Commission staff working document - Analytical Report accompanying the Communication from the Commission to the European Parliament and the Council Commission Opinion on Iceland's application for membership of the European Union {COM(2010) 62}
Date: 2010-02-24
Institutions: European Commission
Subjects: EC opinion, European Commission, Iceland, accession criteria, accession to the European Union, impact study

EN 

EN 

   EN 

 
EUROPEAN COMMISSION 

Brussels, 24.2.2010 
SEC(2010) 153 

COMMISSION STAFF WORKING DOCUMENT 

ANALYTICAL REPORT  

accompanying the 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Commission Opinion on Iceland's application for membership of the European Union 

{COM(2010) 62} 

EN 

   EN 

 
 
  
 
 
 
 
 
 
 
TABLE OF CONTENTS 

A. 

a) 

b) 

c) 

d) 

B. 

1. 

Introduction .................................................................................................................. 4 

Application for membership ........................................................................................ 4 

Recent developments ................................................................................................... 5 

Relations between the EU and Iceland......................................................................... 6 

Contents of the Analytical Report................................................................................ 7 

Criteria for membership ............................................................................................... 8 

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. 

1.3. 

2. 

2.1. 

2.2. 

Human rights and the protection of minorities .......................................................... 14 

General Evaluation..................................................................................................... 17 

Economic Criteria ...................................................................................................... 18 

Economic developments ............................................................................................ 18 

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................................................................................................. 36 

Chapter 6: Company Law ........................................................................................................ 37 

EN 

2 

   EN 

Chapter 7: Intellectual 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, veterinary 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 coordination of structural instruments................................. 75 

Chapter 23: Judiciary and fundamental rights.......................................................................... 77 

Chapter 24: Justice, freedom and security ............................................................................... 81 

Chapter 29: Customs union ...................................................................................................... 84 

Chapter 30: External relations.................................................................................................. 86 

Chapter 31: Foreign, security and defence policy.................................................................... 88 

Chapter 32: Financial control................................................................................................... 89 

Chapter 33: Financial and budgetary provisions...................................................................... 90 

3.2. 

General Evaluation..................................................................................................... 91 

STATISTICAL ANNEX.......................................................................................................... 86 

EN 

3 

   EN 

A. 

a) 

INTRODUCTION 

Application for membership 

Iceland presented its application for membership of the European Union on 17 July 2009.  

Subsequently,  on  27  July,  the  Council  of  the  European  Union  requested  the  Commission  to 
submit its opinion on this application, 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 address its application to the Council, which shall 
act  unanimously  after  consulting  the  Commission  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 European 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 current assessment is made in terms 
of  the  conditions  of  eligibility  laid  down  by  the  European  Council.  In  Copenhagen  in  June 
1993, the European Council concluded that: 

Accession  will  take  place  as  soon  as  a  country  is  able  to  assume  the  obligations  of 
membership by satisfying the economic and political conditions required. 

Membership requires:  

–  that  the  candidate  country  has  achieved  stability  of  institutions  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  membership  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  Council  referred  to  the  need  ‘to  create  the 
conditions  for  the  gradual,  harmonious  integration  of  [the  applicant]  countries,  particularly 
through  the  development  of  the  market  economy,  the  adjustment  of  their  administrative 
structures and the creation of a stable economic and monetary environment.’ 

EN 

4 

   EN 

In  December  2006,  the  European  Council  agreed  that  ‘the  enlargement  strategy  based  on 
consolidation,  conditionality  and  communication,  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 situation and the medium-term prospects. For the 
purpose of this opinion and without 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  particular  attention  in  the  event  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  process.  In  addition,  Iceland’s  accession  treaty  would  involve  a 
technical  adaptation  of  the  EU  institutions  in  the  light  of  the  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  Iceland.  In  the  context  of  the  global  financial 
crisis its banking system collapsed in October 2008, with severe economic impact and social 
consequences.  The  crisis  led  to  significant  economic  contraction,  caused  considerable 
hardship for the population and triggered a series of political developments. 

In January 2009, the Prime Minister resigned and early parliamentary elections were called. 
General elections took place in April 2009, resulting 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 narrow majority in favour of applying to join 
the  EU.  Public  opinion  and  political  parties  are  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 setting the arrangements for repayment of a €
 3.9 
billion  loan  to  the  governments  of  the  United  Kingdom  and  the  Netherlands,  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 constitution, a referendum has been called on that law for 
6 March 2010. 

1 
2 

COM(2010) 62. 
The ‘Icesave bill’ authorises the Icelandic 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 

5 

   EN 

                                                 
c) 

Relations between the EU and Iceland 

Iceland became an independent republic on 17 June 1944.  

Iceland and the European Union have been cooperating extensively across a broad range of 
areas  over  the  last  forty  years.  Iceland  joined  the  European  Free  Trade  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 the twice-yearly EEA Council meeting of Foreign Ministers. 

As an EEA state, Iceland has effectively participated in the single market for over 15 years. 
This required it to adopt a considerable part of European Union law. The EFTA Surveillance 
Authority  (ESA)  regularly  monitors  Iceland’s  performance  under  the  EEA  Agreement. 
Overall,  Iceland  has  a  satisfactory  track  record  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 place between the European Parliament and the 
Committee  of  Members  of  Parliament  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 between Icelandic parliamentarians and Members 
of the European Parliament take place on a regular basis. 

Iceland  contributes  to  reducing  social  and  economic  disparities  in  Europe  through  the  EEA 
Grants3.  For  the  period  2004-2009,  Iceland  provided  approximately  €
 29 million  for  project 
funding in a number of EU Member States through EEA Grants. 

Iceland  has  been  associated  with  the  development  of  the  Schengen  agreements  since  19964 
and  has  applied  its  provisions  since  2001.  This  means  that  Iceland  has  abolished  internal 
border controls with other Schengen area countries. Common rules and procedures are applied 
with  regard  to  visas  for  short  stays  and  border  controls.  Within  the  Schengen  area,  Iceland 
participates  in  extensive  cooperation  and  coordination  between  police  services  and  judicial 
authorities5.  

Iceland is associated to the Dublin Regulation, which establishes criteria and mechanisms for 
dealing  with  asylum  requests6,  as  well  as  to  Eurodac,  the  EU  database  for  fingerprints  of 
asylum seekers.  

3 

4 

5 

6 

The ‘EEA and Norway Grants’ are Iceland’s, Liechtenstein’s and Norway’s contribution to the wider 
European cohesion efforts. The EEA Grants are contributions funded jointly by Iceland, Liechtenstein 
and Norway, while the Norway Grants are funded by Norway alone. 
The  agreement  on  Iceland’s  association  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 Decision 2000/777/EC of 1 December 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. 
Assessment of Iceland’s participation in Schengen can be found under Chapter 24 (Justice, freedom and 
security) in Part 3 of this opinion. 
Council Decision 2001/258/EC. 

EN 

6 

   EN 

                                                 
As regards trade relations, Iceland became a member of the GATT in 1968 and is a founding 
member  of  the  World  Trade  Organisation  (WTO).  In  addition  to  its  membership  of  the 
European  Free  Trade  Association  (EFTA)  and  the  Agreement  on  the  European  Economic 
Area  (EEA),  Iceland  has  free  trade  agreements  -  along  with  complementary  bilateral 
agreements  on  basic  agricultural  products  -  in  force  with  sixteen  third  countries  within  the 
framework  of  EFTA,  as  well  as  four  additional  ones,  still  to  enter  into  force.  In  addition,  a 
bilateral  trade  agreement,  along  with  a  complementary  agreement  on  basic  agricultural 
products relating to the EEA Agreement 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 and other marine products although, as a share of 
total  exports,  this  category  declined  to  40 %  in  2007.  Exports  of  manufactured  goods  have 
been growing rapidly, led by aluminium and medical 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-accession financial support under the Instrument for 
Pre-Accession  Assistance  (IPA).  Such  support  would  aim  to  foster  institution  and  capacity 
building  of  the  Icelandic  administration  mainly  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  respect  of  the  political  conditions  established  by  the  European 

Council (democracy, rule of law, human rights, protection of minorities); 

–  Assesses  the  country’s  situation  and  prospects  in  respect  of  the  economic  conditions 
established by the European Council (functioning market economy, capacity 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 legislation 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  Council  conclusions,  provides  initial  impact 
estimates  in  the  fields  of  financial  services,  agriculture,  fisheries,  regional  policy  and 
financial  and  budgetary  provisions.  These  have  been  identified  as  the  main  policy  areas 
likely to require particular attention in case of Icelandic accession.  

In assessing Iceland’s situation in respect of the economic 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 

7 

   EN 

The  Commission  has  drawn  on  a  number  of  information  sources:  answers  given  by  the 
Icelandic  authorities  to  a  detailed  questionnaire  and  additional  follow-up  questions, 
consultations with the EU Delegations accredited to Iceland, reporting by the Member States’ 
Ambassadors in Reykjavik, assessments by international organisations (including the Council 
of  Europe,  IMF,  OECD,  OSCE,  International  Labour  Organisation,  EFTA  Surveillance 
Authority), as well as local and international non-governmental organisations. 

B. 

CRITERIA 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  ‘stability  of  institutions 
guaranteeing  democracy,  the  rule  of  law,  human  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 Rights of the European Union. Article 6(1) of 
the Treaty states that: ‘The Union recognises the rights, freedoms and principles set out in the 
Charter  of  Fundamental  Rights  of  the  European  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 state of fundamental rights protection. 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  President  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  presidential  elections.  Non-resident  citizens  remain  on 
the voter register for eight years after declaring 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  residency  in  Iceland  before  the  day  of  election;  this 
period  of  residency  is  reduced  to  only  three  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 

8 

   EN 

The  constitution  codifies  the  basic  principles  of  the  rule  of  law  in  Iceland.  Legislation 
provides,  inter  alia,  for  elections,  the  accountability  of  ministers,  the  appointment  of  public 
officials,  the  audit  of  the  financial  accounts  of  the  state,  its  institutions  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 act or a government measure signed by a minister. 
In cases where the President withholds his signature options are either the withdrawal by the 
government of the draft law adopted by the parliament 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 European 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 the 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: the 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 Prime 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 

9 

   EN 

The  Speaker  oversees  the  work  of  the  parliament,  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.  According  to  the  constitution,  the  President  may  also 
submit bills and draft resolutions to Althingi but in practice does 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  effective  consultation  procedures,  organised  by  the 
relevant parliamentary committees.  

The parliament functions well. Its powers are respected 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.  The 
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 established 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 parliament may censure the government, or compel 
it to resign through a motion of no confidence. Ministers are accountable for all executive acts 
and may be impeached by the parliament. 

The  previous  coalition  government  (Independence  Party  and  Social  Democratic  Alliance) 
announced its resignation in January 2009 following the financial crisis. Early elections took 
place  in  April  2009  and  a  new  coalition  government  consisting  of  the  Social  Democratic 
Alliance and the Left-Green Movement took office. 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. Municipalities play an important role in local democracy and 
benefit from a considerable degree of discretion in fulfilling their responsibilities.  

The  Association  of  Local  Authorities  in  Iceland  was  established  in  1945  by  52  local 
authorities. Since 1973, all local authorities in the country are members 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  authorities.  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  authority.  The  Ombudsman  reports  annually  to 
parliament  on  his/her  work,  including  details  about  concluded  cases  and  subsequent  actions 

EN 

10 

   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 Commissioner  of the Icelandic Police carries  out 
security projects such as investigation of cases, risk assessment or strategic assessment.  

Overall,  division  of  power  between  the  executive  and  parliament  in  Iceland  is  ensured.  The 
government  is  subject  to  effective  parliamentary  control;  its  ministers  are  accountable  for 
their acts. Municipal authorities function efficiently. 

1.1.3.  The judiciary 

The judicial system is composed of a Supreme Court, eight district courts, 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 appointed for an indefinite period by the Minister 
of Justice and Human Rights after the Minister has consulted the Evaluation Committee. The 
Evaluation  Committee,  also  appointed  by  the  Minister  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  judges  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 Justice  and Human  Rights. 
The Supreme Court delivers an opinion as regards the competency and qualifications of the 
applicants  prior  to  their  nomination.  The  Supreme  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 and the Supreme Court may decide that legislation 
that they find incompatible with the constitution 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  reacted  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 the 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. Iceland should review limitations to the right to 
appeal in this area, with a view to reinforcing 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.  The  court  has,  however,  never  been  convened  in 
practice; the actual act of impeaching a Minister 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, including the Office of the National Commissioner, 

EN 

11 

   EN 

and  the  Office  of  the  Director  of  Public  Prosecutions.  The  Minister  of  Justice  and  Human 
Rights  appoints  prosecutors  following  an  evaluation  of  the  applicants  by  the  Ministry  of 
Justice. The Director of Public Prosecutions supervises the conduct of investigations and the 
prosecutorial  authority  of  the  police.  He/she  is  responsible  to  the  Minister  of  Justice  and 
Human Rights even though his/her prosecution powers are in principle independent from the 
Minister  and  the  Ministry.  The  entry  into  force  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 collapse: the  Special Investigation Commission  and 
the Special Prosecutor. The Special Investigation Commission, consisting of three members 
nominated by the parliament, is tasked with collecting 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  financial  regulators  and  Norwegian  and  French 
counterparts. In March 2009, the Icelandic government nominated a renowned non-Icelandic 
anti-corruption investigator as ‘special advisor’ to the Special Prosecutor. 

The  independence  of  the  judiciary  is  guaranteed  by  the  constitution,  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 judicial decision. This complies with Article 6 
of  the  European  Convention  on  Human  Rights.  A  special  wage  committee  determines  their 
salaries  in  order  to  guarantee  independence  from  the  executive.  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  authority  of  any  other  person.  A  judicial  decision 
cannot be revised, except by appeal to a higher court. Under the Government Employees Act, 
a  judge  cannot  be  appointed  to  a  second  official  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 official duties. However, 
the predominance given to the Minister of Justice and Human Rights in judicial appointments, 
given the consultative role of the Evaluation Committee and Supreme Court, raises questions 
in terms of the effective independence of judges.  

In  October  2009,  an  expert  panel  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 functioning of the judiciary are high. The judicial 
system  is  well  established.  However,  the  strong  role  of  the  Minister  of  Justice  and  Human 
Rights vis à vis the judiciary and the prosecutor is of concern. There is scope for improvement 
in the process for judicial appointments in order to better guarantee the independence of the 
judiciary.  Following  the  financial  crisis,  a  Special  Investigation  Commission  and  a  Special 
Prosecutor were set up to investigate and prosecute alleged criminal acts in the context of the 
bank collapse. (See also Chapter 23 — Judiciary and fundamental rights) 

EN 

12 

   EN 

1.1.4.  Public Administration 

The central government is composed of 12 ministries, each with authority over a number of 
agencies.  The  agencies  are  governed  by  special  legislative  acts  setting  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  administration.  They  are  not  limited  to  ruling  on  the 
procedure for taking the decision, but may also review 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 criteria, 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, renewable contracts, unless otherwise 
provided  by  the  law.  Employees  of  the  state  administration  are  recruited  via  open 
competitions, based on the principles of transparency and equal opportunities.  

Complaints relating to the recruitment process must 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  reversing  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 behalf of Iceland; he/she is assisted by the 
chairpersons  of  individual  negotiation  teams  and  other  representatives  on  Iceland’s 
negotiation  committee.  Assessing  the  compatibility  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 and 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, municipality) contributes to an education fund, 
which is then used for training.  

Overall,  the  core  elements  of  a  merit-based  and  efficient  public  administration  free  from 
political  interference,  as  embedded  in  the  principles  of  the  European  Administrative  Space, 
are generally in place in Iceland. 

1.1.5.  Anti-corruption policy 

Several laws are in place that criminalise corruption in relation to other 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  responsibilities  for  addressing  corruption.  The 
prosecution  can  instigate  investigations  and  oversee  their  conduct.  The  Economic  Crime 

EN 

13 

   EN 

Division of the National Commissioner of the Police deals with various aspects of organised 
crime,  including  money  laundering.  The  Ombudsman  launches  investigations  following  a 
complaint  in  cases  of  breach  of  duty.  The  Competition  Authority  has  substantial  authority 
with regard to the search for and seizure of evidence. The Government Procurement Agency 
manages  procurement  for  public  construction  projects.  The  Financial  Supervisory  Authority 
carries out checks on commercial and savings banks, insurance companies and pension funds 
and  is  required  to  notify  the  police  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  issued  a  set  of  Rules  on  the  Financial  Accounts  of  Political 
Parties,  which  lists  the  minimum  reporting  standards  for  political  parties  and  electoral 
candidates.  The  Office  is  required  to  report  all  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 provide information. It aims to reduce the risk 
of conflicts of interest and ensure transparency in the financial affairs of political parties.  

Iceland has undertaken various international obligations to fight corruption in two main fora: 
the  Organisation  for  Economic  Cooperation  and  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 Council of Europe Criminal Law Convention on 
Corruption,  the  Convention  on  Laundering,  Search,  Seizure  and  Confiscation  of  Proceeds 
from Crime and the OECD Convention on Combating Bribery of Foreign Public Officials in 
International  Business  Transactions.  Iceland  has  not  yet  ratified  the  UN  Convention  against 
Corruption and the Council of Europe Civil Law Convention on corruption. 

As part of this cooperation, a number of independent evaluation committees have assessed the 
Icelandic system. The conclusions of these evaluations have generally been that corruption is 
at  a  low  level  in  Iceland.  Further  efforts  are,  however,  needed  to  implement  GRECO 
recommendations.  Following  the  financial  crisis,  certain  questions  have  been  raised 
concerning 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  Special  Investigation 
Commission  and  a  Special  Prosecutor  were  set  up  to  investigate  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. 

Overall,  the  financial  crisis  highlighted  the  existence  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  constitution.  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 Statute of the International Criminal Court (ICC) 
into its legal order in July 2002; Iceland has not concluded any bilateral immunity agreements 
granting exemptions from ICC jurisdiction. 

EN 

14 

   EN 

Access to justice is guaranteed by the constitution. Legal aid is available in both criminal and 
civil cases. Persons charged with a criminal offence 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 court 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 punishment. 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  entered  into  force  in  September  1953.  It 
recognised  the  jurisdiction  of  the  European  Court  of  Human  Rights  (ECtHR)  in  September 
1994.  The  ECHR  and  its  protocols  were  incorporated  into  Icelandic  law  in  1994.  The  CoE 
Framework Convention for the Protection of National Minorities was signed in February 1995 
but has not been ratified.  

Iceland is a member of several agreements within 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  state.  In  most  of  these  judgments,  breaches  of  the  procedural 
guarantees of Articles 5 (right to liberty) and 6 (right 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 International Conventions of the UN, including the 
International  Covenant  on  Civil  and  Political  Rights  and  the  International  Covenant  on 
Economic,  Social  and  Cultural  Rights.  It  has  also  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  policy  and  tripartite  consultation,  the  social  security 
convention and the health and safety at work framework convention.  

