COMMISSION STAFF WORKING DOCUMENT ICELAND 2013 REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2013-2014
Date: 2013-10-16
Institutions: European Commission
Subjects: Community acquis, Iceland, accession criteria, accession negotiations, economic reform, political reform, pre-accession strategy













EUR-Lex - 52013SC0418 - EN











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52013SC0418

COMMISSION STAFF WORKING DOCUMENT ICELAND 2013 REPORT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2013-2014 /* SWD/2013/0418 final */









Context and overview
Following the 27 April
2013 general elections, the new
Icelandic government decided to put the EU accession negotiations on hold and has indicated that the negotiations will
not be continued unless approved through a referendum. This decision means that
the accession process, where negotiations were started following the opinion by
the Commission and a positive decision thereto by the June 2010 European
Council, has come to a halt. The government has stated that it will undertake
an assessment of the status of the negotiations to date as well as on the
developments of the European Union, which will be submitted to the Icelandic
parliament for discussion in the coming months. 
In view of this
development, the Commission’s report provides a brief assessment of the
political and economic criteria as well as the state of alignment of Iceland
with the EU acquis. The report includes elements of further progress
made by Iceland in the period September 2012 to the taking of office by the new
government in May 2013, when the Icelandic authorities ceased contributing to
this report. Additionally, the
Commission has drawn concise conclusions regarding Iceland in its separate
communication on enlargement[1].
Iceland, as a
well-established and functioning democracy, continues to fully meet the political
criteria for EU membership. 
As
regards the economic criteria, Iceland can be considered a functioning
market economy. However, financial sector weaknesses and capital movement
restrictions still impede an efficient allocation of resources. Iceland should
be able to cope with competitive pressures and market forces within the Union
over the medium term, provided that it continues to address current structural
weaknesses through appropriate macroeconomic policies and structural reforms.
Iceland’s
economy continued to recover, albeit at a decelerating pace. So far, the
recovery has been largely supported by private consumption, while investment
remained weak. Low investment translated into low import growth, which helped
to maintain a surplus in the trade balance and a largely balanced underlying
current account. Record increases in tourist revenues largely compensated a
weaker export performance. The labour market situation improved, leading to a significant
reduction in unemployment. Nevertheless, unemployment among the young
population and long-term unemployed remain a policy challenge.
Inflationary
pressures subsided slightly in the first half of 2013. However, annual
inflation is still clearly above the central bank’s target of 2.5 %.
Despite continued fiscal consolidation, the speed of adjustment has slowed down
further. Fiscal risks persist due to spending pressures and sizeable contingent
liabilities. Public debt levels remain high. Financial sector consolidation
made progress, although debt restructuring of private households and companies
is not completed yet. The efficiency of financial sector supervision is still
not in line with international standards. In some sectors competition remained
limited, either as a result of legal entry restrictions or of substantial state
involvement, hampering investment and the growth potential of those sectors.
Capital
controls continue to lead to distortions in the financial and capital markets
and impede Iceland’s investment climate and thus growth potential. Preparing a
detailed strategy on how to lift these restrictions and proceeding with
necessary measures, while preserving exchange rate stability remains a key
challenge. An ad-hoc group on the removal of capital controls, including
experts from the European Central Bank, the Commission and the International
Monetary Fund was set-up in June 2012 at the request of the Icelandic
government, within the framework of accession, to assess prospects for lifting
these controls. 
As regards the Instrument
for Pre-accession Assistance (IPA) for Iceland, given the purpose of
this instrument and the government’s decision on the accession negotiations,
the Commission has suspended preparatory work on IPA II. The Commission will
not sign any new contracts under IPA I. As concerns projects for which
contracts have already been signed, the Commission is undertaking a
project-by-project assessment, together with the Icelandic authorities in order
for the Commission to determine which projects would be continued. 
