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Northern Exposure: Cross-Regionalism and the China–Iceland Preferential Trade Negotiations*

  • Marc Lanteigne

An increasingly visible facet of China's commercial diplomacy has been its pursuit of preferential trade agreements (PTAs) with small and medium-sized economies outside Asia. China's PTAs, completed or under negotiation, have indicated both a conservative approach and an increasing comfort level with cross-regional trade negotiations. The China–Iceland PTA negotiations since 2006 illustrate this new thinking. Although the island state has a considerably smaller economy, China has perceived the negotiations as being undertaken between equals as well as an important bilateralism model. A successful deal will further demonstrate a new stage in Chinese commercial diplomacy and its approach to bilateral trade as well as a determination to engage the European economy even through a “side door” approach. However, in light of Iceland's banking crisis and deep recession in late 2008, Beijing has also had to address the uncertainties of negotiating with small states in a time of global economic uncertainty.

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3 The EFTA, created in 1960, currently has four members: Iceland, Liechtenstein, Norway and Switzerland.

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18 “We hope to increase economic ties with Europe (April 18, 2005),” Selected Works of Deng Xiaoping Volume III (1982–1992) (Beijing: Foreign Languages Press, 1994), p. 125.

19 Ash, Robert, “Europe's commercial relations with China,” in Shambaugh, David, Sandschneider, Eberhard and Hong, Zhou (eds.), China–Europe Relations: Perceptions, Policies and Prospects (London & New York: Routledge, 2007), pp. 189–90.

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21 “Launch of EU–China trade dialogue,” Europaworld, 7 May 2004,

22 “China, EU officially launch talks on PCA,” Xinhua, 18 January 2007,

23 “Trade sustainability impact assessment on the negotiations of a partnership and cooperation agreement between the EU and China – global analysis report,” European Commission DG Trade, August 2007, p. 9; interview with European Commission Official, Brussels, December 2007.

24 Shambaugh, David, “The ‘China honeymoon’ is over,” International Herald Tribune, 26 November 2007.

25 Zhang Zuqian, “China's commercial relations with Europe,” in Shambaugh, Sanschneider and Zhou, China–Europe Relations, pp. 237–40.

26 “EU official says China more receptive to message on trade imbalance,” Associated Press /International Herald Tribune, 30 November 2007,; McGregor, Richard and Guha, Khrishna, “China's trade surplus growth set to slow,” Financial Times, 12 January 2008.; “Mandelson in China: ‘product safety is a shared problem’,” European Commission, 26 November 2007,

27 Darrin Ennis and David Brunnstrom, “China calls off EU summit over Dalai Lama visit,” Reuters, 26 November 2008.

28 “China–Iceland free trade agreement negotiation formally starts,” Ministry of Commerce of the People's Republic of China, 5 December 2006,; interview with Icelandic Foreign Ministry officials, November 2007.

29 Haarde, Gier H., “Balancing regional and multilateral commitments: the case of Iceland,” in Petri, Peter A. and La Croix, Sumner J. (eds.), Challenges to the Global Trading System: Adjustment to Globalisation in the Asia-Pacific Region (London & New York: Routledge, 2007), pp. 192–93; information on the Schengen Agreement can be found via the European Commission at

30 Interview at Foreign Ministry of Iceland, Reykjavik, October 2007.

31 Interview at Foreign Ministry of Iceland, Reykjavik, October 2007.

32 Bin, Sheng, “The political economy of a free trade area of the Asia-Pacific: a Chinese perspective,” in Morrison, Charles E. and Pedrosa, Eduardo (eds.), An APEC Trade Agenda? The Political Economy of a Free Trade Area of the Asia-Pacific (Singapore: Institute of Southeast Asian Studies, 2007), p. 82.

33 “Memorandum of Understanding on Strengthening Economic and Trade Co-operation,” Ministry of Foreign Affairs of Iceland, 1 May 2005; interview at Foreign Ministry of Iceland, Reykjavik, October 2007.

34 Ingebritsen, Christine, “Norm entrepreneurs: Scandinavia's role in world politics,” in Ingebitsen, Christine, Neumann, Iver, Gstohl, Sieglinde and Bayer, Jessica (eds.), Small States in International Relations (Seattle: University of Washington Press/Reykjavik: University of Iceland Press, 2006), pp. 274–75.

35 On the idea of Iceland-as-trans-Atlantic corridor, see Thorhallsson, Baldur and Vignisson, Hjalti Thor, “The special relationship between Iceland and the United States of America,” in Thorhallsson, Baldur (ed.), Iceland and European Integration: On the Edge (London & New York: Routledge, 2004), p. 103.

36 Portes, Richard and Baldursson, Friðrick Már, The Internationalisation of Iceland's Financial Sector (Reykjavik: Iceland Chamber of Commerce, 2007), p. 7.

37 “Iceland–China Trade 1995-2007,” Embassy of Iceland in Beijing; “China and Iceland,” Embassy of the People's Republic of China in Iceland,

38 Interview at Embassy of Iceland in Beijing, September 2007.

39 “Iceland bank opens Shanghai office,” Industry Updates [Factiva], 6 December 2006; “Iceland cometh to Asian banking,” Agence France-Presse, 10 November 2007.

40 Interview with Icelandic banking official, Shanghai, November 2007.

41 Zhidong, Li, “China's long-term energy outlook and the implications for global governance,” Asia-Pacific Review, Vol. 14, No. 1 (2007), pp. 1722.

