EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 24.2.2010 
SEC(2010) 153 
  
COMMISSION STAFF WORKING DOCUMENT 
ANALYTICAL REPORT  
 
  
accompanying the 
 
COMMUNICATION FROM THE CO MMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 
 
Commission Opinion on Iceland's applicatio n for membership of the European Union 
  
{COM(2010) 62} 
EN 2   EN TABLE OF CONTENTS 
A. Introduction................................................................................................................ .. 4 
a) Application for membership ........................................................................................ 4 b) Recent developments ................................................................................................... 5 c) Relations between the EU and Iceland......................................................................... 6 d) Contents of the Analytical Report................................................................................ 7 B. Criteria for membership ............................................................................................... 8 1. Political criteria .......................................................................................................... .. 8 
1.1. Democracy and the rule of law .................................................................................... 8 1.1.1. The parliament .......................................................................................................... ... 9 
1.1.2. The executive ........................................................................................................... .. 10 
1.1.3. The judiciary ........................................................................................................... ... 11 
1.1.4. Public Administration ................................................................................................ 13 1.1.5. Anti-corruption policy................................................................................................ 13  
1.2. Human rights and the protection of minorities .......................................................... 14 1.3. General Evaluation..................................................................................................... 17 2. Economic Criteria ...................................................................................................... 18 2.1. Economic developments ............................................................................................ 18 2.2. Assessment in terms of the Copenhagen Criteria ...................................................... 23 2.2.1. The existence of a functioning market economy ....................................................... 23 2.2.2. Capacity to cope with competitive pressure  and market forces within the Union..... 27 
2.3. General evaluation ..................................................................................................... 30 3. Ability to assume the obligations of membership...................................................... 31 3.1. Chapters of the acquis ................................................................................................ 31 3.1.1. Chapters covered by the EEA ........................................................................................ 31 Chapter 1: Free movement of goods ........................................................................................ 31 Chapter 2: Freedom of movement for workers ........................................................................ 33 Chapter 3: Right of establishment and freedom to provide services........................................ 34 
Chapter 4: Free movement of capital ....................................................................................... 35 Chapter 5: Public procurement................................................................................................. 3 6 
Chapter 6: Company Law ........................................................................................................ 3 7 
EN 3   EN Chapter 7: Intellect ual property law......................................................................................... 38  
Chapter 8: Competition ......................................................................................................... ... 39 
Chapter 9: Financial services .................................................................................................. . 40 
Chapter 10: Information society and media ............................................................................. 42 3.1.2. Chapters partially covered by the EEA .......................................................................... 43 Chapter 12: Food safety, veterina ry and phytosanitary policy................................................. 43 
Chapter 14: Transport policy................................................................................................... . 45 
Chapter 15: Energy............................................................................................................. ...... 47 
Chapter 18: Statistics......................................................................................................... ....... 49 
Chapter 19: Social policy and employment ............................................................................. 50 Chapter 20: Enterprise and industrial policy............................................................................ 53 Chapter 21: Trans-European networks..................................................................................... 55 Chapter 25: Research and development................................................................................... 56 Chapter 26: Education and culture........................................................................................... 58 Chapter 27: Environment ........................................................................................................ . 59 
Chapter 28: Consumer and health protection........................................................................... 61 3.1.3. Chapters not covered by the EAA.................................................................................. 63 Chapter 11: Agriculture and rural development....................................................................... 63 Chapter 13: Fisheries.......................................................................................................... ...... 66 
Chapter 16: Taxation........................................................................................................... ..... 71 
Chapter 17: Economic and monetary policy............................................................................ 73 Chapter 22: Regional policy and coordina tion of structural instruments................................. 75 
Chapter 23: Judiciary an d fundamental rights.......................................................................... 77 
Chapter 24: Justice, freedom and security ............................................................................... 81 Chapter 29: Customs union...................................................................................................... 84 
Chapter 30: External relations................................................................................................. . 86 
Chapter 31: Foreign, secur ity and defence policy.................................................................... 88 
Chapter 32: Financial control.................................................................................................. . 89 
Chapter 33: Financial an d budgetary provisions...................................................................... 90 
3.2. General Evaluation..................................................................................................... 91 
STATISTICAL ANNEX.......................................................................................................... 86 
EN 4   EN A. I NTRODUCTION  
a) Application for membership 
Iceland presented its applica tion for membership of the European Union on 17 July 2009.  
Subsequently, on 27 July, the Council of the Eu ropean Union requested the Commission to 
submit its opinion on this applica tion, in line with the procedure laid down in Article 49 of the 
Treaty on European Union, which currently states: ‘ Any European State which respects the 
values referred to in Article 2 and is committed to promoting them may apply to become a 
member of the Union. The European Parliament and national Parliaments shall be notified of 
this application. The applicant State shall addre ss its application to th e Council, which shall 
act unanimously after consulting the Commissi on and after receiving the consent of the 
European Parliament, which shall act by a majority of its component members. The 
conditions of eligibility agreed upon by the Eu ropean Council shall be taken into account. ’ 
Article 2 states that ‘ the Union is founded on the values of respect for human dignity, 
freedom, democracy, equality, the rule of law and respect for human rights, including the 
rights of persons belonging to minorities. These values are common to the Member States in a 
society in which pluralism, non-discrimination,  tolerance, justice, solidarity and equality 
between women and men prevail. ’ 
This is the legal framework within which the Commission submits its opinion and the present 
analytical report. In line with the Treaty requirements, the curr ent assessment is made in terms 
of the conditions of e ligibility laid dow n by the European Council. In Copenhagen in June 
1993, the European Council concluded that: 
Accession will take place as soon as a countr y is able to assume the obligations of 
membership by satisfying the economic and political conditions required. 
Membership requires:  – that the candidate country has achieved stab ility of inst itutions guaranteeing democracy, 
the rule of law, human rights and respect for and protection of minorities;  
– the existence of a functioning market economy, as well as the capacity to cope with 
competitive pressure and market forces within the Union; 
– the ability to take on the obligations of memb ership including adherence to the aims of 
political, economic and monetary union.  
The Union’s capacity to absorb new members, while maintaining the momentum of European 
integration, is also an important consideration in  the general interest of both the Union and the 
candidate countries. 
In Madrid, in December 1995, the European C ouncil referred to the need ‘to create the 
conditions for the gradual, harmon ious integration of [the appl icant] countries, particularly 
through the development of the market econom y, the adjustment of their administrative 
structures and the creatio n of a stable economic and monetary environment.’ 
EN 5   EN In December 2006, the European Council agreed that ‘the enlargement strategy based on 
consolidation, conditionality and communicati on, combined with the EU’s capacity to 
integrate new members, forms the basis for a renewed consensus on enlargement.’ 
In the present opinion1, the Commission analyses Iceland’ s application on the basis of the 
country’s capacity to meet the criteria set by the Copenhagen European Council of 1993. The 
method followed in preparing this  opinion is the same as used  in previous opinions. The 
Commission has analysed both the present situat ion and the medium-term prospects. For the 
purpose of this opinion and wit hout prejudging any future date of accession, the medium-term 
perspective has been defined as a period of three years. 
In line with the renewed consensus on enlargement, the present opinion also identifies key 
policy areas likely to require pa rticular attention in the even t of Icelandic accession and 
provides initial impact estimates with regard  to the policies and sectors concerned. The 
Commission will provide more detailed impact assessments for these key policy areas at later stages of the pre-accession proc ess. In addition, Iceland’s a ccession treaty would involve a 
technical adaptation of the EU in stitutions in the light of th e Lisbon Treaty, as well as the 
recognition of Icelandic as an official language of the EU. 
b) Recent developments 
The last two years have been challenging for I celand. In the context of the global financial 
crisis its banking system coll apsed in October 2008, with seve re economic impact and social 
consequences. The crisis led to significant economic contraction, caused considerable 
hardship for the population and triggere d a series of political developments. 
In January 2009, the Prime Minister resigned a nd early parliamentary elections were called. 
General elections took place in April 2009, resulti ng in a coalition government of the Social 
Democratic Alliance and the Left-Green Movement. In July 2009, on a proposal by the 
government, the Icelandic parliament voted by a na rrow majority in favour of applying to join 
the EU. Public opinion and political parties ar e divided in Iceland on  the question of EU 
membership. 
On 5 January 2010, following a petition signed by 25% of the electorate, the Icelandic 
President withheld his signature on the law se tting the arrangements for repayment of a €
 3.9 
billion loan to the governments of the Unite d Kingdom and the Nether lands, known as the 
Icesave bill2, as approved by the parliament on 30 December 2009 after months of heated 
debate. In line with Article 26 of the constitu tion, a referendum has been called on that law for 
6 March 2010. 
                                                 
1 COM(2010) 62. 
2 The ‘Icesave bill’ authorises the Icel andic Minister of Finance, on behalf of the State Treasury, to issue 
a state guarantee on the €3.9bn loans granted by th e governments of the UK and the Netherlands to the 
Depositors’ and Investors’ Guarantee Fund of Iceland. The purpose of the loans is to reimburse the 
British and Dutch governments for the compensation already provided to their citizens holding savings 
accounts in the Icesave online wing  of Landsbanki Íslands hf.  
EN 6   EN c) Relations between the EU and Iceland 
Iceland became an independent republic on 17 June 1944.  
Iceland and the European Union have been co operating extensively ac ross a broad range of 
areas over the last forty years. Iceland join ed the European Free Tr ade Association in 1970 
and has had a bilateral Free Trade Agreement with the EEC since 1972. Iceland has been a 
party to the agreement on the European Economic  Area (EEA) since its entry into force in 
1994. The EEA provides a framework for regular meetings between Iceland and the EU at 
political level, including th e twice-yearly EEA Council meet ing of Foreign Ministers. 
As an EEA state, Iceland has effectively partic ipated in the single market for over 15 years. 
This required it to adopt a c onsiderable part of European Un ion law. The EFTA Surveillance 
Authority (ESA) regularly m onitors Iceland’s performan ce under the EEA Agreement. 
Overall, Iceland has a satisfactory track reco rd in implementing its EEA obligations. Some 
shortfalls have been identified,  as described under the relevant  chapters in Part 3 of this 
report. 
Starting in 1981, regular meetings have taken pl ace between the European Parliament and the 
Committee of Members of Parliame nt of EFTA Countries. Since the entry into force of the 
EEA Agreement, these relations have been institutionalised in the EEA Joint Parliamentary Committee. In addition, bilateral meetings betw een Icelandic parliamentarians and Members 
of the European Parliament take place on a regular basis. 
Iceland contributes to reducing social and economic disparitie s in Europe through the EEA 
Grants
3. For the period 2004-2009, Iceland provided approximately €  29 million for project 
funding in a number of EU Memb er States through EEA Grants. 
Iceland has been associated with the deve lopment of the Schengen agreements since 19964 
and has applied its provisions since 2001. This means that Iceland ha s abolished internal 
border controls with other Schengen area countri es. Common rules and pr ocedures are applied 
with regard to visas for shor t stays and border controls. With in the Schengen area, Iceland 
participates in extensive coope ration and coordination between police services and judicial 
authorities5.  
Iceland is associated to the Dublin Regulation, which establishes criter ia and mechanisms for 
dealing with asylum requests6, as well as to Eurodac, the EU database for fingerprints of 
asylum seekers.  
                                                 
