Norway's Fifth Trade Policy Review

Opening Statement by the Head of the Norwegian Delegation, Mr. Dagfinn Sørli,
Deputy Director General, Ministry of Foreign Affairs

 

Let me start by commending the Secretariat for the comprehensive report they have prepared for the fifth Trade Policy Review of Norway. I know that both the Secretariat and our own administration have devoted a lot of time and effort in preparing for this Review. In addition to being a very useful exercise in transparency, it has provided us with an excellent opportunity for a comprehensive review of our trade related policies.

I would also like to thank the discussant, Ambassador Manuel Teehankee, for accepting to lead the subsequent discussion. I look forward to hearing his intervention. 

Let me also thank Argentina, Australia, Brazil, Canada, Chile, China, Chinese Taipei, Colombia, the European Communities, Ecuador, Hong Kong China, India, Japan, Korea, Mexico, New Zealand, Peru, Switzerland and the United States for their written questions and comments. Our response to most of these questions can be found in the document which is available at the back of the room. For some questions that were submitted quite recently, we will need to come back with a response at a later stage, most of them hopefully in our meeting on Friday.

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Mr. Chairman,

I would like to take this opportunity at the start of our meeting to touch upon some main elements of our trade and economic policies, including how we are impacted by the recent global developments. I would also like to touch upon some of the points raised by the Secretariat in its report and some of the questions and comments that we have received from other Members, and add some contextual information so that the Members may better understand our system.

(NORWAY’S ECONOMY AND THE ECONOMIC OUTLOOK)

Mister Chairman,

Turning to the issue of the general economic situation, the Norwegian economy has been growing at a brisk pace over the last few years, with average growth rates close to 5%, and growth in 2007 reaching 6,2 per cent. The main impetus behind this growth has been a strong growth in the purchasing power of households fuelled by several years of low interest rates,  along with a significant increase in business investment.

In addition, our terms of trade have improved significantly since our last review. Prices for crude oil, metals and other intermediate goods exported from Norway have been spurred by strong demand from emerging economies, while prices on many of the manufactured goods that Norway imports have declined. This has contributed to higher profitability in export-oriented businesses, and allowed real wages and purchasing power to increase.

The expansion in the mainland economy has caused record-strong employment growth, with the unemployment rate reaching a 20-year low. Low imported inflation and strong increase in labour immigration has made it possible to maintain a high production level without the increase in prices and wages that might have otherwise occurred. Inflation has been well below the target of 2.5 per cent, and the unemployment rate is presently at 2.4 per cent.

In spite of the positive developments in our economy, signs of slower growth became evident, even before the events of the last weeks and months, with household consumption growth slowing down and declining residential investments. In the National Budget for 2009, growth in mainland GDP is estimated at 3.1 per cent in 2008 and 1.9 per cent in 2009. But as the international financial crisis has grown, the uncertainty about the outlook for the world economy has increased, making short-term economic prospects for Norway more uncertain as well. 

General government finances are strong. The general government balance showed a surplus of 18.5% of GDP in 2006 and 17.5% in 2007, primarily due to revenues from the petroleum sector. Net revenues from the petroleum sector are transferred to the Government Pension Fund – Global, which is the government's instrument for converting wealth from oil and gas reserves to a broad-based portfolio of international securities. The Pension Fund is fully integrated into the Fiscal Budget, and the non-oil budget deficit is covered by an annual transfer from the fund. The market value of the Government Pension Fund – Global is estimated to reach 2 316 billion NOK by the end of 2008, corresponding to close to 93 per cent of GDP.

Mister Chairman,

Under normal circumstances, forecasts and predictions for future developments in the Norwegian economy would have been relatively easy to make. But the events of the last days, weeks and months have shown how difficult it is to forecast developments in the global economy, and how uncertain the situation can be. The Norwegian economy is, however, fundamentally strong and should be well positioned to deal with this period of uncertainty.

