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EFTA BULLETIN GROWTH AND JOBS: THE LISBON STRATEGY AND THE EUROPEAN ECONOMIC AREA 1-2006 MARCH EUROPEAN FREE TRADE ASSOCIATION Rue Joseph II 12-16 B-1000 Brussels Belgium E-mail: [email protected] EFTA Secretariat Editorial Team Bulletin Editor Sebastian Remøy Copy-Editor Jean Lusweti EFTA BULLETIN 1-2006 2 Layout and Production Pål A. Hvistendahl and Helena Saele Authors of this Issue Sebastian Remøy — Project Coordinator Anne Camille Hilton Tor Eigil Hodne Ásta Magnúsdóttir Richard Ragnarsøn (Part II) Front cover photograph: Birkir F. Haraldsson Krafla geothermal station in Iceland. Eco-technology plays an important role in the Lisbon Strategy Printed by Micrographex, Brussels Layout by David Schürmann March 2006 The EFTA Secretariat would like to thank all external authors for their invaluable contributions to this issue of the Bulletin. The views expressed are not necessarily those of the Secretariat. FOREWORD The last year was critical in the history of the Lisbon Strategy, standing as the midway point in the first decade of the Strategy. The EU undertook an extensive mid-term review of its five year-old effort to become, within the decade, the most competitive economy in the world. The EEA EFTA States have supported the overall aims of the Lisbon Strategy and provided input to the mid-term review. On their behalf, Iceland's Prime Minister, Halldór Ásgrímsson, sent a letter to Wim Kok (the Chair of the High Level Group of Independent Experts reviewing the Lisbon Strategy) in September 2004. This was followed up in March 2005 by another letter signed by Norwegian Prime Minister, Kjell Magne Bondevik, to EU President Jean-Claude Juncker, in the run up to the EU´s spring summit (these letters are copied in the annex of this edition of the Bulletin). In the following pages, MP and former Norwegian Industry and Trade Minister, Børge Brende, explains why growth, employment and the Lisbon Strategy as a whole are so important for the EEA EFTA States. EU Vice-President Margot Wallström explains how the Lisbon Strategy is ultimately intended to improve the quality of life of Europeans. Georges Baur, Deputy Head of Liechtenstein's Mission to the EU, argues that the Lisbon Strategy needs to be made relevant to citizens through concrete measures. Jon Vea, Chairman of the EFTA Consultative Committee and International Director of the Norwegian Confederation of Enterprise, looks into the challenge of balancing policies to grow the European economy with measures to preserve the environment and provide long-term job and social security to Europeans. Halldór Grönvold, ViceChairman of the EFTA Consultative Committee and Deputy General-Secretary of the Icelandic Confederation of Labour writes on the need to uphold European social values in the effort to support growth and employment. The EFTA Secretariat also provides several examples of areas in which the EEA EFTA States are playing an active role in programmes and policies that are central to the Strategy for Growth and Jobs. In the second part of the Bulletin, readers can compare how EEA countries measure up against each other in the statistical indicators that track the Lisbon Strategy's progress. What emerges clearly from this edition of the Bulletin is that the Lisbon Strategy is relevant for EFTA, not least because of its impact on the Internal Market. Through both formal and informal channels, the EEA EFTA States participate in many initiatives to stimulate sustainable growth and employment in Europe. Øystein Hovdkinn Deputy Secretary-General of EFTA 3 EFTA BULLETIN 1-2006 This edition of the EFTA Bulletin looks at the Lisbon Strategy, or as it is increasingly referred to these day, the Strategy for Growth and Jobs. Growth and jobs are vitally important goals for the EFTA States in the European Economic Area (EEA), as well as for Switzerland. In these pages we will look at the opportunities that the EEA Agreement gives all its 28 member countries to cooperate with each other to achieve sustainable growth. TABLE OF CONTENTS Foreword 3 Øystein Hovdkinn, Deputy Secretary-General of EFTA PART I The Lisbon Strategy and the EEA EFTA States Growth and Employment: Goals for the EEA EFTA States A European Model for Sustainable Growth 15 Halldór Grönvold, Vice-Chairman of the EFTA Consultative Committee, Icelandic Confederation of Labour 5 The Lisbon Strategy in Brief 18 5 How the EEA EFTA States participate in the Lisbon Strategy 21 7 The Internal Market The Knowledge Society Employment Policy Social Inclusion Sustainable Development EFTA BULLETIN 1-2006 4 Børge Brende, Member of the EFTA Parliamentary Committee and former Norwegian Minister of Industry and Trade A Strategy for Europeans Margot Wallström, Commissioner for Institutional Relations and Communication Strategy and Vice-President of the European Commission PART II 29 Measuring up — Structural Indicators 29 Lisbon: Getting Down to Business and Involving People ANNEX 46 Letters from the EEA EFTA States to the EU 46 10 Georges Baur, Deputy Head of Liechtenstein's Mission to the EU The Difficult Balance of the Lisbon Strategy Jon Vea, Chairman of the EFTA Consultative Committee, Confederation of Norwegian Enterprise 12 GROWTH AND EMPLOYMENT: GOALS FOR THE EEA EFTA STATES If we were to say that Europe is in a state of near economic stagnation, we would probably not receive many objections. If instead we were to say that over the last twenty years, Europe has seen impressive economic growth, wide-reaching deregulation and unprecedented technological development, some remarks of suspicion would perhaps arise. However, both statements are true. One could even say that at present, many European countries are experiencing high economic growth and relatively low unemployment. As we should know, this is true as well. The EEA EFTA States can be proud of themselves for having some of the best examples of good economic governance in Europe. Unemployment in our countries is low. The EEA EFTA countries are experiencing high economic growth. In fact, this is the case for many countries in the EU as well. Ireland has been growing at an impressive rate for years. Some new Member States, e.g., the Baltic countries, have 1 The Lisbon Strategy was launched in 2000 to make Europe the most competitive economy in the world by 2010. This, at the best of times, was an ambitious agenda, and was made even more challenging by the economic downturn in 2001 and 2002. Looking back at the achievements after five years, the mid-term review of the Lisbon Strategy concluded that the Strategy had too many goals and too little focus. Economic growth had not improved and, in relative terms, Europe had lost out to the US. To me, the reorientation of the Lisbon Strategy, focusing on jobs and growth, makes good sense. Environmental policy and social integration are very important topics. However, growth and employment are vital to assure welfare and our ability to support a clean environment. At the same time, demographic changes create a great challenge for the years to come. While the total population is stabilising — and even expected to fall in some countries — the financial obligations of the state are fast increasing. But how shall we achieve more jobs and more growth? Globalisation brings both challenges and opportunities. On the one hand, we meet tougher competition. On the other hand, larger markets are opening up for our products and services. This implies Mr Brende was Minister of Industry and Trade during Norway's chairmanship of the EEA Council, when the EEA EFTA States presented input to the EU 2005 spring summit (the mid-term review). 5 EFTA BULLETIN 1-2006 By Børge Brende, Member of EFTA's Parliamentary Committee and former Norwegian Minister of Industry and Trade1 been among the frontrunners in adapting economic reform. Although the unemployment rate for the EU as a whole remains high, 'eurosclerosis' is certainly not a term that defines the whole of the EU. Even among the acknowledged slow-growth countries, economic conditions might be improving. that we have to compete by restructuring, by innovating more and by working smarter. We must focus on research and development (R&D) and the utilisation of new technology. I believe that the key resource to being competitive is human capital. Nothing will prepare us better for the future than a workforce that is well educated, adaptive and innovative. The most important part of this is the general level of education. A highly skilled population is essential for realising the potential of the economy. However, we also need to ensure that this human capital is put to work. It is important that social insurance systems do not significantly reduce the incentives to work. Rules and regulations should allow the workforce to be employed wisely. And we need firms that are able to adapt to new environments, and to meet new challenges. We must foster the ability to innovate. And we must support creativity by supporting research and development. EFTA BULLETIN 1-2006 6 on the individual need of each country. The topics covered by the Lisbon Strategy are so general as to give room for a wide range of different national strategies. However, we need to recognise the interdependence of European countries, whether or not they are members of the EU. Increased European competitiveness will benefit all countries in Europe. If the EU can succeed in the goals set in the Lisbon Strategy, the EEA EFTA countries will be among the first to gain from it. But if we want to optimise our economic potential, we will come even further if we are able to work together. I view the Lisbon Strategy as a further contribution to this process. It is therefore important that the EFTA countries follow the Lisbon Strategy closely. When I was minister of industry and trade in an EEA EFTA country, I looked at the part of the Lisbon Strategy focusing on the Internal Market with special interest. The Internal Market is perhaps the strongest tool the EU has for creating jobs and growth. And it is a tool we know works. If we really want to improve our potential for higher growth and more jobs, the Internal Market is certainly a good place to start. The Internal Market is undoubtedly one of the EU's greatest achievements. However, some obstacles remain. One important goal is to extend the Internal Market to trade in services. But there are others. National regulation, tax systems and social insurance systems in some cases still hinder the achievement of a level playing field. Public procurement and network industries are other areas. Several of the integrated guidelines that form the basis for the Lisbon Strategy focus exactly on these topics. This is a part of the Lisbon Strategy where the EEA EFTA countries must work together with the EU. A well functioning Internal Market is a common good. The Lisbon Strategy is an invitation to the EU Member States to present programmes for reform. As the EU itself certainly recognises, Member States are truly diverse. A national reform programme must be based Students in the EEA EFTA States can participate in all EU education programmes. Since 1993 over 15 000 EEA EFTA students have spent a semester at a university abroad through the ERASMUS student mobility programme. A STRATEGY FOR EUROPEANS In March 2000, the European Council met in Lisbon to agree on a new strategic goal for the European Union: “to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”. The year after, an important addition was made by the Gothenburg Council as the environmental dimension was added to the strategic goal and the Sustainable Development Strategy was agreed. These were not only fundamental policy objectives for the future, but they also represented a new approach to policy-making. In terms of policy mechanisms, it went beyond Community harmonisation to introduce the best practices and benchmarkings of the open method of coordination (OMC). At its philosophical core was the requirement of sustainability — that present needs be met without compromising the ability of future generations to meet their own needs. It also represented a 'European way', drawing on the strengths of Europe — competitiveness through welfare, high environmental standards, strong infrastructure and an educated workforce — but also on the principle that there can be important mutually reinforcing mechanisms between policies. At the time of the mid-term review of the Lisbon Strategy, however, it was clear that results so far were, if not insufficient across the whole board, then at least worrying. Several key indicators, such as rates of employment, economic growth and R&D expenditure levels, showed that progress was falling short of the mark. National as well as Community reforms were not proceeding as planned. Leaving aside the adverse effects on progress by external factors such as adverse global economic cycles, there was a clear lack of delivery on reforms. The High Level Group of Independent Experts established by the Commission pointed to a structural shortcoming of the Strategy: the delivery gap was much due to a lack of focus on reforms and political ownership of the Strategy and its objectives. This delivery gap presents itself at a time when external as well as internal challenges point to the evergreater importance of keeping the Lisbon and sustainability objectives alive. Europe has an ageing population, and in parallel with stronger environmental legislation, fossil energy dependence and pollution levels are on the rise. In a world of increasing competitive pressures, in particular on manufacturing 7 EFTA BULLETIN 1-2006 By Margot Wallström, Commissioner for Institutional Relations and Communication Strategy and VicePresident of the European Commission As abstract as that principle might appear, it harbours a rationale that can underpin concrete policy choices. High environmental ambitions, for instance, are not to be seen as the costly luxuries of societies that have the economic growth to afford them, but rather as drivers in themselves of increased productivity, growth and more jobs. The 'European way' is to not make the fallacy of choosing between growth or a healthy environment, between jobs or social security. To me, therefore, sustainable development has always been a very powerful concept — a recipe for what we might call 'smart growth'. Iceland is the only country that produces all its electricity from emission-free and sustainable natural resources in the form of geothermal and hydro power. EFTA BULLETIN 1-2006 8 industries, Europe needs to step up the pace of transition to become a knowledge-based economy. Continuous lagging behind in economic performance would simply erode the very base of prosperity on which we have built our high social standards and quality of life. This increased sense of urgency did not, however, diminish the Commission's conviction that any reform of the Strategy needed to be faithful not only to the original objectives but also to the core principles: that whereas growth and higher employment are essential for providing the means for maintaining social cohesion and environmental sustainability, at the same time social cohesion and environmental sustainability too are drivers of growth and employment. Not losing sight of this fact — that the Lisbon Strategy itself is to be seen in the wider context of sustainable development — is important not least because the success of the Strategy very much depends on how much consensus and ownership can be built around it. The reform needed to be balanced and to reaffirm the Strategy as a three dimension — economic, social and environmental — political project, because otherwise it simply would not have the broad support that it needs. A concrete example of what it means to keep this balance is that more flexible labour markets must go hand in hand with better employment services, which do not leave people that have lost their job in a hopeless situation. Atypical working contracts must go hand in hand with new solutions on pension rights, in order to avoid many people's pensions being eroded. In other words, the key challenge is to re-establish the Lisbon Strategy as a positive and shared vision for Europe's future, which is economically and environmentally solid as well as socially desirable. The Commission's proposal, presented in spring 2005 and which was subsequently endorsed by the European Council and the European Parliament, was