WT/TPR/S/164 Trade Policy Review 
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IV. TRADE POLICIES BY SECTOR 
(1) OVERVIEW  
1. Agriculture contributes a small and dwindling share to total GDP and employment in Iceland.  
The OECD estimates that the Producer Subsidy Equiva lent has fallen but still stands at more than 
twice the OECD average.  Support to the agriculture sector is provided through both internal and 
border measures.  Milk production is supported th rough production-linked direct payments and is 
subject to production quotas and administered prices.   Sheep meat production is supported through 
direct payments based on support targets and through  quality-dependent payments;  exports of lamb 
meat are regulated to control domestic supply.  Di rect payments are also provided to producers of 
certain vegetables.  The average MFN applied tariff for agricultural products (18.3%) is many times 
higher than for other products (see Chapter III).  Ta riff quotas apply in practice to some 86 tariff lines, 
with out-of-quota rates ranging up to 306%.  When demand exceeds available in-quota volumes for minimum access commitments, quotas are auctioned.  As at early 2006, quotas are not assigned to 
particular countries but from 2007 a reciprocal quota system will come into operation with the European Union. 
2. Although its share in GDP has continued to decrease, reflecting the diversification of 
Iceland's economy, the fishing industry remains of  crucial importance, contributing 60% of total 
merchandise export revenues.  To protect the res ource base, the volume of annual catch is managed 
through a system of transferable individual fishing quotas.  Since 2004, a fee is collected on holders of harvesting rights.  Ownership of fishing operations and primary fish processing is limited to Icelandic 
nationals or residents, although non-residents can ow n up to 25% of the shares in Icelandic companies 
involved in these activities.   
3. Iceland is also richly endowed with energy resources, and energy costs are low by 
international standards.  Almost all electricity ge nerated stems from hydro and geothermal energy.  
There have been important legislative changes in the energy sector designed to promote greater 
efficiency and competition, driven by Iceland's EE A obligations.  However, the electricity industry 
remains entirely owned by the State or local govern ments.  Only Icelandic, EEA or EFTA residents 
and legal entities may own energy exploitation ri ghts or enterprises involved in producing or 
distributing energy, although agreements may be reac hed to extend these benef its to other parties. 
4. The manufacturing sector is concentrated mainly in power-intensive industries although other 
industries have gained in importance.  The sector  is export-oriented, give n the small size of the 
domestic market;  it accounts for some 35% of total merchandise exports (aluminium alone 
contributes 18%).  Manufactured exports have expa nded significantly over the review period and the 
development of power-intensive i ndustries has continued to be the source of significant inflows of 
foreign direct investment. 
5. The services sector has continued to expand sin ce Iceland's last Review and now generates 
just over 80% of GDP.  Under the GATS, Iceland undertook sector-specific commitments in 9 of the 
12 sectors included in the Agreement.  It also signed the Fourth Protocol on Basic Telecommunications and adopted the principles set fo rth in Reference Paper.  On financial services, 
Iceland's commitments cover the full spectrum of  activities, and are in accordance with the 
Understanding on Commitments on Financial Services. 
6. The current structure of the financial sector is  the result of a process of privatization and 
intense consolidation between 1998 and 2003.  A st ate-owned firm (the H ousing Financing Fund) 
remains the largest institution in the financial system .  There is one branch of a foreign bank operating Iceland WT/TPR/S/164 
 Page 65 
 
 
in Iceland, but no subsidiaries or representative offices.  In contrast, Icelandic banks have made 
significant international acquisitions recently and, partly as a result, half of the assets of the three major banks are held by their foreign subsidiaries.  Iceland's insurance market is characterized by a 
relatively high degree of concentration.  Fina ncial services legislation has undergone extensive 
revisions since Iceland's last Review.  Iceland's banking and insurance markets are largely open to 
foreign participation, although treatment of fore ign firms differs markedly between EEA-licensed 
firms and other firms.  Thus, for example, in insurance, non-EEA-licensed companies may not set up branches in Iceland unless their home countries grant reciprocal treatment to Icelandic companies.  
The cross-border provision of insurance servi ces is limited to EEA insurance companies. 
7. The Icelandic telecommunications sector has undergone major change since 1998 with the 
separation of postal from telephone services, the priva tization of Iceland Telecom, the opening up of 
the sector to competition, the entry of new firms, and company consolidation within the sector.  There 
has also been a series of legislative changes, larg ely driven by EEA membership requirements.  As a 
result of those changes, natural persons and lega l entities established within the EEA and within WTO 
Members do not need a permit to start opera tion unless specific frequencies are involved. 
8. Due to Iceland's geographical location and its reliance on international trade, maritime, and 
air transport play a major role in its economy.  With respect to passenge r transport to and from 
Iceland, Icelandair has a dominant position.  There ar e restrictions to foreign participation in the air 
transport sector:  foreign ownership in Icelandic companies involved in airline operations may not 
exceed 49%.  During the review period, Iceland si gned new bilateral air transport agreements with 
five trading partners outside the EEA , and one memorandum of understanding. 
9. Practically all movements of goods and materi als to and from Iceland are by maritime 
transport.  There are no restrictions on private or  foreign ownership of por ts, however, all ports are 
currently the property of the community in which th ey are located.  New legi slation has been adopted 
over the review period and as a result, ports are now free to set their own fees.  Legislation was also adopted against terrorist threats or other illegal activities.  Iceland participated in the Extended 
Negotiations on Maritime Transport Services, susp ended in 1996.  Altho ugh most participants 
withdrew their conditional offers, Iceland requested that  its offer be made an in tegral part of its GATS 
Schedule of Specific Commitments. 
(2) A
GRICULTURE  
(i) Main features 
10. The agriculture sector contributed an estimated 1.4% to GDP in 20041, down from 2% in 
1998 and 5% in 1980.  The sector employed 5,207 people,  around 2.7% of the total work force, again, 
a reduction on the figures reported in Iceland's previous Review. 
11. As reported by the Central Bank of Iceland, around one-fifth of Iceland's total land area is 
suitable for fodder production and the raising of lives tock.  Around 6% of this area is cultivated;  the 
rest is used to raise livestock or remains undeveloped.2  The authorities stress that agricultural support 
is in part intended to keep the Icelandic countryside populated, with greatest  support and protection being afforded to a few sensitive products, and that  there has been a gradual move to greater openness 
in the sector in recent years. 
                                                     
 
1 Central Bank of Iceland (2005a). 
2 Central Bank of Iceland (2005a). WT/TPR/S/164 Trade Policy Review 
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12. The main agricultural activities in Iceland ar e cattle and sheep farming, which account for 
some two thirds of the value of agriculture output.3  The principal crops grown are hay, potatoes, and, 
more recently, cereal grains.  Since the mid-1980s th ere has been diversification into various fruit, 
flowers, vegetables, and other plants, which are cu ltivated in greenhouses heated by geothermal water 
and steam.  Table IV.1 provides details of agricu ltural production in Iceland over the review period. 
Table IV.1 
Production of main crops and meat, 2000-04 
(Tonnes, unless otherwise indicated) 
Production 2000 2001 2002 2003 2004 
Field crops      
Total hay yield (m3) 2,363,342 2,391,067 2,175,427 2,287,936 1,895,593 
Potatoes 9,843 11,366 8,800 7,090 .. 
Turnips 795 730 .. 959 666 
Carrots 179 296 302 347 374 
Cereal grains 3,041 4,337 .. 4,337 10,255 
Tomatoes 931 964 948 1,074 1,318 
Cucumber 831 1,049 .. 896 930 
Cauliflower 89 84 80 71 83 
Cabbage 538 503 558 555 380 
Peppers 203 195 .. 79 97 
Chinese cabbage 255 253 .. 269 203 
Mushroom 447 450 .. 465 461 
Meat      
Mutton and lamb 9,735 8,616 8,676 8,792 8,644 
Beef 3,626 3,683 3,639 3,624 3,611 
Horse meat 1,100 1,055 1,019 912 883 
Pork 4,783 5,284 6,011 6,205 5,597 
Poultry 3,051 3,776 4,633 5,706 5,392 
 
.. Not available. 
 
Source: Statistics Iceland online in formation.  Available at :  http://www. statice.is. 
13. Iceland is a net importer of agricultural products , mainly those with no domestic substitutes.  
According to Comtrade data, in 2004, Iceland's mo st significant exports in value terms were live 
horses (US$9 million) and sheep meat (US$8.4 million).   
14. Agriculture in Iceland falls under the responsibilit y of the Minister of Agriculture.  A number 
of subsidiary bodies report to the Minister.  In 2 005, a law was passed (Law No. 80/2005) authorizing 
the creation of the Agricultural Authority of Icela nd, which began operations on 1 January 2006.  The 
Authority inter alia  has a monitoring role and gives guidance to the Ministry of Agriculture in all 
areas concerning the health and safety of agricultu ral production.  The Authority has taken over the 
functions of the Chief Veterinary Officer, the Directorate of Freshwater Fisheries, the Meat 
Classification Board, the Plant Protection Service,  an d the Feed, Seed and Fertiliser Inspectorate.  In 
addition the  Authority has taken over some of the administrative duties formerly carried out by the 
Farmers' Association and the Plant Protection Serv ice from the Agricultural University of Iceland. 
15. The Farmers' Association continues to provide advisory services to farmers in all spheres of 
agriculture and participate in policy making as well as to provide information to Government and 
public authorities.  The Agricultural University of I celand was founded in 2005 as a result of a merger 
between the Agricultural University of Hvanneyri,  the Horticultural College of Reykir and the 
Agricultural Research Institute.  A second agricultural research and teaching facility at university 
level is operated at Holar in north Iceland. 
                                                      
3 Farmers Association of Iceland (2005). Iceland WT/TPR/S/164 
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16. Act No. 99/1993 on the production, pricing and sale of agricultural products remains the main 
legislative framework defining Iceland's agricultural policy.  The policy's main stated objectives are to 
promote structural adjustment and increased efficiency in agricultural production and processing;  to guarantee at all times sufficient supply of agricultu ral products;  to ensure that the income of 
farmers will be equitable with the earnings of other comparable occupations;  and to integrate 
environmental issues with agricultural policies.  Changes to the Act during the review period have 
focused on improving the quality of agricultural produce (Act No. 101/2002), and creating a price equalization mechanism to support agricultural exports (Act No. 82/2003).  In addition, Act 
No. 84/2002 authorizes direct payments to farmer s producing vegetables and plants in greenhouses 
(see section (iii)) and Act No. 61/2004 stipulates new rules regarding the production of milk 
(see section (iii)). 
(ii) General support schemes 
17. Support to the agricultural sector is provided th rough both internal and border measures.  As 
reported by the Central Bank of Iceland, Icelandic agriculture is the most heavily supported in the 
world.
4  The vast majority of this support is for th e sheep and dairy segments and takes the form of 
direct payments to farmers based on support targets (negotiated between the Minister of Agriculture 
and the Farmers Union).  Support to producers as measured by the % PSE, is estimated at more than twice the OECD average, though it has fallen from 77% in the 1986-88 period to 70% over the period 
under review.
5 
18. Iceland notified to the WTO its domestic suppor t commitments since the beginning of the 
Uruguay Round implementation period, most recently a notification covering the years 2001, 
2002 and 2003.6  For 2003, Iceland's total AMS commitment level for the period was 
SDR 130.1 million and total AMS for the period was SDR 123.6 million (inflation adjusted). 
19. Internal measures include various funds, in particular the Agricultural Productivity Fund 
(APF) and the Agricultural Loan Fund (ALF).  In October 2005, the Icelandic Government sold the 
ALF to Landsbanki Bank.  The fund has ceased to exis t in its original form and has been incorporated 
into the bank's activities.7 
20. The Agricultural Productivity Fund (Law 89/1966)  grants subsidies and loans to facilitate 
increased productivity in agriculture and business activ ities in farms, as well as providing capital to 
strengthen new branches of agriculture, reorganize activities, and support projects undertaken in rural 
areas to create alternative employment.  The fund' s income comes from the Ministry of Agriculture 
and, from customs duties levied on imported animal feeding stuffs.  In 2004 income amounted to 
ISK 235 million and the APF paid out ISK 205.2 million.8   
21. In 2003, the most recent year for which inform ation was available, other "green box" forms of 
assistance totalled  ISK 4.320 billion.  This comprised:  genera l services to farmers (general research;  
product particular research;  pest and disease contro l;  extension and advisory services;  and marketing 
and promotional services) (ISK 1.128 billion);  stockholding costs;  sheep meat programme 
(ISK 260.1 million);  direct payments to sheep  meat farmers (ISK 2.034 billion);  livestock 
compensation payments (ISK 42.7 million) and fina ncial and physical restructuring programmes due 
                                                      
