2007 NATIONAL TRADE ESTIMATE REPORT FOR NORWAY

UNCLAS OSLO 001389 SIPDIS SENSITIVE SIPDIS STATE PLS PASS TO USTR FOR JASON BUNTIN, GLORIA BLUE STATE FOR EUR/NB RDALLAND, EB/TPP/BTA USDOC FOR 4212 MAC/EUR/OEURA E.O. 12958: N/A TAGS: ETRD ECON EFIN NO SUBJECT: 2007 NATIONAL TRADE ESTIMATE REPORT FOR NORWAY REF: A) 11/07/06 Apostol-Buntin e-mail B) State 136289 ¶1. (SBU) Per Ref B request, the draft 2007 National Trade Estimate (NTE) Report for Norway follows in paragraph 2. The report was conveyed on November 7 to USTR in Microsoft Word format (Ref A). Post understands that USTR will fill in trade statistics when available. ¶2. Begin text of 2007 NTE Report for Norway: NORWAY TRADE SUMMARY The U.S. goods trade deficit with Norway was nearly $-- billion in 2006, marginally [less][more] than in 2005. U.S. goods exports in 2006 were almost $-- billion, [up][down] -- percent from the previous year. Corresponding U.S. imports from Norway were almost $-- billion, [up][down] -- percent. Norway is currently the [48th] largest export market for U.S. goods. U.S. exports of private commercial services (i.e., excluding military and government) to Norway were $-- billion in 2005 (latest data available),and U.S. imports were $-- billion. Sales of services in Norway by majority U.S.-owned affiliates were $-- billion in 2004 (latest data available),while sales of services in the United States by majority Norway-owned firms were $ --- million. The stock of U.S. foreign direct investment (FDI) in Norway on a historical-cost basis in 2005 was $-- billion, up from $-- billion in ¶2004. U.S. FDI in Norway is concentrated largely in the mining (petroleum) and manufacturing sectors. The United States is the [4th] largest investor in Norway. IMPORT POLICIES Industrial Goods Norway, along with Switzerland, Iceland and Liechtenstein, is a member of the European Free Trade Association (EFTA). EFTA members, with the exception of Switzerland, participate in the European Union (EU) single market through the European Economic Area (EEA) accord. Norway grants preferential tariff rates to EEA members. As an EEA signatory, Norway assumes most of the rights and obligations of EU member states. The principal exception is in the agricultural sector, which the EEA accord does not cover. Although Norway maintains a liberal trade and investment regime with �00A;respect to industrial products, its agricultural sector remains highly protected. Some of NorwayQs trade restrictions are more severe than those of the EU, such as non-tariff barriers related to approval for agricultural products derived from biotechnology. As a general matter, Norway has implemented or is in the process of implementing most EU trade policies and regulations. Therefore, U.S. exports to Norway face many of the same trade and investment barriers that limit U.S. access to the EU, such as the ban on hormone-treated meat products. As a non-EU member, NorwayQs ability to influence EU E decisions is limited. NorwayQs market, except for agricultural products and processed foods, is generally transparent and open. Norway has continued on a unilateral basis to dismantle import tariffs on industrial products. The average most favored nation (MFN) tariff on non-agricultural products has fallen from 2.3 percent in 2000 to less than one percent today. More than 90 of industrial tariff lines are currently duty free. Agricultural Goods Though it accounts only for about one percent of Gross Domestic Product (GDP),Norway maintains strict protections for agriculture that shelter the sector from global competition. As justification for these protective policies, Norway emphasizes the importance of Qnon- trade concerns,Q which include food security, environmental protection, rural employment, and the maintenance of human settlement in sparsely populated areas. One of NorwayQs leading concerns in the stalled WTO Doha Development Round has been the preservation of its highly-subsidized and protected agricultural sector. Norway shows no signs of moving off its protectionist stance and remains committed to advocating tariff, sensitive product, and special product protections for its agricultural sector. Agricultural Tariffs Norway bound its tariffs for agricultural commodities in 1995 as part of its commitments in the WTO. Tariffication of agricultural non- tariff barriers as a result of the Uruguay Round led to the replacement of quotas with high ad valorem product tariffs. Although Norway is only 50 percent self-sufficient in agricultural production, it maintains a protective system that assures domestic producers farmers and the food processing industry Q have little competition until all domestic production has been consumed. Tariff rates on agricultural products currently average about 38 percent Q in comparison to less than one percent for non-agricultural products and can range as high as several hundred percent. Domestic agricultural shortages and price surges have been offset by temporary tariff reductions. Lack of predictability in tariff adjustments and insufficient advance notifications Q generally only 2- 5 days before implementation Q favor nearby