42 “Xianyang DH System,” Enex,; “Sinopec, Glitnir Bank in geothermal energy exploration tieup,” Industry Updates [Factiva], 12 October 2007.

43 Interview at United Nations University Geothermal Training Programme Centre, October 2007. See also Wei, Wang, “Geochemical study of the Xianyang low temperature geothermal field, Shaanxi province, China,” in Georgesson, Lúdvik S. (ed.), Geothermal Training in Iceland 2006 (Reykjavik: The United Nations University, 2007), pp. 501–22.

44 Crawford, Barclay, “Iceland's president talks up city's market status,” South China Morning Post, 14 October 2007, p. 4.

45 Jiang, John Ravenhill and Yang, “China's move to preferential trading: a new direction in China's diplomacy,” Journal of Contemporary China, Vol. 18, No. 58 (2009), p. 30.

46 Interview at Chinese Embassy, Reykjavik, October 2007; “Iceland and China hold third round of FTA talks in Beijing,” Xinhua, 18 October 2007.

47 Jing, Chen, “Hu Jintao talks with Icelandic president on the development of Sino-Icelandic relations,” China News Service [Factiva], 2 October 2007; Jize, Qin, “Research and trade on agenda in meetings with foreign leaders,” China Daily, 3 October 2007.

48 Interview at Iceland Embassy in Beijing, September 2007; Interview at Chinese Embassy in Reykjavik, October 2007.

49 “Memorandum of Understanding on Strengthening Economic and Trade Co-operation,” pp. 22–26.

50 Menon, “Bilateral trade agreements,” pp. 33–34.

51 Interview at Iceland Embassy in Beijing, December 2007.

52 Wei, Jiang, “China, Iceland upbeat on FTA talks,” China Daily, 5 April 2007; Hafliði Sævarsson, Glitnir Seafood Industry Report, November 2007, p. 33.

53 Interview at Foreign Ministry of Iceland, October 2007.

54 Interview at Icelandic Embassy in Beijing, September 2007.

55 Interview with Norwegian Foreign Ministry official, Oslo, January 2008; Wei, Jiang, “Norway and Peru next trade targets,” China Daily, 19 March 2007; “Switzerland seeking free trade talks with China – Xinhua,” Xinhua Financial Network, 9 April 2007; Liu Baijia, “Switzerland recognises market economy,” China Daily, 10 July 2007.

56 Baldwin, Richard E., “Multilateralising regionalism: spaghetti bowls as building blocs on the path to global free trade,” The World Economy, Vol. 29, No. 11 (2006), pp. 1466–69.

57 Interview with European Commission Official, Brussels, December 2007.

58 The author wishes to thank Silja Bára Ómarsdóttir and Alda Sigmundsdóttir for their assistance with this section.

59 Forelle, Charles, “The isle that rattled the world: tiny Iceland created a vast bubble, leaving wreckage everywhere when it popped,” The Wall Street Journal, 27 December 2008, p. 1.

60 “IMF-lán: Icesave-deila skiptir máli” (“IMF loan: Icesave dispute matters”) Ríkisútvarpið RUV Iceland, 8 November 2008,; “International Monetary Fund approves Iceland's request for a two-year standby agreement,” Market Wire/Factiva, 20 November 2008.

61 Eftir Sigtrygg Sigtryggsson, “Kaupa minna magn flugelda” (“Buy fewer fireworks”) Morgunblaðið, Reykjavik, 22 October 2008.

62 Interview with Icelandic Ministry of Foreign Affairs official, October 2008.

63 Comments by Icelandic Embassy in China official. March 2009.

64 Burns, John F., “Premier wants Iceland to join European Union soon,” The New York Times, 27 April 2009, p. 6; “Iceland poll shows most plan to vote against Icesave deal,” Reuters, 9 January 2010.

65 “Interview: Switzerland eyes free trade deal with China,” Xinhua China Economic Information Service, 27 February 2009; “China, Switzerland launch joint feasibility study for free trade pact,” Xinhua/BBC Monitoring, 30 November 2009.

66 Garrett, Banning, “China faces, debates, the contradictions of globalization,” Asian Survey, Vol. 41, No. 3 (2001, pp. 409–27.

67 Cheng, Joseph Y.S. and Wankun, Zhang, “Patterns and dynamics of China's international strategic behaviour,” in Zhao, Suisheng (ed.), Chinese Foreign Policy: Pragmatism and Strategic Behaviour (Armonk, NY: M.E. Sharpe, 2004), pp. 179206.

68 Wei, Jiang, “Trade and investment blaze ahead,” China Daily, 20 September 2007.

69 Kurlanzick, Joshua, Charm Offensive: How China's Soft Power is Transforming the World (New Haven and London: Yale University Press, 2007).

70 Zedong, Mao, “The present situation and our tasks, (December 25, 1947),” Selected Military Writings, 2nd ed., pp. 349–50.

71 Interview at Iceland Embassy in Beijing, September 2007.

72 Trakman, Leon, “The proliferation of free trade agreements: bane or beauty?University of New South Wales Faculty of Law Research Series, No. 54 (2007), p. 19.

* The author wishes to thank the Carnegie Trust of Scotland, the British Academy, London, the Universities' China Committee in London, and the Centre for Small State Studies, University of Iceland, Reykjavik, for their invaluable assistance during the research for this article.

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