WORLD TRADE  
ORGANIZATION  RESTRICTED 
WT/TPR/S/40 
15 June 1998  
 
(98-2409) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
HUNGARY 
 
Report by the Secretariat 
 
  
 
This report, prepared for the  Trade Policy Review of Hungary, has been drawn 
up by the WTO Secretariat on its own responsibility.  The Secretariat has, as 
required by the Agreement establishing  the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from the Government of Hungary on its trade 
policies and practices. 
 
Document WT/TPR/G/40 contains the policy statement submitted by the 
Government of Hungary. 
 
 
 
Note : This report is subject to restricted circulation and press embargo until the end of the meeting 
of the Trade Policy Review Body on Hungary. Hungary WT/TPR/S/40 
 Page iii 
 
 
 CONTENTS 
 
Page 
SUMMARY OBSER VATIONS ........................................................................................................ i x 
 (1) Recent Economic Perform ance……………………………………………………..ix 
 (2) Trade and Investment Policy Formulation……………………………………….….x  (3) Trade and Related Structural Policies………………………………………………xi 
 (4) Trade Policies by Sector………………………………………………………..…..xii 
 (5) Trade Policy and Foreign Tr ading Partners……………………………………….xiii 
I. THE ECONOMIC ENVIRONMENT .................................................................................... 1 
(1) 
BACKGROUND  ......................................................................................................................... 1 
(2) MACROECONOMIC DEVELOPMENTS  ........................................................................................ 2 
(i) Exchange rate and monetary policies ........................................................................ 4 
(ii) Fiscal policy ............................................................................................................ ... 5 
(iii) Incomes policy .......................................................................................................... . 6 
(iv) Effects on macroeconomic performance ................................................................... 6 
(3) MAIN STRUCTURAL DEVELOPMENTS  ....................................................................................... 7 
(i) Merchandi se trade ...................................................................................................... 7 
(ii) Foreign direct investment .......................................................................................... 9 (iii) Privatization ........................................................................................................... .. 11 
(iv) Incentives/subsidies ................................................................................................. 11 (v) Price controls ........................................................................................................... 12 
(vi) Other structural developments ................................................................................. 12 
(vii) Sectoral trends in output and employment ............................................................... 12 
(4) 
EU ACCESSION  ....................................................................................................................... 14 
II. INSTITUTIONAL ASPECTS OF HUNGARY'S TRADE POLICIES ............................... 15 
(1) OVERVIEW  ............................................................................................................................. 15 
(2) THE INSTITUTIONAL FRAMEWORK  ........................................................................................ 15 
(i) General framework .................................................................................................. 15 
(ii) Economic and trade policy formulation ................................................................... 16 
(3) EXTERNAL POLICY MAKING  .................................................................................................. 18 
(i) Trade policy objectives ............................................................................................ 18 (ii) Multilateral agreements ........................................................................................... 18 (iii) Regional agreements  and arrangements ................................................................... 22 
(iv) Generalized System of Preferences (GSP)............................................................... 27 
(4) 
INVESTMENT POLICIES  .......................................................................................................... 28 
(i) Domestic regime and incentives .............................................................................. 28 (ii) International initiativ es and agreements .................................................................. 31 
III. TRADE POLICIES AND PRAC TICES BY MEASURE .................................................... 33 
(1) 
OVERVIEW  ............................................................................................................................. 33 WT/TPR/S/40 Trade Policy Review 
Page iv 
  