4 Central Bank of Iceland (2005a).  
5 OECD online information.  Available at:  http://www.oecd.org/dat aoecd/34/10/35331600.pdf. 
6 WTO document G/AG/N/ISL/26, 16 December 2005. 
7 Ministry of Agriculture online information.  Av ailable at:  http://www.landbunadarraduneyti.is/frettir/ 
frettatilkynningar/nr/758. 
8 The Agricultural Productivity Fund online info rmation.  Available at:  http://www.fl.is. WT/TPR/S/164 Trade Policy Review 
Page 68 
 
 
to structural disadvantages;  permanent withdraw al of sheep meat production entitlements;  farmer 
pension fund (retirements schemes) (ISK 449.2 m illion);  and environmental and afforestation 
programmes (ISK 405.7 million).9 
22. In its most recent notification on the subject, I celand notified the WTO that it did not provide 
export subsidies in the calendar years 2000, 2001, and 2002.10 
(iii) Support for dairy, sheep, and vegetable production 
23. A new agreement governing milk produc tion through to 2012 took effect on 
1 September 2005 (Act No. 61/2004 changing Act No. 99/1993).  The agreement continues the system of production quotas for dairy farms.  The production quota for each dairy farm is a specific 
share of the production quota for the whole country, which is based on sales in the previous year.  
Farm production quotas can be transferred and so ld.  In 2004/05 the production quota for the 
country was 106 million litres.  For 2005/06 the quota was increased to 111 million litres (Regulation 620/2005).  The Ministry of Agriculture  determines the farm quota and in this regard is 
advised by the Farmers' Association.  Direct paym ents in 2005/06 are set at ISK 3.9 billion.  During 
the agreement period state expenditure is to be reduced by 1% each year.
11 
24. The Agricultural Pricing Committee (Verdlagsn efnd Buvara) sets a minimum producer price 
for milk each year, and regularly sets the wholesal e price for a number of dairy products.  The 
legislation provides for the possible abolition of admi nistered prices at any time by decision of the 
competent authorities.   
25. Act No. 85/2004 states that dairy processing plants  can cooperate to bring down the costs of 
production, storage, and distribution notwithstanding  the prohibition against such cooperation in the 
Competition Law (Act No. 44/2005) (see also Chapter III(4)(ii)). 
26. In 2001, an agreement on sheep meat production through to 2007 was reached 
(Act No. 88/2000 amending Act. No. 99/1993).  Support to farmers is mainly in two forms.  Firstly, farmers receive a direct payment based on the farm's  support target as registered for each farm by the 
Farmer's Association, using production in the year  2000 as a base year.  This support target is not 
related to the actual level of produc tion.  Rather it stipulates the right to a certain amount of direct 
payments, hence, farmers can receive full payment i rrespective of their level of production.  In 2004, 
approximately 1,500 sheep farmers qualified for direct payments, which in 2006 are estimated at 
ISK 1.6 billion.  Secondly, farmers who fulfill the criteria for quality controlled production (set out in 
Act No. 101/2002 and Regulation No. 175/2004) can receive a special payment.  In 2006, such 
payments are estimated to be ISK 552 million.  The agreement (Act No. 88/2000 amending 
Act No. 99/1993) also puts forward plans by the Government to buy up certain amounts of support targets from farmers at set prices.
12  These plans were implemented shortly after the Agreement 
entered into force.  Administered wholesale and producer prices were a bolished in 1995 and 1998 
                                                      
9 WTO document G/AG/N/ISL/26, 16 December 2005;  Budget 2005. 
10 WTO document G/AG/N/ISL/22, 29 April 2003. 
11 Farmers' Association of Iceland (2005);  and Mini sry of Agriculture online information.  Available 
at:  http://www3.landbunadarraduney ti.is/upplysingar/bunadarmal/nr/532. 
12 Ministry of Agriculture online information.  Available at:  http://www3.landbunadarraduneyti. 
is/upplysingar/bunadarmal/nr/310. Iceland WT/TPR/S/164 
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respectively.  The Association of Sheep Meat Producers puts forward a list of recommended prices 
every year.13 
27. Producers of lamb meat, are obliged to export a certain percentage of their annual production, 
in order to regulate the domestic supply of lamb.  This regime is governed by the Law on the 
Production, Pricing and Sale of Agricultural Prod ucts (No. 99/1993), and is implemented by 
Regulation No. 524/1998.  Each year, the Ministry  of Agriculture advertises the percentage of 
domestic supply of lamb meat that is to be exported, based upon recommendations from the Farmer's 
Association.  The export levels set for the most  recent five slaughter periods are:  up to 18% 
(2005/06);  up to 36% (2004/05);  up to 38% (2003/04);  25% (2002/03) and 10% (2001/02).  If 
slaughterhouses do not export the required percentages of domestically produced lamb meat, they 
must pay penalty fees equal to the difference between local and export prices.14 
28. In 2002, an agreement was reached between the Ministry of Agriculture and vegetable 
producers (Act No. 84/2002 changing Act No. 99/1993)  providing for direct payments to farmers 
producing tomatoes, cucumbers, and peppers.  Acco rding to the authorities, this was aimed at 
providing production-linke d support for these producers when duty free importation of these products 
was allowed.  Regulation 1080/2005 sets the leve l of support for 2006 at ISK 201 million.  The 
support will be paid out to farmers in accordance with the types of vegetables produced and amounts 
sold. 
(iv) Tariffs and tariff quotas 
29. The average MFN applied tariff for agricultu re (ISIC definition) in 2005 was 18.3% 
(Table III.2).  As a result of the Uruguay Round, 10 0% of Iceland’s agricultural tariff lines are bound, 
up from 58% at the time of Iceland’s first Trade Policy Review in 1994.  Average bound rates remain 
well above applied duties;  the average final bound rate is 120.5%.  
30. Iceland reserved the right to use tariff quot as that were submitted  in the Schedule LXII-
Iceland (bound tariff quotas), and later transposed to  the HS96 classification, which became effective 
on 27 January 2003.15  A total of 528 goods (tariff lines) are subject to bound quotas in the HS96 
classification, on which Iceland made minimum or current access commitments under the WTO 
Agreement on Agriculture.  Of these, 396 are subject to ad valorem  duties and 132 are subject to 
compound duties (mainly minimum access commitments).  For a number of lines the quota regime has not been applied, and only applied rates of duty equal to, or lower than, the corresponding in-
quota rates have been used. 
31. In practice, only 86 goods (at the eight-digit le vel) were subject to tariff quotas in 2005 
(Table IV.2).  Out-of-quota duties were all com pound rates.  The specific part of the duties ranged 
from ISK 52/kg. to ISK 1,462/kg.  In-quota rates were all compound, except for two lines with ad valorem  rates;  all the compound rates had duty-free ad valorem  components and specific 
components ranging from ISK 26/kg. up to ISK 576/kg. 
32. Quota allocations to importers are made by the Minister of Agriculture based on 
recommendations made by a special committee comprising representatives from the Ministries of Agriculture, Commerce, and Finance.  The Regul ations outlining the different tariff quotas are 
                                                     
 
13 The Farmers' Association of Iceland online info rmation.  Available at:  http://www.bondi.is/ 
landbunadur/wgbi.nsf/key2/vstr6djfhx.html. 
14 Ministry of Agriculture online information.  Available at:  http://www.landbunadarraduneyti.is. 
15 WTO document WT/Let/477 18 October 2004, Certification of modifications and rectifications to 
Schedule LXII – Iceland. WT/TPR/S/164 Trade Policy Review 
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accessible online.16  If applications exceed the available quot a, allocations are auctioned, and quotas 
are always allocated to the highest bidder.  The bidding process effectively results in additional import 
charges.  For example, in June 2005 twelve bids were received for the import of 345,000 kg. of poultry while the quota available amounted to only 59, 000 kg.  Six bids were accepted at an average 
price of 393 ISK/kg.
17 
33. As at early 2006, quotas are not assigned to pa rticular countries.  From 2007, however, a 
reciprocal quota system will be in operation with the European Union. 
Table IV.2 
Products subject to tariff quotas 1 July 2004-30 June 2005  
Description Out of quota tariff In-quota rate 
(%) In quota rate 
(ISK/kg. Final tariff quota 
(Period 07.04-06.05) Fill rate 
(%) 
Beef meata      
0202.3, 0210.2001  30% + (ISK 510 to 1,462/kg.) 0 547;  333 95,000 57 
Porka      
0203.29, 0210.1200, 
0210.1901, 0210.1909  30% + (ISK 361 to 1,462/kg.) 0 443;  317 
360;  360 64,000 17.5 
Poultrya      
0207.1, 
0207.2, 
0207.3  30 % + (ISK 439 to 900/kg.), 
30% + (ISK 499 to 1,000/kg.), 
30% + (ISK 256-1,000/kg.) 0 163;  224 
224 59,000 216.6 
Other meata      
0208.9007, 0208.9008  30% + (ISK 1,014/kg.) 0 515 9,000 .. 
Processed meatb  0    
1602.1001, 1602.1009, 
1602.2011, 1602.2012, 
1602.2019, 1602.2021, 
1602.2022, 1602.2029, 
1602.3101, 1602.3102, 1602.3109, 1602.3201, 
1602.3202, 1602.3209, 
1602.3901, 1602.3902, 1602.3909, 1602.4101, 
1602.4102, 1602.4109, 
1602.4201, 1602.4202, 1602.4209, 1602.4901, 
1602.4902, 1602.4909, 
1602.5001, 1602.5002, 1602.5009, 1602.9011, 
1602.9012, 1602.9019, 
1602.9021, 1602.9022, 1602.9029  30% + (ISK 177 to 1,144/kg.) 0 92;  92;  129 
129;  44; 129 
78;  26;  224 
224;  115 
224;  224 115;  224 
224;  115 
576;  343 115;  412 
247;  83 
511;  307 102;  400 
304;  102 
442;  265 
89;  442 
265;  89 86.000 90.2 
Butterc      
0405  30% + (ISK 220 to 623/kg.)  0 220 53,000 0 
Table IV.2 (cont'd) 
                                                      
16 Ministry of Agriculture online information.  Available at:  http://www.landbunadarraduneyti.is/ 
upplysingar/flutningur-buvara/tollkvotar/. 
17 Ministry of Agriculture online information Uthlutun tollkvota i juni  2005.  Available at:  http://www. 
landbunadarraduneyti.is/upplysingar/flutningur-buvara/tollkvotar/nr/663. Iceland WT/TPR/S/164 
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Description Out of quota tariff In-quota rate 
(%) In quota rate 
(ISK/kg. Final tariff quota 
(Period 07.04-06.05) Fill rate 
(%) 
Cheesec      
0406.1000, 0406.2000, 
0406.3000, 0406.4000, 
0406.9000  30% + (ISK 430 to 500/kg.) 0 156;  156 
117;  179 
175 119,000 141 
Potted plants not 
exceeding 1m in 
height;  fresh flowersd      
0602.9095, 0603.1009  30% + ISK 95/item 
30% + ISK 200/item 30 0 2,500;  125,000 
(period 07.04-12.04) .. 
 
.. Not available. 
 a Regulation 403/2004. 
b Regulation 401/2004. 
c Regulation 402/2004. d Regulation 400/2004. 
 
Source:  Ministry of Agriculture Regulations 400, 401 , 402, 403/2004;  and WTO document G/AG/N/ISL/25. 
(v) Other border measures 
34. Import licensing and other restrictions affect a number of agricultural products, including:  
live animals;  animal products and products capable of containing infectious agents that are deemed 
dangerous to animal and human health;  as well as feeds, seeds and plant products (Chapter III(vi)).  
In addition, a number of c onditions attached to certa in imports of human and pet food containing meat 
require certificates to be provided.18 
35. Iceland has reserved its right to use the special safeguard provisions of the Agreement on 
Agriculture for all products subject to tariff quotas.  However, Iceland has reported that it has not 
invoked these provisions to date.19 
(vi) Internal taxation 
36. Iceland applies a number of taxes on agricultu ral products as well as levies at producer level 
as shown in Table IV.3. 
Table IV.3 
Treasury income derived from taxes and f ees applied on agricultural activities, 2004 
(ISK million) 
Source and type of tax Taxes raised 
Agricultural Institute  
Feed inspection tax:  charged at 0.9% of the c.i.f. price of f eed and 0.17% of the c.i.f. price of fishmeal and cod liver oil, 
both imported and domestic;  used to pay for inspecti ons by the Agricultural Institute (Regulation 340/2001) 19 
Agricultural University (formerly Agricultural Research Institute)   
Import inspection tax on plants, earth a nd fertilizer:  amounts to 1-2% of th e c.i.f. price depe nding on the product 15 
Table IV.3 (cont'd) 
                                                      
18 Regulation 509/2004 on measures to prevent the introduction of animal diseases and contaminated 
products in Iceland, Chapter III. 
19 WTO documents G/AG/N/ISL/3, 17 October 1996;  G/AG/N/ISL/7, 15 July 1997;  G/AG/N/ISL/13, 
26 January 1999;  G/AG/N/ISL/18, 23 February 2001;  G/AG/N/ISL/21, 30 October 2002;  G/AG/N/ISL/23, 29 July 2003. WT/TPR/S/164 Trade Policy Review 
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Source and type of tax Taxes raised 
Agricultural Productivity Fund  
Feed tax:  charged at ISK 0.80 per kg. of imported ra w material and ISK 7.80 per kg. of imported whole feed 
compounds.  The tax is refunded in full to salmon and fur farm ers and in part to the other agricultural subsectors (Act 
No. 87/1995 and Regulation 431/1996).  The remainder of th e income from the feed tax goes to the Agricultural 
Productivity Fund to dispose of in the form of loans and gran ts to agricultural projects.  In 2004 the APF received ISK 
50 million 50 
Other taxes and charges  
State farm property rent 39 
Levy on farm income:  charged at 2% of farms' total ag ricultural income (Law 84/1997 amended by Law No. 59/2002).  
As of 1 January 2006, this will be reduced to 1.2%.  The co llection and distribution of the levy is administered by the 
Farmer's Association, and divided between a number of institutions  including the Agricultural Loan Fund 400 
 
