WORLD TRADE  
ORGANIZATION  RESTRICTED 
WT/TPR/G/273 
9 October 2012 
 (12-5386) 
Trade Policy Review Body Original:  English 
  
 
   
 
TRADE POLICY REVIEW 
 
Report by 
 
ICELAND 
 
   
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), the policy statement by Iceland is attached. 
 
 
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/G/273 
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  CONTENTS 
 
    P a g e  
I.  INTRODUCTION 5 
II.  ECONOMIC ENVIRONMENT 6  
 (1)   ECONOMIC DEVELOPMENTS AND PROSPECTS  6  
 (2)   FOREIGN TRADE  7  
 (i)   General 7  
 (ii)   Various sectors 8  
 (3)   STRUCTURAL REFORMS  10  
 (i)   Restructuring of the Banks and Debt Adjustment 10  
 (ii)   State Ownership 10  
 (iii)   Tax and Customs Reforms 10  
 (iv)   Competition Policy 11  
III.  TRADE POLICY OBJECTIVES AND DEVELOPMENT 11  
 (1)   THE WORLD TRADE ORGANIZATION  11  
 (2)   THE EUROPEAN ECONOMIC AREA 12  
 (3)   FREE TRADE AGREEMENTS  12  
 (4)   DEVELOPMENT POLICY  13  
 (5)   EUROPEAN UNION ACCESSION NEGOCIATIONS  14 
 
 Iceland WT/TPR/G/273 
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  I. INTRODUCTION 
1. International trade is at the core of Iceland' s economic and foreign policy.  One of Iceland's 
primary policy goals in international trade is to promote and strengthen the competitiveness of 
domestic businesses in world markets and abolish barri ers to trade by extending its multilateral and 
bilateral trade relations.  Iceland is highly reliant on international trade. 
2. Economic policy has been oriented towards stab ilising the economy from the severe recession 
that the country experienced following the collapse of the banking sector in 2008.  Cooperation with 
the International Monetary Fund (IMF) and bilate ral loans from some European States provided an 
important anchor for economic stabilisation.  The authorities managed to deliver key policies laid 
down in the IMF programme, which Iceland gradua ted from in August 2011.  The country  also 
managed to re-enter international capital markets with a successful bond issue in mid-2011.  There 
has been a broad political consensus on the key ess entials of a market economy and the preservation 
of the welfare state throughout the process. 
3. Several structural reforms have been implemen ted to adjust to a new economic environment. 
The banking system has been restructured, househol d and corporate debt have been adjusted and 
reforms have been made on tax and customs polic ies, as well as on competition and state ownership 
rules. 
4. The foundation for longer-term prospects are fa vourable given Iceland´s abundant energy 
resources, rich fishing grounds, popularity as a tour ist destination, benign demographics and relatively 
well-funded pension system.  Iceland relies on the country's human capital and ability to sustainably 
harvest the vast marine and land natural resources, such as fish and hydro and geothermal energy.  
5. After the contraction of the past years, the economy is picking up again.  GDP and economic 
growth have been positive, private consumption and investment are increasing, unemployment is 
declining, real wages are rising, real exchange rates are low and the property market has stabilised. 
The core industries (fisheries, energy and alumin ium) have yielded robust growth and the tourist 
industry has flourished during that time.  With rene wed confidence in fiscal stability and consumers' 
growing faith in an economic rec overy, a gradual return to stability in the Icelandic economy can be 
expected. 
6. The trade policy of Iceland is shaped by its  membership in the World Trade Organization 
(WTO), the Organization for Economic Co-operati on and Development (OECD), the European Free 
Trade Association (EFTA) and the European Econ omic Area (EEA) as well as other free trade 
agreements.  Iceland is also strongly committe d to the multilateral trading system and trade 
liberalisation within the WTO framework. 
7. Iceland presented its application for membership of the European Union in July 2009.  Formal 
negotiations were launched one year later.  As of July 2012, 18 of 33 negotiations chapters have been 
opened, and 10 have already been provisionally closed.  The Icelandic people will decide on the 
outcome of the negotiations in a referendum on membership. 
