Bulgaria WT/TPR/S/121
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IV. TRADE POLICIES BY SECTOR
(1) INTRODUCTION
1. The difficulties involved in the transition process affected all sectors of the Bulgarian
economy.  Agriculture and food processing possibly saw the most severe disruption as a chaotic
process of land reform and restitution, involving de-collectivization and restoration of land rights to
their original owners or descendants, proceeded slowly through the system. This process has been
completed only recently and a market structure in land, giving rights to collateral and associated
credit, is being rebuilt.  Mining and manufacturing output suffered from the collapse of the CMEA
and the inability to compete in new markets; some areas of mining output have recovered in recent
years, although the efficiency of the sector overall remains low. Industrial output in 2001 was 45% of
its 1991 level and the structure of industry today is very different from before the transition.Privatization has made big inroads in industry and in services. Legal and institutional reforms have
been widespread both in manufacturing and services. Results of these reforms are beginning to feed
through into economic figures; as noted in Chapter I, the most rapidly growing sectors in 2002 were
agriculture and services, and industrial output in the early months of 2003 showed major increases
over the same period of 2002.
(2) A
GRICULTURE
(i) Background
2. Almost 56% of Bulgaria’s land is agricultural; a further 35% is covered by forest and about
5% by water. Of the agricultural land, 69% is arable, 27% permanent pastures and meadows, and
about 4% vineyards and orchards.1 The principal cultivated lands are in the Danube and Thracian
Plains and the hinterland of the Black Sea.
3. Agriculture accounted for 12.5% of gross value added in 2002. Crops produced in Bulgaria
include: cereals and pulses, principally wheat, barley, maize, oats, and legumes; industrial and oil-
bearing crops, of which sunflower, sugar beet, cotton, and tobacco dominate; grapes and wine; and
vegetables and fruit, mainly tomatoes, green and red peppers, cucumbers, apples, plums, cherries,
peaches, apricots, and berries.  The main livestock production involves the breeding of cattle and
water buffalo, sheep and goats, pigs, poultry, rabbits, horses, bees, and silkworms.
4. Before the transition, Bulgaria was a major exporter of food and agricultural products to the
CMEA market.  During the first years of transition, the rural economy suffered a considerable decline.
Between 1990 and 1996, when overall GDP fell by one third, grain production was reduced by nearly
60% in quantity, cattle stocks declined by 60%, and pig numbers by over 50%, while the total area
sown with crops fell by nearly one quarter.2
5. Between 1997 and 1999, there was a moderate recovery in gross agricultural output overall;
trends of principal crops and livestock varied.3 However, 2000 was a drought year, leading to a fall in
production of most crops. In 2001, there was a general increase in grain production, with wheat output
increasing by 19.7% and barley (principally for export) by 46%. The main increase was in spring
crops, due to the influence of dry summer conditions on autumn cropping: hence maize area andproduction both fell in 2001. In 2002, gross agricultural production and value added increased by
                                                     
1 OECD (2000).
2 OECD (2002).
3 OECD (2000), Graphs 1.7 and 1.8.WT/TPR/S/121 Trade Policy Review
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4.1% and 5.1% respectively.  However, overall product ion levels remain well below those of the early
1990s.
6. In contrast to the decline in earlier years in agricultural production, the share of farm in total
employment is recorded to have risen from 21% in 1992 to 26% in 2001. Over the transition period,
the agriculture sector played an important role in the labour market by absorbing redundant labour
from other sectors, notably manufacturing4; while overall employment declined by 10% in 1992-2001,
employment in agriculture increased by 14% over the same period. After peaking in 1998, at
825,000 employment in the sector has declined in recent years; in 2001, agriculture employed
766,796 persons. According to preliminary estimates, the number of the employed in agriculture rose
slightly in 2002 to 767,134.5
7. Since 1991, Bulgaria has undergone a complex and disruptive process of land restitution
(Box IV.1). This has resulted in a fragmented structure of land ownership and had adverse effects on
farm production.  Currently, there are four principal forms of farm ownership in Bulgaria: state
ownership, municipal ownership, private ownership, and co-operatives.  In 2000, there were 13,419
registered agricultural entities, of which 68.3% (9,170) belonged to private local individuals (8,843)
and local legal entities (327); 28.8% (3,861) belonged to private farm co-operatives; 1.9% to state andmunicipal-owned entities; and about 1% (122) were  owned by private foreign individuals, foreign
individuals in cooperatives, and foreign legal entities. Of these entities, 8,604 were registered for
crops and 2,067 for livestock; a further 779 were for combined crops and livestock production.
Enterprises providing agriculture and agri-business-related services (veterinary services excluded)
accounted for 1,830 entities, and the remaining 139 operated in land management and zoning.
8. Food and agriculture have historically been major components of Bulgaria's foreign trade,
contributing up to a quarter of total exports.
6  The value of agricultural exports fell between 1990 and
1997 by two thirds and continued to decline up to 2000. In 2001, Bulgaria’s agricultural and food
exports were estimated at US$504 million, an increase of 3% over 2000 but still only one-quarter of
their 1990 value.  The balance of agri-food trade in 2001 was estimated to be positive, at
US$100 million. The main agricultural export products were cereals; tobacco and processed tobacco
substitutes; non-alcoholic and alcoholic beverages (mainly wine) and vinegar; meat and offals forconsumption; oilseeds and fruits, and animal feed. In 2002, there is estimated to have been an upturn
in farm production and an increase in agricultural exports.
9. The decline and subsequent slow recovery in Bulgaria's agriculture sector stem from a
number of interlinked factors. Some are common to the economy as a whole; others are specific to the
sector. Common factors include the loss of the CM EA market as an export outlet (for raw and
processed agricultural goods) and the severe contractionary effect of the decline in Bulgaria's
domestic market, particularly up to 1997. Specific factors include the disruptive process of land
restitution, which led to a lack of clearly enforceable property rights for several years, with
consequent effects on access to credit and on investment: many farms were left in the hands of small
owners without the capacity, in finance and machin ery, to develop or even maintain production; and
the dramatic change in structure, and reduction in levels, of domestic support for the sector
(Table IV.4). One major deterioration is that irrigation, which was widely used, has become largely
unserviceable and Bulgarian agriculture has thus become increasingly weather-dependent.
                                                     
4 OECD (2000) and other studies note the importance of family subsistence farming as a safety valve in
the transition.
5 Information from the Bulgarian authorities. An agricultural census is to begin in September 2003.
6 World Bank (2000).Bulgaria WT/TPR/S/121
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Box IV.1:  Land reform in Bulgaria
An essential element in the transformation of agriculture in Bu lgaria to a market-based system was the restitution of lands
taken over by the State in 1945. To this effect, since 1991, new laws have been passed to provide the framework for
private-sector development in agriculture. The Law for Agricultural Land Ownership and Land Use (LALOLU) of 1991,
as amended, re-establishes private land property rights; since 1998, Bulgarian legal entities with foreign capital may also
acquire agricultural land.
The National Land Council and around 300 Municipal Land Commissions (MLCs), operating under the Ministry of
Agriculture, were established to implement the regulations governing farmland restitution. The process began with the
registration of claims, followed by a decision by the MLC regarding the recognition of ownership claims; re-
establishment of ownership could be based on old boundaries or through agreement on a reallocation plan, after which a
certificate was issued for use in registering ownership. The LALOLU also made provision for the non-land assets
(including farm equipment, crops, and livestock) of collectiv e farms and other organizations to be divided among eligible
owners. Half of the assets were distributed according to the size, quality, and period of use of the land in the collective or
cooperative, and the other half according to the labour contribution of members.
The experience of land reform was difficult and painful. Restoring former ownership rights to the status of fifty years
earlier, when neither the corresponding structures of production, nor proper records of the previous boundaries existed,
was costly, labour-intensive, and complicated. The restoration of old boundaries was generally impossible and attempts to
provide acceptable replacements for claimants often ended in court. The task was further complicated because land was
initially restored to the original owners: if they had died, this often led to time-consumin g inheritance cases. Furthermore,
frequent amendments to the law created an atmosphere of uncertainty; implementation was not carried out skilfully; and
the operating budget during the initial transition period was inadequate.
The process accelerated in the latter half of the transition period, when the Government placed a high priority on
completing land restitution.  By the end of 2000, over 99% of la nd subject to restitution had been returned to the original
owners or their heirs, and this process was considered to be completed in 2001. The outcome was a very fragmented
ownership structure in the sect or, with a large number of small family farms. Individual legal titles to land have still not
been assigned in many instances, hindering development of a land market. Fragmentation of land ownership contributed
to the deterioration in Bulgaria's agricultural performance, as many farmers lack the necessary capital and other inputs to
increase production. This in turn had an adverse impact on the agri-processing sector.
Land restitution is considered to be the fi rst stage of land reform. In the second st age, the authorities seek to stimulate the
land market and facilitate land consolidation. To this end, so me laws and regulations have been amended to enhance the
possibilities of leasing and selling arrangements: since 1999, for example, the Ministry of Agriculture has made it
possible, on the basis of the provisions of the LALOLU, to substitute privately owned plots for identical parcels released
by the State Land Fund; under the Land Lease Law, as amended, there is now no ceiling on the area of land that can be
leased, and the long-term lease of state-owned land has become an exceptionally active component of the Bulgarian land
market; the Law on Cooperatives, as amended, provides for the creation of private cooperatives, which can now lease
land by written contract; and the Ministry of Agriculture, in cooperation with a specially assigned expert team, has
prepared a draft Land Consolidation Act.  An information system for facilitating the land market is also under
preparation.
Sources : OECD (2000); World Bank (2000); and MAF (2002a).
(ii) Policy objectives for the sector
(a) General objectives
10. Bulgaria seeks to address the decline and boost growth in the agriculture sector through the
establishment of secure, clear, and transferable land tenure rights, and an efficient farm ownership and
management structure based on private owners hip of land and other means of production.7 Five
priority areas are identified in the Government’s programme for the sector over 2001-05. These are:
(i) efficient management of agriculture and forestry resources and the development of market
structures; (ii) increasing the competitiveness of primary and secondary agriculture and creating
conditions for the development of an export-oriented agriculture; (iii) preparing for the
implementation of the requirements of the EU single market and CAP mechanisms, as well as
adherence to international agreements; (iv) improving living and working conditions of those
                                                     
7 MAF (1999)..WT/TPR/S/121 Trade Policy Review
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employed in agriculture and forestry as well as of other rural inhabitants;  and (v) eco-friendly and
sustainable management of forestry resources, game, and protected natural areas.8
(b) Pricing and trade policies
11. In contrast to the pre-transition and early transition period, Bulgaria's current pricing regime
in agricultural product markets has been liberalized (see Box IV.2).  The current price regime is based
on avoiding direct intervention in input and output markets. The general policy objective is topromote the development of market mechanisms, and for government to intervene only in the event of
market failure.
9 In 2003, price interventions remained for tobacco (minimum farm gate prices) and
cereals (system of warehouse receipts for grains).
Box IV.2: Evolution of domestic farm support in Bulgaria before and during the transition
Up to 1989, all agriculture and food prices were centrally fixed, established in the framework of the five-year plan.  Three
principal prices were determined:  farm procurement prices (purchase prices), processor prices (producer prices), and
retail prices.  In order to keep fixed retail prices of main food products low, the purchase prices of milk, meat, and bread
were fixed well below the costs of production; farmers were compensated for losses by output subsidies and bonuses.
Budget support for mountainous and semi-mountainous regions was given mainly to livestock and feedgrain producers.
Exports to CMEA markets were made at subsidized prices.  In 1989, in addition to these provisions, extra payments were
made to cattle and sheep farmers as an  incentive to increase livestock numbers.
Between 1989 and 1991, the previous price and margin controls were maintained; however, prices of certain products
(some fruit and vegetables, some crops, and livestock products) were freed to some extent. The state budget covered the
difference between fixed retail prices and freed farm prices.  Trade measures were used to encourage imports and
discourage exports.
Between 1991 and 1995, prices for farm and food products were somewhat liberalized, but remained subject to close
monitoring, initially through a "projected price" system a nd, for basic foods, fixed profit margins.  Minimum producer
prices (prices below which goods could not be sold) were also introduced in 1991/92, but high inflation during this period
reduced their relevance over time.  In 1993, the system was tightened by the introduction of ceiling prices determined on
a specified profitability level.  Generally, the aim was still to keep retail prices of food below the market level.
Between May 1995 and 1997, three types of intervention prices were established under the Price Law: fixed prices for
electricity and fuel, minimum prices for wheat, and projected retail prices for food and non-food products, replacing the
ceiling prices but still on the basis of profit margins. Guaran teed farm prices were introduced under the Law for the
Protection of Agricultural Producers. In addition, interv ention by the State Fund for Agriculture (in the shape of
compulsory purchasing of surpluses) was to occur if current market prices fell below 95% of the guaranteed floor price
for any product.  Sugar beet was, in practice, the only product for which the intervention system was brought into
existence and, because of the significant depreciation of the lev, no contracts were signed.
After July 1997, all controls on profit margins were abolished.  New "contract prices" (fixed retail prices) were
introduced on a limited range of 15 basic food products.  The minimum price system was also maintained.  Both contract
and minimum prices were abolished in mid-1998.
It must be borne in mind that the period up to 1997 (when the currency board was introduced) was one of notable
macroeconomic instability and very high inflation in Bulgaria . As seen in Chapter I, the introduction of the currency
board system reduced inflation to levels comparable with western Europe and the need was no longer seen for
administrative control of prices; nor would this have been compatible with the new market-based economic policies
followed from 1997 onward.
Source : OECD (2000) and (2002).
12. The trade regime affecting agriculture has also undergone considerable transformation. After
the fall of the central planning system, with its system of controls, trade policy was initially used for
short-term interventions aimed at micro-managing domestic supplies and prices. Instruments for the
implementation of these policies included automatic and non-automatic licences on both imports and
                                                     
8 MAF (2002a).
9 OECD (2000).Bulgaria WT/TPR/S/121
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exports; export quotas, taxes, and bans; minimum import and export prices; and duty-free import
quotas. For instance, basic regulations governing licensing exemptions were changed no fewer than
25 times prior to 1997.10 In this earlier period, export taxes were applied to products such as
sunflower seeds and oil, hides and skins, timber,  firewood, wood in rough, wool, and grain flour, to
prevent or relieve critical shortages of foodstuffs and other essential products.11
13. Since acceding to the WTO in 1996, Bulgaria has made considerable progress in liberalizing
its agricultural trading regime. Since 1997, licensing requirements for import and export of
agricultural products have been removed; currently, there are no automatic or non-automatic licensing
provisions or export taxes on agricultural products and livestock. The only import protection on
agricultural goods is now through tariffs. In 2003, the simple average applied MFN rate for
agricultural products (WTO definition) was 22.6%, with a maximum applied rate of 80% and amaximum bound rate of 200%. Tariffs applied to the different agricultural subsectors are discussed in
section (iii). A number of tariff quotas are impl emented, under both preferential and non-preferential
trading regimes. As noted in Chapter III, currently 45 of the agricultural MFN tariff quotas notified by
Bulgaria to the WTO remain in effect (Table AIII.1) and tariffs are suspended for the whole or part of
the year on a variety of other food and agricultural products (Table III.5). Preferential tariff quotas atduty-free or reduced rates are also applied under th e agreements between Bulgaria and the EU, EFTA,
CEFTA, and other countries (Box III.1).
14. In addition, as noted in Chapter III (xi)(b), substantial new laws and amendments on animal
health and phytosanitary provisions have been adopted during 2001 and 2002 adapting these
provisions to EU directives and other international rules.
(c) Domestic support
15. The main institution through which government support is provided to farmers is the State
Fund on Agriculture (SFA). According to the prov isions of the Law on Promotion of Agricultural
Producers
12, the SFA provides resources for financial support to market-oriented producers of primary
agricultural products. Support to the tobacco sector is provided through Fund Tobacco.13,14
16. The pattern of domestic support to Bulgarian agriculture has evolved considerably over the
transition period (Box IV.2). Since Bulgaria's accession to the WTO in 1996, the main instruments foragricultural support have been input subsidies
15, interest rate subsidies, provision of guarantees and
collateral to financial institutions, premium and buying-up, future deals, stock credits and bonuses on
prices. The main products to have benefited from  the subsidies are wheat, maize, sunflower seed,
sugar beet, potato, rice, tobacco, and milk. Other support measures specific to particular agricultural
products include futures deals for wheat production, bonuses on prices for sugar beet production, andpremium and buying-up of tobacco and supply of seeds for tobacco production. Bulgaria's total
aggregate measure of support (AMS) increased from ECU 4.64 million in 1997 to € 26.03 million in
                                                     