3 The ‘EEA and Norway Grants’ are Iceland’s, Liechtenstein’s and No rway’s contribution to the wider 
European cohesion efforts. The EEA Grants are contri butions funded jointly by  Iceland, Liechtenstein 
and Norway, while the Norway Grants are funded by Norway alone. 
4 The agreement on Iceland’s associ ation with the implementation, application and development of the 
Schengen acquis , as based on Council Decision 1999/439/EC of 17 May 1999, was signed between 
Iceland and the EU on 18 May 1999. Council Deci sion 2000/777/EC of 1 D ecember 2000 provides for 
the application of the Schengen acquis  arrangements to the five countries of the Nordic Passport Union, 
including Iceland, as from 25 March 2001. 
5 Assessment of Iceland’s participation in Schengen can be found under Chapter 24 (Justice, freedom and 
security) in Part 3 of this opinion. 
6 Council Decision 2001/258/EC. 
EN 7   EN As regards trade relations, Iceland became a member of the GATT in 1968 and is a founding 
member of the World Trade Or ganisation (WTO). In addition to its membership of the 
European Free Trade Association (EFTA) an d the Agreement on the European Economic 
Area (EEA), Iceland has free trade agreemen ts - along with complementary bilateral 
agreements on basic agricultural products - in force with sixteen third countries within the 
framework of EFTA, as well as fo ur additional ones, s till to enter into force. In addition, a 
bilateral trade agreement, along with a comp lementary agreement on basic agricultural 
products relating to the EEA Agreem ent is in force with the EU.  
In 2008, more than 54  % of Iceland’s imports came from the EU and 76  % of its exports went 
to the EU. The main export items are fish an d other marine products although, as a share of 
total exports, this cate gory declined to 40  % in 2007. Exports of manufactured goods have 
been growing rapidly, led by aluminium and me dical and pharmaceutical products. Exports of 
services increased significantly in the years before the crisis. Services account for almost 35  % 
of total export revenues. 
Following Iceland’s membership application, the Commission proposed that Iceland be 
included as an eligible beneficiary of pre-acc ession financial support und er the Instrument for 
Pre-Accession Assistance (IPA). Such support w ould aim to foster institution and capacity 
building of the Icelandic administration ma inly through the Technical Assistance and 
Information Exchange Instrument (TAIEX) and twinning. 
d) Contents of the Analytical Report 
The analytical report takes account of the conclusions of the European Council in 
Copenhagen in 1993 and subsequent  European Council conclusions. 
The report: – Describes the relations between Iceland and the Union, particularly in the framework of the 
European Economic Area Agreement; 
– Analyses the situation in resp ect of the political conditions established by the European 
Council (democracy, rule of law, hum an rights, protection of minorities); 
– Assesses the country’s situation and prosp ects in respect of the economic conditions 
established by the European Council (functioni ng market economy, cap acity to cope with 
competitive pressure); 
– Addresses the question of the capacity of the country to  adopt the obligations of 
membership, i.e. the total body of EU legislat ion as expressed in the Treaty, the secondary 
legislation, as well as the policies of the Union ( acquis of the European Union); 
– In line with the December 2006 European Co uncil conclusions, provides initial impact 
estimates in the fields of financial servi ces, agriculture, fisheries, regional policy and 
financial and budgetary provisions. These have been identified as th e main policy areas 
likely to require particular attent ion in case of Icelandic accession.  
In assessing Iceland’s situation in respect of the ec onomic criteria and its capacity to assume 
the obligations of the acquis , the Commission has also estimated the progress which could 
reasonably be expected in the years ahead, before possible accession, taking account of the fact that the acquis itself will continue to develop.  
EN 8   EN The Commission has drawn on a number of information sources: answers given by the 
Icelandic authorities to a detailed quest ionnaire and additiona l follow-up questions, 
consultations with the EU Delegations accredite d to Iceland, reporting by the Member States’ 
Ambassadors in Reykjavik, assessments by intern ational organisations (including the Council 
of Europe, IMF, OECD, OSCE, Internationa l Labour Organisation, EFTA Surveillance 
Authority), as well as lo cal and international non- governmental organisations. 
B. C RITERIA FOR MEMBERSHIP  
1. POLITICAL CRITERIA  
The European Council in Copenhagen in 1993 set a number of political criteria for accession 
to be met by applicant countries. A country must  have achieved ‘stab ility of institutions 
guaranteeing democracy, the rule of law, hu man rights and respect for and protection of 
minorities’.  
The political criteria established in Copenhagen derive from the fundamental values on which 
the EU is founded, as set out in Article 2 of the Treaty on European Union. These principles 
are emphasised in the Charter of Fundamental Ri ghts of the European Union. Article 6(1) of 
the Treaty states that: ‘ The Union recognises the rights, free doms and principles set out in the 
Charter of Fundamental Rights of the Europe an Union of 7 December 2000, as adapted at 
Strasbourg, on 12 December 2007, which shall have the same legal value as the Treaties ’. 
The assessment set out below examines the main ways in which the public authorities are 
organised and operate, and the stat e of fundamental rights protecti on. It does not confine itself 
to a formal description but seeks to ascertain the way in which democracy and the rule of law 
actually function in practice. The present report  concentrates on the areas of most relevance 
for assessing Iceland’s membership application. 
1.1. Democracy and the rule of law 
The Republic of Iceland is a representative democracy and a parliamentary republic. Its 
constitution  was adopted  in 1944, when the Republic was established. 
The constitution provides that state power is exercised by the parliament (Althingi), the 
President of Iceland, the government and the judiciary. The parliament and the President 
exercise legislative power jointly, while the Pr esident and ‘other governmental authorities’ 
exercise executive power. Judges are vested with the exercise of  judicial power.  
The constitution provides for the direct election  of the President and the parliament by secret 
ballot. All Icelandic citizens aged 18 and above  who are permanent residents of Iceland are 
eligible to vote in parliamentary and presiden tial elections. Non-resi dent citizens remain on 
the voter register for eight years after declar ing residency overseas. They may subsequently 
apply for four-year extensions. The right to vote in local elections is extended to foreign 
citizens with at least five years legal residenc y in Iceland before the day of election; this 
period of residency is reduced to only thr ee years for Danish, Finnish, Norwegian and 
Swedish nationals. This differentiation is not in line with the provisions of the acquis . 
The constitution guarantees the freedom of assembly and association .  
EN 9   EN The constitution codifies the basic principles of the rule of law in Iceland. Legislation 
provides, inter alia, fo r elections, the accountability of mi nisters, the appointment of public 
officials, the audit of the financial accounts of  the state, its institu tions and administrative 
bodies, and the functioning of municipalities.  
The parliament adopts acts in accordance with the constitution and its rules of procedure. The 
President’s signature validates a legislative ac t or a government measure signed by a minister. 
In cases where the President withholds his signa ture options are either  the withdrawal by the 
government of the draft law adopted by the par liament or the holding of a referendum. Since 
1944 the President has only twice refused to sign adopted acts. All laws are published. 
The 1994 Parliamentary Procedure Rules on Euro pean Economic Area (EEA) matters provide 
that all EEA-related work is overseen by the parliament’s Foreign Affairs Committee. The 
adoption of acts related to the acquis follows the ordinary parliamentary procedure. 
Iceland is a parliamentary republic with deeply rooted traditions of representative democracy 
and division of powers. Its constitutional and legal order and governing institutions are stable. 
1.1.1.  The parliament 
Althingi was first established in 930, and today comprises 63 members, 27 of whom are 
women (42  %). All members are elected by secret ballot on the basis of proportional 
representation for a term  of four years.  
Parliamentary elections, for which Iceland is divided into six multi-member constituencies, 
are regulated by the constitution and the Parliamentary Election Act. Members are elected through a proportional list system: 54 seats are distributed on the basis of results at 
constituency level and 9 seats are allocated on th e basis of a compensatory system, the aim of 
which is to ensure full proportionality at national level. Members of parliament have 
immunity on criminal proceedings, which can  only be lifted with the consent of the 
parliament.  
The electoral administration  consists of three layers: th e National Election Commission, six 
Senior Election Commissions ( one in each constituency) and Local Election Commissions.  
According to the constitution,  general elections  take place every four  years. Following the 
last elections of April 2009, five parties currently  sit in the parliament: the Social Democratic 
Alliance (20), the Independence Party (16), the Left Green Movement (14), the Progressive 
Party (9) and the Movement (3). One member has no party affiliation.  
The President, based on a request from the Pr ime Minister, can dissolve the parliament; new 
elections must take place within 45 days from the announcement of the dissolution.  
The election process is open and pluralistic. Elections  in Iceland fully meet international 
standards. 
Parliamentary procedure  is set by the constitution and by the parliament’s Standing Orders. 
The latter regulate committee work, the conduct of business, procedural rules for meetings, and the activities of party groups. 
EN 10   EN The Speaker oversees the work of the parliame nt, determines the agenda of meetings and 
draws up the schedule for parliamentary business and meetings. The Speaker also supervises 
the work of committees and international delegations.  
Bills are introduced by one or more members of parliament or by the government at the 
initiative of the minister concerned. Accord ing to the constitution, the President may also 
submit bills and draft resolutions to Althingi but in practice doe s not exercise this right. The 
parliament also exercises parliamentary control over the executive . The Ombudsman and the 
National Audit Office play a role in this regard. 
The legislative process incorporates effec tive consultation proced ures, organised by the 
relevant parliamentary committees.  
The parliament functions well. Its powers are re spected by the other institutions and the rights 
of opposition parties are ensured. 
1.1.2.  The executive 
The President  of Iceland is elected by universal suffrage. The current President, first elected in 
1996, was re-elected in 2000, 2004 and 2008; there is no term limit for the President. T he 
constitution grants the President executive  powers; nevertheless, most of these powers are de 
facto  delegated to ministers.  
In the absence of the President, presidential  powers are exercised collectively by the Prime 
Minister, the Speaker of the parliament and the President of the Supreme Court. 
The government of Iceland is esta blished after elections, and is constitutionally responsible to 
the parliament. Following parliamentary elections , the President, after consulting with all 
political parties, mandates a party leader to form a government. The new government is then 
formally appointed by the President. The parlia ment may censure the government, or compel 
it to resign through a motion of no confidence. Mi nisters are accountable for all executive acts 
and may be impeached by the parliament. 
The previous coalition government (Independen ce Party and Social Democratic Alliance) 
announced its resignation in January 2009 followi ng the financial crisis. Early elections took 
place in April 2009 and a new coalition governme nt consisting of the Social Democratic 
Alliance and the Left-Green Movement took offi ce. It is composed of 6 men and 6 women.  
There are 77 municipalities  in Iceland of varying size. Their remit is wide and includes town 
planning and primary education. M unicipalities play an important role in local democracy and 
benefit from a considerable degree of disc retion in fulfilling their responsibilities.  
The Association of Local Au thorities in Iceland was es tablished in 1945 by 52 local 
authorities. Since 1973, all local au thorities in the country are me mbers of this Association. 
Under the Local Government Act,  the government is required to consult the Association when 
adopting decisions relating to local communities. 
The Ombudsman ’s role is to monitor the administration of the state and local authorities and 
safeguard the rights of the citizens vis-à-vis the authoritie s. Any person or association may 
lodge a complaint with the Ombudsman. The Ombudsman is fully independent in his/her 
work and does not answer to any other au thority. The Ombudsman reports annually to 
parliament on his/her work, including details about concluded cases a nd subsequent actions 
EN 11   EN taken by authorities. The Ombudsman for Children  endeavours to ensure  that the rights, 
needs and interests of children are fully taken into account in all areas of society and to respond appropriately where necessary.  
Iceland does not have armed forces  of its own or an intelligence service as a separate entity; 
the National Security Unit of the National Comm issioner of the Icelandic Police carries out 
security projects such as inve stigation of cases, risk assessm ent or strategic assessment.  
Overall, division of power betw een the executive and parliament  in Iceland is ensured. The 
government is subject to effective parliament ary control; its minist ers are accountable for 
their acts. Municipal author ities function efficiently. 
1.1.3.  The judiciary 
The judicial system is composed of a Supreme Court, eight district c ourts, a labour court and 
a court of impeachment. There is no administrative court in Iceland.  
Eight district courts  act as courts of first instance and have jurisdiction over criminal as well 
as civil and administrative cases. Judges are appoin ted for an indefinite period by the Minister 
of Justice and Human Rights af ter the Minister has consulted the Evaluation Committee. The 
Evaluation Committee, also appointed by the Minist er for a term of three years, consists of 
three members nominated respectively by the Supreme Court, the Icelandic Judges’ Association and the Icelandic Bar Association. The Committee is responsible for assessing the 
qualifications of candidate j udges and ranking them by merit. However, the Committee’s 
advice is non-binding.  
The Supreme Court  is the highest judicial authority in  Iceland and reviews appeals against 
decisions of the district courts. It is composed  of nine judges, appointed by the President for 
an indefinite period of time upon nomination by  the Minister of Just ice and Human Rights. 
The Supreme Court delivers an opinion as rega rds the competency and qualifications of the 
applicants prior to their nomination. The Supr eme Court has jurisdiction in all cases except 
for cases heard by the Labour Court and the Court of Impeachment. 
There is no constitutional court  in Iceland. Icelandic courts are empowered to review the 
constitutionality of all laws. District courts a nd the Supreme Court may d ecide that legislation 
that they find incompatible with the consti tution cannot be applied. Since 1995, the Supreme 
Court has on eight occasions declared an act or  a legislative provision unconstitutional on the 
basis of substance. The legislature has reac ted by amending the respective legislation. The 
Supreme Court and district courts are also competent to review decisions taken by the 
executive, although they cannot replace th e repealed decision with another one. 
The Labour Court is responsible for adjudicating disputes between employers and 
employees on the labour market. Its judgments may not be appealed to the Supreme Court 
apart from those related to criminal sanctions. Ic eland should review limitations to the right to 
appeal in this area, with a view to re inforcing the guarantees for fair trial.  
The Court of Impeachment  has jurisdiction in cases where the parliament moves to impeach 
Ministers on account of their official acts. Th e court has, however, ne ver been convened in 
practice; the actual act of impeaching a Mi nister would be taken by the parliament.  
Under the Criminal Procedure Code, the  power of prosecution  is split into two 
administrative levels: 15 chiefs of police, in cluding the Office of the National Commissioner, 
EN 12   EN and the Office of the Director of Public Pr osecutions. The Minister of Justice and Human 
Rights appoints prosecutors following an evalua tion of the applicants by the Ministry of 
Justice. The Director of Public Prosecutions  supervises the conduct of  investigations and the 
prosecutorial authority of the po lice. He/she is res ponsible to the Minister of Justice and 
Human Rights even though his/he r prosecution powers are in prin ciple independent from the 
Minister and the Ministry. The entry into forc e of the Criminal Procedure Code in January 
2009 increases the independence of the prosecutor;  the Code limits the types of decisions 
where the Minister of Justice and Human rights can review decisions taken by the Director of 
Public Prosecutions.  
Following the financial crisis, two new bodies were  set up to investigate and prosecute alleged 
criminal acts in the context of the bank coll apse: the Special Investigation Commission and 
the Special Prosecutor. The Special Investigation Commission , consisting of three members 
nominated by the parliament, is tasked with co llecting information on the main events leading 
to the collapse of the Icelandic banks and with identifying its causes. This Commission is requested to present a report to parliament in early 2010. The Special Prosecutor , established 
in December 2008 as a temporary body, conducts investigations into the matter and is 
responsible for issuing indictments The Special  Prosecutor cooperates with the UK’s Serious 
Fraud Office, Interpol, Luxembourg’s financ ial regulators and Norwegian and French 
counterparts. In March 2009, the Icelandic gov ernment nominated a renowned non-Icelandic 
anti-corruption investigator as ‘speci al advisor’ to the Special Prosecutor. 
The independence of the judiciary  is guaranteed by the constitu tion, which stipulates that 
judges shall be guided solely by the law in the performance of their official duties. Judges 
cannot be discharged from office except by a j udicial decision. This complies with Article 6 
of the European Convention on Human Rights. A special wage committee determines their 
salaries in order to guaran tee independence from the execu tive. The Act on the Judiciary 
provides that judges shall discharge their judicial  functions independently and that they shall, 
in resolving a case, not be subject to the auth ority of any other person . A judicial decision 
cannot be revised, except by appeal to a higher court. Unde r the Government Employees Act, 
a judge cannot be appointed to a second o fficial position. A judge cannot accept a second 
occupation or become a share-owner in a company if  this is not compatible with his/her office 
or carries a risk that the judge will not be able  to discharge his/her o fficial duties. However, 
the predominance given to the Minister of Jus tice and Human Rights in judicial appointments, 
given the consultative role of the Evaluation Committee and Supr eme Court, raises questions 
in terms of the effective independence of judges.  
In October 2009, an expert pane l nominated by the Minister of Justice and Human Rights 
made recommendations relating to the process of  judicial appointments. The findings of the 
panel were subject to public consultation and are currently under review  in the Ministry of 
Justice and Human Rights with a view  to amending relevant legislation.  
Overall, Iceland’s standards as regards the f unctioning of the judiciar y are high. The judicial 
system is well established. However, the strong  role of the Minister  of Justice and Human 
Rights vis à vis the judici ary and the prosecutor is of concer n. There is scope for improvement 
in the process for judicial appointments in or der to better guarantee the independence of the 
judiciary. Following the financial crisis, a Sp ecial Investigation Commission and a Special 
Prosecutor were set up to invest igate and prosecute alleged criminal acts in the context of the 
bank collapse. ( See also Chapter 23 — Judi ciary and fundamental rights)  
EN 13   EN 1.1.4.  Public Administration 
The central government is composed of 12 minist ries, each with author ity over a number of 
agencies. The agencies are governed by special legislative acts settin g out their roles and 
functions. Unless otherwise provided for by law,  decisions taken by the agencies may be 
referred to the relevant ministry for revision.  
In the absence of administrative courts, district courts are competent to review decisions taken 
by municipalities or by the state administ ration. They are not limited to ruling on the 
procedure for taking the decision, but may also re view the reasoning of the issuing authority.  
There is a high degree of decentralisation in recruiting personnel. The Government 
Employees Act sets out the minimum selection cr iteria, which are then used by the ministries 
and the agencies in a decentralised, merit-based recruitment process.  
Senior civil servants are hired on five-year, fixed-term, renewa ble contracts, unless otherwise 
provided by the law. Employees of the st ate administration are recruited via open 
competitions, based on the principles of transparency and equal opportunities.  
Complaints relating to the recruitment process mu st be addressed to the relevant ministry in 
the first instance. The Ombudsman is competent to review the ministry’s decision on the 
complaint, without explicit powers of reve rsing it. The Gender Equality Complaints 
Committee is competent to review cases of alleged discrimination based on gender.  
The EU accession process is coordinated by the chief negotiator mandated by the Minister for 
Foreign Affairs to lead accession negotiations on be half of Iceland; he/she is assisted by the 
chairpersons of individual negotiation teams and other representatives on Iceland’s 
negotiation committee. Assessing the compatib ility of new legislation with EU/EEA acquis  
remains the responsibility of each ministry. The Ministry of Foreign Affairs may intervene in 
an advisory capacity, but its opinion is not binding for the ministry concerned. 
Overall administrative capacity is satisfactory. Support from the Instrument for Pre-Accession 
would foster institution a nd capacity building to allow smooth implementation of the acquis , 
especially in areas not covered by the EEA, mainly through tools such as the Technical 
Assistance and Information Exchange Instrument (TAIEX) and twinning. 
There is no central institution for the training of public servants. As part of a collective 
agreement, each employer (ministry, agency, muni cipality) contributes to an education fund, 
which is then used for training.  
Overall, the core elements of a merit-based and efficient public admi nistration free from 
political interference, as embedded in the prin ciples of the European Administrative Space, 
are generally in place in Iceland. 
1.1.5.  Anti-corruption policy 
Several laws are in place that criminalise corru ption in relation to othe r activities, including 
active and passive bribery in the public and the private sector, trading in influence and money 
laundering. 
There are a number of institutions with re sponsibilities for addressing corruption. The 
prosecution can instigate inve stigations and over see their conduct. The Economic Crime 
EN 14   EN Division of the National Commissi oner of the Police deals with various aspects of organised 
crime, including money laundering. The Ombuds man launches investigations following a 
complaint in cases of breach of duty. The Co mpetition Authority has substantial authority 
with regard to the search for and seizure of  evidence. The Government Procurement Agency 
manages procurement for public construction pr ojects. The Financial Supervisory Authority 
carries out checks on commercial and savings ba nks, insurance companies and pension funds 
and is required to notify the po lice or the prosecution in case of any suspicion of money 
laundering.  
The National Audit Office  plays a watchdog role. It is responsible for monitoring party 
financing. In March 2007 it issu ed a set of Rules on the Fina ncial Accounts of Political 
Parties, which lists the minimum reporting st andards for political parties and electoral 
candidates. The Office is required to report al l detected irregularities to the police. Rules 
governing party financing  were introduced in 2007 by the Act on financial affairs of political 
organisations and candidates and their duty to pr ovide information. It aims to reduce the risk 
of conflicts of interest and ensu re transparency in the financial affairs of political parties.  
Iceland has undertaken various in ternational obligations to fight corruption in two main fora: 
the Organisation for Economic Cooperation an d Development (OECD) and the Council of 
Europe’s Group of States against Corruption (GRECO). Iceland has been a member of 
GRECO since May 1999. It has ratified the C ouncil of Europe Criminal Law Convention on 
Corruption, the Convention on Laundering, Searc h, Seizure and Confiscation of Proceeds 
from Crime and the OECD Convention on Combati ng Bribery of Foreign Public Officials in 
International Business Transactions. Iceland ha s not yet ratified th e UN Convention against 
Corruption and the Council of Europe  Civil Law Convention on corruption. 
As part of this cooperation, a number of inde pendent evaluation committees have assessed the 
Icelandic system. The conclusions of these evalua tions have generally been that corruption is 
at a low level in Iceland. Further efforts are, however, needed to implement GRECO 
recommendations. Following the financial cris is, certain questions have been raised 
concerning possible conflicts of in terest in Iceland’s public life, such as close links between 
the political class and the business community, especially in light of  the country’s small 
population and isolated location. Immediately following the cris is, a Special Investigation 
Commission and a Special Prosec utor were set up to investigate and prosecute alleged 
criminal acts in the context of the bank collap se. Investigations are under way. Against this 
background, mechanisms will, where appropriate, n eed to be strengthened to reduce the scope 
for conflict of interest. 
Overall, the financial crisis highlighted the ex istence of some structural weaknesses which 
will have to be addressed in the short term. ( See also Chapter 23 — Judiciary and 
fundamental rights.  
1.2. Human rights and the protection of minorities 
Human rights are enshrined in the constituti on. The 1995 constitutional amendments reflect 
the provisions of the European Convention on Human Rights (ECHR), the UN International 
Covenant on Civil and Political Rights (ICCPR) , the European Social Charter, the UN 
International Covenant on Economic, Social  and Cultural Rights (ICESCR) and ILO 
conventions. Iceland incorporated the Rome Stat ute of the Internationa l Criminal Court (ICC) 
into its legal order in July 2002; Iceland has not concluded any bilate ral immunity agreements 
granting exemptions from ICC jurisdiction. 
EN 15   EN Access to justice is guaranteed by the constitution. Legal aid  is available in both criminal and 
civil cases. Persons charged with a criminal o ffence have access to legal counsel of their own 
choosing, with sufficient time to prepare their defence. Free legal aid is available to any 
individual involved in a cour t action in civil cases.  
The constitution prohibits capital  punishment and provides that  no one may be subjected to 
torture  or inhuman or any other degrading treatment or punish ment. Slavery, servitude, and 
forced or compulsory labour are prohibited under the constitution. 
Iceland has been a member of the Council of  Europe (CoE) since 1950. It has signed and 
ratified almost all relevant conventions of the Council of Europe, including the European 
Convention on Human Rights (ECHR), which en tered into force in September 1953. It 
recognised the jurisdiction of the European Court of Human Rights (ECtHR) in September 
1994. The ECHR and its protocol s were incorporated into Icelandic law in 1994. The CoE 
Framework Convention for the Protection of Nati onal Minorities was sign ed in February 1995 
but has not been ratified.  
Iceland is a member of several agreements with in the Council of Europe, including the Venice 
Commission.  
In the past decade, the ECtHR has received few applications against Iceland per year and has 
heard eight cases against the st ate. In most of these judgmen ts, breaches of the procedural 
guarantees of Articles 5 (right to liberty) and 6 (ri ght to a fair trial) of the Convention were at 
stake. The Icelandic authorities have executed all judgments against the country, and amended 
laws and regulations where necessary.  
Iceland has signed and ratified most of the Inte rnational Conventions of  the UN, including the 
International Covenant on Civi l and Political Rights and the International Covenant on 
Economic, Social and Cultural Rights. It has al so signed and ratified the European Social 
Charter and its Protocols.  
Iceland is an active member of the International Labour Organisation  (ILO). It has ratified 
the ILO conventions concerning human rights at work, as well as the conventions concerning 
labour inspection, employment po licy and tripartite consultation, the social security 
convention and the health and safety  at work framework convention.  
Court rulings in Icel and commonly refer to international human rights conventions , such as 
the European Social Charter, the Internati onal Covenant on Economic, Social and Cultural 
Rights and ILO Conventions, when interpre ting the human rights provisions of the 
constitution. Executive and legislative actions have also been compatible with these provisions. 
Civil and political rights 
Equality before the law is constitutionally guaranteed and further enriched by the 1994 
Administrative Procedure Act. The basic elemen ts of a fair trial in criminal cases as 
developed in the case-law of the European Cour t of Human Rights have been incorporated in 
the Criminal Procedure Code re garding the right to liberty.  
The right to privacy is protected  in the General Penal Code, th e Data Protection Act and legal 
remedies granting the right to damages from the person violating another person’s privacy. 
EN 16   EN The 1996 Act on registered partners hips stipulates that  two persons of the same sex can enter 
into a registered partnership. Such partnerships  have the same legal effect as marriage.  
Provisions of the Information Act grant the public extensive access to data on cases being 
processed in the state and municipal admini strative system. The Act on patients’ rights 
guarantees various rights of pati ents such as the right to obtain information regarding their 
state of health, the proposed treatment and the possibility of se eking a second opinion.  
The right of ownership is guarant eed to all citizens of  Iceland. (See also ‘Economic criteria’) 
Freedom of thought, conscience and religion is guaranteed by the constitution. The law on 
registered religious communities authorises th e registration of religious communities with 
legally stipulated rights. There are no reported cases of limitations to th e freedom of religion 
in Iceland. 
In Iceland, discrimination  is prohibited and equality  is guaranteed by th e constitution.  
Iceland is party to several international instruments whic h set out the principle of non-
discrimination. These include the ICCPR, the ICESCR, the Convention on the Elimination of All Discrimination against Women, and the Inte rnational Convention on the Elimination of 
All Forms of Racial Discrimination.  
As member of the Council of Europe, Icelan d is subject to monitoring by the European 
Commission against Racism and Intolerance (ECR I), whose recommendations have been used 
by the Icelandic authorities as guidelines for amendments to the relevant legislation or 
improvements in practice.  
The definition, status and rights of refugees  are, according to Icelandic law, based on the 
1951 UN Convention and the 1967 Protocol, imple mented by the 2002 Act on Foreigners, 
which introduced clearer provisions on the legal st atus of foreigners and asylum seekers. In 
the period 2006-2008, Iceland recei ved 154 applications for asyl um. Four applicants were 
granted refugee status, 11 were granted a re sidence permit on humanitarian grounds, 61 were 
sent to other European states on the basis of the Dublin Regulation and other agreements and 
41 applications were denied. Furthermore, as  of 2007, Iceland resettles 25-30 'quota refugees' 
per year with the assistance of the UNHCR. 
Given the rarity of persons belonging to minorities , Iceland has not passed specific acts on 
matters of discrimination based on racial or ethnic origin, religion or belief. Steadily 
increasing immigration in recent years has, however, led to cal ls for specific measures and 
legislation to combat discrimination on th ese grounds. In March 200 9, there were some 
24
 000 foreigners — mainly from Poland, Lithua nia and Germany — residing in Iceland. 
There have been individual cases of discrimi nation against foreigne rs, including asylum 
seekers. For the year 2008, Iceland reported only three cases recorded by the police, none of 
which were prosecuted or sentenced.  
The 2008 OSCE-ODIHR report on hate crime made a number of recommendations, 
regarding, inter alia, amendments to the Genera l Penal Code, more rigorous recording of hate 
crime and improving awareness among police officer s and employees in the judicial system. 
Those recommendations should be followed up. 
Freedom of assembly and freedom of opi nion and expression are guaranteed by the 
constitution and no problems can be reported.  
EN 17   EN The media are regulated through the Right of Publication Act.  All of Iceland’s media are 
private, with the exception of the Icelandic Na tional Broadcasting Service (RÚV). As a result 
of the financial crisis, the print media market has contracted significantly. At the same time, 
the number of on-line media outlets has increase d. These provide access to a wide range of 
information. 
Ownership of the media is highly concentrated with substantial links between media outlets 
and large corporations.  
Overall, Iceland has established a high degr ee of media freedom. The Icelandic media are 
sufficiently diversified; ownershi p, however, is highly concentrated. 
Economic and social rights 
As regards labour rights and trade unions , the Act on Trade Unions and Industrial Disputes 
sets out the rules on trade unions operation a nd the framework of th eir relations with 
employers with regard to strikes and lock-out s and the solution of di sputes arising from 
violations of law or the interpretation of  wage agreements. There are no reports on 
infringement of the right to establish trade unions or the right to strike.  
Since 1976, Iceland has had a sp ecial statute which ensures e quality between women and men 
in all respects. These rights are regulated by the Gender Equa lity Act and the Act on equal 
status and equal rights of women and men. In  1996, the parliament added provisions to the 
General Penal Code, including penalties proh ibiting discrimination on grounds of sexual 
orientation.  
The principal equality bodies in Iceland are the Ombudsman, the Ombudsman for Children, 
the Centre for Gender Equality and the Gende r Equality Council, and other specialised 
complaints committees such as the Compla ints Committee on Equal Status and the 
Information Committee. 
The percentage of women in parliament and government is 42  % and 50  % respectively. 
Income and labour force gender gaps are narrow . Overall, in the field of gender equality, 
Iceland has reached very high standards. 
Children’s rights are guaranteed in Iceland (Child Protection Act 2002); the country has 
ratified the UN Convention on the Rights of the Child. 
The right of education is guaranteed in the constitution; the ECHR, incorporated into 
Icelandic law, protects this right. 
In summary, regarding the acquis on fundamental  rights, no major problems can be identified. 
In this area Iceland has achieved high standa rds; fundamental righ ts are respected and 
Icelandic society possesses a high degree of human rights awareness. (see also chapter 19—Social policy and employment and chapter 23- Judiciary and fundamental rights) 
1.3. General Evaluation 
Iceland is a functioning democracy  with strong institutions. It is  a parliamentary republic with 
deeply rooted traditions of re presentative democracy and divisi on of powers. Its constitutional 
and legal order and governing institutions are stable.  
EN 18   EN The separation of powers between the legislature, the executive and the judiciary is respected. 
The government is subject to effective parliame ntary control; its ministers are accountable for 
their acts. Municipal author ities function efficiently. 
Iceland’s judiciary is of a high standard and the judicial system is well established. The 
effective independence of the judiciary, in partic ular the procedure for judicial appointments, 
is, however, a matter of concern. 
Iceland’s public administration is, in general, efficient and  free from political interference. A 
public administration reform process was initiated in October 2009.  
Following the financial crisis, certain questions have been raised con cerning possible conflicts 
of interest in Iceland’s public life, such as close links between the political class and the 
business community, especially in light of the country’s small population and isolated 
location. Immediately following the crisis, a Sp ecial Investigation Commission and a Special 
Prosecutor were set up to invest igate and prosecute alleged criminal acts in the context of the 
bank collapse. Investigations are under way. Against this background, mechanisms will, where appropriate, need to be strengthened to reduce the scope for conflict of interest. 
Iceland has a comprehensive system for safegu arding fundamental rights and there is a high 
level of cooperation with international m echanisms for the protection of human rights.  
2. E
CONOMIC CRITERIA  
In 1993, the European Council in Copenhagen set the following economic criteria for 
accession to the EU: 
– the existence of a functioning market economy; 
– the capacity to cope with competitive pressure and market forces within the Union. 
This section gives a brief overview of economic developments and policies in recent years. It 
then examines the impact of the financial and economic crisis. Against this background, it goes on to consider the extent to which Icela nd fulfils the two economic criteria established 
by the Copenhagen European Council. 
2.1. Economic developments 
Iceland is a small open econom y with a population of over 300,
 000 and a nominal GDP of 
€ 10.2 billion in 2008. Th is equals about 0.06  % of the EU-27 populat ion and about 0.08  % of 
EU-27 GDP. During the 1990s and for most of th e past decade, it restructured its economy 
mainly by deregulation and liberalisation. It moved from an economy mainly based on the 
fishing industry to a more diversified one with a large and open financial sector. It 
experienced growing economic prosperity and b ecame one of the wealthiest countries in the 
world, with a GDP per cap ita in purchasing powe r standards at around 120  % of the EU-27 
average in 2008. 
Economic activity 
Iceland’s economy grew considerably over th e 10 years up to 2007. GDP growth rates were 
particularly high towards the e nd of this period, averaging 6.3  % from 2004 onwards. The 
EN 19   EN fastest growth took place in the financial intermediation and real  estate sectors, whose share 
of GDP rose from 17  % in 1998 to 26  % in 2007. Non-trad able services formed the bulk of 
economic activity, accounting for 67  % of GDP in 2008. Private consumption contributed on 
average about 58  % of GDP in 2002-2007 and public consumption and gross fixed investment 
25 % and 24  % respectively. Although growth was accompanied by increasing social 
differences, the lowest income cla ss increased its pur chasing power by 60  % in the last 
decade. The level of poverty is one  of the lowest in the world. 
Iceland’s export base is rela tively narrow and largely based on natural resources, namely 
fisheries products and industr ies powered by renewable ener gy sources. Marine products 
account for approximately 40  % of Iceland’s total exports and around 30  % of its foreign 
currency earnings. However, this  share declined cons iderably over time; in 2000, the share of 
marine products still accounted for around 75% of total exports. The economy became more 
diversified, not least with the developm ent of aluminium production, pharmaceuticals, 
information technologies, tourism and the financ ial sector. As an example, metals produced 
by power-intensive industries accounted for over 20  % of exports in 2008 , compared to an 
average of 12  % in the period 1980-2002.  
Iceland’s strong growth perf ormance in the period 2003-2007 was largely driven by major 
energy investments and substa ntial foreign investments in  aluminium production. These 
investments were equivalent to more than  one third of annual GDP over the period 2003-
2008. Imports of capital equipment and increased  domestic demand resulted in considerable 
widening of the current account deficit. Driven  by a growing trade deficit and a worsening 
income balance (increased expenditure on interest and dividend payments on foreign debt and investments ), the curren t account deficit reached 26
 % of GDP in 2006 and peaked at 36  % of 
GDP in 2008. The current account deficit was larg ely financed by FDI inflows and the issuing 
of króna-denominated bonds by fo reign banks (glacier bonds).  
In 2007, completion of large-scale investment pr ojects, which resulted in a large external 
imbalance, pushed Iceland into first attempts to tighten fiscal and monetary policy. 
Investment contracted by around 12  % in 2007 and by around 20  % in 2008. At the same time, 
Iceland experienced a tightening of its economic policy. A decline in shar e prices and reduced 
access to cheap foreign financing led to a reducti on in domestic growth and the imbalances in 
the economy started to unwind. Consumer consum ption growth decreased due to increased 
interest rates and mortgages since the second ha lf of 2007. Private cons umption decreased by 
almost 8  % in 2008.  
Overall, Iceland’s economy grew at a rapid pace from the mid-1990s. However, growth was 
volatile and accompanied by large external and internal imbalances that reflected in part major investments in the energy and aluminiu m smelting sectors but also buoyant foreign 
credit-funded domestic demand. Macroeconomic adju stments measures taken before the crisis 
had already slowed down the economy. 
Structural change and reforms 
Since the 1990s, Iceland pursued a significan t number of reforms, many linked to EEA 
membership. Liberalisation, improved competition, internationalisation and privatisation were 
key processes which transformed the economy and supported high growth. 
Both central and local governments were tradi tionally heavily involved in the business sector, 
for instance in the operation of utilities and banking institutions. Over the last two decades 
EN 20   EN Iceland has pursued an extensive programme of privatisation . The most important 
privatisations from 1992 to 2005 were the tr avel bureau, printing house, publishing house and 
fish processing plant. Icelandic Telephone wa s privatised in 2005. However, in the same 
period, the state consolidated its hold on the national power company. 
In the financial sector, the three larger banks were progressively privatised from the late 
1990s to 2003. The process of bank privatisation  was marred by claims of favouritism as the 
initial plan to spread ownership among nu merous investors was abandoned. This was 
considered largely a political decision. The Financial Supervisory Authority (FME) was 
originally dissatisfied with the result and ga ve its approval only afte r lengthy deliberations. 
Local business conglomerates took over the banks  and subsequently started expansion into 
foreign markets with little previ ous experience in such operations. 
Iceland adopted a Competition Act in 1993 in line with EEA requirements. A new 
Competition Act was adopted in 2005, based on the EU competition law principles. It is 
enforced by the Competition Authority, whose powers have been strengthened.  
The labour market  is flexible and the participation rate is very high, notably among women 
and the elderly. The unemployment rate was low throughout the boom years, averaging 2.7  % 
over the period 1999-2007. The workforce is highly unionised and is known for wage 
flexibility, as salaries often do not follow infl ation. Iceland’s labour regulation offers a level 
of protection comparable with EU Nordic countries. The non-salary cost of employing a 
worker is moderate. There is no legal right to severance pay and employ ment contracts can be 
generally terminated without spec ific reasons. But notification re quirements are strict and thus 
constraining for employers, as are the rules on collective dismissals a nd regulations regarding 
the number of working hours. 
Demand for a skilled workforce  increased with Iceland’s diversification towards a 
knowledge-based economy. A clear shift was not able from resource-based industries and 
traditional manufacturing to sectors such as  information technologies, pharmaceuticals and 
financial services. Iceland became an importe r of skilled and unskilled labour. On average, 
one third of new jobs created during 2003-2007 were filled by foreign labour.  
Icelandic per capita expenditure on education  (around 7  % of GDP prior to 2008) is among 
the highest in the world; however, the achieve ments of pupils at the end of compulsory 
schooling are below the EU average. Upper-s econdary graduation rates are improving but 
remain comparatively low. The length of s econdary education and easy access to the labour 
market postpone students’ entrance into univers ities up to the age of around 20. Traditionally, 
Icelanders pursued university studies abroad. The recent expansion of the higher education 
sector and improved lifelong learning opportunities are changing this.  
The Icelandic innovation system  has gained considerable ground in recent years . Iceland’s 
R&D intensity was at 2.8  % of GDP in 2007. Almost 50  % of R&D efforts were financed by 
the business sector and more than 10  % were funded from abroad. However, according to the 
European Innovation Scoreboard 2008, Icela nd only rates among moderate innovators. 
Overall, Iceland’s economic transformation wa s based on the implementation of widespread 
structural reforms, which opened the economy and enhanced competition. Financial market 
liberalisation and privatisation across a number of sectors unleashed gr owth. Competitiveness 
increased and enterprises expande d abroad. The country invested a large portion of the newly 
EN 21   EN created wealth in education and its society re mained very cohesive. The skills and innovation 
profile of the economy has not kept  pace with the high growth rates.  
Financial sector and th e financial crisis 
The privatisation and gradual dere gulation of financial institutions  at the beginni ng of the past 
decade led to particularly rapid expansion of  the Icelandic banking sector. Banks started 
tapping international capital markets to finance growth that, over the course of four years, 
pushed their consolidated assets to the equivalent of 880  % of GDP by year-end 2007, while 
in the same year their borrowing in foreign capit al markets increased Iceland’s gross external 
debt to 566  % of GDP. Iceland’s financial system and the banking sector were among the 
largest in the world in relation to GDP, but th e country's economic future became increasingly 
intertwined with the banking s ector’s health and its grow th increasingly dependent on 
institutional and individual investors’ risk appetites. 
As a member of the EEA, Iceland is subj ect to European banking regulation, although 
supervision was left to the national authoritie s, the Central Bank of Iceland (CBI) and the 
Financial Supervisory Authority (FME). The tw o institutions were in turn supported by the 
Prime Minister's Office, the Ministry of Busine ss Affairs and other mini stries with access to 
relevant information on the financial sector. The Depositors’ and Inve stors’ Guarantee Fund 
was the institution responsible for providing liquidity during financial crisis situations. However, as the crisis revealed, the large number of institutions involved in Iceland’s regulatory framework hampered the smooth flow  of information and generated detrimental 
delays in the decision-making process. The re gulators were neither su fficiently staffed nor 
equipped to cope with the rapidl y changing situation. In conseque nce, they failed to develop a 
clear strategy for mitigating th e banks’ risk taking or contro lling their rapid expansion. As 
bank deposits grew at such a rapid pace, the assets of the Deposit Guarantee Fund were nowhere near the levels require d to pay back depositors.  
In 2006, cross-border deposit accounts, such as Landsbanki’s Icesave , increased rapidly. The 
FME endorsed the marketing of internet account s abroad, despite indications of the banks’ 
overexposure.  
In October 2008, the three main banks, totalling 85
 % of the banking sector, collapsed as 
foreign finance dried up and confidence waned. Unab le to obtain short-term loans, they were 
nationalised by the government. Their international exposure severely affected national macroeconomic stability and the economy moved into recession.  
The restructuring of the banking sector started immediately after the collapse. The three banks 
have been recapitalised and established under new names. The government has also committed itself to a review of the bank regula tory framework and supervisory practices to 
strengthen safeguards against potential new crises. 
The crisis originated in an over-eager expans ion of the newly liberalised commercial banking 
sector. This was aggravated by the lack of adequate supervision wh ich created substantial 
vulnerabilities. The macro-prudential framework showed itself unable to put a stop to the 
banks’ unsustainable developments in credit, leverage and risk. 
Impact of the financial and economic crisis 
Against the backdrop of global financial turmo il, the collapse of Icel and’s vulnerable banking 
sector pushed the economy into a deep recession. The national cu rrency fell sharply in value, 
EN 22   EN considerably pushing up import prices, thereby causing a potent ially alarming situation for a 
country highly dependent on in ternational trade. Furtherm ore, the weakening currency 
strongly increased foreign debt burdens. Th e government sought the assistance of the 
international community to stabilise the fo reign exchange market and restore currency 
credibility. 
On 19 November 2008, the Inte rnational Monetary  Fund (IMF) approv ed a two-year IMF 
stand-by arrangement  (SBA) for an amount of €  1.4 billion, €  560 million of which was 
made available immediately and the remainde r to be disbursed in instalments of €  105 million, 
following the conclusion of IMF programme revi ews. The Nordic countries and Poland have 
agreed to fill the financin g gaps under the programme.  
The IMF programme focuses on three main areas. First, the main priority in the short run is to 
stabilise the króna. As an emergency measure,  the policy interest rate was raised to 18  %, and 
capital and current account restrictions on fore ign exchange transac tions were introduced 
temporarily. Secondly, a fiscal consolidation plan  is to be put in place from 2010 onwards, to 
lower public debt to a sustainable level in th e medium term. Finally, the programme focuses 
on restructuring the banking sect or. On this basis, Iceland st arted implementing a recovery 
programme to restore credib ility and economic growth. 
As a result of the crisis, GDP decreased significantly in th e first half of 2009, with a 
contraction of 5.5  % year-on-year. The sharp drop in dom estic demand has fallen largely on 
imports. The decline in domestic consumption was somewhat cushioned by automatic stabilisers.  
The unemployment rate increased sharply from 2.5
 %, in the third qu arter of 2008, to 9.0  % 
in April 2009. It stood at 8.2  % in December 2009, but is expected to rise again in 2010. Both 
youth and long-term unemployment have soared, with the low-skilled labour force mostly 
affected. The share of long-term unemployed (over 12 months) among all unemployed has reached 21%. The highest employment losses we re in the construction industry. Migration out 
of Iceland has emerged as an issue. 
Wages  did not follow soaring inflation and fell by ove r 6 per cent in real terms in the first half 
of 2009. The fall was much more marked in the private sector than in  the public sector.  
The current account deficit  shrank to about 2
 % of GDP during the first half of 2009. The 
trade balance has shifted into surplus, refl ecting weak domestic demand. Strongly negative 
net interest receipts — a reflec tion of Iceland’s external debt burden — have offset the trade 
surplus and kept the overall current account in deficit. 
After peaking in January 2009 at 21.9  %, inflation  rates (Harmonized Index of Consumer 
Prices HICP) declined and stood at 11.3  % in December 2009, in response to the gradual 
stabilisation of the króna, the drop in demand and falling house prices. However, until 
December 2009 the króna did continue to depreciate, providing the main impetus for inflation in 2009.  
Credit conditions have become very tight and enterprises have little access to bank loans or 
other sources of financing. Investment has ha lved, reflecting severe credit constraints. 
To sum up, after the collapse of  the Icelandic banking sector and the ensuing economic crisis, 
the implementation of the IMF SBA is starting to produce first signs of stabilisation.  
EN 23   EN 2.2. Assessment in terms of the Copenhagen Criteria 
2.2.1.  The existence of a functioning market economy 
The existence of a functioning market economy requires that prices, as well as trade, are 
liberalised and that an enforceable legal system , including property rights, is in place. A well-
developed financial sector and the absence of a ny significant barriers to market entry and exit 
improve the efficiency of the economy. Macroe conomic stability and a general convergence 
on economic policy enhance the performance of a market economy.  
Iceland is a member of the EEA Agreement, whic h is designed to contribute, on the basis of 
market economy principles, to trade libera lisation. The EEA Agreement promotes the 
continuous and balanced stre ngthening of trade and econo mic relations between the 
Contracting Parties. Since 1 January 1994, the EEA has united th e EU Member States and the 
EFTA States in an internal market governed  by the same basic rules as in the EU.  
In order to ensure equal conditions for busines ses across the whole inte rnal market, the EEA 
Agreement encompasses competition and state aid rules. It also includes provisions relevant 
to the four freedoms, as well as cooperation in  "flanking areas", such as social policy, 
consumer protection, and environment policy. 
Prices  are determined by market forces in almost all sectors of the econo my. As a member of 
the EEA, Iceland has liberalised most economic sectors  and removed special government 
protection for state-controlled companies in all but a few instances, i.e. energy, postal 
services, broadcasting, alcohol and tobacco. In terms of compliance with EEA law as regards free movement of goods, servic es, capital, and persons, Icel and’s track record can be 
considered satisfactory, despite some shortfalls  as referred to in Section 3 of this opinion. 
Legal system and barriers to entry / exit 
The Icelandic legal system  provides sufficient clarity and guarantees enforcement of 
property rights . Starting a business is facilitated by low administrative hurdles and a 
supportive legal framework. Bankruptcy proceedings  are straightforward and take less time 
than the OECD average; in 2009, their number increased by around 20
 %. Given the current 
economic climate, the proper functioning of the ba nkruptcy system is essential to facilitate 
recovery, in particular to determine the order of creditors in the liquidation of firms, thus 
containing the burden of debt.  
High barriers to entry  exist, however, in the fishing, agriculture and energy sectors, which 
are not covered by the EEA. Icelandic legislatio n contains prohibitions on foreign ownership 
in the fisheries, energy, air transport and real  estate sectors. Of these, restrictions on 
investment in fisheries are the only ones that apply to EEA residents.  
Overall, Iceland retains open markets conducive to  growth and has effect ively operated within 
the EEA internal market, despite the existence of some barriers to entry in strategic sectors and additional measures following the current economic crisis. It has established a legal 
environment which offers good protection of  property rights. This should support the 
country’s recovery once macroeconomic stabili ty is re-established and investors regain 
confidence in the Icelandic financial markets. 
EN 24   EN Financial sector 
The financial regulatory and supervisory system can be considered as a key institutional 
weakness of the Icelandic economy, as it failed to prevent the accumulation of imbalances in 
the banking sector leading to the crisis. Consequently, the government has started to 
reorganise the supervisory fr amework, first by changing the law on the Central Bank and 
appointing new boards to the Central Bank of Iceland and Financial Supervisory Authority. 
The government also appointed a special prosecut or, who is leading an enquiry into banking 
wrongdoings. The enquiry might last several years.  Forty cases of suspected criminal acts are 
currently under investigation. Th e first cases are exp ected to be opened by the prosecution in 
2010. In parallel, the parliament set up a Special Investigation Co mmission that is expected to 
report in early 2010. 
The banking sector is currently undergoing  major restructuri ng. Through significant 
government intervention and some foreign priv ate capital, the new banks have been re-
capitalised with capital adequacy ratios well  above international st andards in order to 
compensate for credit, liquidity and foreign ex change risk, partly cau sed by lack of access to 
international capital markets. In addition, risk  management and governance issues are being 
addressed as well as the banks' capacity to  undertake the required large-scale loans 
restructuring operations. At the moment, foreign exchange risk is still significant and loan 
restructuring will remain the principal focus of the new banks' operation in the near future.  
While stability of the financial sector is sl owly improving, financial intermediation remains 
low and access to capital limited.  Non-performing loans have risen to 17  % of total 
outstanding loans in the banking sector. Th e interest rates on non-indexed loans are on 
average 9  % and the spread between borrowing and lending interest rates is 2  %. The financial 
system is expected to remain weak for so me time due to high debt. Although the perceived 
risk of contagion from distre ssed to healthy companies has subsided, credit flows have 
remained low since 2008, as co rporations remain highly leve raged. Numerous companies, 
including some outside the financial sector, are still undergoing reco nstruction and are in 
negotiations with creditors. Creditworthiness of both cor porate and household customers 
continues to be difficult to assess, holding back new lending by banks.  
The share of the non-banking financial sector re mains small and firms are largely dependent 
on bank recovery to regain  normal access to capital.  Financial services accounted for 82  % of 
market capitalisation of listed companie s at the end of 2007. Bank failures wiped out 
approximately 80  % of overall equity holdings, hurti ng many in the non-banking sector as 
well as private individuals. At the same time, Iceland has a relatively large insurance market 
which is transparent, offers largely homoge nous products across companies, and is closely 
monitored by a competition authority. 
Overall, financial markets were highly developed,  but have suffered due to the financial crisis. 
They have now somewhat stabilised. However, the functioning of the fi nancial market and the 
financial intermediary roles are not yet restor ed. Enterprises face limited or no access to bank 
loans or capital market financing and will con tinue to face multiple challenges for some time.  
Macroeconomic stability 
Since the introduction of the IMF Stand-By A rrangement, Iceland has been implementing an 
economic programme focusing on stabilising the foreign exchange market and currency, in 
line with reserve targets. In  November 2009, it started partia lly lifting capital controls 
EN 25   EN introduced as emergency measures in Nove mber 2008. It also developed a medium-term 
fiscal consolidation plan.  
There is a broad consensus about economic policy fundamentals. However, the economic 
crisis and necessary response meas ures have also resulted in a heated political debate. The 
search for political consensus on reforms and limited administrative capacities caused a six-month delay in implementing the IMF programme , finally resolved by late autumn 2009. The 
remainder of the programme will be extended to account for the delays. 
Monetary policy and capital controls 
Up to 2001, Icelandic monetary pol icy targeted the exchange rate . After this time, the Central 
Bank of Iceland (CBI) started ta rgeting inflation. The exchange  rate of the króna became 
market-determined, normally without interventions by the central bank.  
The CBI set the official ta rget for inflation at 2.5
 %. However, in practice, inflation was 
volatile and systematically above target, averaging 4.7  % during the period 2004-2007. The 
significant foreign investment boom in 2004-2005 stimulated domestic demand and inflation. 
Increases in the policy rate were required  to anchor inflationary expectations. 
Efforts to tighten the monetary stance via highe r policy rates led to a dditional foreign capital 
inflows that strengthened the króna. The private sector’s net wealth increased, offsetting to some degree the tighter monetary policy stance. Bo rrowing in low-interest currencies to invest 
in the higher-yielding Icelandic króna added to exchange rate volatility and stimulated 
domestic demand. Before the crisis, the Icel andic króna had alread y experienced wide 
fluctuations. In 2005, the króna appreciated strongly against the euro, only to drop again by 
20
 % in value in 2006.  
Credibility and effectiveness of monetary policy was further hindered by the lack of 
institutionally guaranteed inde pendence of the Central Bank ( see Chapter 17 ). 
The crisis has changed the monetary policy objec tive in practice from inflation targeting to 
the stabilisation of the exchange  rate. The króna has lost roughly half of its value against the 
euro, compared with the early 2008 rate. To cope w ith exchange rate pres sures, the CBI raised 
policy rates, introduced capital controls and inte rvened in the foreign exchange market. In the 
context of the IMF SBA, capital controls were  imposed to prevent potentially disturbing 
outflows initiated by non-resident s possessing assets in krónas. The government also refused 
some investment abroad by resident creditors in the hope of increasing domestic lending and 
reducing risk premiums.  
After signs of exchange rate stabilisation, the government in  November 2009 adopted a plan 
to phase out capital controls. As a first step, th e Icelandic authorities authorised investors to 
convert, without restrictions, as set sale proceeds into foreign currency. The second step will 
target foreign-exchange outflows. The speed of  future removal of restrictions on capital 
outflows will depend on the success of these earlier  steps, their effect on the exchange rate 
and the progress made under the IMF programme.  
The relative stabilisation of th e foreign exchange market has en abled the central bank to start 
a gradual reduction of policy interest rates. As a next step, the Icelandic authorities will need 
to reconsider their current ad  hoc approach to monetary po licy and establish a consistent 
medium-term monetary strategy and exchange rate regime. 
EN 26   EN Overall, the measures taken so far in the mone tary area go in the right direction to restore 
stability. The focus on stabilising the exchange ra te is an integral part of Iceland's immediate 
crisis-related measures and remains appropriate at the current juncture. Capital controls have 
been a necessary temporary restriction to the pr inciple of free capital movement in order to 
stabilise the currency and foreign exchange markets. 
Fiscal policy and debt 
The booming economy resulted in a long pe riod of government budget surplus. The 
privatisation of government assets allowed the repayment of debt and an increase of 
government deposits in the Central Bank. Hi gher tax revenues were collected despite 
substantial cuts in income and consumption taxes. Spending rose considerably as very 
substantial public investments were made in  a power station and aluminium smelter.  
Iceland’s fiscal policy was de facto  pro-cyclical with insufficient fiscal restraint, thus 
contributing to macroeconomic instability. Expa nsionary fiscal policy limited its potential 
stabilisation role. The country  neither built up reserves during the boom nor introduced 
medium-term plans for expenditure cuts. At th e same time, signals that the economy was 
overheating were ignored. 
Since early 2009, tax revenues have decreased si gnificantly due to a c ontracting tax base, 
whilst the government has prioritised expenditu re in basic public se rvices — education, 
health, social affairs and law enforcement.  Expenditures on unemployment benefits and 
interest on inflation-indexed debt have increased . To counteract this the government increased 
excise duties and social contributions, and introduced surtax es on high incomes. Tax increases 
have been combined with discretionary expe nditure cuts, better mean s-testing of social 
benefits, and cuts in public investment. The net effect of new taxes and saving measures 
amounts to 2.5  % of GDP in 2009.  
The budget deficit  reached 14.4  % of GDP in 2009. It is expected  to be financed domestically 
given the pool of capital locked in by capita l controls, the capital available through the 
pension system, and government current account deposits in the Centra l Bank (at more than 
10 % of GDP in September 2009).  
The authorities are targeting an improvement of the structural primary balance of 3.5  % of 
GDP in 2010, and 3  % of GDP per annum in 2011–12. Accord ing to the fiscal consolidation 
plan, spending cuts will be simila rly spread over a ll budget categories. 
Following the banking sector collapse, govern ment gross debt increased from 29.3  % of GDP 
in 2007 to 57.5  % by the end of 2008 and to around 125  % in 2009. Total external debt levels 
are currently estimated at 300  % of GDP, with the public share reaching levels in excess of 
125  % of GDP. Debt levels of Iceland’s private sector are exceptionally high.  
Overall, the government is implementing fiscal m easures aimed at reduci ng the deficit, setting 
up expenditure controls and increasing revenue s. The measures announced and implemented 
will contribute to reducing public debt but pursuing fiscal consolidation and achieving 
sustainable public finances rema in a particular challenge. 
Unemployment 
Unemployment increased sharply from the long-time average of 2-3  % to current rates of 
m o r e  t h a n  8 %  ( 8 . 2  % in December 2009). Long-term unemployment has become a policy 
EN 27   EN issue, and it remains to be seen whether th e new emphasis on active labour market policies 
can prevent structural unemployment. It repr esents also a serious challenge for social 
cohesion in Iceland.  
The rise in unemployment has put the une mployment benefit scheme under significant 
pressure. The system of financing the scheme via a payroll tax of 0.65  % was found 
unsustainable when the financing requiremen ts for 2009 and 2010 were  calculated at 1.5  % of 
annual GDP. Therefore, a new law on taxation to  fund the scheme was adopted in June. In 
addition, new resources have b een invested in a special sc heme to discourage lay-offs. 
The viability of the upgraded scheme is suppor ted by a restrictive system of payments. 70  % 
of the last salary is paid in the first three months of unemployment and a reduced fixed amount in the three years to follow. Individuals receiving the benefit are required to 
participate in active labour market programmes and are not allowed to refuse job offers. If 
they do, their payments are suspended for forty days.  
Overall, unemployment rose sharply as a co nsequence of the crisis. The restoring of 
macroeconomic stability and revived growth s hould eventually bring it back to pre-crisis 
levels. The fair sharing of the so cial costs of the crisis will play an import role in reaching 
domestic consensus on further anti-crisis measures. 
In conclusion , despite its current difficult economic situation following the financial and 
economic crisis, Iceland can be considered a functioning market economy. As a member of 
the EEA, Iceland has liberalised most econom ic sectors and removed special government 
protection for state-controlled companies in a ll but a few instances. Prices are determined by 
market forces in almost all sectors of th e economy. Although there are some shortfalls, 
Iceland’s track record in the implementation of the four freedoms stemming from the EEA 
Agreement can be considered satisfactory. The Icelandic legal system provides sufficient clarity and guarantees enforcement of property ri ghts. Overall, Iceland retains open markets in 
all but a few protected sector s. Under the IMF programme, th e government has been taking 
necessary measures with a view to reducing a la rge fiscal deficit and establishing a stable 
economic and monetary environment. Howeve r, fiscal consolidation and the firm 
implementation of a credible fiscal strategy rema in key challenges. As a basis for recovery, a 
domestic agreement on necessary reform exists. The debt restructuring of the private sector 
and the reestablishment of financial intermediatio n will determine how fa st markets can return 
to normal functioning. 
2.2.2.  Capacity to cope with comp etitive pressure and market forces within the Union 
The ability to fulfil this criterion requires th e existence of a functioning market economy with 
a sufficient degree of macroeconom ic stability for economic agen ts to make decisions in a 
climate of stability and predictabi lity. It also requires sufficient stocks of human capital with a 
strong education base, and physical capital  including infrastr uctures in energy, 
telecommunications and transportation networks. Government influences the competitiveness 
of the economy through policy and legislatio n, among others trade policy and competition 
policy. Competitiveness is also  affected by the structure of the economy, including the weight 
of the SME sector. The degree and pace of tr ade integration with the EU before accession 
demonstrates an ability to compete in EU markets. 
EN 28   EN Endowment with human and physical capital 
Iceland has developed a knowledge-based economy  with a relatively young labour force and 
high participation rates, partic ularly among women and the elderl y. The crisis has affected 
new employment from the pool of students and pupils and redu ced the participation rate 
among elders. The employment policy is currentl y being transformed into a system of active 
labour market measures. The authorities have st arted a series of projects for activating and 
retraining unemployed people. However, Icel and has not yet developed a comprehensive 
strategy. Recent reforms in the voc ational education system shoul d help the coun try to cope 
with some human capital issues.  
So far, the crisis has had a limited effect on the education system . The authorities have, 
however, announced measures in the educati on sector that should reduce spending and 
increase efficiency and diversif ication. In addition, the crisis ha s led to outflows of educated 
professionals and workers to nei ghbouring countries, pa rticularly those previously working in 
the financial sector. There is a risk that emig ration will have a negative effect on the labour 
market in the medium term. 
The quality of basic infrastructure  is in line with the high income level of the economy. 
National transport is mainly by road. Iceland ha s 11 airports with sche duled flight of which 
two provide international connections.  
Fish and geothermal energy are the most important natural resources . Fishing and fish 
processing secure 30  % of foreign currency income. Renewable energy sources provide 
practically all of Icelan d’s electricity and around 80  % of the nation’s primary energy supply. 
The remaining 20  % of its energy supply comes from imports of coal and oil. 
Investment  ratios over the past decade were  systematically very high, above 20  % of GDP. 
Investments have halved since the outbreak of the crisis, also due to completion of large 
projects started earlie r. In 2009, they contributed to around 13.5  % of GDP, with public 
investments slightly less than 2  % of GDP. 
Overall, Iceland has strong human and physical capital endowments. Infra structures are well 
developed and can support economic recovery. Howe ver, the current drop in investment risks 
negatively impacting productivity of th e economy in the medium term. 
Reform and liberalisa tion of industries 
Since the 1990s, Iceland has reformed and liberalised it s economy through an extensive 
programme of privatisations in  all but a few strategic sectors, which are presented below.  
The fishing industry, which remains of crucial im portance, is heavily protected, in particular 
against competition coming from foreign investment  (see Chapter 13 ). To protect Iceland’s 
resource base, the volume of annual catch is managed through a system of individual 
transferable quotas. Since 2004, a fee has been collected on hol ders of harvesting rights. 
Ownership of fishing operations and primary fish processing is  limited to Icelandic nationals. 
In the spring of 2002 the Icelandic parliament  decided to levy a resource tax on Icelandic 
fishing companies. The tax is levied on allotted quotas based on the performance of the fishing operations as a whole.  
EN 29   EN The agricultural sector remain s heavily subsidised and protec ted. Support to the agriculture 
sector is provided through both internal and border measures. Before the currency crisis, food 
prices were on average 60  % higher than in the EU. 
The energy sector is dominated by state and muni cipality-owned companies. Only Icelandic, 
EEA or EFTA residents and legal entities may own energy exploitation rights or enterprises 
involved in producing or distri buting energy, although agreements  may be reached to extend 
these benefits to other parties. No plans have  been announced by the Icelandic authorities to 
further liberalise the ma rket in the short term. Energy pri ces are among the lowest in Europe 
and attractive wholesal e contracts are being offered to industry. 
The legal framework governing the telecommunicat ions sector has been in place since 2000 
and aims to promote competition. It is designed to ensure conformity of Icelandic law with 
European directives.  The telecommunications sector was privatised in 2005. Since 2006 the 
government has maintained a Telecommunicati ons Fund, financed by the proceeds from the 
sale of the government’s stake in Iceland Te lecom, for projects aimed at developing the 
country’s telecoms infrastructure, principally in areas where investment from the private 
sector was considered unlikely to be undertaken on market terms.  
Overall, Iceland has a liberal,  market-oriented economy, except in a few sectors considered 
strategic, where the government retains or restricts ownership. It  will have to align with the 
EU acquis , method of governance and rule s upon entry into the Union. 
Structural shifts in the economy 
Fishing, fish processing and agri culture generated approximately 8  % of GDP in 2008. 
Traditional manufacturing indus try operates on a small scale a nd its contribution to GDP has 
not significantly grown over the last ten years. It generated around 16  % of GDP in 2008. The 
construction sector was responsible for 12  % of GDP in the same year, while services 
contributed the rest. Financ ial services represented 26  % of the economy in 2008.  
The importance of small firms in the Icelandic economy is high.  SMEs account for around 
70 % of all jobs in Iceland. Th e private sector employed 71  % of all employed persons in 
2008.  
Overall, Iceland continues to reduce its de pendence on fishing. The aluminium industry and 
financial services have contributed to the dive rsification of the economy. Since the collapse of 
the financial sector, production in th e aluminium industry has held steady. 
Government interventions in the economy 
State aid policy in Icel and is governed by the EEA Agreement,  in line with EU legislation. 
The legal framework for state aid is also part ly determined by the country’s international 
obligations stemming from its membership of the WTO. Stat e aid in Iceland amounted to 
0.12  % of GDP in 2007 and was mostly directed to R&D.  
Publicly owned enterprises account for a sizable share of GDP — around 30  % in 2005, 
declining to around 27  % in 2008. Currently, the most im portant business holdings in public 
ownership  are in the production and dist ribution of electricity and postal services, as well as 
in the Housing Financing Fund, the Student Loan Fund and a few smaller financial institutions. Local governments own almost all the geothermal power companies, which 
EN 30   EN supply heating for most homes and, on an incr easing scale, electric ity to the aluminium 
industry. 
The crisis has further increased  the role of the government in the economy, particularly 
through the restructuring of  the three main banks. 
Trade integration 
Iceland is an open economy, with imports and exports of goods and se rvices amounting to 
57 % and 49  % of GDP respectively in 2008. Trade integration with the EU is high. 54  % of 
Iceland’s imports came from the EU and 76  % of its exports went to the EU in 2008.  
However,  certain factors restrict Iceland’s openness,  such as geographic distance from major 
population centres, limited intra-industry and tr ansit trade, a natura l resource-based export 
sector and extensive protection of dom estic agriculture and fisheries.  
Trade involves a large share of primary product s and commodities. Exports of services have 
also soared as the economy becomes increasingly  service-oriented. The share of services in 
total exports of goods and services was 28% in 2008. 
Currently the real excha nge rate is at historical lows, because of corrections in the nominal 
exchange rate and wage cuts. The weakening of  the króna’s real exchange rate has shifted 
demand from imported goods to domestic products, contributing to a surplus on the external 
trade balance.  
In conclusion, as a member of the EEA Icel and has proved able to withstand competitive 
pressures and market forces within the Uni on. The crisis and macroeconomic shocks have 
seriously affected the investment capability of the private sector and have temporarily increased the role of the state. However, Ic eland is well endowed with human and physical 
capital. It could regain the capacity to sustain the competitive pressures of the single market in 
the medium term, provided that it addresses current weaknesses by swiftly implementing the 
appropriate macroeconomic policies and pursuing structural reforms. 
2.3. General evaluation 
Iceland is a small open economy and a member of the EEA since 1994. As an EEA member, 
Iceland is well integrated into the EU econo my. During the 1990s and for most of the past 
decade, it restructured its ec onomy, mainly through deregulation and liberalisation. It moved 
from an economy based mainly on the fishing s ector to being more diversified with a large 
and open financial sector. Given the degree of exposure of Icel andic banks and the lack of 
adequate financial sector supervision, in the c ontext of the global financ ial turmoil, Iceland’s 
banking sector collapsed in 2008, pushing the ec onomy into a monetary and financial crisis 
which led to deep recession. The government s ubsequently sought the assistance of the 
international community, including the IMF,  to support the currency and re-establish 
sustainable macroeconomic stability. The IMF stand-by arrangement for €
 1.4 billion focuses 
on currency stability, fiscal conso lidation and bank restructuring.  
The gravity of the economic crisis and the resu lting political situation in Iceland delayed the 
implementation of the IMF programme. Howe ver, since summer 2009, a broad consensus 
about the fundamentals for recovery has been reached. The authorities have taken important 
economic stabilisation measures, aimed at fiscal consolidation, exchange rate stabilisation and 
financial sector restructuring. The first positiv e results of these measures are starting to 
EN 31   EN emerge. Iceland has a relatively flexible labour market with high participation rates, a 
relatively young working population and a we ll managed and robust resource base.  
However, macroeconomic stabilisation is not yet complete. In response to the crisis and as a 
consequence of the public takeover of the failed banks, the government deficit rose to 14.4  % 
of GDP in 2009. In the same year, the gross public debt reached 125  % of GDP, a third of 
which is due to the Icesave debts. Fiscal consolidation remains a key challenge. The 
restructuring of both public and private debt will  have an impact on the pace of recovery. The 
completion of financial sector restructuring as well as the s ubstantial improvement of the 
regulatory and supervisory institutional fr amework and practices are among the key 
challenges to be addressed in the short term. Further diversif ication of the economy and the 
implementation of a number of structural  reforms would improve the country’s 
competitiveness. 
3. ABILITY TO ASSUME THE OBLIGATIONS OF MEMBERSHIP  
This part of the analytical report analyses Iceland’s ability to assume the detailed obligations 
of membership — that is, the acquis communautaire , as expressed in the Treaties, the 
secondary legislation and the pol icies of the Union. This secti on follows the structure of the 
33 negotiating chapters into which the acquis  has been divided for the purpose of conducting 
accession negotiations. Each chapter examines the current situation and prospects in Iceland. 
The negotiating chapters have been divided into  three groups: the 10 chapters covered by the 
EEA, the 11 chapters partly covered by the EEA, and the 12 not  covered by the EEA. For the 
purpose of this analytical report, and without  prejudging any future date of accession, the 
medium-term perspective in the assessments has been defined as a period of three years. 
3.1. Chapters of the acquis 
3.1.1. Chapters covered by the EEA 
 Chapter 1: Free movement of goods The principle of the free moveme nt of goods means that products  must be traded freely from 
one part of the Union to another.  In a number of sectors this ge neral principle is  supplemented 
by a harmonised regulatory framework, following e ither the ‘old approa ch’ (imposing precise 
product specifications) or the ‘n ew approach’ (imposing genera l product requirements). The 
transposition of harmonised Eu ropean product legislation re presents the bulk of the 
obligations  under this chapter. For the smooth implementation of the acquis  it is essential to 
have sufficient administrative capacity to notif y restrictions on trade and to apply horizontal 
and procedural measures in areas such as  standardisation, conformity assessment, 
accreditation, metrology and market surveillance. 
All main elements of the acquis  on free movement of goods ar e covered by the EEA. All new 
relevant Community legislation is incorporated into the Agreement and thus applies throughout the EEA. 
Regarding general principles , Icelandic legislation is generally  in line with Articles 34 to 36 
of the Treaty on the Functioning of the Europ ean Union and the related case-law of the 
European Court of Justice. However, some que stions remain in the fields of alcoholic 
beverages and distance se lling of medicines. 
EN 32   EN In the area of horizontal measures , Iceland is implementing EU legislation related to the 
principles of the new and global approach, st andards, conformity assessment, accreditation, 
metrology and market surveillance. 
In the field of standardisation  the national standards body of Iceland is Icelandic Standards 
(ÍST). ÍST is already a full member of CEN and CENELEC and an associate member of 
ETSI. ÍST is also active in international stan dardisation organisations. The administrative 
capacity of ÍST should be sufficient to ensure  proper transposition of harmonised European 
standards into national standards. 
Conformity assessment  is organised in Iceland on the ba sis of both horizontal and sector-
specific EU legislation. CE marking is al ready used, recognised and accepted for those 
products falling within the scope of new appr oach directives. However, Iceland needs to 
ensure that the latest changes in the field of  conformity assessment are duly implemented, not 
least Decision 768/2008/EC on the establishment of a common framework for the marketing 
of products. A small network of laboratories, certification and inspecti on authorities is in 
charge of implementing the requirements for accr editation and market surveillance relating to 
the marketing of products. 
As for accreditation , the Icelandic Board for Technical A ccreditation (ISAC) is the national 
accreditation body in Iceland and is a full member  of European cooperation for Accreditation 
(EA). The Icelandic accreditation policy principl es are in line with those of the European 
Union, including as regards professional and fi nancial independence. However, full alignment 
with EU legislation will have to be ensu red. ISAC has not yet been peer evaluated. 
Concerning metrology,  the tasks of legal metrology are en trusted to the Consumer Agency, 
which is in line with EU practice.  
With regard to market surveillance , a system in line with EU practice is in place. The 
Consumer Agency coordinates other market surv eillance authorities. However, Iceland needs 
to improve both internal a nd external coordination.  
In the areas of new and global approach product legislation , Iceland has transposed the 
sector-specific legislation. 
As regards old approach product legislation , Iceland is well aligned with EU legislation. 
However, in the automotive sect or, Iceland also currently acc epts vehicles produced and 
marketed according to technical requirements a nd standards other than the international ones 
on which EU legislation is based. 
Regarding procedural measures , Iceland is implementing the Directive on notification 
procedures. External border checks on importe d products are performed by the Directorate of 
Customs of Iceland. As regards firearms , Icelandic legislation is largely harmonised with the 
acquis . Icelandic transposition of the Directive on return of cultural objects  unlawfully 
removed from the territory of an EU Memb er State is aligned with EU legislation. 
Conclusion 
As a member of the EEA, Iceland a pplies, with a few exceptions, the acquis on free 
movement of goods. Some further efforts are need ed to align with the general principles and 
the old approach legislation and also  to ensure full compliance with the acquis  in the fields of 
conformity assessment, accreditation and market  surveillance. Relevant structures are in 
EN 33   EN place, including a quality infrastructure with  sufficient administrative capacity. Overall, 
Iceland should be able to assume the ob ligations of membership in this area. 
 Chapter 2: Freedom of movement for workers 
The acquis  under this chapter provides that EU citizens of one Memb er State have the right to 
work in another EU Member State, to reside th ere for that purpose with their family members 
and to be treated in the same way as nationa l workers in relation to working conditions and 
social and tax advantages. Furthermore, the acquis  includes the Community instruments on 
coordination of different nationa l social security systems. The EEA Agreement covers the 
acquis  under this chapter with some adaptations in the area of coor dination of social security 
systems. 
Iceland applies the acquis on access to the labour market . EU workers enjoy the same rights 
of access to the labour market and eq ual treatment as Icelandic nationals7. Iceland has notified 
that it has implemented its ob ligations under the EEA Agreemen t as regards the corollary 
right to reside, which includes the right to reside of worker s and their family members. 
Iceland has also implemented the acquis  on safeguarding of supplementary pension rights. 
Iceland is fully participating in the Eu ropean Employment Services network ( EURES ). 
EURES Iceland is an efficient service and has been able to remain a committed partner, despite challenging circumstances as a result of  the impact of the global recession on the 
country’s economy. Sufficient administrative capac ity is in place, with a manager for EURES, 
two EURES advisers and two ad ministrative staff. Furthermore, there are eight EURES 
contact persons/placement officer s in regional offices aroun d the country. EURES provides 
services to newcomers on unemployment benefits in English and Polish. 
As regards coordination of social security  systems , Iceland applies the Regulations on 
coordination of social security, and has shown that it has adequate administrative capacity. 
However, as required by the new acquis  scheduled to enter into force in May 2010, Iceland 
will have to take the necessary steps to prep are for electronic data exchange within the 
Electronic Exchange of Social Security Inform ation (EESSI) system. It  will also have to 
extend its rules on the coordination of social s ecurity to third country nationals. Iceland has 
introduced the European Health Insurance Card  to which Icelandic citizens and other 
residents who are EEA citizens and have National Health Insurance in Iceland are entitled.  
Conclusion  
With a few exceptions linked to  derogations granted under th e EEA, Iceland applies the 
acquis  under this chapter. Adequate administrative structures are in place and Iceland should 
be able to assume the obligations of member ship in the area of freedom of movement of 
workers. 
                                                
