the possible obligation to land in Iceland all fish destined for export.  InWT/TPR/M/65
Page 14
case of confirmation, he queried the purpose of this obligation and whether it was a hidden export
limitation in order to promote and support the domestic fish processing industry.
57. The representative of Iceland stated his appreciation for the clarification made by the United
States.  With regard to the second question by the European Union, he stated that there was no
obligation for vessels to land in Iceland;  they could land in other countries' ports, if these ports wererecognized by the Government of Iceland.
58. The representative of Japan asked whether fishing quotas under the management system
applied outside Iceland's 200-mile jurisdiction.
59. The representative of Iceland replied that Iceland applied quotas to the stocks of fish outside
its exclusive zone and these quotas were transferable.  Another question posed by Japan concerning
services, would be answered later in writing.
60. In concluding the representative of Iceland thanked his delegation, the Secretariat, the
Chairperson, and the discussant for their contributions in the second Trade Policy Review of Iceland.WT/TPR/M/65
Page 15
VI. CONCLUDING REMARKS BY THE CHAIRPERSON
61. We have had positive and open discussions on Iceland's trade policies and measures.
Members of the TPRB were clearly impressed by Iceland's outstanding economic recovery since its
first Review in 1994, due in good part to Iceland's generally liberal trade regime, disciplined
macroeconomic management and continued structural reforms.  Those policies and the deftexploitation of its fish and energy resources have permitted Iceland to reap the benefits of
international specialization and freer trade, thus achieving one of the world's highest living standards.
In the current favourable conjuncture, Iceland major short-term challenge was preventing the
economy form overheating.
62. Members commended Iceland's strong support for an open multilateral trading system and its
commitment to liberal trade policies, evidenced by its generally low tariffs.  Iceland was also
commended for its leadership in the ongoing efforts to commence work in the WTO concerningsubsidies in fisheries.  Noting Iceland's applications for accession to the WTO Plurilateral Agreement
on Government Procurement, Members expressed their hope that the negotiations be completed soon.
63. Members noted the important changes already implemented in the agricultural sector but
encouraged Iceland to introduce further trade-liberalization and restructuring measures to reduce
protection and assistance to that sector.  Concern was expressed with respect to Iceland's over-relianceon earnings from exports of fisheries to finance imports and Iceland was encouraged to seek
diversification of its export basket.  The increasing complexity of Iceland's trade regime, resulting
from the increasing number of preferential agreements subscribed by EFTA, was noted.  Members
also noted the existence of investment restrictions on strategic sectors and enquired whether Iceland
intended to relax these restrictions.
64. While noting the effort undertaken to reform and liberalize its trade regime, Members
encouraged Iceland to examine areas were further liberalization could be implemented, to review and
simplify its system of indirect taxes, and to narrow the gap between applied and bound tariff rates.
65. Members also asked for details in a number of more specific areas including:
- measures affecting the importation, distribution and retail sales of alcoholic
beverages;
- duty suspension schemes;
- legislation on government procurement and market access and national treatment for
foreign enterprises;
- some aspects of trade-related intellectual property rights, particularly regarding
patents and geographical indications;
- certain aspects of competition policy, including the non-application of national
legislation to export cartels;
- MFN exemptions in audio visual and air transport services;
- national treatment limitations to non-EEA enterprises under the GATS;
- integration of textiles under the ATC;
- customs tariff bindings;WT/TPR/M/65
Page 16
- the allocation and effects of tariff quotas in agriculture;
- the allocation of fish quotas;
- the import licensing regime;  and
- support programmes and measures taken to achieve self-sufficiency in agriculture.
66. Members appreciated the comprehensive oral and written responses provided by the Icelandic
delegation in the context of this meeting, as well as Iceland's undertaking to respond in writing to
some additional specific questions as soon as possible.
67. In conclusion, it is my sense that Members fully acknowledged Iceland's recent success in
managing a specialized, resource-based economy, and trusted that current efforts to bring it to a "soft
landing" would do well.  They recognized Iceland's structural reforms over the past few years and
encouraged it to continue in this path as to secure  the flexibility necessary to ride out future external
shocks.  Members welcomed Iceland commitment to trade liberalization;  they pointed out thearguments in favour of non-discriminatory liberal policies to secure Iceland's past gains.WT/TPR/M/65
Page 17
ANNEX I
RESPONSES PROVIDED BY ICELAND TO ADVANCE WRITTEN
QUESTIONS AND TO OTHER QUESTIONS RAISED
DURING THE MEETING
I. ECONOMIC ENVIRONMENT
(i) Macroeconomic stability and structural adjustment
How are the Government's efforts in facilitating its object of soft landing of the economy proceeding?
In particular the ways of addressing the current account deficit, and encouraging greater savings by
the population.  (Discussant)
The Government is committed to a stable exch ange rate policy, keeping the trade weighted
exchange rate of the króna within a certain band.  In the last few years the króna has remained in the
strong half of the band and with the latest interest rate hike, the króna has appreciated further.  Thestrong króna thus contributes to containing the inflation rate.
In recent months we have seen the effects of the monetary policy in the appreciation of the
króna and the reduction in the growth of bank lending.  The effects of the fiscal policy are as a rule
harder to quantify and as the budget was passed only a month and a half ago, it is too early to assess
the effect.
The high current account is of course a cause for concern.  Part of it is due to a high level of
investment led by the construction of power inte nsive industry, followed by a general surge in
investment.  However, private consumption has also grown, partly due to pent up demand from the
previous downswing coupled with a large increas e in personal income.  With a lower growth in
income expected this year and a saturation effect showing in the consumption of consumer durables afurther growth in the current account deficit is not expected.
The saving rate in Iceland has historically been low which is not unexpected in a country with
a history of high inflation and a closed financial market.  The effects of liberalization are still being
felt, mainly through greater access to credit.  In the current upswing, public savings have grown
significantly as the general government account is showing a surplus.  Private savings are mainlythrough the pension system.  Recently, the government introduced a complementary tax exempt
pension scheme as an addition to the compulsory pension system, thus adding the third pillar to the
pension scheme, while encouraging further private savings.
Iceland's economy has benefited from economic refo rm and increased trade but that there are some
signs of inflation.  The Government has maintained tight monetary control, which has led to high
interest rates.  It would be interesting to know if the Government in this scenario has any concerns
about Iceland's ability to compete with her main trade partners in the long run.  (Norway)
During the current upswing, inflation remained low, while productivity grew at a faster pace,
thus improving the competitive position of Icelandic production.  With the tightening of labour
markets, inflation has edged upwards in the last few months.  In response, the central bank has raised
interest rates, while the government passed the budget for 2000 with a record surplus.  Taking into
account the tight monetary and fiscal policies, the current forecast is for a significant lowering of theinflation rate during the year 2000 and in the followin g year returning to levels comparable to those of
our main trading partners.WT/TPR/M/65
Page 18
Iceland is encouraged to take steps to further diversify the economy as too much dependence on
fisheries trade could have a negative impact on the sustainable fisheries management in the long run.
