Hungary WT/TPR/S/40 
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III. TRADE POLICIES AND PRACTICES BY MEASURE 
(1) OVERVIEW  
1. In pursuing its rapid transition to a market economy the Hungarian Government has largely 
resisted protectionist pressures.  On the contrary, during the period under review, it has taken steps to 
curtail or remove border and internal measures, thereby greatly increasing the openness of the economy to international trade and investment, esp ecially vis-à-vis the European Union and CEFTA 
partners.  However, certain trade and trade-relate d policy instruments, notably investment measures, 
remain important features of the Government's indus trial policy.  These instruments may be used at 
Hungary's borders, as in the case of tariffs and certa in non-tariff measures (NTMs), or they may be 
applied internally, as with regula tions and standards, incentives and subsidies as well as preferential 
government procurement practices.  All of these measu res can entail elements of direct or indirect 
government assistance to domestic producers of goods and services, or to domestic investors.
1  
Consequently, they constitute potential distortions  to domestic and international competition.   
2. Border measures directly affecting merchandise imports have been substantially liberalized 
since the previous review of Hungary's trade polic ies in 1991.  Since then, the coverage of tariff 
bindings has increased to 95.7% of total tariff lines  in 1997, partly as a result of Hungary's WTO 
commitments under the Uruguay Round (UR), although th e average applied MFN tariff rate has risen 
from 11% in 1991 to 14.3% in 1997, mainly as a consequence of the tariffication of agricultural 
NTMs, the introduction of the Harmonized System (HS) in 1992, and the European Union's Combined Nomenclature (CN) in 1996.  The scope of  Hungary's preferential agreements with the EU 
and other countries is such that MFN tariffs apply in practice to less than one quarter of Hungary's 
imports.  As a consequence, the collected rate of  duty on all imports is currently only 2.5%.  As 
regards NTMs, all trade-related charges, including  a temporarily applied import surcharge, have 
recently been eliminated.  Moreover, non-automatic  import licensing, largely related to the global 
quota on consumer goods, now affects less than 8% of imported products compared to more than 
double that proportion in 1991.  In additi on, while Hungary does have anti-dumping and 
countervailing legislation based on the WTO Agreem ents, it has not resorted to such actions. 
3. Export promotion measures are also used as instruments of trade policy, with exports being 
encouraged by, among other things, exemptions or drawbacks for import duties,  customs-free zones, 
and other incentives (section (3)).   
4. Considerable progress has been made in bringi ng Hungarian standards and regulations into 
line with international and particularly European norms.
2  Moreover, a legal and regulatory 
framework conducive to FDI has been established.  Furthermore, Hungary offers certain tax and non-
tax incentives, some directly related to improve ments in export performance.  These incentives are 
accorded equally to foreign and domestic investors.   As noted in Chapter I, corporate subsidies 
largely offset any taxes paid by the corporate sector.  Protection for patents, copyrights trade marks 
and other intellectual property rights has been mode rnized;  indeed, in approximating its laws on the 
                                                      
1 Tariffs and non-tariff border measures provide assistance by raising the prices of competing imports, 
thereby protecting domestic producers from foreign competition and enabling them to charge higher prices than 
they could otherwise. While some internal measures, including preferential government procurement practices, 
also enable domestic or other favoured suppliers to charge  higher prices, many other internal measures, such as 
those in the form of incentives/subsidies, permit domestic producers to charge lower prices than in the absence 
of such measures, while maintaining profitability.  Again,  internal measures shelter domestic producers from 
foreign competition.   
 
2 To the extent that national standards and regulations pertaining to imported products differ from 
internationally agreed norms, they can constitute assistance to domestic producers. 
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protection of intellectual property to EU legislation, the Government is, in some respects, assuming 
obligations that exceed the minimum standards cont ained in the TRIPS Agreement.  However, the 
scale of tax evasion raises doubts whether other la ws (including those pertaining to intellectual 
property and competition) are adequately enforced.  
5. Perhaps the most striking feature of Hungary's transition to a market economy has been the 
large scale privatization of state-owned enterprises, with high participation by foreign investors.  
Whereas state-owned enterprises pr oduced as much as 90% of Hungary 's GDP ten years ago, they 
now account for one quarter of GDP or less;  companies with foreign participation now account for around 14% of GDP and for 70% of total industrial exports.  Privatization has improved enterprises' 
competitiveness, which is reflected in export growth ;  and has drastically reduced the Government's 
role in the economy and particularly its intrusi on into business decisions.  Nevertheless, the 
Government can still exert influence on private ec onomic behaviour, not only  through remaining full 
or partial ownership of certain enterprises, but also through procurement practices, which tend to 
favour domestic-based suppliers of goods and services.  At the same time, w ith private enterprises 
assuming a much greater role in the economy as a resu lt of privatization, the Government has needed 
to address distortions to competition arising as a consequence of anti-competitive private practices.  Accordingly, it has focused increasingly on bringing  Hungarian competition policy into line with EU 
practices.   
(2) 
MEASURES DIRECTLY AFFECTING IMPORTS  
6. Major elements of Hungary's import regulation are customs duties and an active exchange 
rate policy.  As a result of the Uruguay Round, all NTMs in agriculture were replaced by tariffs, 
industrial tariffs were reduced, and the level of tari ff bindings was increased.  Hungary is also party to 
several free-trade agreements with different schedules for phasing out tariffs. 
(i) Registration of foreign trade activity 
7. Any legal person or business organization, domestic  or foreign, registered in Hungary is free 
to engage in international trading activities without any specific authorization.  A licence is required 
only for trade involving certain products (fuels, preci ous metals and jewellery, radioactive and other 
hazardous materials, pharmaceutical products for hu man medicine, explosives, military engineering 
products and services, arms and ammunition).  Such  a licence is granted to firms satisfying the 
conditions prescribed by the Ministry of  Industry, Trade and Tourism (MITT).3  In some instances  
other Ministries may also be involved. 
(ii) Tariffs and other border levies 
8. The Hungarian customs tariff contains 13,293 tariff lines at the 10-digit level.  At the 8-digit 
level, Hungary applies the European Union's Comb ined Nomenclature (CN)  tariff classification, 
consisting of 10,492 tariff lines, while retaining the national breakdown at the 9-  and 10-digit level.  
The CN is consistent with the Harmonized Sy stem (HS 1996), with a one-to-one correspondence up 
to the 6-digit level.  Hungary implemented the HS  in 1992 and the CN in 1996.  The application of 
technical standards and taxation, seasonal tariffs, an d the need to ensure consistency with Uruguay 
Round commitments and comparability with previ ous statistics, are among the main reasons for 
                                                      
3 Annex 2 to Government Decree Nÿ 192/1996 (XII.19).  For example, in the case of hydrocarbons, 
storage facilities must be considered su fficiently safe, while verification proc edures must be in place in order to 
ensure that drugs imported for specific proce ssing are used for their stated purpose. 
 Hungary WT/TPR/S/40 
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Hungary's relatively large number of national tariff lines, which contributes to the complexity of the 
tariff schedule.4   
(a) Customs valuation and clearance procedures 
9. All goods not subject to explicit restriction may be imported freely by companies registered to 
engage in trade.  Hungary is working closely w ith the EU with a view to acceding to the Common 
Transit and Single Administrative Document Conventions  so that a single document, identical to that 
of the EU, is used for customs clearance.5  Customs valuation of dutiable goods is usually on the basis 
of their declared transactions value.  However, upon receipt of a customs declaration, the customs 
authority may choose to check th e authenticity or accuracy of the information used for the 
determination of customs value.  The rules for th e determination of customs value in the Hungarian 
Customs Law are in compliance with those laid dow n in the Agreement on Implementation of Article 
VII of the GATT 1994.  Customs clearance time is normally the day of acceptance of the declaration 
of goods, but at the latest within three business da ys of acceptance.  Simplified customs valuation 
procedures may apply to certain products, in cluding fruit, vegetables and cut flowers. 
10. Decisions made by customs officials may be a ppealed in the first instance to the customs 
guard who made the decision.  In case of rejection, the appeal may then be lodged with the regional 
customs office or headquarters, depending on the natu re of the decision involved, and ultimately reach 
the courts.  In the event of the latter, there are no special courts dealing with customs matters, so that 
problems may arise when special expertise is required.  While no data were available concerning appeals in the first instance, the ratio of appeals to  decisions is thought to be roughly 1%.  As regards 
court cases concerning customs procedures, th ere were 287 in 1996  and 334 in 1997. 
(b) Forms of tariffs 
11. Unlike many WTO Members, Hungary levies tariffs solely on an ad valorem  basis.  Seasonal 
tariffs apply to imports of several agricultural pro ducts, with separate tariff lines applicable to each 
season. 
(c) Tariff levels (bindings and applied rates) 
12. 95.7% of all national tariff lines are bound (T able III.1).  As a result of Hungary's 
Uruguay Round commitments, bound rates are being re duced in equal steps fr om the current simple 
average of 11.8% to 10.2% upon full implementation.  Most of the 4.3% of unbound tariff lines pertain to fish products, mineral products, footwe ar, precious stones, transport equipment and works 
of art (Chart III.1).
6  The lack of bindings in these areas a llows the authorities discretion to apply 
higher tariffs.  Further discretion in  raising applied tariffs is made possible by the fact that 4.6% of 
tariff lines (notably on certain agricultural and pr epared food products) involve applied MFN tariff 
rates that are substantially below their current  bound rates (Chart III.1 and Table AIII.1).   
                                                      
4 In addition to the need for distinct tariff lines for new and used cars, for example, different tariff lines 
are used depending on whether a car is equipped with a catalytic converter and the capacity of the engine.  The 
latter is also the basis for excise taxation, with no such tax being levied on cars whose engine capacity is less 
than 1.6 litres. 
 
5 WTO (1997). 
 
6 More specifically, among the chapters involv ed are fish products, ores, mineral fuels, 
pharmaceuticals, fertilizers, wood pulp, apparel, foot wear, nickel products, automobiles and automobile 
components, ships and boats. 
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Table III.1  
Structure of applied MFN tariffs in Hungary  
(Per cent) 
Indicators 1991 1997a U.R. 
1. Bound tariff lines 83.3 95.7 82.6 
2. Duty-free tariff lines 9.0 7.9 11.1 
3. Specific and mixed tariffs/all tariffs 0.0 0.0 0.0 
4. Tariff quotas/all tariffs 0.0 11.0 11.4 
5. Tariffs with no  ad valo rem equivalent 0.0 0.0 0.0 
6. Simple average bound tariff rate 12.6 11.8 10.2 
7. Simple average applied tariff rate 11.0 14.3 9.6 
8. Import-weighted average tariff rateb 10.2 10.6 9.2 
9. Domestic tariff "spikes"c 2.7 8.7 6.7 
10. International tariff "spikes"d 11.9 20.0 10.4 
11. Overall standard deviation (SD) 9.7 17.0 10.8 
a Excluding import surcharge. 
b Constant OECD import weights. c Domestic tariff "spikes" are defined as those exceed ing three times the overall simple average MFN rate. 
d International tariff "spikes" ar e defined as those exceeding 15%. 
Note: HS and CN were introduced in Hungary in 1992 and 1996, re spectively, so that indicators from 1991 and 1997 are not fully 
comparable. 
Source: WTO Secretariat
. 
13. More than 500 of the current applied MFN ta riff rates are less than the final bound Uruguay 
Round rates.  If these 500 tariffs remained at th e same rates until full implementation, the overall 
applied MFN rate would decline from 14.3 to 9.6%.7 
14. On the other hand, applied MFN tariffs on some  other groups of products  (vegetable products, 
articles of stone, precious stones, transport equipmen t and works of art) are considerably higher than 
the final bound average (Chart III.1).  Consequent ly, the average applied MFN rate exceeded the 
overall average of bound tariffs in 1997 by  2.5 percentage points.  This is  partly because applied tariff 
rates for unbound tariff lines tend to be relatively high.  It is also due to the introduction of the CN, which increased the number of tariff lines subject to high tariffs without increasing the tariff rates on 
individual products.  
                                                      
7 As there is no way of foreseeing what applied MF N tariff rates will be when the Uruguay Round is 
fully implemented, it is assumed that the applied rate for each  tariff at that time will be  the 1997 applied rate, if 
this is less than the final bound rate, and the latter othe rwise.  Judging from past experience, the applied rate 
will, in most instances, correspond to the bound rate, so that average applied rates are likely to be very close to 
the average bound rates.  Obviously, this ignores any tariff reductions that might be negotiated in subsequent 
WTO agreements. 
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15. Since 1991, the simple average of applied MFN tariff rates has risen from 11.0 to 14.3%.  
During the same period, the proportion of tariff lines that were duty free declined from 9.0 to 7.9%.  
Both of these developments are largely the conseq uence of tariffication of quantitative restrictions 
previously imposed on agricultural products and of  significant changes in the tariff nomenclature 
caused by the introduction of the HS followed by the CN.  Indeed, as a result of the Uruguay Round, 
average tariff  protection (as opposed to NTMs) for agricu ltural products has increased substantially WT/TPR/S/40 Trade Policies Review 
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from 1991 levels owing to tariffication, while tariff  protection for all broa d groups of industrial 
products has declined (Chart III.2) . More detailed information on applied and bound tariff rates is 
found in Table AIII.1.  
 