 
7 A temporary exception until December 2013 at the latest applies for Bulgarian and Romanian nationals 
in accordance with the transitional arrangements following the accession  of the two countries and the 
extension of the EEA Agreement: they  are currently still subj ect to restrictions on labour market access 
and need a work permit. 
EN 34   EN  Chapter 3: Right of establishmen t and freedom to provide services 
Member States must ensure that the right of establishment of EU nationals and legal persons 
in any Member State and the freedom to provi de cross-border services as laid down in 
Articles 49 and 56 of the Treaty  on the Functioning of the European Union (TFEU) is not 
hampered by national legislation, subject to the excep tions set out in the Treaty. The core 
piece of acquis  in this area is the Services Directive. The acquis  also harmonises the rules 
concerning regulated professions to ensure the mutual recognition of qualifications and diplomas between Member States. For certa in regulated professions a common minimum 
training curriculum must be followed in order to have the qualification automatically recognised in an EU Member State. The EU pos tal reform aims to ensure the provision of a 
universal postal service, the establishment of an  internal market for postal services and a high 
quality postal service for end users. 
The entire acquis  in this chapter is covered by the EEA Agreement. Articles 49 and 56 TFEU 
correspond to Articles 31 and 36 of the EEA Agreement. The postal services acquis  and the 
acquis  in the field of professional qualifications are incorporated into the EEA Agreement.  
In the field of the right of establishment and freedom  to provide cross-border services , the 
decision to incorporate the Services Directiv e into the EEA Agreement has not yet entered 
into force. Icelandic authorities are neverthe less already working on the implementation of the 
Services Directive in the Icelandic legal order. The Ministry of Economic Affairs is in charge 
of the implementation of the Services Dire ctive and coordinates cooperation with other 
ministries, agencies and local authorities. Ic eland will need to ensure that the Services 
Directive is fully transposed and that adequa te administrative capacities are set up. Iceland 
has some restrictions in place as  regards the right of establishment and the freedom to provide 
services in the fisheries sector. ( See Chapter 13  – Fisheries ).  
In the area of postal services , Iceland has implemented the main corpus of the acquis . 
However, the Third Postal Directive is not yet incorporated into the EEA Agreement. 
Particular attention will need to be paid to a number of specific issues including the scope of 
the universal service ob ligation, the authorisation procedur e, the financing of the national 
regulatory authority and the comp ensation of net costs of the universal service obligation. The 
administrative structure is similar to that of  most EU Member States. The Ministry of 
Communications is in charge of  postal policy and legislation, whereas the national regulatory 
authority, the Post and Telecom Administra tion, oversees the implementation of postal 
policies and legislation, and monitors the market. Particular attention has to be paid to the strengthening of admini strative capacity and the separatio n of regulatory and management 
tasks. 
In the field of mutual recognition of pr ofessional qualifications , Iceland has implemented a 
number of different directives  on regulated professions, wher eas the main Directive on the 
recognition of professional quali fications of September 2005 is not yet implemented. This 
non-implementation has been noted by the EFTA  Surveillance Authority. The competent 
authority for this Directive is  the Ministry of Education, Sc ience and Culture. A number of 
other line ministries are in char ge of sector-specific legislatio n on other regulated professions. 
Full transposition of the acquis  in this sector, as well as an adequate institutional framework, 
still have to be achieved. 
EN 35   EN Conclusion 
With some exceptions, Iceland applies the acquis  on the right of establ ishment and freedom to 
provide services. However, in th e fisheries sector Icel and has some restrictions in place which 
it will have to align with the acquis. Iceland will in particular need to undertake further efforts 
to align with the Services Directive and the Th ird Postal Directive, as well as complete the 
framework for mutual recognition of professi onal qualifications. Further efforts are also 
needed to strengthen its administrative capacity  for effective implementation and enforcement 
of the EU rules and policies. Ov erall, Iceland should be able to take on the obligations of 
membership in this area. 
 Chapter 4: Free movement of capital 
Member States are expected to  remove all restrict ions on capital movements and payments, 
both within the EU and between Memb er States and third countries. The acquis also includes 
rules concerning cross-border payments and th e execution of transfer orders concerning 
securities. The Directive on the fight agai nst money laundering and terrorist financing 
requires banks and other economic operators to identify customers and report certain 
transactions, particularly when dealing with high value items and large cash transactions. A 
key requirement to combat financial crime is the creation of effective administrative and 
enforcement capacity, including cooperation between supervisory, law enforcement and prosecutorial authorities. 
All main elements of the acquis  on free movement of capital are covered by the EEA 
Agreement. New acquis  is regularly incorporated into th e Agreement. However, Iceland has a 
temporary exemption which restricts foreign investments (see below).  
With regard to capital movements and payments  the rules applied within the EEA are 
almost identical to those of the acquis  requiring the liberalisa tion of capital. However, 
countries not belonging to the Euro area can  still make use of exceptional balance of 
payments safeguards. In November 2008, against the background of the financial crisis, 
Iceland took protective measures under Articl e 43 of the EEA Agreement which restrict 
capital flows between Iceland and EEA Memb er States. Currently very comprehensive 
exchange controls exist on ope rations between Iceland and ab road. Certain controls were 
further tightened in April 2009. Thes e remain to be liberalised in  order for Iceland to comply 
fully with the freedoms of capital. The Icelan dic authorities have a pproved a plan for the 
gradual liberalisation of capital  controls. Implementation of the plan started in November 
2009 and some relaxation measures were intro duced allowing the conversion of asset sale 
proceeds into foreign currency. The IMF, in it s first review of its Stand-By Arrangement, 
noted that a faster pace of  fiscal adjustment and ‘ a more gradual pace of capital account 
liberalisation ’ would be key towards preserving stab ility and sustainabi lity. Removal of 
important controls is, however,  not expected imminently. All measures on the basis of the 
current enabling legislation can remain in force until November 2010. This does not preclude their extension under future legislation depending on developments. 
Under the EEA Iceland has a permanent excepti on which restricts fore ign investments in 
fishing vessels and fish processing ( see also Chapter 13 — Fisheries ). There are also 
restrictions in other areas, such as energy, air transport or real estate, which apply only to third 
country nationals, and not to EEA nationals. 
EN 36   EN As regards payment systems , secondary legislation on payments has fully liberalised capital 
movements within the internal market. In  November 2009, the EU legislation changed 
significantly, with an expanded Di rective on payment systems becoming applicable as well as 
a new, more detailed Regulatio n on cross-border payments in the Community. All such 
legislation is covered by the EEA Agreemen t. As of the end of October 2009, all the acquis  
relevant to payment systems had been fully  implemented. No derogations or areas of 
difficulties were indicated or detected. 
With regard to the anti-money laundering  acquis,  the third Anti-Mone y Laundering (AML) 
Directive, the Directive layi ng down implementing measures fo r the third AML Directive and 
the Regulation on information on the payer accomp anying transfers of funds are all covered 
by the EEA. Iceland has already transposed th e third AML Directive and the Regulation on 
information on the payer accompanying transf ers of funds. The Di rective laying down 
implementing measures is partially implement ed. In some cases Iceland has gone beyond the 
requirements of the acquis in order to establish a sound and effective supervisory regime. 
However, the implementing capacity of the Fi nancial Intelligence Unit (FIU) in terms of 
staffing and independence is questionable as the FIU is currently a one-person entity. ( See 
also chapter 24 Justice, Freedom and Security ).  
Conclusion 
With some exceptions Iceland applies the acquis  on free movement of capital and should be 
able to assume the obligations of membership in this area. However, Iceland has a permanent exception regarding foreign investment in fisher ies. The restrictions on foreign investment 
and foreign ownership will have to be aligned with the principles of the acquis . Significant 
and sustained efforts will be needed to re move the restrictions on capital outflows. 
Administrative capacity will need to be strengt hened, in particular in the area of anti-money 
laundering. 
 Chapter 5: Public procurement 
The acquis  on public procurement includes genera l principles of transparency, equal 
treatment, free competition and non-discrimination. In addition, specific EU rules apply to the 
coordination of the award of public contracts for works, services and supplies, for the 
classical sector and for the utility sector. Th e scope of application is defined according to 
contracting authorities/entities, contracts cove red and application thresholds and specific 
exclusions. The acquis  also specifies rules on review pr ocedures and the availability of 
remedies. 
The acquis  on public procurement is included in  the EEA Agreement, except for two 
technical Directives (2006/97/EC and 2007/ 24/EC) and the new Remedies Directive 
(2007/66/EC). 
Iceland has implemented the main corpus of the acquis  on public procurement in line with its 
EEA obligations but it will need to ensure full implementation of the new Remedies Directive 
and the above-mentioned technical Directives. So me further fine-tuning is also needed as 
regards the implementing provisions of directives  covering the award of public contracts, i.e. 
the Directive for utilities and the Directive on public sector contracts. 
As regards administrative capacity, the Ministry of  Finance is in charge of general supervision 
and implementation of public procurement rules a nd policy. It has wide powers to intervene in 
contracting authorities’ decisions , if needed. Even if the Mini stry is currently managing to 
EN 37   EN discharge its duties, having onl y two members of staff worki ng on public procurement policy 
might prove insufficient should any major problem arise. 
There is a need to enhance the a ppropriate administrative structur es at central level to ensure 
the key functions of policy-making, drafting of primary and secondary legislation, provision 
of operational tools, help-desk, monitoring and statistical reporting, as well as consistent 
controls in all areas re lated to public procurement. Moreov er, main purchasers at all levels 
have to possess the necessary administrative ca pacities to allow effective implementation of 
the procurement rules. 
Conclusion 
Iceland applies the main provisi ons of the public procurement di rectives in line with its EEA 
obligations. However, some further efforts will be needed to ensure final alignment of the 
legislation with that of the acquis  as regards the new Remedi es Directive and certain 
implementing provisions for the award of public c ontracts. Overall, the central administration 
seems able to meet the requirements of memb ership. However, the administrative capacity 
needs to be further enhanced to ensure proper implementation of the public procurement policy in Iceland. 
 Chapter 6: Company Law 
The acquis  in company law includes rules on disclosure requirements, formation, 
maintenance and alteration of capital, merger and division, takeover bi ds and transparency 
requirements of companies, as well as corp orate governance principl es. In the area of 
financial reporting, the acquis specifies rules for the presenta tion of annual and consolidated 
accounts, including simplified rules for small a nd medium-sized enterprises. Particular 
accounting rules apply to the banking and insuran ce sectors. The applicat ion of International 
Accounting Standards is mandatory for some public interest entities. In addition, the acquis  
specifies rules for the approval, professional in tegrity and independence of statutory auditors. 
All main elements of the company law acquis  apply to the EEA countries. New acquis  is 
regularly incorporated into the EEA Agreement. 
As a consequence, Icelandic company law is generally harmonised with the company law  
acquis . However, the 2007 Directive on  shareholders’ rights has not yet been implemented. 
Measures have been taken to promote the a pplication of Commissi on Recommendations in 
the area of corporate governance and further measures are planned with regard to the 
Commission Recommendations of April 2009 on remuneration.  
As regards administrative structures, the Bu siness Department within the Ministry of 
Economic Affairs is responsible for company law.  The Department has a staff of five people. 
Registration of companies is the responsibility of  the Director of Internal Revenue, which is 
an Agency under the Ministry of Finance. Th e Business and Company Re gister has fourteen 
employees and receives technical support from ot her divisions of the Di rector of Internal 
Revenue. The Register has regular contacts with Nordic and European registers. 
In the area of corporate  accounting , Iceland has implemented most of the relevant acquis . 
However, parts of the Directive amending ce rtain provisions on annual and consolidated 
accounts and the Regulations on equivalen ce of accounting standards remain to be 
implemented. 
EN 38   EN Regarding administrative capacit y, the Business Department of the Ministry of Economic 
Affairs is also responsible for corporate accounting and audit. The Registry of Annual 
Accounts (Ársreikningaskrá) is responsible for receiving and publishing companies’ annual 
accounts, as well as monitoring companies that follow the international accounting standards. 
As regards auditing , the 2008 Act on auditors, which came  into effect in January 2009, 
transposes the Statutory Aud it Directive and also takes into account recommendations on 
external quality assurance and the limitation of the civil liability of statutory auditors and audit firms. 
The Public Auditors’ Oversight Board (Endur skoðendaráð) is the public oversight body for 
auditors in Iceland. The Board is responsible for the external quality  assurance system and 
publishes information on the result of the extern al quality assurance annually. The Board can 
also investigate auditors, auditing firms or issues on its own initiative if it has reason to believe that the relevant le gislation has been violated. 
Conclusion 
Iceland largely applies the acquis in the area of company law and should be able to take on 
the obligations of EU membership in this area. Some further efforts are needed to align with 
the rules on shareholders’ righ ts and corporate accounting. 
 Chapter 7: Intellectual property law 
The primary objective of the EU acquis in the area of intellectual pr operty is to ensure the 
proper functioning of the intern al market while striking the right balance between right-
holders’ rights and users’ interests, as well as adapting the legal framework to the changing 
technological environment. As regards copyright, the acquis  harmonises rules for the legal 
protection of copyright and related rights. Sp ecific provisions apply to the protection of 
databases, computer programs, semiconductor topographies, satellite broadcasting and cable 
retransmission. In the field of industrial property rights, the acquis  sets out harmonised rules 
for the legal protection of trademarks a nd designs. Specific provisions apply to 
biotechnological inventions, pharmaceuti cals and plant protection products. The acquis  also 
establishes a Community trad emark and Community design. 
Intellectual property is covered by the EEA Agreement, which contains provisions on 
protection of intellectual prope rty, exhaustion of rights, adhe rence to or participation in 
European Community measures and internati onal conventions and relations with third 
countries. Annex XVII to the EEA Agreement lists th e secondary legislation that is part of the 
EEA Agreement.  
Iceland is implementing the acquis  on copyright and related rights . The competent body is 
the Ministry of Education, Scie nce and Culture. An expert comm ittee advises the Minister on 
copyright issues. The arrangements for the functi oning of collecting socie ties are in line with 
EU requirements. 
The legislation in the area of industrial property rights  largely complies with the acquis. 
Further efforts are needed to implement the rules on trade mark exhaustion and supplementary protection certificates for medicinal products . To date, Iceland has not notified to the EFTA 
Surveillance Authority (ESA) the trademarks Directive as fully implemented. The necessary 
administrative structures are in place. 
EN 39   EN Regarding enforcement , the Directive on the enforcement of intellectual property rights 
(Directive 2004/481/EC) has not been incorporat ed into the EEA Agreement. Some of its 
provisions have been transposed by the 2006 Act on the collecting of evidence in relation to 
suspected violations of intellect ual property rights. Other requir ements of the Directive should 
be fulfilled inter  alia through legal provisions implemen ting the WTO Agreement on Trade-
Related Aspects of Intellectual Property Rights and general provi sions in various  acts on legal 
procedures. To be in line with the acquis,  Iceland will have to ensure full alignment with the 
Directive and develop a comprehensive enforcement policy. 
Conclusion 
With some exceptions, Iceland applies the acquis  on intellectual property law and should be 
able to take on the obligations of membership in this area. It will need to ensure full 
implementation of the Directive on the enfo rcement of intellectual property rights. 
 Chapter 8: Competition 
The competition acquis  covers antitrust, merger and state ai d control policies. It includes rules 
and procedures to fight antic ompetitive behaviour by compan ies (restrictive agreements 
between undertakings and a buse of dominant positions),  scrutinise mergers between 
undertakings, and prevent governments from granting state aid that distorts competition in the internal market. Generally, the competition rule s are directly applicab le throughout the Union 
and Member States must cooperate fully with the Commission in enforcing them. 
The EEA Agreement covers the acquis  in the area of competition. More specific rules, 
regarding in particular cooperation and divisi on of competences between the Commission and 
the EFTA Surveillance Authority (ESA) in comp etition and state aid cases, are laid down in 
Protocols 21 to 27 to the EEA Agreement. The Commission and the ESA are competent to 
investigate and control certain anticompetitive pr actices and certain mergers that affect the 
Icelandic market. In addition, the ESA is competent to scrutinise and authorise any state aid to 
be granted by the Icelandic authorities that affects trade between Iceland and the other EEA 
contracting parties (agriculture and fi sheries being excluded from its scope). 
The Icelandic Competition Act is closely modelled on the competition acquis ; it applies to all 
sectors and to both public and private enterprise s. The Icelandic Competition Authority enjoys 
investigatory powers that are comparable to th ose of the European Commission. The level of 
enforcement in the area of antitrust and mergers  appears to be adequate. The Competition 
Authority is appropriately staffed. In recent years, it has dealt with many cases and has 
imposed a relatively high number of fines. Th e Commission will, however, need to assess the 
qualitative aspect of its decisions. 
State aid  granted by the Icelandic authorities is s ubject to ex-ante control by the ESA. The 
ESA, as an independent authority, closely mon itors alignment with Commission decisions and 
the ECJ case-law in this field. Th e control of state aid in Iceland is comparab le to that carried 
out within the EU. 
Over the period 2004-2008, the to tal annual amount of state ai d granted by the Icelandic 
authorities did not exceed €
 24 million, representing 0.12  % of GDP. In 2008, there was only 
one pending recovery case con cerning Iceland. However, in response to the economic crisis, 
the Icelandic government has adopted a number of  state aid measures, in particular in favour 
of the financial sector. These measures are in the process of notification to the ESA and will 
have to be closely monitored. 
EN 40   EN Finally, a number of undertakings enjoy special or exclusive rights , in the field of transport, 
energy, postal services, br oadcasting and housing. Further analys is of their comp atibility with 
the acquis  will be required, although no systemic  issue under Article 106 TFEU can be 
identified at this stage. 
Conclusion 
Iceland applies the acquis  on competition and should be able to take on the obligations of EU 
membership in this area. Relevant administrative structures are in place. However, some further monitoring of the quality of the decisions of the Icelandic Competition Authority and of the aid measures adopted following the economic crisis will be necessary. 
 Chapter 9: Financial services 
The main objectives of the EC acquis  as regards financ ial services are to ensure financial 
stability, the financial soundness of compan ies operating in the financial sector, and 
appropriate protection of consumers, investor s and policyholders. The aim is to build up 
confidence in the financial markets and to  provide a common level playing field. The acquis  
on financial services includes rules for the authorisation, operation and supervision of 
financial institutions in the areas of banking, in surance, supplementary pensions, investment 
services and securities markets as well as with regard to financial market infrastructure. 
Financial institutions can operate across the EU  in accordance with the ‘single passport’ and 
the ‘home country control’ princi ple, either by establishing bran ches or by providing services 
on a cross-border basis. 
The acquis  in the field of financial services is covered by the EEA Agreement. In addition, 
the EU secondary legislation listed in Anne x IX to the EEA Agr eement applies to the 
financial services sector in the European Economic Area. The rules of the EEA Agreement 
on financial services are focused on devel oping a single European financial market 
where providers of services can freely offer th eir services within the EEA. The EEA States 
can only apply national restric tions if the relevant field is not fully harmonised by EEA 
secondary legislation and provided that the rest riction is justified und er the criteria of the 
‘general good’.  
The banking sector in Iceland has been prof oundly shaken by the fina ncial crisis. In October 
2008, the three main banks of the country, Glitnir, Landsbanki and Kaupthing, which 
amounted for 85% of the whole Icelandic privat e banking sector, had to halt their business as 
liquidity dried up and clients' confidence waned.  The Icelandic authorities took control of the 
collapsed banks and introduced legislation gi ving depositors priority over other unsecured 
creditors. Three new separate entities were cr eated, in which the domes tic operations of the 
three banks were continued. Dome stic deposits and some other liabilities were transferred to 
these new entities. Depositors at EU branches of  the banks and other creditors were left with 
the residual banks which ceased business and went  into liquidation. As compensation, the new 
entities were to issue bonds to the residual banks the values of which were to be equivalent to 
the net fair value of the assets transferred to the new entities. All thre e banks had significant 
operations in other EEA states. Foreign depositors and other creditors of th e banks were thus 
strongly affected by the Icelandic government's emergency measures.  
Following the collapse of the former privatel y owned Icelandic banks, the Icelandic deposit 
guarantee scheme (Depositors and Investors Guar antee Fund) did not have sufficient funds to 
reimburse the depositors at the foreign bran ches of the banks. The British and Dutch 
EN 41   EN depositors with Icesave, an on-line branch of  Landsbanki that operated in the UK and the 
Netherlands, were particularly  affected. Following the defa ult of the Icelandic deposit 
guarantee scheme, the UK and Dutch governments decided to compensate their respective 
depositors from their own resources and asked th e Icelandic government to reimburse them.  
Differences between Iceland, on the one hand, and the UK and the Netherlands, on the other, 
over the interpretation of legal obligations with respect to the Deposit Guarantee Directive 94/19/EC in the European Economic Area led to consultations between Iceland, the EU 
institutions and the Member States in Nove mber 2008. All parties concluded that the Deposit 
Guarantee Directive had been incorporated in the EEA legislation in accordance with the EEA 
Agreement, and is therefore appli cable in Iceland in the same way as it is applicable in the EU 
Member States. While reserving its right to have  the issue of legal li ability decided upon at a 
later stage by a competent adj udicator, the government of Iceland agreed to cover deposits of 
insured depositors in the Ices ave accounts in accordance w ith the EEA law and up to the 
minimum requirements set forth in the Depos it Guarantee Directive. Later negotiations 
between Iceland, UK and the Netherlands led to the "Icesave agreements" and laws. The 
objective was the authorisation of  an Icelandic state guarantee for special loans granted by 
UK and the Netherlands to reimburse them fo r the compensation already paid to their 
respective depositors holding Ices ave accounts. A final resolution of  this issue is  still pending. 
On 30 December 2009, after months of intense de bate, the Icelandic parliament approved the 
law putting into effect the Icesave agreemen t of October 2009. Soon after, on 5 January 2010, 
the Icelandic President, following of a petition signed by 25% of the electorate, withheld his 
signature from the bill thus cr eating the constitutional premise for a referendum due to take 
place on 6 March.  
The Icelandic emergency measures in the af termath of the banking collapse have raised 
questions as regards their compatibility with EE A law, in particular the treatment of retail 
depositors outside Iceland and of other institutional creditors. The EFTA Surveillance 
Authority (ESA) is the institution responsible for ensuring Iceland's compliance with the EEA 
Agreement. In October 2008, ESA started investigations on its own initiative. 
Several complaints were submitted to ESA by institutional creditors, foreign retail depositors as well as one Member State related to th e emergency legislation and actions taken by 
Icelandic government. ESA's investigation on  these issues is continuing. The European 
Commission is closely following the process a nd will continue to m onitor the situation.  
Currently, no foreign bank operates in Iceland at  the retail level and Icelandic banks have 
extricated themselves from their foreign commi tments - in so far as these can be easily 
divested - and have fallen back, to the extent possible, on their national market. This indicates 
that the Icelandic banking mark et is currently very focussed on the domestic market, at least 
at retail level. (see also under "economic criteria")  
The banking crisis in Iceland, and its effects, have highlight ed problems regarding compliance 
with the acquis . In particular, Iceland needs to addre ss the problems in the area of supervision 
and deposit guarantees as well as the practical ap plication of the EU banking directives (e.g. 
improve the institutional structur e of banking supervision, ensure application of the regime of 
large exposures and of the criteria for bank shareholders and managers). 
Iceland also has to start implementation of the acquis  regarding both the prudential 
assessment of acquisitions in the financial se ctor and the new coverage level of deposit 
guarantee schemes. Moreover, implementation of the acquis  on financial conglomerates has 
EN 42   EN to be completed. According to the EFTA Surv eillance Authority, Iceland has notified only a 
partial implementation of the Fina ncial Conglomerates Directive.  
In terms of administrative capacity, the investig atory and sanctioning powe rs of the Financial 
Supervisory Authority (FME) whose staff has been reinforced lately are in line with those of 
Member States. The Ministry of Economic Affa irs is preparing a refo rm of the financial 
services legislation and supervisory structure to strengthen the FME’s powers, bringing the 
Central Bank and the FME under the same admi nistrative umbrella and creating a National 
Credit Registry for overview of larg e exposure at the national level. 
The FME is currently an observer on the Committee of European Banking Supervisors 
(CEBS), the Committee of European Insuranc e Supervisors (CEIOPS) and Committee of 
European Securities Regulators (CESR). For the continued integration of the FME into the EU supervisory structure, Icel and should have observer status  in the new three European 
Supervisory Authorities. These Authorities will replace the above mentioned committees.  
In the insurance sector , Iceland still has to transpose the acquis  in the field of re-insurance as 
well as some of the provisions concerning life  assurance. There are some pending doubts, as 
formally raised by the EFTA Surveillance Authority, regarding full and complete 
implementation of the Insurance Group and Insurance Mediation Directives. 
Iceland implements all the releva nt legislation in the field of securities markets and 
investment services . 
Conclusion 
Iceland generally applies the acquis  on financial services and s hould be able to take on the 
obligations of EU member ship in this field. However, in  light of the 2008 financial crisis, 
improvements to certain aspects of  Icelandic financial services legislation, as well as to its 
enforcement, will be necessary in order to fully implement the acquis . In particular, Iceland 
will need to address the organisation and functioning of the financial supervisory system and the deposit guarantee system at an early stage.  It will also need to improve the practical 
application of prudential rules provided for by the EU banking directives. 
 Chapter 10: Information society and media 
The acquis on information society and media aims to  eliminate obstacles to the effective 
operation of the internal market  in electronic communications se rvices and networks, promote 
competition and safeguard consumer interests in the sector, including the universal availability of basic modern services. It also  includes rules on information society services 
and a transparent, predictable and effective regulatory framework for  audiovisual media 
services in line with European standards. 
All main elements of the acquis  in information society and media are covered by the EEA 
Agreement. Moreover, Iceland participates in several EU policies suppo rting the development 
at national and European level of the informa tion society, such as br oadband strategies and 
policies for e-Government, e-Health, and e-Inclusion. 
In the field of electronic communications and information technologies , the relevant EU 
regulations and directives are transposed with two exceptions: the Directive on data retention 
has not yet been transposed. Moreover, the amended Regulation on roaming is not yet 
applicable in Iceland. The legislative and admi nistrative structure is similar to most EU 
EN 43   EN Member States. The competent ministry is in  charge of policy-making, whereas the national 
regulatory authority oversees the implementati on of the policies and the legislation, and 
monitors the market. The managi ng director of the regulatory authority is appointed by the 
government for a renewable five-year term. Cons idering that the indepe ndence of the national 
regulatory authority is a cornerstone of the EU  regulatory framework, I celand will need to 
ensure transparent and objective appointment pr ocedures, as well as hi gh standards regarding 
security of tenure. 
In the field of information society services , the main directives have been transposed into the 
Icelandic legal order, i.e. the Directives on electronic signatures, e-commerce and conditional access. As regards the transpositi on of the latter, the legal protection needs to be extended to 
conditional access devices other than broadcasti ng services decoders. Information society 
policy is developed by the Prime Minister’s Offi ce. Implementation is ensured by the relevant 
ministries and institutions. 
In the field of audiovisual policy, the 2000 Broa dcasting Act fully implements the Television 
without Frontiers Directive. The Icelandic author ities have submitted a draft bill in order to 
further align the legislation with relevant acqui s in this field (in particular the Audiovisual 
Media Services Directive). However, as rega rds the principle of freedom of reception and 
retransmission, Iceland will need to ensure that there are no restrictions on the reception and 
retransmission of television broadcasts from ot her EU Member States, in particular in the 
context of the Icelandic rules on advertising. Th e level of alignment with the rules on film 
heritage and protection of mi nors is advanced. The competen t authority in the field of 
audiovisual policy is the Minist ry of Education, Science and Culture. The Broadcast Licence 
Committee is the regulatory body which grants  legal and natural persons a temporary 
broadcast licence, oversees compliance with rules pursuant to br oadcast licences and 
supervises the implementation of the Broadcas ting Act. Its board memb ers are appointed by 
the government and the Supreme Court. 
Conclusion 
With a few exceptions, Iceland applies the acquis  on information society and media and 
should be able to take on the obligati ons of EU membership in this area. 
3.1.2. Chapters partially covered by the EEA 
 Chapter 12: Food safety, veter inary and phytosanitary policy 
This chapter reflects the EU’s integrated appr oach aimed at ensuring  a high level of public 
health, animal health, animal welfare and plant health through coherent farm-to-table 
measures and adequate monitoring, while ensuri ng the effective function ing of the internal 
market. The acquis  sets hygiene rules for foodstuff produc tion and rules in the veterinary 
field, which are essential for safeguarding animal  health, animal welfare and the safety of 
food of animal origin in the internal market. In  the phytosanitary field, EU rules cover issues 
such as quality of seed, plant protection products, harmful organisms and animal nutrition. Member States must have appropriate administ rative structures to be able to carry out 
inspection and control of f ood products, including an a ppropriate laboratory capacity. 
Iceland, as a party to the EEA Agreement, im plements the EU legislation on veterinary 
matters with respect to fish and fish products, fi sh diseases, feed, seed, fertilisers, foodstuffs 
and other food chain-related issues. Protocol 1 to the EEA Agreement exempts Iceland from 
EN 44   EN implementing the veterinary acquis  for live animals and germplasm other than fish and 
aquaculture animals, as well as fresh meat, eggs and milk. 
In the area of general  food safety , although covered by the EEA Agreement, the acquis  is not 
yet implemented. The corresponding Food law package amending the law on food and feed 
has been adopted by the parliament in December 2009 and is expected to enter into force in 
March 2010. The existing administrative and contro l structure in place is  largely aligned with 
the acquis . The Ministry of Fisheries and Agriculture  is responsible for the implementation of 
the legislation and its supervision. The Icelandic Food and Ve terinary Authority 
(Matvælastofnun — MAST) is the central competen t authority (CCA). In 10 control districts 
environmental and public health offices are esta blished as local competent authorities (LCAs). 
MAST (the CCA) and the LCAs are responsi ble for food safety controls, with MAST 
coordinating and supervising c ontrol activities including those of priv ate inspection bodies 
accredited for control of fish and fish produ cts. The legal powers of the CCA (MAST) 
towards LCAs, laboratories and in the animal feed sector need to be increased. There is a risk 
of conflict of interest for District Veterina ry Officers carrying out official controls in 
inspection bodies. A multi-annual na tional control plan is not yet in place. Laboratories for 
official controls and national reference laboratories for each of the Community reference 
laboratories have to be designated. 
In the veterinary sector , the national law covers all areas of the acquis  establishing a CCA 
(MAST) empowered to enforce health and welf are rules. However, Community rules are not 
implemented for trade in live animals or germplas m, other than fish and aquaculture animals, 
as well as fresh meat, eggs and milk (exempti on from the EEA Agreement), which means that 
all imports of live animals except for fish an d fish germplasm are prohibited. Derogations 
from this ban are based on evaluation of th e sanitary situation of a country without 
consideration of disease-free zones as pract ised by EU Member States. This will need 
alignment with the acquis . Iceland has established eight border inspection posts which are 
based on legislation aligned with the acquis . However, procedural shortcomings were 
detected during recent audit missions by the Food and Veterinary Office (FVO). 
Rules for identification and registration of animals are largely aligned with the acquis . 
Contingency plans for animal diseases are in place; the list of notif iable diseases exceeds 
Community rules for mammals and for fish and shellfish. Veterinary services are competent 
and capable of controlling animal diseases as th ere is no record of an outbreak of a notifiable 
‘List A’ animal disease in the past 50 year s. However, on zoonoses, no specific acts or 
regulation exists for the implementation or monitoring of the acquis  in this field. Since 2008, 
a National Control Programme for Salmonella and Campylobacter has been in place. 
Legislation on contaminates and the monitoring of certain substances and residues is not 
implemented in Iceland although the use of gr owth promoters and hormones is prohibited. 
The legislation for animal welfare is largely aligned with the acquis . 
As regards  the placing on the market of food, feed and animal by-products  the Icelandic 
legislation in force meets the general objective of the acquis , i.e. to ensure a high level of 
hygiene and consumer protection. The CCA (MAST) has sufficient powers to enforce the law. 
The Icelandic Food Act and specific legislatio n on meat hygiene, ga me, milk, fishery and 
aquaculture products, organic production and slaughter are largely aligned with the acquis . 
However, the ‘hygiene package’ is not implem ented yet and consequen tly the obligation to 
carry out hazard analysis critical control point (HACCP)-based se lf-controls in food 
establishments does not apply. Provisions on the funding of controls will need to be aligned. 
EN 45   EN The acquis  on animal by-products not intended for human consumption is not yet 
implemented in Iceland, although  covered by the EEA Agreemen t. Iceland has no incineration 
capacity for carcasses that are potentially infected with Transmissible Spongiform 
Encephalopathy (TSE).  
Concerning  food safety rules  national legislation on labelli ng, presentation and advertising, 
additives and contaminates, contact materials, and food for particular nutri tional uses is either 
fully or to a large extent aligned with the acquis ; in some areas updates to take account of new 
acquis  are missing. No legislation ex ists for either novel food or the traceability and labelling 
of genetically modified food a nd feed. National legislation on  specific rules for feed is to a 
large extent aligned with the acquis  except for medicated feed, the prohibition of certain 
materials for animal nutrition purposes, the marke ting of feed and the ru les for general feed 
hygiene.  
In the phytosanitary sector , Iceland has implemented the acquis  on seeds except for plant 
health. Import controls and certi fication for plants, seeds and pr opagating material as well as 
for wood packaging material and soil are applie d. As regards potatoes, a system of domestic 
registration of growers authorised  to sell seed potatoes is in place. However, Iceland does not 
apply the EU plant passport system. National legi slation related to harmful organisms is based 
on principles of the International Plant Prot ection Convention (IPPC). The authorisation of 
plant protection products will need to be aligned and fully  harmonised. Maximum residue 
limits (MRLs) are implemented. Laboratory capacity for pesticide residue analyses will have to be adjusted to meet the requirements of the agreed monitoring programmes of EU Member 
States. The current capacity is insufficient to follow up the obliga tions of monitoring 
substances and for accredited laboratories to  process the required number of samples. 
Conclusion 
Overall, Iceland has a good legal and administra tive framework (including controls) in place 
to take over the acquis on food safety, veterinary and phytos anitary policy. Some areas of the 
acquis  are already implemented. However, some fields of the acquis , such as trade in live 
animals, the hygiene package, animal by-pr oducts, food labelling, additives and contact 
materials, novel foods and genetically modified  organisms, plant health, authorisation of 
pesticides, will still need to be implemented in order to meet the obligations of EU 
membership. As regards the infrastructure, th ere are weaknesses in analytical laboratory 
capacity and there is no incineration facility for animal by-products. 
 Chapter 14: Transport policy 
EU transport legislation aims to improve the functioning of the internal market by promoting 
safe, efficient, environmentally sound and use r-friendly transport services. The transport 
acquis covers the sectors of road transport, railways, inland waterways, combined transport, 
aviation, and maritime transport. It  relates to technical and safety  standards, security, social 
standards, competition and state aid control, a nd market liberalisation in the context of the 
internal transport market. 
The main elements of the acquis
 on transport policy are c overed by the EEA Agreement. 
Annex XIII to the Agreement covers general trans port matters such as facilitation at frontiers 
and combined transport. It also covers mark et access, fares, competition, taxation, technical 
harmonisation and safety in maritime transport, aviation, roads and inland waterways. Iceland 
has formally incorporated the Single European  Sky Regulations into its legislation and is 
EN 46   EN geographically located in th e North Atlantic (NAT) Region. It is not a member of 
Eurocontrol. Acts which have not been in corporated into the EEA Agreement include 
agreements between various EU Member States  and the Community, agreements between EU 
Member States, the Community and third countries as well as acts relating to the summer time arrangements. 
In the field of  road transport,  the acquis  is, in general, applied by Iceland. However, 
implementation of the acquis  is still pending in some areas, for instance social rules relating 
to driving times, the adequate level of check s and inspection measures, driving licences and 
technical equipment of vehicles. 
As regards taxation and road charges , vehicles registered in the EU will need to be exempted 
from the annual tax on foreig n vehicles and compliance with the minimum taxation levels will 
need to be monitored. In the field of transport of dangerous goods , Iceland is applying the 
European Agreement on the International Carr iage of Dangerous Goods by Road (ADR) in 
line with the acquis, but it will have to apply the updated 2009-2011 ADR rules. The Road 
Administration, the Road Traffic Directorate an d the Administration of Occupational Safety 
and Health in Iceland have administrative capac ity to enforce legislat ion concerning social 
and technical regulations in the field of road  transport. The total number of employees is 
seventeen.  
In the  air transport sector, the acquis  is applied by Iceland, including the updated acquis  on 
slots allocation and ac cess to ground-handling services at airports. However, regarding 
aviation security, the current derogation for domestic air services is not compatible with the acquis . In the field of air traffic management it needs to be ensured that the national 
supervisory authority is an i ndependent entity of the Civil Aviation Administration and that 
the air navigation service provider has been designated and certificated by the national 
supervisory authority. The compatibility with the acquis  of the existing and envisaged air 
navigation charging system will need to be monitored. 
Regarding maritime transport , Icelandic legislation is well aligned with the acquis , in 
particular on safety and security issues. In the area of market access and registration of ships, 
Iceland needs to ensure that the principle of fr eedom of establishment is observed with regard 
to ship registration in Iceland. Given the size of the Icelandic fleet the administrative capacity 
of the Maritime administration is sufficient to implement the acquis . 
Regarding satellite navigation , Iceland asked to participate in the relevant EU programme. 
However, in the context of the economic crisis  its participation was suspended, including its 
financial contribution. 
There are no rail or inland waterway transport sectors in Iceland.  
Conclusion 
Overall, Iceland is implementi ng a substantial part of the acquis  under this chapter and should 
be able to take on the obligations of membersh ip. However, further alignment will be needed 
to implement the pending EEA acts and the more recent acquis , in particular in the road and 
aviation sectors. Iceland will need to guarantee freedom of establishment with regard to ship 
registration. Relevant structur es are in place and Iceland should be able to meet the 
obligations of membership. Furthe r efforts will be needed to ensure the independence of the 
supervisory body in the area of air traffic management. 
EN 47   EN  Chapter 15: Energy 
EU energy policy objectives are to improve co mpetitiveness, ensure security of energy 
supplies and protect the environment. The energy acquis  consists of rules and policies 
covering competition and state aid, the internal energy market (liberalising electricity and gas markets in particular), the promotion of rene wable energy sources, energy efficiency, crisis 
management and oil stock security obligations, nuclear energy and nuclear safety and radiation protection. 
A large proportion of the EU legislation on en ergy matters has been incorporated into the 
EEA Agreement, and Icelandic legislation is broadly in line with the EU energy acquis . 
However, some exceptions exist due to Icelan d’s unique energy mix and isolated electricity 
system. Legislation still to be implemented re lates to areas not covered by the EEA (such as 
security of supply, in particular minimum oil st ocks) or not deemed relevant to Iceland, as 
well as legislation covered by the EEA,  but not yet transposed by Iceland. 
In 2008, Iceland’s domestic production accounted for 80
 % of its primary energy supply. As 
there is no domestic coal, gas or nuclear production, all its indigenous energy comes from 
renewable sources. The remaining 20  % of its energy supply is impor ted coal and oil. Due to 
its many energy-intensive industrie s, electricity consumption per capita is the highest in the 
world even if the system is small in absolute terms. Iceland’s electricity system is isolated. 
The electricity sector is predominantly publ icly owned. It was opened to competition and 
third party access for transmission and distribution networks in January 2006. 
In the area of security of supply , Iceland has no natural gas ne tworks and no plans to be 
supplied by gas. The EU Directive on the securi ty of natural gas supply should therefore not 
apply. Although the Directive on measures to sa feguard security of electricity supply and 
infrastructure investment is incorporated into the EEA Agreement, it has not been transposed by Iceland. With respect to oil stocks, key legisl ation is not in place in  Iceland. Oil companies 
and others are not mandated to maintain minimu m reserves. The Icelandic authorities estimate 
that current reserves are in the region of  40-45 days, whereas the EU requirement for 
emergency oil stocks is 90 days. A steeri ng group was recently appointed to develop a 
comprehensive energy policy for Iceland, including security of supply. 
As regards the internal energy market , the second package’s Dire ctive on electricity is 
notified as fully implemented in Iceland (p ending a conformity assessment by the EFTA 
Surveillance Authority). Iceland will also have to implement rules for the electricity internal 
market, as set out in the recently adopted third package. As provided for in the Directive, Iceland would be eligible for de rogations for its system, as it  has no cross-border connections. 
Iceland will need to set appropriate conditions fo r investments from other EU countries, as it 
has considerable potential to in crease its electricity production. 
Iceland’s Electricity Act designates two regulat ory authorities: the National Energy Authority 
(NEA), under the Minister of Industry, and th e Competition Authority, under the auspices of 
the Minister of Economy. In accordance with the third package, the independence of regulators from government needs to be ensure d. The independence of Icelandic structures 
will have to be assessed carefully. Iceland is likel y to have to distance its regulators from their 
currently associated ministries. 
There is no coal pr oduction in Iceland.. 
EN 48   EN With regard to EU legislation on renewable energy , Iceland currently implements the 
Directives on renewable energy in electricit y, and on biofuels as re quired under the EEA. It 
will have to ensure compliance with the ne wly-adopted Directive on renewable energy; 
renewable energy had a 54  % share in Iceland’s gross final energy consumption. The main 
sources of renewable energy are hydro and ge othermal energy. According to the methodology 
of the Renewable Energy Directive, Ic eland’s target for 2020 would be 64  % of gross final 
energy consumption, including a minimum of 10  % renewable energy in transport. Iceland 
will need a National Renewable Energy Action Pla n, in which it clarifie s how to meet its 2020 
targets. 
Iceland’s legislati on in the area of energy efficiency  is limited to labelling of household 
appliances and equipment and ecodesign. Iceland also participates in the Intelligent Energy 
for Europe Programme. Although the Directive on the energy performance of buildings is 
incorporated into the EEA, Iceland has been exempt from transposing it into national law, and will need to do so in order to comply with the EU acquis . Iceland’s exemption from 
implementing the Directive on the promotion of cogeneration based on a useful heat demand 
in the internal energy market  is under review. Iceland does not have national energy saving 
targets. Iceland will need to implement EU legislation on energy end-use efficiency. 
As regards nuclear energy, nuclear safety and radiation protection , Iceland has no nuclear 
power plants, fuel cycle facilities or research reactors. It uses radioi sotopes only for medical, 
industrial and research purposes . Iceland is a member of the IAEA and the OECD/NEA, and a 
contracting party to all the C onventions necessary for member ship. The Radiation Protection 
Act harmonised Icelandic legislation with IA EA Basic Safety Standards and the Euratom 
acquis  in the field of radiation protection. It ensures that th e small volume of low activity 
radioactive waste is returned to  the supplier, or sent to a fo reign waste management facility, 
unless it can be securely stored until decayed. 
There is a competent and independent regulator y authority for nuclear and radiation safety. 
Iceland participates in the European Radiologi cal Data Exchange Platform but will need to 
become a member of the European Community  Urgent Radiological Information Exchange 
upon accession. 
In the area of nuclear safeguards , Iceland signed and ratified the Non-Proliferation Treaty 
and has signed and implemented a Comprehensive Safeguards Agreement with the IAEA as well as an Additional Protocol thereto. Ho wever, Iceland has also adopted a Small 
Quantities Protocol with the IAEA , which will need to be rescinded at the latest by the time of 
accession to the EU. Iceland has no international co-operation agreements with third countries. It has no national legi slation or policy in the fiel d of nuclear material supply, 
accountancy and safeguards. 
Conclusion 
Iceland is relatively advanced in implementi ng the internal energy ma rket, bearing in mind 
that the gas legislation will not apply. It shou ld not have major difficulties in applying EU 
electricity legislation of the third internal market  package. Iceland is particularly advanced in 
the use of renewable energy sources, an d should have few problems meeting EU 
requirements. It lags behind on transposing energy efficiency legislation. Iceland will need to 
build up its emergency oil stocks  to 90 days. There ar e only minor issues relating to Euratom 
legislation. Overall, Iceland is at an advanced stage of alignment with the acquis  on energy, 
and should be able to take on the obligations of EU membership in this area. 
EN 49   EN  Chapter 18: Statistics 
The acquis  on statistics consists almost  exclusively of legislation wh ich is directly applicable 
in the Member States, such as European Parl iament and Council Regula tions and Commission 
Decisions or Regulations. The statistical acquis  contains also a range of methodological 
handbooks and manuals. International agreements  provide a further basis for statistical 
production. 
Iceland, as a party to the EEA Agreement, ha s the obligation to ensure the production and 
dissemination of coherent and comparable statistical information for describing and 
monitoring all relevant econom ic, social and environmenta l aspects of the European 
Economic Area. Exemptions exist for the lega l acts mentioned under Annex XXI to the EAA 
Agreement.  
In the area of statistical infrastructure  the level of alignment is high. The national statistical 
institute is Statistics Icela nd. In January 2008 a new Act on Stat istics Iceland and official 
statistics took effect. The sta tistical law is in line with international recommendations. 
Icelandic statisticians are independent in their work and apply the principles of 
confidentiality. Cooperation of some  ministries and agencies with  Statistics Ic eland needs to 
be strengthened. The insufficient allocation of human and financial res ources for statistical 
work is of concern.  
The main statistical classifications  are in place and follow the acquis . However, this is not the 
case for the statistical business register , where a functioning register needs to be developed. 
In the area of sector statistics , alignment is satisfactory, with  a good level of compliance with 
the acquis  in many areas. However, there are shortfalls  in particular in the fields of business, 
macroeconomic and agriculture statistics. Al ignment in the area of business statistics 
(structural business statistics a nd short-term statistics ) is low even if th ere is good information 
available on Icelandic businesses from various administrative sources. This information will 
need to be integrated and aligned to create a comprehensive statistical business register which 
can form the basis for supplying structural bus iness statistics. Further improvements in the 
area of national accounts are also  necessary with a view to full application of the required 
methodology and the provision and dissemination of  comprehensive data as required by the 
acquis , in particular concerning the production approach, financ ial and non-financial sector 
accounts and price and volume measures. For agricu lture statistics, substantial work will be 
necessary in all fields, and especially on cr op statistics, agricultural land use and agri-
monetary statistics. The current set-up in agricultu ral statistics will need to be reviewed and a 
strategy for developing the area established. The financing of e ssential surveys will need to be 
secured, in particular  the agricultural census to be conducted in 2010 and the Housing and 
Population Census to be conducte d in 2011. Efforts will also need  to be stepped up in labour 
market statistics and environment statistics. 
As regards fisheries statistics, Iceland provides data in compliance with the acquis. However, 
the timely delivery of data needs to be improved;  measures in this regard are being taken. The 
detailed methodological report on fishery sta tistics still needs to be submitted to the 
Commission. 
Conclusion 
Iceland’s statistical production shows a satisf actory level of implemen tation in many areas. 
However, Iceland will need to improve the availa bility of statistical data in line with EU 
EN 50   EN methodology, in particular in the business, macro economic and agriculture statistics sectors. 
Relevant structures are in place, but human an d financial resources need to be strengthened. 
Overall, Iceland should be able  to assume the obligations of membership in this area. 
 Chapter 19: Social policy and employment 
The acquis  on social policy and employment includes minimum standards in areas of labour 
law, equal opportunities, health and safety at work and anti- discrimination. Member States 
participate in EU policy processes in the areas  of employment policy, social inclusion and 
social protection. The social pa rtners of Member States participate in social dialogue at 
European level. The European Social Fund (ESF ) is the main financial tool through which the 
EU supports the implementation of its employ ment strategy and contributes to social 
inclusion efforts. 
The EEA Agreement, particularly Annex XVIII th ereto, lays down specific obligations in the 
areas of labour law, health and safety at work and equal treatment of women and men. The 
EEA Agreement also contains provisions on employment policy, and provides for cooperation 
on social inclusion, people with  disabilities and elderly. The EEA Agreement does not cover 
anti-discrimination. 
As a member of the EEA, Iceland has implemented the acquis  in the area of labour law . 
Iceland has opted to do so without a codi fied body of labour legislation. Collective 
agreements between social partne rs play an important  role in Iceland’s industrial relations 
system. There is no Labour Inspectorate compet ent for labour law. Collective disputes are 
settled mainly by the State Mediator and/or soci al partners; individual di sputes are settled by 
the Labour Court or an  ordinary court. 
The Act on the working environment and health and safety in the workplace, which applies to 
both private and public sectors, aims to implement the central elements of the acquis in the 
area of health and safety at work . As regards specific sectors, Icelandic legisl ation provides 
for three separate sets of rules and regulati ons on health and safety depending on whether 
activities are carried out on land, at sea or in the air. The system of control and enforcement of 
health and safety legislation is  well developed. Responsibility for control and supervision of 
legislation on health and safety at work rests with the Minister of Social Affairs and Social 
Security as regards activities carried out on la nd and with the Minister  of Communications for 
the air and the sea. The number of labour inspecto rs dealing with health and safety matters is 
sufficient8. The national legislation gu arantees the independence a nd impartiality of labour 
inspectors and lays down procedures, penalties a nd sanctions for breaches of health and safety 
legislation, while also providing for accident  reporting and investigation procedures. 
Social dialogue  is regulated by the 1938 Trade Unions  and Industrial Disputes Act with 
subsequent amendments. Industrial relations ar e marked by the very st rong position of trade 
unions9. There are no restrictions on the right of em ployees to organise, and trade unions have 
no obligation to register with government aut horities. The predominant trade union is the 
Icelandic Confederation of Labour, embr acing 64 trade unions with a total of 
112  000 members. The Federation of State and Municipal Employees and the Alliance of 
                                                 
