RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/65
4 January 2000
(00-0017)
Trade Policy Review Body Original: English
TRADE POLICY REVIEW
ICELAND
Report by the Government
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), the policy statement by the Government of Iceland is attached.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Iceland.Iceland WT/TPR/G/65
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CONTENTS
Page
I. EXECUTIVE SUMMARY 4
II. TRADE AND ECONOMIC POLICY ENVIRONMENT 5
III. THE ROLE OF THE FISHERIES POLICY 8
IV. TRADE POLICY DEVELOPMENTS AND FUTURE POLICY DIRECTIONS 9
(1) The EEA Agreement 9
(2) Other relations with the European Union and the question of membership 10(3) The European Free Trade Association (EFTA) 10
(4) The World Trade Organisation (WTO) 11
(5) The OECD 12
(6) The Overseas Business Service and other foreign relations 12WT/TPR/G/65 Trade Policy Review
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I. EXECUTIVE SUMMARY
1. The last Trade Policy Review of Iceland took place in 1994.  At that time the economic
outlook was not promising and the economy was not in a good shape.  Since then however, some
major changes have taken place.
2. Today Iceland’s economy compares well with those of the countries it generally measures
itself against.  A reasonable macroeconomic balance has been established, inflation has been broughtunder control and the economy has rapidly moved towards openness and liberalisation of markets.
Behind these improvements in recent years lie extensive economic reforms.  The most significant
reforms relate to the strengthening of markets, opening up of the financial markets and more
disciplined economic management.  Distortions in the economic environment have been corrected by
containing inflation and allowing interest rates and the real exchange rate to be determined byeconomic conditions.  Furthermore, general attitudes towards the economy have changed.  There has
been growing appreciation of the need for stability and a consensus appears to have emerged that
economic stability is the key to future prosperity.
3. Before the recovery started there was a surplus on the current account, but as investment
increased it has turned into deficit.  There are signs of overheating in the economy.  It appears that the
economy has been testing the limits of non-inflati onary growth.  In response to growing demand, the
Government has been tightening monetary and fiscal policies with the aim of slowing down the pace
of economic activity.  This tightening will be central to economic policies in the year 2000.  The
Government’s goal is to achieve a "soft landing" for the economy.
4. Iceland has always been heavily dependent on imports.  Most necessities of life need to be
imported and financed through the export of fisheries products.  Although a progressive
diversification of the economy has taken place in recent years, fisheries remain the mainstay of theeconomy.  For this reason, Iceland's overriding foreign trade interests continue to be identified largely
with free trade in fish.
5. An important step towards free trade was taken when Iceland became a member of European
Free Trade Association (EFTA), on 1 March 1970.  According to the agreement, Iceland obtained
immediate duty-free access to the EFTA markets for all products covered by the EFTA Conventionand in return it abolished its protective dut ies on imports from EFTA countries.  The EFTA
Convention covers nearly all industrial products, as well as all fish and other marine products.
6. The Agreement on a European Economic Area (EEA) between the EFTA states and the
European Union entered into force 1 January 1994 and has directed new trends into Icelandic
industries.  The agreement provides that the four fundamental freedoms of the internal market of theEU, the free movement of goods, services, capital a nd persons, apply within the EEA in the same way
as in the EU.
7. Full free trade in fisheries products has been established not only within EFTA but also in a
series of free-trade agreements with countries in Central and Eastern Europe and in the
Mediterranean.  The EEA Agreement, with some exceptions, secures preferential access for mostIcelandic products to the EU market.
8. However, Iceland cannot depend exclusively on the European market.  In the absence of any
preferential trade agreements, trade with partners outside Europe relies on the contractual framework
provided by the World Trade Organisation (WTO).  The establishment of the WTO with its improvedIceland WT/TPR/G/65
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dispute settlement procedures and increased scope will provide not only more security for trade but
also a valuable forum for Iceland to develop its contacts and solve any potential trade disputes.
9. A profitable fisheries sector is vital for the Icelandic economy.  It will be ensured by
long-term fisheries management with the aim of sust ainable growth of the fishing stocks.  Therefore,
the fisheries policy plays an important role in keeping the economy in good shape.  The current quota
system has succeeded in its goal of keeping the catch to within specified limits and the fisheries sectoron the whole has shown increasing profits in recent years.