10 World Bank (2000).
11 WTO document WT/ACC/BGR/5.
12 State Gazette  No. 58/1998, last amended in No. 96/2002.
13 Fund Tobacco was established within the Minist ry of Agriculture accordin g to the law on tobacco
and tobacco products as a legal entity working under an extra-budgetary account for regulating the growing,
buying out, and trade in tobacco.
14 Despite the existing possibilities under the WTO commitments for providing subsidies for export of
tobacco, no such premiums have ever been offered.
15 Input subsidies are used for the provision of fertilizers, plant protection, storage of grains, land
cultivation and sowing, and fuel.WT/TPR/S/121 Trade Policy Review
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200116, however this is significantly below its total bound AMS level of € 520 million in 2001,
thus indicating the possibility for significant increases to domestic support (Table IV.1). These could
occur when Bulgaria accedes to the EU, when it will have to adopt the EU's Common Agricultural
Policy, which currently provides higher levels of support in Bulgaria (Table IV.3 and Box IV.2). In
2002, support to agriculture included both short-term and long-term financial instruments. The short-
term instruments include direct-targeted subsidies, preferential short-term credits and dedicated creditlines, which for 2002 amounted to 21 million levs (€ 10.7 million). Long-term instruments are used
for support and stimulating investment in agriculture. Between January and June 2002, investment
projects amounted to 2.2 million levs (€ 1 million) and dedicated finance lines including credit and
subsidies for the spring campaign amounted to 13.4 million levs (€ 6.8 million). Assistance to the
tobacco industry amounted to 85.6 million levs (€ 43.8 million).
17
Table IV.1
Aggregate measure of support, current and bound (million ecu and euros)
1997 1998 1999 2000 2001
Total AMS 4.64 13.6 9.54 13.9 26.03
AMS bound commitment 635 520 520 520 520
Source: WTO documents G/AG/N/BGR/7 and G/AG/N/BGR/3.
Box IV.3: Aligning Bulgaria's Agriculture S ector with the CAP: options and implications
The World Bank recently c onducted a major study on food and agriculture in Bulgaria. Among other things, it recognizes
that a critical decision for the Government is how to move to the EU Common Agricultural Policy (CAP). Since the likely
shape of the CAP by the time of Bulgaria's accession is not clear, the study simulates the possible impact on Bulgaria of six
policy options.  These are:
• Scenario A- maintaining the status quo in Bulgaria's agricultural trade measures (using 1999/2000 regulations);
• Scenario B1- partial adoption of the CAP (using 1999/2000 regulations) without introducing compensatory payment
schemes;
• Scenario B2 –  complete adoption of CAP, i.e including compensatory payments;
• Scenario C1- partial adoption of CAP Agenda 2000, without compensatory payments;
• Scenario C2 – complete adoption of Agenda 2000, including compensatory payments; and
• Scenario D – removal of divergences and application of world prices.
The results of theses scenarios are illustrated in Table IV.2.
Current protection in Bulgaria's agriculture sector is low, with nominal and effective rates of protection (NRP and ERP) both
below 4%. Under either the CAP or Agenda 2000 options, the simulations show a sharp rise in protection.  The adoption of
"Agenda 2000" policies, without direct subsidies, would have relatively small effects for Bulgarian producers; however, for
both the CAP and Agenda 2000 options, effective rates of protection increase significantly when compensatory direct
payments to farmers are included. Value added at domestic prices in the farm sector would, in principle, increase most under
full adoption of the CAP (including direct payments), where the study estimates that effective protection could rise from 4%
to 107%.  The study states that cereal producers could benefit most; dairy and livestock producers would need to make
substantial additional invest ments to reap the benefits.
While farmers may gain from implementation of CAP-type policies, consumers clearly lose. The study notes that increases
in value added at domestic prices reflect artificial increases in prices,  representing transfers from consumers and taxpayers
to producers. Household expenditures on food are estimated to increase by 5% and 10% respectively under the Agenda 2000
and CAP options, leading to declines in household real incomes of 2.7% and 5.1% respectively. This would impact more
severely on the poor; the study estimates that the share of Bulgaria's population living in poverty (defined as 50% average
per capita consumption in 1997) may grow from 20% to 24.8% under the CAP option and to 22.3% under "Agenda 2000".
The study contrasts the CAP/Agenda 2000 estimates with a "non-interventionist" option, where all existing restrictions and
distortions are removed. This is estimated to lead to a small decline in value added at domestic prices (producer income), but
to a positive effect on food expenditure, consumer incomes, and poverty, particularly if an elastic demand response by
households is assumed.
Source: World Bank (2000).
                                                     
16 1 ECU = € 1.
17 See MAF online information. Available at: http://www.mzgar.government.bg/mz_eng/Begin/
AnaliziOSPEng.htm.Bulgaria WT/TPR/S/121
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17. Green box measures provided in support of agriculture in Bulgaria include: general services
such as pest and disease control, training services, inspection services, extension and advisory
services, research and infrastructural services; environmental programmes and regional assistance
programmes. Total funds allocated to these measures amounted to € 27.2 million in 2001.
18. The OECD regularly provides estimates of  aggregate producer and consumer support
equivalents for the Bulgaria's agriculture sector (Table IV.3). While the estimates fluctuate widelyfrom year to year, in general they indicate that in the pre-transition period agricultural producers were
heavily subsidized and consumers taxed (positive PSEs, negative CSEs), whereas for most transition
years up to 1996 agricultural producers were taxed and consumers implicitly subsidized (negative
PSEs, positive CSEs). The high figures for support during the pre-transition period reflected the levels
of market price support and consumption subsidie s (Table IV.3 and Box IV.2). The liberalization of
domestic prices, trade policies, and the exchange rate regime meant that prices received by
agricultural producers first fell far below and subsequently approached the market equilibrium,
although retail prices were still (at least in principle) controlled. Since 1997, both PSE and CSE levels
have been extremely low, reflecting the current liberalization and low levels of support in the farm
sector. Though the overall PSE estimates show a de cline in total support for agriculture, specific
elements of support have increased during the transition period. These include the payments based on
input use and production mentioned in the previous paragraphs.
Table IV.2
Summary of simulation of effects under policy scenarios(€ million and per cent)
Scenario
AB 1 B2 C1 C2 D
Current
policiesCAP,
excluding
direct
paymentsCAP,
including
direct
paymentsA2000,
excluding
direct
paymentsA2000,
including
direct
paymentsNon-
intervention
EU agricultural policy effects on agricultural producers
NRP, main products (%)a, b2.1 38.2 38.2 22.8 22.8 0.0
ERP (%)a, b3.9 31.8 107.0 11.7 100.8 0.0
Gross output value (€ million)a1,687 2,242 2,652 2,006 2,491 1,575
VA at domestic prices (€ million)a565 717 1,127 608 1,093 544
VA at border equivalent prices (€ million)a544 544 544 544 544 544
Change in VA at domestic prices (€ million) .. 152 561 43 528 -21
EU agricultural policy effects on households
Expenditure on food (€ million)c2,105 2,312 .. 2,210 .. 2,067
Change in food expenditure (€ million)c.. -207 .. -105 .. +38
Change in real income (%) 0.0 -5.1 .. -2.7 .. 1.0
EU agricultural policy effects on taxpayers
Change in expenditures (€ million) .. -32 .. -22 .. ..
Direct payments (€ million) .. .. 409 .. 484 ..
Population living in poverty(%)
Inelastic demand 20 24.8 24.8 22.3 22.3 19.6
Elastic demand 20 23.5 23.5 21.7 21.7 10.4
a Nominal rate of protection aggregate measurement for all analysed products (including direct payments where applicable).
b Effective rate of protection:  weighted average of product indicators.
c Including non-alcoholic beverages.
Source: World Bank (2000).
19. The development of Bulgaria's farm sector is also constrained by lack of credit. Commercial
banks consider lending to agriculture as high risk due to a lack of collateral and low profitability.
Agricultural land has not been accepted as collateral for banks, due to the lack of clear property and
ownership rights, and even since restitution of land rights, farmers’ use of land for collateral has been
hindered by the absence of a functioning land market. Measures being prepared by the authorities, as
noted in Box IV.1, seek to improve the land market and credit accessibility.WT/TPR/S/121 Trade Policy Review
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20. The sector benefits from various EU pre-accession schemes. Between 1992 and 1999, the
main EU pre-accession support to Bulgaria (as well as other acceding central and eastern European
countries) was through the PHARE programme.18 The aims of the programme are to help the
administration of the partner countries acquire the capacity to implement the acquis
communautaire , and to assist candidate countries bring their industries and major infrastructure up to
Community standards by mobilizing investment. Under the current PHARE programme, which runstill November 2003, Bulgaria is receiving EU assistance in the following agriculture-related areas:
phytosanitary and plant protection, veterinary control, fisheries and aquaculture, and agricultural
statistics.
21. Since 2000, Bulgaria has also benefited from SAPARD (the Special Accession Programme
for Agriculture and Rural Development).  SAPARD  funds support the structural adjustment of
Bulgarian agriculture and rural development as well as enabling Bulgaria to implement the  acquis
communautaire  concerning the Common Agricultural Policy (CAP) and related matters. Up to 50% of
the initial cost is refunded for qualifying investment in agricultural holdings, processing and
marketing of agricultural and fishery products, as well as in diversification and alternative income
generation.
19
Table IV.3
Producer and consumer support estimates, 1986-2001(per cent)
1986-90 1991-96 1997-2001 1997 1998 1999 2000
a2001b
Wheat 54 -50 -7 0 -19 -14 3 -4
Maize 69 -19 -5 -5 -7 -23 2 8
Other grains 58 -33 -8 4 10 -21 -11 -21
O i l s e e d s 6 4- 7 5- 2 7- 5 1- 2 9- 3 8- 1 3 - 2
S u g a r 8 91 45 84 65 66 46 45 9
Crops 61 -42 -14 -5 -15 -22
Milk 78 12 16 5 40 13 11 9
Beef and veal 66 -64 -24 -55 -18 -55 -15 24
Pigmeat 74 -48 -9 -19 -9 2 -14 -4
Poultry 58 -16 21 5 17 39 27 16
Eggs 64 5 16 3 16 35 14 14
Livestock .. .. .. -12 11 11
Aggregate PSE 72.4 -32.7 .. -10 +2 -2 +1 +3
Aggregate CSE -67.6 36 .. 10 -1 +1 0 -3
a Provisional.
b Estimate.
Note:  PSE indicates the total annual monetary value of gross transfers from consumers and taxpayers to support agricultural pr oducers, 
measured at farm gate level, arising from policy measures regardless of their nature, objectives or impacts on farm production or 
income.  Percentage PSE measures the ratio of PSE to the gross values of farm receipts (farm gate production value plus 
budgetary support). Positive values imply support to agricultural output and negative value imply taxation of agricultural outp ut.
CSE indicates the annual monetary value of gross transfers to consumers of agricultural commodities, measured at farm gate level, arising from policy measures which support agriculture, regardless of their nature, objectives or impact on consumption of 
farm products. Percentage CSE is the ratio of the CSE to the total value of consumption expenditure on commodities 
domestically produced, measured by the value of total consumption at farm gate prices minus any consumer subsidies. Positive 
values indicate explicit or implicit subsidization of consumers; negative values show implicit taxation of consumption associat ed 
with support for the agriculture sector.
Source : OECD (2000); OECD (2002).
                                                     
18 See  EU online information. Available at: http://europa.eu.int/comm/enlargement/pas/phare.
19 Detailed information on the eligibility conditions of the SAPARD programme is available online at:
http://www.mzgar.government.bg/MZ_eng/Sapard/Iziskv.htm.Bulgaria WT/TPR/S/121
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22. As part of the eligibility requirements for the SAPARD funds, Bulgaria has developed a
National Agriculture and Rural Development Plan (NARDP). Financial support under NARDP is
envisaged to support two major objectives: (i) "t he development of an effective and competitive
agrarian sector complying with EU's economic criteria"; and (ii) harmonization of Bulgarian
legislation in the field of agriculture, veterinary, and phytosanitary controls with the acquis , and
preparation for systematic introduction and implementation of the mechanisms of the CAP. Specificmeasures being implemented to achieve these objectives include investment in agricultural holdings,
improving the processing and marketing of fruit and vegetables, setting up producer groups and water
resource management; development and improvement of rural infrastructure, development and
diversification of economic activities, providing for multiple activities and alternative incomes;
investment in human resources, and provision of technical assistance.
23. Bulgaria was the first EU candidate country to benefit from funds from SAPARD. Three
areas were given priority: investments in agricultural holdings, improving the processing and
marketing of fish products, and development and diversification of economic activities. Since its
establishment (until May 2003), a total of 450 projects amounting to € 311.9 million have been
approved for support under the measures: for the period July 2002 to May 2003, 294 projects wereapproved. For the whole period, 150 projects have been completed and reimbursed, amounting to
€ 83.1 million; 126 of these were completed and paid in the period July 2002 to May 2003.
(iii) Main subsectors
20
(a) Crops
24. In terms of area planted the main crops in Bulgaria are wheat, maize, barley, sunflower, and
fruits. In 2001, the total area planted with crops was 2.6 million ha; this represents a 22% decline
since 1991, especially for wheat, barley, and maize.21
Cereals and pulses
25. In 2000, the area under cereals and pulses totalled 1.8 million ha (36.4% of total arable land),
and output amounted to 4.4 million tonnes, 19% lower than the 1999 output level. Cereal yields have
fluctuated between 2.5 to 3 tonnes per hectare since 1992. The average MFN applied tariff rate for
cereals in 2003 is 11.6%; the bound rate is 29.6%.
26. As part of its accession process, Bulgaria is harmonizing its legislation in this subsector with
that of the EU's cereals CMO, and establishing the necessary institutions and administrative
procedures to enable it implement EU regulations. This requires the establishment of a paying agency,
intervention agency, systems of land registration, an integrated administration and control system, and
the trade regime. Preliminary studies on the basis of "Agenda 2000" estimate a 15% increase inincomes from cereal production after EU accession. However, this is only indicative as the extent to
                                                     