8. This report addresses key policies and the status of the Icelandic trading regime.  It firstly 
describes economic development, then key sectors of the economy and lastly Iceland´s trading policy. WT/TPR/G/273 Trade Policy Review 
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  II. ECONOMIC ENVIRONMENT 
(1) ECONOMIC DEVELOPMENTS AND PROSPECTS  
9. Iceland's economy suffered a major setback in  the autumn of 2008, following consistent 
economic growth in the years before.  An overin flated banking sector collapsed in a week;  the 
exchange rate of the krona dropped 40% against th e euro, inflation increased and policy rates jumped 
to 18%.  The standard of living fell sharply and th e unemployment rate went from near zero to around 
8%.  Debt piled up, revenues shrank and expenditure  soared.  As a response, difficult measures were 
taken to reduce the fiscal deficit, stabilize the currency and get the wheel s of the economy rolling 
again. 
10. Economic recovery has been under way since th e second half of 2010.  The economy grew by 
3.1% in 2011 and domestic expenditure increased by 4.7%.  Private consumption grew by 4% and 
investment by 13.4% while public consumption decreased  by 0.6%.  At the same time, exports grew 
by 3.2% and imports by 6.4%.  This resulted in a surplus of ISK 154 billion in the balance on goods 
and services in 2010 (10% of GDP) and a surplus of  ISK 133 billion in 2011 (8% of GDP).  The terms 
of trade deteriorated by 1% of GDP in 2011 compared  to the previous year.  Despite this development 
the favourable current account balance in 2011 contribut ed to a 5.4% increase in GNI compared to 
1.7% increase in 2010. 
11. Private consumption and investment remain low in historic terms but are on the rise again. 
Both sectors are tackling substantial balance sheet  vulnerabilities despite recent progress in private 
sector debt restructuring, see further the chapter on restructuring of the banks and debt adjustment. 
Private consumption was 52.3% of GDP in 2011, be low the pre-2008 average of 55-60%.  Investment 
has been at historic lows for three years, with its share of GDP standing at 14.1% of GDP in 2011. 
Increased economic growth will be further driv en in the coming years by investment and 
consumption. Public consumption amounted to 25 .2% of GDP in 2011 compared to 26% in 2010. 
12. The continued economic growth has allowed fo r improved labour market conditions after the 
sharp rise in unemployment in late 2008.  The unempl oyment rate has been fa lling since 2009, and is 
currently at 4.7%.  Hours worked are increasing ag ain and labour market participation of 80.4% 
remains high in an international context.  Figh ting long-term unemployment has been high on the 
government´s agenda as the share of those unemp loyed for over a year (long-term unemployment) 
reached 27% of all unemployed in 2011.  In 2003 , long-term unemployment was only 7.4% of total 
unemployment.  Statistics Iceland expects unemploym ent to be on average 6.0% in 2012 and reach 
below 5% by 2015. 
13. Inflation has been high in recent years and peak ed at 16.3% in 2009. According to Statistics 
Iceland , inflation will be 5.4% on average in 2012 and 3. 9% in 2013.  Wages are expected to increase 
faster than inflation, thus generating positive growth  in real disposable income.  This will be a major 
driver for private consumption growth over the coming years. 
14. Returning government finances to balance has been one of the overriding priorities for the 
authorities since late 2008.  Budget measures equa lling around 10% of GDP have therefore been 
enacted with a clear aim of prioritising the welfare system.  These include restructuring ministries and 
other institutions, delaying costly projects and ad justing taxes.  The Government is aiming for an 
overall budget surplus in 2014.  Gross general govern ment debt increased from 88.1% of GDP in 
2009 to 98.7% at end-2011 and debt le vels remain high compared to pr e-crisis levels of around 30%.  
The extensive measures already taken and the im proved economic situati on have been positively Iceland WT/TPR/G/273 
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  reflected in Iceland's successful attempts to re-est ablish the sovereign in international capital markets 
with long-term bond issuances in 2011 and May 2012 .  These successful bond auctions have allowed 
Iceland to repay a substantial part of the bilatera l and multilateral funding extended to it following the 
financial crisis.  Moreover, the Icelandic government is once again rated investment grade by all three 
major credit rating agencies.  Statistics Iceland exp ects public consumption to grow very little in real 
terms during the next years but will still decline as a percentage of GDP.  Public investment will 
decline in 2012 but will start to grow from 2013. 
