I understand that Norway doesn't have duty-free import of goods into the EU. What I'm referring to is that the existing tolls and import duties weren't negotiated with the assumption that Norway has tariff-free access to the biggest producer of cheap goods in the world.

I elaborated a bit on this in a sibling comment[1], but let's say for example that the import duties on electric drills from China into the EU are set at 30%, but the same duty for Norway is 10%.

After signing a FTA with China Norway can simply import the drills at 0%, then re-export them to Germany at a rate of 10%.

Even if they can't simply re-export finished products a Norwegian company could buy cheap Chinese parts for making drills, then finish constructing them domestically and export them to the EU.

Even if they don't directly re-export anything from China Norwegian industry would be more competitive than its neighbors, e.g. a Norwegian paper mill might buy cheap acids for industrial from China that their neighbors in Sweden don't have access to. This would make Norwegian paper cheaper than Swedish paper, and Sweden would pressure the EU to adjust its import duties accordingly.

Thus the EU will start having to either treat Norway and Iceland more like China in terms of tariffs and import duties, or to treat China more like Norway and Iceland.

1. https://news.ycombinator.com/item?id=15409391