Norway:Costs and Benefits of Joining the EU

Presented by:Anelia Ivanova

Boryana PenevaDobrodana Popova 28 April, 2007

Outline• Country overview • Macroeconomic data• Analysis of the referendums• External trade relations• Trade policy• Tariff policies• EU-Norway trade relations• Norway – Agricultural sector• Norway and the EU budget• Norway and capital flows• Conclusion

Country Overview

• Homogeneous population – around 4.6 mil. (2006)

• Rich in natural resources - hydropower, oil and gas,

fish, forests, timber, and minerals, 95% of this production is exported

• History

Macroeconomics

• Norway - one of the richest countries in the world measured by GDP per capita (above the EU average).

($ 47,800 for 2006)• GDP growth - 3% (2006)• Cost of living is high, though – 25% higher

than UK, 30% higher than US• Low unemployment (3.5%)• Low inflation - 2.3%• Norwegian Krone - strong currency (due to

oil demand) • Good welfare system - retirement, medical

care, and disability benefits to all

Current Account Surplus

The Referendums

• Following the popular rejection of membership in 1994, the then government declared that there would be no new legislative initiative in this respect for another 10 years.

• However, there is growing appreciation that Norway must strengthen its ties with the Union if it wishes to have a voice in the future development of the enlarged EU and EEA.

Benefits

• Enlargement is likely to shift the EU’s centre of gravity farther to the east

• belonging to larger economic group with more bargining power

• internal solidarity principles between the EU members• Norway cannot influence internal EU developments due to its

non-member status • lower prices for consumer goods, diversity and need for

tolerance would need to improve • "foreign influence" in the shape of business innovation and

built up industries not dependent on natural resources • access to this European market • antidumping issues for Salmon would be eliminated • Positive effect on tourism • free border crossing travel and additional trade advantages• Participation in an emerging political bloc: the EU is

emerging as a counterbalance to the United States in foreign affairs, and Norwegian public opinion is usually not favorable to US foreign policy, in particular about the Middle East.

Concerns

• Loss of independence • Loss of control over natural resources - fish and oil• Some sectors, such as farming, will be negatively

affected • EFTA provides wilth almost associate membership • EU still needs a lot of work before it is a united

nation• Norwegians think of themselves as Scandinavians

while the EU represents Europe. • Will lose independence in managing its fiscal and

monetary policies• Loss of political influence because of the small

population • Threat to cultural identity: Norwegian culture would

be overcome by commercial interests.

Other Concerns• By country - none in actual terms. In

"emotional" terms - hesitant to enter union with larger states that have greater influence– FR, GR, UK dominate EU – Eastern Europe - because they are pooer countries

and much of Noway's wealth would have to be spreadout among those countrie

– Spain and fishing disputes – most EU countries support our membership; Iceland

and Switzerland hope that we stay outside

• Surrender of political sovereignty: Norway would have to amend its constitution to become a member of the EU

External Trade Relations

• the European Economic Area (EEA)=> access to the EU Single Market with free movement of goods, capital, services, and persons.

• Both Norway’s and EU’s trade policies- based on the rules and agreements of the World Trade Organization (WTO)

• Norway, together with Iceland, Liechtenstein, and Switzerland - a member of the European Free Trade Association (EFTA) based on cooperation arrangements.

• Also one of the founding members of the General Agreement on Trade and Tariffs (GATT) and of the WTO.

• A member of the Organization for Economic Cooperation and Development (OECD)

Trade Policy Overview• In the mid -1970s- a major oil and gas producer

• now the third largest exporter of crude oil after Saudi Arabia and Russia=>led to the complete transformation of Norway’s economy

• Today the highest per capita incomes in the world

• As a small and open economy, Norway is highly dependent on foreign trade.

• Export and import in total constitute about 55 per cent of Norway's GDP =>one of the world’s most open economies!!!

• Economic growth in recent years- due to higher oil prices, boosting the trade and current account surpluses (current account surpluses exceeded 19.2% of GDP in 2006!)

Trade Policy Overview (2)• the 6th most important import market with 50.494 million

euros after the USA, China, Japan, Russia, and Switzerland.

- top three import partners: Sweden, Germany and Denmark

• the 7th export market with 27.511 million euros after the USA, Switzerland, China, Japan, Russia, and Turkey.

- top three export partners: the United Kingdom, Germany and the Netherlands

• A majority of Norway's trade has a duty-free basis under regional integration agreements.

• Trade with the EU as the predominant activity: Norway's imports represent 5.38% of the total extra-EU imports, while its exports are 3,12% of the total EU exports.

Trade Policy Overview (3)• Shipping - one of the most developed traditional

economic activities (the second largest source of export revenues for the country).

• one of the top three seafood-exporting nations in the world.

• Fisheries- still a sensitive issue; fish market regulated through bilateral agreements; EU subjects Norwegian fishermen to dumping salmon charges=> loosing competitive advantage on the world fish market

Conclusion: The main goal of Norway’s trade policy - the development and support of “an open, liberal and predictable trading environment,” with sustainable development as the priority + the achievement of “a closer European integration and multilateral liberalization.”

Tariff policies against non-EU states

• Tariffs on industrial products -current average less than 5.6 per cent

• Post-Uruguay Round intensive reductions on agricultural tariffs.

• more competition in selected agricultural sectors => to bring domestic prices (often higher than established international prices) in line with prices in neighboring countries.

• The forestry sector/wood products- with increased tariffs and supported by subsidies, grants, tax credits and concessions, some with a regional assistance dimension.