10. The EFTA States have concluded free-trade agreements with fourteen states and issued
declarations of cooperation with six states in the past eight years.  The most intensive work currently
in progress within EFTA concerns the free-trade negotiations with Canada.  In the EFTA Council,
Iceland has supported cooperation with Mexico  and the four MERCOSUR countries, Argentina,
Brazil, Paraguay and Uruguay.  In addition to the discussions with Canada, negotiations on free trade
are also in progress with Egypt, Jordan, Cyprus, Tunisia and recently exploratory talks with Chile
were initiated.
11. In the forum of the WTO, Iceland will continue to emphasize the importance of universal
broad-based trade liberalization.  Iceland supports the aim of efforts to launch a comprehensiveMillennium Round of negotiations in the WTO in the year 2000.
12. Icelandic companies will have to prepare as well as they can for the future in a new highly
regulated international trading environment, conducted with complex network of free trade
agreements, the EEA Agreement and the WTO.  In order to pave the way for their business activities
in foreign markets the Overseas Business Service was established within the Foreign Ministry
in 1997.  This Service has assisted numerous companies in the conduct of their business across the
world, both alone and in cooperation with the Trade Council of Iceland.
II. TRADE AND ECONOMIC POLICY ENVIRONMENT
13. Iceland today is a small open economy with basically the same social and economic fabric as
the most advanced OECD countries.  The economy is market-orientated with quite an extensive
welfare system.  Public expenditure is estimated around 36% of GDP in 1999 and is close to the
average in the OECD countries.  Both GDP and private consumption per capita are in the top rangeamong the OECD countries.  The level of education is high and Iceland's technical infrastructure is
well advanced.  Macroeconomic performance has been remarkable in recent years. Economic growth
has been rapid, inflation has been kept in check and employment has been increasing.  As a member
country of the European Economic Area, Iceland has a similar legislative framework for businesses
and industries to those prevailing in the EU.
14. Behind these improvements in recent years lie extensive economic reforms.  The most
significant reforms relate to the strengthening of  markets, opening up of the financial markets and
more disciplined economic management.  Distortions in the economic environment have been
corrected by containing inflation and allowing interest rates and the exchange rate to be determined by
economic conditions.  Furthermore, general attitudes towards the economy have changed.  There hasbeen growing appreciation of the need for stability and a consensus appears to have emerged that
economic stability is the key to future prosperity.
15. The phases of economic reform during this decade can be characterised by five milestones:WT/TPR/G/65 Trade Policy Review
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- First, inflation was contained at the beginning of the decade.  Tight economic policies
and moderation in the labour market achieved this.  Iceland has a long history of high
inflation.
- Second, the exchange rate and interest rates were allowed to be determined by market
forces.
- Third, the European Economic Area was established, creating a similar legislative
framework for businesses in Iceland to those in the EU.
- Fourth, capital flows have been liberalised in steps during the past few years and the
final step was taken in the beginning of 1995 by liberalising short-term capital flows.
- Fifth, ongoing market reforms, incorporation and privatisation.
16. The latest development in this area is a successful first phase of privatisation in the financial
market.  The Government is firmly committed to  further privatisation in the financial and
telecommunications sectors.
17. These reforms have significantly changed the structure and characteristics of Iceland's
economy by establishing a reasonable macroeconomic balance and integrating the national economy
with the global one.  Good macroeconomic conditi ons are a prerequisite for a competitive business
environment and integration with the global economy provides conditions which are conducive for
growth in foreign trade.  Hence, the economy has been streamlined and is now fitter than before to
meet the challenges of the future.
18. Over the last four years, annual economic growth has averaged more than 5% per year,
compared with 2,5% in the OECD as a whole.  Strong performance has also been reflected in low
inflation, ample employment, sharply improved livi ng standards and a budget surplus.  Inflation has
been kept in check, basically below 2% since the recovery started.  However, in recent months therehas been an upward trend in inflation signalling capacity constraints in the economy.