therefore a renewed Strategy with an increased focus on growth and jobs. The emphasis is on boosting knowledge and innovation, making Europe a more attractive place to invest and work in, and creating more and better jobs. As much effort as possible must go into delivering on those policies which have the greatest impact over the years to come. But while being more targeted on these areas — which are where Europe is lagging behind its competitors — it is not decoupled from the principle of sustainable development and the retention of a high level of social cohesion and security. Firstly, it is a communication challenge — in order to achieve increased delivery, we need a stronger, common European consciousness of what the Strategy is for and why its ambitions are so crucial. The Commission will in the near future establish a communication strategy for Lisbon, including a comprehensive analysis of how the Strategy can be made to feel more tangible and relevant to Europeans. The renaming of the Lisbon Strategy as a Strategy for Growth and Jobs is just one change, and — crucially — the benefits to the citizen and the costs of inaction need to be highlighted. The communication strategy must mobilise opinionmakers and influential groups in society, such as political parties, the business community, trade unions, trade associations, consumer organisations, NGOs and existing European networks. Furthermore, in order to better be able to convey the added value of European action in conjunction with Member State reforms, reporting on Lisbon progression is being split up into a Community Lisbon Programme in parallel with the national programmes. Secondly, it is a challenge of governance — the Commission needs to establish a new partnership with Member States in order to increase their ownership of the Strategy. In order to achieve that, the respective responsibilities need to be clarified, and the Commission's role as facilitator confirmed. It needs to be clear how Community actions support policy developments in Member States. The new partnership also entails far-reaching simplification, both in terms of policy priority-setting and in terms of streamlining of procedures and reporting. A single integrated national reform programme will replace the many separate reports of before. By improving governance, the aim is to facilitate the identification of priorities while maintaining the overall balance of the strategy and the synergies between its various components. In short, any impulse at Community level must be combined with a real commitment and ownership at all levels of government: European, national, regional and local. At the end of the day, however, I believe that the greatest challenge rests with European Union Member States. It is they, after all, that retain the bulk of influence over employment, social and macro economic policies. They need to show their commitment to the Lisbon objectives. I believe that the renewed Strategy provides a second chance. More focused and simplified, it can still be made into The political strategy of the decade for Europe. It is still faithful to the European way of marrying growth and jobs with sustainable development and social cohesion — now Europe just needs to be faithful to it. 9 EFTA BULLETIN 1-2006 The Lisbon Strategy has from the outset consisted of a comprehensive mix of measures of which very significant parts are within the exclusive domain of Member State policy. Therefore, from the point of view of the European Commission, renewing the Lisbon Strategy with an increased focus on growth and jobs and on delivery represents a challenge. LISBON: GETTING DOWN TO BUSINESS AND INVOLVING PEOPLE EFTA BULLETIN 1-2006 10 By Georges Baur, Deputy Head of Liechtenstein's Mission to the EU When the EU set out, through the Lisbon Strategy, to become the most competitive economy in the world and to equal that of the United States within 10 years, it was clear early on that this was an unrealistic goal that was bound to fail. Not only was the Strategy too ambitious, but it also did not consider the readjustment of social and environmental policies necessary for the achievement of its goals. Policymakers — quite understandably — were unable to prioritise Lisbon's many goals. Therefore, changes in the Strategy were necessary, with several other factors having to be taken into account. Among the challenges that most European economies face are: the rapid globalisation of the world economy with increasing trade and competition; increasingly ageing populations; uncertain sustainability of public finances and problems related to growth and job performance. EFTA countries are all small and have open economies. They also have in common high levels of education and income, and well functioning labour markets. These, combined with active labour market policies, generate high employment rates. Such forward-looking structural policies are seen as the best policy response to the future challenges related to jobs, growth, globalisation and sustainable development. This need, however, not happen to the detriment of a well developed welfare state. Looking at Liechtenstein's experience, it appears that in order to maintain the efficiency and competitiveness of an economy, it is important to reduce the role of the State. Furthermore, a tax system that guarantees a sustainable level of income, combined with an equal but moderate tax rate, is likely to set the best climate for continuous growth. The latter goes hand in hand with the scrapping of complicated legislation and bureaucratic rules that essentially prevent the sector of small and mediumsized enterprises from developing. The European Union's initiative for better regulation, i.e., to further reduce barriers to entry in network industries and/or professional services; to ease the burden of regulation on business operations arising from price controls or administrative procedures; to consider reducing the extent of public ownership and to lower the administrative burden on business start-ups sets the pace. Furthermore, the completion of the EU single market for goods and services and the EEA Agreement are expected to boost competitive pressure arising from cross-border activities, even though important nontrade barriers remain and the introduction of rules on an integrated market in services is still being discussed. One of the concrete measures for enhancing the creation of high quality jobs, and encouraging innovation and competitiveness — the major aims of the Lisbon Strategy — therefore is to rapidly create a genuine single market in services. By fostering crossborder economic activity and stimulating competition in this way, the aim of this proposal is to provide a wider choice, improve quality and lower prices for consumers and for enterprises using services. The re-launch of the EU's Lisbon Strategy is certainly an important step on the way to success. However, countries should not only be involved at administrative level but need also address the citizens. Only concrete measures will appeal to people in Europe. Without their support, the Lisbon Strategy will not achieve the success expected by Europe's leaders. These may, in the case of Liechtenstein, perhaps be subject to a referendum. This would on the one hand require much explaining. On the other, it is a possibility for gaining the people's support and confidence necessary for the advancement of an ambitious project such as the Lisbon Strategy. 11 EFTA BULLETIN 1-2006 In the case of Liechtenstein, the economic policies as described above aim at ensuring that the country remains an attractive economic location and thus offers conditions that make entrepreneurial activity viable without state subsidies. Despite the high wage and price levels, the Liechtenstein economy remains internationally competitive. Industry and manufacturing accounts for 40% of Liechtenstein's GDP. Liechtenstein industry employs over 100 000 people abroad, three times the population of Liechtenstein. © Hilti Corporation THE DIFFICULT BALANCE OF THE LISBON STRATEGY the population in the US has a university degree compared to only 19% in Europe. Further, the US, on average, invests approximately twice the amount per student, compared to European countries. EFTA BULLETIN 1-2006 12 By Jon Vea, Chairman of the EFTA Consultative Committee, Confederation of Norwegian Enterprise A European country that does not participate in the effort to be part of the most competitive knowledgebased economy in the world might be ignored by investors. We must not forget that the reason for the launching of the Lisbon Strategy was the recognition in the 1990s that a growing gap in economic growth and competitiveness was evolving between Europe and the USA and Japan. Actually, the EU's productivity grew faster than that of the US for 5 consecutive decades, but since 1996 the EU has been lagging behind the US every single year. Labour productivity in the US is now growing twice as fast as in Europe. As a consequence, Europe's relative level of wealth has also started slipping. Europe is not investing enough: investment has, on average, been growing only by 1.7% per year compared to 5.4% per year in the US. As concerns research and development (R&D), Europe is not spending enough. The US is spending about 100 billion euros more on R&D than Europe. The EU has only 25% of the number of patents per head, compared to the situation in the US. Finally, 32% of The last decade has also shown rapidly increasing competition from emerging economies like China and India. Production is being moved or outsourced to China. At the same time, low-priced, mostly high tech, manufactured products are flooding Europe. In European countries, the impact of this development is reduced inflation, but on the other hand, it creates an increased need for the renewal and restructuring of industries. Several branches are affected and the shortterm result in many countries has been low growth and a severe loss of jobs. The common challenge now in Europe is to create new growth and new robust jobs through innovation and entrepreneurship. These trends, if not addressed, will drag down the expected growth rate for 2005 to slightly more than 1%, i.e., a third of the Lisbon objective. In 2004, the average growth in the euro area was a meagre 2.2%, while it grew by 4.3% in the US, 4.4% in Japan, 6.4% in India and 9% in China. There was therefore an obvious need to revamp the Lisbon Strategy because the ability to deliver the necessary results had become too slow and complicated. The urgency of the Strategy had not been understood. The Strategy had generated much paper and talk, but little action. Responsibilities between the national and the European level became blurred. A weakness of the original Lisbon Strategy was obviously that the Strategy tried to incorporate too many good intentions at the same time. It tried to equally As Chairman of the EFTA Consultative Committee, I believe that reforms have to be undertaken even if in the short-term they could have a certain negative impact on employment and the daily lives of the citizens of Europe. The consequences of delaying necessary reforms on our economies will probably be much more serious. This view is in accordance with what is expressed by the High Level Group of Independent Experts, chaired by Wim Kok, in its report, “Facing the Challenge — The Lisbon strategy for growth and employment”, published in November 2004: “… the delivery of such sustainable economic growth, however well supported with growth oriented monetary and fiscal policies, comes with tough options and choices. Resources have to be refocused and vested interests challenged. Structural change is never easy. Nonetheless, security is not achieved by resisting or delaying reform. It is by embracing change that the social and environmental results Europeans value can be preserved and even improved.” efficient manner, and this will create opportunities for economies of scale which will lead to lower costs and prices. There will be a general uplift in real incomes, profits and innovation. Sustainable economic growth has always been associated with market opening and strong growth in trade. The Internal Market has so far not lead to an opening of the services markets in Europe. This sector has become the most important sector as concerns GDP shares, but transnational trade in services is still very limited. If the new focus on trade in services is to be successful, a substantial contribution in the efforts to achieve the goals of the Lisbon Strategy needs to be made. The smooth functioning of the financial market is a cornerstone in the Internal Market and in promoting economic performances. The financial services action plan is to be fully implemented. The EEA countries should then implement this in their national legislations. With regard to the services directive, opinions are currently strongly divided and the Consultative Committee has not managed to agree on a common position on this initiative. Also, the European spring summit in March in 2005 underlined this and concluded that focus has to be on growth and employment. To succeed with this new approach, a much more decisive effort has to be launched. I believe that the new initiatives to really implement the vision of a really free and open Internal Market is one precondition for success. Facilitating the free movement of persons, goods, services and capital in the EEA of 28 nations, without internal frontiers, is a crucial mechanism that will generate economic growth. A well functioning Internal Market permits those companies and sectors that have comparative advantages to build on them and thereby grow. This becomes a self-reinforcing trend. Resources will be used by those most capable of using them in an Liberalising trade in financial services has been an important goal of the Lisbon Strategy. 13 EFTA BULLETIN 1-2006 balance growth and competitiveness with safeguarding employment and the environment. To safeguard the European welfare model is a vision we all can share, but there is a real risk that equal attention to all the elements might dilute the overall objective of recreating growth and competitiveness in Europe. And there is also a risk that such an approach might complicate attempts to launch the necessary reforms that can create an environment for growth and innovation. Europe's future depends on its ability to create and nurture high-value, innovative and research-based sectors capable of competing with the rest of the world. To obtain this, there must be an increased focus on the creation of a world class knowledge society. Research and development are essential ingredients in the creation of new commercially viable products and processes. The framework conditions and initiatives to promote research, development and commercialisation of innovations from R&D are therefore of vital importance in the process of value creation and future job opportunities. EFTA BULLETIN 1-2006 14 All EEA States should create conditions for more public and private investment in education, research and the knowledge-based economy, as these are essential for medium and long-term growth. Fiscal and regulatory incentives, as well as a competitive environment, are necessary measures for encouraging private spending in these priorities. Establishing bridges between knowledge and the market place and creating the right environment for innovation, is the new competitiveness challenge. A more coordinated and consistent approach is needed if European businesses are to take advantage of new opportunities, create jobs and strive towards growth. Knowledge and expertise are important factors affecting competitiveness and location of enterprises in a global economy with heightened competition and rapid technological change. Europe needs to develop an innovation policy that will put in place the correct framework conditions for innovation, especially focusing on the commercialisation of innovations. It is of vital importance to ensure that venture capital instruments are in place to facilitate a successful conversion of R&D and innovation to businesses producing goods and services and hence jobs and growth. Private venture capitalists are often reluctant to invest in the early stages of innovative businesses and not patient enough to wait for the return of their investment. Here, all the EEA States have an important role to play either by