GENEVA -- The World Trade Organization has cited Iceland's open trading policy as an example for other WTO members but criticized continued protectionism in the agriculture sector as well as restrictions on foreign investment in key sectors such as energy and fisheries.
Iceland "is a prime example of the benefits of international specialization, having achieved high living standards through the deft exploitation of its fish and energy resources for export, while meeting many of its domestic needs via imports," the WTO said in a trade policy review of the country made public Feb. 4. "This and structural reforms, disciplined macroeconomic policies, and a favorable external environment have all contributed to increased investment and trade, low unemployment and inflation, and strong growth."
Iceland's economy has grown by more than 5 percent per year since 1996, fueled by an investment boom and increased consumer consumption. Imports of goods and services have jumped by an average annual rate of 12 percent and 11 percent respectively since 1994. Fisheries is the most important sector in the domestic economy, accounting for 13 percent of national GDP and 71 percent of merchandise exports.
The average MFN tariffs rate on imports in Iceland stood at around 4 percent in 1999 while the average preferential rate was 1.7 percent. For manufactured goods, the MFN rate averaged 2.5 percent while those from preferential trading partners enter the Icelandic market duty-free.
The problem is in the agriculture sector, where average MFN rates stood at 10.8 percent in 1999, the WTO said. Iceland also imposes strict sanitary and phytosanitary rules and subjects a number of agricultural products to licensing requirements.
The WTO also criticized the high rates of indirect tax (value-added tax, commodity tax and vehicle excise tax) applied to goods. Although non-discriminatory in nature, "in many instances these taxes fall exclusively on imports due to the absence of domestic production," the trade body said.
The resulting tax burden "is in many cases greater than the tariff itself," the WTO added, noting that while tariff collections are equivalent to around 1.5 percent of the total value of merchandise imports, tariffs plus other duties collected on imports are estimated at some 18 percent of their value.
The WTO also noted that the stock of foreign direct investment in Iceland more than tripled between 1995 and 1998 to a total of $426 million, primarily as a result of large investments in the aluminum industry.
However, while national treatment is granted to foreign investors, foreign ownership is restricted in key areas such as energy, fisheries and airline operations. Other investment restrictions and requirements apply to residents outside of the European Economic Area, the free trade zone covering the European Union and the European Free Trade Association (of which Iceland is a member).
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