 Page 
 (2) MEASURES DIRECTLY AFFECTING IMPORTS  .......................................................................... 34 
(i) Registration of foreign trade activity ....................................................................... 34 (ii) Tariffs and othe r border levies ................................................................................. 34 
(iii) Non-tariff border measures (NTMs) ........................................................................ 43 
(3) 
MEASURES DIRECTLY AFFECTING EXPORTS  .......................................................................... 49 
(i) Export duties and other charges ............................................................................... 49 (ii) Minimum export prices ............................................................................................ 49 (iii) Export restraints and licensing requirements ........................................................... 49 
(iv) Export assistan ce ...................................................................................................... 4 9 
(v) Anti-dumping and countervailing actions ................................................................ 51 
(4) 
INTERNAL MEASURES  ............................................................................................................ 51 
(i) Technical regulations  and standards ........................................................................ 51 
(ii) Direct taxation ..........................................................................................................  53 
(iii) Non-tax measures aff ecting investment ................................................................... 58 
(iv) Government procurement ........................................................................................ 63 
(v) State-owned enterprises, privati zation and corporate governance ........................... 65 
(vi) Monopolies and concessions.................................................................................... 68 (vii) Bankruptcy .............................................................................................................. . 68 
(viii) Competition ............................................................................................................ . 69 
IV. TRADE POLICIES AND PRAC TICES BY SECTOR ........................................................ 73 
(1) 
OVERVIEW  ............................................................................................................................. 73 
(2) PRIMARY SECTOR  .................................................................................................................. 74 
(i) Agriculture ...............................................................................................................  74 
(ii) Mining ................................................................................................................... ... 77 
(3) MANUFACTURING  .................................................................................................................. 78 
(i) Prepared food and beverages ................................................................................... 78 
(ii) Chemicals and pharmaceuticals ............................................................................... 79 (iii) Textiles and clothing ................................................................................................ 79  
(iv) Cars and automotive components ............................................................................ 80 (v) Iron and steel ............................................................................................................  82 
(4) 
SERVICES  .............................................................................................................................. . 82 
(i) Financia l sector ........................................................................................................ 8 4 
(ii) Telecommunications ................................................................................................ 98 (iii) Air tran sportation ..................................................................................................... 93 
(iv) Electricity  and gas .................................................................................................... 9 5 
REFERENCES .................................................................................................................... .............. 99 
APPENDIX TABLES ............................................................................................................... ....... 101 
 Hungary WT/TPR/S/40 
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 CHARTS 
Page 
I. THE ECONOMIC ENVIRONMENT 
I.1 Nominal and real effective exchange rate indices, 1991-97 4 
I.2 Changes in direction of exports and imports of Hungary, 1990-96 8 I.3 Merchandise trade by sect or, 1990 and 1996 10 
III.1 TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Share of unbound tariff lin es by HS section, 1997 37 
III.2 Simple averages of applied MFN tariffs by HS section, 1991, 1997  
and Uruguay Round (final rates) 38 
III.3 Core NTMs by HS section, 1991 and 1997 45 
IV. TRADE POLICIES AND PRACTICES BY SECTOR 
IV.1 Institutional Structure of Hungarian Telecommunications 92 WT/TPR/S/40 Trade Policy Review 
Page vi 
  
 TABLES 
Page 
I. THE ECONOMIC ENVIRONMENT 
I.1 Selected macroeconomic indicators, 1991-97 3 
I.2 Revenue from privatization, 1990-97 11 
I.3 Subsidies, 1991-97  12  I.4 Gross value added by sector at  current prices, 1991 and 1995 13 
II. INSTITUTIONAL ASPECTS OF HUNGARY'S TRADE POLICIES 
II.1 Selected notifications to the WTO, December 1997 20 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Structure of applied MFN tariffs in Hungary 36 
III.2 Tariff escalation in Hungary 39 III.3 Summary of applied tariffs and tariff preferences, 1997 40 
III.4 Revenues from customs duties and other border levies 42 III.5 Extent of NTMs in Hungary 44 
III.6 NTM escalation in Hungary 45 
III.7 Global import quota on co nsumer goods, 1994-97 46 
III.8 Share of selected trading partners in global import quota on   consumer goods (2nd half 1997) 47 III.9 Relation of Hungarian standards to in ternational and European standards 53 
III.10 Summary of intellectual property protection in Hungary corresponding to  
 TRIPS obligations  59 III.11 Decisions reached by the Office of Economic Competition 71 
(1 January 1991 to 30 June 1997) 
IV. TRADE POLICIES AND PRACTICES BY SECTOR 
IV.1 Production and employment in the textile and clothing sector, 1990-97 80 
IV.2 Capitalized value of shares listed on the BSE, 1990-97 87 Hungary WT/TPR/S/40 
 Page vii 
 
