While Western Europe was experiencing a trade boom and adopting a more liberal economic framework during the 1950s, Iceland was moving in the opposite direction. External trade was historically at its lowest point and its external economic policy was characterized by extreme caution towards European cooperation and integration. Iceland's commitment to a more open economy and closer economic integration with Europe was at best half-hearted as her participation in the OEEC's Trade Liberalisation Program (TLP) clearly demonstrates. This article examines Iceland's external economic relations between 1945 and 1960 with particular emphasis on the TLP. It seeks to explain why Iceland, so highly dependent on strong ties with the outside world, chose to cling to protectionism longer than most Western European countries. It is argued that the external shock caused by the war, creating an artificial economy internally and the overvaluation of the krona, made adjustment to peacetime circumstances extremely difficult. The task was made harder by a public policy prioritizing on growth and investment rather than balanced macroeconomic management. Last but not least, Iceland's commercial interests were not easily reconcilable with those of the other members of the OEEC because of her special pattern of trade.