Note: Advance written questions by WTO Memb ers and the replies provided by Iceland are 
reproduced in document WT/TPR/M/164/Add.1 and will be available online at:  
http://www.wto.org/english/tr atop_e/tpr_e/tp_rep_e.htm.  WORLD TRADE  
ORGANIZATION  WT/TPR/M/164 
4 August 2006 
 (06-3756) 
Trade Policy Review Body 
7 and 9 June 2006  
 
 
 
 
TRADE POLICY REVIEW 
 
ICELAND 
 
Minutes of Meeting  
 
Chairperson:  H.E. Mrs. Claudia Uribe (Colombia) 
 
    Page 
 
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 3 
 II. OPENING STATEMENT BY THE REPRESENTATIVE OF ICELAND 4 
 
III. STATEMENT BY THE DISCUSSANT 8  
IV. STATEMENTS BY MEMBERS 11 
 V. REPLIES BY THE REPRESENTATIVE OF ICELAND AND 
 ADDITIONAL COMMENTS 19 
 VI. CONCLUDING REMARKS BY THE CHAIRPERSON 23 
 
 WT/TPR/M/164 
Page 3 
 
 
 I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 
1. The third Trade Policy Review of Iceland was held on 7 and 9 June 2006.  The Chairperson 
H.E. Mrs. Claudia Uribe (Colombia) welcomed Mr. Kjartan Johannsson and the rest of the Icelandic 
delegation.  Mr. Karl Ehlers (United States) had kindl y agreed to act as the discussant for this Review.  
As usual, the discussant would speak in his pe rsonal capacity and not as a representative of his 
Government. 
2. The Chairperson recalled the purpose of the Trad e Policy Reviews and the main elements of 
the procedures of the meeting.  The Report by Iceland was contained in document WT/TPR/G/164 
and that of the Secretariat in document WT/TPR/S /164.  As indicated in document WT/TPR/6/Rev.1, 
the Member under review should provide written answers,  by the beginning of the review meeting, to 
questions submitted at least two weeks before the m eeting.  Questions posed subsequently should be 
answered, to the extent possible, be fore the start of the second session of the meeting.  Questions left 
unanswered at the end of the second session should be  answered in writing no later than one month 
after the meeting.  Questions by the following dele gations had been submitted in writing at least two 
weeks in advance of the meeting and had been tran smitted to the delegation of Iceland:  Colombia;  
United States and Chile.  Copies of these questions and of the answers provided by the delegation of 
Iceland were available in the meeting room.  Brazil;  Hong Kong, China;  Singapore;  Japan;  Canada;  
the European Communities;  Turkey;  and Argen tina had submitted written questions after the two-
week deadline.  Copies of all advance questions , as well as the responses received from the delegation 
of Iceland, are reproduced in document WT/TPR/164/Add.1. 
3. The Chairperson noted that the documentati on prepared for the review showed that 
international trade had been instrumental in helpin g Iceland exploit its comparative advantage.  This 
had contributed to high living standards, despite Iceland's geographical isol ation and small economic 
size.  Iceland's experience contained valuable l essons for small economies in search of sustainable 
economic growth. 
4. Iceland had adopted a wide range of reform s aimed at increasing competition and supporting 
economic growth during the last six years.  The Secretariat Report noted that most of these reforms had been driven by EEA commitments, resulting in a wedge between the treatment afforded to EEA 
members and non members.  No doubt Members would seek further clarification on the circumstances 
under which Iceland could extend EEA benefits to all WTO Members. WT/TPR/M/164 
Page 4 
 
 
 II. OPENING STATEMENT BY THE REPRESENTATIVE OF ICELAND 
5. The representative of Iceland  noted that Iceland had provided written answers to the written 
questions sent in English. 
6. He emphasized the importance Iceland attached to open markets for goods and services and 
further trade liberalization at the multilateral, regional,  and bilateral levels.  He  drew attention to the 
significant reforms implemented by Iceland in recent years, including fiscal reforms and an extensive 
privatization programme, which had helped incr ease economic growth and reduce demand pressures 
in the economy. 
Iceland's trade and economy 
7. International trade played a key role in th e Icelandic economy, accounting for a substantial 
proportion of the country’s GDP.  The diversity of exports had increased significantly in recent years.  
While fish and other marine products still formed the largest part of Iceland’s merchandise exports 
their importance had been diminishing over the past  decade. Exports of manufactured products as well 
as services had been growing rapidly. 
8. Iceland imported a wide range of manufactured  goods and commodities, reflecting both the 
small size of the economy and the limited range of natural resources. Free-trade arrangements with 
Europe had stimulated Iceland’s trade with the re gion, while the share of trade with North America 
had fallen.  In 2004, four-fifths of merchandise e xports went to the other member countries of the 
European Economic Area, which were also the source of almost three-quarters of imports.  
9. The primary objective of Iceland’s economic po licy had been to maintain economic stability 
and raise living standards.  Growth rates of economic  activity had been high in past years, 8.2% and 
5.5% in 2004 and 2005 respectively, and Iceland’s ec onomy was expected to grow by more than 4% 
in 2006.  This growth had largely been the resu lt of increased investment in the aluminium smelting 
sector and robust private consumption.  The unemployment rate was only 1.6%, which meant that unemployment was virtually non-existent.  An Inte rnational Monetary Fund mission that had visited 
Iceland in May had concluded that the medium-term outlook for the Icelandic economy remains 
enviable.  The IMF noted that with strong ins titutions and policy frameworks, open and flexible 
markets, and the skilful management of the count ry's natural endowments, Iceland had succeeded in 
diversifying its economy, thereby helping to ensure  sustainability.  The IMF further concluded that 
these factors, combined with a culture of entrepreneurial dynamism had led to economic outcomes 
that belied the country's small size. 
10. A rapid rise in housing prices and a decline in  the króna exchange rate had resulted in 
temporary inflation pressures.  The Central Bank had ra ised interest rates to relatively high levels to 
stem the rise in inflation and was expected to k eep them high until the inflation was brought down to 
the target level of 2.5%.  According to estimates , inflation would rise to 5.9% in 2006 before 
decreasing to 3.5% in 2007. 
11. The fiscal policy had been restrictive and the fisc al surplus was currently projected at 2.4% of 
GDP in 2006.  The surplus had been used partly to reduce government debt.  In 1995 it had been 
around 52% of GDP;  in 2005 it had diminished to 18% of GDP.  As a result, Iceland now had very low net debt, comparatively. 
12. Iceland had also greatly reduced corporate ta xes, from 50% in 1990 to 18% 2002.  This had 
attracted foreign investors, encouraged local i nvestment, and discouraged Icelandic companies from 
moving abroad.  Most interestingly, government revenues from this source of income had increased.  WT/TPR/M/164 
Page 5 
 
 
 13. Another important factor in Iceland's econom ic development was its fully funded pension 
system.  Payment to pension funds was mandatory for both employer and employee, and the pension 
funds were usually under the joint control of work ers' and employers' move ments representatives.  
The pension funds were large investors domestically and abroad.  Their assets had grown 
dramatically, and were now equi valent to about 120% of GDP. 
Iceland’s trade policy – main features 
14. Iceland’s trade policy was pursued along three ma in tracks: multilateral trade liberalization 
through the WTO;  regional liberalization thr ough the European Economic Area (EEA) with its 
EFTA/EEA partners and the European Union;  and bi lateral free-trade agreemen ts in cooperation with 
its EFTA partners Norway, Li echtenstein, and Switzerland. 
WTO 
15. The representative emphasized Iceland's st rong commitment to the multilateral trade 
framework under the auspices of the WTO.  A strong rules-based trading system was of particular 
importance for smaller members like Iceland.  I celand was also strongly committed to the Doha 
Development Agenda and was convinced that a fair  and equitable outcome would benefit the entire 
membership. 
16. In the Doha negotiations Iceland was a strong supporter of considerable improvements in 
market access for non-agricultural goods, which were  in the interests of developed and developing 
countries alike.  The sector of fisheries products cont inued to be of particular importance to Iceland; 
and as regards the regulatory disciplines under Rules, Iceland had put particular emphasis on 
strengthening disciplines on subsidies in the fish eries sector.  This objective was of fundamental 
importance, not only because subsidies distorted fr ee trade and competition, but also for the direct 
relationship between the subsidies and overexploitation of fish stocks.  
17. Iceland also supported liberalization in tr ade in services over a broad range of sectors 
including air and maritime transport and telecommunications.  It was also fully committed to the 
establishment of a fair and market-oriented agri cultural trading system, in accordance with the 
provisions and principles of the Agreement on Agriculture.  However, a number of non-trade 
concerns had to be taken into account in that re gard.  Issues such as food security, environmental 
protection, the viability of rural communities, and cultural heritage were im portant for every economy 
and should not be disregarded. 
EEA 
18. Iceland had further deepened its regional tr ade liberalization, with the Agreement on the 
European Economic Area (EEA).  The agreement exte nded the internal market and the four freedoms 
of the 25 EC Member States to Iceland, Norway, and Liechtenstein, which were all parties to the 
European Free Trade Association, (EFTA).  The EEA Agreement did not include the EC’s Common 
Agricultural Policy or the Common Fisheries Policy, but contained provisions on various aspects of 
trade in agricultural and fish products.  Full homog eneity was ensured by constantly updating the 
EEA Agreement through incorporation of new EC legislation into the agreement:  more than 5,000 EC legal acts had been incorporated into the agreement since it entered into force. 
EFTA 
19. Since the early 1990s, Iceland had, through EFTA, established an extensive network of 
contractual free-trade relations in Central and E astern Europe, the Mediterranean region, and with 
countries in other parts of the world.  Since its  last Trade Policy Review, Iceland with its EFTA 
partners had signed free-trade agreements with Chile, Croatia, Jordan, Lebanon, Macedonia, Mexico, WT/TPR/M/164 
Page 6 
 