(d) Tariff dispersion 
16. The efficiency losses associated with Hungary's tariff structure depend not just on average 
applied tariff rates, but also on the dispersion in these rates across products.  The higher the dispersion in tariff rates, particularly within groups of sim ilar and, thus, highly substitutable products, the greater 
the likelihood that consumers' and producers' decisions are distorted by the tariff structure
8. 
17. Agricultural commodities, together with prepar ed food, beverages, tobacco and transport 
equipment are the broad categories of products most  protected by tariffs (Chart III.1).  This will 
remain the case even once the Uruguay Round ta riff reductions are fully implemented.  
18. According to the overall standard deviation (S D), the dispersion in applied tariff rates has 
almost doubled since 1991.  Likewise, the proportion of  tariffs that constitute domestic "spikes", that 
is, tariffs exceeding three times the overall simple av erage applied MFN rate, has more than tripled.  
However, these rises in tariff di spersion are due to tariffication which, while converting relatively 
non-transparent agricultural NTMs into ad valorem  tariffs and reducing the overall number of tariff 
                                                      
8 Strictly speaking, a uniform nominal tariff (or a uni formly restrictive NTM) minimizes the net welfare 
cost of such protection only if import demand elasticitie s are uniform across commodities and cross-price effects 
are negligible.  Tariff uniformity may also be desirable for reasons of  administrative simplicity.  For a 
discussion of these and related matters, see Panagariya and Rodrik (1993), p. 685-703. 
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lines affected by NTMs, almost doubled the average applied MFN tariff on agricultural products.  The 
SD for agricultural products alone rose from 18.6 in 1991 to 24.6 in 1997, while the SD for industrial 
products declined from 6.3 to 5.3 in 1997.  The magnitudes of these indicators of tariff dispersion 
suggest the continued existence of potentially high de grees of distortion in the agricultural area caused 
by the tariff schedule.   
(e) Tariff escalation 
19. Applied tariffs are on average much higher fo r finished goods than for semi-manufactured 
goods (Table III.2).  On the other hand, tariffs on ra w materials (including agricultural products) are 
roughly the same as those for finished goods.  Such tariff escalation means that the level of effective 
protection is likely to increase as goods undergo processing, constituting a potential obstacle to processing in exporting countries of primary commodities or of semi-finished goods, thereby 
potentially impeding the industrialization of developing countries exporting to Hungary.
9  Full 
implementation of the Uruguay Round will not change this situation. 
Table III.2  
Tariff escalationa in Hungary  
(Per cent) 
ISIC Stage of processing 1991 1997 U.R. 
0 Raw materials 9.5 18.2 11.2 
1 Agriculture, forestry, fishing 12.9 24.9 16.4 
2 Mining and quarrying 4.5 3.5 3.3 
3A Manufacturing 7.9 12.1 9.3 
3B Semi-finished manufactured goods 8.8 8.4 6.5 
3C Finished manufactured goods 12.7 16.8 11.3 
Total All products 11.0 14.3 9.6 
a Based on simple applied MFN tariff averages. 
Source: WTO Secretariat.  
                                                      
9 OECD (1997b), p. 19. 
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(f) Tariff preferences 
20. As discussed in Chapter II, si nce the previous trade policy review, Hungary has concluded 
regional trade agreements with the European Unio n (EU) and the European Free Trade Association 
(EFTA).  Furthermore, together with the Czech Re public, Slovakia, Poland, Sl ovenia and Romania, it 
participates in the Central European Free Trade Agreement (CEFTA).  Hungary has also concluded 
free-trade agreements with Israel and Turkey which include, inter alia,  reciprocal preferential tariffs.  
In addition, Hungary offers preferential tariff rat es to developing countries and duty-free treatment to 
all imports from least de veloped countries under the Generalized System of Preferences (GSP).  In 
combination, preferential tariffs cover 75-80% of Hu ngary's imports.  Not surprisingly, therefore, the 
overall "collected" duty rate is estimated by the Hu ngarian authorities to be only 2.5%, much lower 
than the current overall simple aver age of applied MFN rates of 14.3%.10 
21. As a result of the Europe Agreement, C EFTA, and free-trade agreements with EFTA 
countries, much of Hungary's bilateral trade with its European partners, other than that involving 
agricultural products, is already free from duties (Table AIII.2). 
22. Under the GSP, preferential tariff rates are a pplied to products originating from those non-
European developing countries (109 countries) that  provide MFN treatment for Hungarian goods and 
do not apply any discriminatory measures against Hungary.  Exemptions from customs duties are 
granted to all goods originating and purchased di rectly from least-developed countries (46 countries) 
listed in the Decree on Implementation of Hungary's Customs Law.  The outcome is that the simple 
tariff average applied to imports from GSP countries was 5.2% in 1997 (Table III.3).11   
Table III.3  
Summary of applied tariff s and tariff preferences, 1997  
(Per cent) 
 MFN GSP EU EFTA Poland Czech Slovakia Slovenia Romania 
Simple average 14.3 5.2 9.4 9.3 4.4 4.7 4.7 8.8 6.0 
Agricultural products 37.1 16.6 37.1 36.3 17.6 18.9 18.9 37.1 21.1 
Industrial products 8.2 3.4 2.0 2.0 0.9 0.9 0.9 1.2 1.9 
Source:  WTO Secretariat calculations based on data provided by the Hungarian authorities. 
23. Hungary's customs law was amended so as to en able it to join the Pan-European Cumulation 
System on July 1 1997.12  The rules of origin used under its GSP scheme are simple and transparent, 
                                                      
10 The collected (or effective) duty rate is the total amount of duties collected as a percentage of the 
value of total imports. 
 
11 More detailed information on GSP tariff  averages is found in Table AIII.3. 
 
12 This required the harmonization of Hungary's rules of  origin as far as prefer ential trade with the EU, 
CEFTA and EFTA is concerned.  The new system, which is aimed at increasing the volume of products traded under preferential agreements, classifies imports from with in the cumulation region as domestic content.  In 
order to obtain preferential status from other member co untries, exporters must prov e that the domestic content 
of their products reaches a certai n level (100% for agricultural produ cts and 50% for industrial goods). 
 Hungary WT/TPR/S/40 
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being based on the criterion of 51% value added.   These rules ensure full global cumulation of 
imports from developing countries.13  There are no further criteria applied for GSP eligibility. 
(g) Tariff concessions and exemptions 
24. The Hungarian tariff system provides for the u se of tariff relief meas ures on an MFN basis. 
These measures, which are valid for one year, may incl ude tariff quotas or tariff suspensions.  A list of 
the products subject to such measures is published in the Hungarian Official Gazette. 
25. Whereas in 1991 Hungary's use of tariff quotas was negligible14, on 1 January 1995, as a 
result of the WTO Agreement on Agriculture, Hungary raised many agricultura l tariffs to their bound 
rates and introduced tariff quotas for MFN suppliers.  Consequently, 11% of lines now involve tariff 
quotas.  A list of the broad groups of products  affected is contained in Table AIII.4.15  In-quota tariff 
rates are fixed and will not vary as MFN rates are reduced.  While tariff quotas resulting from WTO 
Agreements are applied on an MFN basis, preferen tial tariff quotas on some products have also been 
agreed under regional and bilateral agreements with the EU, EFTA, CEFTA, Israel and Turkey. 
26. While Hungarian customs regulations do not contain any special provisions for the 
concessional entry of imported goods, there is the possi bility of duty-free entry of goods in the case of 
"inward processing" as specified in the Customs Law (section 73-74) when the dutiable goods are re-
exported, generally within 12 m onths.  Furthermore, under the Foreign Investment Act, duty-free 
status was accorded to any "means of production" imported into Hungary as an in-kind contribution 
by a foreign partner.16  However, this tariff concession, which discriminated in favour of firms with 
foreign participation, was abolished with effect from 31 December 1995. 
27. Hungary also operates a duty drawback system  under its Customs Law (section 137).  Under 
this system, duty is fully refunded upon certification that, within two years from the date of customs 
clearance, the imported product has been either incor porated into goods for export or used up in the 
process of their production, and e xportation has actually taken place.17 
28. In addition, under sections 90-93 of the Cu stoms Law, Hungary has established 104 customs-
free zones, most of which involve the production of certain industrial goods (plastic and rubber 
products, textiles, non-precious metal products, mach ines and automotive components).  Such zones 
accounted for roughly one quarter of Hungary's total industrial exports in 1996. 
                                                      
13 See paragraph 18 of the Hungarian Customs Law and paragraph 29 of the Decree on its 
implementation. 
 
14 According to the 1992 Trade Policy Review of Hungary, only eight 'ex' items of the HS were 
affected by tariff quotas. 
 
15 The latest notification in this re gard was G/AG/N/HUN/8, 28 May 1997. 
 
16 The Foreign Investment Act defines such means of production as machinery, plant, equipment, 
building pieces and material, sanitary installations and vehicles specifically  required for the production of goods 
or the rendering of services. 
 
17 Duty is also refunded if, for so me reason, the imported goods are re turned to the foreign supplier or 
in the event of overpayment of the duty. 
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(h) Other border levies and charges 
29. Since 1973 and for most of the period under review, Hungary imposed three types of import-
related fees, namely a 3% statistical fee, a 2% customs clearance fee and a 1% licensing fee.  On 1 January 1996, the 3% statistical fee was reduced to 1%, the 2% customs clearance fee reduced to 
1% and the 1% licensing fee abolished except for non-WT O members.  A year later, the statistical fee 
and the customs clearance fee were abolished, again except for non-WTO members.  Thus, as of 
1 January 1997, Hungary does not apply any bo rder levies or charges to WTO Members.  
30. Among the main features of the March 1995 p ackage of stabilization measures designed to 
address serious macroeconomic imbalances was a tempor ary import surcharge, initially levied at 8%; 
as described in Chapter I, this was notified to th e WTO and justified by the Hungarian Government on 
balance-of-payments grounds.
18  The surcharge applied to impor ts from all sources and covered all 
goods except primary energy products, it was refu ndable in the case of m achinery imported for 
investment purposes.  As the surcharge was incl uded in the selling price upon which the VAT was 
levied, the overall restrictive effect of the surcharg e considerably exceeded 8%.  In the case of duty-
free imported products subject to the standard VAT ra te of 25%, the effective rate of the surcharge 
was 10% rather than 8%.  The effective rate was even higher for products subject to import duties as 
well as excise taxes on top of VAT.  The surcharge w as reduced step by step before being eliminated 
as of 1 July 1997. 
31. Hungary does not impose any variable import levies.   
(i) Revenues from customs duties and other border charges 
32. Estimates of the revenues obtained from customs duties, various licensing fees and the import 
surcharge during the period 1991-97 show that such  levies have been a substantial source of revenue 
for the Hungarian government (Table III.4).  After ri sing to a peak of 9.2% of total taxes in 1995, the 
total amount of customs duties and border charges has since declined to 4.4% of total taxes as a result 
of the reduction in customs duty rates and the elim ination of other border charges.  Consequently, 
Hungary now relies more heavily on VAT, excise taxes and personal inco me tax for revenue. 
Table III.4  
Revenues from customs duties and other border levies  
(Ft billion) 
 Customs duty and 
customs clearance fee Statistical 
fee Import  licencing 
fee Import 
surcharge Total % of total taxes
1991 44.3 15.6 1.8 n.a. 61.7 5.8 
1992 69.1 23.5 1.6 n.a. 94.2 7.5 
1993 74.7 24.7 2.4 n.a. 101.8 6.8 
1994 93.3 28.6 3.3 n.a. 125.2 7.0 
1995 150.2 29.7 n.a. 20.5a 200.4 9.2 
1996 93.4 22.7 n.a. 98.8 214.9 8.4 
1997* 88.0 11.0 n.a. 31.0 130.0 4.4 
n.a. Not applicable. 
a In the first part of the year  the surcharge was collected as part of the customs duty.  Proba bly Ft 47.5 billion of the surch arge was 
collected in this way, so the total amount of the surcharge for the whole year is Ft 68 billion.  It was abolished on 1 July 19 97. 
* Estimate. 
Source: Hungarian authorities. 
                                                      
18 WTO document WT/BOP/N/2, 29 March 1995. 
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(j) Indirect taxation 
33. Goods may be subject not just to tariffs and other border charges, but also to indirect taxes 
that are levied internally.  These involve a multiple-stage consumption-based VAT, which 
encompasses services as well as goods, and excise taxes.  These two taxes, respectively, accounted for 
28% and 13% of total taxes in 1996. 
34. According to revised Hungarian VAT legislation,  which entered into force on 1 January 1995, 
entities undertaking economic activities in Hungary ar e liable to VAT on the taxable supply of goods 
and services.  The VAT entails two rates: the standa rd rate of 25%, which applies to most goods and 
services; and a reduced rate of 12%, which applies to  certain necessities, such as basic foodstuffs.  A 
zero rate applies to the supply of pharmaceutical  products.  The VAT is levied on imports and 
domestically produced goods and services alike.  In line with international practice, however, 
registered taxpayers may reclaim VAT levied on inpu ts and exports so that the tax base is essentially 
the value of goods and services consumed domestically.19   
35. In addition to VAT, excise taxes are imposed on several products, notably alcoholic 
beverages, manufactured tobacco products, petr oleum products, passenger cars and jewellery.  
Excises may be levied on the basis of value, qua ntity, or both.  As regards new products, no 
distinction is made between domes tically produced and imported goods.20   However, second-hand 
products produced within Hungary are exempt from excise taxes;  those that are imported (e.g., 
passenger cars and jewellery) are not.  Excise taxes may be reclaimed fully or partly in some instances where the taxed products are used as inputs in the pr oduction of goods (as in the case of oil used for 
the production of agricultural products or electricity  or as fuel for railway transportation) or are 
exported.  
(iii) Non-tariff border measures (NTMs) 
36. Hungary currently uses two principal types of "core" non-tariff border measures (NTMs), 
quantitative restrictions (QRs) mainly in the fo rm of a global quota on consumer goods, and import 
licensing (Box III.1).  Only 7.8% of all tariff lines ar e currently subject to these measures compared to 
19.9% in 1991 (Table III.5).  The global quota now c overs 5.7% of all tariff lines, while other import 
licensing covers 2.1% of tariff lines.  The broad categories of product most affected by "core" NTMs 
are textiles, clothing and footwear, precious ston es, transport equipment, arms and ammunition, and 
works of art (Chart III.3). 
                                                      
19 Government Decree 2/1993 provides that VAT may also be reclaimed by taxpayers who have no 
permanent establishment in Hungary. 
 
