RESTRICTED
WORLD TRADE WT/SPEC/41
27June1996
ORGANIZATION(96-2469)
Original: English
ACCESSION OFBULGARIA
Communication from Bulgaria
ThePermanent Mission ofBulgaria hassubmitted thefollowing information ontheintroduction
ofatemporary surcharge onimports intotheRepublic ofBulgaria forBalance-of-Payments reasons
withtherequest thatitbecirculated toWorking Party members.
_____________WT/SPEC/41
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Theintroduction ofanimport surcharge
Pursuant toRegulation oftheCouncil ofMinisters No.118of30May1996(published inState
Gazette No.48of1996) theGovernment oftheRepublic ofBulgaria hasintroduced a5%temporary
surcharge onimports ofgoods intotheRepublic ofBulgaria (except alimited listofproducts essential
fortheeconomy -seeAnnex), witheffect from 4June1996 inorder toforestall animminent threat
ofserious decline inBulgaria 'sforeign exchange reserves. TheGovernment decided torespond by
introducing theleastdisruptive measures.
Theimport surcharge shallbecalculated onthecustoms value oftheimported goods. The
import surcharge shallbeinvoiced, paidandcharged together withtheamounts ofassessed customs
duty.
Thesurcharge willbegradually phased inaccordance withthefollowing schedule:
from June4,1996 tillJune30,1997 -5%
from July1,1997 tillJune30,1998 -4%
from July1,1998 tillJune30,1999 -2%
from July1,1999 tillJune30,2000 -1%.
Theimport surcharge willbeeliminated from July12000.
Reasons fortheadoption ofarestrictive measure
Marked progress instabilization wasachieved in1995: inflation fellsharply, economic growth
increased,andthebalance-of-paymentsstrengthened.However,thesestabilizationgainswereshort-lived
because ofdeeply entrenched problems offinancial undiscipline intheenterprise sector andinsolvency
ofthebanking system. Years ofdelay haveladen thebudget withdebt, undermined monetary control,
andnowthreaten fiscal sustainability. Since thelatter halfof1995adepletion oftheexchange reserves,
arenewed pressure ontheexchange rateandrealinterest rateswere observed.
Significant changes inthemacroeconomic environment, including aweakening ofeconomic
growth andrevenues, higher thanexpected inflation andnominal interest rates, amuch sharper than
expected depreciation oftheBulgarian lev,widespread withdrawal ofdeposits (particularly offoreign
exchange) fromthebanking sector andthelossofgreater partofthecountry 'sforeign exchange reserves
followed in1996.
There isaconsiderable uncertainty about balance-of-payments prospects for1996. Although
theoverall balance-of-payments fortheyear1995 waspositive, thenegative trend became obvious
inthelastquarter of1995. Thedeficit forthefirstquarter of1996oftheoverall balance-of-payments
wasUS$583.5 million.
Bothexternal andinternal factors arelikely toreduce export volume in1996. Export volume
isexpected tofallslightly because ofweakforeign demand insomeimportant tradepartners forBulgaria,
lower international prices formetals (animportant export commodity forBulgaria), weakcrops, higher
domestic energy prices, enterprise restructuring andtheattended slowdown indomestic production.
Thecapital account ofthebalance-of-payments isexpected todeteriorate markedly in1996
(from US$150million in1995to647million in1996) duetolarge amortization payments andlarge
capital outflows inthefirsthalfof1996which arenotexpected tobefullyreversed inthesecond half
oftheyear.WT/SPEC/41
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Official reserves (including gold)havefallen toaprecariously lowlevel(lessthanUS$1billion)
andareestimated tohavedeclined byaround US$650million inthefirsthalfof1996.
Inthiseconomic situation, thehighexternal indebtedness isasubstantial factor indevising
theappropriate economic policies andmeasures.
Theforeign debtpayments willreach theirpeakofUS$1186 million in1996, andin1997
and1998willremain atsubstantially thesamehighlevel-US$1117.3 million andUS$1012.6 million
respectively. Intheyears 1999 and2000 thepayments willbecome lower, butwillstillremain at
averyhighlevel-US$848million andUS$725.5 million respectively.
TheRepublic ofBulgaria isfullydetermined torestore theconfidence initsnational currency
andinitsability tosustain theregular servicing ofitsexternal debt. Forthispurpose, theGovernment
hasundertaken anumber ofmeasures toincrease budget revenues andtoimprove itsbalance-of-payment
position. Onthebasisofthese measures, itexpects toconclude aStand-by Agreement withtheIMF,
andaStructural Adjustment LoanwiththeWorld Bank. Oneoftherequirements toreduce thefinancing
gapistoensure asurplus ofthetrade balance inspiteoftheaverse effects onexports inthepresent
economic situation.
Themeasures oftheGovernment aretargeted toincrease theofficial reserves toUS$1.3billion
byend-1996 andUS$1.7billion byend-1997 (wellbelow threeandahalfmonths ofimports ofgoods
andnon-factor services), toimprove theoverall balance-of-payments byreducing itsdeficit to
US$244million bytheendof1996.
