WORLD  TRADE  
ORGANIZATION  RESTRICTED 
WT/TPR/S/273 
9 October 2012 
 
 (12-5387) 
Trade Policy Review Body  
  
 
   
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
ICELAND 
 
 
  
This report, prepared for the fourth Tr ade Policy Review of Iceland, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Iceland on its trade policies and practices.  Any technical questions arising from this  report may be addressed to Mr. John 
Finn (tel: 022 739 5081) and Mr. Usman Ali Khilji (tel: 022 739 6936). 
 Document WT/TPR/G/273 contains the policy statement submitted by Iceland. 
 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
session of the meeting of the Trade Policy Review Body on Iceland. Iceland WT/TPR/S/273 
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  CONTENTS 
 
    Page 
SUMMARY   vii 
I. ECONOMIC ENVIRONMENT 1 
 (1) M AJOR FEATURES OF THE ECONOMY  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  3 
 (i) Macroeconomic indicators 3 
 (ii) Balance-of-payments 5 
 (3) D EVELOPMENTS IN TRADE AND FOREIGN DIRECT INVESTMENT  7 
 (i) Composition of trade 7 
 (ii) Direction of trade 8 
 (iii) Foreign direct investment 8 
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 11 
 (1) G ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK  11 
 (2) T RADE POLICY DEVELOPMENT AND OBJECTIVES  12 
 (i) Agencies involved in trade policy implementation 12 
 (ii) Trade policy objectives 13 
 (3) T RADE AGREEMENTS AND ARRANGEMENTS  13 
 (i) World Trade Organization 13 
 (ii) Regional agreements 15 
 (4) F OREIGN INVESTMENT REGIME  17 
III. TRADE POLICIES AND PRACTICES BY MEASURE 20 
 (1) M EASURES DIRECTLY AFFECTING IMPORTS  20 
 (i) Customs Procedures 20 
 (ii) Customs valuation and rules of origin 22 
 (iii) Tariffs 23  (iv) Other charges affecting trade (VAT and excise duties) 27 
 (v) Import prohibitions, restrictions, and licensing 29 
 (vi) Contingency measures 30  (vii) Government procurement 31 
(2) M
EASURES DIRECTLY AFFECTING EXPORTS  34 
 (i) Procedures 34  (ii) Export prohibitions, restrictions, and licensing 34 
 (iii) Duty and tax concessions 35 
 (iv) Export finance, insurance and guarantees, promotion, and marketing 
assistance 35 
(3) M
EASURES AFFECTING PRODUCTION AND TRADE  36 
 (i) Legal framework for businesses 36 
 (ii) Business tax 38 
 (iii) Incentives and other government assistance 39  (iv) Standards and other technical requirements 41 
 (v) Intellectual property rights 47 
 (vi) State-trading enterprises, state- owned enterprises, and privatization 51 
 (vii) Competition policy 53 WT/TPR/S/273 Trade Policy Review 
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      P a g e  
IV. TRADE POLICIES BY SECTOR 56 
 (1) AGRICULTURE  56 
 (i) Features 56 
 (ii) Trade 57  (iii) Agriculture policies 58 
 (2) F
ISHERIES  64 
 (i) Features 64  (ii) Policies 68 
 (3) E
NERGY   70 
 (4) SERVICES  72 
 (i) Financial sector 72 
 (ii) Telecommunications 77  (iii) Transport 80 
 (5) T
OURISM  83 
REFERENCES    85 
APPENDIX TABLES  89 
 Iceland WT/TPR/S/273 
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  CHARTS 
 
    P a g e  
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Exchange rate and inflation, 2005-2011 4 I.2 Imports and exports of goods and services, 2005-11 7 
I.3 Product composition of merchandise trade, 2005 and 2011 9 
I.4 Direction of merchandise trade, 2005 and 2011 10  
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 III.1 Tariff distribution by type of duty, 2012 25 
III.2 MFN applied tariff averages and dispersion by product groups, 2012 26 
 IV. TRADE POLICIES BY SECTOR 
 
