Structural reforms of the Danish product and capital markets November 2002 Structural reforms of the Danish product and capital markets Structural reforms in the Danish product and capital markets Table of contents Chapter 1 Introduction.................................................................................................... 3 Chapter 2 Efficient markets and structural reforms ............................................... 6 2. A Product markets.................................................................................. 6 2.A. 1 Market opening and competition policy.......................................... 6 2.A. 2 Policy with implications for the product markets: Framework conditions, entrepreneurship, taxes, etc.. .................15 2.A. 3 Energy and other network industries.............................................18 2.A. 4 The knowledge-based society..........................................................26 2.A. 5 Environmental policy .......................................................................30 2. B The capital market and the financial sector...................................31 2.B. 1 Rules and supervision.......................................................................31 2.B. 2 Market developments .......................................................................35 2. C Other reforms with implications for the product and capital markets: Public and private-sector collaboration – freedom of choice and keener competition...................................41 Chapter 3 Conclusion ....................................................................................................46 Annex 4.1 Follow-up on the recommendations set out in the Broad Economic Policy Guidelines ...........................................................................48 Annex 4.2 Retirement schemes ..............................................................................49 Annex 4.3 Initiatives aimed at modernising and simplifying legislative and administrative conditions for the purpose of encouraging self- employment and small and medium-sized businesses’ access to the market..............................................................................................54 Annex 4.4 Initiatives to identify and remove barriers to cross-border services in the Internal Market ...........................................................55 2 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Structural reforms of the Danish product and capital markets Chapter 1 Introduction The Danish Government has set ambitious targets for economic developments in Denmark – the aim being to strengthen and further develop the high standard of living and the quality of the Danish welfare state. The financing of the welfare state poses a challenge, given that the proportion of elderly people in the population is set to grow over the coming years, while the proportion of people of working age who are actually in employment will fall. The Government strategy is to boost output and employment. Continued progress in output and employment should be ensured by creating optimum framework conditions for growth. The Danish economy has been performing fairly well over the past decade. Average annual GDP growth has been running at 2.5 per cent in the period from 1992 to 2001, compared with 2.0 per cent for EU-15. The rate of GDP has been expanding slightly faster than labour-force productivity. GDP per hour worked thus increased by an average 2.1 per cent in 1992-2001. Employment (in terms of hours worked) thus rose by 0.4 of a per cent, reflecting a significant drop in unemployment. The increase in hourly productivity is by and large evenly distributed on increased use of machinery and buildings, etc., and higher total factor productivity. By international standards, Denmark’s overall GDP per capita is fairly high. Few countries can muster a GDP per capita higher than Denmark’s. Productivity is also high, see “Conditions for Growth in Denmark”, published by the Ministry of Economic and Business Affairs in 2002. There are indications, however, that the level of productivity is lagging slightly behind the most productive countries when allowing for investment in education and machinery, etc., see “Conditions for Growth in Denmark”. The Government recently brokered a broad political accord on employment policy, which is the first step towards creating more jobs in Denmark. However, the Danish employment rate is already high, while unemployment is fairly low. Hence productivity advances must serve as an important engine of growth. Continued reforms of the Danish product and capital markets must continue to boost productivity. Ministry of Economic and Business Affairs, November 2002 3 Structural reforms of the Danish product and capital markets The Government aims to make it easier to start up and operate businesses in Denmark. To that end, the Government has already implemented a range of initiatives. The primary initiatives were launched in connection with the report Improving Competitiveness in January 2002 and in the Government’s growth strategy entitled Determined Growth from May 2002. Improving Competitiveness puts forward 32 specific initiatives aimed at cutting corporate costs, reducing the administrative workload, improving the framework conditions for entrepreneurs, and bolstering innovation and productivity in the corporate sector. The growth strategy presents the Government’s overall policy for ensuring that Denmark remains a country of growth, prosperity and opportunity. The Government is planning to launch an entrepreneurial report in the beginning of 2003, putting forward additional proposals for developing and nurturing the entrepreneurial spirit in Denmark. Competition in the product markets is still assessed as being less keen than in the benchmark countries, but the situation is showing signs of improvement. Danish competition legislation has been amended several times over the past few years and there are budding signs that the amendments are beginning to have the desired effect; further improvements are expected to materialise in the coming years. The indicators are also showing a movement towards greater openness of the Danish markets, which will serve to further sharpen competition. Like other European countries, Danish gas and electricity companies are bracing themselves for the challenges ahead in a market characterised by ever increasing competition. Against this backdrop, the Government, as part of its growth strategy in September 2002, prepared a proposal for the continuing work with the liberalisation of the energy markets. Following parliamentary debate on the proposal, it will be transposed into legislation in the beginning of 2003. The overarching aim of the liberalisation process is to achieve three main goals. Firstly, households and companies must be given optimum freedom in gas and electricity purchases. Secondly, Danish energy prices need to become more competitive relative to those of other countries. Thirdly, it must be ensured that Denmark gets its money’s worth from environmental appropriations. Over a number of years, overall R&D costs have been accounting for an increasingly larger share of Danish GDP; however, private sector R&D costs, in particular, are not very high compared with the benchmark countries. The Government aims to pave the way for promoting private-sector research activities. The Government is looking to develop and pursue an environmental policy designed to combine a clear sense of responsibility for our surroundings with realistic international collaboration to reduce pollution when it pays the most. The Government has launched an analysis of the possibilities of applying market-oriented tools to create a better environment. The ensuing report “Grøn markedsøkonomi” (“Green Market Economy”) is due to be released within few months. 4 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets As far as the financial area is concerned, the Government wishes to boost competition and enhance transparency, while at the same time strengthening the market for venture capital. The development of a single financial market and the EU Financial Action Plan are at the centre of these objectives. Ministry of Economic and Business Affairs, November 2002 5 Structural reforms of the Danish product and capital markets Chapter 2 Efficient markets and structural reforms 2.A Product markets Efficient competition serves to boost economic growth by providing an incentive to companies and the public sector to enhance efficiency and innovation. One way to achieve more efficient competition is through legislative measures and dismantling of barriers to competition. Another important factor for the efficient functioning of the markets is a country’s degree of openness to other countries in terms of the realisation of its trading potential, its ability to attract foreign direct investment (FDI) and its use of foreign research and knowledge workers. Analyses1 of these factors indicate that competition in the Danish economy is less keen than in a number of other countries; moreover, Denmark has untapped exploitation opportunities as far as its trading potential and use of foreign research and knowledge workers are concerned. 2.A.1 Market opening and competition policy Competition intensity in Danish product markets Competition intensity in the Danish product markets is monitored on an ongoing basis. Once a year over the past four years, the Danish Competition Authority has released a Report on Competition, looking into the general trend of competition intensity and identifying a number of sectors which are showing signs of weak competition. The sectors are identified using 12 different indicators to compare the performance of Danish sectors vis-à-vis other sectors in Denmark and against similar sectors in eight other European countries. It is true of all twelve indicators that the statistical uncertainty is substantial. The correlation between individual indicators and the competitive situation is also uncertain. When all twelve indicators are viewed collectively, the uncertainty is reduced, however, providing the optimum basis of a holistic assessment. In recent years, indicator trends have given cause for moderate optimism. Still, we believe that competition in the Danish economy is less keen than in the benchmark countries. Indicators have shown slight signs of improvement, however. Market concentration in Denmark was very stable throughout the 1990s, see Figure 2.1. In the second half of the decade, recruitment of new companies to the building sector rose, while recruitment to the manufacturing and services sectors remained stable, see Figure 2.2. Mobility has improved in the building and manufacturing sectors over the last five years, while remaining fairly stable in the services sector, see Figure 2.3. Manufacturing earnings showed a slight decline from 1997 to 1999. Last but not least, the estimate of how much consumer prices, adjusted for VAT and other taxes, are currently higher in Denmark than in the 1 See The Ministry of Economic and Business Affairs: Conditions for Growth in Denmark, May 2002 and the Danish Competition Authority: Report on Competition 2002, May 2002. 6 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets other EU countries has been lowered from 5 per cent in recent years’ Reports on Competition to 4 per cent, see Figure 2.4. Figure 2.1 Development in market concentration 0 10 20 30 40 50 60 70 1992 1993 1994 1995 1996 1997 1998 1999 Per cent 0 10 20 30 40 50 60 70 Per cent Manufacturing Construction Service Note: The concentration is measured by computing the sum of the market shares of the top four companies as a percentage of the total market. Source: Statistics Denmark. Figure 2.2 Relative additions of new companies 0 1 2 3 4 5 6 7 8 9 10 1992 1993 1994 1995 1996 1997 1998 1999 Per cent 0 1 2 3 4 5 6 7 8 9 10 Per cent Manufacturing Construction Service Note: Relative additions are measured in terms of the number of new companies to be registered for VAT relative to the overall number of VAT registered companies in the sector. Source: Statistics Denmark. Ministry of Economic and Business Affairs, November 2002 7 Structural reforms of the Danish product and capital markets Figure 2.3 Mobility 10 15 20 25 1993 1994 1995 1996 1997 1998 1999 Index 10 15 20 25 Index Manufacturing Construction Service Note: Mobility is measured in terms of the sum of each company’s change in market share compared with the previous year. The index has a value of between 0 and 100, where 0 equals a completely static market. Source: Statistics Denmark. Figure 2.4 Net retail price developments in Denmark, Sweden, the UK, Germany and the Netherlands 70 80 90 100 110 120 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Index 70 80 90 100 110 120 Index DNK SWE DEU NLD GBR Note: The price level is computed as two years’ moving average (one year behind). Finland, Belgium, Italy and France are also included in the computations. For each year, the average of the countries’ net retail price level has been fixed at 100. Sources:OECD, Eurostat and own computations. 8 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets It is important to bear in mind, however, that the competitive situation only rarely changes in the space of a short period of time. It takes times for amendments to competition legislation, for example, to feed through to lower prices. It may also take quite some time to alter the competition culture of a particular sector or to change consumer behaviours. That is why we are only now beginning to see the budding results of the amendment implemented in the Danish Competition Act in 1998. The benefits of the subsequent amendments to the Danish Competition Act must also be expected to take a few years to fructify. In some Danish sectors, the net retail price level remains at least 15 per cent higher than the average for the EU9 countries (embracing Belgium, Denmark, Finland, France, the Netherlands, Italy, Sweden, Germany and the UK), see Table 2.1. Spare car parts, soft drinks, books, newspapers and magazines as well as fuel oil were also included in last year’s list, while alcoholic beverages have been added. On the other hand, restaurants, hotels, etc., personal care and auto diesel fuel have been eliminated from the list. Table 2.1 Net retail price level for product categories in which prices exceed those of the EU9 by more than 15 per cent, average 1998-1999 Product category Price level in Denmark compared with the EU9 countries (EU9=100) Spare car parts* ........................... 128 Soft drinks .................................. 124 Books, newspapers, magazines. 123 Fuel oil*........................................ 116 Alcoholic beverages ................... 