Norwegian economic and trade policy

Political Adviser Mr. Hallgeir U. Hatlevik

Norwegian economic and trade policy

Lecture held at the Indo-Norwegian Business Meeting (SLG),
New Delhi, 3 November 1995

Mr. Ambassador, Distinguished Guests,
It is a great pleasure for me to be present here at the Indo-Norwegian Business Meeting in New Dehli to such an impressing gathering of Norwegeian representatives.

I. Introduction

Economic and trade policy are main ingredients of Norwegian foreign policy. This fact is a challenge to the Ministry of Foreign Affairs, to our Embassies and to the co-ordination at home and abroad.

It is hardly surprising that trade policy has become so central to foreign policy. It has of course always been important to Norway. What has changed is the awareness of the need for strategic planning of this policy, linking Norwegian expertise and exports in key sectors to the possibilities in world markets, through a better co-operation between Norwegian authorities and industry. We have begun this process through the Asia-plan, a mapping of activities and sectors in Asia, no also including India.

India is admired by Norwegians as a country of ancient and rich culture, of great philosophy and literature. But Norway also see India as an interesting partner for trade and economic co-operation, engaged in a very extensive process of modernisation and economic reform.

Both the Norwegian government and the Norwegian business community have noted with great interest the impressive economic reforms in India. This will undoubtedly mean a new point of departure for extended co-operation.

Norway is and has been more dependent on external trade than most other countries. Although there was a time when the Norwegian Vikings were renowned and feared in every corner in Europe, the modern Viking spirit has found expression in more productive persuits. Traditional exports such as fish have been supplemented by chemicals, fertilisers and electrometallurgical products from industries based on cheap energy from our numerous waterfalls. Expanding foreign trade was catered to by a growing merchant fleet. Later, our resources were augmented by offshore oil and gas findings. In other words, Norway's development has been based on our natural resources, adapted to changing economic conditions, thus forming the foundation for the modern, technologically advanced country we know today.

There is a broad consensus in Norway that we should continue to participate actively in European co-operation. We have close ties with the European Union. Norway is part of the internal European market through the European Economic Area Agreement, 11 of the European Union member states are our allies in NATO, and we are an associate member of the Western European Union. The Government also wants to continue close co-operation with the countries that are currently seeking to become members of the EUROPEAN UNION, and with other Central and East European countries.

Norway's foreign trade is considerable. Exports make up almost 40% of our GDP, and imports amount to almost as much. There is no contradiction in a strategy for external economic relations implying an active European involvement and, at the same time, a broader orientation, towards the rest of the world. I feel sure that the representatives here today will agree with me on this point. It is also of increasing importance for Norwegian companies to have a broader basis for their export.

Mr. Ambassador, ladies and gentlemen, let me after these introductory remarks give you a brief outline of what I suggest I will do in this lecture:

I have reminded you of our dependence of the outside world, particularly Europe but not exclusively so. External trade is essential to our very existence. I will now continue with an assessment of the state of the Norwegian economy in 1995 and present an overview of the European and global institutional setting and co-operation for our trade policy. From this background I intend to explore the Norwegian Asia-plan with you as an important vehicle for our trade promotion and policy in the 1990s and beyond. Important issues such as environment and human rights will be integrated into my analysis.

II. Norwegian economic policy and trade

What then can I tell you about the Norwegian economy in the mid 1990s? We have experienced stable and high economic growth during the past 50 years. We are nearly at the top of the list internationally when economic development is measured in Gross National Product per capita.

The main short-term challenge in the Norwegian economic policy is to bring the strong recovery in production and demand in line with a sustainable growth pattern, including continued low price and wage inflation combined with a steady reduction in unemployment.

Mainland GDP is estimated to grow by 3 1/4 per cent in 1995 and by 2 1/2 per cent in 1996. Due to a continued strong increase in petroleum production, GDP growth for the whole economy, including petroleum and shipping, is estimated at 4 1/2 per cent in 1995 and 4 per cent in 1996.