20 This section uses data on production taken from FAO, Production Yearbook 2000, supplemented by
2001 data from OECD (2002) and 2003 tariff data supplied to WTO by Bulgaria. Tariff rates are based on
analysis at HS 6-digit level. All rates mentioned use the HS nomenclature unless otherwise stated.
21 The past few years have witnessed a continuous increase in areas under autumn crops, whereas areas
under spring crops have been declining steadily due to adverse weather conditions in winter and spring.  Sharptemperature variations in spring and insufficient water content in soil during these years have had adverseeffects on spring planting, resulting in a reduction in the area planted.WT/TPR/S/121 Trade Policy Review
Page 88
which Bulgarian farmers would benefit from the cereals CMO would depend on the outcome of the
EU internal discussion process and the negotiations on the terms of EU entry for Bulgaria.22
Wheat
27. Wheat is Bulgaria's main cereal crop. Over the period 1989-91, average wheat production was
5.1 million tonnes, declining to 3.8 million tonnes in 2001 or 63% of the total output of cereals and
pulses. During the pre-transition period, wheat production was supported  by a PSE averaging some54% between 1986 and 1990; during the transition period, by contrast, PSE levels show substantial
taxation of wheat, although with considerable fluctuations, averaging around -50% between 1991 and
1996, rising to around -7% in 1997-2001.
28. The trade regime affecting wheat has undergone several changes since the beginning of the
transition reforms. The early transition period saw widespread use of minimum farm prices, exporttaxes and bans on wheat, and various price subsidies. With the acceleration of transition reforms since
1997 various restrictions on wheat imports have been abolished, and export taxes and bans were
removed in mid-1997. In 2003 imports of wheat were scheduled to enter duty free under the applied
autonomous quota, however the bound rate was 15 % on durum wheat and 50% on other wheat.
Maize29. Production of maize, the second largest grain crop, has also fallen significantly.  From an
average of 2.1 million tonnes in 1989-91, output declined to 937,000 tonnes in 2000. This decline is
related to the contraction in the intensive livestock  sector, adverse climatic conditions in the maize
growing areas (exacerbated by irrigation diffic ulties), and a decline in the overall support to
producers. The PSE for maize fell from an average of 69% in 1986-90 to average -19% (with
considerable fluctuations) in 1991-96 and -5% in 1997-2001.
30. Maize trade was also subject to a range of border measures in the early transition period
including export taxes and bans, and tariff quotas. However, since 1998, the trade regime for maize
has been further rationalized, with the abolition of export restrictions. In 2003, seasonal tariffs were
applied to maize: during January-September, imports were scheduled to enter duty free on an MFN
basis, under the applied autonomous quota; however  outside this period a quota of 100,000 tonnes
applies to imports of maize for forage at an in-quota rate of 5% and an out-of-quota rate of 15%.  In-quota tariffs were bound at an ad valorem  rate of 5% and out-of-quota tariffs were bound at a specific
rate of €125/tonne in 2003.
Other cereals
31. Other cereals produced in significant quantities in Bulgaria include barley and coarse grains,
both of which have suffered significant declines in production relative to the pre-transition era. Barleyproduction fell from an average of 1.5 million tonnes in 1989-91 to 684,000 tonnes in 2000. An
increase in production was registered for 2001, to 930,918 tonnes.  Coarse grain production declined
from 3.8 million to 1.7 million tonnes over the same period. Price interventions in both the barley and
coarse grain markets during the transition period were lower than those in the wheat market. OECD
(2000) reports that the average PSE for barley was some -33% during 1991-96, rising to -3% in 1997-2000.  Currently, the main form of domestic intervention is the system of warehouse receipts. This
acts as an alternative approach to short-term lending to grain producers and processors, using grain as
collateral. The system gives grain producers and processors greater flexibility to dispose of their
grains at a time when prices are most favourable.
                                                     
22 MAF (2001a).Bulgaria WT/TPR/S/121
Page 89
32. On the trade front, all coarse grains were also subject to export taxes and bans during the
early transition years; however the trading regime has been rationalized. In 2003, seasonal tariffs were
applied to imports of barley. Between January and June barley imports entered Bulgaria duty free
under the applied autonomous quota; outside this period a quota of 10,000 tonnes applied to imports
of barley for brewing at an in-quota ad valorem  rate of 15% and an out-of-quota rate of 20%. Bound
tariffs were: 3% for seeds; a mixed rate of 80% or €93/tonne (whichever is higher) on barley for thebrewing industry or for forage; and 25% for other barley. At present, no permission or licensing is
required for export or import of grain, and there are no customs registration requirements.
Oilseeds
33. Sunflowers are the main oilseed crop. Unlike other crops, production levels, though
fluctuating, have not declined from their pre-transition levels. In the period 1989-91, average outputwas 427,000 tonnes, rising to 610,000 in 1999 before a decline to 438,000 tonnes in 2000. The
relatively better performance of sunflowers compared with that of the other crops occurs against the
backdrop of a similar decline in producer support for the crops subsector overall during the transition
reforms; as average support levels (measured by PSE) declined from pre-transition positive levels of
between 51% and 73% (average 64%) in 1986-90 to negative levels of support (implicit taxation)averaging -75% between 1991and 1996, and rising to an average of -27% in 1997-2001. This
relatively brighter performance of the sunflower sector is attributed to increased acreage in the sector
due to higher profitability (and higher support) compared to grains production.
34. Export taxes or bans were in place at various periods during 1994-98. The applied MFN rate
for oilseeds ranges from zero to 40% with an average of 5%.  Sunflowers attract an average applied
MFN rate of 3.8%; the tariff is bound at 50% (2003).
Sugar beet35. Sugar beet production plummeted over the early transition period, recovering somewhat in
1997-99. The decline in output can be attributed to a number of factors including the process of land
restitution, the lack of mechanization on the new private farms, and the weak financial situation of
newly privatized sugar-processing factories. Support levels for sugar, though positive, were relatively
low; between 1991 and 1996 PSE levels averaged 14% (compared with 89% during 1986-90), risingto 57% in 1997-2000. In 2003, the applied MFN rate for sugar beet is 10% and the bound rate is 40%.
Tobacco
36. In 2000, tobacco was Bulgaria's largest export crop, accounting for 15% of total agricultural
export revenues. However, as with other crops, tobacco production and exports have fallen
significantly. From an average level of 77,000 tonnes in 1989-91, output declined to 18,802 tonnes in1995, but recovered to  41,001 tonnes in 2001, and 58,448 in  2002. While acreage fell from
60,000 ha to 42,000 ha during the transition period, productivity in the tobacco sector has increased,
which contrasts with the overall decline in productivity in Bulgaria's crop subsector. This is mainly
due to an increase in the average yield of tobacco per hectare.
37. The tobacco subsector is subject to the strictest market and trade regulations. All government
actions in this area are based on the provisions of the Law for Tobacco. Pursuant to the provisions of
the Law on Tobacco and Tobacco Products
23, tobacco production is subject to predetermined output
quotas by region, type, origin and variety of tobacco, set out in a special ordinance by the Minister of
                                                     
23 State Gazette  No. 101/1993, last amended in No. 20/2003 to extend the deadlines for raw tobacco
purchase.WT/TPR/S/121 Trade Policy Review
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Agriculture. To enable tobacco producers to fulfil the predetermined output quotas, the Council of
Ministers, on the basis of a proposal by the Minister of Agriculture and Forests24, adopts a minimum
farm-gate price for each year. In 2001, increases in minimum farm-gate prices ranged between 6%
and 11.5%, depending on the variety of tobacco. The cumulative increase in minimum farm-gate
prices over the period 1997-03 is between 30% and 40%. In addition, through the Tobacco Fund25, the
tobacco subsector benefits from: grants of seeds, cash premiums for quality, differentiated by varietyand type of tobacco, dedicated financial support
26, and payments for unpurchased tobacco, and
storage. In 2002, total support granted for tobacco amounted to 85.6 million levs (€ 43.8 million) of
which 81% was used for cash premiums, 17.8% as direct financial assistance, and 1.1% on tobacco
seeds.  The remainder was for storage costs.
38. Applied MFN tariffs applied to tobacco and tobacco-related products range from 5%
(HS 240130001) to 74.9% (HS 240310). A mixed rate of 50% or € 9.6/1,000 pieces (whichever is
higher) was applicable to some tobacco products. The simple average MFN applied rate is 30% for
both stemmed and unstemmed tobacco and 22.5% for tobacco refuse. The bound rates for most
tobacco and tobacco related products were mixed rates ranging from 100% ad valorem  or € 2.4/kg.
for certain types of tobacco to 200% ad valorem  or € 36/1,000 pieces on cigarettes.
Fruit and vegetables
39. Fruit and vegetables are an important component of Bulgaria's agricultural production and
exports. In 2001, they jointly accounted for 24.6% of agricultural output and 14.6% of agricultural
exports. In total, 11,000 tonnes of fresh vegetables (13% increase over 2000) and 2,000 tonnes of fruit
(13% decrease) were exported in 2001. Fruit production declined significantly from an average of
1.6 million tonnes in 1989-91 to 743,000 tonnes in 2000 (with periodic fluctuations). This fall is
attributed to the dramatic drop in production of perennial fruits arising from the slow pace of landrestitution and subsequent fragmentation, which in many cases placed orchards in the hands of small
owners without the ability to invest significantl y; this reduced productivity and, in some cases,
orchards were abandoned as they became unfit for food growing.
27 The fruit subsector has also
suffered from the collapse of the CMEA as, prior to 1989, Bulgaria's fruits were primarily exported to
CMEA. Bulgaria is however seeking new markets.  Though there is no trend decline in vegetableproduction, its output fluctuated greatly during the 1990s. In 2000, total production of vegetables was
1.7 million tonnes.
40. No price or export controls were applied to fruit and vegetables during the transition period.
Border measures currently applied include tariff quotas for some fruit and vegetables, as well as
seasonal, ad valorem , mixed, and compound rates. In 2003, 84% of the tariff lines were expressed as
ad valorem  rates, and the remainder either mixed (i.e including specific and ad valorem  rates) or
compound rates. Seasonal tariffs were also applied to a wide range of vegetables and fruit. The
average applied MFN rate for fruit and vegetables in 2003 is 27.5%, with a wide dispersion of tariffs
amongst individual products as the ad valorem  component of the applied MFN tariffs for fruits and
vegetables ranges from zero to 80%. The ad valorem  component of the duties on many vegetables is
between 20%-55%, for example: tomatoes (34%), onions and shallots (41.7%), garlic (46.5%), carrots
and turnips (40%), cucumbers and gherkins (55%), and aubergines (35%). Vegetables attracting
seasonal duties include onions, shallots, garlic, potatoes, tomatoes, cucumbers, gherkins and sweet
peppers. Imports of lentils were duty free between January and July 2003.  Fruits bearing seasonal
                                                     
24 The proposal is prepared by the Tobacco Fund.
25 The Fund was established under the Tobacco and Tobacco Products Law as a government agency
entitled to distribute budgetary subsidies for raw tobacco growing and buying.
26 This is included in the farm-gate price.
27 OECD (2000).Bulgaria WT/TPR/S/121
Page 91
duties included grapes, watermelons, apples and nectarines, many of which also bore compound
duties. Duties applied to fruit in 2003 include: 5% plus € 45/tonnes for apricots; 5% plus
€ 20/tonne for oranges, 5% plus € 22/tonne for ma ndarins, 5% plus € 60/tonne for cherries, and 10%
plus € 170/tonne for nectarines. Relatively high ad valorem  rates are applicable to imports of
watermelons (57%), strawberries (40%), and raspberries, blackberries, and mulberries (40%).
41. Bulgaria is harmonizing its legislation in this sector with that of the EU's CMO for processed
fruit and vegetables.  The legislative reforms as well as the accompanying institutional and
administrative reforms in this sector address amongst other things provisions on producer
organizations, quality requirements, data collection, and its trade regime. Preliminary studies suggest
that under the current EU market prices the value of fruit and vegetable production could go up by
30% with the highest increases generated by vegetable production. However, this outcome iscontingent on Bulgaria's ability to improve quality and develop markets.
28
(b) Livestock
Milk and milk products
42. Milk, Bulgaria’s principal livestock product, is estimated to have accounted for 10-15% of
total agricultural output in the 1990s. Its share was 12.8% in 2001.  Milk is produced from cows,water-buffaloes, sheep, and goats; cow's milk is significantly the most dominant with 82.5% in
2001. Production of cow's milk fell from an average of 2 million tonnes in 1989-91 to 1.41 million
tonnes in 1996. In 2001, the volume of cow's milk production declined by 10.4% compared with
production in 2000; however, a moderate increase is expected in 2003.
29 The changing fortunes of the
milk sector can be attributed to the initial declin e in the cow herds and their subsequent recovery as
well as changes to productivity in the sector.30  Unlike several other agricultural products, the PSE
equivalent in the milk sector was generally positive for a greater part of the transition period, thoughlower than during the pre-transition period: it averaged 20.7% during 1991-96 and 19.25% during
1997-2000. The relatively favourable producer support levels maintained over the transition period
can be attributed to sustained increases in the domestic price of milk.
31
43. There have not been any export bans or taxes on milk exports. In 2003, milk and milk
products attract a wide range of tariff rates. Milk  and cream, not concentrated nor containing added
sugar or other sweetening matter (HS 0401) attract an ad valorem  rate of 25%. Tariff quotas of
200 tonnes apply to milk and cream in powder, granules or other solid forms, of fat content by weight
not exceeding 1.5% (HS 040210); the applied in-quota rate is 15% and applied out-of-quota rate 64%.
A higher MFN rate, of 68%, applies to milk and cream not containing added sugar or other
sweetening matter (HS 040221). Imports of yoghur t (HS 040310) attract an applied MFN tariff of
40%. Quota levels are also bound for butter and other fats and oils derived from milk (HS 040510 and
HS 040590) at 1,500 tonnes and attract an in-quota ra te of 30% and an out-of-quota mixed rate not
higher than an ad valorem rate of 60% or a specific rate of € 1,547/tonne. For 2003, quota levels for
fresh cheeses and curd (HS 040610, 040620, 040630390) are bound at 3,000 tonnes at in-quota rate of
17.5%, of which 2,000 tonnes are allocated for the EU.
                                                     
28 MAF (2001b).
29 MAF (2002a).
30 Cattle numbers declined from an average of  1. 6 million  over th e 1989-91 period to 612,000 in 1998.
In 2000, numbers had risen to 639,778, falling agai n to some 608,000 as of 1 July 2002 (MAF, 2002a).
31 OECD (2000).WT/TPR/S/121 Trade Policy Review
Page 92
44. As part of its preparations for EU accession, Bulgaria is harmonizing its legislation and
institutions in accordance with the EU's Common Market organization for milk and diary products.32
Beef and veal
45. Production of beef and veal has dropped by more than half over the transition period. From an
average of 116,000 tonnes in 1989-91, it fell to an estimated 63,000 tonnes in 2001. The sharp drop in
production can be attributed partly to the fall in de mand for meat due to severe reduction in incomes
in Bulgaria in the transition period, but also to th e inefficient ownership structure of cattle breeding,
where 90% is by small-scale farmers with fewer than five animals and without the necessary
investment resources to increase stocks and adopt efficient technologies.  Difficulties faced by
Bulgarian meat exporters in meeting the EU's hygiene and quality standards have reduced the
potential demand for their exports.  As with most agricultural products, the producer supportequivalent for beef and veal has declined over the transition period, from an average of 66% in 1986-
90 to -132% in 1996, averaging -64% between 1991 and 1996;  the average was still negative at -24%
between 1997 and 2001, implying that on average throughout this period the sector was being
implicitly taxed. However, a positive PSE of 24% is recorded for 2001.
46. Between 1990 and 1998, various measures, including export quotas or bans, export taxes, and
minimum export prices were applied to beef and veal at different periods, with a view to controlling
domestic supply. All export restrictions on live cattle were removed at the end of 1998.
33 The trade
regime has been liberalized and currently import tariffs are the main trade measures; however both
ad valorem  and compound rates are applied. Tariff quotas were also applied in 2003 to a range of
products including: meat of bovine animals (1,000 tonnes)34, frozen carcasses of bone-in beef cuts
(2,000 tonnes)35, frozen forequarters and hindquarter s (10,200 tonnes of which 8,149 tonnes is
allocated to the EU)36, frozen bone-in beef cuts (1,000 tonnes)37 and frozen boneless beef cuts
(4,100 tonnes). For most of these products the in-quota rates were 10% and below, and the out-of-
quota rates were compound rates ranging from 5% plus € 97/tonne to 5% plus € 244/tonne.
47. Bulgaria is also harmonizing its legislation in beef and veal, as well as other meat products
with that of the EC's Common Market Organization for meat. Areas included in the legislative
reforms include its trade regime, a class grading and classification system, price notification, directpayments, public intervention, and private storage, as well as an animal identification and registration
system. In this regard, the necessary institutions (including a proposed intervention and paying
agency) and administrative procedures are being established. Upon accession Bulgaria will adopt the
EC meat CMO.
                                                     