Court rulings in Iceland commonly refer to international human rights conventions, such as 
the  European  Social  Charter,  the  International  Covenant  on  Economic,  Social  and  Cultural 
Rights  and  ILO  Conventions,  when  interpreting  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  elements  of  a  fair  trial  in  criminal  cases  as 
developed in the case-law of the European Court of Human Rights have been incorporated in 
the Criminal Procedure Code regarding the right to liberty.  

The right to privacy is protected in the General Penal Code, the Data Protection Act and legal 
remedies  granting  the  right  to  damages  from  the  person  violating  another  person’s  privacy. 

EN 

15 

   EN 

The 1996 Act on registered partnerships 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  administrative  system.  The  Act  on  patients’  rights 
guarantees  various  rights  of  patients  such  as  the  right  to  obtain  information  regarding  their 
state of health, the proposed treatment and the possibility of seeking a second opinion.  

The right of ownership is guaranteed 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  the  registration  of  religious  communities  with 
legally stipulated rights. There are no reported cases of limitations to the freedom of religion 
in Iceland. 

In Iceland, discrimination is prohibited and equality is guaranteed by the constitution.  

Iceland  is  party  to  several  international  instruments  which  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  International  Convention  on  the  Elimination  of 
All Forms of Racial Discrimination.  

As  member  of  the  Council  of  Europe,  Iceland  is  subject  to  monitoring  by  the  European 
Commission against Racism and Intolerance (ECRI), 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,  implemented  by  the  2002  Act  on  Foreigners, 
which introduced clearer provisions on the legal status of foreigners and asylum seekers. In 
the  period  2006-2008,  Iceland  received  154  applications  for  asylum.  Four  applicants  were 
granted refugee status, 11 were granted a residence 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  calls  for  specific  measures  and 
legislation  to  combat  discrimination  on  these  grounds.  In  March  2009,  there  were  some 
24 000  foreigners  —  mainly  from  Poland,  Lithuania  and  Germany  —  residing  in  Iceland. 
There  have  been  individual  cases  of  discrimination  against  foreigners,  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 General Penal Code, more rigorous recording of hate 
crime and improving awareness among police officers and employees in the judicial system. 
Those recommendations should be followed up. 

Freedom  of  assembly  and  freedom  of  opinion  and  expression  are  guaranteed  by  the 
constitution and no problems can be reported.  

EN 

16 

   EN 

The  media  are  regulated  through  the  Right  of  Publication  Act.  All  of  Iceland’s  media  are 
private, with the exception of the Icelandic National 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 increased. 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  degree  of  media  freedom.  The  Icelandic  media  are 
sufficiently diversified; ownership, 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  and  the  framework  of  their  relations  with 
employers  with  regard  to  strikes  and  lock-outs  and  the  solution  of  disputes  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 special statute which ensures equality between women and men 
in  all  respects.  These  rights  are  regulated  by  the  Gender  Equality  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  prohibiting  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  Gender  Equality  Council,  and  other  specialised 
complaints  committees  such  as  the  Complaints  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  standards;  fundamental  rights  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 representative democracy and division of powers. Its constitutional 
and legal order and governing institutions are stable.  

EN 

17 

   EN 

The separation of powers between the legislature, the executive and the judiciary is respected. 
The government is subject to effective parliamentary control; its ministers are accountable for 
their acts. Municipal authorities function efficiently. 

Iceland’s  judiciary  is  of  a  high  standard  and  the  judicial  system  is  well  established.  The 
effective independence of the judiciary, in particular 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 concerning 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 Special Investigation Commission and a Special 
Prosecutor were set up to investigate 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 safeguarding fundamental rights and there is a high 
level of cooperation with international mechanisms for the protection of human rights. 

2. 

ECONOMIC 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 Iceland fulfils the two economic criteria established 
by the Copenhagen European Council. 

2.1. 

Economic developments 

Iceland is a small open economy with a population of over 300, 000 and a nominal GDP of 
 10.2 billion in 2008. This equals about 0.06 % of the EU-27 population and about 0.08 % of 
EU-27  GDP.  During  the  1990s  and  for  most  of  the 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 became one of the wealthiest countries in the 
world, with a GDP per capita in purchasing  power  standards at around  120 % of the EU-27 
average in 2008. 

Economic activity 

Iceland’s economy grew considerably over the 10 years up to 2007. GDP growth rates were 
particularly  high  towards  the  end  of  this  period,  averaging  6.3 %  from  2004  onwards.  The 

EN 

18 

   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-tradable  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  class  increased  its  purchasing  power  by  60 %  in  the  last 
decade. The level of poverty is one of the lowest in the world. 

Iceland’s  export  base  is  relatively  narrow  and  largely  based  on  natural  resources,  namely 
fisheries  products  and  industries  powered  by  renewable  energy  sources.  Marine  products 
account  for  approximately  40 %  of  Iceland’s  total  exports  and  around  30 %  of  its  foreign 
currency earnings. However, this share declined considerably 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  development  of  aluminium  production,  pharmaceuticals, 
information  technologies,  tourism  and  the  financial  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  performance  in  the  period  2003-2007  was  largely  driven  by  major 
energy  investments  and  substantial  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 current account deficit reached 26 % of GDP in 2006 and peaked at 36 % of 
GDP in 2008. The current account deficit was largely financed by FDI inflows and the issuing 
of króna-denominated bonds by foreign banks (glacier bonds).  

In  2007,  completion  of  large-scale  investment  projects,  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 share prices and reduced 
access to cheap foreign financing led to a reduction in domestic growth and the imbalances in 
the  economy  started  to  unwind.  Consumer  consumption  growth  decreased  due  to  increased 
interest rates and mortgages since the second half of 2007. Private consumption 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  aluminium  smelting  sectors  but  also  buoyant  foreign 
credit-funded domestic demand. Macroeconomic adjustments measures taken before the crisis 
had already slowed down the economy. 

Structural change and reforms 

Since  the  1990s,  Iceland  pursued  a  significant  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 traditionally heavily involved in the business sector, 
for  instance  in  the  operation  of  utilities  and  banking  institutions.  Over  the  last  two  decades 

EN 

19 

   EN 

Iceland  has  pursued  an  extensive  programme  of  privatisation.  The  most  important 
privatisations from 1992 to 2005 were the travel bureau, printing house, publishing house and 
fish  processing  plant.  Icelandic  Telephone  was  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  numerous  investors  was  abandoned.  This  was 
considered  largely  a  political  decision.  The  Financial  Supervisory  Authority  (FME)  was 
originally  dissatisfied  with  the  result  and  gave  its  approval  only  after  lengthy  deliberations. 
Local  business  conglomerates  took  over  the  banks  and  subsequently  started  expansion  into 
foreign markets with little previous 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 inflation. 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 employment contracts can be 
generally terminated without specific reasons. But notification requirements are strict and thus 
constraining for employers, as are the rules on collective dismissals and 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  notable  from  resource-based  industries  and 
traditional  manufacturing  to  sectors  such  as  information  technologies,  pharmaceuticals  and 
financial  services.  Iceland  became  an  importer  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  achievements  of  pupils  at  the  end  of  compulsory 
schooling  are  below  the  EU  average.  Upper-secondary  graduation  rates  are  improving  but 
remain comparatively low. The length of secondary education and easy access to the labour 
market postpone students’ entrance into universities 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, Iceland only rates among moderate innovators. 

Overall, Iceland’s economic transformation was 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 growth. Competitiveness 
increased and enterprises expanded abroad. The country invested a large portion of the newly 

EN 

20 

   EN 

created wealth in education and its society remained very cohesive. The skills and innovation 
profile of the economy has not kept pace with the high growth rates. 

Financial sector and the financial crisis 

The privatisation and gradual deregulation of financial institutions at the beginning 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 capital 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 the country's economic future became increasingly 
intertwined  with  the  banking  sector’s  health  and  its  growth  increasingly  dependent  on 
institutional and individual investors’ risk appetites. 

As  a  member  of  the  EEA,  Iceland  is  subject  to  European  banking  regulation,  although 
supervision  was  left  to  the  national  authorities,  the  Central  Bank  of  Iceland  (CBI)  and  the 
Financial  Supervisory  Authority  (FME).  The  two  institutions  were  in  turn  supported  by  the 
Prime Minister's Office, the Ministry of Business Affairs and other ministries with access to 
relevant information on the financial sector. The Depositors’ and Investors’ 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  regulators  were  neither  sufficiently  staffed  nor 
equipped to cope with the rapidly changing situation. In consequence, they failed to develop a 
clear  strategy  for  mitigating  the  banks’  risk  taking  or  controlling  their  rapid  expansion.  As 
bank  deposits  grew  at  such  a  rapid  pace,  the  assets  of  the  Deposit  Guarantee  Fund  were 
nowhere near the levels required to pay back depositors.  

In 2006, cross-border deposit accounts, such as Landsbanki’s Icesave, increased rapidly. The 
FME  endorsed  the  marketing  of  internet  accounts  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. Unable 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  regulatory  framework  and  supervisory  practices  to 
strengthen safeguards against potential new crises. 

The crisis originated in an over-eager expansion of the newly liberalised commercial banking 
sector.  This  was  aggravated  by  the  lack  of  adequate  supervision  which  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 turmoil, the collapse of Iceland’s vulnerable banking 
sector pushed the economy into a deep recession. The national currency fell sharply in value, 

EN 

21 

   EN 

considerably pushing up import prices, thereby causing a potentially alarming situation for a 
country  highly  dependent  on  international  trade.  Furthermore,  the  weakening  currency 
strongly  increased  foreign  debt  burdens.  The  government  sought  the  assistance  of  the 
international  community  to  stabilise  the  foreign  exchange  market  and  restore  currency 
credibility. 

On  19  November  2008,  the  International  Monetary  Fund  (IMF)  approved  a  two-year  IMF 
stand-by  arrangement  (SBA)  for  an  amount  of  €
 560  million  of  which  was 
 105 million, 
made available immediately and the remainder to be disbursed in instalments of €
following the conclusion of IMF programme reviews. The Nordic countries and Poland have 
agreed to fill the financing gaps under the programme.  

 1.4  billion,  €

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  foreign  exchange  transactions  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 the medium term. Finally, the programme focuses 
on  restructuring  the  banking  sector.  On  this  basis,  Iceland  started  implementing  a  recovery 
programme to restore credibility and economic growth. 

As  a  result  of  the  crisis,  GDP  decreased  significantly  in  the  first  half  of  2009,  with  a 
contraction of 5.5 % year-on-year. The sharp drop in domestic 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 quarter 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 were in the construction industry. Migration out 
of Iceland has emerged as an issue. 

Wages did not follow soaring inflation and fell by over 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,  reflecting  weak  domestic  demand.  Strongly  negative 
net interest receipts — a reflection 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 halved, 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 

22 

   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 any significant barriers to market entry and exit 
improve the efficiency of the economy. Macroeconomic stability and a general convergence 
on economic policy enhance the performance of a market economy.  

Iceland is a member of the EEA Agreement, which is designed to contribute, on the basis of 
market  economy  principles,  to  trade  liberalisation.  The  EEA  Agreement  promotes  the 
continuous  and  balanced  strengthening  of  trade  and  economic  relations  between  the 
Contracting Parties. Since 1 January 1994, the EEA has united the 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 businesses across the whole internal 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 economy. 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,  services,  capital,  and  persons,  Iceland’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  bankruptcy  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 legislation 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 effectively 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  stability  is  re-established  and  investors  regain 
confidence in the Icelandic financial markets. 

EN 

23 

   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  framework,  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 prosecutor, who is leading an enquiry into banking 
wrongdoings. The enquiry might last several years. Forty cases of suspected criminal acts are 
currently under investigation. The first cases are expected to be opened by the prosecution in 
2010. In parallel, the parliament set up a Special Investigation Commission that is expected to 
report in early 2010. 

The  banking  sector  is  currently  undergoing  major  restructuring.  Through  significant 
government  intervention  and  some  foreign  private  capital,  the  new  banks  have  been  re-
capitalised  with  capital  adequacy  ratios  well  above  international  standards  in  order  to 
compensate for credit, liquidity and foreign exchange risk, partly caused 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  slowly  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.  The  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 some time due to high debt. Although the perceived 
risk  of  contagion  from  distressed  to  healthy  companies  has  subsided,  credit  flows  have 
remained  low  since  2008,  as  corporations  remain  highly  leveraged.  Numerous  companies, 
including  some  outside  the  financial  sector,  are  still  undergoing  reconstruction  and  are  in 
negotiations  with  creditors.  Creditworthiness  of  both  corporate  and  household  customers 
continues to be difficult to assess, holding back new lending by banks.  

The share of the non-banking financial sector remains 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  companies  at  the  end  of  2007.  Bank  failures  wiped  out 
approximately  80 %  of  overall  equity  holdings,  hurting  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  homogenous  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 financial market and the 
financial intermediary roles are not yet restored. Enterprises face limited or no access to bank 
loans or capital market financing and will continue to face multiple challenges for some time. 

Macroeconomic stability 

Since the introduction of the IMF Stand-By Arrangement, 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  partially  lifting  capital  controls 

EN 

24 

   EN 

introduced  as  emergency  measures  in  November  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  measures  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 policy targeted the exchange rate. After this time, the Central 
Bank  of  Iceland  (CBI)  started  targeting  inflation.  The  exchange  rate  of  the  króna  became 
market-determined, normally without interventions by the central bank.  

The  CBI  set  the  official  target  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 higher policy rates led to additional foreign capital 
inflows  that  strengthened  the  króna.  The  private  sector’s  net  wealth  increased,  offsetting  to 
some degree the tighter monetary policy stance. Borrowing 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  Icelandic  króna  had  already  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 independence of the Central Bank (see Chapter 17). 

The  crisis  has  changed  the  monetary  policy  objective  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 with exchange rate pressures, the CBI raised 
policy rates, introduced capital controls and intervened in the foreign exchange market. In the 
context  of  the  IMF  SBA,  capital  controls  were  imposed  to  prevent  potentially  disturbing 
outflows initiated by non-residents 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, the Icelandic authorities authorised investors to 
convert, without restrictions, asset 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 the foreign exchange market has enabled 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  policy  and  establish  a  consistent 
medium-term monetary strategy and exchange rate regime. 

EN 

25 

   EN 

Overall,  the  measures  taken  so  far  in  the  monetary  area  go  in  the  right  direction  to  restore 
stability. The focus on stabilising the exchange rate 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 principle  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  period  of  government  budget  surplus.  The 
privatisation  of  government  assets  allowed  the  repayment  of  debt  and  an  increase  of 
government  deposits  in  the  Central  Bank.  Higher  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.  Expansionary  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  the  same  time,  signals  that  the  economy  was 
overheating were ignored. 

Since  early  2009,  tax  revenues  have  decreased  significantly  due  to  a  contracting  tax  base, 
whilst  the  government  has  prioritised  expenditure  in  basic  public  services  —  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 surtaxes on high incomes. Tax increases 
have  been  combined  with  discretionary  expenditure  cuts,  better  means-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  capital  controls,  the  capital  available  through  the 
pension system, and government current account deposits in the Central 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. According to the fiscal consolidation 
plan, spending cuts will be similarly spread over all budget categories. 

Following the banking sector collapse, government 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 measures aimed at reducing the deficit, setting 
up expenditure controls and increasing revenues. The measures announced and implemented 
will  contribute  to  reducing  public  debt  but  pursuing  fiscal  consolidation  and  achieving 
sustainable public finances remain a particular challenge. 

Unemployment 

Unemployment  increased  sharply  from  the  long-time  average  of  2-3 %  to  current  rates  of 
more  than  8%  (8.2 %  in  December  2009).  Long-term  unemployment  has  become  a  policy 

EN 

26 

   EN 

issue, and it remains to be seen whether the new emphasis on active labour market policies 
can  prevent  structural  unemployment.  It  represents  also  a  serious  challenge  for  social 
cohesion in Iceland.  

The  rise  in  unemployment  has  put  the  unemployment  benefit  scheme  under  significant 
pressure.  The  system  of  financing  the  scheme  via  a  payroll  tax  of  0.65 %  was  found 
unsustainable when the financing requirements 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 been invested in a special scheme to discourage lay-offs. 

The viability of the upgraded scheme is supported 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  consequence  of  the  crisis.  The  restoring  of 
macroeconomic  stability  and  revived  growth  should  eventually  bring  it  back  to  pre-crisis 
levels.  The  fair  sharing  of  the  social  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  economic  sectors  and  removed  special  government 
protection for state-controlled companies in all but a few instances. Prices are determined by 
market  forces  in  almost  all  sectors  of  the  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 rights. Overall, Iceland retains open markets in 
all but a few protected sectors. Under the IMF programme, the government has been taking 
necessary  measures  with  a  view  to  reducing  a  large  fiscal  deficit  and  establishing  a  stable 
the  firm 
economic  and  monetary  environment.  However,  fiscal  consolidation  and 
implementation of a credible fiscal strategy remain 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 intermediation will determine how fast markets can return 
to normal functioning. 

2.2.2.  Capacity to cope with competitive pressure and market forces within the Union 

The ability to fulfil this criterion requires the existence of a functioning market economy with 
a  sufficient  degree  of  macroeconomic  stability  for  economic  agents  to  make  decisions  in  a 
climate of stability and predictability. It also requires sufficient stocks of human capital with a 
in  energy, 
strong  education  base,  and  physical  capital 
telecommunications and transportation networks. Government influences the competitiveness 
of  the  economy  through  policy  and  legislation,  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  trade  integration  with  the  EU  before  accession 
demonstrates an ability to compete in EU markets. 

infrastructures 

including 

EN 

27 

   EN 

Endowment with human and physical capital 

Iceland has developed a knowledge-based economy with a relatively young labour force and 
high  participation  rates,  particularly  among  women  and  the  elderly.  The  crisis  has  affected 
new  employment  from  the  pool  of  students  and  pupils  and  reduced  the  participation  rate 
among elders. The employment policy is currently being transformed into a system of active 
labour  market  measures.  The  authorities  have  started  a  series  of  projects  for  activating  and 
retraining  unemployed  people.  However,  Iceland  has  not  yet  developed  a  comprehensive 
strategy. Recent reforms in the vocational education system should help the country 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  education  sector  that  should  reduce  spending  and 
increase efficiency and diversification. In addition, the crisis has led to outflows of educated 
professionals and workers to neighbouring countries, particularly those previously working in 
the financial sector. There is a risk that emigration 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 has 11 airports with scheduled 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 Iceland’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  earlier.  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. Infrastructures are well 
developed and can support economic recovery. However, the current drop in investment risks 
negatively impacting productivity of the economy in the medium term. 

