Iceland risks missing new trade opportunities

In an article published by mbl.is, Erna Bjarnadóttir argues that Iceland’s pursuit of European Union membership could limit its ability to develop independent trade ties, including with China.

Under its sovereign powers, Iceland can conclude trade agreements with countries around the world. The free trade agreement between Iceland and China is one example, the article says.

Preparations for the agreement began in 2006, followed by formal negotiations in April 2007. Four rounds of talks were held, the last in April 2008, before substantive negotiations were suspended for more than four years.

Bjarnadóttir attributes the delay to the government of Jóhanna Sigurðardóttir prioritising the European Union. She writes that valuable time was lost, while claiming that the European Commission had placed pressure on Iceland over two Icesave agreements and later attempted to force the country into sovereign default.

The fifth round of negotiations with China took place in Reykjavík from 18 to 20 December 2012. The final intergovernmental conference in Iceland’s EU accession talks was held in Brussels on 18 December that year. Based on the available information, the article says the resumption of substantive talks with China appears to have coincided with the effective end of the EU negotiations.

The sixth round with China was held in January 2013. On 28 January, the EFTA Court ruled in Iceland’s favour in the Icesave case, which Bjarnadóttir describes as the country’s biggest victory in a court case. Iceland and China signed their free trade agreement on 15 April that year, while Jóhanna Sigurðardóttir’s government lost the parliamentary election on 27 April.

For Iceland, access to the Chinese market for fish and other seafood products was the main priority. Iceland also imports cars and machinery, clothing and shoes, computers, electronic and telecommunications equipment, and a wide range of other goods from China. The agreement was also a significant political victory, the article says.

Switzerland continues its trade strategy

Switzerland’s free trade agreement with China entered into force in 2014. It formed part of a deliberate Swiss strategy to build its own network of trade agreements as a sovereign country outside the European Union.

On 20 August 2026, Switzerland concluded negotiations with China on substantial improvements to the agreement. Once the revised deal enters into force, 99.8 per cent of Switzerland’s current exports will be able to enter the Chinese market duty-free.

The revised agreement also includes modern rules on trade in services, digital trade, investment, environmental issues and workers’ rights.

Impact of EU accession talks

Bjarnadóttir argues that EU accession talks concern not only what Iceland might gain from a potential membership agreement. They also affect which other options the Icelandic government considers realistic in the meantime.

A country pursuing EU membership cannot formulate an independent long-term trade policy as though nothing had changed, the article says. If Iceland joined the EU, the bloc’s common trade policy would apply and Iceland’s bilateral free trade agreement with China would cease to be valid.

Other countries would have limited incentives to invest time and effort in negotiating or substantially improving trade agreements with a country that had chosen a path towards EU membership talks, according to the article. Such an agreement could prove short-lived.

An application for membership under Article 49 of the Treaty on European Union is not a neutral exercise intended only to determine what might be available, Bjarnadóttir writes. It is a foreign policy declaration about the direction a country intends to take, and it affects its relations with other trading partners.