The European Integration Process as seen from Iceland

The European Integration Process as seen from Iceland
Lecture by the Foreign minister, Halldór Ásgrímsson,
at the Chulalong University in Bangkok, Thailand, January 29, 1999


In recent years one word has taken a dominant place in all discussions on international afairs and that is the word "globalisation". It has become increasingly clear that whether you are interested in business or politics you can no longer concentrate on your own back yard. The whole world is now one marketplace and the world to a greater extent than ever before one community. There is perhaps no better illustration of this than an Icelandic Minister for Foreign Affairs addressing a Thai audience on the subject of European integration.

In a famous sermon the English poet John Donne wrote that "no man is an island, entire of itself, every man is a piece of the continent, a part of the main" "Ask not for whom the bell tolls" he said, "it tolls for thee". Coming from an island state myself it may sound paradoxical but Iceland is no longer an island in the same sense as before. When the news reach us of fabulous economic growth on the other side of the planet we rejoice and look out for opportunities. When news reach us of turmoil in the financial markets we worry about the consequences for stability in our own neighbourhood. When the bell tolls, it tolls for us as well.

The reason I am here is of course that I want to build up a stronger relationship with countries in this area and we have identified distinct possibilities for further cooperation. Icelandic companies are interested in exploring your markets and your products. Distance is no longer the obstacle it once was. On the political level too I believe we could both benefit from a more structured dialogue, both between individual countries and between regional groupings.
Iceland and Thailand do indeed see eye to eye on the fundamental principles of international trade. That this is so can be seen from the fact that I have decided to pledge Iceland}s support for the candidature of Deputy Prime Minister Supachai to lead the World Trade Organisation into the next millennium.

Globalisation does not exclude regional initiatives. In fact it has been our experience that far from closing markets, regional free trade agreements can contribute towards a greater opening to the rest of the world.
Your own initiatives in regional cooperation are of interest to us and you may find that our experience of economic and political cooperation with our neighbours is not wholly irrelevant to your own situation. Inside the WTO there have been informal contacts, including at the Ministerial level between ASEAN and EFTA. It has proved to be more difficult to include the EFTA countries in the Asia?Europe meetings (ASEM). That might , however, still be arranged.

My theme today is how Iceland has developed its own way of participating in the process of European integration but in order to explain it properly I will have to take you back to the beginning.

Iceland was settled in the ninth century, mainly from Norway and the Norse settlements in the British Isles. At the time the several little coastal communities of Norway were being merged into one kingdom. Those who did not like the idea of paying tribute to the new king of Norway sought refuge in the newly discovered island of Iceland. We were from the beginning a country not only of tax refugees but also refugees from an initiative in regional integration.

Another particularity was that Iceland was from the beginning a republic with a parliamentary assembly. It may not be quite appropriate to boast about this here in one of the oldest monarchies in the world, but we are in Iceland quite proud of being one of the pioneering republics in a Europe of kingdoms.

But even back then Iceland depended on trade with other countries and this dependence on trade and the need to ensure adequate supplies led to us accepting in the thirteenth century to bow to the authority of the king of Norway. For a while in the next century in fact all the Nordic countries were united under one crown. Iceland ended up as part of the kingdom of Denmark. Through that link we were to certain extent indirectly involved in the adventure of expanding Danish trade in this region.

The history of the five Nordic countries is closely interlinked and the sense of community is quite strong. Even though the policy choices have been quite different both in security policy (Denmark, Iceland and Norway are part of NATO while Finland and Sweden are non-aligned) and in economic integration (Denmark, Finland and Sweden are part of the European Union while Iceland and Norway remain outside) the Nordic cooperation remains solidly anchored in the political consciousness of all five countries. The organisational structure is quite loose but the degree of harmony and the number of initiatives we have been able to take jointly in the international context is quite impressive. The Nordic family is then the first pillar, the first point of reference for Iceland in practically all international cooperation. There is, I think, an interesting parallel here with your own cooperation inside ASEAN.

After independence in 1918 and the reestablishment of the republic in 1944 we proceeded to find our place in the structures of post war Europe and the world. We joined the UN, NATO and the OEEC, later OECD but in trade policy terms we remained for a long time even more protectionistic that most of our neigbours. Inside the OECD we used to have general exemptions from the liberalisation objectives of the organisation. This began to change with our membership of GATT and successive rounds in that organisation, our entry into EFTA in 1970 and the Free Trade Agreement with the European Union in 1972. It caused some difficulty in the beginning and the problem has to some extent remained with us that free trade developed more quickly in the field of industrial products while our main exports have been ever since the fourteenth century, fisheries products. Our partners were prevailed upon to take this into account, partially at least, and substantial trade concessions were given for Icelandic fisheries products on the European market.

