MOREPRESS RELEASE
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1300 GMT 19 OCTOBER 2001
PRESS/TPRB/174
19 October 2001
(01-5142)
EXPORTS AND FOREIGN INVESTMENT LEAD CZECH REPUBLIC'S
ECONOMIC RECOVERY ON THE WAY TO EU INTEGRATION
Exports and a surge in foreign direct investment have led the Czech economy to a recovery
from the 1997-99 recession, and, after three years of negative growth, GDP grew by 2.9% in 2000,
according to a WTO report on the trade policies and practices of the Czech Republic. In addressing
the recession, the Czech Government took significant steps to enhance the economic climate, both
through domestic reform and by further trade and investment liberalization, the report says.
The WTO Secretariat report, along with the policy statement by the Government of the Czech
Republic, will serve as a basis for the second trade policy review of the Czech Republic by the Trade
Policy Review Body of the WTO on 17 and 19 October 2001.
The legal environment for economic and trade activities has substantially improved in the
Czech Republic over the last five years.  A broadl y coherent body of commercial and trade law is now
in place and much of the progress can be attributed to the Czech Republic's goal of accession to theEuropean Union (EU).  EU harmonization has proved to act as a catalyst to speed up the
implementation of the reform agenda, says the report.
The Czech Republic remains highly integrated into the world economy.  Merchandise trade
(exports and imports) were the equivalent of 120% of GDP in 2000 (up from 105% in 1994), and the
ratio of foreign investment to GDP was 5.3% (9% in 1999).  The geographic distribution ofmerchandise trade has continued to move towards western Europe, reflecting the Czech Republic's
continued integration with western Europe.  In 2000, the EU accounted for almost 69% of total
merchandise exports and 62% of total imports.
The report also notes that trade liberalization has been an important element in the reform
agenda during the period under review.  The average Czech MFN tariff rate has been lowered by twopercentage points, to 6% in 2001.  Moreover, both tariff dispersion and the number of rates have
decreased since the previous review.  With no spec ific, composite or other non-ad valorem rates, thePRESS/TPRB/174
Page 2
MORECzech tariff system remains transparent.  All tariff lines are bound (almost all at the applied MFN
rates), fostering a more predictable trading environment for businesses.
Most agricultural goods, however, are protected by relatively high tariffs.  The simple MNF
tariff average for agriculture products (WTO definition) in 2001 was 13.4%, compared with an
average rate of 4.3% for non-agricultural goods.
Given the large number of preferential trading agreements to which the Czech Republic
participates, MFN rates apply only to a limited share of Czech imports ( 78% of total imports in 1999
were from free-trade agreement partners ).  The Czech Republic has continued to build up its network of
preferential trade agreements.  It has concluded several free-trade agreements during the period under
review (Estonia, Latvia, Lithuania, Israel and Turkey), while continuing liberalization within the
framework of previous preferential agreements.  Although these have helped further open the Czech
market, such arrangements may also distort trade and investment patterns as they involve different
margins of preferences.  The impact on net trade creation of the Czech's possible accession to the EUis not completely clear.  Non-tariff barriers on an MFN basis are expected to fall.  On the other hand,
EU membership is most likely to raise the level of protection in agriculture as the current overall
MFN tariff on agricultural goods is higher in the EU than in the Czech Republic; agricultural
assistance is also likely to increase significantly.  Nevertheless, integration with the EU should
accelerate the Czech Republic's economic development and provide renewed opportunities for furthereconomic and trade reforms.
The Czech import regime has relatively few non-tariff barriers. A non-automatic licence
continues to apply to imports of, inter alia, certain: sugar, coal, explosives, and firearms. As part of
the accession to the EU, the Czech Republic is harmonizing its standards and technical regulations
with those of the EU.  Towards that end, several ne w laws have been enacted, simplifying the testing
and standardization process.  The Czech Republic has also concluded mutual recognition agreements
for the results of conformity assessments with several countries.  Amendments to the government
procurement legislation provide for enhanced transparency, but the system appears to discriminate, in
some instances, against foreign firms.  The Czech Republic became an observer to the WTO
Agreement on Government Procurement in August 2000.  Competition rules as well as intellectualproperty rights legislation have been strengthened during the period under review.  Regarding
contingency measures, the Czech Republic has recently enacted legislation pertaining to anti-
dumping, countervailing and safeguard measures.  It is  yet to be seen if the Czech Republic will be an
active user of contingency measures.
