Czech Republic WT/TPR/S/89
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V. DEVELOPMENTS IN SELECTED SECTORS
(1) FINANCIAL SERVICES
(i) Banking services
The structure
1. Competition in the Czech banking sector has increased in recent years.  The number of
foreign banks and branches has expanded progressively since the first foreign bank was established in1992, with foreign banks and branches accounting for one quarter of total assets at the end of 1998
(Chart V.1).  According to the authorities, fore ign-controlled banks account for around 70% of total
assets of the banking sector following the privatization of three large Czech banks in 1998-00.
1  As of
31 December 2000, there were 40 banks and foreign bank branches.  The group of small banks is
characterized by a high share of Czech private capital and relatively small amounts of assets.  Themarked rise, and subsequent fall, in the number of small banks reflects the initial relatively soft rules
on bank licensing during the early transition years, followed by a significant tightening of the
supervisory framework.
2
0510152025
1989 90 91 92 93 94 95 96 97 98 99Chart V.1
The Czech banking system, 1989-99
a
b
Source:Including foreign branches.
As of 1 January 1990.
WTO Secretariat, based on information provided by Czech authorities; and IMF(1999), IMF Staff Country 
Report No.99/90.(a) Number of banks (end of year) (b) Assets by type of bank, end 1998 (per cent)
Large banks
66.1Specialized banks
5.5
Foreign banksa
24.9
Small banks
3.5Large 
banksSmall
banks
Foreign banksa
Specialized banks
b
2. The banking sector has increased over the past years.  Total bank assets in 1999 amounted to
the equivalent of about 140% of GDP, and bank cr edits to the private sector accounted for the
                                                          
1 The privatized banks are:  Investicni A Posto vni Banka (IPB), which focused on larger companies,
Ceskoslovenska Obchodni Banka (CSOB), which focused on services related to foreign operations, and thesavings bank Česká Spořitelna (CS).
2 IMF (1999).WT/TPR/S/89 Trade Policy Review
Page 64
equivalent of around 60% of GDP.  This reflects th e already high level of financial intermediation at
the outset of the transition, relative monetary stability since then, and absence of significant
alternative financial institutions. 3  Nevertheless, it has been noted that the banking sector suffers from
major weaknesses in the areas of asset quality (high share of classified credits) and profitability.
Sources of weaknesses are said to include poor corporate governance, poor ability to assess risk, and
the belief that the Czech authorities would not let the banks fail, creating an environment of moralhazard.
4
Recent efforts to strengthen the regulatory framework
3. Bank activities in the Czech Republic are governed by Act No. 21/1992 Coll. on Banks,
which contains, inter alia , the basic principles for granting a banking licence and provides for the
structure of the bank's governing bodies, the procedure for acquiring holdings in banks, theoperational requirements for banks, the basic procedures of banking supervision (including
conservatorship and banking licence revocation) and the system of insurance deposits.
5  The Czech
National Bank is in charge of banking supervision.
4. The regulatory framework for the banking sector  has improved considerably during the period
under review.  According to the authorities, the ba sic direction of the reforms has been to harmonize
Czech laws and regulations with those of the EU.  Considerable progress has been made in the
harmonization efforts.  The Czech National Bank provisions are based on the international regulatory
standards included in EU Directives and on the recommendations of the Basle Committee on Banking
Supervision.  Reforms in the period under review include, inter alia6:
− establishment of a framework for closer co-operation between financial-sector supervisors
(Czech National Bank for banks, Ministry of Finance for insurance companies and pensionfunds, and the Securities Commission for the St ock Exchange and for investment funds);
− abolition of economic need test under the licensing procedure and introduction of national
treatment for investors buying the shares of existing banks;
− introduction of limits on bank's ownership of investment funds and industrial companies;
− introduction of new provisioning requirements for loan losses (no longer allowed to net out
the value of real estate collateral in calculating the loan loss provisions for loans that wereoverdue by more than 360 days).  The measures were phased in over a three-year period,
beginning at the end of 1998;
− as from January 2000, the Central Bank performs banking supervision on a consolidated basis
(applies only to groups headed by a bank and comprising their subsidiaries and companies in
which they have participating interest).  The prudential rules in force until then applied only
to banks and did not regulate the overall position of a bank within the framework of its group;
and
− enactment of legislation bringing anti-money-laundering policy more into line with EU
requirements.
