Report No.12 to the Storting (2000-2001)

Norway and Europe at the Dawn of a New Century (Part I - Translation from the Norwegian)

6 The EEA and Norway’s room for manoeuvre

The EEA Agreement was negotiated during the period 1989-92, initially through extensive exploratory talks, and from June 1990 through negotiations.

At that time, the EU was in the throes of change. In the 1970s and the first half of the 1980s, it became increasingly clear that the national instruments available to member states were not sufficient to deal with the problems in the business sector that were arising as a result of economic fluctuations. At the same time, it gradually became evident that the problems were also of a structural nature and not merely cyclical.

To resolve these problems, many of the member states implemented a variety of measures that had the effect of distorting competition with third countries. Moreover, increasingly extensive barriers to trade were gradually erected between the member countries themselves. As a result of these efforts to protect national markets and industries, economic development stagnated. Outdated commercial structures were allowed to continue, and the EU’s competitiveness was weakened in relation to the USA and Japan.

It was this situation that gave rise to the plan for a "Single Market", which aimed at dismantling all trade barriers between the parties and realizing the common market provided for in the Treaty of Rome. The Programme for the Single Market was launched by the Commission in 1985. The Single European Act (SEA), which came into force on 1 July 1987, introduced the treaty amendments that were necessary to enable the Council to implement the programme by means of qualified majority voting. The goal was to have the single, or internal, market in place by 1 January 1993.

The EEA process that was initiated in early 1989 was prompted by the desire to promote the common interests of the EFTA states and the then European Community. Changes in market conditions and economic relations in the EC would have had significant implications for the EFTA states, each of which had a free trade agreement with the EC governing the exchange of goods. However, the agreements did not cover the rapidly expanding service sector. At the same time, several of the EFTA states themselves faced challenges similar to those confronted by the EC member states.

At that time, the GATT Uruguay Round had come to a standstill, with few prospects of solutions likely to stimulate growth in the European economy. This was another reason why the EC had a strong interest in expanding the internal market to include the EFTA member states. These countries were the EC’s most important trading partners, followed by the USA and Japan. Furthermore, the foreign policy détente in Europe that followed in the aftermath of the fall of the Berlin Wall made it possible, for the first time, for the neutral EFTA states also to enter into consultations on broad-based, binding cooperation arrangements with the EC. Consolidating this trend was a special goal for key EC member states.

The substance of the EEA Agreement and, not least, the institutional provisions reflect the fact that the seven EFTA states which originally negotiated the agreement with the EC had significant political and economic weight as a group. Moreover, Austria had applied for EC membership in 1989, shortly after the commencement of the EEA process. In the course of the negotiations, political developments in Sweden and Finland led to these countries’ applying for EC membership in July 1991 and March 1992 respectively.

The EEA Agreement was signed in May 1992. In parallel with the EEA negotiations, two EC Intergovernmental Conferences were convened in December 1990 to bring the treaty basis more closely into line with the new challenges. One of the conferences concerned the implementation of economic and monetary union. The treaty amendments of 1992 also institutionalized cooperation in the field of justice and home affairs and strengthened the role of the European Parliament. Although these fields are also relevant to the cooperation established by the EEA Agreement, neither of them was addressed in the EEA negotiations.

6.1 The scope and application of the EEA Agreement

By virtue of the EEA Agreement, Norway is part of the EU’s internal market since the EU rules governing the free exchange of goods and free movement of persons, services and capital have been implemented in Norwegian law. Norwegian undertakings have access to this market on more or less the same terms as undertakings in the EU in those fields where EU rules have been fully integrated into the EEA Agreement. We enjoy equal conditions of competition, while the EU has refrained from employing trade policy measures against Norwegian undertakings in the form of anti-dumping measures or other EC legal instruments that may otherwise be applied to non-member states. Conversely, Norway and the other EFTA states in the EEA are subject to the same surveillance and enforcement procedures as regards common rules for state aid and competition as the EU member states. In the EU, these functions are performed by the European Commission and the EC Court of Justice, while the EFTA Surveillance Authority (ESA) and the EFTA Court carry out the same tasks in respect of the EFTA pillar of the EEA.

In addition to the EU internal market, the EEA Agreement also includes provisions intended to prevent competition in the internal market from leading to lower national standards in working life and in the environmental sphere, i.e. to social or environmental dumping. At the same time, Norway is linked to EU cooperation in the fields of research and development, education, etc. On the other hand, the EEA Agreement does not cover EU fisheries or agricultural policy nor its fiscal policy.