Reform and liberalisation of industries 

Since  the  1990s,  Iceland  has  reformed  and  liberalised  its  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 importance, 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  holders  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 

28 

   EN 

The  agricultural  sector  remains  heavily  subsidised  and  protected.  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 municipality-owned companies. Only Icelandic, 
EEA or EFTA residents and legal entities may own energy exploitation rights or enterprises 
involved in producing or distributing 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 market in the short term. Energy prices are among the lowest in Europe 
and attractive wholesale contracts are being offered to industry. 

The legal framework governing the telecommunications 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 Telecommunications Fund, financed by the proceeds from the 
sale  of  the  government’s  stake  in  Iceland  Telecom,  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 rules upon entry into the Union. 

Structural shifts in the economy 

Fishing,  fish  processing  and  agriculture  generated  approximately  8 %  of  GDP  in  2008. 
Traditional manufacturing industry operates on a small scale and 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. Financial 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.  The  private  sector  employed  71 %  of  all  employed  persons  in 
2008.  

Overall, Iceland continues to reduce its dependence on fishing. The aluminium industry and 
financial services have contributed to the diversification of the economy. Since the collapse of 
the financial sector, production in the aluminium industry has held steady. 

Government interventions in the economy 

State  aid  policy  in  Iceland  is  governed  by  the  EEA  Agreement,  in  line  with  EU  legislation. 
The  legal  framework  for  state  aid  is  also  partly  determined  by  the  country’s  international 
obligations  stemming  from  its  membership  of  the  WTO.  State  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 important business holdings in public 
ownership are in the production and distribution 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 

29 

   EN 

supply  heating  for  most  homes  and,  on  an  increasing  scale,  electricity  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  services  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  transit  trade,  a  natural  resource-based  export 
sector and extensive protection of domestic agriculture and fisheries.  

Trade involves a large share of primary products 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  exchange  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  Iceland  has  proved  able  to  withstand  competitive 
pressures  and  market  forces  within  the  Union.  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,  Iceland  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  economy.  During  the  1990s  and  for  most  of  the  past 
decade, it restructured its economy, mainly through deregulation and liberalisation. It moved 
from  an  economy  based  mainly  on  the  fishing  sector  to  being  more  diversified  with  a  large 
and  open  financial  sector.  Given  the  degree  of  exposure  of  Icelandic  banks  and  the  lack  of 
adequate financial sector supervision, in the context of the global financial turmoil, Iceland’s 
banking sector collapsed in 2008, pushing the economy into a monetary and financial crisis 
which  led  to  deep  recession.  The  government  subsequently  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 consolidation and bank restructuring.  

The gravity of the economic crisis and the resulting political situation in Iceland delayed the 
implementation  of  the  IMF  programme.  However,  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  positive  results  of  these  measures  are  starting  to 

EN 

30 

   EN 

emerge.  Iceland  has  a  relatively  flexible  labour  market  with  high  participation  rates,  a 
relatively young working population and a well 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  substantial  improvement  of  the 
regulatory  and  supervisory  institutional  framework  and  practices  are  among  the  key 
challenges to be addressed in the short term. Further diversification of the economy and the 
implementation  of  a  number  of  structural  reforms  would 
the  country’s 
competitiveness. 

improve 

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 policies of the Union. This section 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 movement of goods means that products must be traded freely from 
one part of the Union to another. In a number of sectors this general principle is supplemented 
by a harmonised regulatory framework, following either the ‘old approach’ (imposing precise 
product specifications) or the ‘new approach’ (imposing general product requirements). The 
transposition  of  harmonised  European  product  legislation  represents  the  bulk  of  the 
obligations under this chapter. For the smooth implementation of the acquis it is essential to 
have sufficient administrative capacity to notify 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 are 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  European  Union  and  the  related  case-law  of  the 
European  Court  of  Justice.  However,  some  questions  remain  in  the  fields  of  alcoholic 
beverages and distance selling of medicines. 

EN 

31 

   EN 

 
In  the  area  of  horizontal  measures,  Iceland  is  implementing  EU  legislation  related  to  the 
principles  of  the  new  and  global  approach,  standards,  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  standardisation  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  basis  of  both  horizontal  and  sector-
specific  EU  legislation.  CE  marking  is  already  used,  recognised  and  accepted  for  those 
products  falling  within  the  scope  of  new  approach  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  inspection  authorities  is  in 
charge of implementing the requirements for accreditation and market surveillance relating to 
the marketing of products. 

As for accreditation, the Icelandic Board for Technical Accreditation (ISAC) is the national 
accreditation body in Iceland and is a full member of European cooperation for Accreditation 
(EA).  The  Icelandic  accreditation  policy  principles  are  in  line  with  those  of  the  European 
Union, including as regards professional and financial independence. However, full alignment 
with EU legislation will have to be ensured. ISAC has not yet been peer evaluated. 

Concerning metrology, the tasks of legal metrology are entrusted 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 surveillance authorities. However, Iceland needs 
to improve both internal and 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  sector,  Iceland  also  currently  accepts  vehicles  produced  and 
marketed according to technical requirements and 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 imported 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 Member State is aligned with EU legislation. 

Conclusion 

As  a  member  of  the  EEA,  Iceland  applies,  with  a  few  exceptions,  the  acquis  on  free 
movement of goods. Some further efforts are needed 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 

32 

   EN 

place,  including  a  quality  infrastructure  with  sufficient  administrative  capacity.  Overall, 
Iceland should be able to assume the obligations of membership in this area. 

Chapter 2: Freedom of movement for workers 

The acquis under this chapter provides that EU citizens of one Member State have the right to 
work in another EU Member State, to reside there for that purpose with their family members 
and to be treated in the same way as national workers in relation to working conditions and 
social  and  tax  advantages.  Furthermore,  the  acquis  includes  the  Community  instruments  on 
coordination  of  different  national  social  security  systems.  The  EEA  Agreement  covers  the 
acquis under this chapter with some adaptations in the area of coordination 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 equal treatment as Icelandic nationals7. Iceland has notified 
that  it  has  implemented  its  obligations  under  the  EEA  Agreement  as  regards  the  corollary 
right  to  reside,  which  includes  the  right  to  reside  of  workers  and  their  family  members. 
Iceland has also implemented the acquis on safeguarding of supplementary pension rights. 

Iceland  is  fully  participating  in  the  European  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 capacity is in place, with a manager for EURES, 
two  EURES  advisers  and  two  administrative  staff.  Furthermore,  there  are  eight  EURES 
contact  persons/placement  officers  in  regional  offices  around  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  prepare  for  electronic  data  exchange  within  the 
Electronic  Exchange  of  Social  Security  Information  (EESSI)  system.  It  will  also  have  to 
extend its rules on the coordination of social security 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  the  EEA,  Iceland  applies  the 
acquis under this chapter. Adequate administrative structures are in place and Iceland should 
be  able  to  assume  the  obligations  of  membership  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 subject to restrictions on labour market access 
and need a work permit. 

EN 

33 

   EN 

 
                                                 
Chapter 3: Right of establishment 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  provide  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  exceptions  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  certain  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 postal 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  Directive  into  the  EEA  Agreement  has  not  yet  entered 
into force. Icelandic authorities are nevertheless 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  Directive  and  coordinates  cooperation  with  other 
ministries,  agencies  and  local  authorities.  Iceland  will  need  to  ensure  that  the  Services 
Directive  is  fully  transposed  and  that  adequate  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  obligation,  the  authorisation  procedure,  the  financing  of  the  national 
regulatory authority and the compensation 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  Administration,  oversees  the  implementation  of  postal 
policies  and  legislation,  and  monitors  the  market.  Particular  attention  has  to  be  paid  to  the 
strengthening  of  administrative  capacity  and  the  separation  of  regulatory  and  management 
tasks. 

In the field of mutual recognition of professional qualifications, Iceland has implemented a 
number  of  different  directives  on  regulated  professions,  whereas  the  main  Directive  on  the 
recognition  of  professional  qualifications  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,  Science  and  Culture.  A  number  of 
other line ministries are in charge of sector-specific legislation 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 

34 

   EN 

 
Conclusion 

With some exceptions, Iceland applies the acquis on the right of establishment and freedom to 
provide services. However, in the fisheries sector Iceland 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  Third  Postal  Directive,  as  well  as  complete  the 
framework  for  mutual  recognition  of  professional  qualifications.  Further  efforts  are  also 
needed to strengthen its administrative capacity for effective implementation and enforcement 
of  the  EU  rules  and  policies.  Overall,  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  restrictions  on  capital  movements  and  payments, 
both within the EU and between Member States and third countries. The acquis also includes 
rules  concerning  cross-border  payments  and  the  execution  of  transfer  orders  concerning 
securities.  The  Directive  on  the  fight  against  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 the 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  liberalisation  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  Article  43  of  the  EEA  Agreement  which  restrict 
capital  flows  between  Iceland  and  EEA  Member  States.  Currently  very  comprehensive 
exchange  controls  exist  on  operations  between  Iceland  and  abroad.  Certain  controls  were 
further tightened in April 2009. These remain to be liberalised in order for Iceland to comply 
fully  with  the  freedoms  of  capital.  The  Icelandic  authorities  have  approved  a  plan  for  the 
gradual  liberalisation  of  capital  controls.  Implementation  of  the  plan  started  in  November 
2009  and  some  relaxation  measures  were  introduced  allowing  the  conversion  of  asset  sale 
proceeds  into  foreign  currency.  The  IMF,  in  its  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  stability  and  sustainability.  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  exception  which  restricts  foreign  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 

35 

   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 Directive on payment systems becoming applicable as well as 
a  new,  more  detailed  Regulation  on  cross-border  payments  in  the  Community.  All  such 
legislation is covered by the EEA Agreement. 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-Money Laundering (AML) 
Directive, the Directive laying down implementing measures for the third AML Directive and 
the Regulation on information on the payer accompanying transfers of funds are all covered 
by the EEA. Iceland has already transposed the third AML Directive and the Regulation on 
information  on  the  payer  accompanying  transfers  of  funds.  The  Directive  laying  down 
implementing measures is partially implemented. 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  Financial  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  fisheries.  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  remove  the  restrictions  on  capital  outflows. 
Administrative capacity will need to be strengthened, in particular in the area of anti-money 
laundering. 

Chapter 5: Public procurement 

The  acquis  on  public  procurement  includes  general  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.  The  scope  of  application  is  defined  according  to 
contracting  authorities/entities,  contracts  covered  and  application  thresholds  and  specific 
exclusions.  The  acquis  also  specifies  rules  on  review  procedures  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.  Some  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 and policy. It has wide powers to intervene in 
contracting  authorities’  decisions,  if  needed.  Even  if  the  Ministry  is  currently  managing  to 

EN 

36 

   EN 

 
discharge its duties, having only two members of staff working on public procurement policy 
might prove insufficient should any major problem arise. 

There is a need to enhance the appropriate administrative structures 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  related  to  public  procurement.  Moreover,  main  purchasers  at  all  levels 
have to possess the necessary administrative capacities to allow effective implementation of 
the procurement rules. 

Conclusion 

Iceland applies the main provisions of the public procurement directives 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  Remedies  Directive  and  certain 
implementing provisions for the award of public contracts. Overall, the central administration 
seems  able  to  meet  the  requirements  of  membership.  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  bids  and  transparency 
requirements  of  companies,  as  well  as  corporate  governance  principles.  In  the  area  of 
financial reporting, the acquis specifies rules for the presentation of annual and consolidated 
accounts,  including  simplified  rules  for  small  and  medium-sized  enterprises.  Particular 
accounting rules apply to the banking and insurance sectors. The application of International 
Accounting Standards is  mandatory for some public interest entities. In addition, the acquis 
specifies rules for the approval, professional integrity 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  application  of  Commission  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  Business  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. The Business and Company Register has fourteen 
employees  and  receives  technical  support  from  other  divisions  of  the  Director  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  certain  provisions  on  annual  and  consolidated 
accounts  and  the  Regulations  on  equivalence  of  accounting  standards  remain  to  be 
implemented. 

EN 

37 

   EN 

 
Regarding  administrative  capacity,  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  Audit  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  (Endurskoðendaráð)  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 external 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 legislation 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’ rights and corporate accounting. 

Chapter 7: Intellectual property law 

The  primary  objective  of  the  EU  acquis  in  the  area  of  intellectual  property  is  to  ensure  the 
proper  functioning  of  the  internal  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.  Specific  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 
to 
for 
biotechnological  inventions,  pharmaceuticals  and  plant  protection  products.  The  acquis  also 
establishes a Community trademark and Community design. 

trademarks  and  designs.  Specific  provisions  apply 

legal  protection  of 

the 

Intellectual  property  is  covered  by  the  EEA  Agreement,  which  contains  provisions  on 
protection  of  intellectual  property,  exhaustion  of  rights,  adherence  to  or  participation  in 
European  Community  measures  and  international  conventions  and  relations with  third 
countries. Annex XVII to the EEA Agreement lists the 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, Science and Culture. An expert committee advises the Minister on 
copyright issues. The arrangements for the functioning of collecting societies 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 

38 

   EN 

 
Regarding  enforcement,  the  Directive  on  the  enforcement  of  intellectual  property  rights 
(Directive  2004/481/EC)  has  not  been  incorporated  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 intellectual property rights. Other requirements of the Directive should 
be fulfilled inter alia through legal provisions implementing the WTO Agreement on Trade-
Related Aspects of Intellectual Property Rights and general provisions 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 enforcement of intellectual property rights. 

Chapter 8: Competition 

The competition acquis covers antitrust, merger and state aid control policies. It includes rules 
and  procedures  to  fight  anticompetitive  behaviour  by  companies  (restrictive  agreements 
between  undertakings  and  abuse  of  dominant  positions),  scrutinise  mergers  between 
undertakings, and prevent governments from granting state aid that distorts competition in the 
internal market. Generally, the competition rules are directly applicable 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 division of competences between the Commission and 
the EFTA Surveillance Authority (ESA) in competition 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  practices  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 fisheries 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 enterprises. The Icelandic Competition Authority enjoys 
investigatory powers that are comparable to those 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. The Commission will, however, need to assess the 
qualitative aspect of its decisions. 

State  aid granted by the Icelandic authorities is subject to ex-ante  control  by  the  ESA. The 
ESA, as an independent authority, closely monitors alignment with Commission decisions and 
the ECJ case-law in this field. The control of state aid in Iceland is comparable to that carried 
out within the EU. 

Over  the  period  2004-2008,  the  total  annual  amount  of  state  aid  granted  by  the  Icelandic 
authorities did not exceed €
 24 million, representing 0.12 % of GDP. In 2008, there was only 
one pending recovery case concerning 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 

39 

   EN 

 
Finally, a number of undertakings enjoy special or exclusive rights, in the field of transport, 
energy, postal services, broadcasting and housing. Further analysis of their compatibility 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  financial  services  are  to  ensure  financial 
stability,  the  financial  soundness  of  companies  operating  in  the  financial  sector,  and 
appropriate  protection  of  consumers,  investors  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, insurance, 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’ principle, either by establishing branches 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 Annex  IX to  the  EEA  Agreement  applies  to  the 
financial  services  sector  in  the  European  Economic  Area.  The  rules  of  the  EEA  Agreement 
on financial  services  are  focused  on  developing  a  single  European  financial  market 
where providers  of  services  can  freely  offer  their  services  within  the  EEA.  The  EEA  States 
can  only  apply  national  restrictions  if  the  relevant  field  is  not  fully  harmonised  by  EEA 
secondary  legislation  and  provided  that  the  restriction  is  justified  under  the  criteria  of  the 
‘general good’.  

The banking sector in Iceland has been profoundly shaken by the financial crisis. In October 
2008,  the  three  main  banks  of  the  country,  Glitnir,  Landsbanki  and  Kaupthing,  which 
amounted for 85% of the whole Icelandic private 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  giving  depositors  priority  over  other  unsecured 
creditors. Three new  separate entities were  created, in which  the domestic operations  of  the 
three banks were continued. Domestic 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 three banks had significant 
operations in other EEA states. Foreign depositors and other creditors of the banks were thus 
strongly affected by the Icelandic government's emergency measures.  

Following the collapse of the former privately owned Icelandic banks,  the Icelandic deposit 
guarantee scheme (Depositors and Investors Guarantee Fund) did not have sufficient funds to 
reimburse  the  depositors  at  the  foreign  branches  of  the  banks.  The  British  and  Dutch 

EN 

40 

   EN 

 
depositors  with  Icesave,  an  on-line  branch  of  Landsbanki  that  operated  in  the  UK  and  the 
Netherlands,  were  particularly  affected.  Following  the  default  of  the  Icelandic  deposit 
guarantee  scheme,  the  UK  and  Dutch  governments  decided  to  compensate  their  respective 
depositors from their own resources and asked the 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 November 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 applicable 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 liability decided upon at a 
later stage by a competent adjudicator, the government of Iceland agreed to cover deposits of 
insured  depositors  in  the  Icesave  accounts  in  accordance  with  the  EEA  law  and  up  to  the 
minimum  requirements  set  forth  in  the  Deposit  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  for  the  compensation  already  paid  to  their 
respective depositors holding Icesave accounts. A final resolution of this issue is still pending. 
On 30 December 2009, after months of intense debate, the Icelandic parliament approved the 
law putting into effect the Icesave agreement 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 creating the constitutional premise for a referendum due to take 
place on 6 March.  

The  Icelandic  emergency  measures  in  the  aftermath  of  the  banking  collapse  have  raised 
questions  as  regards  their  compatibility  with  EEA  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. 
initiative. 
Several complaints were submitted to ESA by institutional creditors, foreign retail depositors 
as  well  as  one  Member  State  related  to  the  emergency  legislation  and  actions  taken  by 
Icelandic  government.  ESA's  investigation  on  these  issues  is  continuing.  The  European 
Commission is closely following the process and will continue to monitor the situation.  

In  October  2008,  ESA  started 

investigations  on 

its  own 

Currently,  no  foreign  bank  operates  in  Iceland  at  the  retail  level  and  Icelandic  banks  have 
extricated  themselves  from  their  foreign  commitments  -  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 market 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 highlighted problems regarding compliance 
with the acquis. In particular, Iceland needs to address the problems in the area of supervision 
and deposit guarantees as well as the practical application of the EU banking directives (e.g. 
improve the institutional structure 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  sector  and  the  new  coverage  level  of  deposit 
guarantee schemes. Moreover, implementation of the acquis on financial conglomerates has 

EN 

41 

   EN 

to be completed. According to the EFTA Surveillance Authority, Iceland has notified only a 
partial implementation of the Financial Conglomerates Directive.  

