9 July 1998
POLICY REVIEW BODY: REVIEW OF HUNGARY
TPRB'S EVALUATION Back to top
The Trade Policy Review Body of the
World Trade Organization (WTO) concluded its second review of Hungary's trade policies on
7 and 8 July 1998. The text of the Chairperson's concluding remarks is attached as a
summary of the salient points which emerged during the discussion.
The review enables the TPRB to
conduct a collective examination of the full range of trade policies and practices of each
WTO member country at regular periodic intervals to monitor significant trends and
developments which may have an impact on the global trading system.
The review is based on two reports
which are prepared respectively by the WTO Secretariat and the government under review and
which cover all aspects of the country's trade policies, including: its domestic laws and
regulations; the institutional framework; bilateral, regional and other preferential
agreements; the wider economic needs and the external environment.
A record of the discussion and the
Chairperson's summing-up, together with these two reports, will be published in due course
as the complete trade policy review of Hungary and will be available from the WTO
Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following
reports have been completed: Argentina (1992), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh
(1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Cameroon
(1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990
& 1996), Costa Rica (1995), C˘te d'Ivoire (1995), Cyprus (1997), the Czech Republic
(1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European
Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong
Kong (1990 & 1994), Hungary (1991 & 1998), Iceland (1994), India (1993 &
1998), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992, 1995 & 1998),
Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia
(1993 & 1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996),
New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991
& 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland
(1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic
(1995), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990
& 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994),
Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay
(1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
TRADE POLICY REVIEW BODY:
REVIEW OF HUNGARY
CONCLUDING REMARKS BY THE CHAIRPERSON Back
The second Trade Policy Review of
Hungary was conducted by the TPR Body on 7-8 July 1998. These remarks, prepared
on my own responsibility, are intended to summarize the main points of the discussion;
they are not intended as a full report. Details of the discussion will be reflected in the
The discussion developed under four
main themes: (i) economic background and transition issues; (ii) regional integration
issues; (iii) trade and investment measures; and (iv) sectoral issues.
Economic background and transition
Members congratulated Hungary on the
remarkable changes that had been achieved, during the short period since the previous TPR
in 1991, in its transition to a market-oriented economy. It was recognized that these
changes had taken place under difficult economic and social conditions, including the
collapse of trade with the CMEA, the bankruptcy of a large number of companies and the
consequent temporary loss of jobs. Members welcomed the fact that, despite these
circumstances, Hungary had pursued its liberalization process and continued to make an
important contribution to the WTO.
With regard to macroeconomic
management, Members recognized the Government's achievement in restoring domestic and
external balance following the March 1995 stabilization package. However, questions were
raised as to whether fiscal consolidation could be maintained in the absence of further
large-scale receipts from privatization, now in its final phase, and in view of
difficulties in creating an efficient and equitable tax collection system. Questions were
also raised whether the impact on the external balance of recent real effective
appreciation of the currency might not lead to renewed contractionary measures.
In response, the representative of
Hungary said that the improvement in government finances was not the result of a one-time
windfall from privatization, but due to cuts in government expenditures. The budgetary
situation was expected to strengthen further, due to improved tax collection methods and
to the gradual shrinking of the unofficial, grey sector of the economy as tax rates were
to be reduced. He added that improvements in the trade and current account balances
implied that there would be few risks of negative effects from the real appreciation of
the currency. While the crawling-peg devaluation of the forint might have been lower than
the difference between the rates of inflation in Hungary and in its major export markets,
this gap was offset by productivity improvements in Hungarian exporting sectors.
While welcoming the considerable
structural changes to the economy through privatization and the role of the price
mechanism in allocating resources, Members sought clarification of the role of industrial
policies, including investment incentives, in influencing the future structure of the
economy. In response, the representative of Hungary emphasized that direct investment in
Hungary was fully liberalized. Hungary did not apply specific sectoral incentive schemes;
investment incentives in general, and tax concessions in particular, were equally
available to any sector.
Regional integration issues
Members recognized that the move
toward EU accession had been a major element in Hungary's liberalization process. However,
questions were raised on possible trade diversion stemming from preferences, and there was
a considerable debate on this issue and its systemic implications. In response, the
representative of Hungary stressed that WTO rules and commitments had been, and would be,
thoroughly observed during the whole process of integration into the European Union. He
rejected allegations that European integration had diverted trade to the disadvantage of
third countries; on the one hand, trade flows had moved in favour of western markets,
following the collapse of the CMEA, and before the introduction of EU preferences; on the
other, imports from non-European trade partners, both in North America and in the Pacific
region, had grown faster than those from EU sources.
Trade and investment measures
Members raised concerns over the
scope of unbound tariffs on a number of items, such as some fish products,
footwear, precious stones, transportation equipment and agricultural products, and on the
average levels of bound and applied tariffs in some areas. In response, the Hungarian
representative noted that 95.7% of tariff lines were bound and that the data on bound and
applied items in the Secretariat report reflected averaging of bound and unbound items.
While welcoming the phase-out of the
global quota on consumer goods, Members raised questions concerning its allocation and the
reasons for its under-utilization. Members also sought clarification of the Government's
future import and export licensing policies. In response, the Hungarian representative
said that details of the operation of the quota had already been notified to the WTO. The
reasons for the under-utilization of some subquotas was that the yearly 10% increase of
the quota in many cases exceeds the actual demands.