8 There were 166  332 employees on the Icelandic labour mark et in 2008 and around 70 people 
performing inspections in all thr ee sectors in eight regional insp ection areas, the largest one being 
Reykjavík. 
9 More than 85  % of the workforce is unionised. 
EN 51   EN Graduate Civil Servants repres ent employees of the public s ector. Some other trade unions 
outside the umbrella organisations bring toge ther teachers, airline pilots, nurses, bank 
employees and journalists. On the employers’ si de, the Confederation of Icelandic Employers 
has eight member associat ions and includes around 2  000 companies accounting for about 
50 % of workers. 
As regards tripartite social dialogue, ther e is a very well developed mechanism for 
consultation of social partners , albeit without a formal institution. Social partners have 
influence over the decision-making proces s as well as policy development: the whole 
Icelandic labour market is governed  mainly by collective agreements. 
Employment policy  reforms only became necessary recen tly, following the effects of the 
financial crisis. The employment policy is curren tly being transformed into a system of active 
labour market measures including activating and training of unemployed people. These 
policies are mainly the responsibility of the La bour Directorate, which is supervised by the 
Ministry of Social Affairs and Social Secur ity (MSASS). As Iceland traditionally did not 
apply active labour market measures, there is a n eed to strengthen policies and capacity in this 
area. Iceland has not so far de veloped either a comprehensive strategy or an Action Plan on 
employment. 
Iceland’s labour market was traditionally ch aracterised by a high participation rate (82  %) 
with very low registered unemployment10. However, following th e financial crisis in 
autumn 2008 the country experienced a steep in crease in registered unemployment, reaching 
8.2 % in December 2009. The increase in unemploym ent affects men more than women as the 
highest increase is to be found in the construc tion sector. At the same time, the rise in 
unemployment has been more pronounced in  the metropolitan areas. Increasing 
unemployment also means an increase in bot h youth and long-term unemployment, although 
these are still at a relatively modest level. ( See also Economic criteria ) 
In terms of preparations for management of the  European Social Fund (ESF) , a large 
number of elements required by the acquis  in the area of cohesion policy are already in place. 
The government administration is small but flexible . Overall, more than 20 staff work directly 
on the promotion of various EU programmes. There is, however, limited experience within 
government, municipalities and higher educatio n institutes in certain areas of EU funding. 
Therefore, administrative capacity and struct ures need to be built up to allow smooth 
management and implementation of project s financed under the cohesion policy. ( See also 
Chapter 22 — Regional policy and coordi nation of structural instruments ) 
As regards preparation for fu ll participation in the open me thod of coordination (OMC) on 
social inclusion , Iceland appears to be well prepared. Statistical data on poverty and social 
exclusion are comprehensive, and indicate a po licy for an egalitarian and inclusive society. 
Policies regarding persons with disabilities  appear to be aligned with those of the EU. 
Specifically, in 2007 a disability policy was fo rmulated, as well as a corresponding Action 
Plan for 2007–2016. Iceland has signed the UN Convention on the Rights of Persons with Disabilities. The Minister of Social Affairs a nd Social Security (MSASS) is responsible for 
disability issues. There is also a governance  structure based on task forces and boards 
established on an inclusive basis.  Each of the eight Icelandic regions has a Regional Office for 
the Affairs of the Disabled which acts as fo cal point for service provision. Furthermore, 
                                                