115 Note: * average 2000-2001. Sources: Eurostat, OECD and own computations. The sectors appearing on the list are hardly surprising. Competition is limited in the soft drinks and beer market as a result, among other things, of the Danish ban on canned beer and soft drinks, serving to deter access for foreign competitors. Competition in these sectors may pick up, however, given that the Government lifted the ban on canned beer and soft drinks in the Danish retail market on 23 September this year. It is too early to say yet whether competition will in fact intensify as a result. So far, the introduction of canned beer and soft drinks has been met with limited success, however, with sales of canned beer and soft drinks accounting for less than 5 per cent of total sales. The sector cites higher packaging taxes on cans than on bottles as one of the reasons for the limited success. Cans may be used only once before remelting, whereas bottles can be used 25-30 times before being remelted. The Danish book market was partly liberalised at 1 January 2001. Before the liberalisation, publishers and booksellers had an exclusive right to publish or sell books, while anyone may now choose to publish and sell books in Denmark. Another important element in the partial liberalisation was the amendment of the fixed-price system; now publishers are allowed to fix the retail prices of new Danish books only in the year of publication and the subsequent calendar year. The fixed-price system is a right, not an obliga Ministry of Economic and Business Affairs, November 2002 9 Structural reforms of the Danish product and capital markets tion, however. In other words, a publishing firm may choose to shorten the period, should it so desire. The fixed-price system will be reassessed by the Competition Council in 2003. The high Danish prices of spare car parts may be ascribed, among other things, to car manufacturers seeking to achieve higher profit margins on spare parts than on new cars on account of the high Danish taxes on new cars. Another contributing factor has been the former EU group exemption as far as cars are concerned. As a result of the group exemption, it has been possible to set up agreements with close collaboration between car importers and authorised dealers/garages. On 1 October this year, the new EU group exemption took effect, holding out the hope that competition may intensify. A key element in the new group exemption is that both independent garages and authorised dealers may now purchase original spare parts outside of the car manufacturers’ distribution network. As far as fuel oil is concerned, the high prices may possibly be attributed to the fact that fuel oil is sold in smaller quantities in Denmark than in other countries. Moreover, a wider range of services is offered in connection with oil deliveries, such as 24-hour delivery service. Construction costs are also high in Denmark compared with other countries, indicating that competition in the building and construction sector leaves something to be desired. For a number of years, (labour)productivity has been showing weaker trends than in other countries, serving to further underscore this impression. The weak competition in this sector may, to some extent, be put down to its corporate structure, which is characterised by small-sized specialised businesses. Market opening in Denmark Imports provide a measure of the openness of Danish markets. Import figures have been showing a steadily upward trend over the past decade, rising at a faster rate than GDP. In other words, there are indications that Danish markets have become more open to competition in the course of the last five years, in particular. One should bear in mind, however, that the indicators are sensitive to cyclical fluctuations and the upturn in imports may thus, to some extent, be put down to favourable market trends in the period from 1995 to 2000. 10 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Figure 2.5 Imports of goods and services as a percentage of GDP 20 25 30 35 40 45 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Per cent 20 25 30 35 40 45 Per cent Note: Constant (1995) prices. Source: Statistics Denmark. Import potential Small countries such as Denmark generally have higher trade volumes than large countries when the volume of trade is calculated as a percentage of GDP – the primary reason being that large countries have a larger domestic market and larger distance to foreign markets. Furthermore, a larger domestic market gives larger countries a better opportunity to specialise in more sectors than small countries. Thus it would make no sense to measure competition in a specific country simply by comparing its import quotas (imports as a percentage of GDP) with those of other countries, given that a small country would automatically appear to be faring relatively well. In order to obtain a measure of Denmark’s relative imports, taking into account the country’s size and other important factors, an analysis has been conducted in continuation of the analysis conducted in Section 15.2 of “Conditions for Growth in Denmark”. The analysis, which centres on trade between all of the OECD countries (excluding Luxembourg), examines various countries’ realisation of their trading potential. The analysis establishes the correlation between the bilateral imports between the countries and a number of variables of importance to the volume of imports, such as GDP, GDP per capita, the distance between two countries involved and other geographic factors. Using this analysis, it is possible to compute an expected value of a country’s imports. By setting the realised value relative to the expected value, we obtain a measure of a country’s realisation of its import potential. Figure 2.6 depicts the realisation of the import potential by the countries involved. Ministry of Economic and Business Affairs, November 2002 11 Structural reforms of the Danish product and capital markets Figure 2.6 Realisation of import potential, 2000 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 PRTGRCIRLESPNLDSWEAUTBELDEUITAEU-14FINGBRFRADNK 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 Note: EU-14 is the weighted average of the EU countries, excluding Luxembourg. Sources: OECD, World Bank Atlas and own computations. Considering the country’s size, geographic location, etc., Denmark has ample scope to exploite her trading potential compared with the other EU countries. There may be a number of reasons for our untapped exploitation opportunities. One explanation could be that access to markets in Denmark is inadequate for international exporters, thus indicating competition problems in Denmark. Another explanation could be that a country is more self-sufficient, among other things with energy, than the countries of comparison – which may, however, pose a problem if the self-sufficiency of the country means that the merchandise in question is not traded at market value. Foreign direct investment (FDI) provides another measure of the openness of Danish markets. The development of the stock of FDI in Denmark, relative to GDP, was particularly favourable in the years 1998 to 2000, during which period the stock doubled, see Figure 2.7. 12 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Figure 2.7 Stock of foreign direct investment as a percentage of GDP 0 5 10 15 20 25 30 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Per cent 0 5 10 15 20 25 30 Per cent Source: Statistics Denmark, Statistical 10-year overview 2002. Amendment to the Danish Competition Act and Danish consumer legislation Competition is also affected by competition legislation. In the course of the last three years, the Danish Competition Act has been amended on three occasions (1998, 2000 and 2002). 1998 saw the introduction of the principle of prohibition to replace the principle of control, while 2000 saw the introduction of merger control, the purpose of which was to bring Denmark in line with the rest of the EU in this field. This year’s amendments fall into three categories. Firstly, the Competition Act was amended to give the Competition Council better opportunities to comment on competitive restrictions under public law. Secondly, the fines imposed for violating the Act were increased to bring the Danish level of fines in line with that of other EU countries; the level is still below that imposed by the EU Commission, however. Thirdly, the rules governing control inspections were amended, while the rules applying to joint ventures, local price agreements and publication of decisions, etc., were clarified. It is hoped, in particular, that the changed level of fines, along with the clarification that neither horizontal nor vertical price agreements are covered by the de minimis rule of the Competition Act, will invigorate competition in the Danish markets. The explanatory notes of the former Competition Act stated that: “In general, the level of fines imposed on violators of the Danish Competition Act complies with legal traditions in Denmark for other violations of corporate legislation”. Practice had shown, however, for instance in the so-called electricity cartel cases, that the fines imposed for violation of the Danish Competition Act were lower than those applied in other European countries and significantly below the fines imposed by the EU Commission. Ministry of Economic and Business Affairs, November 2002 13 Structural reforms of the Danish product and capital markets The new legislation will ensure that the level of fines imposed in Denmark for violating the competition rules will converge with the level of fines applying in other European countries. However, the fines will not be in line with the fines imposed by the EU Commission for violations of EU competition rules. Higher fines are designed to have a preventive effect by ensuring that the sanctions imposed for violating the Act correspond to the possible gains obtained from the violation. In order to be imposed a fine for violating the Competition Act, the violator must have acted intentionally or grossly negligently (which was already the case under the former Competition Act). The former and the current Danish Competition Acts both expressly prohibit companies from entering into agreements about purchase and sales prices. This applies to horizontal as well as vertical price agreements. For businesses with a small turnover and market share there are, however, certain exemptions to the general prohibition, the so-called de minimis rule. The former Competition Act did specify, however, that the exemption did not apply to binding resale prices. In the former Act, the phrase “binding resale prices” in practice meant that businesses in certain sectors formed local price cartels in the conviction that the agreements applied to sales prices and thus did not affect minimum resale prices. Hence they believed the agreements to be legal under the de minimis rule. Such local price agreements between, for instance, driving instructors, accountants or real estate agents may be as potentially harmful to competition as a price agreement between two businesses operating nationwide. The Danish Competition Act was amended against this backdrop so that the de minimis rule does not apply to price agreements, be they horizontal or vertical. In the consumer area, Denmark has introduced a new e-commerce act and a new sale of goods act. These acts are implementations of two EU Directives: The European Parliament and Council Directive 2000/31/EC of 8 June 2000 on Certain Legal Aspects of Electronic Commerce in the Internal Market and the EC Directive on Certain Aspects of Consumer Sales and Associated Guarantees (99/44/EC). The 2003 Finance and Appropriation Act will provide an additional DKK 5 million to strengthen the consumer area. The Government is also working on a reform of the Complaints Board Act, designed to induce the corporate sector to assume responsibility and resolve complaints brought against it through publicly recognised private complaints boards. The past year saw the emergence of a new recognised private complaints board for unit trusts. Government subsidies Denmark is slightly above the EU average in terms of its level of government subsidies. Danish government subsidies thus accounted for an average 1.17 per cent of GDP dur 14 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets ing the period from 1998 to 2000, compared with 1.08 per cent of GDP2 for the EU as a whole. In Denmark, government subsidies primarily take the form of horizontal subsidisation, meaning that it targets market flaws without taking sector-specific or geographical conditions into account. Thus 90 per cent of Danish government subsidies took the form of horizontal subsidisation in the period from 1998 to 2000, compared with 39 per cent for the EU as a whole, see Figure 2.8. Figure 2.8 Composition of government subsidies, average for the period 19982000 0 10 20 30 40 50 60 70 80 90 100 Denmark EU-15 Per cent 0 10 20 30 40 50 60 70 80 90 100 Per cent Horizontal Sector Regional Source: State aid scoreboard, spring 2002, Commission of the European Communities. In the period from 1998 to 2000, horizontal subsidies were earmarked mainly for environmental and energy purposes, job training and R&D. In its 2003 Budget Proposal, the Government has proposed to reorganise government subsidies to reflect the Government’s preference for horizontal subsidies over direct corporate subsidies, i.e. sector-related subsidy schemes. For example, the Government proposes to reduce the subsidies awarded to the tourism industry, while instead increasing research funds. 2.A.2 Policy with implications for the product markets: Framework conditions, entrepreneurship, taxes, etc. Entrepreneur policy Denmark is hovering around the European average for business start-ups and the administrative workload involved in starting up a business in Denmark is relatively light. 2 See State aid scoreboard, spring 2002, Commission of the European Communities. Ministry of Economic and Business Affairs, November 2002 15 Structural reforms of the Danish product and capital markets Given that entrepreneurs may be an important source of corporate innovation and development, the Government aims for Denmark to perform even better in the field of entrepreneurship. Against this backdrop, the Government has launched a number of initiatives on business and corporate taxes, among other things, to improve conditions for entrepreneurs. These initiatives include: • improvement of the tax possibilities to issue shares and share options to employees as part of their remuneration • improvement of the possibilities to save up to start a new business • enhancement of the credit terms for VAT payments by small-sized business • enhanced opportunities for close associates to be part of a business ownership transfer • abolition of the time limit for loss and deficit carryforwards • the succession limit is raised for acquisition of businesses with a large number of financial assets Moreover, several initiatives have been taken to reduce the administrative workload, see Annex 4.3. These initiatives will in large measure benefit entrepreneurs. Entrepreneurial action plan In the beginning of 2003, the Government is scheduled to launch its entrepreneurial action plan. This action plan will set out the Government’s bids for specific political initiatives in the field of entrepreneurship. A number of focus areas are at the heart of these initiatives, which are the next steps in the shake-up of the Danish economy initiated by the Government in its Determined Growth report. The entrepreneurial action plan will focus on how to strengthen the risk-taking willingness that is a precondition for a vibrant entrepreneurial culture. Another cornerstone of the action plan is how to make the general framework conditions even better. Fiscal policy in general After taking office, the Government has introduced significant fiscal policy changes founded on the fact that Danish taxes are high by international standards. The Government has introduced a freeze on taxes and its overarching fiscal policy aim is to lower taxes in Denmark in the years ahead. It should be worthwhile for people to work and “go the extra mile”, seeing that this a precondition for a healthy economy. The Government is working to ensure the necessary economic room to manoeuvre to lower income taxes from 1 January 2004. Overall fiscal policy strategy The Government has introduced a freeze on taxes, taking full effect from 2002. The tax freeze has the following implications: • No direct or indirect tax can be increased. 