Thus, the EEA Agreement enshrines the principles and provisions governing economic relations and the functioning of markets that were laid down in the plans for the EU internal market and implemented on the basis of the Single European Act, which entered into force on 1 July 1987. The agreement was intended to come into force on 1 January 1993, on the same date as the target deadline for the completion of the EU internal market. However, Switzerland voted against the agreement in a referendum in December 1992, thereby delaying its entry into force by one year, until 1 January 1994. Although the EEA Agreement is continually being amended in line with changes in the EU’s own legislation, this only applies within the scope of the agreement itself, i.e. within the framework that was established in 1992. Thus the agreement has not been expanded to correspond with the enlargement of cooperation within the first pillar which took place through the Maastricht and Amsterdam processes. Nor does it cover the cooperation that was established and later strengthened in the EU on foreign and security policy and on justice and home affairs. Today, the EEA Agreement is the most important instrument in Norway’s economic relations with the EU, and is of fundamental importance in safeguarding Norway’s commercial interests. When the EEA Agreement entered into force the EFTA pillar consisted of cooperation between Norway, Finland, Iceland, Sweden, Austria and Liechtenstein. Since 1 January 1995, the EFTA pillar has consisted of Norway, Iceland and Liechtenstein.

An internal market with equal market access for undertakings from all participating states not only necessitates a common set of rules for the entire EEA area and the equal application and enforcement of these rules. It is also contingent on the uniform development of legislation in both the EFTA and EU pillars of the EEA, thereby ensuring that equal conditions of competition are maintained for all undertakings and economic operators. The agreement’s institutional provisions are intended to ensure such homogeneity.

The EEA EFTA states play no formal role in the internal decision-making of the EU. This would be contrary to the EU treaty basis. However, they may take part in the EU’s preparatory work on developing new legislation that is relevant to the EEA.

6.1.1 Preparation of new legislation

New legislation is developed in the EU within the framework of the internal market on the initiative of the European Commission. Such initiatives do not emerge in a political vacuum, but are prompted as a rule by political trends in the member states themselves or the Council of Ministers, or as a result of initiatives originating in the European Council, where the heads of state and government of the member states convene. Such legislation becomes part of the EEA cooperation framework when it falls within the scope of the EEA Agreement.

When the Commission begins the process of assessing and, if necessary, drafting new legislation in a field covered by the EEA Agreement, it is to obtain the views of experts from the EFTA states in the same way as it consults with experts from the EU member states. This stage is concluded when the Commission decides whether or not to propose new legislation to the Council. If it decides to do so, the political process in the Council between the governments of the EU member states begins.

Furthermore, the Commission itself also adopts rules on the basis of authority delegated by the Council. When drafting such rules, the Commission avails itself of assistance from committees of experts. Under the EEA Agreement, EFTA experts are assured of the broadest possible participation at this stage of the proceedings. When a decision is to be made, however, the national experts from EU member states receive instructions from their capitals. They then act as representatives of their national authorities in an internal EU decision-making process. The EFTA states do not participate in this process. The actual decision is made by the Commission. In practice, far more rules are issued in this way by the Commission than are generally issued by the Council, but in such cases the rules are laid down within a framework established by the Council.

Norway and the other EFTA states also participate fully in the committees that assist the Commission in administering or developing framework programmes and specific programmes, mainly in the field of research and technological development. Norway’s participation is contingent on its making a financial contribution to the projects.

All in all, Norwegian officials take part in just over 200 committees under the European Commission. The presence of Norwegian experts provides an opportunity to exert influence through direct participation at a time when national points of view are usually still flexible and before positions have become firmly established.

The Government attaches great importance to ensuring that we make full use of the opportunities afforded by the EEA Agreement to bring influence to bear at this stage. This requires thorough preparations and the effective coordination of Norwegian efforts. Statskonsult has carried out and is currently conducting studies of the way Norway makes use of the opportunities offered by the EEA Agreement. The Government is using these studies and other data in an ongoing assessment of Norway’s participation in EEA cooperation.

In the preparations for the development of new legislation there is still room for improvement of the internal coordination of administrative procedures, in connection with the dialogue with special interest organizations and external groups, and in connection with transparency at all stages of the process. The Government will strengthen internal coordination by defining clearer, general political priorities.

At the same time the Government will undertake a thorough examination of how special interest organizations and other relevant groups are drawn into the preparations, and of the routines used to disseminate information, with a view to making improvements. A broad and open discussion of new legislation will provide the best basis for the Norwegian authorities to take their decisions. The Government will inform the Storting in an appropriate manner as to the results of its examination and the improvements that will be proposed.

The social partners have a special role to play in the EEA cooperation, through the EFTA Consultative Committee and the EEA Consultative Committee. The dialogue here is increasingly concerned with issues of great social significance in the context of the globalization of national economies and the challenges posed by this process. In the Government’s view, it is important that the participation of the social partners in the EEA cooperation and the dialogue between the authorities and the partners at national level enhance our ability to promote a broad range of Norwegian interests within the framework of the cooperation.