In terms of administrative capacity, the investigatory and sanctioning powers of the Financial 
Supervisory Authority (FME) whose staff has been reinforced lately are in line with those of 
Member  States.  The  Ministry  of  Economic  Affairs  is  preparing  a  reform  of  the  financial 
services  legislation  and  supervisory  structure  to  strengthen  the  FME’s  powers,  bringing  the 
Central  Bank  and  the  FME  under  the  same  administrative  umbrella  and  creating  a  National 
Credit Registry for overview of large exposure at the national level. 

The  FME  is  currently  an  observer  on  the  Committee  of  European  Banking  Supervisors 
(CEBS),  the  Committee  of  European  Insurance  Supervisors  (CEIOPS)  and  Committee  of 
European  Securities  Regulators  (CESR).  For  the  continued  integration  of  the  FME  into  the 
EU  supervisory  structure,  Iceland  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  relevant  legislation  in  the  field  of  securities  markets  and 
investment services. 

Conclusion 

Iceland  generally  applies  the  acquis  on  financial  services  and  should  be  able  to  take  on  the 
obligations  of  EU  membership  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 services 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 supporting the development 
at  national  and  European  level  of  the  information  society,  such  as  broadband  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  administrative  structure  is  similar  to  most  EU 

EN 

42 

   EN 

 
Member States. The competent ministry is in charge of policy-making, whereas the national 
regulatory  authority  oversees  the  implementation  of  the  policies  and  the  legislation,  and 
monitors  the  market.  The  managing  director  of  the  regulatory  authority  is  appointed  by  the 
government for a renewable five-year term. Considering that the independence of the national 
regulatory  authority  is  a  cornerstone  of  the  EU  regulatory  framework,  Iceland  will  need  to 
ensure transparent and objective appointment procedures, as well as high 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 transposition of the latter, the legal protection needs to be extended to 
conditional  access  devices  other  than  broadcasting  services  decoders.  Information  society 
policy is developed by the Prime Minister’s Office. Implementation is ensured by the relevant 
ministries and institutions. 

In the field of audiovisual policy, the 2000 Broadcasting Act fully implements the Television 
without Frontiers Directive.  The  Icelandic authorities have submitted a draft bill in order to 
further  align  the  legislation  with  relevant  acquis  in  this  field  (in  particular  the  Audiovisual 
Media  Services  Directive).  However,  as  regards  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  other  EU  Member  States,  in  particular  in  the 
context  of  the  Icelandic  rules  on  advertising.  The  level  of  alignment  with  the  rules  on  film 
heritage  and  protection  of  minors  is  advanced.  The  competent  authority  in  the  field  of 
audiovisual policy is the Ministry 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  broadcast  licences  and 
supervises the implementation of the Broadcasting Act. Its board members 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 obligations of EU membership in this area. 

3.1.2. Chapters partially covered by the EEA 

Chapter 12: Food safety, veterinary and phytosanitary policy 

This  chapter  reflects  the  EU’s  integrated  approach  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  ensuring  the  effective  functioning  of  the  internal 
market.  The  acquis  sets  hygiene  rules  for  foodstuff  production  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  administrative  structures  to  be  able  to  carry  out 
inspection and control of food products, including an appropriate laboratory capacity. 

Iceland,  as  a  party  to  the  EEA  Agreement,  implements  the  EU  legislation  on  veterinary 
matters with respect to fish and fish products, fish diseases, feed, seed, fertilisers, foodstuffs 
and other food chain-related issues. Protocol 1 to the EEA Agreement exempts Iceland from 

EN 

43 

   EN 

 
implementing  the  veterinary  acquis  for  live  animals  and  germplasm  other  than  fish  and 
aquaculture animals, as well as fresh meat, eggs and milk. 

legislation  and 

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 control structure in place is largely aligned with 
the acquis. The Ministry of Fisheries and Agriculture is responsible for the implementation of 
its  supervision.  The  Icelandic  Food  and  Veterinary  Authority 
the 
(Matvælastofnun — MAST) is the central competent authority (CCA). In 10 control districts 
environmental and public health offices are established as local competent authorities (LCAs). 
MAST  (the  CCA)  and  the  LCAs  are  responsible  for  food  safety  controls,  with  MAST 
coordinating  and  supervising  control  activities  including  those  of  private  inspection  bodies 
accredited  for  control  of  fish  and  fish  products.  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  Veterinary  Officers  carrying  out  official  controls  in 
inspection  bodies.  A  multi-annual  national  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 welfare rules. However, Community rules are not 
implemented for trade in live animals or germplasm, other than fish and aquaculture animals, 
as well as fresh meat, eggs and milk (exemption from the EEA Agreement), which means that 
all  imports  of  live  animals  except  for  fish  and  fish  germplasm  are  prohibited.  Derogations 
from  this  ban  are  based  on  evaluation  of  the  sanitary  situation  of  a  country  without 
consideration  of  disease-free  zones  as  practised  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  notifiable  diseases  exceeds 
Community rules for mammals and for fish and shellfish. Veterinary services are competent 
and capable of controlling animal diseases as there is no record of an outbreak of a notifiable 
‘List  A’  animal  disease  in  the  past  50  years.  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  growth  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  legislation  on  meat  hygiene,  game,  milk,  fishery  and 
aquaculture  products,  organic  production  and  slaughter  are  largely  aligned  with  the  acquis. 
However,  the  ‘hygiene  package’  is  not  implemented  yet  and  consequently  the  obligation  to 
carry  out  hazard  analysis  critical  control  point  (HACCP)-based  self-controls  in  food 
establishments does not apply. Provisions on the funding of controls will need to be aligned. 

EN 

44 

   EN 

The  acquis  on  animal  by-products  not  intended  for  human  consumption  is  not  yet 
implemented in Iceland, although covered by the EEA Agreement. Iceland has no incineration 
capacity  for  carcasses  that  are  potentially  infected  with  Transmissible  Spongiform 
Encephalopathy (TSE). 

Concerning food safety rules national legislation on labelling, presentation and advertising, 
additives and contaminates, contact materials, and food for particular nutritional 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 exists for either novel food or the traceability and labelling 
of genetically modified food and 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 marketing of feed and the rules for general feed 
hygiene. 

In  the  phytosanitary  sector,  Iceland  has  implemented  the  acquis  on  seeds  except  for  plant 
health. Import controls and certification for plants, seeds and propagating material as well as 
for wood packaging material and soil are applied. 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 legislation related to harmful organisms is based 
on  principles  of  the  International  Plant  Protection  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  obligations  of  monitoring 
substances and for accredited laboratories to process the required number of samples. 

Conclusion 

Overall, Iceland has a good legal and administrative framework (including controls) in place 
to take over the acquis on food safety, veterinary and phytosanitary 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-products,  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,  there  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  user-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,  and  market  liberalisation  in  the  context  of  the 
internal transport market. 

The  main  elements  of  the  acquis  on  transport  policy  are  covered  by  the  EEA  Agreement. 
Annex XIII to the Agreement covers general transport matters such as facilitation at frontiers 
and  combined  transport.  It  also  covers  market  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 

45 

   EN 

 
geographically  located  in  the  North  Atlantic  (NAT)  Region.  It  is  not  a  member  of 
Eurocontrol.  Acts  which  have  not  been  incorporated  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 checks 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 foreign 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  Carriage  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 and the Administration of Occupational Safety 
and  Health  in  Iceland  have  administrative  capacity  to  enforce  legislation  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  access  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 independent  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 freedom 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 implementing a substantial part of the acquis under this chapter and should 
be able to take on the obligations of membership. 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  structures  are  in  place  and  Iceland  should  be  able  to  meet  the 
obligations of membership. Further efforts will be needed to ensure the independence of the 
supervisory body in the area of air traffic management. 

EN 

46 

   EN 

Chapter 15: Energy 

EU  energy  policy  objectives  are  to  improve  competitiveness,  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  renewable  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  energy  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 Iceland’s unique  energy mix and isolated electricity 
system. Legislation still to be implemented relates to areas not covered by the EEA (such as 
security  of  supply,  in  particular  minimum  oil  stocks)  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 imported coal and oil. Due to 
its many energy-intensive  industries, 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  publicly  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  networks  and  no  plans  to  be 
supplied by gas. The EU Directive on the security of natural gas supply should therefore not 
apply.  Although  the  Directive  on  measures  to  safeguard  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 legislation is not in place in Iceland. Oil companies 
and others are not mandated to maintain minimum 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  steering  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  Directive  on  electricity  is 
notified  as  fully  implemented  in  Iceland  (pending  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 derogations for its system, as it has no cross-border connections. 
Iceland will need to set appropriate conditions for investments from other EU countries, as it 
has considerable potential to increase its electricity production. 

Iceland’s Electricity Act designates two regulatory authorities: the National Energy Authority 
(NEA), under the Minister of Industry, and the 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  ensured.  The  independence  of  Icelandic  structures 
will have to be assessed carefully. Iceland is likely to have to distance its regulators from their 
currently associated ministries. 

There is no coal production in Iceland.. 

EN 

47 

   EN 

 
With  regard  to  EU  legislation  on  renewable  energy,  Iceland  currently  implements  the 
Directives on renewable energy in electricity, and on biofuels as required under the EEA. It 
will  have  to  ensure  compliance  with  the  newly-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 geothermal energy. According to the methodology 
of  the  Renewable  Energy  Directive,  Iceland’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 Plan, in which it clarifies how to meet its 2020 
targets. 

Iceland’s  legislation  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 radioisotopes 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 Conventions necessary for membership. The Radiation Protection 
Act  harmonised  Icelandic  legislation  with  IAEA  Basic  Safety  Standards  and  the  Euratom 
acquis  in  the  field  of  radiation  protection.  It  ensures  that  the  small  volume  of  low  activity 
radioactive waste is returned to the supplier, or sent to a foreign waste management facility, 
unless it can be securely stored until decayed. 

There  is  a  competent  and  independent  regulatory  authority  for  nuclear  and  radiation  safety. 
Iceland  participates  in  the  European  Radiological  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.  However,  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  legislation  or  policy  in  the  field  of  nuclear  material  supply, 
accountancy and safeguards. 

Conclusion 

Iceland  is  relatively  advanced  in  implementing  the  internal  energy  market,  bearing  in  mind 
that  the  gas  legislation  will  not  apply.  It  should  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,  and  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 are 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 

48 

   EN 

Chapter 18: Statistics 

The acquis on statistics consists almost exclusively of legislation which is directly applicable 
in the Member States, such as European Parliament and Council Regulations 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,  has  the  obligation  to  ensure  the  production  and 
dissemination  of  coherent  and  comparable  statistical  information  for  describing  and 
monitoring  all  relevant  economic,  social  and  environmental  aspects  of  the  European 
Economic Area. Exemptions exist for the legal 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  Iceland.  In  January  2008  a  new  Act  on  Statistics  Iceland  and  official 
statistics  took  effect.  The  statistical  law  is  in  line  with  international  recommendations. 
Icelandic  statisticians  are 
the  principles  of 
confidentiality. Cooperation of some ministries and agencies with Statistics Iceland needs to 
be  strengthened.  The  insufficient  allocation  of  human  and  financial  resources  for  statistical 
work is of concern. 

their  work  and  apply 

independent 

in 

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.  Alignment  in  the  area  of  business  statistics 
(structural business statistics and short-term statistics) is low even if there 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  business  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,  financial  and  non-financial  sector 
accounts and price and volume measures. For agriculture  statistics,  substantial work will be 
necessary  in  all  fields,  and  especially  on  crop  statistics,  agricultural  land  use  and  agri-
monetary statistics. The current set-up in agricultural statistics will need to be reviewed and a 
strategy for developing the area established. The financing of essential surveys will need to be 
secured,  in  particular  the  agricultural  census  to  be  conducted  in  2010  and  the  Housing  and 
Population Census to be conducted 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  statistics  still  needs  to  be  submitted  to  the 
Commission. 

Conclusion 

Iceland’s  statistical  production  shows  a  satisfactory  level  of  implementation  in  many  areas. 
However,  Iceland  will  need  to  improve  the  availability  of  statistical  data  in  line  with  EU 

EN 

49 

   EN 

 
methodology, in particular in the business, macroeconomic and agriculture statistics sectors. 
Relevant structures are in place, but human and 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  partners  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  employment  strategy  and  contributes  to  social 
inclusion efforts. 

The EEA Agreement, particularly Annex XVIII thereto, 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  codified  body  of  labour  legislation.  Collective 
agreements  between  social  partners  play  an  important  role  in  Iceland’s  industrial  relations 
system.  There  is  no  Labour  Inspectorate  competent  for  labour  law.  Collective  disputes  are 
settled mainly by the State Mediator and/or social partners; individual disputes 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 legislation provides 
for  three  separate  sets  of  rules  and  regulations  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 land and with the Minister of Communications for 
the air and the sea. The number of labour inspectors dealing with health and safety matters is 
sufficient8.  The  national  legislation  guarantees  the  independence  and  impartiality  of  labour 
inspectors and lays down procedures, penalties and 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 are marked by the very strong position of trade 
unions9. There are no restrictions on the right of employees to organise, and trade unions have 
no  obligation  to  register  with  government  authorities.  The  predominant  trade  union  is  the 
Icelandic  Confederation  of  Labour,  embracing  64 trade  unions  with  a 
total  of 
112 000 members.  The  Federation  of  State  and  Municipal  Employees  and  the  Alliance  of 

8 

9 

There  were  166  332 employees  on  the  Icelandic  labour  market  in 2008  and  around  70 people 
performing  inspections  in  all  three  sectors  in  eight  regional  inspection  areas,  the  largest  one  being 
Reykjavík. 
More than 85 % of the workforce is unionised. 

EN 

50 

   EN 

 
                                                 
Graduate  Civil  Servants  represent  employees  of  the  public  sector.  Some  other  trade  unions 
outside  the  umbrella  organisations  bring  together  teachers,  airline  pilots,  nurses,  bank 
employees and journalists. On the employers’ side, the Confederation of Icelandic Employers 
has  eight  member  associations  and  includes  around  2 000 companies  accounting  for  about 
50 % of workers. 

As  regards  tripartite  social  dialogue,  there  is  a  very  well  developed  mechanism  for 
consultation  of  social  partners,  albeit  without  a  formal  institution.  Social  partners  have 
influence  over  the  decision-making  process  as  well  as  policy  development:  the  whole 
Icelandic labour market is governed mainly by collective agreements. 

Employment  policy  reforms  only  became  necessary  recently,  following  the  effects  of  the 
financial crisis. The employment policy is currently 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  Labour  Directorate,  which  is  supervised  by  the 
Ministry  of  Social  Affairs  and  Social  Security  (MSASS).  As  Iceland  traditionally  did  not 
apply active labour market measures, there is a need to strengthen policies and capacity in this 
area. Iceland has not so far developed either a comprehensive strategy or an Action Plan on 
employment. 

Iceland’s  labour  market  was  traditionally  characterised  by  a  high  participation  rate  (82 %) 
with  very  low  registered  unemployment10.  However,  following  the  financial  crisis  in 
autumn 2008 the country experienced a steep increase in registered unemployment, reaching 
8.2 % in December 2009. The increase in unemployment affects men more than women as the 
highest  increase  is  to  be  found  in  the  construction  sector.  At  the  same  time,  the  rise  in 
unemployment  has  been  more  pronounced 
the  metropolitan  areas.  Increasing 
unemployment also means an increase in both youth and long-term unemployment, although 
these are still at a relatively modest level. (See also Economic criteria) 

in 

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  education  institutes  in  certain  areas  of  EU  funding. 
Therefore,  administrative  capacity  and  structures  need  to  be  built  up  to  allow  smooth 
management  and  implementation  of  projects  financed  under  the  cohesion  policy.  (See  also 
Chapter 22 — Regional policy and coordination of structural instruments) 

As  regards  preparation  for  full  participation  in  the  open  method  of  coordination  (OMC)  on 
social  inclusion,  Iceland  appears  to  be  well  prepared.  Statistical  data  on  poverty  and  social 
exclusion are comprehensive, and indicate a policy 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  formulated,  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  and  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  focal  point  for  service  provision.  Furthermore, 

10 

In 2005 registered unemployment was as low as 2.1 % and decreased to 1 % in 2007. 

EN 

51 

   EN 

                                                 
Iceland participates in the EU High Level Group on Disability, allowing 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%  respectively).  This  is  partly  due  to  low 
public pension expenditure and the large role of private pension provision 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  legislation  does  not  provide  for  any  detailed 
protection against discrimination on the labour market, as required by the acquis, but for some 
protection  in  certain  fields.  The  Act  on  the  affairs  of  persons  with  disabilities  provides  that 
persons  with  disabilities  are  to  be  given  priority  regarding  work  for  the  state  and 
municipalities, where qualifications are equivalent. Outside employment, 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  discrimination  on  grounds  of  racial  or  ethnic  origin, 
religion or belief, age, disability or sexual orientation, although 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 established 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,  vocational  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-transferable 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 sector, 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  other  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.  Relevant  administrative  structures  are  in  place. 
However, Iceland will need to align with the anti-discrimination acquis. Additional efforts are 
also necessary in the field of employment policy, particularly as regards strengthening policy 
formulation  and  implementation,  as  well  as  increasing  administrative  capacity.  Overall, 
Iceland should be able to assume the obligations of membership in this area. 

EN 

52 

   EN 

Chapter 20: Enterprise and industrial policy 

reflected 

recommendations  which  are 

The  acquis  under  the  enterprise  and  industrial  policy  chapter  consists  largely  of  policy 
principles  and  policy 
in  communications, 
recommendations  and  Council  conclusions  as  well  as  being  debated  in  consultation  forums. 
By establishing general policy principles, EU enterprise and industrial policy, including SME 
policy, seeks to promote the formulation of competitiveness-enhancing enterprise policies and 
industrial  strategies.  Overall,  EU  enterprise  and  industrial  policy  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  framework  for  EU  SME  policy.  Enterprise  and 
industrial  policy  comprises  policy  instruments,  including  financial  support  and  regulatory 
measures.  It  also  includes  sectoral  policies,  including  recommendations  for  more  targeted 
policy analysis as well as for new initiatives 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 entrepreneurship policies, on 
R&D  and  innovation  stimulation  as  well  as  on  regional  growth  agreements,  with  separate 
policy documents  in the area of  sustainable  development. So  far, Iceland has  not  developed 
any specific industrial policy strategy. 