European suppliers and make imports from the United States, especially of fruit, vegetables and other perishable horticultural products, very difficult. For a number of processed food products, tariffs are applied based on their recipes, requiring the Norwegian importer to provide a detailed disclosure of product contents. Many exporters to the Norwegian market refuse to give all requested details and their products are, as a result, subjected to maximum tariffs. Agricultural Tariff-Rate Quotas Norwegian tariff-rate quotas are divided into two categories minimum access quotas and Generalized System of Preferences (GSP) quotas. Tariff-rate quotas exist for grains and a number of horticultural products. In July 2001, Norway also implemented auction quotas for grain and other carbohydrate feed. All quotas are traded at auctions held by the Norwegian Agricultural Authority, a Ministry of Agriculture agency that controls all agricultural imports. Interest in the quotas among Norwegian importers is limited, except for grain, despite the substantial reductions in duties for some products. Compared with domestic consumption and production, the quotas are very small. Most of the interest in NorwayQs quota auction comes from smaller importers who use their quotas for niche products or from large farmer-owned companies to block competition to their own domestically produced products. Auction participation is inexpensive, and those who secure a quota are not required to actually import. Although about 98 percent of the quotas each year are sold on these auctions, only 30 percent to 40 percent of the quotas auctioned are usually filled through imports. There is no system to reallocate unused import quotas, hindering foreign exporters seeking access to the Norwegian market for these products. Raw Material Price Compensation Though Norway uses high import tariffs to protect domestic commodities from foreign competition, the situation is more complex for certain processed goods. Although the EEA does not generally apply to agricultural products, it includes provisions on raw material price compensation that are meant to increase trade in processed food. Norway has a special agreement with the EU within the EEA framework that grants some EU processed food products a preferential duty. In 2003, the agreement extended coverage to bread and baked goods, breakfast cereals, chocolate and sweets, ice cream, pasta, pizza, soups, and sauces. This scheme disadvantages the competitiveness of U.S. exporters in the Norwegian market for the covered processed foods. Norway also maintains a price reduction scheme that includes subsidies for using certain domestically produced raw materials in processed foods. Products for which such subsidies are paid include chocolate, sweets and ice cream (for milk and glucose),and pizza (for cheese and meat). The purpose of the system is to help compensate the domestic food processing industry for high domestic raw material costs. EU-Based Agricultural Regulations In addition to its own requirements related to the import of food products, Norway has generally implemented EU regulations since ¶1999. Some EU regulations that Norway has adopted inhibit trade, such as EU regulations on veterinary control of animals and animal products requiring that meat products entering the country come from an EU- approved plant and be accompanied by the necessary certificates. The importer in Norway must be registered and notify authorities in advance of the arrival of any shipment (twenty-four hours in advance for plants and thirty days in advance for animals). Except for fish products, shipments must enter through either Oslo harbor or Oslo airport. Twenty entrance locations exist for fish products. Norway also implements EU regulations that bar imports of meat from animals treated with growth hormones. The market for U.S. beef for consumption on cruise ships based in or calling on Norwegian ports, however, is burgeoning, as beef consumed on board is not subject to such import restrictions. Biotechnology NorwayQs strict limitations on imports of agricultural biotechnology products have had a particularly adverse impact on U.S. producers. Before 1996, when the limitations took effect, U.S. exporters usually supplied 60 percent to 80 percent of the Norwegian soybean market. As a result of the limitations, the entire market has been lost. Norwegian soybean imports in 2005 were 387,739 tons, valued at $115 million, all of which was sourced from Brazil. While Norway is not a member of the European Union (EU),it is a member of the European Economic Area (EEA),obliging Norway to implement EU legislation with regard to biotech feed, seed and food. The Norwegian Gene Technology Act of 1993 is, however, more restrictive than EU legislation as it requires proof that a genetically modified (GM) product was developed with an ethical justification, provides a societal benefit, and accords with sustainable development goals. On April 18, 2004, the EU implemented Regulation 1829/2003 on Genetically Modified Food and Feed and Regulation 1830/2003 on Traceability and Labeling of Genetically Modified