WORLD TRADE WT/REG23/3
14February 1997
ORGANIZATION(97-0573)
Original: English Committee onRegional Trade Agreements
FREE TRADE AGREEMENT BETWEEN THE GOVERNMENT OFICELAND
AND THE FAROE ISLANDS (GOVERNMENT OFDENMARK)
Inacommunication dated 11February 1997, thePermanent Mission ofDenmark, alsoonbehalf
oftheFaroe Islands andIceland, hastransmitted thefollowing documentation forthecirculation to
theMembers oftheCommittee onRegional Trade Agreements.
__________________________________
I. Background Information ontheAgreement
TheFaroe Islands, asaself-governing partofDenmark, wereearlier partoftheEFTA through
Denmark ´smembership ofthatorganization, butwerenotincluded inDenmark ’smembership ofthe
EC. After theconclusion ofamore extensive freetrade agreement between theFaroe Islands and
theEC,theFaroe Islands introduced theECexternal customs tariff towards third countries on
1February 1992. AtthesametimetheFaroe Islands invited theNordic countries andlaterSwitzerland
andAustria tonegotiate freetrade agreements toreestablish freetrade between theFaroe Islands and
theEFTA countries.1
1. Membership anddates ofsignature, ratification andentry intoforce
TheParties totheAgreement aretheGovernment ofDenmark andtheHome Government
oftheFaroe Islands, oftheonepart,andtheGovernment ofIceland, oftheother part. Asprescribed
byArticle 27oftheAgreement, theAgreement applies, ontheonehand, totheFaroe Islands, and,
ontheother hand, totheRepublic ofIceland.
TheAgreement wassigned on6August 1992.
Itwassubsequently ratified byIceland andDenmark (alsoonbehalf oftheHome Government
oftheFaroe Islands) byexchange ofNotes dated 2June1993.
Itwasapplied provisionally from 1September 1992, pending ratification, andentered into
force on1July1993.
1Afreetrade agreement between theFaroe Islands andAustria never entered intoforce duetothelatter´s
accession totheEuropean Union.WT/REG23/3
Page2
Itwasnotified totheWTO byDenmark, alsoonbehalf oftheHome Government oftheFaroe
Islands, andbyIceland on14December 1995 (WT/REG23/N/1 andWT/REG23/1), inaccordance
withArticle XXIV:7(a) oftheGATT 1994.
2. Type ofAgreement
The Agreement created afree-trade area inconformity with thedefinition setin
Article XXIV:8(b) oftheGATT 1994.
3. Scope
Asprescribed byArticle 2,theAgreement applies toproducts falling within Chapters 25to97
oftheHarmonizedCommodityDescriptionandCodingSystem,excludingtheproductslistedinAnnex1,
andtofishandother marine products asprovided forinAnnex 2.Theproducts covered areproducts
originating intheFaroe Islands orIceland according totherules oforigin laiddown inAnnex 3of
theAgreement.
Theproducts excluded fromthecoverage oftheAgreement (Annex 1)areproducts originally
falling within Chapters 1to24(“agricultural products ”)inthenomenclature preceding theHarmonized
Description andCoding System (HS), butwhich were transferred atthetimeoftheintroduction of
theHarmonized System intoHSChapters 25to97(“industrial products ”).Theproducts listed in
Annex 1arethusproducts which areexcluded fromtheapplication oftheprovisions oftheAgreement
relating toindustrial products.
Asprescribed byArticle 25oftheAgreement, thepossibility exists toenvisage theextension
oftheproduct coverage oftheAgreement atalaterstage, ifrequested byoneoftheParties tothe
Agreement.
4. Trade data
Dataonintra-trade arepresented inAnnex 1tothisnote.