Source : Budget 2005, Agricultural Productivity Fund (2003 and 2004), Annual Report ;  Agricultural Loan Fund (2003 and 
 2004) Annual Report ;  Regulation 110/1992, Regulation 340/2001:   Change 13, Act No. 87/1995;  and 
 Act No. 59/2002. 
(3) FISHERIES AND FISH PROCESSING  
(i) Main features 
37. Fisheries remains Iceland's most important ec onomic activity.  In 2004, fishing and fish 
processing accounted for some 8.7% of GDP and 60% of total merchandize export revenue, down 
from 71% in 1998 and around 90% in the early 1960s.20  Some 9,900 people are employed directly in 
fishing or fish processing activities, of which 4,500 are fishermen.21  The main species fished in 
Icelandic waters are cod, haddoc k, saithe, redfish, halibut, he rring, capelin, and blue whiting.22  Cod is 
the most important species in economic terms, a ccounting for 41% of the total catch value in 
Icelandic waters in 2004.23  The registered Icelandic fishing fleet totalled 1,824 vessels in 2004, of 
which 1,614 fishing vessels were active.24 
38. Exports of marine products were valued at ISK 121.7 billion in 2004, from a total catch of 
about 1.7 million tonnes.  Some 97% of the total catch  is exported.  The majority of Icelandic fisheries 
products are exported to the EU, particularly the United Kingdom.  Other significant export markets 
include the United States and Japan.  In 2004, Iceland imported around 200,000 tonnes of marine products (raw material)
25, for a total value of ISK 6.5 million.  Most of these imports were from 
vessels registered in Norway, the Faroe Islands, a nd Greenland, and were processed and subsequently 
exported.26   
39. There has been significant merger activity among many of the larger fisheries companies over 
the review period as firms have sought to enhance e fficiency and benefit from economies of scale.  As 
at 1 September 2005, the ten largest fisheries comp anies held harvesting rights of about 46% of the 
total quota holdings27;  the two largest, HB Grandi hf . and Samherji hf., held over 16%. 
                                                      
20 Central Bank of Iceland (2005). 
21 Statistics Iceland online information.  Available at:  http://www.statice.is. 
22 Statistics Iceland online information.  Available at:  http://www.statice.is. 
23 Central Bank of Iceland (2005). 
24 Statistics Iceland online information.  Available at:  http://www.statice.is. 
25 Statistics Iceland includes as "r aw material":  demersal catch, flatfish catch, pelagic catch, and 
shellfish catch.  Statistics Iceland online inform ation.  Available at:  http://www.statice.is. 
26 Statistics Iceland online information.  Available at:  http://www.statice.is. 
27 Central Bank of Iceland (2005). Iceland WT/TPR/S/164 
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40. There have also been recent efforts to devel op Iceland's aquaculture capacity.  As reported 
by the Ministry of Fisheries, major fisheries co mpanies have been investing in this area and are 
planning further expansions.  Likewise, the Marine  Research Institute's (MRI) research in this 
area, which is focused on the farming potential of halibut, cod, turbot, and abalone, has been 
expanded with an increase in the capacity of its ma riculture laboratory located on the south-west coast 
of Iceland.  The Ministry of Fisheries estimates th at in 2009, the export value of aquaculture will be 
about ISK 5 billion, up from ISK 1 billion in 2001.28 
(ii) Institutional and legal framework 
41. The Ministry of Fisheries is responsible for the management of fisheries in Iceland, including 
determining the annual total allowable catch quotas (TAC) (Act No. 38/1990, Article 3), conservation 
of living marine resources, and supporting research and development in the sector.29  The Ministry is 
assisted in its functions by the Directorate of Fisheries, the MRI, and the Icelandic Fisheries 
Laboratories (IFL).  The Directorate of Fisheries is  responsible for the day to day administration of 
living marine resources, and implementation of go vernment policy and legislation in this area.30  
The MRI conducts research on Iceland's marine e nvironment and provides formal advice to the 
Ministry of Fisheries on sustainable fishing strategies and the TAC.31  The Icelandic Fisheries 
Laboratories is a research body operating under the auspices of the Ministry of Fisheries.32 
42. In the area of aquaculture, the Ministry of Ag riculture is responsible for freshwater species, 
the Ministry of Fisheries is responsible for marine species and the Ministry of Environment has the authority to grant operating licences. 
43. The Fisheries Management Act (Act No. 38/1 990 and subsequent amendments) aims to 
promote the conservation, and efficient and sustainabl e utilization of the exploitable marine stocks of 
the Icelandic fishing banks, and to ensure stable  employment and the economic viability of fishing 
communities throughout the country (Article 1).  The Ministry of Fisheries determines annually 
the TAC quota for the 25 species of fish subject to quotas, which together comprise around 95% to 
97% of the total annual catch value.
33  Fixed quota shares of the TAC are allocated to individual 
fishing vessels based upon catch history prior to the creation of the quota system.34  In 2004, the quota 
regime was fully extended to small vessels (under 15 tons).35 
44. In fishing year 2004/05 a fishing fee on owners of vessels holding harvesting rights was 
introduced (Act No. 85/2002 amending Act No. 38/1990);  it will be fully phased in by fishing year 2009/10.  For each fishing year the fee is ba sed on the earnings of the fishing sector as well as 
the allocation of the catch permit.
36  According to the authorities in the fishing year 2004/05 around 
ISK 1 billion was collected in fishing fees. 
45. As a result of Act No. 85/2002 (amending Act No. 38/1990), individual fishing enterprises 
may not control more than 12% of the value of to tal quotas allocated for all species and up to 35% for 
individual species (depending on the species).  Quotas ar e transferable, in whole or in part;  however, 
                                                      
28 Ministry of Fisheries (2004). 
29 Ministry of Fisheries online information.  Available at:  http://eng.sjavarutvegsraduneyti.is. 
30 Directorate of Fisheries online information.   Available at:  h ttp://www.fiskistofa.is. 
31 Marine Research Institute online informa tion.  Available at:  http://www.hafro.is. 
32 The Icelandic Fisheries Laboratories online info rmation.  Available at:  http://www.rfisk.is. 
33 The fishing year runs from 1 September to 31 August. 
34 Quota shares are mainly allocated on the basis of catches of different species  in the 1981-83 period. 
35 Act No. 74/2004 (amending Act No. 38/1990). 
36 Details of how the fishing fee is calculated ar e outlined in Ministry of Fisheries (undated). WT/TPR/S/164 Trade Policy Review 
Page 74 
 
 
quotas may not be traded from small vessels (as defi ned above) to larger ones.  Quota transfer, 
however, is allowed from the large fishing fleet to th e small.  As reported by the authorities, a large 
share of the annual catch quota is traded each year;  much of this is internal company transfers 
between vessels owned by the same operator.  In addition, interspecies trade is common, with 
operators trading part of their annual catch quota in one species for a quota in another.  Catch quotas 
are also traded for money.37  Applications for quota transfers are made to the Directorate of Fisheries, 
which verifies and registers the transfer.  The Mini ster of Fisheries may also allocate discretionary 
quotas for up to 12,000 tons of cod, which serve as  shock absorbers and regional policy instruments 
(Act No. 147/2003).  These discretionary quotas account for a small percentage of the total catch. 
46. Ownership of fishing operations and primary fish processing38 is limited to Icelandic citizens 
and to Icelandic legal persons wholly owned by Icelandic citizens or by Icelandic legal persons 
controlled by Icelandic residents and not more than  25% owned by foreign residents, calculated on the 
basis of share capital or initial capital.  However, if  the share of an Icelandic legal person in a legal 
person conducting fishing ope rations or fish processing in Iceland is not above 5%, the share of the 
foreign resident may be up to 33%.  There are no restrictions on foreign ownership in secondary fish 
processing operations, except for those applied gene rally as stipulated in acts on limited liability 
companies. 
47. In the horizontal commitments of Iceland's GATS Schedule, it is specified that investment by 
non-residents in fish farming may not exceed ISK 250 million within a year unless a special concession is given.  In the context of the curre nt round of trade negotiations, Iceland has made a 
conditional GATS offer to remove this limitation,  provided that investments are reported to the 
Ministries of Commerce and Industry and the Central Bank of Iceland.
39  
48. Iceland supports a sectoral agreement on fish and fish products that would result in the 
elimination or substantial reducti on of tariffs within the current round of trade negotiations, and has 
made a communication to this effect in c onjunction with a number of other WTO Members.40  Iceland 
supports the reduction of trade distorting fisheries subsidies within the current round of trade 
negotiations.  Iceland has made two submissions, jointly with other WTO Members, on fisheries 
subsidies in the Negotiating Group on Rules.41 
49. As outlined in Chapter III(4)(iii )(b), governmental support to the fisheries sector includes:  
the Fisheries Project Fund created in 200342 (this includes the assets of the Fisheries Development 
Fund, which was disbanded in October 2005);  the Research Fund to Increase the Value of Sea 
Produce;  grants to enhance scientif ic knowledge in marine aquaculture43;  and state aid to domestic 
fish-processing companies to support vocati onal training in the fishing industry. 
                                                      
37 Speech by the Permanent Secretary of the Ministry  of Fisheries in Iceland, Moscow 11 September 
2005 (http://eng.sjavarutvegsraduneyti.is). 
38 Includes freezing, salting, drying and any other processing which protects fish and other marine 
products from decay, including the production of fish -oil and fish-meal. 
39 WTO document TN/S/O/ISL/Rev.1, 14 June 2005. 
40 WTO document TN/MA/W/63, 18 October 2005.  Joint communication from Canada, Iceland, 
New Zealand, Norway, Singapore and Thailand on  "Market Access for Non- Agricultural Products:  
Liberalization of Trade in Fish and Fish Products". 
41 WTO document TN/RL/W/196, 22 November 2005 (joint paper from Brazil, Chile, Colombia, 
Ecuador, Iceland, New Zealand, Pakistan, Peru an d the United States) and WTO document TN/RL/W/58, 
10 February 2003 (submission from Argentina, Chile, Iceland, New Zealand, Norway and Peru). 
42 Act No. 146/2003. 
43 WTO document G/SCM/N/123/ISL, 16 November 2005. Iceland WT/TPR/S/164 
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50. The EEA Agreement does not cover fisheries, however, European rules on food safety do 
apply to seafood produced in Iceland.  Iceland has a number of bilateral agreements in place allowing 
certain countries to fish in Icelandic waters.44   
51. The Directorate of Fisheries is responsible for issuing temporary fishing permits to foreign 
vessels in conformity with decisions by the Ministry of Fisheries, and international fishing agreements 
to which Iceland is party.  The authorities of c ountries granted fishing rights through international 
agreements must apply to the Directorate for fish ing permits before their vessels may begin fishing 
(Act No. 22/1998, Art. 6).  Iceland is a party to a number of international agreements and 
conventions.45  
(4) OTHER MANUFACTURING  
52. Manufacturing activities in Iceland are mainly concentrated in power-intensive industries 
based on Iceland's natural endowment of energy -generating sources.  Some 16,900 people were 
employed in manufacturing (not including fish processi ng) in 2004.  According to data from Statistics 
Iceland, the main activities by value of sales are food products and be verages (about 55% of the total) 
followed far behind by basic metals (14%) (Table IV.4). 
Table IV.4 
Manufactured products, 2004  
 Value of sales 
(ISK million) Per cent 
Other mining and quarrying 1,475 0.5 
Food products and beverages 166,644 55.1 
Textiles 3,234 1.1 
Wearing apparel; dressing a nd dyeing of fur 725.2 0.2 
Wood and wood products 3,387 1.1 
Pulp, paper and paper products 1,866 0.6 
Publishing, printing and reproduction of recorded media 16,290 5.4 
Chemicals and chemical products 15,709 5.2 
Rubber and plastic products 4,818 1.6 
Other non-metallic mineral products 11,012 3.6 
Basic metals 42,880 14.2 
Fabricated metal products, except machinery and e quipment/machinery and equipment n.e.c. 19,142 6.3 
Electrical machinery and apparatus n.e.c./Radio , television and communica tion equipment. 854 0.3 
Medical, precision and optical instrume nts, watches and clocks 4,514 1.5 
Motor vehicles, trailers and semi-trailers 294 0.1 
Other transport equipment 6,319 2.1 
Furniture, manufacturing n.e.c. 3,327 1.1 
 
Source: Statistics Iceland online in formation.  Available at :  http://www. statice.is. 
53. The manufacturing sector is export-oriented, give n the small size of the domestic market.  
According to the UNSD Comtrade database exports of manufactured products were some 35% of total merchandise exports in 2004 (including non-fe rrous metals);  aluminium accounted for 18% of 
the total (US$509 million), followed by medicame nts with 4.3% (US$122 million), and some non-
electrical machinery (US$81 million).  Aluminium is the second most important merchandise export 
after fishing products.  Exports expanded in value terms by around 14% in 2004, and at an average 
annual rate of almost 10% over the 2000-04 period. 
                                                     
