Norway's Sixth Trade Policy Review

Mr Chairman,

I’m pleased to have this opportunity to respond to some of the points raised by yourself, the discussant and the 28 members who took the floor in our session on Tuesday.

Allow me, mr Chairman to go directly to some of the main issues raised.

Norway’s economic performance was the subject of many interventions, and quite a few speakers pointed to some of the challenges facing the Norwegian economy, both in the near future as well as in a long term perspective.

One point is that our strong economic performance creates its own challenges.  An appreciating currency has made our export industries less competitive. Wages are growing faster in Norway than in our trading partners. Last year, the average hourly wage cost in Norwegian manufacturing was 54 % higher than the average for our trading partners in the EU. As in many other European countries, productivity growth has abated in recent years. In order to sustain competitiveness in the long run, productivity must increase. In addition, real wage increases should be more in line with productivity growth.

With the central bank’s key policy interest rate at 1.5%, fiscal policy is geared towards preventing overheating. The 2013 budget is thus fiscally neutral, with government expenditure of oil revenues well below the level permitted by the Fiscal Policy Guidelines.

The majority of revenues from the extraction of Norway’s oil and gas resources are collected by the Norwegian state. Public revenues from the petroleum sector are placed in our sovereign wealth fund - the Government Pension Fund Global. The expenditure of petroleum revenues in any given year is determined, not by petroleum revenues of the preceding year, but by the expected long-term real rate of return of the Fund’s assets. This fiscal framework helps provide economic stability and makes our economy less vulnerable to oil price fluctuations.

Another challenge mentioned is the rising cost of housing. The average square meter price of housing in Norway more than doubled between 1998 and 2011.  This trend has been caused by a growth in wages, low interest rates, tax incentives for investment in real estate and population growth caused by immigration. The increased demand for housing has not been met by a corresponding increase in supply. Household debt is currently at over 200% of disposable income. The Norwegian government has taken steps to address the surge in house prices, including a tightening of guidelines for residential mortgage lending.  

Like many other countries Norway faces challenges related to an ageing population. Public pension expenditures are expected to increase rapidly in the coming decades. While the assets of the Government Pension Fund Global are not earmarked for pension expenditures, its purpose is to facilitate the government savings required to meet its pension obligations in the future.

Mr Chairman,

A number of delegations have commented on the relatively high level of state ownership, and the discussant, ambassador Agah, challenged us to elaborate on the policy considerations that may lie behind this fact. The short answer is that the reasons and considerations have varied over time as society and the political landscape has changed.

In the years after the Second World War access to capital from abroad was limited. A limited private capital market in Norway and a political desire to bring about industrial growth led the State to contribute long term capital with the aim of encouraging industrial development. In addition, security considerations lay behind the State’s involvement in the development of defence related industries.

When the production of oil and gas began in the 1970s, the desire for a strong stake in the extraction of the newfound resources lay behind the establishment of a state-owned petroleum company. And during the banking crisis in the early 1990s, the State’s take-over of shares in many banks was regarded as essential in order to avoid the bankruptcy of critical financial institutions.

In more recent years, a number of state owned companies has been established as a result of the divestment of state agencies, for instance in telecommunications, hydropower and transportation. Public hospitals are also organized as state owned companies.

My point is that the State’s direct ownership has been motivated by various objectives and political considerations through the years. And the scope and nature of state ownership has also changed. Some companies have gone bankrupt, some have been sold off completely and some have been partly privatized. The general conclusion still holds today; different objectives and considerations may explain the state’s ownership and involvement in the various companies.

The second set of issues raised seems to relate to the operation of commercially oriented companies partly or wholly owned by the state. The implicit argument seems to be that the involvement of the state in commercial companies may make life more difficult for private investors and companies who are competing in the same markets.

I understand that the question is being raised, but let me point to the simple fact that there is only one set of laws in Norway. There is not one company law for wholly owned private companies and another company law for companies where the State has an ownership interest. Companies operating in Norway, private or state-owned, operate under the same market conditions and competition rules.