32 However, preliminary studies suggest that on the basis of Agenda 2000 there would be an immediate
increase in incomes of dairy farmers.
33 OECD (2002).
34 Carcasses with weight over 240kg and half carcasses with weight over 120 kg; compensated quarters
with weight over 120 kg; unseparated forequarters with weight over 110 kg and separated forequarters withweight over 55kg; unseparated hindquarters with weight over 130 kg and separated hindquarters with weightover 65kg.
35 With weight over 240kg and half carcasses with weight over 240kg and half-carcasses with weight
over 120kg.
36 Separated or unseparated.
37 Unseparated forequarters with weight over 110kg and separated forequarters with weight over 55kg,
unseparated hind quarters with weight over 130 kg and separated hind quarters with weight over 65kg.Bulgaria WT/TPR/S/121
Page 93
Pigmeat
48. Pigmeat accounts for half of total meat prod uction in Bulgaria. In 2000, total production was
230,000 tonnes.  Current trends represent a recovery from the initial period of decline in production
post 1991. The fall in pig production is attributed to the low purchasing power of the country's
population, limited access to export markets, high prices of fodder, and the inefficiencies involved in
the restructuring and liquidation of the large state-owned pig complexes. Levels of producer supportto the pig subsector also declined rapidly in the initial transition period, as observed in the fall of the
PSE rates for pigmeat (from average 74% in 1986-90 to average -48% over 1991-96, rising to -9% in
1997-2001).
49. Imports of meat of swine, both fresh and chilled, are subject to mixed duties; the highest is
25% ad valorem  with a specific rate of € 664/tonne. However, cuts of domestic swine
(HS 0203.29.55.0)
38 attract a seasonal tariff quota (between April and June) of 3,000 tonnes in 2003,
during which in-quota rates were € 250/tonne. Out-of -quota seasonal MFN rates are the same as MFN
tariff applied throughout the year (non-seasonal) period using a mixed rate of either an ad valorem
rate of 40% or a specific rate of  €622/tonne (whichever is higher).
Poultry50. Poultry ranks second in terms of meat production and consumption in Bulgaria. As with most
agricultural products, production of poultry declined from an average of 157,000 tonnes in 1989-91 to
100,000 tonnes in 2000. This may be explained by the effects of liquidation, privatization and
restructuring of the agri-industrial complexes, which accounted for over 90% of poultry production at
the beginning of the transition period.
39  PSE levels, which fell markedly in the early transition period
from 58% in 1986-90, to an average of -16% in 1991-96 turned positive during the 1990s, to 21% in
1997-2000. Performance in the subsector is expected to improve  over the long-run. Modern poultrybreeding in Bulgaria is based on imports of highly productive breeding specimens of domestic fowl,
limited imports of breeding specimens of waterfowl, and an insignificant number of imports of elite
turkey specimens.
51. Poultry meat and eggs are subject to a tariff quota of 200 tonnes in 2003, applied to imports of
frozen meats of fowl, not cut (HS 0207.12.10.0 and HS 0207.12.90.0), on which the bound andapplied in-quota rate is 55% or € 650/tonne (whichever is higher), and the out-of-quota rate is 68% or
€ 260/tonne (whichever is higher). Cuts of frozen offal of fowl
40 are also subject to an import quota of
1,300 tonnes, with an in-quota rate of 55% or € 650/tonne and an out-of-quota rates of 74% or
€ 500/tonne (whichever is higher).
(c) Forests (see also section on wood, paper, publishing, and printing in part (4) below)
52. About 36% of Bulgaria's total land area is covered by forests and forest land.41 Forest policy
priorities for Bulgaria include the sustainable management and use of resources; restoration of
habitats; support of international initiatives; and legislative improvements. The main laws governing
the forestry sector are the Forestry Act42, and the Restitution of Forests Act43, both of which were
                                                     
38 Fresh, chilled or frozen, with or without bone, excluding tenderloin presented separately.
39 OECD (2000).
40 Except for livers. The ad valorem  duty on livers was 25% in 2003.
41 Forest land also includes lands not classed as arable or urban land, whether or not forested, falling
within the delimitations of the forest fund (e.g. meadows, pastures etc).
42 State Gazette  No. 125/1997, last amended in No. 16/2003.
43 State Gazette  No. 110/1997, last amended in No. 16/2003.WT/TPR/S/121 Trade Policy Review
Page 94
adopted in 1997. Among other things, the former establishes the legal basis for the restitution of
forests and implementation of structural reforms, whereas the latter defines the procedures for the
restitution process. Until the commencement of the restitution process in 1999 all forests were state-
owned. It is expected that after the restitution process, 33% of forests will be owned by the State, 50%
by municipal authorities, and 17% by the private sector.
53. Wood from the forests is used to meet local demand for sawnwood, panels, pulp, and paper.
Non-wood forest products and services include hunting,  mushrooms, medicinal herbs, and wild fruits.
Most raw timber and lightly processed wood products products (HS 4401-4407) enter duty free. The
average applied MFN rate (2003) is 0.3% and the maximum applied rate is 5%.44. A ban on exports of
burned timber and lumber was established to protect against wasting natural assets endangered by the
mass illegal cutting and burning of forests. Permits are required for import, export, and re-export ofmushrooms, mussels, snails, frogs, and game animals, based on protection of endangered species and
natural resources in compliance with the Washington Convention for International Trade in
Endangered Species and the Bulgarian Law on Bi ological Diversity and Law on Environmental
Protection. Since 2001, the National Forest Body has been responsible for keeping the register of
certificates for exports of unprocessed round logs and wood, as well as the register of certificates forexports of wild mushrooms, live game and genetic material, shed horn, and other game products.
(d) Fishing
54. Fishing in Bulgaria is carried out mainly on the Black Sea but also in fresh water fish-
breeding farms. In 2000, the fishery subsector accounted for 0.05% of GDP; about 12,000 people
were directly employed in fishing and aquaculture; and total catches and production amounted to
17,531 tonnes. This represents an almost 36% increase in the catches and production of fish over the
previous year. Compared with the pre-transition period, however, catches and production havedeclined; in 1989 the fish catch was 102,966 tonnes. This decline is mainly because many fish-
breeding farms went bankrupt during the restructuring process and others produced at minimum
production capacities, despite good facilities. Furthermore, the liquidation of "Ocean Fishing" plc,
Burgas (a state-owned enterprise), led to the decline in catches from long-distance fishing.
55. There is currently no market intervention or stat e aid in Bulgaria's fisheries subsector. The
average applied MFN rate for fish is 10% (2003), with a maximum rate of 20%; the corresponding
average and maximum bound rates are 32.2% and 35% respectively. A draft convention for fishing
and protection of live resources in the Black Sea is under discussion among the member countries of
the Organization for Black Sea Economic Cooperation.
56. As part of its preparations for EU accession, Bulgaria is aligning its fisheries and aquaculture
legislation with that of the EU's Common Fisheries Policy (CFP); the implementation of the CFP
requires Bulgaria to establish the necessary instit utions (including an accredited intervention agency)
and administrative procedures in accordance with the EU Common Market Organization in Fisheries.
Currently, no Bulgarian fish species are eligible for intervention under the Annexes of EC Regulation
104/2000. As a result of the introduction of the EU CMO in fishery products and, in particular, theenforcement of the trade regime with third countrie s, import duties for a large number of fish products
included in Annex VI of ECR/04/2000 would be suspended or significantly reduced; this is expected
to impact favourably on prices of fishery products for consumers.
45 Furthermore, the lifting of the
veterinary ban for the import of Bulgarian fishery products into the EU, which was in effect from
December 1999 until mid 2002, is expected to impact favourably on Bulgaria's fishing production and
exports.
                                                     
44 Using the ISIC 1 (2).
45 MAF (2002b).Bulgaria WT/TPR/S/121
Page 95
(3) MINING AND ENERGY46
(i) Background
57. Bulgaria's mineral output comprises ferrous and non-ferrous metals, mineral fuels (mainly
coal), and industrial minerals such as clays, gypsum, and rock salt. Total mineral and ore deposits
were some 1.6 billion tonnes as of 1 January 2003;  there are 133 ores and minerals, including
12 types of mineral ores, 61 types of industrial minerals, and 60 types of raw materials for thebuilding industry. Although most of Bulgaria's mineral requirements are met through domestic
production, it is dependent on imports of iron ore, steel, and fuels to satisfy domestic consumption.
Mining production declined between 1990 and 1995; more recently, trends in output have increased
according to the type of mineral, with increases for copper, gold, quartz feldspar sands, and fire clay
(Table IV.4). Many deposits remain underdeveloped and the efficiency of the sector remains low. Thesector would benefit from increased investment and improved technologies.
Table IV.4
Production of ores and minerals
('000 tonnes)
Production 1998 1999 2000 2001 2002
Ferrous ores 822 895 588 324 373
Copper ores 21,847 20,725 22,829 24,878 26,029
Golden ores 608 593 624 692 659
Lead-zinc ores 1,417 1,158 531 661 753
Limestone for chemical industry 1,021 911 1,387 2,024 1,136
Quartz sands for glass production 762 592 689 703 588
Quartz feldspar sands 9 - 13 16 18
Kaolin raw material 929 927 1,010 959 1,025
Bentonite 166 176 295 256 211
Fire clay 44 30 34 37 38
Source: Information provided by Bulgarian authorities.
58. During the pre-transition period, the State controlled mineral production fully. However, as
part of the privatization reforms in the sector, the new Subsurface Resources Act of 199947 seeks to
promote private enterprise and foreign investment.  Under Bulgaria’s Constitution and the Act,
underground resources are the exclusive property of the State. Prospecting and exploration require
authorization, while extraction requires concessions.48 Authorizations for prospecting and or
exploration are normally granted for a term of up to three years, which may be extended for up to two
successive two-year periods. The area granted under an authorization for prospecting and/orexploration may not exceed: 5,000 km
2 for inland oil and gas; 20,000 km2 for the parts of the
continental shelf in the exclusive economic zone in the Black Sea; and 200 km2 for other groups of
subsurface resources. Concessions for extraction are granted for claims by both domestic and foreign
companies for terms of up to 35 years, which may be extended by up to 15 years. In recent years the
                                                     
46 This section is based mainly on information provided by the Bulgarian authorities (including the
Energy Strategy 2002),  as well as the European Commission regular reports on Bulgaria and the U.S.Department of Energy "Energy overview of the Republic of Bulgaria". Tariff averages and maxima in thesections on mining and energy and manufacturing are defined in relation to International Standard Industrial
Classification (ISIC) two-digit classification.
47 State Gazette  No. 23/1999.
48 Concessions are granted by the Council of Ministers. Authorizations are granted by four ministries:
Ministry of Economy, Ministry of Energy and Energy Resources, Ministry of Regional Development and PublicWorks, and Ministry of Environment and Waters, after the approval of the Council of Ministers.WT/TPR/S/121 Trade Policy Review
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competent authorities have granted over 110 concessions and over 294 authorizations for prospecting
and exploration. Currently, almost all mining companies have been privatized, with the exception of
one for promotion of gypsum. Other mining enterprises that are considered to be ineffective are
subject to restructuring or closure and technical liquidation.49 In 2000 a US$47 million loan from the
World Bank was earmarked for environmental cleanup and support of privatization of the highly
polluting enterprises by reforming environmental le gislation, establishing a consistent framework for
integrating environmental issues into the privatization process, and accelerating the harmonization
with EU environmental requirements and practices.
59. In 2003, all imports in the metal ore mining sector (ISIC 23) enter duty free and the average
applied MFN tariff is 1% for other mining products  (ISIC 29), with a maximum dutiable rate of 2.3%.
Energy60. Bulgaria is heavily dependent on energy. In 2001, Bulgaria's total primary energy
consumption and production were 19.5 million tons of oil equivalent (t.o.e.) and 10.5 million t.o.e.
respectively. The country depends on imports, mostly from Russia, for about 70% of its energy
supplies. Relative to GDP, Bulgaria's energy consumption is high; in 2000, it was 1.84 t.o.e. per
US$1,000, considerably higher than that of the EU (0.15 t.o.e. per US$1,000) and other central andeastern European countries. This is a legacy of the emphasis, during the centrally planned period, of
under-pricing energy resources, and concentrating on energy-intensive industry without paying due
attention to energy efficiency.
50 In contrast to the significant progress in other sectors of Bulgaria's
privatization process, energy production remains largely state-controlled.
61. In recognition of the role of an efficiently functioning energy sector in improving
competitiveness of the economy, the Government's firs t detailed legislative reforms in the sector were
introduced in 1998, with the publication of "The National Strategy for Developing of Energy andEnergy Efficiency till 2010".  This document has been subsequently revised and updated. An Energy
and Efficiency Act was promulgated in July 1999. This Act was modelled after European Union
requirements, set out in the Electricity and Gas Directives and is oriented towards achieving
competitive markets, improving efficiency, unbund ling monopoly structures, promoting privatization,
and attracting foreign investors. Under the provisions of the Act, an independent body, the StateEnergy Regulatory Commission (SERC) was set up. The commission has authority to issue licences
and regulate prices for electricity, natural gas, and district heating. A new Energy Strategy was
adopted by the National Assembly in June 2002.  The main policy objectives in the sector include:
the introduction of market relations based on cost-reflecting tariffs and free contracting;
strengthening the autonomy and influence of the SERC;  and an active role for the State in the creation
of a clear and stable legal framework for investments, commercial activity, and the protection of
public interests.  A new Energy Bill is currently under consideration in the National Assembly. This
seeks to replace the previous "single buyer" market for electricity and gas by a regulated open-access
model under the supervision of the SERC. According to the authorities, this bill, when passed, will
make Bulgaria's energy market fully consistent with EU principles.
62. In total there are over 100 state-owned energy companies in Bulgaria. The updated strategy
envisages the privatization of about three-quarters of all the state-owned energy companies. With the
exception of the National Electricity Company (NEK) and Bulgargaz, which are to be restructured
before privatization, all Bulgarian state-owned energy companies are available for privatization. Other
                                                     
49 Decree No. 140 of 23 July 1992 of the Council of Ministers for restructuring of the mining and
phased closure of ineffective production capacities (published in State Gazette  No. 61/1992, last amended in
No. 101/2000).
50 World Bank (2001a).Bulgaria WT/TPR/S/121
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reforms currently being implemented include the phasing out of subsidies on energy prices and the
increase of prices in the energy sector towards market levels and to reflect production costs.
Coal
63. Bulgaria has large deposits of low quality brown coal, with an estimated reserve of
2.7 billion tonnes of lignite and 200 million tonnes of sub-bituminous coal. Total coal production in
2002 was 26.4 million short tons, of which  23.2 million short tons consisted of lignite; 82% of thetotal coal output is produced from the Maritsa coal fields, by the Maritsa East Mines Company.
64. Difficulties in the coal mining sector include obsolete machinery, prolonged inadequate
maintenance of equipment and facilities, low productivity, and lack of modern management capacity.
The Government's goals in the sector are: generation of revenues for the central budget through
privatization; provision of local supplies at competitive prices for electricity generation and districtheating companies; and addressing the balance between secure energy supply and environmental
protection. Coal prices for both industrial and household consumption were generally liberalized
between 1998 and 2000.  Moreover, some state-owned mines still sell their products at contracted
prices; the largest of these are Bobov Dol, Pirin, and Cherno More mines. Activities implemented in
2000-01 include the transformation of companies through their unbundling into separate 100% state-owned joint-stock or limited-liability companies, for subsequent privatization. A joint venture for
privatization was set up by the Maritza East mine and a company from Germany in 2000. In 2001-02,
major mines privatized included Stanyantsi, Beli Breg, and Chukurono Mines. Key actions and
expected results over the 2002-07 period include the reduction and gradual cessation of subsidies,
comprehensive privatization of viable companies, attracting strategic expertise in the sector, and a
step-by-step introduction of commercial relations with customers in the electricity sector based on
cost-based dispatching.
65. In 2001 Bulgaria imported 2.5 million t.o.e. of bituminous coal. These were mainly sourced
from the United States, Poland, Ukraine, and Russia. Most coal imports are contracted by private
companies. The average MFN applied rate for coal in 2003 was 0.6%, with a maximum rate of 3.8%.
Natural gas
66. Gas accounts for about 12% of total energy supplies.  Bulgaria has limited confirmed reserves
of gas resources, estimated at about 6 billion cubic metres (bcm). In 2002, gas demand was 2.74 bcm,
satisfied largely through imports, particularly from Russia. Domestic production of natural gas is
negligible. Gas penetration is low in Bulgaria: there are very limited low pressure or household
supplies of gas.
51 Unlike in many other European countries, the use of gas for household purposes is
negligible. Large industries and district heating companies constitute the main customer groups. Apartfrom meeting domestic supplies, the natural gas sector in Bulgaria transits gas from Russia through
pipelines to Greece, FYROM and Turkey. In 2002, the total amount transported through Bulgaria was
around 13 bcm, with the bulk going to Turkey (around 11 bcm). There are plans for the construction
of gas pipelines from the Caspian region and Iran to Europe.
67. The state-owned enterprise, Bulgargaz, has responsibility for transportation, production,
marketing, engineering, investment, and service activities for the gas industry. To achieve the
objective of improved security of the energy supply of the country through an increase in the natural
gas share of the primary energy balance, reforms planned over the 2002-05 period include completion
of the restructuring of Bulgargas, development of low pressure gas supply and introduction of a
liberal trading model allowing free choice of suppliers. Some private investors are already operating
                                                     