 
 Singapore, Tunisia, and South Korea, and an agre ement with the South African Customs Union was 
awaiting signature.  At present, the EFTA network consists of 15 free-trade agreements and eight 
declarations on cooperation, which usually preceded free-trade negotiations.  The agreements covered 
free trade in industrial products, fish and other marine products, and processed agricultural products.  
In addition, each EFTA country ha d concluded bilateral protocols on basic agricultural products with 
each of the free-trade partners.  The FTAs incorporated provisions on a number of new trade issues, 
including rules of competition, state aid, and prot ection of intellectual property.  The scope of the 
agreements had been expanded during the last year wh enever feasible, to include services, investment, 
and public procurement, as the parties rec ognized the growing importance of these areas. 
20. Iceland saw its FTAs as complementary to the multilateral regime and believed that regional 
and bilateral liberalization had the potential to  encourage liberalization in new areas, deepen 
commitments, and mutually reinforce the goal of market access.  
21. However, regional free-trade agreements could never replace the need for a strong, rules-
based, multilateral trade regime from which all Me mbers stood to gain but was of particular 
importance to smaller members like Iceland. 
Fisheries 
22. The representative noted that fisheries continued to  be the most important sector of Iceland's 
economy.  While the share of fisheries exports in Iceland’s overall merchandise exports had been declining in the past decade, it still accounted for 60 %, a substantial share.  Fisheries accounted for 
close to 8% of the total GDP.  In 1998, around 9.2% of the total workforce was employed in fisheries 
or fish processing, but in 2004 that had diminished to 6.3%.  The cornerstone of Iceland's fisheries 
policy was the sustainable use of its marine res ources, which made sense both from the environmental 
and economic points of view.  The system of transferable quotas assigned to vessels had first been introduced in 1984, and had allowed for increased effi ciency and rationalization of Iceland's fisheries 
sector.  The quotas were assigned as a percentage of  total annual allowable catch.  The TAC was 
decided by the Minister of Fisheries, on the specific recommendation of the Marine Research 
Institute.  This had fostered dynamism in the fisheries sector that had made it among the most 
competitive in the world, whilst fully main taining a responsible conservation policy. 
Agriculture  
23. The agriculture sector contributed around 1.4%  of GDP, and its share had been decreasing in 
recent years.  The sector was mostly concentrated  in cattle and sheep farming, which accounted for 
approximately two-thirds of the value of agricultu ral output.  More than half of Iceland’s domestic 
food consumption was imported – and most of these products entered Iceland's market without duty 
or quantitative restrictions.  In recent years, step s had been taken towards greater openness in this 
sector.  The agricultural negotiations in the DDA were  expected to result in increased market access 
for agricultural products and further disciplines on domestic support for agricultural production in 
Iceland.  The representative stressed, that Iceland's agriculture sector needed to be given reasonable 
time to adjust to a changing global environment fo r trade in agricultural goods, and concerns like food 
security and rural development ha d to be taken into account. 
24. As stated in the Secretariat Report, Iceland's tariff regime was rather open, and duties were 
low.  In agriculture, many of Iceland's tariffs were compound duties, aimed at providing Icelandic 
farmers, who were working in extremely difficult geographical and climate circumstances, with a more level playing field in the consumer market. 
 
 WT/TPR/M/164 
Page 7 
 
 
 Aluminium  
25. Aluminium was Iceland’s second most important merchandise export.  Exports of aluminium 
accounted for around 14% of overall merchandise exports (contributing to around 2% of GDP);  this 
share was certain to rise in the n ear future with plans for increased production of aluminium in Iceland 
well underway.  Increased investment in aluminium and other power-intensive industries was closely 
linked with developments in  the energy sector.  Iceland had increased its production of electricity in 
recent years by continuing to harness its hydro and geothermal energy resources.  This had helped it 
achieve two goals:  it had paved the way for the in creased diversification of the economy;  and it had 
allowed Iceland to offer power-intensive industries a viable option to fossil fuel, and thereby made a 
positive contribution to climate control and sustainable development. 
Other merchandise exports  
26. Apart from aluminium, Iceland had increased its exports in a wide range of products.  The 
manufacturing sector was highly expo rt-oriented and had expanded and invested in manufacturing 
abroad.  Medicinal and medical products were clear examples, as was high-tech processing equipment 
for food processing.  Pharmaceutical co mpanies had also grown and expanded. 
Services sector  
27. Iceland's service sector had continued its e xpansion in recent years, and accounted for around 
80% of GDP.  As with the manufacturing sector, the small domestic market had spurred expansion to 
other markets.  Primary examples were the air tran sport and financial service sectors, both of which 
had grown robustly in recent years. 
28. The representative reiterated Iceland's commitme nt to the solid foundations in the WTO.  
With the Doha Round now at a critical juncture it hop ed for an ambitious result that would benefit all 
Members, not least the ones that are less advanced  in development.  Iceland looked forward to 
participating further in the work and joining with  other Members to create prosperity and expand the 
membership. WT/TPR/M/164 
Page 8 
 
 
 III. STATEMENT BY THE DISCUSSANT 
29. The discussant  (Mr. Karl Ehlers) welcomed the de legation of Iceland and expressed his 
appreciation for both of the reports.  He emphasized that his observations were strictly his own, and 
did not reflect the views of his delegation or capital. 
Macroeconomic environment 
30. The discussant observed that overall, the message from the reports was that Iceland’s 
economic performance had been impressive, although perhaps from Iceland’s viewpoint, its experience, though clearly positive, may ha ve felt like a roller coaster at times. 
31. The economy seemed to be doing very well, with  one of the best growth performances in 
Europe in recent years.  Economic growth had aver aged 3.6% since 2000, and it had performed even 
better in the years immediately preceding 2000.  GDP was at an enviable level of more than $33,000 
per person.  There had been robust domestic dema nd, powered by private consumption and large-
scale investment projects, including in the aluminum and power sectors.  Unemployment was low – around 2% – so labour was frequently imported to meet  demand in certain sectors.  The International 
Institute for Management Development had ranked Iceland as one of the world’s most competitive 
economies. 
32. These positive results had been accompanied by volatility, however, as the Secretariat Report 
had pointed out.  In part, this volatility seemed to  stem from the small size of Iceland’s economy and 
the fact that just one or two major investment s could have a big impact on employment, domestic 
demand, and prices.  Recent events, including in th e currency market, showed that volatility continued 
to be a challenge for Iceland. 
33. Iceland no doubt understood these challenges a nd was up to the task of managing them.  
Structural reform had made Iceland’s economy more co mpetitive, more diversifie d, and more flexible.  
In addition, the new monetary policy, aimed at keeping inflation down, had been introduced.  The 
Secretariat Report, had suggested that Iceland mi ght benefit from a stronger counter-cyclical fiscal 
policy to help smooth out fluctuations in private demand and economic activity.  In this connection, 
given Iceland’s experience in managing the challenges of volatility, he asked to what extent it felt it 
had room to further improve or refine its policy mix to smooth out what appeared to be recurrent 
swings in private demand. 
Trade and investment policy 
34. The discussant noted that a few observations seemed particularly important. 
Tariff policy 
35. Iceland’s trade policy seemed generally liberal.  At the border, its market was generally open 
to imports of a wide range of products, with an  average applied MFN tariff of 5.9%, and around 70% 
of tariff lines had applied rates of zero.  The generally low incidence of applied tariffs was 
commendable from the point of view of Iceland’s tradi ng partners, and it was clearly also beneficial to 
Iceland, which had done very well by specializing in a few areas – such as fish – while fulfilling its 
domestic demand for other products through imports. 
36. Agriculture, however, was the exception, with aver age applied tariffs of 18%.  With respect to 
bindings, agriculture was a conspicuous exception, wi th average bindings in the triple digits – 120%.  
For some products, bindings were much higher than  the average;  for ex ample, for some dairy 
products they were 470% in ad valorem -equivalent terms.  The magnitude of this protection 
contrasted sharply with Iceland’s otherwise liberal tr ade posture.  Not surprisingly, it also led to high WT/TPR/M/164 
Page 9 
 