                                                          
3 IMF (1999).
4 World Bank (1999a), Vol. 1.
5 Czech National Bank (undated).
6 This paragraph is based on EBRD (1999);  and IMF (1999).Czech Republic WT/TPR/S/89
Page 65
Foreign investment – granting of licences
5. The Czech banking system is generally open to foreign investment.  The Central Bank began
issuing licences in 1990, but it took another two years until licences for branches of foreign banks
were issued.  Under Act No. 21/1992 Coll. on Banks, the entry of foreign capital is allowed in the
form of wholly or majority foreign owned banks and foreign bank branches.  Domestic and foreign
banks need an authorization from the Central Bank to establish a commercial presence in the CzechRepublic.  Prior approval of the Central Bank is required for foreign persons to purchase shares of
existing banks in the Czech Republic.
6. The Czech Republic applies a universal banking model where banks and branches of foreign
banks may carry on both commercial and investment banking activities.  Banks are allowed to
internalize, through their subsidiaries, the businesse s in the area of insurance, investment funds, and
pension funds.  On the other hand, a bank may not perform control (defined in accordance with EU
Directive 89/646/EEC) over a legal entity other than banks, financial institutions or enterprises of
auxiliary services.  Banks are also allowed to invest in non-financial companies as long as a bank's
qualifying holding (defined in accordance with EU Directive 89/646/EEC) in such a legal entity does
not exceed 15% of the bank's capital in a single legal entity, or a total of 60% of the bank's capital inthe sum of all legal entities.
7  In the WTO negotiations on financial services the Czech Republic
committed to relax foreign exchange licensing requir ements, and to remove restrictions on deposit of
foreign exchange assets.  As of 1 January 2001, all foreign exchange operations are free, except those
concerning the acquisition of real estate by foreigners.
Bank restructuring - recent reforms and challenges ahead
7. Progress has been made in improving the health of the small banks as well as privatizing
some large state-owned banks, but the cost of bank assistance has been substantial.  In response topoor asset quality in the small banking sector, the central bank implemented in 1996-97 a programme
of supervisory actions designed to encourage the banks to improve their situation (Consolidation
Program II).
8  As a result, several small banks were liquidated, merged or went into bankruptcy.9  To
further address weaknesses in small banks, the Government approved in October 1996 a large-scale
restructuring programme (Stabilization Program).  As part of the programme, a government institutionbought poor quality assets of the banks at book value.  Liquidity crisis in the banks were also solved
through loans as well as an increased coverage of the deposit insurance scheme.  The cost of bank
assistance during the period 1991-98 was estimated at the equivalent of 10.5% of GDP.
8. Bank privatization has accelerated significantly in recent years.  Three large state-owned
banks (IPB in 1998, CSOB in 1999 and CS in 2000) ha ve been successfully privatized to strategic
foreign investors, increasing foreign share of total banking assets to 70%.  The last remaining state-
owned commercial bank, KB, is to be  privatized in the second half of 2001.
9. A looming problem for the sector is the large share of non-performing loans in the total
volume of credits, which has been fluctuating around 20% since 1997.  The problem is concentrated
in large banks.  Since its establishment in 1991, the KOB (Konsolida ční banka) has acted as an
institution for the management of assumed and purchased assets.  It has undertaken several
restructuring operations and, more recently, facilitated the privatization of large state banks as it took
over a major portion of their bad debts.  The volume of KOB's bad assets represented some 15% of
                                                          
7 World Bank (1999a), Vol. 2.
8 Consolidation Program I, implemented in 1991-93, was aimed at cleaning up the portfolios of former
state-owned banks/organizations.