Norway thus experiences one of the highest GDP growth rates in the OECD area, and Norway's real disposable income grew by as much as 7 per cent last year. There was record growth in exports of manufactured goods, a substantial current account surplus and, for the first time since 1987, a rise in employment and a fall in unemployment. Price inflation was the lowest since 1960, government finances were strengthened considerably, and the rise in manufacturing output was the highest in twenty years. The fact that Norway's interest rates are low in a European context and that the Norwegian crone proved resilient during the recent turbulence in foreign exchange markets is directly related to this. An account of current trends in the Norwegian economy would not, however, be complete without adding that unemployment remains high by Norwegian standards, Norway's real disposable income was only marginally higher than in 1985 and mainland fixed investment was still lower than the level recorded in the mid-1980s.

The international recovery has led to a sharp increase in demand for Norwegian exports. The volume of traditional merchandise exports rose by around 14 per cent in 1994. There is also reason to expect strong growth of 7 per cent in both total exports and traditional merchandise in 1995 and a further 5.7 per cent in 1996.

In an open economy like that of Norway, increased demand swiftly translates into higher imports, and a good deal of the rise in private consumption will be directly import-oriented. High growth in exports will also lead to increased imports of input goods. There was a 14 per cent increase in the volume of traditional merchandise imports last year. The latest projection entails growth of around 5 per cent in traditional merchandise imports in both 1995 and 1996.

Norway has obtained substantial current-account surpluses since 1990. The surplus approached NOK 26 billion in 1994, and is projected to reach NOK 33 billion this year and 48 billion (5% of GDP) IN 1996. At the end of the decade the surplus may attain 70 billion crooner and thereby correspond to 8 per cent of GDP. The increase will to a large extent result from higher oil and gas revenues, but deficits on items pertaining to mainland Norway will also be reduced during this period.

By the end of 1999, Norway may have net foreign assets amounting to more than 30 per cent of GDP. This estimate is, however, uncertain and based on the assumption that the oil price will not decline further.

An important reason for the strength of the Norwegian economy is that we are now entering a phase in which the degree of exploitation and profit-taking in petroleum activities will be very high. In the period ahead fixed investment in the petroleum sector will stabilise and gradually decline. In the short and medium term the production of oil and gas will largely be determined by earlier decisions and investments.

Oil output is expected to reach a top level of 147 million tons equivalent in 1996. Thereafter it is expected to stabilise at around 142 million tons in 1997 and 1998, and will gradually decrease from the end of the century. Gas production is expected to increase regularly until 2003, to a level of about 65 million tons equivalent.

I mentioned in my introduction that about 40% of what we produce of goods and services in Norway is exported. This share has been quite stable during the last decade and has not changed since we entered the petroleum era in the 70's. Oil, gas and services are major export items and within what we call "traditional export items" the most important are raw materials. Manufactured goods account for a relatively small part of Norwegian exports.

A main element in the Government's economic policy is to strengthen the competitiveness of mainland-based industries. The strategy is based on a clear perception that the position of traditional exposed industries have weakened too much through the domestic use of petroleum incomes, and that there is now a need to bring this trend to an end. A policy based on increased domestic use of petroleum revenues would counteract the objective of improving the cost competitiveness of mainland-based industries.

In the Norwegian Fiscal Budget for 1996, NOK 10.6 billion is allocated to the Government Petroleum Fund. "We can now start the important task of building up Government financial wealth in the Petroleum Fund, enabling us to meet the long-term challenges of declining oil revenues and an ageing population", as Minister of Finance, Mr. Sigbjørn Johnsen said when he presented the Budget in October this year.

The global economic recovery had a very positive impact on us. This is, however, a development on which we had very little influence. What we ourselves can do is to improve our ability to compete in the markets. It is my impression that this trend has improved during recent years, but we still have room for improvement. We have been somewhat vulnerable to changes in the market conditions because our sales of goods and services abroad are to a large extent concentrated on a few markets and a few products. About 80% goes to Western-European markets. It is our aim to broaden our export base.

