China’s First Trade Agreement with a European Country

CHINA-BEIJING-LI KEQIANG-ICELAND-PM-SIGNING CEREMONY (CN)

From left: Mr. Össur Skarphéðinsson, Minister for Foreign Affairs and External Trade of Iceland, and Mr. Gao Hucheng, Minister of Commerce of the People’s Republic of China signing the FTA in the presence of the Prime Minister of Iceland and the Premier of China.

Source: Embassy of Iceland

On 15 April 2013, Iceland became the first European country to sign a free trade agreement with China, which will lower the tariffs on exports from the geographically remote Iceland to the world’s second-largest economy. The deal was struck after six rounds of negotiations, with the signing of the agreement during the then prime minister Johanna Sigurdardottir’s official visit to China in April, 2013. The Iceland Prime Minister Johanna Sigurdardottir said in an interview, “It’s important for Iceland to conclude pacts like this to strengthen trade following the economic collapse” referring to the economic crisis of 2008-2009 in Iceland.

             Iceland’s export to China 2009-2011 in millions of Euros

Iceland exports

Source: “A bilateral free trade agreement between China and Iceland” by Örn D. Jónsson Ingjaldur, Hannibalsson Li Yang, Viðskiptafræðideild, Ritstjóri: Ingjaldur Hannibalsson, 2013

The FTA between China and Iceland will provide a special boost to seafood exports from Iceland to China. The most important Icelandic export product to China is fish and other marine products, amounting last year to 90% of the total.  For the Chinese, the FTA means that Iceland impose no tariffs on all industrial and fisheries products imported from China which accounts 99.8 percent of China’s total exports to Iceland. This good new to Chinese exporter since the Chinese imports to Iceland have grown five-fold in the last decade and amounted to 7.6% of Iceland´s total merchandise imports according to 2012 figures.

For a small number of products, the Chinese tariffs will be dismantled after a transitional period of 5 or 10 years. Both countries excluded a limited number of products from tariff dismantling. Iceland excluded dairy and meat products while China excludes certain products made of paper.

The second most important aspect of this FTA is the Memorandum of Understanding is to allow China to buy geothermal energy expertise form Iceland in order to exploit the geothermal resources in China. The Chinese Government intends to use the geothermal energy for spatial heating and generating electricity. The Icelandic company Orka Energy Ltd. signed an agreement with China Petro-chemical Corporation (Sinopec Group) on the utilization of geothermal energy in China for heating of houses and production of electricity. A new corporation named Shaanxi Green Energy Geothermal Development Co. Ltd. (SGE) has been established where Sinopec owns 51% and Orka Energy owns 49% of it. This FTA allows the knowledge transfer of Icelandic expertise in geothermal technology to China. Currently Orka Energy along with Sinopec is building a central heating system in Xianyang, a city with a population of half a million people in the Shaanxi province.

The protection of intellectual property rights was one of the important objectives of the FTA between China and Iceland. In addition to reaffirming their obligations under international Agreements on intellectual property rights, both the countries agreed to cooperate and exchange information pertaining to the protection of intellectual property rights.

Iceland also has a unique importance to China as it attempts to gain a foothold in the Arctic, where melting ice is opening new passages for shipping and could create a boom in extraction of resources such as gas, oil, diamonds, gold and iron

China has accepted the permanent observer status in the Arctic Council, an eight-nation body that includes Iceland and Greenland. The Arctic Council decides on policy in the Arctic region. China accomplished this by drawing support from Greenland also through heavy Chinese investment in the region’s mining industries as advertised by its proposal to sink $2.3bn into Greenland to secure 15m tons of iron ore per year.

China sees the FTA with Iceland as a stepping stone in playing a greater role in affirming its political and economic prospects in the Arctic Circle and Europe.

References:

http://www.nytimes.com/2013/04/16/business/global/16iht-iceland16.html?_r=0

http://www.bloomberg.com/news/2013-04-15/iceland-is-first-in-europe-to-sign-free-trade-pact-with-china.html

http://www.telegraph.co.uk/finance/economics/9995525/Iceland-first-European-country-to-sign-free-trade-agreement-with-China.html

http://www.iceland.is/iceland-abroad/cn/english/news-and-events/iceland-first-european-country-to-sign-free-trade-agreement-with-china/10001/

“A bilateral free trade agreement between China and Iceland” by Örn D. Jónsson Ingjaldur, Hannibalsson Li Yang, Viðskiptafræðideild, Ritstjóri: Ingjaldur Hannibalsson, 2013

 

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