WORLD TRADE
ORGANIZATIONG/SCM/Q2/HUN/8
25 October 2002
(02-5885)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies to Questions from the UNITED STATES1 Regarding
The New and Full Notification of HUNGARY2
The following communication, dated 24 October 2002, has been received from the Permanent
Mission of Hungary.
_______________
Q1. We note that a number of programmes notified for 1997 were not notified for 1998.
These include the Environment Protection Fund, Metallurgy Conversion Programme,Assistance to Public Railways, Support for Job-Creating Investments, Assistance to Uranium-
Ore Mining, and Tax Relief Related to R and D Ac tivities.  Have all of these programmes been
terminated?  If not, could Hungary please explain why they were not notified under 1998
programmes?
Reply
The Metallurgy Conversion Programme, the Assi stance to Uranium-Ore Mining, the Support
for Job-Creating Investments have been terminated.  The Assistance to Public Railways has not been
notified because services – to our knowledge – are not covered by the Agreement on Subsidies and
Countervailing Measures. As to the Tax Relief Related to R and D Activities, this programme is
included in our notification (programme 5.14).  The Environment Protection Fund has been omitteddue to technical reasons. (In the meantime this programme has been notified as well.)
Q2. We understand that Hungary maintains many subsidy programmes aimed to assist
small and medium sized enterprises, including preferential credit schemes, and the interest
subsidy to promote the development of SMEs.  Does Hungary intend to notify programmes forSMEs?  If not, please explain why.
Reply
In the year under consideration there were no support programmes designed exclusively for
small and medium sized enterprises.  However, such schemes as the Budgetary Scheme Earmarked
for Economic Development, the Territorial Development Fund, the Tax Concession in Regions of
High Priority, the Tax Concession to Promote Structural Adjustment and the Basic Central Technical
Development Programme contain provisions intended to address the specific problems of SMEs.
                                                     
1 G/SCM/Q2/HUN/7
2 G/SCM/N/38/HUNG/SCM/Q2/HUN/8
Page 2
The Budgetary Scheme Earmarked for Economic Development  (programme 8) “is
designed to assist the realisation of national economic and trade policy objectives by promoting i.a.
the development of subcontractors’ network, in particular SMEs”.  In addition “the upper limit of
grant can be increased by 10 per cent in special cases (… projects for developing subcontractors’
network)” and - as stated in our notification - “interest support is available for programmes improvingcompetitiveness of SMEs".  Furthermore, taking into account that under the Budgetary Scheme
Earmarked for Economic Development “all kinds of subsidy are awarded through tender procedures”,
due attention can be paid to the interests of the SMEs.
The Territorial Development Fund  (programme 7) whose policy objective is to promote i.a.
execution of economic development programmes and job creation, is particularly important for the
SMEs.  Given that at job creation the SMEs are on average more efficient than large enterprises,promoting job creation means to a great extent supporting the SMEs.  It is worth mentioning that the
measure of grant and reimbursable grant can be increased by 10 percentage points in settlements
where the proportion of ethnic minorities is significant.  This is again an opportunity utilised
overwhelmingly by the SMEs.
Also, the beneficiaries of the Tax Concession in Regions of High Priority  (i.e. where the
unemployment rate exceeds 15 per cent) are in great number SMEs for reasons mentioned in
connection with the Territorial Development Fund (i.e. the high labour absorption capacity of the
SMEs).
In case of other programmes like schemes 5.8 ( Tax Concession to Promote Structural
Adjustment ) and 6 ( Basic Central Technical Development Programme ) where support gets
equally awarded through tender procedures, the specific interests of the SMEs can be duly taken into
account.
Q3. For each of the following programmes, could Hungary please provide additional
programme details, including (1) policy objective and/or purpose of the subsidy, (2) the
background and authority for the subsidy, (3) the form of the subsidy, and (4) how the subsidy
is provided:
Central Fund for Technical Development
Territorial Development FundBudgetary Scheme Earmarked for Economic Development
Environment Protection Fund
Mining Conversion Programme
Metallurgy Conversion Programme
Assistance to Public RailwaysSupport for Job-Creating Investments
Assistance to Uranium-Ore Mining
Reply
The policy objective of the Central Fund for Technical Development3 is to promote i.a.
- technology development and innovation for the development of the Hungarian society and
economy;
Hungary's Euro-Atlantic integration;the implementation of technical innovations serving public interest;
- the implementation of innovations improving competitiveness of the Hungarian economy;
                                                     
3 In our notification: Basic Central Technical Development ProgrammeG/SCM/Q2/HUN/8
Page 3
- public understanding and information diffusion on new R&D results, acceleration of their
spreading and utilisation;
- development of R&D infrastructure.
The scheme is based on the annual state budgets and the Government Decree 98/1996.
(VII.10.) on the Central Fund for Technical Development.
The form of the support:
- R&D programmes in different technical fields:  50 per cent from own source, 25 per cent
grant, 25 per cent loan with interest rate support;
- mobility programmes and networking activities:  50 per cent from own source, 50 per cent
grant;
- R&D investment programme:  75 per cent from own source, 25 per cent grant.  The grant may
be exclusively used for R&D infrastructure and training;
- SME innovation programme:  50 per cent from own source,  25 per cent from the chambers,
25 per cent grant.