20 As pointed out in the previous TPR of Hungary, the excise tax on cigarettes imported from 
convertible currency sources or produced under foreign licence used to be considerably higher than that levied 
on domestically produced cigarettes.  Such differentiation was abolished as of 1 January 1991. 
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Table III.5  
Extent of NTMsa in Hungary  
(Per cent) 
NTM categories Frequency ratio (F)  Import coverage ratio (IC)b 
 1991 1997 U.R.  1991 1997 U.R. 
Core NTMs 19.9 7.8 3.8  19.5 12.8 8.9 
Quantitative restrictions (QRs ) 19.9 7.8 3.8  19.5 12.8 8.9 
 Export restraints 0.0 0.0 0.0  0.0  0.0 0.0 
 Non-automatic licensing 17.1 7.8 3.8  18.0 4.7 4.6 
 Other QRs 12.2 5.7 1.9  8.5 12.8 8.9 
Technical measures and NCQRs n.a. 3.9 3.9  .. 11.4 11.4 
All NTMs 19.9 10.3 6.4  19.5 22.4 18.6 
.. Not available. 
a NTM indicators for U.R. are calculated on the basis of those NTMs existing in 1997 and after eliminating quantitative 
restrictions on agricultural products subj ect to "tariffication" (in accordance with  the WTO Agreement on Agriculture) and 
removing MFA quotas (in accordance with the WTO Agreement on Textiles and Clothing). 
b Constant OECD import weights. 
Source: UNCTAD.  
Box III.1:  Types of NTMs 
'Core' NTMs 
'Core' NTMs consist of two broad types of measur es: quantitative restrictions (QRs) and price control 
measures (PCMs).  'Core' NTMs do not encompass au tomatic licensing, finance, monopolistic or technical 
measures.  Nor do they encompass technical measures  or quantitative restrictions taken for non-commercial 
reasons (see below). 
Quantitative Restrictions 
Export restraints 
Arrangements between importers and exporters, whereby the latter agree to limit exports in order to avoid 
the imposition of mandatory restrictions by importing countries 
Non-automatic licensing 
The practice of requiring, as a condition for importation, a licence which is not granted automatically and 
which may be issued on a discretionary basis or depend on specific criteria 
Other quantitative restrictions 
Include various forms of quotas and prohibitions 
Price-Control Measures 
Variable charges 
Bring the market prices of imported products close to those of corresponding domestic products 
Other price-control measures 
Include voluntary export-price restraints, whereby export ers agree to keep the prices  of their products above 
certain minima. Hungary WT/TPR/S/40 
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(a) NTM escalation 
37. NTMs are currently far more pervasive for fi nished than for semi-manufactured goods, while 
NTBs pertaining to the latter are more pervasive than  those for raw materials (including agriculture), 
thus suggesting a high degree of NTM "escalation" (Table III.6).  It would appear, therefore, that 
NTMs, like tariffs, may constitute an impediment to the industrialization of developing countries 
exporting to Hungary. 
Table III.6  
NTM escalationa in Hungary  
(Per cent) 
ISIC Stage of processing 1991 1997 U.R. 
0 Raw materials 17.2 1.7 1.6 
1 Agriculture, forestry, fishing 22.4 2.6 2.6 
2 Mining and quarrying 4.3 0.6 0.6 
3A Manufacturing 17.5 2.3 1.9 
3B Semi-finished manufactured goods 11.9 4.5 3.4 
3C Finished manufactured goods 25.5 11.0 4.6 
Total All products 19.9 7.8 3.8 
a Based on frequency ratio for core NTMs. 
Source: UNCTAD. 
(b) Quantitative restrictions and prohibitions 
38. Probably the most important impediment to im ports during the period under review has been 
the global import quota on selected consumer goods (T able III.7).  The Hungarian authorities plan to WT/TPR/S/40 Trade Policies Review 
Page 46 
 
 
phase out the quota by 2001.  While the value of the quota has been gradually increased, and several 
categories of products (furniture, underwear and some  other textiles and clothing, non-fish food and 
tobacco products) have been freed from the quota, it remains restrictive.  Judging from the nature of 
the products affected (notably textiles, clothing an d footwear together with new and used cars and 
caravans), industrial policy considerations play an im portant role.  For most of the products covered, 
the quota is expressed in value terms.  For cars, how ever, the quota is expressed in quantitative terms.  
In 1997, the total value of the quota was US$629 million for non-automotive products, 89,720 for new 
cars, 200 for new caravans, and 58,600 for used car s and caravans.  Goods produced in customs-free 
zones are also subject to the quota.  No licence fees  are levied in connection with this quota.  As of 
1 January 1998, several more items have been removed from the list of products subject to 
quantitative restrictions, on an MFN basis.21    
39. The available quotas, which are published twice a nnually in the Official Gazette, are allocated 
to importers by the Ministry of Industry, Trade and Tourism.  Four fifths of the quota licences are automatically allocated to "traditional"  importers, on the basis of their actual imports in the previous 
year.  The remaining one fifth is allocated to new importers and, in the event of excess applications, 
the quota is distributed among them on a pro rata  basis.  Not only does such an allocation system 
restrict competition among importers, but the quota rents accrue to importers who may then re-sell the 
products to domestic distributors.
22   
Table III.7  
Global import quota on consumer goods, 1994-97  
(US$ million, unless otherwise specified) 
Product groups Abolished 1994 1995 1996 1997 
Household detergent  18 25 35 45 
Footwear made of leather and l eather substitutes  46.5 65 70 77 
Furniture 1.1.92 n.a. n.a. n.a. n.a. 
Underwear 1.1.95 40 n.a. n.a. n.a. 
Overwear  66 94 104 114.4 
 Second-hand clothing  19.5 27 28.8 31.6 
 Other clothing and ready-made  clothing  46.5 65 71 78 
 Haberdashery products  12 16.6 17.2 22.6 
Textile piece-goods  30 43 47.2 52 
Other industrial products  90 126 133.1 146.4 
Jewellery, precious metal objects  24 33 34.2 37.6 
New cars ('000 units)  51 80.6 83.8 89.72 
New caravans ('000 units)  1.5a 0.2 0.2 0.2 
Used cars and caravans ('000 units)  45b 52.8 54.8 58.6 
Canned products 1.1.95 16 n.a. n.a. n.a. 
Bakery products 1.1.95 4.5 n.a. n.a. n.a. 
Confectionery products 1.1.95 25 n.a. n.a. n.a. 
Beverages 1.1.95 33 n.a. n.a. n.a. 
Dairy products 1.1.95 37.5 n.a. n.a. n.a. 
Citrus fruit 1.1.95 48 n.a. n.a. n.a. 
Tobacco products 1.1.95  4 n.a. n.a. n.a. 
Fish, tinned fish  17 22.6 22.6 24.8 
Total  467.0 517.2 563.1 629.4 
n.a. Not applicable. 
a Used and new caravans together. b Used cars only. 
                                                      
21 WTO document G/LIC/N/1/HUN/2, 19 February 1998.  The products include a significant list of 
textiles and clothing products, as well as certain other items. 
 
22 OECD (1997a), p. 71. 
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Source: Hungarian authorities.  
40. Sub-quotas of the global quota are maintained for preferential trading partners, namely the 
EU, EFTA and CEFTA countries  (Table III.8).  In accordance with the Eur ope Agreement, however, 
the quota was removed from textiles and clothing and some other products on 31 December 1997.  
This liberalization measure was extended to all WTO Members on an MFN basis.  
41. Under the Customs Duty Law of 1995, imports of cars more than four years old are 
prohibited, on environmental and safety grounds.  An exception involves specialized older vehicles, 
which may be imported, provided they pass a special technical test.  Unfortunately, such a prohibition 
combined with high tariffs on imports of new car s (with large engines) from non-preferential sources 
and the global quota on new and relatively new car s tends to curtail competition.  The resulting 
increase in the prices of such cars is likely to redu ce the pace of replacement of old cars, which are 
usually more polluting and embody lower safety standards than new or relatively new cars.23  
Consequently, this prohibition in combination with  other tariff and non-tariff border measures may be 
counterproductive from the standpoints of environmenta l protection and safety.  Such goals might be 
achieved more effectively by applying national environmental and safety standards to all used 
vehicles on a non-discriminatory basis.  The authorities claim that such standards would be difficult to 
enforce, however.  
Table III.8  
Share of selected trading partners in global import quota on consumer goods (2nd half 1997)  
(US$ million, unless otherwise specified) 
Product groups Total value 
ceiling EU Czech 
Rep Slovakia Poland Iceland Norway Share of individual 
value limits 
        % US$ 
Household detergent 22.5 8.0 3.3 0.22 0.27    22,500 
Footwear, leather 38.5 22.0 1.04 0.6 1.1    38,500 
Overwear 57.2 40.0 0.8 1.1 1.9    57,200 
Secondhand clothing 15.8 11.3      5 10,000 
Other clothing & ready-made 
clothing products 39.0 25.3      5 10,000 
Haberdashery  11.3 6.05      5  
Textile piece goods  26.0 20. 5 1.2 1.2 1.2   5  
of which carpets         10,000 
Other industrial products 73.2 40.2 1.4 0.8 2.2   5  
Jewellery, precious metal objects 18.8 7.9   0.2   5  
New cars ('000 units) 44.86 25.81  1.4 0.2 1.6    44 pieces 
New caravans ('000 units) 0.1         
Used cars and caravans ('000units) 29.3 16.5       29 pieces 
Fish, tinned 12.4    1.0 0.55 0.55 5  
Source: Hungarian authorities.  
42. No quantitative restrictions other than the global quota and the prohibition on imports of 
second-hand cars apply to WTO Members. 
                                                      
23 The Hungarian authorities estimate the average age of  cars in Hungary to be roughly ten years, which 
suggests that a large proportion of cars are over ten years old. 
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(c) Import licensing and permits 
43. Import licences are required either for goods subj ect to import quotas (listed in Annex 1/b of 
Government Decree No. 192/1996 (XII. 19)) or for items that are typically controlled in most 
countries, that is, products (listed in Annex 1/c of  the Decree) used for m ilitary purposes, hazardous 
materials, endangered species, and substances used  for the illegal making of narcotics.  In some 
instances, import or export licences can be granted onl y to firms satisfying certain technical and other 
conditions prescribed by the MITT.24  The products (listed in Annex 2) subject to import and export 
permits include fuel products, precious metals, mate rials particularly hazardous to the environment 
and health, pharmaceutical products for human me dicine, industrial explosive and firework products, 
military engineering produc ts and services, small arms and ammun ition for civil use (Table AIII.5).  
In the event of refusal of a licence or permit, appli cants have the right of appeal to the Ministry of 
Industry, Trade and Tourism.  Appeals are rela tively infrequent, however, roughly ten per year.   
(d) Anti-dumping, countervailing and safeguard actions 
44. Although Hungary does have its own legislati on concerning anti-dumping and countervailing 
(AD/CV) measures (Government Decree No. 69/1994.(V4)), which has been notified25, hitherto it has 
not been used.  So far, only two requests were  made for AD investigations, both of which were 
refused by the authorities.  No request has been ma de for CV investigation.  Domestic producers may 
consider the procedures required for the initiation of AD/CV actions too sophisticated and costly, 
preferring instead to seek protection by means of import licensing or quotas26, and it is not the practice 
of the Hungarian authorities to take AD/CV actions ex officio .  In any event, the authorities indicated 
that they would not consider such actions wher e  goods are subject to quantitative restrictions.  
According to the authorities, existing legislation on contingency measures does not conflict with the 
relevant WTO rules. 
45. Hungary's safeguards legislation is contained in Decree Nÿ 113/1990, which is based on 
paragraph 5 of its Protocol of Accession to the GA TT.  No safeguard measures have been applied to 
WTO Members since the entry into force of the Uruguay Round Agreements.  However, safeguard 
measures, usually in the form of quantitative restri ctions, have been applied to certain non-members, 
notably some CIS countries. 
(e) Balance-of-payments measures 
46. During the period under review, balance-of-pay ments measures consisted of a temporary 
import surcharge that was notified to the WTO.  The surcharge, which was introduced at a rate of 8% 
as one of the main features of the March 1995 stab ilization package, was gradually reduced to 6% 
from 1 October 1996, 4% from 10 March 1997 and 3% from 15 May 1997 before being eliminated on 
1 July 1997. 
(f) Barter contracts 
47. According to the authorities, no barter ag reements have been concluded since the 
disintegration of the COMECON and the switch to payments in convertible currencies in 1991.  
                                                      
24 Section (2)(i). 
 
25 GATT documents ADP/1/Add.14/Rev.1 and SCM/181/Add.2. 
 
26 European Bank for Reconstruction and Development (1994), p. 115.  Import quotas are, in fact, 
applied to certain steel products from some non-WTO members, including the Ukraine.   
 Hungary WT/TPR/S/40 
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(3) MEASURES DIRECTLY AFFECTING EXPORTS  
(i) Export duties and other charges 
48. Hungary did not levy any duties or other ch arges on exports during the period under review. 
Government Decree Nÿ 61/1990 (X.1) neverthel ess provides for the possibility of applying 
administrative controls for certain dual-use technologies. 
(ii) Minimum export prices 
49. Hungary does not set minimum export prices for any products. 
(iii) Export restraints and licensing requirements 
50. Less than 2% (224) of Hungary's national tariff lines are currently subject to export licensing, 
many fewer than in 1991.  Licences may be required to fulfil Hunga ry's obligations under 
international treaties regarding trade in enda ngered species, hazardous substances or other 
environmentally sensitive products.  Or, in the case  of goose liver, licensing may be used for the 
purpose of monitoring in relation to animal rights.  A monitoring system is applied in connection with 
Hungary's bilateral export limitations , particularly with regard to its exports of agricultural products 
and textiles.27 In August 1996,  Hungary introduced temporary restrictions, in the form of 
discretionary licensing, on exports of some grai ns, cereal products and animal feeds, to prevent 
serious domestic shortages of these products and avoid disr uption of the domestic animal feed market. 
(iv) Export assistance 
51. The Hungarian Government accords direct assist ance to exports through export subsidies, 
export credits and insurance together with export promotion and marketing assistance.  Since the previous Review, the Government's role in provi ding export assistance has been significantly reduced 
and streamlined. 
(a) Export subsidies 
52. Export subsidies are granted for several agri cultural and fishery products (Chapter IV(2)).
28  
In accordance with its obligations under the Agreement on Agriculture, however, Hungary is 
committed to reducing these subsidies by 36% be tween 1995 and 2000.  This commitment initially 
involved a base amount set at Ft 22 billion, implying a cut in the total amount of such subsidies to Ft 
14 billion by 2000.  Shortly after entry into for ce of the Uruguay Round Agreements, it became 
evident that export subsidies in both 1995 and 1996 were actually about twice the level of Hungary's 
commitment of Ft 22 billion in nominal terms and c overed 149 products instead of the 16 specified in 
the WTO Schedule.  This situation was due to a co nsiderable discrepancy between the value of total 
export subsidization in the peri od 1986-1990, which constituted the base level for the reduction of 
                                                      
27 For example, such licences are issued in connectio n with import quotas imposed by the United States 
and Canada on textiles and clothing.  
 