It is time Iceland takes measures to diversify markets so as to fully enjoy and share the benefits of
globalisation.  (India)
The maritime sector is more diversified than it appears at first sight.  Although groundfish
(i.e. cod, haddock, saithe and redfish) has been the mainstay of the Icelandic marine sector together
with capelin, in recent years catches of herring and shrimp have been of substantial value.  In
addition, a large variety of products and markets have been developed.  The marine sector, especially
the processing industry, has some of the characteristics of high-technology manufacturing.
Production systems are flexible, and thus it is relatively easy to divert the raw material to the most
profitable processing method, depending on market conditions.  Diversification has, thus, extended
not only to the species and methods of processing but also to marketing.  Icelandic fish products havebeen actively marketed in the United States, Europe and Japan as well as in other countries of Asia.
Diversification within the fisheries sector has limited the risks of a negative impact on the sustainable
fisheries management in the long run, associated  with the Icelandic economy's dependence on marine
exports.
Furthermore, in recent years power intens ive industry has grown substantially, both
aluminium and ferrosilicon.  At the same time a s ubstantial growth has been seen in several small
industries such as software and genetic research, as well as in services, especially tourism.
(ii) Competition policy, state monopolies (tobacco, alcoholic beverages)
It is reported that the Competition Act does not apply to export cartels or any other (anti-competitive)
practice dealing with exports or that has an effect only outside Iceland (para. 114, p. 55, of theSecretariat Report).  Please explain the reason.  (Japan)
According to Article 3 of the Competition Law,  the law shall not apply to agreements, terms
or actions that are solely intended to have an effect outside Iceland.
A clause like this was in Icelandic price laws for decades and is currently in the competition
laws.  The reasoning for this clause is the effect doctrine; the competition law does not apply outsideIcelandic territory.
There is an additional clause in Article 3 sayi ng that the Competition Authority shall provide
assistance in implementing the competition provisions of other states and of international
organizations in accordance with mutual obligations provided for in international conventions, to
which Iceland is a party.
The Secretariat Report indicates Iceland's State Alcohol and Tobacco Monopoly (ATVR) currently
has monopoly rights to "the retail distribution of alcoholic beverages (except as regards sales bylicences, such as restaurants".  Presumably the exception to this monopoly is limited to holders of
"import licences" as described in paragraph 60 of the Secretariat Report.
Could Iceland provide details of all current measures affecting the importation, distribution and retail
sale of alcoholic beverages?  Specifically, could Iceland provide information of specific measures
affecting the retail sale of specific brands of alcoholic beverages, including wine.  Of particularinterest are:
- measures that operate to restrict, or limit, the choice of specific brands available to retail
consumers who are only able to purchase through ATVR outlets, or restaurants holding an
import licence;WT/TPR/M/65
Page 19
- measures that restrict, in any way, the ability of holders of "Wholesale Licences" or "Import
Licences" to import specific brands.  (Australia)
(1) Sale of alcoholic beverages in retail stores
Iceland's State Alcohol and Tobacco Monopoly  (ATVR) has the monopoly rights to sell
alcoholic beverages in retail stores.
Since shelf-space is not unlimited in the retail stores of ATVR, there is a need for objective
rules to determine which brands of alcoholic beverages shall be sold in the stores at a given time.
Such rules must take into account different aspects, mainly the interest of consumers of having access
to brands they like, variety in assortments and the interests of producers and wholesalers of having the
possibility to introduce and sell their goods.  The principles regarding how the assortment shall be
determined are laid down in Regulation No. 205/1998, on ATVR, and further details are laid down by
ATVR, in Rules on the Purchase and Sale of Alcoholic Beverages and Terms of Business withsuppliers.
According to these rules, alcoholic beverages are classified into six sales groups.
(a) Basic range
In the basic range are brands which have been transferred from the test range, as well as
brands that were sold in the stores of ATVR when this system was first set up, and have not beendropped from the basic range in accordance with the rules.  A brand is dropped out from the basic
range if its sale does not reach a certain limit, during a certain period.
(b) Test range
In the test range there are as a rule 30% of the number of sales brands of alcoholic beverages
which are in the basic range.  Beverages in this range are for sale on a trial basis for six months.  Animporter or producer has to apply for his product to be sold in the test range and the product is put on
a waiting list.
If a brand in the test range has reached a certain percentage of sales during the trial period, it
is transferred to the basic range.
(c) Development range
In the development range are new brands of alcoholic beverages, which are put on sale on a
trial basis.  In order to be classified in the development range, the product shall be different in
chemical composition from other products from th e same manufacturer on the domestic market or on
the foreign market, as explained further in the Rules.
Once put on sale in the ATVR's outlets, products in the development range shall be handled
as products in the test range.
(d) Speciality range
The speciality range covers products, which are purchased to increase the variety of
selections.  A special selection committee determines, which brands of alcoholic beverages are
offered for sale in the speciality range.WT/TPR/M/65
Page 20
(e) Monthly range
The monthly range covers alcoholic beverages which the manufacturer intends for sale during
certain periods (mid-January to mid-February (which  is a period of traditional Icelandic festivals), the
Easter month, October and the Christ mas month).  Products in this range shall be sold for a maximum
period of six weeks.
(f) Special orders
Special orders may be placed for alcoholic beverages, which do not fall under the
abovementioned categories.
Further details of these rules are, as already mentioned, laid down in the Rules on the
Purchase and Sale of Alcoholic Beverages and Terms of Business with Suppliers.
(2) Import and wholesale of alcohol
No state owned enterprises produce, import or sell alcoholic beverages at the wholesale level,
even though production, import and wholesale of alcohol  was a part of ATVR's tasks until a few years
ago.
A special permit is required for production of alcohol and for commercial import or wholesale
of alcohol.  Such permits are upon application granted to those who:
(a) Fulfill one or more of the following conditions:
- are commercially engaged in import and/or wholesale;
- intend to produce alcoholic beverages for resale;
- are licensed to run restaurants and bars;  or
- are licensed to operate a duty-free store.
(b) Have been registered by Statistics Iceland as well as by tax authorities.
(c) Are at least 20 years old.  If the applicant is a partnership with unlimited liability, this
condition shall apply to all owners and its mana ger.  If the applicant is a limited liability
company, the same shall apply to all members of the board as well as the manager.
A party that has the permission for import, production or wholesale of alcohol, is permitted to
sell or deliver alcohol to the following parties:
(d) ATVR.
(e) Parties who have a permit to produce alcohol.
(f) Parties who have a permit to wholesale of alcohol.
(g) Restaurants and bars, in accordance with the license of such parties.