The support is provided through open calls for R&D and innovation projects.  There is always
an obligatory own contribution (cofinancement) co mponent.  The share of support depends on two
major factors:
- the legal form of the contracting partner (company, university, public research laboratory or
other non-profit organisation);
- the ratio of basic research, applied research, experimental development.
(Special consideration may be given to the SMEs and the underdeveloped regions.)
The policy objective of the Territorial Development Fund  is to help the development of
disadvantaged regions. It is designed to facilitate the strengthening of the economic bases in the
socially and economically underdeveloped areas of the country, primarily those suffering mass
unemployment, to preserve and enlarge job opportunities and diversify them, and to assist the
restructuring of disadvantaged areas, thus preventing mass emigration of the unemployed persons.
Support from the Territorial Development Fund may be granted to geographical areas that
qualify as socially and economically underdeveloped regions or areas hit by high unemployment.
(The qualifying criteria are determined by government decrees 19/1998. (II.14.) Korm. and 219/1996
(XII.24.) Korm. as modified by 215/1997 (XII.1.) Korm.)
The subsidies provided in the framework of the Budgetary Scheme Earmarked for
Economic Development  to promote implementing its policy objectives (restructuring of the
Hungarian industry; attraction of foreign direct inve stment in Hungary; realisation of industrial parks
and innovation centres; job creation; establishment of quality assurance and certification systems
necessary for the introduction of products into foreign markets; regional development; missions of
business people to Hungary and abroad; organisation of international exhibitions, fairs and experts'meetings in Hungary and abroad; development of subcontractors' network, in particular SMEs;
financement of measures to protect consumers) can be granted to companies with headquarters in
Hungary whether or not with juridical personality and self-employed persons.
The applications that contribute to
- the modernisation of the economy, the establishment of new professional cultures;
- the development of subcontracting activities;
- job creation;
- regional development;G/SCM/Q2/HUN/8
Page 4
- development projects implemented in co-operation of more settlements;
- environment protection;
- increasing efficiency of energy consumption
have an advantage.
Grant may be provided for
- centrally organised trade and investment promotion events;
- establishment of quality assurance and certification systems conform with EU norms;
- participation in international aid programmes preparing Hungary's accession to the European
Union;
- establishing connection to infrastructural networks outside the plot of the beneficiary.
Interest free reimbursable grant may be provided for development projects not listed above
(excluding connection to infrastructural networks).
From bank loan financed development projects enhancing the competitiveness of the SMEs
and enlarging their subcontracting network can be given interest support.
The Mining Conversion Programme  is designed to address major social problems due to
structural adaptation in the coal mining and the n eed of ensuring progressive and orderly reduction of
mining.  Given that mining in Hungary dates back to centuries and the social costs of the adjustment
are high, the task gets accomplished with circumspection.  The coal output of the supported mines
accounted for 1,17 million tons in 1998 (1997: 1,26 million tons, 1996: 1,5 million tons).
As to the schemes Environment Protection Fund, Metallurgy Conversion Programme,
Assistance to Public Railways, Support for Job-Cr eating Investments and Assistance to Uranium-Ore
Mining, see the reply to the first question above.
Q4. Under the programme, “Tax Relief Related to R&D Activities”, could Hungary please
provide further programme details, including the types of R&D activities that are funded, what
stage of research is funded, the industry sectors that benefit, etc.?
Reply
The 20 per cent of the amount incurred as direct cost of research and development which is
deductible from the tax base indicates a gross amount.  In case the beneficiary of the tax base
concession is the beneficiary of a direct aid as well, the amount of the tax base concession should bereduced by that of the direct aid.
The beneficiaries of the tax relief related to R&D activities belong mostly to the following
sectors: scientific research, technical research, software creation, engineering, medical instruments,
telecommunication, machinery, chemistry. Among the beneficiaries there are also institutions engagedin research of humanities and sociology.
Q5. Could Hungary please provide the number of companies and industry sectors that
benefited from the following programmes:  Tax Concessions for Investments Exceeding HUF 1
Billion, Tax Concessions for Investments Ex ceeding HUF 3 Billion, Tax Concessions for
Investments Exceeding HUF 10 Billion, Tax Concessions to Promote Structural Adjustment,
and Tax Concession Related to Investments?  May foreign companies investing in Hungary
benefit from each of these programmes?G/SCM/Q2/HUN/8
Page 5
Reply
The number of companies that benefited from the programme "Tax Concessions for
Investment Exceeding 1 Billion HUF" amounted to 50, overwhelmingly from the goods production
sectors (production of electricity, road transport vehicles, electronical parts, telecommunicationequipments, plastic products, paper, food products). Some of the beneficiaries invested in creating
commercial accommodation.
In case of the "Tax Concessions for Investments Exceeding 3 Billion HUF" the number of
beneficiaries was 2, both from the goods production sector (production of lighting appliances,
household electrical appliances).
For investments exceeding 10 Billion HUF 15 goods producing companies benefited from tax
concessions (production of basic materials for plastics, telecommunication equipments, metal
processing).
In the framework of the "Tax Concessions to Promote Structural Adjustment" 140 companies
engaged in supplying services (distribution, tourism, real-estate brokering, economic consultancy,
etc.) and production of goods were given tax concessions.
From the "Tax Concession Related to Investment" programme 7 goods producing companies
benefited (production of pharmaceuticals, telecommunication equipments, machines) .
Foreign companies investing in Hungary may benefit from each of these programmes.
__________