WT/TPR/S/89 Trade Policy Review
Page 12
II. DEVELOPMENTS IN TRADE AND INVESTMENT POLICY
(1) INSTITUTIONAL FRAMEWORK
(i) Institutional structure
1. The 1992 Constitution of the Czech Republic has been amended twice, in 1997 and 2000.
The amendment in 1997 provided for the establishment of 14 administrative and self-governing
districts/regions.  The districts/regions were established in January 2000 and the Government is in theprocess of redistributing powers between the different levels of administration.  The amendment in
2000 was motivated by the Czech Republic's membership in NATO.  An amendment to the
Constitution has been prepared providing for all treaties ratified by the Parliament to be an integral
part of the Czech legal system if such treaties are not implemented by a domestic law.  Currently, for
international treaties to apply in the Czech Republic they must be incorporated into nationallegislation by an Act of Parliament, except international treaties on human rights and fundamental
freedoms.  As a result of the enactment of the proposed amendment, international treaties would be
part of the Czech domestic legislation, and take precedence over domestic laws where they do not
conform.
Legislative powers2. The Constitution establishes a bicameral Parliament, consisting of the Chamber of Deputies
(lower house) and the Senate (upper house).
1  A resolution by a parliamentary chamber is passed by a
simple majority of deputies or senators present.  A constitutional bill or an international treaty on
human rights and fundamental freedoms must be passed by 60% of the total number of deputies and
60% of senators present.  Both Houses form standing and ad hoc Committees and Commissions to
discuss legislation or to control Government.2  The legislative process for the enactment of laws has
remained broadly as described in the previous Review of the Czech Republic in 1996.  The Chamberof Deputies amended its rules of procedure in 2000 to introduce a fast-track possibility for considering
EU-related legislation.
3. At Governmental level, various ministries and government offices are entitled to issue draft
bills.  Drafts are checked for compatibility with  EU legislation at CODEC before going to the
governmental Legislative Council and then to the Government itself.
3  Government-approved bills are
sent to the Chamber of Deputies.  Passage of a government resolution requires the consent of an
absolute majority of its members.  The Government  may, within the limits of the law, issue decrees
for the execution of a law.  If specifically authorized by law, ministries and other administrative
offices may issue legal regulations on the basis of the law.  Proposals on trade legislation are normally
considered by the Government before being sent to the Parliament.  The Government has exclusivelegislative initiative in terms of the State Budget.
The President
4. The President is elected by a joint session of both Chambers of Parliament for a five-year
period and may serve for a maximum of two consecu tive periods.  Presidential powers include the
right to appoint and remove the Prime Minister and, upon proposal of the Prime Minister, otherMinisters of the Government; and to dissolve the Chamber of Deputies.  The President also has the
right to appoint judges of the courts and negotiate and ratify international treaties, although (s)he may
                                                     
1 The composition of the Czech Parliament is explained in WTO (1996).
2 European Commission (1999a).
3 CODEC, the Department for compatibility with EU law, was set up in April 1993.Czech Republic WT/TPR/S/89
Page 13
transfer the responsibility for negotiation of intern ational agreements to the Government or, with its
approval, to its individual members.
The Government
5. The Government is the supreme body of the executive power.  It consists of the Prime
Minister, Deputy Prime Ministers and Ministers, and it  coordinates activities of the Ministries and the
central bodies of the State Administration.  The Government can be forced to resign by the Chamberof Deputies when a successful vote of no-confidence takes place.
The judiciary
6. The Constitution provides for full independence of the judiciary from the executive or
legislature.  The judicial system consists of four  tiers including the Supreme Court, two High Courts,
the Regional Courts, and District Courts.  The C onstitutional Court is separate from the system of
common courts.  Judges are nominated by the President for an unlimited period.  The Constitutional
Court can rule out any provision of law or governme ntal decision (central or local) that it finds
unconstitutional.  The Constitutional Court also decides whether laws, decrees and legally binding
regulations are consistent with other laws and international agreements.  Its decisions may not be
appealed (except those on the observance of human rights, which can be appealed to the EuropeanCourt on Human Rights).  The Constitutional Court can rule on disputes between state institutions and
can judge the President, based on Senate impeachment.  The other courts decide cases involving civil,
commercial (including competition) and criminal matters, and rule on the legality of decisions made
by administrative bodies.  They also settle lawsuits concerning international trade relations.  The
Constitution allows the Parliament to pass a law establishing a Supreme Administrative Court, which
would pass decisions on the annulment of legal regulations that may be at variance with existing law,
or on some issues concerning the scope of powers of State bodies and territorial self-administration.These powers are currently exercised by the Constitutional Court.
7. The slow functioning of the overburdened courts in commercial matters has been identified as
a major problem for investors.  The length of judicial proceedings and the backlog of cases are
substantial.  A lack of judicial expertise in commercial law as well as weak enforcement also impede
the business environment, and have given rise to questions of governance.
4
8. Aware that the business environment might be being negatively affected, the Czech
Government is taking steps to address issues of governance.  At the international level, the Czech
Republic ratified, in January 2000, the OECD Conv ention on Combatting Bribery of Foreign Public
Officials in International Business Transactions;  in  September 2000 it also ratified the Council of
Europe Criminal Law Convention on Corruption.  At the national level, the Ministry of Justice hasallocated additional funds for the establishment of  a specialized unit dealing with economic crime.
These measures can be expected to help bring greater accountability of managers, especially if the
measures are accompanied by a speedier functioning of the legal system.
5
(ii) Policy formulation and implementation6
9. The main characteristics of Czech institutions have remained broadly the same as described in
1996.7  The Ministry of Industry and Trade (MIT) remains the main governmental body responsible
                                                     
4 See for example, European Commission (2000); and IMPACT global (undated).
5 According to the European Commission, in the first half of 2000, the average length of civil
proceedings in courts of first instance was 563 days.
6 Details are provided in Chapters III, IV and V.WT/TPR/S/89 Trade Policy Review
Page 14
for the formulation, co-coordination and implementation of trade policies.  It is responsible for the co-
ordination of bilateral and multilateral trade negotiations and the implementation of obligations
resulting from these negotiations, including those under the WTO and the EU.  The MIT operates the
foreign trade licensing regime and exercises control over the marketing and testing of rare metal.  It
also supervises the Czech Energy Inspection Author ity, the Czech Trade Inspection Authority, the
Patent Office, and the Licensing Office.  During the period under review, the MIT has taken oversome of the responsibilities of the former Ministry of Economy, which was abolished in 1996.  These
responsibilities include acting as the central body for matters concerning small and medium-sized
enterprises, technical standardization, metrology and testing, industrial research, technical
development, and export promotion.