16 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets • If a direct or indirect tax is levied as a percentage (for example VAT), the percentage will not be raised. • If a direct or indirect tax is levied as a DKK amount per unit (for example petrol or diesel taxes), the DKK amount will not be raised. • Should there be compelling reasons to introduce or raise a direct or an indirect tax, the entire additional revenue generated will be used to lower another direct or indirect tax. • A ceiling is imposed on the DKK amount paid by homeowners in property value tax. Property value increases will thus not trigger additional property value tax. In addition to ensuring that taxes do not rise, the tax freeze means that the control and prioritisation of the public expenditure policy is strengthened. Public administration, etc. Freedom of choice is the cornerstone of the Government’s strategy to modernise the public sector. The Government aims to strengthen the individual citizen’s opportunity to choose from different solutions in terms of the services offered by the public sector. To that end, the Government will create a clear framework and conditions for private businesses to be increasingly involved in providing public-sector services – the rationale being to foster innovative and efficient solutions. The initiatives in this field are presented in detail in Section 2.C. In August 2002, the Government introduced its action plan for simplification of rules and administrative relief. The action plan sets out 198 proposed simplifications, aimed at providing administrative relief for citizens and businesses and abolishing unnecessary public-sector rules. Some of the proposals may be immediately implemented, while others must be analysed in detail. All ministries will work on the proposals related to their particular fields. They are also responsible for ensuring that new simplification ideas are developed on an ongoing basis. The Government will also ensure that areas are continuously selected for analysis of possible cross-ministerial simplification of legislation and administration. The proposed simplifications to benefit businesses include an analysis of the possibility of giving small businesses access to simpler VAT and tax payment procedures. The Government also aims to reduce the administrative workload of businesses by removing their obligation to withhold back payments to public authorities from the pay of their employees. In October 2002, the Government decided to appoint a Structural Commission to look into and assess the pros and cons of alternative models for organizing the public-sector, on the one hand, and put forward recommendations for sustainable changes. In its assessment of pros and cons, the Commission must take into consideration factors such as efficiency, quality of services, clarity of allocation of responsibilities, subsidiarity and democratic control. The Structural Commission will be tasked with assessing the geographic and demographic criteria (including the size of counties and municipalities) to Ministry of Economic and Business Affairs, November 2002 17 Structural reforms of the Danish product and capital markets serve as the basis for the subdivision of the country into counties and municipalities in the years ahead. In that connection, the Commission must assess the pros and cons of various models for a new division of tasks between the central government, the counties and municipalities based on any recommendations of revised sizes of counties and municipalities. Finally, the Commission must evaluate the pros and cons of reducing from three to two the number of public administrative bodies with a management elected directly by the people. The work of the Commission must be completed by the end of 2003. 2.A.3 Energy and other network industries The electricity sector With the passing of the Electricity Reform back in 1999, it was agreed that electricity markets were to be fully opened to competition by 1 January 2003. In order for the market opening to be efficient, it must be easy for electricity consumers to change supplier. At the same time, it is vital to ensure a sufficient degree of transparency in order for competition to be real and efficient. Against this backdrop, the Government will follow developments closely. To that end, several initiatives will be taken. For example, the consumer complaints area will be revamped to ensure that consumer options for submitting energy complaints are enhanced. In the liberalisation of the Danish electricity markets, it has complicated matters that electricity suppliers are currently under an obligation to purchase the electricity generated by decentralised heat and power stations and windfarms (prioritised electricity generation). Under the rules currently in force, this means that the consumers – even after the market has been fully liberalised on 1 January 2003 – will be able to choose their electricity supplier for deliveries representing only 60 per cent of their consumption. This state of affairs will be changed as part of the Government’s initiative. Prioritised electricity will be replaced by financial subsidies to be financed via the electricity bill – the advantage being, on the one hand, that all electricity producers become subject to competition at the same time and, on the other, that environmental considerations are brought to bear. In a political agreement made in June 2002, it was decided to reduce government subsidies for wind power paid via the electricity bill. The agreement means, that the Government postpones the introduction of the market for "Green certificates" (certificates for renewable energy-based electricity), which according to the Electricity Reform should have been introduced 1 January 2003 with a guaranteed subsidy for renewable energy between DKK 0.10 and 0.27/kWh. Instead a financial support of DKK 0.10/kWh, corresponding to the CO2 tax on electricity, is introduced. The total ceiling for the financial support and the market price for electricity is DKK 0.36/kWh. The financial support has a 20 years time limit. This agreement reduces the subsidy for wind turbines of about DKK 2bn in the period 2003-2008. 18 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Wishing to give consumers more choice in the production method of their electricity supplies, the Government will speed up the introduction of a labelling scheme for electricity produced by renewal energy (RE) plants in compliance with the demands put forward by the EU Directive on renewable energy. The RE certificates will give consumers added choice, while at the same time allowing producers to take advantage of new market prospects for the production of green electricity across national borders. Electricity grid companies The cost of transmitting energy through the electricity grid, including reading of meters and subscription, accounts for an average of 45 per cent of the electricity price, excluding taxes and VAT, for the ordinary household. For corporate customers with a large electricity consumption, that percentage is somewhat lower. In other words, efficiency enhancement of the grid companies takes centre-stage in the efforts to achieve more competitive electricity prices. We have yet to see an actual wave of rationalisations in the form of mergers between the grid companies. Denmark still has 100 electricity grid companies and the net costs still vary greatly from one company to the next. The top two or three companies are two or three times more efficient than the least efficient companies. Thus, there is ample scope for efficiency enhancements. It is believed that for the companies collectively, it is a realistic long-term objective to reduce current distribution costs by 50 per cent. Capital position Subject to the Electricity Reform, historical accounts for the “non-profit” period between 1977 and 2000 must be prepared. This will result in a division between free equity being at the disposal of the companies themselves and tied-up capital being intended for the benefit of consumers. The companies must prepare the accounts and the independent authority, the Energy Regulatory Authority, must approve the amount of free equity. The tied-up capital must benefit consumers by a reduction of grid tariffs over a period of time. The Energy Regulatory Authority is expected to make its specific decisions on the size of the free equity and the tied-up capital in the forthcoming period. Once the historical accounts have been prepared, the companies will have an added incentive to enhance the efficiency of operations, thus preparing for the keener competition of the future. The liberalisation proposal suggests that a revenue cap framework should be introduced to encourage the grid companies to engage in structural rationalisation programmes designed to ensure permanently low tariffs for grid services. In the short term, a reduction of grid tariffs should be achieved through swifter retransfer of the tied-up capital to the consumers. If the grid companies transferred back all their tied-up capital, electricity prices could be reduced significantly (in the order of DKK 0.06/kWh for the benefit of the consumers) for a period of 10 years. Ministry of Economic and Business Affairs, November 2002 19 Structural reforms of the Danish product and capital markets Equal access to the electricity grids is crucial for the success of the liberalisation process. The best way to ensure equal access is through a clear ownership separation of the natural monopoly areas (systems responsibility and overall electricity transmission) from activities subject to competition, such as electricity production and trading. This method has been used by several other European countries. The gas sector All natural gas consumers will be given free market access from 1 January 2004, at the very latest. Competition is still nascent in the natural gas area, however. Denmark is connected to the German natural gas grid, though the capacity of the connection is fairly limited. The laying of new gas pipelines to connect Denmark to the gas infrastructure of the North Sea may thus open up for competition in Denmark and increase the possibilities that Danish natural gas producers and DONG will succeed in establishing a presence in gas markets abroad. Like in the electricity sector, equal access to the gas infrastructure is crucial to the success of the liberation. The Danish natural gas market was developed in the wake of the second oil crisis in 1979/80 and is thus relatively young. This constitutes a problem for the natural gas companies which are under an obligation to repay their debts ahead of the liberalisation. Under the previous agreements, the natural gas companies were supposed to pay their debts by 2014. The liberalisation proposal will change this assumption given that it is inexpedient to operate with a goal of repayment of the debt in full before the distribution networks are old and completely outdated. The liberalisation proposal paves the way for a scheme of debt repayment that will lead to a normalisation of the capital position of the natural gas distribution companies. This will make it possible to lower gas tariffs in the short term and ensure a more steady development in grid tariffs in the longer term. Lower tariffs will serve to stimulate competition and sharpen the competitive edge of natural gas towards alternative fuels. A future privatisation of DONG, the government-owned natural gas utility, will be planned so as to ensure equal access to the infrastructure. As far as district heating is concerned, the Government will look into the possibility of giving areas with a large, coherent district heating network and supply reliability access to a freer supplier choice in the longer term. Supply reliability It is absolutely crucial to ensure that the liberalisation process is planned so as to ensure optimum supply reliability. The regulation of the grid companies should promote stability and ensure high-quality grid and systems operations. The systems responsible electricity 20 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets companies must join forces with the main gas transmission company to ensure that the gas and electricity system is always in good working order and does not break down. As opposed to the transmission of energy, production and supply must be subject to competition. Thus it should be left to the market to ensure that the producer/supplier is actually able to make the physical delivery of energy at the agreed time. What we have here is ultimately a supplier/customer relationship. Investments in energy production plants are often large, long-term investments. Thus a stable investment framework is called for to allow market forces to balance supply and demand. An important task ahead of the liberalisation is to establish effective framework conditions for the construction of new electricity and heat production plants to enable the market to shoulder the responsibility for the physical delivery of energy. These framework conditions must also take environmental challenges into account. By the end of 2003, the Government, in collaboration with the systems responsible companies, will establish a framework to ensure that the decentralised heat and power stations will be able to do their part when it comes to ensuring supply reliability. In the gas market, the separation of gas grid activities from gas trading will mean that the company operating the gas grid will also be responsible for the technical stability of the grid. The telecommunications sector The Danish telecommunications market is a market of growth. Boosted by keener competition and increased consumption of Internet and telecommunications services, overall sales and investment in the market have been showing a marked upward trend for a number of years. Table 2.2 Annual investment in the Danish telecommunications sector 19922001 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 DKK m 2,694 2,642 2,993 3,078 4,734 5,872 7,218 6,879 9,015 10,646 As percentage of GDP 0.3 0.3 0.3 0.3 0.4 0.5 0.6 0.6 0.7 0.8 Source: The National IT and Telecom Agency. The liberalisation has thus paved the way for growth in the sector and there has been a substantial increase in funds for development of services and networks, see Tables 2.2 and 2.3. Ministry of Economic and Business Affairs, November 2002 21 Structural reforms of the Danish product and capital markets Table 2.3 Annual sales in the Danish telecommunications sector 1992-2001 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 DKK m 15,807 16,449 17,803 18,880 21,116 23,003 25,193 30,920 33,750 35,082 As percentage of GDP 1.8 1.8 1.8 1.9 2.0 2.1 2.2 2.5 2.6 2.6 Source: The National IT and Telecom Agency. Just under 60 telecoms companies are currently operating in the Danish market. In August 2002, personal customers had access to the services of 12 nationwide providers of fixed-line telephony in Denmark. There were 14 providers of mobile telephony and 12 nationwide providers of Internet access. On top of that, there were a number of small, local providers, offering various kinds of telephony and Internet access as well as providers catering to corporate customers only. During the period from August 1998 to August 2002, fixed-line telephony charges were reduced by approximately 20 per cent, see Table 2.4. Mobile telephony charges declined by 28-32 per cent and traditional-style Internet access charges (dial-up) were more than slashed in half. Table 2.4 The cheapest offer in the market 1998-2002 Quarterly consumption Month/year Fixed-line telephony 900 minutes Mobile telephony 270 minutes Mobile telephony 450 minutes Internet 600 minutes August 1998 DKK 644 DKK 477 DKK 651 DKK 170 August 1999 DKK 648 DKK 477 DKK 574 DKK 95 August 2000 DKK 559 DKK 447 DKK 540 DKK 83 August 2001 DKK 560 DKK 380 DKK 514 DKK 80 August 2002 DKK 565 DKK 357 DKK 514 DKK 83 Change 98-02 (current prices) down 12% down 25% down 21% down 51% Change 98-02 (fixed prices) down 20% down 32% down 28% down 56% Source: The National IT and Telecom Agency. TDC boasts more subscribers of fixed-line, mobile and Internet services than any other operator in the Danish market. The other major operators in the market have, however, eaten into TDC’s market share in all sub-markets. Thanks, in particular, to the increased number of registrations for pre-selected or fixed operators, the other operators in the market have won market shares in telecoms traffic. By the end of 2001, some 3 million Danish subscribers had registered for pre-selected or fixed operators. By the end of the first half of 2002, this number had increased to almost 3.2 million. Mobile subscriptions have been surging in the past two years. By the end of the first half of 2002, there were just under 4.2 million mobile subscribers in Denmark, taking the number of mobile subscribers to 77 per 100 inhabitants. Four operators have currently established GSM mobile networks in Denmark. On top of that, a number of companies offer mobile services by renting access to these networks. In October 2001 3G licences 22 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets were awarded in Denmark to four different operators. One of the licences was awarded to the operator HI3G, which is a newcomer to the Danish telecoms market. The volume of SMS messages (short text messages) has shown a marked increase in the past year. From the first half of 2001 to the first half of 2002, the number of SMS text messages soared by 46 per cent – from 619 million to 906 million messages. Danish mobile customers seem poised to take advantage of the option for keeping their existing telephone number if they change mobile operators. In the first half of 2002, 132,000 customers took advantage of the number porting option. Denmark