RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG58/3
27 January 1999
(99-0307)
Committee on Regional Trade Agreement
FREE TRADE AGREEMENT BETWEEN TURKEY AND HUNGARY
Communication from the Parties
The following communication has been received from the Permanent Missions of Turkey and
Hungary with the request that it be distributed to WTO Members.
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I. BACKGROUND INFORMATION ON THE AGREEMENT
1. Membership and Dates of Signature, Ratification and Entry into Force
The Parties to the Agreement are the Government of the Republic of Turkey and the
Government of the Republic of Hungary.  The Agreement applies in respect of the territory to which
the custom laws of Turkey and Hungary are applicable respectively.
The Free Trade Agreement between Turkey and Hungary was signed on 8 January 1997 in
Budapest and entered into force on 1 April 1998 after the completion of the legal internal ratification
procedures of the two Parties.
2. Type of Agreement
The Agreement establishes a free-trade area in conformity with the definition set out in
Article XXIV:8(b) of GATT 1994.
3. Scope
The free-trade area established by this Agreement provides the framework for future trade
relations between Turkey and Hungary.
The free-trade area Agreement covers all trade in industrial products (HS Chapters 25-97),
and a number of agricultural, processed agricultural and fishery products.  In accordance with the
evolutionary clause contained in the Agreement,  Parties agreed to further develop the relations
established by this Agreement, by extending them to fields not covered thereby.
With the entry into force of the Agreement, customs duties and other restrictive regulations of
commerce on industrial and certain agricultural products were abolished thus meeting the requirement
of Article XXIV in respect of the principle of "covering substantially all trade".
In order to ensure the proper functioning of the free-trade area, the Agreement contains
provisions, inter alia , on state aid, state monopolies, competition, government procurement and
intellectual property rights.WT/REG58/3
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4. Trade Data
The trade coverage of the Agreement in tota l trade between the Parties is as follows:
Imports of Turkey from Hungary (1,000 US$)
Total Trade Trade Covered % of Trade Covered
1995 69,904 65,041 93%
1996 94,412 64,895 69%
1997 106,508 100,125 94%
Imports of Hungary from Turkey (1,000 US$)
Total Trade Trade Covered % of Trade Covered
1995 46,106 42,634 92%
1996 56,912 50,168 88%
1997 68,854 59,002 86%
II. TRADE PROVISIONS
1. Import Restrictions
All customs duties and charges having equivalent effect on imports of industrial products,
except for those classified as sensitive, were abolished on 1 April 1998.  As for the sensitive products,
customs duties and charges having equivalent effect will be gradually eliminated by year 2001.
The Parties will not introduce new quantitative restrictions and measures having equivalent
effect on imports.
Quantitative restrictions and measures having equivalent effect on imports from Turkey into
Hungary, other than those listed in Annex IV of th e Agreement, are abolished on the date of entry into
force of the Agreement.  For the products listed in Annex IV, quantitative restrictions and charges
having equivalent effect shall be progressively abolished until 31 December 2000 at the latest.  On the
other hand Turkey has no quantitative restrictions or charges having equivalent effect concerning
Hungarian imports.
Turkey and Hungary initially granted each other preferential market access for a number of
agricultural, processed agricultural and certain fishery products under tariff quotas.
2. Export Restrictions
Under Article 6(1), prohibition of new customs dut ies or charges having equivalent effect on
exports between the Parties is envisaged.  All existing duties on exports and charges having
equivalent effect, quantitative restrictions on exports and any measures having equivalent effect will
be progressively abolished at the latest by the end of the fifth year after the entry into force of the
Agreement.WT/REG58/3
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3. Rules of Origin
The rules of origin on trade between Turkey and Hungary, defined in Protocol D of the
Agreement, are based on the sufficient working or processing criteria.  In general, origin is conferred
when:
- the good is wholly obtained or produced in the territory of a Party;- each of the non-originating materials used in the production of the good undergoes an
applicable change in tariff classification set out in the specific rule for that good, and
the good satisfies any other applicable requirement set out in that rule, as a result of
production occurring entirely in the territory of one or both of the Parties;
- the good is produced entirely in the territory of one or both of the Parties exclusively
from originating materials;  or,
- other particular circumstances as set out in Protocol D.As stated in the Record of Understanding, the rules of origin enables extended cumulation of
products between Turkey, Hungary, EU countries, EFTA countries and Central and Eastern European
Countries when the necessary procedures have been completed.
5. Safeguards
The Agreement permits the application of safeguard measures in the case of
dumping (Article 16), emergency action on imports of particular products (Article 17), measures
relating to structural adjustment (Article 15),  re-export and serious shortage (Article 18) and
provisions concerning rules of competition (Article 24) between the Parties.
In the case of balance-of-payment difficulties, Article 25 of the Agreement gives to the
Parties the right of adopting restrictive measures in accordance with the conditions laid down within
the framework of GATT 1994 and with Article VIII of the Articles of Agreement of the International
Monetary Fund.
The procedure for the application of these measures is laid down in Article 20 of the
Agreement.