9 World Bank (1999a), Vol. 1.WT/TPR/S/89 Trade Policy Review
Page 66
GDP by end-1999, a figure that could increase to about 20%.10 The situation may be aggravated by
the fact that the KOB is also a development bank with commercial banking and deposit-taking
functions.  The authorities' efforts to dispose of the non-performing loans include sales, bankruptcy
proceedings, court settlements, and claim capitalization.11
10. A related area of reform is the legal framework for bankruptcy.  Weaknesses in the
bankruptcy legal framework (such as delays in the bankruptcy process) have discouraged banks fromimplementing bankruptcy proceedings against many insolvent enterprises (Chapter IV(6)).
(ii) Insurance services
11. The insurance sector is characterized by increasing competition as a result of the continued
reforms.  In May 2001, 40 companies were active in the Czech insurance market (17 general
insurance companies offering a wide range of products, four life insurance companies, and 19companies offering one or more kinds of non-life insurance).  Eighteen of the joint-stock companies
were 100% owned by Czech capital, while 13 were owned exclusively by foreign capital.  The Czech
insurance company (Ceská pojiš ťovna a.s), in which the State has a 30.25% share, still retains a large,
though declining, share (around 39%) of the insurance market.  Insurance penetration – ratio of
insurance premiums to GDP unadjusted for inflation – reached 3.7% in 2000.
 12
12. The new Act on Insurance (No. 363/1999 Coll.) substantially harmonizes Czech law with EU
directives and brings the sector under more effective supervision. The law, which took effect in April
2000, includes:
− tighter restrictions on insurance company board members and their activities (including
conflict of interest);
− a requirement to split life and non-life business into separate companies within ten years13;
and
− measures to strengthen the Insurance Supervisory Authority, which was given considerable
powers and new resources.14
13. The insurance market is open to national and fo reign investors.  Under current law, foreign
financial suppliers may establish an insurance co mpany in the form of a joint-stock company or
provide services through branches.  Establishment requires the authorization of the Insurance
Supervisory Authority.15  The new Act on Insurance, contrary to the previous law, does not contain
any restrictions for purchasing insurance services abroad.
14. However, certain business activities were reserved until recently, thereby limiting competition
and development of the market.  Competition remain s limited only for compulsory health insurance,
which is provided by nine licensed Czech-owned suppliers, and for mandatory liability insurance for
employers against injury or occupational diseases , which is  provided by two licensed companies.  In
                                                          
10 KOB (2000).
11 IMF (2000b).
12 In comparison with EU countries and other adva nced countries, the Czech Republic's penetration
figure is roughly half.  Czech Insurance Association (1999).
13 World Markets Research Centre online information.  Available at: http://www.impactglobal.com/
subscribers/HOMETEST.CFM [24 November 2000].
14 European Commission (2000).
15 WTO (1996).Czech Republic WT/TPR/S/89
Page 67
January 2000, the Czech Insurance Company's monopoly right on the supply of compulsory third-
party motor liability insurance was ended.16  Twelve insurance companies have received licences to
provide this type of service.  Moreover, as part of its commitments undertaken during the WTO
negotiation on financial services, the Czech Republic removed monopoly rights for compulsory air
transport insurance in April 1997.
15. Premiums for compulsory health insurance a nd mandatory liability insurance for employers
against injury or occupational diseases are set by the authorities;  companies are free to set premium
rates in all other areas.
16. A large amount of business – especially in large industrial and commercial risks – is reinsured
with large international reinsurance companies.17  While there is no local re-insurance company, the
largest three domestic companies are authorized to act as active re-insurers.
(iii) Other financial services
17. Capital market legislation is under the responsibility of the Ministry of Finance; the Securities
Commission is responsible for the enforcement of laws.18  Certain activities are closed to foreign
investors by law, including mortgage banking, some operations in securities on capital markets,
operations in collective investment securities, and operations in foreign exchange activities(Table II.3).  The establishment of securities dealers, stockbrokers (of the stock exchange or
organizers of an over-the-counter market), investme nt companies, and investment funds are subject to
authorization by the Securities Commission.
The Czech Securities Commission
18. Important measures have been taken to increase the transparency and regulation of capital
markets by creating a Securities Commission (SEC ), established in April 1998 under Act No. 15/1998
Coll. on the Czech Securities Commission.  The objectives of the SEC are to improve investors'protection and transparency by attaining a higher level of information openness, to check compliance
with legal standards, and to participate in the creation of legal provisions and laws to regulate the
capital market.