(h) Duty-free stores and duty-free warehouses.
(i) Embassies and diplomats.
(j) Parties abroad.
(iii) Investment regime (national and MFN treatment)
As stated in para. 33, p. 23, of the Secretariat Report, Iceland does not grant national treatment to
foreign investors in areas considered strategic, such as:WT/TPR/M/65
Page 21
- the prohibition of direct investment and limitati on on indirect ownership in fishing operations
and primary fish processing;
- limitation, except for residents of other EEA c ountries, on owning energy exploitation rights;
and
- limitation on  foreign ownership, except for residents of other EEA countries, in Icelandic
airline companies.
The Secretariat Report also states that other investment restrictions and requirements apply to non-
EEA residents (para. 34).
Please explain if Iceland has any intention to relax such investment restrictions and requirements and
to grant national treatment to foreign investors.  (Japan)
The main legislative body governing foreign direct investment in Iceland is Act on
Investment by Non-residents in Business Enterpri ses No. 34/1991.  Since this law took effect, Iceland
has become a Member of the EEA as well as the WTO.
Under the auspices of the Minister of Industry and Commerce a committee has been set up to
compile recommendations on amendments to the legislation.  The committee has not concluded its
work.  Hence, it is too early to speculate on possible amendments to the legislation.
According to paragraph 34 (b) of the Secretariat Report, there exists a requirement for individuals
domiciled outside the OECD who wish to run a bus iness or take part in a business enterprise with
unlimited liability in Iceland to apply for permis sion from the Minister of Commerce or another
appropriate authority.
- Please explain the criteria necessary for obtaining the above-mentioned permission.
- Do individuals domiciled within the OECD also have to obtain permission to run a business
or take part in a business enterprise with unlimited liability?  If so, do the criteria differ from
that required for non-domiciled individuals?  (Japan)
In order to expedite the handling of applications, and cut red-tape, the Minister of Commerce
decided in 1997 to extend to citizens and legal entities of other OECD member countries the same
exemption that citizens and legal entities of the member states of the EEA Agreement had beengranted when Iceland acceded to the EEA Agreement.
Thus, citizens and legal entities of the OECD member countries need not be resident in
Iceland in order to be founders, members of the board of directors or managers of Icelandic limited
companies.  This also applies to branch managers of foreign limited companies in Iceland.
This exemption does not apply if non-residents intend to establish unlimited companies.
No decision has been taken to extend this exemption to partnerships or other unlimited
companies of third parties.
On environmental issues, the Secretariat Report  refers to the Icelandic Environmental Impact
Assessment Act of 1993 and that environmental im pact assessments have been mandatory for projects
in a number of areas since 1994.  Norwegian authoriti es would appreciate information as to whether
such assessments are obligatory for projects related to trade and investment liberalization.  (Norway)
The Environmental Impact Assessment Act of 1993 is modelled on EU's Directive
No. 85/337/EB.  The EIA Assessment is non-discrimi natory and obligatory for all kinds of projects
stipulated in the Act.  A number of factors are taken into account for assessments: the nature, size and
location of the project, and the activities resulting from it.WT/TPR/M/65
Page 22
(iv) WTO;  regional arrangements
In Mr. Adank´s statement, it was pointed out t hat the differentiation between the MFN tariffs and
tariffs applied according to preferential agreements, which sometimes is very minor, requires added
bureaucracy.  The question was raised whether Icel and, in terms of streamlining its policy delivery,
might consider MFNing some of these requirements, even in advance of any multilateral negotiationin these areas.  (Discussant)
Iceland is willing to openly consider all possibilities in order to simplify and streamline the
procedures taking place at its borders.  In many cases duties have been reduced or abolished on an
MFN-basis to the same extent as negotiated in our free-trade agreements.  It is certainly worthwhile
for Iceland to consider whether further steps should be taken in that direction.  However, it must be
kept in mind that this would leave less scope for Iceland to give concessions in our preferential
agreements, and thus limit our possibility of requesting any concessions from our negotiating partners.
However, it should be mentioned that Iceland has already made efforts to simplify customs
procedures taking place at borders.  In some cases the fact is that importing on the basis of a free-trade
agreement causes more bureaucracy than importing at the MFN-rate, for example the requirement of
supplying a proof of origin.
III. TRADE POLICIES AND PRACTICES BY MEASURES
(i) Tariffs:  bound and applied rates TQs
The Report notes Iceland's impressive average tariff rate of 4%, but Table III.1 suggests relatively
high bound rates, particularly in agriculture.  What  consideration has Iceland given to closing the
gap between bound and applied rates?  (United States)
This is a subject for negotiations.  However, it should be looked at as a positive development
and in our view we should rather be commended for not fully applying our bindings.
Regarding bicycles and other cycles (HS 8712), why does Iceland bind only children's bicycles?  At
customs, how does Iceland distinguish between children's bicycles and other ones?  Does Iceland
have any intention to abolish such domestic sub-headings and bind according to the six-digit level?
(Japan)
It is correctly pointed out that in the binding list, binding of heading 8712 is limited to
children's bicycles.  It is not clear why only a part of a heading was bound instead of the whole
heading which would have been appropriate.  This will be taken into consideration, with the view of
amendment.
In its Customs Tariff, Iceland does not divide heading 8712.  The MFN-duty for tariff line
8712.0000 is 10%.
(ii) Import licensing
Paragraph 40 (Chapter III(2)(viii)) indicates that a pending Telecommunications Act will eliminate
licensing requirements for communicati ons equipment.  What is the status of this legislation?  Does it
have implications for Iceland's other WTO comm itments, such as Basic Telecommunications
Services?  (United States)
It seems that the information in this question is based on a slight misunderstanding.  The
pending changes of the Telecommunications Act will not eliminate licencing requirement for
communication equipment.  It, however, will eliminate licencing requirements for the operation ofWT/TPR/M/65
Page 23
telecommunication activities, such as the establis hment of telecommunication companies.  The Act
therefore creates a more competitive environment in the telecommunications market in Iceland.
The purpose of this change is to enforce an EU regulation and  implement Iceland's
commitments under Protocol IV on basic telecommunication.
(iii) Export measures
Please explain when Iceland intends to notify to the WTO the New Business Venture Fund program
(Chapter III(3)(iv)).  Please explain the program in detail, specifically the amount of fund, duration,
and eligible recipients.  (United States)
The New Business Venture Fund was created in 1998 to encourage innovation oriented
investment projects and support for development a nd marketing projects.  The Fund took over the
assets and liabilities of the Export Credit Guarantee Department which had been in operation
since 1987.
According to the Act on the New Business Venture Fund No. 60/1997, the role of the
Department is:
- To undertake to insure loans which banks and other credit institutions grant to domestic
manufacturers of goods or providers of services for financing export loans granted to, or made
available to, foreign purchasers.