currently has almost 2.3 million mobile subscribers (business and personal). An ever increasing number of subscribers use one of the fast access routes, such as ISDN, ADSL or cable modem. In mid-2002, approximately 14 per cent of all Danish households and small and medium-sized businesses subscribed to a fast Internet route (ADSL, cable modem, fibre or FWA). Compared with subscribers in other countries, Danish subscribers have easy access to fast access routes to the Internet – and these routes are popular. Denmark is a European leader in terms of the penetration of ADSL services and Danish ADSL charges are among the lowest in Europe. Analysis3 shows, that only three countries (Belgium, Sweden and France) have lower average prices (monthly rent for 1 Mbit/s) than Denmark for connections via ADSL. Danish subscribers have a choice of various technologies when they want to establish high-speed Internet connections, including ISDN, ADSL and cable modem, which are the most widely used technologies, see Figure 2.9. Other options are FWA (Fixed Wireless Access) and the increasingly popular LANs (local networks) in housing associations and societies, students’ residences, etc. 3 Analysis by Teligen (UK), May 2002. Ministry of Economic and Business Affairs, November 2002 23 Structural reforms of the Danish product and capital markets Figure 2.9 Availability of ISDN, ADSL, cable modem* and FWA in mid-2002 (Number of households and SME) 0 20 40 60 80 100 120 End-1999 End-2000 Mid-2001 Mid-2002 Per cent 0 20 40 60 80 100 120 Per cent ISDN ADSL Cable modem* FWA (3.5 GHz) Note * Per cent of households with access to upgraded cable television networks/shared antennas relative to the total number of households with access to cable television networks/shared antennas. Source: The National IT and Telecom Authority, Kortlægning af hurtige adgangsveje 2002. There has been a steep increase in the popularity of fast access routes. This applies, in particular, to ADSL. In mid-2002, Denmark had 233,000 ADSL subscribers, see Figure 2.10. Thanks to a very low charge for renting “raw copper” in Denmark, there is a certain amount of competition in the Danish ADSL market, based on access to raw copper (ULL). This is not the case in most other European countries. The monthly rent for raw copper is about 40 per cent lower in Denmark than the EU-average.4 The positive trend is also reflected in the increase of cable modem subscribers. The half- yearly statistics issued by the National IT and Telecom Agency show that the number of cable modem subscribers has been surging in the course of the last 12 months, jumping from 60,000 to just over 122,000, see Figure 2.11 (equivalent to an increase of more than 100 per cent). 4 Cf. EU Commission: DG INFO/A2, ONPCOM01-27 REV.2. 24 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Figure 2.10 Penetration of ADSL services in Denmark 2000 - 2002 0 50,000 100,000 150,000 200,000 250,000 August 2000 End- 2000 March 2001 July 2001 End- 2001 July 2002 Subscribers 0 50,000 100,000 150,000 200,000 250,000 Subscribers Source: The National IT and Telecom Agency. Figure 2.11 Penetration of cable modems in Denmark 1999 - 2002 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 End- 1999 April 2000 End- 2000 July 2001 End- 2001 July 2002 Subscribers 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 Subscribers Source: The National IT and Telecom Agency. Much emphasis is placed on enhancing transparency in the telecoms market to help stimulate competition. Four times a year, the National IT and Telecom Agency publishes a price guide, comparing the offers and charges of the various telecoms operators. Moreover, a number of interactive WEB services have been established to give consumers up-to-date information on the services and offers available in the market. The latest initiative is an interactive Internet quality guide, launched in December 2001. This service Ministry of Economic and Business Affairs, November 2002 25 Structural reforms of the Danish product and capital markets allows consumers to check the quality of their Internet connection and compare various Internet providers. Moreover, telecoms regulators focus on ensuring low wholesale prices in the market to pave the way for real competition. Denmark is among the European countries boasting the lowest charges for access to raw copper, interconnect prices and renting of infrastructure capacity (fixed circuits). Since September 1999, the National IT and Telecom Agency has been making decisions on an ongoing basis – based on the "best practice method" – to lower TDC’s interconnect prices. The latest reduction was introduced in February 2002 when TDC’s local interconnect prices were cut by 20 per cent. This decision was based on a comparison of the prices of access and termination charged in three countries (the UK, France and Ireland). Thanks to the National IT and Telecom Agency’s best practice decisions, interconnect prices have been reduced by an average of about 20 per cent per year since 1996. 2.A.4 The knowledge-based society We need to become better at developing and using new knowledge and technology in Denmark in order to enhance and sustain economic growth. Denmark is lagging somewhat behind the leading European countries in a number of research and development fields. Danish R&D efforts, in the private sector in particular, are relatively moderate, see below. Collaboration between public and private-sector researchers is modest and the number of graduates with research-oriented education is not very high. In the light of this state of affairs, the Government has launched a number of initiatives to increase Danish R&D efforts, etc. Research and development (R&D) In 2000, overall R&D expenses in Denmark amounted to roughly DKK 26.9 billion5, equivalent to just over 2 per cent of GDP, see Table 2.5. (No statements are currently available of the innovation efforts, but an analysis is expected in the spring of 2003). If we look at developments over an extended period of time, it appears that R&D expenses have been rising, albeit at a declining rate. No data are available for private-sector R&D expenditure in 2000. Consequently, R&D expenditure in Denmark in 2000 is computed using an estimate of private-sector R&D. The 2001 figures are not yet available (The Danish Institute for Studies in Research and Research Policy: Forskning og udviklingsarbejde i den offentlige sektor, Forskningsstatistik 2000). 26 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Table 2.5 Denmark’s R&D expenses as a percentage of GDP, 1991-2000 Sector 1991 1993 1995 1997 1998 1999 2000 Private sector 1.0 1.0 1.1 1.2 1.3 1.3 1.3 Public sector 0.7 0.7 0.8 0.8 0.8 0.8 0.8 Total 1.6 1.7 1.8 1.9 2.1 2.1 2.1 Source: The Danish Institute for Studies in Research and Research Policy: Forskning og udviklingsarbejde i den offentlige sektor - Forskningsstatistik 2000 (June 2002). The Fiscal Law for 2003 has appropriated an additional just over DKK 3 billion to bolster and shake up efforts in research, innovation, etc. The appropriation should be seen in light of the fact that a number of research programmes are due to expire; hence, the appropriation is necessary to ensure a stable framework for Danish research and innovation efforts in the years to come. The appropriation will mainly be for the University Reform (cf. below) and to innovation activities, which can improve the cooperation between public sector researchers and private sector enterprises. Furthermore priority will be given to the Danish Research Councils, including the establishment of a new strategic research council. Aiming to enhance collaboration between businesses and public-sector research institutions, the Government in its report “Improving Competitiveness” introduced an attractive tax credit scheme. The scheme, which is a pilot scheme to apply in 2002 and 2003, took effect on August 2002. Under the scheme, businesses may achieve a tax credit of 150 per cent for payments made to public institutions, provided the payment is made as part of a collaboration on a research project or a research school. Starting on 1 July 2002, Denmark introduced a green card scheme designed to make it easier for businesses to obtain work permits for foreign nationals with qualifications in high demand. Moreover, the scheme of supplementary taxation of foreign key employees6 has been abolished to enhance Denmark’s ability to attract and retain foreign key workers. In October 2002, a political agreement was reached on a University Reform. The Reform aims, among other things, to strengthen university managements and open up the universities in order to ensure closer collaboration between the universities and the surrounding community. The University Reform, as a new feature, paves the way for employed managers and establishes a strengthened strategic management framework. These measures are supported by university boards on which representatives of the surrounding community will form a majority and take the chair. 6 In their first three years in Denmark, foreign researchers and key employees may choose be taxed at 25 per cent of their gross income. After the expiry of the tree-year period, they will be taxed according to ordinary taxation rules. Until now, key employees staying in Denmark for an extended period of time have been subject to special rules for supplementary taxation of this tax advantage. Ministry of Economic and Business Affairs, November 2002 27 Structural reforms of the Danish product and capital markets The information society Information technology (IT) investment is an important source for obtaining new knowledge. In general, Denmark is well placed when it comes to using IT. In fact, Denmark is one of the world leaders in terms of Internet use by citizens as well as businesses. Sixty- seven per cent of all Danish households own a computer, while 54 per cent have Internet 7 access. Denmark is also among the world leaders when it comes to businesses’ use of IT. More than 90 per cent of all companies with 20-49 employees have access to the Internet8. Denmark is surpassed only by Finland and Internet use in Denmark is thus above the average of the benchmark counties. Denmark takes the lead where larger businesses are concerned. Figure 2.12 shows that the lion’s share by far of all Danish businesses have access to the Internet, while more than 60 per cent have their own website. On the other hand, only just over 30 per cent place orders online and a mere 20 per cent receive orders online. There is reason to believe that these figures will go up in the future, however, as Danish businesses have high hopes for the future prospects of e-commerce. Eighty-one per cent expect their business-to-business e-commerce volumes to rise, while 45 per cent expect their customer-to-business9 e-commerce volumes to go up. Figure 2.12 Businesses’ use of IT, as a percentage of all businesses, 2001 0 20 40 60 80 100 Per cent 0 20 40 60 80 100 Per cent IT (1) Internet access (2) Own website (3) High-speed connection (4) Have placed orders online (5) Have received orders online (6) 1 2 3 4 5 6 Source: Statistics Denmark: Danske virksomheders brug af IT, 2001 (March 2002). 7 The Ministry of Science, Technology and Innovation: Danmarks IT-status 2002. (2002). 8 OECD: STI Scoreboard - Towards a Knowledge-based Economy (2001). 9 The Ministry of Science, Technology and Innovation: Danmarks IT-status 2002. (2002). 28 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets A number of barriers have to be overcome in order to increase the popularity of purchasing and selling goods and services online. Businesses cite as the primary barrier that their goods and services are not suited for e-commerce. Three out of ten businesses share this opinion. Another fundamental barrier to e-commerce is lack of customer potential, cited by almost one in five businesses as being of major importance, while 15 per cent consider uncertainty in online payment services to be a major obstacle.10 IT is already widely used in the public sector. All ministries, counties and municipalities have their own websites. In 40 per cent of all public-sector websites, forms are available for the citizens to fill in and submit online. Most municipalities offer a wide range of online services to its citizens – one of which is electronic payment, which is a rapidly expanding area. IT infrastructure and online services to citizens and businesses are areas targeted for IT investment11 by most public institutions. In May 2002, the Government appointed a cross-ministerial committee of civil servants. The committee was commissioned, among other things, to draw up a strategy for the future integration of IT in primary and lower secondary school, including procurement of the necessary computers. The committee has to complete its work at the beginning of 2003. Box 2.1 presents additional examples of a number of specific initiatives in the field of information technology. Box 2.1 Examples of IT-related initiatives, etc. IT research An amount of DKK 25 million has been earmarked to carry on the Centre for IT Research in 2002. The core area of the Centre is to strengthen the research collaboration between universities and the corporate sector in terms of research in communications systems, data security and new trading patterns in the digital economy. In practice, the collaboration takes the form of co-funded partnerships between universities, companies and the Centre. Digital signature The Government has appropriated DKK 50 million to promote the use of digital signatures. About DKK 40 million of this amount will be allocated – subject to application – to public authorities, poised to launch new Internet services using digital signatures. The aim is for the digital signature to facilitate and enhance the efficiency of communication between the individual company or citizen and the public sector. A large-scale marketing campaign is at the heart of the project, targeting central and local government authorities and seeking to encourage these authorities to use IT security solutions based on digital signatures in their electronic service offers. 10 The Ministry of Science, Technology and Innovation: Danmarks IT-status 2002. (2002). 11 Based on data presented by the Ministry of Science, Technology and Innovation in: Danmarks IT-status 2002. (2002). Ministry of Economic and Business Affairs, November 2002 29 Structural reforms of the Danish product and capital markets Box 2.1, continued Action plan for e-commerce 2002 The action plan sets out a range of specific initiatives designed to increase the popularity of e-commerce in the public and private sectors. The initiatives include increased use of e-commerce in the public sector, enhanced security and knowledge about e-commerce. The Government has appropriated just over DKK 9 million to fund the initiatives, which are due to be implemented in the autumn of 2002 and will come up for evaluation towards the end of 2003. Nanotechnology – a Danish research focus area The Government will appropriate DKK 135 million to fund nanotechnology research activities in the period from 2003 to 2005. Nanotechnology is a so-called generic technology, that is: a technology that will become popular across sectors and industries. Across the world, nanotechnology is considered not only to be a growth area, but the actual backbone of the next industrial revolution. Hence it is vital for Denmark to focus on this area in order to enhance and sustain our long-term economic and technological competitiveness. 