19  The activities of investment companies, banks (their investment services), and
pension funds (investment instruments) are subject to supervision by the SEC.  The SEC has
undertaken a clean-up operation, withdrawing the licences of many brokerages and de-listing severalfirms for non-compliance with existing rules.
20  The SEC must submit proposals for secondary
legislation governing the capital markets through the Ministry of Finance.21  According to the
authorities, from the beginning of 2000, the Czech legislation related to capital markets is largely
harmonized with that of the EU.
                                                          
16 Regulated by Act No. 168/1999 Coll. on Liability Insurance for Damage Caused by Operation of a
Vehicle and on Amendment to Some Related Acts (Motor Third-Party Liability Insurance Act) (WTO documentS/C/N/125, 3 August 2000).
17 World Bank (1999b).
18 The legislation governing the capital market includes: the Securities Act, the Act on Bonds, the Stock
Exchange Act, the Act on Investment Companies and Investment Funds, and the Act on Securities Commission.
19 EBRD (1999).
20 OECD (2000a).
21 Government of the Czech Republic and the European Commission (1999).WT/TPR/S/89 Trade Policy Review
Page 68
The Prague Stock Exchange
19. The operation of the Prague Stock Exchange (PSE) is governed by the laws relating to the
Czech capital markets, and Stock Exchange Rules and Regulations.  It is supervised by the Security
Exchange Commission.  The PSE is a joint-stoc k company authorized to organize trading in
securities, i.e. shares, bonds, unit certificates, etc.22  The trading system on the PSE is both order-
driven and price-driven.  There is also another organizer of equities trade, the RM system.  It appearsthat with the two systems operating in tandem, there is no mechanism to ensure a single price for
shares.
23
Investment funds
20. The majority of the investment funds in the Czech Republic were formed during the period of
voucher privatization (Box IV.1).  In the voucher system, individuals could either bid directly forcompany shares in the auctions or place the vouche rs with an investment fund.  The investment fund
would then use the vouchers to bid for the company.  The investment funds attracted most vouchers
(70% and 65% of the vouchers issued in the first and second waves, respectively).  The investment
funds were all set up as closed-end funds in the first wave of the privatization, while in the second
wave, open and unit trusts were also allowed.
24
21. Several weaknesses with the investment funds became apparent.  Corporate governance by
the funds was considered to be weak.  It is also thought that several of the funds were used as
instruments of asset stripping by the managers.  Causes for such performance include liberal licensing
criteria, lax supervision, limited disclosure rules, and the weak incentives related to the closed-end
structures of most funds.25
22. The poor performance of investment funds led the authorities to introduce important changes
to the legal framework (Act No. 248/1992 on Inve stment Companies and Investment Funds) in 1998.
The closed-end funds are now required to convert into open funds at the latest by the end of 2002,
which will result in a substantial outflow of assets from those funds.  Under the law, authorization for
new closed-end mutual funds, formed as unit trusts, can only be issued for a period not exceeding ten
years.  Another important change is the reductio n in the IPFs holdings in any company from 20% to
not more than 11%.  Other changes to the law designed to reduce portfolio risk include the prohibitionto invest in silent partnerships.  In addition, the law was also amended to include, inter alia , the
following provisions: (i) acquisition of more than 10% of the shares of registered capital of an
investment company or investment fund requires the prior approval by the SEC; (ii) the portfolio of
investment funds or mutual funds may not consist of  the shares of joint-stock companies whose share
of registered capital of a management investme nt company or investment fund exceeds 10%; and
(iii) the control functions of a depository were strengthened.
26
(2) TELECOMMUNICATIONS SERVICES
23. The Czech Republic has brought competition into the telecommunications sector by gradually
opening up its markets to national and foreign investors.  The telecom monopoly company ( Český
Telecom) has been partly privatized;  additional operators have been allowed in the provision of
                                                          
22 In June 2001, the PSE became an Associate Member of the Federation of European Securities
Exchanges.