Organisms and the Traceability of Food and Feed Products produced from Genetically Modified Organisms. These polices were integrated into Norwegian regulations in September 2005. While the revised Norwegian regulations incorporated the major elements of the EU regulations, they do not represent a formal or complete implementation of EU directives. All food and feed produced from genetic engineering, including products that no longer contain detectable traces of genetically modified organisms (GMOs),must be labeled. The allowable adventitious presence level is set at 0.9 percent for EU approved GMOs and 0.5 percent for products that have not yet been approved but have successfully completed an EU or Norwegian risk assessment. All products testing above these levels must be labeled. The regulation does not require labeling of products that are not food ingredients, such as processing aids. Meat, milk or eggs obtained from animals fed with GM feed or treated with GM medicinal products do not require GM labeling. Agricultural Taxes and Fees NorwayQs internal tax system on agricultural products, which includes various inspection and control levies and taxes, is complex and difficult for potential exporters to navigate. For example, a special inspection fee imposed on U.S. wheat from autumn 2000 until February 2004, rendered U.S. wheat noncompetitive in the Norwegian market. The special fee, which was directed at wheat and rye imports from countries affected by fungal diseases, substantially raised the cost of importing U.S. wheat into Norway. As a result, U.S. wheat exporters were practically eliminated from the local market after years of supplying food wheat to Norway. Since the repeal of the tax in 2004, U.S. wheat sales have recovered somewhat. In 2005, U.S. wheat exports to Norway were valued at $1.6 million, just under the $1.7 million recorded in 2000, the year the fee went into effect. Limited Competition The spirits and wine retail market in Norway is controlled by the government monopoly Vinmonopolet. There were 198 Vinmonopolet stores throughout Norway at the end of 2005. Spirits and wine sales through ordinary retail stores are not allowed. An approved importer/agent and distributor are required in order to enter the market. Gaining approvals to include wines and other alcoholic beverages on VinmonopoletQs retail list is cumbersome, limiting the variety of U.S. wines available to Norwegian consumers. (For example, Vinmonopolet offers only 75 American red wines (9th place) and 23 American white wines (12th place). Australia, Chile, Argentina, South Africa, and Austria, with smaller wine industries than the United States, all rank ahead of the United States in numbers of wines available.) Vinmonopolet relies on a tender system, with set specifications and conditions for quality, price and delivery, in acquiring most new products. Products chosen for sale through Vinmonopolet must meet annual minimum sales quotas, else they are dropped from the inventory. Advertising of alcoholic beverages is strictly prohibited. STANDARDS, TESTING, LABELING AND CERTIFICATION Many of NorwayQs standards are harmonized with the EU. With the exception of telecommunications equipment, few technical standards exist. However, there are stringent regulations for chemicals and foodstuffs. No country of origin labeling is required. GOVERNMENT PROCUREMENT Norway is a signatory to the WTO Government Procurement Agreement (GPA). NorwayQs government procurement procedures are non- discriminatory and based on open, competitive bidding for procurement above certain threshold values. A similar set of national rules applies to public contract tenders below these thresholds. Exceptions for defense procurement leave a Qgray areaQ for items such as rescue helicopters that can also be used in military operations. Although disputes may be settled by the European Surveillance Authority (ESA) or by the courts, the process can be unduly lengthy. INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION Internet piracy and cable/satellite decoder and smart card piracy have risen in Norway. Broadband internet is standard, making peer-to-peer downloads of music and video easy and common. Encoding groups that release early copies of new motion pictures on the internet are problematic. Television and cable companies are active in combating decoder and smart card piracy and satellite operators recently introduced conditional access technologies that have mitigated the problem. Private organizations like the Motion Picture Association are attempting to raise public awareness of internet and video piracy, for example by running anti-pirating advertisements in movie theaters. Norwegian authorities have not undertaken any serious public relations efforts to combat internet or other piracy of copyrighted property. Copyright In June 2005, Norway enacted legislation based on the EUQs 2001 Copyright Directive that combats internet piracy and addresses some gaps in Norway's intellectual property rights protections. The legislation bans unauthorized peer-to-peer file sharing and requires that creative works can only be downloaded