The recent turmoil in international financial markets has, however, also affected Norwegian banks. Even if Norwegian banks are fundamentally strong, their funding situation has deteriorated. As regular sources of funding have been drying up, the Norwegian Central Bank has increasingly provided liquidity through central bank instruments. In order to facilitate continued financing from the market, the Government has decided to establish a special facility where it offers government bonds to the banks against collateral. This facility was authorized by the Parliament (Stortinget) last Friday, and will be operational 1st November. This initiative, which is broadly in line with the recommendations from the G7 meeting in Washington on 10th October, does not entail an increase in state ownership of financial institutions.

This leads me to an issue which has raised some interest with many Members, namely the participation of the Norwegian State in the economy. It is estimated that the State owned around one-third of the Oslo Stock Exchange capitalisation in January 2008. The State is a major shareholder in several of the larger commercial listed companies, but only in a very limited number of companies is the State the sole owner. The State acts as an active, long-term owner, whose main aim is to contribute to the companies’ long-term value creation and industrial development. The State’s ownership also contributes to safeguarding the public interest in Norway’s natural resources and the revenues thereof. An important part of the State’s ownership policy is that these companies – which also are involved in extensive international business activities – should maintain a strong base in Norway.

NORWAY’S TRADE POLICY AND TRADE POLICY REGIME

Turning to trade policy, the most important fact to note is the significance of international trade in our economy. The value of Norway’s external trade corresponds to more than 76 per cent of GDP in 2007. Our high standard of living and the demands of the Norwegian population and businesses for a diverse supply of goods and services can only be met through international trade. Norway’s trade policy is thus an inseparable part of both our economic and foreign policy.

Norway is among the most open economies in the world, with largely no tariffs for industrial products, and liberal access for foreign service providers. This openness underpins our own economy, while at the same time benefiting our trading partners as well.

Let me in this context mention the new customs legislation which has been passed by Parliament and that will be implemented on January 1 2009.  The purpose is to modernize and simplify the legislative framework for trade, even if the substantial changes may not be that dramatic. It has been passed in the spirit of trade facilitation and we trust that this new legislation will provide benefits for importers and exporters alike.  It will be notified to the relevant WTO Committees in due course.

In order to benefit from comparative advantages and economies of scale, Norwegian companies need to participate in international markets. Moreover, Norway’s open economy exposes domestic producers of goods and services to an increasingly globalised environment. One of the Government’s key priorities is to strengthen the international competitiveness of Norwegian goods and service producers by ensuring that the business environment remains conducive to innovation, investment and growth. A stable, rules-based trading environment is of fundamental importance for Norwegian economic operators.

At the same time, economic policies, including trade policy, must ensure that the benefits of trade and economic growth are distributed in an equitable way, both nationally and globally. Trade is not only essential to Norway’s own economy, but is viewed by the Norwegian Government to be of key importance to ensure global economic and political stability.

Norway has taken a number of specific steps to promote trade with developing countries by implementing improvements to its Generalised System of Preferences (GSP). These improvements were the result of a comprehensive review undertaken by the Norwegian Government, with the aim of increasing imports from developing countries and in particular from LDCs and other low-income countries. Our current GSP grants 64 low-income countries, including all 50 LDCs, Duty Free and Quota Free market access into Norway for all their goods.

Norwegian trade policy enjoys broad political support in the Norwegian parliament. Trade policy has increasingly become a topic for public debate, with the public opinion attaching great importance to the integration of developing countries into the world economy. In addition to the traditional debate on the economic merits of trade and development, emphasis is increasingly being put on such aspects as health, environment as well as food and consumer safety. The Government consults extensively with non-governmental groups, including representatives of trade and industry, labour, consumer and other interest groups. Such consultations necessitate and contribute to increased transparency around trade policy formulation in Norway.
Norwegian trade policy is based on three institutional pillars: the multilateral system of the WTO, the EEA-agreement and free trade agreements, mainly through EFTA.

WTO

The global character of major Norwegian exports and imports implies that the well-being of our economy is directly linked to the overall health of the world economy. Thus, the primary focus of our trade policy is the multilateral trading system embodied in the WTO. Other elements of Norway’s trade policy are based on the fundamental principles of the multilateral trading system and must be seen as complementary and supplementary to our WTO commitments.