Aprogramme, supported bytheIMFandtheWBisbeing launched. Anagreement wasreached
inprinciple withtheIMFonacomprehensive programme ofeconomic andstructural reform designed
todealdecisively withtheproblems presently confronting Bulgaria which comprises policies tobe
supported byaFund arrangement. Theprogramme includes theclosure orisolation fromthebanking
system ofmostloss-making state-owned enterprises andtheliquidation ofsome ofthemajor insolvent
banks (both state-owned andprivate). Some 40000people willlosetheirjobs(i.e.0.1-1.5% of
thelabour force). TheBulgarian National Bank (theCentral Bank) petitioned theCourt toinitiate
bankruptcy proceedings foranumber ofinsolvent trade banks.
Thesurcharge alternative measures
After considering different options aiming atforestalling theimminent threat ofaserious decline
inBulgaria foreign exchange reserves, theGovernment haschosen themeasure thatleastdistorts trade.
Inaccordance withtheUnderstanding ontheBalance-of-Payments Provisions oftheGATT 1994, the
import surcharge asaprice-based measure isconsidered tohavelessdisruptive effect ontrade than
alternative quantitative restrictions orother similar measures, sinceitwillnotinterfere withthepolicies
aimed atgranting alltraders equal opportunity toengage ininternational commerce.
Because ofitscomprehensive trade coverage, thesurcharge isnotusedforthepurpose of
protecting anyspecific industry orsector oftheeconomy.
Theimpose surcharge willonlybeapplied tocontrol thegeneral levelofimports andwillnot
exceed whatisnecessary toaddress thebalance-of-payments situation.
Intaking thisaction Bulgaria recognizes thatnoviable alternative options areavailable under
thepresent circumstances, forthefollowing reasons:WT/SPEC/41
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1. thehighlevelofexisting external debtcallsforrestraint inseeking newcredit facilities which
could beusedtosupport thebalance ofpayments;
2. asevere depletion offoreign exchange reserves hastobeavoided inorder tomaintain the
debt-servicing schedule andsafeguard theinternal convertibility ofthenational currency which
iscrucial forthecontinuing liberalization ofexternal trade;
3. incarrying outitsdomestic economic policies, theBulgarian government hasalready employed
arange ofgenerally recognized instruments aimed atsecuring thebalance-of-payments
equilibrium byalternative means. Bulgaria hasmade considerable effort toobtain progress
inthetransitions toamarket-based system. Trade policies andexchange system reforms have
beengeared towards reducing distortions totrade, encouraging market forces, andintegrating
Bulgaria intotheworld economy. Thetemporary import surcharge isintroduced toprotect
theimplementation oftheliberalization measures andtoassure theircontinuity. While taking
suchmeasures, theGovernment ofBulgaria wishes tomaintain alsoitspolicy ofopenaccess
toconvertible currency resources forallbusiness agents, soastoencourage theiractivities
andpromote thespirit offreeenterprise.
GATT justification ofthemeasures taken
Thesurcharge willbeadministered consistently withtheprocedures established under the
respective Articles oftheGATT 1994andaccording totheprovisions ofthe1979Declaration onTrade
Measures Taken forBalance-of-Payments Purposes andtheUnderstanding onBalance-of-Payments
Provisions oftheGATT 1994.
Bulgaria 'sviewthatthesurcharge described above isinconformity withtheessential standard
ofconsistency withtherelevant GATT/WTO provisions andpractices isbased, interalia,onthe
following features ofthismeasure:
1. thereasons thatleadtothenecessity ofintroducing theimport surcharge fallunder the"special
factor" qualification (e.g.inArticle XII:2 oftheGATT 1994);
2. therestrictive impact ontrade willbeconfined towhatisconsidered necessary formeeting
thestated objective ofthemeasure, asprovided forintheGATT 1994;
3. theimport surcharge ispricebased, uniform andnon-discriminatory, administered withregard
toimports covered bythemeasure fromallsources ofimports, asrequired byArticle XIII:1
oftheGATT 1994. Thisaffects equally alltrade, including thetrading partners withwhom
Bulgaria 'scommercial relations arebased onArticle XXIV oftheGATT 1994;
4. theintention oftheBulgarian government istopursue itsreform programme through economic
measures which expand, rather thancontract, international trade. Inthisrespect, andin
conformity withGATT/WTO requirements, thesurcharge willbeprogressively relaxed and
eliminated according totheschedule indicated above;
5. themeasure isconsidered bytheBulgarian government asbeing potentially lesstradedisruptive
thanquantitative restrictions onimports orother similar measures.
Asregards foreign exchange policy, Bulgaria intends tomaintain, protect andexpand thepresent
system ofvirtually unrestricted internal convertibility. Infact,theconvertibility forcurrent account
operations hasbeenoneofthekeyinstruments inourefforts todevelop market economy. Theselection
offoreign exchange controls, rather thanthesurcharge, would havemeant andunacceptable reversal
ofthispolicy.WT/SPEC/41
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ANNEX
Description ofproducts Tariff itemNo.
Crude oil ex2709 00
Natural gas 2711 11000
2711 21000
Electrical energy 2716 00000
Coalandbriquettes 2701
Lignite 2702
Coke andsemi-coke ofcoaloflignite 2704
Nuclear fuel ex2844 20
Copper oresandconcentrates 2603 0000
Unwrought aluminium 7601
Chemical wood pulp 4703
4704
Polyvinyl chloride ex3904
Cotton 5201
Medicaments 3003
3004
Rawcanesugar 1701
Wheat 1001
Maize forforage 1005 90001
Wheat flour ex1101 00000