10. The General Directorate of Customs (under the Ministry of Finance) is responsible for
customs control and enforcement, investigations, and the collection and development of data.  MIT is
charged with initiating and conducting investigations related to anti-dumping and safeguard measures,
while the Ministry of Finance is responsible for the management of countervailing measures.  The
Czech Office for Standards, Metrology and Testing (COSMT) is the co-ordinating state body
responsible for approving standards;  the preparation, approval and publication is under theresponsibility of the Czech Standards Institute (CSI).  Privatization policy is under the responsibility
of the Ministry of Finance since June 1996, when the Ministry for the Administration of National
Property and its Privatisation was abolished.  The body responsible for supervising adherence to
competition regulation is the Office for the Protection of Economic Competition, which assumed the
activities of the former Ministry of Economic Competition on 1 November 1996.  The Office has also
taken the state aid monitoring role from the Ministry of Finance.  The Industrial Property Office is in
charge of industrial property administration, and the Ministry of Culture is in charge of theadministration of copyright.  The Ministry of Agriculture is responsible for agricultural trade policy
formulation, notably with regard to the State Agriculture Intervention Fund.  The Ministry of
Regional Development, established in November 1996, is responsible for matters of regional
development, housing policy, construction order, public procurement, and tourism (the latter activity
had previously been dealt with by the Ministry of Economy).  The Ministry of Transport andCommunications assumed responsibility in 1996 (from the Ministry of Economy) for
telecommunications and transport services, while the Ministry of Finance plays a central role in many
services as well as in industrial sectors.
(iii) Transparency and openness of decision making
8
11. Open access to information is guaranteed by law.  All regulations – including laws, decrees,
orders and reports of the Constitutional Court – are required to be published in the Collection of Laws
before they enter into force.  If available, non-of ficial English translations of regulations are also
published.  The principle of transparency was reinforced in 1999 by providing the right of access to
administrative documents (Act No. 106/1999 Coll. on Freedom of Access to Information).  Moreover,
the Czech authorities increasingly use the Internet  to publish draft regulations or decrees.  An
electronic gateway, providing a common access to all sources of information, was introduced in 2001.
12. Consultations take place through various channels.  Inter-governmental consultations are
regulated by the Legislative Rules of the Government and the Government Rules of Procedures.
According to the rules, draft regulations must be sent to other ministries and the central bank for
comments.   Drafts of labour-related legislation must be commented on by the Tripartite Council (an
advisory body consisting of the Government, trade unions, and employers).  In the area of technical
regulations and standards, the ministries are required to organize public consultations in the process of
                                                                                                                                                                    
7 WTO (1996).
8 This section is based on OECD (2001).Czech Republic WT/TPR/S/89
Page 15
preparing the regulations.  As in 1996, there are no formal arrangements for channelling economic
and trade policy advice from academia or from the private sector to the relevant government bodies.
However, the rules invite ministries to organize consultation with interested parties.  In practice,
comments are sometimes sought from the Economic Chamber, the Confederation of Industry and
Transport, business associations, consumer groups, and other non-governmental associations.  This
process of consultation has intensified in recent years.
(iv) Main laws and regulations
13. The Czech Republic has enacted a large number of trade and trade-related laws and
regulations, and has also amended existing laws during the period under review, with an acceleration
of the legislative process in 2000 (Table II.1).   Many of the changes were made with a view to
harmonizing the legal fr amework with the EU acquis communautaire .
Table II.1
Promulgation of laws and treaties, 1993-2000
1993 1994 1995 1996 1997 1998 1999 2000
Number of laws promulgateda283 213 250 224 265 252 298 505
Number of treaties promulgatedb54 63 68 103 92 83 75 144
Total laws and treaties 347 276 318 327 357 335 373 649
- trade and trade-related 124 102 109 129 133 112 149 258
- EU-related (fully harmonized) 3 3 22 28 72 34 33 59
- EU-related 17 24 35 39 86 55 124 197
a Including Acts, Constitutional Acts, Decrees, Decisions of the President, Government Regulations, Findings of the Constitution al
Court, Resolutions of the Chamber of Deputies, but excluding Measures and Notices of Central Bodies.
b Communications of the Ministry of Foreign Affairs.
Source : Information provided by the Czech authorities (Collec tions of Laws, Collection of International Treaties,
Department of Compatibility of the Office of Government).
14. The main legislation related to international trade includes the Commercial Code, the
Customs Act, and the newly enacted Act on Some Measures in the Export or Import of Products and
on the Licensing Procedures, which provides the legal basis for the regulation and development of
foreign trade and corporate activities (Table II.2).  The latter law regulates procedures on, inter alia ,
imports under licensing, protection against increased imports, protection against imports of some
agricultural products and foodstuffs, and protection of newly developed sectors and of state interest.
During the period under review, the Czech Republic has also introduced specific legislation on
contingency measures (anti-dumping, countervailin g and safeguard measures), but whether the Czech
Republic will be an active user of the legislation remains to be seen.  A new law on standardsprovides for simplified testing and standardization procedures.  The monitoring system of state aid has
been strengthened as a result of the enactment of  two new laws, and an incentive package for foreign
investors has been introduced.  Amendments to government procurement legislation provide for
enhanced transparency, but regulations continue to make it possible to provide some advantages to
domestic firms.  Competition rules and intellectual property rights legislation have been strengthenedduring the period under review.  The bankruptcy la w has been amended several times with a view to
enhancing enterprise restructuring.  The new law on Public Auction provides for a broadened range of
property subject to non-judicial auction procedures and potentially streamlines the foreclosures
process.  Nevertheless, the bankruptcy law, coupled with a weak judicial system, continues to impose
obstacles to restructuring.WT/TPR/S/89 Trade Policy Review
Page 16
Table II.2
The Czech Republic's main legislation related to trade, April 2001
Area Main legislation
Main trade legislation on
exports and importsAct No. 513/1991 Coll. on Commercial Code;  Act No. 13/1993 Coll. on Customs;  Act No. 62/2000 Coll.