2.A.5 Environmental policy The Government aims to develop an environmental policy that combines a clear responsibility for our surroundings with a realistic international collaboration to reduce pollution where the best possible return on the effort expended is ensured. With a view to getting more environment for the money, the Government will look into the possibilities of practical use of market-oriented tools to help create a better environment. The report on green market economy is due to be published within few months. The Government has set up the Institute for Environmental Assessment. The Institute is commissioned to establish an overview, using research, of the current and long-term environmental situation in Denmark as well as globally; to assess the efficiency of environmental initiatives; and to share this knowledge and insight with the public as well as political decision-makers. Denmark’s national strategy for sustainable development Fælles fremtid – udvikling i balance was presented in June 2002. The Danish vision of sustainable development is based on eight targets and principles: 1. The quality of the welfare systems should be developed and the correlation between economic growth and environmental stain should be severed 2. There should be a safe and healthy environment for all, and a high level of protection is to be maintained 3. We should ensure a high degree of biodiversity and protect the ecosystems 4. Resources should be put to optimum use 5. We should be active internationally 6. All sectors should take environmental considerations into account 7. The market should support sustainable development 8. Sustainable development is a common responsibility and we should measure the progress made 30 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Denmark has ratified the Kyoto Protocol. With the Danish Parliament’s decision to ratify the Protocol, Denmark has committed itself to reducing greenhouse gas emissions by 21 per cent relative to the 1990 level. This is probably the most ambitious target in the EU. Denmark must meet its climate commitment in a cost-effective manner, finding the least expensive solutions. We must take advantage of the possibilities of using the flexible mechanisms of the Kyoto Protocol (Clean Development mechanism, Joint implementation and quota trading). A committee, which is due to report on its findings by the end of 2002, is commissioned to assess the use of the flexible mechanisms. The Government aims for the Danish electricity market to be fully opened to competition in 2003 and for the gas market to be liberalised in 2004, see Section 2.A.3. Hence, we must ensure that environmental considerations in the energy sector are in harmony with increased liberalisation and keener competition. This means, for example, that the CO2 regulation of Danish electricity supplies must be adjusted to the international electricity market. In other words, freely tradable CO2 quotas are an important means to regulating Danish CO2 emissions. The Government is planning to set up task forces designed to ensure a good foundation for the upcoming negotiations on Water Environment Plan III, which is to replace the existing Water Environment Plan II. The task forces will be commissioned, among other things, to map and analyse existing general (nationwide) and regional models for the regulation of the emission of nutrients from agriculture and to draw up a proposal for a phosphorous strategy. Moreover, the task forces are to offer proposals for new general models, including economic and financial measures, to facilitate a simpler and more efficient regulation of the corporate sector’s total nutrient emissions. 2.B The capital market and the financial sector 2.B.1. Rules and supervision The financial system in Denmark is a so-called continental system, placing the emphasis on bank and mortgage credit finance. This is reflected in the fairly small size of the equity market and the moderate number of new listings. The indicators for wages, salaries and earnings indicate that further competition is needed in the banking sector. The Government’s strategy focuses on the following areas: • Strengthening of market forces and transparency • Financial integration and EU action plans • Strengthening of the market for venture capital Strengthening of market forces and transparency The international corporate scandals coming to light in the past year have brought corporate governance into focus. Aiming to strengthen the concept of corporate governance, the Danish Parliament in October 2002 adopted a proposal to establish a Danish insider register. The proposal implies that the purchase and sale of shares by directors, managers and key employees is to be published via the information system of the stock exchange or authorised marketplace in question. The ban on insider trading previously applied to listed securities only. Now it has been extended to include unlisted securities. In April Ministry of Economic and Business Affairs, November 2002 31 Structural reforms of the Danish product and capital markets 2002, the Danish Parliament also resolved to repeal the former statutory requirement stipulating that public representatives were to serve on the boards of financial companies; the rationale being that this requirement was believed to be contrary to the principles of optimum professionalism and independence in board work. International comparisons have shown that Denmark provides good creditor protection, while our shareholder protection is slightly less impressive, see Figure 2.13 and Determined Growth. It should be noted, however, that Figure 2.13 may underestimate Danish shareholder rights. Danish limited liability companies are regulated by the so-called general clauses, which generally protect the shareholders and which are to take the place of specific measures regarding voting procedures, pre-emption rights etc., which are summarised by the Figure. Figure 2.13 Rights pertaining to loans and minority shareholder rights DEU DNK GBR SWE NLD FRA FIN IRE USA 0 1 2 3 4 5 6 0 1 2 3 4 5 Creditor rights Shareholder rights 0 1 2 3 4 5 6 Shareholder rights Note: The index for creditor rights summarises information on the procedures applying in connection by bankruptcies, etc., including information on legal conditions preventing creditors from staking a claim on assets in connection with a restructuring of the company and information on whether the incumbent management or a legal authority will be in change of a possible restructuring. The index for shareholder rights summarises information on the possibilities of voting by mail for a general meeting, on voting procedures, the proportion of shares required to call an extraordinary general meeting and on whether shareholders have pre-emptive rights to purchase new shares. Source: LaPorta et.al. (1998). Still, the Government focuses on the area and is planning to introduce a bill in February 2003 to amend the Danish Companies Act. The bill proposes to authorise electronic general meetings under the express provisions of the Companies Act. This amendment to 32 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets the Companies Act is designed to ease the hassle of participating in general meetings, given that voting can be conducted by letter, e-mail, online, etc. Electronic general meetings are believed to benefit small shareholders, in particular, whose incentive to appear in person at a traditional general meeting is limited. The Government’s proposed amendments to the acts on state-authorised public accountants and registered public accountants, scheduled to be introduced in the early months of 2003, are also expected to enhance the position of investors. The proposals aim to enhance the statutory independence of accountants and do away with superfluous restrictions so as to make it easier for accountants to undertake consultancy work not conflicting with their role as public representatives. The proposed amendment thus strengthens the requirement for accountants to be independent when acting as public representatives, while at the same time liberalising accountants’ possibilities of offering other consultancy services. In order to follow up on the statutory independence of accountants, mandatory quality controls will be carried out on an ongoing basis. If the proposal is carried, Denmark will be complying with the EU Commission’s recommendation on quality assurance for the statutory auditor in the EU (put forward in November 2000) and the Commission’s recommendation on statutory auditors’ independence in the EU (May 2002). The market also takes initiatives to enhance transparency. Against the backdrop of a report on corporate governance prepared by a Danish group of experts in December 2001, the Copenhagen Stock Exchange has formulated a series of recommendations on openness and transparency, catering to the members of the stock exchange. The stock exchange members are under no statutory obligation to reply to questions regarding the number of annual board meetings, remuneration of directors and managers, directors with low meeting attendance, etc., but in 2002 the Copenhagen Stock Exchange appointed a committee to keep track of the companies’ reportings on these matters. The Government wants to establish clearer and better rules for good customer practices (“best execution”) in the financial sector. In March 2002, the authority to establish best execution rules was included under the remit of the Ministry of Economic and Business Affairs; before March 2002, this competence was shared by three authorities. In December 2002, the new structure is expected to result in an executive order on best execution rules for securities trading. Strengthening of the market for venture capital As mentioned in Chapter 1, the Government introduced a series of legal initiatives in Improving Competitiveness in January 2002, designed, among other things, to improve the conditions for small and newly established businesses. The initiatives are taken in order for Denmark to comply with the EU Action Plan for Venture Capital by facilitating business ownership transfers and enhancing the incentive for people to save up to start their own business, among other things. Improving Competitiveness also contains a proposal to ease and simplify taxation of remuneration in the form of shares, share options or warrants. A committee, commissioned to form an overview of the popularity of these forms of remuneration and possible barriers under employment law, will probably complete its work in February 2003. The Government continues its efforts to nurture the culture of Ministry of Economic and Business Affairs, November 2002 33 Structural reforms of the Danish product and capital markets entrepreneurship by presenting a new action plan in the beginning of 2003 entitled “More Entrepreneurs”. The EU Action Plan for Venture Capital considers insolvency and bankruptcy rules to be a possible barrier to the growth and well-being of new and innovative businesses. In 2001, a Bankruptcy Council was appointed to propose recommendations on a reform of the Danish Bankruptcy Act. The Government wishes to ease the rules applying to debt restructuring and reconstruction of insolvent companies, while at the same time taking the legal position of creditors into account. The Government is considering allowing pledging of current assets, such as cash holdings, stocks, intangible assets, etc. To that end, the Bankruptcy Council has been commissioned to assess the insolvency law implications of introducing this type of pledging, which is believed to strengthen the credit facilities open to small and medium-sized businesses. The Council must deliver its assessment by the turn of the year 2002-2003 In the autumn of 2000, the Danish Parliament adopted a series of legal initiatives, replacing the fixed 50 per cent share ceiling applying to pension companies by a flexible share ceiling based on the prudent-man principle. As a result, pension institutions, depending on their financial strength, were allowed to invest up to 70 per cent of their portfolios in shares. On the same occasion, the Danish Parliament adopted a proposal on innovation funds to give pension companies a better opportunity to invest in small and innovative businesses. As it turned out, the Act did not have the desired effect on account of the tax barriers in place. In January 2003, the Government will propose an amendment to ensure the requisite adjustment of the Danish tax legislation. Fiscal conditions may still hamper the equity markets and the financing of venture investments, however. For example, the rules of taxation applying to equity returns are fairly complex, especially to the little investor. Under the existing rules, capital gains on the sale of equities are taxed if equities are held for less than three years. If, on the other hand, equities are held for three years or more, the tax is cancelled, provided that the value of the equities does not exceed DKK 125,100. Acknowledging that these schemes are complex, the Government is considering the possibility of simplifying the rules. The Government is also looking into the so-called share lending schemes, that is: lending of shares and associated rights for a limited period of time. These schemes are fairly rarely used in Danish markets, which could possibly be explained by the current legislation. Financial integration and EU action plans The best way to ensure more efficient financial markets in Denmark is probably through closer international collaboration. Thus the EU Financial Action Plan has top priority with the Danish EU Presidency under which the Proposed Directive on Insurance Mediation has been adopted. A common position has also been reached under the Danish EU Presidency on the Directive on Financial Conglomerates and the Directive on Insider 34 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Trading and Market Manipulation, which both are expected to be finally approved in respectively November and December 2002. Furthermore, a political agreement has been reached on the Proposed Directives on Prospectuses and a common position has been reached on Occupational Pension Funds. Finally, the Danish EU Presidency is hoping to that the EFC's report on financial legislation, supervision and stability will be approved by the ECOFIN Council at its meeting in December 2002. 2.B.2. Market developments The Danish banking sector The Danish banking sector was concentrated further in 2001, see Figure 2.9, which shows the proportion of the sector’s balance sheet total held by the top five banks, the so-called CR5 ratio. Figure 2.14 The market shares of the top five banks 75 77 79 81 83 85 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Market share, per cent 75 77 79 81 83 85 Market share, per cent Note: The CR5 ratio provides a measure of the concentration of companies under Danish supervision. Source: The Danish Financial Supervisory Authority. The increase in the concentration ratio in Figure 2.14 is the result of a large-scale merger between Danske Bank and RealDenmark completed on 1 January 2001. Moreover, there has been a spate of mergers between small regional banks in the course of 2001 and 2002. The merger activity does not seem to have any major impact on either the branch structure or the number of bank employees. The number of jobs in the banking sector was reduced dramatically in the first half of the 1990s – from 51,000 jobs in 1991 to less than 40,000 in 1997; since then, there has been a slight upward trend in the number of employees to just under 41,000 in 2001. The number of branches has been reduced slightly over the past three years – from 2,188 in 1999 to 2,100 in 2001. There is continuing confirmation of the drift towards a common Nordic banking market. In May 2001, the Swedish bank Svenska Handelsbanken acquired the Danish bank Midtbank Ministry of Economic and Business Affairs, November 2002 35 Structural reforms of the Danish product and capital markets and following share purchases in October 2002, the Swedish bank SEB acquired a 30.4 per cent stake in the Danish Amagerbanken. If the Nordic banking market is seen as an overall market, the concentration ratio is obviously smaller than indicated by Figure 2.14. In the course of the last four years, there has been a marked increase in the number of Danish banking clients entering into e-banking agreements with their banks. Thus the proportion of e-banking clients jumped from less than 10 per cent in June 1999 to 30 per cent in June 2002. This development is considered to be positive. At any rate, the sparse data material in Figure 2.15 hints at a possible correlation between e-banking penetration rates and the interest margins banks charge consumers and small and medium-sized businesses. Sweden and Finland both have low retail interest margins and high e-banking penetration rates, along with small branch networks and a small number of banking employees per capita. All things considered, the data seem to substantiate the hypothesis that e-banking leads to lower average charges and fees for consumers and small and medium- sized businesses (financial retail markets). Figure 2.15 Retail interest margins and e-banking penetration rates DEU FRA DNK FIN SWE 0 5 10 15 20 25 30 35 40 45 0 1 2 3 4 5 6 7 8 9 10 Interest margin, per cent E-banking penetration, per cent 0 5 10 15 20 25 30 35 40 45 E-banking penetration, per cent Note: The ECB's interest statistics are under construction and do not include all EU countries. In Denmark – as opposed to a number of other countries – housing loans typically take the form of mortgage credit loans, based on bond issues, rather than long- term bank loans. The interest margins shown allow for these differences by excluding housing loans. However, the computations do not take into consideration that the credit risk applying to the underlying loans may vary. The statistics will hopefully improve in 2003, once the ECB introduces its new MFI interest statistics. Sources: The European Central Bank and ECaTT National Report-Finland. 