VII. INVESTMENT CLIMATE ===================================================== A. NORWEGIAN FOREIGN INVESTMENT POLICY AND PRACTICES ===================================================== A1. OPENNESS TO FOREIGN INVESTMENT General Government Attitude In general, Norwegian authorities have a positive attitude toward foreign investment in the key offshore petroleum sector because domestic capital and technical expertise are in short supply. Investment is also welcome in high-tech and advanced areas that will improve competitiveness and management in industry, and in industrially underdeveloped areas such as Northern Norway. Looking ahead, the EEA and the EU accords means that Norway needs to apply principles of national treatment in certain areas where foreign investment is now prohibited or restricted. The GON is in the process of adapting Norwegian law to various EU directives to be implemented at the latest by January 1, 1995. The policy vis-a-vis third countries including the U.S. will likely continue to be governed by reciprocity, and by bilateral and international agreements. Major Laws/Rules/Practices Affecting Foreign Investment Norway is in the process of liberalizing its foreign investment legislation. Current and proposed laws/rules follow: -- Government monopolies: Foreign and domestic investors are lawfully barred from investing in industries monopolized by the government including postal services, railways, and the production and sale of alcohol. -- International: Foreign companies are required to obtain concessions for the acquisition of rights to own or use various kinds of real property including forests, mines, tilled land, and waterfalls. Foreign companies need not, however, seek concessions to rent real estate provided that the rental contract is made for a period not exceeding ten years. The two major laws governing concessions are the Act of December 14, 1917 and the Act of May 31, 1974. -- the petroleum sector: the Petroleum Act of 1985 contains the legal basis for the authorities' awards of blocks and follow-up activity. The act imposes governmental control over exploration, production, and transportation of petroleum. As a matter of industrial policy, Norwegian authorities continue to give preferential treatment to domestic oil companies and domestic suppliers in the awarding of blocks and maintenance/supply contracts. -- Mainland Portfolio Investment: Norwegian legislation does not extend national treatment to foreign investors. In the manufacturing sector, a single Foreign investor needs a concession to acquire more than 20 percent of a company's capital. A concession is also required for the purchase of a smaller number of shares if this purchase would raise the overall foreign stake above one-third of the company's voting shares. Foreign investors may acquire up to one-third of the voting shares in a financial institution without needing a concession. On the shipping front, foreign interests may not own more than 40 percent of Norwegian ships. Pending concession, Norway sets no upper limit on the proportion of a company's shares that may be foreign-owned. --Investment Screening Mechanism: Takeover applications are processed by the concerned ministries. The ministry of industry and energy, for example, handles all cases which concern the acquisition of real property in Norway or of shares in Norwegian companies. The ministry of finance is involved when financial institutions are concerned, while the ministry of culture handles media cases. Decisions are normally taken at the ministerial level. However, in some cases that may have political interest, the minister(s) may decide to ask the entire cabinet to make the decision. The time needed to process a takeover application depends on several factors but is normally from one to three months, according to the ministry of industry and energy's legal division. Norwegian legislation authorizes the GON to set conditions when a concession is granted, and this is done in the majority of cases involving more than one-third foreign ownership. Among the normal requirements are that the company may not engage in other business activities than those specified in the concession. In general, the gon screens investment on a case-by-case basis, based on the "public interest principle." This principle is vague, and allows for broad discretion, which has in the past been used to protect domestic interests. -- Acquisition and takeovers: antitrust legislation (Prices Control