6. Anti-Dumping and Countervailing Measures
Article 16 of the Agreement states that if a Party finds that dumping is taking place in trade
with the other Party within the meaning of Article VI of the GATT, it may take appropriate measures
against this practice in accordance with the Agreement on Implementation of Article VI of the
GATT 1994 and with its relevant internal legislation, under the conditions and in accordance with the
procedures laid down in Article 20.  Through this Article the conformity with GATT 1994 rules hasbeen provided.
7. Subsidies and State-Aid
The Agreement evaluates "state aid" issue in the context of distortion of competition.According to Article 24(1) of the Agreement, any state aid which distorts or threatens to
distort competition by favouring certain undertakings or the production of certain goods will beWT/REG58/3
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subject to rules which are going to be adopted by the Joint Committee.  Until these rules are adopted
relevant rules of GATT 1994 shall be applied.
The Agreement also sets out appropriate means to ensure transparency in the area of state aid.
Against the improper practices of a Party, Article 24(3) of the Agreement establishes the right
of the other Party to take appropriate measures.
8. Sector-Specific Provisions
Agriculture
Under the Agreement the Parties have declared their readiness to foster, insofar as their
agricultural policies allow, the harmonious development of trade in agricultural products and to
discuss this issue periodically in the Joint Committee.  In the framework of Protocol C to the
Agreement, Parties granted preferential treatment to each other in agricultural, processed agricultural
and fish products.
9. Other
Cooperation in Customs Administration
A framework was established for cooperation in customs administration with Article 21 and
Protocol D on the definition of the concept of "o riginating products" and methods of administrative
cooperation between the Parties.
State Monopolies
Under Article 19 of the Agreement, the Parties agreed to adjust progressively any state
monopoly of a commercial character so as to ensure that by the end of the year following the entry
into force of the Agreement, no discrimination regarding the conditions under which goods are
procured and marketed exists between the nationals of the Parties.
Internal Taxation
Any measures or practice of an internal fiscal nature establishing discrimination between the
products originating in Turkey and Hungary has been prohibited with Article 13.  This Article also
prohibits repayment of indirect internal taxation in excess of the amount of indirect or direct taxes on
exports.
Intellectual, Industrial and Commercial Property
The protection of intellectual, industrial and commercial property is addressed in Article 26.
The Parties accepted to take steps to grant and ensure adequate and effective protection intellectualproperty rights.  Besides, Parties agreed on refraining the granting of less favourable treatment to
nationals of any other State.  The Joint Committee will keep the implementation of intellectual
property rights under review.
Payments
In Article 23 of the Agreement, Parties undertake  to authorize, in freely convertible currency,
any payments on the current account of balance-of-payments to the extent that the transactions
underlying the payments concern movement of goods.WT/REG58/3
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Public Procurement
The Parties consider the opening up of the award of public contracts on the basis of
non-discrimination and reciprocity and they will grant each others companies' access to contractaward procedures a treatment no less favourable than that accorded to companies of any other
country.  The progress in this field will be reviewed in the Joint Committee periodically.
III. GENERAL PROVISIONS OF THE AGREEMENT
1. Exceptions and Reservations
All customs duties and charges having equivalent effect on imports applied to industrial
products except for those classified as sensitive are abolished with the entry into force of the
Agreement.  As for the sensitive products, customs duties and charges having equivalent effect will be
gradually eliminated by the year 2001.  This, however, will not preclude prohibitions or restrictionson imports, exports or goods in transit justified on grounds of public morality, public order or public
security;  the protection of health and life of humans, animals or plants;  the protection of national
treasures possessing artistic, historic or archaeological value;  or the protection of intellectual,
industrial and commercial property, or the rules relating to gold or silver.
The Agreement allows the Parties to take measures, with concerns of security, in the cases
specified in Article 30.
2. Accessions
There is no provision in the Agreement allowing other countries to accede to the free-trade
area.
3. Dispute Settlement Procedures
A Joint Committee which is responsible for the administration of the Agreement and its
proper implementation has the authority to take decisions on issues mentioned in various Articles ofthe Agreement.  In the procedure for application of safeguard measures relating to "structural
adjustment", "dumping", "emergency action on imports of particular products" and "re-export and
serious shortage", "rules of competition concerning undertakings, public aid", "balance-of-payments
difficulties" the Joint Committee has also commissioned actively as a competent authority in
Article 20 of the Agreement.
4. Relations with Other Trade Agreements
Regarding "basic duties" defined in Article 2, the Agreement envisages that any tariff
reduction resulting from the tariff agreement concluded as a result of the GATT Uruguay Round andTurkey-EC Customs Union replaces the former basic duty.
The Agreement stipulates that rights and ob ligations relating to certain matters, namely
anti-dumping measures, balance-of-payments and co mpetition related measures shall be governed by
the relevant WTO Agreements.
The Agreement states that measures concerning current payments connected with the
movement of goods and rules on balance of payment difficulties shall be in conformity with the
Article VIII of the Status of the Internat ional Monetary Fund and GATT 1994 provisions.WT/REG58/3
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5. Institutional Framework
The Agreement establishes a Joint Committee which is responsible for the administration of
the Agreement and shall meet at once a year to monitor the implementation of it.
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