on Some Measures in the Export or Import of Products and on the Licensing Procedures;  Act No. 38/1994
to Regulate Trade in Military Material with Foreign Countries;  Act No. 21/1997 on the Control of Export
and Import of Goods and Technological Products Subjected to International Control
Anti-dumping duties Act No. 152/1997 Coll. on the Protection Against Imports of Dumped Products
Countervailing duties Act No. 63/2000 on Protection Against Subsidized Imports and Amending some Other Acts
Safeguard measures Act No. 62/2000 Coll. on Some Measures in the Export or Import of Products and on the Licensing
Procedures
Standards and technical
regulationsAct No. 30/1968 on Products Requiring Approval by a State Testing Laboratory Before Entering
Circulation;  Act No. 64/1986 on Czech Trade Inspection;  Act No. 142/1991 on Procedures for SettingStandards;  Act No. 634/1992 Coll. on Protection of Consumers;  Act No. 22/1997 on Technical
Requirements for Products;  Act No. 59/1998 Coll. on Liability for Damages Caused by Product Defects
Sanitary and phytosanitary
measuresAct No. 20/1966 on People's Health;  Act No. 147/1996 Coll. on Phytosanitary Care;  Act No. 166/1999 on
Veterinary Care
Government procurement Act No. 199/1994 Coll. on Public Procurement
Customs free zones Act No. 13/1993 Coll. on Customs;  Act No. 72/2000 Coll. on Investment Incentive Act
Privatization Act No. 427/1990 on Small-scale Privatization;  Act No. 92/1991 on Large-scale Privatization
Bankruptcy Act No. 328/1991 Coll. on Bankruptcy and Settlement, Act No. 120/2001 Coll. on Execution Procedures
Code
Public Auction Act No. 26/2000 Coll. on Public Auction
Competition Act No. 63/1991 Coll. on the Protection of Economic Competition
State aid Act No. 59/2000 Coll. on State Aid;  Act No. 248/200 Coll. on Support to Regional Development;  Act
No. 72/2000 Coll. on Investment Incentive;  Act No. 586/1992 Coll. on Income Tax;   Act No. 58/1995
Coll. on Insurance and Financing with State Support;  Act No. 58/1995 Coll. on Export Insurance andFinancing with State Support;  Act No. 300/1992 Coll. on State Support for Research and Development;
Act No. 388/1991 Coll. on State Environmental Fund;  Act No. 241/1992 on State Fund of the Czech
Republic to Assist and Promote Czech Cinematography
Intellectual property rights Act No. 35/1965 on Literary, Scientific and Artistic Works (the Copyright Act);  Act No. 121/2000 C oll.
on Copyright, Rights Related to Copyright and on the Amendment of Certain Laws;  Act No. 527/1990 on
Inventions, Industrial Designs and Rationalization Proposals;  Act No. 529/1991 on Protection of
Topographies of Semi-conductor Products;  Act No. 137/1995 on Trademarks;  Act No. 159/1973 on
Protection of Appellations of Origin;  Act No. 132/1989 on New Plant and Animal Variety Protection;  Act
No. 478/1992 on Utility Models
Price control Act No. 526/1990 on Price
Tax system Act. No. 212/1992 on the Tax System;  Act No. 588/1992 on Value-added Tax;  Act No. 587/1992 on
Excise Tax
Foreign investment No law specifically for foreign investors.  Some basic legislation that needs to be observed include Act
No. 513/1991 Coll. on Commercial Code;  Act No. 455/19991 on Trade Licensing;  and Act No. 219/1995
on Foreign Exchange, while individual laws define the specific features of certain kinds of business
Source : Czech authorities.
(2) DEVELOPMENTS IN INTERNATIONAL RELATIONS
(i) World Trade Organization
15. The Czech Republic, a founding member of the WTO, made extensive commitments during
the Uruguay Round, both in goods and services (Box II.1).  During the period under review, it has
continued to undertake major commitments within the multilateral framework.  In 1997, it became a
participant to the WTO Declaration on Trade in Information Technology Products (commonly
referred to as the Information Technology Agreement (I TA)).  In this context, it agreed to eliminate
tariffs by 2002 on a range of imported information technology products covering 359 (eight-digit)tariff lines, including computers, telecommunications equipment, semiconductors, software, and
scientific instruments.  In 1996 and 1998 the Czech Republic made further concessions onCzech Republic WT/TPR/S/89
Page 17
pharmaceutical products under the Pharmaceutical Initiative.9  It also participated in the 1997 WTO
negotiations on basic telecommunications and on financial services.  Regarding the Agreement on
Government Procurement, at the time of the previous Review the Czech Republic had indicated that it
was considering the possibility of joining; this did not materialize.  However, the Czech Republic
participates as an observer in the Committee on Government Procurement since August 2000.  The
Czech Republic has not yet joined the Agreement in Trade in Civil Aircraft.  Its intention is to accedeto both plurilateral agreements by the time of its accession to the EU.  The most recent WTO
notifications by the Czech Republic are presented in Table AII.1.
Box II.1:  Main commitments under the Uruguay Round
The Czech and Slovak Federal Republic (CSFR) was an original member of the GATT.  As its membership
of the GATT predated the period of central planning,  the Czech Republic acceded to the GATT under normal
market economy conditions in April 1993 following the dissolution of the CSFR (the GATT Protocol iscontained in GATT document L/7183, March 1993).  The General Agreement and relevant instruments wereapplied on an interim basis prior to the formal accession.
The Czech Republic is a founding Member of the WTO.  The WTO Agreement was approved by Parliament,ratified by the President, and promulgated in the Collection of Laws (No. 191/1995 Coll.).
The Czech Republic's main commitments on trade in goods  in the Uruguay Round were to:  (i) increase the
share of bound tariff lines from 97% to 100% – almost all applied rates are currently at bound rates;(ii) reduce the simple average MFN tariff rate from a base rate of 8.2% to 6.3%; (iii) replace variable levies
on several agricultural goods with bound ad valorem  tariffs; (iv) limit domestic support to agriculture by 20%
in value terms by 2000; and (v) cut agricultural subsidies on 15 agricultural product groups (including dairyproducts, malt, beef, and poultry and eggs) by 36% in value and 21% in volume.
In services , the Czech Republic undertook a relatively large number of obligations.   Its schedule covers 81
activities out of a total of 161 in nine sectors.  Sector-specific commitments on market access and nationaltreatment were made in areas such as professional serv ices and distribution services.  Horizontal limitations
applying across all scheduled service sectors were made regarding the acquisition of real estate and the
presence of foreign natural persons.  MFN exemptions apply to audio-visual services and some forms ofpassenger and freight transportation.