IV.1 Icelandic fishing fleet by  size category, 2002-2010 64 
IV.2 Total catch by vessel size category, 2003-2010 65 
IV.3 Total fisheries catch, 2000-2010 65 IV.4 Fish processing, 2000-2010 67 
IV.5 Primary en ergy sources 71 
IV.6 Non-performing loans, 2008-2011 76 IV.7 Telephone subscriptions, 2006-2011 78 
IV.8 Passenger traffic through Keflavik Airport, 2003-2011 83 
 
TABLES 
 
I. ECONOMIC ENVIRONMENT  
I.1 Selected macroeconomi c indicators, 2005-11 1 
I.2 Balance of payments, 2005-11 5  
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 II.1 Selected notifications to the WTO, January 2006 -December 2012 14 
II.2 Selected outstanding notifications to the WTO, as of January 2011 14 
II.3 EFTA Surveillance Authority cases concerning Iceland, 2006-10 16 
II.4 EFTA free-trade agreements 17 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Cases investigated by the Customs Inspectorate, 2009-2011 21 III.2 Tariff structure of Iceland, 2005 and 2012 24 
III.3 Excise duties and related taxes in Iceland, 2012 28 
III.4 National legislation on government procurement, 2012 31 III.5 Public procurement thresholds as of June 2012 33 
III.6 Exports prohibitions and export licensing requirements, June 2012 34 
III.7 Principal business structur es, responsible agencies, and  
 selected requirements, 2011 37 
III.8 Capital allowances, 2011 39 
III.9 Support programmes for research, 2007-11 41 III.10 Provisionally prohibited imports, 2012 45 
III.11 National legislation on copyright, 2012 47 WT/TPR/S/273 Trade Policy Review 
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IV. TRADE POLICIES BY SECTOR 
 IV.1 Overview of agriculture in Iceland, 2006-11 56 
IV.2 Exports of agriculture products, 2006-11 57 
IV.3 Imports of agriculture products, 2006-11 58 IV.4 Total spending on support measures to farmers in Iceland, 2008-11 61 
IV.5 Total producer estimate and si ngle commodity transfer values  
 for selected commodities, 2004-10 62 IV.6 Total catch and catch of ma in fish species, 2002-2010 66 
IV.7 Exports of fish products, 2005-2011 68 
IV.8 Iceland new banks 74 IV.9 Iceland financial sector, 2009-11 75 
 
APPENDIX TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
AI.1 Merchandise exports by product group, 2005-11 91 
AI.2 Merchandise imports by product group, 2005-11 93 AI.3 Merchandise exports by destination, 2005-11 95 
AI.4 Merchandise imports by origin, 2005-11 96 
 Iceland WT/TPR/S/273 
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  SUMMARY 
 
