RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG50/2
WT/REG51/2
WT/REG52/2
24 April 1998
(98-1673)
Committee on Regional Trade Agreements Original:  English
THE EUROPEAN COMMUNITIES-HUNGARY EUROPE AGREEMENT, SERVICES;
THE EUROPEAN COMMUNITIES-POLAND EUROPE AGREEMENT, SERVICES;  AND
THE EUROPEAN COMMUNITIES-SLOVAK REPUBLIC
EUROPE AGREEMENT, SERVICES
Joint Communication from the Parties
This document reproduces questions addressed to the Parties and the joint responses provided
by them.  The questions and replies set out below are organized in accordance with documentsWT/REG50/1 (EC-Hungary), WT /REG51/1 (EC-Poland) and WT /REG52/1 (EC-Slovak Republic).
I. BACKGROUND INFORMATION ON THE AGREEMENT
3. Plan and Schedule
1. Please explain the ten-year time frame and the justification for each of the transition
periods as set out in the annexes.
2. Do the parties regard ten years as a reasonable time period and how do the parties
estimate the general progress of implementation?
The parties regard the ten year transitional period as reasonable for a number of reasons.  First
and foremost, the objectives set out in the three agreements have considerable scale and depth,
covering economic, financial and cultural aspects of the parties relations.  Furthermore, the overallprocess of economic and political co-operation envisaged is very wide-ranging.  For agreements with
such a wide agenda, a short transitional period woul d not have been practical.  The “Understanding on
the Interpretation of Article XXIV of the GATT 1994” expressly says that a period of ten years can be
exceeded only in exceptional circumstances.  If the GATT precedent is to be followed it could be
argued that ten years is widely accepted as a maximum, but reasonable period of time.
In addition, it must be noted that economic circumstances in the parties at the time of
signature, and even now, differ from one another substantially.  The existence of such widelydiffering levels of economic development among the parties would have made a more rapid transition
difficult.   At the time of signature, it was also the case that the regulatory and legislative frameworks
in Hungary, Poland and the Slovak Republic were not adapted to the needs of a modern market
economy, and a considerable period of time was necessary for progress to be made in this area given
that parliamentary and governmental processes would need to be mobilised. All these differenceshave had to be addressed in a progressive and considered manner.
It should be noted that liberalisation might well take place more rapidly than the timetable,
since ten years is a maximum period for implementation, but at the same time, the agreements had to
be realistic and could not force the pace of change too quickly.WT/REG50/2
WT/REG51/2
WT/REG52/2
Page 2
In terms of the specific transitional periods se t out in the annexes, each responded to the
situation existing in the party concerned at the time of signature.
The key sector which benefits from the full ten-year transitional period is financial services.
In Hungary, Poland and the Slovak Republic, given the supreme importance of developing a strongand independent financial services sector and taking account of the need to transform the existing
banking and insurance systems to suit the purposes of a market economy, it was agreed that the
governments of those countries should have maximum flexibility under the terms of the agreements to
take the necessary action.
In addition, in Hungary, Poland and the Slovak Republic participation by EU nationals and
companies in the privatisation process, and activities and operations as a real estate agent were alsomade subject to the full transitional period.  This was necessary given the need to avoid undue
speculation in the course of privatisation of state assets generally given the wide difference invaluation of assets and the capacity to invest between Hungary and the EU Member States.
In Poland, legal services are also given the benefit of the full transitional period.  In this case,
it was considered important to ensure that the domestic legal system was in a stable position during
the period of transition.
4. Relationship of the Agreement to a Wider Process of Economic Integration
3. Please provide information on approximation and harmonization, and the extent to
which this will lead to liberalisation.
The three agreements recognise that the major precondition for economic integration is the
approximation of laws.  Under the terms of the agreements, Hungary, Poland and the Slovak Republic
must endeavour to ensure that their legislation is compatible with that of the Community.  To achieve
approximation, a general programme of harmonisati on has been drawn-up. This is based on principles
which were set out in a white paper on the preparation of the associated countries of central and
eastern Europe for integration into the internal ma rket of the Union. Hungary, Poland and the Slovak
Republic are now implementing the programme of approximation in close co-operation with the EU.A copy of the White Paper will be passed to the WTO Secretariat.
The approximation of laws will contribute to liberalisation between the Parties in that it will
eliminate many differences between the EC and Hungary, Poland and the Slovak Republic
respectively in terms of the regulation of different services and the general legislative frameworkwithin which services suppliers do business.  This will amount to a simplification of the rules
governing the operation of service suppliers and the removal of barriers to trade.
5. Economic and Trade Data
4. Please provide information on the volume of trade affected by the agreement .
Statistics were supplied as part of the standard format information documents indicating the
level of trade in services between the EC and H ungary and between the EC and Poland.  Figures for
trade in services between the EC and the Slovak Republic are not available at present.