The  financial  crisis  resulted  in  the  government  revising  policies  or  initiatives  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  preparation  of  which  has  recently  started.  Its 
main  objective  is  to  create  new  and  stronger  foundations  for  Icelandic  businesses  and 
industries  for  the  future.  Emphasis  will  be  placed  on  industrial  diversification,  stable  and 
steady  growth,  innovation  and  sustainable  resource  utilisation  both  on  land  and  at  sea.  The 
government  also  launched  work  on  developing  a  long-term  comprehensive  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  defined  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  Centre  Iceland  (ICI)  under  it  are  the  main 
government bodies responsible for SME policy. The Innovation Centre Iceland 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  conducive  to  entrepreneurship  and  business 
development. A two-year simplification plan concerning the regulatory environment has been 
ongoing  since  September  2007.  Measures  have  been  taken  to  improve  stakeholder 
consultation and impact assessment. All legislative proposals are supported 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 

53 

   EN 

 
renewal  of  competitiveness.  Regional  Growth  Agreements  set  targets  in  regional  economic 
development for local, regional and national actors. 

The ICI plays a central role in technology dissemination towards SMEs. It provides education 
and  training  for  staff  and  managers  of  SMEs  as  well  as  various  other  means  of  support  to 
entrepreneurs, growth companies and innovative enterprises. The ICI and the Trade Council 
are  the  main  institutions  responsible  for  helping  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 Enterprise 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 Icelandic banks in October 
2008.  Bank  financing  is  very  limited  and  investors  are  primarily  striving  to  protect  their 
previous  investments,  making  new  venture  capital  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  authorities  on  the  basis  of  the  IMF  Stand-By 
Arrangement. 

In  relation  to  sector  policies,  Iceland  has  in  general  not  implemented  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 primary 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 manufacturing 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 relatively diversified. Within the main sector of 
manufacturing, a very limited number of industrial sub-sectors rise marginally above the other 
sectors, in particular the manufacture of food products and beverages (with a self-supply ratio 
of 80%). Even if it also suffered from the financial crisis, tourism remains a key industry in 
Iceland as it generates up to 19% of foreign exchange revenues. The tourism share in GDP in 
2006 was on average 4.6% and the number of foreign 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 take on the obligations of EU membership. 

EN 

54 

   EN 

Chapter 21: Trans-European networks 

This  chapter  covers  the  trans-European  networks  policy  in  the  areas  of  transport, 
telecommunications  and  energy  infrastructures,  including  the  Community  guidelines  on  the 
development  of  trans-European  networks  and  the  support  measures  for  the  development  of 
projects of common interest. The aim of establishing and developing trans-European networks 
and promoting proper interconnection and interoperability of national networks is to take full 
advantage  of  the  internal  market  and  contribute 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 participating in the TEN-T network in 
line  with  the  acquis.  The  TEN-T  policy  is  currently  under  revision  in  the  EU  and  Iceland 
should be associated to it. In Iceland the Strategic National Transport Plan and the National 
Transport Plan cover the development of all state transport infrastructure projects. The latter 
are  prepared  by  the  Transport  Council  of  the  Ministry  of  Transport,  Communications  and 
Municipalities in cooperation with agencies under the Ministry. The parliament finalises the 
process by adopting a resolution. 

Regarding  trans-European  energy  networks,  in  2008  the  Icelandic  electricity  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  electricity  into  Icelandic  legislation.  The  Act  fully 
opened the Icelandic electricity market to competition  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 interconnections with neighbouring countries or 
regions.  The  competent  body  is  the  Icelandic  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 with no practical implications so far. There are no 
projects as regards electricity or gas interconnectors. 

According to the Icelandic National 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 infrastructure for general use. There is no special 
regulatory framework regarding gas. 

A  legal  framework  for  interconnections  does  not  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  incorporated  into  the  EEA  Agreement.  However, 
the latter Regulation on electricity exchanges has not yet been implemented. 

Iceland is currently not participating in the revision of the TEN-E policy. It needs to consider 
aspects of this policy relevant to its particular energy system. 

EN 

55 

   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 administrative structures are in place and Iceland should be able to assume 
the  obligations  of  membership  in  this  area.  Given  its  specific  geographical  position  and  the 
isolation of its electricity system, Iceland has not developed any TEN-E related policy so far. 
It will have to consider relevant aspects of this policy. 

Chapter 25: Research and development 

The acquis in the field of science and research does not require transposition 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  ensure  full  and  successful  association  with  the 
Framework  Programmes,  Member  States  need  to  ensure  the  necessary  implementing 
capacities in the field of research and technological development, including 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 agriculture & 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 the three-year general policy for science, research and technology. 
Four Ministers have permanent seats in the Council and the chair (the Prime Minister) can call 
upon  four  extra  Ministers.  16  other  stakeholders  (including  socio-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 mechanisms 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 majority of the Icelandic FP7 contributors taking 
part in health and environment projects. Iceland does not engage in nuclear research and has 
never been associated to the Euratom framework programmes for research and technological 
development. 

There is a strong tradition of industry-related research institutions in Iceland, particularly in 
marine  research,  health  &  medicine  and  agriculture.  Iceland  is  involved  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 

56 

   EN 

 
International  participation  by  Iceland  in  work  on  science,  technological  development  and 
innovation  is  one  of  the  cornerstones  of  its  scientific  and  technological  strategy.  Iceland 
participates in the Nordic Research and Innovation 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 institutional changes in the Nordic region. Iceland is included in 
the  three  Nordic  institutions  for  science  and  technology:  NordForsk  (for  cooperation  in 
science),  Nordic  Innovation  Center  (for  cooperation  in  innovation  projects)  and  Nordic 
Energy Research.  

The  environment  for  conducting  scientific  research  and  technological  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  quantitative  targets  similar  to  the  Barcelona  3 % 
objective set for Iceland. However, overall expenditure on R&D, as a share of GDP, continues 
to remain above the 3 % mark.  

The  Icelandic  Centre  for  Research  (Rannís)  participates  in  a  number  of  ERA-Net  projects. 
Some of those projects have the objective of becoming classed as Article 185 initiatives11 in 
the future. Eurostars has been running as an Article 169 initiative since 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 Hydrogen 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 official programme designed to ensure mobility of 
researchers. However, the official policy has proved successful in recent years in increasing 
the number of university students and strengthening the universities. 

The  promotion  of  RTD  innovation  is  well  organised  and  well  connected  with  the  business 
community. The Icelandic Centre for Research (Rannís) organises events and the University 
of Iceland hosts the Icelandic Web of Science, which contributes to creating an environment 
favourable  to  dissemination  of  scientific  knowledge  to  the  public  at  large.  A  law  on  R&D 
incentives came into effect in December 2009. The government has decided 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  Expenditure  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 requirements, 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 

12 

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. 
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 

57 

   EN 

                                                 
Chapter 26: Education and culture 

The  acquis  on  education  and  culture  consists  mainly  of  a  cooperation  framework  through 
programmes  and  the  open  method  of  coordination  (OMC),  which  aims  at  convergence  of 
national  policies  and  attainment  of  shared  objectives.  In  the  field  of  education  and  youth, 
Member  States  need  to  ensure  sound  management  of  decentralised  EU  programmes.  The 
acquis also requires the Member States to facilitate the education 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 Promotion 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  cooperation  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  activities,  has  paved  the  way  to  the  adoption  of  policy 
reforms such as the recent lifelong learning strategy in line with the EU strategy. 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  labour  market,  Iceland  performs  below  the  EU 
average  as  regards  early  school  leavers  and  upper  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  and  intends  to  take  part  in  the  new  cycle  as 
well. The Ministry of Education, Science and Culture is the main governmental focal point for 
youth  policy  in  Iceland.  The  government  has  adopted  a  comprehensive  and  cross-cutting 
approach giving emphasis to the key components of the EU Youth Strategy 2010-18. Iceland 
has  since  1970  had  a  legislative  basis  supporting  the  non-governmental  youth  sector  and 
promoting  non-formal  education.  Iceland  is  encouraged  to  envisage  specific  measures  to 
facilitate the mobility of volunteers from EU and EU candidate countries to Iceland.  

The  country  has  been  participating  in  EU  programmes  on  education  and  youth  for  about 
fifteen years. 

However, Iceland needs to clarify its legal framework as regards the Directive on education of 
children  of  EU  migrant  workers  and  the  principle  of  non-discrimination  between  nationals 
and EU citizens in access to education 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  Convention  on  the  Protection  and  Promotion  of  the 
Diversity of Cultural Expressions in 2007. Iceland has a well developed support system in the 
field  of  cultural  activities.  The  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 

58 

   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 standards 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 sustainable 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  responsibility.  Ensuring  compliance  with  the  acquis  requires 
significant  investment,  but  also  brings  significant  benefits.  A  strong  and  well-equipped 
administration at national and local 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  for  sustainable  development  serves  as  a  policy 
framework until 2020 but does not contain provisions 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  ministries’  agencies,  as  well  as  transfer  responsibilities 
between executive agencies with 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 enforcement 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 policies is not widespread. 

As  regards  horizontal  legislation,  Environmental  impact  assessment  (EIA)  and  strategic 
environmental  assessment  (SEA)  requirements  are  implemented.  A  draft  bill  is  pending 
adoption  by  parliament  on  environmental  liability.  However,  Iceland  is  not  a  party  to  the 
Espoo  Convention  on  Environmental  Impact  Assessment  in  a  Transboundary  Context,  its 
Protocol  on  Strategic  Environmental  Assessment  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 Emissions Ceilings Directive is 
not transposed. 

EN 

59 

   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 waste management need to be harmonised with the 
acquis. Shipment of waste is carried 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 the Water Framework Directive is in 
progress. However, a system for river basin management is not yet established, even though 
coordination of relevant authorities is ensured. Iceland needs to transpose the Floods Directive 
as well as the Marine Strategy Framework Directive, the Nitrates Directive and the Bathing 
Water Quality Directive. 

legislation 

As far as nature protection is concerned, the Nature Conservation Act takes into account the 
main  international  nature/biodiversity  agreements  to  which  Iceland  is  a  party.  However,  it 
does  not  fully  meet  the  requirements  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 
regarding 
commercialisation  of  wild  birds.  However,  Iceland  allows  the  hunting  of  many  bird  species 
currently  not  listed  under  Annex  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 standards laid down in Articles 12-14 of Directive 
92/43/EC.  There  are  differences  between  Icelandic  law  and  the  Directive  for  several  key 
species such as Arctic Fox, Harbour Seals and Grey Seals. 

the  general  prohibition 

in  conformity  with 

is 

Furthermore,  Iceland  allows  the  hunting  of  whales,  which  is  in  not  in  line  with  the  acquis. 
Necessary steps will need to be undertaken as regards 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 equivalent 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  and  installations  using  organic  solvents  is 
implemented. There are national provisions relating 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 Environment 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 protection 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 

60 

   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 party to the Kyoto Protocol, has a greenhouse gas 
limitation commitment of +10 % and expects to meet this target. Iceland has a national system 
for greenhouse gas monitoring and reporting in place in accordance with UNFCCC and Kyoto 
Protocol  requirements  and  fulfils  its  reporting  obligations  under  the  Convention  and  the 
Protocol.  Iceland  is  covered  by  the  EU  Emissions  Trading  Scheme  (ETS)  through  the  EEA 
Agreement.  

Iceland has  requested  to  conclude  a  joint  delivery  agreement  with  the  EU  for  the  emission 
reduction  commitments  that  the  EU  and  Iceland  will  undertake  in  the  framework  of  a new 
international  climate treaty. Such  an agreement will  ensure  that  non-ETS  sectors will be 
covered  by  the  EU  Effort-Sharing  Decision  with  a  specific  target  for  Iceland,  based  on  the 
same criteria that have been used to calculate the targets of the EU Member States thereunder. 
Iceland  will  have 
to  devote  substantial  management  resources  and  organisational 
arrangements  to  ensure  that  monitoring  and  implementation  of  the  ETS  is  in  line  with  the 
acquis.  National  legislation  provides  for  the  implementation  of  the  Regulation  on  ozone 
depleting substances but may require some changes to fully align with the acquis. 

Conclusion 

Overall, the legislative framework in Iceland 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 conservation 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 Conventions. 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 needed to ensure that adequate political will is 
in  place  and  resources  allocated  to  ensure  effective  implementation  and  enforcement  of  the 
acquis, including at local level. 

Chapter 28: Consumer and health protection 

The  acquis  on  consumer  protection  covers  the  safety  of  consumer  goods  as  well  as  the 
protection  of  the  economic  interests  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 powers 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 XIX  to  the  EEA  Agreement,  except  for  the 
Directive  on  distance  marketing  of  financial  services  (non-safety  related  issues),  which  is 
covered by Annex IX on financial services. The EEA Agreement also contains provisions on 
public health (Protocol 31 and Annex II).  

EN 

61 

   EN 

 
The overall responsibility for general consumer protection policy lies within the Ministry of 
Justice  and  Human  Rights  and  the  Ministry  of  Economic  Affairs.  There  is  a  Committee  for 
Settlement of Disputes in Consumer Sales of Goods 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  observer  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 Regulation on the safety of toys and dangerous imitations, the 
Regulation  concerning  marketing  restrictions  on  child-resistant  and  novelty  lighters  and  the 
Act on the Consumer Agency and Consumer Spokesman. However, the level of transposition 
of the APSOMC in Iceland needs to be further assessed. As regards administrative capacity in 
the area of product safety, the Consumer Agency is the national market surveillance authority 
responsible for the enforcement of product safety rules, including sector-specific legislation, 
and acts as the national RAPEX Contact Point.  No market surveillance  activities have been 
performed  vis-à-vis  products  not  falling  under  sector-specific  EU  legislation,  with  the 
exception  of  decorative  articles.  With  respect  to  products  falling  under  sector-specific 
legislation, such as toys, electrical appliances and construction products, market surveillance 
seems  to  consist  only  in  documentary  checks  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  (GPSD)  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. 

the 

lowest.  Main  diseases  affecting 

In the field of public health, life expectancy in Iceland is among the highest in the world and 
perinatal  mortality  among 
the  population  are 
cardiovascular  diseases  and  cancer.  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  health  care  centres  throughout  the  country.  A  Health 
Service Act was adopted in 2007 dividing the country into seven health regions. The National 
Health Plan sets out a strategy until 2010 putting special emphasis on the health of children 
and  young  people  as  well  as  of  the  elderly.  A  health  promotion  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  the  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  warnings  on  tobacco  products  is  under  way.  Iceland 
ratified the Framework Convention on Tobacco Control in 2004.  

The  basic  act  regulating  communicable  diseases  is  the  Act  on  health  security  and 
communicable diseases. Structures for epidemiological surveillance and for early warning and 
response to communicable diseases are in place.  

EN 

62 

   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.  Mental  health  promotion  is  a  relatively  new 
concept and has yet to gain solid ground. Nevertheless, 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.  Screening  for  breast  and  cervical  cancer  is  performed  in  accordance 
with  the  European  guidelines.  However,  colorectal  cancer  screening  has  not  yet  started. 
Nevertheless,  survival  rates  after  cancer  diagnosis  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  surveillance  needs  to  be 
developed.  Further  efforts  are  necessary  as  regards  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  efficient  public  administration  are  essential  for  the 
functioning of the common agricultural 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 apply the EU legislation on direct support schemes 
and to implement the common market organisation for various agricultural products. 

The EEA Agreement does not cover the acquis on agriculture and rural development except 
for  organic  farming.  In  2007,  the  Icelandic  market  for  agricultural  products  from  the  EU, 
originally  excluded  from  the  EEA,  was  partially  opened  under  Article  19  of  the  EEA 
Agreement. 

In 2008 agriculture accounted for 1.4% of Iceland'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 Iceland live in rural areas. 

The  EU  is  Iceland’s  main  trading  partner,  with  regard  to  all  commodities,  as  well  as  for 
agricultural  products.  As  regards  trade  in  agricultural  products,  the  EU  accounted  for  about 
65 % of all Icelandic imports and about 47 % of all Icelandic agricultural exports in 2008. In 
general, Iceland applies high import tariffs to protect its local agricultural production, with the 

EN 

63 

   EN 

 
exception of tomatoes, cucumbers and peppers (tariff free). Following the partial opening of 
the  Icelandic  market  for  agriculture  products  under  Article  19  of  the  EEA  Agreement, 
bilateral trade concessions have been implemented 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  concentrated  on  policy  formulation  whereas 
implementation  is  delegated  to  the  Farmers’  Association,  agencies  and  research  institutes. 
Agricultural statistics are not well developed and in many cases 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 the 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 construction projects, livestock improvement and 
extension (advisory) services. Food security remains 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  Ministry  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  payments.  Iceland  will  need  to  establish  a 
proper  framework  for  meeting  the  CAP  management  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 all 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 publication 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 

64 

   EN 

                                                 
Agriculture  and  the  Farmers’  Association,  all  recently  updated  to  take  into  account  the 
negative effects of the economic and financial crisis. The milk market is controlled by quotas 
and  administrated  prices,  both  being  subject  to  adjustments  depending  on  market 
developments.  For  sheepmeat,  the  association  of  sheepmeat  producers  fixes  annually  a 
recommended price for slaughter. In contrast, greenhouse vegetables are marketed freely; no 
customs tariffs apply, and producers receive high 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  any  other  arable  crops  or  protein 
crops or oil seeds. In 2008, the 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  administered  prices.  In  2008,  26 000  diary  cows,  about  450 000 
sheep, 4 200 pigs (sows) and in total 4.7 million poultry were kept in Iceland. Iceland allows 
only  local  breeds  for  sheep,  cattle  and  horses.  The  policy  of  recommended  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  limited  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 liberalised. 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 imported 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  are  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  management  scheme  different  from  the 
EU  scheme  of  geographical  indications  and  traditional  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  for  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 milk, 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 

65 

   EN 

CAP expenditures, i.e. market expenditure, direct 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 

towards  decoupled  support  measures.  Iceland  will  have 

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. The agricultural policy will require adjustments, 
moving 
its 
administrative  capacity.  Furthermore,  the  country  will  need  to  improve  the  collection  and 
processing of agricultural statistics and start preparations for setting up basic instruments and 
institutions  for  managing  the  common  agricultural  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 policy. Overall, Iceland has the potential to 
assume the obligations of membership in this area in the medium term, provided it undertakes 
the necessary steps to align with the acquis. 

to  strengthen 

Chapter 13: Fisheries 

The  acquis  on  fisheries  consists  of  directly  applicable  Regulations,  which  do  not  require 
transposition into national legislation. However, it does require the introduction of measures 
to  prepare  the  administration  and  operators  for  participation  in  the  common  fisheries  policy 
(CFP),  which  covers  resource  and  fleet  management,  inspection  and  control,  structural 
actions, market policy and state aid control. In some cases, existing fisheries agreements and 
conventions with third countries or international organisations will need to be adapted. 

The fisheries sector remains extremely important for Iceland’s economy, although its relative 
significance  has  declined  over  the  last  ten  years  due  to  the  diversification  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  enterprises  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 billion króna (€ 1270 million) per year.  