19. Unemployment has declined sharply since it peaked in 1995.  It is estimated to average 2%
this year, down from 5% in 1995.  Unemployment is now at its lowest since 1991.  As can be
expected, vacancy rates have also moved up.  Real disposable income per capita has risen by more
than 20% over the last four years.
20. The Treasury finances have improved significantly in recent years.  The surplus is estimated
to be 7,5 billion krónur this year on the accrual basis or 1,2% of GDP, a turn around from a deficit of
8 billion four years ago and a record a net financial surplus is expected of 20 billion krónur.  Although
local government finances have been somewhat weaker, general government finances have improved
strongly.  In 1995, there was a deficit of 3% of GDP, while a surplus of 1,2% is expected for this year.
21. The performance of the Icelandic economy has improved overall and there has been progress
in many individual sectors.  For example, the so-called knowledge industries, in particular software
and biotechnology, have expanded rapidly and large investments have been made in the
power-intensive sector.  In addition, manufacturing in general and tourism have flourished over the
past few years.  Fisheries have strengthened as well, due to an advanced resource management systemin the sector.  There are also clear signs of increased productivity and improved efficiency in most
other sectors, which are undoubtedly the result of the changed economic environment.  GlobalisationIceland WT/TPR/G/65
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of the markets has changed the whole economic environment.  The Government is committed to
developing a competitive and diversified Icelandic economy in a global environment.
22. As a consequence of rapid growth of expenditure, the current account has turned into a deficit
corresponding to 4,2% of GDP in 1999.  Before the recovery started there was a surplus on the current
account, but as investment increased it has turned into deficit.  Now booming consumption is
preventing a reduction in the current account.  There are signs of overheating in the economy. Itappears that the economy has been testing the limits of non-inflationary growth.  In response to
growing demand, the Government has been tightening monetary and fiscal policies with the aim of
slowing down the pace of economic activity.  This tightening will be central to economic policies in
the year 2000.
23. Prospects for economic growth in 2000 must be seen in this light.  The Government’s goal is
to achieve a "soft landing" for the economy, by slow ing growth from 5% to 2,5-3% level, which is the
average expected for the industrial countries.  This rate of growth should be consistent with price
stability and should also ensure the best feasible  continuation of the current growth phase.  The
challenge ahead is finding the right policy mix to achieve this objective.
24. National expenditure growth is expected to  slow down, leading to 2,7% growth in GDP
compared with estimated 5,8% in 1999.  In 2001-2004, grow th is expected to slow further, to 2% per
year on average.
25. Price increases in 1999 were higher than in the recent past, and sharply higher than among
trading partners.  The National Economic Institute projects an increase in the CPI of 5% in the course
of 1999 and a 3,2% increase between the 1998 and 1999 averages.  If national expenditure growth
slows, however, the pressure on prices can be expected to ease.  The institute, therefore, forecasts
2,5% CPI inflation in the course of 2000 implying an increase of 4% between the 1999 and 2000averages.
26. Unemployment in year 2000 is on average expected to be similar to what it was in 1999, or
2% of the labour force.  Real disposable income per capita is assumed to rise in the range 1-1,5%.
27. Exports of goods and services are projected to  grow by 2,5% and imports by 2%.  A small
deterioration in the terms of trade this year is expected to be reversed next year.  A large currentaccount deficit is expected to remain, although a gradual decline is projected in the medium term.
28. The Governments macroeconomic policy challenge is to find the right policy mix to achieve a
soft landing for the economy.  The Government has already taken certain steps with presenting a
Budget with a record surplus, a surplus corresponding to 2,2% of GDP, and the Central Bank raised
the repo-rate by 0,6% points in September 1999 after three successive interest rate increases duringthe prior twelve months.
29. The Government does not exclude further tightening of monetary policy; such an action is
possible, if the pace of the economy does not slow down.  Further tightening of fiscal policy than is
envisaged in the Budget is also conceivable in order to secure continued stability.  These issues will
be carefully assessed in the next months ahead in light of developments in the economy.  TheGovernment is determined to take all the necessa ry steps in order to prevent overheating of the
economy, which may jeopardize economic stability.
30. Iceland has always been heavily dependent on imports.  Most necessities of life need to be
imported and financed through the export of fisheries products.  Although attempts have been made inWT/TPR/G/65 Trade Policy Review
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recent years to diversify, fisheries remain the mainstays of the economy.  For this reason, Iceland’s
overriding foreign trade interests continue to be identified largely with free trade in fish.