In our effort to enter and expand into new markets we will have to concentrate on sectors where we possess know-how, technology and resources such as infrastructure related to fisheries, offshore, hydropower, telecommunications where Norwegian companies are already competing quite well in international markets. Other fields where Norwegian companies are among the world leaders are maritime services, chemical industry, environmental technology and services, construction and aviation equipment. Services in general are becoming increasingly important for Norway.

With a small and extremely trade oriented economy Norway is of course very dependent on access to markets regionally as well as globally. Some of the main themes of our foreign policy over the last years have reflected this, namely our efforts to tie the Norwegian economy to the integrated European market, and to achieve a successful outcome of the Uruguay round in GATT to liberalise global trade.

III. WTO, trade and development

The finalization of the global trade talks under the GATT in April 1994, and the establishment of the World Trade Organization on 1 January this year were significant achievements. For Norway it was disappointing that we were not able to agree on rules for liberalizing international shipping, but I hope we will succeed in the ongoing negotiations.

The challenge now is to ensure that the WTO really becomes the effective and viable instrument which is needed in to-day's global trading environment. I will not list here all the issues that still need to be resolved, except to mention that Norway pays particular attention to the evolving discussions on trade and environment.

One aspect which will have a strong impact on our future economic relations is the trend towards increased regional co-operation. It is absolutely vital that this trend is underpinned by strong and workable global rules. The multilateral trading rules provide for closer integration through customs unions or free trade arrangements, but they must always be organized so as not to restrict trade with other parties. Regional arrangements must be based on an attitude of openness, not on building fortresses.

The new WTO structure has a far wider scope than that of the GATT, as it also includes trade in services and intellectual property rights. The relationship between the environment and trade in services is an area which requires closer attention in order to identify problems and challenges. Transportation is a case in point where environmental effects are directly linked to trade in services. Increased transportation of goods easily leads to pollution. To counter such negative effects, there is a particular need for creative thinking and innovation in this field. There is also a need to look at the relationship between environmental concerns and trade-related aspects of intellectual property rights.

The goal of "sustainable development" which is also reflected in the preamble of the agreement establishing the WTO, has become an integral part of our vocabulary. This is to my understanding a strong and important indicator of our common dreams as well as priorities with respect to what kind of society we would like to live in. Quality of life depends on more than economic progress. Political stability, social security, equal opportunity and room for cultural expressions and experiences are other elements. In order to contribute to sustainable development, economic growth based on trade in goods and services is still necessary. This might not, however, be sufficient in order to bring about the society we would like to live in. The content of growth would also have to be taken into consideration. This implies that the focus has to be moved from quantity to the quality of growth itself.

It is important to make sure that economic growth does not undermine the contribution of other elements to the overall objective of sustainable development, and the environment. Consequently, it is important to make sure that the trade rules give ample room for environmental concerns.

In certain cases use of trade measures for environmental purposes is necessary to achieve the goal of sustainable development. Such measures are already in place, for example in the form of restrictions on trade in hazardous waste and on substances that deplete the ozone layer.

Norway, in conjunction with the other EFTA countries, was instrumental in placing trade and environment on the international agenda in 1990. We will continue to play an active role in the various international fora dealing with trade and environment.

The focus of this work will gradually be shifted to the WTO, being a rule-making body. The aim is to make trade policies and environmental policies mutually supportive and to promote their compatibility so as to contribute to sustainable development.

We in the industrialized countries cannot and should not ask developing and middle-income countries to hold back on their quest for growth and prosperity. We cannot say, sorry, we filled up the waste-basket. There is no more room for you to develop. What we can say, and what we should say is: We have made experiences. Some of them cost us dearly, and we are stuck with the huge costs of cleaning up past mistakes.

We should intensify our efforts to enable developing countries to deal with environmental requirements in their export markets. This will require specific knowledge, organization and technical expertise. The Government is proposing to contribute NOK 15 million for the establishment of a fund under the auspices of the WTO for providing technical assistance to the least developed countries, with an emphasis on Africa. The assistance will put these countries in a better position to explore the possibilities of the multilateral trading system and to gradually develop their own environment plans.

Asian countries have the opportunity to make a series of timely decisions before economic growth and performance present them with the bills of overburdening both their countries and their resources.