establishing investment funds directly or making it more attractive through incentives for private venture capitalists to invest directly or via funds. If not, the chain from innovation to the market will be broken. In January 2001, the EFTA Consultative Committee first called on the EFTA States to become as closely linked to the EU Lisbon Strategy as possible, and to the new mechanisms of cooperation, amongst others the benchmarking initiative. The new method would entail a shift from traditional regulations, directives and decisions which, depending on their EFTA relevance, would be incorporated into EEA legislation. Now, having been excluded from the spring report, I would urge the EEA EFTA States to try to initiate closer cooperation with the European Commission. EU Member States have on several occasions stated that the USA's and Japan's practices are not always the best and that the Union should compare itself with other possible contributors. The EEA EFTA countries can demonstrate best practices in several areas. An inclusion in the assessment, in one or two areas, in the spring report gives the advantage that progress on the policy proposals and legislation in the Lisbon Strategy can be closely connected to the development of indicators. The Consultative Committee agrees that inclusion in the assessment of all indicators would be difficult for EFTA EEA members. A 'shadow report' would probably be more useful, both as a tool for our governments and as a way of showing examples of best practices to the rest of the EEA members. A EUROPEAN MODEL FOR SUSTAINABLE GROWTH Striking the right balance: shaping a strong and social Europe When the EU leaders met in Lisbon, Portugal, in March 2000, the European Council adopted a ten-year programme aimed at revitalising growth and sustainable development across the EU. They noted the challenges Europe was facing from globalisation, an ageing population, and the emergence of a worldwide information society. They resolved that economic and social reforms had to take place in the context of “a positive strategy which combines competitiveness and social cohesion”, and reaffirmed that the European social model, with its developed systems of social protection, must underpin the strategy. At Lisbon the European Union “set itself a new strategic goal for the next decade: to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.” The Council also adopted the open method of coordination between Member States, at different levels of decision-making, as a means to achieve these ends. Ambitious Objectives The Lisbon Strategy is about reaching ambitious objectives in the economic, social and sustainability field through a strategy of innovation and by investing in a knowledge society. Lisbon is not about wage cuts or competition on the basis of poor working conditions; instead it is about economic, social and ecological policies that are mutually strengthening. This is why the European trade union movement led by the European Trade Union Confederation (ETUC) welcomed the Lisbon Strategy from the beginning and supported its aim. Disappointing Results In late 2005, it was clear that Europe would have great difficulty, if any chance at all, in reaching the targets set out by the Lisbon Strategy. This is also the conclusion of the High Level Group of Independent Experts chaired by Wim Kok. The Group's report, “Facing the Challenge — The Lisbon strategy for growth and employment”, published in November 2004, concluded that the results had up to then been disappointing, and that the EU was very unlikely to meet its 2010 goals, 15 EFTA BULLETIN 1-2006 By Halldór Grönvold, Vice-Chairman of the EFTA Consultative Committee, Icelandic Confederation of Labour This was to be achieved through a range of policies including a sound macro economic policy mix that is conducive to high growth, completing the Internal Market, investing in people and combating social exclusion. EU leaders pledged to aim for full employment in Europe, in a society accommodating the personal choices of women and men. The Lisbon Strategy sets specific targets on economic growth, employment and social cohesion that reflect the aim of the Strategy. chiefly due to a lack of determined political action. It highlighted an overloaded agenda, poor coordination, and conflicting priorities. It also pointed out that structural reform had become a codeword for deregulation and weakening workers' rights, and noted that policies should, instead, help workers to address structural change by investing in skills and productivity, instead of deregulating labour markets. The report also underlined the vital importance of aggregate demand management to exploit fully Europe's growth potential. 16 Looking Ahead EFTA BULLETIN 1-2006 Furthermore, the Kok report stressed the importance of sustaining the European social model, and advised against copying the US system of minimal social welfare. The High Level Group's proposals focused on the need to communicate better with EU citizens, and obtain their support for the reform process — something the European trade union movement has repeatedly emphasised. More importantly, the report stressed the role that social dialogue and social partners, both at national and European level, can play in delivering the Lisbon objectives of high non-inflationary growth, more and better jobs and strong social cohesion. These observations made in the Kok report are of great importance as the future of the Lisbon Strategy is on the line. When the future of the Lisbon Strategy is debated, there are two very different approaches. One calls for deregulation, more labour market flexibility and less security, lower taxes and cuts in the welfare system. On the other hand are the policy and basic ideas of the trade union movement arguing that Lisbon is and should be about strengthening social cohesion and sustainability. The movement also argues that Lisbon is about social dialogue and social partnership as essential parts of Europe's competitive advantage, and indispensable means in reaching high growth and employment. that is being pursued is not the right one. Too much focus is put on deregulation and flexibility instead of assisting workers to cope with change. Lisbon is also not delivering because aggregate demand policies are being distrusted and have been abandoned. Put Social Europe at the heart of the Lisbon Strategy. It is too facile to cry out for 'more reform' and then blame governments for non-implementation. The reality is that structural reform has become a code for deregulation and unlimited flexibility, for weakening workers' rights and lowering wages and for dismantling the social welfare state. It should come as no surprise that workers and the public at large are refusing an agenda that is in fact leading to the destruction of the European social model. For the Lisbon goals to be delivered, massive investment needs to be made in positive labour market institutions such as: • active labour market policies with well functioning employment services that provide guidance, training and counselling; • increased access to lifelong learning for all workers; • improved social benefits regimes, supporting the unemployed in their search for new jobs; • policies to reconcile working and family life; • policies to fight discrimination and gender gaps; • initiatives to promote the participation of workers in developing high performance work places; • new forms of security for workers while maintaining the principles of existing forms of workers' security. The European trade union movement, led by the European Trade Union Confederation (ETUC), has put forward many constructive proposals aimed at giving the Lisbon Strategy a clearer focus and making it better equipped to meet its original purpose. Below are just a few of these proposals. By helping workers to accept and to be able to cope with structural change, social Europe is not just a financial or a regulatory burden. Instead, social Europe is at the core of Europe's competitive advantage and the growth and job creation process. This is in particular true for investment in learning capacities in general as it is essential for innovation and should become a priority in innovation policies. Also, by investing in learning for all workers, social cohesion can be promoted and inequality can be avoided. This corresponds to the original Lisbon idea: wages and productivity should be brought in line with one another, not by bringing down wages but by increasing the skills and productivity of all workers. It is important to learn the lessons from past experience and to stop the mantra of unbalanced structural reforms. The European economy is barely growing, unemployment is edging up, labour productivity trends are falling and workers feel more than ever insecure. Lisbon is not delivering because the kind of reform Sustainable development is a pillar for growth, competitiveness and social cohesion. Like social Europe, the environment is a source of competitive advantage for Europe. Sustainable development policies force the European economy to invest in those sectors for which future world demand will grow most • building a consensus between social partners on the transition towards sustainable development in order to manage potential tensions between environmental and social goals; • progressively including external costs in prices and removing harmful subsidies; • making the environment an integral part of European industrial policy programmes; • steering investments in European research and development towards innovation in the areas of energy efficiency, clean technologies and renewable energies; • making sure that the single European energy market recognises that energy supply has to remain a service of general interest with all consumers being entitled to access; • globalising sustainable development: the external dimension of sustainable development including the (non-) respect of core labour standards is an issue for Europe's competitiveness and must be addressed by the EU in its external policies. The Lisbon Strategy must not be narrowed down to a focus on competitiveness, a concept that needs to be revised. The trade unions urge policy-makers to resist the temptation of going for a 'quick economic fix'. Achieving competitiveness and jobs on the basis of social dumping is in flagrant contradiction with the Lisbon model and will weaken the productive base and the innovative capacity of the European economy in the medium and long run. The Lisbon 'learning society' will not be reached on the basis of poverty, insecurity and sharp inequality. industrial relations, collective bargaining and social dialogue can alleviate workers' fears concerning ongoing 'delocalisations' (relocations), and job retrenchment, by helping workers to adjust to change and to engage in the agenda of knowledge, and innovation, instead of giving up their rights and protection. This European framework, based on good practice examples, should then be the basis for further discussions and negotiations at the national level. Here, synergies between national innovation bargaining and the European Social Fund need to be explored. What has the Lisbon Strategy to do with the EEA EFTA States? The Social Partners in EFTA have in the work of both the EFTA and the EEA Consultative Committees repeatedly stated that the ambitious goals of the Lisbon Strategy should apply for the EEA EFTA States, as they could have a positive economic, political and social impact for the whole of Europe. This means that the EEA EFTA States should commit themselves to the goals of the Lisbon Strategy on the basis of the constructive proposals listed above, aimed at giving the Lisbon Strategy a clearer focus and making it better equipped to meet its original purpose. The EEA EFTA States should commit themselves fully to the open method of coordination and take parallel actions in all fields covered by the Lisbon Strategy, regardless of each action's relevance from a legal point of view. And the EEA EFTA States should also review structures for the involvement of EFTA Social Partners supporting the Lisbon Strategy, and establish a code of conduct for setting minimum standards for the consultation of social partners, specifically with regard to the national follow-up of Lisbon initiatives. Lisbon needs to be implemented with the involvement of social partners. Lisbon will not be implemented if policies are decided over the heads of workers. Implementation implies 'ownership', which can only be achieved on the basis of social dialogue. If there is a real willingness to strengthen the European social dimension as part of the Lisbon Process and to reform Europe's macro economic policy framework, the European trade union movement, led by ETUC, is prepared to explore the possibility of a “European framework agreement for innovation, social change and more and better jobs”, within the common work programme of European social partners. The aim is to foster a consensus between European social partners as regards how the system of Genetics research: the Lisbon Strategy focusses heavily on promoting research and innovation as a means to stimulating growth and employment. 17 EFTA BULLETIN 1-2006 ('first mover' effect). Sustainable development policies also improve present European competitiveness by economising on expensive energy and materials input. Sustainable development implies: THE LISBON STRATEGY IN BRIEF What is the Lisbon Strategy? EFTA BULLETIN 1-2006 18 The Lisbon Strategy is about getting from A to B, or rather from B to A. At the end of the 20th century, the EU's political leaders were very much in agreement that Europe, in terms of economic performance and competitiveness, scored a B in the global league table. 'Eurosclerosis' was a term coined to characterise sluggish growth rates, especially in comparison to the dynamic economies of major competitors, across the Atlantic and in Asia. But the authors of the Lisbon Strategy were not just concerned with the economy and competitiveness. They were keen to ensure that growth was combined with social cohesion and better employment opportunities. In other words, the Lisbon Strategy was about improving the lives of Europeans. One year after the Lisbon Process was hatched, in March 2000, the European Council inserted a third pillar under the Strategy. Not only was it important to promote economic and social development in Europe, but it was also necessary to ensure that this development could be sustained for future generations, and without depleting the resources and environment which fed the growth. So by 2001, many people spoke of the three pillars of the Lisbon Strategy, i.e., economic competitiveness, social and employment policy, and sustainable development. In the early stages of the Lisbon Strategy, the thinking was that efforts needed to be addressed in all three pillars simultaneously because they all supported the same goal: “to become the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion.” Seemingly unrelated topics were connected together through this goal. For example, availability of kindergarten places was viewed as a competitiveness issue, because without sufficient access to childcare, many highly qualified workers would be unable to apply their skills in the workplace. The attempt to apply such a holistic approach to social, economic and sustainable development was ambitious. As the Lisbon Process progressed, some had a problem understanding what it actually was. They complained that it encompassed so many policies that it lacked focus and direction. There was confusion about whether the Strategy was primarily social policy, industrial policy or a drive to achieve environmental sustainability. In the event of a conflict of interest, in policy terms, people were uncertain what the overarching objective was. Should, for example, the goal to stimulate competitiveness precede the goal to increase employment, or the goal to protect the environment. Others argued that without a holistic approach, European socio-economic values would be sacrificed, and that any growth achieved would be unsustainable and would also not be broad-based in its benefit to society. The Mid-term Review of the Lisbon Strategy At the midway point to 2010, the Lisbon Strategy has undergone a comprehensive review, and has been renamed the Strategy for Growth and Jobs. This is the result of a report issued in