31. Full free trade in fisheries products has been established not only within EFTA but also in a
series of free-trade agreements with countries in Central and Eastern Europe and in the
Mediterranean.  The EEA Agreement, with some exceptions, secures preferential access for most
Icelandic products to the EU market.
32. The European market is likely to remain the most important outlet for Icelandic products for
the foreseeable future, while the US market, although relatively less important than Europe, will
certainly not be neglected.  But progress in fish processing technology and transport has opened up
new possibilities farther afield that are far from being exhausted.  Exports to Japan are increasing in
importance and emerging markets in China and Korea seem to hold promise for the future.  There aretraditional markets for Icelandic pro ducts in Africa and South America.
33. No matter how its relations develop with the European Union, Iceland cannot depend
exclusively on the European market.  In the absen ce of any preferential trade agreements, trade with
partners outside Europe relies on the contractual framework provided by the World Trade
Organisation (WTO).  The establishment of th e WTO with its improved disputes settlement
procedures and increased scope will provide not only more security for trade but also a valuable
forum for Iceland to develop its contacts and solve any potential trade disputes.
III. THE ROLE OF THE FISHERIES POLICY
34. Efforts to establish an international regime to protect the fishing grounds of coastal states
have in the past been among the most important planks of Icelandic foreign policy.  Since fishing is a
sine qua non for the Icelandic people, governments have been obliged to take all necessary measures
to preserve this vital resource.  In so doing they  have sought both to work within the framework of
relevant international law and to influence the direction of the progressive evolution of that law in
previously uncharted waters.
35. The entry into force of the United Nations Convention on the Law of the Sea in
November 1994 marks a high point in this process.  For Iceland, the convention is of major
significance, mainly because it ensures the right of a coastal state to extend its economic zoneunilaterally to 200 miles from the coastal base line.
36. In 1983 it became apparent that effort limitations, which had been in force in Iceland
since 1973, had not proved successful and the Icelandic cod stock was in decline.  The catch that year
dropped to 294,000 tonnes from 462,000 tonnes in 1981.  After marine biologists recommended a
drastic cut in the cod catch for 1984 and subsequent years in order to allow the stock to recover, it wasdecided to adopt a system of transferable quotas for individual vessels, based on each one's catch
performance over the period 1981-83.  The vessel quota management system had the twin objectives
of limiting the total catch and encouraging more ef ficient fishing operations, through the transfer of
fishing rights among vessels and more rapid reduction of the fishing fleet.  This management system
has undergone a number of reforms since its introduction to rectify or eliminate various shortcomings,which have delayed the achievement of its objectives.
37. Every vessel with a commercial fishing permit wa s allocated a permanent "quota share".  The
quota share is unchanged from one year to the next, unless the vessel owners have given notification
of changes due to combination of quota shares or their transfer.  There are no restrictions on the
transfer of quota shares between licensed fishing vessels registered in Iceland.Iceland WT/TPR/G/65
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38. Recent years have witnessed a rapid growth in sales of both permanent quota shares and
annual quotas.  This has led to increasing efficiency and stability in the sector.  Viable enterprises
have chosen to invest in harvest rights rather th an other forms of investment.  Harvest rights have
been transferred to those parties, which exploit them most efficiently, and it has proven easier for
parties in financial straits to close down their operations without having to declare bankruptcy.
39. Trading in quotas for different species has encouraged firms to specialise in processing of
particular species and thereby increase efficiency.  In mixed fisheries the transfer of quotas has
allowed vessels to adjust their quota composition to the actual species composition of the year's catch.
40. In most cases there is a direct relationship between fishing operations and processing.  The
same firms largely own vessels and processing plan ts.  The system of issuing quotas to individual
vessels rather than companies has therefore not disturbed the earlier equilibrium that had beenestablished between fishing and processing interests.  Shifts are more likely to occur in the activities
of different fishing communities and regions, although clauses in the law grant local parties a first
option to buy vessels or their annual quotas if their sale to other communities has been agreed.