28 The stated objectives of th e relevant programmes (the Export Enhancement Programme for 
Agricultural and Fishery Products, the Programme for Promoting Export-oriented Product Development, and the 
Programme of Investment-related Tax Concessions) , and the list of products benefiting from and the 
corresponding per unit amount of export  subsidies for 1995 are contained in Annexes to Joint Decree 38/1994 
(XII.30) PM-IKM of the Minister of Finance an d the Minister of Indu stry, Trade and Tourism 
(G/SCM/N/9/HUN). 
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export subsidies, and the way it was reflected in Section II of Part IV of the Schedule.29  The outcome 
was a dispute with several WTO Members.  The di spute was resolved in October 1997, with Hungary 
being granted a waiver from its obligations until 31 December 2001.  Under the waiver, the base 
amount was set at Ft 51 billion, with Hungary agreei ng to cut the amount to Ft 42 billion in 1997, and 
then in stages so as to reach Ft 22 billion as of 1 January 2001.30 
(b) Export credits and insurance 
53. The Hungarian Export-Import Bank (EXIMBANK ) and the Hungarian Export Insurance 
Corporation (MEHIB) were establishe d simultaneously in 1994, pursuant to Act XLII.  Their primary 
purpose is to facilitate exports consider ed important to the national economy.  
54. In the case of exports, EXIMBANK focuses mainly, but not exclusively, on the renewal of 
former contacts with the former socialist countri es and increasing exports to the developing world, 
which are regarded as high risk countries.31 It provides financial ser vices related to export 
transactions, namely credits and loans, and gua rantees, and services related to credit rating.32  
EXIMBANK is fully owned by the Government, whic h is ultimately liable for obligations arising 
from loans taken out and bonds issued by EXIMB ANK in connection with the provision of these 
financial services. 
55. A non-profit oriented institution, MEHIB in sures export credits against commercial and 
political risk.33  Whereas insurance against commercial risk is backed by leadin g West European re-
insurers, MEHIB's provision of insurance against political risk is guaranteed by the central government budget, thereby possibly entailing an elem ent of financial assist ance.  In addition, it 
provides tendering insurance, reimbursing 70% of th e costs of tendering if the tender is not awarded 
to the insured for reasons beyond its control.
34  Direct investment abroad by Hungarian companies can 
also be insured against losses due to political even ts or various acts of the Government of the host 
country. 
(c) Export promotion and marketing assistance 
56. Assistance to exports was previously also provided by the Economic Development Fund, 
established in 1992, whose total budget in 1995 was Ft 5. 6 billion.  This assistance was in the form of 
a repayable or non-repayable contribution to econo mic operators established in Hungary.  It was 
awarded through open tender procedures or upon th e initiative of the Fund Management.  Among the 
trade promotion activities benefiting from such assi stance were:  the introduction of goods, services 
and intellectual products into new foreign mark ets; dissemination of knowledge and information 
concerning foreign trading activity; the organization of international exhibiti ons and trade fairs;  
missions of business people;  and organiza tions involved in trade promotion.   
                                                      
29 WTO document G/L/183. 
 
30 WTO document WT/L/238, 29 October 1997.  See also Chapter IV of this report. 
 
31 Ministry of Industry, Trade and Tourism (1996a), p. 19. 
 
32 EXIMBANK may also finance imports, if it considers them important to the national economy, and 
important Hungarian investments abroad.  
 
33 Ministry of Industry, Trade and Tourism (1996a), p. 18. 
 
34 Ministry of Industry, Trade and Tourism (1997). 
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57. In 1996, some previously decentralized Funds, including the Economic Development Fund, 
were unified into a programme known as the Targ eted Allocation for the Development of the 
Economy, with a total budget of Ft 15 billion.35  Again, support from the Targeted Allocation is 
available for trade promotion (as well as for th e encouragement of investment and economic 
restructuring).  More specifically, under the Trade Promotion Tendering System, assistance in various 
forms is provided for, inter alia : participation in foreign fair s with Hungarian-brand products; 
production of product information leaf lets, technical description, informational films, publication of 
advertisements; rent of company representational offices, exhibitions or showrooms abroad; and 
development, implementation and attestation of  quality assurance systems meeting EU standards.36  
(v) Anti-dumping and countervailing actions 
58. Hungarian exports are currently the target of  anti-dumping duties from the United States, the 
EU, Canada, Argentina, Australia and Turkey (Tab le AIII.6).  As a consequence of the Europe 
Agreement, Hungary benefits from a preferential fr amework in respect of anti-dumping actions by the 
EU.  This consists of improved information, possib ilities of requesting consulta tion in an investigation 
and a preference for price undertakings rather than anti-dumping duties upon conclusion of an investigation.
37 
(4) INTERNAL MEASURES  
(i) Technical regulations and standards 
59. Products imported into Hungary must conform to technical regulations established by the 
Government to protect health and safety or to preserve the environment.  Likewise, agricultural 
imports must comply with national sanitary and phytosanitary regulations, which are aimed at 
protecting human, animal or plant health from pests and diseases.  Although Hungary is moving 
towards large-scale adoption of international or EU  standards, 72% of national standards still differ 
from international norms. 
(a) Standards and quality control 
60. Aside from fulfilling its obligations under th e WTO Agreement on Technical Barriers to 
Trade, Hungary's main objective with regard to the setting of technical regulations and standards is to 
harmonize them in accordance with EU provisions .  Under the Europe Agreement, Hungary is 
committed to achieving full conformity with EU  technical regulations and with European 
standardization and conformity assessment procedures. Whereas the process of harmonization with EU regulations has largely been accomplished in  the case of foodstuffs, harmonization has been 
slower for pharmaceutical and chemical products.  In  the case of the automotive sector, Hungary plans 
to implement fully European standards by the tim e it accedes to the EU.  It is envisaged that 
Hungary's implementation of European standards will reach the levels similar to those of EU Member 
States by the end of 2001.  Insofar as European st andards are established on the basis of international 
                                                      
35 Ministry of Industry, Trade and Tourism (1996 & 1997). 
 
36 The forms of assistance include non -repayable grants, interest-free loans, interest subsidies, interest-
free payment in instalments for the customs duty payable on import leasing, repayable interest-free subsidy from 
the funds of the Central Technical Development Core Pr ogramme, bank loans refinanced by the National Bank 
of Hungary, and equity participation by the State.  The non-repayable grant may extend to 50% of the costs eligible for support. 
 
37 WTO (1997), p. 54, paragraph 36. 
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standards, harmonization with European standards also involves the introduction of international 
standards in Hungary.   
61. While the Ministry of Industry, Trade and T ourism (MITT) has general responsibility for the 
implementation of the Agreement on Technical Barriers to Trade, according to the Law XXVIII of 
1995 on National Standardization, the Hungarian Standards Institution ( Magyar Szabványügyi 
Testület ) is the national standards body with overall r esponsibility for the national standards system.  
The responsibilities of the Hungarian Standards Ins titution (HSI) include the exclusive right to set 
national standards and publication of these standards.38  Furthermore, it operates an information 
service, which involves, inter alia , publication of its official journal, the Standardization Gazette 
(Szabványügyi Közlöny ), in which draft national standards are announced and national standards 
published, and responding to comments a nd enquiries regarding national standards.39  The National 
Accreditation Body is responsible for the accreditation of testing laboratories, of which there are more 
than 300.  The HSI is the enquiry point for the purposes of the WTO Agreement on Technical Barriers 
to Trade. 
62. The HSI is a member of the International Or ganization for Standardization (ISO) and the 
International Electrotechnical Commission (IEC).  In  addition, it is an affiliate member of the 
European Committee for Standardization (CEN) as well as the European Electrotechnical Committee 
for Standardisation (CENELEC), a member of the European Telecommunication Standard Institute 
(ETSI) and has applied for admission to the Intern ational Network of Quality System Certifiers 
(IQNet).  It also cooperates on a bilateral basis with several countries' national organizations for 
standardization and quality certification.  For exam ple, upon request, it carries out joint certification in 
accordance with ISO 9000 standards.  Such coope ration does not involve mutual recognition of 
certification, however, although negotiations in th is regard concerning ag ricultural and industrial 
products have been initiated with CEFTA countries40.  Negotiations between Hungary and the EU on 
the mutual recognition of technical regulations pertaining to processed agricultural products and 
pharmaceuticals are expected to begin in the near future.  
63. At the end of 1997, 14,521 Hungarian national st andards were in force, many relating to 
regulations adopted prior to the 1990s.  The major ity of these regulations are being revised, however, 
and others are liable to amendment in the next ye ar or two.  During the review period, over 2,000 
European standards were introduced in Hungary (Table III.9), in addition to 1,344 ISO and IEC 
standards adopted during the same period.  As a consequence, the proportion of Hungarian standards 
either similar or identical to international or  European standards rose from 3% to roughly 27% 
between 1990 and 1997.  According to the law, all technical regulations, standards and conformity 
assessment procedures apply to domestically pr oduced and imported goods and services alike.  
64. Marking, labelling and packaging of products are covered by Hungarian standards, which are, 
by and large, identical to those of ISO and CEN. 
                                                      
38 Technical requirements together with the different  forms of conformity assessment procedures, such 
as preliminary control, testing and inspection, are la id down in technical regulations and standards.  
 
39 Two months is usually allowed for presentation in writing of comments on national standards.  WTO 
document G/TBT/2/Add.41. 
 
40 The CEFTA already includes a procedure for the exchange of notifications on draft technical 
regulations. 
 Hungary WT/TPR/S/40 
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Table III.9  
Relation of Hungarian standards to international and European standards 
 1990 1991 1992 1993 1994 1995 1996 1997 
Total number of Hungarian standards 19,585 19,609 19,779 19,136 18,258 14,380 14,349 14,521 
Identical to ISO standards 9 150 511 689 1,007 1,084 1,092 1,108 
Identical to IEC standards 2 34 115 159 221 242 242 247 
Identical to European standards - 24 129 224 580 883 1,051 1,967 
Deviate only slightly from ISO standa rds 618 594 358 590 813 1,076 618 671 
CMEA standards 1,288 1,186 1,086 1,010 918 - - - 
Note: In case of applying European st andards, no deviation is allowed. 
Source: Hungarian Standards Institution.  
(b) Sanitary and phytosanitary measures 
65. While the regulation and certification of food and SPS standards in Hungary lies primarily 
within the jurisdiction of the Ministry of Agriculture, other bodies or ministries may have responsibilities in these areas too.
41  A new law on food control entered into force at the beginning of 
1996 and new regulations concerning the execution of these controls are being formulated.   
66. Ministry of Agriculture and Food Decree 5/1988 (IV.26) stipulates phytosanitary import 
regulations.  These regulations, which the Hungarian  authorities consider to be in accordance with 
international standards, are based on the recommenda tions of European Plant Protection Organization 
and the UN/FAO regional plant protection organiza tion as well as the Office Internationale des 
Epizooties (OIE).  The regulations do not discrim inate against imported products.  Approximately 
60% of Hungarian phytopathological inspections are in harmony with the pertinent EU regulations.  A 
new plant protection law together with its executo ry decree is currently be ing drafted in accordance 
with EU Directive EEC 77/93.  This law is expect ed to enter into force in 1998-99.  There is no 
difference between the fees for export or import inspections.   
(c) Environmental standards and regulations 
67. Hungary applies environmental and safety sta ndards to domestic and foreign products alike, 
however, as observed above, importation of used cars ove r four years old is prohibited, ostensibly on 
environmental and safety grounds.  This is tant amount to applying more stringent, prohibitive, 
standards to imported used cars over four years old than to domestic used cars of the same age.  
Environmental standards may also figure in govern ment procurement practices and privatization 
tendering (sections (iv) and (v) below). 
(ii) Direct taxation 
68. Prior to 1988, taxes were used not so much to collect revenues but rather as instruments to 
orient the economy and influence consumption, with a large number of tax preferences being granted 
on a highly discretionary basis.42  This was particularly true in the case of enterprises, which were 
                                                      
41 The supervision of production of foods is the responsibility of the 20 County and Metropolitan 
Veterinary and Food Control Stations over which the Ministry of Agriculture exercises control.  The control of 
sanitary conditions in the processing of foodstuffs and marketing falls within the co mpetence of the State Public 
Health and Medical Officers' Service (Ministry of Public Works) while the control of products placed on the 
market is the responsibility of the General Inspectorate for Consumer Protection attached to the MITT and of 19 
county-based inspectorates.  
 