Norway was one of the founding members of the GATT and remains strongly committed to the multilateral framework. A strong, rules-based system is the best guarantee against unilateralism and protectionism, and provides stability, security, transparency, and predictability for traders, and is a prerequisite for long-term global economic growth and development.

Norway deeply regrets that it was not possible to reach agreement on modalities for Agriculture and NAMA this summer. While any agreement will pose serious challenges for Norway’s agricultural sector, we continue to insist that a positive outcome of the Doha Development Agenda (DDA) is essential for the global economy, for developing countries and for Norway. We thus remain strongly committed to completing negotiations as soon as possible; building on the substantial progress that has been achieved.

Having a strong, rules-based international trading system as a primary bulwark against protectionism and unilateral approaches has hardly been more important than in this period of great global uncertainty. Although there are no quick or easy fixes to the global food crises, economic instability or the financial crises, the best way to combat these challenges is certainly more, and better, international co-operation – not less. 

EEA

The Agreement on the European Economic Area extends the internal market of the 27 EU Member States to three EFTA countries including Norway. Thus, the EEA Agreement covers approximately 3/4 of our foreign trade.

The EEA Agreement covers the free movement of goods, persons, capital and services, but it is not a customs union. In respect of Article XXIV of the GATT and Article V of the GATS the agreement is a free trade area, and there is no common customs tariff. The EEA Agreement does not include the EU's Common Agricultural Policy or the Common Fisheries Policy, but it contains provisions on various aspects of trade in agricultural and fish products, such as rules on sanitary and phytosanitary measures. As the EEA Agreement is not a customs union, trade policy towards third countries is outside its scope.
 
A key feature of the EEA Agreement, which distinguishes it from most other free trade agreements, is its dynamic character. Its common rules are continuously updated by adding new EU legislation. This aspect is essential given the large output of Community legislation related to the internal market.

Free Trade Agreements

The third pillar of Norway’s institutional framework for trade comprises the extensive network of Free Trade Agreements entered into by Norway and our partners in the European Free Trade Association (EFTA). Currently, EFTA has entered into eighteen free trade agreements and five declarations of co-operation, and several negotiations are ongoing. In addition, Norway and China started bilateral negotiations on a free trade agreement this fall.

Free trade agreements cannot replace the need for a multilateral trade regime. We do, however, consider regional trade arrangements and free trade agreements as complementary to the multilateral regime by accommodating the need for deeper economic integration.

EFTA free trade agreements have traditionally covered trade in industrial products including fish and marine products, and processed agricultural products. In addition, each EFTA country has concluded bilateral agricultural agreements with each of the third country partners. During the last few years, the parties have recognised the growing importance of new trade issues and the scope of the free trade agreements has been expanded to incorporate trade in services, provisions on competition, state aid, protection of intellectual property, investments and government procurement.

AID FOR TRADE

Mr. Chairman,

Let me turn to an issue that is an essential complement to traditional trade policy – Aid for Trade. We all know that access to markets is not always sufficient to take advantage of market  opportunities. Aid for Trade thus has to be an integral part of both our trade and development policies.

Norway has contributed significantly to Aid for Trade programs, and will continue to do so in the coming years. As a follow-up of the Governments “Action Plan on Aid for Trade” that was launched in 2007, Norway increased its Aid for Trade budget by 50% from 2007 to 2008. Priority is given to Africa and the least developed countries, and the funds are channelled primarily through multilateral organisations as recommended by the WTO task force on Aid for Trade. We will make an assessment of our Aid for Trade Action Plan in 2010. 

Increasing investments in the productive sectors, in particular in the least developed countries, is important in order to reduce poverty. Ten years ago, the Norwegian Investment Fund for Developing Countries (Norfund) was established for this purpose. The capital of Norfund currently stands at approximately 4,5 billion NOK. The investments of Norfund take place directly and indirectly through funds and local financial institutions, focusing on enabling developing countries to take advantage of trade opportunities.
   