November 2004, produced by the 13-member High Level Group of Independent Experts chaired by former Netherlands Prime Minister, Wim Kok. The report, “Facing the Challenge - The Lisbon strategy for growth and employment”, identified the two major challenges facing Europe as: The Kok report therefore identified two major tasks for the Lisbon Strategy: to promote long-term sustainable growth and to promote growth in employment. Whilst the Strategy has a more clearly defined focus, as reflected by its new title, the EU is no less determined to promote sustainable development or social cohesion. As Margot Wallström's article explains, the Strategy for Growth and Jobs clearly relates to social cohesion and sustainable development. Today the Commission refers 2 to the key areas of the Strategy as follows: • • • • • • • • • • an effective Internal Market free and fair trade better regulation improving European infrastructure investing in research and development boosting innovation creating a strong industrial base more and better jobs an adaptable workforce better education and skills Another result of the mid-term review of the Lisbon Strategy has been to improve governance of the Lisbon Strategy not just at EU level, but to increase the onus on Member States for achieving the goals of the Strategy. For this reason, the European Council has agreed that every Member State nominate a Ms or Mr Lisbon. In each EU capital now, a key member of government is coordinating the production of a plan to tackle specific national challenges with regard to promoting sustainable growth and employment. The Strategy has gone over to a three-year cycle, starting in 2005 and running to 2008, when it will be renewed. In June 2005 the Council adopted new Integrated Guidelines for Growth and Jobs. These guidelines, based on a Commission proposal, formed the basis for the national reform programmes which Member States issued in October 2005. At the end of January 2006, the Commission issued a progress report and proposals for an update of the Integrated Guidelines and 2 Recommendations. Various Council formations and the European Parliament then submit their input for discussions in the spring European Council. In June 2006 the Council will adopt updated Integrated Guidelines and Recommendations, and in October 2006 Member States will submit implementation reports. This cycle will continue until 2008, when a more substantial review will take place. Why is the Lisbon Strategy relevant for the EEA EFTA States? Some people might think that the sole impact of the EEA Agreement on the EEA EFTA States is to merely extend the effect of EU Internal Market regulations to Norway, Iceland and Liechtenstein. Although harmonisation of the regulatory framework within the European Economic Area is important for the good functioning of the Internal Market, the EEA Agreement provides for much more than this. Aside from providing immensely valuable opportunities to trade, work and reside throughout the largest single market in the world, the EEA EFTA States are also closely integrated into efforts to improve European competitiveness, and to stimulate growth and employment through the EEA Agreement. Through the EEA Agreement, Iceland, Liechtenstein and Norway have the opportunity to cooperate with the EU on areas outside the four freedoms, i.e., research and technological development, information services, the environment, education training and youth, social policy, consumer protection, small and medium-sized enterprises, tourism, the audio-visual sector and civil protection. In addition, the EEA EFTA States, in very close cooperation with Eurostat, contribute to the production and dissemination of coherent and comparable statistical information for describing and monitoring all relevant economic, social and environmental aspects of the EEA (see Part II). When the EU established the Lisbon Strategy in 2000, it drew together many of these policy fields, or threads, and tied them together. The EU did this because it had come to the conclusion that practically all of these policies had a serious impact on the competitiveness of European enterprises, and on their ability to promote sustainable growth, employment and better quality of life for Europeans. As posted on the European Union’s website (http://europa.eu.int/growthandjobs/index_en.htm) for the Strategy, 20.01.2006 19 EFTA BULLETIN 1-2006 • the intensification of international competition, particularly from Asia and the United States; • the greying of Europe: declining birth rates and rising life expectancies resulting in a much higher proportion of the population at retirement age. One can assume that the EU did not much think of EFTA when launching the Lisbon Strategy. However, the fact that the EEA Agreement provided for cooperation in all of the policy areas mentioned above, meant that Iceland, Liechtenstein and Norway were de facto participating in the Strategy, and if not in the formulation of the Strategy as a whole, than certainly in some of the most important of its elements. This edition of the EFTA Bulletin highlights how the EFTA countries are involved in many projects that are central to the Lisbon Strategy, or as it is called today, the Strategy for Growth and Jobs. The Open Method of Coordination EFTA BULLETIN 1-2006 20 In order to monitor progress of the Strategy, the EU has developed new working methodologies, such as the open method of coordination (OMC). The EU also commissioned Eurostat to develop a new series of statistics called the structural indicators, specifically designed to measure the effect of its policies (See Part II). The open method of coordination works as follows: • Politicians, through discussions in the Council of Ministers, establish common policy goals. For example, in March 2002, at the EU's spring summit in Barcelona, EU Member States agreed that overall spending on R&D and innovation in the Union should be increased with the aim of approaching 3% of the GDP by 2010, and that 2/3 of this investment should come from the private sector. • Member States then work out how to achieve such objectives through the establishment of national policies or national action plans. • The Member States agree to use common benchmarks and indicators (very often in the form of statistics) in order to determine whether progress is being made. • Results are monitored and evaluated, and those countries that have achieved good results exchange best practice with their colleagues from other Member States. On this basis, the process begins a new cycle. The open method of coordination permits the EU to promote sustainable economic and social progress in areas that normally are not governed by the Community approach. In other words, in areas where the Community cannot legislate because Member States control policy in those areas. The OMC was first applied in 1997 in employment policy, and the EU officially endorsed its use as a policy tool at the Lisbon Summit in 2000. It has since been used in a whole range of other policy areas, such as social inclusion, pensions, immigration and asylum policy, education and culture, research and innovation policy, and efforts to improve the regulatory environment in the EU. It is not possible to make an exhaustive list of policy areas where the OMC is employed because on close inspection one sees that the method is being applied in most policy fields now. In this edition of the Bulletin, there are case studies which demonstrate that the EEA EFTA States can participate in the open method of coordination, either through formal access to EU committees and working groups, or through informal arrangements that have been organised jointly by EFTA and the EU. There have also been occasions in which it has not been possible for the EEA EFTA States to participate in the open method of coordination. A reason for this is that the EEA EFTA States have limited access to working groups which meet under the auspices of the Council of Ministers. It is often in such working groups that the OMC is managed. Fortunately, officials from EU Member States and the Commission are practically always willing to provide the EEA EFTA side with information on progress achieved in a policy field managed through the open method of coordination. HOW THE EEA EFTA STATES PARTICIPATE IN THE LISBON STRATEGY • • • • • the Internal Market the knowledge society employment policy social inclusion sustainable development This by no means represents the sum of policy areas that make up the Lisbon Strategy, or the sum of areas in which the EEA EFTA States cooperate with the EU. For example, the EEA EFTA States cooperate on a range of other issues that are central to the Lisbon Strategy, such as the development of efficient infrastructure, and the development and security of essential services and networks. The Internal Market A core element of the Lisbon Strategy and the effort to promote growth and employment is the effort to complete the Internal Market. In the absence of a properly functioning single market, companies and 3 Internal Market Strategy, Priorities 2003-2006; Com (2003) 238, Brussels, 07.05.03 citizens in the European Economic Area will continue to bear the costs of technical barriers to trade and restricted movement of goods, services, capital and persons to where they are most required. Even though much progress has been made in the past years since the 1992 Internal Market initiative, it is hard to imagine a day when people will be able to say the Internal Market is complete. One or two decades is a very brief period of time in comparison with the many preceding centuries in which national trade and regulatory regimes were administered. Add to these cultural traditions, languages, and different work and education practices, and one quickly understands the scale of the project to develop one market for all 28 member countries of the EEA. On 7 May 2003, the European Commission published a new Internal Market Strategy, to run from 2003 to 2006 3, and to which the EEA EFTA States provided substantial input. The EEA EFTA States were very active in supporting the new Internal Market Strategy. Well before its launch they supplied input to the Commission on the further development and completion of the Internal Market. On 23 January 2003, the EEA EFTA States sent input to the Commission calling for action in 5 areas that they felt were essential for improving the good functioning of the Internal Market: • timely transposition of Internal Market legislation throughout the EEA; • a stronger commitment to mutual recognition, the New Approach, and the use of Europe-wide productmarking systems; • better regulation and particularly the need to think, 21 EFTA BULLETIN 1-2006 As mentioned in the introduction, the EEA EFTA States are linked to the Lisbon Strategy through the EEA Agreement. Whilst they have not participated in the EU's annual spring summits dedicated to steering the Strategy, they have provided input to the EU in the run up to each yearly summit since the Strategy was launched. They also participate in very many of the programmes and policies of the Strategy as a natural part of their participation in the European Economic Area. In this section, the Bulletin has selected the following policy areas to illustrate how the EEA EFTA States are involved in key policies of the Lisbon Strategy: when drafting new legislation, of the impact of new laws on small businesses, rather than relying on exemptions for the latter; • removal of barriers to cross-border provision of services; • promotion of problem-solving networks such as SOLVIT that support the quick resolution of problems arising from incorrect implementation of Internal Market rules and regulations. It is clear that the Commission was thinking along similar lines. The same points were reflected in the Commission's ten-point action plan for the new Internal Market Strategy. It aimed at putting the remaining nuts and bolts in place and tightening up the existing machinery of the Market: EFTA BULLETIN 1-2006 22 • • • • • • • • • • facilitating the free movement of goods integrating services markets ensuring high quality network industries reducing the impact of tax obstacles expanding procurement opportunities improving conditions for business meeting the demographic challenge simplifying the regulatory environment enforcing the rules providing more and better information The EEA EFTA States have continued to provide input to the EU throughout the course of the Strategy. They participate in meetings of the Internal Market Advisory Committee (IMAC) to which all 28 countries of the Internal Market, in addition to EU candidate countries, are invited. The EEA EFTA States, as well as the EFTA Consultative Committee, are at time of writing, preparing to send input to a new Strategy which the European Commission plans to launch in 2007. Better Regulation An essential part of the Internal Market Strategy, not to mention the Strategy for Growth and Jobs, is the effort to improve the regulatory environment in the Internal Market. Because, through the EEA Agreement, the EEA EFTA States incorporate some 300 EU acts into their legal systems each year, they share an undeniable interest in the success of this project. Six consecutive presidencies (Irish, Dutch, Luxembourg, UK, Austrian and Finnish) of the European Union issued a joint statement in December 2004 declaring their intention to advance regulatory reform. The European Commission in autumn 2005 launched a new Strategy to reduce the regulatory burden on businesses operating in the Internal Market. The Commission's new approach has three pillars: • Pending legislation: the Commission has screened all proposals that have been pending in the Council and the Parliament for a significant length of time: in total 183. One third of the tabled proposals will be withdrawn, because they do not meet the criteria for better regulation. • Simplification: the objective is to screen all existing legislation with a view to modernisation, with special emphasis on economic consequences. The automotive, construction and waste sectors were identified as priority sectors, where there is a large accumulation of single market legislation, and where there have been considerable complaints from industry. Other sectors will follow. Unwieldy laws will either be codified (arranging more systematically related legislation), recast (e.g., made more concise), withdrawn, or modified (the most difficult option). Consumer and environmental protection will not be sacrificed in this process. • Stricter testing of new legislative proposals: the Commission issued updated guidelines for impact assessment in June 2005. The Commission is also working on a common EU method to assess administrative costs. Also, the Commission will only table new initiatives for legislation if other means (e.g., voluntary agreements) have been ruled out. The presidency conclusions of the European Council meeting of 15-16 December 2005 underlined the importance of reducing regulation on businesses and citizens. The EEA EFTA States have followed these initiatives closely. They participate in a Better Regulation Experts Group, which meets under the auspices of the EU's Internal Market Advisory Committee. EFTA representatives were also invited to the ministerial level conference on better regulation hosted by the UK presidency in Edinburgh in September 2005. Through such forums, the EEA EFTA States are able to participate in exchanges of best practice for reducing red tape, and are introducing (or considering introducing) innovative approaches used by other EEA countries to measure and reduce the administrative burden of regulations on business. The EEA EFTA States have also discussed how they can best influence the quality of regulations that are later incorporated into the EEA Agreement. One of the most important ways to do this is to send well qualified and well prepared experts to the EU's experts groups and comitology committees. The EEA EFTA States have access to about 400 of these committees. Better Regulation: EFTA discusses Decision-shaping 50 experts from Iceland, Norway and Liechtenstein discussed how the EEA EFTA States could improve their participation in the EU's committees at a seminar that the EFTA Secretariat organised in November 2005. The Norwegian Chairmanship of the Standing Committee in the spring, and the Liechtenstein Chairmanship in the autumn had