 
 APPENDIX TABLES 
Page 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
AIII.1 Simple average of applied MFN and bound tariffs by HS chapter, 1991, 1997  
and Uruguay Round  103 
AIII.2 Simple average MFN and preferential tariffs by HS chapter, 1997 105 AIII.3 Preferences under the GSP 108 
AIII.4 Tariff quotas established by Hungary unde r the WTO Agreement on Agriculture 110 
AIII.5 Products subject to im port licensing in 1997 112 
AIII.6 Anti-dumping actions in place on Hungarian exports, June 1997 113 
AIII.7 Intellectual-property-relate d international agreements to  which Hungary is party 114 
AIII.8 Applications and registrations of intellectual prope rty, 1990-97 115 
AIII.9 Share of administered prices 116 
IV. TRADE POLICIES AND PRACTICES BY SECTOR 
AIV.1 Summary of Hungary's sector-specific commitments under the GATS 117 
AIV.1 Hungary's final list of GATS Article II (MFN) exemptions 120 
 
 
 Hungary WT/TPR/S/40 
 Page ix 
 
 
 SUMMARY OBSERVATIONS 
1. Hungary's rapid transition to a market 
economy has taken place under extremely difficult economic and social circumstances.  These included the collapse of the CMEA, which resulted in the disappearance of almost half of Hungary's previous export markets, 
and the bankruptcy of a large number of 
companies, with a consequent temporary loss of jobs.  Notwithstanding these formidable difficulties, the Hungarian Government has largely resisted protectionist pressures.  In 
fact, since the previous Trade Policy Review in 
1991, it has taken steps to curtail, and, in some instances,  remove, border and internal restrictions, thereby greatly increasing Hungary's openness to international trade, 
especially vis-à-vis the European Union as 
well as its EFTA and CEFTA partners.  In addition, the Government has continued to encourage foreign direct investment (FDI) in Hungary.  
(1) Recent Economic Performance  
2. Between 1991 and 1993, Hungary's 
real GDP shrank by a cumulative amount of roughly 15%, before growing by 2.9% in 1994.  Real domestic demand also declined in 1991-92, before growing by 9.9% and 2.2% in 
1993 and 1994, largely associated with a 
surge in imports.  At the same time, although on the decline, inflation remained within the range of 20-30%.  Officially registered unemployment rose from 7.5% in 1991 to 12.1% in 1993 before falling back to 10.4% in 
1994.  
3. Furthermore, a large and rapidly 
increasing budget deficit em erged, reaching 
8.4% of GDP in 1994.  By contributing to the saving-investment gap, which had greatly 
widened in 1993-94 owing to a fall in gross 
national saving and rise in gross investment, the increase in the budget deficit also resulted in a growing current ac count deficit, which 
rose to over 9% of GDP in 1994.  At the same time, gross government debt was in the range 
of 85-90% of GDP, while net external debt was around 46% of GDP.  In early 1995, 
therefore, the Hungarian economy appeared 
to be on the brink of a domestic and foreign debt trap, as interest payments on government debt outstripped revenues.   
4. Faced with this prospect, the 
Hungarian Government introduced a major 
stabilization package in March 1995.  The 
package contained several key macroeconomic elements, including cuts in government consumption, wage restraint, particularly in the public sector, and a 9% 
devaluation of the forint along with the 
institution of a crawling peg exchange rate regime.  In addition, a temporary import surcharge of 8% was imposed.  (The surcharge was reviewed in the WTO Balance-
of-Payments Committee and removed in July 
1997.)  
5. It would appear that the March 1995 
package, together with measures contained in subsequent budgets and a stand-by arrangement with the International Monetary 
Fund, has been successful in restoring 
macroeconomic balance.  Subsequently, both the budget and current account deficits (as shares of GDP) fell considerably; the former to 3.5% in 1996, before rising to 5.1% in 
1997, and the latter to 3.7% in 1997.  
Moreover, gross government debt dropped from 85% of GDP in 1995 to 66% in 1997 and is projected to fall to 60% by the end of 1998 (thereby satisfying one of the Maastricht criteria for European Monetary Union), while 
net external debt fell from around 46% of 
GDP in 1994 to 30% in 1997.  As a result, associated interest payments have fallen; the cost of servicing foreign debt as a percentage of export value halved from 42% in 1995 to 
21% in 1997.  Much of the reduction in 
indebtedness has been the consequence of privatization receipts, which have to date yielded approximately Ft 1,400 billion (almost 17% of 1997 GDP).  
6. The restoration of macroeconomic 
balance and radical restructuring of the 
economy have greatly improved Hungary's WT/TPR/S/40 Trade Policy Review 
Page x 
  