 
 prices for food:  according to a r ecent price survey, it had the highest food prices in Europe.  In that 
light, the discussant was interested to hear that the Prime Minister had appointed a task force earlier in 
the year to look at the issue of fo od prices, noting that the system was not as transparent as it could be 
and lower prices could help to boost household livin g standards.  He asked whether the committee had 
made any recommendations to the Prime Minister an d the extent to which trade reform might be a 
factor in its deliberations. 
Further structural reform  
37. There had been considerable efforts to furthe r improve the trade regime and business climate 
during the period under review, including in privatiz ation, the organization of public entities, and tax 
reform.  A new Competition Act had entered in to force in 2005, driven by Iceland’s EEA 
requirements;  and the public proc urement environment had been revi sed.  There had been many other 
developments, including changes aimed at cr eating more competition in the energy and 
telecommunications sectors.  While many of these in itiatives seemed to be aimed at aligning Iceland’s 
policies more closely with those of the EEA, the broader long-term context for Iceland was a far-
reaching structural reform process that, over the past  15 years, had generated significant benefits for 
Iceland and its people. 
Foreign direct investment 
38. There had been remarkable investment growth, both  into and out of Iceland.  According to the 
Secretariat, Iceland’s inward stock of FDI w as up four-fold since 1999 and was currently at 
$1.8 billion.  Outward investment by Icelandic co mpanies was $3.6 billion and growing fast.  To put 
this outbound investment in context, he noted that foreign firms owned by Icelandic investors 
employed more than 100,000 people in the market s where they were invested, which was not much 
different from Iceland’s total domestic labour force.   The discussant observed that Iceland might be 
small in geography and population, but it had a big reach in global markets. 
39. Given this experience, the discussant was su rprised to see Iceland described as among the 
OECD countries with the highest overall foreign inv estment restrictions.  There appeared to be an 
array of restrictions, some specific to sectors such as fisheries and energy, some of general application, and some applying to certain investors but not to others.  Because this issue was a major 
focus of Member interest – with questions by Canada, Chile, Colombia, Hong Kong China, 
Singapore, and Turkey – he encouraged Iceland to  share more information and context about its 
framework for regulating inward investment, including the extent to which special treatment was 
accorded to investors from inside the EEA, EFTA, and OECD, and the ex tent to which some of these 
provisions were implemented flexibly. 
40. Given the complexity of the regime, he al so asked whether Iceland had any plans to 
streamline its current investment provisions, an issue that had been under study at the time of its last 
TPR. 
Regional linkages 
41. The discussant observed that bilateral and regi onal initiatives were increasingly important in 
Iceland’s trade and investment policy.  In the EEA , Iceland had transposed into its domestic law 
aspects of EC legislation covered by the EEA Agreem ent.  In addition, there was the EFTA, as well as 
FTAs in both an EFTA and a national context;  the most recent development had been a feasibility 
study to assess a potential FTA with China.  This in terest in bilateral and regional initiatives was not 
unique to Iceland, and he was of the opinion that bilateral and regional initia tives could be supportive 
of multilateral efforts.  But the prominence of th ese initiatives had been one of the most noticeable 
aspects of Iceland’s trade policy during the review period, and it would be in teresting to learn how WT/TPR/M/164 
Page 10 
 
 
 Iceland judged the relative importance of regional po licies with the WTO system in terms of its own 
trade and development needs. 
Sectors 
42. Fisheries had been described  as the mainstay of Iceland’s economy and the primary 
component of exports.  This was a tremendously im portant sector for Iceland, and Iceland was a 
leader in developing sustainable ways to manage th e fisheries sector.  In the WTO, Iceland had made 
proposals to improve disciplines on fisheries subsidies and to liberalize trade in fish and fish products, 
and at home it had introduced several measures, to  foster the sustainable use of resources, including 
transferable quotas, and a fishing fee paid by the ow ners of fishing vessels with harvesting rights.  The 
discussant asked Iceland to provide an update on its efforts to manage its fisheries sustainably, both 
with respect to its domestic experience and also in terms of the kinds of international disciplines that 
might be helpful. 
43. The most meaningful trends in agriculture seemed to be the sector’s diminishing importance 
as a share of GDP, which was down to 1.4% in 2005, together with the very high cost of supporting a farm sector so close to the Arctic Circle.  Gove rnment support seemed to be on a par with the total 
contribution of the agriculture sector to GDP.  The discussant believed that these policies to support 
and protect agriculture would be a key theme of  the TPR given the various questions posed by 
Members about Iceland’s agricultural policies.  These included one by Brazil on changes to the 
methodology for allocating tariff quotas, an issue he thought might take on gr eater importance when a 
reciprocal quota system with the EC came into force, and a question subm itted about Regulation 509 
of 2004, an SPS measure with a wide reach that  might not yet have been notified to the WTO. 
44. In many other sectors, there appeared to be  impressive growth and momentum, and the 
discussant thought that much of the dynamism was sour ced in the structural reforms pursued over the 
previous decade or two.  There seemed to be  positive news and activity across many sectors, 
including banking, high-tech manufacturing, retail, telecommunications, and tourism.  He noted multiple success stories, with firms that had benefited greatly from privatization and market 
deregulation, in the financial sector, where I celand’s banks had been expanding abroad, in 
telecommunications, following the privatization of I celand Telecom, and elsewhere, such as in high-
tech manufacturing including pharmaceuticals. 
45. The discussant drew attention to the relatively brief span in which Iceland had made these 
changes and the positive results it had realized.  Th e Secretariat had outlined key developments across 
sectors, and there were further details of interest  including the benefits of specialization and of 
diversification, and the wealth that could accrue by  combining well-formulated structural reform with 
an educated and entrepreneurial business culture.  The discussant was interested in hearing any 
general perceptions or conclusions Iceland might shar e about its structural reform experience, as well 
as information about its future plans, including in the electricity sector, an issue which had been raised 
by several Members in their questions, and in the area of agriculture, which increasingly stood in ever 
greater contrast to the dynamism elsewhere in Iceland’s economy. WT/TPR/M/164 
Page 11 
 