Soon after we joined EFTA, the UK and Denmark left it and it became clear that EFTA did not really represent a rival alternative to the European Union but rather a supplement. EFTA in fact became a vehicle for its Member States to organise their relations with the European Union. Intra EFTA trade was much less important than its members states trade with the European Union. In the eighties a number of initatives were taken to strengthen the relations between EFTA and the Europan Union but it became increasingly clear that the mere accumulation of projects was not enough. A stronger institutional basis was needed for a durable strengthening of the cooperation. The European Union itself was in a phase of rapid development with the establishment of the internal market and that in itself was an added incentive for us to seek new institutional solutions. Jacques Delors, who was at the time President of the European Commission set up as a precondition for talks on intensified cooperation that the EFTA side had to strengthen its own internal structure so as to become a valid interlocutor. EFTA had to learn to speak with one voice. The EFTA countries, seven at the time, decided to take Delors up on the offer and after some initial difficulties formal talks on the EEA agreement could start. I will not go into the details of the negotiations but the end result was the EEA Agreement, that still is the basis for Iceland}s relations with the European Union.

There were political as well as economic reasons that lay behind the creation of the European Economic Area. At the time negotiations started we had on the one hand the European Union with its ideals of an ever closer union among its states and considerable transfer of sovereignty to common institutions. The EFTA countries on the other hand, although extremely close to the Member States of the European Union not only in economic terms but also in values and identity were reluctant at the time to go quite as far and aceept fully the whole EU package. At the time the European Union accepted that its own goals of peace, security and stability in Europe could best be achieved by accepting a compromise that allowed for limited participation in EU activities by countries outside rather than total exclusion.

Three neutral and non-aligned countries, Austria, Finland and Sweden have since then decided that membership was after all the best option, one country Switzerland decided in a referendum that it would not join the EEA so now there are only three countries remaining on the EFTA side of the EEA Agreement, Iceland , Liechtenstein and Norway. For us the EEA Agreement remains a valid option in european integration.

Management of the EEA

The European Economic Area has given us access to the internal market and the possibility to cooperate with the European Union on a wide range of issues. Practically the whole of the acquis communautaire has been taken over and made a part of the national legislation of the EEA/EFTA States. In fact the EEA/EFTA countries have a better track record in implementing EU legislation than most EU Member States. Free movement of goods, capital, services and people is assured throughout the EEA. But co-operation is not limited to the four freedoms. There is a great deal of harmonisation in all areas that have a bearing on the competitive position of undertakings such as social policy, the environment, statistics, company law and consumer protection. In addition we participate fully in the framework programmes and actions in research and development, education, training, tourism, civil protection and the audio-visual sector.

We do not have the same influence on decision shaping as the Member States but we do have the possibility to present our views at an early stage and experience has shown that they are taken into account. The institutional machinery is complex and cumbersome but the EFTA Surveillance Authority has proved to be very effective in monitoring compliance and the EFTA Court has fulfilled its function of providing for dispute settlement.

The European Economic Area does not include participation in common policies such as the Common Fisheries Policy, the Common Agricultural Policy and the Common Trade Policy. This further limits our influence on the EU but gives us on the other hand more flexibility which is necessary as these are sensitive aspects in EFTA/EEA countries.

Importance of EFTA

The European Economic Area was designed to accommodate seven EFTA countries. Now there are only three left on the EFTA side as three have joined the European Union and one has rejected the EEA. I will not deny that this has caused problems but these problems have been overcome. EFTA may be much smaller than before but its external trade still represents 3.1% of world trade, a bigger share than China. EFTA's population is only 3% of that of the European Union but its exports are equivalent to 17.4 of those of the European Union. EFTA is the European Union's second largest trading partner, after the USA. EFTA first started out as an alternative to the European Union; it later served as a stepping stone or a halfway house for countries that later joined the European Union, such as the UK, Denmark, Portugal and recently Austria, Finland and Sweden

The EEA works for the European Union, for Iceland, Liechtenstein and Norway. It will continue to work as long as the political will is there on both sides to make it work. But we will have to be ready to adapt to changing circumstances; to allow the EEA to develop. What was by some considered to be an interim solution may turn out to be a long term one.

There have been encouraging developments so far. The EEA agreement is constantly evolving, new legislative acts are being added and over a hundred new decisions were taken last year. Many of these are modifications of existing acts but there have been new departures. Maritime cabotage that was not part of the original agreement has now been included and veterinary border controls are now harmonised throughout the area. This has a particular importance for Iceland given the relative weight of fisheries products in our exports.

