How Does Iceland Have a Trade Agreement with China while the EU doesn’t?

In 2013, Iceland concluded a trade-deal with the People’s Republic of China, making it one of the very rare European nations that has formed a trade agreement with the Asian superpower.

The Land of Fire and Ice

Iceland, a remote island located in the Northern Atlantic Ocean, has a population of 300,000. With an area of about 40,000 square miles, Iceland is comparable to the size of England. Due to its exports of seafood and refined aluminum, and the fact that the small island has very low energy costs, Iceland is one of the most productive countries in the world. In fact, Iceland produces almost all of its energy through geothermal and hydropower, making it largely independent of energy imports.

Iceland is not a member of the European Union, despite having signed agreements which give it the same rights and obligations as a member state (with a notable exemption from the EU’s Common fisheries policy) and being out of the bloc when it comes to concluding trade agreements.

After Iceland was hit by the 2008 financial crisis, the government vowed to diversify the local economy by looking beyond the European continent when it comes to trade. After signing the agreement, Chinese Prime Minister Li Keqiang said: “It also signals the deepening of our relationship, especially our economic relationship which has been lifted to a new height.”

The import-export relationship between the two countries is mostly related to fishery: Iceland exports fish and imports ships.

However, melting ice in the Arctic is providing opportunities to export resources such as oil, gas, iron, and gold and might explain better why the Chinese show increased interest in a remote European island.

Trade Between EU and China (or Lack Thereof)

Whoever believes that trade relations between the EU and China have been blocked by the Chinese, is mistaken. In fact, Beijing has already called for free trade deals with the European Union, however, the EU’s objections stand in the way of a successful trade negotiation. Many in the union are over-protective about social and environmental standards: something that China has managed to capitalize on.

During a trade dispute with the Europeans over anti-dumping regulations regarding solar panels, China used the different interests of both the manufacturers and the EU member states to set them against each other. As a result, China managed to negotiate a minimum price instead of anti-dumping tariffs.

Since trade treaties in the EU need to be approved unanimously, years of negotiations went up in smoke.It turns out that the Chinese haven’t been very impressed with the EU’s hierarchy when it comes to trade negotiations. While the European Union Commission in Brussels tries to centrally represent the member states, the Chinese have singled out allies of their own. One of the more special relationships China has established is that with the Czech Republic, for which China is already the second largest trading partner.

The inability of the European Union to conclude trade agreements of this scale have been shown in the past, notably during the TTIP negotiations between the EU and the United States. Months of scaremongering about the dangers of American food products had lead to thousands of protests against the treaty. In the end, all of the member states’ parliaments approved the deal, except the Parliament of Wallonia, the southern part of Belgium. Since trade treaties in the EU need to be unanimously approved, years of negotiations went up in smoke.

Surely, Polish air-conditioner producers were not amused when they found out that they will continue to pay high tariffs because, as the New York Times put it: dairy farmers in Belgium held up a big EU trade deal.

Countries like Iceland can establish trade deals with China while being considerably less significant than the rest of the European continent because, unlike the latter, they haven’t bound themselves to an enormous political structure that makes trade agreements very difficult to conclude.

Constrained by Brussels

The inability of individual member states to coordinate trade deals with non-EU members will be one of the EU’s biggest challenges in the future.

When Central and Eastern European countries joined the union in 2004, they did so with the incentive of large infrastructure investments. Just shy of 15 years later, those countries are standing on their own two feet, and want to profit off the advantage that low wage countries have when it comes to GDP growth. Annual wages in countries like Slovakia are statistically on the rise, and soon Slovakian merchants will beg the question, why should bureaucrats in Brussels decide who can do business and for what price.

This will ultimately be one of the most important arguments against the EU in upcoming years.

This article was first published by the Foundation for Economic Education.

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About Bill Wirtz

My name is Bill, I'm from Luxembourg and I write about the virtues of a free society. I favour individual and economic freedom and I believe in the capabilities people can develop when they have to take their own responsibilities.

1 Response

  1. Dr. Heinrich Dahmen

    Mojen, Herr Wirtz, et as schunn ze siehn, datt et emmer noch frey jeester bei oos yet . E schunne sonndisch weenschen esch eysch . Fill jriess ouss prüm.
    Heinrich Dahmen
    Schlehdornweg 11
    54595 Prüm

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