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Key Economic Indicators Continued
[Millions of U.S. dollars unless otherwise noted)
Government Health Education
Unemployment Rate (pct.)
Money Supply (M2) (pct. ch.)
Exchange Rate (NOKUSD)
Exports to U.S. 4
Imports from U.S. 4
Balance with U.S. 4
1,782 26,793 2,225
454 13,606 8,583 -443
1,901 24,930 1,889
448 21,813 7,206
2,243 27,800 2,286
437 20,000 6,171 -43
11994 Figures are all estimates based on monthly data in October 1994.
Norwegian foreign trade statistics. Exports exclude Norwegian oil shipped to the U.S. from U.K terminale.
& Principal payments. 1. General Policy Framework
Oil, gas, and hydroelectric energy dominate Norway's resource base, with no major changes expected in the next two decades. On the Norwegian continental shelf, the country has crude oil reserves sufficient to last over 20 years and enough natural gas to last nearly 100 years. On the mainland, the availability of abundant hydropower supports energy-intensive industries such as metals and fertilizers.
Norway has less than 5 million inhabitants. A highly centralized collective bargaining process and a restrictive immigration policy limit its flexibility in increasing industrial competitiveness.
The petroleum sector and associated service industries will likely remain the engine of economic growth for the next several decades.
Energy-intensive manufacturing industries will also remain prominent. Several inefficient sectors, including agriculture, survive largely through generous subsidies and protection from international competition. These will likely experience a painful period of adjustment in the years ahead as the government adapts to provisions of the Uruguay Round trade agreement and to the emerging EU single market.
Norway and the other EFTA countries have concluded a free trade agreement with the EU-the European Economic Area (EEA) Accord-which
came into effect on January 1, 1994. Norway concluded an EU accession accord on March 16, 1994, but in a referendum held on November 28, Norway rejected EU membership.
State intervention in the economy is significant. The two dominant industrial groups--Statoil and Norsk Hydro-are state controlled, and the state retains majority stakes in Norway's top three commercial banks. Moreover, restrictions remain
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on foreign ownership of Norwegian industry, including financial institutions. However, the EEA accord requires Norway to put in place new foreign investment legislation granting national treatment to EEA member states by January 1, 1995 at the latest. Policies vis-a-vis countries outside the EEA will likely continue to be governed by reciprocity and by bilateral or multilateral agreement.
On budgetary matters, the government's dependence on petroleum revenue has increased substantially over the past decade. On the budget's expenditure side, the most significant development has been a rise in subsidies and social programs, fic nanced by petroleum revenues. In 1986 budgetary pressures increased because of slumping oil prices, and the subsequent recession prompted stimulatory fiscal policy. Despite the rebound in world oil prices, the budget deficit increased significantly bé. tween 1986 and 1993. The budget deficit is expected to narrow through 1994 and 1995 because of the impact of economic growth and spending restraint.
No general tax incentives exist to promote investment, although tax credits and government grants are offered to encourage investment in northern Norway. Several specialized state banks (e.g., the state agriculture and fisheries banks) provide subsidized loans to industry. Accelerated depreciation allowances and subsidized power are also available to industry.
The Government of Norway controls the growth of the money supply through reserve requirements imposed on banks, open market operations, and variations in the Central Bank overnight lending rate. Since the government strives to maintain a stable exchange rate, its ability to use the money supply as an independent policy instrument is weakened. 2. Exchange Rate Policy
On December 10, 1992, Norway unpegged the krone from the ECU and let the Norwegian currency float. Since then, the krone has weakened over 10 percent visa-vis the U.S. dollar. Norway, plans to return to a "fixed” exchange rate regime at a future date yet to be decided."
As noted, Norway strives to maintain a stable exchange rate. Norway is not a member of the European Monetary System, but in 1990 the Norwegian krone (NOK) was pegged to the European Currency Unit (ECU). Prior to this move, the NOK was pegged to a trade-weighted basket of currencies in which the weight of the U.S. dol, lar accounted for 11 percent. The ECU peg broke the direct link between the NOK and the U.S. dollar. Under the ECU peg, Norwegian interest rates and inflation tended to move toward EU levels.