Source: WTO (1996), Trade Policy Review – Czech Republic; and GATT (1994), The Results of the Uruguay
Round of Multilateral Trade Negotiations.
16. The Czech Republic has been involved as a complainant in one consultation in the WTO.
The dispute concerned the imposition of quantitative restrictions by Hungary on a broad range of steel
products from the Czech Republic.10  The Czech Republic was a respondent in one case initiated by
Hungary.  The dispute was in respect of a regulation adopted by the Czech Republic that allegedly
increased the import duty on wheat originating in Hungary, exceeding the bound rates.11  In both
cases, the disputes were resolved through bilateral consultations.
17. In the multilateral trading system, the Czech Republic is concerned by a number of measures
maintained by importing countries. In the area of anti-dumping, Czech exports face duties on:
seamless steel pipes and tubes, polypropylene binder or baler twine and malleable cast iron tube or
pipe fittings in the EU; certain pipes in the United States; gauge shotshells in Canada; and industrialsewing machine needles, sodium cyanide, and seamless tubes in India.  Moreover, the Czech
                                                     
9 WTO documents G/MA/W/10, 11 October 1996 and G/MA/W/18, 13 November 1998.
10 WTO document WT/DS159/1, 27 January 1999.
11 WTO document WT/DS148/1, 15 October 1998.WT/TPR/S/89 Trade Policy Review
Page 18
Republic's exports of textiles and clothing are restricted by Canada and the United States under the
Agreement on Textiles and Clothing.
18. At the WTO Ministerial meeting in Seattle, the Czech Republic reiterated its support for a
comprehensive, time-bound round of multilateral trade negotiations based on the principle of a single
undertaking.12  The authorities are of the view that only a sufficiently broad-based agenda, covering
market access and rule making, could produce satisfactory results.  On agriculture, experience gainedthrough the implementation of the reduction commitments has shown the differences in the levels of
effective market openings.  These differences need to be narrowed down in the next round of
negotiations.  Also, new commitments on agricultural tariff reductions should take into account the
degree of market openness.  The Czech Republic attaches great importance to the timely
implementation of the WTO Agreements.  At the same time, the problems encountered by developingcountries in their efforts to cope with Uruguay Round commitments need to be settled in appropriate
mechanisms.  On intellectual property, the Czech Republic seeks to expand the additional protection
for geographical indications to other products than wines and spirits. It is also interested in developing
multilateral rules on foreign direct investment, competition, trade facilitation, and transparency in
government procurement.  The Czech Republic does not support the establishment of any institutionallinks between trade and labour or the inclusion of the issue in the next round.
(ii) Regional agreements
(a) Relations with the Slovak Republic
19. The Customs Union Agreement between the Czech and Slovak Republics entered into force
in 1993 (Table AII.2).
13 It preserves the status quo at the moment of the creation of the Czech
Republic and the Slovak Republic as it provides for a common external tariff and free trade, with a
few exceptions, between the two countries.  The Agreement, inter alia , also stipulates:
− no discrimination between State enterprises and monopolies in government procurement or
marketing between the two countr ies by the end of 1997.  National treatment is to apply and
the two parties are to "endeavour to accede" to the WTO's Agreement on Government
Procurement;
− anti-competitive practices and the abuse of monopoly positions (as defined by national
legislation) are incompatible with the Agreement;
− national and MFN treatment are established in the area of intellectual property protection;
− conforming legal norms are to be adopted with regard to customs procedures and statistics,
import and export licensing, intellectual property, and anti-dumping and countervailing
duties;
− regulations are to be co-ordinated in the areas of foreign exchange, economic competition,
State aid, public procurement and agricultural policies (including export subsidies, prices and
domestic support);
− conforming commercial policy towards third countries (including non-tariff barriers, export
policy, and action against dumping and subsidies) is to be pursued;
                                                     
12 WTO document WT/MIN(99)/ST/46, 1 December 1999.
13 The text of the Agreement is contained in GATT documents L/7212, 30 April 1993 and
L/7212/Add.1, 12 May 1993.Czech Republic WT/TPR/S/89
Page 19
− free trade in services, including national treatment, is to prevail;  and
− each contracting party collects customs duties for its respective budget.
20. Since the previous Review in 1996, the rules of origin have been amended.  In January 1997,
rules of origin based on the pan-European system of cumulation were introduced.  An agreement
between the Czech Office of Standards, Meteorology and Testing and the Office for Standardization,
Meteorology and Testing of the Slovak Republic entered into force in September 1997, providing for
cooperation in the area of certification and state trading.14  Although trade in agricultural and food
products has proved to be a sensitive bilateral issue during the period under review, the parties havelargely managed to preserve free trade in agricultural products.  In this regard, the only quantitative
restrictions maintained by the Czech Republic apply to imports of sugar and isoglucose, while the
Slovak Republic restricts imports of non-alcoholic beverages, beer, and sugar.
21. The customs union is unusual in several respects and deviates from most other cases of
regional integration.  First, it does not provide for the free flow, between the parties, of goods
originating in third countries.  The rules of orig in applied are those used by the parties in their
agreements with the EFTA States (Chapter III(1)(ii)).  Second, import limits on products subject to
non-automatic licensing vary between the two countr ies,  as do the import volumes from developing
countries eligible for GSP, as well as imports elig ible for tariff quotas.  Third, during the review
period Czech exports of goods to Slovakia faced a temporary import surcharge.  The surcharge, whichwas introduced in March 1994, was reduced in several steps until it was eliminated in January 2001.
Another feature of the customs union is the decline of the share of bilateral trade in total trade
(Tables I.3 and I.4).  Finally, in case of earlier accession of the Czech Republic to the EU, the customs
union is to be dismantled before the Czech Republic joins the EU.
(b) Relations with the European Union (EU)
22. In recent years, the Czech Republic's reform agenda has been driven by its goal of EU
membership.  The strive towards EU membership has provided a fresh opportunity forimplementation of important reforms to strengthen economic growth.  The World Bank noted that
joining the EU makes the country potentially less risky, as membership assures well-defined property
rights, levels of competition, and a coherent-state aid policy.
15 EU harmonization, which requires
absorption of the EU acquis communautaire , is well under way.