• Since 2002 products in textiles and clothing from the least developed countries benefit from a duty-free entry, without quantitative restrictions.

EU - Norway trade relations:NB!!! Norway’s export market has expanded even more => a

crucial role of the EEA (European Economic Agreement) for preserving the access of Norwegian goods to the Single Market!

• Norwegian exports’ share on the EU market- 86% of the total Norwegian export

• Norway's exports to the EU - different industrial products and other goods such as around 56% mineral products/fuels, oil, iron, steel, base metals such as aluminium mostly, machinery and equipment, and fish.

• EU imports to Norway - 76% of the total imports coming to Norway.

• EU exports to Norway- around 30% machinery and electrical equipment, chemicals, vehicles and transport equipment, capital goods, plastics and rubber, iron, and steel.

• EU-Norway trade in services- Norway’s share of total EU trade in services 3.1% (the most active sectors: shipping and commercial and financial sectors)

• EU-Norway trade in terms of energyhttp://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113429.pdf

Norway – Agricultural Sector

• Almost 3/4 of Norway's land is unproductive and less than 4% is under cultivation due to harsh climatic conditions.

• Total cropland (000 ha),1999 - 877 – Norway – only 0.3% of total EU 307 286 ha, (1 501 452 ha in the world)

• Agriculture contributes less than 2% to the GDP. Norway imports more than 50% of its food products.

• Norway subsidizes small farmers• Donor of economic aid – 1.4 bill. In

2004

Norway and EU budget

• high imports of agricultural products => if joining the EU, net contributor to CAP

• CAP subsidies are allocated to large farmers and Norway is dominated by small and medium sized farms

• Concerns about the consequences of liberalization of agricultural subsidies to comply with CAP regulations and State-Aid regulation

Foreign Direct Investments• no specific policy to promote foreign direct investments • inflows have more than doubled the past decade • Inward investments are bigger in the primary (petroleum

and mining) than in the tertiary sector but the difference has decreased in the past decade

• growth in outflows since 1994 have been stronger than growth in inflows

• FDIs have varied strongly over the years since annual data tend to be influenced by major single operations, particularly in the oil and gas sector since the early 1970s

• In October 2002, Norway abolished a surcharge on investments, "Investeringsavgiften”. The surcharge of 7 % (originally 13 %) had been identified by the business community as an obstacle to investments in Norway.

• Some restrictions on foreign investments remain in the fisheries sector, which is extensively regulated.

FDI and EU

• The greatest increases in Norwegian outward investments have taken place outside the EEA.

• The EU countries' share of FDIs in Norway has increased significantly since the EEA Agreement entered into force but flows vary much year to year

The importance of Europe 2  

Foreign direct investments. Geographical distribution. 1998-2004. Total. NOK million

  1998 1999 2000 2001 2002 2003 2004

Total  240 196  341 263  409 753  499 126  505 676  551 872  543 358

               

Europe  175 277  254 172  285 627  303 971  324 590  356 145  329 840

Denmark 35 716 34 726 37 502 39 971 38 833 45 629 37  115

Sweden 38 794 65 087 77 601 67 652 78 303 87 734 93  639

Netherland 21 994 20 832 22 485 32 203 32 134 34 644 47  436

Great Britain 25 483 77 013 77 664 73 619 60 582 66 408 27  343

Belgium and Luxembourg 11 480 11 351 20 590 11 837 13 972 19 591 12  538

               

Africa 1 126 10 599 9 666 15 046 15 331 25 173 34 434

America 55 427 65 345 86 695  132 652  121 674  118 845  112 301

Central America 3 292 5 278 8 030 18 821 18 205 16 517 14 317

South America 2 668 9 438 23 606 19 631 16 880 18 913 17 705

Asia 7 468 10 146 26 466 36 098 28 662 37 504 54 525

Oceania  899 1 000 1 300 11 360 15 420 14 205 12 258

ConclusionThe debate cannot be viewed in black and white.

There are benefits and costs for Norway to join the European Union.

At this point in time though, the costs outweigh the benefits.

It is uncertain how the EU will handle the integration of the new members from Eastern Europe. Additionally the

political integration is still under way.

Having this in mind, it is best for Norway to wait.

Maintaining the status quo is the best option: an open trading regime with the EU, but no political subordination to the

EU’s institutions!

Sources• ttp://ec.europa.eu/trade/issues/bilateral/countries/norway/

index_en.htm• http://ec.europa.eu/trade/issues/bilateral/countries/norway/

index_en.htm• http://secretariat.efta.int/Web/legaldocuments/ • http://trade.ec.europa.eu/doclib/docs/2006/september/

tradoc_113429.pdf http://www.eu-norway.org/policyareas/trade+policy/

• http://www.norway.org/policy/trade/trade/general.htm • http://www.wto.org/english/tratop_e/tpr_e/tp35_e.htm • http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressdata/

EN/reports/90082.pdf • http://www.fide2006.org/TOPIC3/Ext.%20Rel.%20Norway

%20Franklin.pdf http://www.imf.org/external/np/ms/2007/032607.htm • http://aei.pitt.edu/6945/01/ingebritsen_christine.pdfhttp://

ec.europa.eu/comm/external_relations/norway/intro/index.htm• http://ec.europa.eu/trade/issues/bilateral/countries/norway/

index_en.htm• http://www.dlapiper.com/norway/content/overview/• http://www.norges-bank.no/english/monetary_policy/in_norway.html• [23:58:46] Dani Popova says:

http://en.wikipedia.org/wiki/Norway_and_the_European_Union

Questions ???