- To undertake claims held by Icelandic exporters against foreign purchasers, providing they
have come into existence in connection with the export of Icelandic goods and services.
- To sell insurance guarantees for services provided by Icelandic parties abroad.  Also, to
underwrite project guarantees made by domestic parties in connection with projects falling
within the reference limits which require public projects to be tendered out in the EuropeanEconomic Area.
- To insure investments by domestic investors abroad against political risk.
- To insure equipment which domestic parties send abroad in connection with projects carried
out there against political risk.
The Scheme is not concessional: premiums are intended to cover the cost of running the
Department, paying claims and building up a reserve fund equivalent to 10% of prospective
obligations.
Generally, there are approximately five cases outstanding within the Department.  Maximum
obligations for the Department at any time is SDR 100 million.  Maximum obligations towards one
party is SDR 10 million and SDR 5 million for each project.
The second sentence of the second paragraph (Chapter III(3)(iii)) states, "However, exporters may
benefit from some provisions for the reimbursement of tariffs and other taxes on inputs, such as the
suspension of duties on inputs for industries operating in competition with imported goods".  Please
explain in detail the program, including title (if any), purpose, duration, amount of funds, eligible
recipients, eligible products/industries that are in competition with imported goods, the government
agencies that potentially distribute the provisions, and please explain when the program(s) above will
be notified to the WTO.  (United States)
It is reported that exporters may benefit from so me provisions for the reimbursement of tariffs and
other taxes on inputs, such as the suspension of duties on inputs for industries operating in
competition with imported goods (para. 70, p. 44, of the Secretariat Report).WT/TPR/M/65
Page 24
(a) Please provide an outline of the above-mentioned scheme.
(b) Does this scheme fall within the subsidies prohibited in Article 3, 1(b) of the Agreement on
Subsidies and Countervailing Measures?  If not, please explain the reason.  (Japan)
In Article 6 (13) of the Icelandic Customs Law, the Minister of Finance is authorised to "…
waive or refund duties on raw materials, components and parts for the production of domestic goods,if duties on identical goods produced abroad are equal to or lower than those on the raw materials.
The same shall apply to machinery, machinery parts and spare parts used in the processing of such
goods".
Rules concerning the application of this provision are laid down in Announcement
No. 617/1989, on waiver or refund of import duties on inputs for "competing industries".  "Competing
industry" refers according to Article 9 of the Announcement to producers who produce only goods
that are duty-free when imported into Iceland.
(a) Machinery
Article 1 of the Announcement lists 71 tariff lines of machinery and equipment for which
duty shall be waived if they are to be used in a "competing industry" (out of these 71 lines, 16 are now
duty free on MFN basis).  Upon importation, the importer must declare in writing that the machine
will exclusively be used in a "competing industry".  A permission for waiver is limited to parties that
have an industry licence.
(b) Materials
In Advertisement No. 617/1989, the Ministry of Finance has authorised the Directorate of
Customs to:
- waive duty on inputs for "competing industries";
- waive or lower duty on inputs used in industry in general, provided that the duty on the same
kind of final-product, when produced abroad, is the same or lower than the duty applied to
that input.
Producers must apply to the Directorate for lowering or waiving of duties.  The application
shall enlist the production of the company as well as the input materials which the request applies to,and shall be supplemented with tariff classification and all technical descriptions necessary .
It is specifically outlined in the Announcement that duties shall not be lowered or waived if
the end-product is classified within the same tariff line as the input.  Minimal or simple operations
such as bottling, packing or repackaging, blending or marking do not give the right for lowering or
waiving of duty on the input.
The purpose of the scheme is to ensure that duties levied on inputs for goods produced in
Iceland, do not make the finished good uncompetitive against the same kind of good produced abroad.
The understanding of Icelandic authorities has been that this scheme is not to be regarded as
subsidies prohibited in Article 3.1(b) of the Agreement on Subsidies and Countervailing Measures.
Since two Member States of the WTO (Japan and the United States) have raised questions which
suggest they may have a different understanding, Icelandic authorities will take this issue under
careful consideration.
It is worthwhile mentioning that it is very likely that many of the goods (inputs) which get
duty waived according to this scheme, are imported to Iceland with the sole intention of using it in a
"competing industry" as that term is defined in the Announcement.  The same can be said forWT/TPR/M/65
Page 25
machines falling under the scheme, they may in many cases be imported for a production exclusively
falling under the term "competing industry".  In such cases, the same result would be achieved by
simply abolishing duties of such goods (inputs).
It should also be worthwhile to point out that in cases where the same kind of input as one
that falls under the scheme, is also produced in Iceland, the scheme in fact favours the foreign input,by abolishing the protection for the domestic input.
(iv) Standards and SPS
It is reported that, as a consequence of the EEA agreement, products accepted in the EU are, in
principle, also accepted in Iceland, but that in practice, the EEA may reject a product accepted by the
EU (para. 100, p. 52, of the Secretariat Report).
- What are the criteria, if any, for rejecting a product accepted by the EU?
- Are these criteria provided for concretely in the EEA Agreement?  (Japan)
Iceland has a derogation from the provisions of the EEA Agreement on Sanitary Matters, as
regards agricultural products, and therefore the criter ia provided for in the EEA Agreement does not
apply to Iceland.
Why are the imports of meat and most dairy products restricted for sanitary reasons?  What are the
specific sanitary concerns and on what scientific basis are they addressed?  (Chapter IV(2)(ii),para. 19) (United States)
Iceland is in a unique position as it is relatively free from contagious animal diseases.  The
live-stock in Iceland has lived for centuries in isolation and therefore is particularly sensitive to
infection from foreign grown livestocks and meat-products.  Therefore adequate protection is required
for its animals, when importing raw meat products that are potential carriers of animal diseases.
As regards imports of dairy products, they are required to be made from pasteurised milk and
this is deemed to be the appropriate level of protection for human health in  Iceland and this
requirement is laid down in the Icelandic regulatio n on milk an milk products No. 392/1997, with the
same requirements are made for imported and Icelandic dairy products.
Therefore paragraph 19 in the Secretariat Report is not accurate in this context.  The imports
of dairy products are free, except for the requirement of the pasteurisation of the products.
(v) Government procurement
What is Iceland's anticipated timetable for completing the process of accession to the WTO
Agreement on Government Procurement?
Taking into account the publication and information notices outlined in Chapter III(2)(x), para. 55,
how does Iceland ensure that offsets will not be used?
How will Iceland ensure that procedural transparency is achieved, including:- transparency of information on procurement opportunities;
- transparency in qualification and bid documentation;
- transparency of decisions on qualification and contract awards.  (Canada)
Iceland has been a member of the EEA since 1994 and has amended its procurement
legislation in accordance with the Public Procurement Directives of the EU.  In the Directives thereWT/TPR/M/65
Page 26
are detailed rules on contract award procedures, advertising, deadlines, technical specification and
participation in a contract award procedure.  Contra cting entities have therefore been following these
procedural rules on publication and information notices  for almost six years.  As a member of the
EEA, Iceland has also built up a review mechanism that  is supposed to ensure that all tenders over the
thresholds are published according to the EU Directives.