6.1.2 The political process

When the Commission has presented proposals to the Council and the European Parliament, the political process between the governments of the EU member states in the Council commences. This normally begins in the form of discussions in the Council’s working groups. Where difficult issues are concerned, this stage is decisive for the further fate of the proposal and the final formulation of rules. At this stage of the decision-making process, in which the Council and the member states are the main players, Norway has no direct channel of communication. Pursuant to the EEA Agreement, the Commission is the Norwegian authorities’ contact point with the EU when new legislation is being drafted. If Norway wishes to influence the political processes, the Norwegian authorities must deal directly with the various member states.

In these efforts, the member state holding the EU presidency often plays a central role. In important political matters, the Government attaches great importance to this type of contact. Effective use of such contacts requires that the various Norwegian interests be coordinated and weighed against each other and in relation to the EU and calls for detailed knowledge of the priorities and positions of individual member states on important issues.

The influence of the European Parliament in EU decision-making processes was strengthened by the Maastricht Treaty and later by the Amsterdam Treaty. Through extended use of the co-decision procedure, the formulation of politically difficult proposals is often ultimately determined in direct negotiations between the members of the Council and the European Parliament. The EEA Agreement makes no provision for direct EFTA participation in such processes. In matters that affect Norwegian interests, Norway has to seek to establish informal contacts with both the Council and the European Parliament.

6.1.3 Importance of the EU’s process-oriented governance

When the EEA Agreement was negotiated, the completion of the internal market had high priority on the EC agenda. The agreement included the EFTA states in key areas of EC policy.

Today this situation has changed, because in the past few years the EU has carried out important reforms as regards policy and working methods with a view to influencing and controlling the forces unleashed by globalization. The frequency of informal EU ministerial meetings has increased, and the European Council has begun to play a more active role in broader areas of EU cooperation. The new initiatives have been cross-sectoral and have lain partly within and partly outside the internal market and the scope of the EEA Agreement. The aim has been to secure continued welfare and value creation in a climate of changing economic parameters. The EU’s new methods of governance affect Norway’s room for manoeuvre.

These political initiatives and agreed actions have concerned such matters as employment policy (Luxembourg, November 1997), cooperation in the field of justice and home affairs (Tampere, October 1999) and important issues relating to employment, education and a knowledge-based economy (Lisbon, March 2000). Decisions have revolved around complex cross-sectoral issues. Often they must be followed up simultaneously in fields that currently lie within the EU’s own competence, fields in which authority is shared between the EU and its member states, and fields in which the issues largely lie at the level of national authority. Follow-up in the EU can therefore be effected partly by developing rules in the traditional manner by adopting new rules that also fall within the scope of the EEA Agreement, and partly by coordinating measures in the various EU member states, where the measures are not covered by the EEA Agreement.

This type of broad policy initiative is currently based on cooperation in which the EU member states participate in an internal market where they are integrated more closely than in the market in which Norway participates through the EEA. Today, the traditional method for developing rules within the internal market is often too slow and too rigid to meet the demand for quick, flexible and cross-sectoral measures necessitated by the current pace of development. The strong political role now played by the European Council in EU cooperation also means that the role and functions of the Council of Ministers have been strengthened in relation to those of the Commission. Initiatives in terms not only of policy formulation but also of the development of rules originate to an increasing extent in the cooperation between the governments of the EU member states.

Those parts of EU initiatives that are contingent on the adoption of rules that lie within the scope of the internal market and the EEA Agreement are presented to Norway in accordance with the Agreement, and Norwegian experts take part in the preparatory work in the usual way. This does not necessarily mean that there is a satisfactory balance. Even if the parts relevant to the EEA only constitute a few, isolated elements of a broader package of measures, Norway is still expected to approve them in accordance with the stipulation that the same rules are to apply in all EEA countries in the fields covered by the EEA Agreement. However, since Norway does not participate in the parts of such initiatives that lie outside the scope of EEA cooperation, the initiatives may have a different effect on Norway than on EU member states, unless we also adapt to the other parts of them on a unilateral basis outside the framework of the EEA. As the EU introduces new initiatives in response to the challenges posed by globalization, Norway and the other EFTA states will repeatedly find themselves in a situation where we are expected to implement isolated parts of initiatives without participating in the political processes within the EU that preceded them. This makes it increasingly necessary for Norway to continuously promote its own interests in the EU capitals and vis-à-vis the Community bodies.

The fact that the EU member states are now increasingly coordinating their activities by means of broader, cross-sectoral initiatives in order to strengthen their capacity for value creation also affects the competitiveness of EU undertakings in the internal market. In the Government’s view, this poses new challenges for Norway. When such initiatives lie outside the scope of the EEA Agreement, yet directly affect the competitive situation in the internal market, this may lead to a relative weakening of the competitiveness of Norwegian business and industry.

When process-oriented cooperation outside the scope of the EEA gives rise to broad initiatives that have an impact on the EU’s competitiveness and the internal market, and also to a certain extent result in legislation relevant to the EEA, Norway is more bound than before, in political, economic and legal terms, by decisions in whose preparation we have not actually participated. This means that the EEA Agreement may become relatively less important for Norway as an instrument of consultation and influence.

