MOREPRESS RELEASE
EMBARGO:  NOT FOR PUBLICATION UNTIL
1300 GMT 23 NOVEMBER 2001
PRESS/TPRB/178
23 November 2001
(01-5964)
IMPROVED ECONOMIC ENVIRONMENT FOSTERS SLOVAKIA'S GROWTH
AND FOREIGN INVESTMENT
The Slovak Republic has made impressive strides in its transformation to a market economy
over the last six years, and after a slowdown for the period between 1990 and 2000, economic activity
has picked up. Domestic reform, including economic restructuring and increase in foreign investment
inflows, are improving Slovakia's economic prospects, according to a WTO report on the trade
policies and practices of  the Slovak Republic.
The WTO Secretariat report, along with the policy statement by the Government of the
Slovak Republic, will serve as a basis for the second trade policy review of the Slovak Republic by
the Trade Policy Review Body of the WTO on 21 and 23 November 2001.
Economic reform, including trade and investment liberalization, regained momentum,
especially after the late 1990s. Real GDP per capita increased to US$3,500 in 2000, and social
indicators have improved.  However,  unemployment remains high at 20%. Rural poverty andregional development are still key policy priorities, according to the report which stresses that the
main source of growth is the private sector now accounting for 80% of GDP.
Annual GDP growth in Slovakia  slowed to around 2% in 1999 and 2000.  The previous high
growth rates, averaging some 6% a year in 19 95-98, had become unsustainable as the fiscal and
external deficits widened, and monetary policy was tightened to support a fixed exchange rate.  Acurrency crisis emerged in 1998, with confidence in Slovakia's reform sagging.
The report says that GDP growth was expected to pick up in 2001 but that growth prospects
hinge critically on continued successful stabilization and structural reform, as well as on favourable
external developments. Export growth has recently strengthened and external reserves have
rebounded to an import cover level of three months in 2001, and are expected to rise further.  Foreigninvestment jumped to 10 % of GDP in 2000 compared to 3,5 % in 1999.PRESS/TPRB/178
Page 2
MOREIn this vein, external trade is vital to Sl ovakia's recovery.  Export-led growth has been
encouraged by greater access to imported inputs following trade liberalization.  Merchandise trade
increased sharply from 47% of GDP in 1995 to 64% in 2000.  The European Union (EU) has replaced
CEFTA countries, especially the Czech Republic, as Slovakia's major trading partner.  In 2000, the
EU accounted for 59% of Slovakia's merchandise exports and 49% of its imports.  Manufactured
products, especially machinery and transport equipment, accounted for some two thirds of Slovakia’sexports and imports in 2000.
Slovakia's broad trade policy orientation is towards greater liberalization.  Its trade regime is
relatively open, apart for agriculture, which receives special treatment.  Its approach to trade
liberalization combines multilateral, regional and bilateral initiatives.
The report notes that Slovakia's trade and economic reforms are being driven overwhelmingly
by the objective of readiness for EU accession by 2004.  Trade and economic policies are increasingly
being harmonized with those of the EU. Negotiations on EU accession commenced in February 2000;Slovakia aims to complete them by end-2002.  Screening of Slovakia's legislation was essentially
completed in 1999, and its third National Programme for the Adoption of the Acquis was submitted in
May 2001.  As at mid-2001, 19 of the 29 chapters opened had been provisionally closed, but sensitive
areas remained, such as agriculture.  The European Commission views Slovakia as a “functioning
market economy”, in which further macro economic and structural reforms are needed.
EU accession will further deepen Slovakia's European integration, and promote economic
development.  It offers renewed opportunities for  comprehensive trade, investment and other
economic reforms. But EU accession, and regional integration, should not detract from multilateral
liberalization, including of agriculture, which will continue to be in Slovakia's economic interests.
This would minimize any possible trade diversion from EU accession should agricultural assistancerise substantially to higher EU levels as  seems probable.  Any such trade diversion could undermine
Slovakia's economic efficiency, especially if  sectoral disparities widened between manufacturing and
agricultural activities.  It could also harm third countries, and reduce the benefits to Slovakia from
trade liberalization by displacing imports from the most efficient suppliers.