 
44 Agreements have been reached with the Faroe Is lands, Greenland/Denmark, Norway, Russia, and the 
EEC. 
45 For a list of the international agreements and conven tions to which Iceland is a party, see Ministry of 
Fisheries (undated). WT/TPR/S/164 Trade Policy Review 
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54. Imports of manufactured products totalled US$2. 7 billion in 2004, representing three quarters 
of total imports. The largest imports were mach inery and transport equipment, which represented 
about 37% of total imports, particularly auto motive products (US$376 million), some non-electrical 
machinery (US$347 million), office and telecommun ications equipment (US$236 million), and other 
consumer goods.46  Some 74% of imports of manufactured goods entered Iceland duty free in 200547;  
the average MFN tariff was 2.5% and the highest rates were applied on imports of clothing and footwear.
48   
55. As reported in Iceland's previous Review, fore ign participation in the aluminium and ferro-
silicon industries is high, and there has been significant  activity in this respect over the review period.  
Following the merger between Alcan and Swiss-base d Alusuisse Lonza AG, in 2000, Iceland's largest 
aluminium plant, in Straumsvik, is now owned an d operated by a subsidiary of the Canadian-based 
Alcan.  The plant was previously owned and operated by a subsidiary of Alusuisse. 
56. In March 2003, parliamentary approval was reached for the construction by U.S.-based 
Alcoa, of an aluminium smelter at Reydarfjordur in eastern Iceland.  The smelter is expected to start 
production in 2007.  In tandem, a ne w hydropower station and a new harbour facility at Mideyri are 
also being constructed by the National Power Company and the Fjardarbyggd Harbor Fund, 
respectively.49  In April 2004, Colombia Ventures Corpor ation sold the Nordurál primary aluminium 
reduction facility located in Grundartangi to the U.S.-based Century Aluminium Company.  Century 
Aluminium has invested significantly in expanding th e production of this plant in the last two years, 
from 90,000 tons per year up to 220,000 tons per year.50 
57. In 2002, the Norwegian based-company Elkem AS A further consolidated its ownership of 
Icelandic Alloys Ltd., which operates Iceland's onl y ferro-silicon plant located at Grundartangi, by 
buying the Government's remaining shares (10. 49%), the shares held by the Japanese company 
Sumitomo Corporation (3.4%), as well as the shares of a number of other shareholders (10.67%).  By January 2003, the Elkem Group had achieved 97.2% ownership.
51 
58. A feature of the review period, has been the growth in turnover and export of medicinal and 
medical products, including, inter alia , prosthetic devices, generic products, diagnostic  technology, 
and medical software.  Many of the firms involve d are specialist small or medium-sized enterprises.52 
59. The Icelandic authorities stressed that recent in ternational trends a nd developments have 
opened up other areas of opportunity for Iceland in in ternational markets.  In addition to the above, 
the authorities indicated that software design and manufacture is a fast growing sector and 
biotechnology has become a new area of activity.  Finally they noted that Icelandic outward 
investment has steadily increased and thus has provided Icelandic companies with better access to 
financing and venture capital. 
                                                      
46 Imports of goods classified under HS chapter 84 were subject to an average MFN tariff rate of 0.8%;  
goods under HS chapter 85 faced an average tariff of 4. 4%, while imports under HS chapter 87 were subject to 
an average tariff rate of 1.4%.  Imports under these three chapters represented one third of total imports in 2004. 
47 Imports under HS chapters 25, 26, 28, 29, 31, 47, 50, 51, 52, 53, 54, 55, 60, 72, 81, 86, 88, 90 and 92 
were entirely duty free. 
48 Imports under chapters 61, 62 an d 64 are subject to average tariff rates of 14.2%, 14.4%, and 13.9% 
respectively. 
49 Alcoa online information.  Available at:  http://www.alcoa.com/iceland/en/home.asp. 
50 Century Aluminium online information.  Available at:  http://www.centuryca.com. 
51 Elkem ASA online information.  Available at:  http://www.elkem.com. 
52 Iceland Export Directory online information.  Av ailable at:  http://www.icelandexport.is.  The main 
companies include:  Össur (http://www.ossur.com);  Ac tavis (http://www.actavis.com);  deCODE genetics 
(http://www.decode.com) and Encode (http://www.encode.is). Iceland WT/TPR/S/164 
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(5) ENERGY  
(i) Main features 
60. Almost all electricity generated in Iceland stem s from hydro and geothermal energy.  In 2005, 
a total 8,679 GWh of power was produced, well below Iceland's full potential (estimated at 
30 TWh/year for hydro and 20 TWh/year for geothermal energy).53  Iceland is not an exporter of 
energy, but a large proportion of domestic electricity generated is used in the production of aluminium 
and to a lesser extent ferro-silicon,  which are exported (see section (4) above).  Development of the 
energy sector is therefore closely linked with in vestments in these power-intensive industries.  
Approximately 90% of imported fuel is u sed for transport and the fishing fleet.54 
61. The electricity sector remains almost entirel y in the ownership of the State or local 
governments.  The National Power Company (Landsvirk jun), jointly owned by the Icelandic State, the 
City of Reykjavik, and the Town of Akureyri, is  dominant in the generation of electricity, and 
produced 83.4% of Iceland's electricity in 2005.  Production by other companies, however, has been gradually increasing.  In 2005, a new Act passed in the Parliament removed the tax exemptions 
previously granted to energy companies.  The Nati onal Power Company is also the majority owner of 
IceGrid (Landsnet), which runs the transmission gr id and delivers electricity to the whole of the 
country through several state and regional distributors, of which Reykjavik Energy is the largest. 
62. Average tariffs for electricity supplied to en ergy-intensive industries fluctuated between 
ISK 1 per kWh and ISK 1.4 per kWh over the pe riod from 1991 to 2002.  The retail price of 
electricity for general consumption is much hi gher, and fluctuated between ISK 8 per kWh and 
ISK 13 per kWh (plus VAT) over the same period.  Energy subsidies of ISK1.59 per kWh are paid to 
farmers, and amount to as much as 70,000 kWh per year.
55 
63. A framework programme focused on evalua ting and classifying potential sites for 
electricity production in Iceland has been under way since 1999.  Both ec onomic and environmental 
effects of possible projects are being taken into account.  In the first phase of the programme, 
concluded in 2003, 19 hydropower projects and 24 possi ble geothermal plant si tes were evaluated and 
consultations carried out.56  A number of large-scale power stations, in the range of 100 to 700 MW, 
are now under construction. 
64. Close to 90% of houses in Iceland are heated using hot water and steam from geothermal 
sources.  The remaining houses are heated by elect ricity, generated by h ydropower or geothermal 
steam and to a very small extent, oil and gas.  As at early 2006, 22 companies supplied geothermal 
heating of which Reykjavik Energy was by far th e largest.  During the review period the number of 
companies supplying heating has fallen considerab ly as bigger companies, often supplying both 
heating and electricity, have bought up smaller district heating systems.  The district heating companies are mainly owned by local municipalities;  in some cases with some minor state share.  
The Minister for Industry and Commerce allots exclusive rights to various heating utilities. 
65. All major electricity companies are publicly owned, occasionally jointly by the State and 
some municipalities.  The authorities noted that a Ministry of Commerce Action Plan for 2004-07 states that work will be done on the restructuri ng of electricity companies and state ownership. 
                                                     
 
53 Iceland Export Directory online information.   Available at:  http://www.icelandexport.is). 
54 National Energy Authority, Orkumal 2004:  Eldsneyti .  Available at:  http://www.orkustofnun.is and 
Statistics Iceland (http://www.statice.is). 
55 National Energy Authority and Ministries of Industry and Commerce (2004). 
56 National Energy Authority and Ministries of Industry and Commerce (2004). WT/TPR/S/164 Trade Policy Review 
Page 78 
 
 
(ii) Institutional and legal framework 
66. Iceland maintains restrictions on foreign investment in the energy sector.  Under the Act on 
Investment by Non-residents in Business Enterprises No. 34/1991 (Article 4), only Icelandic-domiciled residents and legal entities may own ener gy exploitation rights or enterprises involved 
in producing or distributing energy.  These rights we re extended to EEA residents and legal entities in 
1996 (Act No. 46/1996) and EFTA residents and legal entities in 2002 (Act No. 76/2002).  
Furthermore agreements may be reached to exte nd these rights to non-EEA or EFTA residents or 
legal entities, but these are subject to Parliamentary resolution.  There have been no such agreements 
to date. 
67. As a result of its participation in the EEA, Icela nd is required to transpose EU legislation;  the 
specific provisions and arrangements on energy as furt her set out in Annex IV to the agreement.  
Among these are the EU's Directive on the internal mark et for electricity.  The provisions of Directive 
92/96 have been implemented and the Icelandic authorities are in the process of implementing changes due to Directive 54/2003. 
68. Since 2003, there have been some important legi slative changes in the energy sector designed 
to promote greater efficiency and competition, driv en by Iceland's EEA obligations.  The Electricity 
Act (Act 65/2003 as amended), which came into eff ect in 2003, paved the way for the separation of 
electricity transmission and distribution from production and sale.  In addition, since 2005 all large electricity consumers (over 100 kW) have been able  to choose their supplier.  From 1 January 2006, 
this freedom has been extended to all consumers. 
69. Under the 2003 Electricity Act, licences for the construction and operation of electric power 
plants are granted by the Minister of Industry and Commerce.  Previously, parliamentary approval 
was needed.  Power stations of 7 MW or larger are obliged to be connected to the transmission 
system.  Applications may be made to the Minister to construct facilities to allow transit of electricity 
directly from the power station to the final cust omer, if the existing transmission system lacks 
capacity (Articles 5 and 11). 
70. As required by the Electricity Act, one company is responsible for electricity transmission in 
Iceland, and has the exclusive right to build new transmission facilities.  This independent 
transmission system operator, IceGrid (Landsnet hf),  was created by Act No. 75/2004.  The National 
Energy Authority (Orkustofnun) sets limits on the ma ximum income IceGrid is allowed to charge for 
its services thus indirectly places limitations on the tariffs IceGrid may charge.  In addition the law 
stipulates a maximum allowed profit of the company. 
71. A licence must be obtained from the Minister of Industry and Commerce for the construction 
and operation of distribution systems within specific zones.  These licences are exclusive (Article 13).  
Income, tariffs and profits of the distribution compan ies are regulated in a similar way to IceGrid.  
Licences are also required to trade in electricity (A rticle 18).  Seven companies have been authorized 
to trade in electricity and two applications are pending, as at early 2006. 
72. According to the Electricity legislation the National Energy Authority has the function of 
regulator and administers the general implementation of the Law.  More specifically the Authority monitors the licensed transmission and distribution activities;  it also monitors the quality and safety 
of the distribution system.  This constitutes an additional role for the Authority, which previously 
advised the Government on energy issues and natu ral resources, managed energy research, and 
worked on long-term energy exploitation plans.   Iceland WT/TPR/S/164 
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73. The Electricity Act of 2003 did not affect an  existing owner’s exclusive rights to operate a 
heating distribution, although companies also enga ging in the supply of electricity are required to 
keep separate accounts for the different functions.  The Ministry is currently preparing a proposal for a new Act on district heating systems, which w ill set requirements concerning their activities and 
revise the system of exclusive supplying rights.
57 
74. A National Energy fund provides loans to sm all geothermal heating companies with the 
objective of developing renewable energy sources.  While  the interest rate is market based, the loan is 
guaranteed in the event of failure of the projects unde rtaken.  According to the authorities the level of 
state support is around US$0.5 million per year.  
(6) SERVICES  
(i) Main features 
75. The services sector has continued to expand sin ce Iceland's previous Review, to around 80% 
of GDP in 2004.  This expansion has been driven larg ely by financial services, and real estate, renting, 
and business activities.  The financial services sector 's contribution to GDP measured 7.3% in 2004, 
up from 5.7% in 1999;  the contribution of real est ate, renting, and business activities increased from 
12.9% to 14.6% over the same period.  Trade in commercial services has also expanded rapidly.  
Service exports increased by an average of almost 11% per year between 1998 and 2004, and service 
imports by around 12%. 
76. Under the GATS, Iceland undertook sector-spe cific commitments in business services, 
telecommunications services, construction and rela ted engineering services, distribution services, 
financial services, tourism and travel related ser vices, as well as on environmental, recreational, 
cultural and sporting, and transport services (Table AIV.1).  Iceland bound market access and national treatment without limitations on cross-border suppl y, consumption abroad, and commercial presence 
for a number of service activities, including: tel ecommunication services, construction and related 
engineering services, distribution services and trans port services.  Market access was left unbound 
with respect to the presence of natural persons , except for the temporary entry of executives, 
managers, specialists, and service sellers. 
77. Some limitations on market access and national treatment specified in Iceland's GATS 
Schedule are applied to all scheduled sectors as spec ified in the horizontal commitments in Iceland's 
Schedule.  These cover services provided in Icel and through commercial presence or presence of 
natural persons, and are generally in the form of  reporting requirements and investment limitations. 
78. Other limitations to national treatment exist:  na tional treatment is accorded to subsidiaries of 
non-EEA companies formed in accord ance with the law of, and established in, an EEA State, but not 
to branches or agencies.  Eligibility for subsidies may be limited to juridical persons established 
within the territory of Iceland. Regarding the presence of natural persons, subsidies available to 
natural persons may be limited to Icelandic citizens.  Subsidies related to research and development 
are unbound. 
79. Iceland's final list of GATS Article II MFN exem ptions cover audio-visual and air transport 
services.  They include also some measures to main tain and develop Nordic cooperation.  All these 
measures are intended by the authorities to have an indefinite duration. 
                                                     