As stated in paragraph 48, Iceland has applied for accession to the WTO Government
Procurement Agreement and has currently an observer status.  Iceland has followed the ongoing
discussion within the WTO on Agreement on Transparency in Government Procurement.  Iceland
supports the work on increasing Transparency in Government Procurement in order to seek optimum
efficiency in procuring goods, services and work.
The Secretariat Report states that the Government Procurement Act of 30 March 1987 is designed to
make the government procure goods and services at competitive terms and at the same time to create
an environment where bidders can compete fairly and equally for the business.  Are the rules under
the Act open and non-discriminatory to foreign enterprises? (Japan)
There are no special clauses in the Government Procurement Act that prohibit participation of
foreign enterprises in tenders that are only published locally, that is when the value of the
procurement is below the EEA thresholds.  Contracting entities are however not bound to acceptoffers from foreign enterprises unless the value is ov er the EEA thresholds.  The obligation to publish
tenders internationally also only applies to procurem ent where the value is higher than the thresholds.
In its responses to questions from the GPA Parties (GPA/SPEC/6), Iceland indicated that it was
considering possible revisions to its initial accession offer.  Does Iceland still intend to submit a
revised offer responding to requests made in bilateral consultations? If so, when will that revisedoffer be available?  (Unites States)
Iceland has responded to requests made in bilateral consultations with the GPA Parties and
will introduce a revised offer hopefully by the middle of February.  If that offer will be accepted by
the GPA Parties Iceland's application could in principle be accepted at the GPA meeting in March.
Iceland's offer of accession to the GPA contains numerous derogations that specifically limit
coverage for suppliers and service providers of many GPA members.  In light of the ongoing work in
the WTO Committee on Government Procurement to negotiate the removal of country specific
derogations to the GPA, is Iceland prepared to work to remove as many of there derogations as
possible as part of its accession process?  (Unites States)
As stated in Iceland's response to questions from the GPA Parties (GPA/SPEC/6), Iceland has
given thought to expanding its offer and removing country specific derogations in the accession offer.
The market as well as government entities in Iceland have been consulted and the conclusion has beenthat these derogations will not be removed as part of the accession process.  However, as stated in the
accession offer these country specific derogations will be removed when Iceland has accepted that the
parties concerned have given comparable and effective access for Iceland's undertaking to the relevant
markets.
The Report notes that the estimated value of all government procurement in Iceland for 1998 was
ISK 65 billion (US$903 million).  What percentage of this amount is covered by Iceland's current
GPA accession offer?  (United States)
An estimated percentage of government procurement covered by Iceland's GPA accession
offer is 17-20%.WT/TPR/M/65
Page 27
(vi) TRIPS
According to the Secretariat Report, the 1991 Act granted a priority period only to those applications
filed in Iceland, or in countries adhering to the Paris Convention and that Act No. 36/1996 extended
this right upon decision by the Ministry of Industry to applications filed in countries which are not
members of the Paris Convention (para. 122, p. 57).  In accordance with Article 2 of the TRIPSAgreement, Members shall comply with Article 4 of the Paris Convention regarding priority.  Is
priority granted systematically to WTO Members even if they are not members of the Paris
Convention?  (Japan)
According to Article 10 of Regulation conc erning patent applications, No. 574/1991 as
amended by regulation No. 661/1995, 286/1996, 679/ 1996 and 700/1997, priority may be based on an
application for protection which has been filed in a state which is a party to the Agreement on the
WTO.  Priority may also be based on an application for protection which was filed in a state which isnot a party to the Agreement on the WTO if Icelandic applications for patents enjoy comparable rights
in the state and its legislation complies in general with the Paris Convention.
Iceland has created a negative list of innovations that cannot be considered as inventions for patent
purposes (Chapter III(4)(vi)(a), para. 121).  How is this list consistent with Article 27 of the TRIPS
Agreement (discrimination as to the field of technology)?  Is this list available for review?  (Canada)
In Article 1, paragraph 2, of the Icelandic Patents Act, a number of items which are
specifically excluded from protection are listed.  These are:  discoveries, artistic works, methods of
doing business or playing games, programs for co mputers, presentation of information, methods of
treatment of humans or animals, plant or animal varieties, biological processes for the production of
plants and animals.
All those exclusions comply with Article 27 of the TRIPS Agreement.  Some of those items
are not inventions and others are not capable of industrial application.  The three last items on the lists
are excluded from patentability in agreement with paragraph 3 of Article 27 of the TRIPS Agreement.
These provisions of the Icelandic Patents Act concerning exceptions to patentability are in
line with patent legislation in the Scandinavian countries and also Article 52 of the European PatentConvention.
It is noted that the Icelandic Patent Office may take 20 months to grant international applications for
patents filed by foreigners.  The average pendency time for granting of patents was also as high as
5.5 years in 1998.  We are interested to know if the Icelandic authorities have any plans to expedite
the approval process for granting of patents, in cluding those lodged by foreigners (WT/TPR/S/65,
pp. 58-59, paras. 125 & 129).  (Hong Kong, China)
The average pendency time for granting patents in Iceland was 5.5 years in 1998.  Although
the pendency time can be considered high, the Icelandi c authorities believe that the time is within the
limits observed in other countries with a similar legislation and granting procedure.  (cf.  Table VIII in
Industrial Property Statistics 1994, WIPO, Geneva 1996.)
However, some of the patents granted in 1998 resulted from applications filed before the
present Patent Act No. 17/1991 entered into force on 1 January 1992.  As stated in an earliercommunication to WTO, novelty search of these applications is not carried out or mediated by the
Icelandic authorities.  Thus, it is the responsibility  of the applicant to supply a search report or an
issued patent from other countries or, alternatively, pay specific search/examination fee.  The
pendency time would be lower if patents granted for applications filed when the Patent Act
No. 12/1923 was in force were excluded.WT/TPR/M/65
Page 28
The Icelandic authorities do not differentiate between domestic and foreign applications.
However, most domestic applications are primary applications without a priority claim, contrary to
those from abroad.  Primary applications are treated promptly with the intention that the applicant can
observe the priority year.
Certainly, it is the aim of the Icelandic authorities to have the pendency time as short as
possible.  However, limits are set e.g.  by the kind of procedure required and availability of
technically educated personnel.