The simple average MFN tariff was 6.1%  in 2001, down from 8% in 1995.  Tariff dispersion
also narrowed.  In 2001, preferential tariffs (exclu ding GSP) averaged 2%, (the average rate on EU
imports was 2.4%).  Tariff surcharges have been applied widely several times since 1995 for balance-
of-payments reasons, the latest - from mid-1999 - initially at a rate of 7% but progressively lowered to
3%, and eliminated from 2001.
Agricultural policy is heavily influenced by EU accession requirements as Slovakia strives to
introduce CAP-consistent measures. Agricultural support is a high government priority for food self-
sufficiency.  Agricultural assistance (measured on a PSE basis) fell substantially to 1% in 1996,
before surging to 27% in 1998, and 22% in 2000.   Transfers to farmers totalled Sk 15.6 billion in
2000, mainly funded by taxpayers and consumers.
Unlike agriculture, Slovakia's industrial sector is restructuring  due to greater import
competition from trade liberalization.  Several industries, such as motor vehicles and primary plastics,
have improved performance based on new export markets and foreign investment.
Slovakia's accelerated economic transition has intensified its preparations for EU accession.
This will provide renewed opportunities and benefits to Slovakia and its trading partners.
Nevertheless, Slovakia will need to continue balancing the requirements of EU accession with
its participation in the multilateral trading system.  Liberalization efforts offer most economic benefitsPRESS/TPRB/178
Page 3
MOREto Slovakia and its trading partners when they are mutually reinforcing, and regional initiatives, like
EU accession, do not undermine MFN  liberalisation.  The most effective means of ensuring this
would be for Slovakia to extend regional preferences on a non-discriminatory basis and to secure
them multilaterally.
Vigorous pursuit of multilateral trade liberalization will continue to be in Slovakia's longer
term economic interests, including post-EU accession when the likelihood of increased agriculturalassistance may generate trade diversion concerns.  Slovakia's trading partners could also facilitate its
successful transition by ensuring non-discriminatory access to their markets.
Note to Editors
Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member
countries’ trade and related policies are examined and evaluated at regular intervals. Significant
developments which may have an impact on the global trading system are also monitored. For eachreview, two documents are prepared: a policy stat ement by the government of the member under
review, and a detailed report written independently by the WTO Secretariat. These two documents are
then discussed by the WTO’s full membership in the Trade Policy Review Body (TPRB). These
documents and the proceedings of the TPRB’s meet ings are published shortly afterwards. Since 1995,
when the WTO came into force, services and trade- related aspects of intellectual property rights have
also been covered.
For this review, the WTO’s Secretariat report, together with a policy statement prepared by
the Government of the Slovak Republic, will be discussed by the Trade Policy Review Body on 21
and 23 November 2001. The Secretariat report covers the development of all aspects of the SlovakRepublic trade policies since the previous review, including domestic laws and regulations, the
institutional framework, trade policies by measure, and developments in selected  sectors.
Attached to this press release is the Overview to the Secretariat report and parts of the
government policy statement. The Secretariat and the government reports are available under thecountry name in the full list of trade policy reviews at
http://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm. These two documents and the minutes of the
TPRB’s discussion and the Chairman’s summing up, will be published in hardback in due course and
will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva
21.PRESS/TPRB/178
Page 4
MORESince December 1989, the following reports have been completed: Argentina (1992 and
1999), Australia (1989, 1994 and 1998), Austria (19 92), Bahrain (2000) Bangladesh (1992 and 2000),
Benin (1997), Bolivia (1993 and 1999), Botswa na (1998), Brazil (1992, 1996 and 2000), Brunei
Darussalam (2001), Burkina Faso (1998), Cameroon (1995 and 2001), Canada (1990, 1992, 1994,
1996, 1998 and 2000), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995 and
2001), Côte d’Ivoire (1995), Cyprus (1997), th e Czech Republic (1996 and 2001), the Dominican
Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the European Communities (1991,
1993, 1995, 1997 and 2000), Fiji (1997), Finland (1992), Gabon (2001), Ghana (1992 and 2001),
Guinea (1999), Hong Kong (1990, 1994 and 1998),  Hungary (1991 and 1998), Iceland (1994 and
2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica
(1998), Japan (1990, 1992, 1995,1998 and 2000), Keny a (1993 and 2000), Korea, Rep. of (1992, 1996
and 2000), Lesotho (1998), Macao (1994 and 2001), Madagascar (2001), Malaysia (1993 and 1997),
Mali (1998), Mauritius (1995 and 2001), Mexico (1993 and 1997), Morocco (1989 and 1996),Mozambique (2001), New Zealand (1990 and 1996) , Namibia (1998), Nicaragua (1999), Nigeria
(1991 and 1998), Norway (1991, 1996 and 2000), OECS  (2001), Pakistan (1995), Papua New Guinea
(1999), Paraguay (1997), Peru (1994 and 2000), the Philippines (1993 and 1999), Poland (1993 and
2000), Romania (1992 and 1999), Senegal (1994), Singapore (1992, 1996 and 2000), Slovak Republic
(1995 and 2001), the Solomon Islands (1998), S outh Africa (1993 and 1998), Sri Lanka (1995),
Swaziland (1998), Sweden (1990 and 1994), Sw itzerland (1991, 1996 and 2000 (jointly with
Liechtenstein)), Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago
(1998), Tunisia (1994), Turkey (1994 and 1998), the United States (1989, 1992, 1994, 1996, 1999 and
2001), Uganda (1995), Uruguay ( 1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe
(1994).PRESS/TPRB/178
Page 5
MORETRADE POLICY REVIEW
SLOVAK REPUBLIC
Report by the Secretariat – Summary Observations
The Slovak Republic has made impressive strides in its transformation to a market economy
since its previous Trade Policy Review in 1995. Economic reform, including trade and investment
liberalization, regained momentum, especially afte r the late 1990s. Real GDP per capita increased to
US$3,500 in 2000, and social indicators have improved.  However,  unemployment remains high at
20%. Rural poverty and regional development are still key policy priorities.
The restoration of macroeconomic balance has also contributed to Slovakia's recent
development. Domestic reform, including economic restructuring, has improved Slovakia's economicprospects.  The private sector now accounts for over 80% of GDP and has become the main source of
growth.
Annual GDP growth in Slovakia  slowed to around 2% in 1999 and 2000.  The previous high
growth rates, averaging some 6% a year in 19 95-98, had become unsustainable as the fiscal and
external deficits widened, and monetary policy was tightened to support a fixed exchange rate.  Acurrency crisis emerged in 1998, with confidence in Slovakia's reform sagging, in part because of the
Russian financial crisis.
In late 1998, the Slovak authorities acted by moving to a floating exchange rate system,
tightening fiscal policies, and by re-emphasizing economic reform.  The budgetary position remains
frail, with the deficit expected to be in the order of 3.9% in 2001.  Monetary policy now targetsinflation directly, and inflation is expected to fall to 6.9% in 2001 from 12% in 2000.
Slovakia's economic recovery now looks promising.   GDP is expected to grow at over 3% in
2001,  rising thereafter to 4-5% a year.  Reflecting the improved economic environment, inflows of
foreign investment have risen sharply.  Export gr owth has also strengthened and external reserves
have rebounded to an import cover level of three months in 2001, and are expected to rise further.However, growth prospects hinge critically on continued successful stabilization and structural
reform, as well as on favourable external developments.
External trade is vital to Slovakia's recove ry.  Export-led growth has been encouraged by
greater access to imported inputs following trade liberalization.  Merchandise trade increased sharply
from 47% of GDP in 1995 to 64% in 2000.  The European Union (EU) has replaced CEFTAcountries, especially the Czech Republic, as Slovakia's major trading partner.  In 2000, the EU
accounted for 59% of Slovakia's merchandise exports and 49% of its imports.  Manufactured
products, especially machinery and transport equipment, accounted for some two thirds of Slovakia’s
exports and imports in 2000.
Slovakia's broad trade policy orientation is towards greater liberalization.  Its trade regime is
relatively open, apart for agriculture, which receives special treatment.  Its approach to trade
liberalization combines multilateral, regional and bilateral initiatives.
