On April
15, 2013, China signed its first trade agreement with a European country.
During a state visit to China by Icelandic Prime Minister Johanna
Sigurdardottir, Iceland formed an economic alliance with China when many others
would not. The New York Times reported in an April 15, 2013 article
that, out of fear of China’s “increasing economic might”, many other countries
in the Europe have denied FTA’s with China. The articles notes that in 2011,
Iceland’s GDP was $14 billion, compared with China’s $7.3 trillion GDP.
Furthermore, these “two hugely mismatched economies…” engage in, what is by
world standards, relatively small annual trade. Iceland’s 2012 exports to China
were only $61 million and Chinese imports were valued at $341 million.
An article written by the London-based newspaper, The Daily Telegraph, examined China’s hopes for long-term gains from this agreement. “Iceland has unique importance to China as it attempts to gain a foothold in the Arctic, where melting ice is opening passages for shipping and could create a boom in extraction of resources such as gas, oil, diamonds, gold and iron.” China has been rejected by many other European nations as a trading partner, and while it was assured that China “would not gain backdoor access to the European market, Iceland is a member of, and holds influence in the European Free Trade Association and the European Economic Area.
China is also negiotiating deals with Iceland regarding exploration of natural resources. The Wall Street Journal reports that, both Icelandic and Chinese companies are discussing opportunities for exploration of, what is believed to be, vast crude oil reserves.
From the Icelandic perspective, they seek to gain from this FTA through the removal of all tariffs surrounding their number one export – fish. The Wall Street Journal notes that Chinas rising middle
As
melting continues to occur in the Arctic, China seeks to gain access to key a
trans-polar shipping route that, according to Yang Huigeng, the director of the
Polar Research Institute of China, this passage, which could become operational
as early as 2020, could reduce shipping times by as much as 40%. China’s
relations with Iceland and increased presence in the Arctic will ensure their
ability to utilize these routes.
China was strategic about forming a trade agreement with Iceland. With China's expanding global trade interests this should not be a surprise. Their efforts to be involved with any new international agreements which may affect long term opportunities for shipping and open up the Arctic is a shared interest with various countries. However, it will most likely take a lot more money and time to establish what China will need to be successful in the Arctic. This should not be a threat to the U.S.
ReplyDeleteIt is interesting to me that others in Europe have been so reluctant to form a Free Trade Agreement with China due to its growing economic might. It is a very strategic move by China, due to the possible access to shipping routes and possible natural resources. It will be interesting if to watch and see if anything changes form this FTA, and further if either country gains from it. Furthermore, I'll be curious if other European countries follow suit.
ReplyDeleteWhat an unlikely pair! I do also agree that this is a strategic move for both countries with Iceland advancing alliances with an economic powerhouse and China gaining access to the Northern Sea Route, the Arctic, and natural resources. I had little previous knowledge of China-Iceland relations but after doing a little research I've learned that the two have strengthened their relationship recently throughout the years. In 2008, when Iceland experienced a severe financial crisis, "Iceland looked both towards Russia and China for credits and financial support". In addition, Iceland's President Ólafur Ragnar Grímsson has stated that “the Chinese positions in the cooperation have been constructive, balanced, positive and definitely not aggressive”. It'll be interesting to watch their evolving relationship in the years to come.
ReplyDeletehttp://barentsobserver.com/en/arctic/china-strengthens-arctic-cooperation-iceland
As everyone else has mentioned this is China's way of having more of an influence over the Arctic that is going to have increasing importance as the ice melts. According to the Telegraph, "China is seeking permanent observer status in the Arctic Council", which decides on policy in the area. A few questions that I hold is that what type of repercussions wil this have for Iceland in the future? There has already been mention that other countries have refused trade agreements with China and I would imagine that this would negatively affect relations with other European countries. I also wonder about the affect on Iceland's environment. Iceland is an economy based mostly off of tourism and is rated number on an environmental index. China has historically been poor in regards to environmental protection and with their interest in Iceland's access to resources I can only imagine that Iceland and the environment will suffer from China's influence on policies in the area. The faster the ice melts, the quicker China can get access to resources and a trade route that 15% of China's trade could be transported through.
ReplyDeletehttp://www.economist.com/blogs/analects/2013/04/china-and-iceland
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ReplyDeleteInteresting!
ReplyDeleteChina is a shrewd negotiator.
Also, it sound like the mercantilists are alive and well!
Human nature (namely greed) and market forces will trip them up at some point.
I say the market is always smarter than a few Ph.D.
Good luck China - you are going to need it.
I am surprised that other European nations have not done this with China yet, as it is a growing economic power, to say the least. Having an agreement with Iceland is very strategic for China, in the way of transportation methods (especially when ice melts as Kimberley pointed out), and access to resources. I think that other European nations should think about getting into trade agreements with China, as it will help both nations in the long run.
ReplyDelete