Asian powerhouses · Recent Updates · Trade talks and negotiations · Western World

Breaking the Ice: China enters into its first FTA with a European nation

Reuters reports that the details of the China-Iceland FTA which covers goods, services and investment, have been released. The text of the agreement can be conveniently accessed here.


Back in April 2007, formal negotiations between the two nations had begun and went on for four successful rounds till mid-2008. However, the initiative received a major setback when Iceland decided to apply for EU membership and this was held to be unacceptable by the Asian economy. It threatened to suspend all talks regarding the agreement but thankfully after the official visit of the Chinese Prime Minister, Mr. Wen Jiabo to the Nordic nation, the talks kicked off again. The first step of the process was the signing of a Memorandum of Understanding between the two countries which included subjects ranging from Artic Cooperation to Geothermal Cooperation. The final agreement, which comes into effect on the first of July will allow tariff relaxations with respect to Icelandic imports of all industrial products and most agricultural goods including concessions for a variety of frozen fish and sea cucumber.

A recent report by Örn D. Jónsson, Ingjaldur Hannibalsson and Li Yang correctly recognizes that the geopolitical importance of such a free trade agreement with Iceland is historical, as it is China’s first FTA with a European country, or with a member state of the EES agreement. Post the 2008 economic meltdown, the EU had adopted a strategy of trade protectionism to hamper China’s export. It is well known that the huge production capabilities of China would feel a natural pull from the large EU markets and seen in that context, the China-Iceland FTA is definitely an encouraging sign. It shows that member nations of the international trading community are ready (and willing) to move past the economic debacles of the past and take on a more rational approach, rooted in the notions of comity and fair trade.

The other, almost bizarre aspect of agreement is the vast difference in the economic positions of the two nations. As the report puts it:”When a population of over 1.35 billion is negotiating on equal terms with a nation of 320,000, the outcome is obviously not just a bilateral trade agreement”

According to China Briefing, the nation’s FTA-circle is relatively small although useful for the companies from the countries that have them, including Chile, Costa Rica and Peru. Not being able to effectively regulate its economy, Pakistan continues to be the largest recipient of Chinese outbound investment in South-East Asia. China’s negotiations with Australia recently were a bit rocky due to concerns from the latter’s agricultural industry and those with Norway have been stalled due to political reasons.

Further in the pipeline are FTA’s with India, Korea and Japan.

[Photo source]


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s