requested the seminar. After explanations of the EU's committee system, the Secretariat and veteran experts from the EEA EFTA States explained to their colleagues how to influence decisions in EU committees through well prepared interventions, good networking practices, thorough preparation in capitals, and effective follow-up. The European Commission also presented its expectations of EEA EFTA experts. The Knowledge Society From the outset, the EU identified strength in education, research and innovation as essential for competing in the global economy in the 21st century. After the mid-term review, the focus on promoting the knowledge society is just as strong. This was the first priority listed by the High Level Group (chaired by Wim Kok) on the Lisbon Strategy in their report “Facing the Challenge — the Lisbon strategy for growth and employment”. The EEA EFTA States also solidly supported strengthening the knowledge society in their input to the mid-term review. In each of their three letters to Bertie Ahern, to Wim Kok and to Jean-Claude Juncker (see annexes), the EEA EFTA States put this as a top priority after stating the need to improve the functioning of the Internal Market. The EEA EFTA States are strong in quite a few knowledge-intensive areas such as the biopharmaceuticals sector, aquaculture, marine biology, environmental technology, and information and communication technologies. They are at the cutting edge of developments in energy, transport, construction and financial services. In order to sustain their competitive edge in these areas and to grow in other high value-added/high technology sectors, the EEA EFTA States, similarly to the EU, need to strengthen education, research and innovation. It is important for all countries in the European Economic Area to connect the three components of the knowledge triangle: 4 • research as the creation of knowledge • education as the dissemination of knowledge • and innovation as the application of knowledge Through the EEA Agreement, there is solid participation by Iceland, Liechtenstein and Norway in the EU's strategy to build a strongly competitive knowledge economy. Researchers from the EEA EFTA countries participate in hundreds of research and development projects supported by EU framework programmes. They are involved in efforts to measure and improve the ability to innovate, to apply and to commercialise new technologies. And the EEA EFTA States also participate actively in the education, training and youth programmes of the EU, improving mobility, effectiveness and quality of education and training in the European Economic Area, as well as making these opportunities accessible to all and open to the wider world 4. Research The EEA Agreement provides for full EEA EFTA participation in the EU's non-nuclear research activities. Currently the EEA EFTA States are participating in the Sixth Framework Programme (FP6). A major part of the budget is allocated to research in: • life sciences, genomics and biotechnology for health • information society technologies • nano-technologies and nano-sciences, knowledgebased multifunctional materials, and new production processes and devices • aeronautics and space • food quality and safety • sustainable development, global change and ecosystems, including sustainable energy systems • citizens and governance in a knowledge-based society For more detailed information on participation by EEA EFTA States in EU programmes, see EFTA Bulletin:“Activities and Financial Contributions under the EEA Agreement”, 2-2002, November at: http://secretariat.efta.int/Web/Publications/EFTABulletin/ 23 EFTA BULLETIN 1-2006 A seminar organised by the EFTA Secretariat at the end of 2005 (see box below) was the first attempt to provide training to EEA EFTA experts on how to positively influence legislative proposals that later could become laws in Iceland, Liechtenstein or Norway. • other parts of the programme include support to mobility (Marie Curie actions), research infrastructure and activities related to science and society For the Seventh Framework Programme (FP7), which will run from 2007 to 2013, the EEA EFTA States called for specific support for basic science at the European level, to complement nationally funded research. They also said that they hoped to see continued efforts to improve the mobility of researchers in Europe 5. Specific areas that the EEA EFTA States suggested should receive support were research on oceans and the marine environment, and on space, security, petroleum and CO2 capture and storage. It is too early to know what the final shape of FP7 will be, but the Commission has proposed to place greater emphasis than in the past on industryrelevant research, in order to develop its role as a world leader in certain sectors. It has also called for the establishment of a European Research Council. EFTA BULLETIN 1-2006 24 Another major Lisbon Strategy objective is to raise overall research and development investment to 3% of the GDP, 2/3 of which should come from the business sector. In a few countries there has been some progress, but on the whole it is widely acknowledged that there have been insufficient advances. The chart in Part II of this edition of the Bulletin shows that R&D intensity in Iceland has risen to above 3% since 2000. In 2003 (the latest available figures) Norway, however, was just below the EU average, in spite of an increase to 1.9% from 1.6% in 2000. Recently introduced tax incentives (in 2002 and 2003) to stimulate research investment by the business sector may not have been in place long enough to have a significant impact on these figures. The EFTA countries participate in the EU's Scientific and Technical Research Committee (CREST), which plays a central role in determining research policy and managing scientific cooperation in the European Economic Area. The committee has employed and manages the open method of coordination in the initiative to achieve the 3% target for R&D investment, writes progress reports on the effort, and provides guidelines for the development of national policy measures and recommendations for EU action. The fact that EFTA countries are involved in this process means that they miss out on little cooperation to strengthen the research fundament supporting European competitiveness. Education and Training The capacity to conduct useful research, and the ability to turn the results of this research into necessary and marketable innovations, depends on the existence of a well educated and highly skilled workforce. This applies equally to the EFTA States as to the EU and other countries competing in the global economy. As part of the Lisbon Strategy (Education and Training 2010), the EU has established the goals to reduce the proportion of early school leavers to 10%; to increase the proportion of graduates in mathematics, science and technology and to improve gender balance; to raise upper secondary education attainment levels to 85%; to reduce the share of 15 year-olds underperforming in literacy standards, and to raise adult participation in lifelong learning. On these benchmarks, the EEA EFTA countries are providing several European best practices: Norway is number one in secondary education attainment (95.3% of the population having completed upper secondary Best Practice: Learning from EU Internet Education in Iceland and Norway Safer Internet plus is a 50 million euro 4-year programme designed to make the Internet safer for children. The EEA Agreement provides for this programme, which runs from 2005 to 2008 and targets parents, educators and children. It aims to mobilise talent in the public, private and voluntary sectors to prepare hard-hitting safety campaigns. The open method of coordination (OMC) has been used since 2003 to develop the programme and EU policies in the area. SAFT (Safety, Awareness, Facts and Tools) is a Safer Internet Awareness project based in Denmark, Iceland, Ireland, Norway and Sweden. The European coordinator of SAFT is the Norwegian Media Authority. The Icelandic parents' organisation, Heimili, is an active partner. After several peer reviews and evaluation exercises, SAFT has been selected as an example of best practice in the areas of media strategy and Safer Internet education. 5 In their letter to Luxembourg Prime Minister Jean-Claude Juncker in the run up to the EU's 2005 spring summit (see annex) Norwegian project manager, Elisabeth Staksrud, said the SAFT starting point is that children belong online: “It is our job as responsible adults coming from government, industry, research and educational sectors to make children's online experience as safe and fun as possible. We have benefited from the various differences between the SAFT consortium partners”. In Iceland, SAFT partner Home and School hosted a Safer Internet conference on the theme: "Children's right to safety on the Internet." The conference was broadcast through online streaming. The Minister of Education launched the SAFT education programme, which has been tested in a number of schools in Iceland. During 2003-2004, TV, radio and newspapers in northern Europe gave massive attention to the SAFT project. Widely broadcast TV documentaries and numerous front page newspaper stories and commentaries publicised the results of the SAFT survey, which had interviewed 8 000 parents and children about their Internet usage. The SAFT survey was the most extensive Safer Internet study ever done in Europe. It provides vital information on how children actually use the Internet, and how they communicate with their parents about it. For further information on SAFT see www.saftonline.org and www.europa.eu.int/saferinternet The EEA EFTA States are closely integrated into the EU's initiatives to promote education and training and educational mobility. They participate in programmes such as Erasmus, which enables higher education students to study abroad for between 3 and 12 months, and Leonardo da Vinci which supports exchanges and national policies regarding employability, lifelong learning and social inclusion. The EEA EFTA States are also involved in the Youth Programme supporting group exchange and individual voluntary work; as well as the Europass initiative, aimed at promoting transferability of qualifications and skills across borders. Not only do the EEA EFTA States have an opportunity to learn good practices from other EEA countries but they also provide important best practice. The SAFT project is a case in point (see box above). Innovation Perhaps one of the biggest challenges for European competitiveness is the difficulty that entrepreneurs meet when they try to commercialise their inventions. There are numerous stories of inventors who have taken their innovations to other countries and to foreign investors, because their own domestic environment does not support the risky business of bringing new products and services to market. Entrepreneurs in the EFTA States share many of the same hurdles as their colleagues in the EU when trying to launch new products and services. The European Innovation Scoreboard, which covers 25 EU Member States, Iceland, Norway and Liechtenstein, Bulgaria, Romania, Turkey, the US and Japan, shows that the performance of EFTA countries is close to the EU average. Shortly after the 2005 mid-term review, the European Commission proposed the Competitiveness and Innovation Programme (CIP) as a practical response to the Lisbon objectives, with a budget of 4.2 billion euros. The CIP will work in close cooperation with the 7 th Framework programme for Research and Development, the lifelong learning programme and cohesion activities. The CIP is primarily geared toward small businesses and entrepreneurs. In its 3 specific programmes, the CIP will promote: • start-up and growth of SMEs: the Entrepreneurship and Innovation Programme to promote ecoinnovation, and facilitate access to finance and support investment in innovation activities; • information and communication technologies: the ICT Policy Support Programme, which will contribute to competitiveness, growth and jobs by stimulating a wider adoption and more efficient take up of ICT; • the Intelligent Energy Europe Programme, which will support energy efficiency, new and renewable energy sources, and technological solutions to reduce greenhouse gas emissions caused by the transport sector. 25 EFTA BULLETIN 1-2006 education), while Iceland is performing within the EEA top 3 on the lifelong learning benchmark. EFTA experts are now examining EEA EFTA participation in the CIP. Employment Policy Whilst strength in research, education and innovation is bound to provide a strong basis for employment, employment policies themselves must contribute to, and not detract from, the effort of promoting sustainable growth and jobs. Even though it is an area in which the EU's Member States retain control, employment policy is a central feature of the Lisbon Strategy; all the more so after the mid-term review. EFTA BULLETIN 1-2006 26 Those who negotiated the EEA Agreement could not foresee the advent of the Treaty of Amsterdam and the establishment of a coordinated strategy for employment. The EEA Agreement does not provide for the participation of the EEA EFTA States in committees constituted under the Council of Ministers. Consequently, the EEA EFTA States do not participate in meetings of the Employment Committee, even though they do participate in the Internal Market (which is amongst other things an internal labour market). Despite this, and possibly in recognition of the close integration achieved through the EEA Agreement, the Employment Committee and the EEA EFTA States have found a very constructive approach to cooperating on employment policy. Three times since the Lisbon Strategy was launched, the Employment Committee of the EU and EFTA's Working Group on the Free Movement of Workers and Employment have met jointly to promote cooperation on employment policy. Through these meetings both sides have exchanged valuable experience of concrete actions to reform their labour markets. For example, at their most recent meeting in September 2004, both Iceland and Norway related experiences of recent efforts to improve their unemployment benefits systems. In return, the EEA EFTA States received briefings on the pros and cons of various labour market reforms in Spain, Sweden and Malta, amongst others. They were also invited to participate in discussions on the role of childcare facilities in promoting flexibility in the labour market. Although formally the EEA Agreement does not underpin this dialogue, it certainly provides a platform for exchanges of this sort. Much of its strength resides in this very fact. By thinking creatively, and by establishing such opportunities for dialogue as described above, it is hard to imagine how the EU and the EEA EFTA States could fail to find ways to cooperate on issues of mutual interest within the Lisbon Strategy. Social Inclusion The effort to build an inclusive labour market goes hand in hand with efforts to eradicate poverty and to promote social cohesion. When the Lisbon Strategy was launched, EU Member States agreed that efforts to eradicate social exclusion should be based on the open method of coordination. A quick glance at the structural indicators (see Part II) shows that Norway and Iceland have the lowest long-term unemployment rates. Fortunately this has not led to complacency. Since 2002 the EEA EFTA States have participated in the Community Action Programme on Combating Social Exclusion. The programme relies heavily on the open method of coordination and aims to improve understanding of poverty and social exclusion through: The European Employment Strategy During the 1997 Jobs Summit in Luxembourg 6, the structures and procedures were established to bring forward a European Employment Strategy (EES), which in many ways served as a prototype for the Lisbon Strategy. The EES involves the production of employment guidelines, reviewed annually, and adopted by the Council on the basis of a Commission proposal. These guidelines are then used by Member States when drafting national employment action plans which are submitted to the Commission for review. The Commission drafts an annual employment report which reviews progress and makes country-specific recommendations to Member States. Throughout this process Member States exchange their experiences and discuss the effectiveness of the various practices they have tried in order to improve the quality of employment opportunities in their national labour markets. In this way, best practice is exchanged between Member States. The whole process is supported by an Employment Committee, established under the Council, with a mandate to promote coordination between Member States on employment and labour market policies 7. 