 
10 In 2005 registered unempl oyment was as low as 2.1  % and decreased to 1  % in 2007. 
EN 52   EN Iceland participates in the EU High Level Group on Disability, al lowing it to keep abreast of 
policy developments in the EU. 
The share of expenditure  on social protection  benefits in Iceland’s GDP is lower than the 
average in the EU-27 (in 2007 21.3% and 25.2% re spectively). This is partly due to low 
public pension expenditure and the large role of  private pension provis ion and extensive use 
of income-testing of benefits. The health care system achieves good results. 
Regarding anti-discrimination , the principle of equality is enshrined in the Constitution of 
the Republic of Iceland. However, Icelandic le gislation does not provi de for any detailed 
protection against discrimination on th e labour market, as  required by the acquis , but for some 
protection in certain fields. The Act on the affair s of persons with disabilities provides that 
persons with disabilities are to be given priority regarding work for the state and 
municipalities, where qualificati ons are equivalent. Outside empl oyment, there is no specific 
legislation prohibiting discrimination. However,  preparation of a law aligning with the anti-
discrimination acquis is ongoing. As regards administrative capacity, there is no institution 
especially responsible for combating discrimi nation on grounds of racial or ethnic origin, 
religion or belief, age, disabil ity or sexual orientation, althou gh the MSASS is responsible for 
equality matters in a broad sense. 
In the area of equal opportunities , legislation concerning gender equality is largely in line 
with the  acquis . Gender mainstreaming is a well estab lished practice. The new Act on equal 
status and equal rights of women and men, or  Gender Equality Act, was adopted in 2008. It 
prohibits discrimination of all types, direct or indirect, on grounds of gender in a number of 
sectors: labour market, pay, vo cational training, reconciliation of work and family life and 
education. It contains definitions of direct and indirect discrimination which are crucial for the 
meaningful implementation of legislation. The Act on maternity/paternity leave and parental 
leave provides that both women and men have an  equal, non-transferabl e right to take three 
months’ leave in connection with the birth, first-time adoption or fostering of a child, 
irrespective of whether they work  in the private or the public s ector, or are self-employed. As 
regards both general and occupational pension schemes, there are no differences between men 
and women in terms of retirement age or othe r aspects of pension rights. However, Iceland 
does not have specific provisions on gender equality  in social security in general (as required 
by Directive 79/7) and as regards access to goods and services (as required by Directive 2004/113).  
Conclusion 
With some exceptions, Iceland implements the acquis  in the areas of labour law, health and 
safety at work and equal opportunities. Social dialogue is very well established, and Iceland 
seems to be well prepared for participation in the European Social  Fund and in the open 
method of coordination on social protection and social inclusion, provided its administrative 
capacity is strengthened in these areas. Rele vant administrative structures are in place. 
However, Iceland will need to a lign with the anti-discrimination acquis . Additional efforts are 
also necessary in the field of employment polic y, particularly as regards strengthening policy 
formulation and implementation, as well as increasing administrative capacity. Overall, 
Iceland should be able to assume the ob ligations of membership in this area. 
EN 53   EN  Chapter 20: Enterprise  and industrial policy 
The acquis  under the enterprise and industrial polic y chapter consists largely of policy 
principles and policy recommendations wh ich are reflected in  communications, 
recommendations and Council conclusions as well as being debated in consultation forums. 
By establishing general policy principles, EU enterprise and industr ial policy, including SME 
policy, seeks to promote the formulation of comp etitiveness-enhancing enterprise policies and 
industrial strategies. Overall, EU enterprise and industrial po licy is strongly driven by the 
renewed Lisbon strategy for growth and jobs and by the Small Business Act, adopted in 2008, 
which forms the new comprehensive policy fr amework for EU SME policy. Enterprise and 
industrial policy comprises policy instruments,  including financial support and regulatory 
measures. It also includes se ctoral policies, including reco mmendations for more targeted 
policy analysis as well as for new initia tives and consultations  at sector level. 
The EEA Agreement covers Directive 2000/35/EC  on combating late payment in commercial 
transactions. 
Iceland’s enterprise and industry policy focuses on SME and entrepre neurship policies, on 
R&D and innovation stimulation as well as on re gional growth agreements, with separate 
policy documents in the area of sustainable deve lopment. So far, Iceland has not developed 
any specific industria l policy strategy. 
The financial crisis resulted in the government  revising policies or in itiatives relating to 
industrial and competitiveness policies. In May 2009, the Icelandic government adopted the 
Government’s Coalition Platform, whose economic development components aim to 
stimulate domestic industries. The platform also calls for the establishment of a new comprehensive industrial policy by 2010, the prep aration of which has recently started. Its 
main objective is to create new and stronge r foundations for Icel andic businesses and 
industries for the future. Emphasis will be pla ced on industrial divers ification, stable and 
steady growth, innovation and sust ainable resource utilisation both on land and at sea. The 
government also launched work on developi ng a long-term compre hensive strategy up to 
2020, Bringing Iceland Forward 2020 , a long-range vision for development of the economy, 
employment and quality of life. 
Iceland’s SME policy is defi ned through a Development Strategy for SMEs based on 
recommendations of the Science and Technology Policy Council. The Ministry of Industry, 
Energy and Tourism and the Innovation Cent re Iceland (ICI) under it are the main 
government bodies responsible for SME policy. The Innovation Centre I celand is responsible 
for support services to SMEs. The share of SMEs in the economy is similar to that of the EU 
(99%). Iceland generally applies the EU definition of SMEs. 
Iceland’s business environment is very c onducive to entrepreneurship and business 
development. A two-year simplification plan co ncerning the regulatory environment has been 
ongoing since September 2007. Measures have been taken to improve stakeholder 
consultation and impact assessment. All legi slative proposals are s upported by an assessment 
of the potential effects of the proposal on business. Iceland has a very simple (2 steps) and 
fast (less than 3 days) procedure for opening a business. 
Iceland follows an integrated approach in innovation policy, implemented as a horizontal 
policy with long-term objectives  and a focus on necessary skills for the maintenance and 
EN 54   EN renewal of competitiveness. Regional Growth Agreements set targets in regional economic 
development for local, re gional and national actors. 
The ICI plays a central role in technology diss emination towards SMEs. It provides education 
and training for staff and mana gers of SMEs as well as va rious other means of support to 
entrepreneurs, growth companies and innovative enterprises. The ICI and the Trade Council 
are the main institutions responsible for help ing SMEs to access foreign markets. The ICI 
hosts an Enterprise Europe Network centre, the Trade Council and the Icelandic Centre for 
Research.  
In relation to enterprise and industrial policy instruments , Iceland participates in the EU 
Competitiveness and Innovation Programme (CIP), in the framework of the EEA Agreement. Iceland is also part of the Enterp rise Europe network through the ICI. 
Iceland is implementing the Directive on combating late payment in commercial transactions 
in the context of its obligations under the EEA Agreement. 
However, following the financial and economic crisis, SMEs’ access to finance has 
dramatically deteriorated in the wake of the collapse of the major Icel andic banks in October 
2008. Bank financing is very lim ited and investors are primarily  striving to protect their 
previous investments, making new venture cap ital scarce. Restoring a business-friendly 
environment and regular access to finance is one of the priorities of the recovery programme 
currently implemented by the Icelandic author ities on the basis of the IMF Stand-By 
Arrangement. 
In relation to sector policies , Iceland has in general not imp lemented or launched sector-
specific development measures or initiatives in  the last two decades, with the exception of 
certain exemptions and incentives provided to attract foreign direct investments in energy-
intensive industries such as pr imary aluminium production since 1969. 
Iceland’s industry  represents around 15
 % of GDP in the period 2007-2008, below the EU-27 
average of 20  % for the same period. The main sectors of the economy are: the financial and 
real estate sector, with a 26  % contribution to GDP in 2008 (out of which 9  % for financial 
services), construction (10.5  % of GDP), industry (15.8  % of GDP in 2008), of  which the main 
contributor was the manuf acturing sector with 11  %. The main exporting sectors are fisheries, 
with 36  % of total exports in 2008, and aluminium, with 38  %.  
The Icelandic industrial sector is  modest but relativel y diversified. Within the main sector of 
manufacturing, a very limited numb er of industrial sub-sectors ri se marginally above the other 
sectors, in particular the manu facture of food products and beve rages (with a se lf-supply ratio 
of 80%). Even if it also suffered from the fi nancial crisis, tourism remains a key industry in 
Iceland as it generates up to 19% of foreign ex change revenues. The tourism share in GDP in 
2006 was on average 4.6% and the number of fore ign visitors increased by 60% in 2007.  
Conclusion 
Iceland is at an advanced stage of implementing the acquis  in the area of enterprise and 
industrial policy and should be able to ta ke on the obligations of EU membership. 
EN 55   EN  Chapter 21: Trans-European networks 
This chapter covers the trans-European ne tworks policy in the areas of transport, 
telecommunications and energy infrastructures , including the Commun ity guidelines on the 
development of trans-European networks and the support measures for the development of projects of common interest. The aim of establ ishing and developing tran s-European networks 
and promoting proper interc onnection and intero perability of national netw orks is to take full 
advantage of the internal market and contribu te to economic growth and job creation in the 
European Union. 
The EEA Agreement covers the Trans-European Transport Network Outline Plan. As far as transport networks  are concerned, Iceland is partic ipating in the TEN-T network in 
line with the acquis . The TEN-T policy is currently unde r revision in the EU and Iceland 
should be associated to  it. In Iceland the St rategic National Transpor t Plan and the National 
Transport Plan cover the development of all stat e transport infrastructure projects. The latter 
are prepared by the Transport Council of the Ministry of Transpor t, Communications and 
Municipalities in cooperation with agencies und er the Ministry. The parliament finalises the 
process by adopting a resolution. 
Regarding trans-European energy networks , in 2008 the Icelandic el ectricity transmission 
system consisted of 3
 171 km of high-voltage lines. The electricity sector is regulated by the 
Electricity Act and regulations established on the basis of this  Act, which transpose the EU 
common rules for the internal market in electric ity into Icelandic legislation. The Act fully 
opened the Icelandic electricity market to co mpetition in January 2006 and introduced third 
party access for transmission and distribution networks. 
Iceland’s electricity market is isolated, with no interconnections . Iceland has no official policy 
on electricity and gas exchanges or network in terconnections with ne ighbouring countries or 
regions. The competent body is the Icelan dic National Energy Authority. In 2007, it 
concluded a preliminary study on the feasibility  of connecting the electricity system of 
Iceland with that of the Faeroe Islands, but w ith no practical implications so far. There are no 
projects as regards electric ity or gas interconnectors. 
According to the Icelandic Nati onal Energy Authority only 20 to 25  % of the technically and 
environmentally feasible hydropower, and only 20  % of the conventional geothermal potential 
available for electricity production in Iceland has been harnessed so far. 
There are no pipelines or other natural gas infra structure for general use. There is no special 
regulatory framework regarding gas. 
A legal framework for interconnections does no t exist and no agreements have been made 
with respect to access to such networks. The Regulation on conditions for access to the gas 
transmission networks and the Regulation on conditions for access to the network for cross-
border exchanges in electricity have been inco rporated into the EEA Agreement. However, 
the latter Regulation on elec tricity exchanges has not yet been implemented. 
Iceland is currently not participating in the revi sion of the TEN-E policy. It needs to consider 
aspects of this policy relevant to its particular energy system. 
EN 56   EN Regarding telecommunication networks , Iceland has been participating in the ICT Policy 
Support component of the Competitiveness and Innovation Framework Programme since 
2007. 
Conclusion 
Iceland is well aligned with the acquis  on trans-European networks, especially in the field of 
transport. Relevant administrativ e structures are in place and Icel and should be able to assume 
the obligations of membership in this area. Gi ven its specific geograp hical position and the 
isolation of its electricity system, Iceland has not developed any TEN-E related policy so far. 
It will have to c onsider relevant aspects of this policy. 
 Chapter 25: Research and development 
The acquis in the field of science and research does not require transpositi on of EU rules into 
the national legal order. Implementation capacity relates to the existence of the necessary conditions for effective participation in the EU’s Research Framework Programmes and the 
contribution to the Lisbon Agenda with the Barcelona 3
 % of GDP financial target and the 
European Research Area. In order to ensu re full and successful association with the 
Framework Programmes, Member States need to ensure the necessary implementing capacities in the field of research and technolog ical development, incl uding adequate staffing. 
Iceland, as a party to the EEA Agreement, is associated to the EU Framework Programmes. 
Close to 3
 000 persons work on RTD in Iceland. Of those, 1  400 are from industry, and close 
to 800 from higher education and public research  respectively. In terms of research results 
Iceland ranks 2nd  among the OECD countries, 1st in agri culture & fisheries and medicine & 
health, 4th in humanities, 13th  in social sciences, 15th  in natural sciences and 14th  in 
engineering & technology. 
The Science and Technology Policy Council (STPC) is the main body responsible for 
developing and adopting th e three-year general policy for science, research and technology . 
Four Ministers have permanent seats in the Coun cil and the chair (the Prime Minister) can call 
upon four extra Ministers. 16 othe r stakeholders (including so cio-economic partners) also 
have permanent seats in this Council. 
As regards the ethical, legal and social aspects (ELSA) of science, Iceland’s legislation and 
control systems as well as funding mechanis ms are comparable to those in the EU. 
Since the launch of the 7th Framework Programme  of the European Community for research 
and technological development (FP7 ) in 2007, Iceland participates effectively as an associated 
country in European R&D projects with the ma jority of the Icelandi c FP7 contributors taking 
part in health and environment projects. Icelan d does not engage in nuclear research and has 
never been associated to the Euratom framew ork programmes for research and technological 
development. 
There is a strong tradition of i ndustry-related research institutions  in Iceland, particularly in 
marine research, health & medicine and agricu lture. Iceland is involv ed in the Standing 
Committee for Agricultural Research as an observer. Iceland is also involved in the 
governance of the European Research Area  (ERA) through its observer role in the Scientific 
and Technological Advisory Committee of the EU (CREST) and other relevant ERA 
governance bodies. 
EN 57   EN International participation by Iceland in work on science, technological development and 
innovation is one of the cornerstones of its sc ientific and technologi cal strategy. Iceland 
participates in the Nordic Research and I nnovation Area (NORIA) which has been developed 
under the Nordic Council of Ministers. A white paper on NORIA was produced in 2003, 
paving the way for important inst itutional changes in the Nordic region. Iceland is included in 
the three Nordic institutions for science and technology: No rdForsk (for cooperation in 
science), Nordic Innovation Center (for c ooperation in innovation projects) and Nordic 
Energy Research.  
The environment for conducting scientific research and t echnological development is 
favourable and knowledge is applied to underpin a wide range of innovations in industry as 
well as in public services. There are no quan titative targets similar to the Barcelona 3  % 
objective set for Iceland. However, overall expe nditure on R&D, as a sh are of GDP, continues 
to remain above the 3  % mark.  
The Icelandic Centre for Research (Rannís) pa rticipates in a number of ERA-Net projects. 
Some of those projects have  the objective of becoming cl assed as Article 185 initiatives11 in 
the future. Eurostars has been running as an Article 169 initiative si nce 2008, with  Icelandic 
participation from the start. Iceland has not had an official policy towards participation in the 
governing bodies of Article 187 initiatives12. Icelandic organisations do, however, participate 
in Innovative Medicines and Hydroge n and Fuel Cells initiatives. 
With regard to actions related to the mobility of researchers, Iceland does not have a special 
plan aimed at specifically attracting young people to sciences, or to ensure human resource 
capacity in research, nor does it have an offi cial programme designed to ensure mobility of 
researchers. However, the official policy has proved successful in recent years in increasing 
the number of university students an d strengthening the universities. 
The promotion of RTD innovati on is well organised and well connected with the business 
community. The Icelandic Centre for Research (R annís) organises events and the University 
of Iceland hosts the Icelandic Web of Science,  which contributes to creating an environment 
favourable to dissemination of scientific knowle dge to the public at large. A law on R&D 
incentives came into effect in December 2009. The government has decide d to double the size 
of the competitive funds in four years from 2008 to 2011. Industry mainly funds its own RTD 
work. Only some 5  % of BERD (Business Enterprise E xpenditure on R&D) is financed by 
public sources and some 11  % by foreign funds. 
Conclusion 
As a long-standing associated country to the EU Research Framework Programmes and 
having the necessary legal safeguards and require ments, Iceland appears to be well prepared 
to take on the obligations of EU membership in this chapter. The high research capacities as well as the good level of its education system should enable Iceland to meet the major RTD 
challenges and to play an active role in the development of the European Research Area. 
                                                
 
11 Article 185 of the Treaty on the functioning of the European Union (former Article 169 of the EC 
Treaty) allows the EU to participate in RTD programmes undertaken by several Member States. 
12 Article 187 of the Treaty on the functioning of the European Union (former Article 171 of the EC 
Treaty) allows the EU to set up any structure necessary for the efficient execution of research, 
technological development and demonstration programmes. It allows a wide range of possible 
implementation structures for EU research and development programmes, of which the most prominent 
is a ‘joint undertaking’. 
EN 58   EN  Chapter 26: Education and culture 
The acquis  on education and culture consists mainly of a c ooperation framework through 
programmes and the open method of coordinati on (OMC), which aims at convergence of 
national policies and attainment of shared obj ectives. In the field of education and youth, 
Member States need to ensure sound manage ment of decentralised EU programmes. The 
acquis  also requires the Member Stat es to facilitate the educati on of children of EU migrant 
workers and to prevent discrimination against EU nationals. In the field of culture, the Unesco 
Convention on the Protection and Pr omotion of the Diversity of Cultural Expressions, ratified 
by the EC, is a major element of the acquis . 
The EEA Agreement  partly covers the provisions of the acquis  in the field of education and 
culture, namely concerning the coordination of  policies (Articles 1(2) and 78) and the 
education of children of EU migrant workers (Annex V). 
There is a long history of cooperati on with Iceland in the field of education, training and 
youth . Iceland’s participation since 2002 in the OMC (‘Education and Training 2010’), 
including clusters and peer learning activitie s, has paved the way to  the adoption of policy 
reforms such as the recent lifel ong learning strategy in line with the EU st rategy. In relation to 
the 2010 OMC benchmarks, Iceland is above the EU average with respect to adult lifelong 
learning. Largely due to easy access to the labo ur market, Iceland performs below the EU 
average as regards early school leavers and u pper secondary attainment. The Ministry of 
Education, Science and Culture is  responsible for implementing the acquis  in this area. 
Iceland participated in the last OMC on Youth a nd intends to take part in the new cycle as 
well. The Ministry of Education, Science and Cu lture is the main governmental focal point for 
youth policy in Iceland. The government has a dopted a comprehensive and cross-cutting 
approach giving emphasis to the key component s of the EU Youth Strategy 2010-18. Iceland 
has since 1970 had a legislative basis suppor ting the non-governmental youth sector and 
promoting non-formal education. Iceland is enc ouraged to envisage specific measures to 
facilitate the mobility of volunteers from EU  and EU candidate countries to Iceland.  
The country has been particip ating in EU programmes on education and youth for about 
fifteen years. 
However, Iceland needs to clarif y its legal framework as regard s the Directive on education of 
children of EU migrant worker s and the principle of non-discrimination between nationals 
and EU citizens in access to educ ation in order to implement the acquis  uniformly and equally 
across the country.  
In the field of culture , the country fully subscribes to the objectives of the European Agenda 
for Culture. It ratified the Unesco Conven tion on the Protection an d Promotion of the 
Diversity of Cultural Expressi ons in 2007. Iceland ha s a well developed support system in the 
field of cultural activities. Th e state’s role is primarily to ensure a fertile and creative 
environment for culture. Iceland intends to participate in the OMC on culture once invited to do so.  
Iceland participates in the Culture Programme  2007-2013 and more generally has been taking 
part in cultural programmes since 1994. 
EN 59   EN Conclusion 
Iceland has largely taken over the acquis  in the field of education, training, youth and culture. 
Its ongoing reforms are inspired by the EU standard s and policies. It should therefore be in a 
position to take on the obligations of EU membership in this area. 
 Chapter 27: Environment 
EU environment policy aims to promote sustai nable development and protect the environment 
for present and future generations. It is based on the integration of environmental protection 
into other EU policies, preventive action, the polluter pays principle, fighting environmental 
damage at source and shared responsi bility. Ensuring co mpliance with the acquis  requires 
significant investment, but also  brings significant benefits . A strong and well-equipped 
administration at national and lo cal level is imperative for the application and enforcement of 
the acquis . 
A considerable part of the acquis  has been incorporated into the EEA Agreement and is thus 
applicable to Iceland. This is generally done on  the basis of Part V, Chapter 3 of the EEA 
Agreement. The acquis  related to nature protection has not  been included so far in the EEA 
Agreement, neither are a number of  directives in the water sector. 
There are no constitutional provisions related to environment protection.  Sectoral legislation 
exists in each sector. A National Strategy fo r sustainable development serves as a policy 
framework until 2020 but does not contain provisi ons related to budgetary or other resources 
for achieving environmental goals set therein. 
Environmental policy is formulated, implemented and enforced at national and local level. An 
administrative reform is under consideration, by which the Ministry for the Environment 
would merge its own and other mi nistries’ agencies, as well as  transfer responsibilities 
between executive agencies w ith a view to ensuring optimal administrative efficiency. 
There is no overall environmental investment plan to specify or prioritise investments 
required for the implementation of the acquis . National investment in the environment is low, 
0.4 % of GDP, and will need to be increased  in order to achieve compliance with the acquis . 
Available data suggest that the level of enfor cement of environmental laws is low. There are 
some mechanisms for the integration of the environment into other policies, mainly at 
strategic document level. However, the use of  mechanisms for integrating environmental 
concerns into other polic ies is not widespread. 
As regards horizontal legislation , Environmental impact assessment  (EIA) and strategic 
environmental assessment (SEA) requirement s are implemented. A draft bill is pending 
adoption by parliament on environmental liabilit y. However, Iceland is not a party to the 
Espoo Convention on Environmental Impact A ssessment in a Transboundary Context, its 
Protocol on Strategic Environmental Assessm ent and the Aarhus Convention on Access to 
Information, Public Participation in Decision- making and Access to Justice in Environmental 
Matters.  
Air quality  legislation is aligned to a large extent with the acquis , with certain limit values 
that are even stricter than the acquis . However, the National Emi ssions Ceilings Directive is 
not transposed. 
EN 60   EN Waste management legislation  is to a large extent transposed. However, Iceland still needs 
to transpose the new Waste Framework Directive,  the latest amendments to the Directive on 
batteries and accumulators, the Mining Waste Directive and the Packaging and Packaging Waste Directive. The definitions regarding wast e management need to be harmonised with the 
acquis . Shipment of waste is carri ed out in accordance with the Waste Shipment Regulation. 
As regards water quality a number of secondary acts to the Water Act correspond to a certain 
extent to the acquis . Alignment and implementation of th e Water Framework Directive is in 
progress. However, a system for river basin ma nagement is not yet established, even though 
coordination of relevant authorities is ensured. Iceland needs to trans pose the Floods Directive 
as well as the Marine Strategy Framework Dir ective, the Nitrates Directive and the Bathing 
Water Quality Directive. 
As far as nature protection is concerned, the Nature Conserva tion Act takes into account the 
main international nature/biodiversity agreements to which Iceland is a party. However, it does not fully meet the requireme nts of the nature protection acquis . As regards the 
conservation of wild birds, there is no universal system of strict  protection for all bird species. 
Icelandic legislation is in conformity with the general prohibition regarding 
commercialisation of wild birds. However, Ic eland allows the hunting of many bird species 
currently not listed under A nnex II of Directive 79/409/EEC. As regards conservation of 
natural habitats and of wild fauna  and flora (other than  birds), there is no  general scheme of 
species protection in place which meets the stan dards laid down in Articles 12-14 of Directive 
92/43/EC. There are differences between Icela ndic law and the Directive for several key 
species such as Arctic Fox, Ha rbour Seals and Grey Seals. 
Furthermore, Iceland allows the hunting of whales, which is in not in line with the acquis.  
Necessary steps will need to be undertaken as re gards the protection of cetaceans. Iceland will 
need to identify a network of areas to fulfil the protection requirements of the Habitats 
Directive and Birds Directive, especially those to be listed for protection in Natura 2000, 
including in its marine waters and continental shelf.  
Iceland treats marine mammal products as any other seafood products when it comes to 
international trade. There is no legislation equiva lent to the ban on the import of seal products 
into the EU. Alignment with the acquis  will be needed in this area. 
Industrial pollution control and risk management  is to a large extent aligned with the 
acquis . The acquis  concerning integrated pollution prevention and control (IPPC), large 
combustion plants, waste incineration plants a nd installations using organic solvents is 
implemented. There are national provisions rela ting to environmental audit schemes (EMAS) 
and eco-labelling and structures to implement them. 
The legislation on authorisation of genetically modified organisms (GMOs)  is implemented 
and supervised by the Envir onment Agency. As regards chemicals , Iceland has transposed the 
REACH Regulation and participates in the work  of the European Chemicals Agency (ECHA). 
Implementation of the Regulation 2008/1272 EC on classification, labelling and packaging of 
substances and mixtures needs to be ensured. Icelandic classification, packaging and labelling 
rules for chemicals apply equally to plant pr otection products (PPPs) and biocidal products. 
As regards biocides and PPPs, limited provisions exist as regards the use of PPPs. A system 
for PPP data collection exists, but may require  changes to be brought  into line with the acquis . 
Iceland is not a party to the Rotterdam Convention. It currently  has no legal provisions and no 
EN 61   EN customs control system related to exports of dangerous chemicals. Iceland has not signed the 
provisions of Council of Europe Convention ETS  123 on the protection of laboratory animals. 
As regards noise , legislation in line with the acquis  is implemented and a law provides for the 
development of environmental noise mapping and action plans. 
With regard to climate change , Iceland is an Annex I party to the UN Framework Convention 
on Climate Change (UNFCCC). It is also a part y to the Kyoto Protocol, has a greenhouse gas 
limitation commitment of +10  % and expects to meet this targ et. Iceland has a national system 
for greenhouse gas monitoring and reporting in  place in accordance with UNFCCC and Kyoto 
Protocol requirements and fulf ils its reporting obligations  under the Convention and the 
Protocol. Iceland is covered by the EU Emi ssions Trading Scheme (ETS) through the EEA 
Agreement.  
Iceland has requested to conclude a joint deli very agreement with the EU for the emission 
reduction commitments that the EU and Icelan d will undertake in the framework of a new 
international climate treaty. Such an agreem ent will ensure that non-ETS sectors will be 
covered by the EU Effort-Sha ring Decision with a specific ta rget for Iceland, based on the 
same criteria that have been used  to calculate the targets of th e EU Member States thereunder. 
Iceland will have to devote substantial management resources and organisational 
arrangements to ensure that monitoring and im plementation of the ETS is in line with the 
acquis . National legislation provides for the imp lementation of the Regulation on ozone 
depleting substances but may require some changes to fully align with the acquis . 
Conclusion 
Overall, the legislative framework in Icela nd is to a large extent aligned with the acquis and 
should be able to take on the obligations of membership. Further efforts will be needed to 
achieve compliance with the nature protection acquis  in particular as regards protection of 
whales, seals and wild birds as well as conserva tion of natural habitats and of wild fauna and 
flora. Iceland will need to become a party to and implement key multilateral environmental 
agreements such as the Espoo and Aarhus Conve ntions. As regards administrative capacity, 
the Ministry for the Environment will need to continue to be reinforced and responsibilities need to be clearly defined. Efforts will also be ne eded to ensure that ad equate political will is 
in place and resources allocate d to ensure effective implemen tation and enforcement of the 
acquis , including at local level. 
 Chapter 28: Consumer and health protection 
The acquis  on consumer protection covers the safe ty of consumer goods  as well as the 
protection of the economic intere sts of consumers in a number of specific sectors. Member 
States need to transpose the acquis  into national law and to put in place independent 
administrative structures and enforcement power s which allow effective market surveillance 
and enforcement. Appropriate judicial and out-of-court dispute resolution mechanisms, 
consumer information and education, and a role for consumer organisations should be ensured 
as well. This chapter also covers rules in the area of public health. 
Consumer protection is covered by Annex XI X to the EEA Agreement, except for the 
Directive on distance marketing of financial services (non-saf ety related issues), which is 
covered by Annex IX on financia l services. The EEA Agreement also contains provisions on 
public health (Protocol 31 and Annex II).  
EN 62   EN The overall responsibility for general consumer protection  policy lies within the Ministry of 
Justice and Human Rights and th e Ministry of Economic Affair s. There is a Committee for 
Settlement of Disputes in Consumer Sales of G oods and Services Contracts as well as various 
alternative dispute resolution bodies to deal  with consumer complaints. The Consumer 
Association of Iceland has around 13  000 members, and also various NGOs are involved in 
consumer protection issues. Iceland is an obs erver in the Consumer Protection Cooperation 
Committee. 
Product safety-related issues are regulated by the Act on product safety and official market 
control (the ‘APSOMC’), the Re gulation on the safety of toys and dangerous imitations, the 
Regulation concerning marketing re strictions on child-resistant  and novelty lighters and the 
Act on the Consumer Agency and Consumer Spoke sman. However, the level of transposition 
of the APSOMC in Iceland needs to be further assessed. As regards admi nistrative capacity in 
the area of product safety, the Consumer Agency is the national market surveillance authority 
responsible for the enforcement of product safety rules, includi ng sector-specific legislation, 
and acts as the national RAPEX C ontact Point. No market surveillance activities have been 
performed  vis-à-vis  products not falling under sector-s pecific EU legislation, with the 
exception of decorative articles. With respect  to products falling under sector-specific 
legislation, such as toys, electr ical appliances and constructi on products, market surveillance 
seems to consist only in documentary check s without any assessment of whether such 
products may pose a risk to health and safety of  consumers. Iceland participates in meetings 
of the General Product Safety Directive (G PSD) Committee, the Consumer Safety Network 
and RAPEX Contact Points. 
Concerning non-safety related issues , the new acquis  on credit agreements for consumers 
needs to be transposed, as well as the new acquis  on timeshares and injunctions. 
In the field of public health , life expectancy in Iceland is among the highest in the world and 
perinatal mortality among the lowest. Main diseases affecting the population are 
cardiovascular diseases and can cer. The overall responsibility  for public health policy lies 
with the Ministry of Health, the Directorate for Health and the Public Health Institute. 
Preventive health care is offered by heal th care centres throughout the count ry. A Health 
Service Act was adopted in 2007 dividing the country into seve n health regions. The National 
Health Plan sets out a strategy until 2010 puttin g special emphasis on the health of children 
and young people as well as of th e elderly. A health promoti on policy and action plan was 
launched in October 2008. E-Health is used as  a policy tool. Information on health care 
quality is collected at national level. In general, the Icelandic health care system ranks as one of the best in Europe. Following the crisis however, budgetary cuts are planned in 2010. Iceland participates in the meetings of th e European Centre for Disease Prevention and 
Control (ECDC), and, as an observer, in the EU Health Programme and in comitology 
committees on health. 
In the area of tobacco , the acquis  on tobacco control and tobacco  advertising is implemented. 
The introduction of pictorial health warni ngs on tobacco products is under way. Iceland 
ratified the Framework Conventi on on Tobacco Control in 2004.  
The basic act regulating communicable diseases  is the Act on health security and 
communicable diseases. Structures for epidemio logical surveillance and for early warning and 
response to communicable diseases are in place.  
EN 63   EN Implementation of the acquis  on blood, tissues and cells  is well on track. A competent 
authority is in place.  
There is no legislation directly linked to mental health . However, this is listed among the 
priorities of the National Health Plan, and the measures taken by the Icelandic authorities are 
similar to those in the EU Member States. Me ntal health promotion is a relatively new 
concept and has yet to gain solid ground. Nevert heless, good examples of EU-based mental 
health services can also be found in Iceland. 
Drug abuse prevention , nutrition  and alcohol  abuse prevention  are among the priorities of the 
National Health Plan. Screen ing for breast and cervical cancer  is performed in accordance 
with the European guidelines. However, color ectal cancer screening has not yet started. 
Nevertheless, survival rates after cancer dia gnosis are among the best in Europe. Technical 
capacity is in place to fulfil also the requirements of the acquis  on electromagnetic fields . 
Conclusion 
A significant part of the acquis  in the area of consumer and health protection is already 
implemented. Administrative structures are in  place to allow further developments in the 
future. In the area of consumer protection, proactive market surv eillance needs to be 
developed. Further efforts are necessary as re gards the processing of RAPEX notifications. 
Overall, Iceland should be able  to assume the obligations of membership in this area. 
3.1.3. Chapters not covered by the EAA 
 Chapter 11: Agriculture and rural development The acquis  on agriculture and rural development covers a large number of binding rules, 
many of which are directly applicable. The proper application of these rules and their 
effective enforcement and control by an effici ent public administration are essential for the 
functioning of the common agricu ltural policy (CAP). Running the CAP requires the setting-
up of a paying agency and management and control systems such as an integrated 
administration and control system (IACS), and the capacity to implement rural development 
measures. Member States must be able to appl y the EU legislation on direct support schemes 
and to implement the common market orga nisation for various agricultural products. 
The EEA Agreement does not cover the acquis  on agriculture and rura l development except 
for organic farming. In 2007, the Icelandic mark et for agricultural pr oducts from the EU, 
originally excluded from the EEA, was part ially opened under Article 19 of the EEA 
Agreement. 
In 2008 agriculture accounted for 1.4% of Icela nd's GDP and the agriculture sector covered 
2.5
 % of the total labour force. Iceland is located north of the 62nd latitude. Only 15  % of the 
land is considered flat and suitable as arable land. Most arable plots are scattered, separated 
by large drainage channels, rivers, grassland and rocks. Arable land account for about 7  000 
ha, cultivated grassland for 120  000 ha and greenhouses for 19.2 ha. There are 3  045 farms in 
Iceland. 6.5  % of the population of Icel and live in rural areas. 
The EU is Iceland’s main trading partner, wi th regard to all commodities, as well as for 
agricultural products. As regard s trade in agricultural product s, the EU accounted for about 
65 % of all Icelandic imports and about 47  % of all Icelandic agricu ltural exports in 2008. In 
general, Iceland applies high import tariffs to protect its local agricu ltural production, with the 
EN 64   EN exception of tomatoes, cucumbers and peppers (t ariff free). Following the partial opening of 
the Icelandic market for agri culture products under Article 19 of the EEA Agreement, 
bilateral trade concessions have been implemen ted since 2007. Import tariffs will have to be 
aligned with EU levels by accession. 
The current administrative capacity of the Ministry of Fisheries and Agriculture is limited, 
counting about 40 staff. Activities are co ncentrated on policy formulation whereas 
implementation is delegated to the Farmers’ A ssociation, agencies and research institutes. 
Agricultural statistics are not  well developed and in many cas es based only on estimates. ( See 
Chapter 18 — Statistics )  
Iceland’s agricultural policy is based on two framework laws: the Act on the production, 
pricing and sale of agricultural products sets th e official objectives of the agricultural policy 
and provides the general policy framework for agricultural production; the Agriculture Act 
lays down provisions for support for farm cons truction projects, livestock improvement and 
extension (advisory) services. Food security rema ins a key objective of agricultural policy. In 
2009 Iceland’s PSE13 stands at 51  % (EU: 25  %), mainly built on direct payments and import 
tariffs. Total agricultural support by the Minist ry of Fisheries and Agriculture in 2008 
amounted to 13 billion króna. 
Concerning horizontal issues , national schemes are currently managed and payments are 
made by the Farmers’ Association on behalf of  the Ministry of Fisheries and Agriculture. 
There is no structure in place equivalent to an  integrated administrative and control system 
(IACS) or paying agency. The cadastre-based land registry system is currently unfit for the 
purpose of handling the EU area-based direct pa yments. Iceland will need to establish a 
proper framework for meeting the CAP manage ment and control systems. Furthermore 
Iceland does not apply EU cross compliance.  
In their current form, direct payments  in Iceland are not in line with  the EU rules. Contrary to 
the reformed CAP, which provides for 85  % decoupling (93  % in 2013), direct aid payments 
are coupled, and will need to be brought into line with the EU acquis . Direct aid payments are 
currently granted in Iceland’s key production sectors: milk production, cows (a headage 
payment), sheep production and horticulture. In a ll cases, a yearly budgetary ceiling is fixed 
which limits the individual payments. The aid rate therefore changes annually. Iceland will 
have to put in place an information system for beneficiaries of CAP payments under shared 
management and ensure yearly publi cation of names of beneficiaries. 
A good basis for the development of a fully compliant farm accountancy data network  
(FADN) exists in Iceland. 
With regard to state aid,  the Agriculture Act provides for support for structural change, 
improvement of cultivation, livestock improvement and advisory services, whereas the Act on the production, pricing and sale of agricultural products provides  for operating aid. State aid 
will have to be aligned with EU rules. 
Due to its difficult structural and pedoclimatic  conditions and its remoteness, Iceland has 
developed a very protective agricultural policy. The production and marketing of dairy, sheep 
and horticulture are regulated by agreements signed between the Ministry of Fisheries and 
                                                