15. Following the banking and currency crisis in 2008 and in accordance with the joint economic 
policy agreed by the Icelandic authorities and th e IMF in November 2008, exchange rate stability 
became an interim objective of monetary policy.   Temporary capital account restrictions were 
imposed in November 2008.  While the removal of the capital controls is a priority, it will be 
appropriately sequenced in a gradual manner to  preserve the stability of the ISK during capital 
account liberalization.  The first steps in the removal of the capital controls were taken at the end of 
October 2009, when inflows of foreign currency fo r new investments and related potential outflows 
were permitted. 
16. In March 2011, the Government approved a revised  strategy for the lifting of capital controls 
developed by the Central Bank of Iceland (CBI), in cooperation w ith ministries and the Financial 
Supervisory Authorities (FSA), and in consultation w ith the IMF.  The strategy is in three main 
phases, with the first two already under way.  The speed of capital account liberalization is 
conditioned on the macroeconomic situation, the st rength of balance of payments outlook, reserve 
adequacy and the need to safeguard financial stability. 
(2) FOREIGN TRADE  
(i) General 
17. As a remote and insular island in the far north, faced with difficult topography and climate, 
Iceland´s economy depends to a large extent on few sectors.  External trade is therefore of vital 
importance to Iceland.  Imports  and exports of goods and servi ces amount to around 40% of GDP. 
Fisheries products have historically accounted for the overwhelming majority of exports and foreign 
currency income.  They still are, but aluminium products have grown to account for a comparable 
share of export earnings and GDP in recent years. Icelandic exports are becoming more diverse every 
year due to a growing science and research community and high-tech industry. 
18. In 2011, the total exports of goods amounted to  ISK 620 billion f.o.b. and the total imports of 
goods was ISK 562 billion c.i.f.  Iceland has had a trad e surplus (f.o.b.-c.i.f.) since 2009;  the surplus 
was 9.4% of the export value in 2011, 14.9% in 2010, and 10.9% in 2009. 
19. European Economic Area (EEA) free trade partne rs accounted for 82.7% of Iceland´s exports 
in 2011, by far the most important export market.  Exports to other European countries amounted to 
5.7%, the United States 3.7 %, Japan 2.5%, and other countries 5.4%.  The share of imports from the 
EEA was 61.9%.  Imports from other European countries amounted to 3.8%, the United States 10.9 
%, Japan 1.6%, and other countries 21.8% (Brazil 5.8% and China 6.3% thereof). WT/TPR/G/273 Trade Policy Review 
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  (ii) Various sectors 
20. The seafood industry is the backbone of the ec onomy and accounted for 9.7% of GDP in 2010 
and 10.8% in 20111.  Furthermore, fisheries are extremely important for currency reasons, amounting 
to 41% of the total export value of goods in 2011.  Iceland is the 13th largest fishing nation in terms of 
volume caught in the world in 2011.  The fishing fleet and processing facilities are technologically 
advanced and Icelandic seafood products are sold a ll over the world, with Europe being the most 
important market. 
21. The aluminium smelting industry is also very important for Iceland´s economy and accounted 
for 4.1% of GDP in 2010 and 4.6% in 20112.  It furthermore constituted 38% of total export value of 
goods in 2011, thus being a very important source for currency earnings . Iceland is now one of the ten 
largest aluminium producers in the world following th e completion of large-scale investment projects 
in the aluminium and power sectors.  This will ha ve a long-term positive impact on the export base. 
22. Agriculture accounted for 1.2% of GDP in 2010 and 20113.  Agricultural products were 
exported in 2011 for approximately ISK 9.9 billion and imported for about three times that amount. 
Conditions for agriculture  in Iceland are constrained by many external and internal factors, inter alia  
the country's remote location just below the Arctic  circle, the challenging climate with relatively low 
summer temperatures, difficult topography, low p opulation density, long distances and the small 
home market.  While central to the country's food security, sustainability and rural viability, the limited range of agricultural produc tion means a sector of high-costs and low-potential activity in an 
international comparison.  These challenges adver sely affect the international price and cost 
competitiveness of the agricultural sector, which is dependent on both direct support schemes and 
market support measures. 