Along with liberalization of the foreign investme nt regime, total foreign investment (net) has
jumped in recent years to around 9% of GDP in 1999.  As part of its accession to the Organization of
Economic Cooperation and Development (OECD) in December 1995, the Czech Republic agreed to
meet, with a few exceptions, the OECD's standards for equal treatment of foreign and domestic
investors, and on restrictions on special investment incentives.  Foreign investment in a few sectors
(mainly services) remain restricted or controlled, says the report.
It notes that the Czech Republic has progressively changed its policy on foreign investment
incentives during the period under review. In May 2000 a package of incentives was approved,changing the previous policy of offering investment incentives on a case-by-case basis (subject to
governmental approval), a major change from the "no incentives" policy during 1992-98.  The
package appears to have been designed to bring th e Czech Republic into line with its competitors for
inward investment.  However, it is not clear if the benefits of the incentive package outweigh the
associated costs.PRESS/TPRB/174
Page 3
MORERegarding other areas of services, the Czech Republic has embraced competition in the
telecommunications sector by gradually opening up its markets to national and foreign investors.  The
telecom monopoly company has been partly privatized, and, most recently, additional operators were
allowed in the provision of international and long-distance services.  Progress has been made in
liberalizing transport services.  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.
Note to Editors
Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member
countries’ trade and related policies are examined and evaluated at regular intervals. Significant
developments which may have an impact on the global trading system are also monitored. For eachreview, two documents are prepared: a policy stat ement by the government of the member under
review, and a detailed report written independently by the WTO Secretariat. These two documents are
then discussed by the WTO’s full membership in the Trade Policy Review Body (TPRB). These
documents and the proceedings of the TPRB’s meet ings are published shortly afterwards. Since 1995,
when the WTO came into force, services and trade- related aspects of intellectual property rights have
also been covered.
For this review, the WTO’s Secretariat report, together with a policy statement prepared by
the Government of the Czech Republic, will be discussed by the Trade Policy Review Body on 17 and
19 October 2001. The Secretariat report covers the development of all aspects of the Czech Republic'strade policies since the previous review, including domestic laws and regulations, the institutional
framework, trade policies by measure, and developments in selected  sectors.
Attached to this press release is the Overview to the Secretariat report and parts of the
government policy statement. The Secretariat report and the government's policy statement areavailable for the press in the newsroom of the WTO internet site (www.wto.org). These two
documents and the minutes of the TPRB’s discussion and the Chairman’s summing up, will be
published in hardback in due course and will be available from the Secretariat, Centre William
Rappard, 154 rue de Lausanne, 1211 Geneva 21.PRESS/TPRB/174
Page 4
MORESince December 1989, the following reports have been completed: Argentina (1992 and
1999), Australia (1989, 1994 and 1998), Austria (19 92), Bahrain (2000) Bangladesh (1992 and 2000),
Benin (1997), Bolivia (1993 and 1999), Botswa na (1998), Brazil (1992, 1996 and 2000), Brunei
Darussalam (2001), Burkina Faso (1998), Cameroon (1995 and 2001), Canada (1990, 1992, 1994,
1996, 1998 and 2000), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995 and
2001), Côte d’Ivoire (1995), Cyprus (1997), th e Czech Republic (1996 and 2001), the Dominican
Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the European Communities (1991,
1993, 1995, 1997 and 2000), Fiji (1997), Finland (1992), Gabon (2001), Ghana (1992 and 2001),
Guinea (1999), Hong Kong (1990, 1994 and 1998),  Hungary (1991 and 1998), Iceland (1994 and