 
57 National Energy Authority, Orkumal 2004:  Jardhiti .  Available at:  http://www.orkustofnun. 
is/Apps/WebObjects/Orkustofnun.woa/swdocument/ 4004/1.+%C3%A1rg.+3.+tb l.+jar%C3%B0hiti.pdf. WT/TPR/S/164 Trade Policy Review 
Page 80 
 
 
(ii) Telecommunications 
(a) Main features and developments 
80. The Icelandic telecommunications sector has undergone major change since 1998 with 
the separation of postal and telephone services, the creation of Iceland Telecom Ltd. (also known as 
Síminn) and the opening up of the sector to co mpetition.  Over the review period there have 
been a number of legislative developments, the emergence of new players in the Icelandic telecommunications sector, merger and acquisition activity, as well as the privatization of Iceland 
Telecom.  Reforms were predominantly driven by EEA membership requirements.  Liberalization and 
regulatory commitments undertaken have also b een bound in the WTO as a result of Iceland's 
participation in the post-Uruguay Round ne gotiations on basic telecommunications.   
81. One of the major developments over the revi ew period was the privatization of Iceland 
Telecom.  In May 2001, legislation was passed providing for the privatization of Iceland Telecom, however, the share offering was unsuccessful, mainly due to prevailing uncertainty in global financial 
markets and the telecommunications sector in general.
58  However, on 5 August 2005 Iceland 
Telecom was sold for ISK 67 billion to a consortiu m of predominantly Icelandic investors under the 
name Skipti Ltd.59  In addition, since 1998, there have b een new entrants into, and consolidation 
within, the telecommunications market.   
82. As at end 2005, the telecommunications market  in Iceland was a de facto duopoly with both 
Iceland Telecom and Og Vodafone providing basic telecommunications services.  Both telecom providers are classified as having "significant market power" in certain service markets and hence 
may be subject to various obligations, imposed by  the Post and Telecom Administration (PTA) with 
respect to access to infrastructure, interconnection and carrier selection and pre-selection.
60  Under 
Article 18 of the Electronic Communications Act, an undertaking with significant market power is 
deemed to have, either individually or jointly with  others "a position of econom ic strength in a certain 
market which enables it to prevent effective competition and to operate to a substantial extent without 
concern for competitors, customers and consumers. "  The assignment of market power is now based 
on competition law principles, rather than a 25% market share as in the previous Act.61  Both Iceland 
Telecom and Og Vodafone have been making invest ments in related areas, for example, both bought 
television stations in 2004.  There have also been  some infrastructural developments over the review 
period with respect to telecommunications, notabl y the entry into operation of a new submarine 
transmission cable (FARICE) linking Iceland to Scotland via the Faeroe Islands.  EFTA opened an 
information investigation procedure regarding state aid to the FARICE submarine project in 2005.   
83. As documented by the OECD62, the telecommunications sector in Iceland has witnessed 
expansion in a number of areas in recent years,  among them:  telecom revenue increased from 
US$89 million in 1991 to US$319 million in 2 003, and the share of telecom revenue as a 
percentage of GDP over-doubled during the same peri od;  there was a major increase in subscriptions 
to cellular phones, from 17,409 in 1993 to 279,6 70 in 2003 (equalling 96.7 subscribers per 100 
inhabitants);  the number of secure servers (one indication of e-commerce access and supply) 
increased from 13 in 1998 to 249 in 2004.  In addition,  the OECD reports that of all OECD countries 
                                                      
58 Prime Minister's Office, Press Release of 3 January 2002.  Available at:   
http://eng.forsaetisraduneyti.is/ministry/privatisation/nr/1002 
59 PTA Press Release of 7 September 2005.  Availa ble at:  http://www.pta.is/default.asp?cat-id=188 
module_id=220&element_id=721. 
60 Electronic Communications Act No. 81/2003, Articles 27 to 34, Article 53. 
61 PTA (2003). 
62 OECD (2005) Communications Outlook. Iceland WT/TPR/S/164 
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Iceland has the least expensive domestic residentia l telecommunication services, and has been taking 
the lead in the development of DSL access.  As re ported by the PTA, by the end of 2004, around half 
of Icelandic homes had an ADSL high speed internet connection.63  
(b) Institutional and legal framework 
84. The Minister of Communications is responsible fo r policy formulation in the telecoms sector.  
One of the stated priorities of the Icelandic Gove rnment is to develop the information society in 
Iceland so as to be at the forefront of the world' s nations in terms of "the utilization of information 
technology in the service of improved human existe nce and prosperity", and within the context of 
this larger picture, the objectives for the telecoms  sector is for information and telecommunications 
technologies to be "mobilized to improve the co mpetitiveness of the Icelandic economy, increase 
productivity and proliferate the possibilities of exporting Icelandic inventiveness.64 
85. Electronic communications in Iceland are administered on a daily basis by the Post and 
Telecom Administration, which was created in 199 7.  The PTA's seven key areas of responsibility 
with respect to electronic communications are:  implementing the Electronic Communications Act and supervising electronic communications as provide d for in the Act;  encouraging competition in 
postal and electronic communications services and pr eventing unfair business practices;  participating 
in developing the market for electronic communi cations and information technology;  safeguarding 
the public interest;  advising the authorities and ministries and ensuring that Iceland fulfils its international obligations as well as making recomme ndations, if necessary, for amendments to acts 
and regulations;  particip ating in cooperation resulting from in ternational obligations;  and other 
activities.
65  The main rules and regulations currently in force in the area of telecommunications are 
outlined in Table IV.5. 
86. Telecommunications legislation has been revised on a number of occasions since the  
mid-1990s.  The 1996 Telecommunications Act opened up the sector to international competition in 
1998;  until then, only the state monopoly was allowed to offer telecommunications services in Iceland.  A new Telecommunications Act entered into effect in January 2000;  and Regulation 
No. 734/2000, confirmed the right of companies in th e telecoms sector in WTO Member countries to 
offer their services in Iceland. 
87. Most recently, the Electronic Communications Act No . 81/2003 took effect in July 2003;  it is 
intended to implement required EEA legislation.
66  As a result of this legislation, natural persons and 
legal entities established within the EEA and within WTO Member states have a general 
authorization, and therefore do not need a licence,  to start operation, unless specific frequencies are 
involved.67  Undertakings, however, must notify the PTA, which keeps a register.  An individual 
licence is required for all frequencies except open spectrum (2400-2483.5, 5150-5350, 5470-5725 and 
5725-5875 MHz). In most cases the procedure is simple and frequencies are assigned by the PTA 
within six weeks from receipt of application.  In  frequency ranges where demand is likely to exceed 
                                                      
63 PTA (2004). 
64 Document issued by the Icelandic Government entitled "The Icelandic Government's Vision of 
the Information Society" (http://eng.forsaetisraduneyti.is /information-society/nr/890#3).  Subsequent official 
documents issued in related areas include;  "Resources to Serve Everyone: Policy of the Government of Iceland 
on the Information Society 2004-2007" and the "Telecom Policy Statement 2005-2010, Report by the Steering 
Group appointed by the Minister of Transport and Communications". 
65 Act on the Post and Telecom Administration, No. 69/2003 (Article 3). 
66 EEA legislation includes:  Annex XI, Regulation 2887/2000/EC, Directives 1999/5/EC, 2002/19/EC, 
2002/20/EC, 2002/21/EC, 2002/22/EC, 2002/58/EC and 2002/77/EC. 
67 Electronic Communications Act No. 81/2003, Chapter III and Regulation 86/2002. WT/TPR/S/164 Trade Policy Review 
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supply, the PTA may decide to limit the number of rights of use.  In such cases frequencies have most 
often been assigned following a “beauty contest”.  The method for assignment of specific frequencies 
must be published and applications i nvited by advertisement (Article 9). 
Table IV.5 
Telecommunications legislation currently in force 
Laws 
Act on the Post and Telecom Administration No. 69/2003 
Electronic Communications Act No. 81/2003 
Rules and regulations 
Regulation on secrecy and protecti on of telecommunications, No. 83/1986 
Regulation on frequenc y bands for wireless telecommun ication services, No. 373/1994 
Regulation on the approval of subscrib er equipment, No. 598/1994 (amended)  
Regulation about standardi zation in the fields of information t echnology and telecommunications, No. 35/1995 
Regulation on access to leased lines, No. 608/1996 
Regulation regarding premiu m rate services, No. 359/1997 
Regulation about the Appellate Comm ittee for Electronic Communications  and Postal Affairs, No. 378/1999 
Regulation concerning the telecommunicati on equipment and telecommunications to  and from Icelandic ships, No. 53/2000 
Regulation regarding universal service, No. 641/2000 as amended 
Regulation on the right of WTO Member companies to  offer their services in Iceland, No. 734/2000 
Regulation on separation of electroni c communications networks and cab le television networks, No. 866/2000 
Rules for number portability, No. 401/2001 
Regulation on the use of standard s for television signals, No. 532/2001 
Rules for carrier selection and carrier pre- selection in telephone networks, No. 280/2002 
Rules for the planning of numbers and the use of nu mbers, number series and addresses, No. 318/2003 
Rules about general authorisation to  operate electronic communications networks or services No. 345/2005 
 
Source:  Post and Telecom Administra tion online inform ation.  Available at :  http://www.pta.is.  
88. The Act also contains provisions on transparency and non-discrimination;  rules on number 
portability68, and on carrier selection and pre-selection69;  and provisions relating to competition 
within the sector.70  The right to interconnection is establishe d in Chapter VII of the Act, and the PTA 
is charged with endeavouring to "ensure access and interconnection and interoperability of services in 
a satisfactory and efficient manner" (Article 25) and may, inter alia , impose obligations with respect 
to open and non-discriminatory access and price control.   According to the authorities, in early 2006 
the PTA was undertaking a market analysis of the 18 telecoms sub-markets and is likely to issue new 
obligations regarding access and inte rconnection either in 2006 or 2007. 
89. The Electronic Communications Act provides for all users to be entitled to universal service 
at the same tariff rate throughout the country.  The universal service obligation relates to basic 
telephony, data (128 Kb connection), and some other services.  To ensure this obligation is met, the 
PTA may place obligations on electronic commun ications providers a nd set minimum quality 
requirements.  According to the authorities, mini mum quality requirements have been issued by the 
PTA.  The PTA also holds custody of an equalizati on fund to support universal service operations that 
are either unprofitable or run at a loss.  The fund is  financed by a 0.12% fee levied on the turnover of 
all electronic communications providers.  The authoriti es note that the turnover of the fund has been 
                                                      
68 Electronic Communications Act No. 81/2003, Article 52 and regulations:  401/2001, cf. reg. 
840/2001, 508/2003 and 83/2004. 
69 Electronic Communications Act No. 81/2003, Article 53 and Regulation 280/2002. 
70 Competition-related provisions in the Electronic Communications Act No. 81/2003 include:  rules on 
mergers with respect to rights to use frequencies (Article  8);  provisions relating to markets (Articles 16 to 18) 
as well as to interconnection of networks an d services and access to them (Chapter IV). Iceland WT/TPR/S/164 
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small, and has just provided for the answering of emergency calls.  They also indicate that 
government funding will be targeted at e xpanding GSM and broadband networks into non-
commercially viable areas;  ISK 2.5 billion is to be allocated to this project until 2009. 
90. Public electronic communications network equipment (both domestically produced and 
imports) must meet certain technical requirements and bear the CE mark as confirmation 
(Chapter III(2)(viii).  Equipment that is operate d without authorization may be confiscated. 
91. Violations of the provisions of both the Electronic Communications Act and the Act on the 
Post and Telecom Administration must be rectified within a month of their notification by the PTA.  If violations are not rectified, the PTA has authority to subject providers to da ily fines, and to cancel 
the right to use numbers or the general authorizati on to operate.  Serious or repeated violations 
may result in imprisonment.  Rulings by the PTA  may be referred to the Rulings Committee for 
electronic communications and postal affairs.
71  The PTA has a responsibility to promote competition 
applying sector-specific regulation.   General competition rules are also applicable to the electronic 
communications markets.  The Competition Authority is responsible for the enforcement of general 
competition rules;  an agreement has been reached between the PTA and the Competition Authority in 
this regard. 
92. Iceland's commitments in the extended WTO Negotiations on Basic Telecommunications 
Services supplement the commitments c ontained in its initial GATS Schedule.72  The Icelandic 
Schedule covers basic and value-added services,  for which Iceland has agreed to impose no 
limitations on market access or national treatment for cross-border supply, consumption abroad, and 
commercial presence.  Market access through the pr esence of natural persons was left unbound except 
as indicated in the horizontal commitments.  The Schedule incorporates, under additional commitments, the telecommunications Reference Pa per negotiated in the context of the extended 
negotiations.   
93. In the context of the Doha Development Ag enda, Iceland has submitted an initial and a 
revised offer.
73  In its revised conditional offer, Icelan d proposes removing a limitation on investment 
specified in the horizontal commitments of its Sche dule, which specifies that total investment by a 
non-resident or the joint investment by fina ncially related non-residents in enterprises in 
communications services may not exceed ISK 250 million (US$4 million) within a year unless a special concession is given.  This would be replaced  by an obligation on the part of service providers 
to inform the Ministry of Commerce of invest ments by non-residents in business enterprises in 
Iceland, and the Central Bank of Iceland of investments by non-residents in securities in Iceland. 
(iii) Financial services 
(a) Introduction 
94. Iceland's GATS market access and national treatment commitments cover the full spectrum of 
financial services.
74  These commitments are undertaken in  accordance with the Understanding on 
Commitments on Financial Services. 
                                                      