6 7 And following the insertion of an Employment Title into the Treaty Establishing the European Community (Amsterdam) in which Member States and the Community committed themselves to developing a coordinated strategy for employment The European Employment Strategy has been reviewed and adjusted a number of times since 1997. Most recently it has been even more closely integrated into the Lisbon Strategy, as a central pillar in the Integrated Guidelines for Growth and Jobs This action programme compliments EU social policy, and in particular the activities of the European Social Fund, the EU initiative EQUAL and a number of action programmes which the EEA EFTA States participate in such as the Programme to Combat Discrimination, the Programme for Gender Equality, and the Employment Incentive Measures. National action plans and the joint reports that are produced for these programmes describe and analyse a wide range of measures in place or planned in the Member States. The EEA EFTA States are free to decide whether they produce an action plan 8. By participating in the EU Programme on Social Exclusion through the EEA Agreement, the EEA EFTA States have taken an active part in the open method of coordination in this field. Peer reviews are an important part of the OMC, and Norway was in 2004 and 2005 involved in several peer reviews together with EU Member States. Each peer country presents a comment paper and participates in peer review meetings in a host country. The results are later presented in the synthesis reports, which are the most coherent and relevant outputs of the whole peer review process. Norway Coordinates Strategies for Inclusion This programme evaluates and disseminates successful pathways to obtain and keep a job. Strategies for Inclusion consists of 10 organisations from 10 countries, an evaluator and a Norwegian network with 7 partners (including the coordinating organisation). The partner organisations are non-governmental organisations (NGOs), public authorities, research institutes and social partner organisations. The partners work with different target groups: immigrants, the longterm unemployed, potential school dropouts, early school leavers without formal qualifications, women on low incomes and people with disabilities and health problems. 8 9 Norway has produced an action plan against poverty. www.afi-wri.no Strategies for Inclusion's objectives are: • to analyse good practice examples and describe their relevance for inclusion pathways; • to identify important elements in the inclusion pathways and illustrate them through case stories; • to describe examples for coordination within pathways to employment; • to link these outcomes to regional/national programmes and European social policies. The partnership identified 20 factors for success with regard to inclusion pathways, and these are described and illustrated in a handbook, available through the Work Research Institute's website 9. Two other peer reviews in which EEA EFTA recently participated were in: • assistance to young people with special needs in their transition from school to working life, hosted by Austria together with Estonia, France, Greece, Italy and Lithuania; • basic social services in rural settlements, hosted by Hungary with Finland, Greece, Lithuania, Portugal and Slovenia. Sustainable Development The environment came in as a sort of straggler to the Lisbon Strategy. It was introduced as the third pillar at the Stockholm Spring Council in 2001. At the time it was feared that the Strategy risked failure unless it also tackled unsustainable consumption and production trends. At the Gothenburg Summit later that year EU leaders adopted the Sustainable Development Strategy which was based on the idea that economic growth, social cohesion and environmental protection were mutually supportive factors in the effort to improve the long-term quality of life for Europeans. Effective incorporation of environmental legislation, and integration of environmental concerns into other policies, have for the past decade been two of the primary goals of the EU's Environment Action Programmes. At the Cardiff Summit in June 1998, EU Member States agreed to promote the integration of 27 EFTA BULLETIN 1-2006 • indicators that allow for comparisons; • exchanges on implemented policies and promotion of mutual learning in the context of national action plans; • developing the capacity of actors to address social exclusion and poverty effectively; • identifying innovative approaches, in particular by promoting networking and dialogue with all stakeholders. EFTA BULLETIN 1-2006 28 environmental considerations into other policy initiatives. This goal was consolidated in the EU's Sustainable Development Strategy, launched in 2001. to the creation of new jobs. It invited the Commission and the Member States to implement the action plan for eco-technology as a matter of urgency. The EEA EFTA States have consistently stressed the importance of environmental sustainability when presenting input to the EU on the Lisbon Strategy, as can be seen in the last three letters they sent to the EU (see annex). They have stated that development of and investment in eco-efficient technologies is essential, and that it provides multiple benefits. Not only will such investments reap long-term benefits to the environment, but they will also result in growth and jobs. Competitiveness in eco-innovations and environmental services will generate export opportunities for those who can provide them. Building on already ongoing cooperation, the EEA EFTA States have offered to share their experience in sectors where they are competitive, such as marine research, clean sustainable energy, pollution prevention, remediation and clean production technologies. The EEA EFTA States are very interested in the environmental element of the Strategy for Growth and Jobs. Through their cooperation on fields outside the four freedoms (EEAArticle 78), and through their participation in the Framework Programme, they are closely integrated in much of the work that makes up the environmental pillar of the Strategy. As the need to tackle environmental sustainability becomes more and more pressing, the channels for cooperation (both through the EEA Agreement and through bilateral and other multilateral means) will become more and more important. The Environment in the Strategy for Growth and Jobs The Kok report focused on how environmental policies could help to achieve core Lisbon Strategy objectives of growth and jobs. It stated that well thought out environmental policies provided opportunities for innovation, created new markets, and increased competitiveness through greater resource efficiency and new investment opportunities. The Kok report called for concerted support and follow up of the EU's Environmental Technology Action Plan (launched in January 2004), as well as national and local action plans to green public procurement by the end of 2006. The Kok report got mixed reactions over its treatment of environmental issues. While some said that it sacrificed jobs and the environment on the altar of economic performance, others were happy with the review saying that is took the environment seriously and and welcomed its recommendations on ecoinnovation and support for green technologies. At the Spring Council 2005, the EU leaders reiterated the important contribution of environment policy to growth and employment. In particular, it was pointed out that the development of eco-technology, and the sustainable management of natural resources, can lead Choice and Commitment This review of the EEA EFTA States' relationship to various components of the Lisbon Stategy shows that they have their own unique connection to the Strategy. They have some commitments, through the EEA Agreement, to participate in projects that are central to Lisbon reforms, but these commitments were often entered into before the Lisbon Strategy was launched, because the EU and the EEA EFTA States decided that it was in their mutual interest to cooperate on those areas. At another level, the EEA EFTA States have some freedom to decide the extent to which they immerse themselves in the coordination of policies at a European level. Whether or not the EEA EFTA States decide to participate in or lead peer reviews, or whether they wish to share and receive best practice, is very much decided by ministries in Oslo, Reykjavik and Vaduz. The same goes for the decision to produce national action plans that correspond with the plans the EU Member States commit themselves to produce. In this sense, the EEA Agreement provides the EEA EFTA States a good degree of flexibility in their approach to participating in Lisbon Strategy reforms. One could perhaps sum this up by saying that the EEA EFTA States decide themselves what level of investment they will make in the Lisbon reform process, and they can choose themselves in what areas they wish to focus their attentions, according to their strengths and the challenges that they face. MEASURING UP — STRUCTURAL INDICATORS The Lisbon Council invited the Commission of the European Union to draw up an annual spring report on the progress of the Lisbon Strategy based on a set of commonly agreed indicators covering the main policy areas. These areas were social cohesion, employment, economic reform and innovation. Later, the environment and general economic background were identified and adopted as policy areas. The indicators are called structural indicators as they describe structures and key aspects within each domain. Structures are basic characteristics which do not in general change rapidly, and structural indicators describe the more long-term evolution in the society. For instance a shortterm indicator like the consumer price index has effect on policy and the economy on a monthly basis, while labour productivity is mainly measured on an annual basis and policy actions are typically aimed at measures taking years, for instance increasing R&D efforts. The EFTA Statistical Adviser's Office has played an active role as coordinator between the EFTA National Statistical Institutes and Eurostat for the integration and dissemination of EFTA data on an equal footing with the EU countries. In advance of the first spring report, there was a lack of comparable and harmonised statistics in key policy areas and there were some doubts as to whether the ESS would be able to produce the 35 selected key indicators. A long process of coordinating the data collection needed for the indicators throughout Europe began and with a specific focus on data quality. Today, quality certificates which contain assessments of comparability and accuracy exist for almost each indicator. Eurostat is responsible for compiling the data for the statistical annex in the spring report. The Shortlist Indicators The indicators are selected in an interactive process. The Commission proposes the set of indicators to the Council, and the indicators reflect changes and extensions in the different policy areas within the Lisbon Strategy. Prior to the communication from the Commission to the Council on the indicators, the European Statistical System (ESS) was involved in the development and validation of the indicators. The number of indicators has more than tripled since the first spring report in 2001, thus reflecting the additional policy areas and the general need for more indicators. Though some indicators have been deleted, the total number of indicators was 117 in 2005. Due to the expansion of the list, it was decided to establish a shortlist of structural indicators in order to focus the policy messages for the spring report and present a clear picture of the Member States' progress. The European statistical system is a network which comprises the Statistical Office of the European Communities (Eurostat) and the national statistical institutes (NSIs), as well as other bodies that collect official statistics in the 28 EEA Member States. The Statistical Programme Committee coordinates the ESS, and is chaired by Eurostat. The shortlist consists of 14 indicators that reflect key Lisbon targets. These 14 indicators were also selected because they were relatively well-known and easy to understand. To maintain stability, it was decided that the shortlist indicators would remain unchanged for 3 years. To ensure flexibility, the shortlist is supplemented by the whole database of structural indicators. 29 EFTA BULLETIN 1-2006 Background List of indicators on the shortlist: • • • • • • • • • • • • • • Today, the structural indicator database contains data for all the EU 25 countries, the candidate countries and Iceland and Norway. For comparison, data for Japan and the USA are added where available. Due to the size of the country, Liechtenstein is in general not included as data needed for many of the indicators are not produced. It is foreseen that Switzerland will be included in the database as soon as the bilateral agreement on statistics between the European Union and Switzerland comes into force in 2007. The EFTA countries were not included in the spring reports of the Commission in 2004 and 2005. The following charts of shortlist indicators are based on extractions from Eurostat's database on structural indicators of May and June 2005. Data were extracted for the most recent year with available data. The data for year 2000 were also extracted for reference. As a result, the data are in some cases more up to date than in the statistical annex of the Commission's spring report for 2005. General Economic Background Gross Domestic Product Per Capita in Purchasing Power Standards The gross domestic product (GDP) measures the overall economic activity in a country and is defined as the value of all goods and services produced less the value of any goods and services used in production. It is the most important indicator as it comprises information from all sectors of the economy. In order to eliminate the differences in price levels between countries, the GDP is measured in purchasing power standards (PPS). The average GDP per capita in PPS is set to 100 for EU 25, meaning that a country with a GDP per capita in Purchasing Power Standards (PPS) (EU-25=100) 250 200 2000 2004 150 100 50 Norway Ireland Canada Denmark Austria United Kingdom Netherlands Japan Iceland Belgium Sweden Finland France Germany EU (15 countries) Italy EU (25 countries) Spain Greece Cyprus Slovenia Portugal Malta Czech Republic Hungary Slovakia Estonia Lithuania Poland Croatia Latvia Romania Bulgaria Turkey 0 Luxembourg EFTA BULLETIN 1-2006 30 GDP per capita in PPS labour productivity employment rate* employment rate of older workers* educational attainment (20-24 age group)* research and development expenditure comparative price levels business investment at risk-of-poverty rate* long-term unemployment rate* dispersion of regional employment rates* greenhouse gas emissions energy intensity of the economy volume of freight transport Source: Eurostat * Indicators disaggregated by gender To become the most competitive and dynamic economy in the world, the EU has to narrow the gap between its main competitors and itself. Although this indicator is more suited for spatial comparisons than comparability over time, the situation did not improve between 2000 and 2004, as shown in the chart below. Furthermore, the enlargement from EU 15 to EU 25 implied a considerable reduction in the EU average as all the new countries were below the EU 15 average. The GDP per capita in the USA was more than 50% higher than in the EU 25 in 2004. Future enlargements will not improve the situation as 3 of the candidate countries have substantially lower GDP per capita than Latvia, the EU Member State with the lowest GDP per capita. Iceland and Norway were both well above the EU average in 2004, but compared with 2000, the relative strength of the economies declined marginally. Norway had the second highest GDP per capita among the EEA countries. One of the main factors behind the high level of GDP in Norway is the income