Icelandic fisheries production (harvesting and aquaculture) has averaged 1.7 million tonnes in 
recent years. Iceland’s fisheries production represents almost a third of the combined EU-27 
production  (4.6  million  tonnes  in  2006).  In  terms  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  last  ten  years,  from  a  peak  of  around  2  million 
tonnes in 2000 to 1.3 million tonnes today. Employment levels have dropped significantly in 
the last ten years, from over 16 300 employees 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 

66 

   EN 

 
                                                 
The  Icelandic  fleet  comprises  over  1 100  vessels.  The  latest  estimates  place  the  fleet’s 
capacity at 143 102 GT for an aggregated engine power of 408 797 kW. The fleet is overall 
highly  efficient  and includes among  the large vessels 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  fish  stocks  and  their  marine  environment. 
Icelandic  laws  set  and  implement  the  framework  for  the  private  exploitation  of  fishery 
resources while the technical and economic development of the sector within this boundary is 
up to private operators and the market. Iceland therefore implements 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 Ministry of Fisheries and Agriculture, assisted by 
the  Icelandic  Directorate  of  Fisheries  and  the  Marine  Research  Institute.  Overall,  adequate 
administrative structures are in place. 

Iceland has shown an interest in the development of integrated maritime 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 stocks 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  value  (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, the Icelandic management system 
can be considered as relatively successful. 

The  overall  design  and  implementation  of  Icelandic  fisheries  policy  is  similar  to  those 
implemented in the EU. Iceland subscribes to the principles of sustainable 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  effect  to  the  EU’s  long-term  management  plans,  but  these  rules 
have  not  been  translated  into  legislative  acts.  It  subscribes  to  the  general  objective  of 
harvesting stocks at a level that provides maximum sustainable yield (MSY). Iceland should 
be prepared to take on board the acquis in this respect. The same assessment can in general 
terms be made with regard to the administrative structures in place to support this policy. 

However,  Icelandic  legislation  on  investment  in  fishing  (acquisition  of  vessels  or  fishing 
companies) includes restrictions on investment that are not in line with the acquis. Icelandic 
law provides that only ships  owned by Icelandic legal entities and Icelandic citizens legally 
resident  in  Iceland  may  be  registered  for  fishing  operations  in  Icelandic  waters.  Access  by 
foreign  vessels  is  limited  by  licenses  issued  under  international  agreements.  Tradable  catch 
quotas (Individual Transferable Quotas, ITQs) are assigned directly to vessels, but cannot be 
acquired by foreigners, as only nationals are allowed 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 harvests or processes fish.  

EN 

67 

   EN 

In the area of services in fisheries, Iceland has a relatively open market, with the exception of 
services  where  a  requiresfishing  permit  is  required  (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 line with the acquis on the right of establishment, 
the freedom to provide services, the free movement of capital and the relevant 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  basic  CFP  Regulation  (Council  Regulation  EC  No 
2371/2002) establishes that a vessel from any Member State has the right of access to another 
Member State’s waters, subject to agreed rules. 

Iceland has been a major contributor to the development of environmental aspects of fisheries 
management,  such  as  the  ecosystem  approach.  The  Reykjavik  Declaration  on  responsible 
fisheries in the marine environment 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 provisions of the EU environmental acquis dealing 
with conservation of cetaceans. (See Chapter 27 — Environment)  

Iceland includes a general ban on discards in its legislation, and presents this element as being 
of  key  importance  in  relation  to  the  objective  of  minimising  the  impact  of  fishing  on  the 
environment.  This  ban  is  accompanied  by  technical  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 capacity of the Icelandic fleet has contracted 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  development  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. Tthe Government decided 
to discontinue effort management in 2004. 

As no decommissioning aid has been provided, the steady reduction in fleet capacity suggests 
that the Icelandic fleet should have no difficulty in complying with the ‘entry-exit’ regime of 
fleet management under Community law. However, the existence of a detailed 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  general  vessel  register  in 
which licences to undertake fishing operations are recorded. 

Concerning inspection and control, Iceland has developed detailed rules regarding the control 
of fishing activities. Iceland will need to implement the recently adopted Community control 

EN 

68 

   EN 

system.  The  administrative  structure  and  the  human,  technical  and  economic  resources 
available to the Icelandic control services seem to be commensurate with the requirements of 
rigorous control of fishing activities. Iceland will have to adapt its regulatory regime, as well 
as  the  distribution  of  its  resources,  to  achieve  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,  unregulated  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 Iceland reached in November 2009. 

In  the  areas  of  structural  actions  and  state  aid,  Iceland  provides  only  very  limited  financial 
support  to  the  fisheries  sector.  Apart  from  aid  for  vocational  training,  no  support  measures 
similar to those provided for by the European Fisheries 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 indirect 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 Agreement are in place. All state aid measures, 
including direct and indirect support to the fisheries 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 programmes is limited, in particular in the 
Ministry of Fisheries and Agriculture. 

The  Icelandic  government  has  launched  preparations  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 European Fisheries Fund. Moreover, there are 
basic  rules,  mechanisms  and  bodies  for  the  management  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  will  also  have  to  set  up  a  management  and 
control system to ensure the sound and efficient management of those funds in the framework 
of shared management, including the detection and handling of financial irregularities.  

limited, 

though  efficient, 

Regarding  market  policy,  Iceland  has  a 
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  organisation  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 and brought into line with Community legislation 
. 

EN 

69 

   EN 

An important difference with regard to Community legislation is the absence of commercial 
minimum sizes of fish products and/or of freshness types and the possibility for unrestricted 
landing of herring and mackerel for purposes other than human consumption. 

Iceland has no specific legislation on information 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  fisheries  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 international fisheries law and is an active contributor to international 
cooperation to ensure the 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  fisheries  management  organisations  with  competence 
over areas of the high seas where its fleet operates, namely the North East Atlantic Fisheries 
Commission (NEAFC) and the Northwest Atlantic Fisheries Organisation (NAFO), and of the 
Atlantic  Tuna  Commission  (ICCAT).  There  are  five  bilateral  fisheries  agreements  in  force 
between  Iceland  and  other  states  or  territories,  and  two  further  trilateral  agreements  for 
specific regional cooperation.  

Iceland is party to arrangements which involve direct cooperation between the Coastal States 
of the North-East Atlantic. Through such arrangements, these Coastal States jointly manage 
the highly migratory stocks straddling the respective economic zones. The Icelandic approach 
to the management of these stocks is quite often 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  unilaterally  expanded  its  fisheries  over  the  last 
three years. 

In  the  case  of  the  regional  fisheries  management  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. Regarding bilateral agreements entailing the allocation of fishing 
opportunities, only the EU is entitled to conclude and manage such agreements. 

Impact 

 1.4 billion), while the EU is 
Iceland is a large net exporter of fish products (trade surplus of €
a net importer (trade deficit of €
 11 billion). As over 80 % of Icelandic exports are to the EU, 
the  EU’s  trade  balance  in  fish  products  would  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  advantages  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  would  maintain  its  third  position  in 
world  production  of  fish  after  China  and  Peru,  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 

70 

   EN 

issue in Iceland the overcapacity problem in the EU would not be substantially affected. With 
regard to reducing discards, Iceland’s experience would have a positive impact on the EU’s 
policy debate on this subject. 

Iceland’s  adaptation  to  the  CFP  would  require  incorporating  Icelandic  harvest  patterns  into 
the total allowable catch (TAC) and quota system. The EU fixes annual TACs per species and 
area,  and  subdivides  these  figures  into  quota  allocations  to  Member  States.  The  quota 
allocation  takes  into  account  catch  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 Fisheries 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 limited. Iceland would also benefit  from  Community 
support for measures for control and enforcement and for data collection for scientific advice. 
Iceland’s  accession  would  facilitate  a  rigorous  control  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 significant role in the development of 
the EU’s policy in the Arctic. 

A  preliminary  assessment  indicates  that  Iceland’s  accession  to  the  EU  would  have  a 
significant impact on the common fisheries policy. However, the CFP 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  respects  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,  technical  conservation  measures  and  integrated 
control  mechanisms.  It  will  need  to  make  substantial  efforts  to  set  up  mechanisms  of 
implementing and controlling Community support measures. Iceland will have to subscribe to 
the  EU  principle  of  access  to  waters.  It  will  also  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 the fisheries production and processing 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,  and  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  minimum  rates  and  the  holding  and  movement  of 

EN 

71 

   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 between enterprises. The 
acquis in the area of administrative cooperation and mutual assistance provides tools to avoid 
intra-Community tax evasion 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  with  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, tobacco 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 alcoholic beverages, which is different from the volume of alcohol in 
the  finished  products  as  applied  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 have been imported or produced 
in the country. The rates are the same for imported and domestically produced products. The 
tobacco  tax  is  specific  but  comprises  a  taxation  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 respect 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 products and uses subject 
to excise payments in Iceland is currently significantly smaller 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  the  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  tax  area  which  are  currently  not  reflected  in 
Iceland’s tax system. In particular, 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 Directive 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 

72 

   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 using 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,  Iceland  is  party  to  the  Nordic  Mutual  Assistance 
Treaty and the OECD Convention on mutual administrative 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 interconnectivity and interoperability 
with the EU’s IT systems for taxation (currently 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 Iceland 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 taxation, 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  capacity  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 establish 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 the public sector to financial institutions. 
Member  States  are  expected  to  coordinate  their  economic  policies  and  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 Statute 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 treat 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  that  the  Bank  has  to  seek  or  take  instructions  from  other 

EN 

73 

   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 prohibiting 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  the  CBI.  Moreover,  the  CBI  is  organised  as  a 
state-owned body, administratively falling under the 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  decision-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  independence,  the  central  bank  must  have  sufficient 
means to meet its objectives and perform its tasks in an unimpaired and autonomous manner. 
The  CBI  Act  remains  silent  on  many  aspects  related  to  financial  independence,  such  as: 
determination of and influence on the CBI’s budget; clear accounting rules laid down for the 
CBI; distribution of profits of the CBI. The principle of financial independence will need to 
be appropriately reflected in the 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 for 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  legislation  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  operations),  in  particular  to  support  insolvent  credit 
and/or other financial  institutions,  is not  in  line 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 integrate 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  provide  that  the  remuneration  margin  on 
deposits/current account balances should be at or below market rates. 

Regarding  the  prohibition  on  monetary  financing,  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  mandatory  pension  insurance  and  the  activities  of  pension 
funds and the Regulation on deposit guarantees and an investor compensation scheme contain 
provisions which effectively give the public sector 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  and  Financial  Council.  Administrative  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 

74 

   EN 

Conclusion 

There is a significant gap in the legislative 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  Member  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 coordination of structural instruments 

The  acquis  on  regional  policy  and  coordination  of  structural  instruments  consists  mostly  of 
framework  and  implementing  regulations,  which  do  not  require  transposition  into  national 
legislation.  They  define  the  rules  for  drawing  up,  approving  and  implementing  programmes 
financed  by  the  Structural  Funds  (the  European  Regional  Development  Fund  and  the 
European  Social  Fund)  and  —  for  some  Member  States  —  Cohesion  Fund  programmes 
reflecting each country’s territorial organisation. These programmes are negotiated and agreed 
with the Commission. Implementation is a shared responsibility of the Member States and the 
Commission. Member States must comply 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  sustainable  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 inhabitants/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  development  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/programmes  are  reported  in  the  annual  budget  bill  as 
Iceland  has  some 
‘binding  agreements’.  As  a 
experience/practice  of  co-funding  EU  programmes  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 budgets between EU programmes, funds and years. 

the  EEA  Agreement, 

result  of 

is  no  regional  self-government 

Iceland  has  two  levels  of  governance:  national/central  government  and  local  authorities 
(municipalities).  There 
the  state 
administration is divided into a number of districts, for the purpose of carrying out different 
public  tasks.  There  is  a  long  tradition  of  voluntary  cooperation  between  municipalities  at 
regional level which may take place within the context of, for instance, regional boards, co-
owned  agencies  established  by  several  municipalities  in  order  to  provide  certain  services, 
regional  federations,  or  the  Icelandic  Association  of  Local  Authorities.  Municipalities  have 
their own sources of funding, in which income tax takes the lion’s share. However, the central 
government  still  takes  responsibility  for  many  of  the  costly  functions  handled  by  local 
authorities. 

level.  However, 

Iceland is classified as one NUTS level 2 area and is divided into two NUTS level 3 areas. 

institutional  framework  for  implementing  its  regional 
Iceland  has  established  an 
development policy, comprising different institutions. The Ministry of Industry, Energy and 

EN 

75 

   EN 

 
Tourism  produces  the  government’s  regional  development  plan,  in  cooperation  with  the 
Institute  of  Regional  Development  (a  government  agency  under  the  Ministry)  and  in 
consultation  with  municipalities,  and  other  bodies.  The  Institute  of  Regional  Development 
implements  regional  policy.  Economic  development  agencies,  co-owned  by  municipalities, 
operate in rural areas to support and strengthen business development and innovation. There 
are  a  number  of  relevant  bodies  operating  in  the  field  of  employment  and  social  policies 
including  the  Ministry  of  Education,  the  Ministry  of  Social  Affairs  and  Social  Security,  the 
Association  of  Employers  and  the  Union  of  Employees.  The  Ministries  have,  to  varying 
degrees, experience of EU funding through their participation in EU programmes. 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  ministries  have  experience  —  through  direct 
involvement  —  of  EU  programmes.  However,  experience  with  multi-annual  programming 
and management of EU-funded projects is limited mostly to the EU programmes implemented 
under centralised management. Additional administrative capacity and structures will need to 
be  built  up  in  order  to  allow  smooth  management  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  regional  policy.  The  government’s  four-year  regional 
development  plan  provides  financial  support  for  long-term,  viable  projects.  In  addition,  a 
number of public-private partnerships in the form of growth agreements 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  issues  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  for  Iceland  as  a  whole  and  will  be 
implemented  through  multi-annual  programming.  The  strategy  may  serve  as  a  basis  for  the 
national strategic reference framework 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 implementation 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  relevant  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  instruments  relevant  to  cohesion  policy.  The  national  authorities  are 
responsible  for  the  implementation  of  programmes  and  the  proper  use  of  EU  funding; 
monitoring and audit form the basis for the declaration of assurance each year. The Ministry 
of Finance is responsible for issuing regulations regarding the execution of the general budget 
and  for  the  financial  management  of  the  state.  The  National  Audit  Office  is  the  main 
supervisory body with regard to the general budget as well as state entities. 

EN 

76 

   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  population.  Considering  the  size  of  its  economy  and 
population,  Iceland’s  accession  would  only  marginally  modify  the  EU’s  average  GDP/head 
(PPS)  compared  to  today’s  EU-27  average  and  hence  would  not  influence  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  limited.  On  this  basis,  following  a  preliminary 
assessment, the estimated impact of Iceland’s possible accession on EU cohesion policy and 
funding in the current situation and under current conditions is considered minimal.  

Conclusion 

Iceland has experience and capacity in designing and implementing regional policy measures 
and in participating in EU programmes. Legislation relevant for EU cohesion policy is mostly 
in  place.  The  administration  is  small  but  flexible  and  has  considerable  experience  in 
programming and monitoring/evaluation. Iceland will need to adjust its budget law to allow 
transfer of national co-financing budgets between EU programmes, funds and years. Efforts 
will  be  needed  to  strengthen  multi-annual  programming  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  makes  and  allocate  and  prepare  staff  for  the 
implementation  of  these  programmes.  Overall,  Iceland  should  be  able  to  assume  the 
obligations of membership in this area. 

Chapter 23: Judiciary and fundamental rights 

EU  policies  in  the  area  of  the  judiciary  and  fundamental  rights  aim  to  maintain  and  further 
develop  the  Union  as  an  area  of  freedom,  security  and  justice.  The  establishment  of  an 
independent  and  efficient  judiciary  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 resources and training. Legal guarantees 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  are  required  to  underpin  a  coherent  policy  of  prevention  and 
deterrence of corruption. Member States must ensure respect for fundamental rights and EU 
citizens’ rights as guaranteed by the acquis and by the Charter of Fundamental Rights. 

Judiciary (See also Political criteria — Democracy and the rule of law) 

The  independence  of  the  judiciary  is  enshrined  in  the  Icelandic  constitution.  The 
constitution lays down the main principles regarding 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 for in the Criminal Procedure Code. 

EN 

77 

   EN 

 
In  conformity  with  the  ‘principle  of  the  natural  judge’15,  the  1998  Act  on  the  judiciary 
contains  provisions  on  the  division  of  competences  between  different  courts  and  on  the 
assignment of cases to judges.  

There is no higher council of the judiciary in Iceland, but a Judicial Council is established for 
the  district  courts.  The  Judicial  Council  is  composed  of  five  members  appointed  by  the 
Minister  of  Justice.  Four  of  its  members  are  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 Judicial Council are among  other things to monitor 
the financial affairs of the district courts, organise continuing education for judges, issue rules 
on  coordinated  judicial  practice,  etc.  with  the  goal  of  ensuring  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 time by the Minister of Justice. 
A  special  Evaluation  Committee  composed  of  three  members,  appointed  by  the  Minister  of 
Justice for three years, considers the qualifications of applicants and gives non-binding advice 
to the Minister. 

The  selection  of  Supreme  Court  judges  is  based  on  the  Act  on  the  judiciary.  Judges  are 
appointed for an indefinite period by the President of Iceland, as proposed by the Minister of 
Justice,  after  the  Supreme  Court  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 effective independence of judges. 

As  to  the  disciplinary  procedure  for  judges,  a  judge  may  be  relieved  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 Minister 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 removed from office. The three members of 
the Committee on Judicial Functions (and their three 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 administrative authority. When a judge has been temporarily relieved 
from  office,  the  Minister  of  Justice  shall,  however,  take  legal  action  against  him  before  the 
District court of Reykjavik, requesting 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  referred  to  any  higher  administrative  authority 
give cause for particular concern.  

15 

The principle of the natural judge means that cases should be allocated to courts and individual judges 
according  to  criteria  which  have  been  previously  laid  down  by  the  law  concerning  jurisdiction, 
competence and assignment of cases. 

EN 

78 

   EN 

                                                 
All prosecutor positions are advertised publicly. The Minister of Justice is responsible for the 
appointment of the Director of Public Prosecutions, 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  prosecutorial  authority.  He  or  she  is  appointed  for  an 
indefinite  period.  However,  most  prosecutors  are  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  applicants’  eligibility.  Prosecutors  do  not  enjoy  immunity.  The 
Minister  of  Justice  can  also  temporarily  remove  the  Director  of  Public  Prosecutions  from 
office, but must take legal action within two months 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 particular concern.  

Provisions regarding conflicts of interest are laid down in the 1991 Act on civil procedure. 
According  to  the  provisions  of  this  Act  a  judge  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  Procedure  Code  regulates  the  disqualification  of 
judges with respect to penal cases. 