23 EIU (1999).
24 World Bank (1999b).
25 World Bank (1999b).
26 WTO document S/C/N/92, 15 January 1999.Czech Republic WT/TPR/S/89
Page 69
public fixed telephone services in "local telecom areas", local voice services, and the provision of
cellular communications;  and Internet services and cable television is now characterized by strong
competition (Chart V.2).  The authorities have attained their goal of fully liberalizing the
telecommunications sector with no limitations for entry of foreign capital by 1 January 2001, a date
set already in 1994, by allowing additional operators in the provision of international, long-distance
services, and local telephone services via fixed networks.27  Following general global trends in
telecommunications, the Czech Republic has, along with liberalization, experienced strong growth in
both size and quality of services, and prices of some services have fallen.  Nationwide transmission of
TV and radio signal is ensured mainly by a single joint-stock company controlled by the State ( České
radiokomunikace, CR).  Looking ahead, the authorities are planning to privatize the remaining 51% of
shares in the Český Telecom and the CR during 2001.
Chart V.2
Evolution of selected tele communication services, 1994-2001
1994 1995 1996 2000 2001
International
and long-distance
services- SPT Telecom - Český Telecom
a
- about 20
additional
operators
Local services - SPT Telecom - SPT Telecom
- eight additional operators- Český Telecoma
- about 20
additional
operators
Mobilecommunication- one operator - two operators - three operators - three operators
Third-
generation
mobile phone
services- no operator - four licences
expected
Internetservices- information not available (liberalized in 1998) - 18 major ISPs
and 300 small
ISPs- 20 major ISPs
and many
hundreds ofsmall ISPs
a Previously SPT Telecom.
Source : WTO Secretariat, based on information provided by the Czech authorities.
Enhanced regulatory framework
24. The Czech Telecommunication Office (CTO) is the regulatory body for the
telecommunications sector.  Under Act No. 151/2000 (on Telecommunications and on Amendments
to Other Acts) the CTO was re-established in July 2000, as a separate body with full independence
from the Ministry of Transport and Communications.  Areas of responsibility given to the CTO as a
result of the new law include administration of interconnections and price regulation.  Previous
responsibilities retained by the CTO include, inter alia , to approve telecommunication equipment,
                                                          
27 It appears that some problems remain in the area of interconnection agreements and freedom of
choice of operator.WT/TPR/S/89 Trade Policy Review
Page 70
administration of the frequency spectrum system; fines; granting licences and the withdrawal of
authorizations of licences.  Under the law, the Ministry of Transport and Communications remains
responsible for telecommunications policy and for establishing the principles and main regulations of
the sector; it also approves the plan for assignment of frequency bands.
25. A licence is required for establishing and operating a public telecommunications network
(except networks intended solely for one-way dissemination of television or radio signals downwires), and providing public telephone services via a fixed or mobile telecommunication network.
The CTO will issue a licence as long as it does not jeopardize the security of the State or human life,
health or safety, and given that the necessary frequencies are available.  If sufficient frequencies are
not available, the CTO is obliged to announce its selection proceedings for the licences.  For all
applications, the CTO decides on awarding licences within 40 days from the delivery of theapplication.  To provide all other types of telecommunications services (such as internet services,
operate radio transmitters via VSAT), providers must simply register with CTO.
26. One or more of the licence holders in the areas of public telephone services is required to
provide universal service via a fixed telecommunication network, such that accessibility is secured
throughout the whole country.  Universal service providers have the right to compensation for"demonstrable" loss (expenditures which would not have arisen if the provider had not had this
obligation).
27. Interconnection policy is regulated by the CTO.  According to the law, operators of public
telecommunications networks and providers of public telecommunications services, who are in
control of at least one terminal point of a network, are obliged to provide interconnection to the
networks they operate.  The operators of public telecommunications networks and providers of public
telecommunications services can reject a proposal for an agreement on interconnection of networkswhen the requested interconnection does not comply with the technical specifications at their disposal.
In such a case, they are obliged to request the CTO's approval for the rejection of the proposal.  The
prices for interconnection are negotiated by the parties.  If the parties do not reach an agreement on
price for interconnection, they have to use a price-calculation method set by the CTO.