The future of East Asian countries will be strongly influenced by how well they manage to foresee the risks which, if unchecked, might undermine the gains of the past forty years. Investments in water development, means of mass communication, energy, sanitation - they can be made in time. Success will largely depend on the political and administrative ability to find the right balance between freedom and market forces and sufficient forward-looking public management and direction.

Our experience indicates a positive linkage between economic development and improved social conditions. The dialogue between workers and employers based on respect for fundamental labour rights and the existence of free and independent trade unions, has been the basis for both growth and welfare in our country.

I would therefore like to say a few words with respect to trade and employee's rights. This issue is being investigated by the OECD, and the Government has made efforts to have it put on the agenda of the WTO. This has met with a good deal of resistance, especially from developing countries. It is clear that the use of trade measures to ensure that provision is made for the rights of employees in the various countries can easily be seen as distortion of competition in favour of rich countries.

We must therefore prevent these issues from creating conflicts between the rich countries, with their well established welfare arrangements, and the poorest countries, which have to increase their trade in order to create an economic basis so that their people can enjoy better lives. Experience has shown that there is a connection between economic progress in developing countries and more open trade and improved working standards. In a transitional period, development co-operation can help to better the situation of the most disadvantaged employees, in order to lessen the pressure on people to enter untenable working situations. Norway must contribute to bridgebuilding efforts by means of confidence-building measures directed at the poorest countries in the WTO. Development co-operation is an important instrument in this connection.

In order to strengthen our co-operation with the developing countries we must increase our volume of trade with them. They themselves have explicitly confirmed this. The Government has recently revised the system of general preferential tariffs which will open the way for increased imports of agricultural products from developing countries.

An important feature of current developments is the widespread internationalization of trade and industry that is taking place in many countries. Large international enterprises now have regional or global strategies, and no government is in a position to regulate and control their activities on its own. World trade is increasingly taking place within industrial sectors and within multinational companies, and not between them as was more often the case previously. The internationalization process has led to a steep increase in direct investments across national borders, partly as a result of the general liberalization of capital flows and stiffer international competition for investments.

There is currently no rules governing investments similar to the WTO trade rules. At the OECD meeting of Ministers in May this year it was decided to begin negotiations on an investment agreement. The aim is to reach agreement on rules for international investments governing both liberalization of investment regimes and investment protection. The agreement is to include efficient procedures for settling disputes. It is to be independent, and to begin with, will be negotiated between the OECD countries. However, the agreement will also be opened to countries outside the OECD.

At this point let me also mention an important aspect of human rights.

The final documents from the Women's Conference in Beijing contain several references to international trade, especially to the globalization of the economy and to the conditions of women. The need to carry out gender impact analyses before initiating reforms was pointed out. The final documents also include a recommendation of the UN General Assembly to consider requesting the WTO to examine how it can contribute to the implementation of the plan of action adopted at the Conference.

There are few abuses worse than what adults do to children when they force them to do work that is dangerous and damaging to their health. This sort of work is done by children right down to the age of three. Child labour is a growing problem, and Norway has raised the issue with the authorities in countries where child labour occurs. We consider it important to support these countries' own efforts to do away with child labour. At the same time, it has been confirmed that the international press is an effective means of getting countries to include the issue in their agendas. It is therefore important to follow closely the ILO's efforts to follow up conventions that combat child labour, and to intensify the efforts of UNICEF in this area. The Government would stress the need to promote a broad-based debate on these issues, for instance on the basis of the studies being carried out by the OECD, with a view to developing multilateral strategies. In this connection, it will be particularly important to evaluate the role the WTO can play in improving labour standards and preventing child labour.

The Government has started a review of the extent to which goods imported to Norway are produced with the help of child labour. The review will be completed by the end of the year.

IV. Norway and Europe; regional integration

A hundred years ago, Norway was still a poor country, we were not yet a fully independent country, and we had little or no industry. The 20th century has been a time of industrialization and democratization, two processes which have gone hand in hand. Democracy and the rule of law have been built from below, by extending political, economic and social rights to everyone.