***
Ability to take on the obligations
of membership
Iceland’s alignment
with the acquis as expressed in the Treaties, the secondary legislation
and the policies of the Union is presented below. The analysis is structured in
accordance with the list of 33 acquis chapters. Iceland has already
reached a high level of alignment in a significant number of policy areas
covered by the acquis, mainly due to its membership of the European
Economic Area. In a number of areas, the administrative capacity for effective
implementation and enforcement of EU rules and policies is not fully in place. Since the opening of accession negotiations in
June 2010, 27 chapters have been opened, of which 11 have been provisionally
closed.
Iceland continues to be highly aligned with the acquis
in the area of free movement of goods. Progress was made in the area of ‘Old
Approach’ product legislation (automotive sector, REACH and cosmetics).
Legislative alignment of horizontal measures in the area of ‘New and Global
Approach’ product legislation is not complete.
Iceland continues to be
highly aligned with the acquis on freedom of movement for workers. Iceland has not aligned with the Posting of
Workers and Residence Directives, has not extended social security rules to
legally resident third-country nationals and preparations for setting up an electronic data exchange system have not been
finalised.
There is a high level of alignment with the acquis on
the right of establishment and freedom to provide services. Alignment
with the Third Postal Directive has not been achieved and restrictions
in the fisheries sector remain. Iceland is almost fully aligned with the acquis
in the field of mutual recognition of professional qualifications. 
Iceland applies parts of the acquis on free
movement of capital. Exceptions remain, due to extensive capital controls
and in connection with investments in the fisheries sector.
Good progress has been made in the area of public
procurement. Iceland applies most of the acquis in this field.
Iceland has reached a high level of alignment and applies a
substantial part of the acquis in the field of company law. Good
progress was achieved over the reporting period in meeting EU requirements on
corporate accounting and auditing. Alignment with the company law acquis has not been completed. 
Iceland has reached a high level of alignment with the acquis
on intellectual property law. The alignment of Iceland’s enforcement
policy and legal framework on industrial property rights is not complete.
Iceland has reached a high level of alignment and applies a
substantial part of the acquis in the field of competition.
Iceland’s state aid measures taken in response to the financial crisis continue
to be in line with the acquis.
Alignment in the area of financial services is
satisfactory Work on alignment with and implementation of the new acquis
in all the areas covered by this chapter is not complete. 
Iceland has reached a
high level of alignment and applies a substantial part of the acquis in
the field of the information society and media. Good progress was
achieved in the area of audiovisual policy. The 2009 Telecom Package has not
been transposed and remaining gaps in alignment with the acquis in the
field of audio visual policy and information society services, in particular
the e-Commerce Directive have not been addressed. 
In the area of agriculture and rural development,
Iceland’s policies are not aligned with the acquis. No further
developments were reported in the areas of common market organisation, rural
development and organic farming.
Iceland is partially aligned with the acquis on food
safety, veterinary and phytosanitary policy. The current import
restrictions on fresh meat and live animals are not in line with the acquis.
There are gaps in legislation in the areas of animal by-products, food safety
rules, plant health, genetically modified organisms and novel foods, and animal
welfare. 
In the area of fisheries, Iceland applies a
management system which has similar objectives to those pursued in the EU, but
some rules differ considerably. Overall, Iceland’s fisheries policy is not in
line with the acquis. Existing restrictions in the fisheries sector on
freedom of establishment, services and capital movements as well as the
management of shared fish stocks are not in line with the acquis.
Iceland has a good level of alignment with the acquis on
transport policy. Good progress was made in air and maritime transport.
Alignment with the relevant EU legislation on air and road transport is not
complete.
Iceland is partly aligned with the acquis in the
field of energy. In the field of renewable energy, the National
Renewable Energy Action Plan to meet the EU 2020 targets was published in
December 2012.
In the area of taxation, Iceland’s legislation
remains partially aligned with the acquis and some progress has been
made. Preparations to ensure IT interconnectivity and interoperability with EU
IT systems for taxation have not started.
