EES rules obstruct Iceland free trade deal with US

An article published by mbl.is argues that Iceland’s membership in the European Economic Area is a major obstacle to a free trade agreement with the United States. The article was written by Hjörtur J. Guðmundsson.

Speculation about a possible free trade agreement between Iceland and the US has surfaced regularly over the years. In autumn 2019, the news website Axios reported that US authorities were considering such an agreement with Iceland, not primarily for trade reasons but because of Iceland’s important geographical position and Washington’s interest in strengthening its position in the Arctic.

However, the article says a free trade agreement with the US is unlikely while Iceland remains part of the EEA. It argues that Washington would be unlikely to accept a system in which US goods imported into Iceland had to comply with European Union rules adopted through the EEA, which Iceland cannot change.

The article says those rules often differ significantly from US regulations and are frequently designed to protect production within the EU. It also notes that the EU is essentially a customs union, whose main purpose is to protect internal production from outside competition.

As tariffs fell in many parts of the world for much of the period before the most recent developments, the article says technical trade barriers in the form of regulations increasingly became the main way to maintain protectionism in international trade.

It argues that a significant part of the EU’s trade-related regulations is designed as technical barriers to protect production in member states, although they are generally presented as consumer protection measures. The article says this production often has no connection to Icelandic interests.

Failed free trade talks between the US and the EU, which never gained real momentum, focused largely on such technical trade barriers, according to the article.

When Costco encountered the EEA agreement

The article says Icelandic authorities must explain to potential negotiating partners, before formal talks can begin, that Iceland’s EEA membership requires it to adopt extensive EU trade legislation that is not Iceland’s to amend or negotiate. Potential partners must therefore either accept that situation or abandon the idea of opening talks.

A memorandum accompanying draft regulations several years ago stated that rules adopted through the EEA had “created a trade barrier with Iceland’s closest trading partners outside the EEA and reduced the scope of the EFTA-EEA states to conclude trade agreements with countries outside the EEA.”

The draft regulations would have changed food labelling rules so that it would have been sufficient for consumers to access ingredient lists by scanning products with an app. They did not take effect because of the EEA agreement.

Costco Iceland was initially intended to operate as a branch of the company’s Canadian business. After Costco’s managers encountered the requirements of the EEA agreement, the plan was changed and the Icelandic store instead became a branch of the company’s UK operations, when the UK was still part of the EU.

The article says the store has consequently mainly offered European products, particularly British ones, with far fewer US and Canadian products than originally intended.