In addition, Norway is bound by international rules. Technical regulations and competition rules are basically the same throughout Europe – otherwise known as the European Single Market. Any attempt to give favours to specific companies, with or without state ownership, in Norway or Germany, Poland or the UK, will be under the scrutiny of the EU Commission or the EFTA equivalent – the EFTA Surveillance Authority. 

Let me also make it clear that the extent of state ownership does not mean that the State intervenes at will in the operation of the market. Norway is a market based economy where the rule of law prevails. 

Finally, let me point out that the role of the state, including the extent of state ownership, is the subject of public debate in Norway. Some would like to see a less active state, while others would like to see a more active state.  This brings me to the reference made by the discussant to a list of critical remarks to the current state of affairs in Norway. I believe that the discussant is pointing to an essential explanation behind the social and economic development of Norway, namely the existence of an open public debate, and the fact that the government’s policies are being tested against the will of the population at regular intervals through the power of the ballot.

Mr Chairman,  

We noted a large number of comments related to our GSP-scheme, and several delegations pointed to the disappointing development of imports from LDCs and LICs. As I mentioned on Tuesday, this is a concern shared by the Norwegian government, and a concern which is being addressed through improvements to the GSP system itself and a strong focus on Aid for Trade and capacity building development assistance.

Let me just point to another challenge which we are trying to address, namely the fact that 51 out of a total of 140 GSP-eligible countries and territories have not yet fulfilled the necessary requirements to receive GSP treatment. In order to rectify this unfortunate situation, customs officials from Norway have in the past and will in the future travel to these countries and hold seminars for the trade community and relevant government authorities. The objective is to make countries aware of the system, and encourage them to provide the necessary documentation (i.e. which government authorities are empowered to stamp the GSP-certificates) to enable the implementation of preferential treatment.

Mr Chairman,

Another issue raised on Tuesday was the system for advance electronic information. Since July 2009 Norway and the EU apply the same measure of security for goods entering or leaving the borders of their customs territories. Advance electronic information allows customs authorities to evaluate a consignment prior to its arrival to establish whether or not it is of such a nature that further controls are necessary. This is facilitating trade as many more shipments will be customs cleared when they arrive at the border without further controls. Advance notifications can be filed 24/7 and are treated on a continuous basis. No fees and charges apply and the system is based on the relevant parts of the WCOs “SAFE Framework of Standards”.

Mr Chairman,

Quite a few delegations touched upon issues related to the Norwegian SPS-regime. The sanitary area is one of the areas where Norway is fully harmonized with the EU through the EEA Agreement. In practice this means that Norway applies the same control mechanisms as the EU when it comes to border measures. [1] The implementation of emergency measures relating to food safety is simultaneous in the EU and Norway. For our trading partners this is an advantage. Once a member, an entity or a good is approved for exports to the EU/EEA-area this applies to the whole area of the internal market. In other words there is no need for new approvals specifically for exports to Norway.

Mr Chairman,

Please allow me also to clarify a few issues mentioned by delegations.

One member referred to “temporary TRQs” in relation to bovine meat. Please note that Norway does not open temporary TRQs, but has a system of administrative tariff reductions as described in para 16 on page 79 of the WTO Secretariat’s report. There are no quantitative limitations to imports under this regime, but the tariff reductions apply for a limited period of time.

Another member (and the Chair in his opening statement) mentioned tariff reclassification and subsequent increased duties on certain products. We assume they are referring to a recent issue regarding the flower Hortensia[2]. We would like to clarify that Norway did not raise any duties. What happened was a technical correction of the commodity code for the product in question.

Mr Chairman,

This leads me naturally towards another main theme in members’ interventions, namely agriculture.

Let me start by responding to the discussant, Ambassador Agah, when he asked why there is no mention of agriculture in the Government’s report. The explanation is probably that we made a choice of areas where we thought there was a particular need for an update since our last TPR. However, I appreciate ambassador Agah’s point that the TPR provides an opportunity to explain to members those circumstances that have informed our policies in this particular area – even if, I might add, that these policies remain relatively unchanged from the last review. This delegation has taken duly note of your point, ambassador Agah, and will make sure that your advice is forwarded to the team that will be responsible for preparing our next TPR.