 
 IV. STATEMENTS BY MEMBERS 
46. The representative of Colombia  stated that Iceland had consolidated its integration into the 
multilateral trading system.  This was an essential element for Iceland's high standard of living.  
Colombia valued Iceland's policy to promote ope nness to trade and investment, despite its small 
geographic size, location, and low level of economic  diversification.  This policy had had a positive 
impact on competitiveness, and hence, economi c performance.  The expansion of trade had 
contributed to a healthy and stable economy and supported the strict fiscal and monetary policies of recent years.  Colombia encouraged Iceland to improve its WTO commitments relating to market 
access in agriculture, and to reflect on the need to maintain high levels of support for its farmers.  
Such support did not help to increase competitiveness.  Colombia appreciated the priority attached by 
Iceland to multilateral trade negotiations;  Iceland also participated in EFTA and the EEA, and had 
concluded numerous free-trade agreements.  Colombia welcomed the launch of free-trade negotiations with Iceland and its EFTA partners, which included some of Colombia's most important 
trading partners. 
47. The representative of the United States
 recognized Iceland’s importa nt role in Geneva, both 
on substance, where Iceland had shown important l eadership in the rules ne gotiations on fisheries 
subsidies, and in terms of its people, including  former Ambassador Stef an Johannesson, who had 
played a critical role in the NAMA negotiations a nd who continued to serve the Membership as chair 
of the working party on Russian accession. 
48. The economic relationship between the United States and Iceland was positive and growing 
across several dimensions.  In terms of FDI, the Un ited States was one of the largest foreign investors 
in Iceland, and the scope of their investment relationship continued to expand as several large 
investment projects got underway, including in the aluminum industry.  Icelandic investment in the 
United States also had picked up of late, with major pharmaceutical, biomedical, and fish-related 
acquisitions by Icelandic firms. 
49. U.S. exports to Iceland had increased to more than $500 million in 2005, up more than 50% 
from 2004, and encompassed a wide range of products including aircraft, motor vehicles, chemicals, and machinery.  Iceland’s exports to the United Stat es had tended to fluctuat e in value terms over the 
review period, but there had been a growing dive rsity beyond fish and seafood products to include 
medical equipment and machinery.  U.S. services tr ade with Iceland was also expanding rapidly. 
50. It was clear that Iceland’s economic perform ance over the review period had been very 
positive.  Iceland had achieved some of the highest  growth rates in Europe, and its economy had 
expanded by roughly 50% in real terms over the past  decade.  This was a commendable achievement, 
and clearly Iceland’s generally liberal trade orientation and its commitment to sustained structural reform in many sectors were primary reasons for this  success.  It was not a coincidence that many of 
Iceland’s fastest-growing companies were in sect ors such as banking and telecommunications, where 
structural reform was taking place. 
51. There were areas, however, where Iceland could make further improvements to its trade and 
investment regime, both for the benefit of its tr ading partners and to boost its own growth and 
development.  Agriculture, was one of the most pr otected and supported markets in the world:  the 
United States was strongly committed to the further re form of global agricultural trade, and during the 
Doha negotiations would be looking to Iceland to  make a significant contribution by reforming its 
system of agricultural support and by agreeing to  expand access to its domestic market for foreign 
agricultural products.  The United States had submitt ed specific questions about aspects of Iceland’s 
trade and investment regime, and w ould look over the written responses. 
52. Iceland’s new customs valuation law apparently omitted major elements of the WTO 
Agreement on Customs Valuation.  The United St ates hoped to hear when Iceland intended to WT/TPR/M/164 
Page 12 
 
 
 incorporate these important elements into its trade policy framework.  With respect to notifications, 
the United States noted that one particularly im portant SPS measure (Regulation 509/2004) did not 
appear to have been notified to the WTO.  The United States requested more information about this 
regulation, including Iceland’s plans for submitting th e required notification.  The United States also 
asked for more information about plans for a new reciprocal quota arrangement beginning in 2007 and 
how it would affect other Members. 
53. According to the Secretariat Report, Icel and’s investment policy was among the most 
restrictive in the OECD, and the United States ask ed for more information about the differential 
requirements applying to investors from inside and outside the EEA. 
54. The representative of Chile  said that bilateral trade with I celand had been increasing in recent 
years, especially after the conclusion of the fr ee-trade agreement with EFTA, signed in November 
2003.  This agreement contained disciplines on goods, ser vices, investment, and intellectual property;  
it foresaw the gradual liberalization of trade in ag riculture and prohibited the application of anti-
dumping measures among its members.  Chile's exports to Iceland had increased by 58% between 2003 and 2005 and imports from Iceland had risen by  25%.  Chile understood the relevance of the 
multilateral trading system for a small country like Icel and.  In the context of the Doha Round, Chile 
and Iceland shared positions in fisheries subsidi es and NAMA.  Iceland applied relatively low MFN 
tariffs:  some 70% of all tariffs were duty free, and 4.7% were non- ad valorem ;  this increased 
predictability.  However, ther e were areas that could be improved, including macroeconomic 
imbalances that had manifested themselves in an abrupt depreciation of Iceland's currency at the 
beginning of 2006 and that risked leading to a contraction in domestic demand.  Chile sought 
additional information on the measures planned to solve this situation. 
55. The representative of Brazil
 congratulated Iceland for its economic performance, especially 
for the high rates of economic growth and the po sitive social indicators achieved over the review 
period, and noted Iceland’s recent efforts to c ontrol inflation and reduce imbalances in trade. 
56. Brazil was satisfied that Iceland shared with it and other Members a similar view of the 
importance of the multilateral trading system, paying  close attention to the current negotiations on 
rules of the DDA, among other issues.  Iceland's en gagement in the discussions was welcomed and it 
was hoped that the Icelandic Government might support the proposal put forward by Brazil on fisheries subsidies. 
57. Brazil and Iceland were interested in a mutu ally supportive relationship between the TRIPS 
Agreement and public health objectives.  Brazil  hope d that this position would translate into concrete 
actions when related issues were considered in the WTO. 
58. Iceland's progress in reducing domestic support fo r agriculture and the gradual move towards 
greater openness for imports in agriculture was welcom ed, in particular the reform on dairy and sheep 
subsectors.  Brazil also considered it positive th at Iceland had not taken any special safeguard 
measures for agriculture products recently. 
59. Icelandic agriculture continued to be the most heavily supported in the world;  applied MFN 
tariffs for agricultural products remained signi ficantly higher than tariffs for non-agricultural 
products;  and the number of tariff quota rates for agricultural products was also very high.  The 
combination of domestic support and tariff protecti on imposed costs on taxpayers and consumers and 
reduced the overall welfare.  In multilateral term s, those policies distorted trade and impeded 
increased trade flows, for instance,  agriculture exports by Brazil. 
60. Brazil's bilateral trade with Iceland had been ve ry limited in volume and concentrated in a few 
items.  Though agriculture was one of Brazil's most competitive sectors, its main exports to Iceland WT/TPR/M/164 
Page 13 
 
 
 were not agricultural products.  Brazil hoped that re forms in Iceland's agriculture sector would allow 
for a higher volume of agricultural imports from Brazil. 
61. Iceland was taking a series of steps to deepen its trade relations with Europe.  Brazil hoped 
that new FTAs being sought with European partners would not lead to trade distortions, and that they 
would create more opportunities (not less) for increased trade from developing countries in particular.  Brazil welcomed the asymmetrical approach taken by I celand in its negotiations with partners that had 
different levels of economic development. 
62. The representative of Hong Kong, China
 emphasized the very good trade relations between 
Hong Kong, China and Iceland.  Tota l bilateral trade had increased at an annual average rate of 13.7% 
between 2001 and 2005, and it was hoped that the growth would continue. 
63. Hong Kong, China commended Iceland for its low and simple tariff regime, noting that the 
simple average of applied MFN tariffs was 5.9% in  2005, and 70% of all tariff lines were duty free. 
Hong Kong, China encouraged Iceland to continue its trade liberalization efforts, by narrowing the 
gap between the bound and applied rate s so as to enhance the predictability of its trade regime and to 
bring down the applied rates of seven tariff lin es that exceeded their corresponding bound rates. 
64. Hong Kong, China commended Iceland’s customs clearance procedures, which were largely 
computerized to facilitate trade.  Electronic data in terchange (EDI) covered 98% of the declarations of 
import and export firms, and customs clearance us ing EDI took a matter of minutes.  Concerning 
standards and technical regulations, 99.75% of I celandic standards were European standards while 
some 32.3% were equivalent to international sta ndards, and in certain sectors, up to 60%.  Hong 
Kong, China encouraged Iceland to harmonize the re maining national standards so as to facilitate the 
flow of international trade. 
65. With respect to services, both Iceland and H ong Kong, China were staunch supporters of the 
multilateral trading system.  With services constituting a significant and growing part of the two 
economies, they shared the goal of pursuing further liberalization in trade in services and bringing 
about a successful outcome on services in the WTO round of negotiations.  Iceland’s commitment to 
real liberalization was evident from its sector-speci fic commitments in 9 of 12 sectors included in the 
services classification and its efforts to offer furt her commitments for liberalization in the current 
round.  Hong Kong, China looked forward to con tinual and closer cooperation with a view to 
contributing to a successful round. 
66. The representative of Singapore  noted that Iceland had undertaken significant reforms and 
progressive liberalization measures in its trade regime  since its last Trade Policy Review in 2000.  
Singapore and Iceland both recognized that progressive  trade liberalization was vital in ensuring a 
basis for strong and sustainable economic growth. 
67. Singapore welcomed the continued reforms in Ic eland's services industries, some of which 
had gone beyond Iceland's multilateral commitments.  Singapore noted in particular the reforms in 
financial services, telecommunications and air and maritime transport. 
68. With respect to market access for goods, Singa pore appreciated the relatively low tariffs 
applied on industrial prod ucts.  Iceland had also not used an ti-dumping, countervailing or safeguard 
measures since its previous review.  Singapore welcomed Iceland's accession to the WTO 
Government Procurement Agreement in 2001, when  it adopted new laws on public procurement and 
on public projects procedures. 
69. Iceland had always contributed to the integrati on of developing countries, transition countries, 
and least developed countries into the multilatera l trading system, and its support for the Doha 
Development Global Trust Fund was particularly notew orthy.  However, certain agricultural activities WT/TPR/M/164 
Page 14 
 