 
13 PSE: Producer Support Estimate, an OECD indicator measuring the level of support for agricultural 
production (for 2009, Iceland: 51  %, EU: 25  %). 
EN 65   EN Agriculture and the Farmers’ Association, all recently updated to take into account the 
negative effects of the economic and financial cr isis. The milk market is controlled by quotas 
and administrated prices, both being subj ect to adjustments depending on market 
developments. For sheepmeat, the associatio n of sheepmeat producers fixes annually a 
recommended price for slaughter. In contrast, greenhouse vegetables are marketed freely; no 
customs tariffs apply, and producers receive hi gh coupled direct payments in return. 
Arable crop  production is limited to barley (2008: 15  000 tonnes) produced for feed and 
potatoes (2008: 12  000 tonnes). Iceland does not produce a ny other arable crops or protein 
crops or oil seeds. In 2008, th e dry hay yield amounted to 133  829 m3 and the silage hay yield 
2 174  647 m3. 
The sector of  animal production  in Iceland provides 87  % of farm income. It benefits from 
large support measures and ad ministered prices. In 2008, 26  000 diary cows, about 450  000 
sheep, 4  200 pigs (sows) and in total 4.7 million poultr y were kept in Iceland. Iceland allows 
only local breeds for sheep, cattle and horses. The policy of recomme nded prices, pricing 
committees and exchange of price information is out of line with EU competition rules and 
will have to be aligned with the acquis . 
Regarding specialised crops , production of vegetables is rather limited. There is no 
commercial fruit production, except for lim ited production of strawberries. Greenhouse 
production accounts for 19.2 ha and covers mainly  tomatoes, cucumbers and peppers. Imports 
of these three products have been fully liberal ised. However, market measures and labelling 
are not in compliance with the EU acquis . Iceland produces only a few tonnes of turnips, 
carrots and cabbages, which are not regulated. Producer organisations as defined by the EU 
acquis  do not exist. Reporting of prices for importe d fruit and vegetables does not exist. There 
are no crisis management measures in place.  
No institution has overall responsibility for rural development policy and there is currently 
no overall strategy in line with the EU strategic approach to rural development. A wide range 
of programmes and measures ar e being implemented by several different institutions and 
funds. Existing local partnerships  may facilitate the process of  establishment of local action 
groups. A rural development paying agency will need to be established. 
As regards quality policy , Iceland applies a quality manage ment scheme different from the 
EU scheme of geographical indications and trad itional names. This will have to be brought 
into line with the EU acquis . Legislation on  organic farming , covered by the EEA 
Agreement, is largely aligned with the acquis . 1 % of Icelandic farmers are involved in 
organic production (vegetables, seaweed, milk, sheepmeat). 
Impact 
The estimated impact  of Iceland’s possible accession on the EU common agricultural policy 
has to be related to the structure and size of the Icelandic agricultural sector. The agricultural 
sector in Iceland accounts fo r a similar share of GDP (1.4  %) as that of the EU-27 (1.2  %) 
whereas in terms of agricultural employment its share is lower (2.5  %, against EU-27: 5.6  %). 
Iceland would add about 127  000 ha of agricultural land (0.07  %) and 3  045 farms to the EU 
agricultural sector. The production of m ilk, beef and sheep represents around 0.1  % or less of 
total EU-27 production. Crop production, mainly barley  for feed, is negligible when compared 
to EU production. Iceland has a highly protected market which was partially opened to EU 
agricultural products as of  2007. Taking the above into account, under the current acquis , 
EN 66   EN CAP expenditures, i.e. market expenditure, dire ct payments and rural development payments, 
would most likely account for less than 0.1  % of EU-27 CAP spending. Overall, a preliminary 
assessment indicates that Iceland’s membership of the EU would have a minor impact on the 
CAP. 
Conclusion 
Iceland’s agricultural policy is not in line with the acquis  and will need to be adapted before 
accession. This applies in particular to support measures, many of which are not currently in 
line with EU competition and state aid rules. Th e agricultural policy will require adjustments, 
moving towards decoupled supp ort measures. Iceland will have to strengthen its 
administrative capacity. Furthermore, the count ry will need to improve the collection and 
processing of agricultural statis tics and start preparations for setting up basic instruments and 
institutions for managing the common agricultur al policy, in particular an EU-compliant 
paying agency and an integrated administration and control system (IACS). Iceland will also need to develop an EU-based rural development polic y. Overall, Iceland ha s the potential to 
assume the obligations of member ship in this area in the medi um term, provided it undertakes 
the necessary steps to align with the acquis. 
 Chapter 13: Fisheries 
The acquis  on fisheries consists of directly applicable Regulat ions, which do not require 
transposition into national legi slation. However, it does require  the introduction of measures 
to prepare the administration and operators fo r participation in the common fisheries policy 
(CFP), which covers resource and fleet management, inspectio n and control, structural 
actions, market policy and state aid control. In some cases, existing fisheries agreements and 
conventions with third countries or internat ional organisations will need to be adapted. 
The fisheries sector remains extremely importa nt for Iceland’s econom y, although its relative 
significance has declined over the last ten year s due to the diversifi cation of the Icelandic 
economy. In 2008, around 4 100 people were employed in the harvesting sector. The income 
generated by the fish harvesting sector averaged 85 billion króna (€ 800 million
14) per year 
during 2006-08. In 2008 there were 197 enterprise s involved in fish processing, employing 
around 5 500 people. The processing sector  averaged around 600 thousand tonnes of 
production during 2006-08, representing around 135 bill ion króna (€ 1270 million) per year.  
Icelandic fisheries production (harvesting and aquaculture) has averaged 1.7 million tonnes in 
recent years. Iceland’s fisheries production repr esents almost a third of the combined EU-27 
production (4.6 million tonnes in 2006). In term s of annual production per inhabitant, the 
Icelandic 4 tonnes per inhabitant compare to 10 kg per inhabitant in the EU, which explains 
the importance of fish as an exported good: over the last ten years between 25 and 50 % of all 
exported goods and services have involved marine  products, four fifths of which go to the EU. 
Fisheries production has declined over the la st ten years, from a peak of around 2 million 
tonnes in 2000 to 1.3 million tonne s today. Employment levels ha ve dropped significantly in 
the last ten years, from over 16 300 employ ees in 1999 to around 9 600 in 2008, a decline of 
over 40 %. 
                                                 
14 Applying an average exchange rate for 2006-2008 of € 1 = 106 króna. 
EN 67   EN The Icelandic fleet comprises over 1 100 vessel s. The latest estimat es place the fleet’s 
capacity at 143 102 GT for an aggregated engi ne power of 408 797 kW. The fleet is overall 
highly efficient and includes among the large ve ssels 70 demersal trawlers (110-2 850 GT), 
18 long-line vessels (200 -700 GT) and 27 pelagic vessels (570-3 200 GT). 
Fisheries management in Iceland is based on the principle that commercially exploited stocks 
in Icelandic waters are the common property of the Icelandic nation and that the public has to 
ensure the conservation and productivity of fi sh stocks and their marine environment. 
Icelandic laws set and implement the framew ork for the private exploitation of fishery 
resources while the technical and economic devel opment of the sector w ithin this boundary is 
up to private operators and the market. Iceland therefore implem ents a policy of relatively low 
intervention: there is no fleet capacity policy, no funds for direct subsidies and no market 
intervention. 
The relevant administrative authority is the Mi nistry of Fisheries and Agriculture, assisted by 
the Icelandic Directorate of Fisheries and the Marine Resear ch Institute. Overall, adequate 
administrative structures are in place. 
Iceland has shown an interest in the developmen t of integrated maritim e policy in the EU, has 
set up a maritime policy governance structure and already contributes to  this policy as a 
member of the High Level Focal Points Group.  
Regarding resource management, the range of stoc ks exploited in Iceland includes 35 species, 
of which 19 are subject to catch limitations . Among the targeted species cod and haddock are 
of primary importance in terms of landed valu e (about 50 % of total value in recent years), 
while capelin and herring are most important in  terms of landed weight . Other key species (in 
decreasing order of landed weight) are blue whiting, mackerel, saithe, redfish and Greenland 
halibut. Overall, and particularly  in light of biomass trends, th e Icelandic management system 
can be considered as relatively successful. 
The overall design and implementation of Icela ndic fisheries policy is similar to those 
implemented in the EU. Iceland subscribes to the principles of sust ainable development and 
has incorporated the precautionary approach as  a guiding principle for decision-making in its 
basic fisheries legislation. Iceland has for many years been managing its fish stocks according 
to harvest rules, similar in e ffect to the EU’s l ong-term management plans, but these rules 
have not been translated into legislative act s. It subscribes to the general objective of 
harvesting stocks at a level that provides ma ximum sustainable yield (MSY). Iceland should 
be prepared to take on board the acquis in th is respect. The same assessment can in general 
terms be made with regard to the administra tive structures in place to support this policy. 
However, Icelandic legislation on investment in fishing (acqui sition of vessels or fishing 
companies) includes restrictions on investment that are not in line with the acquis. Icelandic 
law provides that only ships ow ned by Icelandic legal entities and Icelandic c itizens legally 
resident in Iceland may be re gistered for fishing operations in Icelandic waters. Access by 
foreign vessels is limited by licenses issued under international agreements. Tradable catch quotas (Individual Transferable Q uotas, ITQs) are assigned direc tly to vessels, but cannot be 
acquired by foreigners, as only nationals are allowe d to enter a vessel in the vessel registry to 
engage in fishing operations. Foreigners cannot acquire more than a minority share in an Icelandic company that harv ests or processes fish.  
EN 68   EN In the area of services in fisheries, Iceland has a relatively open market, with the exception of 
services where a requiresfishing permit is re quired (e.g. use of foreign fishing vessels for 
scientific purpose). Iceland restricts access to ports and the provision of port services to 
foreign vessels. These restrictions are not in li ne with the acquis on the right of establishment, 
the freedom to provide services, the free movement  of capital and the rele vant case-law of the 
Court of Justice. ( See also Chapter 3, Right of establishment and freedom  to provide services 
and Chapter 4, Free movement of capital ) 
Iceland will have to accept the principles of  exclusive Community competence and freedom 
of access to waters. Article 17 of the basi c CFP Regulation (Council Regulation EC No 
2371/2002) establishes that a vessel  from any Member State has th e right of access to another 
Member State’s waters, subject to agreed rules. 
Iceland has been a major contributor to the deve lopment of environmental aspects of fisheries 
management, such as the ecosystem approac h. The Reykjavik Declar ation on responsible 
fisheries in the marine environm ent of October 2001 is a milestone  in this respect. Iceland has 
practical experience in managing area closures  for protecting vulnerable habitats, and in 
general seems well prepared to take up the EU acquis in this area. However, this assessment 
needs to be qualified in relation to certain pr ovisions of the EU environmental acquis dealing 
with conservation of cetaceans. (S ee Chapter 27 — Environment)  
Iceland includes a general ban on di scards in its legisl ation, and presents this element as being 
of key importance in relation to the objectiv e of minimising the impact of fishing on the 
environment. This ban is accompanied by tech nical measures on minimum mesh sizes and 
small-fish sorting grids. The Icelandic regime  differs clearly from the EU regime, since 
discarding is only partly illegal in the EU and sometimes necessary to comply with EU fisheries regulations. The EU is currently examining possible changes in its regime in this area. This will need to be discussed during the negotiation process in light of regulatory 
developments in this area in the EU. 
As regards fleet management, the development of  Iceland’s fleet capacity is not subject to 
specific rules. However, the capac ity of the Icelandic fleet has c ontracted at an average annual 
rate of 2.3 % in terms of tonnage and 1.95 % in  terms of power during the past 12 years. 
These figures are very similar to those for the EU fleet.  
Icelandic authorities doe not intervene in fleet developmen t and do not regulate capacity 
restrictions since the market mechanism created  by the ITQ system as sufficient to adjust 
fishing capacity automatically to the available fishing possibilities. Tt he Government decided 
to discontinue effort management in 2004. 
As no decommissioning aid has be en provided, the steady reductio n in fleet capacity suggests 
that the Icelandic fleet should have no difficulty in complying with the ‘e ntry-exit’ regime of 
fleet management under Community law. However,  the existence of a de tailed and complete 
registry of all fishing vessels, which includes their main technical characteristics, is compulsory in the EU. Setting up an EU compatible registry in Iceland may require a re-measurement of each vessel's tonnage and power  according to Community law. Establishing 
the vessel register should not be difficult as Iceland already has a gene ral vessel register in 
which licences to undertake fishing operations are recorded. 
Concerning inspection and control,  Iceland has developed detaile d rules regarding the control 
of fishing activities. Iceland will need to im plement the recently adopted Community control 
EN 69   EN system. The administrative structure and th e human, technical and economic resources 
available to the Icelandic control services seem  to be commensurate w ith the requirements of 
rigorous control of fishing activities. Iceland w ill have to adapt its regulatory regime, as well 
as the distribution of its resources, to achie ve an integrated monitoring, surveillance and 
inspection mechanism based on risk analysis. This  analysis should result in the definition of 
control and inspection objectives , as well as specific benchmarks and compliance indicators. 
Concerning the fight against illegal, unregulat ed and unreported fishing, Iceland should be 
able to make a positive contribution to this policy. The control systems in place in Iceland are similar to the control regime laid down in the acquis. This was formally recognised by an agreement between the EU and I celand reached in November 2009. 
In the areas of structural actions and state ai d, Iceland provides only very limited financial 
support to the fisheries sector. Apart from ai d for vocational training, no support measures 
similar to those provided for by the European Fi sheries Fund (EFF) are applied. Some public 
support schemes do relate to the fisheries sector , such as the ‘Adding value to marine catch’ 
research and development fund or the seamen’s  tax deduction regime. The compatibility of 
these schemes with Community state aid rules will have to be assessed. 
With regard to state aid to the fisheries sector other than direct subsidies and grants, Iceland 
does not have a wide range of schemes of indi rect support for fishing activities. There should 
be no major problems for Iceland to take on the obligations of membership in this area as 
harmonised state aid rules based on the EEA Agr eement are in place. All state aid measures, 
including direct and indirect support to the fish eries sector, will have to be brought into line 
with the Treaty provisions and the guidelines adopted in this area.  
Support for the sustainable development of fisheries areas, pilot projects, promotion 
measures, and collective actions are likely to be the most interesting EFF measures for Iceland. However, Iceland’s experience in programming, managing and controlling 
Community-type support and multi-annual funding pr ogrammes is limited, in particular in the 
Ministry of Fisheries and Agriculture. 
The Icelandic government has launched preparat ions for a "Comprehensive Strategy 2020", 
which could provide a basis for programming of the national strategic plan for fisheries and 
the operational programme as required by the Eu ropean Fisheries Fund. Moreover, there are 
basic rules, mechanisms and bodies for the ma nagement and control of financial support in 
place upon which a management and control system that complies with Community 
provisions can be built. To benefit from such support Iceland will have to comply with the 
programming mechanisms of the European Fisheries Fund. This includes the provision of national funds to match Community funds. It w ill also have to set up a management and 
control system to ensure the sound and efficien t management of those funds in the framework 
of shared management, including the detection and handling of financial irregularities.  
Regarding market policy, Iceland has a li mited, though efficient, legislative and 
administrative framework covering internal and external trade in fish and fishery products. 
Provided some adaptations are made to this framework, Iceland could easily implement the Community acquis concerning the common organi sation of markets for fisheries products. 
Icelandic fishermen’s associations could become the basis for setting up producers’ 
organisations in Iceland. Nonetheless, the role of these associations, as it relates to the 
Community acquis, will have to be clarified a nd brought into line with Community legislation 
. 
EN 70   EN An important difference with regard to Commun ity legislation is the absence of commercial 
minimum sizes of fish products and/or of fres hness types and the possibility for unrestricted 
landing of herring and mackerel for pur poses other than human consumption. 
Iceland has no specific legislation on informati on to the consumer for fish offered for retail 
sale. It will have to adapt its legislation in this area as Community rules on this subject 
include certain obligations on the traceability of  products linked to the information provided 
to the consumer. Iceland is in the process of creating a legal framework for the certification of 
Icelandic products of marine capture fisher ies in accordance with  FAO guidelines for 
certification and ecolabelling. 
Regarding international agreements, Iceland has ratified or otherwise become a party to the 
various instruments of internati onal fisheries law and is an activ e contributor to international 
cooperation to ensure th e governance of the global marine  commons. Iceland has, however, 
not accepted the 1993 FAO Agreement to Promote Compliance with International Conservation and Management Measures by Fishing Vessels on the High Seas.  
Iceland is a member of the regional fisherie s management organisati ons with competence 
over areas of the high seas where its fleet operate s, namely the North East Atlantic Fisheries 
Commission (NEAFC) and the Nort hwest Atlantic Fisheries Orga nisation (NAFO), and of the 
Atlantic Tuna Commission (ICCAT). There are five bilateral fisheries agreements in force between Iceland and other states or territorie s, and two further trilateral agreements for 
specific regional cooperation.  
Iceland is party to arrangements which involv e direct cooperation betw een the Coastal States 
of the North-East Atlantic. Through such arrang ements, these Coastal States jointly manage 
the highly migratory stocks st raddling the respective economic zones. The Icelandic approach 
to the management of these stocks is quite of ten divergent from that of the Community. This 
divergence is most marked in  relation to mackerel, on which species Iceland, not being 
formally recognised as a Coastal State, has un ilaterally expanded its fisheries over the last 
three years. 
In the case of the regional fisheries manageme nt organisations mentioned, the EU is a full 
contracting party and Iceland’s participation and positions will need to be subsumed into the 
EU’s rights and obligations. Rega rding bilateral agreements enta iling the allocation of fishing 
opportunities, only the EU is entitled to conclude and manage such agreements. 
Impact  
Iceland is a large net exporter of fish products  (trade surplus of €
 1.4 billion), while the EU is 
a net importer (trade deficit of €  11 billion). As over 80  % of Icelandic expor ts are to the EU, 
the EU’s trade balance in fish products woul d improve significantly. Tariffs on those fish 
products originating in Iceland have already been removed to a very large extent, so the loss of revenue for the EU and corresponding adva ntages for Iceland would be quite limited. 
Overall fish production in the EU  would increase by more than 20
 % and production of wild 
fish by more than 25  %. With such increases, the EU w ould maintain its third position in 
world production of fish after China and Pe ru, and would increase its share in world 
production from 4.4 to 5.5  %. 
The Icelandic fishing fleet would increase the Community fleet by 8.6  % in terms of gross 
tonnage and by 6.9  % in terms of engine power (2008 data). As overcapacity is not a major 
EN 71   EN issue in Iceland the over capacity problem in the EU would not  be substantially affected. With 
regard to reducing disc ards, Iceland’s experien ce would have a positive impact on the EU’s 
policy debate on this subject. 
Iceland’s adaptation to the CFP would require incorporating Icel andic harvest patterns into 
the total allowable catc h (TAC) and quota system. The EU fi xes annual TACs per species and 
area, and subdivides these figures into quota  allocations to Member States. The quota 
allocation takes into account catc h records and remains stable by virtue of the principle of 
relative stability among Member States. During  the accession negotiations, this integration 
process will require a particular focus. 
Iceland will have access to the European Fisher ies Fund. However, in view of its GDP level 
and relevant parameters of the fisheries sector  the EU contribution to Iceland for structural 
actions under the EFF are likely to be limite d. Iceland would also be nefit from Community 
support for measures for control and enforcement and for data collection for scientific advice. 
Iceland’s accession would facilitate a rigorous c ontrol regime in the North-East Atlantic. It 
would strengthen the EU’s position in regional fisheries organisations. More generally, in view of its geographical position, Iceland could play a significan t role in the development of 
the EU’s policy in the Arctic. 
A preliminary assessment indicates that Ic eland’s accession to th e EU would have a 
significant impact on the common fi sheries policy. However, the CF P is currently undergoing 
a review with a view to its reform, which would be effective from  2013. The Commission’s 
policy analysis, as reflected in its Green Paper of April 2009, and the subsequent public 
debate, point to a reform which in some respec ts may move in the direction of the present 
Icelandic approach. 
Conclusion 
Fisheries policy in Iceland is similar to the system implemented in the EU. Iceland has well 
developed administrative structures in  the area of fisheries management.  
Iceland will, however, need to align with EU common fisheries policy instruments, in 
particular fishing capacity management, tec hnical conservation meas ures and integrated 
control mechanisms. It will need to make su bstantial efforts to set up mechanisms of 
implementing and controlling Community support m easures. Iceland will have to subscribe to 
the EU principle of access to waters. It will al so have to comply with the internal market 
acquis  regarding the right of establishment and the freedom to provide services as well as the 
free movement of capital in th e fisheries production and processi ng sectors. Its international 
relations in fishery matters will have to be  incorporated into the EU’s international 
arrangements. 
Provided Iceland subscribes to these principles and makes the necessary efforts to align its 
legislation, Iceland should be in a position to apply the acquis  in this area in the medium term. 
 Chapter 16: Taxation 
The acquis  on taxation covers the areas of indirect taxation, definitions and principles of 
value-added tax (VAT) and excise duties, an d direct taxation. Excise duties on energy, 
tobacco products and alcoholic beverages are subject to EU directives as regards the 
structures of the duties, the levels of mi nimum rates and the holding and movement of 
EN 72   EN excisable goods. Regarding direct taxation, the acquis covers some aspects of corporate taxes 
and is aimed mainly at removing obstacles to cross-border activities be tween enterprises. The 
acquis  in the area of administrativ e cooperation and mutual assist ance provides tools to avoid 
intra-Community tax evas ion and tax avoidance. 
In the area of indirect taxation , Iceland applies a VAT system which is fairly similar to the 
EU system. As regards exemption from VAT and reduced rates, some changes will be needed 
to bring the Icelandic legislation into line wi th the VAT Directive, in particular when the 
applicable rate for imported/foreign products is different, in principle, from that applied to 
similar domestic products. 
The excise duty  system is fairly similar to the EU system. Excise duties are applicable to 
alcohol and alcoholic beverages, to bacco products and energy products. 
On alcohol  duties, Iceland will need to adapt the product definitions to match the categories 
laid down in the acquis . In charging duties, Iceland applies a system based on centilitres of 
alcohol in the content of alcohol ic beverages, which is different  from the volume of alcohol in 
the finished products as applie d in the EU. Iceland’ s levels of excise duties on alcohol are 
well above the minimum limits set in the acquis . 
Excise duty is levied on tobacco  and tobacco products which ha ve been imported or produced 
in the country. The rates are th e same for imported and domestically produced products. The 
tobacco tax is specific but comprises a taxa tion base for value-added tax. The Icelandic 
categories for tobacco products differ from those of the EU. In addition, Iceland applies only a specific rate for cigarettes, whereas the acquis  requires a specific and an ad valorem rate 
levied on cigarettes. 
The Icelandic travellers’ allowances system applicable to alcoholic and tobacco products 
differs from the one used in the EU, in resp ect of amounts which can be imported as well as 
the beneficiaries of such allowances. 
Also, as regards Icelandic excise legislation on energy , the scope of produc ts and uses subject 
to excise payments in Iceland is currently significantly smalle r than what is  required by the 
acquis . The national tax rates for petrol and gasoil used as motor fuels will have to be aligned 
with ranges laid down by the acquis . The reductions in or exemptions from the current 
taxation of transport fuels will also need aligning with the acquis . Consumption of coal and 
petroleum as heating products by industry will also have to be included in the taxable basis by 
the time of accession.  
Furthermore, Iceland will need to adopt th e Community’s system of warehousing and duty 
suspension for excisable products, and ensure compliance with the duty points (times for 
charging duty) required by that system. 
As far as direct taxation is concerned, Iceland will need to implement certain parts of 
Community legislation enacted in the direct ta x area which are curren tly not reflected in 
Iceland’s tax system. In particul ar, Iceland will need to align its legislation with the Merger 
Directive, the Interest and Royalties Directive,  the Savings Directive (including conclusion of 
bilateral Savings Agreements with dependent or associated territories of the Netherlands and 
the United Kingdom), the Parent-Subsidiary Direct ive and the Capital Duty Directive. Iceland 
will also need to explicitly commit itself to  respecting the Code of Conduct for business 
taxation. Finally, there are provisions on income taxation of individuals and corporate income 
EN 73   EN tax which, on the basis of ECJ case-law, need to be amended to ensure compliance with the 
acquis. 
Concerning administrative cooperation and mutual assistance  in the VAT area, Iceland 
will need to set up a central liaison office for the exchange of information, staffed with a 
sufficient number of trained personnel and usi ng adequate national procedures for gathering 
the requested information within the deadlines imposed by the acquis . Similarly, Iceland will 
also need to set up an excise liaison office. Iceland will also need to implement the acquis  
provisions related to mutual assistance for assessment in direct tax matters. 
As regards mutual recovery assistance, Icelan d is party to the Nordic Mutual Assistance 
Treaty and the OECD Convention on mutual admi nistrative assistance in tax matters. Iceland 
has double taxation agreements with some countries containing a provision on mutual 
recovery assistance for income taxes. Iceland will need to further adapt its administrative organisation to meet the requirements imposed by the acquis  on mutual recovery assistance. 
As regards operational capacity and computerisation , Iceland will have to adapt its IT 
network to introduce and operate the systems needed for interconne ctivity and interoperability 
with the EU’s IT systems for taxation (curre ntly the VAT Information Exchange System — 
VIES, VIES on the Web, the Excise Movement  Control System, and the Taxation on Savings 
System). 
Conclusion 
Overall, tax legislation in Icela nd is partially aligned with the acquis . However, Iceland will 
have to undertake further significant approximation in the indirect taxation area, in particular 
on VAT and excise duties. Regarding direct taxa tion, Iceland will need to implement part of 
the acquis  in the direct tax area which is currently not reflected in Iceland’s tax system. 
Iceland should conclude bilateral Savings Agreements with a number of territories. 
Iceland has a good level of administrative capac ity in the field of taxation. Nevertheless, 
further efforts will be necessary to effectively implement the EU acquis  upon accession. In 
particular, it will have to esta blish a central liaison office and an excise liaison office, and to 
achieve full interconnectivity with the EU’s computerised systems. 
 Chapter 17: Economic and monetary policy 
The acquis in the area of economic and monetary  policy contains rules requiring the 
independence of central banks in Member States  and prohibiting direct financing of the public 
sector by the central banks and privileged access of th e public sector to fi nancial institutions. 
Member States are expected to coordinate their economic policies a nd are subject to the 
provisions of the Excessive Deficit Procedure as well as of the Stability and Growth Pact. The national central banks will  be subject to the Stat ute of the European System of Central Banks 
(ESCB). New Member States are also committed to complying with the criteria for adopting 
the euro. Until they adopt the euro, they will participate in the Economic and Monetary Union as Member States with a derogation and must tr eat their exchange rate policy as a matter of 
common concern. 
In the area of monetary policy,  the functional independence of the Central Bank is enshrined 
in the 2001 Act on the Central Bank of Iceland (CBI), which provides for a primary objective 
— price stability — in a clear manner. However, as to institutional independence the Act provides on several occasions th at the Bank has to seek or ta ke instructions from other 
EN 74   EN authorities (e.g. Articles 3, 5, 18) , which is not in line with Article 130 TFEU. Hence, clear 
provisions will need to be put in place prohibiti ng the giving of instructions to the CBI, the 
approval, suspension, annulment or deferral of the CBI’s decisions, and participation (with a 
right to vote) in decision-making bodies of th e CBI. Moreover, the CBI is organised as a 
state-owned body, administratively falling under th e Ministry of Economic Affairs, which can 
affect the CBI’s independence. This will therefore have to be limited by law. 
Regarding individual independence, there are no appropriate safeguards to protect the 
independence of the members of the decisi on-making bodies (Governor, Monetary Policy 
Committee, Supervisory Board). Provisions concerning grounds for dismissal of the CBI’s 
decision-making bodies are not  in line with the requirements of the TFEU. 
According to the principle of financial indepe ndence, the central bank must have sufficient 
means to meet its objectives a nd perform its tasks in an unimpaired and autonomous manner. 
The CBI Act remains silent on many aspects re lated to financial independence, such as: 
determination of and influence on the CBI’s bud get; clear accounting ru les laid down for the 
CBI; distribution of profits of the CBI. The prin ciple of financial inde pendence will need to 
be appropriately reflected in th e law, in order to ensure that the CBI has sufficient financial 
means to meet its own objectives  and is able to perform autonomously the ESCB’s related 
tasks, as required by the TFEU  and the ESCB and ECB Statutes. 
In the area of economic policy , Article 7(2) of the CBI Act allows the CBI to extend 
guarantees or loans to credit institutions in  exceptional circumstances. Emergency liquidity 
assistance through which liquidity is provided fo r a short period to a solvent credit institution 
against adequate collateral is a normal function of the central bank and is in line with the TFEU. However, national legislat ion providing for financing of  credit institutions by the 
central bank other than in connection with its tasks (such as monetary policy, payment 
systems or temporary liquidity support operation s), in particular to support insolvent credit 
and/or other financial institutions, is not in li ne with the prohibition on monetary financing, 
unless it is established that the central bank is acting only as a fiscal agent of the state. The 
Central Bank legislation will need to clearly in tegrate those conditions. Regarding the fiscal 
agent function, the CBI Act is aligned with Community law and the monetary financing 
prohibition. In addition, the Act should pr ovide that the remuneration margin on 
deposits/current account balances shoul d be at or below market rates. 
Regarding the prohibition on monetary financ ing, the CBI Act does not contain provisions 
establishing privileged access by the public sector  to financial institutions, which is in line 
with the acquis . All acts that provide specific incentives for or requirements imposed on the 
financial sector to acquire  and hold liabilities of  the public sector need to be aligned with the 
acquis . In particular, the Act on ma ndatory pension insurance a nd the activities of pension 
funds and the Regulation on deposit guarantees a nd an investor compensation scheme contain 
provisions which effectively give the public sect or privileged access to financial institutions.  
As a member of EFTA, Iceland participates  in an annual meeting between the EFTA 
Ministers of Finance and the EU Economic a nd Financial Council. Ad ministrative capacity 
will need to be strengthened with a view to formulation and implementation of economic policy as required by the TFEU. ( See also Economic criteria ) 
EN 75   EN Conclusion 
There is a significant gap in the legisl ative alignment of Iceland with the acquis  in the field of 
economic and monetary policy. Several aspects of the legislation, in particular central bank 
independence, and the prohibition on monetary financing and privileged access to financial 
institutions, will need to be aligned. Provided that Iceland aligns with the acquis  in this field, 
the country’s participation in EMU as a Me mber State with a derogation should not pose 
major problems and Iceland should be able to  assume the obligations of membership. 
 Chapter 22: Regional policy and coordi nation of structural instruments 
The acquis  on regional policy and coordi nation of structural instru ments consists mostly of 
framework and implementing regulations, which do not require transposition into national legislation. They define the rules for draw ing up, approving and implementing programmes 
financed by the Structural Funds (the Eu ropean Regional Development Fund and the 
European Social Fund) and — for some Member States — Cohesion Fund programmes reflecting each country’s territorial organisa tion. These programmes are negotiated and agreed 
with the Commission. Implementation is a shared responsibility of the Member States and the Commission. Member States must co mply with the provisions of the acquis , for example in 
the areas of public procurement, competition and the environment, equality between men and 
women and non-discrimination, as well as sust ainable development, when selecting and 
implementing projects. 
Iceland has a legislative framework  in place for regional policy.  Having regard to Iceland’s 
specificity (sparsely populated — density of 3.1 inhabi tants/km², two thirds  of the population 
living in the capital area, remoteness), regional  policy in Iceland is primarily understood as a 
rural development policy for economic developmen t in rural areas outside the main capital 
region and is best described as an SME policy for economic development. The budget law 
does not explicitly provide for multi-annual  budget programming, but allocations for 
implementing multi-annual policies/programme s are reported in the annual budget bill as 
‘binding agreements’. As a result of  the EEA Agreement, Iceland has some 
experience/practice of co-funding EU programme s through its participation in programmes 
such as Lifelong Learning ( see Chapter 26 — Education and culture ) and 7th FP Research 
(see Chapter 25 — Science and research ). Amendments to the budget law will be needed to 
allow the transfer of national co-financing budge ts between EU programmes, funds and years. 
Iceland has two levels of governance: nation al/central government and local authorities 
(municipalities). There is no regional self -government level. However, the state 
administration is divided into a number of dist ricts, for the purpose of carrying out different 
public tasks. There is a long tradition of vol untary cooperation between municipalities at 
regional level which may take place within the context of, for instance, regional boards, co-
owned agencies established by se veral municipalities in order to provide certain services, 
regional federations, or the Icelandic Associatio n of Local Authorities.  Municipalities have 
their own sources of funding, in which income ta x takes the lion’s share.  However, the central 
government still takes responsibility for many  of the costly functions handled by local 
authorities. 
Iceland is classified as one NUTS level 2 ar ea and is divided into two NUTS level 3 areas. 
Iceland has established an institutional framework  for implementing its regional 
development policy, comprising different institu tions. The Ministry of Industry, Energy and 
EN 76   EN Tourism produces the government’s regional development plan, in cooperation with the 
Institute of Regional Development (a gover nment agency under the Ministry) and in 
consultation with municipalities, and other bodies. The Institute of Regional Development implements regional policy. Economic developm ent agencies, co-owned by municipalities, 
operate in rural areas to support and strength en business development and innovation. There 
are a number of relevant bodies operating in the field of employment and social policies 
including the Ministry of Educa tion, the Ministry of Social Af fairs and Social Security, the 
Association of Employers and the Union of Employees. The Ministries have, to varying 
degrees, experience of EU funding through their pa rticipation in EU pr ogrammes. Iceland is 
currently not eligible for IPA funding. 
As regards administrative capacity , Iceland has a small but flexible government 
administration. Around 20 staff in different mi nistries have experience — through direct 
involvement — of EU programmes. However,  experience with multi-annual programming 
and management of EU-funded projects is limite d mostly to the EU programmes implemented 
under centralised management. Additional administ rative capacity and stru ctures will need to 
be built up in order to allow smooth manageme nt and implementation of projects financed 
within the scope of EU cohesion policy. 
Iceland has designed and is implementing a number of programming  documents either 
directly or indirectly relevant for regi onal policy. The government’s four-year regional 
development plan provides financial support fo r long-term, viable projects. In addition, a 
number of public-private partners hips in the form of growth ag reements have been set up or 
are planned. These are implemented through governance procedures and are led by the 
regional development centres. Furthermore,  long-term planning documents do exist in the 
area of transport, sustainable development, use of hydro and geothermal energy resources, 
telecommunications and tourism. However, a stand-alone human resources development 
policy does not exist, and human resources issu es are integrated into other policies, in 
particular gender equality policies. 
The government has launched work on a comprehensive strategy towards 2020 — Bringing 
Iceland Forward 2020.  Operational plans are envisaged fo r Iceland as a whole and will be 
implemented through multi-annual programming.  The strategy may serve as a basis for the 
national strategic reference framew ork required by the cohesion policy acquis . The national 
strategic reference framework will take into  account the Lisbon strategy for growth and 
jobs/Europe2020 priorities. 
There is some experience in monitoring and evaluating  EU co-funded programmes. Regular 
monitoring and evaluation of programme implemen tation is carried out by relevant ministries 
and the results are provided to the Commission. However, additional systems and procedures for monitoring and evaluating EU programmes rele vant to cohesion policy will need to be 
established. 
A framework for financial management and control  (including audit)  exists. It is limited, 
however, in terms of instrume nts relevant to cohesion polic y. The national authorities are 
responsible for the implementation of progr ammes and the proper use of EU funding; 
monitoring and audit form the basis for the decl aration of assurance eac h year. The Ministry 
of Finance is responsible for issuing regulations regarding th e execution of the general budget 
and for the financial management of the st ate. The National Audit Office is the main 
supervisory body with regard to the gene ral budget as well as state entities. 
EN 77   EN Impact 
Iceland has a nominal GDP of €  10.2 billion in 2008. This equals about 0.08  % of EU-27 GDP 
for about 0.06  % of the EU-27 populati on. Considering the size  of its economy and 
population, Iceland’s accession w ould only marginally modify the EU’s average GDP/head 
(PPS) compared to today’s EU-27 average and hence would not influenc e the eligibility of 
regions. Given Iceland’s above-EU average GDP /head (PPS), EU contributions to Iceland 
under the cohesion policy are likely to be limite d. On this basis, following a preliminary 
assessment, the estimated impact  of Iceland’s possible accessi on on EU cohesion policy and 
funding in the current situation and under curr ent conditions is considered minimal.  
Conclusion 
Iceland has experience and capacity in designing  and implementing regional policy measures 
and in participating in EU programmes. Legisla tion relevant for EU cohesion policy is mostly 
in place. The administration is small but fl exible and has consid erable experience in 
programming and monitoring/evaluation. Iceland w ill need to adjust its budget law to allow 
transfer of national co-financi ng budgets between EU programmes, funds and years. Efforts 
will be needed to strengthen multi-annual pr ogramming and the related coordination and 
integration of policies. Iceland will also need to  establish institutional structures in line with 
the choices of operational programmes it make s and allocate and prepare staff for the 
implementation of these programmes. Overall,  Iceland should be ab le to assume the 
obligations of membership in this area. 
 Chapter 23: Judiciary and fundamental rights 
EU policies in the area of the judiciary and f undamental rights aim to maintain and further 
develop the Union as an area of  freedom, security and justice. The establishment of an 
independent and efficient judici ary is of paramount importance . Impartiality, integrity and 
high standards of adjudication by the courts are essential for safeguarding the rule of law. 
This requires a firm commitment to eliminating external influences over the judiciary and to 
devoting adequate financial reso urces and training. Legal guarant ees for fair trial procedures 
must be in place. Likewise, Member States must fight corruption effectively as it represents a 
threat to the stability of democratic institutions  and the rule of law. A solid legal framework 
and reliable institutions ar e required to underpin a coherent policy of prevention and 
deterrence of corruption. Member States must ensure respect for funda mental rights and EU 
citizens’ rights as guaranteed by the acquis  and by the Charter of Fundamental Rights.  
Judiciary (See also  Political criteria — Democr acy and the rule of law ) 
The independence of the judiciary  is enshrined in the Icelandic constitution. The 
constitution lays down the main principles rega rding the functioning of the courts. Together 
with the Act on the judiciary, it ensures the impartiality of the judiciary. The primary rule is 
that a judge cannot be removed from his/her position. However,  certain exceptions apply. The 
autonomy of prosecutors is provided fo r in the Criminal Procedure Code. 
EN 78   EN In conformity with the ‘pri nciple of the natural judge’15, the 1998 Act on the judiciary 
contains provisions on the di vision of competences between different courts and on the 
assignment of cases to judges.  
There is no higher council of th e judiciary in Iceland, but a Judicial Council  is established for 
the district courts. Th e Judicial Council is composed of five members appointed by the 
Minister of Justice. Four of its members ar e elected from among the district court judges, 
while the fifth member, who is not an active judge, is appointed by the Minister of Justice to serve as chairman. The functions of the Judi cial Council are among othe r things to monitor 
the financial affairs of the distri ct courts, organise continuing education for judg es, issue rules 
on coordinated judicial practi ce, etc. with the goal of en suring the independence of the 
judiciary from the executive. 
The criteria for the selection of district court judges  are set out in the Act on the judiciary; 
district court judges are appointed  for an indefinite period of tim e by the Minister of Justice. 
A special Evaluation Committee composed of th ree members, appointed by the Minister of 
Justice for three years, consider s the qualifications of applican ts and gives non-binding advice 
to the Minister. 
The selection of Supreme Court judges is based on the Act on th e judiciary. Judges are 
appointed for an indefinite period by the Presid ent of Iceland, as proposed by the Minister of 
Justice, after the Supreme C ourt has expressed its opinion as regards the competence and 
qualifications of the applicants.  
The predominance given to the Minister of  Justice and Human Rights in judicial 
appointments, given the consultative role of  the Evaluation Committee and the Supreme 
Court, raises questions in terms of the effectiv e independence of judges. 
As to the disciplinary procedure  for judges, a judge may be re lieved of his/her duties, if 
he/she has been reprimanded and fails to observe  the warning within a suitable period of time, 
or if a criminal action is brought  against him/her; furthermore, such charges — if sustained — 
would have the effect of depriving the judge of  the general qualifications for judicial office. 
The President of Iceland would relieve a judge of the Supreme Court from office temporarily 
as proposed by the Minister of Justice; the Minist er of Justice has this power with regard to 
district court judges. The Minister must seek a written opinion from the Committee on 
Judicial Functions  before a judge is temporarily remove d from office. The three members of 
the Committee on Judicial Functions (and their th ree alternates) are appointed by the Minister 
of Justice, as proposed by the Icelandic Association of Judges  and the Law Faculty of the 
University of Iceland. The decisions taken by the Committee on Judicial  Functions cannot be 
referred to any higher ad ministrative authority. When a judge has been temporarily relieved 
from office, the Minister of Justice shall, how ever, take legal action against him before the 
District court of Reykjavik, requestin g dismissal from office by judgement. 
Both the role of the Minister of Justice in this respect and the fact that decisions taken by the 
Committee on Judicial Functions cannot be refe rred to any higher administrative authority 
give cause for particular concern.  
                                                