Iceland has a good level of alignment with the acquis
on economic and monetary policy. There are gaps in alignment with the acquis
in the area of monetary policy, including as regards the independence of the central
bank and the prohibition of monetary financing of the public sector.
Iceland is partly aligned with the acquis in the
area of statistics. Iceland has not developed comprehensive sectoral
statistics according to EU statistical standards and methodologies.
Iceland has reached a high level of alignment and continues
to apply a substantial part of the acquis in the area of social
policy and employment. Further preparations for participation in the
European Social Fund have been made. Further progress was made in the field of
labour law, employment policy and social inclusion. Legal alignment in the
areas of anti-discrimination and equal opportunities is not complete.
Iceland’s alignment with the acquis in the area of enterprise
and industrial policy remains at a high level. Access to finance for SMEs
remains difficult.  
Iceland maintains a good level of alignment with the acquis
in the area of trans-European networks. 
In the area of regional policy and coordination of
structural policies, Iceland started preparations in order to meet EU
cohesion policy requirements.
Iceland continues to have high standards in the area of the
judiciary and fundamental rights. The legislation on data protection is
not fully in line with the acquis. 
Iceland continues to apply the Schengen Agreement and is
well advanced in aligning with the acquis in the area of justice,
freedom and security. Alignment with the acquis in areas including
migration, asylum, judicial cooperation and cybercrime is not complete.
Iceland has achieved a high level of alignment in the field
of science and research and continued to participate actively in the EU’s
7th Framework Programme for research and technological development. Iceland
continues to be well advanced in meeting the targets and objectives of the
European Research Area and the Innovation Union. 
Iceland has achieved a high level of alignment in the field
of education and culture and continued to participate in several EU
programmes on education and culture. 
Iceland’s policy is to a large extent in line with the acquis
in the area of the environment. Compliance with the acquis on
nature protection has not been achieved, in particular with regard to the
protection of whales, seals and wild birds and the conservation of natural
habitats and of wild fauna and flora. The same applies to the water sector,
with special reference to alignment with the Marine Strategy Framework
Directive and the Floods Directive. Progress was made in the areas of waste
management, chemicals and climate change. Iceland is not aligned with the
Directives on fuel quality and the geological storage of carbon dioxide and has
not ratified the Espoo Conventions or the Environmental Crime Directive. 
Iceland has achieved a high level of alignment and applies
a substantial part of the acquis on consumer and health protection.
Iceland has made further progress in the field of public health. Alignment with
the acquis is
not complete, especially in the area of consumer protection, in particular
related to product safety issues. 
Iceland applies to a large extent the acquis in the
area of customs union. Preparations for addressing the identified gaps
with EU legislation and practice, in particular regarding customs procedures,
updating of the corporate and sectoral strategies and the development of
interconnectivity with the EU-related IT systems have been initiated. 
Iceland is highly aligned with the acquis in the
area of external relations. Iceland and the EU have held regular trade
policy consultations on WTO issues but Iceland has maintained its line in
support of two currently pending cases in the WTO against the EU trading regulations
for seals products. 
Iceland has reached a high level of alignment in the area
of foreign, security and defence policy. It has aligned with most EU
declarations and Council Decisions when invited to do so. It further advanced
the agenda on Arctic affairs given its objective to play an active and
prominent role in regional organisations in northern Europe and the Arctic
region.  
Iceland’s financial control system is partly in line
with international standards and EU best practices. No progress was made in
establishing internal audit and limited progress with ensuring compliance with
the standards issued by the International
Organisation of Supreme Audit Institutions in the area of external audit. Work
is incomplete on the public internal financial control policy paper and on protection
of the EU’s financial interests. 
Iceland has a good level of alignment with the acquis in
the policy areas affecting financial and budgetary provisions. Gaps
remain as regards the correct application of own resources rules. 
[1]               Enlargement
Strategy and Main Challenges 2013-2014, COM(2013) 700