Zurich, 14 October 2026
Baudenbacher Law AG
ESA takes Iceland to EFTA court
The EFTA Surveillance Authority (ESA) has referred Iceland to the EFTA Court over Protocol 35 to the EEA Agreement. ESA argues that Icelandic law still does not ensure that implemented EEA rules prevail over conflicting national provisions (ESA, Iceland Review).
The dispute is an old one. ESA first raised concerns in 2012, opened formal infringement proceedings in December 2017 and issued a reasoned opinion in September 2020.
Rapporteur asked our senior partner Carl Baudenbacher, President of the EFTA Court from 2003 to 2017, for his assessment.
What Protocol 35 requires
The EEA Agreement entered into force on 1 January 1994 – 32 years ago. It was built on the premise that the EFTA States would not transfer legislative powers to EEA institutions.
Protocol 35 is the counterpart to that premise. The EFTA States undertook to introduce, if necessary, a statutory provision ensuring that implemented EEA rules prevail where they conflict with other statutory provisions.
Iceland implemented the Protocol through Article 3 of Act No 2/1993 on the European Economic Area, which is framed as a rule of interpretation. ESA considers that insufficient. According to EU Law Live, the Icelandic Supreme Court confirmed in 2024 that Icelandic law contains no general rule giving implemented EEA rules priority.
Carl Baudenbacher: a credible case, but not a simple one
Speaking to Rapporteur, Carl Baudenbacher said that ESA has a credible case, but that the outcome is less straightforward than the Authority suggests. Protocol 35, he explained, neither imports the EU doctrine of primacy wholesale nor prescribes a particular legislative formula. The issue, in his words, is therefore “not only whether Iceland wins, but also how narrowly it loses”.
The distinction matters. Primacy in EU law follows from the EU legal order itself. Protocol 35 is an undertaking under international law, addressed to the national legislature and limited to EEA rules that have been implemented.
The question before the Court is therefore one of result: does Icelandic law, as applied by the Icelandic courts, secure the priority that Protocol 35 calls for?
The margin matters because the reasoning will outlast the case. A narrow finding would leave the Althingi free to choose how it secures that priority, while a broad one would come close to prescribing the wording.
At the same time, he does not expect time to work in Iceland’s favour. Although the European Commission does not supervise the EEA/EFTA States as it does EU Member States, he sees the political room for further delay or special arrangements shrinking.
The backdrop: the referendum of 29 August 2026
On 29 August 2026, Icelanders voted on whether to resume EU accession negotiations. The proposal was rejected by 52.8% to 47.2%, with 82.6% of registered voters participating (National Electoral Commission).
Carl Baudenbacher was one of the most prominent voices in that debate:
- At the invitation of the Foreign Affairs Committee of the Althingi, he submitted written comments on the referendum.
- He published a book on Iceland, the EEA and the EU.
- On 10 August 2026 he gave a public lecture in Iceland, chaired by former President Ólafur Ragnar Grímsson.
Professor Hannes Hólmsteinn Gissurarson of the University of Iceland described him and the former President as the two most effective spokesmen of the No side.
His main argument was that Iceland is well served by the EFTA pillar of the EEA, with its own surveillance authority and its own court. It was that court which, under his presidency, dismissed ESA’s application against Iceland in the Icesave judgment of 28 January 2013 (Case E-16/11).
After the referral, former Prime Minister Sigmundur Davíð Gunnlaugsson of the Centre Party proposed that Carl Baudenbacher defend Iceland before the EFTA Court (Morgunblaðið, 30 September 2026).
What Happens Next for Iceland?
The Icelandic government has tabled a bill to anchor Protocol 35 in Icelandic law – its fourth attempt, according to Iceland Review. Rapporteur reports that the Althingi debated the proposal for nine hours without reaching a conclusion.
Foreign Minister Þorgerður Katrín Gunnarsdóttir expects ESA to withdraw the case if Parliament passes the bill. If it does not, the EFTA Court will have to decide what Protocol 35 demands of a dualist legal order.
That answer will matter beyond Iceland. Protocol 35 binds Norway and Liechtenstein as well, and the judgment will show how much room the EEA leaves national legislatures in giving effect to it.
Baudenbacher Law AG advises and represents clients in EEA and EU law matters from Zurich, Brussels and Oslo.
Sources
- Rapporteur: Iceland taken to court over EU law supremacy
- ESA: ESA takes Iceland to Court for failing to ensure EEA rights prevail
- Iceland Review: ESA Takes Iceland to EFTA Court Over Protocol 35
- EU Law Live: ESA refers Iceland to EFTA Court
- Brussels Report: Why Iceland Rejected EU Membership
- Brussels Report: Why Iceland Should Remain in the EEA and outside the EU
- Landskjörstjórn (National Electoral Commission): result of the referendum of 29 August 2026
- Morgunblaðið: Leggur til að Baudenbacher verji Ísland