How do the provisions of the Trade Marks Act and the competition Act grant protection to
geographical indications?  (Chapter III(3)(vi)(d)).  Please detail how these provisions meet the
requirements of the TRIPS Agreement.  (United States)
According to Article 14.1.2. of the Icelandic Trade Marks Act No. 45/1997 a trade mark can
not be registered if the mark is liable to cause confusion, for instance, as to the type of product,condition or origin.  The Icelandic authorities refuse ex officio  a registration of a trade mark which
contains or consists of a geographical indication with respect to goods not originating in the territory
indicated, if use of the indication in the trade mark for such goods can mislead the public as to the true
place of origin.
In Article 14.3. of the Icelandic Trade Marks Act there is a special provision regarding wines
and spirits, which reads as follows:  "… trade mark for wines and spirits which implies a geographical
name for wine or spirits may not be registered unless the product originates at the location in
question".
The Icelandic Competition Act No. 8/1993 provides a general protection of geographical
indications, i.e. prohibition against unfair competition and misleading advertising.  A single regime ofgeographical protection does not exist.  However, the general clause in Article 11 of the Icelandic
Food Act No. 93/1995, stipulates that foodstuffs must not be sold under circumstances which can
result in the consumer being misled concerning the origin of the product, nature, sort, composition,
quantity, characteristics or effect.
Article 21 of the Icelandic Competition Act No. 8/1993, provides for a protection against
misleading advertising.  This provision includes the use of geographical indications intended to
mislead.
In Article 29, paragraph 3, there is a special provision, which prohibits the sale of goods of
foreign origin, if the goods have been marked with the Icelandic flag, Iceland's coat of arms or other
similar markings of national origin.
According to Article 11 of the Icelandic Food Act No. 93/1995, foodstuffs must not be sold
under circumstances which can result in the consumer being misled concerning the origin of theproduct.
IV. SECTORAL POLICIES
(i) Agriculture;  support and tariff quotas
Statement by the Central Bank: "Free internatio nal trade is of paramount importance ... Iceland has
increasingly supported and participated in international efforts aimed at freer trade both at theregional and international level."  Does the approach and regime in place in regard to agriculture
represent something of a contrast in this regard?  (Discussant)WT/TPR/M/65
Page 29
The agricultural policy is transparent and is not seen in contrast with the general trade policy
of the Icelandic Government.  Iceland has stated its views on the multi functionality role of the
Agriculture.  The aim of the agricultural policy is to ensure self-sufficiency and furthermore to keep
rural areas inhabited and to maintain an adequate standard of living for farmers.  Iceland was until
recently a predominantly rural society and agriculture still plays a political role out of proportion to itsshare of GDP.  This response also applies to a question raised by Australia.
The level of direct payments provided under the Ag ricultural Agreements Outlays programme (see in
this regard table III.8 on page 49 of the Secretariat Report) has in fact grown in recent years, as have
subsidies for the production on wool.  (Discussant)
From the table referred to above, one could draw the conclusion that direct payments have
grown in recent years.  This is however not accurate.  During the period 1994 to 1998, the consumer
price index rose by approximately 8%, which is more or less the same amount as the increase in thelevel of direct payments during this period.  As regards subsidies for the production of wool it should
be noted that they have fluctuated in recent years.  The wool industry in Iceland has run into serious
problems.  However it should be emphasised that the total value of subsidies to this sector were lower
in 1998 than in 1994 and furthermore these are the only subsidies granted in agriculture today.
Please elaborate on the development of Iceland's gr een box programmes.  For example the green box
programme "direct payments to sheep farmers" al beit providing direct payments to farmers appears
to require that in order to receive the payments producers must hold a minimum number of winter-fed
sheep.  (Discussant)
In the agreement concerning the production of sheepmeat in 1995-2000, the requirement for
direct payments is that sheep farmers actually keep sheep on the farm.  Exceptions may, however, bemade, and farmers may receive direct payments without keeping sheep on their land, for instance by
engaging in forestry, soil conservation, or other environmental projects.  The right to receive direct
payments is based on Act No. 46/1985 concerning the production, pricing and sale of agricultural
products.  The right of each farm to receive direct payments is based on previous production.  In order
to qualify for the right to receive full direct payments, the number of sheep kept on the farm must beat least 60% of the number allowed on the farm.  Thus, as mentioned above, direct payments are not
related to the production of sheepmeat in question, and are therefore a form of income support for
farmers, not production support.
I note (para. 25, p. 5) that quota auctioning is used as  a means of allocating quota.  It would be useful
to know whether Iceland plans any changes to this system and any comments about the extent to
which it has succeeded in facilitating imports.  (Discussant)
Please clarify further the methods used to allocate tariff rate quotas for agricultural commodities
other than auctioning (Chapter IV(2)(ii), para. 17).  (United States)
According to Icelandic law there are two methods applicable as regards the allocation of
quotas if applications exceed the total quota, that is by auctions or by drawing lots.  Auctions have
been used to allocate all minimum access quotas and in a few cases quotas under HS Chapter 6.
Iceland has had a favorable experience of using auctions.  It is a transparent system where everyonehas the same opportunity to take part.  No plans are underway for a major change to the system.
Has Iceland considered the potential economical  benefit deriving from liberalising trade in
agricultural products?  (Canada)
Iceland is fully aware of the potential economical benefits deriving from liberalising trade in
agricultural products.  This is in our view demonstrated in a number of free trade agreements whichhave been concluded in recent years and moreover in the WTO Agreement on agriculture which hasWT/TPR/M/65
Page 30
called for important changes in our agricultural policies.  In addition, the general rule is that Iceland
does not use export subsidies in agriculture.  Howe ver, while admitting that the trend is to further
liberalization, Iceland is aware of the very important role of food safety and food security in
agriculture as well as its important role to keep  rural areas inhabited and to maintain an adequate
standard of living for farmers.
According to the Secretariat Report, the Agricultural Agreements programme is aimed at "achieving
self-sufficiency to the extent possible" besides increasing efficiency, securing an equitable income for
farmers and integrating environmental issues wi th agricultural policy.  Support measures for
producers of sheepmeat and milk are explained in  detail in the Report (paras. 84-88, p. 48).
- Please explain any other measures taken to achieve self-sufficiency.
- Please explain the concrete target of such measures to improve self-sufficiency.  (Japan)
On 1 July 1998 a new law took effect covering state support for the agricultural extension
services and for improving farmlands.  The new law replaces previous laws on livestock and land
cultivation on established farms.  In order to implement the new law an agreement was reached in
March 1999 with the Farmers Association covering the total contribution from the Government for
the period 1999 to 2003.  The aim of this agreement is to guide the development of agriculture within
this period by e.g. improving management and quality control in agricultural production.
To what extent have tariff rate quotas encouraged the domestic production of vegetables, where little
to none existed previously?  (Chapter IV(2)(ii), para. 14)  (United States)
Before the tariff rate quotas were introduced, the importation of vegetables was controlled by
a committee, which imposed an import ban if local production was sufficient for the domestic market.