28. Until 1 July 2000, when the new telecommunications law came into force, the Ministry of
Finance regulated the tariffs of the main public telephone services over the fixed networks (including
public telex and telegraph services) using the price-cap method.
28  Under the new telecommunications
law, the CTO became the responsible regulatory body for tariffs and prices.  The CTO uses a similar
price-cap methodology for setting prices for the main services (public telex and telegraph services).
Other tariffs and prices for telecommunications services remain unregulated.
Progressive opening of markets to competition
29. In line with the Czech Republic's commitments under the GATS, the state-owned Český
Telecom's (former SPT Telecom)  monopoly on the provision of long-distance and international
telephony has been abolished as of 1 January 2001, as a result of the enactment of Act No.
151/2000.29  Český Telecom is obliged to ensure the implementation of call-by-call selection of
operator by a dialled prefix until July 2002, and pre-selection of operator as well as number
portability until January 2003.  The Český Telecom has been the exclusive operator in 144 out of 160
local areas, covering about 93% of the population.  Under the new law, potential competitors in the
fixed line telephone market could apply for licences and begin building networks in preparation for
1 January 2001 when they were allowed to start operation.  There are no limitations on the number of
                                                          
28 Hruby, Zdenek (1999).
29 See WTO (1996), Annex V.1 on the Czech Republic's Specific Commitments under the GATS.Czech Republic WT/TPR/S/89
Page 71
companies that will be awarded a licence.30  Nor are there any limitations on the areas of operation.
Foreign participation in the provision of long-distance and international telephony services is not
limited.  So far, Contactel (a Czech joint-venture between Ceske Radiokomunikace and
TeleDanmark) and Aliatel and more than 20 other companies have been granted licences for public
voice services.31
30. Prior to the date of the full liberalization of the telecommunications market, competition in
local public fixed telephone services had been experimentally allowed in 16 of the country's 160
"local telecom areas".  It has been noted that only limited success was achieved due to some strict
conditions that operators had to fulfil.32  By June 2000 only four companies were offering local
services in competition with Český Telecom.
31. In most other areas of telecom services, the market structure is competitive.  Cellular
communications along with the provision of intern et services and cable television are perhaps the
most competitive markets;  and there is competition in leased lines, data, fixed satellite, and digital
cellular services.  In the area of telex, telegraphs and facsimile, competition is allowed, but, according
to the authorities, there is no interest from companies (other than Český Telecom) to provide such
services.  According to the new law, Český Telecom has to provide these services under the
framework of universal services until 2005.  There are no limitations for market entry in  packet-
switched data transmission services, circuit-switched data services, and leased lines services.
(3) TRANSPORT SERVICES
32. Progress has been made in liberalizing the transport services sector during the period under
review.  As in 1996, the sector portrays a mixed picture.  While the Czech Republic has a relatively
competitive trucking industry and a non-subsidized airline company, passenger railway services and,
to a lesser extent, bus services require large amounts of transfers to cover their losses.  Fullharmonization of the Czech Republic's transport laws and legislation with the EU's
acquis  communautaire is planned for the end of 2002.  Road transportation remained by far the most
important mode of freight traffic transportation throughout the 1990s, accounting for at least 80% of
the total in recent years.  In 1999, 42% of imports were transported by road while 56% were
transported by rail.
Rail transport
33. Within the framework of Act No. 9/1993 Coll . on Czech Railways, freight and passenger
railways are owned and operated by the State through Czech Railways ( ČD).  Large amounts of funds
(grants and subsidies) are transferred to ČD to cover losses from passenger transport.  In early 2001,
ČD's accumulated losses amounted to CZK 40 billion.  The losses originate from passenger services.
Passenger fares are regulated by the Government and subsidized in accordance with social obligations
to provide mobility for the public. Subsidies on  railway freights were abolished in January 1995.
Fares for freight are now determined through negotiations with shippers.
33  The Government allows in
some instances access to tracks for companies wishing to provide their own rail transportation.  Prices
for access to tracks are set by the Ministry of Finance based on cost information supplied by ČD.
                                                          
30 Telecoms-Data.com (2000).
31 Total Telecom (2000) [Online], 11 September, and 4 October.  Available at:  http://totaltel.com.
[8 November 2000].