 
 in Iceland remain highly assisted.  Taking further steps to reduce agricultural assistance could bring 
economic benefits and help align agricultural policy with the market-based solutions that had helped 
Iceland to prosper. 
70. Through its EFTA membership, Iceland had s ought to engage count ries on a regional and 
bilateral basis.  There was an EFTA-Singapore Free Trade Agreement, and Singapore shared the 
belief that such FTAs could complement WTO negotiations and ensure market access on a reciprocal 
basis.  As a small country, like Iceland, Singapo re did not see regional trade agreements as a 
substitute for a strong and durable multilateral syst em.  Singapore was ready to work closely with 
Iceland to ensure the success of the DDA. 
71. The representative of Japan  reported that Japan and Iceland had enjoyed an amicable 
relationship for a long time.  Diplomatic relations  between the two countries were established in 1956 
and 2006 marked the 50th anniversary.  Althou gh the populations were quite different, the two 
countries had some points of similarity, for exam ple, both were island countries with many hot 
springs.  Both were also both net food importers. 
72. Iceland had achieved a high standard of living and the world’s highest per capita income.  It 
ranked 4th in the world in the World Compe titiveness Yearbook by the IMD and in the Network 
Readiness Index Rankings by the World Economic Forum on the competitiveness in the information 
and communication sector, which was a key area for development in this century. 
73. Japan also appreciated Iceland’s economic rec overy and high growth rate since 2003, based 
on a stable fiscal policy and structural reform s for liberalization.  The success of export 
diversification, particularly the increase in exports  of industrial goods, had supported the performance 
of the economy.  In addition, the increase of FDI in the aluminum industry had contributed to the 
development of the manufacturing sector as well as the exports of industrial goods.  Japan believed that in order to maintain export competitiveness, it was important for Iceland to continue to promote 
an investment environment. 
74. With regard to the trade policy, Japan appreci ated Iceland's strong co mmitment to the WTO, 
in particular to the DDA negotiations, and noted Ambassador Johannsson's contribution to the WTO 
as a chair of the NAMA negotiations and the work ing party on the accession of Russia.  Japan 
welcomed Iceland's accession to the Government  Procurement Agreement in 2001, based on the 
adoption of new laws on public procurement. 
75. Japan also welcomed Iceland's participation in the services negotiations.  The weight of the 
service sector in Iceland had continued to incr ease, to reach around 80% of GDP.  Japan hoped that 
Iceland would continue to liberalize this sector a nd make commitments in areas where it had yet to 
commit. 
76. In addition to its WTO commitments, Icela nd also participated actively in the EEA 
agreement.  Japan understood the importance of the EEA due to its geographical proximity, and 
Iceland's strong economic ties to the EC and EFTA c ountries.  However, according to the Secretariat 
Report, a number of policy changes, driven by pa rticipation in the EEA agreement, had widened the 
gap between the treatment Iceland afforded its EEA  partners and other WTO Members.  Japan noted, 
however, that fishery products, which were the ma in export products from Iceland to Japan, were not 
covered in the EEA agreement.  Japan hoped that  due consideration would be given to potential 
sources of concern, such as an enlargement of  the gap between EEA partners and other WTO 
Members. 
77. The representative of Canada
 was pleased to note Iceland’s continuing strong economic 
performance in the period since the last review.  Despite a brief recession in 2002, Iceland had 
enjoyed strong economic growth over the last fi ve years, averaging about 3.6% annually.  Recent WT/TPR/M/164 
Page 15 
 
 
 economic analysis indicated significant inflationary risks, however, which suggested a need to address 
emerging macroeconom ic imbalances. 
78. Among the very positive indicators was the con tinuing diversification of Iceland’s exports 
beyond traditional strengths in fisheries and ener gy-related products, including a growing share for 
manufactured products.  Also to be commended were Iceland’s recent moves towards reduced 
economic regulation, including the privatization of some public enterprises, plans to consider possible 
reductions in agricultural subsidies and a greater a lignment of agricultural policies with market-based 
solutions, and reduced restrictions on foreign i nvestment.  Canada urged Iceland to carry these 
important planned reforms throug h to completion and to apply them, where appropriate, on an MFN 
basis secured via the WTO. 
79. Canada reported on its recent discussions with Iceland and other EFTA countries concerning 
a possible return to negotiations on a free-trad e agreement between EFTA and Canada, which had 
been in abeyance for several years.  Canada hoped that a decision would be possible in the coming 
months. 
80. The representative of the European Communities  noted that complementary to their 
cooperation in the WTO, the EC and Iceland were building a strong partnership through the European 
Free Trade Agreement and the European Economic Ar ea.  Their economies and markets were already 
closely intertwined, on the basis of common rules. 
81. Iceland’s trading relations took place against a favourable macroeconomic environment;  the 
Icelandic economy had been booming over the last few years.  The 5.5% GDP growth rate in 2005 
was expected to be matched in 2006, and many in dicators were promising.  However, while economic 
growth had been robust, there were also clear si gns of overheating, for example, a growing current 
account, a significant increase in private consumption, and upward pressure on inflation and the exchange rate.  In this context, the Icelandic centr al bank’s recent decision to raise its key interest 
rates in order to help stabilize the situation was appreciated. 
82. The EC welcomed Iceland’s commitment to mu ltilateral liberalization and the WTO.  Like 
Iceland, the EC emphasized that the WTO was it s main instrument to further develop trading 
relations.  Like many others, Iceland pursued bila teral and regional liberali zation in parallel to the 
multilateral sphere, including with the EC.  Compleme ntarity between the two was crucial.  The EC 
was interested in hearing more about Iceland’s furt her plans for bilateral and regional liberalization. 
83. Many WTO Members placed great emphasis on the need to address the link between trade 
and sustainable development.  In this respect, all three pillars of sustainable development, i.e. its 
economic, social and environmental components, n eeded to be fully integrated in any national 
strategy.  With its remarkably high employment ra te, including a high female participation rate and a 
high birth rate, Iceland was in an enviable position.   The EC asked Iceland to share some thoughts and 
experiences regarding how a country might crea te positive synergies between further trade 
liberalization and its impact on social and employment matters. 
84. The fisheries sector was Iceland's most important export industry, accounting for around two 
thirds of merchandise exports, alt hough other industries were growing in importance.  Aluminium and 
ferro-silicon was the second most important expor t industry, and due to  construction of new 
aluminium plants, production was forecast to increase  significantly in the near future.  Services also 
played an important role in Iceland’s economy.  Of particular significance was tourism, where the 
number of tourists visiting Iceland had increased by 30% over a three year period.  In addition, the 
financial services sector was expanding rapidly.  While Iceland had thus already accomplished a 
broad export base, additional diversification might be  beneficial in order to counter imbalances in the 
rapidly growing economy and to sustain growth.  The EC was interested in Iceland’s views on this, 
and whether any plans existed to develop other sectors further. WT/TPR/M/164 
Page 16 
 