23. The economic recovery of Iceland is fuelled by  the outward looking and integrated small to 
medium sized enterprises.  Many of them have  adapted well to new economic realities and made 
necessary changes to become highly competitive.   These include companies in sectors such as 
fisheries, high-tech services, travel and tourism, IT, engineering, food and food processing, 
biotechnology, consultancy and design.  They are supported by strong fundamentals such as good 
infrastructure, clean energy, rich marine resources, institutes of higher learning and a young and dynamic workforce.  Emphasis on innovation, R&D and strategic marketing has led to a number of 
enterprises emerging in recent years in export orie nted manufacturing, in areas such as medical 
equipment, pharmaceuticals, machinery for fisher ies and food processing.  Information technology 
has been growing rapidly and is now around 4% of GDP. 
24. Tourism in Iceland has experienced a rapid grow th during the last thr ee decades and currently 
provides a substantial part, around 14%, of Iceland‘s foreign currency earnings. 
25. The share of tourism in Iceland's GDP was 5.6%  in 2009.  The annual increase of visitors to 
Iceland has been 6.1% on averag e over the past eleven years.  Since 2008, Iceland has seen a 
considerable increase in overall volume of tourists. In 2011 there was almost 16% increase from the 
previous year, with just over 565 thousand tourists vi siting the island.  This increase can be attributed 
to multiple factors, including the low ISK excha nge rate, more frequent flights and targeted 
promotional outreach.  Further marketing campaigns have been launched to boost off-season tourism, 
                                                      
1 According the Statistic Iceland's preliminary numbers for 2011. 
2 According the Statistic Iceland's preliminary numbers for 2011. 
3 According the Statistic Iceland's preliminary numbers for 2011. Iceland WT/TPR/G/273 
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  such as wellness tourism, outdoor adventures and conf erence type incentives, in order to mitigate the 
severe seasonal fluctuations that characterises the industry today. 
26. A new public strategy for tourism in Iceland w as approved by the Parliament in 2011.  Its 
main aims are the following; maintain Iceland's uni que nature, broaden the de stination base, improve 
the quality, professionalism and the environmental consciousness of the tourism industry, promote 
profitability and respect for the industry, extend th e tourist season, decrease seasonal fluctuation and 
promote a better distribution of tourists around the country.  The aim is to welcome one million visitors in 2020. 
27. Iceland has played an important role in the e volution and utilization of geothermal energy.  A 
vast majority of the nation uses geothermal energy in their daily lives, including for house-heating, 
industrial fuel and electricity production.  The utiliza tion of this natural resource is an integral reason 
why Icelanders enjoy a relatively high quality modern lifestyle. 
28. Due to its relative abundance of natural resources,  Iceland is getting less dependent on fossil 
fuel.  In 2010, Iceland produced 85.7% of its energy consumption (around 234 petajoules).  Around 
19.4% came from hydro energy and 66.3% from geothermal energy. Imported energy (fossil fuel) 
accounted for 14.3%.  Around 90% of imported fuel is used by the fishing fleet and for general 
transportation (around 600 million tons  in 2011).  New and promising ways of generating energy for 
transportation are emerging;  in hydrogen, electri city, hybrids (electricity and petrol), ethanol, 
methanol, buthanol, methan gas, biodiesel and even comp ressed air.  Iceland's vision is to be able to 
utilize its natural resources, mainly hydro and geot hermal power, to replace fossil fuel partly or 
completely in transportation. 
29. Despite Iceland's position in green energy, the pr ospect of commercial accumulations of oil 
and gas are also being explored on the continental shel f, in the areas of Bergrisi in the Hatton-Rockall 
area, in Gammur on the northern insular shelf of Icel and, and in the Dreki area east and northeast of 
Iceland. 
30. An Energy Strategy for Iceland has recently  been formulated.  The key objectives of the 
strategy are to reduce the use of fossil fuels as much as possible by reducing the need for imported 
fuels to the extent possible.  In addition, other objectives include increasing the lifetime of fuel stocks 
and preparing a contingency plan if disruptions in imports should occur. 
