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weighted value of the krone was more than five percent higher than in August 1993. due mostly to volatile developments in the ERM in July and August 1993, when the ERM fluctuation bands were widened to plus or minus 15 percent. Intervention by the Danish Central Bank (and German Bundesbank) protected the krone's position in the ERM, but drained foreign exchange reserves, which in turn required new large government borrowing abroad. As foreign exchange markets stabilized, Denmark's foreign exchange reserves returned to normal levels.
The value of the krone against the dollar in September 1994 (DKK 6.11 to $1.00) was almost nine percent higher than in September 1993. In late October, the dollar had fallen further to DKK 5.87, a 13 percent decline since late October 1993. The consequent improvement in U.S. price competitiveness should assist increased U.S. exports to Denmark.
3. Structural Policies
Danish pricing policies are based on market forces. Entities with the ability to fix prices because of their dominance in the market are regulated by a Competition Council.
In spite of the income tax reform introduced in 1994, Danes generally concede that the tax system needs further overhaul to improve incentives for work and investment and to reduce the "underground" economy, which today may equal as much as 10 percent of GDP. For example, the highest marginal tax rate is more than 60 percent and applies to all income above that of a fully employed skilled worker. With the introduction in 1994 of a five percent tax on gross income (increasing to eight percent by 1997), the Danish income tax system was brought closer to those of other EU countries. Uniquely among EU countries, Danish employers pay virtually no nonwage compensation. Most of employers' costs of sick leave and unemployment insurance are paid by the government. Employees pay their part of unemployment insurance out of wages. Another concern is the high Danish Value Added Tax (VAT), which, at 25 percent, is the highest in the EU. However, as VAT revenues constitute more than one-quarter of total central government revenues, a reduction would have severe budgetary consequences. The government has no plans to reduce the VAT, and hopes for VAT rate harmonization through increases in the VAT rates of other EU countries, particularly those of Germany. The corporation tax is 34 percent which, combined with favorable depreciation rules and other deductions, is among the lowest in the EU.
Despite Denmark's success in resolving many of its former structural problems, unemployment remains a major problem. Despite high unemployment, labor mobility, both geographically and sectorally, is low in Denmark due to leniently applied requirements to qualify for unemployment benefits and structural rigidity which prevents crossing craft lines. The government is considering enforcing present rules more vigorously to tighten eligibility for benefits and increase mobility in general. At present, about two-thirds of the costs of unemployment benefits are paid from general revenues. Rather than consider extensive labor market reform, the SDP government's efforts have so far concentrated on job rotation (leave programs) and on job creation through subsidization of repair and maintenance of buildings and subsidization of home services work, the latter without any notable success.
4. Debt Management Policies
Since 1963, large, recurring balance of payments (BOP) deficits produced a foreign debt which in 1988 peaked at $44 billion (DKK 6.73 to the dollar), or 40 percent of GDP. However, since 1990, the BOP has moved into a surplus which reached $5.6 billion in 1993. Consequently, foreign debt is gradually being reduced and by the end of 1993 equaled 31 percent of GDP. Despite BOP surpluses, net interest payments on the debt continue to be a burden, accounting for some 10 percent of goods and services export earnings. Standard and Poor's and Moody's Investors Service rate Denmark AA+ and AÅ1, respectively, reflecting the strong economy and the large BOP surplus. Denmark's public sector is a net external debtor, while the private sector, including banks, is a net creditor. At the end of 1993, the public sector's net foreign debt, including foreign exchange reserves, was the equivalent of $59 billion, of which krone-denominated government bonds accounted for more than 70 percent.
The central government's debt denominated in foreign currencies rose almost 60 percent to the equivalent of $34.6 billion at the end of 1993 due to the large borrowing in connection with the July/August currency crisis. Dollar denominated debt accounted for 31 percent of this debt, followed by German mark debt accounting for 29 percent. Close to one-half of the debt is in short term obligations with variable interest rates. The total debt has an average term of two years (3.5 years for the fixed interest rate debt alone).
Danish development assistance is large by international standards, accounting for one percent of Gross National Product (GNP), or $1.3 billion in 1993. It is almost equally distributed between bilateral and multilateral assistance. Bilateral assistance is concentrated on 18 "program" countries, of which four were added in 1993: Burkina Faso, Eritrea, Nicaragua, and Vietnam. African countries account for some 60 percent of total bilateral assistance. Denmark also supports the new democracies in Central Europe, the Baltics and the former Soviet Union and in 1994 will spend about $330 million for assistance (0.25 percent of GNP). Finally, Denmark will spend in 1994 about $750 million for multinational environmental and disaster programs, including "pre-asylum" refugee costs in Denmark and U.N. peace keeping efforts. Denmark actively participates in the IMF, the EBRD, the World Bank, and the Paris Club.
5. Significant Barriers to U.S. Exports
Heavily dependent on foreign trade, Denmark maintains few restrictions on imports of goods and services and on investment. Denmark adheres to all GATT codes and, as a member of the EU, also to all EU legislation which impacts on trade and investment. There are no special Danish import restrictions or licenses which pose problems for U.S. industrial products exporters. Agricultural goods must compete with domestic production, protected under the EU's Common Agricultural Policy. Denmark also has stringent phyto-sanitary requirements.