Judges  do  not  enjoy  penal  immunity.  The  General  Penal  Code  provides  sanctions  against 
persons  seeking  to  influence  a  judge  and  prevents  judges  from  receiving  invitations  of 
bribery,  yet  there  are  no  specific  provisions  regarding  the  criminal  liability  of  judges.  The 
General  Penal  Code  applies  to  criminal  offences  committed  by  judges  inside  as  well  as 
outside the scope of their office, as does all other sectoral penal legislation.  

The district court of Reykjavik has established a specific lifelong training system for judges. 
However, no specific training courses are organised within the judiciary itself, nor is there an 
independent  national  training  centre  for  the  judiciary.  There  is  no  formal  training  for  the 
clerical  staff  of  the  courts,  even  though  an  agreement  with  their  union 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  considered  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  relevant  anti-corruption  provisions  in  the  General  Penal  Code 
include  active  and  passive  bribery  in  the  public  and  private  sector  and  provisions  on 
confiscation of proceeds and disqualification measures. 

After  the  banking  sector  collapsed  in  Iceland  a  new  Office  of  the  Special  Prosecutor  was 
created.  It  has  authority  to  investigate  and  bring  charges  in  cases  covering  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 legislation is in line with the acquis and ratify 
all  international  instruments  in  this  field.  In  this  view,  Iceland  should  ratify  the  Council  of 
Europe  Civil  Law  Convention  and  sign  and  ratify  the  United  Nations  Convention  against 
Corruption. Iceland should also implement recommendations made during the third evaluation 

EN 

79 

   EN 

round  of  the  Group  of  States  against  corruption  (GRECO),  in  particular  relating  to  bribery, 
trade in influence, training for law enforcement and proper implementation of the legislation 
on financing of political parties. 

Fundamental  rights  (See  also  Political  criteria  —  Human  rights  and  the  protection  of 
minorities) 

Iceland has a comprehensive system of protection 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, the European Convention on Human Rights (ECHR). 
The legal protection of human rights in Iceland was enhanced considerably as a result of these 
constitutional amendments. 

In the field of personal data protection, 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 protection 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  addition,  it  should 
ratify the Additional protocol to Convention 108 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 international and domestic law, Iceland has adhered 
to  the  principle  of  dualism.  It  is  a  general  principle  in  Icelandic  law  that  provisions  of 
domestic law are to be interpreted in accordance with the principles of international law. 

Iceland  has  introduced  a  system  of  close  mainstreaming  of  new  legislation  affecting 
fundamental  rights:  when  draft  legislation  is  discussed  in  the  relevant  parliamentary 
committee  as  a  rule  the  opinion  of  various  human  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  United  Nations,  undergoes  regular  monitoring  by  the 
various  bodies  established  on  the  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 Denmark, Finland, Norway and Sweden 
acquire  this  right  after  three  years  of  residence.  The  current  differentiation  of  three  years’ 

EN 

80 

   EN 

residence for these citizens and five 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  authorities  of  any  Member  State,  under  the  same 
conditions as nationals of the State.  

In order to comply with the acquis, Iceland will have to implement in particular the Decision 
regarding  protection  for  citizens  of  the  European  Union  by  diplomatic  and  consular 
representations and the Decision 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  migration,  asylum,  border  control,  visas,  judicial 
cooperation in criminal and civil matters, police cooperation, the fight against organised crime 
and terrorism, cooperation in the field of drugs and customs cooperation, Member States need 
to be properly equipped  to  adequately implement the  growing  framework of  common  rules. 
Above  all,  this  requires  strong  and  well-integrated  capacity  within  the  law  enforcement 
agencies and other relevant bodies to attain the necessary standards. A professional, reliable 
and efficient police organisation is of paramount importance. 

The Schengen acquis is an important part of the EU policies on justice, freedom and security. 
Iceland is an associated member of the Schengen Agreement, and has the required national 
legislation  to  implement  this  acquis.  Iceland  applies  these  provisions  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,  although  it  is  not  fully  in  line  with  the  acquis. 
Important  divergences  exist  for  instance  as  regards  the  absence  of  a  specific  scheme  for 
researchers and the scope of application of the 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  Iceland  provides  for  fines  or 
alternatively detention. Deportation and a re-entry ban can be enforced in case of illegal stay. 
The legislation on facilitation of unauthorised entry, transit and residence is not fully in line 
with  the  acquis.  All  readmission  agreements  which  Iceland  has  concluded  are  aligned  with 
those of the EU Member States.  

The  Icelandic  asylum  system  is  governed  by  the  legislation,  which  enshrines  the  right  to 
asylum under the 1951 Geneva Convention. It contains 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 outside the scope of the Geneva Convention, will 
need to be established in line with Council Directive 2004/83/EC. 

EN 

81 

   EN 

 
Under the normal asylum procedure, asylum seekers may appeal for administrative review of 
a first instance refusal to the Ministry of Justice. No appeals are possible under the accelerated 
asylum  procedure.  In  line  with  Council  Directive  2005/85/EC  and  the  case  law  of  the 
European  Court  of  Justice  regarding  effective  judicial  protection  of  rights  conferred  on 
individuals by EU law, Iceland will 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  procedures.  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 Dublin 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 use of detention and better define the rights of 
asylum seekers to health care, social 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 capacity challenges in some areas. One concern 
relates  to  the  accumulation  of  powers  and  responsibilities  of  the  Minister  of  Justice  and 
Human  Rights,  who  is  also  the  supreme  head  of  the  police  in  Iceland  (see  also  Political 
criteria and Chapter 23 — Judiciary and fundamental freedoms). The National Commissioner 
of  the  Icelandic  Police  administers  police  affairs  under  the  Minister’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  cooperation  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  some  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  entering  the  EU;  however,  increased  cross-border 
activity  by  criminal  groups  has  been  observed.  Iceland  is  a  party  to  the  1988  UN  Drug 
Convention, the 1971 UN Convention on Psychotropic Substances, and the 1961 UN Single 
Convention on Narcotic Drugs and 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 Convention against Transnational Organized 
Crime (Palermo Convention), including its two protocols on smuggling 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 referral mechanisms are in place.  

As regards the fight against money laundering, all three relevant Directives 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 

82 

   EN 

to  cover  all  functions  and  responsibilities  related  to  money  laundering  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  Transaction  Reports,  the  number  of  freezing/seizing 
orders,  prosecutions,  indictments,  confiscation  orders,  actual  confiscations,  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 which 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  implementing  the  UN  Convention  on  Transnational 
Organised Crime also fully implements the relevant 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 foreign NCB orders cannot be enforced in 
Iceland. While it is not mandatory to establish NCB confiscation, assistance to countries using 
NCB procedures should be provided by Iceland. The country will also need to ratify the 2005 
Warsaw Convention  on  Laundering,  Search, Seizure 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 ratified a range of relevant counter-terrorism conventions, some of 
which still need to be ratified. Provisions of the Directive on the prevention of the use of the 
financial system for the purpose of money laundering and terrorist financing are implemented. 
Administrative structures and capabilities are in line with the 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 matters, Iceland is party to the 1993 Convention 
on  Inter-Country  Adoption  and  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 Protection Convention and the 2007 
Child Support Convention and its protocol on applicable law. 

Iceland  has  also  ratified  the  1988  Lugano  Convention.  Iceland  still  needs  to  ratify  the  new 
Lugano Convention signed in 2007. Regarding international 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 Criminal Matters and its first additional protocol; 
the  second  one  is  signed  but  not  yet  ratified  by  Iceland)  as  well  as  the  relevant  Schengen 
principles. Iceland also partly implements the 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 Member States of the EU, Iceland and Norway 
signed  in  2006  (Agreement  on  the  surrender  procedure  between  the  Member  States  of  the 
European  Union,  Iceland  and  Norway,  OJ  L  292,  21.10.2006).  Iceland  concluded  a 
cooperation agreement with Eurojust in 2006. 

EN 

83 

   EN 

The  level  of  computerisation  of  the  court  system  and  the  existence  of  a  legal  framework 
establishing  a  criminal  register  should  enable  Iceland  to  fully  implement  the  Council 
Framework Decision on the organisation and content of the exchange 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, including euros. In general, the legislation is broadly in line 
with the acquis. 

Conclusion 

Iceland applies the Schengen Agreement and has reached an advanced level of alignment with 
the acquis in the field of justice, freedom and security. 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 capacity 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 suspensions and certain tariff quotas, all of which are 
directly applicable upon accession, and other customs-related legislation outside the scope of 
the  Customs  Code.  Member  States  must  ensure  that  the  necessary  implementing  and 
enforcement  capacities,  including  links  to  the  relevant  EU  computerised  customs  systems16, 
are in place. The customs administration must also ensure adequate capacity to implement and 
enforce special rules laid down 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  cooperation  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  amendments,  and  its  implementing  regulations,  is 
generally  aligned  with  the  provisions  of  the  Community  Customs  Code  and  implementing 
provisions, even though important discrepancies exist in various areas. 

Iceland’s  tariff  system  is  based  on  the  Harmonised  System  and  is  identical  to  the  EU 
Combined  Nomenclature  in  respect  of  the  first  six  digits.  However,  significant  differences 
exist  at  eight-digit  level.  Upon  membership,  Iceland  will  have  to  align  fully  with  the 
Combined Nomenclature. Iceland applies tariff  suspensions,  tariff  quotas  and  tariff  ceilings. 
The system applied by Iceland for Binding Tariff Information and Binding Origin Information 

16 

Tariff-related systems, NCTS, ECS, ICS, EOS. 

EN 

84 

   EN 

 
                                                 
is broadly in line with the provisions of the EU Customs Code. EU membership would require 
some  limited  adaptations,  for  instance  with  respect  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 preferential rules of origin in the framework of trade with EFTA partners 
or within the framework of EFTA with third countries. Iceland 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-preferential rules of origin. 

Iceland  applies  simplified  procedures  for  postal  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  procedures  and  is  indirectly  linked  to  the  New 
Computerised Transit System (NCTS). The rules 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. Legislation on control of drug precursors is not fully in line with 
EU acquis either. Some fine-tuning of its legislation will 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 procedures, including through effective risk analysis 
techniques.  The  Customs  IT  system  is  connected  to  shipping  companies,  traders  and 
government  departments.  All  offices  are  connected  to  the  central  IT  system  and  97 %  of 
customs  declarations  and  import/export  manifests  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  management,  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 rights. 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  achieved  a  good  level  of  administrative  capacity. 
Nevertheless,  further  efforts  will  be  necessary  to  effectively  implement  the  acquis  upon 
accession,  with  particular  attention  to  achieving  full  interconnectivity  with  the  EU’s 
computerised systems. 

EN 

85 

   EN 

Chapter 30: External relations 

The acquis in the field of external relations consists mainly of directly binding EU legislation 
which  does  not  require  transposition  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 (preferential) 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 preferential trade agreements with third countries and bring all other 
agreements,  including  non-preferential  trade  agreements,  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 Trade 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  Government  Procurement  and  to  the  Information 
Technology Agreement.  

At present, the Customs Act comprises the generalised system of preferences (GSP) scheme 
of Iceland, which offers GSP treatment for least developed countries (LDCs). In comparison 
with  the  relevant  EU  legislation,  both  the  level  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  measures  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%, for fish and fishery products 2.8% and for other goods 9.8% 
with  an  overall  average  of  13.4%.  The  EU  average  MFN  bound  ad  valorem  tariff  rate  for 
agricultural products is 5.8%, for fish and fishery products 11.4 % and for other goods 3.8% 
with  an  overall  average  of  4.1%  (based  on  HS  1996).  The  average  Icelandic  MFN  applied 
tariff rate 2006 for agricultural products is 6.4%, for 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 for 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, but not abolished. Upon accession, the country 
will have to apply the EU common customs tariff. 

Icelandic  commitments  under  the  General  Agreement  on  Trade  in  Services  (GATS),  both 
horizontal limitations and sector-specific commitments, are broadly in accordance with those 
undertaken  by  the  EU.  Like  the  EU,  Iceland  has  undertaken  GATS  commitments  in  many 
sectors and it respects the boundaries of the EU’s MFN exemptions. However, in the financial 
sector,  Iceland’s  GATS  schedules  do  not  include  a  market  access  limitation  regarding 
undertakings  for  collective  investment  in  transferable  securities  (UCITS).  This  is  scheduled 
by  all  EU  Member  States.  In  the  area  of  transport  services,  Iceland  has  undertaken  more 
liberal  commitments  than  those  prevailing  in  the  Member  States.  In  order  to  avoid 

EN 

86 

   EN 

 
compensation  under  Article  XXI  of  GATS,  Iceland  will  have  to  consider  modification  or 
withdrawal  of  its  commitments  in  this  and  other  sectors  upon  accession.  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  agreements  in  force  within  the  framework  of 
EFTA, of which 16 with third countries 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 agricultural 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, FTAs 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  countries  and  feature  pre-establishment  national 
treatment for third country investors 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 has 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  international  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 Effectiveness. 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  International  Development  Agency  (ICEIDA).  In 
2008, Icelandic official development assistance, as measured by the OECD methodology, has 
amounted to 0.43% of GNI, however due to financial 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 Consensus 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 membership, Iceland will need to ensure that 
its  actions  and  commitments  concerning  international  organisations  are  aligned  and 
coordinated with those of the EU. 

EN 

87 

   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  international  agreements,  and  on 
political  documents.  The  acquis  consists  of  political  declarations,  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 statements, to take part in EU actions and to apply 
agreed restrictive measures. Applicant countries are required to progressively 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  Declaration  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. The administrative structures are small, but 
adequate:  Iceland  has  26  diplomatic  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  countries.  Its  bilateral  relations  are  without 
significant problems. 

With  regard  to  restrictive  measures,  Iceland  has  implemented  all  United  Nations  Security 
Council  restrictive  measures  and  economic  sanctions  and  implemented  most  EU  restrictive 
measures.  However,  Iceland  has  not  aligned  itself  to  the  declaration  on  the  arms  embargo 
against  China.  Iceland  has  not  implemented  the  Common  Position  on  the  application  of 
specific  measures  to  combat  terrorism  or  the  Joint  Action  concerning  measures  protecting 
against the effects of the extra-territorial application of legislation adopted 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, Iceland participates in international export control regimes 
and instruments concerning the non-proliferation of weapons of mass destruction. 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,  the  OSCE  and  many  other  international 
organisations and agreements. It participates actively in regional organisations involving the 
northern  regions  of  Europe,  including  the  Arctic  Council,  the  Council  of  Baltic  Sea  States 
(CBSS) and the Barents Euro-Arctic Council (BEAC).  

An  EU-Iceland  security  agreement,  which  entered  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  information  under  conditions  equivalent  to  those 
established  in  the  relevant  Council  security  of  information  decision  of  2001.  Iceland's  full 

EN 

88 

   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 Response Unit to recruit and train civilian personnel. In addition 
to UN missions, Iceland participated in the ESDP operations EUFOR Concordia (the former 
Yugoslav Republic of Macedonia) and EUPM (Bosnia and Herzegovina) and is considering 
providing personnel for EULex (Kosovo under UNSCR 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  participate  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 following policy areas: public internal financial 
control  (PIFC),  which  covers  internationally  agreed  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 external audit function (national audit office). 
While  the  management  and  control  of  EU  funds  is  treated  under  the  relevant  other  policy 
chapters  (e.g.  agriculture  and  rural  development,  regional  policy  and  coordination  of 
structural  instruments,  fisheries),  this  chapter  covers  the  more  general  aspects  of  internal 
control and external audit 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 interests (PIF Convention 
and  its  protocols).  Finally,  the  protection  of  the  euro  against  counterfeiting  deals  with  the 
first-pillar aspects of this issue. 

In  Iceland,  the  PIFC  system  is  based  on  a  1995  government  policy  paper  and  there  is  no 
specific  law  on  PIFC.  Managers  are  responsible  for  the  efficient  use  of  public  funds  under 
their authority. Financial management and control concentrates on the legality and regularity 
of  financial  transactions.  The  system  does  not  explicitly  consider  the  triangle  of  economy, 
efficiency and effectiveness. The ministries do not 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  guaranteed  in  the  constitution.  The  scope  of  its 
responsibilities remains limited to central state interests. No central government institution is 
responsible for the external audit of municipalities. The INAO is free to determine the scope 
of its activities but does not follow a strategic 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 are broadly in line with the Convention on the Protection of the 

EN 

89 

   EN 

 
EU’s Financial Interests (PIF Convention) and its protocols. Individual provisions, such as the 
definitions  of  enrichment  offences  and  the  liability  of  company  managers,  remain  to  be 
aligned.  Currently,  no  specific  bodies  are  in  place  for  the  investigation  and  treatment  of 
suspected  fraud  and  other  irregularities  affecting  EU  or  other  international  funds,  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  competent  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 concentrates on budgetary and accounting controls. It 
does  not  provide  a  structured  PIFC 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  protection  of  the  EU’s  financial 
interests according to the PIF Convention and its protocols. 

Iceland will need to undertake considerable 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 financial resources necessary for the funding of 
the EU budget (‘own resources’). These resources are made up mainly of contributions from 
Member  States  based  on  traditional  own  resources  from  customs  duties  and  sugar  levies,  a 
resource  based  on  value-added  tax,  and  a  resource  based  on  the  level  of  gross  national 
income.  Member  States  must  have  appropriate  administrative  capacity  to  adequately 
coordinate  and  ensure  the  correct  calculation  (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  institutions  for  the  underlying  policy  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  accounts  and  GNI  are  compiled  based  on  ESA95 
standards.  The  Ministry  of  Finance  has  overall  responsibility  for  financial  and  budgetary 
issues.  

As  regards  the  operational  management  of  the  own  resources  system,  Iceland  will  need  to 
ensure in due course the human and administrative resources necessary to apply the EU rules 
concerning payments to the EU budget.  

Impact 

Given its size and GDP level, the impact of Iceland’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  expected  contribution  to  the  EU  budget  based  on 
application of the own resources rules.  

EN 

90 

   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  States.  The  total  number  of  infringement 
proceedings17 against Iceland decreased significantly in recent months. 

Iceland is on the whole well prepared to assume the obligations of membership 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  effectively  in  the  medium  term:  fisheries; 
agriculture  and  rural  development;  the  environment;  free  movement  of  capital;  financial 
services;  as  well  as  customs  union;  taxation;  statistics;  food  safety,  veterinary  and 
phytosanitary  policy;  regional  policy  and  coordination  of  structural  instruments;  financial 
control. 

17 

EN 

For  cases  concerning  lack  of  conformity  with  or  incorrect  application  of  EEA  provisions,  as  well  as 
legislation not at all or not fully transposed. 