Slovakia is an original member of the WTO and an observer to the plurilateral Agreement on
Government Procurement. Slovakia grants at least MFN treatment to all WTO Members and several
other countries with which it has bilateral agreements calling for such treatment. All tariffs are bound,
virtually all at the applied rate, thereby creating a more predictable trading regime.  During the period
under review, Slovakia has continued to undertake obligations within the multilateral framework.PRESS/TPRB/178
Page 6
MORETariffs on products covered by the Information Technology Agreement (ITA) are to be phased out by
2002.  Slovakia is also to phase out tariffs (over five years from 2000) on products covered by the
Pharmaceuticals Initiative.  It extended its initial GATS commitments on services by participating in
the 1997 WTO negotiations on basic telecommunications and on financial services.  Slovakia has
regularly notified trade policy developments to the WTO.
Slovakia's trade and economic reforms are being driven overwhelmingly by the objective of
readiness for EU accession by 2004.  Trade and economic policies are increasingly being harmonized
with those of the EU. Negotiations  on EU accession commenced in February 2000;  Slovakia aims to
complete them by end-2002.  Screening of Slovakia's legislation was essentially completed in 1999,
and its third National Programme for the Adoption of the Acquis was submitted in May 2001.  As at
mid-2001, 19 of the 29 chapters opened had been provisionally closed, but sensitive areas remained,
such as agriculture.  The European Commission views Slovakia as a “functioning market economy”,
in which further macro economic and structural reforms are needed.
Liberalization at the regional level has increasingly dominated Slovakia's trade initiatives.
Preferential tariff cuts within regional arrangements exceed multilateral reductions.  EU industrial
products receive duty-free treatment, and preferential access is given to agricultural products.
Slovakia's customs union with the Czech Republic provides for free trade, subject to certain
exceptions on foodstuffs. Slovakia also has a free- trade agreement with EFTA member States, other
CEFTA parties, as well as bilaterally with the Baltic States, Israel, and Turkey. Slovakia expects it
will need to adopt the EU's preferential agreements upon accession.
In 2000 preferential duties averaged about one third of Slovakia's MFN levels. Preferential
rates differ between products and across trading partners. Only a small and declining share of
Slovakia's imports (26% in 2000) originate exclusively in non-preferential sources.
EU accession will further deepen Slovakia's European integration, and promote economic
development.  It offers renewed opportunities for  comprehensive trade, investment and other
economic reforms. But EU accession, and regional integration, should not detract from multilateral
liberalization, including of agriculture, which will continue to be in Slovakia's economic interests.
This would minimize any possible trade diversion from EU accession should agricultural assistancerise substantially to higher EU levels as  seems probable.  Any such trade diversion could undermine
Slovakia's economic efficiency, especially if  sectoral disparities widened between manufacturing and
agricultural activities.  It could also harm third countries, and reduce the benefits to Slovakia from
trade liberalization by displacing imports from the most efficient suppliers.
Slovakia's GSP scheme for developing countries exempts many "sensitive" products, such as
fertilizers, carpets, and most footwear, equivalent to over half of tariff items.  Reduced margins of
preference (50%) apply to "less sensitive" products, covering a further 29% of tariff items. All least
developed country imports are duty free.  On aver age, Slovakia's GSP tariffs are generally much
higher than preferential duties provided to its regi onal trading partners.  Slovakia intends to adopt the
EU GSP scheme prior to accession.
Foreign investment jumped in 2000 to 10% of GDP (3.5% in 1999).  As an OECD member,
Slovakia provides, with few exceptions and transitional provisions, equal treatment of foreign anddomestic investors. Only foreign branches in the energy sector are restricted.  No screening
procedures or foreign equity limits apply, except in a few service industries, such as air transportation.
Slovakia has progressively extended incentives, such as tax holidays, to attract foreign direct
investment.  The latest changes were approved in May 2001.  It is unclear whether the benefits of
such incentives outweigh their costs.PRESS/TPRB/178
Page 7
MOREThe simple average MFN tariff was 6.1%  in 2001, down from 8% in 1995.  Tariff dispersion
also narrowed.  In 2001, preferential tariffs (excluding GSP) averaged 2%, (the average rate on EU
imports was 2.4%).  Tariff surcharges have been applied widely several times since 1995 for balance-
of-payments reasons, the latest - from mid-1999 - initially at a rate of 7% but progressively lowered to
3%, and eliminated from 2001.  Indirect taxes do not discriminate against imports.