Tariff rate quotas according to the WTO Agreement on agriculture replaced this system.  Thisprotection has played an important role for production of vegetables in Iceland, especially when
supply of local production is high and import prices are low.  However, in recent years, the producers
have been facing increased competition, for example during the period from 1 November to 15 April,
local producers have had to compete with imports with zero duties, e.g. tomatoes, cucumbers, chili
peppers and salad.
The Report notes the high level of domestic assistance in the agriculture sector
(Chapter IV(2)(iii)(a)).  What plans does Iceland have to reduce domestic support programs?
(United States)
There are no current plans to reduce domestic support programs in the agricultural sector.
The Agricultural Agreements for sheep farmers are now under review, whereas the current agreement
will expire on 31 August 2000.
In this context it should taken into account that general government expenditure to the
agricultural sector has decreased by half from 1989 to 1997.  Other measures of support to the
agricultural sector also reflect decrease of support.  As an example the Producer Support Estimate
(PSE) calculated by the OECD for Iceland was 68% in 1997 compared to 82% in 1986-88.  This
response also applies to a question raised by Australia.
What does Iceland hope to gain by increasing the dairy production quota, as it did in the 1998/99
production year?  (Chapter IV(2)(iii)(c))  (United States)
The dairy production quota was increased in the production-year 1998/99 to meet the market
needs but has now been decreased to the previous level of 102 million litres.WT/TPR/M/65
Page 31
(ii) Fisheries
There has been an internal debate within Iceland as to whether the allocation of fishing quotas should
pay a quota rent.  The argument is made by some that as fisheries are a public good access to the
resources should imply a capital transfer of some sort.  I would find it interesting to learn more from
the Icelandic delegation as to where this particular issue currently stands and whether it is likely tobe tackled in the ongoing process of structural reform.  (Discussant)
It is the Government's policy to work towards the widest possible consensus on the fisheries
management system.  However, this should be achieved without sacrificing the objectives of sensible
harvesting and better handling of marine resources,  and without disrupting efficiency and stability
within the sector.  A committee has been established to review the fisheries management legislation,
with the objective of bearing in mind the interests of the fisheries sector, regional communities and
the general public.
It is also the Government's policy that the fisheries sector should, as its operating performance
permits, increasingly take part in the costs of monitoring, services and research which are a
precondition for sensible fisheries management.
Why does Iceland limit foreign investment on fisheries, despite the fact that investment is basically
liberalized?  Is it because fishery is a sensitive sector, or rather is it necessary to conserve fisheryresources?  If the reason is the latter, is Iceland of the view that it is difficult to conserve fishery
resources through only the ITQ system? (para. 33, p. 23, of the Secretariat Report)  (Japan)
As stated in the report fisheries are vital to Iceland's economy.  Domestic control over the
resource is therefore essential to maintain the nations economic independence.  The authorities have
therefore considered limitations to foreign ownershi p necessary to ensure that the marine resources
are exploited and manufactured with the maximum benefit for the Icelandic nation.  This is
particularly true in the view of the fact that the nature of marine resources are, unlike resources on
land, not within the territory and can easily be exploited by foreign parties without creating any
economic benefits for Iceland's economy.
This is the main reason for the prohibition of foreign investment in fisheries and has no
connection to the ITQ system.
It is reported that no subsidies measures are granted in Iceland to the fishing industry.  It is also
reported that the capacity of Iceland’s fishing fleets has declined since 1990 (para. 45, p. 76, &
para. 57, p. 89, of the Secretariat Report).  However, it does not seem appropriate to assess fishing
capacity just to the actual number of vessel.  Statis tics from FAO state that the number of vessels over
500 GRT increased from 48 in 1990 to 66 in 1995 and the number of vessels over 1,000 GRT
increased from two to nine over the same period and that the total fishing capacity in Iceland also
increased.  In addition, the quality of fishing equipment has become drastically larger and search
technology has made great impr ovements.  Does Iceland recognize that the fishing capacity has
rather increased since the early 1990s?  (Japan)
Information from FAO on the size of the fishing fleet is based on statistics on official
registered fishing vessels in the country at a given point in time.  These figures make no distinction asto whether the vessels have commercial fishing permits, have been allocated a quota share, or are in a
position to participate in fishing at all.  The total GRT in official vessel registry may mask the actual
decrease in tonnage, as there are numerous vessels in the registry that cannot participate in the
Icelandic fisheries.
Changes in these fleet figures do not reflect the actual changes in the fleet that was active in
fisheries in Iceland and included under the fisheries management system.WT/TPR/M/65
Page 32
While it is generally correct to say that vessels with commercial fishing permits and quota
shares have decreased in number of about 900 vessels since the introduction of the ITQ system
in 1991, at the same time the remaining fishing vessels have become larger.  A comparison of figures
demonstrates that the average fishing vessel, calculat ed in terms of GRT, increased in size by 20% in
the period 1990-1995.  At the same time, actual fishing voyages have decreased by 7% and actualfishing days have dropped by 26%.
The current management system is more geared toward efficiency in harvesting its TAC than
in limiting the capacity of the active Icelandic fishing fleet.
It is reported that, until late 1998, new fishing permits could be issued only to replace a  vessel or
vessels ceasing operations and that a new vessel could be up to 60% larger than the vessel it
replaced.  However, following the Supreme Court rule, the Government decided to abolish the de
facto prohibition on new fishing licences and, as of 1 September 1999, any registered fishing vesselcan be licensed (para. 54, p. 79, of the Secretariat Report).
- Does this mean that it became possible for fishermen to increase the size of the vessels
without limitation as long as they obtain an ITQ?
- If so, how does Iceland control the increase in the capacity of its fishing fleet?  Or does
Iceland not make controls any more?   (Japan)
Overcapacity and overcapitalisation emerged as an issue in Iceland in the 1970s with the
extension of the fisheries jurisdiction to 200 miles.  Over the years, various measures were taken in an
attempt to reverse this trend.  Most of the measures  early on were in the form of restricting entry and
effort.  The most important measure to counter the overcapacity or overcapitalisation problem was the
introduction of ITQs in the Icelandic fisheries.  Iceland has been developing a system of vessel quotasfor the last 20 years.  Since 1991, fisheries of all major fish stocks within the economic exclusive zone
have been subject to a uniform system of ITQs, with only minor exceptions.  Iceland even subjects its
vessels fishing in stocks shared with other nations and in international waters to ITQs.  The evidence
on the performance of this system is generally favorable.  The system has resulted in increased
efficiency of the fishery and the evidence is becoming clearer.