42 International Bureau of Fiscal Documentation (1996). WT/TPR/S/40 Trade Policies Review 
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subject to a complicated system of nominal taxes and variable contributions to special funds.  The 
outcome was a system of business taxation that was neither transparent nor neutral, giving rise to 
bargaining over the granting of tax concessions.43   
69. A major development that undoubtedly helped to  pave the way for Hungary's transition to a 
market economy was the 1988 tax reform, which abo lished several existing taxes and established a 
comprehensive tax system, involving a value-added tax, a personal income tax and a business profits 
tax.  Tax reform coincided with the entire rebu ilding of the legal environment in Hungary with, 
among other things, the enactment of the Commercial Code and Foreign Investment Law.  Since the 
1988 reform, the Hungarian tax system has been  in a steady process of evolution and change. 
70. Two main outcomes of the 1988 tax reform in addition to the establishment of a VAT were 
the introduction of both a graduated personal income  tax (PIT) and a classical corporate income tax 
(CIT), which replaced the business profits tax in 19 90.  Personal tax rates currently range from 20% 
(on incomes of up to Ft 250 000) to 42% (on in comes of up to Ft 1 100 000), although individual 
entrepreneurs who pursue the specific activities as  listed in the Law (i.e. industrial production, 
agricultural production, construction services, rental  services, taxi transportation, hairdressing) can 
opt for a flat rate tax of 12.5%, 25%, 30% or 35% of their revenues less assumed costs if income is 
below a certain threshold.  Personal income taxe s accounted for 23.6% of total taxes in 1996.  
Expatriate employees who do not maintain a "permanent residence" and are employed by a foreign 
company or by a Hungarian company with foreign pa rticipation were taxed on  70% of their taxable 
salary in 1995 and 75% in 1996.  This preferen tial provision ceased in 1997.  All private persons 
currently pay taxes on the same basis. 
71. Since it was introduced in 1990, the CIT syst em has undergone several modifications, the 
latest including the repeal of the split-rate tax (involving an 18% basic tax rate and a 23% 
supplementary tax) and its replacement in 19 97 by an 18% corporate income tax and a 20% 
withholding tax on dividends.  Perhaps the most st riking and enduring feature of Hungary's corporate 
income tax system, however, has been the wide ar ray of (relatively non-transparent) tax deductions, 
exemptions and credits that it allows (Box III.2) .  These have been designed to encourage the 
retention of profits for the financing of new invest ment, to attract foreign investment, promote exports 
and other activities, as well as to develop certain sectors of the economy and regions.  The scope and 
generosity of these concessions is such that the co rporate income tax contribution to total tax revenues 
was very small, only 5.3%, or 1.9% of GDP in 1996.  
72. In the initial phase of transition, the CIT, like its predecessor, was characterized by high 
statutory tax rates and a wide range of tax prefer ences granted to selected activities, mostly in the 
form of special tax exemptions or relief, particul arly in the case of foreign investors, the purpose 
being to attract foreign direct investment.  A signi ficant aspect of the tax system in this early phase 
was that foreign investors were treated more favourab ly than domestic entrep reneurs.  Such "positive 
discrimination" was thought necessary to compensate fo reign investors for what they perceived to be 
the relatively high risk of investing in an economy in the early stages of transition.  Most of these 
preferences were abolished at the end of 1993, however, and any incentives are now largely accorded 
to domestic and foreign investors alike.  Two notab le exceptions involve the special deduction granted 
to companies with at least 30% foreign participa tion and the tax allowance for fully foreign-owned 
offshore companies.  Although the last date for qua lifying for this special deduction was the end of 
1993, existing enterprises continue to enjoy the incentive for which they originally qualified until 
2003.  Fully foreign-owned offshore companies can still qualify for the tax allowance.   
                                                      
43 According to a representative of a prominent aud iting company, this may still be the case to some 
extent.  The Budapest Sun, "Tax system praised:  Business practice still lagged behind western Europe", page 9, 
6-12 November 1997. 
 Hungary WT/TPR/S/40 
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Box III.2:  Tax incenti ves for investment, 1996  
(Ft million) 
Incentive Description  Amount  
Special deduction for business 
organizations with foreign 
participation Prior to 1989 companies with foreign par ticipation of at least 30% were granted 
numerous tax holidays for the first year after the company was established or for a 
certain number of years, depe nding on certain conditions (tax  exemption or tax rebate), 
including different (lower) tax rates from thos e applied to domestic companies.  Even 
though the incentives were withdrawn after 31 December 1993, companies with foreign 
participation remained eligible for the benef its if they met the conditions by December 
1993.  The incentive will be terminated in 2003. 29,706 
Incentive for offshore 
companies This incentive, which was introduced on 1 January 1994, is available for offshore 
trading or service companies.  A tax credit of 85% of the tax due, granted to offshore 
companies, was withdrawn and replaced be ginning 1 January 1997 with a low rate of 
corporate income tax, i.e. 3%.  Offshore companies are not entitled to any other tax 
incentives. 397 
Tax exemption for dividends 
reinvested by foreign members 
of a business organization No tax is levied on dividends reinvested  in Hungary by foreign investors. 57 
Temporary incentive for large-
scale investment Instead of the major investme nt incentives, which were abolished from 1 January 1995, 
a new type of temporary investment in centive was introduced with effect from 
1 January 1996.  Under this incentive a company may reduce its tax liability by 50%, 
provided that: 
- it invests at least Ft 1 billion after 31.12.95 to expand ma nufacturing facilities; 
- it invests at least Ft 1 billion after 31.12.96 to establish commercial 
accommodation;  and 
- the investment results in an increas e in export revenue or turnover from 
commercial accommodations, respectively, by at least 25% and Ft 600 million 
in comparison to the previous year, or on average calculated during the 5-year 
period. 5,723 
Tax concession to promote 
export-oriented product 
development The objective of this programme is to stim ulate development projects that increase the 
range and volume of goods competitive on external markets. 1,351 
Tax concession to promote 
investments in production of 
exportable goods Tax deduction granted for interest on bank  loans used to finance export-oriented 
investment. 1,351 
Regional incentives:   
  Investment tax credits Until the end of 2002, tax credits  equal to 6% of the investment value are available to 
taxpayers in qualifying zones for infrastructu ral investments, investments in machines 
and equipment in high priority zones;  an d investments in machines, equipment and 
building in industrialized zones. 507,712 
  Special write-offs An investment allowance in the form of an immediate 100% write-off of the acquisition 
price is granted to companies having their s eat or registered branch in an industrial 
zone, provided they put into use fixed assets  (i.e. machines and equipment, buildings 
and construction, except passenger cars) for th e first time in the zone.  Accelerated 
depreciation is also granted at a rate of 10% for buildings.  
  Tax exemption Taxpayers are granted a 100% redu ction in the corporate income tax, provided the 
investments in manufacturing activities were  made after 31 December 1995.  The tax 
allowance, available until the end of 2002, applies in the tax years during a 5-year 
period from the date that manufacturing commenced, provided the revenues from 
export or agricultural production have increased :  for a taxpayer in an industrial zone, 
by 1% in comparison to the previous year;  for a taxpayer in a high-priority region by 
an amount equal to at least 5% of the invested value;  and in the case of establishing commercial accommodation (e.g., hotels), within a 5-year period from the 
commencement of operations. .. 
R&D incentive A reduction of the tax-base equivalent  to 20% of direct research and development 
costs. .. 
Accelerated depreciation Taxpayers are allowed to depreci ate machinery and equipment put into use for the first 
time after 31 December 1995 at  the maximum rate of 30% (instead of 14.5%).  
Taxpayers may also depreciate immovable cap ital assets (buildings) put into use in 
qualifying regions for the first time in Hungary at the rate of 10%. .. 
Tax benefit on compensation 
allocation and coupon, 
respectively Tax benefit is granted to cooperatives in  case of land sales on certain conditions. 7 
Other tax benefits  1,555 
.. Not available. 
Source: Hungarian authorities.  WT/TPR/S/40 Trade Policies Review 
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73. Certain corporate tax incentives stipulate export requirements.  In the case of the tax incentive 
for large-scale investment, which has been availa ble since 1 January 1996, companies may reduce 
their tax liability by one half pr ovided they invest at least Ft 1 billion in the expansion of 
manufacturing facilities and the investment results in an increase in export revenue of at least 25% or 
Ft 600 million compared to the previous year.  Other tax incentives are designed to promote investments in the production of exportable goo ds and export-oriented product development.  
Hungary has invoked Article 29.3 of the Agreem ent on Subsidies and Countervailing Measures to 
justify these incentives.
44 
74. Corporate tax concessions are also used to promote certain sectors. For example, among the 
additional eligibility criteria attached to the special  deduction granted to companies with at least 30% 
foreign participation was the requirement that more than half of the company's annual sales originated 
from manufacturing or other "activities of particul ar importance".  Other tax incentives, including 
accelerated and special depreciation schemes, are offe red to companies investing in high priority 
industrial zones or regions; that is, where unemp loyment is 50% higher than the national level. 
75. While estimates of the total annual costs of vari ous tax incentives in terms of revenue forgone 
were not available, according to information provided by the Hungarian authorities, nearly Ft 30 billion of tax revenue was forgone  in 1996 alone as a consequence of the special tax deduction for 
companies with foreign participation.  The cost  associated with the tax incentive for large-scale 
investment was around Ft 5.7 billion in the same year. 
76. The Hungarian authorities have not evaluated th e effectiveness of tax or other incentives for 
investment in accomplishing their stated objectives.  In the absence of convincing evidence to the 
contrary, their effectiveness remains in doubt.
45  Indeed, there are grounds for believing that 
incentives may not be merely ineffective, but possibly counterproductive (Box III.3).46 
                                                      
44 Documents G/SCM/N/3/HUN/Suppl.1 and G/SCM/N/39/HUN. 
 
45 OECD (1995b), p. 31. 
 
46 As pointed out in the WTO Annual Report, "it is difficult not to conclude that the world economy - 
and the vast majority of individual countries - would be  better off with ... limitations on the use of investment 
incentives."  WTO (1996), Volume I, p. 61. 
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Box III.3:  Evaluation of the effectiveness of incentives 
Incentives for investment are widespread in Hungary, as in many other developing and developed economies. 
According to the OECD among the countries of Cent ral Europe, Hungary has probably accorded foreign 
investors the most favourable tax treatment.  The main aim of these incentives is to attract foreign direct 
investment (FDI) and thereby develop local industry.  While Hungary's share of the total FDI in the region is around 40%, it is diffic ult to judge the extent to which incentives have actually contributed to this success. 
Nonetheless, there are grounds for doubting the effectiveness of such incentives, based on evidence from other 
economies.  Moreover, in some instances the use of incentiv es may even be counterproductive. 
In the first place, incentives are seldom among the main  determinants of business decisions.  Proximity to 
markets, the availability of sufficiently skilled labour at relatively low cost, and a stable economic and legal 
environment are usually much more important.  Other countries' experience with evaluation of tax and non-tax incentives suggests that the cost of such measures to the Government (in terms of expenditure or tax revenue 
forgone) may exceed the investment generated.  Their hi gh cost is related to the difficulty in identifying 
incremental investment; that is, investment that would not have been undertaken without the incentive.  Tax cuts for foreign multinational enterprises (MNEs) that are taxe d in their home countries purely on a residence basis 
(that is, they receive a full credit for taxes paid abroad) may have little or no effect on the incentive for those 
firms to invest in the country offering such relief.  Such cuts would provide an effective incentive only insofar as MNEs are in an excess foreign credit position, taxes on repatriated income can be deferred, the MNE's home country exempts foreign-source income from domestic taxes, or "tax sparing" is allowed.   
Secondly, insofar as incentives do stimulate particular types of investment, they may result in a less efficient 
allocation of national resources than would be the case if the Government remained neutral and refrained from influencing private decisions.  Any adverse effect of incentives on resource allocation would manifest itself as lower total factor productivity.  In the case of investment s, such as those in R&D, which are thought to yield 
social benefits (externalities) that are not adequately taken into account by private investors, it is usually extremely difficult to measure such ex ternalities accurately, with the result th at incentives may turn out to be 
excessive. 
Thirdly, incentives are usually expensive for the Government, involving large losses in tax revenues.  A tax 
system involving many special incentives is also much more susceptible to tax avoidance, and tax evasion, which further contribute to the loss in tax revenues. Incentives tend to worsen the fiscal balance, thus reducing national 
savings and showing up as a deterioration in the current account balance. 
Lastly, use of incentives may provoke countermeasures by trading partners.  Even where they do not contravene 
the WTO Agreement on Subsidies and Countervailing Measures, they may be used by other countries as a justification for countermeasures.  Alte rnatively, countries may react by adop ting incentives of their own, thus 
resulting in a beggar-thy-neighbour situatio n.  Such an "incentives race" is harmful to all countries concerned. 
77. In view of the large amounts of tax revenues fo rgone as a result of i nvestment incentives, the 
authorities indicated that they were reviewing thei r widespread use in order to make them more 
selective.  Curtailment of other income tax incen tives would not only contribute to more efficient 
allocation of resources, but also simplify the in come tax system and reduce the scope for tax 
avoidance and evasion.47 
                                                      