Trade and related aspects of the Europe Agreement23. The first Europe Agreement establishing an association between the European Communities
(and their Member States) and the Czech and Slovak Federal Republic (CSFR) was signed in
December 1991.  Some of the provisions of this Agreement (such as on trade) were put into operation
on 1 March 1992 in the form of the Interim Agreement, which was valid until it was replaced by the
Europe Agreement.  Following the dissolution of the CSFR, the Czech Republic renegotiated theEurope Agreement with the European Commun ity.  A new agreement entered into force on
1 February 1995.  Trade-related elements of the former CSFR/EC Agreement were not affected by the
renegotiation.
                                                     
14 WTO document WT/REG89/R/B/1, 14 March 2000.
15 World Bank (1999a).WT/TPR/S/89 Trade Policy Review
Page 20
24. In the area of trade and related aspects, implementation of the Europe Agreement brought the
following results16:
− phased liberalization of trade in industrial products : the method applied by the EU on Czech
products was the elimination of duties by the end of 1996 with most duties eliminated upon
entry into force. The method applied by the Czech Republic on EU products was the
elimination of duties by the end of 1996, with a slower pace of elimination than the EU;
duties on a few items (such as some chemical products, some plastics, some textiles andclothing, and passenger cars) were eliminated by the end of 2000;
− elimination of quantitative restrictions  by the EU from March 1992, except on textiles and
clothing until January 1998 and for ECSC coal products until January 1994. Import
restrictions by the Czech Republic on uranium ores and concentrates, natural and enriched
uranium, waste and scrap of paper, and ferr ous and other waste and scrap were gradually
lifted, the last of them by the end of 2000;
− full or partial liberalization in agriculture :  As a result of an enhanced preferential regime,
which entered into force on 1 July 2000, close to half of the bilateral trade in agriculturalproducts benefits from preferences.
17  The methods applied by the EU on selected Czech
products are:  (i) tariff quotas with constant volumes or with pre-set annual increase;
(ii) tariff preferences;  (iii) tariff preferences dependent on minimum import-price
arrangements;  and (iv) tariff quotas with variable quota and enforced on a plurilateral basis.The methods applied by the Czech Republic on selected EU products are preferential rates of
duty and tariff quotas.  For processed agricultural goods and fishery products, negotiations are
ongoing;
− the progressive liberalization of the supply of services  across national borders including the
granting of national treatment for rights of establishment (temporary derogation for financial
services for up to ten years in the Czech Republic) and some general exemptions, such as forair and inland-waterway transport.  Steps ar e being undertaken to liberalize the temporary
movement of personnel among the parties;   and
− WTO consistent  anti-dumping, countervailing, and  safeguard measures are allowed.
25. During the period under review, the rules of origin have been amended and agreements have
been reached in the area of standards.  In January 1997, the system of pan-European cumulation of
origin entered into force.  The implementation of  this origin network implies that semi-finished
products originating in any other partner country may be considered as originating products.  It also
implies that originating products can be traded be tween any of the countries involved in the system.
A Protocol to the Europe Agreem ent concerning sanitary, phytosanitary, and animal welfare measures
in relation to trade entered into force in August 1998.  The objective of the Protocol is to facilitate
trade in live animals, animal products, plants and plant products pending the finalization of the
approximation of laws.  A Protocol on conformity assessment and acceptance of industrial products
has been concluded and is expected to enter into force in 2001.
26. The trade preferences between the Czech Republic and the EU have contributed to the EU
being not only the most important market for the Czech Republic, but also one of the main sources of
                                                     
16 For details see WTO (1996).  The text of the agreement is contained in WTO document
WT/REG18/6, 10 May 1996.
17 European Commission (2000) .Czech Republic WT/TPR/S/89
Page 21
imported goods (Chart II.1).  As trade in industrial products has already been liberalized, further
integration between the EU during the accession process may have limited effects on trade in
industrial products.  However, trade potential in services and agriculture is yet to be explored.
010203040506070
1993 1996 200005101520253035
010203040506070
1993 1996 200005101520253035Chart II.1
Trade with free-trade agreement partners, 1993-2000
(a) Exports (f.o.b.)
Per cent of total exports(b) Imports (f.o.b)
US$ billion Per cent of total imports US$ billion
EU EFTA CEFTA Other FTA partners
Note:
Source:The category "Other FTA partners" includes  Estonia, Latvia, Lithuania, Israel, and Turkey.
UNSD, Comtrade database.Total exports
(right-hand scale)Total imports
(right-hand scale)
Steps towards EU accession
27. In January 1996, the Czech Republic became the ninth Central and Eastern European Country
(CEEC) to apply for EU membership.18  The European Commission published its first opinion on the
Czech Republic's preparedness to join the EU in July 1997.  Subsequently, at the Luxembourg
European Council meeting  (1997) the Czech Republic and five other applicant States ("first wave" of
countries) were invited to launch an accession process to the EU.19  In July 1997 the Commission
recommended that negotiations with the Czech Republic should be opened.
28. The Czech Republic has drawn up a National Programme for the Preparation of the Czech
Republic for membership in the European Uni on (National Programme for the Adoption of the
Acquis, NPAA) as an instrument for further intensification of the development of national
prerequisites and conditions for integration into the EU.  The NPAA, composed of 26 chapters, was
approved by the Government and presented in March 1998, the same day that negotiations on Czech
membership began.  In June 2000, the Czech Republic presented a revised NPAA;  the 2001 revision
is under preparation.
                                                     
18 Following Hungary, Poland, Romania, Slovakia, Latvia, Estonia, Lithuania, and Bulgaria, in that
order.
19 The first wave countries are the Czech Republic, Cyprus, Estonia, Hungary, Poland, and Slovenia.WT/TPR/S/89 Trade Policy Review
Page 22
29. The negotiation focuses on the acquis communautaire , the body of laws and regulations that
underpins the EU.  It is composed of 31 chapters, covering, for example, policies in specific sectors,
social polices, external relations, customs union, and economic and monetary union.  Regarding
economic and monetary union, the candidate countries are not expected to become full members of
the EMU, adopt specific exchange rate regimes, or meet the convergence requirements set out in the
Maastricht Treaty, as precondition for EU membership.  They are likely to enter the EU withderogations regarding these aspects of the acquis communautaire .
20  The bilateral negotiation works
through the chapters, starting with the "screening process" in which each country sets outs its position
(including proposed derogation from the acquis  communautaire  or transitional periods).  As with the
other "first wave" countries, there are no commitments as to the precise date of accession.