Future of the EEA

The EEA will develop, both as the European Union changes its structures and also with enlargement. In article 128 of the European Economic Area Agreement it is stated that "Any European State becoming a member of the Community shall, and the Swiss Confederation or any European State becoming a member of EFTA may, apply to become a Party to this Agreement". The new Member States of the European Union will inevitably be a part of the EEA. Any enlargement of the EFTA pillar is more doubtful. Switzerland has always, formally at least, kept the option of EEA membership on the table just as it has not withdrawn its application for EU membership but has made no moves to follow up these options. The prospect of other European countries joining EFTA is very distant, to say the least. Any enlargement of the EEA will therefore happen through the enlargement of the European Union. Individual elements of the EEA Agreement may on the other hand prove to be a source of inspiration in the years ahead in the long adjustment process of EU new member states.

Association with all three EU pillars

Iceland is closely associated with all three pillars of the European Union. Most of the issues that fall under the first pillar i.e. trade and economic production, are covered by the EEA Agreement. Matters of foreign policy and security in the second pillar are not only dealt with in the EEA-political dialogue but as a full member of NATO and associate of the Western European Union we maintain very close political ties with individual Member States of the European Union. In 1996 we concluded a co-operation agreement with the Schengen countries that provided the basis for the abolition of passport controls at borders in the area. When it was decided in Amsterdam to include the substance of the Schengen agreement in the European Union this agreement had to be adapted. A solution has been found allowing us access to the discussions in this field and the possibility to develop our cooperation in justice and home affairs. In all three pillars we have the possibility to maintain and develop very close relations with the EU.

The CFP; the main obstacle to membership

Iceland is relatively satisfied with the EEA Agreement and there is little political or economic pressure for applying for membership. But membership has never been rejected by the people nor excluded as a matter of principle by the government. The issue has not polarised public opinion and divided it into two opposing camps as was the case in Norway. But then the case has never been put to the people and in my opinion there is no possibility to do so before we have settled the question of how we could stand outside the Common Fisheries Policy. Fisheries. As it is the European Union is bound to change considerably in the years ahead. Iceland will bide its time and follow developments closely.

As you have heard the main obstacle to Iceland becoming a member of the European Union is the Common Fisheries Policy. Iceland shares with the European Union the goals of sustainable development, the optimum utilisation of resources and increased stability in the markets. But in all modesty we believe that our own fisheries policy has been rather more successful in achieving these goals than the Common Fisheries Policy of the European Union. I recognise the fact that the task has been more difficult for the European Union for historical and other reasons but it has by no means been easy for us in Iceland to arrive where we are now. We have had to exercise considerable self-restraint. It can be said that we were doomed to succeed because without an efficient fisheries sector we would not be able to run a modern society. We have no problems with competing on the European markets as long as this is on equal terms. For us fisheries should be treated in the same way as any other industry with full and free competition. The European Union, as well as most of its Member States has on the other hand tended to see fisheries as a regional issue where problems are solved with subsidies and state intervention. Fisheries simply do not carry the same weight in policy discussions within the European Union as in Iceland. The European Union can afford to run fisheries more from the social angle than the economic one and this has hindered the sector's development. A more liberal approach would give better results. I suspect that this will also become apparent when negotiations with the aspiring Member Countries from Central and Eastern Europe come to issue of agriculture.

Importance of fisheries

Iceland depends on fisheries more than any other European nation. More than two thirds of our merchandise exports are fisheries products. We are understandably not inclined to take any chances when our economic survival is at stake. We can be depended upon to take good care of our resources, they are our future. The fishing grounds around Iceland have supplied the European market for centuries and are now exported all over the world.
Over the centuries Iceland has been a reliable source of seafood for the continent and its importance in this respect is likely to increase rather than diminish. I believe that the fisheries policy we have ourselves developed is the most appropriate to yield optimum results and that this will in the end be to the European Union's advantage.

But even if the European Union adopted our own fisheries policy the Common Fisheries Policy would still be an obstacle to Iceland's membership. The fundamental difficulty would still remain that decisions on quota allocation and management of resources would be finally taken in Brussels. I don't think that the UK would accept that decisions on North Sea oil would be taken in Brussels or that the Finns would leave decisions on forestry management to the Commission. Fish is much more important for Iceland than oil for Britain or timber for Finland. Important decisions should not be taken too far away from the people who depend on their outcome. This has been proved many times in history. I believe this principle goes by the name of subsidiarity in European circles.