47 For example, an earlier tax reduction for enterprises with foreign participation was thought to have 
been abused through the formation of "puppet" foreign companies.  The customs duty  exemption for imported 
means of production was also felt to have been abused as there were suspicions that goods were being imported duty free under this provision and then resold in Hungary (OECD, 1995b, p. 99). WT/TPR/S/40 Trade Policies Review 
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(iii) Non-tax measures affecting investment 
(a) Regulations concerning registration of commerc ial presence and protection of investment 
78. The Hungarian Government's desire to attract foreign investment is reflected not just in its 
domestic tax laws, but also in th e legal and regulatory framework pertaining to companies and the 
protection of investments, including intellectual prope rty.  As discussed in Chapter II, this framework 
includes two basic laws that regulate the establishment and operation in Hungary of companies with 
foreign participation (joint ventures or wholly fo reign-owned companies), the Company Act (Act VI 
of 1988) and the Act XXIV of 1988 on Investments by Foreigners in Hungary (Foreign Investment Act).  Hungary has also developed an extensiv e network of bilateral agreements concerning 
investment protection and relief for double taxation.   In addition, it provides legal protection of 
intellectual property rights.  
(b) Protection of intellectual property rights 
79. Protection of intellectual property rights is essential in order, inter alia , to enable investors to 
obtain competitive returns on their investment in inte llectual capital.  Lack of protection constitutes a 
disincentive to the undertaking of such investment , tending to result in insufficient investment in 
intellectual property or even discouraging foreign direct investment.  Protection also helps to 
"internalize" the externalities often associated w ith R&D and related investments in intellectual 
property, thereby reducing the disincentive to undert ake such investment.  It also obviates the need for 
government subsidies to bridge the gap between th e social and private returns from investments in 
intellectual capital.  On the other hand, as recogni zed by Article 40 of the TRIPS Agreement, some 
aspects of intellectual property protection may impe de the transfer and dissemination of new ideas 
and technology, thereby restraining competition and a dversely affecting trade.  It follows that in 
Hungary, as in other countries, policy aimed at provi ding adequate protection of intellectual property 
rights involves establishing an appropriate balan ce between private investors' need to earn a 
reasonable profit on their investment in intellectual capital and the social benefits from allowing the 
public to exploit new knowledge to the greatest extent (Table III.10). 
80. Hungary is a party to most of the major multilate ral agreements in the field of protection of 
intellectual property (Table AIII.7).  Hungarian legisl ation on the protection of industrial property did 
not require any major changes to comply with its obligations under the TRIPS Agreement.  No temporary exemption was required for pharmaceuticals, because the protection of pharmaceutical products per se  by patents was established before the entr y into force of the TRIPS Agreement.   Hungary WT/TPR/S/40 
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Table III.10  
Summary of intellectual property protection in  Hungary corresponding to TRIPS obligations 
Form Main legislation Coverage Selected 
exclusions Duration Sanctions 
Copyrights and 
related rights Copyright Law III (1969) as 
amended by law No. LXXII 
(1994) Amending Industrial 
Property and Copyright Legislation, Articles 1-6 
repealed by Law XXXIII 
(1995), Articles 20-28 concerning patents still in 
force Authors' rights in the artistic, 
literary and scientific domains. 
To enjoy copyright protection a 
work must be an original creationStatutes, public 
resolutions, 
official 
notifications, document 
standards, or other 
obligatory regulations Life of author 
plus 70 years  Imprisonment up 
to 5 years 
(Infringement of 
Author's and Adjacent Rights) 
Geographical indications Protection of Trademarks 
and Geographical 
Indications (TMA), Law XI 
(1997) Protection for geographical signs 
and appellations of origin. 
Geographical indications of 
agricultural products and foodstuffs are granted protection 
if the products bearing the 
geographical indication also comply with the conditions 
specified in the product 
specification provided for by special legislation The indication has 
become generic; 
earlier rights to a 
geographical indication or to a 
trade mark; trade 
marks having a reputation even 
with respect to 
unsimilar goods Unlimited Imprisonment up 
to three years;  
false indication of 
goods 
 
Industrial designs Industrial Designs Law 28 
(1978) as amended by Articles 9,10 and 11 of Law VII (1994) The external shape of an 
industrial product is entitled to the protection afforded to designs, if it is new and if 
protection is not excluded by the 
decree Public interest; 
humanitarian principles; morality 5 years; 
renewable for further 5 years Imprisonment up 
to 3 years 
Patents Protection of Inventions by 
Patents (PA), Law XXXIII 
(1995) Any inventions that are new, 
involve an inventive activity and 
are susceptible to industrial application Public interest  20 years from 
filing date Imprisonment up 
to 3 years 
Topography of 
integrated circuits Protection of the 
Topographies of Microelectronic 
Semiconductor Products; 
Law XXXIX (1991) Protection is granted to the 
topography of microelectronic semiconductor products provided 
it is original.  A topography is 
original if it is the result of its 
creator's own intellectual effort 
and is not commonplace in the 
industry at the time of its creation 10 years from 
filing date (or, if earlier, from first 
use) Imprisonment up 
to 3 years 
Trade marks Protection of Trademarks 
and Geographical 
Indications (TMA), Law XI (1997) Any sign capable of being 
represented graphically, provided 
these are capable of distinguishing goods or services 
from those of other undertakings Public interest 
(public policy, 
morality or law, deception of the 
public); 
application in bad faith, State 
emblems and like 
(PUE 6 ter), 
religious symbols 10  years from 
filing date; may 
be renewed for 10-year period Imprisonment up 
to 3 years;  false 
indication of goods 
Utility models Protecti on of Utility Models 
(UMA); Law XXXVIII 
(1991); this law has been amended by Article 12 of 
Law  VII (1994) and Article 
117 (B) and (c) of Law XXXIII (1995) (see above 
under patents) Any solution relating to the 
configuration or construction of 
an article or to the arrangement of parts thereof, which is new, 
involves an inventive step and is 
susceptible of industrial application Aesthetic shape of 
products; plant 
varieties 10 years from 
filing date; two 
3-year extensions 
possible Imprisonment up 
to 3 years WT/TPR/S/40 Trade Policies Review 
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Form Main legislation Coverage Selected 
exclusions Duration Sanctions 
New plant 
varieties Protection of Inventions by 
Patents, Law XXXIII (1995) A plant variety shall be 
patentable if it is distinguishable, 
uniform, stable and new and has been given a denomination apt 
for registration May not consist 
solely of figures 
(except where it is a practise for 
designating 
varieties; it must not be liable to 
mislead; it must be 
different from the denomination of 
an existing variety 
of the same or closely related 
plant species; its 
use must not be contrary to public 
order or morality Plants 15 years, 
vines and trees 
18 years from grant, animal 
breeds 20 years 
from filing date Imprisonment up 
to 3 years 
Computer 
software Copyright Act, Law III 
(1969) The Act provides protection for 
computer software  70 years after the 
death of author 
of software Imprisonment up 
to 5 years 
Source: World Intellectual Property Organisa tion; Government of Hungary;  WTO Agreem ent on Trade-Related Intellectual Property 
Rights.  
81. The major changes in intellectual property righ ts legislation in connection with Hungary's 
accession to the EU have already been put into effect .  More specifically, patent and trade mark laws 
have been harmonized with Community legislation.   As a result of this harmonization Hungary's 
legislation is, by and large, now more stringent than the minimum standards laid down by the TRIPS 
Agreement.  In the case of duration of copyri ght protection, for example, whereas the TRIPS 
Agreement stipulates the life of the author plus 50 years, Hungary's current copyright law provides 
protection for the author's life plus 70 years.  Another example is that Article 51 of the TRIPS Agreement covers only importation of  counterfeit trade mark or pirate d copyright products.  However, 
in accordance with Decree 128/1997 on Customs proce dures in Hungary, this provision is applied to 
all counterfeit trade marks, counterfeit geographical  indications and infringement of copyrights and 
related rights.  Data on applica tions and registrations of intellectual property are presented in 
Table AIII.8. 
82. Parallel imports of goods and services contai ning any category of intellectual property 
mentioned above are not allowed under Hungarian law.   For the importation of these goods by a third 
party, the consent of the right holder is required.  
83. If a patent has not been used within a speci fied period of time after being filed, under 
Article 31 of the law concerning Protection of Inve ntions by Patents (PA), a compulsory licence may 
be granted, unless the patentee justifies the lack of exploitation.  Furthermore, under Article 32 of the 
PA, if a patented invention cannot be exploited without infringing another patent ("the dominant 
patent"), a compulsory licence may be granted to the extent necessary for the exploitation of the 
dominant patent.  Under Article 33,  the scope and duration of a compulsory licence are determined by 
the court, which, failing agreement between the par ties, also decides the amount of compensation.  
Similar provision applies to utility models (A rticle 16 of the Utility Models Act (UMA)).  
Compulsory licensing is not possible with respect to  trade marks, industrial design and topographies;  
nor can it be a remedy for the anti-comp etitive use of intellectual property rights.
48  No compulsory 
licence has been granted since 1 January 1993.   
                                                      
48 Common provisions on compulsory licences are regulated by Article 33 of the PA.  
 Hungary WT/TPR/S/40 
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84. The legislation on intellectual property, civil la w, the law on civil procedure and criminal law 
may be used to combat infringement.  The Me tropolitan Court has jurisdiction and exclusive 
competence in all cases involving infringement of intellectual property rights.  The second instance is 
the Supreme Court.  As regards civil remedies, Artic le 35 of the PA provides, among other things, for:  
the declaration of infringement by the court, injunc tion in order to stop the infringement, restitution, 
and seizure or destruction of the means used fo r infringement and of the infringing products.  The 
patentee may also claim damages unde r the rules of civil liability.  Similar remedies are provided for 
by the law in case of trade mark infringement and infringement of industrial design, utility model and 
topography protection.  Provisional measures may be  applied under the Code of Civil Procedure.  
Provisional measures may also be taken under the Trad emarks Act (TMA) to protect the proprietor of 
a trade mark.  Similar provisions are included in the PA, the UMA and in the Decree on the protection 
of industrial designs.  As regards criminal sancti ons, violation of authors' rights and neighbouring 
rights also constitutes a criminal offence under Artic le 329 of the Criminal Code, punishable by up to 
five years imprisonment.  Under Articles 296 and 329 of the Criminal Code, an infringement of 
intellectual property involving false indication of goods  also qualifies as a crime, punishable by up to 
three years imprisonment.  
85. Government Decree 128/1997 (VII.24) Korm. provides for measures by the customs 
authorities to prevent the importation of goods infringing trade marks, the protection of geographic 
indications, and copyright or neighbouring rights.  The rightholder may file an application for 
measures with respect to goods of a certain producer  or of a certain country for a certain period 
(general application) which cannot be longer than six months, or file an application with respect to a 
certain transport of goods (special application)  The rightholder is require d to provide adequate 
evidence about the counterfeit goods and to deposit secu rity.  In addition, the customs authorities are 
entitled to initiate procedure ex officio  preventing prima facie  infringing goods from entering the 
country.  Since the above Decree came into for ce on 1 August 1997, four applications have been 
submitted to the competent customs authority and one procedure initiated ex officio .  The authorities 
consider that this Decree is in accord with the re levant provisions of the TRIPS Agreement.  Foreign 
and Hungarian intellectual property rightholders equally can avail themselves of legal procedures and 
remedies applied in Hungary. 
86. The scale of the unofficial economy, noted in Chapter I makes the sale of counterfeit and 
pirated goods a continuing problem, although the trade losses associated wi th piracy have been 
declining.  Losses in 1996 were estimated by the In ternational Intellectual Property Alliance (IIPA) to 
be around $70 million for motion pictures, sound recordings, computer software and books, 
notwithstanding stepped up enforcement in 1996 w ith, among other things, several convictions of 
distributors and users of pirated software.49  Clearly, it is too early to assess the effectiveness of the 
new measures in preventing the sale of counterfeit and pirated goods. 
(c) Investment incentives 
87. Hungary attempts to encourage investment, particularly FDI, not only by establishing a 
conducive regulatory framework, protecting in tellectual property rights and providing tax 
                                                      
49 According to figures recently released by the Business Software Alliance (BSA), nearly 70% of 
personal computers in Hungary operate using some form of pirated software (compared to around 50% in western Europe), with a loss in sales amounting to Ft 10 billion ($50 million) as well as VAT payments.  Illegal 
use of software in Hungary can result in a prison sentence of two to five years.  More than 100 prosecutions are 
currently under way as a result of violations of information technology regulations.  Three court decisions have been handed down so far, each of which resulted in a prison sentence.  BSA has reportedly signed a cooperation 
agreement with the Hungarian Nationa l Police (ORFK) and a similar arrangement with the Customs and Excise 
Office is envisaged in the near future (Budapest Sun, 22-28 January 1998, p. 10.). 
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concessions, but also by offering non-tax forms of di rect financial assistance to domestic and foreign 
investors alike (Box III.4).   
88. One of the principal sources of direct fina ncial assistance to businesses is the Targeted 
Allocation for the Development of the Economy,  established under Decree Nÿ4/1996 (II.6) and 
managed by the Ministry of Industry, Trade and Tourism (MITT).50  In 1996, the programme had Ft 
15 billion at its disposal.  The Targeted Allocati on fund provides assistance not just for the promotion 
of trade, as discussed above, but also for direct investment and economic restructuring.  Assistance 
may involve repayable loans or non-repayable grants51, which are awarded by MITT on the basis of a 
competitive tendering process, the Economy Devel opment Tendering System.  The amount of the 
subsidy cannot normally exceed one third of the combined costs of the investment in manufacturing facilities and infrastructure and may not be greater than Ft 200 million (with the exception of 
individual manufacturing investments exceeding Ft 1 billion).    
89. Among the other main forms of assistance for i nvestment is the Targeted Allocation for 
Regional Development.  This fund provides assistance to companies that create new jobs and hire the 
unemployed in regions where unemployment exceeds 15% .  All business organizations registered in 
Hungary, upon submission of economically viable proposals, are eligible for assistance amounting to 
Ft 700,000 per new job created.  One half of the funds  is allocated in a decen tralized manner, based 
on the decisions of the regional development c ouncils of the individual counties concerned. 
Box III.4:  Investment and other subsidies, 1996 
Name of subsidy Form of subsidy       Amount 
        (Ft million)  
1. Export enhancement 
programme for agricultural 
and fishery products The subsidies are granted in the form of a bounty. 42,102a  
2. Price support programmes 
for certain agricultural 
products Buying-in of certain products at guaranteed prices by State intervention agency. 7,500b 
3. Agricultural funds *Stock-Breeding Fund:  Subsid ies from the Fund are in the form of repayable or 
non-repayable financial contributions.  These subsidies are awarded through open 
tenders. 776a 
 *Fishery Fund:  Subsidies from the Fishery Fund are in the form of grants that may 
be awarded through open tenders. 91c 
 *Agricultural and Forestry Fund:  S ubsidies provided for the purchase of 
equipment and auxiliary appliances are repayable contributions. 12,778c 
 *Game Husbandry Fund:  Subsidies from the Game Husbandry are in the form of 
grants that may be awarded through open tender. 105c 
 *Land Protection Fund:  Subsidies from the Fund are in the form of grants that may 
be awarded through open tenders. 684c 
4. Central Fund for Technical 
Development Subsidies from the Fund are usually in the form of a repayable interest-free loan for 
up to 50% of research and technical develo pment costs up to the stage of creating a 
prototype.  Subsidies are awarded thr ough tender procedures or upon the initiative 
of the Management of the Fund. 4,160cd 
5. Targeted Allocation for 
Territorial Development Subsidies aimed at areas where unemploym ent is 50% above the national average 
and in the form of:   non-repayable capita l transfer, interest subsidy for bank loans 
financing development projects, repayabl e financial contributions, government 
guarantee on bank loans. 5,000 
                                                      
50 Details of other forms of assistance are found in Hungary's notification to the WTO (document 
G/SCM/N/3/HUN/Suppl.1, 14 June 1996). 
 