2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica
(1998), Japan (1990, 1992, 1995,1998 and 2000), Keny a (1993 and 2000), Korea, Rep. of (1992, 1996
and 2000), Lesotho (1998), Macao (1994 and 2001), Madagascar (2001), Malaysia (1993 and 1997),
Mali (1998), Mauritius (1995), Mexico (1993 and 1997), Morocco (1989 and 1996), Mozambique(2001), New Zealand (1990 and 1996), Namibia (1998 ), Nicaragua (1999), Nigeria (1991 and 1998),
Norway (1991, 1996 and 2000), OECS (2001), Pakistan (1995), Papua New Guinea (1999), Paraguay
(1997), Peru (1994 and 2000), the Philippines (1993 and 1999), Poland (1993 and 2000), Romania
(1992 and 1999), Senegal (1994), Singapore (1992,  1996 and 2000), Slovak Republic (1995), the
Solomon Islands (1998), South Africa (1993 and 19 98), Sri Lanka (1995), Swaziland (1998), Sweden
(1990 and 1994), Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein)), Tanzania (2000),
Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey
(1994 and 1998), the United States (1989, 1 992, 1994, 1996, 1999 and 2001), Uganda (1995),
Uruguay (1992 and 1998), Venezuela (1996) , Zambia (1996) and Zimbabwe (1994).PRESS/TPRB/174
Page 5
MORETRADE POLICY REVIEW BODY
CZECH REPUBLIC
REPORT BY THE SECRETARIAT - OVERVIEW
The Czech economy is recovering from the 1997-99 recession: led by exports and a surge in
foreign direct investment, GDP grew by 2.9% in 2000 following three years of negative growth.  The
recession was caused by both microeconomic factors, such as an insufficient restructuring of the
corporate and banking sectors, and macroeconomic imbalances, including a deterioration in the
General Government accounts.
In addressing the recession, the Czech Government took significant steps to enhance the
economic climate, both through domestic reform and by further trade and investment liberalization.The legal environment for economic and trade activities has also substantially improved since the
Czech Republic's previous Trade Policy Review in 1996.  A broadly coherent body of commercial
and trade law is now in place.  Much of the progress can be attributed to the Czech Republic's goal of
accession to the European Union (EU).  EU harmonization, which requires absorption of the EU
acquis communautaire, has proved to act as a catalyst to speed up the implementation of the reformagenda.  While the legal environment is good on paper, it appears that weaknesses in the dispute
resolution system continue to be a problem.  Th e slow functioning of the overburdened commercial
courts and weak enforcement has been identified as a factors hampering the business environment.
The Czech Republic remains highly integrated into the world economy.  Merchandise trade
(exports and imports) were the equivalent of 120% of GDP in 2000 (up from 105% in 1994), and theratio of foreign investment to GDP was 5.3% (9% in 1999).  The geographic distribution of
merchandise trade has continued to move towards western Europe, reflecting the Czech Republic's
continued integration with western Europe.  In 2000, the EU accounted for almost 69% of total
merchandise exports and 62% of total imports.
The Czech Republic participates actively in the work of the WTO.  It grants at least MFN
treatment to all WTO Members, as to several other countries with which bilateral agreements have
been signed.  During the period under review, the Czech Republic has continued to undertake major
commitments within the multilateral framework, including in basic telecommunications and financial
services.  Under the WTO dispute settlement mechanism, the Czech Republic has been involved in
two cases, one as a complainant and one as a respondent.  In both cases, the disputes have beenresolved through bilateral consultations.
Trade liberalization has been an important element in the reform agenda during the period
under review.  The average Czech MFN tariff rate ha s been lowered by two percentage points, to 6%
in 2001.  Moreover, both tariff dispersion and the number of rates have decreased since the previous
review.  With no specific, composite or other non-ad valorem rates, the Czech tariff system remains
transparent.  All tariff lines are bound (almost all at the applied MFN rates), fostering a more
predictable trading environment for businesses.