36 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets The insurance market Non-life insurance premiums jumped by just over 11 per cent from 2000 to 2001, equivalent to the overall increase in premiums during the four-year period from 1996 to 2000, commercial insurance premiums accounting for the largest increase. Damages payments rose by close to 4 per cent from 2000 to 2001. This is reflected in the so-called damages ratio, which is a measure of damages paid against premiums received. In 2001, the damages ratio was just over 82 per cent, compared with 87 per cent on average in the four preceding years. The increase in insurance premiums can be put down to soaring insurance costs in the wake of the September 11 attacks on America, including higher reinsurance costs. The computation of the true costs, and hence the level of premiums, is most uncertain given these circumstances. The market shares of the large life assurance companies have remained more or less unchanged during the last four years and the top five companies boast an overall market share of almost 75 per cent. As far as non-life insurance is concerned, the market share of the top five companies has jumped from just over 60 per cent in 1998 to more than 75 per cent in 2001. The main cause of the increase is the merger of TopDenmark Forsikring A/S and Danica Forsikring, skadesforsikringsaktieselskab, in 1999. Several of the large companies have acquired small companies this year. In September 2002, the Nordic financial group Nordea spun off its non-life business to Tryg Denmark smba. In the wake of the terrorist attacks, the international aircraft insurance industry reduced coverage for injury or damage to third parties caused by aircraft in connection with acts of war or terrorism. Against this backdrop, the Danish airlines announced that they were unable to continue operations. Following an agreement reached by the European ministers of finance and economic affairs at the unofficial ECOFIN meeting in Liege on 22 and 23 September 2001, Denmark introduced a scheme under which the Danish Government temporarily undertook to guarantee insurance payments for injury or damage to third parties from USD 50 million up to USD 1.75 billion per event for aircraft, airports and handling companies. The scheme was extended at one-month intervals up until the end of July 2002 at which time it was once again possible to take out insurance against terrorism in the private insurance market. The stock market The Danish benchmark equity index, the KFX, has plunged almost 35 per cent since 1 January 2001. Figure 2.16 shows that the turnover in the KFX equity market has fallen in step with prices. From the introduction of the Nordic SAXESS trading system in June 1999 up until August 2001, the Copenhagen Stock Exchange accounted for an ever-increasing proportion of the total Danish equity turnover. Subsequently, the Copenhagen Stock Exchange has been accounting for a stable proportion of the turnover, amounting to 70 per cent. In connection with the upcoming executive order on best execution rules in securities trading, due to be launched in December 2002, the pros and cons of channelling a higher Ministry of Economic and Business Affairs, November 2002 37 Structural reforms of the Danish product and capital markets proportion of equity transactions through the Copenhagen Stock Exchange are being considered. Figure 2.16 Price developments and equity turnover in the KFX equity index 0 1 2 3 4 5 DKK billion 0 100 200 300 400 500 KFX Index Average daily turnover, left axis KFX index, right axis Source: The Copenhagen Stock Exchange. Figure 2.17 Holdings of foreign equities 12 14 16 18 20 22 24 26 28 30 32 1994 1995 1996 1997 1998 1999 2000 2001 Per cent 12 14 16 18 20 22 24 26 28 30 32 Per cent Note: The figure illustrates Danish holdings of foreign equities as a percentage of the market value of the share capital in circulation at the Copenhagen Stock Exchange and the holding of foreign equities. Sources: The Danish central bank and the Copenhagen Stock Exchange. 38 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets As a result of the internationalisation of financial markets, Danish holdings of foreign equities started to pick up again from 2000 to 2001, following an unusually steep fall in 2000 at which time Danish equity prices outperformed most international equities, see Figure 2.17. Pension funds In 2000, several pension companies promised customers a rate of return of eight to nine per cent before tax. In the wake of the dramatic price falls it seemed, at one, point, that some institutions would be unable to live up to their promises. The guarantee of specific yields may have been a contributing factor to the divestment of low-priced equities in connection with portfolio reallocations, see Figure 2.18. Figure 2.18 Institutional investors’ equity holdings 0 10 20 30 40 50 60 1996 1997 1998 1999 2000 2001 Per cent of GDP 0 10 20 30 40 50 60 Per cent of GDP Sources: The Danish Financial Supervisory Authority and ECOWIN. As part of the objective of raising the industry’s awareness of financial risks, the Danish Financial Supervisory Authority in 2000 introduced a “traffic light surveillance” scheme targeting pension companies. The Danish Financial Supervisory Authority delivers an assessment based on half-yearly company reportings on capital strength and risks. A yellow light assessment prompts a call for enhanced vigilance, given that equity price falls of 30 per cent and interest rate changes of 1 per cent are believed to put the best interests of the policyholders into jeopardy. The red light comes on if minor equity price falls of 12 per cent and interest rate changes of 0.7 of a per cent will imply a risk for the policyholders. In October 2002, the Danish Financial Supervisory Authority turned on the yellow light for several companies and the red light for a single company. A new executive order took effect from the beginning of the 2002 financial year. Under this executive order, the reserves of the companies were boosted, seeing that their assets will subsequently be marked-to-market, rather than be valued based on historical cost. The new executive order serves to enhance the position of the companies. Ministry of Economic and Business Affairs, November 2002 39 Structural reforms of the Danish product and capital markets The venture capital area In 2001, Danish venture investments surged by 67 per cent to a total of DKK 2.4 billion, see Figure 2.19. For the first time ever, investments in the risky seed and start-up phases exceeded investments in the safer expansion phase. Figure 2.19 Venture investments as a percentage of GDP 2001 0.0 0.1 0.2 0.3 0.4 0.5 GREAUSPORFRAITAIREBELGERNORSPAFINDENGBRNEDUSASWE Per cent 0.0 0.1 0.2 0.3 0.4 0.5 Per cent Note: Venture investments are computed as the sum of investments in Seed, Start-up, Ex pansion and Replacement capital. The 67 per cent increase in the Danish column is believed to be attributable, in part, to statistical discrepancies as the former data un derestimated the actual size of Danish investments. Source: EVCA yearbook 2002. Though the increase in Danish venture investments is partly attributable to statistical mismeasurement, the trend depicted by Figure 2.19 is still satisfactory in view of the general decline in equity markets, placing Denmark in the upper third of the EU counties. In line with the international trend, the Danish growth index, the KVX, has taken a harder blow from the equity price falls than the benchmark index, see Figure 2.20, illustrating the price and turnover developments in the KVX market. The KVX market for growth companies in information technology, telecommunications, medical and biotechnology industries was launched on 1 September 2000. Up until 2001, Danish venture investments tended to target telecommunications, computer technology and electronics. Then the focus shifted to the biological/medical field (life sciences) and recently two new funds have been established, targeting this field for investment. Internationalisation has also left its mark on the venture market and foreign venture investments now account for 32 per cent of overall venture investments. The Growth Fund (set up as part of the Danish industrial promotion system) operates on a legal basis from 2001 and mostly targets private/public-sector co-funding. The Growth Fund exclusively focuses on market segments not considered to be attractive to the pri 40 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets vate investor if he were to enter the segment alone. In 2001, the Growth Fund accounted for 6-7 per cent of all Danish venture investments. Figure 2.20 Prices and turnover – the KVX companies 0 500 1000 1500 2000 2500 3000 3500 Sep. 00Nov. 00Jan. 01Mar. 01May. 01Jul. 01Sep. 01Nov. 01Jan. 02Mar. 02May. 02Jul. 02 DKK million 0 200 400 600 800 1000 1200 1400 Price Turnover ( left axis ) KVX price ( right axis ) Source: The Copenhagen Stock Exchange and Ecowin. 2.C Other reforms with implications for the product and capital markets: Public and private-sector collaboration – freedom of choice and keener competition Since taking office in November 2001, the new Danish Government has taken a series of initiatives designed to ensure freedom of choice for the citizens and sharpen Denmark’s competitive edge, while at the same time enhancing the quality and efficiency of public funds utilisation. The Danish Competition Authority and the National Consumer Agency have joined forces to look into competition for public sector tasks12. The analysis investigates targets for the number of public tenders, the degree of freedom enjoyed by the consumers, and for whether utilities services have become subject to competition as a result of liberalisation. The composite indicator for these targets shows that Denmark ranks in the middle of the 26 OECD countries. In fact, Denmark ranks in the middle for all three indicators. The reform programme “Welfare and Free Choice”, launched in May 2002, was the Government’s initial bid on how to enhance the freedom of choice. The reform programme focuses on enhancing the quality of public-sector services through free choice in areas 12 See the Danish Competition Authority and the National Consumer Agency: Velfungerende Markeder - til fremme af vækst og velfærd, 2002. Ministry of Economic and Business Affairs, November 2002 41 Structural reforms of the Danish product and capital markets such as childcare, elderly care, assisted living facilities, hospitals, etc. Box 2.2 presents a number of central initiatives – some have already been implemented by the Government, while others are still in the pipeline. All of them are designed to enhance the freedom of choice in central areas. Box 2.2 Examples of initiatives to enhance the freedom of choice • Free choice of housing for the elderly, etc., and improved terms and conditions for non-profit organisations for the elderly and disabled. The act took effect on 1 July 2002. • Act on free choice between private and foreign hospitals or medical specialists in case public-sector hospitals are unable to offer treatment within two months. The act took effect on 1 July 2002. • Possibility for municipalities – subject to individual and specific assessment – to pay for the medical treatment of citizens in a private hospital or clinic in Denmark or abroad. The act took effect on 26 March 2002. • Possibility for municipalities to decide whether they want services pertaining to preventive health care schemes for children and young people to be carried out by municipal employees or private suppliers (doctors, visiting and other nurses, etc.). The act took effect on 1 October 2002. • Possibility for municipalities to decide how to plan visiting nurse care programmes, including whether to use privately employed nurses. The act took effect on 1 May 2002. • Free choice for the elderly to decide whether they want home help to be provided by municipal home-helpers, a private business or a person of their own choosing. The act will take effect on 1 January 2003. • Free choice of rest and nursing homes and assisted living facilities across municipal borders. The act took effect on 1 July 2002. • Possibility for municipalities to provide a subsidy to parents who stay home to care for their children and do not use external childcare services. The act took effect on 1 July 2002. • Free choice of childcare services across municipal borders. The bill will be tabled in January 2003. • Free choice of unemployment insurance funds – establishment of interdisciplinary unemployment insurance funds. The act took effect on 1 September 2002. • A task force on free choice and quality has been appointed to investigate the framework and possibilities of free choice in the day-care and primary and lower secondary school area across municipal borders. The task force is due to report on its findings in March 2003. Public procurement is a central element in ensuring enhanced freedom of choice and efficiency of public funds utilisation. The level of outsourcing has remained at more or less the same level over the past decade and county and municipal procurement of external services has edged up just 1 percentage point. The modest increase can probably be put down, at least in part, to a changed composition of expenses. The health and social 42 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets welfare sectors, which usually tend to account for a fairly moderate proportion of public procurement, have been expanding compared with more technical areas with a larger proportion of public procurement. Box 2.3 provides an overview of the scope of outsourcing of various tasks. Box 2.3 Facts about public-sector outsourcing to private providers The annual report 2001 from the Danish Competition Authority showed: • Procurement of private sector services accounts for some 10 per cent of total municipal plus county operating costs. • The procurement by municipalities eas around 11 per cent. Environment and technology are the prime targets for municipal outsourcing (39-49 per cent), while outsourcing accounts for just 5 per cent in the areas of social welfare, health, education and culture. • County procurement of private-sector services accounts for about 7 per cent of total county operating costs. • County procurement of private-sector services covers extensive differences from one area to the next. In technology and environment, counties purchase no less than 64 per cent of services from private-sector providers and at 59 per cent, the road sector also accounts for a high proportion. • In social welfare and health, county procurement from private providers accounts for a mere 3.5 per cent of county operating costs. The Government’s Services Strategy is a central initiative aimed at bringing into focus municipal procurement and encouraging municipalities to take a stand on procurement and competition in the area of public services. Under the Services Strategy, municipalities, starting in January 2003, will be required to publish an outsourcing strategy for the various services areas once a year. The Services Strategy also means that private businesses will have a right to challenge. Box 2.4 Initiatives designed to strengthen public procurement • Municipal services strategy for enhancement of quality and efficiency in municipal services, including establishment of a public procurement policy, see Act no. 373 of 6 June 2002. • Establishment of a Public Procurement Council to apply to the central government, the counties and municipalities • Revision of the Government’s Public Procurement