 
 85. It seemed evident from the dynamics of Icela nd’s economy that Iceland had much to gain 
from further multilateral liberalization in all ma rket-access related areas and thus from a successful 
conclusion of the DDA.  Beyond the three pillars  of market access (agriculture, industrial and 
services), the EC also expected substantial results  of the DDA in the area of rules (including trade 
facilitation, anti-dumping, subsidies, RTAs, and GIs) , as well as a substantial development package.  
The EC was happy that Iceland shared this ambiti on and encouraged it to contribute in all areas, like 
all WTO Members had to do, accord ing to their respective means. 
86. The representative of Argentina  noted that Iceland's share in international trade was an 
indispensable part of its overall economic policy and one of the major factors of its economic success.  
Changes in the makeup of the export basket, divers ification of the economy, and the dynamics of 
trade in services had all been important elements in shoring up structural reforms and ensuring 
improvements in macroeconomic policies, thus ma king it possible for Iceland to reduce the volatility 
of its economy since the beginning of the 1990s.  Argentina was confident that Iceland would 
continue along this path of reform both to ex tend the geographical basis of its economic opening 
beyond the EEA, and to broaden the sectoral b asis beyond non-agricultural goods and services. 
87. Argentina encouraged Iceland to apply reforms on an MFN basis, to adopt measures to reduce 
agricultural and livestock subsidies, and to redu ce tariff peaks and high tariffs in agriculture.  
Economic benefits could thus be generated that would also help to align agricultural policy with 
market-based solutions which had promoted Iceland's prosperity. 
88. The importance Iceland attached to trade as an  economic policy tool was reflected in its 
commitment to the multilateral trading system, and in particular its participation in order to achieve 
the objectives of the DDA.  Argentina hoped that this  commitment would continue to be promoted 
through the presentation of pending notifications re lated to export subsidies for agricultural goods as 
well as SPS measures.  Argentina particularly appreci ated Iceland's participation in negotiations to 
clarify and improve the disciplines on fisheries subs idies.  Argentina shared Iceland's concern to 
ensure the sustainability of fisher ies resources and understood that a deep-seated reform of fisheries 
subsidies would assist in reducing pressure on fishing resources. 
89. The representative of Norway  congratulated the Government  of Iceland for the economic 
performance during the period under review.  While the reports revealed th at there were some 
challenges ahead, Norway was sure that this w as understood and would be tackled by Iceland. 
90. The structured changes that had taken place over the review period were visible in the 
composition of Iceland’s exports, which had changed significantly.  Even though fishing and fish 
processing continued to be a mainstay of the Icelandic economy, accounting for 60% of total 
merchandise export revenue, the shar e of manufactured products in tota l exports had increased.  This 
applied in particular for aluminium and medicament s.  Norway noted with satisfaction that such 
differentiation of the composition of the industry had taken place in an open economy like that of 
Iceland. 
91. Trade in services had been very dynamic in recent years, as had direct investment, both 
inward and outward.  The sector was of increasing importance to Iceland, and accounted for some 
80% of GDP in 2004.  This expansion had been driv en largely by financial services, as well as real 
estate, renting, and business activities. 
92. Norway recognized and appreciated Iceland's ac tive participation in the multilateral trading 
system, both serving in important positions, and submitting several proposals in the context of the 
Doha Development Agenda.  Norway  cooperated closely with Iceland in the NAMA negotiations, the 
negotiations on fishery subsidies, and in the G10 in the agriculture negotiations. WT/TPR/M/164 
Page 17 
 
 
 93. Iceland participated actively in the GATS nego tiations with the aim of further liberalizing 
services and had signed the Fourth Protocol on Basi c Telecommunications and the Fifth Protocol on 
Financial Services.  Iceland’s active participation in  the negotiations on maritime transport and energy 
services was welcomed and considered very useful. 
94. Agricultural production in Iceland was hampered  by a harsh climate and difficult topography, 
and was therefore dependent upon direct and indir ect government support.  Norway was sympathetic 
to Iceland's non-trade concerns, and the maintenance of  a viable agriculture sector played a key role in 
this regard.  The application of some high tariffs to protect a few basic commodities within Iceland’s 
very narrow production scope was a legitimate policy for a net food importing country that could not 
possibly be internationally competitive in agricultu re.  Iceland was committed to the development of 
multilateral rules to govern agricultural trade, and the agriculture sector in Iceland had been subject to 
structural adjustments and institutional reforms aimed at increasing efficiency. 
95. Iceland’s current account deficit had increased shar ply in recent years, to levels rarely seen in 
developed countries.  Large-scale investments in th e aluminium subsector seemed to have played a 
large part in this development.  These investments had been made possible by the use of international 
financial markets as well as large imports of both goods and services, and extensive use of temporary 
foreign labour seemed to have been important.  Th us, a certain dampening of the deficit would be 
expected as the investment-related imports declin ed and production came on line.  Norway asked 
what the Icelandic government intended to do  with regard to the current deficit. 
96. The representative of Chinese Taipei  reported that bilateral trade with Iceland had been 
increasing in recent years.  Given the openness of I celand’s trade and investment regimes, there was 
great potential to strengthen this bilateral economic relationship.  Since its last Review, in 2000, 
Iceland had made considerable progress in liberalizi ng its trade and investment regime;  its economic 
growth had remained strong, at around 3.6%, in  2000-05, and continued to be so in 2006. 
97. Iceland like Chinese Taipei was also very comm itted to cultivating the multilateral trading 
system as a friendly tool for the economic developmen t of the entire Membership.  In the Doha Round 
Negotiations, both were committed to a very ambitious outcome in NAMA and services.  In the area of agriculture, being a net-food importer like the ot her G-10 members, Chinese Taipei shared the view 
of Iceland that non-trade concerns should be an inte gral part of the final outcome of the agricultural 
negotiations. 
98. Iceland generally adopted a liberalized trad e regime, except in the somewhat protected 
agriculture sector, which had unfavourable produc tion conditions and an indispensable role in 
safeguarding non-trade concerns, a notion that Chinese Taipei also fully shared.  In 2005, around 70% 
of Iceland's tariff lines were duty free, and its average applied MFN tariff was 5.9%, while the 
average bound tariff was 31.5%.  Applied MFN tariff rates on non-agricultural products were 
generally lower (2.5% on average), while the averag e applied MFN tariff on agriculture remained at 
18.3%, for reasons mentioned above. 
99. Iceland’s services sector had grown to account for some 80% of GDP in 2004 and it had made 
considerable commitments under the GATS, incl uding signing the Fourth Protocol on Basic 
Telecommunications and the Fifth Protocol on Financial Services.  Chinese Taipei was pleased to 
learn that its financial services sector had un dergone a process of privatization and intense 
consolidation between 1998 and 2003.  Icela nd had also made major changes in the 
telecommunications sector during the period under revi ew including legislative developments towards 
a more liberal and competitive environment, confir mation of the right of companies established in 
WTO Members to offer telecommunication services in Iceland, and the privatization of Iceland 
Telecom. WT/TPR/M/164 
Page 18 
 
 
 100. Chinese Taipei was concerned that investment restrictions remained in a few important 
sectors, including fisheries, energy, and airlines, a nd that some of these restrictions applied only to 
non-EEA or non-OECD nationals and companies.  Chinese Taipei sought more information about 
Iceland’s SPS regulation number 509/2004,  which had yet to be notified. 
101. Chinese Taipei believed that enhancing multilateral commitments would increase the 
predictability of Iceland's trade regime and make  Iceland an even more attractive investment 
destination.  Also a successful outcome to the D oha Round would pave the way for a continued strong 
economic performance by Iceland in the coming years.   In this context, Chinese Taipei expected the 
Doha Round to lead Iceland to bind 100% of its industrial tariffs, to eliminate its export subsidies on 
agricultural products, to narrow the gap between a pplied and bound tariffs so as to create a more 
equitable and predictable trading environment, a nd to expand the scope of its GATS commitments.  
Chinese Taipei urged Iceland to reduce its VAT and excise taxes. 
102. The representative of India  noted that India's relations with Iceland had been friendly and 
warming up in recent years.  Bilateral trade had doubled from 2001 to 2005.  Iceland's investments in 
India had also been rising:  according to Indian  figures for the most recent fiscal year, these were 
US$18.65 million.  India believed there was significa nt scope for further improving investment flows 
between the two countries:  they had identif ied marine products, information technology, 
pharmaceuticals, earthquake determination, and sp ace and satellite mapping as the newer areas for 
enhancing economic cooperation.  India had commissi oned a study on entering into a comprehensive 
economic cooperation agreement with EFTA.  India was convinced that ther e was great scope for 
further increasing cooperation between India and Iceland. 
103. The representative of Iceland  noted that high bindings in the Icelandic tariff reflected 
calculations in the Uruguay Round, which was wher e Iceland had come from and not where it stood 
or where it was heading.  A lot of improvements ha d been made since that time.  With regard to 
agriculture, Iceland's geographical location was between 64o and 66o north, equivalent to the Hudson 
Bay in America:  this should be kept in mind when  considering the conditions for agriculture and the 
possibility of Iceland having an agricultural sector at  all.  It was also mentioned that Iceland had no 
export subsidies.  A task force appointed to look at food prices was scheduled to deliver its report in 
September or October. 
104. With regard to investment and possible differe ntiation, Iceland noted that this was more 
virtual than actual.  As outlined in  the replies already provided, in r eal terms this differentiation hardly 
existed and the laws on the book were due to be reviewed.  Iceland noted that a non-EEA Member, 
the United States, was the largest foreign investor in Iceland. WT/TPR/M/164 
Page 19 
 