31. Foreign Direct Investment (FDI) has been an important part of the Government's policy for 
the last few years.  Iceland has made 12 investment  agreements with other states.  Ten of them are 
bilateral agreements with Chile, Egypt (awaiting ratification), India, China, Latvia, Lithuania, 
Lebanon (awaiting ratification), Mexico, Viet Nam and Uganda (initialled).  Fu rthermore, Iceland has 
within the framework of EFTA concluded an inv estment agreement with South-Korea and a chapter 
on investment in a free trade agreement with Singa pore.  Iceland has lately, with reference to the 
increased emphasis on investment oppor tunities, requested to enter in to negotiations on investment 
agreements with States that are close to the EEA market area.  Iceland is currently negotiating an 
investment agreement with Turkey and negotiations  with Ukraine are expected to take place next 
year. 
32. In June 2012 Althingi approved a new compre hensive parliamentary resolution on foreign 
direct investment.  This is the first time the gove rnment has laid down a policy on FDI with clear and 
unequivocal goals.  Priority is to be given to im proving Iceland's competitiveness in attracting foreign 
investment.  The policy stresses the importance of marketing and publicity.  Great importance is WT/TPR/G/273 Trade Policy Review 
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  attached to ensuring coordination in the public admini stration.  Careful attention will be given to all 
aspects of administration so as to simpli fy procedures and achieve transparency. 
(3) STRUCTURAL REFORMS  
(i) Restructuring of the banks and debt adjustment 
33. The restructuring of the banking sector following the financial crisis in 2008 has been largely 
completed.  Further operational and financial restru cturing is still required in order to allow for the 
resumption of bank lending and consolidation.  Th e market remains dominated by the three "new" 
banks that emerged from the financial collapse in au tumn 2008.  They have been recapitalized and are 
now much smaller in size compared to pre-crisis levels, focusing on domestic operations. Domestic 
banking sector credit to the private sector is estimated  at just over 100% of GDP at the end of 2011, 
down by 5% of GDP over the year and only a fraction of  the pre-crisis level.  However, the banks are 
faced with significant vulnerabilities as asset quality  is subject to considerable uncertainty and 
financial imbalances are likely to persist for so me time.  Private households and businesses are faced 
with significant operational problems and nonperform ing loans are exceptionally high (at around 20% 
of the book value of loans at end-March 2012).  
34. In response, the government has had private sector debt restructuring at the forefront of its 
economic policy.  Various programmes, including debt relief programmes for household' mortgages 
and a voluntary framework for small and medium sized enterprises, have gained pace.  In addition, the 
use of the Financial Supervisory Authorities' prudent ial powers is meant to support this process.  The 
operational restructuring of the savings banks h as been proceeding but there remains scope for a 
further consolidation of the sector.  
(ii) State ownership 
35. Following the financial crisis in the autumn of 2008 and the restructuring of the banking 
system, the Icelandic government set out a State ownership policy in financial companies.  The centerpiece of the policy was the creation of a new agency, the Icelandic State Financial Investments, 
to manage the State's holdings in financial undertakings. 
36. The Government retains majority ownership in  one of the banks, Landsbankinn, and minority 
stakes in other two banks, Arion Banki and Íslands banki, with the majority stakes owned by non-
residents.  The Government currently holds stakes in five saving banks.
4 
(iii) Tax and Customs reforms 
37. The Icelandic government introduced a numbe r of measures in mid-2009, including both 
cutbacks and tax increases, as a reaction to the financ ial crisis.  The corporate and personal income tax 
percentage to the state and municipalities has increase d.  In 2008, the personal income tax general rate 
was 35.72%, the corporate (ltd.) income tax rate w as 18%, and tax on capital gains was 10%.  In 2012 
the personal income tax rate is 37.34%-46.24% (progr essive), the corporate (ltd.) income tax rate is 
20%, and tax on capital gains is 20%. A new tax of 1.5%-2% has been introduced on personal capital 
over ISK 75 million.  The Value Added Tax percen tage (VAT) was increased in 2010 from 24.5% to 
25.5%.  A new environmental tax was levied on liquid fossil fuels in 2010 in relation to CO2 
                                                      
4 Bolungarvík Savings bank 90.9%, Vestmannaeyjar Savings bank 55.3%, Svarfdalur Savings bank 
90.0%, Norðfjörður Savings bank 49.5% and Þórshöfn Savings bank 75.8%. Iceland WT/TPR/G/273 
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  emissions (2.6-3.1 ISK per litre).  Furthermore, th e nine tax agencies around the country were merged 
in 2010 into one centralised institution,  the Directorate of Internal Revenue. 
