The Iceland-China Free Trade Agreement: A Milestone for Strengthening Good Relations Between Iceland and China

By+STEFAN+SKJALDARSON

THIS year China and Iceland are making his- tory together with the Iceland-China Free Trade Agreement， which will come into force on July 1. The agreement， which was signed during the official visit by former Icelandic Prime Minister， Mrs. Johanna Sigurdardottir， one year ago was the first FTA China had signed with a European country. Shortly after， Switzerland followed suit， and it is expected other countries may follow in the near future.

The relationship between Iceland and China has developed positively for a long time in spite of their geographical distance and different political systems. It is interesting to note that Iceland was one of the first Western European countries to receive a Chinese cultural delegation soon after the establishment of the Peoples Republic of China. To the best of my knowledge， a Peking Opera troupe visited Iceland as part of a cultural delegation shortly after the founding of the PRC in 1949， and a delegation from Iceland visited China in 1952 and met Chairman Mao Zedong， among other leading statesmen.

In spite of these early cultural contacts between the two countries， Iceland-China trade and economic cooperation started rather late. This was for the large part because of the long distance between the two countries and differences in size， culture and history. However， trade and economic cooperation between the countries have increased at a steady pace， in particular after the opening of the Embassy of Iceland in Beijing in 1995.

In 2006， Iceland and China decided to start negotiations on a free trade agreement. That year， bilateral trade increased about 50 percent over 2005， and more than doubled from that of 2004. Since then， new trade records have been broken almost every year. This resilient growth in bilateral trade and economic cooperation even stood the test of the financial crisis in 2008. The crisis led to a financial collapse in Iceland with the result that the Icelandic economy entered into recession in 2009 and 2010. But in spite of this， Iceland-China trade kept growing， while Icelands trade with certain other trading partners suffered.

In 2012 when the FTA negotiations were heading

towards conclusion， China had become Icelands fourth biggest foreign supplier of goods. While Iceland imports a wide range of manufactured products from China， with growing emphasis on industrial and hi-tech products， including electronics， machinery and equipment， Icelands main exports to China have been seafood. In 2012， China was the 19th biggest foreign market for Icelandic products.

The FTA will undoubtedly bring new opportunities for Icelandic products in China， not only seafood， but also other products that will be easier to market in China.

Chinese consumers are becoming ever more conscious of the ecological and health aspects of their food. They are also more and more concerned about the sustainability of food production. The ocean around Iceland is naturally pure because of strong ocean currents and long distance from big industrial countries. Furthermore， Icelandic fisheries are managed in accordance with the principle of sustainable utilization of living marine resources， based on scientific advice. Icelandic agricultural production is also based on sustainability and environmentally friendly production techniques in a clean environment. Therefore， not only Icelandic seafood products but also agricultural products are sustainably produced and naturally healthy for consumption. Furthermore， there should be potential for Icelandic health products and cosmetics made of raw materials extracted from the clean and pristine Icelandic flora and fauna.

As regards China， the FTA should also facilitate even more Chinese exports to Iceland as most Chinese products will now enjoy zero tariffs. This will make them even more competitive than before and hopefully give Chinese businesses and Icelandic consumers more value for money.

Bilateral investments are also growing between Iceland and China. About 20 Icelandic companies have established operations in China. These companies work in different fields such as computer games development， automatic food processing technology， seafood handling systems， seafood trading， shipping， medical devices， hightech prosthetics， energy-saving technology， and renewable energy. Icelandic geothermal experts are for example giving advice on geothermal development in China. An Icelandic company plays a key role in the utilization of geothermal resources for heating systems in some urban areas in northern China， and is helping to identify geo-graphic areas in China where geothermal resources can be utilized sustainably. A new Icelandic investment project of this kind was recently put into operation in Jiangsu Province， and more projects are under consideration.

A number of Chinese companies have shown interest in investing in Iceland with a focus on such diverse sectors as energy intensive industries and tourism. Furthermore， Icelands strategic location in the North Atlantic at the southern edge of the Arctic Ocean， midway between the European and North American continents， is also attractive to some Chinese companies such as those involved in oil and shipping.

As regards tourism， Iceland is praised in the Chinese media for its unspoilt nature and as an exotic tourist destination for Chinese visitors. Increasing numbers of Chinese tourists visit Iceland every year in spite of long distances and relatively high travel costs. Almost 18，000 tourists from the Chinese mainland visited Iceland last year even though direct flights have not yet been established between the two countries. Growth in tourism from China has been substantial during the last decade. I am confident that the number of Chinese tourists will keep growing in the years to come. Chinese tourists are most welcome to Iceland to enjoy our pristine nature， clean environment， healthy food and vibrant culture.

People from various walks of life in Iceland are also increasingly looking at China as a destination for visits and for educational， scientific， cultural， business and other reasons. This development will inevitably also lead to more and more people-to-people contacts between China and Iceland. This is very important for increasing understanding between the two countries to the benefit of both of them.

I have no doubt that the Year of the Horse， 2014， will be remembered in Iceland and China as the year when Iceland-China relations took a leap forward through the implementation of the Iceland-China FTA. The significance of the FTA lies not only in the opportunities for a surge in trade， economic cooperation and investments between Iceland and China. Its importance goes beyond that. Perhaps the biggest significance of the agreement lies in that it cements the good relations that have been developing between Iceland and China across the board for years. The agreement also signifies that the fastest growing and second biggest economy in the world can join hands with one of the smallest economies on an equal footing and thereby be an example to others that size is not always the issue in bilateral relations. The FTA represents a reaffirmation of the excellent relations between Iceland and China， and it will be a central pillar for further deepening and widening of our bilateral cooperation in all fields.