from the oil and gas sector. Luxembourg had the highest level of GDP per capita in 2004, which is partly explained by the large number of commuters from neighbouring countries. These workers contribute to the country's GDP but are not accounted for in the resident population. Iceland was ranked 6th among the EEA countries in 2000 but fell to 8th position in 2004 10. Labour Productivity per Person Employed Productivity is a basic factor for the long-term development of welfare in an economy and the general economic growth. It is important both for increasing employment and improving competitiveness, which are the key targets in the renewed Lisbon Strategy. Labour productivity per person employed is a frequently used indicator for productivity and it is measured by GDP in purchasing power standards per person employed relative to the EU 25 (EU 25 = 100). The GDP per person employed is intended to give an overall impression of the productivity of national economies expressed in relation to the EU 25 average. The United States had the highest labour productivity per person employed in 2004, and the gap to the EU average had even increased from 2000. Iceland's productivity was higher than the EU 25 average and slightly above the EU 15 average in 2004. Labour productivity per person employed — GDP in PPS per person employed relative to EU-25 (EU-25=100) 180 160 140 2000 2004 120 100 80 60 40 20 Belgium Norway Ireland France Canada Finland United Kingdom Italy Iceland EU (15 countries) Sweden Denmark Netherlands Austria Spain Japan Germany EU (25 countries) Greece Malta Slovenia Cyprus Hungary Portugal Czech Republic Slovakia Poland Estonia Lithuania Latvia Turkey Romania Bulgaria United States 0 Source: Eurostat 10 Preliminary figures for 2005 show a very strong growth rate of 6.2% in real GDP for Iceland, thus improving Iceland's ranking for that year 31 EFTA BULLETIN 1-2006 higher index number has a higher GDP per capita in PPS than the EU 25 average. Although the productivity levels of all the new EU Member States and the candidate countries were below the EU average, all of them, except Malta and Cyprus, improved their productivity to levels higher than the EU average between 2000 and 2004. employment rates were respectively 61, 58 and 52 % in 2004. Iceland had by far the highest employment rate with 83% in 2004, followed by Denmark and Norway. Norway experienced a reduction in the employment rate from 2000 to 2004 by 2.5 percentage points. One main objection to this indicator is that it does not take into account the structure of employment and therefore does not reflect for instance part-time or standard working hours. Consequently, labour productivity per hour worked could be a better indicator in the sense that it reflects the actual hours spent on production. This changes the picture completely, particularly between a country like Norway where a worker works relatively fewer hours a year than for instance a worker in the USA for the same length of time. When productivity is measured per hour worked, Norway has by far the highest productivity of all the countries, and 20% higher than the USA. Additionally, the Lisbon Council set a target to increase the employment rate of women to over 60% by 2010 and with an intermediate target of 57% in 2005. In 2004, the employment rate for women was almost 56% compared with 71% for men. The countries with the highest employment rates for women were in Iceland and Norway, respectively 79% and 72%. Employment Total Employment Rate EFTA BULLETIN 1-2006 32 An important aspect of economic performance is how the resources are utilised, and human capital is society's main resource. Consequently, the employment rate and its development are crucial both for economic growth and social cohesion. The Lisbon European Council stated that more and better jobs should be created and the overall target was to increase the employment rate to 70% by 2010. An intermediate goal for the employment rate was to reach 67% by January 2005. In addition, the relaunching of the Lisbon Strategy by the European Council in 2005, following the mid-term review of the Strategy, has put even more importance and focus on growth and employment. The employment rate is calculated by dividing the number of persons aged 15 to 64 in employment by the total population of the same age group. The employed population is defined as persons who during a week did any work for pay or profit for at least one hour, or were not working but had jobs from which they were temporarily absent. The EU employment rate was just above 63% in 2004, only slightly over the 2000 rate of 62.5% and well below the mid-term target of 67%. Only the UK, of the major economies, had an employment rate over 70%. In big countries like Spain, Italy and Poland, the The differences in employment rates between the sexes were smallest in Sweden, where the employment rates for men were 3 percentage points higher than for women. In Norway and Iceland, the differences between men and women were respectively 6 and 8 percentage points. In general, the gender gap in employment rates was lowest in the Nordic and Baltic countries and was highest in some Mediterranean countries. The gap was largest in Malta, Greece, Spain and Italy and varied by 42 percentage points. Total Employment Rate of Older Workers In light of the ageing population in Europe, it will be essential to stimulate workers to work longer in order to underpin economic growth and to counteract the effects of the ageing population on the social security systems. The employment rate of older workers is defined as the percentage of employed persons aged 55 to 64 of the total population of the same age group. A specific target of 50% inclusion of older workers by 2010 was set, and in 2004 the EU employment rate of older workers was just above 40%. This represents an increase from 2000, when the employment rate of older workers was 37% in the EU. Iceland had by far the highest employment rate of older workers, with almost 82% of the labour force in employment in the relevant age group. Sweden was second with an employment rate of older workers of 69%, and was followed by Norway with 66% in 2004. Although the employment rate of older workers increased between 2000 and 2004 in almost all countries, it was still rather low in a number of countries — under 40% in 12 out of the 25 EU Member States. Iceland Norway Denmark Sweden Netherlands United Kingdom Finland Portugal Austria Slovenia Estonia Germany Cyprus Latvia Lithuania France Ireland Czech Republic EU (25 countries) Belgium Romania Slovakia Hungary Luxembourg Bulgaria Spain Croatia Poland Greece Italy Malta 70 Source: Eurostat Employment rates by sex in 2004 100 90 Women Men 80 70 60 50 40 30 20 10 0 Source: Eurostat EFTA BULLETIN 1-2006 Iceland Denmark Norway Netherlands Sweden United Kingdom Cyprus Austria Portugal Finland Ireland Germany Slovenia Czech Republic EU (25 countries) France Estonia Latvia Luxembourg Lithuania Spain Belgium Greece Romania Italy Slovakia Hungary Croatia Bulgaria Malta Poland Total employment rate — employed persons aged 15-64 as a share of the total population of the same age group 90 80 2000 2004 60 50 40 30 20 10 0 33 34 Iceland Sweden Norway Denmark Finland Estonia United Kingdom Portugal Latvia Lithuania France Ireland Netherlands Romania EU (25 countries) Cyprus Germany Czech Republic Hungary Spain Bulgaria Greece Luxembourg Belgium Croatia Italy Poland Austria Slovenia Slovakia Malta EFTA BULLETIN 1-2006 Iceland Sweden Norway Denmark United Kingdom Estonia Finland Cyprus Portugal Ireland Latvia Lithuania Netherlands Czech Republic Spain EU (25 countries) Greece Germany France Romania Bulgaria Hungary Malta Luxembourg Italy Belgium Croatia Slovenia Austria Slovakia Poland Total employment rate of older workers — employed persons aged 55-64 as a share of the total population of the same age group 90 80 70 2000 2004 60 50 40 30 20 10 0 Source: Eurostat Employment rates of older workers by sex 2004 100 90 Women Men 80 70 60 50 40 30 20 10 0 Source: Eurostat Innovation Youth Education Attainment Level In a knowledge-based economy, human resources are a key element. Obviously, the population's level of education is important for the development of human capital and there are also strong indications for a positive relation between education and economic growth. Completed upper secondary school is in general considered to be the minimum required education for participation in the knowledge-based society either for an entry into the labour market or for further/higher education. However, the indicator does not say anything about the quality of the education or about how many continue with higher education. The indicator "Youth education attainment level" is defined as the share of young people between 20-24 years having attained at least upper secondary education level of the total population of the same age group. A target has been set to reach an attainment level of 85% in the EU by 2010. In 2004 the EU youth education attainment level was 76%, exactly the same as in 2000. Norway had the highest level of youth educational attainment among all the countries, i.e., over 95 %. This was well ahead of the other Nordic countries. Iceland attained the relatively low level of 51% 11. In all countries with available data, apart from Luxembourg, more young women than young men had completed upper secondary education. For the EU, 79% of the young women had attained this level of education versus 74% of the men in 2004. In some countries, this gender gap was quite large. For instance in Estonia and Portugal, almost 20% more of the women had achieved this level of education compared with the men. In Iceland and Spain, the levels of education were around 15 percentage points higher for women than for men. In Norway, the difference was just above 2%. 35 Youth education attainment level — total — percentage of the population aged 20 to 24 having completed at least upper secondary education 120 2000 2004 100 80 60 40 20 Norway Slovakia Czech Republic Croatia Slovenia Poland Sweden Lithuania Austria Ireland Finland Hungary Estonia Belgium Greece Cyprus France Latvia United Kingdom EU (25 countries) Denmark Bulgaria Romania Netherlands Germany Italy Luxembourg Spain Iceland Portugal Malta 0 Source: Eurostat For Luxembourg, the Netherlands, Croatia and Iceland, the latest figures are from 2003. 11 The definition of this indicator and variations in national school systems could be a reason for some of the differences between the countries. In Iceland, upper secondary education lasts for 4 years and is generally completed around the age of 20. This partly explains the lowness of the figure for Iceland. EFTA BULLETIN 1-2006 Split by sex, Iceland had the highest employment rate of older workers both for women and men, respectively 76% and 87% in 2004. Norway had the third highest employment rate — behind Sweden — with 61% for women and 71% for men. In the EU, only 31% of women between 55 and 64 were working. For men, the employment rate of older workers was 50% in the EU in 2004. Consequently, the gender gap in employment was even larger for older workers than for all workers, both in the EU and in the two EFTA countries Iceland and Norway. Iceland United States Denmark Germany Belgium France Austria EU (25 countries) Norway United Kingdom Slovenia Czech Republic Italy Ireland Croatia Spain Hungary Portugal Estonia Lithuania Turkey Greece Poland Slovakia Bulgaria Romania Latvia Cyprus Sweden Netherlands Luxembourg 36 Finland EFTA BULLETIN 1-2006 Norway Slovenia Estonia Croatia Poland Slovakia Czech Republic Lithuania Ireland Finland Sweden Greece Belgium Austria Hungary Cyprus Latvia France EU (25 countries) Denmark Bulgaria Netherlands United Kingdom Romania Germany Italy Spain Luxembourg Iceland Portugal Malta Youth education attainment level by sex in 2004 120 Women Men 100 80 60 40 20 0 Source: Eurostat For Luxembourg, the Netherlands, Croatia and Iceland the latest figures are from 2003. Gross domestic expenditure on R&D (GERD) — as a percentage of GDP 4,5 4 3,5 3 2000 2003 2,5 2 1,5 1 0,5 0 Source: Eurostat For Greece, Portugal and Norway, there were no figures for 2000. The data are from 1999. For Sweden, the only figures available are for 2001. For Italy, UK, Croatia, Turkey, Iceland and Japan, the latest figures are from 2002. Research and Development Research and development (R&D) is a key factor for growth in a knowledge-based economy and consequently at the heart of the Lisbon Strategy. The R&D intensity is measured as gross domestic expenditure on R&D as a percentage of the GDP (see graph at bottom of page 36). The R&D expenditure expresses efforts to create new knowledge, which is important for developing new and improved products and processes. Research conducted by both the public and private sectors is accounted for through this indicator. R&D surveys are based on the harmonised methodology described in the Frascati manual. R&D is defined as the creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society and the use of this stock of knowledge to devise new applications. R&D is considered as so important that the Barcelona European Council set a distinct target to increase its intensity to 3% by 2010. In 2003, the EU expenditure on R&D was just below 2% of the EU GDP 12. In fact only 2 EU Member States — Finland and Sweden — had levels of R&D above 3%. Iceland also had a high R&D intensity with over 3%, which was up compared with the figures for 2000. Norway's R&D intensity was still below the EU's, in spite of an increase from 1.6% in 1999 to 1.9% in 2003. It is worthwhile to notice that both Japan and the USA had R&D intensities well above the EU's, and that the US figures did not include capital expenditure. Economic Reform Comparative Price Levels The comparative price levels are measured as the ratio between the purchasing power parities (PPPs) and the market exchange rates for each country. The PPP is a currency converter which aims at adjusting for different price levels in the countries. The price level index is measured in relation to the EU average (EU 25 = 100). A country is relatively more expensive or cheaper than the EU average if the index is higher or lower than 100. Through more efficient and integrated markets initiating more competition and trade, the price levels in the countries ought to converge. However, one observes a correlation between high income levels and high price levels. Norway and Iceland had the highest and the third highest price level of the EEA countries both in 2000 and 2003. The fall in relative price levels in Japan and the USA is partly due to a depreciation of the currency, while for Norway and Iceland, the general price level has increased or remained at a high level. EFTA BULLETIN 1-2006 Comparative price levels of final consumption by private households including indirect taxes (EU-25=100) 250 200 2000 2003 150 100 50 Norway Denmark Japan Iceland Ireland Finland Sweden Germany France Austria Netherlands Luxembourg EU (15 countries) Belgium United Kingdom Italy United States EU (25 countries) Cyprus Spain Greece Portugal Slovenia Malta Estonia Hungary Czech Republic Latvia Turkey Lithuania Poland Slovakia Bulgaria Romania 0 Source: Eurostat 12 Preliminary data for 2004 show a stagnation of the EU 25 R&D intensity at 1.9%. 