The fishing fleet has decreased drastically in terms of vessel numbers in recent years,
although in terms of total GRT it seems to have decreased only slightly.  But the total GRT in official
vessel registry may mask the actual decrease in tonnage, as there are numerous vessels in the registry
that cannot participate in the Icelandic fisheries.  There has been a reduction of about 900 vessels,
since the introduction of the comprehensive ITQ system in 1991, a decrease of close to 35%.  The
Icelandic experience suggests that an ITQ system will induce rational behaviour, resulting in the
removal of excess capacity.  The free transfer and trade of quotas has provided incentives to vesselowners to economise on the number of vessels.  A ggregate fishing effort has decreased by more than
35% since 1992.
Referring to the above the answer to the first question is yes - it is and to the second question
is no;  Iceland does not control the capacity of its fishing fleet.
It is stated that ownership of fishing operations  and primary fish processing are limited to Icelandic
residents, that foreign direct ownership is not perm itted and that indirect ownership is only permitted
up to certain limits (Secretariat Report, p. 75, para. 39).  Could Iceland explain what are the
justifications for such restrictions and indicate whether there is any plan to lift or relax them?
(European Union)
Fisheries are vital to Iceland's economy.  Domestic control over the resource is therefore
essential to maintain the nations economic independence.  The Authorities have therefore considered
limitation to foreign ownership necessary to ensure  that the marine resources are exploited andWT/TPR/M/65
Page 33
manufactured with the maximum benefit for the Icelandic nation.  This is particularly true in the view
of the fact that the nature of marine resources are, unlike resources on land not within the territory and
can easily be exploited by foreign parties without creating any economic benefits for Iceland's
economy.  This is the main reason for the prohibition of foreign investment in fisheries.  The Icelandic
authorities do not plan lift the present restrictions.
It is stated that "the [export] quota system appli ed to fresh fish although not geared specifically to
exports may result in export limitations since some 90% of the catch is exported" (Secretariat Report,
p. 44, para. 66).  Could Iceland provide clarification on this paragraph?  Does Iceland have any
regulation in force regarding the domestic landing of fisheries products by the Icelandic fishing fleet?
Is it compulsory for Icelandic fishing vessels to l and their catch in Iceland?  Is such measure aimed at
helping the preferential supply of the domestic processing industry?  (European Union)
It is not compulsory for Icelandic vessels to land their catches in Iceland.  They are allowed to
land their catches in auction markets situated in several harbours in many countries of Europe.  The
auction markets have to get approval from the Dire ctorate of  Fisheries in Iceland.  The decision on
approval is based on information from the auction markets concerning methods regarding the pricesystem, the weight -in of the catches and the settlement of invoices.
(iii) Manufacturing:  textiles and clothing
Please explain the current situation of the integrat ion process by Iceland under Article 2 of the ATC.
(Japan)
There are no quantitative restrictions on imports of textiles and clothing into Iceland.  Goods
falling into chapters 50-55 and 60 are duty free on MFN basis.  The MFN-duty on goods in chapters
56-59 and 61-63 ranges from 0-15%.
(iv) GATS
Iceland has noted in its submission (WT/TPR/G/65, section IV.1, para. 43) the comprehensive nature
of its participation in the EEA, including with respect to commercial activities addressed by GATS
obligations.  We understand that the signatories to the EEA (EC, Iceland, Norway, and Liechtenstein)notified the agreement to the Council for Trade in Services under GATS Article V in October 1996,
but that the agreement has not been reviewed by the Committee on Regional Trade Arrangements.
Please provide information on Iceland's intentions to ensure that its preferential treatment of EEA
signatories and their services is consistent with Iceland's GATS obligations.  (United States)
Reporting to the EEA under the GATS Article V is beyond the scope of the trade policy
review; Iceland can not give an answer  on behalf of the other EEA members.
Canada has noted  that national treatment is accorded to subsidiaries of non-EEA companies formed
in accordance with the law of, and established in, an EEA State, but not to branches or agencies.This limitation is also reflected in Iceland's GATS Schedule in the horizontal commitment section.  Is
this provision a reflection of Iceland's commitments in the EEA Agreement?
Does the EEA Agreement provide the possibility to extend national treatment to nationals of a third
country who provide services in the form of a branch or agency and who are established in another
EEA member?  (Canada)
A subsidiary of a non-EEA company established in an EEA member country is an EEA legal
entity with legal domicile within the EEA and a venue in an EEA member country.  A branch or an
agency of a non-EEA company set up within the EEA forms a part of a company, which has its legal
domicile and venue outside of the EEA.
No decisions have been taken to extend rights conferred to subsidiaries to branches and
agencies of non-EEA legal entities.WT/TPR/M/65
Page 34
(v) Financial services
It is noted that residency either in Iceland or another EEA State is required for the provision of
insurance services in Iceland.  However, the Minister of Industry and Commerce may waive this
requirement for nationals of non-EEA countries.  Would the Icelandic authorities elaborate on the
conditions for waiving such requirement?  (WT/TPR/S/65, p. 92, para. 113)  (Hong Kong, China)
Non-EEA insurance undertakings can apply to the Minister of Industry and Commerce for
operating licences.
The Minister will, before granting a licence, take note of:
- conditions an Icelandic insurance undertaking would have to meet in the applicant's country
of origin under similar circumstances (reciprocity);
- consultations with authorities in other EEA states;
- the undertaking must be registered in Iceland with its legal domicile in Iceland;
- the undertaking must appoint a legal representative approved by the Financial Supervisory
Authority;
- the legal representative must be resident in Iceland;
- financial records (books) must be kept at the legal domicile.
No non-EEA insurance undertaking has applied for an operating licence in Iceland.  It is
therefore inappropriate to elaborate on possible waiving of the above-mentioned conditions.
(vi) Telecommunications
It is mentioned that the Icelandic authorities are considering privatization of Iceland Telecom, which
is the sole provider of fixed telecom and analogue mobile phone services, before 2002.  We are
interested to know whether foreign investment will be permitted after privatization of Iceland Telecom(WT/TPR/S/65, p. 93, para. 115).  (Hong Kong, China)
As indicated in paragraph 115, the Icelandic Government intends to commence the
privatization of Iceland Telecom within the next tw o years.  As of now, no decisions have been taken
on conditions for participation in the privatization.
Regarding foreign investment after privatization, the only restrictions on foreign investment
in telecommunications relate to investments by foreign states, foreign local or district authorities or
other foreign public authorities.  These are general restrictions applying to all sectors, not just
telecommunications.
(vii) Air transport and audio-visual services
Iceland's list of GATS Article II (MFN) exemptions covers audio-visual and air transport services.
The MFN exemption is a derogati on from the important principle of improving liberalization under
the multilateral trading system.  Do the conditions which created the need for the exemption stillprevail?  If so, please explain such conditions in detail.  (Japan)
Given the uncertainty as to the coverage of GATS as regards services related to the
audio-visual and the air transport sector, Icelandic authorities await further developments in the
multilateral framework on liberalisation of services before reviewing its commitments in this field
__________