from the internet with the artistQs prior approval. The legislation also grants legal protection to technological protection measures designed to prevent unauthorized use of a creative work. The law bars the intentional circumvention of such systems in most circumstances. However, an exception is made for Qprivate use.Q Norway thus expressly allows circumvention of copy protection and other technical measures for private use of copyrighted materials except computer software. This measure allows music CD owners, for example, to legally breach protection measures in order to transfer copyrighted music. Although not expressly stated in the law, the legislative history of this provision suggests that Qprivate useQ also includes providing free copies to family and friends. In compensation, Norway budgeted NOK 32.5 million ($5 million) in 2005 and 33.5 million NOK in 2006 for payments to affected music and motion picture rights holders. Norway plans to make such payments annually from future government budgets. The funds will be paid only to artists in the EU and EFTA countries, though copyrighted American products undoubtedly comprise a high percentage of downloaded material. Rights holders have not agreed, however, on how the funds should be allocated. The Norwegian government is still holding the funds budgeted in 2005 and 2006 and has threatened to reabsorb all such compensation if rights holders do not come to an agreement by the end of 2006. The EFTA Surveillance Authority is reviewing whether Norway has correctly implemented the EU Copyright Directive. Counterfeit and Pirated Goods Norway does not expressly ban imports of counterfeit or pirated goods. A trademark or copyright holder must obtain a court order and have the case referred to the police before customs authorities will take action to stop entries of pirated goods. However, NorwayQs strict privacy laws bar customs authorities from informing rights holders when questionable shipments arrive at the border, rendering the remedy practically moot. Although counterfeit and pirated goods are not commonly available domestically, counterfeiters and intellectual property pirates use Norway as a QgatewayQ to third countries importing illicit goods, paying applicable import duties, and reshipping the goods to EU nations. For example, significant numbers of pirated DVDs from Russia and the Far East Q some reports suggest as many as 80,000 in larger shipments Q are believed to have transited Norway for consumption in the EU. Efforts to remedy the problem with new or amended legislation have stalled. Enforcement Enforcement of IPR protections is inconsistent. Norwegian police and judicial authorities are generally committed in principle to taking action against piracy and intellectual property right infringement, to the extent authorized by Norwegian law, and have successfully prosecuted a number of high-profile cases. However, the authorities lack the capability and resources to handle complaints about IPR violations effectively. Police authorities are aware of such problems as the QgatewayQ gap and have been working to address them, but with little result. Given limited resources, Norwegian law enforcement authorities have placed more priority on areas like computer crime than traditional IPR violations. Local business representatives indicate that complaints about copyright infringement, for example, usually either go unaddressed or are given low priority. Digital Rights Management Technologies In 2006, the governmentQs stance toward Digital Rights Management (DRM) technologies garnered widespread media attention when three Norwegian Consumer Council staffers complained to NorwayQs Consumer Ombudsman that that they could not play music downloaded from AppleQs iTunes Music Store onto unrelated media. (The Consumer Council is a quasi-public organization allied with groups challenging rights holder protections.) The Consumer Ombudsman issued a decision letter asserting that iTunes violated Norwegian consumer laws and contract principles. The letter called on Apple to let iTunes customers play downloaded music on non-Apple devices or face fines. The Ombudsman was vocal in his public opposition to iTunes and attempted to organize fellow Ombudsmen from Denmark and Sweden in a Qunited frontQ against Apple. Apple sent a letter to and met with the Ombudsman to address some of his concerns, but stood fast in its refusal to allow music downloaded from its website to be played on competitorsQ devices. Despite the OmbudsmanQs actions, there is no indication that the Norwegian government will amend copyright legislation to address the DRM issue. SERVICES BARRIERS Financial Sector Current regulations require the Norwegian Financial Supervisory Authority to grant permission for ownership levels in local financial institutions that exceed certain thresholds. The Authority assesses the acquisitions to ensure that prospective buyers are financially stable and the acquisition does not unduly limit competition. The Authority applies national treatment to non-bank foreign financial groups and institutions, but applies nationality restrictions