71 Post and Telecom Administration Act No. 69/2003, Article 13. 
72 WTO document GATS/SC/41, 15 April 1994 and WTO document GATS/SC/41/Suppl.1, 
11 April 1997. 
73 WTO document TN/S/O/ISL/Corr.1, 17 July 2003 and WTO document TN/S/O/ISL/Rev.1, 14 June 
2005. 
74 WTO document GATS/SC/41/Suppl.2, 26 February 1998. WT/TPR/S/164 Trade Policy Review 
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95. Financial legislation has undergone a process of extensive review, restructuring, and update 
since Iceland's 2000 Trade Policy Review.  This pr ocess culminated in the adoption of the Act on 
Financial Undertakings, in force since January 2003.75  The Act governs the activities of banks and 
other credit institutions, electronic money undert akings, securities firms and brokerages, and 
management companies for mutual and invest ment funds (also known as UCITS).  The main 
legislation in the insurance sector  is the Act on Insurance Activities.76 
96. The Ministry of Commerce defines financial sector  policy.  The Central Bank is tasked with 
promoting the efficiency and safety of the financial system.77  It monitors bank liquidity and foreign 
exchange balances, and conducts the systemic ove rsight of the payment and settlement systems.78  
The Financial Supervisory Authority (Fjármálaeftirlitið or FME) is responsible for the supervision of 
financial and insurance companies and pension funds.79  Financial sector regul ations may be issued by 
the Ministry of Commerce;  additional rules and guidelines may be issued by FME and the 
Central Bank (only with respect to bank liquidity  and foreign exchange balances, and payment and 
settlement systems).80 
(b) Banking services 
97. There are four commercial banks and 24 savings  banks operating in Iceland.  The three major 
banks (all commercial banks) account for approximately 90% of total bank assets.81  The current 
structure of the banking sector is the result of pr ivatization and intense c onsolidation between 1998 
and 2003.82  Two of the commercial banks were publicly owned until 2003.  There is one foreign bank 
branch operating in Iceland, but no foreign bank subsidiaries or representative offices. 
98. The spread between lending and borrowing rates declined from 3.7% in 1997 to 2.3% in 
2004, partly reflecting increased levels of competition.83  According to the OECD, competition in the 
investment banking segment appears to be "fierce".84  In contrast, competition in lending to small and 
medium-sized enterprises seems to be less vigorous.85 
99. There is also a state-owned Housing Financi ng Fund (HFF), created in 1999.  HFF is the 
largest institution in the financial system.  Its purpose is to promote home ownership by providing 
affordable mortgage credit.  Until mid 2004, H FF accounted for about 80% of the residential 
mortgage market;  however, its share has fallen to  about 65% (December 2004) with the recent entry 
of commercial banks into this market.  In April 2004, the Bankers’ and Securities Dealers’ 
Association of Iceland lodged a complaint with th e EFTA Surveillance Authority, alleging that “the 
current legislation in Iceland on the operation of the State Housing Financing Fund is incompatible 
with the EEA Agreement, in particular the competitio n rules, the rules on state aid, free movement of 
services, capital and the freedom of establishment of the EEA Agreement”.86  The Authority 
                                                      
75 Act No. 161/2002, 13 December 2002. 
76 Act No. 60/1994, 11 May 1994. 
77 Act No. 36/2001 on the Central Bank of Iceland. 
78 Central Bank of Iceland online information, "Financial stability and Central Bank tasks".  Available 
at:  http://www.sedlabanki.is /lisalib/getfile.aspx?itemid= 2918 [19 December 2005]. 
79 Article 3, Act No. 87/1998 on Official Supervision of Financial Operations, 16 June 1998. 
80 Agreement between the Financial Supervisory Authority and Central Bank of Iceland on Payment 
and Settlement Systems, 28 March 2003. 
81 FME (2004a). 
82 For details on the process of consolida tion, see Central Bank of Iceland (2005a). 
83 Measured in relation to bank total assets. 
84 OECD (2005a). 
85 OECD (2005a). 
86 EFTA Surveillance Authority Decision No. 213/04/COL, 11 August 2004. Iceland WT/TPR/S/164 
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concluded that, although the HFF system involved stat e aid, this aid was compatible with the EEA 
Agreement.87  In November 2004, the Bankers' and Securities Dealers' Association of Iceland 
appealed this decision.  The case is pe nding before the EFTA Court (January 2006).88 
100. Several Icelandic banks have made significant in ternational acquisitions recently, particularly 
in other Nordic countries and the United Kingdom.89  Partly as a result, total bank assets almost 
doubled between 2003 and 2004, to reach 360% of GDP.  Half of the assets of the three major banks 
are held by their foreign subsidiaries.90 
101. Foreign banks may establish a subsidiary in Iceland.  All banks, including foreign-owned 
subsidiaries, must be organized as limited liability companies.91  In principle, banks are permitted to 
provide securities services, but not insurance, unless they set up a separate company for that 
purpose.92 
102. All banks, including foreign-owned subsidiaries, are required to obtain a licence to operate in 
Iceland.  FME is responsible for issuing licen ces.  The following information must accompany a 
bank's licence application:  proposed activities;  ar ticles of association;  operational structure and 
internal organization;  business plan and budget;  founders, shareholders, management officers, and 
board of directors;  confirmation by an accountant that the share capital has been paid;  "close links" 
to other entities;  and any other re levant information required by FME.93  F M E  m u s t  n o t i f y  t h e  
applicant of its decision "as promptly as possible".94  The statutory time limit available to FME is 
three months;  in practice, applications are pro cessed in one-and-a-half months.  FME must explain 
the grounds for a negative decision.95  FME has not issued any negative decisions since 2003, when it 
took over responsibility for issuing banking licences from the Ministry of Commerce. 
103. The minimum capital requirement to establish a commercial or savings bank in Iceland is 
ISK 450 million (approximately €6 million in December 2005) or €5 million, if the euro equivalent of 
ISK 450 million is less than €5 million.96  This requirement applies to all banks licensed to operate in 
Iceland, regardless of ownership.  A grandfather clause allows savings banks in operation prior to 
2003 to maintain their capital at their 1993 level.97 
104. The founders of a bank in Iceland must reside in Iceland, unless they are EFTA or EEA 
citizens.98  The founders can be natural or  legal persons.  Bank managers a nd at least half of the board 
members must be EFTA, EEA, or OECD citizens and residents.99  The Ministry of Commerce can 
                                                      
87 EFTA Surveillance Authority Decision No. 213/04/COL, 11 August 2004. 
88 EFTA Court, Action brought on 23 November 2004 by the Bankers' and Securities Dealers' 
Association of Iceland against the EFTA Surveilla nce Authority (Case E-9/04).  Available at:  
http://www.eftacourt.lu/default.asp?lay out=article&id=239 [2 January 2006]. 
89 See Neville (2005). 
90 See Neville (2005). 
91 Article 13, Act No. 161/2002. 
92 Articles 20 and 23, Act No. 161/2002. 
93 Article 5, Act No. 161/2002;  the provisions on close links are contained in Article 18. 
94 Article 6, Act No. 161/2002. 
95 Article 7, Act No. 161/2002. 
96 Article 14, Act No. 161/2002. 
97 Article 77, Act No. 161/2002. 
98 Article 11, Act No. 161/2002. 
99 Article 66, Act Respecting Public Limited Companies, No. 2/1995;  Article 42, Act Respecting 
Private Limited Companies, No. 138/1994;  and Announcement Resp ecting General Exemption from 
Conditions of Residence of the Limited Company Legislation, No. 260, 16 April 1997. WT/TPR/S/164 Trade Policy Review 
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waive these nationality and residency requirements for other citizens.100  In the context of this Review, 
the Icelandic authorities indicated that they have not received any waiver requests (as at February 
2006), and that any future requests would be assessed on a case-by-case basis. 
105. There are no limitations on foreign ownership of banks in Iceland.  Foreign and domestic 
investment that is aimed at acquiring 10% or more of the capital or voting rights of a bank, or which 
enables the exercise of a "significant influence"  over the bank's management, is subject to FME 
approval.101  FME approval is also required when a forei gn or domestic investor's participation in a 
bank exceeds the thresholds of 20%, 33%, or 50%. 
106. Banks in Iceland are allowed to hold equity in fi nancial and non-financial firms.  Equity held 
in firms that pursue "ancillary" activities is not subject to limitations.102  In contrast, a bank's 
qualifying holding in a non-financia l firm may not exceed 15% of the bank's funds, as defined in the 
Act on Financial Undertakings.103  A bank's total qualifying holdings in non-financial firms may not 
exceed 60% of the bank's funds. 
107. Foreign banks may set up a branch in Iceland.104  In this regard, banks established and 
licensed in the EEA benefit from an automatic appr oval process.  A branch may begin operations two 
months after receipt by FME of a notification of the branch's proposed activity from the home-country 
supervisor.  The home-country supervisor must also confirm that it will provide "satisfactory 
supervision" of the bank's activities, and that the bank fulfils FME's "sound and prudent" management 
requirements and other conditions listed in Regulation No. 244/2004.105  There are no published 
criteria for assessing "sound and prudent" management  requirements.  A branch may only pursue 
activities for which its parent is licensed in the home country.  Banks established and licensed in 
Switzerland benefit from the automatic approval pr ocess to set up branches (or to provide cross-
border services) provided that "the same requirements are made of them as of financial undertakings 
established in states of the EEA and a cooperation agreement has been concluded between [FME] and 
the competent Swiss authorities".106  No such agreement has been concluded (February 2006). 
108. Banks established and licensed outside the EEA are required to obtain FME authorization to 
open a branch.  To this end, the bank's home-count ry licence must cover the same activity that the 
bank proposes to carry out in Iceland;  the bank must  also be subject to "comparable supervision" in 
its home country.107  The regulations related to this prov ision are being updated (February 2006).108 
109. Branches of EEA banks are not subject to sta nd-alone requirements on capital adequacy or 
loan limits.  Their activities are subject to consolid ated supervision with the parent bank by the home 
country supervisor.  Stand-alone  prudential requirements applied to branches of non-EEA banks.  
These are being updated.109 
                                                      
100 Article 11, Act No. 161/2002. 
101 Article 40, Act No. 161/2002. 
102 Article 21, Act No. 161/2002. 
103 Article 28, Act No. 161/2002. 
104 Chapter V, Act No. 161/2002. 
105 Article 2. 
106 Article 31, Act No. 161/2002. 
107 Article 33, Act No. 161/2002. 
108 The regulations under review are contained in  Regulation of a Branch and a Representative 
Office of a Credit Institution Established in a Country Outside the European Economic Area, No. 307/1994, 
25 May 1994. 
109 Regulation No. 307/1994. Iceland WT/TPR/S/164 
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110. Foreign banks may also provide cross-border services in Iceland.110  To do so, banks 
established and licensed in the EEA must complete  an automatic approval process similar to the 
process for setting up a branch.  Banks may begin offering cross-border services immediately after FME receives the relevant notification from the home-country supervisor.  EEA banks may only 
provide cross-border services for which they are licensed in their home country. 
111. Banks established and licensed outside the EEA must obtain FME authorization to provide 
cross-border services.  In this regard, the bank' s home-country licence must cover the same activity 
that the bank proposes to carry out in Iceland;  the bank must also be subject to "comparable supervision" in its home country.
111  FME has approved 117 credit institutions to provide cross-border 
services;  all are licensed in the EEA. 
(c) Insurance services 
112. Iceland's insurance industry comprises four life insurance companies and eight non-life 
companies, including one that is wholly state-ow ned and another that is foreign-owned (February 
2006).112  In addition, there are two branches of an EEA insurance company, one offering life 
insurance and the other non-life insurance.  A bout 230 EEA companies are registered as offering 
cross-border insurance services.113  Total assets of life insuran ce companies are ISK 8.82 billion, 
around 1% of GDP.114  Total assets of non-life insurance companies are almost 11 times that amount. 
113. The non-life insurance market has been dominat ed by three companies, whose combined 
market share in total written premiums was around 94 % in 2002.  The Competition Authority recently 
concluded a seven-year cartel investigation, which found that the three largest companies had engaged 
in practices harmful to competition.115  According to the Icelandic authorities, this investigation led to 
changes in the companies' practices, and in the ac tivities of the Association of Icelandic Insurance 
Companies. 
114. Foreign insurance companies may establish a subsid iary in Iceland.  All insurance companies, 
including foreign-owned subsidiaries, are required to be organized as limited liability companies or 
mutual companies.  Life and non-life insura nce services cannot be provided through the same 
company;  however, life insurance companies may provide sickness and accident insurance. 
115. Insurance companies, including foreign-owned s ubsidiaries, must obtain a licence to operate 
in Iceland.  Licences are granted for specific life and non-life categori es of insurance by the Minister 
of Commerce after consulting with FME.116  Licence applications must contain the following 
information about the insurance company:  legal fo rm of establishment;  ar ticles of association and 
minutes of the initial shareholders' meeting;  founders ;  share capital;  "close" connections with other 
companies;  proposed activities;  business plan ;  confirmation that minimum solvency margin 
provisions have been fulfilled;  basis for calcula ting premiums and other variables;  rules on 
information requirements from policyholders; a nd conditions governing compulsory insurance.117  
FME must issue an opinion within six months of receiving an application.  When rejecting an 
                                                      