The Government must take account of the fact that the EU member states will increasingly make use of this type of broad, process-oriented cooperation in the years ahead. The Government attaches importance to keeping informed about the emergence of such initiatives so as to enter into a dialogue with the EU at an early stage with a view to promoting Norwegian interests. If new EEA legislation does not have the intended effect on Norwegian competitiveness unless it is implemented in combination with those parts of the EU initiatives that lie outside the scope of the EEA Agreement, the Government considers possible unilateral Norwegian adaptation in each individual case.

The Government will inform the Storting of the main lines of the EEA cooperation on an annual basis.

6.1.4 The right of veto

According to the principle of unanimity applied in the EEA Joint Committee, all the EFTA states must agree in order for new EU legislation to be integrated into the EEA Agreement and for it to apply to cooperation between the EFTA states and the EU. If one EFTA state opposes integration, this also affects the other EFTA states in that the rules will not apply to them either, neither in the individual states nor between the EFTA states themselves nor in their relations with the EU. This possibility that each EFTA state has to object to new rules that lie within the scope of the EEA Agreement becoming applicable to the EFTA pillar is often referred to as these parties’ right of veto.

So far, this right has not been exercised. This is partly because when EU legislation is to be integrated into the EEA Agreement it is submitted to the EEA Joint Committee at the final stage of an extensive process of information and consultation between the contracting parties. The purpose of this process is to ensure that agreement is reached on such decisions. During the negotiations on the EEA Agreement, compromises were found if a state had constitutional objections to the content or could invoke fundamental national interests. Even though constitutional problems are unlikely to arise in the day-to-day EEA work, the will to reach necessary compromises must still be regarded as a basic condition for cooperation.

When the Commission submits new draft legislation to the Council and the European Parliament, Norway and the other EFTA/EEA states at the same time receive the text of the proposals that are relevant to the EEA, and the EFTA pillar can begin its internal assessment.

During the process that takes place in the working groups under the Council of Ministers , amendments may be made on the basis of input from the EU member states. The EFTA states have no institutional channel of communication with the member states in this process, and must, if necessary, promote their interests through the Commission or directly in the member states. However, the position of the EFTA states on particular issues will often be reflected in corresponding views expressed by various EU member states. In certain issues in recent years, such as the patenting of biotechnological inventions, the decision-making process in the Council has led to amendments to draft directives that have benefited Norwegian interests among others. This is in line with a general political trend in these issues that transcends national frontiers.

As a rule, any problems remaining to be resolved in consultations in the EEA bodies concern isolated parts of new Community acts. In the day-to-day practical cooperation, it may in some situations seem more favourable for EEA cooperation to devise special adaptations for a state that has problems than not to make a decision at all because it is blocked by the state in question. If no solution is arrived at in the EEA Joint Committee, the matter is of course submitted to the EEA Council, i.e. the European Commission and representatives of the participating states at ministerial level.

If, despite protracted attempts to find a solution within the framework of EEA cooperation, a state finds it necessary to exercise its right of veto, the affected part of the annex to the EEA Agreement to which the new legislation in question belongs is regarded as being provisionally suspended between the EFTA pillar and the EU.

Exactly what constitutes the "affected part" of an annex is a matter for consideration by the EEA Joint Committee. Under any circumstances, any part of an annex that is replaced by new EU rules will cease to apply. If, for instance, the EU introduces new standards for certain products that are more stringent than those set out in the EEA Agreement, and the new rules are not integrated into the Agreement because they are vetoed by an EFTA state, the EFTA states may not continue to export goods to the EU on the basis of the former, less stringent product requirements in the EEA Agreement.

However, some parts of the legislation governing the internal market are so closely connected, for instance in terms of their effect on undertakings’ conditions of competition, that other parts of an annex besides the part replaced by new legislation must often presumably also cease to apply. For example, all the various Community acts in Annex IX of the EEA Agreement regarding financial services can hardly be viewed in isolation from each other. Another example of an internal link is the relationship between the various rules in Annex 1 on veterinary and phytosanitary measures. The elimination of veterinary border controls is based on a combination of several acts of legislation, as a result of which a failure to integrate new veterinary provisions in these fields into the EEA Agreement may have implications for the right to export goods to the EU without border controls.

The EU’s obligation to refrain from anti-dumping measures may also cease to apply in a particular field if, due to a veto, this field is no longer covered by common rules of competition, or if the other EU legislation in this field can no longer be regarded as an integral part of the EEA Agreement.

When the EEA Agreement was negotiated, the EFTA states were the EU’s most important export market. Enlarging the internal market to include these states was therefore of great significance for the EU. It meant that the EU had substantial vested interests in finding solutions to the EFTA states’ special problems during the original negotiations on the EEA Agreement.