51 The Bulgarian authorities estimate a consumer base of only 1,500 people.WT/TPR/S/121 Trade Policy Review
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in the natural gas sector (e.g. Overgas in distribution, and Petreco, of the United Kingdom, in
exploration and production); the most advanced development by the private sector in Bulgaria's gas
industry is in the Galata field of the Black Sea, near Varna.
68. Applied MFN tariffs on the importation of crude petroleum and natural gas range from duty
free to 17%; the average MFN applied rate is 10.3% (2003). Gas imports are duty free.
Electricity69. As of January 2003, Bulgaria had an installed electricity generating capacity of
13,019 megawatt equivalent (Mwe) from hydroelectric, nuclear, and thermal sources; up from about
11,150 MWe in 1990.
52 Net generation of electricity in 2000 was 38.8 billion kilowatts hours (kWh),
of which 47.9% was generated from thermal, 44.6% from nuclear and the remainder from
hydroelectric sources. Hydroelectric generating facilities in Bulgaria are located in the highestmountain ranges, from large complexes of six cascading dams each having with at least three
hydroelectric power plants. The total generating capacity is 4,571 million kWh, however due to
decreased rainfall in recent years hydroelectric power generation is operating at less than 70% of
installed capacity. Bulgaria has one nuclear power plant, at Kozloduy. It is the largest such plant in
the Balkan peninsula and consists of six units.
53 The Kozloduy plant provides around 45% of
Bulgaria's electricity. Due to safety concerns, units 1 and 2 of the Kozloduy plant were closed in
December 2002.
70. All the nuclear power facilities, pumped power pl ants, and part of thermal power plants  and
hydro power plants (HPP) are owned by the State, represented by the Ministry of Energy and Energy
Resources.  The State controls about 86% of the total electricity generated; the remaining 14% is
produced by a small number of independent producers, such as municipally owned district heating
plants and thermal stations at industrial complexes. Natsionala Elektrichesha Kompania (NEK) wasestablished as a joint-stock company in 1992 with  responsibility for the generation, transmission,
distribution, import and export of energy, as well as construction and maintenance in the electric
energy sector. During 2001, NEK controlled about 19% of total electricity generated, but in April
2003 this share fell to 13% as NEK controls only the hydro and pumped power plants.
71. The energy sector and electricity generation in particular remain key elements in the social
and economic development of Bulgaria and the region. Legislation under consideration envisages
gradual liberalization of the internal electricity market; a competitive market will be created by
gradually granting electricity generators free access to the transmission and distribution networks at
regulated prices. Restructuring in the electricity sector has begun. In 2000, generation, transmission,
and distribution were unbundled into legally separate entities. The vertically integrated NEK wasdivided into 15 companies: seven electricity distribution companies, one private electricity
distribution company, six independent electricity generators and one co-generator. The privatization
of the sector is expected to be completed by 2007. NEK has been transformed into a transmission
company, which continues to operate as a regulated monopoly undertaking transmission,
management, and dispatch of high voltage electricity. Household electricity prices were increased by
                                                     
52 The generating capacity was reduced by 800 MWe after the closure of the two units of Kozloduy
nuclear power plant (NPP) .
53 Two units of VVER 440/230 design type (units 1 and 2), two units of advanced VVER 440/230
design type (units 3 and 4) and two units of the VVER 1000/320 design type (units 5 and 6).Bulgaria WT/TPR/S/121
Page 99
20% in 2002; in 2003 and 2004, they are scheduled to increase by 15% and 10%, and from 2005
pricing will be determined under the "cost-plus" method.54
72. Bulgaria is a major exporter of electricity, supplying power to Turkey, Greece, Serbia and
Montenegro, Former Yugoslav Republic of Macedonia, and Albania. In 2001, exports to these
countries were estimated at 7 billion kWh, with the largest part going to Turkey. Net electricity export
earnings of NEK were € 22 million in 2001. Bulgaria enjoys duty-free treatment for the export ofelectricity to Turkey, Former Yugoslav Republic of Macedonia (under the relevant FTAs with these
countries), and to Greece (within the EU Association Agreement).
(4) M
ANUFACTURING
(i) Background
73. Bulgaria's manufacturing performance has been shaped by its heavy industrialization during
the centrally planned era and the major changes that have taken place during the transition period. In
the 1980s Bulgaria was the second most industrialized country in the CMEA55, with 60% of its GDP
generated by industry and a pattern of specialization geared to satisfying CMEA markets. Main
industrial subsectors included chemical and oil processing, food processing, machine building, ferrousmetallurgy, and electronics. In 1989, machinery and equipment accounted for 65% of exports to the
CMEA; food and related products, and consumer goods accounted for 13% and 12% respectively.
Virtually all of Bulgaria's imports from CMEA were in fuels and minerals (36%) and machinery and
equipment (65%).
74. Since the beginning of the transition process, output of industry has contracted considerably.
According to UNECE data, the level of real gr oss industrial output fell by 51% between 1989 and
2003: it rose briefly to 56% of the 1989 level in 1996, and has fallen continuously since 1997; in 2002it was estimated at only 44.5% of its 1989 level. Employment in industry has fallen even further:
industrial employment in 2001 was estimated at 41.7 of its 1999 level.
56 The contraction in industrial
output and employment can be attributed to a number of factors, including the fall in domestic
demand; the decline in external demand following the collapse of  the CMEA; the inability of
manufacturing to compete in alternative international markets; opening up of the Bulgarian economyto competitive pressures and consequent erosion of the previously secure domestic market of the
state-owned manufacturing enterprises; and the uncompetitive nature of an industrial sector
dominated by obsolete capital. In 2002 and the fi rst months of 2003, manufacturing output showed an
upturn. Industrial output increased by 1.3% in 2002 a nd, on a year-on-year basis, by 17.7% in January
and 15.5% in February 2003.
75. Export performance of the manufacturing sector has picked up in recent years. From
decreases of over 10% in both 1998 and 1999, exports of manufactured products increased by 6.6% in
2000, and contributed 54% of total export earnings. The main manufactured exports include clothing,
basic metals, man-made fibres, metal products, and machinery and equipment.  In 2001, exports of
manufactures (SITC Sections 4-9) increased by US$483 million or 13% over 2000, according toBulgarian sources.
57
                                                     
54 Lower prices are charged for day- and night-time consumption of electricity below specified levels,
to relieve the burden on poorer consumers.
55 After the former Czechoslovakia (EIU, (2002)).
56 UNECE (2003).
57 National Statistical Institute.WT/TPR/S/121 Trade Policy Review
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(ii) Policy objectives for the sector
76. The National Economic Development Plan 2000-2006 outlines a strategy for building a
dynamic and competitive industrial sector and encouraging vigorous enterprises able to function in a
market economy and capable of achieving sustainable growth. The strategy attaches special
importance to the role of small and medium-sized enterprises (SMEs) in achieving these objectives,
since these account for 99% of the operating companies (Box IV.4). Measures to achieve theobjectives include: finalization of the privatization programme; deregulation of "natural monopoly"
markets; improving procedures and regulations on privatization and post-privatization control;
attracting foreign investment; encouraging the introduction of European and international quality
standards; and simplification of the regime for the start-up and development of SMEs.
77. In recent years, privatization of the manufacturing sector has progressed rapidly; since 1993
4,872 enterprises have been privatized, covering the greater part of enterprises in the manufacturing
sector, including chemicals, metallurgy, mechanical engineering, and defence industries. In general
privatization in manufacturing has been finalized, except for some enterprises with specific functions.
Box IV.4:  Small and medium-sized enterprises
Encouragement of small and medium-sized enterprises (SMEs) is vital to the continued growth and
development of the Bulgarian economy.  In 2000, 99% of registered enterprises were SMEs; they accountedfor 30% of GVA and 51% of total employment. However only 6% of SMEs, were export oriented (i.e. withover 70% of sales going to foreign clients or local exporters). Although a small proportion of SMEs areengaged in exporting, they accounted for about 20% of merchandise exports in 2000. Export-oriented SMEs
appear to be concentrated mainly in the textiles and apparel sectors. Given Bulgaria's labour competitiveness
and stable macroeconomic environment, there is greater  potential for SMEs to be engaged in exporting; this
would boost Bulgaria's trade performance.
According to a report by the Agency for Small and Medium-Sized Enterprises, SMEs in Bulgaria face
numerous constraints. Some are general to all Bulgar ian SMEs; others are specific to Bulgarian SMEs that
trade on international markets. Amongst the general problems are: shrinkage of the domestic market duringthe transition years (however, domestic consumption ha s started to recover, though still below 1989 levels);
high level of taxes and other employment charges (however, the Government's policy is to reduce corporate
and personal income taxes); lack of working capital and capital for investment; administrative barriers,including the need for numerous licences and certificates (however, a new programme to reduce suchimpediments has been introduced in 2003); bureaucracy; weak infrastructural facilities in certain parts of thecountry (particularly the north-west and north-east); and a rapidly changing legal framework. Problemsspecific to SMEs in breaking through and competing on international markets include: poor quality of
products, poor marketing, lack of reliable trading partners, the inability to meet various requirements,
including that of marking and labelling, and SPS and TBT difficulties.
Further attention to these constraints will help in enabling Bulgarian SMEs to be more engaged in exporting,
thereby boosting Bulgaria's trade performance.
Source: WTO Secretariat, based on ASME (2002).
78. As noted, Bulgaria's manufacturing sector benefits from reciprocal duty-free trade for
virtually all products (market access to other markets, and free entry for manufactures into Bulgaria)under regional preferential agreements with its major trading partners. MFN tariffs cover a minority
share of Bulgaria's trade in manufactures, whether exports or imports.  This factor should be taken
into account when reading MFN tariff information below.Bulgaria WT/TPR/S/121
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(iii) Key subsectors58
Food, drink, and tobacco
79. Food, drink, and tobacco is the largest sub-sector, contributing 27.5% of gross manufacturing
output in 2001. The main products in this area are beverages, tobacco products, meat products, grain
mill and starch products, dairy products, processed fruits and vegetables, vegetables, and animal oils
and fats. In 2001, the subsector employed 94,932 persons, or 17% of manufacturing employment.Over the period 1997-2000, productivity levels (measured by GVA per employee) decreased by
18.2%. Similarly, profitability declined, though less rapidly.
59 Due to the lack of international
competitiveness, the share of exports to turnover declined from 29.3% in 1997 to 13.7% in 2000.
80. According to an industrial survey carried out by the Japanese International Cooperation
Agency (JICA), covering 162 enterprises in this subsector, the major obstacles to the development ofthis sector (in order of importance) are the shrinkage of the domestic market, "unfair competition"
(circumvention or under-invoicing on importation), lack  of working capital, lack of investment capital
and strong competition. Out of a total of 15 significant obstacles, high tariffs and high standards in
foreign markets were ranked ninth and eleventh, respectively. Most enterprises considered the value-
added tax to be the most important amongst taxes and tariffs hindering businesses. Import tariffs wereranked seventh and export taxes and tariffs eighth of the ten taxes and tariffs hindering business.
81. Applied MFN tariff rates on processed food, beverages, and tobacco range from zero to 74%,
with an average applied MFN rate of 24.5% (2003).  There is evidence of tariff escalation in this
subsector as the first stage processing attracts an average MFN tariff of 11.8%, whilst the average for
the semi-processed and fully-processed stages are 22.7% and 27.4% respectively. MFN bound rates
range from zero to 200%, with an average of 53.5%. Products attracting the highest applied rates
include bakery products (48.5%); cocoa and chocolate confectionery (43.9%); tobacco products(35.7%); distillation of spirits and alcohol production (34.9%); and sugar products (26.9%).
Textiles, clothing, leather, and footwear
82. In 2001, output in this subsector amounted to US$651 million, contributing 10.7% of total
manufacturing output, and 29.1% of employment in manufacturing. Textiles and apparel account for
97% of the gross output of the subsector and have emerged as two of the most competitive industries.The increase of the subsector's share in manufactured exports from 16.1%  (US$493 million) in 1997
to 28.6%  (US$1,013 million) in 2001 was largely driv en by the growth in apparel exports, which
increased by over 75% between 1998 and 2001, including significant outward processing. It is
estimated that about 90% of apparel production is destined for export markets. The major investors in
the apparel subsector are from Greece, Turkey, Italy, and Germany; the major export markets areGermany, Greece, Italy, and France; the United States is the main non-EU export market.
83. Identified weaknesses in this sub-sector include the lack of cash flow and working capital,
middle-level management, marketing capabilities and knowledge of foreign language, and relatively
low productivity compared with other compet itors. The JICA industrial survey, covering
206 enterprises from this subsector and the leather and footwear industry combined, states that
                                                     