 
15 The principle of the natural judge means that cases sh ould be allocated to courts and individual judges 
according to criteria which have been previously laid down by the law co ncerning jurisdiction, 
competence and assignment of cases.  
EN 79   EN All prosecutor positions are advertised publicly. The Mini ster of Justice is responsible for the 
appointment of the Director of Public Pros ecutions, the National Commissioner of Police and 
the Special Prosecutor in matters relating to the bank crisis. The Director of Public Prosecutions is the highest holder of prosecutori al authority. He or she is appointed for an 
indefinite period. However, most prosecutors ar e appointed for a period of five years. The 
Director of Public Prosecutions is assisted by a Deputy Director. The Ministry of Justice is 
responsible for evaluating appl icants’ eligibility. Prosecutors do not enjoy immunity. The 
Minister of Justice can also temporarily rem ove the Director of P ublic Prosecutions from 
office, but must take legal action within two mont hs before the District Court of Reykjavik in 
order to have the Director dismissed. The role of the Minister of Justice in relation to the 
prosecutors raises pa rticular concern.  
Provisions regarding conflicts of interest  are laid down in the 1991 Act on civil procedure. 
According to the provisions of this Act a j udge is disqualified from conducting a case if 
he/she is a party to the case, is or has been a spouse of the party in question, or if there are 
other conditions or circumstances which are likely to cast reasonable doubt on the judge’s 
impartiality. Furthermore, the Criminal Pro cedure Code regulates th e disqualification of 
judges with respec t to penal cases. 
Judges do not enjoy penal immunity. The Gene ral Penal Code provide s sanctions against 
persons seeking to influence a judge and prevents judges from receiving invitations of bribery, yet there are no specific provisions rega rding the criminal liab ility of judges. The 
General Penal Code applies to criminal offences committed by judges inside as well as outside the scope of their office, as doe s all other sectoral penal legislation.  
The district court of Reykjavik has established a specific lifelong training  system for judges. 
However, no specific traini ng courses are organised within the judiciary itself, nor is there an 
independent national training centre for the ju diciary. There is no formal training for the 
clerical staff of the courts, even though an agreement with their uni on specifically provides 
for the training of these employees.  
The length of proceedings  is not a problem in Iceland to date. Excessive length of 
proceedings is extremely rare within the court system.  
Anti-corruption policy and measures (See also  Political criteria — Democracy and the rule 
of law ) 
Until the financial crisis, corruption was not c onsidered an issue of concern in Iceland. 
Corruption is defined as a criminal offence in  line with the Council of Europe Criminal and 
Civil Law Conventions. The releva nt anti-corruption provisions  in the General Penal Code 
include active and passive bribery in the pu blic and private sector and provisions on 
confiscation of proceeds and disqualification measures. 
After the banking sector collapsed in Icela nd a new Office of the Special Prosecutor was 
created. It has authority to investigate and br ing charges in cases c overing economic crime, 
crimes of enrichment and tax offences. By October 2009, the Special Prosecutor had launched 
more than 40 cases. 
Prior to accession Iceland must ensure that its le gislation is in line with the acquis and ratify 
all international instruments in this field. In this view, Icela nd should ratify the Council of 
Europe Civil Law Convention and sign and ratify the Unite d Nations Convention against 
Corruption. Iceland should also implement r ecommendations made during the third evaluation 
EN 80   EN round of the Group of States agai nst corruption (GRECO), in part icular relating to bribery, 
trade in influence, training for law enforcemen t and proper implementation of the legislation 
on financing of political parties. 
Fundamental rights (See also  Political criteria — Human ri ghts and the protection of 
minorities ) 
Iceland has a comprehensive system of protect ion of fundamental human rights based on its 
constitution. The constitutional amendments of 1995 ( see Political criteria ) were largely 
inspired by, and to a great extent reflect, th e European Convention on Human Rights (ECHR). 
The legal protection of human right s in Iceland was enhanced consid erably as a result of these 
constitutional amendments. 
In the field of personal data pr otection, the Icelandic legislation is generally in line with the 
main provisions of the acquis  and with the Council of Europe  Convention for the Protection 
of Individuals with regard to Automatic Processing of Personal Data (Convention 108). 
Directive 95/46/EC on the protect ion of individuals with regard  to the processing of personal 
data and the free movement of such data  is a part of the EEA Agreement.  
Iceland should ensure full alignment with the acquis , with particular regard to the complete 
independence of the Data Protection Authority from the government and the right of data 
subjects to appeal to courts of law against decisions of the Authority. In ad dition, it should 
ratify the Additional protocol to Convention 10 8 regarding supervisory authorities and trans-
border data flows (ETS No. 181), and apply the Council of Europe Recommendation No. R 
(87) 15, which regulates the use of personal data in the police sector. 
With regard to the relationship between intern ational and domestic law, Iceland has adhered 
to the principle of dualism. It is a general pr inciple in Icelandic la w that provisions of 
domestic law are to be interpreted in accordan ce with the principles of international law. 
Iceland has introduced a system of close ma instreaming of new legislation affecting 
fundamental rights: when draf t legislation is discussed in  the relevant parliamentary 
committee as a rule the opinion of various hu man rights bodies, institutions, associations, 
non-governmental bodies and independent experts is  called for wherever human rights issues 
may be at stake. 
Iceland, as all Member States of the Unite d Nations, undergoes regular monitoring by the 
various bodies established on th e basis of the international instruments on human rights, 
namely the Committee against torture and the Committee on elimination of racial discrimination. There are no major problems of  fundamental rights violation in Iceland. 
For the right to  privacy,  freedom of expression,  freedom of thought, conscience and religion, 
right to ownership and discrimination and equality  issues, see Political criteria ; for the media  
see also  Chapter 10 — Information society and media.   
EU citizens’ rights 
Regarding the right to vote 
and stand as a  candidate in elections,  the national legislation in 
place grants EU citizens the right to vote and to  stand in municipal elections after a minimum 
of five years’ residence. As  an exception, citizens of Denmar k, Finland, Norway and Sweden 
acquire this right after three ye ars of residence. The current differentiation of three years’ 
EN 81   EN residence for these citizens and fi ve years’ residence for citizens of the other Member States is 
not in line with the acquis . The legislation of Iceland will therefore need to be modified.  
Article 23 TFEU provides for EU citizens who are in third countries to be entitled to 
protection by the diplomatic or consular auth orities of any Member State, under the same 
conditions as nationals of the State.  
In order to comply with the acquis , Iceland will have to implem ent in particular the Decision 
regarding protection for citi zens of the European Union by diplomatic and consular 
representations and the Decisi on on the establishment of an emergency travel document. 
Conclusion 
(See the conclusion of Part 1 — Political criteria ) 
 Chapter 24: Justice, freedom and security 
EU policies aim to maintain and further develop the Union as an area of freedom, security and 
justice. On issues such as external migrat ion, asylum, border control, visas, judicial 
cooperation in criminal and civi l matters, police coope ration, the fight against organised crime 
and terrorism, cooperation in the field of drugs and customs coope ration, Member States need 
to be properly equipped to adequately implem ent the growing framew ork of common rules. 
Above all, this requires str ong and well-integrated capacity within the law enforcement 
agencies and other relevant bodies to attain th e necessary standards. A professional, reliable 
and efficient police organisation is of paramount importance. 
The Schengen acquis  is an important part of the EU po licies on justice, freedom and security. 
Iceland is an associated member of the Schengen Agreement , and has the required national 
legislation to implement this acquis. Icel and applies these provi sions since March 2001. 
Iceland is on the whole applying the Schengen acquis in a very satisfactory manner. Border 
checks and border surveillance of Iceland's sea and air borders have been positively assessed in a Schengen evaluation. Iceland also participates in Frontex.  
Regarding migration , legislation on residence permits, family reunification, students and 
long-term residents is largely in place, al though it is not fully in line with the acquis . 
Important divergences exist for instance as re gards the absence of a specific scheme for 
researchers and the scope of application of th e right to family reunification, which should not 
only be granted to certain categories of third-country nationals. As regards  illegal 
immigration, smuggling and trafficking,  the legislation of Icela nd provides for fines or 
alternatively detention. Deportation and a re-entry ban can be enfor ced in case of illegal stay. 
The legislation on facilitation of unauthorised en try, transit and residence is not fully in line 
with the acquis . All readmission agreements which Icel and has concluded are aligned with 
those of the EU Member States.  
The Icelandic asylum system  is governed by the legislatio n, which enshrines the right to 
asylum under the 1951 Geneva Convention. It cont ains provisions on humanitarian protection, 
on the principle of non-refoulement, on safe  third countries and on manifestly unfounded 
claims, and establishes normal and accelerated asylum procedures. However, a subsidiary 
protection regime, covering persons falling outs ide the scope of the Geneva Convention, will 
need to be established in line with Council Directive 2004/83/EC. 
EN 82   EN Under the normal asylum procedure, asylum se ekers may appeal for administrative review of 
a first instance refusal to  the Ministry of Justice. No app eals are possible under the accelerated 
asylum procedure. In line with Council Di rective 2005/85/EC and the case law of the 
European Court of Justice rega rding effective judicial prot ection of rights conferred on 
individuals by EU law, Iceland wi ll need to guarantee the right to an effective remedy before 
a court or tribunal in the form of an appeal of  review, in fact and in law, of all negative 
decisions made during the administrative proced ures. Iceland should also provide for rules 
allowing applicants to remain in the territory  or request suspension of a removal pending a 
decision on this appeal or review. 
Iceland already fully implements the Eurodac Regulation and the Dub lin II Regulation on the 
criteria and mechanisms for determining the Member State responsible for processing an 
asylum application. However, legislation on reception conditions will need to be further 
developed to include safeguards concerning the us e of detention and better define the rights of 
asylum seekers to health care, so cial assistance and other benefits. 
In the area of police cooperation and the fight against organised crime  Iceland has relevant 
structures and systems in place while facing cap acity challenges in some areas. One concern 
relates to the accumulation of powers and respons ibilities of the Mini ster of Justice and 
Human Rights, who is also the suprem e head of the police in Iceland ( see also Political 
criteria and Chapter 23 — Judi ciary and fundamental freedoms ). The National Commissioner 
of the Icelandic Police administ ers police affairs under the Minist er’s authority. In terms of 
police cooperation, further efforts will be necessary  to fully comply with the requirements of 
the relevant Council Decision (Treaty of Prüm , May 2005). Iceland concluded an operational 
agreement with Europol in 2001 and a coope ration agreement with CEPOL in 2006. Since 
2008, Iceland has also been a member of the Police Working Group on Terrorism. 
Organised crime , even if at a low level, is of so me concern as a growing phenomenon in 
Iceland, with drug smuggling  being the single most serious aspect of organised crime in the 
country. Only small amounts of illicit drugs are produced or manufactured in Iceland. Iceland 
is not a transit country for illicit drugs ente ring the EU; however, increased cross-border 
activity by criminal groups has been observe d. Iceland is a party to the 1988 UN Drug 
Convention, the 1971 UN Convention on Psychot ropic Substances, and the 1961 UN Single 
Convention on Narcotic Drugs an d its 1972 Protocol. Iceland does not yet participate in the 
work of the European Monitoring Centre for Drugs and Drug Addiction. 
Concerning trafficking in human beings, at  present Iceland does not comply with the 
obligations of the acquis . Ratification of the UN Conventi on against Transnational Organized 
Crime (Palermo Convention), incl uding its two protocols on sm uggling and trafficking, and of 
the Council of Europe Convention against trafficking in human beings is pending. 
Furthermore, Icelandic law enforcement may face a challenge in terms of its capacity to cope 
with trafficking in human beings, as well as the fight against sexual exploitation of children 
and child pornography. At present, the number of cases of trafficking in human beings 
brought to the court is low. It is to be noted that the maximum criminal penalties for 
trafficking in human beings are low in comparison to other serious crimes. It is important that 
prior to accession, mechanisms to protect, assist and support victims of trafficking, procedures 
for identifying victims and referra l mechanisms are in place.  
As regards the fight against money laundering, a ll three relevant Direct ives are covered by the 
EEA ( see also  Chapter 4 — Free movement of capital ). The main challenge facing Iceland in 
this context is the capacity of the Financial Intelligence Unit and of  the Economic Crime Unit 
EN 83   EN to cover all functions and res ponsibilities related to money la undering and financial crime. 
Iceland will also need to improve its statistics related to the number of investigations initiated 
each year on the basis of Suspicious Transa ction Reports, the number of freezing/seizing 
orders, prosecutions, indictments,  confiscation orders, actual c onfiscations, as well as the 
value of the assets and properties frozen/seized and confiscated. In this regard Iceland should 
implement the technical recommendations of  the Financial Action Task Force (FATF). 
Iceland has a national confiscation system whic h provides for value confiscation, but not third 
party confiscation (except in a rather narrow  case) and extended confiscation. Iceland will 
need to ensure that  its legislation impl ementing the UN Convention on Transnational 
Organised Crime also fully implements the re levant EU Framework Decisions (which would 
imply for example the setting up of an asset recovery office). Iceland does not have provisions on non-conviction based (NCB) confiscation and fo reign NCB orders cannot be enforced in 
Iceland. While it is not mandatory  to establish NCB confiscation, assistance to countries using 
NCB procedures should be provi ded by Iceland. The country will also need to ratify the 2005 
Warsaw Convention on Laundering, Search, Seiz ure and Confiscation of the Proceeds from 
Crime and on the Financing of Terrorism. It should also fully implement the 1990 Council of 
Europe Convention (Strasbourg Convention). Prosecutors and judges need training on 
confiscation and asset recovery issues. 
Iceland has signed and ratif ied a range of relevant counter-terrorism  conventions, some of 
which still need to be ratified. Provisions of th e Directive on the preven tion of the use of the 
financial system for the purpose of money launde ring and terrorist financing are implemented. 
Administrative structures and cap abilities are in line with th e perceived threat in Iceland. 
Iceland has a relevant framework in place and is active in customs cooperation . It is a party 
to the Convention establishing the Customs Cooperation Council. Further cooperation with 
EU countries and third countries is based on UN Conventions, EEA-relevant EU acquis  and 
bilateral agreements.
 