51 The specific forms of subsidy include interest-free lo ans, interest subsidies, interest-free payment in 
instalments for the customs duty payable on import leasing, repayable interest-free subsidies from the funds of 
the Central Technical Development Core Programme, ba nk loans refinanced by the National Bank of Hungary 
and equity participation by the State. 
 Hungary WT/TPR/S/40 
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Name of subsidy Form of subsidy       Amount 
        (Ft million)  
6. Targeted Allocation for 
Development Subsidies from the Economic Development Fund are in the form of repayable or 
non-repayable contributions that may be awarded through open tender procedures 
or upon individual request 15,000e 
7. Environment Protection 
Fund Subsidies are in the form of non-repaya ble financial contributions;  repayable 
contribution (loan) free of interest or at preferential rates;  credit guarantees 8,608 
8. Mining Conversion 
Programme These subsidies are in the form of grants or government guarantees on bank loans. 3,600 
9. Metalurgy Conversion 
Programme These subsidies are in the form of grants or government guarantees on bank loans. 10,840 
10. Assistance to the public 
railways These subsidies are in the form of grants. 29,800 
a Figure for 1997 (according to WTO document WT/L/238, 29 October 1997) 
b Amount budgeted in 1995, but not spent. c Data for 1995 (according to WTO docume nt G/SCM/N/3/HUN/Suppl.1, 14 June 1996. 
d This amount is included in the figure of 15,000 indi cated for the Targetted A llocation for Development. 
e This figure includes the amount of 7,160 budgeted for the Central Fund for Technical Development. 
Source: WTO Secretariat, base d on information provided by the Government of Hungary.
 
90. In addition, there are many industrial parks either in operation or under construction and 
another 36 are in planning and design stage.  Th ese parks offer several advantages to domestic and 
foreign investors, notably:  full infrastructure (wat er supply, electricity, drainage, telephone and fax 
lines, etc.), which may be tailored to the needs of  investors; road connections; a broad range of 
services, and local tax preferences.  Furthermore, in 1996, the Government also launched a targeted 
programme of incentives for the creation and the deve lopment of industrial parks.  While details of 
the programme are still being decided, it may in clude interest-free loans as well as non-repayable 
grants to cover some of the costs of the feasibility studies and investments.  Various eligibility criteria 
must be fulfilled;  e.g. the area where the industria l park is to be established should be classified as a 
socially and economically underdeveloped region, a re gion undergoing industrial restructuring or hit 
by permanent unemployment, or covere d by the rural development programme. 
(d) Performance and local-content requirements 
91. While Hungary has not notified any trade-relate d investment measure (TRIM) as defined in 
the TRIMs Agreement, as noted above, the granti ng of incentives is sometimes conditional upon 
performance or local-content requirements.  Th ese requirements may involve not just export 
performance, as in the case of the tax incentive fo r large-scale investment (described above), but 
employment conditions.  For example, among the cond itions attached to the tax allowance for fully 
foreign-owned offshore companies is that, in th eir domestic administrative and court proceedings, 
they employ only domestic lawyers and that a majo rity of their senior officers, supervisory board 
members and employees, taken separately, are Hunga rians.  As a transition economy, Hungary is 
obliged under the TRIMs Agreement to ph ase out such requirements by 2002.   
(iv) Government procurement 
92. During the latest period for which data are available, the 14 months from November 1995 to 
December 1996 inclusive, total (central a nd local) government procurement amounted to 
approximately Ft 150 billion, or 14% of GDP.  Of this amount, 43%, 41% and 16%, respectively, 
involved goods, services and construction contract s.  During the same pe riod, central and local 
government accounted for 20% and 52%, respectively, of the total value of government procurement, 
with public undertakings accounting for 24%.  Insofa r as these undertakings are privatized in the 
future, government procurement will constitute a smaller share of GDP. WT/TPR/S/40 Trade Policies Review 
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93. The basic legal instrument of government procurement is Act XL of 1995 on Public 
Procurements, which was designed in accordance with  the existing international instruments (World 
Bank Guidelines, UNCITRAL Model Law) and the releva nt EU directives.  It entered into force on 
1 January 199652 . The Act applies to central and local government and to public undertakings, 
including utilities.   The rules of the Act apply to procurements exceeding the following thresholds:  
Ft 15 million for goods; Ft 7.5 million for service s; Ft 30 million for building and construction 
projects; Ft 7.5 million for technical planning fo r building and construction projects; and Ft 240 
million for pre-qualification requirement (as de fined in Section 42:3 of the Law on Public 
Procurement).  The Act is enforced by the Public  Procurement Council, an independent agency under 
the supervision of Parliament. 
94. Government procurement procedures may be op en, by invitation or by direct negotiation.53  
The general procedure for government procurements is open tendering.  A "by invitation" procedure 
can be applied only if, owing to the particular natu re of the procurement, a limited number of bidders 
is suitable for fulfilling the contract and there are at  least five qualified bidders.  A direct negotiation 
procedure may be applied only if, inter alia , either of the other two pro cedures was unsuccessful, or if 
the technical peculiarities, artistic considerations, et c. are such that the contract can be carried out 
only by a single contractor.  Of the 3,240 pro cedures initiated during the period November 1995 to 
December 1996 inclusive, 2,252 involved open tender, 194 invitational tender and 795 direct 
negotiation. 
95. Intended procurements are published initially in the Public Procurement Bulletin and 
subsequently, in some cases, in domestic newspape rs.  To the extent that foreign-based bidders are 
allowed to participate in the procedure, th e announcement may also be published in foreign 
newspapers, in which case the foreign language su mmary of the announcement may also be published 
in the Bulletin. 
96. The criteria used to judge bids apply to domest ic-based bidders, irrespective of whether they 
are foreign-owned or Hungarian-owned.  The Hungari an authorities estimate that 5-10% of the value 
of contracts is awarded to foreign-based bidders .  No information is available on the share of 
domestic-based, foreign-owned suppliers  in total public procurement. 
97. Evaluation criteria must be published in the invitation for tenders.  Bids complying with the 
conditions specified in the invitation for bids ar e judged on the basis of: (a) consideration of the 
lowest amount, or (b) the most favourable bid as a whole.  In the case of the latter, the order of importance of the criteria used as  a basis for judging the bids must be specified and published. Where 
the price difference in bids does not exceed 10%, th e higher-priced bid may be considered of equal 
value, if half of the higher-priced contract is produced by domestic employees.  Where the price 
difference does not exceed 10%, preference is give n to the bid for which the value produced by 
domestic employees is the highest.  In the event that the winning bid cannot be established on the basis of the foregoing price and domestic employee crite ria, preference is given:  (a) to the bid which 
contains products embodying environmentally friendly trade marks;  and (b) when the quality 
assurance system of the bidder is certified by an accredited certifier in any national system.   
98. The entity inviting the bid must publish informa tion on the outcome of the procedure within 
15 days of its announcement.  If they so request, unsu ccessful bidders must be informed of the reasons 
for their exclusion within 15 days.  Appeals by uns uccessful bidders should be lodged with the Public 
                                                      
52 WTO document S/WPGR/W/11/Add.17. 
 
53 WTO document WT/WGTGP/W/9, 16 December 1997. 
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Procurement Committee, comprising a chairman a nd three commissioners.  Of the 165 cases appealed 
during the period (November 1995 to December 1996 inclusive), 73 were upheld. 
99. Hungary is not a party to the Plurilateral Agre ement on Government Procurement, nor does it 
envisage acceding to the Agreement in  the near future.  On the other hand, Hungarian legislation is, 
by and large, compatible with the EU directives in this field, with the requirements of the EU 
directives regarding utilities (energy, water, te lecommunications and transport) being among the 
notable exceptions.  Complete harmonization with EU  legislation is expected to be accomplished no 
later than the date of accession. 
(v) State-owned enterprises, privatization and corporate governance 
100. Privatization, which began in 1990, has been a key aspect of Hungary's transition towards a 
market economy.  This reflects the Government's recognition that private ownership, and therefore 
privatization of state-owned enterprises, plays a cr ucial role in improving enterprise performance and 
corporate governance.  Of the 1,857 state-owned enterprises existing on 1 January 1990 (with a book 
value of approximately Ft 2,000 billion), 297 were still held by the State at the end of 1997.  Of these, 
the State fully owns or holds a majority stak e in 151 enterprises and minority holdings in 146. 
Consequently, whereas a decade ago the private sector produced only 10% of GDP, its share is 
currently 75-80%.  Unlike in several other economies in transition, privatization in Hungary has been 
largely based on a cash-based method with direct sale of enterprises to investors by competitive 
tendering on a case-by-case basis.  Active use has been made of global placements in the privatization not just of major manufacturing firms, but the country 's largest banks and particularly public utilities.  
101. Privatization has greatly contributed to grow th in productivity, which has improved much 
faster in privatized firms than in state-owned enterprises.
54  Among striking features of the Hungarian 
privatization process, apart from its fast pace, are the high participation of foreign investors and the 
wide range of sectors covered, notably all major banks and many public utilities including several so-
called natural monopolies, such as telecommuni cations, electricity and gas distribution.55  The sale of 
enterprises to foreign investors was considered essential for the re-capitalization of privatized 
enterprises whose existing capital tended to be obsolet e, the adoption and use of modern management 
practices and technologies, and the re-training of employee in new production methods.  
102. One of the main developments during the pe riod under review was the implementation of a 
new privatization law (Act XXXIX) passed in Ma y 1995.  This law constituted a landmark in the 
privatization process.  It restored credibility to the privatization programme, which had been 
threatened by a lack of transp arency in its implementation56, and thereby accelerated privatization of 
state-owned enterprises.   It provided for the merger of the two State holding companies that had 
previously been responsible for the privatizati on and management of such enterprises (SPA and 
HSHC) into a new entity, the State Privatization and Holding Company (ÁPV Rt.).  The latter was 
assigned sole responsibility for the management and sale of state-owned enterprises as well as for the 
liquidation of those that were unprofitable. 
                                                      
54 According to Pohl et al. (1997), gains in labour productivity in Hungarian state-owned enterprises 
(SOEs) were half those achieved by privatized firms.  Evidence in the same study also  suggests that growth in 
total factor productivity (TFP) increases  substantially after privatization - by 4.5 percentage points per year over 
a period of at least four years. 
 
55 Foreign investors participated in the privatization of nearly 500 companies, accounting for much of 
the inflow of FDI into  Hungary.  In general, privatization has not  been accompanied by restrictions on the re-
sale of shares to foreigners. 
 
56 OECD (1997a), p. 8. 
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103. The round of privatization of utilities towards th e end of 1995, attracti ng record levels of 
foreign direct investment, involved, among other things, the sale of an additional 40% stake in MATAV, the main Hungarian telecommunications company, to a joint venture consisting of Ameritech and Deutsche Telekom, thus raising the total stake of this joint venture in MATAV to 
67%.
57  It also involved the sale to foreign investors of large stakes (either majority or large minority 
stakes with options to expand the ownership share) in two non-nuclear power generators, in all six 
regional electricity distribution companies and in fi ve regional gas distribution companies (shares in 
these companies were purchased ma inly by German, Italian, Au strian and French utilities).  
Privatization of utilities has proceeded at such a pace that the electricity and gas distribution 
framework now in place will require little, if any, ch ange to comply with EU regulations regarding 
competition in these sectors.  Other major privati zation transactions comple ted during 1995 include 
the sale of a majority stake in MOL (the nati onal oil and gas conglomerate and largest of all 
Hungarian firms) to domestic and foreign invest ors and a 60% stake in Budapest Bank to the 
European Bank for Reconstructi on and Development and General Electric Capital (of the United 
States).58 
104. One outcome of this surge in privatization was that total revenues in 1995 amounted to 
Ft 481 billion, roughly three times the amounts realized in each of the two previous years.  A large 
part of these revenues was used to redeem outstandi ng foreign debt, with significant fiscal benefits.  
After the record sales in 1995, privatization re venues dropped considerably in 1996 and 1997 to 
Ft 176 billion and Ft 350 billion, respectively.  Nevert heless, a number of important transactions have 
been completed or initiated, including the sale of MHB, the Hungar Hotel hot el chain, Kereskedelmi 
& Hitel Bank, the last of Hungary's five big pr eviously state-owned banks, stakes in MOL, and 
Richter (a large pharmaceutical firm).  There was al so a public offering of 19%  of the government's 
remaining 33% stake in MATAV.  Opportunities fo r further quick sales are limited, however, as a 
number of the remaining state-owned enterprises will probably be difficult to privatize without further 
considerable restructuring.  Others will pr obably remain in state hands until liquidated.59 
105. Notwithstanding the improved transparency of the privatization process since the 
establishment of ÁPV Rt., the decision-making process in the field of privatization appears to have 
been sometimes opaque.  According to the OECD, th e authorities' inability to  provide objective and 
quantitative explanations for the choice of one pro posal over another, or for the rejection of all 
choices, inevitably left the decision and the process open to charges of arbitrariness and compromised 
the credibility and legitimacy of the process in the eyes of both the general public and of potential 
investors.60 
106. These problems were partly addressed by a subsequent amendment to the 1995 law.  Under 
the provisions of Act  LXXVI of 1997 passed by Pa rliament in July 1997, the ÁPV Rt. now has to 
accept any reasonable offer, even if there is only one  bidder and to re-tender unsold companies within 
90 days if the first tender does not succeed.  Sales can only be bl ocked by the ÁPV Rt. board of 
directors with a two-thirds majority and tende r conditions cannot be ch anged after the tendering 
process begins.  Moreover, a written memorandum of all important privatization decisions must be 
                                                      
57 In 1997, MATAV was also listed on the New York Stock Exchange. 
 
58 At the same time, some inefficient comp anies were simply allowed to go under. 
 
59 The pace of liquidation activity slowed in recent year s, largely because the bu lk of liquidations took 
place in 1992-93.  Since the beginning of  the transition effort, 650 have been liquidated.  Liquidation tends to be 
a lengthy process, taking about three years to complete.  Bankruptcy is usually a more efficient way of disposing of unprofitable companies. 
 