 economic performance in several respects.  
Although, as an immediate impact of the March 1995 package, domestic demand collapsed in both 1995 and 1996, leading to a 
marked slow-down in GDP growth, the latter 
remained positive because of strong growth in net exports.  The real devaluation of the forint was instrumental in increasing exports, while the fall in domestic demand in conjunction 
with the import surcharge was the main 
restraining influence on imports.  Real GDP growth subsequently recovered to 3.5% in 1997 and is expected to be between 4% and 5% in 1998.  After an initial surge following the depreciation of the forint and sharp 
increases in regulated en ergy prices, inflation 
dropped to 18.2% in 1997 and is forecast to fall to 12-13% in 1998.  Unemployment edged down to around 9% in 1997.   
7. While manufacturing has experienced 
double-digit growth rates in labour 
productivity since 1992, owing to investment in state-of-the-art production facilities, productivity growth in the economy as a whole has gradually declined, from 7.2% in 1992 to 1.6% in 1996.  Although the causes of this 
slow-down are unclear, the prospects for its 
reversal could be improved by dismantling remaining impediments to the efficient allocation of resources, including internal measures, notably tax incentives.  
(2) Trade and Investment Policy 
Formulation  
8. In addition to the restoration of 
macroeconomic balance, the Hungarian economy has undergone phenomenal 
structural adjustments in its transition to a 
market economy. Trade policies and those pertaining to foreign direct investment (FDI), have played major roles in this transition.  
9. Perhaps the most dramatic feature of 
Hungary's structural adjustment has been the 
re-orientation of its trade towards the EU and 
CEFTA partners, following the collapse of trade with former CMEA members, the entry into force of the Europe Agreement, which removed tariffs and quantitative restrictions 
on most trade between Hungary and the EU, and the creation of the CEFTA.  Between 1990 and 1996, the share of Hungary's trade with 
former socialist countries (other than CEFTA 
partners) roughly halved.  By contrast, the EU's share of Hungary's total exports grew from 45% to nearly 63%, while its share in imports increased from 49% to almost 60%.  
During the same period, CEFTA members' 
share of Hungary's exports and imports grew from 1.7% and 2.4%, respectively, to 8.7% and 7.2%.  
10. Judging from the growing shares of 
imports and exports in GDP, the Hungarian 
economy became considerably more open 
during the period under review.  Imports rose from nearly 34% of GDP in 1991 to 41% in 1996, while exports increased from almost 33% of GDP to approximately 40%.  
However, the increase in the share of trade in 
GDP has been much grea ter in relation to EU 
and CEFTA members than to others.  Exports to the EU and CEFTA rose from 15.5%  to 28.6% of GDP between 1990 and 1996, while exports to other market economies fell from 
5% to 4.1% of GDP;  during the same period, 
imports from the EU and CEFTA rose from 17.5% to 26.8% of GDP while imports from other market economies increased marginally from 5.6% to 5.9%.  Given that Hungary's real 
GDP shrank by around 7% overall during the 
period 1990-97, this suggests that there has been a degree of diversion of actual and potential trade as a result of Hungary's preferential agreements.  
11. In order to encourage foreign 
investment in restructuring the economy, the Government has established a new legal and regulatory framework conducive to FDI.  Net FDI in 1997 amounted to $2 billion, or nearly 5% of GDP, thereby reaching a cumulative net 
stock of $18 billion (over 43% of 1997 GDP).  
FDI has been attracted by Hungary's skilled labour force, relatively low wage costs and growing orientation towards European markets;  Hungary now accounts for roughly 
40% of the total stock of FDI in central and Hungary WT/TPR/S/40 
 Page xi 
 