As our industry has matured, Europe has remained Norway's main marketplace. Norway is fully integrated into the European internal market. The agreement on the European Economic Area provides the same rights and obligations for all economic operators in an area covering 18 Western European countries.

Norway's economy is in sound shape. Unlike most member states of the European Union, we fulfil by a wide margin the economic stability criteria set out by the Treaty on the European Union.

As you know Norwegian membership in the EUROPEAN UNION was voted down at the end of last year. The main goals of the Norwegian Government, however, remain unchanged.

Europe's future is also our future. The fact that 80 per cent of our trade is with the European Union illustrates this. Our economy is therefore an integral part of the European economy. Europe's security is also vital to our security, and furtheremore, we share the same environment. These are basis facts which will underpin our policy in the years to come.

Regional trade policy co-operation is on the increase in various parts of the world. In Western Europe, close economic and political contact between countries has led to EUROPEAN UNION enlargement and the emergence of the EEA. NAFTA in North America, Mercosur in South America and AFTA in southern Asia share a common objective, all advocate regional free trade. Such regionalization, accompanied by an increase in economic growth and commercial efficiency, stimulates greater economic activity in a broader context as well. On the other hand, a further extension of regional co-operation and of the network of agreements between important regions could undermine interest in the global co-operation within the WTO, particularly on the part of countries that are not part of the regional or inter-regional co-operation. To prevent the emergence of economic barriers between Norway and our trade partners, we must strengthen/intensify our contacts with the EUROPEAN UNION and, at the same time, work actively in this field in the OECD and the WTO.

The dialogue between the EUROPEAN UNION and the USA on closer transatlantic co-operation encompasses security policy, foreign policy and trade policy. A prospective free-trade agreement seems to lie quite far in the future. However, negotiations are under way in certain clearly defined trade policy areas. This will have consequences for Norway. We must work to ensure that Norway is, through EEA co-operation, given a role in this dialogue. And we must also work to ensure that the new transatlantic co-operation does not conflict with WTO legislation.

V. The Asia policy and plan

During the years of European colonialism in Asia, Norway was absent from the region. Now we wish to establish a more visible Norwegian presence in Asia in general, based on equal partnership and mutual benefit.

In 1993, government and business representatives sat down together to devise a joint strategy for expanding our relations with the countries in Asia. An increase in trade and greater involvement by Norwegian companies will help to give our political dialogue greater substance and meaning.

Norway will continue to pursue an active policy towards Europe. There is, however, no contradiction between a European involvement and, at the same time, a broader orientation towards the world at large. The fact that we have already been quite heavily engaged in trade and economic co-operation in Asia for a long time illustrates this point.

The reasons for this are evident. The focus of the world economy is gradually shifting to Asia. Not only is there vigorous economic growth in the individual East Asian countries. Trade and investments between countries and regions are also increasing.

Thus, it is not surprising that the attention of the rest of the world is increasingly focused on Asia. We were reminded of this during the last APEC meeting in Bogor, Indonesia. It was evident at that meeting that APEC aspires to become more than just a debating society. At the same time, the EUROPEAN UNION is intensifying its political and economic dialogue with the ASEAN countries, and European countries such as Germany, Italy and France are all in the process of developing national strategic plans for their policies towards Asia.

This trend towards regionalization in East Asia and the dismantling of trade barriers naturally also affects the general framework conditions for Norwegian business and industry in the region. The challenge will be to face the growing competition, and close co-operation between government authorities and companies is of vital importance in order to succeed.

The Norwegian Asia plan has a dual purpose:

• to support Norwegian enterprises in their efforts to increase exports of goods and services from Norway and
• to stimulate co-operation and a well balanced partnership between Norwegian companies and counterparts in this part of the world.

We already have a good starting-point: out products and expertise have a competitive edge in areas important to the development of the region. These include energy, the maritime sector and information technology to mention a few examples.

We must be prepared to spend time becoming acquainted and creating mutual understanding as a platform for co-operation. At the same time, we must take into consideration that we are dealing with countries with great ambitions as regards their own economic development. It is often not a question of offering individual contracts but rather of providing a total concept designed to meet the development needs of the country in question.