Act of 1953) empowers the authorities to break up any restrictive arrangement that may have a harmful impact on production, prices, and/or distribution. Norway has ratified principal international agreements governing arbitration of investment disputes including the New York Convention of June 10, 1985. -- Future Legislation: The Norwegian ministry of industry and energy is currently in the process of drafting new foreign investment legislation which is expected to become law in the course of 1994. According to the EEA accord, which became effective on January 1 this year, Norway is obliged to grant EEA investors national treatment by January 1, 1995, at the latest. The proposed legislation does not apply to the acquisition of natural resources and certain activities (e.g., farming, fishing, forestry, financial services) which will be governed by separate legislation (e.g., the 1974 concession law; the 1988 financial services act) on a non-discriminatory basis for EEA nationals. According to the proposed legislation, all Norwegian and foreign investors (i.e., EEA and Third-country) would be obliged to report to the ministry proposed acquisitions exceeding certain thresholds, i.e., one-third, or 45 percent, or two-third, of a company's ownership equity capital (e.g., share capital). This rule is mandatory for medium to large-scale acquisitions (i.e., the company involved employs more than 50 persons, or has an annual turnover exceeding NOK 50 million (USD 6.9 million), or receives significant public research and development support). The report to the ministry should contain information about investor intentions, implications for employment and production and industrial development. If the proposed acquisition would contribute to the restructuring of a manufacturing industry, a series of hearings would be initiated before a decision is made. The legislation authorizes the GON to set conditions when an approval is granted. If the ministry does not respond within 30 days, the acquisition is automatically approved. --Investment Incentives: Norway offers no significant tax incentives for either domestic or foreign investors. One exception is investments in Northern Norway, where a reduced payroll tax schedule applies. There are no free-trade zones, although taxes are minimal on Svalbard. A state industry and regional development fund provides support (e.g., investment grants; financial assistance) for industrial development in areas with special employment difficulties or with low levels of economic activity. --Discriminatory/Preferential Exports/Imports Policies: Norway has established an Export Council which assists export- oriented firms in international marketing. Norway has established an export credit institution (Eksportfinans) which provides export credits, and an export guarantee institution (GIEK). Norway maintains quantitative restrictions on the import of farm products (e.g., apples) during the harvesting season. These quotas are expected to be replaced by variable tariffs because of the outcome of the Uruguay round. Other "harmful" imports have been restricted when thought appropriate (the GON restricted bicycles from Taiwan, for example, after it registered an import surge). Regulatory procedures continue to limit market access for other goods including telecommunication equipment. Norway continues to grant trade-distorting subsidies to its shipbuilding industry, although these are not as high as in many other countries. A2. CONVERSION AND TRANSFER POLICIES In 1990, Norway abolished virtually all foreign exchange controls. Dividends; profits; interest on loans, debentures, and mortgages; and repatriation of invested capital are freely and fully remittable. Ordinary payment from Norway to a foreign entity can normally be made without formalities through commercial banks. A3. EXPROPRIATION AND COMPENSATION Cases of expropriation handled by the government have been few (a handful a year) and relatively insignificant (expropriation of land for road building and other infrastructural developments). No major changes are expected. Norway's constitution (para. 5) stipulates that those who surrender their property shall receive full compensation. A4. DISPUTE SETTLEMENT No major investment disputes have occurred since 1990. As noted above, Norway has ratified the major international conventions governing arbitration and the settlement of investment disputes. A5. PERFORMANCE REQUIREMENTS/INCENTIVES There are no specific performance requirements imposed on foreign investors. 