38. The Icelandic Customs Tariff has generally been the same in recent years.  However, applied 
duties on agricultural products we re changed to ad-valorem tari ffs in 2011, as is permitted by 
Iceland's commitments under the WTO.  Excise dutie s on oil and gasoline, as well as on alcohol and 
tobacco, have been increased consid erably in recent years.  Changes were made to excise duties in 
January 2010 on various motor vehicles, where duties were levied according to carbon dioxide emission rather than combustion.  Therefore, excise duties have been lowered on low emission 
vehicles, but increased on higher emission vehicles.  Furthermore, excise duties have been increased 
(generally by 2%-2.5%) on various bevera ges and candy for public health reasons. 
(iv) Competition policy 
39. As a member of the EEA, Iceland's competition policy is aligned with that of the EU.  
National and EEA rules on competition are applied in  parallel.  Iceland has also subscribed to 
competition provisions within the context of the EFTA Convention and in each of EFTA's free-trade 
agreements with third countries. 
40. The Competition Authority is an independent body under the auspices of the Ministry of 
Industries and Innovation (as of 1 September 2012).  The Authority has published 336 decisions since 
it was established in 2005 (as of June 2012).  The Authority has stated that the post-crises economic 
conditions have led to an increased  concentration in some sectors, which might lead to an increased 
abuse of dominant position.  Since the beginning of 2008, it has annulled or prevented 5 mergers and 
imposed conditions on a further 41.  It has also during the same period fined 24 companies a total of 
€20.9 million because of collusion or  abuse of a dominant position. 
41. The 2011 amendment to the Competition Law gave the Competition Authority the power to 
take action to respond to any market situation or actions by any enterprise that would restrict 
competition even if there was no breach of any specifi c part of the law.  The amendment also allows 
the Authority to bring rules of the Appeals Committe e to the courts (in the past only parties opposed 
to rulings of the Appeals Committee had such a right). 
III. TRADE POLICY OBJECTIVES AND DEVELOPMENT 
(1) T
HE WORLD TRADE ORGANIZATION  
42. Iceland ratified the General Agreement on Trade and Tariff (GATT) in 1968 and is a 
founding member of the World Trade Organization.  With the exception of the Agreement on Trade in 
Civil Aircraft, Iceland is a party to all current agreements of the WTO, including the Government 
Procurement Agreement (GPA) since 2001.  The majori ty of Iceland's trade legislation mirrors WTO 
obligations and is encoded in a number of acts. 
43. Iceland is a staunch supporter of the multila teral trading system, including the full 
implementation of existing disciplines and commitments.   Such a system is of particular importance 
for smaller members, like Iceland, and provides for a more level playing field in international trade. 
Iceland is committed to the conclusion of the Doha Development Agenda in accordance with its 
mandate which should provide for  a fair and e quitable outcome benefitting the entire membership. 
44. Under the General Agreement on Trade in Services (GATS), Iceland has undertaken 
commitments in 9 out of 12 service sectors (business, telecommunications, construction and WT/TPR/G/273 Trade Policy Review 
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  engineering, distribution, financial, tourism, e nvironmental, cultural and sporting, and transport 
services). 
(2) THE EUROPEAN ECONOMIC AREA  
45. Iceland has been a member of the European Free Trade Association (EFTA) since 1970 and is 
a party to the Agreement on the European Economic  Area.  The EEA Agreement, which entered into 
force on 1 January 1994, brings together the 27 EU member states and the three EEA EFTA states (Iceland, Liechtenstein, and Norway) in a single ma rket.  The EEA Agreement also states that when a 
country becomes a member of the European Union, it shall also apply to become party to the EEA 
Agreement (Article 128).  Thus, Croatia's membership  to the EU will lead to an enlargement of the 
EEA.  
