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The EU and Iceland’s political relations centre around the Agreement on the European Economic Area (EEA).
Much of the decision-making and political dialogue between the EU and Iceland take place in special EEA institutions, including:
Iceland is also a member of the Schengen Agreement, which gives its citizens the right to travel passport-free within the area.
The Agreement on the European Economic Area (EEA) brings together all the 28 Member States of the EU and three European Free Trade Association (EFTA) countries, Norway, Iceland and Liechtenstein.
The EEA also covers legislation in both competition policy and state aid.
The Agreement includes close cooperation in areas such as research and development, education, social policy, the environment, consumer protection, enterprise, tourism and culture.
Such cooperation is possible via several EU programmes like Horizon 2020.
Fisheries and agriculture are mainly covered by bilateral agreements between both sides.
Trade relations between the EU and Iceland are covered by the free trade agreement between Iceland and the EEC from 1972 and the EEA Agreement which entered into force in 1994. The EEA Agreement extends the Single Market, with the exception of Agriculture and Fisheries, to the EEA countries. Under the EEA Agreement and its procedural provisions, Iceland implements into Icelandic law EU directives and regulations governing the free movement of goods, persons, services and capital.
The EEA is Iceland's largest export and import market. According to figures from Statistics Iceland almost 83% of all export goods from Iceland in 2011 went to the EEA and more than 78% to the EU. The Netherlands, Germany and the UK were the largest export countries. Of total import to Iceland in 2011, import from EEA states was almost than 62% and 46% from the EU.
As the Common Agricultural Policy and the Common Fisheries Policy of the EU are not part of the EEA Agreement, free movement of goods within the framework of the Agreement does not apply to all products.
Protocol 9 of the EEA agreement deals with trade in seafood products. The protocol contains provisions on the abolishment of tariffs on Iceland's most important seafood products into the EU or gradual tariff decrease that encompasses most of Iceland's seafood products.
Most trade in agricultural products is not included in the EEA Agreement. However, the parties of the Agreement have undertaken to make efforts with a view to achieving progressive liberalisation of agricultural trade. In addition, the Agreement determines preferential trade arrangements for certain limited categories of processed agricultural products. Trade in agriculture is covered by Article 19 of the EEA Agreement. Protocol 3 of the Agreement particularly regulates preferential trade in processed agricultural products.
The Schengen area and cooperation is founded on the Schengen Agreement of 1985. The cooperation is based on the free movement of persons across borders, abolishment of internal border checks in place of a single external border. On external borders, common rules and procedures are applied with regard to visas for short stays, asylum requests and border controls. In addition, to guarantee security within the Schengen area, cooperation and coordination between police and judicial authorities have been stepped up. Schengen cooperation was incorporated into the European Union (EU) legal framework by the Treaty of Amsterdam of 1997.
In 1985, France, Germany, Belgium, Luxembourg and the Netherlands decided in 1985 to create a territory without internal borders. This became known as the "Schengen area", after the town in Luxembourg where the first agreements were signed. The Schengen area gradually expanded to include nearly every Member State, except the UK and Ireland, which have chosen to stay outside, and Bulgaria, Croatia, Cyprus and Romania, which do not yet meet the conditions for fully-fledged membership. An agreement on Iceland’s and Norway’s association with the implementation, application and development of the Schengen acquis was signed on 18 May 1999, and entered into force on 25 March 2001. Switzerland became a member of the Schengen area in 2008 and Liechtenstein in 2011. The Schengen area comprises therefore in total 26 countries: 22 EU Member States and all the EFTA states.
In March 2015 Iceland's government requested that "Iceland should not be regarded as a candidate country for EU membership". The Council took note and undertook further practical adjustments of its working procedures.
Iceland applied for EU membership in July 2009. The Commission issued a favourable opinion in February 2010, and the Council decided in June 2010 that accession negotiations would be opened. After a new government took over in May 2013, Iceland put the accession negotiations on hold. At the time of this decision, 27 of the negotiating chapters had been opened, of which 11 provisionally closed. In March 2015 Iceland's government requested that "Iceland should not be regarded as a candidate country for EU membership".
Iceland is highly integrated with the EU through membership in the European Economic Area (EEA), the Schengen Area and the European Free Trade Association (EFTA). It is also a signatory of the Dublin regulation on asylum policy and a partner in the EU's Northern Dimension policy to promote cooperation in Northern Europe.
Through the EEA, Iceland participates in the single market and contributes financially towards social and economic cohesion in Europe. A significant proportion of the EU's laws are applied in Iceland today. Iceland also participates, albeit with no voting rights, in a number of EU agencies and programmes, covering areas including enterprise, environment, education and research.
Iceland has a bilateral Free Trade Agreement with the EEC since 1972. Two thirds of Iceland's foreign trade is with EU Member States.