110 Chapter V, Act No. 161/2002. 
111 Article 33, Act No. 161/2002. 
112 FME (2004b). 
113 FME online information.  Available at:  http://www.fme.is/fme-eng.nsf/pages/ForInsurComp.html 
[15 November 2005]. 
114 FME (2004b). 
115 OECD (2005a). 
116 The categories for which licences are issued ar e listed in Articles 22 and 23, Act No. 60/1994. 
117 Article 21, Act No. 60/1994. WT/TPR/S/164 Trade Policy Review 
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application, FME must provide the reasons underl ying its decision in writing.  FME maintains a 
public register of all licensed in surance companies in Iceland. 
116. The minimum solvency margin varies according to the type of service provided.  It is 
ISK 255 million (or €3 million, whichever is the higher, except for non-life insurance companies 
engaged in liability insurance, which are subject to a minimum solvency margin or ISK 170 million 
(or €2 million, whichever is the higher. 
117. A majority of the founders of an insurance company in Iceland are required to reside in 
Iceland.118  The founders can be natural or legal pe rsons.  EFTA and EEA citizens residing in an 
EFTA or EEA country are not required to comply w ith this requirement.  Managers and the board 
members of insurance companies organized as limite d liability companies must reside in an EFTA or 
EEA country.119  The Minister of Commerce can waive these nationality and residency requirements 
for non-EFTA or non-EEA citizens.  In the context of  this Review, the Icelandic authorities indicated 
that they have not received any waiver requests (F ebruary 2006), and that any future waiver requests 
would be assessed on a case-by-case basis. 
118. There are no limitations on foreign ownership of  insurance companies in Iceland.  Foreign 
and domestic investment that aimed at acquiring 10% or more of the capital or voting rights of an 
insurance company, or that enab les the exercise of a "significant influence" over the company's 
management, is subject to no tification and approval by FME.120  FME notification and approval is 
also required when an investor's participation exceeds the thresholds of 20%, 33%, or 50%.  FME 
may refuse acquisitions of or increases in shares or voting rights if the investor is not qualified 
to ensure "the sound and prudent operation of th e company".  In such cases, FME must provide 
the investor with the reasons that underlie its  decision.  FME has never blocked an acquisition 
(February 2006). 
119. Insurance companies licensed in the EEA and w ith head offices there may open a branch in 
Iceland.  The approval process is automatic and i nvolves the submission of specific information to 
FME, including a certificate from the home-country supervisor that the company meets the home-
country minimum solvency margin.121  A branch may start operations immediately after FME has 
notified the company that the information provided  is complete.  FME must issue its notification 
within two months of receiving the application.  A branch can only provide services for which its 
parent is licensed in the home country.  The comp any is required to designate a representative in 
Iceland. 
120. Foreign insurance companies licensed outside th e EEA and with head offices outside the EEA 
may not set up branches in Iceland unless their home countries grant reciprocal treatment to Icelandic 
companies.122  Insurance companies that fulfil the recipr ocity requirement must apply for a licence to 
open a branch.  Their application is subject to the sa me requirements as for subsidiaries.  In addition, 
FME must "consult" all other EEA countries before issuing the licence.123  The company must 
designate a representative in Iceland. 
121. Branches of non-EEA insurance companies ar e required to fulfil stand-alone minimum 
solvency margins.  The solvency margin cannot be  less than one-half of the amount applicable to 
                                                      
118 Article 14, Act No. 60/1994. 
119 Article 66, Act No. 2/1995;  Article 42, Act No. 138/1994;  and Announcement No. 260. 
120 Article 39, Act No. 60/1994. 
121 The information required by FME is listed in Articles 64 and 65, Act No. 60/1994. 
122 Article 71, Act No. 60/1994. 
123 Article 71, Act No. 60/1994. Iceland WT/TPR/S/164 
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insurance companies licensed in Iceland.124  Branches assets in Iceland must amount to the higher of 
one half of the minimum solvency margin for insu rance companies or one-third of their individual 
minimum solvency margin.  The so lvency requirement may be waiv ed when the overall solvency 
margin of a company's branch in Iceland and other branches in EEA countries is subject to 
consolidated supervision in one EEA country.  A regulation has been issued to implement this 
provision.125  Branches must place as a guarantee fund one-f ourth of their minimum solvency margin 
in a location approved by FME.126 
122. The provision of cross-border insurance services is limited to insurance companies licensed in 
the EEA and with head offices there.127  In this regard, EEA companies benefit from an automatic 
approval process similar to that for opening a branch.128  Companies providing cross-border services 
in third-party motor liability insurance must  designate a representative in Iceland. 
123. Insurance brokers must obtain a licence from and register with FME.129  Licences issued in 
other EEA countries are deemed equivalent to Icelandic licences.130 
(iv) Air transport 
(a) Main features 
124. The air transport industry plays a significant role in Iceland's economy.  The turnover of 
airline operations in Iceland amounted to 5% of GDP in 2004, which is much higher than in many 
other European nations.131 
125. There are five international airports in I celand, and eight additional airports provide 
scheduled flights.  More than 95% of internatio nal traffic goes through Keflavík airport, near 
Reykjavík.  The Foreign Ministry has jurisdiction over the running of Keflavík airport132, which is a 
joint civil and military airport operated by the Civil Aviation Authority (CAA) and the U.S. Navy.133  
All main airports are government-owned and run. 
126. The number of passengers flying to and from Ic eland through Keflavík airport increased from 
around 280,000 in 1993 to over 1,360,000 in 2004.  Similarly, air transport of freight through 
Keflavík airport tripled over the same period.  In the period 1993 to 2003, freight volume from 
Iceland rose from 8,135 tonnes to 24,964 tonnes, a nd freight to Iceland rose from 5,452 tonnes to 
15,590 tonnes.134 
127. Competition on international routes to and from Iceland has increased in the review period 
with the arrival of a new low-cost airline Icel and Express, in 2003.  The other airline offering 
international flights is Icelandair, in 2006, Sca ndinavian Airlines and British Airways will start 
                                                      
124 Article 72, Act No. 60/1994. 
125 Regulation No. 555/1997 on Co-operation with Other European Economic Area Countries on 
Supervision with Solvency of Bran ches of Insurance Companies with Headquarters Outside the European 
Economic Area. 
126 Article 72, Act No. 60/1994. 
127 Article 65, Act No. 60/1994. 
128 Article 65, Act No. 60/1994. 
129 Article 80, Act No. 60/1994. 
130 Article 3, Regulation No. 853/1999. 
131 Economics Institute (2004). 
132 Law 106/1954 on the Supervision of Defence Areas. 
133 Keflavik Airport online information.  Availa ble at:  www.keflavikairport.com/history.html. 
134 Statistics Iceland online information.  Available at:  www.statice.is. WT/TPR/S/164 Trade Policy Review 
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regular flights to Iceland.  A total of 11 airlines are in operation in Iceland including those providing 
rental and cargo services.  Air transport in the domestic market is dominated by Landsflug and Flugfélag Íslands.  Air Atlanta Icelandic is one of the world's largest aircraft, crew, maintenance, and 
insurance (ACMI) service providers.  It has 50 ai rcraft and operates cargo and passenger transport 
services.  Since its creation in 1986, it has concluded wet leasing agreements, inter alia , with 
Caribbean Airways, Air Afrique, Finnair Cargo, Lufthansa, Sudan Airways, and Arabian Airlines.
135 
128. The Competition Authority is responsible for ensuring that pricing policy and other 
arrangements do not breach competition law.  In 2003, the Competition Authority ruled that 
Icelandair had breached competition laws and misused  its dominant market position in a price war 
over the two routes then offered by Iceland Express.136  In 2005, the FL Group signed an agreement to 
purchase Iceland's Bluebird Cargo Company and its associated freight forwar der for ISK 3.8 billion 
(US$60 million) and to assume ISK 1.4 billion (U S$22 million) in aircraft debt obligations.137  The 
two organizations joined Icelanda ir Cargo a subsidiary of the I celandair Group that operates cargo 
services.  In June 2005, the Competition Authority ru led that the merger could take place only under 
certain conditions to ensure competition in the air cargo industry to and from Iceland. 
129. Iceland's civil aviation industry is subject to EEA competition laws.  In 2003, one case was 
referred to the EFTA Court regarding Iceland's ai r passenger tax, which was higher for flights from 
Iceland to other EEA destinations than for domest ic flights or flights to Greenland and the Faroe 
Islands.138  The EFTA Court ruled that the discriminatory application of the tax restricted the freedom 
to provide services within the EEA. 
130. According to the Icelandic authorities, procedures and fees are the same for both domestic 
and international airline companies.  The Governme nt, however, provides support for air transport to a 
number of domestic destinations that have not proven economically viable.  ISK 90 million was 
granted in 2001;  grants are given to airlines via an open competition.139  According to the Ministry of 
Transport, ISK 140 million per year will be set aside to support domest ic flights until 2009. 
131. In its GATS Schedule of Commitments, Iceland listed market access and national treatment 
with no limitations for consumption abroad and co mmercial presence in main tenance and repair of 
aircraft and parts.  The authorities indicate that, in  practice, most of these services are provided by 
Icelandic companies.  For sales and marketing and for computer reservation systems (CRS), market 
access was listed with no limitations in cross-bor der supply, consumption abroad or commercial 
presence.  National treatment for cross-border s upply and commercial presence remains unbound for 
sales and marketing of air transport through CRS prov ided by a CRS parent carrier.  The presence of 
natural persons was left unbound except as provided in  the horizontal commitments.  Iceland's list of 
MFN exemptions covers CRS and sales and marketing of air transport services.  The exemptions reserve the possibility for Iceland to apply the count ry-reciprocity principle in the case of CRS system 
vendors or of parent and participating air carriers.   In its revised offer submitted in the context of the 
                                                     
 
135 Air Atlanta Icelandic online information.   Available at:  http://www.atlanta.is. 
136 The Competition Authority online information.  Available at:  http://www.samkeppni.is/frettatil 
kynningar/index.htm. 
137 The FL Group is an investment company with an emphasis on investments in the flight and tourism 
industries.  Icelandair, Icelandair Cargo, Loftleioir Icelandic, Air Iceland Bluebird Cargo and former Danish carrier Sterling are all subsidiaries of the group. 
138 Case E-1/03, EFTA Surveillan ce Authority v. The Republic of  Iceland, 12 December 2003. 
139 Ministry of Communications (2003), Transport, Transport Policy Plan 2003-2014.  Available at:  
http://samgonguraduneyti.is/media /S kyrsla/Samgonguaaetlun2003_2014.pdf. Iceland WT/TPR/S/164 
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Doha Development Agenda nego tiations, Iceland proposes to remove these national treatment 
limitations.140 
(b) Institutional and legislative developments 
132. Air transport in Iceland is regulated by the Ministry of Communication.  The CAA reports to 
the Ministry.141  The Civil Aviation Board provides advice to the Ministry and the Director General of 
the CAA.142  The Aircraft Accident Investigation Board reports directly to the Minister.  Both the 
Civil Aviation Board and the Aircraft Accident  Investigation Board are independent bodies. 
133. The role of the CAA is three-fold.  Firstly, it has a monitoring role focused on maintaining 
flight safety and security;  this involves monitoring the airworthiness of aircraft, management of air 
carrier operators, and issuing licences for pilots an d others working in the industry.  Secondly, it 
provides services to the industry in the form of running of airports and air traffic control, as well as providing information for pilots and others in the industry.  Thirdly, the CCA carries out various 
administrative functions and takes part in interna tional cooperation on behalf of Iceland.  In 2005, a 
steering committee on the future of air transport in I celand, appointed by the Ministry of Transport, 
suggested separating air traffic and transport ser vices from administration and security monitoring, 
which are currently all covered by the CAA, and establishing a state-owned public limited company 
to run the service aspects of the air transport sector.  A decision to carry out these changes was taken by the Minister of Transport in August 2005.  Draft legislation was sent for comments in late 
December 2005 to be introduced to th e Parliament in late January or February 2006.  The change is 
planned to take place on 1 January 2007. 
134. The main legislation regulating the industry is the Aviation Act of 1998 (Table IV.6).  There 
has been a good deal of legislative activity over the review period, including implementation of EEA 
obligations;  however, only minor changes have been made to the Aviation Act. 
Table IV.6 
Main air transport-related legislation 
Act on Aviation, No. 60/1998 (with amendments)  
Act on Investigation of Aircraft Accidents, No. 35/2004 
Regulation on freight transportati on, No. 51/1976, with amendments 
Regulation on transportation of people, No. 53/1976 with amendments 
Regulation on rules of the air, No. 55/1992 with subsequent amendments 
Notice on air operator's licence, No. 439/1994 (I mplementation of EC Regulation 2407/92) 
Regulation on the mutual acceptance of personnel licences within the EEA, No. 336/1995 (Implementation of Council 
Directive No. 91/670 on mutual acceptance of personnel licences  for the exercise of func tions in civil aviation) 
Regulation on licensing, No. 419/1999 with subsequent amendments  
Regulation on aircraft in terception, No. 450/1999 
Regulation on the Civil Aviation Board, No. 377/2003  
Notice No. 5/2005, regarding safety manage ment systems for ATM service providers 
Regulation on the applicability of common rule s in the field of civil aviation and the establishment of a European Aviation Saf ety 
Agency, No. 612/2005 
 