Norway dismantled most remaining foreign exchange controls in 1990. U.S. companies operating here have never reported problems to the U.S. Embassy in remitting payments. 3. Structural Policies
Norway remains highly dependent on its offshore oil and gas sector. Many parts of the mainland economy are protected and inefficient, although some structural reforms have been implemented in the past five years. Quantitative restrictions on credit flows from private financial institutions were abolished in 1987 and 1988 and, as noted above, most foreign exchange controls were dismantled in 1990.
A revised legal framework for the functioning of the financial system was adopted in 1988, strengthening competitive forces in the market and bringing capital adequacy ratios more in line with those abroad. Further reform occurred when Norway accepted the EU's banking directives as part of its membership in the EEA. The Norwegian banking industry continues to struggle with bad loan portfolios and overstaffing, although they have returned to profitability in 1994.
Over the past five years, limited income tax reform has lowered personal income tax rates but broadened the tax base. Although modest progress has been made in reducing subsidies to Norwegian industry, Norway's farm sector remains the most heavily subsidized in the OECD. Norwegian subsidies and nontariff barriers (e.g., quotas; the Norwegian alcohol and grain monopolies) adversely affect U.S. farm exports.
Norway has taken some steps to deregulate the service sector. However, large parts of the transportation and telecommunications markets remain subject to restrictive regulations, including statutory barriers to entry. Looking ahead, the GON remains committed to an ambitious structural reform program which may gradually improve U.S. market access, but progress will likely be slow for political reasons. 4. Debt Management Policies
Norway has embraced a cautious foreign debt policy to limit the state's exposure in foreign markets. At the end of 1993, the government's gross external debt (foreign liabilities) stood at about $10 billion, but its external debt will likely fall significantly through 1994 and 1995 because of reduced government budget deficits. Norway's total net foreign debt (foreign liabilities less foreign assets), which was $6.5 billion in June 1994, is expected to evaporate in the 1994–96 period because of continuing balance of payments surpluses and falling government budget deficits.
Since 1990, the government has allowed the private sector increased access to long-term foreign capital markets to facilitate improvements in the term structure of its foreign debt. Following the floating of the NOK, foreign capital inflows contributed to falling Norwegian interest rates. 5. Significant Barriers to U.S. Exports
Norway supports the principles of free trade and is quick to condemn protectionist measures of other countries. In general, U.S. exporters experience few problems doing business in Norway but some areas of tension exist. While Norway is in the process of reforming its agricultural support regime, quantitative import restrictions and producer subsidies adversely affect U.S. farm exports, as noted earlier. With Norway's approval of the Uruguay Round trade agreement, these agricultural restrictions will be tarrified and gradually reduced. Due to the substantial GON ownership of major Norwegian companies and the GON organization of business groups, American companies that have a Norwegian subsidiary or agent/distributor are able to operate in this market much more effectively.
The U.S. has in the past won two GATT panel determinations showing that Norway had acted in a manner inconsistent with its GATT obligations in the area of public procurement when it discriminated against U.S. companies in the procurement of electronic toll ring systems around Oslo and Trondheim. On November 27, 1992, Norway adopted new public procurement legislation which made rules more transparent. Nonetheless, the directives governing the so-called excluded sectors (e.g., energy; transportation and communication) raise competition issues. On July 1, 1994, Norway adopted new regulations for public procurement of services in order to comply with the EEA accord. According to these regulations, all services procurements exceeding NOK 1.6 million (USD 235,000) are now subject to international bidding and the granting of contracts is to be based on nondiscriminatory criteria.
The U.S. would like Norway to liberalize its procedures for regulating telecommunications terminal equipment. The Norwegian Telecommunications Regu. latory Authority (a separate regulatory body under the auspices of the Ministry of Transportation and Communications) has said it has improved the speed and efficiency with which it approves telecommunications devices used in Norway. Amer. ican companies without European production facilities, however, report that it still takes up to six months and significant fees to a Norwegian agent to certify telecommunications equipment not used in large-scale GON purchases,
The Government of Norway is in the process of liberalizing its telecommunications industry, although the country is already relatively open to purchasing U.S. tele, communications equipment and services. GON control of this field, however, is still maintained by majority Norwegian ownership as noted above.