AGRICULTURE

Mister Chairman,

Let me turn your attention to one issue that is dealt with both by the Secretariat in its report as well as by other members in their questions to us – Agriculture.

Arable land represents only 3% of the total area in Norway.  The arctic and sub-arctic conditions in Norway are characterised by a harsh climate, low temperatures and a short growing season. Agricultural production covers a fairly narrow product range that is protected by tariffs, while a wide range of agricultural products is imported duty free. 

The Secretariat writes that Norwegian consumers pay particularly high prices for some agricultural products and that these prices are a result of the agricultural sector being less market-based than other sectors of the economy.  This, however, fails to take the general cost level in Norway into account. In fact, Norwegians spend a lower percentage of their income on food than people in most other countries, both developed and developing. High costs in agricultural production in Norway are also a result of geographic, topographic and climatic conditions, as well as political priorities. There is broad political support in Norway for the Government’s aim to maintain a viable agricultural sector throughout the country.

A number of the points raised by the Secretariat, and certain members in their questions, pertain to issues that belong in the on-going negotiations.  Our current measures are fully consistent with our WTO obligations, and I can assure all Members that we will implement fully the outcome of the Doha Round.  Our negotiating positions in agriculture are well known to others, and I will not repeat them here today.

Labour market and migration

Another issue that may be worth mentioning is labour and migration.
Since 2000 there has been a strong rise in labour immigration to Norway. By the
4th quarter of 2007 approx. 273 000 immigrants worked in Norway, which corresponds to 11per cent of the labour force. High demand for labour and a gradual opening up of the labour market through changes in the immigration regulations has led to a significant increase in the number of non-EEA nationals working in Norway. From 2004 to 2007 there was an 80% increase in the number of work related permits to citizens of countries that were not members of the EEA.

A new immigration act was adopted by the Norwegian Parliament in May this year and is scheduled to enter into force in 2010. The new law is more transparent than the old law with regard to the rights and duties of service providers that are independent professionals or contractual service suppliers. A separate act implementing the EU directive (2004/38/EC) on Free Movement of Persons, which eliminates the present requirement of resident permits for EU citizens, was presented to the Parliament on 27 June 2008.

In a special report to the Parliament (Report to the Storting no. 18 (2007-2008)) on Labour migration the Government makes it clear that labour migration contributes to a more efficient labour market and enhanced value creation while contributing to social diversity and cross-cultural understanding. The Government also made its intentions known to further change the immigration regulations to make it easier and quicker to acquire a work permit. The report was approved by the Parliament in June.

SUMMARY

To sum up I wish to reiterate that the Norwegian economy is in good shape despite the turbulence in the world economy.  Although we may be entering a period of slower growth, Norway is well equipped to weather the stormy clouds hovering over the markets.
 
As an open, market based economy, Norway is one of the benefactors of a strong and rules- based international trading system. Access to international markets is of utmost importance to achieve our goals of employment and welfare.
 
Norway firmly believes that all members stand to gain significantly from strengthening the multilateral trading system and improving market access for goods and services.  Economic growth and development in all nations depends on a strong and fair multilateral trading system.  Norway is strongly committed to the Doha round of trade negotiations, and would like to conclude the DDA as soon as possible. A successful conclusion of the DDA would send a clear and strong signal that the international community is capable of finding common solutions, a signal that would bode well for negotiations in other important areas in the coming months and years.

The world is currently facing a number of serious challenges. I have already mentioned the financial turmoil and the food crises. How to limit emissions of greenhouse gases and deal with the effects of climate change is another. We also need to retain popular support for increased trade in developed and developing countries alike by ensuring that the benefits of trade are shared by the population in general. While our work here at the WTO will not by itself solve these problems, a strong multilateral trading system will need to be part of the solution.

While looking forward to exchanging information and views with other Members on issues related to our trade policy over the next couple of days, I thank you for your attention.

Thank you, Mr. Chairman.