91 

   EN 

                                                 
Statistical Annex 

STATISTICAL DATA (as of 1 February 2010) 
Iceland 

Basic data 
Population (thousand) 
Total area of the country (km²) 

National accounts 
Gross domestic product (GDP) (million national currency) 
GDP (million euro) 
GDP per capita (euro per capita) 
GDP (in Purchasing Power Standards (PPS) per capita) 
SI: GDP per capita (in PPS per capita, EU-27=100) 
SI: Growth rate of GDP (national currency, at constant prices, % change on previous year) 
SI: Employment growth (national accounts, % change on previous year) 
Labour productivity growth: GDP growth per person employed (% 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) 
Gross value added by main sectors (%) 

Agriculture and fishing 
Industry 
Construction 
Services 

Final consumption expenditure, as a share of GDP (%) 
Gross fixed capital formation, as a share of GDP (%) 
Changes in inventories, as a share of GDP (%) 
Exports of goods and services, relative to GDP (%) 
Imports of goods and services, relative to GDP (%) 

Industry 
Industrial production volume index (2000=100) 

Inflation rate 
SI: Annual average inflation rate (HICP), (total, % change on previous year) 

Note

1999 
276 

2000 
279 

2001 
283 

2002 
287 

2003 
288 

2004 
291 

103 000 103 000 103 000 103 000 103 000 103 000

2005 
294 
103 000 

2006 
300 
103 000 

2007 
308 
103 000 

2008 
315 
103 000 

Note

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

632 399 683 747 771 894 816 450 841 322 928 889 1 026 718 1 168 183 1 301 409  1 476 463 

9 421 

9 709 

9 474 

8 830 

8 194 
10 660 
29 600  33 500  31 000  32 900  33 600  36 400 
28400 
24800 
131.1 
139.1 
7.7 
4.1 
: 
: 
: 
: 
: 
: 
107.7 
107.8 

26000 
125.5 
2.4 
: 
: 
: 
101.2 

25100 
131.0 
4.3 
: 
: 
: 
102.8 

26600 
129.8 
0.1 
: 
: 
: 
104.2 

26200 
132.2 
3.9 
: 
: 
: 
103.6 

1) 

Note

Note

9.7 
17.9 
8.0 
64.4 
82.9 
21.8 
0.0 
33.6 
38.3 

1999 
: 

1999 
2.1 

9.0 
17.3 
8.6 
65.1 
84.0 
22.9 
0.4 
33.6 
40.9 

2000 
: 

2000 
4.4 

9.2 
19.2 
7.8 
63.8 
79.8 
21.5 
-0.3 
38.8 
39.9 

2001 
: 

2001 
6.6 

9.3 
16.8 
7.5 
66.4 
80.2 
18.2 
0.0 
37.4 
35.9 

2002 
: 

2002 
5.3 

7.9 
15.8 
7.5 
68.9 
83.3 
20.0 
-0.2 
34.3 
37.4 

2003 
: 

2003 
1.4 

6.8 
15.2 
8.8 
69.2 
82.2 
23.5 
-0.1 
34.1 
39.7 

2004 
: 

2004 
2.3 

13 124 
44 400 
29300 
130.5 
7.5 
: 
: 
: 
105.5 

6.2 
13.7 
10.4 
69.7 
84.0 
28.4 
-0.1 
31.7 
44.0 

2005 
: 

2005 
1.4 

13 311 
43 700 
29200 
123.4 
4.3 
: 
: 
: 
98.7f 

6.4 
14.8 
11.2 
67.6 
82.6 
34.0 
1.2 
32.3 
50.0 

2006 
: 

2006 
4.6 

14 851 
47 700 
30200 
121.3 
5.6 
: 
: 
: 
96.3f 

5.7 
13.9 
11.9 
68.6 
82.1 
28.2 
0.5 
34.8 
45.6 

2007 
: 

2007 
3.6 

10 265 
32 100 
30200 
120.6 
1.3 
: 
: 
: 
97.9f 

6.1 
15.8 
10.5 
67.6 
78.4 
24.2 
0.2 
44.6 
47.3 

2008 
: 

2008 
12.8 

EN 

92 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance of payments 
Balance of payments: current account total (million euro) 
Balance of payments current account: trade balance (million euro) 
Balance of payments current account: net services (million euro) 
Balance of payments current account: net income (million euro) 
Balance of payments current account: net current transfers (million euro) 

of which government transfers (million euro) 
Net foreign direct investment (FDI) (million euro) 
Foreign direct investment (FDI) abroad (million euro) 

of which FDI of the reporting economy in EU-27 countries (million euro) 

Foreign direct investment (FDI) in the reporting economy (million euro) 

of which FDI of EU-27 countries in the reporting economy (million euro) 

Public finance 
General government deficit/surplus, relative to GDP (%) 
SI: General government debt, relative to GDP (%) 

Financial indicators 
Gross foreign debt of the whole economy, relative to GDP (%) 
Gross foreign debt of the whole economy, relative to total exports (%) 
Money supply: M1 (banknotes, coins, overnight deposits, million euro) 
Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) 
Money supply: M3 (M2 plus marketable instruments, million euro) 
Total credit by monetary financial institutions to residents (consolidated) (million euro) 
Interest rates: day-to-day money rate, per annum (%) 
Lending interest rate (one year), per annum (%) 
Deposit interest rate (one year), per annum (%) 
Euro exchange rates: average of period - 1 euro = … national currency 
Effective exchange rate index (2000=100) 
Value of reserve assets (including gold) (million euro) 

External trade 
Value of imports: all goods, all partners (million euro) 
Value of exports: all goods, all partners (million euro) 
Trade balance: all goods, all partners (million euro) 
Terms of trade (export price index / import price index, 2000=100) 
Share of exports to EU-27 countries in value of total exports (%) 
Share of imports from EU-27 countries in value of total imports (%) 

Demography 
Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) 
Infant mortality rate: deaths of children under one year of age per 1000 live births 
Life expectancy at birth: male (years) 
Life expectancy at birth: female (years) 

EN 

Note 

2) 

Note 

Note 

3) 

Note 

Note 

93 

1999 
-558 
-290 
-90 
-168 
-9 
-9 
-51 
-116 
: 
64 
: 

1999 
1.1 
40.0 

1999 
74 
220 
900 
1 771 
3 479 
5 188 
11.1 
10.0 
4.5 
77.180 
: 
464 

1999 
2 363 
1 878 
-485 
104.6 
65.2 
58.8 

1999 
7.9 
2.4 
77.4 
81.4 

2000 
-957 
-516 
-160 
-269 
-10 
-11 
-241 
-427 
: 
185 
: 

2000 
1.7 
36.0 

2000 
99 
294 
1 000 
1 814 
4 113 
8 278 
13.5 
12.4 
6.9 
72.580 
115.4 
472 

2000 
2 798 
2 044 
-754 
100.0 
68.7 
60.7 

2000 
8.8 
3.0 
77.9 
81.5 

2001 
-382 
-68 
-18 
-285 
-11 
-13 
-192 
-386 
: 
194 
: 

2001 
-0.7 
40.5 

2001 
110 
284 
811 
1 672 
3 922 
7 737 
13.1 
12.0 
6.7 
87.420 
135.0 
418 

2001 
2 525 
2 246 
-278 
102.5 
70.0 
59.0 

2001 
8.3 
2.7 
78.3 
82.9 

2002 
143 
163 
-10 
-23 
14 
-10 
-254 
-347 
: 
93 
: 

2002 
-2.6 
44.5 

2002 
101 
270 
1 018 
1 854 
4 586 
8 061 
6.5 
8.2 
3.3 
86.180 
120.6 
432 

2002 
2 406 
2 359 
-47 
103.7 
72.6 
58.2 

2002 
7.7 
2.2 
78.5: 
82.3 

2003 
-465 
-183 
-108 
-160 
-13 
-8 
-42 
-336 
: 
294 
: 

2003 
-2.8 
39.9 

2003 
120 
349 
1 242 
2 183 
5 358 
9 484 
5.1 
7.7 
2.8 
86.650 
121.4 
671 

2003 
2 498 
2 111 
-387 
97.2 
73.7 
63.0 

2003 
8.0 
2.4 
79.5 
82.3 

2004 
-1 047 
-419 
-168 
-446 
-14 
-15 
-1 486 
-2 079 
: 
593 
: 

2004 
0.0 
36.0 

2004 
159 
465 
1 606 
2 778 
6 126 
13 108 
7.6 
10.3 
6.3 
87.140 
111.9 
752 

2004 
2 988 
2 322 
-666 
95.1 
75.2 
59.8 

2004 
8.3 
2.8 
78.9 
82.8 

2005 
-2 119 
-1 190 
-412 
-495 
-22 
-20 
-3 228 
-5 708 
: 
2 480 
: 

2005 
4.9 
26.1 

2005 
262 
827 
2 209 
3 886 
8 405 
21 996 
9.3 
12.0 
9.0 
78.230 
102.7 
860 

2005 
4 024 
2 487 
-1 537 
94.7 
74.7 
61.4 

2005 
8.2 
2.3 
80.2 
83.3 

2006 
-3 406 
-1 784 
-547 
-1 047 
-28 
-23 
-1 017 
-4 238 
: 
3 221 
: 

2006 
6.3 
28.0 

2006 
420 
1301 
2 411 
4 137 
8 958 
27 752 
16.2 
15.3 
12.8 
87.760 
128.0 
1 913 

2006 
4 788 
2 758 
-2 030 
101.2 
71.0 
56.9 

2006 
8.3 
1.4 
79.4 
83.0 

2007 
-2 166 
-1 004 
-502 
-616 
-44 
-41 
-8 455 
-7 673 
: 
-782 
: 

2007 
5.4 
29.3 

2007 
515 
1478 
4 688 
7 399 
14 040 
36 308 
14.0 
15.3 
13.3 
87.630 
120.2 
1 858 

2007 
4 881 
3 479 
-1 403 
101.0 
74.7 
59.1 

2007 
8.4 
2.0 
79.6 
83.4 

2008 
-4 537 
-46 
-194 
-4 272 
-24 
-27 
5 022 
4 862 
: 
160 
: 

2008 
-13.6 
57.5 

2008 
858 
1924 
3 957 
6 938 
11 609 
33 277 
18.3 
22.0 
15.0 
143.830 
216.4 
2 994 

2008 
4 152 
3 650 
-502 
94.8 
75.9 
53.5 

2008 
9.0 
2.5 
80.0 
83.3 

EN 

 
  
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Labour market 
Economic activity rate (15-64): share of population aged 15-64 that is economically active (%) 
SI: Employment rate (15-64): share of population aged 15-64 that is in employment (%) 

Note

Share of male population aged 15-64 that is in employment (%) 
Share of female population aged 15-64 that is in employment (%) 

SI: Employment rate of older workers (55-64): share of population aged 55-64 that is in 
employment (%) 
Employment by main sectors (%) 
Agriculture and fishing 
Industry 
Construction 
Services 

SI: Unemployment rate: share of labour force that is unemployed (%) 

Share of male labour force that is unemployed (%) 
Share of female labour force that is unemployed (%) 

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) 
SI: Long-term unemployment rate: share of labour force that is long-term unemployed (%) 

Social cohesion 
Average nominal monthly wages and salaries (national currency) 
Index of real wages and salaries (index of nominal wages and salaries divided by the CPI) 
(2000=100) 
SI: Early school-leavers: share of population aged 18-24 having not completed upper secondary 
education and not currently in education or training (%) 

Standard of living 
Number of passenger cars per 1000 population 
Number of subscriptions to cellular mobile telephone services per 1000 population 

Infrastructure 
Density of railway network (lines in operation, per 1000 km²) 
Length of motorways (thousand km) 

Innovation and research 
SI: Spending on human resources (public expenditure on education) relative to GDP (%) 
SI: Gross domestic expenditure on research & development, relative to GDP (%) 
SI: Percentage of households who have Internet access at home (%) 

Environment 
SI: Greenhouse gas emissions, CO2 equivalent (1990=100) 
SI: Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP) 
SI: Share of renewable energy in electricity consumption (%) 
SI: Road share of inland freight transport (modal split) (% of tonne-km) 

EN 

1999 
87.9 
86.3 
90.3 
82.1 

85.9 

8.8 
16.3 
6.8 
68.0 
2.0 
1.5 
2.6 
4.4 
0.2 

2000 
88.6 
86.6 
90.2 
82.8 

84.2 

8.0 
16.0 
6.7 
69.3 
2.3 
1.8 
2.9 
4.7 
0.2 

2001 
88.5 
86.5 
89.9 
82.9 

85.6 

7.2 
15.7 
7.2 
69.9 
2.3 
2.0 
2.5 
4.8 
0.3 

2002 
87.5 
84.7 
87.7 
81.6 

87.2 

7.3 
14.7 
8.0 
70.0 
3.3 
3.6 
2.9 
7.2 
0.3 

2003 
86.9 
84.0 
86.7 
81.2 

83.2 

6.6 
15.2 
7.3 
70.9 
3.4 
3.6 
3.1 
8.3 
0.3 

2004 
85.4 
82.8 
86.1 
79.4 

82.0 

6.0 
15.4 
7.4 
71.1 
3.1 
3.2 
2.9 
8.1 
0.3 

2005 
86.7 
84.4 
87.4 
81.2 

84.8 

6.5 
14.2 
7.7 
71.6 
2.6 
2.6 
2.6 
7.2 
0.3 

2006 
87.8 
85.2 
88.6 
81.6 

84.4 

6.7 
12.3 
8.6 
72.4 
2.9 
2.7 
3.1 
8.2 
0.2 

2007 
87.8 
85.7 
89.5 
81.7 

84.9 

5.8 
11.7 
9.4 
73.1 
2.3 
2.3 
2.3 
7.2 
0.2 

2008 
86.9 
84.2 
87.8 
80.3 

83.3 

4.7 
12.2 
9.9 
73.3 
3.0 
3.3 
2.6 
8.2 
0.1 

Note

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

207 000  225 000 249 000 266 000 284 000 301 000 336 000 377 000 414 000  446 000 

96.6 

100.0 

103.7 

105.7 

110.6 

113.5 

121.8 

128.0 

133.8 

128.3 

: 

29.8 

30.9 

28.8 

20.3 

24.9 

24.9 

25.6 

23.2 

24.4 

Note

Note

Note

Note

94 

1999 
547.7 
580.6 

1999 
: 
0.009 

1999 
6.6 
2.3 
: 

1999 
111.1 
341.0 
99.9 
100 

2000 
569.8 
758.4 

2000 
: 
0.011 

2000 
6.7 
2.7 
: 

2000 
109.5 
343.4 
99.9 
100 

2001 
564.7 
865.9 

2001 
: 
0.011 

2001 
7.0 
3.0 
: 

2001 
109.1 
342.6 
100.0 
100 

2002 
566.5 
903.7 

2002 
: 
0.011 

2002 
7.6 
3.0 
78 

2002 
109.3 
345.5 
99.9 
100 

2003 
580.2 
962.5 

2003 
: 
0.011 

2003 
7.6 
2.8 
78 

2003 
109.0 
336.5 
99.9 
100 

2004 
603.6 
992.5 

2004 
: 
0.019 

2004 
7.5 
: 
81 

2004 
109.9 
322.8 
99.9 
100 

2005 
631.4 
1013.7 

2006 
647.5 
1049.3 

2007 
668.4 
1045.5 

2008 
662.1 
1073.1 

2005 
: 
0.019 

2005 
7.6 
2.8 
84 

2005 
108.8 
311.3 
99.9 
100 

2006 
: 
0.019 

2006 
7.6 
3.0 
83 

2006 
124.2 
358.5 
100.0 
100 

2007 
: 
0.019 

2007 
7.4 
2.7 
84 

2007 
: 
: 
100.0 
100 

2008 
: 
0.041 

2008 
7.6 
2.7 
88 

2008 
: 
: 
100.0 
: 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy 
Primary production of all energy products (thousand TOE) 
Primary production of crude oil (thousand TOE) 
Primary production of hard coal and lignite (thousand TOE) 
Primary production of natural gas (thousand TOE) 

Net imports of all energy products (thousand TOE) 
Gross inland energy consumption (thousand TOE) 
Electricity generation (thousand GWh) 

Agriculture 
Agricultural production volume index of goods and services (producer prices, previous year=100) 
Total utilised agricultural area (thousand hectare) 
Livestock: cattle (thousand heads, end of period) 
Livestock: pigs (thousand heads, end of period) 
Livestock: sheep and goats (thousand heads, end of period) 
Production and utilisation of milk on the farm (total whole milk, thousand tonnes) 
Crop production: cereals (including rice) (thousand tonnes, harvested production) 
Crop production: sugar beet (thousand tonnes, harvested production) 
Crop production: vegetables (thousand tonnes, harvested production) 
SI = Structural Indicator 
: = not available 
e = estimate 
f = forecast 

Note 

Note 

e 

1999 
2 191 
0 
0 
: 
972 
3 079 
7 188 

1999 
: 
120 
75 
4 
491 
107 
2 
: 
13 

2000 
2 306 
0 
0 
: 
1 036 
3 235 
7 684 

2000 
: 
120 
73 
4 
466 
104 
3 
: 
14 

2001 
2 451 
0 
0 
: 
947 
3 354 
8 033 

2001 
: 
120 
70 
5 
474 
106 
4 
: 
16 

2002 
2 462 
0 
0 
: 
969 
3 388 
8 416 

2002 
: 
120 
67 
4 
470 
111 
5 
: 
14 

2003 
2 457 
0 
0 
: 
937 
3 379 
8 500 

2003 
: 
120 
66 
4 
463 
108 
7 
: 
12 

2004 
2 519 
0 
0 
: 
1 072 
3 489 
8 623 

2004 
: 
120 
65 
4 
456 
112 
10 
: 
12 

2005 
2 636 
0 
0 
: 
1 063 
3 616 
8 686 

2005 
: 
120 
66 
4 
455 
109 
10 
: 
12 

2006 
3 259 
0 
0 
: 
1 099 
4 349 
9 930 

2006 
: 
120 
69 
4 
456 
118 
11 
: 
20 

2007 
3 946 
0 
0 
: 
1 070 
5 016 
11 976 

2007 
: 
120 
71 
4 
455 
126 
11 
: 
19 

2008 
4 397 
0 
0 
: 
976 
5 374 
16 468 

2008 
: 
120 
72 
4 
459 
126 
15 
: 
19 

–  Fishing (predominantly marine fishing) represents between 80% (in 1999) and 77% (in 2008) of this share. 

–  Using the balance of payments sign convention, a negative value for FDI abroad means investment abroad by the reporting country whereas a positive value means de-investment. 

–  Average annual exchange rate as published by the European Central Bank. This rate is very close to the rate published by the Central Bank of Iceland for all years except 2008. For 2008, as a result of 
the financial crisis which lead to high exchange rate volatility and very narrow markets for the Icelandic Krona, the average annual rate published by the Central Bank of Iceland (127.46 ISK for 1 EUR) 
differs by more than 10% from the ECB rate 

EN 

95 

EN