Trouble is rattling one of Iceland's most distinctive industries: the production of the thick, hand-knitted "lopi" sweaters adored by tourists and worn with pride by locals.

The individually produced, very warm sweaters have become a symbol of Iceland. But local knitters are upset at seeing their profit margins diminished by the appearance of sweaters actually made in China, albeit from authentic Icelandic wool.

Containers full of local yarn are shipped from the North Atlantic island nation, made into sweaters in China, then shipped back again, labeled as "hand-knitted from Icelandic wool".

Knitting co-ops around Iceland, struggling to compete, last month urged the government to ban companies from branding woolen sweaters as "Icelandic" unless they are made locally.