to bank ownership. At least half the members of the board and half the members of the corporate assembly of a financial institution must be nationals and permanent residents of Norway or another EEA nation. On January 1, 2005, Norway removed the ceiling on foreign equity in a Norwegian financial institution, provided the Authority has granted a concession. Norway grants branches of U.S. and other foreign financial institutions the same treatment as domestic institutions. Telecommunications Sector In 1998, Norway began to liberalize the former monopoly of telecommunications services (Telenor) in Norway. Telenor was partially privatized in December 2000, leaving the government with a stake of 78 percent. Since that time, the governmentQs share has declined to about 54 percent, though NorwayQs center-left government has indicated it will suspend further privatization of state- controlled companies. Telenor remains the dominant operator in the Norwegian Telecom market. In 2005, the Norwegian Post and Telecommunications Authority (NPTA), in line with the EUQs telecommunications regulatory framework, declared that Telenor had significant market power in a number of segments in the telecommunications sector including: leased lines; call origination; transit services; wholesale unbundled access to metallic loops and sub-loops for the purpose of providing broadband and voice services; wholesale broadband access; and wholesale transmission services for national radio, local television, and national television on analogue terrestrial networks. New regulatory obligations have been imposed on Telenor by the NPTA in order to facilitate competitorsQ entry into and further access to these markets. The introduction of Voice-over Internet Protocol (VoIP) telephone services has further encouraged competition among telecommunications operators in Norway. The NPTA released an outline of regulation on VoIP services in April 2005. Equipment that has not been tested and certified under the EEAQs common technical regulations must be type-approved by the Norwegian telecommunications authority. The Norwegian government maintains that that this takes about six weeks under normal procedures. In the past, U.S. companies have reported that such approval is slow and costly for companies offering new products. INVESTMENT BARRIERS Norway welcomes foreign investment as a matter of policy and grants national treatment to foreign investors, except in the following sectors: financial services, mining, hydropower, and property acquisition. Foreign companies are required to obtain concessions for the right to own or use various kinds of real property, including forests, mines, tilled land, and waterfalls. However, foreign companies need not seek concessions to rent real estate, provided that the rental contract is made for a period not exceeding ten years. In the offshore petroleum sector, Norwegian authorities encourage the use of Norwegian goods and services. The Norwegian share of the total supply of goods and services in this sector has remained high, approximately 50 percent, over the last decade. NorwayQs petroleum concession process still operates on a discretionary basis, with the government awarding licenses based on subjective factors rather than competitive bidding. Though the Norwegian government had in the past shown a strong preference for Norwegian petroleum companies in awarding the most promising oil and gas exploration and development blocks, foreign companies report no discrimination in recent licensing rounds. Norway has implemented EU directives requiring equal treatment of EEA oil and gas companies. Foreign and domestic investors are barred by law from investing in industries monopolized by the government, which includes postal services, railways, and the domestic production and retail sale of alcohol. The government rarely allows foreign investment in hydropower production, and such investments, if approved, are limited to 20 percent equity participation. Norway has fully opened the electricity distribution system to foreign participation. State Ownership and Control of Commercial Enterprises The government continues to play a strong role in the Norwegian economy through its ownership or control of many of the countryQs leading commercial firms. The public sector accounts for nearly sixty percent of NorwayQs Gross Domestic Product and approximately 100 enterprises are either fully or partly owned by the central government. Central or local authorities own approximately 35 percent of the companies listed on the Oslo Stock Exchange, and more than one- third of the stock exchangeQs capitalization is in government hands. An April 2002 government QWhite PaperQ called for reducing and improving State ownership in the economy. Norway took steps over the last several years to implement that policy, partially privatizing some of the countryQs leading firms, e.g. Statoil, Norsk Hydro, Telenor and others. However, the government coalition that came to office in the autumn of 2005 announced that it is halting further privatization of state-controlled companies. OTHER SECTORAL POLICIES Pharmaceuticals