In terms of the volume of trade sector-by-sector, transport is the only substantial exclusion,
and that only from one single aspect of the agreements (establishment only).  It is therefore difficult toWT/REG50/2
WT/REG51/2
WT/REG52/2
Page 3
estimate the volume of trade covered except to sa y that almost all trade in services between the EU
and Hungary, Poland and the Slovak Republic respec tively would fall under the provisions of the
agreements by the end of the transitional period.
As a proportion of the EC’s total foreign trade in services (exports + imports):- trade in services with Hungary represents just under 1 per cent;  and
- trade in services with Poland represents around 1 per cent.
(As a comparison, total EC trade in services with the United States accounts for 38 per cent).
II. PROVISIONS AFFECTING TRADE IN SERVICES
1. Sectors or Sub-Sectors and Modes of Delivery
5. Please explain the requirements by which a service supplier of another Member that is a
juridical person constituted under the laws of a party to the agreement is entitled to treatment
granted under the agreement, if that service supp lier engages in substantive business operations
in the territory of the parties to the agreement.
There are no special requirements to be fulfilled by a service supplier of another Member in
order to be entitled to treatment granted under the Agreements as long as the supplier in question is a
juridical person constituted under the relevant laws and engaged in substantive business operations inthe territory of the parties to the Agreements.
2. Elimination of Discriminatory Measures
6. Please identify all provisions in the agreement that allow for discrimination, in the sense
of Article XVII between the Parties.  Provide an estimate of the volume of trade affected.  What
plans do the Parties have to eliminate this discrimination?
See answers to questions 7 and 8.  In all other sectors national treatment is to be granted
across the board for establishment and operations at the latest by the end of the transitional period.
3. Restrictions Remaining in Force
7. Please identify all the sectors excluded from each agreement.  Why have the sectors been
excluded?  What steps have been taken, and what plans do the Parties have to extend coverage?
8. Critical sectors appear to  have been excluded.
The exclusions are identified below, agreement-by-agreement.  It is clear that the key
exclusion in each agreement is the exemption of certain transport services from the provisions on
establishment.  Given the special nature of this sector, namely a tendency towards regulation by
bilateral agreement, the need to ensure proper registration and licensing, and its close links with issuesof national security and identity, it is not surprising  that transport not be subject to exactly the same
provisions regarding establishment as other services.WT/REG50/2
WT/REG51/2
WT/REG52/2
Page 4
It should be noted that the transport services are covered in the agreements; commitments are
to be found in the “supply of services” chapter of the agreements.  The "supply of services" sectioncovers the supply of services by companies or nationals who are established in a Party other than that
of the of the person for whom the service is intended - it can be interpreted, therefore, as coveringboth cross-border supply and consumption abroad.
In all three agreements, there are some further exclusions relating to the sale and purchase,
lease and rental of property and land in Hungary, Poland and the Slovak Republic, but the effects of
these restrictions on Community companies and nationals supplying services are minimal given thatthese exclusions are not to be applied where the property or land is necessary for the conduct of the
economic activities for which the service supplier is established.
Hungary
Air, inland waterway and maritime cabotage transport services are excluded from the scope of
the provisions on establishment and operation, although the Association Council has the option of
making recommendations for the improvement of establishment and operation in these sectors .
Also excluded from the scope of the provisions on establishment and operation are legal
services, except for legal advisory services related to the management of a business, and theorganisation of gambling, betting, lotteries and similar activities.  The Association Council is charged
with a regular examination of whether these services can be brought into scope of the Agreement.
No sector is excluded from the chapter on the liberalisation of the supply of services.
Poland
Air, inland waterway and maritime cabotage transport services are excluded from the scope of
the provisions on establishment and operation, although the Association Council has the option of
making recommendations for the improvement of establishment and operation in these sectors.
No sector is excluded from the chapter on the liberalisation of the supply of services.
EC/Slovak Republic
Air, inland waterway and maritime cabotage transport services are excluded from the scope of
the provisions on establishment and operation, although the Association Council has the option of
making recommendations for the improvement of establishment and operation in these sectors.
No sector is excluded from the chapter on the liberalisation of the supply of services.
4. Treatment of Services and Service Providers from Third Countries
9. How will approximation affect each partner country’s GATS commitments, and the
treatment of third country services and service providers?  In sectors where countries may be
more liberal than the current EU regime, how will  the likelihood of future more restrictive third
country treatment be addressed?