 
 eastern Europe.  FDI has largely been 
undertaken in processing industries, gas and 
electricity, retail trade and banking; the main sources are Germany, the United States and Austria.  Two thirds of the 200 largest companies are now foreign-owned, and companies with foreign participation currently 
account for 14% of GDP and 70% of 
industrial exports.  
(3) Trade and Related Structural Policies  
(a) Tariff and non-tar iff border measures  
12. All tariffs applied by Hungary are 
ad valorem.  Almost 96% of tariff lines are 
currently bound, compared to 83% in 1991. All other trade-related charges, including the import surcharge, have recently been eliminated.  The unweighted average applied 
MFN tariff rate rose from 11% in 1991 to 
14.3% in 1997, largely as a consequence of tariffication (the rates for industrial products and agricultural and processed food products were 8.2% and 37.1%, respectively, in 1997). Applied MFN tariffs tend to be relatively high 
for those tariff lines remaining unbound.  
Among broad groups of industrial products, 
tariff protection is highest for transportation equipment, textiles, clothing and footwear. In accordance with the Europe Agreement, most 
tariffs on imports from the EU have been 
removed, although duties still apply to agricultural products, textiles and steel.  In practice, MFN tariffs apply to less than a quarter of Hungary's imports, given the importance of preferential trade; 
consequently, the collected (or effective) rate 
of duty on all imports is currently only 2.5%.  
13. With the tariffication of quantitative 
restrictions on agricultural products and relaxation of other non-tariff border measures 
(NTMs), the proportion of tariff lines affected 
by principal NTMs declined from almost 20% in 1991 to under 8% in 1997.  Among these are the global quota on consumer goods, part of which is allocated on a preferential basis to EU, EFTA and CEFTA countries, and the 
prohibition of imports of used cars over four years old.  The global quota is steadily 
declining and the authorities plan to phase it 
out by 2001 on an erga omnes basis;  products still subject to the quota, and hence retaining additional protection, include new and used automobiles, textiles, clothing and footwear.  While Hungary does have anti-dumping and 
countervailing legislation based on the WTO 
agreements, it has not resorted to such actions.  
14. Export promotion measures are also 
used as instruments of trade policy, with 
exports encouraged by, among other things, 
exemptions or drawbacks for import duties, customs-free zones as well as incentives resulting in increased exports (see below) and agricultural export subsidies.  Hungary 
recently obtained a WTO waiver for certain 
agricultural export subsidies in excess of its Uruguay Round commitments.  
(b) Internal measures  
15. In accordance with its desire to attract 
FDI, the Government has offered a wide array 
of tax and non-tax incentives.  Although many 
of these measures are being phased out, some have involved elements of "positive" discrimination, that is, discrimination in favour of foreign investors.  (Examples are the 
duty-free status for equipment and other goods 
deemed to be in-kind capital contributions, which was recently abolished, and the corporate tax concession for companies with foreign participation, which is being phased out.)  Certain other investment incentives are 
conditional upon the scale of investment and 
export performance; for example, corporate tax is halved for companies investing Ft 1 billion or more and increasing exports by at least 25%. The generosity of tax and non-tax 
assistance to companies is such that the small 
amount of corporate taxes they do pay has been largely offset by subsidies.  Thus, Hungary, like many other countries, has contributed to a "bidding contest" for certain types of investment.  One may question the 
effectiveness of these measures as well as their 
impact on the allocation of capital and fiscal WT/TPR/S/40 Trade Policy Review 
Page xii 
  
