Davíð Oddsson, the Icelandic Foreign Minister, and Bo Xilai, the Chinese Minister of Foreign Trade, recently signed an agreement between the two countries which is a prelude to a free trade agreement. The agreement embodies that a joint research of practicality will be carried out for preparation of a free trade agreement between the two countries, but Iceland is the first country in Europe to reach such an agreement with China.
A statement from the Icelandic Foreign Ministry says that Icelandic companies have in the recent years increased their relations with companies in China, especially after Iceland established an embassy in Beijing in 1995. The Foreign Ministry and the embassy have emphasised to facilitate access of Icelandic companies to the Chinese market, both with direct assistance of commercial attachés and by reaching agreements with China.
Iceland has generally concluded free trade agreements through EFTA along with its partners Norway, Switzerland and Liechtenstein but this time Icelandic authorities have chosen to conclude a bilateral agreement with China. Discussions are intended within EFTA about possible participation of the other memberstates in the agreement on later levels.
If Iceland was a member of the EU this would not be possible since countries among other things surrender their authority to conclude international agreements to the Union's institutions by joining it. Chinese authorities have not been interested in making such an agreement with the EU.