30. As part of the accession process, the European Commission undertakes periodic reviews of
the candidates' progress.   The first report on the Czech Republic, published in November 1998, noted
that the Czech Republic "should be able to take on the obligations of the membership provided that
the momentum in the adoption of the acquis  communautaire  and the strengthening of related
administrative structures is resumed rapidly".21  A second report, released in October 1999, noted that
"The pace of legislative alignment in the Czech Republic has not picked up significantly and progressis uneven across sectors….  Attention should also be paid to developing an effective policy to combat
economic crime and corruption".
22  The third report, published in November 2000, noted that there
had been a signficant acceleration in the rate of legislative alignment with the acquis communautaire ,
although further efforts were needed in a number of areas.  The report also pointed out that the fight
against corruption has been insufficient.23
31. By April 2001, negotiations had been opened for 29 chapters, and 15 had been provisionally
closed (science and research, education and training, small and medium-sized enterprises, statistics,industrial policy, telecommunications, fisheries, consumer protection, free movement of goods,
customs union, external relations, common foreign and security policy, EMU, free movement of
services, and company law).  Negotiations continue for the remaining chapters.  The areas that pose
most problems include agriculture, regional policies, and the free movement of labour.
32. One of the main challenges facing the Czech Republic is the need to strengthen its
administrative capacity to implement and enforce the acquis communautaire .  To assist in this
process, the EU member countries are involved in the process of twinning with Czech administrations
and agencies.
(c) Central European Free Trade Agreement (CEFTA)
33. The Czech Republic, along with Hungary, Poland, and the Slovak Republic, is a founding
member of CEFTA, which was established in 1992. During the review period, the CEFTA has
expanded its membership, accelerated the liberalization process, and introduced a new system of rules
of origin.
24  Slovenia joined on 1 January 1996, Romania on 1 July 1997, and Bulgaria on 1 January
1999.25  The primary objective of CEFTA is to establish a free-trade area by the end of 2001
                                                     
20 IMF (2000e) .
21 European Commission (1998) .
22 European Commission (1999b).
23 European Commission (2000).
24 The original text of the agreement is contained in GATT document L/7495/Add.1, 30 June 1994.
25 The Czech Republic had already signed bilateral free-trade agreements with Bulgaria on
15 December 1995 (WTO document WT/REG41/1, 29 May 1997), Romania on 24 October 1994  (WTOdocument WT/REG26/1, 7 June  1996); and with Slovenia on 4 December 1993 (GATT documentCzech Republic WT/TPR/S/89
Page 23
(Table AII.2).  It is based on a system of bilateral liberalization schedules, which eliminate trade
barriers symmetrically between members.  All parties to the CEFTA Agreement had already
negotiated their association agreement with the EU  prior to the signing of the CEFTA.  Thus,
liberalization of trade under CEFTA was primarily concerned with the prevention of the mutual trade
discrimination that could have occurred if, upon thei r entry into force, the Europe Agreements had not
been accompanied by similar agreements concluded among the countries of Central Europe.
34. The Agreement covers all goods (HS Chapters 1-97), except for a few agricultural items.
Some 94% of the Czech Republic's total tariff lines are covered by concessions under CEFTA.26  In
September 1996, it was decided that customs duties on most industrial products were to be abolished
by 1 January 1997 (instead of 1 January 2001)27, except on a few items (such as cars), by 1 January
2002.28  In the area of agriculture, progress on an accelerated liberalization timetable is yet to be
achieved.29  According to the original Agreement, th e parties have negotiated tariff concessions,
subject to quotas, on such goods.  Two tariff reduction schemes have been applied on agricultural
products.  In 1997, tariff preferences applied to four fifths of trade in agriculture between the Czech
Republic, Hungary, Poland, Romania, and the Slovak Republic.
35. Import quotas on industrial goods were abolished on the date of entry into force, with some
exceptions.  The Czech Republic undertook to abolish quantitative restrictions on all industrial
products, except for uranium or thorium ores, natural or enriched uranium, waste and scrap paper or
paperboard, and ferrous waste and scrap, on which quotas will be removed by 2002.  Czech
quantitative restrictions (in the form of export licences) on certain mining products, iron and steel,
electrical energy, medicaments, fertilizers, hides and skins, wood, and musical instruments were
removed in January 1997.30
36. In 1997, rules of origin were harmonized with the rules applied within the European Union,
allowing multilateral cumulation among the CEFTA countries and participants in the pan-European
diagonal cumulation of origin.
(d) European Free Trade Agreement (EFTA)
37. The Agreement between the EFTA States and the CSFR came into effect on 1 July 1992 and
the Czech Republic and Slovakia each succeeded to the Agreement following the dissolution of theCSFR.
31  The share of EFTA members States (Iceland, Liechtenstein, Norway and Switzerland) in
Czech trade was 2.2% in 2000 (Chart II.1).
38. The Agreement covers mainly trade in industrial products as well as some marine and
processed agricultural products (Table AII.2). EFTA members eliminated customs duties on most
                                                                                                                                                                    
L/7447/Add.1, 4 May 1994).  From the date of the application of the CEFTA, the bilateral free-trade agreements
ceased to be applied (WTO document WT/REG11/2, 30 October 1997).
26 WTO document WT/REG11/9/Add.3, 5 August 1998.
27 Additional Protocol No. 5 signed on 13 September 1996 [Online]. Available at:
http://www.cefta.org/agreemnt [26 September 2000].
28 Automobiles of ten years or older and chassis and bodies thereof, utility cars of six years and older,
two-stroke engines for automobiles, and certain automobiles with two-stroke engines (WTO documentWT/REG11/9, 16 February 1998).
29 Additional Protocol No. 6 contains a draft of libe ralization of trade in agricultural and food products
between the initial CEFTA member countries and the Republic of Slovenia.  Available online at:http://www.cefta.org/agreemnt.
30 WTO (1996).
31  The text of the Agreement is contained in GATT document L/7041/Add.1, 3 July 1992.WT/TPR/S/89 Trade Policy Review
Page 24
Czech imports with the entry into force of the Agreement in November 1993.32  Under the Czech
Republic's transitional period, tariff duties and quantitative restrictions on EFTA imports were
gradually phased out, starting on the date of entry into force of the Agreement, and ending by
1 January 2001.  All export taxes were abolished upon entry into force of the Agreement with a few
exceptions eliminated in 1996.  In the area of agriculture, the Czech Republic has bilateral
arrangements with individual EFTA members that either remove or lower tariffs on certain products.Quantitative restrictions on bilateral imports and exports were abolished on the entry into force of the
Agreement.