46. The EEA Agreement covers the four freedoms; the free movement of goods, services, persons 
and capital, and provides that the same rules shall a pply throughout the internal market of the 30 EEA 
States.  In addition, the Agreement covers coopera tion in other important areas such as research and 
development, education, social policy, the envir onment, consumer protecti on, tourism and culture.  
The Agreement guarantees equal right s and obligations within the in ternal market for citizens and 
economic operators in the EEA. 
47. The scope of the EEA Agreement does not incl ude the EU Common Agricultural Policy or 
the EU Common Fisheries Policy, but it contains provisions on various aspects of trade in agricultural and fish products.  Furthermore, the EEA Agre ement does not entail a customs union or a common 
trade policy towards third countries. 
48. A key feature of the EEA Agreement is its dynamic character.  Its common rules are 
continuously updated by incorporating new EU legisl ation.  Every month, a number of EEA-relevant 
pieces of EU legislation are incorporated into the Agreement by decisions of the EEA Joint 
Committee.  The EEA EFTA states may ask for cons ultations on matters of concern and may also 
seek adaptations to Community legislation in its  application to the EFTA states when special 
circumstances call for it. 
(3) F
REE TRADE AGREEMENTS  
49. Iceland is a party to numerous free trade agreem ents, which comply with Article XXIV of the 
General Agreement on Tariffs and Trade (GATT 1994)  and Article V of the General Agreement on 
Trade in Services (GATS). 
50. Through Iceland's membership to EFTA, it has concluded 24 FTAs with 33 countries.  The 
FTAs cover trade in industrial products, fish and other marine products, and processed agricultural 
products. Trade in basic agricultural products is  covered through bilatera l agreements between 
individual EFTA States and the free trade partners.  The FTAs also contain disciplines on competition policy, state aid and intellectual property rights.  Government procurement, services, and investment are generally addressed through "evolutionary clau ses", whereby EFTA members and their free trade 
partners agree to work gradually towards liberali zation.  The FTAs with Chile, Hong Kong, Mexico, 
Singapore, the Republic of Korea, Colombia, th e Gulf Cooperation Council and Ukraine provide, 
however, for reciprocal market access  in some or all of these three areas upon entry into force.  The 
FTAs between EFTA and Hong Kong, the Gulf Cooperation Council (GCC), Montenegro and 
Ukraine, as well as bilateral agricultural agreemen ts between Iceland and these free trade partners, 
have been signed but have not yet entered into force.  The free trade agreement between EFTA and Iceland WT/TPR/G/273 
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  Colombia and the bilateral agricultural agreement have  been signed but are yet to enter into force for 
Iceland.  
51. Within the EFTA framework, Iceland is curren tly negotiating new FTAs with Algeria, Bosnia 
and Herzegovina, Central American States (Costa Rica, Guatemala, Honduras and Panama), India, 
Indonesia, Thailand, and the three members formi ng the Russia/Belarus/Kazakhstan Customs Union. 
Furthermore, EFTA expects to open free trade ne gotiations with Viet Nam in 2012.  The EFTA 
framework also establishes trade relations through Joint Declarations on Cooperation, with present 
partners being Malaysia, Mauritius,  MERCOSUR, and Mongolia.  This form of cooperation can lead 
to future FTAs. 
52. Iceland has also concluded bilateral free trad e agreements.  Two agreements have been 
negotiated with the EU;  a FTA from 1972 and an ag reement on trade in basic agricultural products, 
the latter based on Article 19 of the EEA Agreemen t.  The Agreement from 1972 is still in force, 
although most of the concessions provided there un der (with the exception of certain fish products) 
have been overtaken by concessions under the EEA Agreement. Furthermore, Iceland has free trade 
agreements with Greenland and also the Faroe Islands (the Hoyvik Agreement).  The latter is Iceland's 
most extensive FTA.  Iceland is also engaged in  bilateral negotiations on free trade with China. 
(4) DEVELOPMENT POLICY  
53. Iceland has a forty year history of participating in official development cooperation.  In 2008, 
Althingi passed a comprehensive legal framework on all aspects of Iceland's official development 
cooperation, Act No. 121/2008.  The Act covers bila teral and multilateral de velopment cooperation as 
well as humanitarian aid, emergency ass istance and peace-building efforts. 