Source: The Icelandic authorities. 
                                                      
140 WTO document TN/S/O/ISL/Rev.1, 14 June 2005. 
141 Icelandic Civil Aviation Admi nistration online information.  Available at:  www.caa.is. 
142 Amendment to Aviation Act 1998 (73/2002) and regulation 377/2003. WT/TPR/S/164 Trade Policy Review 
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135. Foreign ownership in Icelandic companies involved in airline operations may not exceed 
49%.143  This limitation does not apply to nationa ls of the EEA, who are treated as Icelandic 
nationals144 (see Chapter II(4)).  Moreover, no undert aking may be granted an operating licence 
unless it is effectively controlled by EEA nationa ls (as provided by Council Regulation (EEC) 
No. 2407/1992).  Non-EEA and non-EFTA citizens and companies must obtain a permit to own real 
estate in Iceland (see Chapter II(3)).  There are no limitations on foreign par ticipation in auxiliary 
services. 
136. The Icelandic authorities noted that the Aviati on Act mirrors the European legislation, and 
cabotage is accordingly permitted to EEA operators .  Cabotage by non-EEA operators is not permitted 
unless allowed under the conditions of a bilateral agreement.   
137. Security and landing fees are specified in Act 74/2000 and Act 88/2004.  As noted in Iceland's 
previous Review, air fares were liberalized in 1997. 
138. During the review period, new bilateral agreemen ts have been signed with a number of parties 
outside the EEA:  China (2003);  Hong Kong, Chin a (2004);  Macao, China (2004);  Croatia (2005);  
and India (2005).  In addition, in 2001 an MOU was signed with Canada on scheduled air services.  
Iceland has initialled but not yet ratified bilateral ag reements with:  the Republic of Korea, Sultanate 
of Oman, Kingdom of Bahrain, United Arab Em irates, India, State of Qatar, Mongolia, and 
Lebanon.145 The authorities indicate that most of these are open skies agreements. 
139. Since 1 June 2005, Iceland has participated, w ithout voting rights, in the Management Board 
of the European Aviation Safety Agency.146 
(v) Maritime transport 
(a) Main features 
140. Due to Iceland's geographical location and relian ce on international trade, maritime transport 
plays a major role in its economy.  As acknowledged by the authorities, maritime transport costs to 
and from Iceland are relatively high on account of the long distances to major markets, the relatively 
low volumes transported, and relatively low competiti on on the relevant routes.  Practically all (99%) 
movements of goods and materials to and from Icela nd are by maritime transport.  There are no 
domestically flagged cargo ships in Iceland.  Effort s have been made to encourage the registration of 
cargo vessels in Iceland, by changes to legislation allowing cargo ships to be registered on a dry lease 
agreement as well as the removal of stamp duty.  A ccording to the authorities, however, these efforts 
have not engendered any results.   
141. The volume of goods transported by sea increased from 4 million tons in  2000 to 4.98 million 
tons in 2003;  the biggest increase was in the alum inium harbours.  This included 3.2 million tons of 
imports and 1.8 milli on tons of exports.147  Cabotage, however, has continued to diminish.  At the end 
of 2004, the last costal ship bringing cargo around the island terminated its service.  While there is no 
scheduled service, cargo ships call in at major exporte rs, such as fish processing factories, in various 
                                                      
143 Law on Foreign Investment in Companies No. 34/1991. 
144 EU regulation 2407, implemented by notice 439/94. 
145 Icelandic Civil Aviation Administration online information.  Available at:  http://www.caa.is. 
146 European Aviation Safety Agency online info rmation.  Available at:  www.easa.eu.int. 
147 Statistics Iceland (2005). Iceland WT/TPR/S/164 
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harbours around the island.  Practically all other cargo is now transported by road to and from 
Reykjavik.148   
142. Iceland has 57 ports;  15 have appreciable cargo activities of which three can handle  ships up 
to 40,000 DWt.149  The rest were built for fishing vessels, but may receive merchant vessels, on an 
irregular basis, for exports of fish-based products .  According to the Icelandic authorities, good 
natural harbours are available for development in  parts of the country earmarked for industrial 
development.150  Reykjavík and adjacent ports (Akranes and Grundartangi) serve as the principal 
import and export points for the country.  In 2004,  these three ports merged to become Associated 
Icelandic Ports, which is jointly owned by the lo cal authorities in the area.  Reykjavík handles more 
than 70% of loaded containers, an annual tur nover in 2004 of 228,419 TEU of loaded containers.151  
Other important ports are Hafnarfjördur, Akureyri , Vestmannaeyjar, Fjarðabyggð, Þorlákshöfn, and 
Ísafjörður. 
143. In the Uruguay Round, Iceland made no specific commitments in maritime transport services, 
except that MFN and national treatment were bound fo r all transport services, and commitments were 
also made on rental/leasing services without operators relating to ships.152  Iceland participated in the 
Extended Negotiations on Mariti me Transport Services, suspe nded in 1996.  Although most 
participants withdrew their conditional o ffers, Iceland requested that its offer153 be made an integral 
part of its GATS Schedule of Specific Commitments.154  Iceland's commitments in this area extended 
to cabotage, auxiliary services, customs clearance services, container station and depot, maritime 
agency services, freight forwarding services, and additional commitments in pilotage, towing and tug 
assistance, navigation aids, shore-based operational services essential to ship operations, anchorage 
services, and container handling, storage, and warehous ing.  In this regard, Iceland is the only WTO 
Member to date who has scheduled  a binding commitment on cabotage. 
144. In 1995, the Icelandic authorities provided further details on the market and regulatory 
structure of Iceland's maritime transport servi ces in responding to a Qu estionnaire on Maritime 
Transport Services.155  Iceland did not propose conditional cha nges to its maritime transport services 
commitments in its initial and revised offers in  the context of the Doha Development Agenda.156 
(b) Institutional and legislative developments 
145. As specified in the Icelandic Maritime Admini stration Act (38/1997) maritime transport falls 
under the responsibility of the Ministry of Trans port and Communications.  The Icelandic Maritime 
Administration (IMA) supervises the implementation of maritime, harbour, and lighthouse issues.  
The IMA represents Iceland in a number of intern ational agencies, including:  the International 
Maritime Organization (IMO);  the International Association of Lighthouse Authorities;  and the 
Permanent International Association of Navigati on Congresses.  It takes part in EEA/EU meetings 
and is responsible for implementation of the Pa ris Memorandum of Understanding on Port State 
Control.  As a result of a EEA Joint Committee decision in June 2003, Iceland has the right to be 
                                                      
148 Ministry of Transport (2005). 
149 Iceland Export Directory online information.   Available at:  http://www.icelandexport.is. 
150 Invest in Iceland Agency, Doing Business in Iceland. 
151 Associated Icelandic Ports online information.   Available at:  http://www.faxafloahafnir.is. 
152 WTO document GATS/SC/41, 15 April 1994. 
153 WTO document S/NGMTS/W/27, 24 June 1996. 
154 WTO document S/L/29, 12 September 1996. 
155 WTO document S/NGMTS/W/2, 21 October 1994. 
156 WTO document TN/S/O/ISL, 4 April 2003 and WTO document TN/S/O/ISL/Rev.1, 14 June 2005. WT/TPR/S/164 Trade Policy Review 
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represented, but not to vote, on the Board of the European Maritime Safety Agency.157  The Minister 
of Transport and Communications and the General Director of the IMA are advised by a Harbour 
Council on harbour matters and costal protection, an d by a Maritime Council on maritime matters and 
matters concerning lighthouses. 
146. New legislation adopted over the review peri od includes a new Port Act introduced in 2003 
(61/2003).  As a result of this Act, a common fee sc ale applied to all Icelandic ports was abolished.  
Ports, which are de facto the property of the commun ity in which they are located are now free to set 
their own fees.  According to the Ministry158, the fees charged by individual ports have not changed 
much as a result of the Act, apart from at the port of Reykjavik.   
147. The Icelandic Maritime Administration charges a lighthouse fee which is used for aid to 
navigation.  According to the authorities this fee rela tes to the size of the vessel with the same fees 
being levied on foreign and Icelandic vessels. 
148. The State, inter alia , provides support for structural repair work, the building of protection 
barriers, and the deepening of harbours. In 2004, the State provided support of just over ISK 1 billion  
(US$15.7 million) for such work.159  State assistance will be reduced after 1 January 2009.  According 
to the Icelandic authorities, a reduction in support will mainly affect the bigger ports, while support 
for smaller ports might increase.  
149. The Act on Maritime Safety, introduced in  2004 (50/2004), accompanied by regulations on 
Cargo Security (529/2004) and Security Check Proc edures by Port Authorities (550/2004), is aimed at 
protecting ships, crews, passengers, cargo, and port facilities against any kind of terrorist threat or 
other illegal activities.  The Act, which is in acco rdance with the IMO Inte rnational Code for the 
Security of Ships and Port Facilities, invo lves Icelandic port authorities conducting security 
assessments and formulating security plans, designating Port Facility Security Officers, training and 
educating security personnel, and formulating guidelin es and standards.  At the end of 2005, 29 port 
security assessments and security plans had been va lidated, inspected, and awarded a Statement of 
Compliance of a Port Facility by the IMA and the National Commissioner of the Icelandic Police.  
The Act on Maritime Safety allows ports to collect  a fee on goods, ships, and passengers to cover the 
costs involved in tightened security (Article 9). 
150. As described in the Secretariat Report for Icel and's previous Review, under a national security 
agreement between Iceland and the United States, an  exception to MFN treatment is granted to all 
incoming and outgoing liner cargoes destined for a nd originating from the U.S. military forces 
stationed in Iceland.  Tenders for the transport requirements of U.S. Military Sealift Command are 
open for bids only to Icelandic and U.S. shipping co mpanies.  The lowest bidder receives two thirds 
of the cargo, and the lowest bidder from the other count ry is allocated the remaining third.  Icelandic 
bidders are not required to employ Icelandic flag vessels. 
151. Port services are provided to foreign and na tionally owned vessels on a non-discriminatory 
basis.  No ports involved in international traffic ar e closed or restricted fo r entrance of vessels owned 
or operated by foreign nationals.  Agency services are provided by all Icelandic merchant shipping 
                                                      
157 The EFTA Secretariat online information.  Av ailable at:  http://secretar iat.efta.int/Web/News/ 
EMSA/view. 
158 Ministry of Communications online information.  Available at:  http://www3.samgonguraduneyti. 
is/radherra/raedur-og-greinar/nr/761. 
159 Fjárýola Ríkisins online information.  Availabl e at:  http://www.fjarsysla.is/rbh/rbh.nsf/Files/ 
Rikisreikn-04/$file/Rikisreikn04.pdf. Iceland WT/TPR/S/164 
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companies, and by several independent agencies and brokers in Reykjavík and other main ports.  An 
agency fee scale is published regularly. 
152. Other legislation related to maritime transport can be found in Table IV.7. 
Table IV.7 
Maritime transport-related legislation currently in force in Iceland, 2006 
Acts 
Certification of Masters and Desk Officers serving on board Icelandic Ships, Act No. 112/1984 (amended) 
Certification of Marine Engineers serving on bo ard Icelandic Ships, Act No. 113/1984 (amended) 
Act on the Registration of Icelandic Ships, No. 115/1985 
Maritime Act, No. 34/1985 
Fishermen's Act, No. 35/1985  
Act on Crews Serving on Board Icelandic Pa ssenger Ships and Cargo Ships, No. 76/2001 
Ship Survey Act, No. 47/2003 
Port Act, No. 61/2003 
Act on Maritime Security, No. 50/2004 
Act on Ship Safety Monitoring, No. 41/2003 
Act on Maritime Accident Investigation, No. 68/2000  
Certification of Masters, Desk Officers and Marine Engineers serving on board Icelandic Ships Regulation, No. 118/1996 (amended ) 
Regulation on Watchkeeping Arrangements on Board Icel andic Passenger Ships and Cargo Ships, No. 599/2001 
Regulation on life boats opera ted from land, No. 123/2003 
Regulations on Crews Serving on Board Icelandi c Passenger Ships and Cargo Ships, No. 416/2003 
Regulation on the survey and power rating of main engines in Icelandic ships, No. 610/2003 
Regulation on the Operating Procedures of Accred ited Bodies Performing Ship Inspection, No. 94/2004 
Regulation on the safety of fishing vessels of  15 metres in length overall and over, No. 122/2004 
Regulation on cargo security, No. 529/2004 
Regulation on security check proce dures by port authorities, No. 550/2004 
 
Source:  The Icelandic authorities.  Iceland WT/TPR/S/164 
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