In drafting their commitments under the GATS, the EC and all its partners under the Europe
Agreements endeavoured, and continue to endeavour in the case of those countries still in the processWT/REG50/2
WT/REG51/2
WT/REG52/2
Page 5
of WTO accession, to ensure that no adjustment in their schedules will be necessary as a result of the
implementation of the Agreements.  As a result, it is envisaged that WTO Members will continue to
be guaranteed the level of access enshrined in those schedules.
5. Rules of Origin
10. Could the parties supply more clarification as to what constitutes a “real and continuous
link” in terms of "substantive business operations".
The requirement for "a real and continuous link" is designed solely to prevent the abuse of the
Agreements through the creation of a so-called "letter-box" operation in one of the parties in order to
circumvent controls imposed by the other on access by foreign nationals and companies to its market.
The phrase "a real and continuous link" is the equivalent of the language "substantive business
operations" in GATS Article V.6.  Under the EC definition of this phrase, initially used in the"General Programme" of 15 January 1962, it is expr essly excluded that a real and continuous link
should depend on the nationality of the partners, of the members of the management or supervisory
bodies, or of the persons holding the capital.
7. Safeguards
11. Concerning the safeguards provisions:
(a) does the measure deal only with the delay of the implementation of the
liberalisation commitment or does it deal with the injury for the domestic
industry even after the parties completed the implementation of the
liberalisation?
(b) if in the latter case - under what cond ition should the measure be taken and in
which sectors?
(c) What is the "exceptional circumstance" in which the exchange restrictions can
be applied?
12. What will be the grounds for a safeguard action, and who or what will be the object of
the procedure?
The safeguard provision relating to establishment permits Hungary, Poland and the Slovak
Republic to take measures which derogate from the provision of national treatment.  These could take
the form of temporary limitations on the establishment of foreign companies and nationals in any
sector, as long as such limitations did not conflict with the GATS commitments of the party
concerned.  Under the provisions of the agreements, such measures are strictly time-limited and mostwill have to cease to apply by the end of the eighth year after entry-into-force, and all must go by the
end of the ten-year transitional period, unless exceptionally extended with the agreement of the
Association Council.  Under the agreements, measures must not lead to discrimination against
Community companies already established in the country concerned.  Therefore, as such, there is no
specific “object” or target of the procedure.
As regards the possibility of applying exchange restrictions, this provision was to apply only
as long as the currency concerned was not convertible.  All three currencies concerned are nowlargely convertible.  Slovakia has introduced full current account convertibility:  the Koruna was
made fully convertible for current account transactions (1 October 1995) and for incoming long-termWT/REG50/2
WT/REG51/2
WT/REG52/2
Page 6
capital movements (foreign investment).  The capital transactions of the banks are fully liberalised.
The strategy adopted by Slovakia entails liberalising first direct investment, credits linked to
commercial transactions and inward capital movements.
13. For the purposes of a safeguard action, how will the commercial presence of a foreign
service provider be distinguished from a domestic provider?  Would a firm, owned by
Canadians, but having its registered office in a Member State with a "a real and continuous
link" to the economy of a Member State, be considered a Community company for the purpose
of this agreement?
As noted above, for the purposes of the safeguard clause governing establishment, any new
measure could apply only to newly establishing foreign companies and nationals.  Community
companies and nationals which are already established would not be affected, so there would be noneed to distinguish between them and their domestic counterparts.  A Canadian-owned company
established in a Member State and possessing “real and continuous link” to the economy of a Member
State would be considered as a Community company for the purposes of these Agreements.
14. What criteria need to be satisfied before a safeguard action can be taken?  How does one
determine if an industry is "undergoing restructuring"? or is "newly emerging"?  How doesone determine if an industry is "facing serious difficulties" particularly where these entail
serious social problems in country X?  What is  meant by a "drastic reduction"?  How is the
total market share held by foreign establishments determined?
The Association Councils established under the Agreements are responsible for supervising
the implementation of their provisions.  As such, the Association Council would be consulted on anyproposed measures which derogate from the provisions on establishment and would be responsible for
considering whether the conditions set out in the Agreements had been met.  From the end of the sixth
year after entry into force, the Association Councils are required to give their explicit authorization
before any measures are taken.
15. How does the safeguard make the connection between an influx in foreign services and
injury?  Who determines the reasonableness or  necessity of the action?  How would the
maximum duration of the measure be determined?
As stated above, the Association Councils  are consulted on proposed measures which
derogate from the establishment provisions in all but the most urgent and extreme cases, and from the
end of the sixth year after entry-into-force they must  give their authorization.  It would therefore be
for the CEEC taking the measure to present its proposal for a measure and for the Association Council
to determine whether this represented a correct interpretation of the criteria.  The maximum duration
of any measure is limited in time by the Agreement, and must generally cease to apply at the end of
the eighth year after entry-into-force (or by the end of the transitional period for a limited number of
services).
__________