Considerable changes in the relative importance of local and regional fishing activities have
nonetheless resulted from quota trading.  However, it has been the Government’s view that it is anatural development that fishing and processing should move to the places most suitable for
undertaking them and that both fishing and fish processing continue to develop steadily.
41. A profitable fisheries sector is vital for the Icelandic economy.  It will be ensured by long
term fisheries management with the aim of sustainable growth of the fishing stocks.  Therefore the
fisheries policy plays an important role in keeping the economy in good shape.  The current quota
system has succeeded in its goal of keeping the catch to within specified limits and the fisheries sector
on the whole has shown increasing profits in recent years.
42. The Government priorities for responsible fisheries for the future are:
- To ensure and maintain maximum long-term productivity through responsible
exploitation of all marine resources;
- To ensure that all decisions are based on the most reliable biological and economic
information and conclusions available at any time;
- To ensure that individuals and enterprises in the Icelandic fisheries sector have clear
and generally applicable, non-discriminatory guidelines to follow, providing them
with a positive working environment which will strengthen the sector's competitive
position internationally.
IV. TRADE POLICY DEVELOPMENTS AND FUTURE POLICY DIRECTIONS
(1) T
HE EEA A GREEMENT
43. The EEA Agreement entered into force 1 January 1994 and has had a major impact on the
business regulatory environment.  The Agreement is  much more than a free trade area.  It provides
that the four fundamental freedoms of the internal market of the EU, the free movement of goods,
services, capital and persons, apply within the EEA in the same way as in the EU.  The Agreementhas led to a complete review of the Icelandic legislative framework.  It placed the Icelandic
government under great pressure when the codex of EEA instruments was adopted in its entirety.WT/TPR/G/65 Trade Policy Review
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44. One of the most important EEA decisions as regards Icelandic interests was made in
July 1998, when the Joint Committee decided that common rules should apply within the European
Economic Area on the processing of marine product s and production controls.  In addition, the same
rules will apply to the control of imported marine products.  That decision took effect in
January 1999.  On the basis of this decision, Iceland assumes responsibility for surveillance of
compliance with the common rules, both domestically and as regards imports from third countries.The benefit is that exported Icelandic marine products will have greater access to the European market
and will not suffer the same delays at borders as they did before.
45. It is now a fact that whether the subject of discussion is working conditions and health in the
workplace, standards and quality requirements in production and services or consumer protection,
education or the environment, the accepted context is the discussion within the European Union (EU).
This was the case even before the conclusion of the EEA Agreement, which provided a framework,
which not only provides access to markets but also ensures comparable competitive conditions in the
entire area.  The difference is that the Icelandic adaptation to the European legislation is now
systematic and in accordance with the EEA Agreement.
46. The EEA Agreement was a big step towards free trade in fish and other marine products and
the EU reduced or, in some cases, abolished trade distorting import duties on fish.  However the EU
did not accept the principle of free trade in fish and is still imposing high import duties on some
fisheries products imported from the EFTA states.
47. Systematic efforts have been made to secure Iceland's position in the integration process in
Europe.  The EFTA states, including Iceland, have concluded free trade agreements with all the EU
candidate countries including free trade in fish and other marine products.  Iceland is, therefore,
facing the risk of losing important potential markets for individual fisheries products once thesecountries join the EU.
(2) O
THER RELATIONS WITH THE EUROPEAN UNION AND THE QUESTION OF MEMBERSHIP
48. The main substance of the Maastricht Treaty, economic and monetary union, is now bearing
fruit.  This progress affects not only the countries in the monetary union but also states outside the
union.  The positive effect of the Euro will benefit Iceland in many ways, and increased cooperationcould also make it easier for Iceland to enjoy the fruit of increased stability and reduced interest rates.
49. The European Union has now initiated formal negotiations with eleven countries on their
entry into the European Union.  Within the next ten years the number of member states could be
nearly doubled.  Iceland has not applied for a membership of the European Union.  The main obstacle
to Iceland's membership has been the Common Fisheries Policy.
50. At the same time great emphasis has been placed on reinforcing bilateral relations with the
member states of the Union, it is of great impor tance for Iceland to promote understanding of its
views among these states and increase support for our special position as regards fisheries.
