Iceland’s interests better protected by UK free trade deal

Iceland’s trade interests are better protected by its free trade agreement with the United Kingdom than they were through the European Economic Area agreement, according to an opinion article by Hjörtur J. Guðmundsson published by Morgunblaðið.

Trade between Iceland and the UK stopped being based on the EEA Agreement in autumn 2022, following the UK’s departure from the European Union. A broad free trade agreement between the two countries entered into provisional force at that time and took effect permanently on 1 February 2023.

Iceland’s trade with the UK, its second-largest trading partner after the United States, has since been conducted under the free trade agreement.

The agreement was described by stakeholders as securing Iceland’s trade interests as effectively as the EEA Agreement had done. Foreign Minister Þorgerður Katrín Gunnarsdóttir made the same assessment. In an article published by Vísir in June 2021, after the free trade agreement was signed, she said it had secured “exactly the same situation” that had existed before the UK left the EU and the EEA Agreement.

Speaking in Iceland’s parliament on foreign and international affairs on 12 May last year, she said that most of Iceland’s trade was with Europe and was conducted on the basis of the EEA Agreement and good agreements with countries including the UK.

However, the article argues that Iceland’s interests have in practice been protected much more effectively by the free trade agreement with the UK. It says the agreement protects the country’s trade interests without involving continuous demands to transfer powers to the other party, as is the case with the EEA Agreement, or the growing one-sided adoption of burdensome rules that cannot be assigned a financial value.

Limited benefits from the EEA

The Ministry for Foreign Affairs reported in March last year that Icelandic exporters had received at least 33 billion Icelandic krónur in benefits from tariff concessions during the previous year. The estimate was based on an assessment by the ministry, Iceland Revenue and Customs and the EFTA office in Brussels.

Of that amount, 26.6 billion krónur was attributed to concessions under the EEA Agreement and related trade agreements with the European Union.

The assessment also showed tariff savings worth 14.6 billion krónur on aluminium exports to the European Union and 12 billion krónur on seafood exports to the EU and the UK.

The article says it would be misleading to regard these figures as evidence of the benefits of EEA membership, since most of the tariff concessions were already in place before the agreement.

Full tariff-free trade in exported industrial goods, including aluminium, was established around 1980 through Iceland’s 1972 free trade agreement with the European Union, then known as the European Economic Community. That agreement remains in force.