With the implementation of the EU Single Market on January 1, 1993, most industrial standards, testing, labeling and other requirements are being harmonized within the EU. However, as harmonization takes place, new trade barriers have surfaced in individual EU member countries. Denmark has taken the lead in combatting the problem and, together with the EU Commission, hosted a successful nontariff barrier conference in Copenhagen in September 1994.
With respect to services, the Danish Credit Card Act, adopted in 1987, prevents credit card companies from operating in Denmark on standard international terms. This law prohibits credit card companies from charging vendors for costs related to the use of cards held by Danes. As a consequence, American Express stopped issuing credit cards to Danes for use in Denmark. However, other credit card companies have continued operations under the new requirements.
Denmark, like most other countries, requires an exam or experience in local law in order to practice law. The Danish goverment requires the managing directors of foreign-owned stockbroker companies to have at least three years of experience in securities trade. However, experience in a U.S. stock exchange alone will probably not meet this requirement.
Denmark provides national, and in most instances nondiscriminatory, treatment to all foreign investment. Ownership restrictions are only applied in a few sectors: hydrocarbon exploration (which in general requires limited government participation, but as of the end of 1994, no longer on a carried interest basis); arms production (a maximum of 40 percent of equity and 20 percent of voting rights may be held by foreigners); aircraft (third-country citizens or airlines may not directly own or exercise control over aircraft registered in Denmark); and ships registered in the Danish International Ships Register (a Danish legal entity or physical person must own a significant share and exercise a significant control-about 20 percent-over such ships). Danish law provides for a reciprocity test to foreign direct investment in the financial sector, which, however, has not been an obstacle to U.S. investment. For example, the U.S. Republic National Bank of New York opened a representative office in Copenhagen on July 1. Once established, an entity receives national treatment. The Danish telecommunications network will be a government controlled monopoly until 1998 when networks become liberalized within the EU, but is open to minority portfolio investment. A second private cellular mobile telephone network (General Systeme Mobile-GSM) with the U.S. BellSouth participating, competes with the government controlled Tele Danmark's GSM operation.
Danish government procurement practices meet the requirements of the GATT public procurement code and of EU public procurement legislation. Denmark implemented the EU Public Procurement Directive 93/36/EEC on June 24, 1994 and the new EU "Utilities" Directive 93/38/EEC (public procurement of goods, building and construction, and services within the water, energy, transport, and telecommunication sectors) on July 1, 1994. Regarding the latter, indications are that the voluntary "50 percent EU Origin requirement" will be interpreted liberally by the Danish government and that the mandatory three percent price differential requirement will only have minor importance in procurement decisions. Countertrade, or rather offset trade, is used by the Danish government only in connection with military purchases which are not covered by the GATT code and EU legislation. Denmark has no "Buy Danish" laws.
There is no record of U.S. companies complaining about burdensome customs procedures. Denmark has an effective and modern customs administration which has reduced processing time to a minimum.
U.S. companies residing in Denmark as a general rule receive national treatment regarding access to Danish R&D programs. In some programs, however, Denmark requires cooperation with a Danish company (ies). The Embassy has no record of complaints by U.S. companies in this area.
6. Export Subsidies Policies
EU agricultural export restitutions (subsidies) in 1993 of $880 million were equiv alent to more than 10 percent of the value of total Danish agricultural exports. Government support for agricultural export promotion programs is insignificant. Denmark has no direct subsidies for its nonagricultural exports except for shipbuilding. Also, the government does not subsidize exports by small and medium size companies. Indirectly, however, Denmark has programs to assist export promotion, establishment of export networks for small and medium sized companies, research and development, regional development, and a limited number of preferential financing schemes aimed, inter alia, at increasing exports. In 1989, Denmark restructured its development assistance and abolished the distinction between untied and tied bilateral assistance. However, the principle of using at least 50 percent of all bilateral assistance for purchases of Danish goods and services is maintained (it was 51 percent in 1993). All these programs, however, apply equally to foreign companies producing in and exporting from Denmark.
Denmark has one of the lowest rates of state aids to industry (about two percent of GDP) among EU countries. Shipbuilding support, where Danish subsidization is within the ceiling set in the EU Shipbuilding Directive (nine percent of the contract value), accounts for about one-third of total Danish state aids to industry. Denmark, as an ally of the United States, strongly welcomed the 1994 OECD agreement to phase out shipbuilding subsidies internationally, but EU ratification of the agreement is pending.
7. Protection of U.S. Intellectual Property
Denmark is a party to, and effectively enforces, a large number of international conventions and treaties concerning protection of intellectual property rights.
Patents: Denmark is a member of the World Intellectual Property Organization (WIPO). It adheres to the Paris Convention for the protection of Industrial Property, the Patent Cooperation Treaty (PCT), the Strasbourg convention and the Budapest convention. Denmark has ratified the European Patent Convention and the EU Patent Convention.