32 European Commission (1999b);  and Telecoms-Data.com (2000).
33 World Bank (1999b), Vol. 2.WT/TPR/S/89 Trade Policy Review
Page 72
Road transport
34. The main laws related to road transport are Act No. 111/1994 Coll. on Road Transport and
Act No. 304/1997 Coll. on Roads.  Foreign investment is prohibited in road transport (passenger and
freight).34  Nevertheless, the Czech Republic's trucking industry is relatively competitive.  Truck
transportation is undertaken by private carriers, with less than 1% of truck transportation undertaken
by state-owned companies.35  Bus transportation is provided by private national companies, but, in
contrast to truck transportation, the State compensates the carrier (in case of public interest) for
demonstrable loss incurred.  Bus transport companies receive about CZK 2 billion annually.
Transportation on international and long-distance routes is not subsidized.  Fuel taxes on cars, trucks
and buses contribute towards the cost of highway maintenance and construction.
Internal waterway transport
35. The main laws related to inland waterway transport and maritime transport are Act
No. 144/1995 Coll. on Inland Navigation and Act No. 61/2000 Coll. on Maritime Navigation.  The
Ministry of Transport and Communications and the State Shipping Administration are the competent
authorities for matters related to inland navigation.  The Maritime Authority is responsible for mattersrelated to maritime navigation.  An amendment to the Act on Inland Navigation was adopted in
January 2000, aiming at transposing the EU  acquis  communautaire  on access to the occupation of
carrier of goods by inland waterways.
36  The legislation on maritime navigation, which entered into
force in July 2000, provides for further harmonization with the acquis communautaire  in areas such as
cabotage, the investigation of maritime accidents, and the professional competence of the crews of
sea-going ships.  As there is no maritime port, the Czech Republic does not have any special
regulations on multimodal transport.  Nor does it have any national regulation on bulk shipping orliner shipping.
36. Foreign investors are allowed to operate in inland waterway freights, including chartering
activities.  Licensing criteria include, inter alia , the approval by the investor's national authority to
operate in its home country.  In order to fly the Czech flag, vessels must be owned by a Czech party
who must reside in the Czech Republic.  Currently, no merchant ship is registered in the MaritmeRegister of the Czech Republic.  There is only one national shipping company in operation (Czech
Ocean Shipping).  Although Act No. 61/2000 Coll. provides for the possibility of state aid, no such
aid has so far been granted.
Air transport
37. Air transportation is regulated by Act No. 49/1997 Coll. on Civil Aviation.  Under the law,
the Civil Aviation Authority (subordinated to the Mi nistry of Transport and Communications) is the
executive arm of the State in civil aviation matters.  Negotiations have started between the EU and the
Czech Republic on an agreement to establish a European Common Aviation Area (ECAA), which are
resulting in progressive alignment with the acquis communautaire .  An amendment to the law, which
                                                          
34 The regulation applies to the following for passengers: transit, "closed door" tours, picking up or
setting down on an international journey, and transport within the country.  It applies to the following for
freights: transit, delivery on an international journey, collection on an international journey, return cargo where
collection is authorised, return cargo where deliver y is authorised, and transport within the country
(OECD, 2000b).
35 World Bank (1999b), Vol. 2.
36 European Commission (2000).Czech Republic WT/TPR/S/89
Page 73
entered into force in June 2000, is expected to implement both the Joint Aviation Requirements
(JARs) and the Eurocontrol standards.37
38. Commercial air transport (carriage by aircraft of persons, animals, luggage, goods and mail)
can be operated on the basis of an air transport licence or on the basis of an authorization for air taxi
operators.  The licence is issued by the Civil Aviation Department of the Ministry of Transport and
Communications; the taxi authorization is given by the Civil Aviation Authority.  The criteria forapproving Czech carriers include, inter alia , national ownership (maximum 49% foreign equity).  By
February 2001, eight such licences had been issued and no applications had been rejected.  Domestic
scheduled air transport is limited due to the size of the country.  The State still owns shares in the
Czech Airlines ( ČSA).  ČSA does not receive subsidies from the Government.  A domestic airline
operator who intends to operate international commercial air transport must have an authorizationfrom the foreign State that will be the destination of the transport.  A foreign airline operator is
permitted to run commercial air transport to and from the Czech Republic pursuant to the bilateral air
transport agreement or to a permission issued by the Ministry of Transport and Communications.