II. Trade Provisions
1.&
2. Import andexport restrictions
(a) Duties andcharges
Asprescribed byArticle 4,customs duties onimports andexports andcharges having equivalent
effect wereabolished upontheentry intoforce oftheAgreement. Nonewcustoms duties onimports
andexports orcharges having equivalent effect maybeintroduced. Allimport duties ofafiscal nature
havebeenabolished, inkeeping withtheprovisions ofArticle 4andAnnex 5.InlinewithArticle 9
oftheAgreement, there arenomeasures orpractices ofaninternal fiscal nature establishing, whether
directly orindirectly, discrimination between products originating intheFaroe Islands andlikeproducts
originating inIceland.WT/REG23/3
Page3
(b) Quantitative restrictions
Asprescribed byArticle 5oftheAgreement, quantitative restrictions onimports andexports
andmeasures having equivalent effect wereabolished upontheentryintoforceoftheAgreement, subject
tothespecial rules laiddown inAnnexes 2and6.Nonewquantitative restrictions onimports and
exports ormeasures having equivalent effect maybeintroduced.
3. Rules ofOrigin
Annex 3oftheAgreement laysdown therulesoforigin applicable between theParties tothe
Agreement.
Theorigin rules areinlinewiththeCommon Declaration withRegard toPreferential Rules
ofOrigin contained inAnnex IItotheAgreement onRules ofOrigin assetoutintheFinal Actof
theUruguay Round. Therelevant provisions onthedefinition oftheconcept “originating products ”
arecontained inTitleIIofAnnex 3.Theorigin provisions allow forcumulation withmaterials from
allEFTA States.
Therules oforigin fortrade inagricultural products covered bythebilateral agriculture
Arrangement referred toinArticle 7oftheAgreement arelaiddown inaseparate annex tothat
Arrangement.
4. Standards
TheAgreement doesnotcontain anyspecific provisions concerning “Technical barriers to
trade”and/or“Sanitaryandphytosanitarymeasures”.Article7stipulates,however,thattheContracting
Parties shallapply theirregulations inveterinary, health andplanthealth matters inanon-discriminatory
fashion andshallnotintroduce anynewmeasures thathavetheeffect ofunduly obstructing trade.
5. Safeguards
TheAgreementcontainsprovisionsrelatingtoemergencyactiononimportsofparticularproducts
(Article20),re-exportandseriousshortage(Article21)andbalance-of-paymentsdifficulties(Article22).
Theprocedures fortheapplication ofsafeguard measures arelaiddown inArticle 23.
6. Anti-dumping andcountervailing measures
According totheprovisions ofArticle 19,theContracting Parties mayonlytakeanti-dumping
measures inaccordance withtheAgreement onImplementation ofArticle VIoftheGeneral Agreement
onTariffs andTrade andwiththeprocedures laiddown inArticle 23.
7. Subsidies andState-aid
Anypublic aidgranted which threatens todistort competition intrade between theParties is
consideredincompatiblewiththeproperfunctioningoftheAgreement(Article16).Criteriaforassessing
suchpractices arefound inAnnex 7.Appropriate measures against practices contrary toArticle 16
maybetaken inaccordance withtheprocedures forimplementation ofappropriate measures against
suchpractices laiddown inArticle 23.WT/REG23/3
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8. Sector-specific provisions
InArticle 7oftheAgreement, theContracting Parties declare theirreadiness tofoster, inso
farastheiragricultural policies allow, harmonious development oftrade inagricultural products. In
pursuance ofthisobjective, theContracting Parties simultaneously concluded abilateral Arrangement
providing formeasures tofacilitate tradeinagricultural products between theFaroe Islands andIceland.
Thebilateral Arrangement provides dutyfreemarket access fortheproducts itcovers. The
number ofagricultural products covered bytheArrangement reflects theexport interests ofbothParties
toit.Inthisrespect itshould benoted thattheFaroe Islands, duetotheirproduction structure, have
onlydemanded dutyfreeaccess foralimited number ofproducts. TheArrangement stipulates that
requests fromtheFaroe Islands forextending theproduct coverage willbeconsidered favourably by
Iceland.