Recent deregulation of financial markets appears to have eliminated many of the barriers facing U.S. financial institutions which seek to operate in the Norwegian market. U.S. financial firms can establish subsidiaries in Norway, but cannot establish branches.
Norway maintains reservations to the OECD Code of Liberalization of Capital Movements with regard to inward direct investment. Foreign ownership in Norwegian corporations remains restricted, and proposed acquisitions are reviewed on a case-by-case basis. Norway can expect to gradually liberalize these regulations as it brings its national laws into compliance with the EEA. 6. Export Subsidy Policies As a general rule the Government of Norway does
not subsidize exports, although some heavily subsidized products may be exported. Dairy products fall into this category. Indirectly, the government supports the export of chemicals and metals by subsidizing the electricity costs of manufacturers. In addition, the government provides funds to Norwegian companies for export promotion purposes. 7. Protection of U.S. Intellectual Property
The impact of Norwegian intellectual property (IPR) practices on U.S. trade is negligible. Norway is a signatory of the main IPR accords, including the Bern and Universal Copyright Conventions, the Paris Convention for the Protection of Industrial Property, and the Patent Cooperation Treaty.
Norwegian officials believe that counterfeiting and piracy are the most important aspects of intellectual property rights protection. They complain of the unauthorized reproduction of furniture and appliance designs and the sale of the resultant goods in other countries, with no compensation to the Norwegian innovator.
Product patents for pharmaceuticals became available in Norway in January 1992. Previously, only process patent protection was provided to pharmaceuticals. 8. Worker Rights
a. The Right of Association.-Workers have the right to associate freely and to strike. The government can invoke compulsory arbitration under certain cir. cumstances with the approval of parliament.
b. The Right to Organize and Bargain Collectively.-All workers, including government employees and the military, have the right to organize and to bargain collectively. Labor legislation and practice is uniform throughout Norway.
c. Prohibition of Forced or Compulsory Labor.-Forced labor is prohibited by law and does not exist.
d. Minimum Age for Employment of Children. --- Children are not permitted to work full time before age 15. Minimum age rules are observed in practice.
e. Acceptable Conditions of Work. --Ordinary working hours do not exceed 37.5 hours per week, and 25 working days of paid leave are granted per year (31 for those over 60). There is no minimum wage in Norway, but wages normally fall within a national wage scale negotiated by Tabor, employers, and the government. The Workers' Protection and Working Environment Act of 1977 assures all workers safe and physically acceptable working conditions.
f. Rights in Sectors with U.S. Investment.-Norway has a tradition of protecting worker rights in all industries, and sectors where there is heavy U.S. investment are no exception.
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)
Key Economic Indicators Continued
[Millions of U.S. dollars)
Government Health Education
Unemployment Rate (pct.) 1
Money Supply (M2)
Exports to U.S.
Imports from U.S.
Trade Balance with U.S.
Basis of calculation changed in December 1993. - End of August 1994.
In son cases the statistical systems and methods applied in Poland differ from those used in U.S. The GDP by sectors is presented in Polish statistical publications as follows:
1. General Policy Framework
In 1994 the Polish economy continued its strong recovery from recession. Most of the trends seen in recent years continued. Statistically, industrial output was the fastest-growing sector of GDP, pulling along the rest of the economy (most economists believe growth of the services sector was also strong, but this is not ade. quately measured by Polish economic statistics). Agriculture remained handicapped by its structural problems and its output was depressed by drought for the second time in three years. Inflation remained high, but once again was lower than in the previous year. One important change was that the trade deficit was substantially less than in the last two years, largely because of strong growth of exports, particularly to the former Soviet Union.
After a year of government by the post-communist coalition which came to power after the 1993 elections, the main outlines of economic policy remain unchanged. Despite many pressures from its supporters for increased spending, the government has held the line on deficit spending. However, progress on privatization and other