Most agricultural goods, however, are protected by relatively high tariffs.  The simple MNF
tariff average for agriculture products (WTO definition) in 2001 was 13.4%, compared with an
average rate of 4.3% for non-agricultural goods.
Given the large number of preferential trading agreements to which the Czech Republic
participates, MFN rates apply only to a limited share of Czech imports (
78% of total imports in 1999
were from free-trade agreement partners ).  The Czech Republic has continued to build up its network ofPRESS/TPRB/174
Page 6
MOREpreferential trade agreements.  As part of its efforts to accede to the EU, the Czech Republic has to
adopt all of  the preferential agreements concluded by the EU with third countries.  Towards this end,
the Czech Republic has concluded several free-trade agreements during the period under review
(Estonia, Latvia, Lithuania, Israel and Turkey), while continuing liberalization within the framework
of previous agreements.  Although these have helped further open the Czech market, such
arrangements may also distort trade and investment patterns as they involve different margins ofpreferences.  The impact on net trade creation of the Czech's possible accession to the EU is not
completely clear.  Non-tariff barriers on an MFN basis are expected to fall.  On the other hand, EU
membership is most likely to raise the level of protection in agriculture as the current overall MFN
tariff on agricultural goods is higher in the EU th an in the Czech Republic; agricultural assistance is
also likely to increase significantly. Nevertheless, integration with the EU should accelerate the Czech
Republic's economic development and provide renewed opportunities for further economic and trade
reforms.
The Czech import regime has relatively few non-tariff barriers. Some items have been
removed from the list of automatic licensing during the review period. A non-automatic licence
continues to apply to imports of, inter alia, certain: sugar, coal, explosives, and firearms. As part of
the accession to the EU, the Czech Republic is harmonizing its standards and technical regulations
with those of the EU.  Towards that end, several ne w laws have been enacted, simplifying the testing
and standardization process.  The Czech Republic has also concluded mutual recognition agreements
for the results of conformity assessments with several countries.  Amendments to the government
procurement legislation provide for enhanced transparency, but the system appears to discriminate, in
some instances, against foreign firms.  The Czech Republic became an observer to the WTO
Agreement on Government Procurement in August 2000.  Competition rules as well as intellectualproperty rights legislation have been strengthened during the period under review.  Regarding
contingency measures, the Czech Republic has recently enacted legislation pertaining to anti-
dumping, countervailing and safeguard measures.  It is  yet to be seen if the Czech Republic will be an
active user of contingency measures.
Along with liberalization of the foreign investme nt regime, total foreign investment (net) has
jumped in recent years to around 9% of GDP in 1999.  As part of its accession to the Organization of
Economic Cooperation and Development (OECD) in December 1995, the Czech Republic agreed to
meet, with a few exceptions, the OECD's standards for equal treatment of foreign and domestic
investors, and on restrictions on special investment incentives.  Foreign investment in a few sectors
(mainly services) remain restricted or controlled.
The Czech Republic has progressively changed its policy on foreign investment incentives
during the period under review. In May 2000 a package of incentives was approved, changing the
previous policy of offering investment incentives on a case-by-case basis (subject to governmental
approval), a major change from the "no incentives" policy during 1992-98.  The package appears to
have been designed to bring the Czech Republic into  line with its competitors for inward investment.
However, it is not clear if the benefits of the incentive package outweigh the associated costs.
Investment incentives are typically not the best solution.
The deficiencies in the banking sector were among the factors behind the 1997 recession.