54. A Resolution on Iceland's Development Strategy  for 2011-2014 was adopted by Althingi in 
June 2011.  It builds on the Millennium Developmen t Goals and emphasises international agreements 
and development effectiveness, such as the Paris Declaration and the Accra Agenda for Action, as 
well as other international accords, such as th e Monterrey Consensus and Doha Declaration on 
financing for Development.  It also envisages Ic eland's full membership to the OECD Development 
Assistance Committee in mid-year 2014.  In accordance with Act No. 121/2008 the Strategy 
furthermore outlines Iceland's target for of ficial development assistance (ODA), thereby 
demonstrating Iceland's commitment to the UN target of 0.7% of GNI. 
55. Iceland's ODA grew steadily from 2000 and peak ed at 0.37% of GNI in 2008.  However, due 
to severe budgetary constraints following the ec onomic crisis, a reduction in ODA could not be 
avoided.  The ODA level was 0.21% of GNI in  2011 and according to budget appropriations ODA 
will correspond to 0.20% of GNI in 2012.  Icela nd's Strategy on Inte rnational Development 
Cooperation 2011-2014 lays out a gradual increase in  ODA over the coming years, with the aim of 
reaching 0.5% in 2017 and the UN target of 0.7% in 2019.  If national income grows faster than 
predicted, the targets will be revisited. 
56. Aid for Trade related activities represents a subs tantial part of Icela nd's ODA, approximately 
28%.  These activities are mainly within the priori ty sectors of fisheries and renewable energy, as 
sustainable use of natural resources is one of three focus areas in the Strategy for Iceland's 
International Development Cooperati on.  Within these two sectors, ODA has been targeted towards 
technical assistance and infrastru cture, as well as productive capacity building.  The latter includes 
education and training of government officials from developing countries at the UNU Geothermal- 
and Fisheries Training programmes in Iceland.  In addition, contributi ons have gone towards WT/TPR/G/273 Trade Policy Review 
Page 14 
  
  geothermal energy and fishery research and de velopment, as well as policy and administrative 
management within these sectors.  Priority is given to Sub-Saharan Afri ca and least developed 
countries, and funds are channelled through multila teral organizations a nd bilateral partners. 
57. A Generalised System of Preferences (GSP scheme) was first introduced in Iceland in 2001 
and is not limited in time. Duties on goods originating in the least developed countries of the world, as 
defined by the UNCTAD/Committee on Enterprise, Bu siness Facilitation and Development, shall be 
waived in conformity with procedures applicable  to duties on goods originating in the European 
Economic Area according to the EEA Agreement.  Th e rules of origin applied do not provide for the 
possibility of cumulation.  The scheme covers  the same products as the EEA Agreement. 
58. Icelandic private sector entities have in recent years increased their presence in developing 
countries and participated more actively in project s promoting progress and prosperity, e.g., in the 
field of renewable energy.  In light  of the changed circumstances in the Icelandic economy, analysis is 
underway within the Ministry for Foreign Affairs on possibilities for promoting private sector engagement in deve lopment cooperation. 
(5) E
UROPEAN UNION ACCESSION NEGOTIATIONS  
59. Iceland presented its application for membership  of the European Union in July 2009.  The 
Commission gave its Opinion on the application in February 2010 and recommended the opening of 
accession negotiations to the European Council.  Th e Opinion also noted the good overall level of 
preparedness to take on the obligations of membership  due to Iceland's participation in  the European 
Economic Area. The European Council subsequently  decided in June 2012 in favour of opening 
negotiations.  
60. The first Intergovernmental Conference, officially launching accession negotiations, took 
place on 27 July 2010.  Negotiations are on-going.  By the end of June 2012, 18 of 33 negotiating 
chapters have been opened and 10 of them have  already been provisionally closed.  As of 
August 2012, a further 10 negotiating positi ons have been submitted by Iceland.  
61. Upon accession to the European Union, Iceland would have to withdraw from EFTA and its 
network of FTAs.  At the same time, Iceland would as a new Member State join the trade agreements 
of the EU. 
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