Substantial tariff escalation exists, especially on "food, beverages and tobacco" and "textile
and clothing", with relatively high tariffs of up to over 100% applying to foodstuffs.  Most
agricultural goods are protected by relatively high tariffs.  The MFN  average tariff on these goods
was 13%, around three times that for non-agricultural products (WTO definitions).
All tariffs are ad valorem.  However, tariff transparency is undermined by duty exemptions,
higher seasonal rates on certain flowers, fruits and vegetables, as well as by the existence of many
different rates, often involving fractional duties.
The new Customs Law of 2001, aligning Slovakia's  customs procedures with those of the EU,
improved customs efficiency, aided by further computerization using ASYCUDA and the
introduction of a comprehensive risk analysis control system.
Remaining formal non-tariff barriers are relatively few.  Import quotas exist only on some
products, such as shoes (imported from China) and sugar, including from the Czech Republic until
end-2002.  Quotas on beer and non-alcoholic beverage s are expected to be eliminated at end-2001.
Quotas were also removed on coal, fuels and other products.  The coverage of automatic import
licences was reduced to certain products for statistical and monitoring purposes, such as foodstuffs
and tobacco products,  or for security reasons, like on explosives and firearms.  Imported cars older
than ten years are prohibited for health and environmental reasons.
Tariff quotas apply on many goods, especially foodstuffs, beverages and tobacco.  "First-
come, first-served" global MFN tariff quotas apply to 24 agricultural product categories to provide
"minimum and current” market access following tariffication of non-tariff measures. High in-quota
and out-of-quota rates apply on many products, of up to 70% and 125%, respectively.  Many quotas
are substantially under-utilized; average utilization rates fell from 45% in 1998 to 34% in 2000.
Temporary MFN tariff quotas with zero in-quota rates also apply on products considered in shortsupply.  Preferential tariff quotas exist in regional trading agreements.  On overlapping products,
MFN agricultural tariff quotas include preferential quota imports.
Many "sensitive" agricultural imports from the Czech Republic are monitored jointly under
the customs union arrangements.  On foodstuffs, auto-limitation agreements also exist between
respective producer associations.
Slovakia is harmonizing standards, technical regulations, and conformity testing procedures
with mainly the EU. Testing and standardiza tion processes have been simplified. From 2001,
Slovakia's standards became voluntary, unless speci fied in a technical regulation.  At end-May 2001,
there were 23,199 standards; 62% were national standards, 27% European standards, and the rest
international, mainly ISO and IEC. Slovakia intends to have harmonized 80% of standards with EU
norms by 2002.  EU requirements are applied where different from international norms. Self-declared
certification by manufacturers and importers has been introduced.  Several mutual recognitionagreements exist, including with the Czech Republic and Poland, and between CEFTA members.
Slovakia maintains strict quarantine and other SPS regulations affecting food imports.  For
example, imports of potatoes, and fruits such as apples and pears, are subject to rigorous surveillance,PRESS/TPRB/178
Page 8
MOREbased on pest risk assessments.  Imports of GMO food and meat treated with growth-promoting
hormones are banned.
Slovakia is strengthening competition legislation along EU lines, with greater independence
given to the Antimonopoly Office.  Anti-competitive agreements, such as fixing prices, are banned, as
is abuse of a dominant market position by suppliers not subject to "substantial" competition.  Mergers
are prohibited if they create or strengthen a firm’s dominant market position which may reducecompetition.
The State Aid Office was established in 2000 to monitor and control state aid to
manufacturing.   State aid that restricts competition is prohibited, subject to sectoral exemptions -
steel, shipbuilding, automotive, man-made fibre and mining industries - where it is allowed for certain
purposes, such as industrial restructuring, within set limits.  State aid was estimated by the Office at
Sk 15.2 billion in 1999 (up from Sk 6.8 billion in 199 8).  The main beneficiary sectors were transport
and communications.