Imprudent lending by state-owned banks enabled enterprises to postpone restructuring.  The
unreformed enterprise sector was also a result of the State involvement through indirect ownership
(state-owned banks owned investment funds which in turn owned enterprises).  Moreover, it was
apparent that weaknesses in regulation and supervision of capital market institutions (investmentfunds, pension funds and insurance companies) would prevent the build up of strong governance
structures and faster enterprise restructuring.  Against this backdrop, a number of bank and capital
market reforms were implemented in several steps.  Many of the reforms were also implemented withPRESS/TPRB/174
Page 7
MOREthe aim of harmonizing Czech law and regulations with those of the EU.  In particular, the central
bank strengthened the regulatory framework for bank supervision, moved towards a consolidated
supervision, incorporated market risk into the capital adequacy requirement, tightened provisioning
requirements, and revoked a number of bank licenses.  The deficiencies in the banking sector were
also addressed with privatization.  With the privat ization of three large state-owned banks during the
review period, there is only one remaining state-owned commercial bank left, which is also slated forprivatization for the second half of 2001.
In addressing enterprise restructuring, the Government set up a Revitalization Agency, with a
mandate to prepare a limited number of heavily indebted companies for privatization.  An inadequate
bankruptcy legal framework was perceived as impeding enterprise restructuring.  Thus, the
bankruptcy law has been amended several times since 1996, aimed at facilitating and speeding up the
bankruptcy process.  Notwithstanding the recent changes to the bankruptcy law, the present law
appears to still suffer from some weaknesses.
Regarding other areas of services, the Czech Republic has embraced competition in the
telecommunications sector by gradually opening up its markets to national and foreign investors.  The
telecom monopoly company has been partly privatized, and, most recently, additional operators were
allowed in the provision of international and long-distance services.  Progress has been made in
liberalizing transport services.  As in 1996, the sector portrays a mixed picture.  While the CzechRepublic 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.PRESS/TPRB/174
Page 8
MORETRADE POLICY REVIEW BODY
CZECH REPUBLIC
Report by the Czech Republic's Government  (Part IV)
Future trade policy directions – The new WTO negotiations
The turn of the millennium is characterised by a rapid development of the world economy, its
globalisation and changing conditions of international trade. All of these factors lead to great
pressures on the WTO to adapt to the new developments, preserve its relevance and play a key role in
positive channelling of globalisation and ensuring more even distribution of benefits resultingtherefrom.
The Czech Republic believes that the best response to these challenges is to launch a new and
comprehensive round of multilateral trade negotiations. It is only through such negotiations that the
interests and needs of all WTO Members can be taken into account, while striving for a commonly
beneficial result, based on the balance of the rights and obligations. A new Round is also aprerequisite for a more effective involvement of the developing countries and the countries in
transition in the multilateral trading system.  Moreover, a Round is needed to demonstrate the ability
of the WTO and its Members to address concerns of the general public regarding the functioning of
the multilateral trading system and in order to secure the public support for further trade liberalisation.
Last but not least, a new round is the best contribution to the ongoing debate on the relationshipbetween multilateralism and regionalism.
For all of these reasons the Czech authorities will spare no efforts to promote such a
consensus that will enable to launch a new Round by  the time of the forthcoming Fourth Ministerial
Conference in Doha (9 – 13 November 2001).
The scope of a New Round has to go beyond the mandated negotiations on agriculture,
services and intellectual property rights. Negotiations in these areas can only produce expected results
if they are set in a wider framework, allowing trade-offs among various sectors.  The market access
element of the Round should be complemented by negotiations on non-agricultural products, which
represent one of the core agenda of the then GATT and today’s WTO. In addition to measures
focused on the improved market access, negotiations  should be directed towards strengthening and
clarifying the existing rules as well as developing  new rules and disciplines to respond to the ever-
changing features of international trade. The Czech Republic envisages that in all stages of the
negotiations a key role will be played by issues related to economic development and that the process
of undertaking new obligations will be supported by increased technical assistance to developing
countries.