Since the enlargement of the EU in 1995, the situation has changed. The importance of the EFTA pillar as a market for the EU and as a common market for the EFTA states has been significantly reduced. If problems should arise between Norway, Iceland and Liechtenstein on the one hand and the EU on the other in connection with the integration of new EU legislation into the EEA Agreement, the natural balance will therefore have shifted in the EFTA pillar’s disfavour in most areas when the EU weighs the various interests against each other. This means that it may be more difficult for the EFTA pillar to achieve genuine compromises with the EU. The 1995 enlargement also made the EU even more important to Norway in political and economic terms, and this trend will be reinforced when the Central and Eastern European candidate countries become members. In the Government’s opinion, if Norway were to exercise its right of veto, it would thus entail greater disadvantages for Norway, Iceland and Liechtenstein today than when the EEA Agreement was initially entered into.

Therefore, even though Norway has a genuine right of veto which gives us freedom to manoeuvre from a legal point of view, it is the Government’s view that our room for manoeuvre both as regards finding compromises with the EU in the EEA Joint Committee and as regards exercising our right of veto has been significantly curtailed since we entered into the EEA Agreement. This trend will be exacerbated by future enlargements of the EU to include new member states.

The possibility of exercising the right of veto in the EEA is part of the larger question of the scope of Norway’s room for manoeuvre on broad policy issues relating to important economic sectors, in relation to an EU pillar in which an increasing number of policy areas are being viewed as part of an integrated whole. The problem is rendered particularly relevant by the fact that the EU is increasingly implementing measures outside the scope of the EEA Agreement which have implications for Norway’s relative competitiveness in the internal market.

6.2 Room for manoeuvre and freedom of action

The EEA Agreement is implemented in the EU in the same way as other agreements entered into by the European Community with third countries. It constitutes part of Community law, and new member states therefore have the same rights and obligations under the agreement as the current member states. They form part of the EU pillar of EEA cooperation and enlarge the internal market, of which Norway is a part. As candidate countries become members of the EU, the political and economic weight of the EU pillar thus increases, and there is a corresponding increase in the imbalance between the EU and the EFTA pillars of the EEA. When there is disagreement between the two pillars, this imbalance may make it more difficult to find satisfactory compromises or special solutions for Norway.

The conditions that apply to the new member states are based on EC legislation. If exemptions are granted, they are transitional arrangements which, for a limited period of time, accord the new member states a lower level of obligations compared with the original member states (and possibly the EFTA states, insofar as such arrangements concern the internal market) than that prescribed by the legislation. The EFTA states are not party to the negotiations, but may contribute their views through the EEA cooperation framework. Thus, Norway’s room for manoeuvre in this process is limited.

On the whole, the EEA Agreement ensures that Norwegian undertakings have equal access, with a few exceptions, to the internal market. This will continue to be the case when the candidate countries become members. However, the markets change in response to new needs and patterns of consumption, altered political parameters and the introduction of new products based on new technology and research and development. In order to safeguard Norway’s welfare and economy, it is crucial that important Norwegian business sectors have stable, predictable parameters for their exports and international operations. Up to now, the EEA Agreement has played a pivotal role in ensuring these conditions. However, this situation will be challenged in the years ahead by dynamic processes of change that are already at work. Examples of sectors that have been affected are the petroleum sector and the fishery and aquaculture industry, i.e. Norway’s two most important export industries.

6.2.1 Oil and gas

Fifty per cent of the EU’s energy needs are currently met by imports, but this figure will probably gradually increase to 70 per cent by 2020.

In 1999, the value of Norwegian petroleum exports was approximately NOK 170 billion. Gas currently accounts for about 20 per cent of petroleum exports, but this share is expected to rise substantially in the next few years. Gas exports will therefore increase in relative importance and will have fundamental importance for Norwegian external economic relations. By far the bulk of gas exports go to the EU. Given the promising development of markets in Central Europe, new EU member states which are currently applying for membership will, in a few years’ time, be a market for Norwegian gas. Potential new markets in the longer term may also include Sweden and Finland, while technical and economic factors limit the possibilities of exporting gas to markets outside an enlarged EU.

The EU has gradually developed legislation that establishes important common steering parameters for the petroleum sector, and this trend will continue. The Licensing Directive was adopted in 1994 and subsequently integrated into the EEA Agreement. The Government intends to integrate the Gas Directive into the EEA Agreement as soon as possible. The EFTA countries in the EEA have submitted a proposal for an EEA decision in which Norway requests a transitional period of three years for national implementation. Discussions with the Commission continue, and the issue will be submitted to the Storting as a separate matter.