Circular, introducing, among other measures, the right of challenge for private businesses. • Public procurement portal Udbudsportalen.dk to which municipalities and private businesses can log on for guidance, information and tools for inviting tenders/submitting tenders for public-sector contracts. The portal was launched in May 2002 • Tool boxes to help municipalities and others describe services and manage the quality of contracts concluded with private providers. • General terms and conditions for provision of services (ABS). Ministry of Economic and Business Affairs, November 2002 43 Structural reforms of the Danish product and capital markets The Government wants municipalities and counties to resort increasingly to procurement as a means of ensuring the best possible service to the citizens, on the one hand, and efficient public funds utilisation, on the other. Box 2.4 lists a number of central initiatives taken by the Government with a view to highlighting the focus on and creating a better framework for competition and procurement of public services. Internationally, the field of welfare services is a growth area for the private sector. In Denmark, state enterprises still exercise a monopoly on large parts of the services market. A more market-oriented organisation of the public sector is likely to trigger a growth potential for the benefit of the quality and freedom of choice in public services, serving to boost private-sector employment. With its freedom charter, the Government has signalled that it is prepared to give municipalities and counties a freer hand in testing new and more flexible ways to organise the public sector, including public and private-sector collaboration. In the freedom charter, the Government, among other things, encourages municipalities and counties to report to the Government on possible barriers to efficient provision of services. Greater freedom for municipalities and counties may be seen as a first step on the road towards making public services increasingly subject to market forces. Joint public/private companies, inter-municipal trading and establishment of municipal companies may enhance the freedom of choice and help to render services more efficient in case there is no efficient market for the services provided by the municipalities. Through increased collaboration, greater freedom and increased trading, the municipalities will garner experience in the management of external parties, thus making it easier for them to test markets at a later stage. Box 2.5 Examples of other initiatives to enhance public and private-sector collaboration • Freedom charter has been issued to municipalities and counties. • Municipal agreements for 2003 are to ensure enhanced efficiency in services, among other things. • Restructuring of municipal budgeting and accounting systems with a view to facilitating comparisons of public and private suppliers. • Cost principles are to be introduced in government budgets and accounts. • Project competitions in the autumn of 2002 to introduce new private solutions in elderly and childcare services and the operation and management of buildings. • Public and private-sector collaboration in the construction area, including clarification of legal ground rules, development of tools to assess the expediency of public and private-sector collaboration, development of contract tools and selection of development construction projects. • Rule simplification work is in progress to establish an appropriate framework to enable municipalities and counties to enter into joint companies and new models of partnership. Specific initiatives will be published at the turn of the year. 44 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets To that end, the Government is working on a number of initiatives (see box 2.5) designed to facilitate and extend the scope of inter-municipal collaboration and public and private-sector collaboration. The agreement between the Government and municipalities and counties: Aftalen om amterne og kommunernes økonomi (June 2002) introduces a series of initiatives to boost public and private-sector collaboration. For example, the municipal budgeting and accounting system is to be restructured so as to facilitate comparisons between the costs of municipal production and the costs of private initiatives. Moreover, the Government and the counties are agreed that the regulation of loans should be made more flexible through the rules applying to municipal borrowing and the administration of loan exemptions – the aim being to encourage professionally motivated collaboration between the public and private sectors, while at the same time ensuring that the liquidity of the counties is not unintentionally increased. In 2003, a separate framework amount of DKK 100 million will be appropriated for deposit exemptions, etc. Ministry of Economic and Business Affairs, November 2002 45 Structural reforms of the Danish product and capital markets Chapter 3 Conclusion Since taking office, the Government has implemented a series of initiatives to create new jobs, increase productivity and enhance freedom of choice for the citizens. The programme “Improving Competitiveness” from January 2002 introduced cost cuts and administrative relief for the corporate sector. The reform programme “Welfare and Free Choice”, introduced in May of this year, initiated a process towards enhanced freedom of choice and a more efficient public sector. The growth strategy “Determined Growth”, also launched in May, introduced the first growth initiatives in a range of focus areas. In a number of other areas, including education and energy, new initiatives have been taken. The Government continues its work on the growth strategy. The strategy sets out goals and targets – now we have to follow up on these goals and targets by implementing specific initiatives. The growth strategy will come up for revision once a year, at which time progress will be assessed and the Government will decide whether fresh initiatives are called for. As part of its growth strategy, the Government will launch a growth package at the beginning of 2003, aimed at strengthening its dynamic growth policy. The growth strategy has four pivotal points: 1. Enhanced freedom of choice and enterprise. Tax is at the centre of this item. The Government is striving to achieve sufficient economic room to manoeuvre, so a bill to lower income taxes from 1 January 2004 can be introduced and enacted before the summer 2003. This September, the Government entered into a political agreement with a broad range of the political parties represented in the Danish Parliament on changes to the Danish employment policy – changes which are expected to create between 9,000 and 14,000 new jobs up until 2010. The changes are part of the efforts to achieve the employment targets set. The Government will follow up on the changes by implementing several other initiatives designed to increase the effective supply of labour, while at the same time ensuring that it pays to work. In spring 2003 the Government will put forward a number of proposals, aiming at making it more attractive for elder people to stay longer time at the labour market. The Government continues the work to ease the administrative burdens. As part of these efforts, the Government will at the end of 2002 do a service check on Danish business legislation. A new business portal, due to be launched in the spring of 2003, will provide joint access to the public sector; information, offers and solutions will be tailored to the individual business to make it easier for businesses to solve administrative tasks. In February 2003, the Government will present a financial reform designed to make terms and repayment profiles, etc., in the mortgage finance industry more flexible. In 46 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets the course of the spring of 2003, the Government is due to introduce an entrepreneurial action plan, setting out various initiatives to stimulate Danish enterprise. 2. Enhanced funds and resource utilisation The Government will early 2003 present a strategy for regional growth. The strategy should among other things include proposals for a better coordination of the funds used by Central and Regional Authorities to promote regional business development. 3. Effective competition The electricity market will be fully liberalised from 1 January 2003 and by 1 January 2004, the natural gas market will be opened to competition. In February 2002, the Government appointed a committee to look into the possibility of giving individual citizens a greater say in the investment and management of their pension savings. The analyses of the committee will form the basis of new legislation to take effect in 2003 and might include mandatory and voluntary pension schemes as well as pension schemes regulated by collective agreements. In 2003, the committee will probably submit a proposal as to how the accountholders of the Special Pension Scheme (a mandatory public pension scheme) may be entitled to move their pension savings under the scheme to another pension plan. Early 2003 further initiatives concerning public-private collaboration will be launched, probably focusing on simplification of rules, development of markets and new methods of collaboration. 4. Offensive utilisation of globalisation The Danish EU Presidency has as the first priority to conclude the first round of negotiations on enlargement. Enlargement will be a very important contribution to the basis for further growth. The Government will in 2003 present an initiative about growth through globalisation. This initiative aims at making it easier for the Danish economy to fully exploit- the opportunities of globalisation. Ministry of Economic and Business Affairs, November 2002 47 Structural reforms of the Danish product and capital markets Annex 4.1 Follow-up on the recommendations set out in the Broad Economic Policy Guidelines The Broad Economic Policy Guidelines The Guidelines set out three recommendations for Denmark relating to product markets, entrepreneurship and the knowledge-based economy. According to the recommendations, Denmark should focus on the following issues: 1. to enhance efforts to improve competition in sectors where competition has proven to be inadequate 2. to improve competition in the provision of public services at the local level through greater involvement of the private sector and added competition between public service providers 3. to provide full liberalisation of electricity and gas markets and ensure fair access to grids Re 1. In 2002, Denmark tightened its competition legislation to bring the level of fines imposed in line with the fines imposed by most other EU countries. It was also clarified that horizontal and vertical price agreements are not covered by the de minimis rule of the Danish Competition Act. Moreover, initiatives have been implemented in a number of high-price areas; for example, the ban on canned beer and soft drinks was lifted in September 2002 and the EU group exemption for cars has been amended, see Section 2.A.1. Re 2. Since the Government took office in November 2001, it has taken a series of initiatives designed to ensure greater freedom of choice for the citizens, keener competition as well as enhanced quality and efficiency of public funds utilisation. The Government wants an efficient market for public services in which individual citizens are given a better possibility to make free choices where public services are concerned. The reform programme “Welfare and Free Choice”, launched in May 2002, was the Government’s initial bid on how to enhance the freedom of choice. The reform programmes focuses on enhancing the quality of public-sector services through free choice in areas such as childcare, elderly care, nursing homes and assisted living facilities, hospitals, etc. The initiatives are described in detail in Section 2.C. Re 3. The electricity market will be fully liberalised from 1 January 2003 and by 1 January 2004, the natural gas market will be opened to competition. For further information, please refer to Section 2.A.3. 48 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Annex 4.2 Retirement schemes 4.2.1. Existing retirement schemes Dedicated early retirement schemes: Early retirement scheme Effective 1 July 1999, the early retirement scheme was changed. Consequently, the current scheme includes two sets of rules: The main features of the former scheme still apply to persons born before 1 July 1939, whereas everybody else is subject to the rules applicable to the new early retirement scheme. The following description of the scheme is based on the new scheme. Eligibility, etc.: The new scheme allows persons aged 60-64 (60-66 under the former scheme) to receive early retirement pension. In order for a person to obtain an early retirement certificate (a statement from the unemployment fund to the effect that certain, relevant requirements are met) and become entitled to early retirement pension, the person must have been a member of an unemployment fund and must have paid unemployment insurance and early retirement contributions of DKK 2,904 and DKK 4,224, respectively, a year (2002 level) for at least 25 years within the last 30-year period. Transitional rules exist so as to allow persons having previously met less strict requirements to remain eligible for early retirement pension. Furthermore, eligible persons must, at the time they obtain the certificate, be entitled to unemployment benefits, meaning for instance that they must be available for work. Benefits, etc.: For persons wishing to retire early within two years after having obtained an early retirement certificate, the early retirement pension will not exceed 91% of the highest rate of benefit, i.e. approx. DKK 143,000 a year in 2002. Persons who postpone taking early retirement for at least two years and who meet a requirement to the effect that they maintain a certain degree of labour-market affiliation during that period are entitled to 100% of the highest rate of benefit, i.e. approx. DKK 157,000 a year. Persons retiring early after having received a transitional allowance are entitled to 82% of the highest rate of benefit, i.e. approx. DKK 128,600 a year. The new early retirement scheme includes another two elements encouraging individuals to postpone the time of retirement for financial reasons: • A premium scheme. Persons who postpone taking early retirement, cf. above, for at least two years and who meet the labour-market affiliation requirement will receive a (tax-free) premium of approx. DKK 9,400 for additional employment equalling 3 months’ full-time employment. The premium, which can be paid only 12 times, falls due for payment once the beneficiary attains the age of 65. • Set-off for pension savings. Under the former early retirement scheme, only payments in the early retirement period from a current pension scheme established as part of prior employment would be set off against the early retirement pension. The same principle is going to apply under the new scheme for those individuals who postpone the time of retirement for up to two years after having obtained the early retirement certificate and who meet the labour-market affiliation requirement. If those requirements are not met, the early retirement pension will, insofar as the maMinistry of Economic and Business Affairs, November 2002 49 Structural reforms of the Danish product and capital markets jority of pension schemes are concerned, be subject to a set-off, irrespective of whether or not the payments in questions are effected in the period of early retirement. Early retirement pension rates are adjusted once a year using a so-called adjustment-ofrates percentage. (Transfer income is adjusted automatically once a year using the adjustment- of-rates percentage, which is made up by reference to the trends of wages and salaries in a two-year period preceding the year in question.) Financing: The early retirement scheme is mainly financed through taxes (formally through social security contributions) and the members’ contributions mentioned above. Twenty- five years of contributions to the early retirement scheme correspond to 35 weeks of early retirement benefits at the maximum benefit rate. Schemes for persons with reduced capacity for work: Early pension Disability-conditional schemes: Anticipatory pension