Anti-dumping and countervailing legislation, admi nistered by the Ministries of Finance and
Economy, respectively, was adopted in mid-1997.  So far, no actions have been taken.  Each ministry
must request the Antimonopoly Office's opinion on th e effects on competition of such action.  This
explicitly recognises the anti-competitive effects of anti-dumping and countervailing actions, and may
help limit their misuse.  However, the Office's exact role on these issues is unclear.
Safeguard legislation, also introduced in 1997 and administered by the Ministry of Economy,
has been used twice.  Additional tariffs on imported pig meat, applied in May 1999, were terminated
on schedule within 200 days.  A four-year quota  ap plies to sugar.  Although the Antimonopoly Office
must provide an opinion to the Ministry, its precise role is ambiguous.  Of 17 requests provided, ten
were on industrial products.  No safeguard action has been taken on industrial products, even  on flatrolled iron products from Russia and the Ukraine where the Office recommended additional duties.
An independent Office of Public Procurement was established in 2000 to administer and
supervise public procurement, thereby improving transparency.  No price preferences apply to
domestic suppliers. Tender methods are stipulated in the legislation.  In 2000, 46% of procurement
contracts were let by open tender. Procurement decisions may be appealed to the Office, including byforeign firms, and to the courts.
Slovakia has comprehensive legislation protecting intellectual property rights and belongs to
all major related multilateral agreements.  It recently ratified the WIPO treaties on Internet Protection
and joined the Patent Law Treaty.  New copyright legislation, effective August 2000, is to comply
with EU requirements and provide added protection for digital technologies and databases.  Parallel
imports are not restricted.
Patents, industrial designs, and utility models are protected.  New legislation is to apply from
end-2001.  Semi-conductor topographies are protected by separate legislation, effective June 2000.
Revised trade mark legislation is due from 2002. Stronger protection of geographical indications,
including for alcoholic beverages, is expected from 2003.  Greater powers for customs to seize and
destroy illegal imports have strengthened enforcement, seen as inadequate by some trading partners.
Slovakia does not levy taxes, charges or other fees on its exports.  It maintains export quotas
on mainly agricultural and iron and steel products to stabilize the domestic market. Automatic export
licences apply for statistical and monitoring purposes to certain products, such as raw leather and
pharmaceuticals.PRESS/TPRB/178
Page 9
MOREExport subsidies, especially on dairy products and malt, totalled Sk 535 million in 2000, up
from Sk 491 million in 1999.  Slovakia’s multilateral export subsidy commitments provide only
limited constraint on their use;  subsidies paid in 2000  represented 65%  of its committed levels.
Exporters benefit from finance, insurance, a nd guarantees provided by the state-owned
Eximbank in accordance with OECD rules. Soft "green loans" also assist exports of agricultural
produce, such as fruit and vegetables.  Several schemes  assist export promotion and marketing.Exporters may benefit from tariff suspensions and duty drawback schemes, as well as from six
customs-free zones.
Agricultural policy is heavily influenced by EU accession requirements as Slovakia strives to
introduce CAP-consistent measures. Agricultural support is a high government priority for food self-
sufficiency.  Agricultural assistance (measured on a PSE basis) fell substantially to 1% in 1996,
before surging to 27% in 1998, and 22% in 2000.   Transfers to farmers totalled Sk 15.6 billion in
2000, mainly funded by taxpayers and consumers.
Farm assistance is increasingly being delivered by direct support payments (about 90% in
2000), mainly related to inputs, area planted/anim al numbers or farm income.  Although Slovakia’s
has met its committed levels of domestic support,  its agricultural PSE assistance - as measured by the
OECD - substantially exceeds its AMS levels.
Farm assistance is delivered by way of tariffs, price support, supply control measures, credit
and input subsidies as well as direct outlays, including export subsidies.  Assisted products include
sugar, dairying, poultry, and pigmeat. The Government believes that agriculture should be fully
integrated into the EU's CAP at similar support leve ls.  However,  increased agricultural assistance
may undermine economic efficiency by  widening disparities in Slovakia's assistance structure.  It
may also increase Slovakia's agricultural surpluses and subsidized exports.
Unlike agriculture, Slovakia's industrial sector is restructuring  due to greater import
competition from trade liberalization.  Several industries, such as motor vehicles and primary plastics,
have improved performance based on new export markets and foreign investment.