58 Much of this material is drawn from MOE (2001), supplemented by data and tariff information
supplied to the WTO secretariat by Bulgaria.  Tariff rate s are based on an analysis at ISIC four-digit level,
supplemented by tariff line information. Because of the different classifications used, there is some overlap withsection (i), particularly on "food, drink and tobacco" and "wood, paper, publishing, and printing".
59 Tobacco products and beverages have the highest profitability levels.WT/TPR/S/121 Trade Policy Review
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businesses do not consider tariffs as an important obstacle; tariffs were ranked twelfth amongst 15
obstacles to business.
84. Applied MFN tariff rates for textiles, wearing apparel, and leather industries range from zero
to 26.8% (with average of 15.8%), and MFN bound rates range from zero to 35% (2003). Tariff
escalation is observed: the average applied tariff in the first stage of processing is 3.1%; the rates for
semi-processed and fully-processed stages are 12.7% and 19.7% respectively. All tariffs are ad
valorem  rates.  Products attracting relatively high applied MFN rates include knitted and crocheted
fabrics (12.9%) and carpets and rugs (20.6%).
Wood, paper, publishing, and printing
85. The wood, paper, publishing, and printing subsector accounted for nearly 7% of gross
manufacturing output in 2000, up from 5.7% in 1997. Th e main products of the subsector are: veneer
sheets, saw milling and planing of wood, pulp, paper, and paperboard, publishing and printing, and
service-related activities. In 2000 the subsector employed 35,860 persons. Though productivity levels
(measured by gross value added per employee) are estimated to have increased by 18.6% over 1997-
2000, profitability (as measured by gross operating rate) declined from 15.9% to 11.6%. The share of
exports in turnover remained relatively stable, ra nging between 21% and 23%. According to the JICA
industrial survey in this subsector businesses believed that unfair competition, lack of working capital,
high prices of raw materials, shrinkage of domestic market, and strong competition were the major
obstacles to the development of the subsector; only 3.5% of businesses surveyed considered high
tariffs to be an obstacle.
86. MFN applied tariff rates on wood and wood products, paper, publishing, and printing range
from zero to 21.9% (2003). Bound rates range from zero to 39%. The average applied MFN rate is 9%
for wood and wood products and 8.3% for the paper, publishing, and printing industry. All tariffs are
ad valorem  rates. There is MFN tariff escalation in these subsectors: at the first stage of
manufacturing, wood and wood products entered duty free; at the semi-processed and fully-processed
stage average tariffs are 5% and 13.8%, respectively. Similarly paper, paper products, printing, and
publishing entered duty free at the first stage of processing and attracted average rates of 8.9% and
9.4% at the semi-processed and fully-processed stages. Products attracting the highest applied MFNrates in 2003 include manufacture of furniture and fixtures, except primarily of metal (15.8%),
wooden case containers and cane ware (12.7%) and containers, paper boxes, and paperboard (14.1%).
Chemicals, rubber, and plastics
87. The chemicals, rubber and plastics industry is the third largest manufacturing subsector. Its
share of gross manufacturing output in 2001 was 15.4%. Though output in this industry has fallen byone fifth since 1998, recent trends show a recovery as growth rates of 12% and 17.6% were recorded
for 2000 and 2001. Production is focused on basic chemicals, such as industrial gases, dyes, pigments,
fertilizers, nitrogen compounds, and plastic and rubber in primary forms; nonetheless other products
such as pharmaceuticals, soap and detergents, man-made fibres, rubber products, and plastic products
are also significant. In 2001 the industry em ployed 45,622 persons, or 8.6% of manufacturing
employment; total exports were US$476 million, a 37% increase over the previous year. As with other
sectors, the 2001 JICA industrial survey revealed the major perceived obstacles to business
development in this sector to be unfair competition, strong competition, lack of working capital, and
the shrinkage of the domestic market. High tariffs were rated the ninth most important business
barrier out of 15.Bulgaria WT/TPR/S/121
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88. MFN applied tariffs in the chemicals, rubber and plastics industry range from zero to 40%,
with the bound rates ranging from zero to 128%. The average applied MFN rate is 7.8% (2003); 99%
of tariffs are ad valorem  rates. The average applied MFN tariff on the first stage of processing is
4.5%; semi-processed and fully-processed products attract average tariffs of 7.3% and 9.3%
respectively. Products attracting the highest rates in 2003 include the manufacture of plastic products
(14.6%), soaps (14.5%), petroleum refineri es (13.8%), and rubber products (12.1%).
89. As noted in Chapter III, Bulgaria has applied a safeguard action in the form of a tariff quota
on ammonium nitrate since December 2002. In October 2002, a safeguard investigation on urea
resulted in a finding of insufficient evidence of serious injury and, consequently, no action was taken
(Chapter III (2)(ix)).
Non-metallic mineral products90. The non-metallic minerals industry benefits from the availability of favourable natural
conditions, including local raw materials such as cl ay, kaolin, gypsum, rock-salt, lime, granite, and
sand (see section (3) above). Its contribution to gr oss output in manufacturing stabilized at between
5.3% and 6.0% in 1997-2001. The main products are glass and glass products, cement, lime and
plaster, articles of concrete, plaster, and non-refractory ceramic goods. In 2001, the sector employed21,480 persons, some 4% of total manufacturing em ployment. Exports dropped by 29.7% in 1998 and
22.8% in 2000; however they picked up in 2001. Export earnings increased by 38.4% in 2001 to reach
US$118.6 million, or 3.3% of manufactured exports. The share of FDI flowing to the non-metallic
minerals sector annually was between 15% and 18% of overall inflows over the period 1998-2000
according to the JICA Survey.
91. The JICA 2001 industrial survey revealed that 91.7% of surveyed enterprises believed
shrinkage of the domestic market to be by far the most important business obstacle. Other obstaclesidentified in this subsector were high prices of raw materials, lack of production demand, and
"incorrect" clients. High tariffs were acknowledged by only 2% of surveyed enterprises to be a
business barrier.
92. Applied tariff rates for non-metallic mineral products, except for petrol and coal, range from
zero to 25.5%, with an average of 12.5% (2003); bound MFN rates range from zero to 40%. All ratesare ad valorem . The first stage of processing attracts zero duty rates; average applied MFN tariff on
semi-processed and fully-processed products are 9.7% and 13.4%. The highest tariffs in 2003 are on:
pottery and china of porcelain or china (24.3%) and tableware and kitchenware (25.5%); glass
ceramics (25.3%), glass lead crystal (25.3%), glass cubes, and glass small wares (24.5%); and
structural clay products such as tiles, cubes, and similar articles (25%).
Basic metal processing and metal products
93. The share of basic metal processing and metal products in manufacturing output was 16.4% in
2001. Production increased in 2001 by 4.4%, showing signs of recovery from the annual declines of
over 15% in 1997 and 1998.  The main products in this sector are basic iron and steel of ferro-alloys,
basic precious and non-ferrous metals, structural metal products, cutlery, tools and general hardware,treatment and coating of metals, tanks, reservoirs, and containers of metal. Total employment was
55,302 in 2001, or 10.5% of manufacturing employment. Export earnings amounted to
US$955 million in 2001 (27% of manufacturing export earnings). From the JICA industrial survey,
shrinkage of domestic demand, incorrect clients, and unfair competition were identified as the major
barriers to business. High tariffs were not considered an important business barrier.WT/TPR/S/121 Trade Policy Review
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94. Applied tariffs on basic metals and fabricated metal products (except machinery and
equipment) range from zero to 20% (2003). The average rate is 4.5% in the basic metal industries, and
6.7% on fabricated metal products. Tariffs are all ad valorem . Bound rates range from zero to 35%.
There is no evidence of tariff escalation in this subsector as tariffs in the semi-processed stage of
processing are higher than in the fully processed stage. Products attracting applied MFN tariff rates of
above 10% include: iron and steel products of thickness less than 4.75mm, not in coils, not furtherworked than hot rolled with patterns in relief; non- ferrous metal basics of aluminium; metal furniture;
and cans closed by soldering.
Machinery and equipment
95. Production of machinery and equipment sector amounted to US$523 million in 2001, or 8.6%
of manufacturing output. Output recovered by 4.5% after declined by 5.1% in 2000. The mainproducts in the subsector are: machinery for production and use of mechanical power, such as
engines, turbines, pumps etc; chemical power; weapons and ammunitions, machine tools and other
general purpose machinery such as furnace burners, handling and lifting equipment, and cooling and
ventilation equipment. The sector employed 60,681 persons in 2001, a fall of 28% on the previous
year. Exports amounted to US$204.5 million (5.8% of manufactured exports), an increase of 4.4%over the previous year.
96. The JICA industrial survey shows shrinkage of the domestic market, lack of working capital,
and the lack of investment capital to be the main perceived business obstacles. High tariffs, on the
other hand, are observed to be the least important obstacle to business.
97. Applied tariffs for "non-electrical machinery including computers" range from zero to 23.6%,
with an average rate of 6% (2003). Bound rates range from zero to 40%, with an average of 21.8%.
All tariffs in 2003 are expressed as ad valorem  rates. Pedestrian controlled tractors and trucks (both
self-propelled and others) attracted the highest applied MFN tariff levels of 23.6% and 23.5%
respectively.
Electrical machinery and electronics and instrument engineering
98. Gross output in this subsector amounted to US$327.3 million in 2001. Growth rates of 7.9%
and 2.0% were recorded for 2000 and 2001, respectively. Main products include electric motors,generators, and transformers; instruments for measuring, checking, navigating, and other purposes;
medical and surgical equipment; and photographic e quipment. This subsector contributed to 5.8% of
total manufacturing employment. In 2001, exports amounted to US$146.5 million.
99. Shrinkage of the domestic markets, unfair competition, strong competition, and incorrect
clients were noted by enterprises to be the most important business obstacles, according to the JICA2001 industrial survey. High trade barriers were ranked eighth (jointly with high prices of raw
materials) out of 15 obstacles.
100. Applied MFN rates for electrical machinery apparatus, appliances and supplies range from
zero to 23.2%, with an average of 7.3% (2003). Bound rates range from zero to 40%, with an average
of 19.7%. All tariffs are expressed as ad valorem  rates. Products attracting relatively high applied
MFN tariffs include: electric blankets (20.5%), electric instantaneous or storage water heaters and
immersion heaters (19.4%), storage heating radiators (19.4%), tungsten halogen lamps (21.9%),
fluorescent lamps and cathode ray tubes (23.2%), and mercury or sodium vapour lamps (23.2%).Bulgaria WT/TPR/S/121
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Transport equipment
101. Production of transport equipment amounted to US$95 million (about 1.6% of gross
manufacturing output) in 2001. Output declined by 11.1% and 22.5% in 2000 and 2001 respectively.
Building and repair of ships and boats accounts for 79% of output in this subsector. Other important
products are railway and tramway locomotives and rolling stock (17% of output) and motorcycles and
bicycles (2% of output). The industry employs 12,779 persons (2.4% of manufacturing employment).
Exports amounted to US$56.8 million in 2001, representing an increase of 163.9% over the previous
year.
102. Businesses surveyed by the JICA revealed that the lack of working capital, shrinkage of
domestic markets, "incorrect" clients, unfair competition, and strong competition were seen as the
most significant business obstacles. High tariff barriers were not seen as an important businessobstacle  by any of the surveyed enterprises in this subsector.
103. Applied MFN tariff rates in 2003 range from 0% to 22.8%, with an average of 6%. Bound
rates range from zero to 40%, with an average of 26%. All tariffs are expressed as ad valorem  rates.
Products attracting the highest rates include: motor vehicles with compression-ignition (diesel)
internal combustion piston engines (15.9%), road tractors for semi-trailers (17.5%) and bicycles andother cycles (22.5%).
(5) S
ERVICES
(iv) Background
104. In 2002, services accounted for 59.7% of gross value added (GVA) in Bulgaria. The most
important service subsectors (in value terms) were transport and communication, real estate, trade,
and construction. Over the period 1998-2001 average annual growth in the sector was 4.2%; the
fastest growing elements were communications; finance, credit and insurance; and wholesale andretail trade. Services GVA increased by 5.1% in 2002.  Growth was spurred largely by privatization
activity. The services sector is also a significant employer, with 1.4 million employees in 2001.
Bulgaria has recorded a positive balance on its services account since 1994; in 2002, this amounted to
US$598 million.
Commitments under the General Agreement on Trade in Services105. A consolidated version of Bulgaria's GATS Schedule, including its list of MFN exceptions, is
contained in WTO document S/DCS/W/BGR (see Table AIV.1). Bulgaria has made horizontal
commitments, as well as commitments across all broad service sectors with the exception of:
audiovisual services; passenger and freight transportation on internal waterways; road passenger and
freight transportation; maritime transport; sales and marketing services for air transport; cargo-handling services, and storage and warehouse services in sea and river harbours; and legal services.
Horizontal commitments mention limitations on market access relating to capital payments, services
relating to the use of nuclear energy for peaceful purposes, real estate, privatization, commercial
presence and entry and temporary stay of foreign natural persons; horizontal limitations on national
treatment relate to eligibility fo r subsidies, ownership of land, privatization, and commercial presence.
MFN exceptions relate to certain areas of audiov isual services, internal waterway, rail, road and
maritime transportation, sales and marketing services for air transport, legal services, and medical and
dental insurance programmes.  As in virtually all other WTO Members, the level and coverage of
specific commitments varies considerably across service activities within each sector. Broadly
speaking, market access and national treatment are bound without limitation in Modes 1, 2 and 3
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international law and home country law, computer and related services, most "other business
services", telecommunications equipment rental, sales and consulting services, and air transport sales
and marketing; in other sectors, varying levels of limitation exist (see sectoral discussion below).
Generally, Mode 4 (presence of natural persons) is subject to the horizontal limitation mentioned
above.
106. Since its accession in 1996, Bulgaria has made additional commitments to its GATS Schedule
in the context of the extended negotiations on basic telecommunications (Fourth Protocol to GATS)
and financial services (Fifth Protocol). Commitments in the former involved the extension to voice
telephone, packet and circuit-switched data transmission, telex, telegraph, facsimile, leased circuit,
mobile, satellite, and VSAT services.  Under the Fifth Protocol, Bulgaria undertook commitments on
insurance intermediation and services auxiliary to insurance, as well as further commitments infinancial leasing. These commitments were scheduled in accordance with the Understanding on
Commitments in Financial Services.
60
(ii) Banking and insurance
Banking
107. The financial sector is small relative to the size of Bulgaria's economy, with assets of 41% of
GDP in March 2002; the banking sector held 93% of total assets. At the end of 2002, foreign-owned
banks held  72% of assets in the banking sector and the State owned 14.2% of total assets. The three
largest banks held 43.4% of the banking sector’s assets, and the next seven biggest held 30.5%.
108. Until 1996, all Bulgaria's large banks were state-owned and continued the practices of the
centrally planned era. Large loans were made by the state banks to loss-making state-owned
enterprises, and, in the private sector, collusive relations between banks and entrepreneurs resulted in
the granting of large loans with little or no collateral, leading to the accumulation of large non-performing loans.
61 This situation was allowed to deteriorate further as banking supervision was lax
and the Bulgarian National Bank (BNB) refinanced the sector's bad loans.62 This led to a severe
banking crisis in 1996-97, when about a third of the banking system was found to be insolvent.
109. Since the crisis, Bulgaria's banking sector has undergone rapid restructuring, including the
setting up of the currency board arrangement, im provements to the regulatory framework and the
privatization of state-owned banks. New laws relating to the banking sector have been introduced
progressively since 1997. The 1997 Law on BNB63 established a new basis for the BNB to operate as
a central bank responsible for the currency board arrangement. The law enhanced the autonomy and
power of the BNB and strengthened its supervisory powers. The Law on Banks64 sets out activities
that banks may carry out, including their licensing requirements and the conditions for licencerevocation. According to the law, the BNB's decision to revoke a bank's licence may not be appealed
in court. It also specifies the capital, liquidity, foreign currency position, and other requirements
determined by BNB. Regulations adopted by the BNB under the above laws concern the evaluation of
                                                     