(3) T
HE EUROPEAN FREE TRADE ASSOCIATION (EFTA)
51. An important step towards free trade was taken when Iceland became a member of the
European Free Trade Association (EFTA) on 1 Ma rch 1970.  Through membership, Iceland obtained
immediate duty-free access to the EFTA markets for all products covered by the EFTA Convention
and in return it abolished its protective dut ies on imports from EFTA countries.  The EFTA
Convention covers nearly all industrial products, as well as all fish and other marine products.Iceland WT/TPR/G/65
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52. EFTA has in recent years adapted its activities  to a changed environment and strengthened its
role for the four member states, Iceland, Liechtens tein, Norway and Switzerland.  Thus, EFTA has
concluded free-trade agreements with fourteen states and issued declarations of cooperation with six
states in the past eight years.  The most intensive work currently in progress within EFTA concerns
the free-trade negotiations with Canada.  The decision to enter into these negotiations was made early
in the year 1998, under the Icelandic chairmanship in EFTA.  The negotiations represent the first suchdiscussions with transatlantic states, and they have already aroused the interest of other countries in
the western world in free trade cooperation with the EFTA states.  In the EFTA Council, Iceland has
supported cooperation with Mexico and the four MERCOSUR countries, Argentina, Brazil, Paraguay
and Uruguay.  In addition to the discussions with Canada, negotiations on free trade are also in
progress with Egypt, Jordan, Cyprus, Tunisia and exploratory talks with Chile were recently initiated.
(4) T
HE WORLD TRADE ORGANIZATION (WTO)
53. Iceland is fully committed to the multilateral ru les-based trading system and will continue to
emphasize the importance of universal broad-based trade liberalization.  Iceland therefore supports the
aim to launch a comprehensive Millennium Round of negotiation in the WTO in the year 2000,
conducted as a single undertaking.  In that context it is very important to review the presentagreements in an effort to improve implementatio n for the benefit of the developing and developed
countries alike.  Along with the built-in agenda issues, on agriculture and services the implementation
matters must become the core of the new round.  Without proper and faithful implementation of the
present agreements, it makes little sense to develop new rules, which only a fraction of the Member
nations can execute.  Members having had difficulties in implementing the present agreements,
whether it is for lack of resources, or for other r easons, need to be assisted to implement the present
and new agreements in a proper manner in an effort to consolidate their full, faithful and convincingparticipation in the multilateral trade regime.
54. Iceland supports an approach aiming for more open markets and stronger disciplines of
international trade in the agricultural sector.  Iceland would, however, like many other Members,
emphasise that while consolidating and reforming the agreement in an effort to increase trade
liberalisation the fundamental importance of non-trade concerns of the agricultural sector cannot beleft aside.
55. Although agreements on basic telecommunications and financial services have been
successfully concluded in the WTO, there is still a long way to go in the services sector. Iceland
would like to see the negotiations in the services sector result in liberalisation in all the fields of the
services sector.
56. As a nation heavily dependent on the utilisation of renewable natural resources Iceland is
firmly committed to the objectives of sustainable development.  Trade liberalisation and
environmental conservation must develop in harmony through multilateral cooperation if this is to be
realised.  There is no inherent contradiction be tween the two, they should be seen as mutually
reinforcing.
57. Iceland has a successful experience with market driven fisheries management.  This
experience has demonstrated that the fishing industry can and should operate according to the
principles of private enterprise and its products made to compete on the free market.  Such an
arrangement is both economically and environmentally efficient.  Elimination of government
subsidies, state aid and various other obstacles to free trade in marine products is therefore of
fundamental importance, not only because they distort free trade and competition, but also for theWT/TPR/G/65 Trade Policy Review
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direct relationship between government subsidies and state aid in the fishing sector and excess fishing
capacity and over exploitation of fish stocks.  Iceland enjoys considerable experience which
demonstrates that the fishing industry must not be treated like an orphan with little heed of
responsible control and in fact that there is no vi sible reason for approaching the fishing industry in a
different way from other sectors of the economy.  Iceland believes that it can submit important
experience and knowledge in resource management in the sector of fisheries and would be pleased toshare this experience with others.