Parts of these directives are regarded as controversial by the EU member states. One of the aims of the directives has been to make the energy market more flexible and competitive. Electric power and gas prices are considerably higher in Europe than in the USA, and the aim is to eliminate structural barriers to increased competition. Agreement on the final version of both directives was reached after lengthy discussion between the member states in the Council. The EEA Agreement does not provide for any formal role for EFTA states in such formal consultations in the Council. When the conclusive consultations on the Licensing Directive were being held, however, Norway was negotiating for EU membership and therefore had a particular platform for dialogue. During the Council consultations on the Gas Directive, which was adopted in 1998 with 10 August 2000 as the deadline for implementation by member states, Norway was also active in making its views known to key member states and the Commission.

Gas exports differ from other activities in that delivery contracts are usually entered into before the fields are developed and often run for a twenty-year period. Norway exports gas to the European continent through pipelines, in ever increasing volumes. Thus, Norway has a long-term link to the markets and the way they function. At the same time, developing alternative markets is a lengthy, uncertain process which is also dependent on pipelines and other infrastructure that make Norwegian deliveries possible and profitable.

Pursuant to a special provision in the Gas Directive, the latter is due to be revised and any amendments made are to take effect for EU member states as from 2008. The purpose of the revision is to strengthen the internal market by examining the organization, operation, etc. of the gas sector with a view to opening it up further and increasing competition. However, the Commission is in the process of accelerating this work with a view to submitting a proposal to the Council on the further opening of the gas market from a far earlier date, i.e. in three to five years’ time.

The revision is of fundamental importance for Norwegian interests. It will take place at a time when the gas share of Norwegian petroleum exports will have approximately doubled since the directive was adopted and when it is increasing significantly. It must be assumed that the revision will be no less controversial among member states than the adoption of the directive itself was at the time. The EU must reach compromises that balance import, distribution and consumer interests and its own interests as producer. There is therefore every reason to believe that Council discussions on a revision will be very difficult and long-drawn-out. The EEA Agreement does not entitle Norway to take part in the Council process. The Government will draw up a strategy in order to safeguard Norwegian interests as effectively as possible in respect of the European Commission, the Council and the EU member states in this matter.

6.2.2 Fisheries and aquaculture

In the fishery and aquaculture sector, various estimates indicate that the value of Norwegian exports may increase from NOK 30 billion to somewhere between NOK 100 billion and NOK 150 billion in the course of the next 20 years. The export value of farmed fish is already higher than that of wild-caught fish. The industry will therefore make a crucial contribution towards compensating for the reduction in oil activity on the Norwegian continental shelf and will significantly stimulate employment and growth in the coastal districts of Norway. Sixty-one per cent of Norwegian seafood exports went to the EU in 1999. If the candidate countries are included, the percentage rises to 65 per cent.

Box 6.1 Aquaculture

The fish farming industry has in a remarkably few years developed into a dynamic growth sector in coastal Norway. It is a resource-based, knowledge-intensive industry that has made Norway one of the largest exporters of seafood in the world. Norway currently accounts for 2.8 per cent of global production in the fishery and aquaculture industries and 5.5 per cent of world trade in these products. Total export values now amount to about NOK 30 billion. The industry has developed as a result of a fortunate combination of favourable natural conditions, local expertise, good infrastructure, experience of international markets and active collaboration with a number of different research institutions.

While EU member states have free access to each other’s seafood markets, the EEA Agreement’s fishery provisions are largely laid down through Protocol 9. This protocol provides for tariff exemptions for several white fish products and tariff reductions for other fish products and processed fish products. Important Norwegian export products such as herring, mackerel, salmon, prawns, scallops and Norway lobster are not covered by the tariff reductions in the agreement, and are thus subject to high tariff rates when exported to the EU.

Because EU tariff rates for important fish species are so high that they largely preclude the export of processed fish, the further processing of these species, primarily salmon, mainly takes place in Denmark and other EU member states, which thereby retain this portion of the added value before the processed goods are sold.

The present market conditions for exports to the EU do not adequately safeguard Norwegian interests. In order to be able to fully exploit the potential inherent in the aquaculture and fishery industries, fish and fish products should be assured of far better market access in the EU. This is crucial for Norway’s ability to develop a profitable processing industry. The aquaculture industry has a substantial growth potential due to natural advantages and advances made in research and development, but the current system reduces the possibilities of achieving value creation and benefiting from economic ripple effects that the coastal regions of Norway would otherwise have had.

Another effect of the arrangements established by the EEA Agreement in the fishery sector is that Norwegian exports may have to contend with unilateral anti-dumping measures and other EU measures that regulate competition. The greater the economies of scale we achieve, and the more dominant the Norwegian industry becomes in the European market, the greater the risk of this happening may become and the more serious the social impact of any such measures may be.