Iceland became independent early this century and we celebrated the fifty years anniversary of the Republic in 1994. During this time we have managed in Iceland to build up a prosperous, modern society. This is in large measure due to the fact that we have ourselves taken control of our destiny. We are ourselves responsible and have nobody to blame but ourselves if things go wrong. If this responsibility is either taken away or diminished it will without doubt damage our society and impair our possibilities to be an active and constructive partner in Europe as a whole.

It is not the first time that fisheries have proved to be an obstacle for Iceland in European integration. Disputes over fisheries limits were one of the factors that delayed Iceland's participation in European free trade co-operation in the sixties and seventies. At that time a solution was found that allowed us to proceed. The present modus vivendi with the European Union on fisheries issues should also make sure that further developments of our co-operation are not blocked.

EU enlargement

The European Union now faces the historic challenge of enlargement. Iceland has through EFTA concluded free trade agreements with all of the applicant states in Eastern and Central Europe and talks are underway with Cyprus. As these countries join they will become a part of the European Economic Area and by consequence enter into an even closer co-operation with Iceland. We welcome this and through EFTA we have contributed to the efforts underway to prepare these countries for the transition to a free market society. The negotiations will inevitably be between the European Union and the applicant countries but the results will directly affect the European Economic Area. Ways are being developed to allow us to follow these negotiations and present our point of view. To take an example, if one of the applicant countries negotiates a transition period for one of the four freedoms or another part of the acquis communautaire a similar arrangement will have to be confirmed for the EFTA/EEA countries.

Although EFTA does not have a common trade policy we have usually tried to make sure that the difference between EU operators and EFTA operators on third country markets does not become too wide. We have therefore made free trade agreements with most of the countries that the European Union has negotiated with, including several countries in Central and Eastern Europe, Turkey, Israel, Tunisia and Morocco. Our external trade relations have to this extent been parallel with the European Union, although usually we have been one step behind. We have now started negotiations on a free trade agreement with Canada. In that particular case one could even say that we are one step ahead. Maybe the European Union will follow in our footsteps.

Economic and Monetary Union

The Economic and Monetary Union is now a reality and has made a significant contribution to seconomic stability in Europe. We do not have any contractual link with this aspect of European Union co-operation but it will clearly affect us. Having one currency will obviously make the internal market more efficient and give the European Union a stronger role on the international currency markets. All smaller currencies in the vicinity will be affected.
It so happens that three of the four countries that have decided to stay outside for the time being, Denmark, Sweden and the UK, are all very important trading partners of Iceland. But even without these three the Euro will be a benchmark for the Icelandic economy. In the private sector in Iceland there are voices that press for a stronger future link to the Euro to minimise the cost to business of currency fluctuations. The Euro will clearly be used extensively in foreign trade by Icelandic firms.

Global warming and Kyoto

I mentioned before the overwhelming dependence of Iceland on fisheries. For the past decades we have been trying to diversify the economy e.g. by harnessing our natural and renewable energy resources and investing in energy intensive industries. It would clearly be better for the world environment if renewable energy resources for example fuelled a greater part of the aluminium industry. If an aluminium factory or a ferrosilicon smelter based on fossil fuels is closed down and a new one set up in Iceland using hydroelectric energy the net global effect is very positive. The paradox is that international efforts to counteract global warming could make this more difficult. In past decades, well before the debate on global warming began we had been making efforts to reduce the emission of greenhouse gases. To take an example domestic heating is now almost entirely from geothermal or hydroelectric sources. But this has also meant that by 1990, the year that has been taken as the point of departure for future reductions in the emission of greenhouse gases, we had already done most of what could be done. Further reductions will naturally be more difficult for us than for those who are just beginning. Any new aluminium plant or ferrosilicon smelter will add to Iceland's emissions although in global terms its construction will be beneficial to the environment. In Kyoto we gained recognition of the special situation of Iceland up to a point but more flexibility will be needed.
My theme today has been to explain to you how Iceland fits in in the present day European context. Our cooperation with friends and neighbours of that continent is close and is likely to become even closer in the future. That is as it should be be but it does in no way hinder developing our relations with more distant friends such s yourselves. Indeed I hope that we could be able to use parts of the European framework for bridge building. There have been informal contacts between EFTA and ASEAN and the dialogue established between Asia and Europe should eventually be extended to include Iceland, Norway, Liechtenstein and Switzerland. More and more of my compatriots have had the opportunity to see your beuatiful country and today there is a small but vibrant Thai community in Iceland. Our relations are good already but the basis is there for a substantial strengthening in the years ahead.