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 to the offshore petroleum sector has been between 50 to 70 percent in the past decade. A6. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT Subject to the restrictions noted above, foreign and domestic entities are generally free to establish and own business enterprises and engage/disengage in all forms of legal remuneration activity. In principle, Norway treats private and public enterprises with equality when it comes to market access and other business operations. In the privatization of firms, foreign investors are permitted to participate subject to the restrictions mentioned above. A7. PROTECTION OF PROPERTY RIGHTS Norway adheres to key international agreements on property rights (e.g., Paris Union Convention for the Protection of Industrial Property). The patent office (Styret for det industrial rettsvern) grants patents for a period of 20 years (Acts of June 8, 1979, and May 4, 1985). Provisions in the Act of May 21, 1961 protect copyrights. Provisions in the Act of March 3, 1961 protect trademarks. The above legislation also protects trade secrets and industrial designs. A8. REGULATORY SYSTEM: LAWS AND PROCEDURES The government has adopted laws to foster competition. For example, the Prices Control Act of 1953 (the antitrust law) empowers the authorities to supervise restrictive business practices and issue regulations on prices, profits, or distribution. Existing laws and policies undergo frequent reviews to avoid misallocation of investment and excessive red tape. A9. EFFICIENT CAPITAL MARKET AND PORTFOLIO INVESTMENT Norway has a highly computerized banking system which provides a full range of banking services. There are no significant impediments to the free market-determined flow of financial resources. Foreign banks are currently required to do business through a subsidiary, but Norway will allow the establishment of non-EEA branches following the granting of national treatment to EEA banks on January 1, 1995. The private sector has access to a wide variety of credit instruments, and the regulatory system is transparent and consistent with international norms. A stock exchange is established to facilitate portfolio investment and--in general-- securities transactions. After five years of loan losses, the financial situation of Norwegian banks improved considerably from 1992 to 1993, with all major banks posting profits thanks to reduced loan losses and security gains. The total assets of all commercial and savings bank stood at USD 83 billion at the end of 1993, with the top- five bank accounting for over 80 percent. Following bailouts, the Norwegian state holds controlling stakes in the country's top-three commercial banks. The loan portfolios of Norwegian banks are improving, with non-accrual loans falling to USD 1.1 billion (1.3 percent of total assets) in 1993 from USD 4.5 billion (5.5 percent) in 1992. Foreign and domestic investors continue to have adequate access to capital. There are no known "cross-holding" or other share holder arrangements used by private firms to restrict foreign investment through mergers and acquisitions. Similarly, there are no laws and regulations authorizing private firms to adopt articles of incorporation/association which limit or prohibit foreign investment. The private sector and/or the government do not restrict foreign participation in industry standard setting consortia and organizations. A10. POLITICAL VIOLENCE Norway remains politically stable, with no politically motivated damage to projects/installations reported over the past few years. No changes are expected. ============================================== B. BILATERAL INVESTMENT PROTECTION AGREEMENTS ============================================== Norwegian authorities have concluded investment guarantee agreements with the following countries: PRC (1984), Indonesia (1969 and 1991), Malaysia (1984), Sri Lanka (1985), Poland (1990), Hungary (1991), Czechoslovakia (1991), Romania (1991), Estonia (1992), Latvia (1992), Lithuania (1992), and Chile (1993). These agreements contain provisions for the repatriation of capital, dispute settlement, and expropriation/nationalization in the host country. The Norwegian foreign ministry expects that new countries (e.g., Russia) will be added to the list in the near future. Selected samples of investment protection agreements will be sent separately via pouch. =============================================== D. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS =============================================== There is no specialized institution providing investment guarantees in Norway. However, the Norwegian foreign ministry has a guarantee division which oversees exports and investment guarantees. The Norwegian export credit institute (GIEK) issues export credits and investment guarantees subject to ministry approval. Norwegian firms investing in developing countries may apply for investment guarantees. Norway has an investment guarantee scheme for Eastern Europe--notably Russia, the Baltic states, Czechoslovakia, Hungary and Poland--which remains unutilized (Russia has yet to provide counter guarantees). Norway is a member of MIGA. ===================== D. LABOR AVAILABILITY ===================== -- Skilled and semi-skilled labor is usually available. Labor availability has increased significantly since 1987 along with rising levels of structural unemployment. In the first half of 1994, the labor force totalled some 2.1 million persons of which nearly 6 percent were (surveyed) unemployed. -- The government takes an active part in collective bargaining between the trade unions and employers hoping to control both wage increases and inflation. Norway adheres to the ILO convention on protection of workers rights. -- Despite wage restraint in recent years, Norwegian blue-collar wages remain high from a global perspective. For example, the 1993 hourly wage in manufacturing averaged some USD 14.60 compared with about USD 11.76 in the U.S. On the other hand, top-level executives are generally paid considerably less than their U.S. counterparts. -- High blue-collar wages contribute to the use of capital- intensive technologies in Norwegian industry. ================================== E. FOREIGN TRADE ZONES/FREE PORTS ================================== There are no foreign trade zones/free ports in Norway. No changes in policy are expected. ========================== G. CAPITAL OUTFLOW POLICY ========================== -- In order to encourage foreign investment and internationalization of Norwegian firms, Norway has, as noted above, removed most foreign exchange controls over the past decade. Thus, Norwegians and foreign residents alike are free to trade in foreign shares, bonds, and other securities. Norwegians are free to open accounts abroad and raise overseas loans as long as they report these transactions to the Bank of Norway. As noted earlier, foreign corporations may freely repatriate earnings and capital. -- Norway encourages investments in developing countries by granting mixed credits (with a significant gift element), parallel financing, favorable loans, investment guarantees, and support for marketing and training. ======================================== H. FOREIGN DIRECT INVESTMENT STATISTICS ======================================== The following data is the latest available from the Bank of Norway. Figures on investment position refer to the book-value of investment as opposed to the market value. These figures are limited to companies in which a single foreign investor holds 10 percent or more of the equity capital. The figures do not include foreign ownership interests via third party investment. Information on flows is based on market value. Note also that the NOK/USD exchange rates were as follows for the period in review: 1988 1989 1990 1991 1992 ---- ---- ---- ---- ---- End of Period 6.51 6.70 5.86 6.68 7.42 Period Average 6.52 6.90 6.26 6.48 6.21 Table I: FDI Position in Norway By Country (NOK Bill) -------------------------------------------------------- ------------ ---- ---- ---- ---- ---- Country/Area 1988 1989 1990 1991 1992 ------------ ---- ---- ---- ---- ---- Total FDI 56.9 64.3 73.3 94.8 93.6 --------- ---- ---- ---- ---- ---- Of Which From: U.S. 30.7 32.9 33.4 24.4 23.4 Sweden 7.7 10.0 12.5 19.5 17.1 France 6.8 5.2 7.2 10.9 7.7 Netherlands 2.9 3.5 3.6 5.0 6.1 Switzerland 2.7 2.7 4.3 9.2 11.7 UK 1.7 0.2 (0.3) 5.1 3.9 Germany 1.5 3.0 3.3 4.2 3.7 Denmark 1.4 2.0 1.6 2.3 2.9 Other Countries 1.5 4.8 7.7 14.2 17.1 All EU 15.1 14.6 15.9 29.8 26.1 ----------------- --- ---- ---- ---- ---- FDI/GDP (Percent) 9.8 10.3 11.1 13.8 13.3 ----------------- --- ---- ---- ---- ---- Table II: FDI Position In Norway By Industry (NOK Bill) ------------------------------------------------------ ------ ---- ---- ---- ---- ---- Sector 1988 1989 1990 1991 1992 ------ ---- ---- ---- ---- ---- Total FDI 56.9 64.3 73.3 94.8 93.6 --------- ---- ---- ---- ---- ---- Of Which In: Petroleum & Mining 26.9 30.4 35.6 36.1 30.6 Manufacturing 6.9 7.2 7.7 9.9 11.0 Bldg. & Construction 1.1 1.4 1.1 2.5 1.3 Dom. Trade & Hotels 9.3 10.4 13.0 21.0 23.4 Transp. & Commun. 