60 The Understanding provides a formula approach to scheduling commitments under Part III of the
GATS (Articles XVI, XVII, and XVIII) with regard to financial services for the Members that choose to adoptit. Despite being a formula approach, it remains possible for Members scheduling on the basis of theUnderstanding to make market access and national treatment limitations.  Specific commitments undertaken
pursuant to the Understanding apply on a most-favoured-nation basis (WTO document S/CSC/W/34).
61 In 1996, 90% of the state-owned banks had negative capital.
62 EIU (2002).
63 State Gazette  No. 46/1997.
64 State Gazette  No. 52/1997.Bulgaria WT/TPR/S/121
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risk exposures and allocation of provisions65; foreign currency positions of banks66; supervision on a
consolidated basis67 and the setting up of a credit register.  These regulations are stated by the
authorities to be in compliance with the Basle Core  Principles for Effective Banking Supervision and
European Standards.68 Through the latest amendments to the Law on Banks (September 2002)
transparency of shareholder ownership and the structure of banks has been improved (following the
recommendations noted in Box IV.5). Shareholders who hold 3% or more of the voting shares in abank must provide information to the Central Bank concerning the legal status, owners, origin of
funds, business plan, and related persons. Such information may be required from shareholders with
less than 3% of the voting shares only in case of motivated need. A new Law on Bank Insolvency was
adopted in September 2002
69, which provides basic and detailed regulation of banks' bankruptcy
procedures.
110. In January 2003, the Financial Supervision Commission was established; thus financial
market supervision, except for the banking sector, was unified. The Commission is a specialized state
body for regulation and supervision in the field of securities, insurance, and pension. The Consultative
Council on Financial Stability (CCFS) was also established as a consultative body with the
participation of the Minister of Finance, the Financial Supervision Commission, and the BulgarianNational Bank. The FSC and the BNB work closely together on supervision of financial institutions
combining banking and other areas such as insurance and securities trading.  This has been
established through a memorandum of understanding (MOU) between the two institutions, and
through the CCFS. In relation to foreign-owned bank s whose supervisory jurisdiction is in their home
country, MOUs have been signed with all relevant foreign supervisory authorities.
111. Under the bank privatization programme, six of the seven large state-owned banks were sold
by 2002. The United Bulgarian Bank was sold in 1997; Post Bank in 1998; Express Bank in 1999;Hebros Bank of Plodiv and Bulbank (Bulgaria' s largest bank) in 2000; and Biochim Commercial
Bank in 2002. The privatization of these banks attracted a significant amount of foreign investment,
which helped to recapitalize the system as well as provide a much-needed infusion of foreign
expertise.  At mid 2003, two state-owned banks remained: the State Saving Bank (DSK), which holds
about 12.7% of banking-sector assets, and the Encouragement Bank, a special purpose bank,established to promote loans to small and medium-sized enterprises, and largely donor financed.  In
May 2003 the contract for sale of DSK was signed; the sale was expected to be finalized by the
beginning of September 2003.
112. Bulgaria's GATS commitments on financial services are made in accordance with the
provisions of the Understanding on Commitments in Financial Services.  Market access commitmentsin respect of cross-border supply and consumption abroad apply only to the transactions indicated in
paragraph B.3 and B.4 of the market access section of the Understanding.
70 Admission to the market
of new financial services or products may be subject to the existence of, and consistency with, a
regulatory framework aimed at achieving the prudential objectives indicated in Article 2(a) of the
Financial Services Annex. Insurance or banking activities, as well as securities trading and activitiesrelated thereto, must be carried out separately by companies that are licensed for the supply of such
                                                     
65 Regulation No. 8.
66 Regulation No. 4.
67 Regulation No. 12.
68 Regulation No. 22.
69 State Gazette  No. 92/2002.
70 B.3 relates to conditions for supply of transport an d transit insurance; reinsurance; retrocession and
auxiliary services; provision and transfer of financial information; and other auxiliary services, excludingintermediation. B.4 specifies that each Member shall permit it s residents to purchase in the territory of another, a
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services. As a general rule, and in a non-discriminatory manner, financial institutions that incorporate
in the Republic of Bulgaria must adopt the legal form of joint-stock companies.  In addition, the
specific commitments on financial services are subject to the general "horizontal" limitations
contained in Bulgaria's services schedule which, as noted above, cover capital payments; commercial
presence; and entry and temporary stay of foreign natural persons.
113. Under Bulgaria's specific commitments under GATS, cross-border supply and consumption
abroad in banking and other financial services (excluding insurance) remain unbound. With regard to
the establishment of commercial presence, the direct or indirect acquisition of shares by a local or
foreign  person enabling those persons to control 5% or higher of all voting shares in a local bank, is
subject to permission by the BNB.71  The direct or indirect acquisition by a bank of more than 10% of
the capital of a non-financial enterprises is subject to the permission of the BNB. Presence of natural
persons is unbound, subject to the general limitation noted above.
Insurance
114. During the central-planning era, there were two insurance companies, both owned by the
State:  Bulstrad and the State Insurance Institute (SII). Progress is currently being made due to new
provisions contained in the sector's main regulatory framework, the Law on Insurance72 and the Law
on the Financial Supervision Commission.73 These include the opening up of Bulgaria's insurance and
reinsurance markets to foreigners through licences granted by the Financial Supervision Commission;
no restrictions on foreign firms' life and non-life insurance activities; and the provision of an identical
legislative framework for Bulgarian and foreign insurers on the basis of equality and reciprocity.
115. In 1999, a majority stake in Bulstrad was sold to TBI Holding (Netherlands) and the
European Bank for Reconstruction and Development (EBRD). In September 2002, SII was also
privatized; 80% was sold to the local investor Contract Sofia. As of December 2002, there existed 32insurers; 20  in non-life insurance and 12 in life insu rance. Fifteen foreign shareholders own stakes in
Bulgarian insurance companies and one foreign company has a branch office. Six insurance and
reinsurance companies are licensed to conduct reinsurance business in Bulgaria. The Bulgarian Export
Insurance Agency (BAEZ) is the only one owned by the Government (Chapter III(3)(v)). The
Government owns shares in five other insurance companies, with majority ownership in only one
company besides BAEZ. Thus, in 2002 the insurance market became predominantly private.
116. Specific limitations on market access under Bulgaria's GATS commitments include
prohibitions on the establishment of combined life- and non-life insurance companies, and on
underwriting of transport insurance directly by fo reign companies. Branches of foreign insurance
companies must be licensed by the Financial Supervision Commission (superseding the NationalInsurance Council). Insurance funds raised by virtue  of insurance contracts, as well as own capital,
must be invested in Bulgaria and can only be transferred abroad subject to permission of the Financial
Supervision Commission.
                                                     
71 This is Bulgaria's commitment: in practice, permission is to be granted for control of 10% or higher
of voting shares.
72 State Gazette  No. 86/1996, in force from 1 January 1997, last amended in No. 8 of 28 January 2003.
73 State Gazette  No. No. 8/2003, in force from 1 March 2003.Bulgaria WT/TPR/S/121
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Box IV.5:  IMF/World Bank observations on Bulgaria's financial  system stability
In August 2002, the IMF and World Bank published an assessment of the stability of the Bulgarian financial
system, including the observance of standards and codes on monetary and financial policy transparency,
banking supervision, securities regulation, insurance regulation, and payment systems.  The report was based
on missions carried out in autumn 2001 and June 2002.
The report praised the "intense and successful" efforts of the authorities to restore financial stability after the
economic crisis of 1996/97.  It stated that "The Bulgarian banking system  is generally well supervised, highly
capitalized, profitable, and risk averse…is very resilient to foreign exchange and interest rate risks, and can
also absorb considerable credit risk."  It noted the process of consolidation, privatization, and restructuring in
the sector since 1996 and that "with a growing real sector and competitive pressure on margins, banks are
beginning to expand their credit portfolios, which will entail new risks and require vigilance from banks and
supervisory authorities".  It emphasized that improper design and implementation of pension reform could
hinder financial system development and entail future fiscal costs, and that further development of the
financial sector would require improvements in the legal, judicial, and corporate governance areas.
Regarding the structure, ownership, and performance of the financial sector, the report noted that the financial
sector was small relative to the size of the economy, and dominated by the banking sector. Low bank
intermediation was broadly accounted for by supply and demand factors, legal problems, unreliable corporate
financial accounts, and weak corporate governance.  SMEs in  Bulgaria (the vast majority of enterprises) relied
largely on cash and informal credit sources, much liquidity  is still retained outside the banking sector, and only
one third of the population had a bank account. Bank lend ing to the commercial sector accounts for roughly a
third of total assets:  maturities of both assets and liabilities were very short (a few months). Although foreign-
currency loans and deposits were increasing, the pr oportion of foreign to local currency loans was still
relatively low.  The banking sector operated in an environment of "fundamentally good" rules and regulations,
good banking supervision, and high capital and liquidi ty levels. However, vulnerabilities could arise when
risks increased as a result of higher competition, shrinking margins, continued high overheads, and greater
credit risk from increased lending.
The banking supervisory system was, or largely compliant with the Basle Core Principles (Basle I) and the
authorities had agreed to the report's recommendations for strengthening the system.
The report also noted that capital markets had an "extremely limited" role in savings and productive
investment, and that relevant laws required amendm ent to enhance investor confidence, while accounting
standards were not, at the time, fully consistent with international standards.  The insurance industry was well
diversified, with foreign insurance companies well represented, and was not a source of instability; by contrast,
there were serious shortcomings in the regulatory and supervisory framework for private pension plans.
The report recommended that, in the short term, the BN B should carefully monitor and control the quality of
banks' expanding credit portfolios and investigate the identity and suitability of direct and indirect shareholders
of banks. In addition, the authorities must develop a system-wide perspective of financial sector
vulnerabilities, finalize a public debt management strategy, and enact the Public Debt Law; strengthen the
supervisory capacity of the State Insurance Supervision Agency and the governance of pension insurance
companies and pension funds, and set a realistic date fo r the introduction of a rapid-transfer interbank payment
system.  In the medium term, the authorities were recommended to continue programmes to build expertise in
supervising IT risk in banks and to build capacity to assess internal ratings-based risk-management systems,
obtain more knowledge on cross-sectoral ownership relations in the financial sector, strengthen the legal and
judicial framework, corporate governance and financial transparency, and strengthen supervision of the non-
bank financial sector.
Source  IMF (2002b).WT/TPR/S/121 Trade Policy Review
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117. The IMF/World Bank financial system stability assessment of 2002 remarks that the
insurance industry is well diversified, with foreign insurance companies well represented, and is not a
source of financial instability.74
Capital market
118. An equity market was established in Bulgaria in 1991, after the introduction of the
Commercial Act. This led to over 20 regional exchanges springing up between 1992 and 1994.However, the market functioned in a completely unregulated environment until the adoption of the
Securities, Stock Exchanges and Investment Companies Act in July 1995, which provided the legal
basis for the creation of the Securities and Stock Exchanges Commission in 1995. By the end of 1995
most regional exchanges had merged and the Bulg arian Stock Exchange (BSE) remained the only
operational exchange in the country. BSE's operations commenced in October 1997, after receipt ofits licence from the SSEC. Market capitalization of companies listed on the BSE amounted to 3.8% of
GDP at end 2001 and 4.3% of GDP at end 2002, down from 4.8% at end 2000.
119. In spite of the progress made, Bulgaria's capital market remains underdeveloped and unable to
attract free funds of either local or foreign investors. However, the Government has indicated its
intentions to continue to improve the regulatory  environment in its bid to enable the further
development of the capital market.  In 1999, the Law on Public Offering of Securities was adopted.
This law and its 2002 amendments, together with the Law on Financial Supervision Commission,
seek to improve the level of investors protection and create a framework for EU-compliant corporate
governance. The laws do not envisage limitations on market access (either for local or foreign natural
persons or entities), transfer of ownership, or withdrawal.
120. Bulgaria's GATS Schedule of Specific Commitments binds market access through
commercial presence for investment intermediari es, investment companies, and stock exchanges
established as joint-stock companies (JSCs) licensed by the Securities and Stock Exchange
Commission (SSEC).
75 Minimum and maximum capital conditions are laid down for stock exchange
JSCs.  Investment intermediaries must be members of a (and only one) Bulgarian stock exchange.
Investment companies must not conduct activities of a bank, insurance company or investment
intermediary.
(iii) Telecommunications and postal services
Telecommunications
121. Recognizing the vital role of the development of the telecommunications sector as a basic
driver in improving the competitiveness of the Bulgarian economy, the Government has set out in its
Telecommunications Sector Policy, the strategic goal of providing "opportunities for access … to awide spectrum of modern, quality and effective te lecommunications services, provided at reasonable
prices, under conditions of fair competition, … taking into account the requirements for Bulgaria's
accession to the EU and NATO".
76
122. Measures to help achieve this strategic goal include improvements to the regulatory
framework, telecommunications infrastructure, and privatization of BTC. Specific measures toimprove the regulatory framework include: the passing of a new Telecommunications Act, as noted
above, to establish a legal framework that ensures predictability of the behaviour of the executive
                                                     
74 IMF (2002b).
75 As of 1 March 2003:  the Financial Supervision Commission.
76 MOTC (2002).Bulgaria WT/TPR/S/121
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bodies and independent regulatory body; abolition of BTC's monopoly, allowing for full market
liberalization and introduction of regulatory instruments forcing operators with significant market
power to stick to the requirements of a competitive environment; separation of regulatory functions
from ownership77; and the relaxation of licensing regimes and procedures, ensuring predictability and
transparency of the licensing policy.78 Licences are expected to be awarded to a third GSM operator,
third-generation mobile cellular networks operator, and a telecommunications operator for satelliteradio and television broadcasting. Improvements to telecommunications infrastructure are expected to
occur via modernization of the fixed network by further digitalization, in accordance with Bulgaria's
commitments under Chapter 19 of the EU acquis .
123. As at July 2003, a new Telecommunications Bill was in Parliament and had been adopted on
first reading. This provides for a regulatory framework harmonized with the EU acquis  of 1998.
Obligations are imposed on the public telecommunications operators with significant market power
determined by the Communications Regulatory Commission, the national independent regulatory
authority.
124. The Communications Regulations Commission ( CRC) was established under an amendment
of the Telecommunications Act in December 2001; it is an independent specialized state authoritywith regulatory functions in the fields of bot h post and telecommunications. The CRC replaced the
State Telecommunications Commission (STC) and differs from it significantly in terms of its
independence, composition, and mandate. The CRC is an independent regulatory body while the STC
was subordinate to the Council of Ministers. The members of CRC have a five-year mandate and are
appointed and elected by the National Assembly, the President, and the Prime Minister.  The CRC can
grant, amend, suspend, terminate, and revoke licences for telecommunication activities.  New
functions of CRC include regulation and control over the provision of postal services, registration andcontrol over the activities on the provision of certification of services related to electronic signatures.
125. Regarding pricing policy, in 1998, the Council of Ministers adopted a methodology for
regulation of the prices of ordinary telephone services provided via the fixed telephone network of
BTC, and for the provision of leased lines. According to the authorities, in 2001, the fees were further
adapted by the Council of Ministers to the dynamics of the telecommunications market. With regardto privatization reforms, a new strategy for the privatization of BTC was adopted in 2002 during
which 65% of the company's capital was immediately offered for sale, while another 20% of its shares
were to be publicly offered on the Bulgarian Stock Exchange after completion of BTC’s privatization.
In mobile telecommunications, a schedule for a phased release of frequency bands for the Universal
Mobile Telecommunication System (UMTS) is currently under preparation. The first frequency bandsare expected to be available by mid 2003. The issuing of licenses for 3G operators is expected to take
place in mid 2004. Regarding infrastructural development, BTC plans to reach 46% digitalization by
2005, hence projects for the extension of digital switching have been included in its investment
plans.
79
126. BTC remains the only fixed-line telephone operator in the field of telecommunications.80 In
2002, the fixed-line telephone density was 36.5%. This has risen from an initial density of 25% since
1991, however, telephone density has remained static over the past five years. There are three mobile
                                                     