As regards judicial cooperation in civil matters , Iceland is a party to several important 
Hague Conventions. Regarding family law matte rs, Iceland is party to the 1993 Convention 
on Inter-Country Adoption a nd the 1980 Convention on Child Abduction. Foreign judicial 
decisions in family matters are recognised and enforced unless they are against the public 
order  of Iceland. Iceland should also join the 1996 Child Pr otection Convention and the 2007 
Child Support Convention and its protocol on applicable law. 
Iceland has also ratified th e 1988 Lugano Convention. Iceland still needs to ratify the new 
Lugano Convention signed in 2007. Regarding inte rnational insolvency proceedings Iceland 
will need to align with the relevant EU acquis . 
The Icelandic legislation on judicial cooperation in criminal matters  implements the 1957 
European Convention on Extradition and its two additional protocols (the 1959 European Convention on Mutual Legal Assistance in Crimin al Matters and its firs t additional protocol; 
the second one is signed but not yet ratified by  Iceland) as well as the relevant Schengen 
principles. Iceland also partly implements th e principles of the European Union Convention 
on Mutual Legal Assistance in Criminal Matters. At present, extradition between Iceland and 
the EU is based on an agreement between the Me mber States of the EU, Iceland and Norway 
signed in 2006 (Agreement on the surrender pr ocedure between the Member States of the 
European Union, Iceland and Norwa y, OJ L 292, 21.10.2006). Iceland concluded a 
cooperation agreement with Eurojust in 2006. 
EN 84   EN The level of computerisation of the court system and the existence of a legal framework 
establishing a criminal regi ster should enable Iceland to  fully implement the Council 
Framework Decision on the organi sation and content of the excha nge of information extracted 
from the criminal record between Member States and the Council Decision  on the 
establishment of the European Criminal Records Information System in application of Article 11 of the Framework Decision. However,  additional IT development and modification 
of the legislative framework may be required. 
As regards protection of the euro  against counterfeiting , Iceland has not acceded to the 
1929 International Convention on the Suppression  of Counterfeiting. The General Penal Code 
covers counterfeiting of money, in cluding euros. In general, the legislation is broadly in line 
with the acquis . 
Conclusion 
Iceland applies the Schengen Agreement and has r eached an advanced leve l of alignment with 
the acquis  in the field of justice, freedom and secu rity. The legislation in some of the areas 
will need to be brought fully into line with the acquis  and relevant international instruments 
will need to be signed and/or ratified. Relevant  structures and policies are in place and Iceland 
should be able to assume the obligations of membership. The main challenge, stemming from 
the size of the country, is its administrative capa city to cope with the implementation of some 
of the requirements. 
 Chapter 29: Customs union 
The customs union acquis consists of the EU Customs Code and its implementing provisions, 
the Combined Nomenclature, the Common Customs Tariff and provisions on tariff 
classification, customs duty relief, duty suspensi ons and certain tariff quotas, all of which are 
directly applicable upon accession, and other customs-related legi slation outside the scope of 
the Customs Code. Member States must en sure that the necessary implementing and 
enforcement capacities, including links to the relevant EU computerised customs systems
16, 
are in place. The customs administration must al so ensure adequate cap acity to implement and 
enforce special rules laid dow n in related areas of the acquis such as external trade, health and 
security provisions. 
The EEA provides for the establishment of a free trade area with the Community and the 
removal of customs duties on products listed in  Article 8 of the EEA Agreement. It also 
contains provisions for administrative coopera tion on customs matters, as well as rules of 
origin which have to be observed in order to benefit from the trade preferences. 
The Customs Act, with subsequent amendm ents, and its implementing regulations, is 
generally aligned with the provisions of th e Community Customs Code and implementing 
provisions, even though important disc repancies exist in various areas. 
Iceland’s tariff system is based on the Harm onised System and is identical to the EU 
Combined Nomenclature in respect of the firs t six digits. However, significant differences 
exist at eight-digit level. Upon membership, Iceland will have to align fully with the 
Combined Nomenclature. Iceland applies tari ff suspensions, tariff quot as and tariff ceilings. 
The system applied by Iceland for Binding Tariff  Information and Bindi ng Origin Information 
                                                 
16 Tariff-related systems, NCTS, ECS, ICS, EOS. 
EN 85   EN is broadly in line with the pr ovisions of the EU Customs Code . EU membership would require 
some limited adaptations, for instance with resp ect to delegation of powers. However, the 
management of tariff quotas is not in line with the acquis . Iceland’s legislation allows the sale 
of duty-free goods at entry into  the country, which is not in line with EU law. Rules on 
valuation are not fully in line with the acquis or with international standards.  
Iceland only applies prefer ential rules of origin  in the framework of trade with EFTA partners 
or within the framework of EFTA  with third countries. Icela nd introduced in 2001 a system of 
Generalised System of Preferences (GSP) based on rules of origin largely similar to the EU’s. 
Iceland does not apply any non-pr eferential rules of origin. 
Iceland applies simplified procedures for pos tal consignments, small consignments and 
approved exporters. However, further approximation with the acquis will be required, 
including the establishment of a legal framework for Authorised  Economic Operators. Iceland 
applies legislation related to transit proce dures and is indirect ly linked to the New 
Computerised Transit System (NCTS). The rule s on customs debt and repayment are not fully 
in line with the acquis. As regards cash controls at the borders, Iceland applies the general principles of the Financial Action Task Force, but it will need to further align its legislation 
with the acquis . Legislation in the area of protection of  intellectual property rights is not fully 
in line with the acquis , in particular with regard to non-applicability to exports, transit and 
other suspensive procedures. Legi slation on control of drug precursor s is not fully in line with 
EU acquis  either. Some fine-tuning of its  legislation wi ll be required. 
As regards administrative capacity , Iceland generally has a good level of capacity and should 
not encounter major problems in implementing the acquis  in this field. The use of IT within 
the Customs Administration is extensive. IT  systems are well developed and capable of 
ensuring good management of customs procedur es, including through eff ective risk analysis 
techniques. The Customs IT system is conn ected to shipping companies, traders and 
government departments. All offices are connected to the central IT system and 97
 % of 
customs declarations and import/export manifest s are dealt with electronically. Duties are 
collected and reimbursed electronically, with a direct link to the state revenue accounting 
system. However, Iceland will have to undertake major efforts to develop and operate all EU 
customs-related IT applications for tariff ma nagement, transit and security, including the 
connection to the CCN/CSI gateway.  
Conclusion 
The customs legislation of Iceland is to a large extent aligned with the acquis . However, 
significant further alignment is necessary, not least in the areas of the Combined Nomenclature, valuation, origin, cash controls, control of drug precursors and measures to 
protect intellectual property righ ts. Iceland applies certain customs fees which are not in line 
with the acquis . Iceland will also have to align duty-free  legislation and practice with that of 
the EU. 
In the field of customs, Iceland has ach ieved a good level of ad ministrative capacity. 
Nevertheless, further efforts will be necessary to effectively implement the acquis upon 
accession, with particular atten tion to achieving full inte rconnectivity with the EU’s 
computerised systems. 
EN 86   EN  Chapter 30: External relations 
The acquis  in the field of external relations consists  mainly of directly binding EU legislation 
which does not require transposit ion into national law. In the area of humanitarian aid and 
development policy, an applicant country will need to comply with EU legislation and 
international commitments as well as ensure  the capacity to participate in the EU’s 
development and humanitarian policies. 
Upon accession, the country will be bound by the common commercial policy . Iceland will 
have to apply the autonomous (p referential) trade regime that the EU grants to certain third 
countries, including the Generalised System of Preferences (GSP). Iceland will also have to 
terminate all its current preferen tial trade agreements with third countries and bring all other 
agreements, including non-preferential trade agr eements, in line with the obligations of EU 
membership. Finally, Iceland will have to apply upon accession all EU international trade 
agreements as well as all EU autonomous regimes. 
Iceland has been a member of the World Tr ade Organisation since its foundation in 1995 and 
before that was party to the GATT. As far as  the Plurilateral Agreements are concerned 
Iceland is a party to the Agreement on Gove rnment Procurement and to the Information 
Technology Agreement.  
At present, the Customs Act comprises the gene ralised system of preferences (GSP) scheme 
of Iceland, which offers GSP treatment for least developed c ountries (LDCs). In comparison 
with the relevant EU legislation, both the le vel of the preferences and the scope of the 
beneficiary countries are more limited in Iceland.  
The Customs Act of Iceland also serves as a legal basis for anti-dumping  actions and  
countervailing measures  to offset injury caused by subsidised imports. Upon accession 
Iceland will have to repeal national legislation and measur es concerning the GSP and its 
defence instruments. 
The average Icelandic most favoured nation  (MFN) bound ad valorem tariff rate for 
agricultural products is 43.2%, fo r fish and fishery products 2.8% and for other goods 9.8% 
with an overall average of 13.4%. The EU av erage MFN bound ad valorem tariff rate for 
agricultural products is  5.8%, for fish and fishery produc ts 11.4 % and for other goods 3.8% 
with an overall average of 4.1% (based on HS 1996). The average I celandic MFN applied 
tariff rate 2006 for agricultural products is 6.4%, fo r fish and fishery products 1.3% and for 
other goods 2.4%. The average EU MFN applied tariff rate 2006 for agricultural products is 
5.9%, for fish and fishery products 11.8% and fo r other goods 3.8% (based on HS 2002; all on 
6-digit-level). With regards to exports, Iceland applies a surcharge on exports of raw fish. The 
surcharge was temporarily suspended in 2007, bu t not abolished. Upon a ccession, the country 
will have to apply the EU common customs tariff. 
Icelandic commitments under the General Agre ement on Trade in Services (GATS), both 
horizontal limitations and sector-specific commitme nts, are broadly in accordance with those 
undertaken by the EU. Like the EU, Icela nd has undertaken GATS commitments in many 
sectors and it respects the bounda ries of the EU’s MFN exemptions. However, in the financial 
sector, Iceland’s GATS schedul es do not include a market access limitation regarding 
undertakings for collective investment in transferable secur ities (UCITS). This is scheduled 
by all EU Member States. In the area of tran sport services, Iceland has undertaken more 
liberal commitments than those prevailing in  the Member States. In order to avoid 
EN 87   EN compensation under Article XXI of GATS, Icela nd will have to consider modification or 
withdrawal of its commitments in this and other sectors upon accessio n. None of Iceland’s 
GATS commitments hinder its ability to take  on the obligations of EU membership. 
Iceland is a member of the European Free Trade Association (EFTA) and the European 
Economic Area (EEA). It has a total of 18 agr eements in force within the framework of 
EFTA, of which 16 with third count ries covering various sectoral  issues (industrial, fish, and 
processed agricultural products). The other 2 agreements are the EFTA Convention and the 
EEA Agreement. At the same time, basic agri cultural products are covered in the framework 
of bilateral free trade agreements  with the same 16 third countries . Furthermore, 4 bilateral 
FTAs are in force, of which two with the EU, one with the Faroe Islands and one with 
Denmark on trade with Greenland. In addition, FT As with 4 third countries are concluded but 
not yet in force. 
Iceland has concluded Bilateral Investment  Treaties (BITs)  with 11 countries. Some of the 
provisions included in Iceland's BITs will need to be aligned with the acquis  in conformity 
with the obligations pursuant to Articles 64, 66 and 75 TFEU and relevant case-law. Some 
BITs are not in line with the acquis  in so far as they permit the free transfer of funds relating 
to investments between the signatory countr ies and feature pre-establishment national 
treatment for third country invest ors with respect to services. 
Iceland’s system of export credits  is in line with the EC Communication on short-term 
export credits as well as with the OECD arrangement. 
Within the EEA framework, Iceland ha s a control scheme for exports of dual-use goods  that 
reflects the relevant EU legislation. Iceland is  not associated to the Kimberley process; 
therefore its legislation is  not in line with the acquis . 
Icelandic development policy  is based on intern ational conventions and takes well into 
account the UN Millennium Declaration as well as  the Monterrey Consensus on Financing for 
Development and the Paris Declaration on Aid E ffectiveness. About 60% of its assistance is 
concentrated on cooperation through the World Bank, Nordic cooperation and UN agencies. 
Bilateral aid is managed by the Icelandic In ternational Development Agency (ICEIDA). In 
2008, Icelandic official devel opment assistance, as measured by the OECD methodology, has 
amounted to 0.43% of GNI, however due to fina ncial crisis the estimated figure for 2009 is 
0.31%. 
Iceland accepts the principles of humanitarian aid , as defined by the EC Humanitarian Aid 
Regulation (No 1257/96), and the European Cons ensus on Humanitarian Aid. However, the 
Icelandic guidelines for humanitarian aid do not include a non-discrimination clause as 
enshrined in the Humanitarian Aid Regulation.  
Conclusion 
With regard to external relations, Iceland should be able to meet EU requirements upon 
accession. In order to smooth its preparation for me mbership, Iceland will need to ensure that 
its actions and commitments concerning inte rnational organisations are aligned and 
coordinated with those of the EU. 
EN 88   EN  Chapter 31: Foreign, security and defence policy 
The common foreign and security policy (CFSP) and European security and defence policy 
(ESDP) is based on legal acts , including legally binding inte rnational agreements, and on 
political documents. The acquis  consists of political decl arations, joint actions, common 
positions and agreements. Member States must be able to conduct political dialogue in the 
framework of the CFSP, to align with EU statemen ts, to take part in EU actions and to apply 
agreed restrictive measures. Applicant countries  are required to progres sively align with EU 
statements, and to apply restrictive measures when and where required. 
Iceland fully supports the efforts of the European  Union to strengthen its  role as a cohesive 
force in international relations and its ability to promote European interests and values on the 
international scene.  
With regard to the political dialogue , Iceland has close political  consultations with EU 
Member States on the basis of the 1995 D eclaration of the EEA Council on Political 
Consultations. It has in most instances, when  invited, aligned itself with EU statements, 
declarations and demarches. The Ministry of  Foreign Affairs is in charge of general 
supervision and implementation of all aspects of foreign policy; it is responsible for and has a 
coordinating role regarding the CFSP and ESDP. Th e administrative structures are small, but 
adequate: Iceland has 26 dipl omatic and consular missions; the Icelandic Foreign Service 
consists of 242 staff, 120 employed by the Ministry of Foreign Affairs.  
Iceland has diplomatic relations with 186 c ountries. Its bilateral relations are without 
significant problems. 
With regard to restrictive measures , Iceland has implemented all United Nations Security 
Council restrictive measures and economic sanc tions and implemented most EU restrictive 
measures. However, Iceland has not aligned itself to the declaration on the arms embargo against China. Iceland has not implemente d the Common Position on the application of 
specific measures to combat terrorism or the Joint Action concerning measures protecting 
against the effects of th e extra-territorial applic ation of legislation a dopted by a third country, 
and actions based thereon or resulting therefrom.   
In relation to non-proliferation  and weapons of mass destruction / small arms and light 
weapons (WMD/SALW) strategy, Ic eland participates in intern ational export control regimes 
and instruments concerning the non-proliferation of weapons of mass de struction. It complies 
through national laws and control systems with international commitments on small arms and 
light weapons, including with the aims of the EU strategy on SALW. Iceland has no arms 
export industries. 
With regard to cooperation with international organisations , Iceland is member of the UN, 
NATO, the OECD, the Council of Europe, th e OSCE and many other international 
organisations and agreements. It participates actively in regional orga nisations involving the 
northern regions of Europe, including the Arct ic Council, the Council of Baltic Sea States 
(CBSS) and the Barents Eu ro-Arctic Council (BEAC).  
An EU-Iceland security agreement, which ente red into force in March 2007, allows for the 
exchange of classified information. Iceland has equivalent security measures in place, which 
allow the secure handling of classified info rmation under conditions equivalent to those 
established in the relevant C ouncil security of information decision of 2001. Iceland's full 
EN 89   EN compliance, however, with all aspects of the EU security requirements is the subject of 
further analysis. 
On civil and military crisis management , Iceland participates in international peacekeeping 
through a specialised Crisis Res ponse Unit to recruit a nd train civilian pe rsonnel. In addition 
to UN missions, Iceland participated in the ES DP operations EUFOR Co ncordia (the former 
Yugoslav Republic of Macedonia) and EUPM (B osnia and Herzegovina) and is considering 
providing personnel for EULex (Kosovo under UNS CR 1244/99). Iceland has no military of 
its own, but on the basis of the North Atlantic Treaty, Iceland and the United States concluded 
a bilateral defence agreement in 1951.  
Conclusion 
Iceland should be ready to fully and actively pa rticipate in the CFSP and the ESDP and be 
able to assume the obligations of membership in these areas. 
 Chapter 32: Financial control 
The acquis on financial control relates to the fo llowing policy areas: public internal financial 
control (PIFC), which covers internationally agr eed standards and EU good practices for 
implementation across the entire public sector, and external audit, which relates to the operational and financial independence of the ex ternal audit function (national audit office). 
While the management and cont rol of EU funds is treated under the relevant other policy 
chapters (e.g. agriculture and rural develo pment, regional policy and coordination of 
structural instruments, fisheries), this chapter covers the more general aspects of internal control and external au dit of national funds.  
This chapter also comprises the protection of EU  financial interests, including administrative 
cooperation and the criminal–law protection of the EU’s financial inte rests (PIF Convention 
and its protocols). Finally, the protection of th e euro against counterfeiting deals with the 
first-pillar aspects of this issue. 
In Iceland, the PIFC  system is based on a 1995 governme nt policy paper and there is no 
specific law on PIFC. Managers are responsible for the effici ent use of public funds under 
their authority. Financial management and contro l concentrates on the le gality and regularity 
of financial transactions. The system does not  explicitly consider the triangle of economy, 
efficiency and effectiveness. The ministries do no t have internal audit units; external expertise 
is consulted occasionally. Iceland has a body that  can be considered a central harmonisation 
unit for internal control; however, its role is limited to the legislative sphere. Moreover, the 
Icelandic National Audit Office (INAO) advises government entities on strengthening internal 
control, which  risks confusing the internal audit responsibilities of the government.  
In the area of external audit , the INAO reports to the Icelandic parliament. The INAO is 
operationally independent, but this is not gua ranteed in the constitu tion. The scope of its 
responsibilities remains limited to central state interests. No ce ntral government institution is 
responsible for the external a udit of municipalities. The INAO is free to determine the scope 
of its activities but does not follow a strategi c development plan. INAO activities relating to 
improving internal audit in the public sector could, under certain circumstances, conflict with 
its main role as external auditor.  
As for the protection of the EU’s financial interests , the Icelandic General Penal Code and 
the Criminal Procedure Code ar e broadly in line with the Conve ntion on the Protection of the 
EN 90   EN EU’s Financial Interests (PIF C onvention) and its protocols. Indi vidual provisions, such as the 
definitions of enrichment offences and the li ability of company managers, remain to be 
aligned. Currently, no specific bodies are in place for the investigation and treatment of 
suspected fraud and other irregu larities affecting EU or other international f unds, nor have 
specific procedures been devised for cooperating with EC investigators. 
Concerning the protection of the euro  against counterfeiting, the legal framework appears to 
be well established as all responsibilities lie within competent authorities, the Central Bank and the National Police Commissioner. The police (National Police Commissioner and 
Metropolitan Police) are the co mpetent authorities for dealing with counterfeit foreign 
currency. The administrative capacity for enforcing legislation with regard to foreign currency 
is to be monitored. 
Conclusion 
The Icelandic financial control system concen trates on budgetary and ac counting controls. It 
does not provide a structured PI FC environment, as promoted under this area of the acquis. 
The INAO’s independence is not anchored in the constitution and its remit is defined 
narrowly. Iceland’s legislation is  largely prepared for the prot ection of the EU’s financial 
interests according to the PIF Convention and its protocols. 
Iceland will need to undertake c onsiderable efforts to strengthen  its public internal financial 
control and external audit capacities. 
 Chapter 33: Financial and budgetary provisions 
This chapter covers the rules concerning the fi nancial resources necessa ry for the funding of 
the EU budget (‘own resources’). These resources are made up ma inly of contributions from 
Member States based on traditional own res ources from customs duties and sugar levies, a 
resource based on value-added tax, and a re source based on the level of gross national 
income. Member States must have appropri ate administrative capacity to adequately 
coordinate and ensure the correct calculati on (including forecasts), accounting, collection, 
payment and control of own resources. The acquis in this area is directly binding and does not 
require transposition into national law. 
The basic principles and in stitutions for the underlying po licy areas affecting the own 
resources system are in place in Iceland. A national VAT system is in operation, customs 
duties are levied on imports, and national acc ounts and GNI are compiled based on ESA95 
standards. The Ministry of Finance has overa ll responsibility for financial and budgetary 
issues.  
As regards the operational management of th e own resources system, Iceland will need to 
ensure in due course the human and administra tive resources necessary to apply the EU rules 
concerning payments to the EU budget.  
Impact  
Given its size and GDP level, the impact of Icela nd’s accession on the EU budget is expected 
to be very limited. This applies both in terms of its likely receipts under the various EU expenditure programmes as well as its expect ed contribution to th e EU budget based on 
application of the own resources rules.  
EN 91   EN Conclusion 
There are no significant divergences between the systems in Iceland and the EU in terms of 
the basic principles and institutions in the policy areas underlying application of the own 
resources rules. Iceland should have no major difficulties in meeting the requirements of the 
own resources system. 
3.2. General Evaluation 
Iceland’s ability to assume the obligations of membership has been evaluated according to the 
following indicators: 
– The obligations under the EEA Agreement; 
– The level of alignment, implementation and enforcement of the acquis outside the 
EEA Agreement. 
In general, Iceland has a satisfactory track record in implementing its EEA obligations.  
According to the EFTA Surveillance Authority (ESA), the percentage of internal market 
legislation introduced into national legislation as  required by July 2009 is at the same level as 
the average percentage for EU Member St ates. The total number of infringement 
proceedings17 against Iceland decreased si gnificantly in recent months. 
Iceland is on the whole well prepared to assume  the obligations of memb ership in most areas, 
in particular fields covered by the EEA.  
In the following areas, Iceland will need to make  serious efforts to align its legislation with 
the acquis  and/or to implement and enforce it eff ectively in the medium term: fisheries; 
agriculture and rural development; the environment; free movement of capital; financial services; as well as custom s union; taxation; st atistics; food safety, veterinary and 
phytosanitary policy; regional pol icy and coordination of struct ural instruments; financial 
control. 
                                                
 
17 For cases concerning lack of conformity with or incorrect application of EEA provisions, as well as 
legislation not at all or not fully transposed. 
 
EN 92   EN  
Statistical Annex  
STATISTICAL DATA (as of 1 February 2010)            
Iceland     
                     
Basic data Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Population (thousand)  276 279 283 287 288 291 294 300 308 315 
Total area of the country (km²)  103 000 103 000 103 000 103 000 103 000 103 000 103 000 103 000 103 000 103 000 
            
National accounts Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Gross domestic product (GDP) (million national currency)  632 399 683 747 771 894 816 450 841 322 928 889 1 026 718 1 168 183 1 301 409  1 476 463 
GDP (million euro)  8 194 9 421 8 830 9 474 9 709 10 660 13 124 13 311 14 851 10 265 
GDP per capita (euro per capita)  29 600 33 500 31 000 32 900 33 600 36 400 44 400 43 700 47 700 32 100 
GDP (in Purchasing Power Standards (PPS)  per capita)  24800 25100 26200 26600 26000 28400 29300 29200 30200 30200 
SI: GDP per capita (in PPS per capita, EU-27=100)  139.1 131.0 132.2 129.8 125.5 131.1 130.5 123.4 121.3 120.6 
SI: Growth rate of GDP (national currency, at constant prices , % change on previous year)  4.1 4.3 3.9 0.1 2.4 7.7 7.5 4.3 5.6 1.3 
SI: Employment growth (national accounts, % change on previous year)  : : : : : : : : : : 
Labour productivity growth: GDP growth per person employ ed (% change on previous year)  : : : : : : : : : : 
SI: Unit labour cost growth (national accounts, % change on previous year)  : : : : : : : : : : 
SI: Labour productivity (GDP in PPS per person employed, EU-27=100)  107.8 102.8 103.6 104.2 101.2 107.7 105.5 98.7f 96.3f 97.9 f 
Gross value added by main sectors (%)                      
Agriculture and fishing 1) 9.7 9.0 9.2 9.3 7.9 6.8 6.2 6.4 5.7 6.1 
Industry  17.9 17.3 19.2 16.8 15.8 15.2 13.7 14.8 13.9 15.8 
Construction  8.0 8.6 7.8 7.5 7.5 8.8 10.4 11.2 11.9 10.5 
Services  64.4 65.1 63.8 66.4 68.9 69.2 69.7 67.6 68.6 67.6 
Final consumption expenditure, as a share of GDP (%)  82.9 84.0 79.8 80.2 83.3 82.2 84.0 82.6 82.1 78.4 
Gross fixed capital formation, as a share of GDP (%)  21.8 22.9 21.5 18.2 20.0 23.5 28.4 34.0 28.2 24.2 
Changes in inventories, as a share of GDP (%)  0.0 0.4 -0.3 0.0 -0.2 -0.1 -0.1 1.2 0.5 0.2 
Exports of goods and services, relative to GDP (%)  33.6 33.6 38.8 37.4 34.3 34.1 31.7 32.3 34.8 44.6 
Imports of goods and services, relative to GDP (%)  38.3 40.9 39.9 35.9 37.4 39.7 44.0 50.0 45.6 47.3 
            
Industry Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Industrial production volume index (2000=100)  : : : : : : : : : : 
            
Inflation rate Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
SI: Annual average inflation rate (HIC P), (total, % change on previous year)  2.1 4.4 6.6 5.3 1.4 2.3 1.4 4.6 3.6 12.8 
 
EN 93   EN                       
Balance of payments Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Balance of payments: current account total (million euro)  -558 -957 -382 143 -465 -1 047 -2 119 -3 406 -2 166 -4 537 
Balance of payments current account: trade balance (million eur o)  -290 -516 -68 163 -183 -419 -1 190 -1 784 -1 004 -46 
Balance of payments current account: net services (milli on euro)  -90 -160 -18 -10 -108 -168 -412 -547 -502 -194 
Balance of payments current account: net income (million euro)  -168 -269 -285 -23 -160 -446 -495 -1 047 -616 -4 272 
Balance of payments current account: net  current transfers (million euro)  -9 -10 -11 14 -13 -14 -22 -28 -44 -24 
of which government transfers (million euro)  -9 -11 -13 -10 -8 -15 -20 -23 -41 -27 
Net foreign direct investment (FDI) (million euro)  - 51 -241 -192 -254 -42 -1 486 -3 228 -1 017 -8 455 5 022 
Foreign direct investment (FDI) abroad (million euro) 2) -116 -427 -386 -347 -336 -2 079 -5 708 -4 238 -7 673 4 862 
of which FDI of the reporting economy in EU- 27 countries (million euro)  : : : : : : : : : : 
Foreign direct investment (FDI) in the reporting economy (million euro)  64 185 194 93 294 593 2 480 3 221 -782 160 
of which FDI of EU-27 countries in the reporting economy (million euro)  : : : : : : : : : : 
            
Public finance Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
General government deficit/surplus, relative to GDP (% )  1.1 1.7 -0.7 -2.6 -2.8 0.0 4.9 6.3 5.4 -13.6 
SI: General government debt, relative to GDP (%)  40.0 36.0 40.5 44.5 39.9 36.0 26.1 28.0 29.3 57.5 
            
Financial indicators Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Gross foreign debt of the whole economy, relative to GDP (%)  74 99 110 101 120 159 262 420 515 858 
Gross foreign debt of the whole economy, relative to total exports (%)  220 294 284 270 349 465 827 1301 1478 1924 
Money supply: M1 (banknotes, coins, overnight deposits, million euro)  900 1 000 811 1 018 1 242 1 606 2 209 2 411 4 688 3 957 
Money supply: M2 (M1 plus deposits with maturity up to two years, million euro)  1 771 1 814 1 672 1 854 2 183 2 778 3 886 4 13 7 7 399 6 938 
Money supply: M3 (M2 plus marketable instruments, m illion euro)  3 479 4 113 3 922 4 586 5 358 6 126 8 405 8 958 14 040 11 609 
Total credit by monetary financial institutions to resident s (consolidated) (million euro)  5 188 8 278 7 737 8 061 9 484 13 10 8 21 996 27 752 36 308 33 277 
Interest rates: day-to-day money rate, per annum (%)  11.1 13.5 13.1 6.5 5.1 7.6 9.3 16.2 14.0 18.3 
Lending interest rate (one year), per annum (%)  10.0 12.4 12.0 8.2 7.7 10.3 12.0 15.3 15.3 22.0 
Deposit interest rate (one year), per annum (%)  4.5 6.9 6.7 3.3 2.8 6.3 9.0 12.8 13.3 15.0 
Euro exchange rates: average of period - 1 euro = … national currency 3) 77.180 72.580 87.420 86.180 86.650 87.140 78.230 87.76 0 87.630 143.830 
Effective exchange rate index (2000=100)  : 115.4 135.0 120.6 121.4 111.9 102.7 128.0 120.2 216.4 
Value of reserve assets (inc luding gold) (million euro)  464 472 418 432 671 752 860 1 913 1 858 2 994 
            
External trade Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Value of imports: all goods, all partners (million euro)  2 363 2 798 2 525 2 406 2 498 2 988 4 024 4 788 4 881 4 152 
Value of exports: all goods, all partners (million euro)  1 878 2 044 2 246 2 359 2 111 2 322 2 487 2 758 3 479 3 650 
Trade balance: all goods, all partners (million euro)  - 485 -754 -278 -47 -387 -666 -1 537 -2 030 -1 403 -502 
Terms of trade (export price index / import price index,  2000=100)  104.6 100.0 102.5 103.7 97.2 95.1 94.7 101.2 101.0 94.8 
Share of exports to EU-27 countries in value of total exports (%)  65.2 68.7 70.0 72.6 73.7 75.2 74.7 71.0 74.7 75.9 
Share of imports from EU-27 countries in value of total imports (%)  58.8 60.7 59.0 58.2 63.0 59.8 61.4 56.9 59.1 53.5 
            
Demography Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Natural growth rate: natural change (births minus deaths) (p er 1000 inhabitants)  7.9 8.8 8.3 7.7 8.0 8.3 8.2 8.3 8.4 9.0 
Infant mortality rate: deaths of children under one year of age per 1000 live births  2.4 3.0 2.7 2.2 2.4 2.8 2.3 1.4 2.0 2.5 
Life expectancy at birth: male (years)  77.4 77.9 78.3 78.5: 79.5 78.9 80.2 79.4 79.6 80.0 
Life expectancy at birth: female (years)  81.4 81.5 82.9 82.3 82.3 82.8 83.3 83.0 83.4 83.3 
 
EN 94   EN             
Labour market Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Economic activity rate (15-64): share of population aged 15-64 that is economically active (%)  87.9 88.6 88.5 87.5 86.9 85.4 8 6.7 87.8 87.8 86.9 
SI: Employment rate (15-64): share of population aged 15-64 that  is in employment (%)  86.3 86.6 86.5 84.7 84.0 82.8 84.4 85.2 85.7 84.2 
Share of male population aged 15-64 that is in employment (%)  90.3 90.2 89.9 87.7 86.7 86.1 87.4 88.6 89.5 87.8 
Share of female population aged 15-64 that is in employment (%)  82.1 82.8 82.9 81.6 81.2 79.4 81.2 81.6 81.7 80.3 
SI: Employment rate of older workers (55-64): share of population aged 55-64 that is in 
employment (%)  85.9 84.2 85.6 87.2 83.2 82.0 84.8 84.4 84.9 83.3 
Employment by main sectors (%)                      
Agriculture and fishing  8.8 8.0 7.2 7.3 6.6 6.0 6.5 6.7 5.8 4.7 
Industry  16.3 16.0 15.7 14.7 15.2 15.4 14.2 12.3 11.7 12.2 
Construction  6.8 6.7 7.2 8.0 7.3 7.4 7.7 8.6 9.4 9.9 
Services  68.0 69.3 69.9 70.0 70.9 71.1 71.6 72.4 73.1 73.3 
SI: Unemployment rate: share of labour force that is unemployed (%)  2.0 2.3 2.3 3.3 3.4 3.1 2.6 2.9 2.3 3.0 
Share of male labour force that is unemployed (%)  1.5 1.8 2.0 3.6 3.6 3.2 2.6 2.7 2.3 3.3 
Share of female labour force that is unemployed (%)  2.6 2.9 2.5 2.9 3.1 2.9 2.6 3.1 2.3 2.6 
Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%)  4.4 4.7 4.8 7.2 8.3 8.1 7.2 8.2  7.2 8.2 
SI: Long-term unemployment rate: share of l abour force that is long-term unemployed (%)  0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0. 1 
            
Social cohesion Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Average nominal monthly wages and salari es (national currency)  207 000 225 000 249 000 266 000 284 000 301 000 336 000 377 000 414 00 0 446 000 
Index of real wages and salaries (index of nom inal wages and salaries divided by the CPI) 
(2000=100)  96.6 100.0 103.7 105.7 110.6 113.5 121.8 128.0 133.8 128.3 
SI: Early school-leavers: share of populati on aged 18-24 having not completed upper secondary 
education and not currently in education or training (%)  : 29.8 30.9 28.8 20.3 24.9 24.9 25.6 23.2 24.4 
            
Standard of living Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Number of passenger cars per 1000 population  547.7 569.8 564.7 566.5 580.2 603.6 631.4 647.5 668.4 662.1 
Number of subscriptions to cellular mobile telephone se rvices per 1000 population  580.6 758.4 865.9 903.7 962.5 992.5 1013.7 1 049.3 1045.5 1073.1 
            
Infrastructure Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Density of railway network (lines in operation, per 1000 km²)  : : : : : : : : : : 
Length of motorways (thousand km)  0.009 0.011 0.011 0.011 0.011 0.019 0.019 0.019 0.019 0.041 
            
Innovation and research Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
SI: Spending on human resources (public expenditure on education) relative to GDP (%)  6.6 6.7 7.0 7.6 7.6 7.5 7.6 7.6 7.4 7.6 
SI: Gross domestic expenditure on research & development, relative to GDP (%)  2.3 2.7 3.0 3.0 2.8 : 2.8 3.0 2.7 2.7 
SI: Percentage of households who have Internet access at home (%)  : : : 78 78 81 84 83 84 88 
            
Environment Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
SI: Greenhouse gas emissions, CO2 equivalent (1990=100)  111.1 109.5 109.1 109.3 109.0 109.9 108.8 124.2 : : 
SI: Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP)  341.0 343.4 342.6 345.5 336.5 322.8 311.3 358.5 :  : 
SI: Share of renewable energy in electricity consumpti on (%)  99.9 99.9 100.0 99.9 99.9 99.9 99.9 100.0 100.0 100.0 
SI: Road share of inland freight transport (modal split) (% of tonne-km)  100 100 100 100 100 100 100 100 100 : 
 
EN 95   EN SI = Structural Indicator 
: = not available e = estimate 
f = forecast 
– Fishing (predominantly marine fishing) represents bet ween 80% (in 1999) and 77% (in 2008) of this share. 
– Using the balance of payments sign convent ion, a negative value for FDI abroad means investment abroad by the reporting countr y whereas a positive value means de-investment. 
– Average annual exchange rate as published by the European Central B ank. This rate is very close to the rate published by the C entral Bank of Iceland for all years except 2008. For 2008, as a result of 
the financial crisis which lead to high exchange rate volatilit y and very narrow markets for the Icelandic Krona, the average a nnual rate published by the Central Bank of Iceland (127.46 ISK for 1 EUR) 
differs by more than 10% from the ECB rate             
Energy Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Primary production of all energy products (thousand TOE)  2 191 2 306 2 451 2 462 2 457 2 519 2 636 3 259 3 946 4 397 
Primary production of crude oil (thousand TOE)  0 0 0 0 0 0 0 0 0 0 
Primary production of hard coal and lignite (thousand TOE)  0 0 0 0 0 0 0 0 0 0 
Primary production of natural gas (thousand TOE)  : : : : : : : : : : 
Net imports of all energy products (thousand TOE)  972 1 036 947 969 937 1 072 1 063 1 099 1 070 976 
Gross inland energy consumption (thousand TOE)  3 079 3 235 3 354 3 388 3 379 3 489 3 616 4 349 5 016 5 374 
Electricity generation (thousand GWh)  7 188 7 684 8 033 8 416 8 500 8 623 8 686 9 930 11 976 16 468 
            
Agriculture Note 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 
Agricultural production volume index of goods and services (producer  prices, previous year=100)  : : : : : : : : : : 
Total utilised agricultural area (thousand hectare) e 120 120 120 120 120 120 120 120 120 120 
Livestock: cattle (thousand heads, end of period)  75 73 70 67 66 65 66 69 71 72 
Livestock: pigs (thousand heads, end of period)  4 4 5 4 4 4 4 4 4 4 
Livestock: sheep and goats (thousand heads, end of period)  491 466 474 470 463 456 455 456 455 459 
Production and utilisation of milk on the farm (total  whole milk, thousand tonnes)  107 104 106 111 108 112 109 118 126 126 
Crop production: cereals (including rice) (thousand tonnes, harvested production)  2 3 4 5 7 10 10 11 11 15 
Crop production: sugar beet (thousand tonnes, har vested production)  : : : : : : : : : : 
Crop production: vegetables (thou sand tonnes, harvested production)  13 14 16 14 12 12 12 20 19 19