China and Iceland will kick off free trade agreement (FTA) talks next week, and are expected to make substantial progress.

"The first round of talks will be held between April 11 and 13," Gunnar Snorri Gunnarsson, Iceland's ambassador to China, told China Daily in an exclusive interview. "The second round is scheduled to be held in June," he added.

The ambassador is optimistic about the negotiations and said he expected an agreement would be reached soon.

He said the completed agreement was expected to be comprehensive covering trade, services and investment rather than separate agreements like those between China and Chile.

Senior trade officials from the two countries agreed to launch the talks in December after a joint feasibility study confirmed "the establishment of the future FTA would benefit the two countries in promoting the economic development and raising the living standards of the people".

Gunnarsson said he hoped the proposed FTA, which would lower tariffs, could improve Iceland's direct trade with China, and in particular increase the market share of "clean Icelandic seafood".

Although the European country exports fish to China, most get processed in China and re-exported.

"We are thinking about the future. We think the Chinese will be increasingly interested in high-quality seafood for the domestic market," he said.

In 2005, China's average tariff on fisheries products was 10 to 12 p

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ercent. Elimination of the tariffs is expected to boost China's imports.

Gunnarsson said the two parties may "need more time on talks for the service sector" compared to the goods sector, where few obstacles are seen.

Service trade between China and Iceland has grown rapidly in recent years, albeit on a small scale and from a low base.

The service industries of the two nations are considered complementary. China has a competitive advantage in the labor-intensive service sector, while Iceland's capital-intensive and technology-intensive service sector is more competitive.

Bilateral investment between China and Iceland is modest. But the two countries see opportunities in shipbuilding, environmental protection and energy, according to Gunnarsson.

An Icelandic company is currently involved in the establishment of a geothermic system in Xianyang, Shaanxi Province, to supply the whole city with geothermic energy.

Iceland was the first European country to grant China market economy status. China's exports to Iceland hit $77.67 million last year, while imports from the northern European country stood at $39.99 million.

(China Daily 04/05/2007 page13)