Turning now to various negotiating topics, the Cz ech Republic is ready to take part in the
process of further reductions in support and protection in agriculture, provided that an appropriatebalance between the trade and non-trade concerns resulting from the Agreement on Agriculture is
preserved. At the same time, the Government expects that negotiations will take account of specific
conditions of countries like the Czech Republic, which underwent a radical and painful process of
transformation of their agricultural sectors and have achieved a high level of market opening, and will
therefore seek appropriate flexibility in the course  of negotiations on modalities for further reduction
commitments.PRESS/TPRB/174
Page 9
MOREIn negotiations aimed at achieving progressively higher levels of liberalisation in trade in
services, the Czech Republic supports the view that no service sector and no method of service
delivery should be a priori excluded. Appropriate procedures should be adopted to allow recognition
of unilateral liberalisation measures. The Czech Republic applies a whole range of such measures and
is ready – in negotiations on market access – to schedule their bindings, depending on the partners’
approaches and in exchange for their concessions.
The Czech Republic continues to hold the view th at issues relating to additional protection for
geographical indications are part of the mandated negotiations and that these negotiations also cover
an extension of the additional protection to products other than wines and spirits.  It is essential that
ministers in Doha mandate the WTO to complete negotiations related to geographical indications at
the same time as that applicable to other negotiating topics.
Liberalisation of trade in non-agricultural products should constitute, in addition to mandated
negotiations, another important pillar of the agenda aimed at improved market access. Thenegotiations should comprise all products or groups of products without prioritising which of them
would proceed more rapidly. Concrete procedures for establishing new commitments should result
from negotiations after Doha.
In addition to market access, the Round should lead to developing new rules in areas of
investment, competition, transparency in government procurement and trade facilitation. Since thebeginning of the discussions on such issues in the WTO in 1996, considerable progress has been
made, justifying to launch negotiations at present. The Czech Republic strongly supports such a
launch.
In the areas of investment and competition, the Czech Republic’s support for negotiations is
motivated by its specific experience as a country, which has completely restructured its system ofownership rights and deregulated its former centrally planned economy. Foreign direct investments,
on which WTO negotiations should focus, have played a key role in the process of economic
transformation, and their importance for further development of the economy is continuously
growing. This explains why the Czech Republic is committed to creating a stable contractual
framework which will provide a transparent, predictable and legally certain environment for foreigninvestors and concurrently will not undermine the regulatory powers of governments to pursue their
legitimate economic objectives. An appropriate, a GATS-like bottom-up negotiating approach should
be developed and applied to enable individual WTO Members to control the pace of liberalisation and
thus to take into account the Members particular economic conditions.
In the area of competition, negotiations should aim at a framework agreement based on the
principles of non-discrimination (national treatment and most-favoured nation approach) and
transparency, while fully respecting the development objectives. It should focus on prevention of anti-
competitive practices, having international dimension and hampering market access, and should
promote co-operation among national competition authorities. Existing diversity in national
approaches does not require harmonisation of domestic competition frameworks. It rather underlines
the importance of flexibility and progressivity as integral elements of a new WTO agreement.
The Czech Republic further considers it useful that an agreement be negotiated to ensure
transparency in government procurement procedures applied by Members, including the range of
applicability of such an agreement depending on types of trade, administrative levels of management
and other factors.
Negotiations should also be launched to establish a set of rules aimed at simplification and
facilitation of trade procedures. Such rules must be based on the non-discrimination principle inPRESS/TPRB/174
Page 10
respect of the administrative procedures and should lead to the substantial alleviation of customs
procedures, adoption of electronic data transmi ssions and overall improvement of transparency.
The Czech Republic is also ready to take part in negotiations carried out with a view to
strengthening and clarifying the already existing rules – for example, in the area of anti-dumping. It is
interested in updating the Understanding on Rules and Procedures Governing the Settlement of
Disputes that will take account of experience gain ed to date from implementing the dispute settlement
system.  Electronic commerce is another area in which the Czech Republic is ready to co-operate with
other Members with a view to creating the most favourable framework promoting electronic
transmissions.
Last but not least, the Czech Republic will support any effort enabling to inscribe the
interface between trade and environment on the agenda of the Round. Further liberalisation of rules
based international trade and protection of environment have to be tackled in a mutually supportive
manner,  without serving the purpose of green protectionism.
END