TheArrangement forms partoftheinstruments creating thefreetrade areaandcontributes
tothedevelopment ofcloser integration between theeconomies oftheContracting Parties, without
raising barriers tothetrade ofother WTO Members.
9. Public Monopolies
According toArticle 15,theContracting Parties shallensure thatanypublic monopoly ofa
commercial character intheFaroe Islands andinIceland beadjusted sothatnodiscrimination regarding
theconditions under which goods areprocured andmarketed willexistbetween residents oftheFaroe
Islands andofIceland. TheAgreement doesnotcontain anylistofpublic monopolies. TheParties
totheAgreement arebound bytheircommitments under Article XVII andtheUnderstanding onthe
Interpretation ofArticle XVII oftheGATT 1994.
10. Payments
Article 10oftheAgreement stipulates thatpayments relating totrade andthetransfer ofsuch
payments totheFaroe Islands ortoIceland, depending onwhere thecreditor resides, shallbefree
from anyrestrictions.
III. General Provisions oftheAgreement
1. Exceptions andreservations
InArticle 6,theContracting Parties reserve theirrights totakespecial measures regarding
trade inpetroleum products.
Article 11(General Exceptions) prescribes thattheAgreement shallnotpreclude prohibitions
orrestrictions onimports, exports orgoods intransit justified ongrounds ofpublic morality, public
policy orpublic security; theprotection ofhealth andlifeofhumans, animals orplants andthe
environment; theprotection ofnational treasures possessing artistic, historic orarchaeological value;
theprotection ofintellectual property; orrulesrelating totoldorsilver; orconservation ofexhaustible
natural resources, ifsuchmeasures aremade effective inconjunction withrestrictions ondomestic
production orconsumption. Suchprohibitions orrestrictions shallnot,however, constitute ameans
ofarbitrary discrimination oradisguised restriction ontrade between theContracting Parties.WT/REG23/3
Page5
Article 12(Security Exceptions) stipulates thatnothing intheAgreement shall prevent a
Contracting Party from taking anymeasures which itconsiders necessary toprevent thedisclosure
ofinformation contrary toitsessential security interests, ortotheprotection ofitsessential security
interests orfortheimplementation ofinternational obligations ornational policies asspecified therein.
2. Accession /Withdrawal
TherearenospecificprovisionsintheAgreementrelatingtoaccession.AccordingtoArticle28,
either Contracting Party maydenounce theAgreement bynotification totheother Contracting Party.
TheAgreement shallcease tobeinforce twelve months afterthedateofwhich suchnotification was
received.
3. Dispute settlement procedures
There arenodispute settlement provisions contained intheAgreement. However, Article 24
(ConsultationMechanism)stipulatesthatforthepurposeoftheproperimplementationoftheAgreement,
theContracting Parties shall, whenever necessary, exchange information and,attherequest ofeither
Contracting Party, holdconsultations. TheContracting Parties mayalsodecide thattheimplementation
oftheAgreement shall besupervised andadministered byaJoint Committee consisting oftheir
representatives.
4. Relation withother trade agreements
Asexplicitly mentioned inthePreamble oftheAgreement, theContracting Parties havedecided
toconclude theAgreement considering thatnoneofitsprovisions maybeinterpreted asexempting
theContracting Parties from theobligations under other international agreements.
Furthermore, thePreamble oftheAgreement refers explicitly totheGeneral Agreement of
Tariffs andTrade. Inconcluding theAgreement, theParties wereresolved toeliminate theobstacles
tosubstantially alltheir trade, inaccordance with theprovisions oftheGATT concerning the
establishment offreetrade areas.
Byconcluding theAgreement, theContracting Parties weredesiring toconsolidate andtoextend
theeconomic relations existing between them andtoensure, withdueregard forfairconditions of
competition, theharmonious development oftheirmutual tradeinthecontext ofEuropean cooperation.