1. Developments in Iceland over the past few year s have been dominated by the collapse of the 
banking system in late 2008 that led to the liquidati on of the main banks and the creation of three new 
banks to handle their domestic operations.  As a r esult, the economy, which had already been slowing 
down, went into recession, the Icelandic krona fell against most other currencies, and unemployment 
increased. 
2. Before the crises Iceland's economy had grown by  an annual average of nearly 6% between 
2003 and 2007, driven by private consumption and large investments in the power intensive 
industries.  However, the growth also resulted in high levels of net external debt (both public and 
private) and gross international liabilities reache d 625% of GDP in 2008 along with a high current 
account deficit and an appreciating currency.  The collapse of the banking sector led to an average 
annual contraction in GDP of 5.4% in 2009-10.  D espite the crisis, Iceland did not introduce any 
protectionist measures.  Indeed, the recovery fro m the crises has been export led, with total 
merchandise trade as a proportion of GDP rising fr om 47% in 2005 to 70% in 2011, partly due to 
increased competitiveness due to the depreciation of the krona, and also due to the underlying strength 
of the fish, energy, and aluminium sectors. 
3. In domestic currency terms, expor t and imports have already exceeded their pre-crises levels 
but this does not take into account the sharp fall in the foreign exchange rate for the Icelandic krona.  
In U.S. dollar terms, both export a nd imports fell sharply in 2009.  Exports recovered quickly and in 
2011 had almost reached pre-crises levels although the recovery in imports has not been as quick.   
Iceland's balance of trade in both goods and services  has gone from a deficit equivalent to 5.7% of 
GDP in 2007 to a surplus equivalent to 12.3% of GDP in 2011. 
4. Overall, the structure of trade in goods has not changed significantly over the past few years 
as the EU and other EFTA countries remain the main destination for exports and the main source of 
imports.  Fish and fish products, and aluminium ac count for nearly all exports.  Imports are more 
broadly based, although ores for processing, fuels,  and machinery and transport equipment made up 
nearly 60% of total imports in 2011. 
5. Iceland's trade policy is focused on its applicati on to join the EU and its membership of EFTA 
and the EEA.  Negotiations to join the EU have been  under way since July 2009.  Iceland has already 
adopted the acquis communautaire for those areas covered by the EEA.  Furthermore, through the 
EFTA Convention, Iceland is already part of a free trade area covering industrial goods and fishery 
products while the EEA Agreement ai ms to establish an internal ma rket for the free movement of 
goods, services, capital, and persons.  However, neither EFTA nor the EEA establish a common 
external tariff and imports from other countries to Iceland are subject to Iceland's MFN tariff (unless covered by a regional trade agreement or under non-reciprocal trade arrangements). 
6. The EFTA Surveillance Authority is responsible for ensuring that Iceland and the other EFTA 
countries in the EEA comply with the requirement s of the EEA Agreement.  The Authority can 
initiate investigations on its own behalf or accept complaints from individuals and enterprises that a 
state is not in compliance with its obligations un der the EEA Agreement and issue a reasoned opinion.  
Depending on response of the country concerned, th e authority can then move to the EFTA Court.  
Among the cases currently before the Court is a case against Iceland concerning state guarantees for 
banking depositors. WT/TPR/S/273 Trade Policy Review 
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  7. Overall, Iceland's MFN tariffs are quite low and over 70% of tariff lines are duty free.  
However, agricultural products are subject to tariffs which are often compound duties with an 
ad valorem  component of 30% and a specific duty component that varies from ISK 5/kg to 
ISK 1,462/kg.  The authorities were not able to  provide the information necessary to calculate ad 
valorem  equivalents for these tariff lines.   
8. In terms of trade policies and practices, Iceland's import procedures are straightforward and 
are nearly always completed through electronic da ta interchange.  Although th e cost of importing and 
exporting is generally higher than in other OECD count ries, this is due to the small size of the market 
which leads to higher costs for ports and terminal handling and internal transport. 
9. The rate of business tax is relatively low at 20% despite an increase by 2 percentage points.  
However, some other taxes can be high, such  as VAT which was increased to 25.5%, although a 
reduced rate of 7% is applied to  some goods and services, includi ng food and electricity.  Excise 
duties are applied to a fairly narrow range of products , mainly fuels, tobacco, and alcoholic beverages.  
In addition to excise duties on fuels, motor vehicles are also subject to duties based on CO 2 emissions, 
to a semi-annual road tax, to a disposal  charge, and to a weight/distance tax. 
10. Most import restrictions in Iceland are applied for safety reasons, such as licences required to 
import radioactive goods, firearms a nd ammunition, and toxic chemicals.  In addition, imports of live 
animals are prohibited and imports of fresh meat re quire the permission of the Minister of Industries 
and Innovation.   