33
39. During the review period, EFTA members have adopted the rules of origin on pan-European
cumulation, in 1997.  Other amendments to the agreement include enhanced concessions in the trade
of processed agricultural products.34
(iii) Bilateral agreements
40. Before it can join the EU, the Czech Republic has to adopt all the preferential agreements
concluded by the EU with third countries.  Since its previous Review, the Czech Republic has
concluded free-trade agreements with Estonia, Latvia, Lithuania, Israel, and Turkey, while continuing
liberalization within the framework of the existing free-trade agreements.35  All agreements provide
for phased reduction of tariff duties on industrial products, with duty-free entry by January 2001 at the
latest.  The agreements also provide for liberalization in agricultural trade, also in the form of tariff
quotas.  Table AII.2 provides an overview of th e key features of the Czech Republic's bilateral
preferential trade agreements.
(iv) Unilateral tariff preferences
41. The Czech Republic grants Generalized System of Preferences (GSP) treatment to
87 developing countries and 48 least developed countries.36  Imports from developing countries are
classified into three groups: (i) non-sensitive products, equivalent to 15.3% of tariff lines, entering at a
preferential duty free rate; (ii) less sensitive products, equivalent to 28.7% of tariff lines, facing a
tariff equal to 50% of the MFN rate; and (iii) sensitive products, equivalent to about 56% of all tariff
lines, receiving no preferences, including mainly agricultural products but also certain industrial
products (such as mineral products, fertilizers, pulp of wood, carpets, most footwear, umbrellas, and
                                                     
32 The main exceptions were tariffs maintained by Norway on some polymer products until 1996 and,
along with quotas, on textiles and clothing until end 1997; and tariffs on oil products imposed by Iceland.
33 Exceptions included:  (i) EFTA imports: brooms and brushes imported into Iceland (phased out by
1 January 2001) and some categories of textiles imported into Norway (phased out by 31 December 1997);(ii) Czech imports: including uranium or thorium ores and concentrates; natural or enriched uranium and its
compounds, alloys, and products; waste and scrap of pa per or paperboard; and ferrous waste and scrap and
remelting scrap ingots of iron and steel (phased out by 1 January 2001); (iii) EFTA exports: all ferrous waste
and scrap and remelting scrap ingots of iron or steel exported from Liechtenstein and Switzerland (phased outby 10 June 1998);  and (iv) Czech exports:  many minerals and mining products, hides and skins, woodproducts, and musical instruments (phased out by 1 January 1998).
34 For further details see WTO document WT/REG87/R/B/1, 6 March 2000.
35 The text of the agreements is contained in the following WTO documents: WT/REG62/1, 6 August
1998 (Estonia), WT/REG45/1, 13 November 1997 (Latvia), WT/REG46/1, 13 November 1997 (Lithuania),
WT/REG56/2, 21 April 1998 (Israel), and WT/REG67/1, 24 March 1999 (Turkey).
36 The Czech Republic follows the United Nations  Conference on Trade and Development (UNCTAD)
definition of least-developed countries.  For a listing of the countries see UNCTAD online information.Available at: http://www.unctad.org/en/subsites/ldcs/country/sub1.htmCzech Republic WT/TPR/S/89
Page 25
iron and steel).37  Regarding products from least developed countries, all products are granted duty-
free and quota-free access under the scheme.  GSP imports from least developed countries account for
a minor share (0.06%) of total Czech merchandise imports.  Preferences are granted only if the
products can fulfil the rules of origin requirement (Chapter III(1)(ii)).
(3) DEVELOPMENTS IN FOREIGN INVESTMENT REGIME
Domestic regulatory regime
42. 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
standards for equal treatment of foreign and domestic investors, and restrictions on special investment
incentives.  As a result, foreign and domestic investors are basically treated identically and are both
subject to the same tax codes and other laws (Table II.2).38  Under the Commercial Code, foreign
investors can establish themselves in the Czech Re public as a limited liability company, joint-stock
company, branch of a foreign company, limited partnership or co-operative or sole proprietorship.
The most common types used by foreign invest ors are joint-stock companies, limited liability
companies, and branches.
43. Foreign investment in some sectors (mainly services) remains restricted or controlled
(Table II.3).  The areas closed to foreign investors by law are those covering some financial sector
services, real estate, air and road transport, inland waterway freights, architectural and engineering
services, and certain gaming.  Investments in broadcast media and banking require a licence, while
investments in cable and satellite media require registration.  The Government also screens foreign
investment projects in the petrochemical industry.  For most forms of business, a Czech language
requirement for trade licences has been in place since 1995.  This requirement can be fulfilled by a
Czech partner.39
44. The Czech Republic has signed bilateral investment treaties for the protection and promotion
of foreign direct investment with most of its trading partners (71 countries as of October 2000; 29
have been signed since March 1996).40  These treaties mainly regulate profit repatriation and
protection in case of nationalization.
                                                     
37 In 2000, products that received no preferences covered 91.5% of all agricultural tariff lines (HS 01-
24) and 45.3% of all industrial lines (HS 25-97).
38 Foreign equity is limited to 49% in the commercial air-transport sector (Civil Aviation Act
No. 49/1997 Coll.).
39 Tradeport (2000).
40 Investment treaties are in force with the following countries:  Albania, Algeria, Argentina, Australia,
Austria, Belarus, Belgium/Luxembourg, Bulgaria, Cana da, Chile, China, Costa Rica, Croatia, Denmark, Egypt,
Estonia, Finland, France, Germany, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Jordan,
Kazakhstan, Republic of Korea, Korea Democratic Pe ople's Republic, Kuwait, Latvia, Lebanon, Lithuania,
Malaysia, Mauritius, Moldova, Mongolia, Netherlands, Norway, Pakistan, Panama, Paraguay, Peru, Philippines,Poland, Portugal, Romania, Russia, Salvador, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden,Switzerland, Tadjikistan, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom,United States, Uruguay, Uzbekistan, Venezuela, Viet Nam, Yugoslavia, and Zimbabwe.WT/TPR/S/89 Trade Policy Review
Page 26
Table II.3
Sectors subject to foreign investment restrictions, 2001
Sectors Legal source
A. Prohibited
-Mortgage banka Act No. 21/1992 Coll. on Banking, Act
No. 530/1990 Coll. on Bonds
-Some operations in securities on capital marketsb, operations in
collective investment securitiesc, and operations in foreign exchangedAct No. 248/1992 Coll. on Investment Companies and
Investment Funds; Act No. 530/1990 Coll. on Bonds,
Act No. 219/1995 Coll. on Foreign Exchange
- Real estate Act No. 219/1995 Coll. on Foreign Exchange
- Air transport Act No. 49/1997 Coll. on Civil Aviation
- Inland waterway freights, including chartering Act No. 114/1995 Coll. on Inland Navigation
-Road transport (passenger and freight)eAct No. 111/1994 Coll. on Road Traffic
- Underwriting and broker/dealer services Act No. 591/1992 Coll. on Securities; Act
No. 513/1991 Coll. on Commercial Code
- Settlement, clearing, custodial and depository services As above
- Asset management Act No. 21/1992 on Banking
- Architectural and engineering services Act No. 50/1976 Coll. on Building; Act No. 360/1992
Coll. (on Practice of profession of authorisedarchitects and authorised engineers and technicians
working in the field of building constructions in
wording of Act No. 164/1993 Coll.)