0.7 1.0 0.7 1.8 2.2 Financial, Business Services & Property 11.7 13.8 15.1 22.0 23.3 Other Industry 0.3 0.1 0.1 1.5 1.8 Table III: Norw. Inv. Pos. Abroad By Country (NOK Bill) ------------------------------------------------------- ------------ ---- ---- ---- ---- ---- Country/Area 1988 1989 1990 1991 1992 ------------ ---- ---- ---- ---- ---- Total Inv. Abroad 26.1 33.7 41.1 46.4 NA ----------------- ---- ---- ---- ---- ---- Of Which In: U.S. 2.7 4.0 6.2 7.1 NA Sweden 4.5 5.2 5.9 6.0 NA Denmark 2.7 5.1 7.5 8.3 NA UK 4.8 6.2 7.3 8.1 NA Netherlands 3.9 4.7 5.3 5.9 NA Germany 1.1 1.2 1.0 1.4 NA Other Countries 6.4 7.3 7.9 9.6 NA All EU 15.3 19.9 25.2 27.5 NA ------------------ --- ---- ---- ---- ---- Tot./GDP (Percent) 4.5 5.4 6.2 6.8 NA ------------------ --- ---- ---- ---- ---- Table IV: Norw. Inv. Pos. Abroad By Industry (NOK Bill) ------------------------------------------------------- ------ ---- ---- ---- ---- ---- Sector 1988 1989 1990 1991 1992 ------ ---- ---- ---- ---- ---- Total FDI 26.1 33.7 41.1 46.4 NA --------- ---- ---- ---- ---- ---- Of Which In: Petroleum & Mining 4.3 4.8 5.8 6.3 NA Manufacturing 11.9 15.8 19.6 21.1 NA Bldg. & Construction 0.4 0.3 0.6 0.5 NA Dom. Trade & Hotels 0.8 0.9 2.8 4.9 NA Transp. & Commun. 2.8 3.5 4.3 5.8 NA Financial, Business Services & Property 5.3 7.9 6.0 6.0 NA Other Industry 0.6 0.5 2.0 1.8 NA Table V: Net FDI Flows To Norway (NOK Mill) ------------------------------------------- -------- ---- ---- ---- ---- ---- ---- Category 1988 1989 1990 1991 1992 1993 -------- ---- ---- ---- ---- ---- ---- Total 1,738 10,289 5,828 (1,533) 4,479 14,602 ----- ----- ------ ----- ----- ----- ------ Of Which From: U.S. (964) 269 (2,893) (871) 6,399 14,013 Sweden 994 6,503 2,344 3,356 121 (633) EU 2,350 2,576 2,532 (6,853)(2,150) 1,925 Other (642) 941 3,845 2,835 109 (703) --------------- --- --- --- --- --- --- Tot./GDP (Pct.) 0.3 1.7 0.9 (0.2) 0.6 2.0 Table VI: Norw. Net FDI Flows Abroad (NOK Mill) ----------------------------------------------- -------- ---- ---- ---- ---- ---- ---- Category 1988 1989 1990 1991 1992 1993 -------- ---- ---- ---- ---- ---- ---- Total 5,780 9,316 9,124 11,723 2,659 6,270 ----- ----- ----- ----- ------ ----- ----- Of Which To: U.S. 1,662 661 2,354 1,784 148 683 Sweden (212) 660 887 5,065 (960) 1,380 EU 978 6,571 5,135 4,197 2,732 2,695 Other 3,352 1,424 748 677 739 1,512 --------------- --- --- --- --- --- --- Tot./GDP (Pct.) 1.0 1.5 1.4 1.7 0.4 0.9 --------------- --- --- --- --- --- --- ========================== H. MAJOR FOREIGN INVESTORS ========================== According to Norwegian law, investment statistics collected by the Norwegian Central Bureau of Statistics cannot be released on a company-to-company or project-to-project basis. Foreign investors in Norway tend to regard their investments as company secrets. In 1993, foreign and Norwegian oil companies invested about USD 8 billion in the Norwegian offshore petroleum sector. The major U.S. investors offshore were: - Amerada Hess Corp.; - Amoco Norway; - Conoco Petroleum Norge; - Esso Norge; - Mobil Norge; and - Phillips Petroleum Corporation Norway. Other foreign oil companies were Norske Shell, BP Petroleum, Deminex Norge, Elf Petroleum Norge, Norsk Agip, and Total Norge. On the Norwegian mainland, U.S. investors/suppliers include: Kraft General Foods, Abbot Norge, Amdahl Norge, American Express, Apple Computer, Avis Bilutleie, Black & Decker, Bristol-Meyers Squibb, Chemical Bank Norge, Citibank, Coca-Cola Norge, Colgate- Palmolive Norge,, DHL International, Delta Airlines, Dow Chemical Norway, Ernst & Young, General Electric, General Motors, Gillette Norge, Goodyear Norge, Hertz Bilutleie, IBM, Ingersoll-Rand, Kellogg Norge, Manpower, Motorola Norge, NCR Norge, Pepsi Cola Norge, Price Waterhouse, Tandy Grid, Texas instruments Norge, Vickers systems and Wrigley and Xerox Corporation. =============== NOTE ON SOURCES =============== Information in this report was primarily obtained by the embassy from various sources within the ministries of finance, industry, labor, and foreign affairs, as well as the Norwegian Central Bureau of Statistics and the Bank of Norway. The Price Waterhouse guide "Doing Business in Norway" and the KPMG "Investment in Norway"