 
  
V. REPLIES BY THE REPRESENTATIVE OF ICELAND AND ADDITIONAL 
 COMMENTS 
(1) Economic and institutional environment 
105. The representative of Iceland  stated that the recent economic imbalances were temporary and 
that the economy had begun to gravitate towards a more  balanced state.  The adjustment to external 
imbalances had been efficient duri ng the previous exchange rate cycle (2000-02), when a large current 
account deficit had turned into a surplus in one y ear.  Iceland expected the present imbalances to be 
resolved in a similar fashion. 
106. The imbalances were partly related to powe r-intensive investments, and corresponding 
imports of investment goods, which were a large co mponent of the trade deficit.  These investments 
were scheduled to peak in 2006 and be mostly co mpleted by 2007.  Iceland's aluminium exports 
would increase from 2007, reducing the current account de ficit.  The imbalances were also related to 
developments in the domestic financial market  during 2004-05.  Competition for home mortgages 
among the commercial banks had been accompanied by a boom in lending that had resulted in a sharp 
rise in home prices and inflation.  This source of  inflation had begun to wind down.  The recent 
strengthening of the exchange rate had resulted in increased imports of consumer goods.  Foreign 
financial institutions had issued krona-denominat ed bonds, contributing to the strengthening of the 
exchange rate in late 2005.  The growth of imports  was expected to slow down with the weakening of 
the krona in early 2006.  An inflation spike w as expected to pass through the economy in twelve 
months. 
107. Public finances were very strong.  Fiscal policy was counter-cyclical;  the degree of 
tightening from 2003 to 2005 had amounted to 5.5% of GDP, one of the most restrictive fiscal positions in the OECD.  There were signs that pr ivate demand had begun to decline, and it was 
expected to fall further in 2007 due to restric tive fiscal and monetary policies.  Current policy 
measures needed to be given the opportunity to reach  their full impact;  Iceland was not planning to 
alter its economic policy strategy. 
108. There were numerous opportunities for foreign direct investment in Iceland.  Direct 
investment was allowed in principle;  limitations were related to fish and energy resources, and air 
transport.  Investments in energy and air transpor t by citizens of EEA members were not subject to 
restrictions;  nor were investments in energy by EFTA citizens.  The possible rejection of an 
investment in case of serious economic, social or environmental difficulties was a safeguard provision.  Although this provision had not yet been abolished, it had never been used.  The Government planned to review th e legislation on direct investment , and preparations were already 
under way.  The Government strongly encouraged foreign investment into Iceland. 
109. Iceland's participation in the EEA was a means to achieve very close relations with the EC 
without having to join the EC.  It entailed an enormous effort to harmonize numerous laws and 
regulations, and involved c ooperation in areas such as environment,  research, and social issues.  EEA 
businesses operated according to the same or simila r rules.  Iceland had provided increased business 
opportunities through regional trade agreements a nd cooperation within EFTA.  Iceland was currently 
looking towards new markets.  High on EFTA's priority  list of future partners were Canada, China, 
India, Japan, the United States, and Russia and Uk raine after their accession to the WTO.  Iceland 
continued to negotiate with Thaila nd, and was interested in cooperating more closely with the Gulf 
Co-operation Council and MERCOSUR.  EFTA members had recently signed a cooperation declaration with Colombia and Peru.  Regional liberalization could pave the way for further 
multilateral liberalization.  For countries like Iceland that had already opened up their markets to their 
largest trading partners, the step to open up to th e entire WTO membership was not as big as would be 
for other countries.  The threats that Iceland belie ved it would face by opening up to trade, due to its WT/TPR/M/164 
Page 20 
 
 
 condition as a small, vulnerable island economy dependent on few natura l resources, had not 
materialized.  Rather, Iceland ha d benefited greatly from trade. 
110. Further diversification of the export base was vital.  To that end, the Government had 
implemented measures to increase competitiveness  and to create positive conditions for innovation 
and entrepreneurship.  By 2001, Iceland had al ready met the research and development spending 
target agreed at the 2002 Barcelona Summit of th e European Council (3% of GDP).  The Government 
had overhauled R&D policy in 2003 to strengthe n scientific research, training, and technology 
development.  Expenditure on R&D in 2005 had exceed ed the EC average.  The reform of research 
and development policy, which was still under way,  had improved national innovation performance.  
The 2004 EC innovation index had described Icel and as "strongly moving ahead" and had shown 
Iceland's index above the EC average. 
111. Part of the flexibility of Iceland's economy  stemmed from imported labour.  Approximately 
5.5% of the Icelandic workforce was foreign, up fr om 4.7% a year earlier, and from virtually zero a 
few years ago.  The participation of women in the labour force had traditionally been high by international standards;  it had risen from 60% in 1975 to 76% in 2004.  Birth rates had also remained 
high throughout this period, in contrast to neighbour ing countries.  Policies providing universal social 
services had played a supporting role.  Under a new po licy of parental leave, parents had the right to 
nine months combined parental leave, with three non-transferable months for each parent.  Almost 
90% of fathers in Iceland had used th eir paternity leave entitlement in 2004. 
(2) Trade policies and measures 
112. The representative of Iceland
 noted that, contrary to what was stated in Iceland's written 
answer to the United States, the substance of the De cision on the Treatment of Interest Charges in the 
Customs Value of Imported Goods was included in  the Customs Law and corresponding regulation.  
The Icelandic authorities would look into the lack of a formal notification to the WTO.  Iceland would 
review its system of excise duties and VAT on goods  after the completion of the Doha Round.  There 
were no on-going reviews of this system. 
113. Iceland was a full member of the European Committee for Standardization, the European 
Committee for Electrotechnical Standardization (C ENELEC), and the European Telecommunications 
Standards Institute.  Iceland adopted most sta ndards through participa tion in these committees.  
CENELEC generally adopted more international sta ndards than the other committees.  This explained 
the higher proportion of international standards in  the electro-technical sector.  Iceland had fewer 
purely national standards in force than many other European countries.  Purely Icelandic standards 
were adopted in areas of high importance not covere d by European standards and were required due 
to special circumstances, for example the Icelandic alphabet. 
(3) Sectoral policies 
114. The representative of Iceland  noted that a detailed description of the fisheries management 
system was contained in a recent speech by the Perm anent Secretary of the Ministry of Fisheries, 
available at:  http://eng.sjavarutvegsra duneyti.is/news-and-articles/nr/1085. 
115. The fisheries sector was a strong and viable business sector that provided thousands of well 
paid jobs.  This contrasted sharply with the struggling fisheries sectors in many other countries.  The Cod Wars had marked the starting-point of Iceland' s fisheries management system.  The international 
recognition of the 200 nautical mile exclusive ec onomic zone in the late 1970s had been necessary in 
order to achieve control over fish stocks.  Current  legislation was based on a system of transferable 
quotas, under which the Minister of Fisheries set an annual "total allowable catch" (TAC) for each 
species, following a scientifically based recommenda tion from the Marine Research Institute.  Each 
fishing vessel was allocated a fixed quota share of  the species subject to the TAC.  Quotas were WT/TPR/M/164 
Page 21 
 