Eligibility, etc.: Persons whose capacity for work is permanently reduced by at least 50% are eligible for anticipatory pension. Persons between the age of 18 and 65 (67 for persons born before 1 July 1939) are eligible for this type of pension. Eligibility for anticipatory pension depends exclusively on the period in which the person in question has been living in Denmark (and periods equated therewith), there are no contributions. Effective 1 January 2003, the anticipatory pension scheme will be reformed and a new working capacity criterion will be introduced in that connection, cf. below. Benefits, etc.: The anticipatory pension awarded to a person depends partly on the beneficiary’s age and the extent to which his or her working capacity has been reduced. The benefit consists partly of a maintenance amount which is dependent on the beneficiary’s own earnings and the spouse’s/cohabitant’s earnings, and partly of, for instance, handicap- compensatory benefits. Some benefits are taxable, while others are not. Against this background, the benefits in the current system differ considerably. As from 1 January 2003, persons becoming eligible for early pension will be comprised by the reform. Under the reform, the benefit structure is simplified in that the benefit will consist in one, taxable maintenance benefit awarded on the basis of a new working capacity criterion. Handicap-compensatory benefits are gathered in one act that applies to everybody. For single persons, the benefit will correspond to the maximum rate of benefit (DKK 157,000 a year), and for married persons/cohabitants, 85% thereof. The benefit depends on the person’s own earnings and the spouse’s/cohabitant’s earnings. The spouse’s/cohabitant’s earnings cannot reduce the pension by more than 20% of the rate. Financing: Anticipatory pension is financed through taxes. Unemployment-conditional schemes: Transitional allowance Eligibility, etc.: The intake of new members as regards this scheme was stopped in 1996. The scheme will be discontinued completely in 2006. The scheme was an option for 50 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets members of unemployment funds who were aged 50-59 and who had been unemployed for more than one year. Benefits, etc: The benefit under the transitional allowance scheme is 82% of the maximum rate of benefit. The same level of benefits will be maintained once the beneficiaries take early retirement. The benefit is adjusted at the adjustment-of-rates percentage. Financing: The transitional allowance is financed in the same manner as unemployment benefits – i.e. through taxes and members’ contributions. Partial retirement The early retirement scheme The new early retirement scheme allows fully flexible opportunities to retire in part from the labour market. Not until the beneficiary in question takes early retirement will he or she need to decide whether or not to remain employed to some extent. It is up to each individual to decide whether he or she wishes to work in certain periods or throughout the entire period of early retirement. Work performed in the early retirement period results in an hour-by-hour deduction of the early retirement benefit. Also the former early retirement scheme allowed persons to work in the early retirement period – although at less flexible terms. Part pension Eligibility, etc.: The rules applicable to part pension have been adapted in light of the changed early retirement rules. Thus, two sets of rules apply to part pension as well – depending on whether the beneficiaries were born before or after 1 July 1939. The description of the rules is based on the new set of rules applicable to persons born on or after 1 July 1939. Eligible for the new scheme are only persons who have not become entitled and have not exercised the right to obtain an early retirement certificate. The age limit is from 60-64 (both incl.), whereas it was 60-66 under the former scheme. Further, it is a requirement that the beneficiary lives permanently in Denmark and works here. Another requirement is a certain degree of labour-market affiliation. In order to meet the labour-market affiliation requirement, beneficiaries must, during the last 20-year period, have paid Danish Supplementary Labour Market Scheme contributions for at least ten years and have worked for at least nine months within the most recent 12-month period. The weekly working time must be between 12 and 30 hours for pay earners and 18½ hours for self- employed persons. Benefits, etc.: The benefit is made up on the basis of a basic benefit equalling 82% of the maximum rate of benefit (DKK 128,600 a year). For every hour by which the weekly working time is reduced, the beneficiary will receive 1/37 of the weekly basic benefit. A set-off is made for pensions according to rules that are in accordance with the new early retirement scheme. The benefit is adjusted at the adjustment-of-rates percentage. Ministry of Economic and Business Affairs, November 2002 51 Structural reforms of the Danish product and capital markets Financing: The part pension is financed through taxes. 4.2.2. Number of participants and expenses related to retirement schemes Table 4.2.1 shows the number of participants in the retirement schemes, etc. described above. In recent years, the new intake of participants in the early pension scheme has declined quite markedly, resulting in a certain reduction of the total number of persons receiving early pension. At the same time, the transitional allowance is being phased out – as already mentioned – whereas the number of persons taking early retirement has increased. In the aggregate, the number of participants opting for retirement schemes, etc. has declined slightly since 1998. Table 4.2.1 Number of participants in retirement schemes, etc. 1,000 persons 1990 1995 1998 2001 Early retirement pension ......................... Anticipatory pension ................................ Transitional allowance.............................. Part pension............................................... 98 250 - 6 115 273 23 6 141 273 36 4 159 262 20 3 In total ........................................................ 54 417 454 444 In total as a percentage of all retired employees and old-age pensioners......... 33.6 37.0 39.0 38.6 In total as a percentage of the working force aged 18-66........................................ 13.1 15.3 16.7 16.2 Source: Statistics Denmark. Table 4.2.2 Expenses related to retirement schemes, etc. DKKbn 1990 1995 1998 2001 Early retirement pension Anticipatory pension Transitional allowance Part pension 9.7 19.4 - 0.2 12.5 26.5 2.3 0.3 15.8 28.0 4.0 0.2 19.4 29.4 2.5 0.2 In total 29.3 41.7 48.0 51.5 In total as a percentage of expenses related to retirement, etc. and old-age pension 45.2 44.9 47.5 47.2 In total as a percentage of GDP 3.6 4.1 4.2 3.8 Note: The figures for 1990 as regards early pension and old-age pension are not comparable with the figures for the other years as, in 1994, a number of previously tax-free benefits became taxable and were, at the same time, increased. Source: Statistics Denmark and the Fiscal Law, var. years. The expenses related to retirement schemes, etc. are shown in Table 4.2.2. It should be noted that, in 1994, a number of previously tax-free benefits relating to early pension became taxable and, at the same time, were increased. In the aggregate, retirement-related expenses, measured as a percentage of the GDP, thus dropped somewhat in recent years 52 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets as a consequence of the decline in the number of participants and the rather steep GDP growth. 4.2.3. Current and planned policies concerning early retirement, etc. As already mentioned, a reform of the early retirement scheme was initiated in 1999. The aim of the reform is to encourage individuals to postpone the time when they retire, and the lessons learned so far seem to indicate that the reform has proven successful in this respect. Along with the new reform, the age of retirement under the national pension scheme is reduced from 67 to 65 years, combined with a less strict set-off of old-age pensioners’ earned income in the basic pension benefit. Effective 1 January 2003, an anticipatory pension reform will be introduced with the purpose of reducing the number of those who, passively, receive public assistance and to ensure that as many as possible find an ordinary or subsidised job. In future, anticipatory pension, which will be awarded according to a new working capacity criterion, may be awarded if a person’s capacity for work does not allow the person to be self-supporting. Accordingly, no anticipatory pension will be awarded to a person for whom it is possible to work, say, on a flexitime basis (subsidised job). Another consequence of the reform is a simplification of the benefit structure and a number of improvements of the conditions for the inclusive labour market. One of the Danish Government’s targets is the creation of another 87,000 jobs in the period from 2000 to 2010, 20,000 of which are expected to result from a decrease in the rate of unemployment. The remaining 67,000 jobs are expected to result from an increase in the total labour force of the country. However, as a result of demographic developments until 2010, the total labour force will, all things being equal, drop by 66,000 individuals. The total labour force growth requirement is thus 133,000 persons. Against the background of recent years’ decline in the intake of new participants in the various early retirement schemes, about 80,000 persons are expected to be realised as a consequence of the implications of the reforms already initiated. Ministry of Economic and Business Affairs, November 2002 53 Structural reforms of the Danish product and capital markets Annex 4.3 Initiatives aimed at modernising and simplifying legislative and administrative conditions for the purpose of encouraging self- employment and small and medium-sized businesses’ access to the market In 2002, the Government took several initiatives for the purpose of reducing the corporate sector’s administrative burden. The Government launched a competitiveness package, which, as regards the reduction of administrative burdens, included: • An IT pool for digital solutions reducing administrative burdens • Improved evaluation of the administrative implications of new legislation and regulations. DKK 15 million has been ticketed for the purpose of involving businesses in the drafting of new legislation. • Simplified VAT administration. The VAT registration limit has been increased from DKK 20,000 to DKK 50,000. Consequently, 30,000 businesses are exempted from filing VAT reports. • The requirement for small businesses to establish a security organisation has been abolished. Consequently, businesses with 5-10 employees no longer have to establish a security organisation, unless the activities carried on by the business involve a special security risk. • The turnover limit for monthly VAT settlement has been increased from DKK 10 million to DKK 15 million. As a result, about 7,000 businesses need only pay VAT once a quarter instead of once a month. • The postponement of the VAT return in July from 25 July to 10 August has allowed businesses more flexibility and better possibilities of planning their employees’ summer holidays. Other initiatives taken include the introduction of the growth strategy Determined Growth, including a long-term target to reduce the corporate sector’s administrative burdens by up to 25% by 2010. Further, a pilot project regarding audit clauses has been initiated, and an initiative has been taken to modernise existing regulations in order to remove unnecessary obstacles to digital solutions. The action plan for simpler rules and easing of administrative burdens includes an analysis of competition-distorting legislation, which has as purpose to secure certain public interest such as environment, income distribution and health. The first results of the analysis are will be available before the end of 2003. 54 Ministry of Economic and Business Affairs, November 2002 Structural reforms of the Danish product and capital markets Annex 4.4 Initiatives to identify and remove barriers to cross-border services in the Internal Market Identification of barriers: In Denmark, the work to identify specific barriers in the Internal Market has been closely linked to our participation in the WTO negotiations on liberalising world trade in services. The Commission’s Internal Market Strategy for Services and the WTO Services Agreement (GATS) are under the remit of the same organisational unit, which has generated a number of synergies in terms of both analyses and contact to companies and organisations. The analysis Internationalisering af service - potentialer og barrierer was drawn up in 2000 in preparation for the negotiations in the EU and the WTO. The report is based on telephone interviews with 1,600 service operators and 30 in-depth interviews with interesting providers. While obviously dealing with the provision of services (exports), the report focuses in equal measure on barriers to setting up a business abroad and on temporary people movements (for instance in the form of temporary posting of staff abroad), given that these barriers are equally important to a number of service providers, such as retail trading chains and consulting engineers. The most important barriers identified by Danish service operators are restrictions to setting up a business, licensing and authorisation requirements, including slow and cumbersome procedures, restrictions as to choice of partner and partnership form, requirements as to membership of business organisations, difficulties in having qualifications and degrees recognised, limitations as to temporary positing of staff abroad, marketing restrictions and discriminatory public procurement and tax rules. The report also underscores that the Danish services sector has a huge potential for further internationalisation in the large number of home market-based businesses that could internationalise, should they want to do so. The report is available at: http://www.efs.dk/publikationer/rapporter/int_service/index.htm. Removal of barriers: The hearing in connection with this year’s report identified the following specific initiatives in Denmark: • The professions: The Danish Accountants Act is being revised. The possibilities of setting up a business are likely to be improved. • Energy: The electricity and gas markets will be liberalised, see item 3. • Marketing: An amendment to the Marketing Act will probably remove barriers to commercial communication and sales promotion measures. • Public procurement: Network collaboration in Europe between competition authorities has improved market access for public procurement, while at the same time establishing efficient and inexpensive dispute resolution. Ministry of Economic and Business Affairs, November 2002 55 Structural reforms of the Danish product and capital markets It should be noted that the relatively small number of initiatives should not be seen as the result of a closed market; on the contrary, the Danish services market is relatively open. As far as removal of barriers in other EU countries is concerned, the Danish efforts concentrate on following up on the Commission’s Internal Market Strategy for Services. Under the Danish EU Presidency, Council conclusions are being prepared which are expected to be adopted at the Council Meeting (Competitiveness) on 14 and 15 November 2002. These conclusions will ensure political backing for the Commission’s Internal Market Strategy on Services from 2002 and set out a work programme for 2003, focusing on the following specific initiatives: • Legislative initiative by the Commission to remove existing barriers. • Scoreboard of the most important barriers with a view to following the progress achieved in removing these barriers. • Expansion of the Commission’s financial analyses and statistical basis for the services sector. • Incentive for the services sector to ensure a more efficient representation and safeguarding of interests at Community level. • Active efforts by the Commission to follow up on violations of Community legislation and obligation for the member states to follow up on decisions handed down by the European Court of Justice. 56 Ministry of Economic and Business Affairs, November 2002