Norwegian seafood is currently ensured free market access to Central and Eastern European countries by EFTA’s free-trade agreements. Several of these countries have traditionally had a high consumption of species of fish to which Norway has ample access, such as herring and mackerel. Not only have exports of these products risen very significantly, but the range of products has also been widened. Greater purchasing power due to EU membership may result in increased consumption in these countries, and the market potential is presumed to be considerable in the longer term. However, the situation for Norwegian exports to the candidate countries will deteriorate when they become members of the EU. Then the EEA Agreement will form the framework for Norway’s exchange of goods with these states as well. Just how disadvantageous this will be for the fishery industry will depend on the compensatory arrangements Norway is accorded when the current free trade regime ceases to apply. These arrangements are to be the subject of negotiations between Norway and the EU. The Government will consult the bodies of the Storting well before the commencement of such negotiations.

In the Government’s view, the solutions provided by the EEA Agreement will in future not be adequate to safeguard the interests of the fishery sector in relation to the EU. However, it may be difficult to negotiate for better market access for Norwegian exports within the framework of the EEA. The EU has its own fishery interests to safeguard, and is little inclined to change the conditions of trade for Norwegian fish set out in the EEA Agreement. In the Government’s opinion, it is therefore unlikely that Norwegian demands for free market access or other more fundamental improvements in conditions will be met by the EU unless this is accomplished in a process of negotiation that is likely to involve other elements.

6.2.3 Other factors

Unlike the EU cooperation framework, the EEA Agreement does not cover trade policy or tariffs in respect of third countries. Nonetheless, it is important for the competitive situation of the undertakings of EFTA states in the internal market that they are not at a disadvantage in third-country markets compared with competing EU undertakings. The EFTA states have therefore negotiated free trade agreements with a large number of third countries in parallel with – or soon after – EU negotiations on such agreements.

Through the Maastricht and Amsterdam processes, however, there has been a greater density of rules and measures that affect the competitive situation in the internal market, but that fall outside the scope of the EEA Agreement. The integration of foreign exchange and monetary policy in the EU has reinforced the basis for a common domestic market for the participating countries. Exchange rate uncertainty between them has been eliminated, and transaction costs related to trade in different currencies no longer apply to undertakings in the eurozone. Furthermore, external factors such as financial crises and foreign exchange speculation will presumably have less impact on this part of the internal market.

The further development of judicial cooperation in civil matters within the first pillar of the EU may benefit business and industry as regards the legal safeguarding of economic interests in other EU member states.

The paramount aim of the EU’s new process-oriented form of cooperation involving broad, cross-sectoral measures is to strengthen competitiveness within the EU area.

If, in this way, competitiveness in the internal market is increasingly enhanced by rules and measures that only apply to the EU’s economic operators, this will undermine the principle laid down in the EEA Agreement of an area of cooperation based on common rules and equal conditions of competition for all undertakings in the area.

The EFTA states may initiate measures to counteract this trend by proposing the integration of new fields into the EEA Agreement. Article 1 of the EEA Agreement imposes certain limits on the individual sectors on which the EEA Joint Committee may adopt decisions. If decisions concern matters outside these limits, which mainly comprise the "four freedoms", adjacent areas and rules of competition, the EU’s internal rules of competence do not permit it to extend its own legislation to cover the entire EEA area unless the new decisions are dealt with as separate third-country agreements, which must be dealt with in the Council and the European Parliament. This course of action is not practicable except in very special situations.

There are also other limitations on the possibilities open to the EEA Joint Committee. Admittedly, it may amend annexes to the agreement, but these are divided up according to sectors of cooperation. This makes it difficult to integrate cross-sectoral rules, for instance in the field of civil law, by means of decisions adopted by the EEA Joint Committee. In such cases, the main part of the agreement will probably have to be amended.

If the EU further develops its cooperation in fields that have a positive effect on competitiveness in the internal market outside the scope of the EEA Agreement, the Government will in each individual case assess whether Norway should make unilateral adaptations in order to safeguard its commercial interests. However, unilateral Norwegian adaptation will not always be a totally satisfactory solution, since such adaptation does not provide any guarantee that the EU will follow it up by according rights in the EU to Norwegian business and industry, for instance in the field of civil law.

If such EU cooperation gradually undermines the basic premise of an EEA cooperation with equal rights for undertakings based on common rules, this is a trend that is difficult to counteract. As long as there is a certain disparity that gives EU undertakings a competitive edge, it will not cause any particular concern in the EU. Given the political and economic imbalance between the EFTA and the EU pillars, a Norwegian initiative to renegotiate elements of the main part of the EEA Agreement with a view to redressing the imbalance is, in the Government’s opinion, unlikely to succeed. It might open the door for counterdemands for amendments in areas where Norwegian interests are under the circumstances very well safeguarded, such as in the case of institutional rights, and might have untoward effects.

In a somewhat longer-term perspective, the dynamic nature of EU cooperation also entails other potential challenges for Norway in areas that have specific implications for business policy.

In the Government’s view, the transition to the euro entails just such dynamism since it focuses attention on the issue of further coordination of economic policy between the EU member states.