 
 divisible and transferable to other fishing vessels;  the holder of the harvesting right could sell or rent 
the quota.  The allocation of quotas to fishing vessels was subject to a fishing fee.  There were certain 
limitations on the maximum quota holdings by single  enterprises.  An ef fective surveillance and 
control mechanism supplemented the system. 
116. The fisheries management system was effec tive because the decisions on the TAC closely 
followed scientific advice.  This practice was supporte d by stakeholders:  the vessel operators had an 
incentive to manage their operations efficiently.  As a result, the capacity of the fleet was in line with 
possible catches;  additionally, fewer workers were needed and the quality and value of products had 
increased.  This had improved the standard of liv ing of the 5,000 Icelandic fishermen and had 
strengthened the industry's competitiveness.  Since operators knew their quotas, they could choose to distribute their catches over a given period based on market needs and fishing conditions, thereby 
maximizing profits.  The fisheries management system  was one of the main factors contributing to the 
strong competitive position of the fishing industry. 
117. The consensus view in Iceland was that th e quota system had been more successful than 
alternative options in achieving sustainability and prof itability.  This did not mean that the system was 
flawless;  quota systems tended to be politically sen sitive.  The quota system had been a major topic 
in five national elections, but each time the pr oponents of the quota re gime had prevailed. 
118. Iceland had undertaken major structural reform in  electricity in recent years in the context of 
an EC directive.  This had involved the separati on of electricity transmission and distribution from 
production and sale.  The current legal framewo rk had been adopted in 2003 and designated 
generation and sales as competitive activities.  It imposed a requirement to maintain separate accounts on transmission and other activities carried out by  the monopoly provider of transmission services.  
IceGrid had been created in 2005 to transmit el ectricity to municipal distribution utilities and end-
users such as aluminium smelters.  It was also re sponsible for network administration, supervision, 
and operation.  All large electricity consumers had been able to choose their supplier from 2005.  This 
freedom had been extended to all consumers from 2006.  It was too early to evaluate the effect of 
these reforms.  Parliament had passed a new act in 2005 that removed the tax exemptions previously 
granted to energy companies. 
119. The State was the sole owner of Icelandic State Electricity and the Westfjord Power Company 
Ltd;  it had a 50% share in the National Power Company, and a 15% share in Sudurnes Heating Ltd.  
Although there were restructuring plans, they did not involve privatization:  Icelandic State Electricity 
would be operated as a limited liability compa ny from August 2006.  The State had also been 
considering buying out the co-owners of the Nationa l Power Company (the City of Reykjavik and the 
Township of Akureyri) to increase cooperation be tween the National Power Company and the other 
fully state-owned energy companies.  No agreem ent had been reached (June 2006).  The three 
companies had established a new company (Orkusal an) to organize production, purchase, and retail 
sale of electricity. 
120. On services, Ministers at the Hong Kong Ministerial Conference had set end-July as the final 
date for revised and improve d final offers.  Iceland had participat ed fully in the plurilateral request 
and offer process of the services negotiations, and was holding internal consultations in this regard. 
121. The discussant
 noted that this had been a successful review due to the high quality of 
Iceland's written and oral responses, and the large number of positive devel opments during the review 
period.  The openness of the economy for most products, and the growth unleashed by structural reform, had been two key themes.  Iceland had provided responses on many issues, including investment, fiscal policy, food prices, and structural  reform.  These offered a better sense of Iceland's 
achievements, its macroeconomic situation, and its fisheries policy.  Iceland had also provided a 
strong statement of support for trade liberalization ge nerally, and for the multilateral trading system in 
particular. WT/TPR/M/164 
Page 22 
 
 
 122. The discussant wondered how different this review would have been had Iceland not 
embarked on a process of structural reform:  he be lieved that without the reforms, Iceland would not 
have had such positive results.  Iceland set a positiv e example.  He also wondered how different the 
review would have been without Iceland's particip ation in regional initiatives, most notably the EEA.  
Iceland's educated and entrepreneurial workforce had capitalized on greater access to EEA markets.  
Iceland's statement that the step of opening its markets to other Members would not be as big for 
Members like Iceland that had already opened up th eir markets to their largest trading partners, 
underscored a significant way in which regional initi atives could be complementary to multilateralism 
and pave the way for bigger and better things. 
123. The representative of the European Communities  agreed with the points made by the 
discussant and thanked Iceland for its timely responses. 
124. The representative of the United States  stressed that Iceland had not notified Regulation 
509/2004.  Iceland had explained that this Regulati on merged several pre-existing provisions and that 
its primary purpose was to increase transparency.  These appeared to be very good reasons for 
notifying the regulation to the WTO.  The notifi cation would allow Members to understand Iceland's 
SPS regime better.  He asked Iceland to k eep WTO Members informed about its on-going 
consideration of its notification obligations with respect to the Customs Law.  Iceland's generally 
liberal trade orientation and commitment to struct ural reform had contributed to its remarkable 
economic performance during the review period. 
125. The representative of Iceland  stated that Iceland would look into notifying Regulation 
509/2004 to the WTO.  Without structural reform and participation in re gional initiatives, Iceland 
would be in the same situation as 12 years ago.  I celand's participation in regional initiatives had been 
crucial to breaking the barriers and opening up its markets to allow the entrepreneurial spirit to 
flourish.  Education had been a key ingredie nt, as had been research and development, and 
diversification.  Diversification and the harnessi ng of the entrepreneurial spirit would not have 
happened without privatization.  A journey of this type required time  and patience.  A new generation 
of management had been needed for Icel and's structural reforms to bear fruit. WT/TPR/M/164 
Page 23 
 
 
 VI. CONCLUDING REMARKS BY THE CHAIRPERSON 
126. This third Trade Policy Review of Iceland h as been highly informative, providing us with 
valuable insights into the trade policies and practic es underpinning Iceland's economic success story.  
We owe this to the participation of Ambassadors J ohannsson, Sigurdsson and Árnason and the rest of 
the Icelandic delegation, the very thoughtful inte rventions by Mr. Ehlers, and the active involvement 
of Members.  Throughout the review process, th e authorities of Iceland have shown a strong 
commitment to transparency and thus made a key contribution to the success of this Review. 
127. Members commended Iceland's impressive econo mic performance and export diversification 
since its last Review in 2000.  They noted that this could be attributed in great part to Iceland's 
generally open trade regime, a continuous process of  structural reforms as well as its specialization 
and close integration in the global economy.  Some  Members pointed to the short-term challenges 
currently facing the Icelandic economy, including the large current account deficit, but also pointed out that it remains one of the world's most competitive. 
128. Iceland acknowledged that a strong multilateral trad ing system is of particular importance for 
smaller Members like itself.  Members appreciated Iceland's active participation in the WTO, as 
reflected by its leadership role in the on-going ne gotiations on fisheries subsidies, and the valuable 
contribution made by its representatives to the work of WTO bodies.  They also highlighted the growing number of preferential trade initiatives entere d into or under consideration by Iceland, which 
Iceland sees as complementary to the multilateral system.  Some Members were concerned about 
restrictions affecting investment from non-EEA or non-OECD countries, and invited Iceland to 
reconsider them, and to secure any future reforms in  the WTO.  Iceland indicated that work is under 
way to prepare a review of its legislation on inward direct investment. 
129. Iceland was praised for not having had recourse to contingency measures, and its accession to 
the Government Procurement Agreement was welc omed.  Members urged Iceland to carry on the 
process of reform of its trade regime, including by reducing high tariffs, bind ing all of its industrial 
tariffs, and closing the gap between bound and app lied rates.  Members encouraged Iceland to 
complete outstanding WTO notifications, which Ic eland engaged to do as appropriate.  Iceland 
provided clarification on a range of intellect ual property issues, as well as on its SPS regime. 
130. Iceland drew attention to the difficulties it faces in agricultural production, and Members 
acknowledged Iceland's efforts to gradually align its policies with market-based  solutions.  However, 
they also noted that Iceland's agriculture continu es to be heavily supported, which imposes a cost on 
taxpayers and consumers, and may affect trade.  Me mbers thus urged Iceland to continue its reform 
efforts in this area, with Iceland stating that it expected the completion of the DDA to result in the 
further restructuring of its agriculture sector. 
131. Members noted the importance of the services sector in Iceland.  Iceland was commended for 
its programme of privatization and liberalization, in particular in the areas of financial services and 
telecommunications, and was encouraged to expand the scope of its GATS commitments. 
132. In conclusion, I believe that Iceland offers an excellent real-world example of how small 
island economies may overcome the limitations of si ze and location by engaging in structural reforms 
and taking advantage of international specializati on.  Members encouraged Iceland to carry out its 
own liberalization efforts on an MFN basis to help  broaden its economic relations.  Members also 
greatly appreciated Iceland's strong commitment to the multilateral trading system, and invited it to 
continue to play an active and constructive role to ensure a successful conclusion of the DDA. 
__________