They alsodeclared theirreadiness toexamine, inthelightofanyrelevant factor, andinparticular
ofdevelopments inEuropean cooperation, thepossibility ofdeveloping anddeepening theirrelations
inorder toextend them tofields notcovered bytheAgreement.
5. Institutional framework
TheimplementationoftheAgreementshallbesupervisedandadministeredbyaJointCommittee
consisting ofrepresentatives oftheContracting Parties. TheJointCommittee cansetupsub-committees
andworking parties andmaydecide toamend theAnnexes. TheJoint Committee actsbycommon
Agreement andmeets whenever necessary (Article 24).WT/REG23/3
Page6
STRUCTURE OFTHE AGREEMENT
Article
Preamble
Objectives 1
Scope 2-Annex 1and2
Rules ofOrigin andAdministrative Cooperation 3-Annex 3and4
Customs Duties andCharges 4-Annex 5
Quantitative Restrictions 5-Annex 2and6
Trade inPetroleum Products 6
Trade inAgricultural Products 7
Customs Unions, Free-Trade Areas andFrontier Trade 8
Internal Taxation 9
Payments 10
General Exceptions 11
Security Exceptions 12
Fulfilment ofObligations 13
Rules ofCompetition 14
Public Monopolies 15
Public Aid 16-Annex 7
Protection ofIntellectual Property 17
Public Procurement 18
Dumping 19
Emergency Action 20
Re-export andSerious Shortage 21
Balance-of-Payments Difficulties 22
Procedures fortheApplication ofSafeguard Measures 23
Consultation Mechanism 24
Evolutionary Clause 25
Annexes 26
Territorial Application 27
Denunciation 28
Entry intoForce 29WT/REG23/3
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ANNEX 1
Trade between Iceland andtheFaroe Islands
Intra-Trade
Imports from FR(inD.cr) 1,000 crowns
HSSection 1992 1993 1994 1995 19962
1 18,884 10,708 15,089 12,684 5,669
2 1,776 1,211 1,259 2,808 271
3 27 53 72 38 55
4 4,243 3,344 2,224 13,833 1,024
5 82 78 1 169 5
6 550 278 305 435 291
7 455 308 387 1,390 3,223
8 17
9 121 57 9 8 29
10 3,488 3,516 4,299 5,615 3,949
11 302 791 1,061 2,030 421
12 13 16 6
13 2,086 821 511 819 569
14 4
15 2,052 1,142 2,167 1,640 699
16 656 298 3,501 3,354 2,727
17 66 211 100 2,148 1,013
18 14 30 54 25 38
19
20 70 57 21 93 16
21 2,732 40 9 69 150
76 130 102 167 65
Chap. 1-24 24,930 15,317 18,644 29,363 7,049
Chap. 25-97 12,686 7,694 12,544 17,799 13,189
TOTAL 37,698 23,089 31,189 47,331 20,243
2January -June(both included)WT/REG23/3
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Trade between Iceland andtheFaroe Islands
Intra-Trade (Contd.)
Exports from FR(inD.cr) 1,000 crowns
HSSection 1992 1993 1994 1995 19962
1 34 442 51,245
2
3
4 373 253
5
6 594 650 664 610 280
7 27 201 291 343 157
8 547 285 1,326 1,181 7
9 22 182
10 46 116
11 984 484
12
13 427
14
15 98 65
16 31 7
17 103,000 2,193
18 48 48 8 16
19
20 1 134 326 134 25
21
Chap. 1-24 34 0 815 51,498 0
Chap. 25-97 104,571 4,595 3,426 2,883 487
TOTAL 104,605 4,595 4,241 54,381 487
____________________
2January -June(both included)WT/REG23/3
Page9
Trade between Iceland andtheFaroe Islands
1,000 crown (D.cr)
1992 1993 1994 1995 19962
Imports 37,698 23,089 31,189 47,331 20,243
Exports 104,605 4,595 4,241 54,381 487
TOTAL
TRADE142,303 27,684 35,430 101,712 20,730
____________________
2January -June(both included)