Geography

The Faroe Islands is an archipelago consisting of 18 islands situated midway between Scotland, Norway and Iceland. The total land area is 1,400 square kilometres; the sea area is 274,000 square kilometres; and the population accounts approximately 49,000.

Status

The Faroe Islands is part of the Kingdom of Denmark but constitute a separate jurisdiction.

The status of a separate jurisdiction within the Kingdom of Denmark implies that matters whose administration has been assumed by the Government of the Faroe Islands is uniquely incumbent upon the legislative and executive powers of the Faroe Islands. Trade related matters, which are under the exclusive competence of Faroese authorities include, but are not limited to, taxes, duties, supplies, production, distribution, price controls and import and export controls. Thus, the Faroe Islands is a separate customs area as taxes and duties deviate those of Denmark, the latter of which aligns its taxes and duties to those of the European Union.

Taxes and Duties

It follows from the above that Danish taxes, duties and trade legislation do not apply in the Faroe Islands.

Relations to International Organizations

Denmark became a Contracting Party to the General Agreement on Tariffs and Trade (GATT) in 1950. In 1954 the GATT was extended to also apply to the Faroe Islands but because the Faroe Islands is a separate jurisdiction the material scope of the obligations applicable to the Faroe Islands under the GATT are implemented differently than those applicable to Denmark, the latter of which is bound by the EU legislation. In fact upon the accession of Denmark to the then European Economic Community (EEC) in 1973, the Faroe Islands decided not to be included in the accession to the EEC. Thus, the founding treaties of the EU do not apply to the Faroe Islands nor does its legislation as evidenced by the fact that the Faroe Islands has entered into a Free Trade Agreement with the EU, which has been registered pursuant to the WTO[1]. Further, in 2001 a Veterinary Protocol was attached to the Free Trade Agreement. Finally, in 2005 the Faroe Islands joined the system of Pan-Euro-Mediterranean Cumulation.

In 2006, the Faroe Islands concluded a comprehensive free trade agreement with Iceland, called the Hoyvík Agreement[2]. The agreement establishes a single economic area consisting of both countries are consistent with which discrimination regarding goods, services, capital and persons is prohibited.

In addition to the agreements with the EU and Iceland, the Faroe Islands has also entered into free trade agreements with the EFTA-countries, Norway and Switzerland. Finally, the Faroe Islands and Turkey more recently signed a free trade agreement.

Currency

The Faroe Islands is part of the Danish monetary area while Faroese notes are authorised. The Faroese króna is equivalent to the Danish krone. The Danish notes are exchanged without commission in any bank in the Faroe Islands, as is the casefor Faroese notes in Denmark.

Foreign Trade

The Faroese economy is highly specialized. The Faroese GDP in 2013 was 2,150 million US$.[3]

Exports in goods, the total value of which in 2014 was 842 million US$, are dominated by fishery and aquaculture products, while imports cover a wide range of consumer goods. Total import value was approximately 906 million US$ in 2014.

For more specific key figures on the Faroese economy please see Statistics Faroe Islands.[4]

Trade Policy

Faroese authorities regard it as a matter of utmost importance to ensure that the Faroese population has a wide range of quality goods at the lowest possible price. Because of the high freight costs and the limited size of the market, it is important to avoid any unnecessary costs. This applies especially to commissions to intermediary wholesalers or subsidiaries located beyond the jurisdiction of the Faroe Islands. It follows accordingly from the above that Faroese importers and foreign producers establish direct trade linkages in order to avoid incurrences of distribution costs relating to agents located in different tariff jurisdictions.

For further information, please refer to the Faroese Competition Authority and the Competion Act of 2007. [5]

[1] http://www.government.fo/foreign-relations/agreement-on-free-trade-between-the-faroe-islands-and-the-european-community/

[2] http://www.government.fo/media/5351/hoyvikssattmalin-en.pdf

[3]All currency conversions are calculated using the average exchange rate for each year according to the Danish National Bank, www.nationalbanken.dk

[4]http://www.hagstova.fo/en

[5] http://www.kapping.fo/get.file?ID=10059