A major element of the strategic plan is to develop co-operation in both the political, economic and cultural field as a framework for business development in a long term perspective.

I shall say a few words about the political and cultural co-operation only as the aspects of economic co-operation will be covered by another speaker.

We have already started the process of substantially upgrading the political dialogue between Norway and Asian countries. This implies that more visits at a high political level were scheduled between Norway and Asia in 1995 than in any single previous year. Such visits often have tangible results for trade and economic co-operation. At the same time, they provide an opportunity to discuss trade and economic matters in a broader context. Ensuring that trade and economic relations result in greater transparency and provide favourable conditions for democracy and human rights is a challenge in this connection.

The strategic plan has been prepared in close co-operation between business and authorities and is based on the needs and priorities set by the Norwegian companies themselves. It is an invitation to the industry to take part in joint long term planning activities with the aim of securing a clearer focus, better co-ordination and commitment of our joint efforts in this part of the world. The success of the Asia plan is dependent on an active business involvement devoting sufficient resources and time to reflect their own aims, needs and priorities.

Long term government and business commitment is the key word. Press and cultural exchanges are important in bridging the distance between Norway and the countries in Asia. It is clear that closer contact between Norway and the Asian countries in this field is not only important in itself, it will also play a key role in the promotion of Norwegian business and industry. The strategic plan for Asia reflects a recognition of this fact, and our intention to upgrade such activities.

I have emphasized Asia as an important dimension in Norwegian trade policy. This means that a "Team Norway" is currently being developed in relation to Asia and enjoys full political support. It also means that we are not talking about another short-term all-out effort, but about broader-based longer-term ties with the countries in this part of the world.

We will be able to make use of our experience of the Strategic Plan for Asia when similar plans for southern Africa, the Middle East and Latin America are drawn up.

Our foreign missions will play a central role in the implementation of the Strategic Plan and more generally in efforts to promote Norwegian exports in the years ahead. To an increasing extent, it will be their task to co-ordinate Norwegian efforts and consider the overall resources available.

VI. Co-ordination at home and abroad

The Norwegian Foreign Service has increasingly a key role to play in the promotion of Norwegian industry and export abroad, the Asia plan bearing this out. An important element in this process is the co-ordinating ability of our embassies and consulates. The so-called SLG, the special business contact groups headed by the ambassador or consul general, have so far been established at 55 Norwegian embassies and consulates world wide. The SLG has two main functions. One is to exchange ideas and the other is actively to promote projects and activities.

The economic reform process in India opens new possibilities for Norwegian industry and technology and I have registered a trend towards more establishment of Norwegian companies in India in 1994 and 1995. I welcome this development and I would like to give credit to the Embassy and the SLG for actively pursuing this trend. An SLG was also established in Bombay in 1994 adding to co-ordination and activities in the Indian market.

It is my government's policy to seek a better internal and external co-ordination of the various Norwegian institutions involved in the task of promoting Norway through trade, export, culture, tourism etc. The SLG which started 10 years ago was a relevant beginning creating an awareness of the benefits of such interaction, but this linkage between parallel forces has taken a more definite course through the Asia plan and some institutional adjustments this year. The Norwegian Trade Council will be established as a Foundation from 1 January 1996. At the same time the special envoys abroad from the Trade Council, the Norwegian Industrial Attaches and the Tourist Board come under direct instruction of the heads of station.

Also, to strengthen the overall co-ordination at home the Norwegian Government has recently established a Co-ordinating Committee bringing the key ministries and institutions closer together.

A concluding remark

Let me by way of conclusion quote from the recent Statement to the Storting on trade policy by my minister of trade and shipping. She said on that occasion that "Trade policy has become more closely linked to other aspects of our foreign policy. The end of the Cold War made this quite clear. National security is not dependent only on a sound traditional security policy, to a growing extent, trade policy and economic policy are becoming important elements of foreign and security policy. We cannot regard foreign policy, security policy, trade policy and economic policy as separate fields." To meet this challenge we will strive for a better co-ordination of our effort.

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