Foreign pharmaceutical firms continue to experience difficulties in the Norwegian market. Until 1992, Norway limited patent protection for pharmaceuticals to the manufacturing process for a drugQs active ingredient. Although Norway introduced product patents for pharmaceuticals in 1992, the previous system has left a difficult legacy for pharmaceutical companies as competitors that claim to use non-patented processes have recently entered the market. Several U.S. pharmaceutical companies are involved in legal actions in Norwegian courts alleging infringement by these new entrants. One U.S. company lost a preliminary injunction in a patent infringement case in 2006, which allowed the copycat drug to enter the market immediately, cost the company significant revenue, and led to layoffs of local employees. In 2006, affected multinational pharmaceutical companies, supported by the U.S. and two European embassies, advocated that Norway amend the public health care systemQs drug reimbursement regulations to bar pharmacies from substituting generics for branded drugs that have process patents. The Norwegian government rejected the appeals in June 2006. Transparency on pricing, reimbursement decisions, and recommendations is lacking. U.S. pharmaceutical products often face lengthy delays in securing approval for their productsQ inclusion in the state health care reimbursement scheme. Reimbursement and approval decisions are complex and political, with Parliament making final decisions as part of its budget process. The Norwegian Medicines Agency (NMA) added another potential hurdle to reimbursement approvals in 2005 by denying a U.S. pharmaceutical manufacturerQs reimbursement application for lack of documentary proof Q which would have taken several years to develop Q that the costs of the drug in question compared reasonably with its treatment value and the costs of alternative treatments. The NMAQs procedures for reviewing reimbursement applications neither require such cost-benefit data nor make them a factor in reimbursement decisions. The drug at issue is reimbursed in all EU countries except Denmark, and no other EU country requested such data as a condition of approving reimbursement. Requiring manufacturers to perform multi-year cost- benefit studies of medically approved pharmaceuticals as a condition of reimbursement will result in significant additional costs and delays in bringing new drugs to the Norwegian market. U.S. pharmaceutical manufacturers cite NorwayQs total prohibition of supplying product information to consumers Q ranging from advertising to scientific data Q as a barrier to market entry and expansion. Consumers are not fully informed about pharmaceutical innovations, dampening demand for new products and sometimes delaying consumer access to the latest medicines. The Norwegian Association of Pharmaceutical Manufacturers, which includes U.S. pharmaceutical firms, has complained about NorwayQs inadequate implementation of EU directives on transparency of measures regulating medicinal products for human use. Although Norway complies with the letter of EU requirements that reimbursement applications be acted on within 180 days, Norwegian authorities often reject applications as the period expires, giving them an unlimited amount of time to consider applications once appealed. Automotive Sector The general vehicle taxation system that Norway put into place in 1996, under which taxes are calculated progressively on the basis of vehicle weight, engine horsepower, and engine displacement, has had a strong negative impact on sales of U.S. vehicles in Norway. These parameters tend to be unfavorable to vehicles manufactured in the United States, which are generally heavier and equipped with engines with more horsepower and higher displacement than vehicles manufactured in other nations. In the year before this tax regime went into effect, approximately 9,500 American vehicles were sold in Norway, nearly 8% of the market. Since that time, sales of U.S. vehicles in Norway have steadily declined, to less than 1,500 in 2005 (about 1% of the market),most of which were light trucks. In its 2006 budget, the Norwegian government imposed new taxes on light trucks that, in effect, wiped out the last significant remaining market for U.S. vehicles in Norway. More than 1,000 U.S. light trucks were sold in Norway before the tax went into effect. Post-tax sales plummeted to a couple of dozen vehicles. Norway announced in October 2006 that it would substitute a new CO2 emissions factor for the engine displacement parameter in its vehicle taxation regime, effective January 1, 2007. The new system is expected to encourage sales of diesel-powered passenger vehicles, which U.S. manufacturers generally do not make. Moreover, Norway will accept only European standards for measuring CO2 emissions, further disadvantaging vehicles manufactured in the United States. Norway announced that it would lift the light truck tax in 2007 for trucks with cargo space above certain limits, but the space limitations deny most U.S. light trucks the benefit of the restored exemption. End text. WHITNEY