11. To aid recovery after the financial crises that started in 2008, new legislation was enacted in 
2010 on incentives for initial investment in Iceland.  The law provides for financial aid for training, 
investment and research and development as well as regional aid for projects outside the Reykjavik area.  This regional aid can be as high as 35% for small, 25% for medium-sized, or 15% for larger 
enterprises.  In addition, there are several tax incen tives for investment outside the Reykjavik area.  
The law is to be reviewed before the end of 2013,  although, should it expire, investment agreements 
made before its expiration will remain in force.  
12. Iceland has not made any notifications to the TBT or SPS Committees since 2006.  However, 
most EU standards have been transposed into I celand.  On SPS issues, as a member of the EEA, 
Iceland has applied EU legislation on SPS matters, with the exception of veterinary issues, which 
were exempt from the EEA Agreement.  Since No vember 2011, the exemption has been limited to 
trade in live animals and animal germplasm while Ic eland also continues restrictive import policies on 
fresh meat, raw eggs, and animal products not for hu man consumption.  The strict control of imports 
of animals and animal products is justified on th e grounds that Iceland's livestock breeds have 
developed in isolation for several centuries an d are susceptible to transmittable diseases.  
Furthermore, domestic production of animals and animal  products are also subject to strict controls. 
13. Agriculture in Iceland faces several constraints including the climate, lack of suitably land, 
and the relatively small size of the farm businesses.  Although it represents only a small part of the 
economy and employment, it is considered importa nt for cultural and other reasons, including 
maintaining a rural population in the sparsely populated countryside.  Milk and sheep meat make up over half of the value of production.  Agriculture  production is directly protected from competition 
through relatively high tariffs and indirectly through strict SPS-related measures.  It is also supported 
through direct payments to producers and, for dair y, minimum prices.  Total support to producers, as 
measured by the OECD's producer support estimate, at  45% of gross farm receipts, is one of the 
highest in the OECD. Iceland WT/TPR/S/273 
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  14. The fishing industry has traditionally been one of the pillars of the economy and it remains 
very important as it accounts for 40% of exports and nearly 10% of GDP.  The focus of policy has, for some decades now, been on managing resources with total allowable catches set for each species that 
are then allocated to fishing vessels each of whic h receives an individual transferable quota based on 
its historical share of the catch.  These individual quotas are fairly freely transferrable, with limits on 
the total amount of quota any individual or company can hold.  Foreign ownership of fishing operations and primary fish processing is limited to 25% direct and 49% combined direct and indirect 
ownership.  In certain circumstances, direct fo reign ownership of up to 33% may be permitted.  
Compared to other OECD countries, government transfers to fishing are relatively low:  in 2007 they 
were the equivalent of 4% of the value of the landed catch versus 20% for the OECD as a whole. 
15. Relatively cheap energy prices due to the abunda nce of hydro and thermal power has resulted 
in the establishment of energy intensive industri es such as aluminium smelters.  These have become 
an important sector of the economy and source of foreign exchange.  Furthermore, the authorities 
have identified energy intensive industries, al ong with land intensive industries, knowledge based 
industries and tourism as sectors where Iceland has a competitive advantage and future avenues for 
growth.  However, the current restriction whereby in vestment and/or ownership of energy exploitation 
rights and the production and distribution of energy  are limited to EEA and EFTA residents, which 
would hinder investment in the sector. 
16. In the aftermath of the global financial cris is in 2008, the banking system collapsed.  
Domestic banks found themselves heavily indebted to domestic and foreign depositors and lenders 
with little hope of repaying their liabilities.  As a result, the domestic and foreign operations were 
separated, the banks were liquidated and new ba nks created to run domestic operations.  The 
recapitalization of these institutions resulted in a signi ficant fiscal outlay on the part of government.  
The economic effects were severe as the exchange rate depreciating by more than 70%, an IMF sponsored programme was implemented and capital controls introduced.  Since then, the banking 
sector has recovered although the size of the sector  has decreased considerably.  However, risks 
remain mainly in the form of a high number of non-performing loans.  
17. Although Iceland is recovering from the crises, the recovery is fragile and risks remain.  It is 
important that Iceland reduce public debt and put public finances on a sustainable track and continue 
with debt restructuring so that the large overha ng of non-performing loans be reduced so that banks 
can resume their core lending activities.  Althou gh, the authorities have identified certain sectors 
where they feel that Iceland has a competitive advant age, investor confidence needs to be restored in 
order to attract investment.