Mr Chairman,

Several members made comments in relation to our tariffs and tariff quotas. First, a point relating to what is referred to as our system of “mixed” duties.  While 48 per cent of our agricultural tariff lines are bound as specific or ad valorem tariffs, whichever is higher, only one of the two is applied in a single calendar year, as tariffs are adopted by the Parliament for one year at the time. This provides for predictability as tariffs may not be raised during the calendar year beyond the level adopted by the Parliament. 

As to the allocation of tariff quotas, there is no penalty for unused quota-shares. The quotas are however tradable, meaning that there is an economic incentive in reselling unused quota-shares. Trade statistics give absolutely no indications that companies buy quota shares in order to prevent imports from taking place. Low TRQ fill-rates are mainly due to economic reasons such as low demand and difficulties in meeting quality specifications. The quotas are well known among importers and are utilized when it is economically attractive to do so.

A final word regarding agricultural tariffs - we are happy to inform our wine-producing friends that wine can be imported duty-free from all sources into Norway.

Mr Chairman,

Many Members have encouraged Norway – in diplomatic, but unmistaken terms - to “examine whether the high levels of tariff protection and domestic support for agriculture are really needed”, to quote one statement made two days ago. Let me assure you that we have heard your message, loud and clear, and that your message will be conveyed faithfully to our political masters. 

Let me, however, also respond by making it clear that there are limits to how much Norway can do, and how far we can stretch, in a liberalizing direction on agriculture. This remains as true in our domestic policy formulation, as it remains in our negotiating positions in the WTO.

While we acknowledge the important role of market signals in stimulating an efficient allocation of resources, we are, quite frankly, concerned that the strongest market signal that would be sent to an unprotected Norwegian agricultural sector is that we shouldn’t have a Norwegian agricultural sector at all. For reasons well known to those that have followed our policies and positions in this house, this would be beyond what we can agree to, whether unilaterally or multilaterally.

That does not mean that our agricultural sector is standing still. Agricultural productivity has doubled during the last twenty years and continues to improve. Furthermore, we see a strong upward trend in product development, where our producers are moving into high quality niche markets to diversify their production and take advantage of value added.

Neither does it mean that our markets are closed. I have already mentioned in my opening statement the large increase in imports of agricultural products to Norway, and the value our consumers place on the diversity and choice these imports represent. This is set to continue, hand in hand with further strengthening of our domestic production, as demand continues to rise with a growing population. The recently announced improvements to our GSP scheme represent a desire on the part of the Government to stimulate increased trade flows from developing country trading partners.

Our commitment to respecting the existing rules and obligations in the WTO is already a key driver of reform in Norway. I have previously mentioned the steps taken following our last TPR, where market price support for beef was eliminated in order to comply with our subsidy commitments. A working group is currently considering whether similar steps are warranted for other products where we have high levels of trade distorting support.

Of even more significance, Norway stands prepared to do our part in fulfilling the Doha mandate on ambitious steps towards further openings in agriculture. The current impasse in the negotiations, including on agriculture, is not of our choosing, and the deadlock does not stem from unwillingness on our part to take our share of the responsibility. We have shown in the past that it is possible to find solutions that balance the need for an ambitious outcome with gradualism and the need to take into account legitimate concerns. We encourage all members to think creatively about how to take negotiations forward, and assure you that Norway will do its part.

Mr. Chairman,

As promised on Tuesday, we have provided a second batch of answers to those questions received last week, and they were made available on the WTO website yesterday. Over the past couple of days we have received an additional 30 written questions from two members. We will of course reply to these within the deadline of no more than a month after this meeting.

Thank you. 

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1)  The phytosanitary field is, however, not a part of the EEA Agreement, but the Norwegian legislation in this field builds on the same principles as in the EU.