- Operation of lotteries and similar games (except "small" lotteries and
betting gaming in casinos)Act No. 202/1990 Coll. on Lotteries and Similar
Games; Act No. 63/1999 Coll.
B. Licensing
- Broadcast media Act No. 468/1991 Coll. on Operating Radio and
Television Broadcasting
- Banking (new establishment or purchase of more than 15% of the
capital of existing banks)Act No. 21/1992 Coll. on Banking
C. Registration
- Cable and satellite media Act No. 468/1991 Coll. on Operating Radio and
Television Broadcasting
D. Sensitive sectors (special screening)
- Petrochemicals Government Regulation No. 185/2000 Coll.
a The operation of a branch as a "mortgage bank" to the extent that a "mortgage bank" is defined under Czech law as an instituti on
authorized to issue mortgage securities on domestic markets, which is reserved to financial institutions incorporated underdomestic law.
b These are issues of mortgage securities through placing or public sale of foreign securities on the domestic capital market; a nd
purchase of shares and other securities that may be affected by regulations on direct investment and establishment in air trans port.
c Issue through placing or public sale of foreign collective investment securities on the domestic securities market.
d Sale of foreign currency for domestic currency abroad by residents.  The restriction only applies to foreign currency acquired
abroad that has not been deposited in an account with a foreign credit institution.
e Applies to the following for passengers: transit, "closed door" tours, picking up or setting down on an international journey,  and
transport within the country.  Applies to the following for freight: transit, delivery on an international journey, collection on an
international journey, return cargo where collection is authorized, return cargo where delivery is authorized, and transport wi thin
the country.
Source : Information provided by the Czech authorities; and OECD (2000b), "Position of the Czech Republic Under the
OECD Codes of Liberalisation of Capital Movements and Current Invisible Operations", document
DAFFE/INV(2000)14 .
45. The Czech Republic has also signed 61 tax treaties, drafted in accordance with the OECD
model treaty, covering most topics in international aspects of income and capital gains tax.41 The
                                                     
41 Treaties are in force with the following countries:   Albania, Australia, Austria, Belarus, Belgium,
Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Denmar k, Egypt, Estonia, Finland, France, Germany, Greece,
Hungary, Iceland, India, Indonesia, Ireland, Israel, Ital y, Japan, Kazakhstan, Republic of Korea, Latvia,
Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Moldova, Mongolia, Netherlands, Nigeria, Norway, Poland,Portugal, Romania, Russia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden,Czech Republic WT/TPR/S/89
Page 27
treaties generally eliminate double taxation by crediting the foreign tax paid on passive income
(dividends, interest, and royalties) against the Czech tax dues and by exempting active income from
Czech taxation.  All treaties reduce withholding taxes on income paid to foreign corporations, and no
advance clearance is needed to apply treaty rates.  The standard withholding tax of 25% is usually
reduced to between zero and 15% on dividends, to 5-10% on royalties, and to zero on interest.  From
1 January 2000, a 15% withholding tax is levied on most types of income.  Tax treaties takeprecedence over domestic legislation.
42
Incentives
46. The Czech Republic has changed its policy on foreign investment incentives progressively
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 governmentalapproval), a major change from the "no incentives" policy during 1992-98.
43  In addition to the
foreign investment incentive package, foreign investors are offered a wide range of other incentives,
such as grants and loans at interest rates belo w market rates (Chapter IV(3)).  All investment
incentives are equally available to foreign and domestic investors.
47. The foreign investment package includes a tax break of up to ten years, duty- and VAT-free
imports of certain machinery and equipment, job-creation and training benefits and opportunities to
obtain low-cost land (Table AIV.1).  Eligibility conditions for investment incentives include
(a) green-field investments and joint-venture ma nufacturing investments pursuant to the OECD
Classification of High-Technology Products and Industries; (b) total investment shall equal at least
CZK 350 million (around US$9 million in April 2001) within a three-year period, or CZK 175 million
if in an area with high unemployment;  (c) 40% of total investment must go into plant machinery;  and
(d) investment only into environmentally friendly production.44  The incentives are available
separately or collectively.  The cost of the incentives was estimated at CZK 120 billion in 2000, of
which CZK 17 billion was forgone revenue.  The Czech Invest, as the state agency responsible for
promoting foreign direct investment, is authorized by the Ministry of Industry and Trade to handle all
applications for investment incentives.45
48. It is not clear whether the benefits of the incentive package outweigh the costs.  Investment
incentives are typically not the best solution.  While the economic rationale for incentives is generally
based on the need to correct market failures through taxes and subsidies, alternative policies may do
the same job in a more efficient manner.  One problem is that incentives must be financed and taxes
have distortionary effects.  However, it is the view of the Czech authorities that the benefits of the
incentive package outweigh the costs, and that investment incentives are vital for the modernizationand restructuring of the Czech economy.
                                                                                                                                                                    
Switzerland, Thailand, Tunisia, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan,
Venezuela, Viet Nam and Yugoslavia (former).
42 PricewaterhouseCoopers (1999).
43 Changes to the incentive package include, inter alia , lowered investment threshold;  allowed
incentives to be applied to the expansion of production facilities already in operation (previously only newlyfounded companies with new production facilities qualified);  and 40% of total investment must go into plantmachinery.
44 A green-field investment means building of a new plant, purchase, or lease of current production
facilities, while a joint-venture investment means investment of two or more organizations into joint business.
45 According to the Czech author ities, from April 1998 (when investment incentives started) until
31 March 2001, 57 investors received incentives.  It is expected that these projects (totalling around
US$2.8 billion) will create 18,000 new jobs.  Currently, applications from 37 firms are being processed.