77 Including the institutional strengthening of the Communications Regulation Commission.
78 Phased relaxation of the licensing regimes and easing of the terms of issuance of licences so that full
compatibility with the EU regimes is expected to be achieved by the end of 2004. Other measures are
introducing mechanisms for compensating the operator for the universal service provision under economically
unprofitable conditions and in economically poor regions.
79 The digital transmission network is expected to be completed before the ending of BTC's monopoly.
80 Until 31 December 2002, it had exclusive rights for the provision of voice telephony services.WT/TPR/S/121 Trade Policy Review
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phone operators: one analogue, NMT-450i (Mobikum), and two GSM operators (Mobitel and
Globul). As of May 2002, Mobitel had 79.3% of the market share, and Mobikum and Globul
(commenced operations in September 2001) had 9.5% and 11.3%, respectively. The level of mobile
penetration in 2002 was 16%. Until 31 December 2002, mobile phone services (both analogue and
digital cellular voice services) were to be provided only through the use of the international network
of BTC.81 According to CRC data, mobile penetration in 2002 was 33%.
127. Much of the equipment in the sector is of an obsolete electro-mechanical design needing
replacement. At present, it takes about one month to obtain a telephone line. Investment in
digitalization of the telecommunications infrastructure is progressing slowly. The digitalization rate
by December 2002 was 20.5%. Under its commitments on accession to the European Union, Bulgaria
is obliged to achieve a digitalization rate of 75-81% by 2008.
128. Under Bulgaria's GATS commitments, the state-owned Bulgarian Telecommunications
Company (BTC) retained exclusive rights until 31 December 2002 for public voice telephony,
telegraph and telex services, mobile services, and public VSAT services, and until 31 December 2004
for facilities-based services and connection of non-public services to the public network. Fax services
could only be provided through BTC's international network. The legal framework fortelecommunications in Bulgaria is the Telecommunications Act 1998, as amended. Under the Act,
telecommunications services and activities other than fixed-line voice services, provision of leased
lines, and real-time trans-border voice transmission was liberalized.  The State monopoly over the
latter activities was liberalized as from 1 January 2003. BTC is also undergoing a process of
privatization, and as of September 2002 two offers had been made for the purchase of 65% of its
capital.
Postal services129. The basic legislation governing postal services in Bulgaria is the Postal Services Act of 2000,
as amended up to 2003
82;  under the Act, Bulgarian Posts remains the only entity allowed to provide
universal postal services in the "reserved sector" up to 31 December 2005.83 There are currently no
limitations with regard to the number of operators th at can provide postal services outside the reserved
sector. Each postal operator may provide a universal postal service or part thereof on the grounds ofan individual licence or non-universal services on the grounds of registration followed by the issuance
of a certificate.
84
130. In 2002, the Council of Ministers adopted the new Sector Postal Policy (SPP).85 The policy
traces out the trends and priorities in the development of the postal services and their further
liberalization. The strategic aim of the SPP is "….development of the national postal sector to providepostal services of a high quality and at an accessible price in conformity with world and European
requirements".  The main priorities and tasks envisaged by the SPP include: fulfillment of state
governing and independent regulation of postal serv ices through the independent regulatory body, the
Communications Regulation Commission; improvement of the legal basis for postal services;
                                                     
81 Except when BTC was unable to provide the necessary infrastructure in the limited period of time
specified in the licence.
82 Postal Services Act published State Gazette  No. 64/2000, last amendment in No. 26 of 21 March
2003, in force as of 1 January 2003.
83 The reserved sector comprises internal domestic and international correspondence weighing up to
350 grams and with a price not exceeding five times the standard rate of correspondence up to 20 grams (i.e.basic letter and small package post).
84 Article 19 of PSA.
85 State Gazette  No. 61/2002.Bulgaria WT/TPR/S/121
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provision of a universal postal service (UPS), maintained through a limited state monopoly up to
2005; and gradual liberalization of the postal services.
131. The Communications Regulation Commission (CRC) is the regulatory authority in the area of
postal services, as with telecommunications. CRC regulates and controls the observance of postal
legislation, licensing and registration regimes, quality of universal postal service, and monitors the
requirements for accomplishment of the non-universal service.86
(iv) Transport
132. The importance of an efficient transport sector in facilitating productive activities and
improving competitiveness in the Bulgarian economy is recognized as a key priority of the
Government, particularly given Bulgaria's strategic geographic situation as a transit link between
western and central European states and middle and far eastern countries. In this regard, a NationalStrategy for the Transport Sector was drawn up by the Government in June 2000.
87 The primary aims
of this strategy are gaining EU and NATO membership and the development of free market relations.
The strategy has three main elements: (i) harm onization of national legislation and transport
regulations with those of the EU Member States; (ii)  development of transport infrastructure; and
(iii)  implementation of structural reform and privatization in transport. Several new acts have beenpassed
88 in Bulgaria's bid to align its transport legislation with the EU  acquis . Progress is also being
made in developing infrastructure and carrying out structural reforms in the various transport
subsectors. A new transport strategy is under preparation and was expected to be proposed for
approval in June 2003.
Road transport
133. The road system in Bulgaria consists of some 90,000 km, of which 37,288 km belong to the
national road network: others are classed as regi onal roads. Approximately 90% of the national road
network is asphalted. There are 324 km of motorways; 3,011 km of first grade roads, of which 2,500
are part of the European road network; 3,818 km of second grade roads;  and 29,937 km of third and
fourth grade roads. Bulgaria's road infrastructure deteriorated in the early transition years due to lack
of finance. The Bulgarian Government, through the newly created Executive Agency for Road
Transport Administration89, and the municipalities, is currently implementing measures to improve
road transport. The Agency is responsible for the development, management, and maintenance of
motorways, first, second, and third grade roads, and interchanges.
134. Road building in Bulgaria is generally difficult and costly, as over 30% of Bulgaria's territory
is mountainous. Under Bulgaria's Transit I, II, and III programmes, 2000 km of Bulgaria's main road
network was reconstructed or rehabilitated between 1992 and 2002. Further construction andrehabilitation works are envisaged under the pan-European corridor IV, which links Sofia to both the
Greek and Turkish borders; the pan-European corridor VIII, which links Gjuesevo to Varna; and the
                                                     
86 In 2002, a draft Law for Amendment and Supplement of the PSA was prepared and adopted from the
Council of Ministers.
87 MTOC (2000).
88 Civil Aviation Act 1972, amended up to December 2001; Act on Maritime Spaces, Inland
Waterways, and Ports 2000, amended up to December 2001; Merchant Shipping Code 1970, amended up toDecember 2002), Road Traffic Act 1999; Road Transport Act  1999, amended up to April 2002; RailwayTransport Act, January 2002.
89 This replaced the General Directorate of the Ministry of Regional Development and Public Works.WT/TPR/S/121 Trade Policy Review
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pan-European corridor IX, which links Ruse to Svilengrad. Bulgaria is assisted in these efforts under
the ISPA (Investment for Structural Policies for Pre-Accession) programme of the European Union.90
135. The main structural reform in road transport services, especially since 1997, has been through
privatization of transport firms. In 1997, there were 233 state-owned enterprises providing road
transport services;  by 2000, 100% of passenger operations were in the private sector and 89% of the
companies for freight and mixed transport had been restructured and privatized. Entry into the road
transport services market in Bulgaria requires a licence.
136. Bulgaria has made no commitments on road passenger and freight transportation services
under GATS. Indefinite MFN exemptions cover measures, taken under existing or future agreements,
which reserve and/or restrict the supply of such transportation services and specify the terms and
conditions of supply, including transit permits and/or preferential road taxes, in Bulgaria or across itsborders. Vehicle tax and exemption from VAT are also granted to road transporters from Austria and
other European countries on the grounds of conventions or de facto reciprocity.
Rail transport
137. Railway services in Bulgaria are operated by the Bulgarian State Railways (BDZ) The
network consists of about 4,300 km;  4,055 km is sta ndard gauge and the rest is narrow gauge. About
61.4% of the network is electrified and 22% is double track. Total traffic on the line has dropped
significantly:  from 77 million tonnes in 1989 to 18.5 million in 2002. Factors responsible for the
decline in rail traffic, particularly internationa l traffic, include increased competition from road
transport, reduced demand from industries, the war in the Balkans, the crisis in Russia, and the fall in
metal prices.
138. Reforms in the rail transport sector include the adoption of the Railway Transport Act 2002.
This Act has taken into account key requirements of EU legislation, including the legal and functionalseparation of rail-track infrastructure maintenance from operations, and the abolition of cross-
subsidization of passenger services by freight char ges. According to the BDZ Action Plan, an increase
in cost-recovery level for intercity passenger services, to at least 80%, is envisaged by June 2004. A
long-term strategy has also been drawn up for the development of the railway sector in the next ten
years. It is hoped to improve the financial results of the rail system by 2005. The railway company,BDZ, has been split into two state-owned companies, one for infrastructure, the State Railway
Infrastructure Company and the other being the opera tor, BDZ-SMSH. This is expected to stimulate
the legal and economic restructuring of Bulgaria's railways, and in particular to reduce the company's
debts. During the restructuring of BDZ, activities connected with passenger services, railway
manufacturing enterprises, and construction activities were also separated. To date 12 of the 13railway enterprises have been privatized.
91 The privatization of BDZ-SMSH is envisaged in 2006-07.
139. Current works under the pan-European transport corridors IV, VIII, IX and X, include the
reconstruction and electrification of various lines, including between Vidin and Svilengrad, Sofia and
Kulata, Mezdra and Ruse, Macedonia border and Varna port, and Kaltina and Sofia. In some cases the
lines are expected to be upgraded to cruising speeds of up to 160km/h.
                                                     
90 ISPA focuses on environment investment and development in three ar eas:  environment (water
supply, waste management, and air pollution); transport infrastructure (major road and rail corridors); andpreparatory studies and technical assistance. Over th e period 2003-06, ISPA envi sages € 840 million for basic
infrastructure projects in Bulgaria.
91 Their activities are mainly in the field of railway repairs and construction.Bulgaria WT/TPR/S/121
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140. Under Bulgaria's GATS Schedule, maintenance and repair of rail transport equipment is
unbound as regards cross-border supply, both for market access and national treatment; and no
commitments have been made in respect of consum ption abroad or commercial presence. Indefinite
MFN exemptions cover measures taken under any ex isting or future agreements that govern access
and/or traffic rights and the terms of conduct of such economic activity in Bulgaria or between the
countries that are parties to the corresponding agreements. No such agreements currently exist.
Inland waterways and maritime transport
141. The main inland waterway is the River Danube. The two major ports on this waterway are the
port complexes of Lom and Ruse. Lom is 1,335 metres long, on 5 quays, with 13 ship berths for
general and bulk load cargoes. Ruse has a total length of 2,640m, 25 berths, 15,000 sq.m open and
24,000 sq. m of indoor warehouse facilities, and 28 cranes. It incorporates one passenger and twocargo ports. 95% of the river fleet is owned by Bulgarian River Shipping.
142. Bulgaria has two major sea ports; Varna and Burgas. Together, they handle over 60% of the
national, foreign-trade freight turnover. These ports have container terminals, Ro-Ro equipment, and
berths for bulk and liquid freight. Varna has a total wharf length of 5,765m and a maximum depth of
36 feet. The east port of Burgas has a wharf length of 1,965m.  Other ports include Pomorie, Nesebar,Sozopol, and Tzarevo.
143. The state-owned shipping company, Navigation Maritime Bulgare (NMB), is the biggest
Bulgarian shipping company. Calculated on the basis of gross tonnage, its share of shipping trade is
99%. It is a joint-stock company owned by the Ministry of Transport. The privatization of NMB's
commercial fleet is expected to begin in 2003.
144. As part of the Bulgarian Government's bid to improve maritime infrastructure it seeks to
attract private operators in port activities in order to increase the efficiency of port services and fosterinvestments. In order to bring Bulgaria's legislation into line with that of the EU  acquis, legislative
improvements are expected to maritime transpor t take into account safety and environmental
concerns. A new Law on Sea Spaces, Inland Waterways and Ports of the Republic of Bulgaria is
currently being discussed (as of July 2003) in Parliament. The main regulatory amendments include:
liberalization of conditions for access to the market for port services; creation of a national company"Ports", which will be charged with building, restructuring, rehabilitation, and maintenance of ports
used for public transport of national importance, controlling the requirements for exploitation of ports,
and ensuring access to ports used for public transport of national importance.
145. Bulgaria has not undertaken specific GATS co mmitments with regard to maritime services,
and has listed several MFN exemptions regarding passenger and freight transportation on internalwaterways; liner conference shipping (under the UN Convention on a Code of Conduct on Liner
Conferences) and cargo sharing; cargo-handling services and storage and warehouse services in sea
and river harbours (see WTO document S/DCS/W/ BGR). Bulgaria has not entered into any cargo-
sharing agreements.
Air transport146. Bulgaria has ten civil airports, five of which have international status and the other five are
used for agricultural aviation. International air transpor t activity is concentrated in Sofia,  Burgas, and
Varna. According to the Civil Av iation Act, the Ministry of Transport and Communications is vested
with the administrative and supe rvisory authority for civil air navigation, civil aircraft, and
aeronautical facilities; an activity it performs through the Civil Aviation Administration. Air carriersWT/TPR/S/121 Trade Policy Review
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set airfares and rates as well as schedules; however when provided for under bilateral air services
agreements, the CAA approves airfares, schedules and frequencies.
147. The Government's strategy on air transport seeks to attract private operators as
concessionaires of Bulgarian airports. This is expected to attract investment and improve the overall
efficiency and quality of services. The programme for granting concessions on Varna and Burgas
airports was launched in 2002. Bulgaria's former national carrier, Balkan Airlines was declaredbankrupt in December 2002, following its privatizati on. A new national air carrier – Balkan Airtour –
was established in November 2002. The company is expected to be privatized within 6-9 months.
148. Bulgaria has undertaken commitments under GATS with regard to the three ancillary air
transport services falling under the Agreement (aircraft repair and maintenance, selling and marketing
of air transport services, and computer reservation systems).  For air transport sales and marketing,Bulgaria's MFN exemption list specifies that obligations shall not apply where equivalent treatment of
Bulgarian suppliers of like services is not accorded in the country of origin of the foreign service
supplier.
(v) Tourism
149. The development of Bulgaria's tourism sector is one of the Government's main priorities.
Bulgaria has impressive natural resources including beaches on the Black Sea, several locations
suitable for skiing, the potential for eco and heritage tourism and a moderate continental climate.
Under the central-planning era, it was a popular tourist destination for holidaymakers from other
CMEA countries, however this has since declined. In recent years there has been a marked increase in
the share of tourists coming from EU countries; in 1996, these accounted for 10.8% of tourist inflows;
by  2002 this had increased to  42%.
92
150. The tourism sector has been a beneficiary of the accelerated privatization programme since
1996; by the end of 2001, 99% of tourism assets were in private hands. The remaining 1% is slated for
privatization in 2004. Over the 1992-2001 period, the sector attracted US$188.8 million of FDI (4.2%
of total FDI). Its contribution to the economy increased to 4.6% of GDP in 2001 from 0.5% in 1993.
151. The growth of the tourism sector is constrai ned by insufficient investment to modernize
tourism infrastructure, weak organization, under-qualified staff, competition from similar locations(e.g. Greece, Turkey), and insufficient international advertising.
152. The Government has resolved to transform Bulgaria into a modern and developed tourist
country. It has undertaken to do so via improvements to the regulatory framework. A National Tourist
Development Strategy (NTDS) is in the pipeline. The major thrust is to improve the quality of
services, upgrade qualifications of staff, promote better advertising, and strike a balance between thequality and the price of services.  The new Tourism Act was voted and promulgated on 7 June 2002
and came into effect in October 2002.
93 Under the Act, the Minister of Economy is to develop a
strategy and short-term programmes for tourism development; coordinate the activities of ministries
and institutions in the field; establish new institutions for licensing of operators; and other central
activities.  Under the Ministry, the National Tourist Board was established in December 2002 and theExecutive Agency for National Tourist Advertising and Information in January 2003. Amongst other
first-time provisions, the strategy seeks to clarify contractual relations between the tourist and his/her
tour operator or travel agent; tasks and responsibilities of local governments; nullify licensing
requirements for hotels and restaurant manageme nt; and provide indirect means for promoting the
                                                     
92 These figures relate to border statistics on tourist arrivals with a purpose of "leisure and recreation".
93 Official Gazette  No. 56, and Presidential Decree No.170.Bulgaria WT/TPR/S/121
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development of tourism at the national and regional levels. The NTDS also seeks to define the
authority of the Government in the tourism industry, to ensure improved management of tourist
enterprises, and to improve the advertising strategy.
153. Under Bulgaria's GATS commitments, commercial presence in hotels, restaurants, travel
agents, and tour operators must be provided by companies incorporated in Bulgaria.  There is no
ceiling on foreign investment. Where the public sector holds equity capital of over 50% in a Bulgariancompany, the number of foreign managers may not exceed the number who are Bulgarian citizens.Bulgaria WT/TPR/S/121
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