58. Iceland firmly supports launching negotiations on substantial reduction of industrial tariffs.
Members should approach the task of radically reducing tariffs of industrial goods in a broad based
and comprehensive way with the objective to reach an agreement on an overall reduction of tariffs of
all industrial and other manufactured goods including fish and fish products.  Finally, Iceland supports
efforts to negotiate new agreements in the fields of investments, competition, trade facilitation,
transparency in government procurement as well as modification of the TRIPS Agreement.
(5) T
HE OECD
59. The Organisation for Economic Cooperation and Development has for a number of years
been the main forum for cooperation among the most developed countries of the world in the areas ofthe economy, trade and fiscal affairs.  The Organisation and its member states possess important
expertise and experience in the various aspects of public administration and it is important to share
this expertise with countries outside the Organisation.  Thus, cooperation with countries outside the
Organisation is a growing element of the work of the OECD.  For its part, Iceland has, together with
the other Nordic countries, emphasised and to a large extent financed the cooperation of the OECD
with the Baltic States.
60. Preparations for the upcoming negotiations with in the OECD will also affect the work within
the OECD in the future.  The OECD is an ideal fo rum for the industrial states to co-ordinate their
objectives and their reasoning in the service of liberal trade and to prepare expert studies to combat
the protectionism policies that many developing countries are unfortunately increasingly favouring
with their short term interests in mind. Furthermore,  there are important discussions in progress in the
OECD on new tasks confronting the multinational trade system, such as electronic trading,competition and investment.  Early last year (199 9) an important agreement took effect on the
struggle against bribery of foreign public officials in international trade. Iceland was the first OECD
State to ratify this agreement.
61. Iceland regrets that the OECD States have not yet found a common ground for finalising the
Multilateral Agreement on Investment (MAI).  A multilateral agreement on investment would providea strong and comprehensive framework for international investment and would strengthen the
multilateral trading regime.  It would set clear, consistent and transparent rules on liberalisation and
investor protection, with dispute settlement, thereby underpinning the continued removal of barriers to
market access and encouraging economic growth.  The MAI would provide a benchmark against
which potential investors would assess the openness and legal security offered by countries asinvestment locations.  This would, in turn, act as a spur to further liberalisation.
(6) T
HE OVERSEAS BUSINESS SERVICE AND OTHER FOREIGN RELATIONS
62. Icelandic companies will have to prepare as well as they can for the future in a new
international trading environment, with complex network of free trade agreements, the EEA
Agreement and the WTO.  In order to pave the way for their business activities in foreign markets, theIceland WT/TPR/G/65
Page 13
Overseas Business Service was established within the Foreign Ministry in 1997.  This Service has
assisted numerous companies in the conduct of their business across the world, both alone and in
cooperation with the Export Council of Iceland.
63. Specialised staff in Iceland and abroad has been appointed to provide this service, and
currently there are trade representatives working in the Ministry for Foreign Affairs and in the
Icelandic embassies in New York, Berlin, Paris, London, Moscow and Beijing.  In addition, the otherIcelandic embassies and almost 200 consulates across the world are put to effective use for this
purpose.  The review of the legislation on the Iceland Export Council, which took place in the
year 1998, had the purpose of increasing consultation and dialogue on the activities of the Council and
improved coordination of the activities of the Trad e Service and the Export Council in order to make
the best possible use of the limited funds available for this work.  This service of the Ministry toindustry will be further developed in the coming years and will be constantly adapted to the needs of
Icelandic business.
64. Representatives from the business sector have accompanied the Minister for Foreign Affairs
on official visits to South America and several Asian countries.  This is an attempt to use the Ministry
in support of increased business contacts of Icelandic businesses in the global market.
65. For years the rapid economic growth of Asian countries has been observed with admiration
and exporters have looked longingly at promising markets in those countries, not only for fish
products but for consultancy services and technolog ical products, for which Icelandic companies have
earned a good reputation.  Iceland views the economic crises in Asia as a temporary setback which
should not discourage efforts in the long term to prepare the ground for our businesses and future
relations with the countries in that part of the world.  Thus, the newly established Icelandic embassy
in Beijing has for the past few years assisted in these efforts.  New business opportunities have beencreated and in addition the number of tourists visiting Iceland from Asia is constantly growing.
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