Gudlaugur Thor Thordarson said Theresa May does not to have to commit to Brussels’ free movement policies in order to strike a deal with her European colleagues.
EU leaders have previously insisted the UK must sign up to the bloc’s ‘four freedoms’ – the free movement of workers, goods, capital and services – if it wants to have access to the European single market.
German Chancellor Angela Merkel previously poured cold water on the idea Britain remaining in the bloc’s trade area, by refusing to compromise on the key EU principles.
She said: “Whoever wants to leave this family cannot expect to shed all of its responsibility but keep the privileges.”
Iceland's foreign minister said Britain could avoid EU free movement while signing a trade deal
It would be ridiculous if we were to see some sort of trade barrier in Europe
Gudlaugur Thor Thordarson
European Council President Donald Tusk echoed this sentiment and said there would be “no free-trade agreement” with Britain without free movement.
However, speaking to Sky News, Mr Thordarson declared the European lawmakers were wrong, adding Iceland maintains free trade with the bloc through the European Free Trade Association (EFTA).
He said: “It would be ridiculous if we were to see some sort of trade barrier in Europe in the near future.
“We don’t make EU commitments as EFTA, which is a free trade organisation. We have free trade deals with 38 partners around the world.
“Iceland, because we can also do bilateral agreements, we have a free trade agreement with the first European nation and China.
“With the EU we have the EEA agreement, which three of the four EFTA countries are members of.”
The foreign minister insisted Britain can strike similar trade agreements while avoiding the EU’s free movement demands.
“If the UK would join EFTA it would be about the free trade deals around the world,” he said, adding Britain would only have to accept free movement if it signed a deal via the European Economic Area.
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“There is only three out of the four EFTA countries who are a member of the EEA. EFTA is a free trade organisation.”
Mr Thordarson added: “When the Government of the fifth largest economy wants to be champions of free trade, I think it is only good for the rest of the world.
“It's very important we see more free trade in the world. It’s about prosperity for the people, and the way forward there is to have free trade.
“We just need to see the EU and UK finalise free trade between themselves like we have seen for decades.”