37 Business Investment Capital is a key production factor and through investment capital is produced. Consequently, capital formation is vital for future production, and investments are important for economic growth. The indicator business investment is defined as the gross fixed capital formation by the private sector as a percentage of GDP. The gross fixed capital formation includes acquisitions by the private sector less disposals of fixed assets. Iceland had the lowest level of business investment as a share of GDP in 2004 with just above 12%. Sweden had a marginally higher share of business investments. Also, business investment in Norway was rather low in 2004, i.e., around 15% of GDP. This was 2 percentage points below the business investment in the EU, which was 17% in 2004. Estonia had the highest share of private sector business investment with 25% of GDP in 2004. Social Cohesion At-risk-of-poverty Rate after Social Transfers One of the EU's main policy objectives is to fight poverty and reduce social exclusion. The Lisbon The at risk-of-poverty rate after social transfers is an indicator of poverty. This indicator measures the share of persons with a disposable income below the risk-ofpoverty threshold, i.e., 60% of the national median disposable income after social transfers. Consequently, the indicator says more about the income distribution and relative poverty within a country than between countries. Comparability is limited between countries because only a relative threshold is used, there being no common absolute one. In Turkey, one quarter of persons had less than 60% of the median disposable income after social transfers in 2003. In Greece, Slovakia and Ireland, more than 20% of the persons were below the at-risk-of-poverty threshold. However, the median disposable income in a high income country like Ireland is higher than for instance that in Turkey or Slovakia. The indicator reflects more biases in the distribution of income within a country than absolute poverty between countries. In contrast to its neighbour Slovakia, only 8% of persons in the Czech Republic were below the poverty Business investment — gross fixed capital formation by the private sector as a percentage of GDP 30 25 2000 2004 20 15 10 5 0 Estonia Spain Latvia Czech Republic Slovakia Slovenia Greece Austria Ireland Portugal Hungary Lithuania Denmark Netherlands EU (25 countries) Belgium Italy Malta France Germany Finland Norway United Kingdom Poland Cyprus Luxembourg Sweden Iceland Canada Romania Bulgaria EFTA BULLETIN 1-2006 38 targets focus not only on growth and competitiveness but also on social cohesion, which is not always linked to the general economic welfare of a country. Source: Eurostat and Statistics Iceland At-risk-of-poverty rate after social transfers — total — the share of persons with an equivalised disposable income below the at-risk-of-poverty threshold 30 25 2003 20 15 10 5 Norway Czech Republic Slovenia Hungary Luxembourg Finland Sweden Netherlands France Bulgaria Denmark Cyprus Austria Germany Latvia Belgium Poland Lithuania Croatia Romania Estonia United Kingdom Italy Portugal Spain Ireland Slovakia Turkey Greece 0 Source: Eurostat For France, Latvia, Lithuania, Hungary, the Netherlands, Poland, Slovenia, Sweden, Bulgaria, Romania and Turkey, the data are for 2002. For Italy the data are for 2001. No data for Iceland were available for this indicator. EFTA BULLETIN 1-2006 39 At-risk-of-poverty rate after social transfers by sex 2003 30 Women Men 25 20 15 10 5 Source: Eurostat For France, Latvia, Lithuania, Hungary, the Netherlands, Poland, Slovenia, Sweden, Bulgaria, Romania and Turkey the data are for 2002. For Italy the data are for 2001. No data for Iceland were available for this indicator. The data for this indicator for the years 2002 or 2003 for Portugal are not split between the sexes. Hungary Czech Republic Norway Slovenia Luxembourg Sweden Finland Denmark Netherlands France Austria Bulgaria Latvia Belgium Poland Germany Cyprus Lithuania Romania Croatia Estonia United Kingdom Spain Italy Slovakia Ireland Turkey Greece 0 threshold. In Norway, 10% of persons were in the atrisk-of-poverty group. that resources are insufficiently utilised and that there is a risk that people become permanently excluded from the active population. In almost all the countries with comparable data, the women were at greater risk of poverty than the men. The only exception was Poland, where 17% of men's income was lower than the threshold, compared with 16% of women. Several countries had only marginal differences between the sexes. The inequality with respect to poverty was largest in Germany, where 17% of women were at risk of poverty versus 11% of men. Norway had also a relatively higher share of women than men at-risk-of-poverty. The long-term unemployment rate was lowest in Iceland and in Norway, respectively 0.4% and 0.8% in 2004. However, this represented an increase from the low rates in 2000 when 0.2% and 0.3% of the active population in Iceland and Norway were unemployed in the long-term. Compared to the situation in the EU, where the average long-term unemployment rate was just over 4% in 2004, the two EEA EFTA countries had remarkably low rates in spite of the increase between 2000 and 2004. Slovakia and Poland had the highest rates with over 10% in both countries. Total Long-term Unemployment Rate Total long-term unemployment rate — long-term unemployed (12 months and more) as a percentage of the total active population 14 12 2000 2004 10 8 6 4 2 Iceland Norway Luxembourg Austria United Kingdom Sweden Denmark Netherlands Ireland Finland Hungary Slovenia Portugal Spain Source: Eurostat and calculations based on data from the Directorate of Labour of Iceland Malta Belgium Italy France EU (25 countries) Romania Latvia Czech Republic Estonia Germany Greece Lithuania Poland Bulgaria 0 Slovakia EFTA BULLETIN 1-2006 40 The long-term unemployment rates for women in 2004 were lowest in Iceland with 0.5%, followed by Norway and the UK with 0.6% in both countries. In fact, the long-term unemployment rates for men were higher than for women in Norway and the UK. In Iceland, the rate was slightly higher for women than for men. Generally, long-term unemployment rates were rather similar between the sexes in Europe, and only in some countries like Greece, Italy and Spain were the rates clearly higher for women. Employment is considered to be important for social inclusion. Consequently, unemployment, in particular long-term unemployment, has negative impacts on social cohesion and also on poverty. A long-term unemployed person is defined as a person who is actively seeking work but has been unemployed for 12 months or more. Long-term unemployment as a share of the total active population gives the total long-term unemployment rate. A high long-term unemployment rate indicates Long-term unemployment rate by sex in 2004 14 12 Women Men 10 8 6 4 2 Iceland Source: Eurostat and calculations based on data from the Directorate of Labour of Iceland Dispersion of Regional Employment Rates In order to increase employment and ensure social cohesion, it is important to reduce the regional imbalances in employment. It is also a priority to stimulate employment and fight unemployment in deprived regions. The dispersion of regional employment rates is an indicator that aims at measuring the variation in employment between the regions. The employment rate in a region is the share of employed persons aged 15-64 of the population in the same age group. The dispersion of regional employment rates is zero when the employment rates in all regions are identical. If the differences among the regions increase, so will the indicator. The regions are defined at level 2 of the classification of territorial units for statistics (NUTS). At this rather aggregated level, the indicator is not applicable for Denmark, Ireland, Luxembourg, Cyprus, Estonia, Latvia, Lithuania, Malta, Slovenia and Iceland because these countries comprise only one or two NUTS level 2 regions. Nevertheless, the employment rates of these countries are used to compute the dispersion of regional employment rates for the EU 25. The regions at level 2 are rather large. For instance for Norway, counties are combined to make the NUTS 2 regions. At this level there are 7 regions in Norway. The dispersion of employment rates in 2003 was rather substantial across Europe, and by far highest in Italy. At the other end of the scale was Norway with the smallest regional differences in employment the same year. The dispersion had even decreased from the rather low level in 2000. In all the countries apart from Germany, the differences in employment rates between the regions were in 2003 higher for women than for men. This difference was particularly large within Italy, where the variation was 3 times as high for women as for men measured by the coefficient of variation. Norway had the lowest employment dispersion rate for women and the difference between men and women was also among the lowest ones in this respect. 41 EFTA BULLETIN 1-2006 Norway Ireland United Kingdom Sweden Luxembourg Austria Denmark Finland Netherlands Malta Hungary Slovenia Portugal Romania Estonia Belgium Latvia France EU (25 countries) Czech Republic Italy Spain Lithuania Bulgaria Germany Poland Greece Slovakia 0 Source: Eurostat Norway Netherlands 30 Norway Netherlands Austria Romania Greece Portugal Sweden France Czech Republic Germany United Kingdom Finland Bulgaria Poland Slovakia Belgium Hungary Spain EU (25 countries) Italy 16 Austria Sweden Germany Romania Portugal Finland France United Kingdom Greece Czech Republic Poland Bulgaria Slovakia Belgium Hungary Spain EU (25 countries) 42 Italy EFTA BULLETIN 1-2006 Dispersion of regional employment rates — total — coefficient of variation of employment rates (of the age group 15-64) across regions (NUTS 2 level) within countries 20 18 2000 2003 14 12 10 8 6 4 2 0 Source: Eurostat Dispersion of regional employment rates by sex 2003 35 Women Men 25 20 15 10 5 0 Emissions of greenhouse gases are measured in aggregated CO2 equivalents and weighted by their global warming potentials. If the Kyoto target is not fulfilled, the emissions exceed the target value. A negative percentage indicates the distance to the target. However, 10 out of 23 EU countries with defined targets fulfilled the aims in 2002. Several of the less developed economies in Europe have targets which allow for considerable growth not only in the economy but also in the emissions. The Environment Total Greenhouse Gas Emissions Emissions of greenhouse gases pollute the environment and contribute to climatic change, specifically potential global warming. The negative impacts of the emissions of such gases on the environment are so severe that they could affect the main targets of the Lisbon Process, namely sustainable growth. Emissions have effect locally, regionally and globally, and consequently reducing them calls for international cooperation. In 2002, the countries that were farthest from the Kyoto targets were Spain, Austria and Denmark. Also, the USA and Japan's emissions have to be reduced according to the objectives in the Protocol. The USA has not signed the Kyoto Protocol. Norway's emissions were higher than the target in 2002, while Iceland's were considerably lower. The Kyoto Protocol quantifies the commitments of industrialised countries to reduce their greenhouse gas emissions. The countries are to individually or jointly ensure that their aggregate emissions do not exceed their assigned amounts. The EU has agreed to an 8% reduction in the emissions of its greenhouse gases by 2008-2012, compared to the base year 1990. Furthermore, reductions for each of the EU 15 countries have been agreed under the EU Burden Sharing Agreement, which allows some countries to increase emissions, provided these are offset by reductions in other Member States. EFTA BULLETIN 1-2006 43 France Croatia United Kingdom Iceland Slovakia Sweden 10 Czech Republic 20 Poland 30 Hungary 40 Estonia Lithuania Romania 50 Bulgaria 60 Latvia Distance to Kyoto targets for greenhouse gas emissions in 2002 -50 Source: Eurostat Austria Spain Italy Ireland Japan Luxembourg Finland Belgium Norway Slovenia United States Denmark -40 Netherlands -30 Germany -20 EU (15 countries) -10 Greece 0 Energy Intensity of the Economy The consumption and production of energy very often imply negative effects on the environment. It is the EU's - and also the Kyoto Protocol's — to enhance energy efficiency in order to achieve sustainable growth. Energy intensity is measured as gross inland consumption of energy divided by the GDP at constant prices. The consumption of energy is calculated in kilograms of oil equivalent and includes coal, electricity, oil, natural gas and renewable energy sources. Several countries with low GDP levels had the highest energy intensities. Bulgaria had the highest consumption of energy relative to the GDP, i.e., the least efficient energy use. Norway was relatively energy-efficient according to this indictor, and consumption was below the EU average. Iceland had a relatively high consumption of energy. However, this rough indicator, as mentioned earlier, takes neither the climatic nor industry structure into account. The ratio between the gross inland consumption of energy and gross domestic product provides a rough indicator of the overall energy efficiency. However, it does not take into account differences in the countries' industry structures, climatic or the actual negative effects of the consumption of different energy types. Energy intensity of the economy — gross inland consumption of energy divided by GDP (at constant prices,1995=100) — kgoe (kilogram of oil equivalent) per 1000 euro 2000 2000 2002 1800 1600 1400 1200 1000 800 600 400 200 0 Bulgaria Lithuania Romania Estonia Slovakia Czech Republic Latvia Poland Hungary Ireland Turkey Slovenia United States Cyprus Finland Malta Greece Portugal Spain Sweden United Kingdom Belgium EU (25 countries) Netherlands Luxembourg France Norway Italy Germany Ireland Austria Denmark Japan EFTA BULLETIN 1-2006 44 Source: Eurostat Volume of Freight Transport Economic growth will often result in the increased transport of goods, and more transport has an effect on the environment. The indicator volume of freight transport relative to GDP is defined as the ratio between inland transport in tonne-km and the GDP in constant prices. Transport by road, rail and inland waterways is included in the indicator. The indicator does not take geographical or industry structure into account, and it does not distinguish between more or less pollutive means of transport. Both Norway and Iceland were above the EU average in terms of freight transport relative to the GDP in 2003. Both countries experienced a small increase compared with 2000. Volume of freight transport relative to GDP — index of inland freight transport volume relative to GDP; measured in tonne-km/GDP (in constant 1995 euro), 1995=100 200 180 2000 2003 160 140 120 100 80 60 40 20 Estonia Ireland Spain Latvia Norway Greece Lithuania Austria Portugal Luxembourg Germany Iceland Turkey EU (25 countries) Cyprus Czech Republic Romania Belgium France Italy Slovenia Finland Sweden Netherlands Hungary Denmark United Kingdom Poland Slovakia Bulgaria Japan United States 0 Source: Eurostat EFTA BULLETIN 1-2006 45 ANNEX Letters from the EEA EFTA States to the EU EFTA BULLETIN 1-2006 46 EFTA BULLETIN 1-2006 47 EFTA BULLETIN 1-2006 48 EFTA BULLETIN 1-2006 49 EFTA BULLETIN 1-2006 50 EFTA BULLETIN 1-2006 51 EFTA BULLETIN 1-2006 52 EFTA BULLETIN 1-2006 53 EFTA BULLETIN 1-2006 54 The European Free Trade Association (EFTA) is an international organisation comprising four states: Iceland, Liechtenstein, Norway and Switzerland, which have eliminated barriers amongst themselves for industrial products but do not apply a common external tariff. Apart from Switzerland, the EFTA States base their relations with the European Union on the European Economic Area Agreement allowing for their participation in the single market.Switzerland’s relations with the EU are based on bilateral agreements.The EFTA States have developed an extensive network of free trade agreements with non-EU countries and regional groupings in Europe and beyond.EFTA has headquarters in Geneva and offices in Brussels and Luxembourg. The EFTA Bulletin is intended to serve as a platform for discussion and debate on topics of relevance to European integration as well as the multilateral trading system constantly being re-shaped and transformed by the twin forces of globalisation and interdependence. In this endeavour, the EFTA Bulletin draws on the experience and expertise of academics, professionals and policy-makers alike. ISSN 0258-3860 Previous Issues: • • • • • • • • • EFTA and EU Enlargement, 1-2004 September The European Economic Area and the Internal Market – Towards 10 Years, 1-2003 June Activities and Financial Contributions under the EEA Agreement, 2-2002 November The European Economic Area: Decision Shaping and Participation in Committees, 1-2002 June Opportunities in an Enlarged Europe:EFTA Parliamentary Committee Conference on EFTA-EU Relations and Enlargement,2-2001 November The Updated EFTA Convention, 1-2001 September New Economy – New Borders: EFTA Consultative Committee Business Workshop, 3-2000 December Special Relationship: EFTA and the European Community as Actors in European Free Trade, 2-2000 October EFTA: 40 Years of Free Trade, 1-2000 September