The economic development of EMU is also of major significance for macro-economic stability in Norway and hence for the possibility of achieving the Government’s goals of welfare and employment. In the Government’s opinion, the introduction of the euro will therefore affect our room for manoeuvre in connection with the shaping of macro-economic policy. Issues affecting EMU lie outside the scope of the EEA Agreement. The Government therefore considers it particularly important that both the authorities and the social partners in Norway make active use of all available channels to the EU to pursue a dialogue on economic issues.

The states participating in the third stage of EMU will be more deeply affected than before by the economic policy pursued in the other euro countries. For example, rising inflation or weak budgetary discipline in one participating state could contribute to a rise in the common interest rate. The keener competition within the eurozone as a result of EMU may also increase the need for tax harmonization to prevent member states from using tax reductions as a means of attracting companies and jobs. Taxation as a whole lies outside the scope of EEA cooperation, but the solutions found by the EU may also have implications for the choices that Norway makes in this area.

In the environmental field, the time is becoming ripe for utilizing new types of measures. In order to meet the requirements laid down in the Kyoto Protocol, the European countries will, for example, need to pursue a coordinated climate policy that will help to reduce the link between economic growth and fossil fuel consumption. It is difficult to see how this can be done without imposing common minimum rules for certain types of taxes and introducing trade in emission quotas. EC law already authorizes the adoption of environmental taxes. However, such decisions require unanimity. In the years ahead, the Government expects to see a trend in the EU whereby such measures will be adopted at Community level, either through the creation of a political basis for unanimity or through the authorization of majority decisions.

The Commission has proposed a framework directive for energy taxes. If decisions based on this proposal are subsequently adopted and implemented, they may have a significant effect on competition between various energy carriers in the EU market and thus for Norwegian interests.

An extensive analysis is currently being carried out by the OECD, which is to culminate in the presentation of policy recommendations at a joint meeting of environmental and finance ministers in May 2001. These recommendations are also expected to address the issue of environmental taxes and may accelerate a process towards the adoption of decisions by the EU and other OECD member states on the national implementation of necessary measures.

In the Government’s opinion, even though taxes are a field that is not covered by the EEA Agreement, cooperation in the EEA will be subjected to heavy pressure if the EU and Norway develop different systems of taxes to protect the environment that give one of the parties a substantial competitive edge. If Norwegian undertakings were to benefit from significant competitive advantages in a particular sector, this might set in motion a process leading to EU demands to renegotiate the EEA Agreement, which could have unforeseeable consequences. The Government therefore considers it necessary, not only for reasons of environmental policy but also out of consideration for fundamental Norwegian commercial interests, to achieve the closest possible dialogue and coordination with the EU as regards the use of taxes in environmental policy.

6.3 The EEA and Norwegian interests

The EEA Agreement has safeguarded fundamental Norwegian interests since it entered into force on 1 January 1994.

When the EEA Agreement was negotiated, the two parties shared a strong mutual interest in expanding their economic relations. The sound institutional solutions arrived at, with the establishment of common institutions and parallel structures for the EFTA states’ participation in EU cooperation, reflect the great importance the parties attached to the cooperation.

Today the political parameters for cooperation within the EEA have changed significantly. Since the agreement was negotiated, the EFTA pillar has been diminished by the departure of Sweden, Finland, Austria and Switzerland. However, the institutional framework for the EFTA states’ cooperation and participation has been maintained, even though the balance of economic and political weight between the two pillars has shifted considerably.

Cooperation between the EU member states is developing as a dynamic process aimed at meeting the new challenges resulting from globalization and technological advances. This cooperation, which also covers factors that have implications for the internal market, is being deepened and now encompasses a broader range of fields than those covered by the EEA Agreement. This poses new challenges for Norway and the competitiveness of Norwegian business and industry.

The Government will actively seek to meet these challenges through close contact with the EU and the EU member states and through active use of the EEA. However, amending or expanding the EEA Agreement with a view to safeguarding Norwegian interests more effectively will not be a question of our interests alone. Since the agreement covers such a broad field of economic relations, the needs of the contracting parties will necessarily often differ. The weakening of the EFTA pillar in relation to the EU pillar will now make it difficult to achieve the same balance as regards solutions as that which was possible when the agreement was originally negotiated. In the Government’s view, seeking to replace or change the solutions provided by the EEA Agreement would have unforeseen consequences for Norway.

The EEA Agreement will continue to be of decisive importance for the safeguarding of important Norwegian interests. However, the challenges that Norway now faces as a consequence of the globalization of national economies and technological advances are so complex and extensive that they must be met in close cooperation with other countries and with a broad range of measures if we are to continue to ensure value creation and welfare in our society. The Government will make active use of EEA cooperation to this end. However, the EEA will not suffice as a tool. Substantial national efforts will be increasingly necessary to ensure Norway’s active participation in European economic and political cooperation if we are to safeguard fundamental interests in a satisfactory manner.