Protocol 35 dispute sends Iceland before EFTA Court

Iceland is facing legal action over whether its laws give incorporated European Economic Area rules priority when they conflict with national law, mbl.is reports. The EFTA Surveillance Authority has brought the case before the EFTA Court, while Parliament is considering a bill to meet the authority’s demands for the fourth time.

The dispute concerns Protocol 35 to the EEA Agreement. The authority says Iceland’s laws do not ensure that rules adopted under the agreement take precedence over conflicting national legislation. Icelandic authorities resisted that position for years but conceded in 2023. No amendment has yet been passed.

During negotiations on the agreement, the European Community insisted that EEA rules should take priority over national laws, as European law did within the Community. The EFTA states rejected that approach, arguing it could amount to a transfer of legislative powers.

Protocol 35 was the compromise: it says the agreement does not require such a transfer, while committing the EFTA states to ensure through domestic legislation, where necessary, that incorporated EEA rules take priority.

When Parliament enacted the agreement in 1993, Iceland chose instead to require that national laws be interpreted, as far as possible, in line with EEA rules. That principle remains in force. The arrangement was important to the agreement’s passage in Iceland, where its compatibility with the constitution was strongly debated.

The authority first raised concerns about Iceland’s implementation in 2011, in a case involving liability for damage. It began a wider review in April 2012, citing three Supreme Court rulings. It is not known why the authority took up the issue at that time. There is no record of an EEA party having complained about Iceland’s implementation before then, or since, though the authority can launch investigations on its own initiative.

According to the authority’s records, Iceland did not respond to its 2012 inquiry. The authority then waited five years before sending a formal letter of notice in December 2017. The reason for the delay is not known. Two complaints about the implementation of Protocol 35 were later received, in 2019 and 2020, after the infringement case had begun.

In a reasoned opinion issued in September 2020, the authority argued that the interpretation principle was insufficient when the wording of national law was so clear that it could not be changed through interpretation. It cited rulings on liability for damage, foreign-currency loans and foreign-exchange controls, saying they showed that individuals and businesses could not always rely on rights under incorporated EEA rules. A general priority rule, it argued, would allow courts to set aside conflicting Icelandic laws.

Critics say the cases were limited in scope and do not necessarily demonstrate the need for a general priority rule. In some instances, Icelandic law provided greater rights than the European rule.