Trademarks: Denmark is a party to the 1957 Nice Arrangement and to this arrangement's 1967 revision. A new Danish trademark act entered into force January 1, 1992 which also implements the EU trademark directive harmonizing EU member countries' trademark legislation. Denmark strongly supports efforts to establish an EU-wide trademark system. In addition, Denmark has legislation implementing EU regulations for the protection of the topography of semiconductor products which also extends protection to legal U.S. persons.
Copyrights: Denmark is a party to the 1886 Berne Convention and its subsequent revisions, the 1952 Universal Copyright Conventions and its 1971 revision, the 1961 International Convention for the Protection of Performers, etc., and the 1971 Convention for the Producers of Phonograms, etc. There is little piracy in Denmark of records or videocassettes. However, software piracy in Denmark is estimated at more than $100 million annually. Piracy is on the decline due to sharply reduced prices, improved protection of programs, and efforts to combat such piracy by the Business Software Alliance. Piracy of other items, including books, appears very limited. There are no indications that pirated products are being imported to or exported from Denmark. One possible copyright problem involves the imposition on January 1, 1993 of a Danish levy on blank analog and digital audio and video tapes for home use. Pending implementation of "material reciprocity" provisions, U.S. artists as of October 1994 receive national treatment. If these provisions are implemented, a large share of revenues from the levy will be passed on to Danish artists and artists from countries having a comparable levy. Since the United States imposes a comparable levy only on digital tapes, U.S. artists, who account for some two-thirds of works being copied in Danish homes, would not benefit from the levy collected on analog tapes.
The U.S. Embassy has no record of other complaints by U.S. organizations, exporters or subsidiaries in Denmark regarding infringement of intellectual property rights and/or unfair Danish practices in this field. Thus the impact on U.S. trade with Denmark appears limited.
Denmark is not named on the Special 301 Watch List or Priority Watch List, nor is it identified as a Priority Foreign Country.
8. Worker Rights
a. Right of Association.-Workers in Denmark have the right to associate freely, and all (except those in essential services and civil servants) have the right to strike. Approximately 80 percent of Danish wage earners belong to unions. Trade unions operate free of government interference. They are an essential factor in political life and represent their members effectively. In 1993, 113,700 workdays were lost due to labor conflicts (up from 62,800 in 1992). Greenland and the Faroe Islands have the same respect for worker rights, including full freedom of association, as Denmark.
b. Right to Organize and Bargain Collectively.—Workers and employers acknowledge each others' right to organize. Collective bargaining is widespread. The law prohibits antiunion discrimination by employers against union members, and there are mechanisms to resolve disputes. Salaries, benefits, and working conditions are agreed in biennial negotiations between the various employers' associations and their union counterparts. If negotiations fail, a national conciliation board mediates, and its proposal is voted on by both management and labor. If the proposal is turned down, the government may force a legislated solution (usually based upon the mediator's proposal). In case of a disagreement during the life of a contract, the issue may be referred to the Labor Court. The decisions of the court are binding. The labor contracts which result from collective bargaining, as a general rule, are also used as guidelines in the nonunion sector.
Labor relations in non-EU parts of the Danish Realm, Greenland (a beneficiary of the U.S. Generalized system of Preferences) and the Faroe Islands, are generally conducted in the same manner as in Denmark proper.
c. Prohibition of Forced or Compulsory Labor.-Forced or compulsory labor is prohibited and does not exist in the Danish Realm.
d. Minimum Age for Employment of Children.-The minimum age for full-time employment is 15 years. The law prescribes limitations on the employment of those between 15 and 18 years of age, and it is enforced by the Danish Working Environment Service, an autonomous arm of the Ministry of Labor. There are no export industries in which child labor is significant.
e. Acceptable Conditions of Work.-There is no legally mandated workweek nor national minimum wage. However, the workweek set by labor contracts is 37 hours. The lowest hourly wage in any national labor agreement is sufficient for an adequate standard of living for a worker. Danish law provides for five weeks of paid vacation. Danish law also prescribes conditions of work, including safety and health; duties of employers, supervisors, and employees; work performance; rest periods and days off; medical examinations; and maternity leave. The Danish Working Environment Service ensures compliance with work place legislation. In addition, Danish law provides for government-funded temporary withdrawal from the labor market through parental, educational or sabbatical leave programs.
Similar conditions of work, except leave programs, are found in Greenland and the Faroe Islands, but the workweek is 40 hours. Unemployment benefits in Greenland are either contained in labor contract agreements or come from the general social security system. A general unemployment insurance system in the Faroe Islands was established in August 1992, replacing former unemployment compensation covered by the social security system. Sick pay and maternity pay, as in Denmark, fall under the social security system.
f. Rights in Sectors with U.S. Investment.-Worker rights in those goods-producing sectors in which U.S. capital is invested do not differ from the conditions in those other sectors where no U.S. investment is found.
Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993
[Millions of U.S. dollars]
Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993-Continued
[Millions of U.S. dollars]
Income, Production and Employment:
Real GDP (1985 prices)
Real GDP growth (pct.)
1Suppressed to avoid disclosing data of individual companies.
2 Less than $500,000.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
Key Economic Indicators
[Millions of U.S. dollars unless otherwise noted]1
Net Exports of Goods & Services
Money Supply (M2)