Iceland signs first European free trade pact with China

The agreement will remove tariffs on most goods.

Experts say China is interested in gaining a foothold in the northern territory and hopes to become a permanent observer at the eight-nation Arctic Council next month.

The giant has labelled itself a “near Arctic nation” though its closest geographical point to the ice-capped region is some 1,600 kilometres away.

Receding ice caps are opening up trade routes that could reportedly cut a third of the shipping time between Shangai and Hambourg. Iceland's foreign minister told The Wall Street Journal that the two nations are also in talks on exploring the vast reserves of oil buried beneath the north-eastern coastal waters.

At €10.7 billion, the tiny Nordic country’s GDP is dwarfed when compared to China’s €5.3 trillion.

Trade between the two is relatively small.

Iceland shipped mostly fish last year worth some €47,6 million to the Chinese mainland and imported some €264 million in goods and services.

China is now Iceland’s fourth biggest importing country and the biggest trading partner in Asia. The deal could see an additional boost to the trade figures as Iceland continues to recover from a banking sector that collapsed in 2008 and saw its economy in ruins.

The European commission says Iceland’s “economy following the long and severe post-crisis recession and grew more rapidly than expected.”

The country paid back over half the loans received from the IMF and Nordic countries ahead of time.

In 2010, it became a candidate country to join the European Union but suspended talks in January following domestic opposition.

The island-nation currently enjoys bilateral free trade agreements with the bloc through its membership in the European Free Trade Association and the European Economic Area. Though the trade deal will not enable China to gain access to the EU market, reports the New York Times.

Meanwhile, the Union remains Iceland’s largest trading partner.

In 2011, Iceland exports to the Union totalled more than €933m which is equivalent to 5 percent of all EU fish imports. Manufactured exports such as aluminium and medical and pharmaceutical products are also on the rise.