 balance.  However, overall, subsidies (other 
than tax incentives) fell from 4% of GDP in 1991 to under 2% in 1997.  
16. Roughly one third of FDI in 1996 and 
1997 involved the purchase of formerly 
state-owned enterprises under the Government's privatization programme, which encompasses manufacturing, services and utilities including telecommunications and 
electricity. As a result of the privatization of 
three quarters of state assets since 1990, the private sector currently accounts for around 75-80% of GDP compared to 10% ten years ago. Strong foreign participation in the privatization of the bank ing sector has helped 
to place banks on a sound footing and thereby 
contributed to the smooth functioning of financial markets, which is essential for the efficient allocation of capital.  
17. Considerable progress has been made 
in bringing Hungarian standards and 
regulations into line with international, and particularly European, no rms.  Protection is 
provided for patents, copyrights, trade marks and other intellectual property rights.  However, judging from the scale of the 
unofficial economy and related tax evasion, 
enforcement of tax and other laws (including those pertaining to intellectual property) remains an important problem.  
(4) Trade Policies by Sector  
18. The pattern of production and trade in 
Hungary has altered considerably since the last Review.  Production in agriculture, mining and quarrying has dropped in relation to manufacturing and especially to services; 
between 1991 and 1995, the share of 
agriculture, mining and quarrying in GDP fell from 11.1% to 6.6%, while the share of manufacturing remained close to 20% and that of services increased from 52.6% to 54%.  This shift reflects several factors:  the move 
away from a structure of ownership and 
planned production, based on the former CMEA, towards western European markets under the free-trade agreements with the EU and EFTA; redistribution of land, leading at 
present to a sub-optimal structure of ownership and production, and reduction of support to agriculture;  liberalization of 
services, notably financial and 
telecommunications services; and an active industrial policy, linked to the new pattern of trade, which has encouraged some sectors at the expense of others.  
19. Within this active policy, average 
MFN tariffs remain relatively high for imports of agricultural products and prepared food; preferential access for EU and EFTA sources is not accorded in these areas and all external sources are treated on an equal footing.  
Higher than average MFN tariffs (but  with 
preferential access for EU, EFTA and CEFTA members) also apply to textiles, clothing and footwear, and to automobiles, while NTMs in the form of non-automatic licensing and/or the 
global quota on consumer goods have applied 
principally to textiles, clothing and footwear, new and used cars and precious stones.  Subsidies to agricultural exports are, as noted above, covered by a waiver under the WTO Agreement;  tax and non-tax incentives are 
also targeted at particular activities; and 
other domestic measures, including regulations conceding a certain degree of monopoly or monopsony power, still apply to certain service sectors, particularly energy.  
20. These measures give a mixed picture, 
but one which emphasizes the Euro-centred stance of Hungary's current trade and industrial policies.  For example, relatively high MFN tariffs combine with quantitative 
restrictions on new and used automobiles to 
favour Hungary's two domestic car producers (Opel Hungary and Magyar Suzuki), which produce both for the domestic market and for export to the EU and EFTA, and other European manufacturers selling in the 
Hungarian market.  This is not only to the 
detriment of producers of other imported cars, but also at the expense of domestic industries that receive lower levels of protection.  The application of the Europe Agreement and the 
similar free-trade agreement with EFTA has Hungary WT/TPR/S/40 
 Page xiii 
 
 
 encouraged foreign manufacturers to locate in 
Hungary, with its low-cost, skilled labour 
force, so as to export throughout the European Economic Area (EEA) under common rules of origin; these trends can be seen particularly in the automotive, textiles, and chemical industries.   
21. The redirection of Hungary's policies 
has been assisted by the process of privatization and the liberalization of commercial services such as banking, insurance and telecommunications, which 
have been among the most rapidly growing 
sectors of the economy.  Liberalization of these sectors has taken place on an MFN basis, with substantial concessions by Hungary under the relevant WTO Agreements 
and protocols.  This has encouraged 
substantial FDI in, and consequent modernization of, these sectors.  
(5) Trade Policy and Foreign Trading 
Partners  
22. As the Hungarian economy has 
entered an advanced stage of transition, the  Government has intensified its preparations 
for accession to the EU.  Clearly, such 
preparations will involve further far-reaching structural and institutional adjustments.  In this regard, much of Hungary's legislation concerning internal measures (notably regulations and standards, intellectual 
property rights, government procurement, 
competition) is being adapted to conform with EU legislation.  In some instances, such as the protection of intellectual property, this adaptation involves Hungary assuming 
obligations exceeding those contained in WTO 
Agreements.  In other cases, however, such adaptation might lead to a less liberal trade regime.  In particular, the present level of government support to agriculture in 
Hungary, as measured by the producer 
subsidy equivalent (PSE), is only about one quarter of the corresponding level in the EU.  The relationship between Hungary's steps towards EU membership and its participation in the WTO and other multilateral fora will 
thus clearly be a major determining factor in 
the formulation of future trade policies.