Members also raised questions on:
- the alignment of technical regulations and standards
to international norms, as well as inspection procedures;
- investment incentives conditional upon [export]
performance and plans to notify existing TRIMs to the WTO;
- Hungary's attitude to joining the Government
Procurement Agreement, to which it is not a party;
- state-trading, and plans and priorities to further
reduce Government involvement in enterprises through privatization; and
- the enforcement of laws pertaining to the protection
of intellectual property.
In response to these issues, the
representative of Hungary pointed out that the number of Hungarian national standards was
continuously decreasing, the objective being to reach a 70% share of international or
European standards by Hungary's accession to the EU. Only 35 industrial products were
subject to inspection (on health and environmental grounds), with domestic and imported
products treated identically. He emphasized that Hungary had no incentives in the sense of
the TRIMs Agreement. On government procurement, the representative of Hungary called
attention to the transparency of the new law introduced from 1996. Having weighed the pros
and cons of possible accession, Hungary did not intend to join the Plurilateral Agreement
at this stage; however, it was participating actively in the Working Group on Transparency
in Government Procurement as well as in the Committee on GATS Rules, where future
government procurement rules are being negotiated. On state trading and privatization, the
representative of Hungary stated that there was no State trading in the sense of GATT
Article XVII. In the context of the full market economy, no sectors or industries were
excluded from further privatization. On intellectual property rights, the representative
stressed that Hungary's present legislation complied fully with the requirements of the
TRIPS Agreement. As a result of new legislation and enforcement efforts, the number of
infringement cases had been significantly reduced.
On agriculture, food and beverages,
Members raised various questions referring in particular to land ownership; tariffs; plant
certification; SPS measures; the nature and value of various types of support; and export
restrictions and subsidies. The representative of Hungary responded that there were no
plans to change land ownership regulations at present: compensation for former landowners
had recently been ended. The Hungarian agricultural tariff regime was, as shown in its WTO
Schedule, one of the most liberal among WTO Members. The increase in tariff dispersion was
the consequence of tariffication, which reflected the variable effects of previous
agricultural NTMs. Only certified plant types could be marketed in Hungary, consistent
with OECD provisions: SPS standards were becoming internationalized under the 1995 Food
Law. Domestic support, justified under "green box" provisions, involved advisory
services and agricultural research programmes together with assistance for structural
adjustment, to disadvantaged regions, and for the promotion of soil conservation.
Guaranteed prices were set for five products, below the cost of production; intervention
had been used only once. Export licensing was maintained only on maize, and was not
restrictive in practice. As regards export subsidies, the representative reaffirmed
Hungary's strict adherence to the terms and conditions laid down in the WTO waiver.
On motor vehicles, the
representative of Hungary rejected allegations by Members that preferential tariffs and
quotas related to regional trade agreements adversely affected third parties, citing the
success of a Korean company in increasing exports to the Hungarian market during the
period 1992-96. He added that the restriction on importation of used cars over four years
old was designed to prevent Hungary becoming a "garbage cemetery" for used cars.
Members raised questions on trade
measures applying to textiles and clothing, referring in particular to outward processing
trade (OPT), and to wholesale activities for pharmaceuticals. The representative
acknowledged that the share of OPT was high, reflecting existing patterns of trade.
Hungary respected international practices in this regard; i.e., material inputs are
imported duty-free on condition that end products are subsequently exported. On
pharmaceuticals, legal provisions were in force to maintain health protection; the
wholesale sector was open to foreign participation.
On services, Members welcomed
Hungary's high level of commitments in the GATS. It was asked whether this level provided
sufficient flexibility for Hungary; if establishment of foreign branches in Hungary was
allowed for services other than financial; and whether the Government would advance the
date for liberalization of national and international telephone services. The
representative of Hungary replied that Hungary would not withdraw its GATS commitments; in
unforeseen circumstances, GATS rules would be followed. He confirmed that, as of 1 January
1998, all restrictions on foreign branching, including in financial services, had been
abolished. As regards advanced liberalization of telecommunication services, the
representative replied that the Government had a legal obligation to maintain the
exclusive rights granted in business contracts with investors for the agreed periods,
however, there was strong competition in the market.
Hungary's participation in this
review has reflected its strong commitment to the WTO process, as well as the positive
effects of its transition to a market economy. The statements made on Tuesday, and again
this morning, have indeed been helpful to Members.
I would agree with the view
expressed by several delegations that Members have much to learn from Hungary's process of
transition to a market economy and the role of trade and investment liberalization in this
process. There has also been quite a lively debate, in this connection, on systemic issues
related to regionalism and its effects in terms of possible trade creation and diversion;
these issues will, no doubt, be followed appropriately in the CRTA.
Finally, I should like to thank the
delegation of Hungary, led by Dr. Balßs, for their clear statements yesterday and today,
and its positive participation in the review; and also thank our two expert discussants,
Dr. Raby and Mr. Mukerji, for their very useful opening remarks yesterday and
follow-up comments today. The overall success of this review has also largely depended on
the full participation of other delegations, to whom I express my gratitude. I wish
Hungary success in their endeavours in the further opening up of their economy in line
with their WTO obligations.