60 OECD (1997a), p. 58. 
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made available to the public.  While these cha nges have increased the transparency of ÁPV Rt. 
operations and decisions, some ambiguity remains as to  the criteria used by ÁP V Rt. to deem an offer 
"reasonable".61 
107. In addition to the matter of performance require ments, several other important issues remain 
to be addressed in respect of the ÁPV Rt.:  the di vestment of minority stakes in companies where the 
law does not require the ÁPV Rt. to maintain shareholdings; the corporate governance of those 
enterprises where the ÁPV Rt. either holds the majo rity of shares or retains a "golden share"; and 
assistance provided by ÁPV Rt. to privatized firms.  Furthermore, as the privatization process enters 
its final stages, the future role of the ÁPV Rt. needs to be re-appraised. 
108. The ÁPV Rt. is committed to divesting its  minority shareholdings, amounting to about 
Ft 130 billion, as rapidly as possible.  It was origin ally envisaged that the rest of privatizable 
enterprises would be sold by the end of 1997, but th is proved to be a rather ambitious target, given 
that many of these enterprises still require extensive restructuring.  For example, no suitable buyers 
have been found for the three remaining state-ow ned conventional power ge nerators (Pecs, Vertes, 
and Bakonyi), although the ÁPV Rt. continues its e fforts to sell these enterprises either through 
bilateral negotiations with potential investors or by inviting bids again.  The privatization process in 
now scheduled to end in 1998, with the ÁPV Rt. retaining shares in 109 enterprises (with a book 
value of about Ft 500 billion), 50 of which, in cluding Hungarian Railways (MAV Rt.), Hungarian 
Post, EXIMBANK and the Hungarian Export Insura nce Corporation (MEHIB), will remain fully 
state-owned.  MAHART Rt. (a shipping company), Ikarus (a bus manufacturer) and MVM Rt. (an electricity company) are among the major privatizations remaining. 
109. Rationalization of the number of, and the rights attached to, golden shares is also necessary.  
The Government, through the ÁPV Rt., has maintain ed a golden share (combined in some cases with 
sizeable participation) in 32 companies, including 20  of the largest.  The rationale for holding such 
shares, together with the rights attached to th em, is wide-ranging, including the maintenance of 
traditional brand names (as in the case of the Herend and Zsolnay China and Hungarian paprika 
manufacturers) and the desire to en sure that the company's strategy is agreed upon with the state.  
While retention of golden shares by the Government  in privatized companies is not uncommon in 
other WTO member countries, this normally invol ves so-called "natural" monopolies, such as the 
energy and telecommunications sectors.
62  Significant in Hungary's case is the large number of golden 
shares retained by the Government and their wide se ctoral dispersion, including not just energy and 
telecommunications, but also firms in the manufacturing and food-processing. 
110. Another important issue relates to the use of ÁP V Rt. resources to assist privatized enterprises 
facing difficulties.  While the most important long-te rm objective of a privatiz ation programme is to 
increase the productivity of privatized enterprises,  such gains may not fully materialize if the 
discipline provided by the market to increase efficiency is vitiated by the ÁPV Rt.  More specifically, 
recent events raise some doubts concerning the enfo rcement of a genuinely hard budget constraint.63  
While many enterprises have been liquidated, or d eclared bankrupt, there still seems to be a case-by-
case approach when enterprises encounter problems.   ÁPV Rt. can legally take responsibility for 
restructuring companies on the brink of liquidation and has already intervened to avoid the initiation 
                                                      
61 OECD (1997a), p. 59. 
 
62 Although claims about the exis tence of natural monopoly continue  to influence public policy in 
Hungary and elsewhere, the concept is becoming increasi ngly irrelevant as new technologies emerge that are 
efficient at much lower levels of production than prev iously.  Consequently, the ch aracterization of "natural 
monopoly" has given way to the notion of "workable competition" (Rose, 1997, p.2). 
 
63 OECD (1997a),p. 62. 
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of bankruptcy procedures for two privatized comp anies by re-nationalizing them.  Furthermore, 
despite the progress made in privatization, there still appears to be some resistance to carrying out the 
restructuring necessary in the case of some large co mpanies.  ÁPV Rt. bought back a company that 
had been previously privatized and was on the verge of liquidation, and also played a role in rescuing 
two companies that were involved in the debt-rec onciliation programme, apparently motivated by the 
desire to avoid large-scale layoffs.64   
111. There is also the broader issue of the appropria te role of the ÁPV Rt. as far as its majority 
shareholdings are concerned, once the privatization pr ocess is completed.  Two options are apparently 
being considered:  either maintaining the agency as a sort of investment fund (the "treasury" model) or 
transforming it into a conglomerate, with represe ntatives of ÁPV Rt. being fully involved in the 
management of the companies (the "holding" m odel).  Whichever model is chosen, it will be 
important to avoid a situation developing where its  resources are used to subsidise inefficient 
enterprises or it becomes a vehicle for attracting government subsidies.  Irrespective of the model 
adopted, effective post-privatization corporate gove rnance is essential if privatized firms are to 
improve their productivity performance. 
(vi) Monopolies and concessions 
112. The beneficial effects of privatization on produc tivity may be mitigated if it fails to foster 
effective corporate governance of privatized enterprises, or if privatized firms are granted monopoly 
power.  The concession of monopoly power or delayed liberalization may be part of the terms of 
privatization.  For example, such a concession w ith respect to basic telecommunications services was 
granted to MATAV in 1993 for an eight-year period in order to provide an incentive to Ameritech and 
Deutsche Telekom both to purchase their initial 30% st ake in the enterprise and for the privatized 
company to undertake further investment in teleco mmunications infrastructure.  According to the 
authorities, the Competition Act (section (viii) below) adequately addresses the question of monopolies in Hungary.
65 
113. The 1991 Concession Act designated some activ ities (including drugs, postal services, 
telecommunications, management of broadcasting fre quencies, railways, mining, gas supply, and the 
generation, transmission and supply of electricity) to  be performed by the State or local authorities 
(either directly or through companies established for that purpose) or by private operators through 
concession tenders.  The Act expressly allows for forei gn investors to participate in such tenders on a 
national treatment basis, by way of a concession contract awarded on the basis of a public tender.  All enterprises incorporated under Hungarian law can thus obtain these concessions irrespective of 
whether they are controlled by domestic or foreign interests.  Concessions may be awarded for terms 
of at least five, and not more than 35 years.  These rules apply to concessions granted by central 
government or sub-national authorities.  Concessi ons are also subject to specific price setting 
provisions. 
(vii) Bankruptcy 
114. Another important aspect of Hungary's transition to a market economy was the establishment 
of a new bankruptcy law in 1992.  Whereas previous ly, firms could obtain assistance in the form of 
                                                      
64 OECD (1997a), p. 62. 
 
65 In the case of goods and services subject to monopoly power, firms may charge higher prices than 
those prevailing under competitive cond itions;  the excess profits derived from the exercise of such monopoly 
power may also be used to cross-subsidise other good s and services sold in competitive markets, thereby 
enabling firms with a monopoly in one market to use predatory pricing in another in order to drive out its 
competitors. 
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soft loans from state-owned banks or by the Govern ment deferring tax or other payments, the new law 
contained a strict bankruptcy provision, including a trigger mechanism that automatically activated  
bankruptcy or liquidation procedures in cases where the period of arrears was as short as 90 days.66  
The outcome was a large number of liquidations, in cluding some economically viable firms that were 
facing only temporary liquidity problems.  At the sa me time, many large state-owned enterprises were 
able to circumvent the law either because of thei r close links to state-owned banks, which continued 
to extend credit, or through special debt-resolu tion channels entailing a large element of debt 
forgiveness.  Notwithstanding these and other problems, including the overloading of the courts handling the cases, the new law marked a major step in the development and enforcement of the rules 
necessary for a smooth-functioning market economy.
67  In addition to the law's enactment, the process 
of implementation fostered the emergence of pr ofessionals, institutions and specialized knowledge 
necessary to support a functioning bankruptcy law.  Th is process also pushed forward privatization of 
state-owned enterprises and thereby the est ablishment of market-based incentives. 
(viii) Competition 
115. As a result of privatization, and the demonopoli zation associated with it, the vast majority of 
enterprises, including public utilities, across key sectors of the economy are now operating in the 
private sector under competitive conditions.   Wh ile the opening of the Hungarian economy to 
international trade and foreign investment has pr ovided a relatively simple and effective form of 
competition policy, a coherent (and stable) regulatory framework is also needed  if the market is to 
function efficiently and the associated productivity gains are to be shared fairly with consumers.  This 
does not always seem to be the case in Hungary, at least for administered prices (see below).68 
116. Only 16% of prices (weighted by their share in the consumer price index) are subject to 
central or local government control (Table AIII.9).  The price controls are primarily the result of 
privatization of basic utilities and energy supply, for which concession contracts contain pre-agreed 
price arrangements in order to avoid a one-time sh arp increase in energy and utility prices.  Price 
controls on foodstuffs and other basic products we re eliminated in 1992.  (See Table AIII.9.) 
117. The importance attached by the Hungarian Gove rnment to competition policy, and thus the 
interests of consumers, is illustrated by the fact that the Constitution recogni zes and supports the right 
to entrepreneurship and the freedom of economic competition.69  Since the previous trade policy 
review, the 1990 Competition Law was amended before  being replaced, as of 1 January 1997, by the 
1996 Competition Act.70  This Act represents a significant step towards the achievement of the 
necessary approximation to EU anti-trust legislation.   
118. Among the most notable new elements of the Act is the change in the focus of the law from 
protection against "unfair" market behaviour to a stronger emphasis on non-competitive ("restrictive") 
market practices.  The new law contains a general pr ohibition not only of horizontal cartels, but on all 
kinds of vertical restraints (instead  of only resale price maintenance) that prevent, restrict or (as a new 
                                                      
66 The automatic trigger was re pealed at the end of 1992. 
 
67 OECD (1997a), p. 81. 
 
68 OECD (1997a), p. 62. 
 
69 Moreover, the Civil Code declar ed the ban on unfair economic act ivity as one of its fundamental 
principles. 
 
70 Act LXXXVI of 1990 on the Prohibition of Unfair  Market Practices.  Act LVII of 1996 on the 
Prohibition of Unfair and Restrictive Market Practices. 
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element) distort competition, or may do so.  On  the other hand, agreements concluded between 
undertakings that are not independent of each ot her are no longer prohibited as such.  The new law 
also contains a system of exemptions from the pr ohibition, which resembles those specified by EC 
competition law, including some block exemptions.  In addition, the dominance concept is no longer 
based on market share thresholds; it is instead b ased on the ability of firms in a dominant position to 
act independently to a great extent from other ma rket participants.  Likewise, the obligation of 
participants in a merger to apply for authorization is no longer linked to market share thresholds.  The 
new elements of the definition of concentration to gether with the criteria for assessing mergers are in 
close harmony with those of the EU Mergers Regul ation.  As a consequence of this new law, 
Hungary's legislative framework on competition policy is  now largely compatible with EU standards.  
119. As the new law entered into force only in January 1997, no information was available 
regarding enforcement.  Under the previous Compet ition Act, decisions were reached in 756 cases by 
the Office of Economic Competition during the peri od 1 January 1991 to 30 June 1997 (Table III.11), 
and in a further 98 cases between 30 June and 20 Oc tober 1997.  Violations were found in only one 
third of these cases, however, and of the total of Ft 1.8 billion in fines imposed, little more that Ft 100 
million has been collected.71 This suggests that the Act may no t have been strictly enforced.  
Inadequate enforcement of competition laws can cons titute an important additional form of assistance 
to some domestic producers, sheltering them from domestic and foreign competitors alike.  The 
outcome may be a situation in which trade and domes tic resource allocation are distorted not so much 
by government action, but rather its failure to take adequate action against anti-competitive private 
practices.  As in the case of specific border and inte rnal measures, such protection is obtained at the 
expense both of other domestic producers who, as a consequence, face higher prices for their inputs, 
and of consumers.  It remains to be seen whet her enforcement is improve d under the new Competition 
Act. 
120. With the privatization of several major public u tilities, the Government is also now expected 
to play an important role in regulating the activ ities of private suppliers of electricity, gas and 
telecommunications, which the authorities regard as natural monopolies. Hungary's regulatory policy 
has sometimes lacked consistency, however.  In the case of telephone tariffs, for example, although 
the formulae used for determining some tariffs c ontain efficiency provisions, these were not invoked, 
and firms were allowed to increase prices by the full amount of inflation.  By contrast, a wide range of costs were excluded from the calculation used to determine the amount of permissible increases in 
electricity and gas prices.
72  Such inconsistency in the appli cation of laws and regulations is 
detrimental to the development and long-term planning of entr epreneurial activities, and to 
competition. 
                                                      
71 See European Bank for Reconstruction and Development (1997), p.174. 
 
72 The laws on electricity and gas envisaged full cost-recovery pricing regime for electricity and gas.  
This was a crucial pre-condition for a ttracting domestic an d foreign investors in the privatization in December 
1995 of state-owned power generating companies as well as electricity and gas distributors. 
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Table III.11  
Decisions reached by the Office of Economic  Competition (1 January 1991 to 30 June 1997) 
Subject-matter Number of decisions Number of negativea decisions 
Restrictive agreements 43 16 
Abuse of dominant position 229 56 
Control of concentrations 74 1 
Cases with other subject matter 410 197 
Total 756 170 
a Decisions ascertaining an infringement of  the law and/or prohibiting certain conduct. 
Source: WTO Secretariat.