Domestic fares and services are regulated by the Ministry of Transport and Communications.
38
39. The Czech Republic currently applies slot restrictions allocated by Eurocontrol.39  An open
skies agreement entered into force between the Czech Republic and the United States in
September 1996.  The agreement provided for a phased liberalization from September 1996 until
31 October 1999:  an open skies agreement for scheduled and charter operations between the Czech
Republic and the United States has been applicable since 1 November 1999.
40. The Czech Republic has adopted ad referendum Protocol VI (Transitional arrangements
between the European Community and the Czech Republic) to the draft Multilateral Agreement on
the Establishment of a European Common Avia tion Area (ECAA Agreement) in November 1999.
The Czech Republic is also a member of the International Civil Aviation Organization (ICAO),
Eurocontrol and Joint Aviation Authorities.
41. Cabotage rights for passengers or cargo are generally not granted to foreign carriers.
However, on the basis of reciprocity, they can be obtained from the Civil Aviation Authority.  Traffic
rights are regulated by bilateral agreements signed by the Czech Republic or through permissionsissued by the Civil Aviation Department.  Requirements for non-scheduled flights of foreign civil
aircraft landing in the Czech Republic for commerc ial purposes are contained in the Aeronautical
Information Publication of the Czech Republic.
42. The state-owned company (Czech Airport Authority) operates four international airports.  Air
traffic is managed by the state-owned company Air Navigation Services.  Other airport services (e.g.ground handling, catering and maintenance) are open to competition.
(4) T
OURISM SERVICES
43. The tourism industry recorded rapid growth during the past decade, except in 1995 and 1997.
Tourist arrivals increased from 37 million in 1990 to 104 million in 2000, and receipts increased from
US$0.4 billion (equivalent to 5.6% of GDP) to US$2.9 billion over the same period.  In addition tocontributing a significant amount of foreign currency revenues to the balance of payments, the
tourism industry represents a major source of income for the national budget.  The value-added tax is
the most important item in this regard.   Its importance is also noted because of the sector's positive
                                                          
37 European Commission (2000).
38 World Bank (1999b), Vol. 2.
39 World Bank (1999b), Vol. 2.WT/TPR/S/89 Trade Policy Review
Page 74
influence on a number of other industries and services (such as transport, retail, construction, banking,
telecommunications, culture and sports).
44. The Ministry for Regional Development is responsible for the supervision of tourism
activities.  In September 1999, an inter-ministerial tourism commission was established to function as
an advisory body to the Ministry.40  The Czech Tourist Authority, created in 1993, is responsible for
coordinating the state-run promotion activities and the operations of the businesses operating in thetourism sector, and for formulating marketing strategies for domestic and international tourist
markets.  It boosts general awareness about the Czech Republic through participation in fairs and
exhibitions, and organizing workshops. It also boosts awareness through a network of 12
representative offices in 11 countries, as well as through publishing activities and cooperation with
media outside the Czech Republic.
45. There is no limitation on foreign investment in the tourism sector.  The Ministry for Regional
Development is responsible for granting licences to tour operators.  As set out in Act No. 159/1999
Coll. on Some Conditions of Business Operation in the Tourism Industry, a tour organizer is obliged
to conclude an insurance policy for a premium of at least 30% of planned annual sales of packages.
Foreign investors have increased their role in the tourism sector since the mid 1990s, and in 1999trade, hotels and restaurants attracted as much as one quarter of total foreign direct investment inflows
(Table I.3).
46. One state-aid programme specifically targets the tourism sector.  Under the State Programme
for Tourist Support, investors may receive grants up to 50% of investment costs for the development
of spa-related activities.  In addition, as in all sectors, investors in the tourism sector have access to
the incentives offered under the Government's state aid programmes (Chapter IV(3)).
                                                          
40 Government of the Czech Republic (undated (b)).Czech Republic WT/TPR/S/89
Page 75
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