Privatization remains a key policy objective to achieve a more competitive economy,
including in essential services.  Since 1999, the privatization programme has been revitalized andmade more  transparent.  Natural (or strategic) state-owned monopolies are no longer excluded from
privatization, except for posts, railways, forestry, and water supply.  Maximum private ownership
limits apply to a few state-owned enterprises, such as of 34% in telecommunication, banking, and
insurance markets. Weak institutions, poor commercial regulations and corporate governance,
hampered restructuring as did non-commercial privatizations subject to political interference.Improved commercial laws, including revised bank ruptcy and securities regulation, now facilitate
more efficient enterprise restructuring, although  commercial courts remain overburdened.
Priority areas for divestment have included financial and telecommunication services and key
utilities, such as electricity and gas.   The banking sector has been restructured, including through
capital injections of Sk 18.9 billion into the three largest state-owned banks, and a state carve out of
their non-performing loans totalling Sk 105 billion.  Privatization of these banks is to be completed by
end-2001.  Bank  supervision by the National Bank has also been strengthened, and complianceimproved.
Foreign bank and, since April 2000, insurance branches are allowed.  The state-owned
insurance company is to be privatized.  Compulsory third party motor vehicle insurance is to be de-PRESS/TPRB/178
Page 10
MOREmonopolized from 2002.  New insurance companies can no longer offer both life and non-life policies
from April 2000.
Regulatory authorities are being established in key services to facilitate privatization, and
safeguard competition.   51% of  Slovakia Telecom was recently divested overseas, and  a new
independent regulatory body, the Telecommunications Office, created in July 2000. The sector is to
be further liberalized from 2003 when the state monopoly over basic telecommunications using thepublic fixed network is due to end.   The Telecommunications Act of 2000 provides licensed entrants
from 2003 with non-discriminatory access to the public network within a reasonable time at a price
based on justified costs.  Universal services are also stipulated.
The transport sector is also being reformed.  Bus subsidies on routes over 100 kilometres are
being terminated.  The heavily indebted state-owne d Slovak Railways is being restructured into two
enterprises in 2001.  Freight and passenger services are to be privatized by 2005.  Passenger subsidies
are to be progressively reduced and rationalised for loss-making routes.  The policy to establish astate-owned national air carrier ceased in January 1999. Cabotage rights, extended on reciprocity
grounds, apply to shipping services in Slovakia.
Slovakia's accelerated economic transition has intensified its preparations for EU accession.
This will provide renewed opportunities and benefits to Slovakia and its trading partners.
Nevertheless, Slovakia will need to continue balancing the requirements of EU accession with
its participation in the multilateral trading system.  Liberalization efforts offer most economic benefits
to Slovakia and its trading partners when they are mutually reinforcing, and regional initiatives, like
EU accession, do not undermine MFN  liberalisation.  The most effective means of ensuring this
would be for Slovakia to extend regional preferences on a non-discriminatory basis and to secure
them multilaterally.
Vigorous pursuit of multilateral trade liberalization will continue to be in Slovakia's longer term
economic interests, including post-EU accession when the likelihood of increased agricultural
assistance may generate trade diversion concerns.  Slovakia's trading partners could also facilitate its
successful transition by ensuring non-discriminatory access to their markets.PRESS/TPRB/178
Page 11
MORETRADE POLICY REVIEW BODY
SLOVAK REPUBLIC
Report by the Government of the Slovak Republic  -- Part II
Developments in foreign trade and investment flows
The Slovak foreign trade went through several development phases.  At the very beginning it
was marked by the economic transition process, disintegration and collapse of the East-European
markets, and general economic recession of the global economy.  In the following period there was a
dynamic growth of the Slovak economy and foreign trade, which however, led to an increase in
macro-economic imbalances and to significant deepening of the trade deficit.
The trade deficit started to develop already at the end of 1995 and fully demonstrated itself in
the course of 1996 – 1998, when the current account deficit of the balance of payments reached 9.4%
of GDP on average.  This development caused pressure on the currency and culminated by forced
change in the foreign exchange regime and subsequent weakening of the Slovak koruna exchange
rate;  this meant a de facto devaluation in October 1998.  Consequently, the regime of fixed nominalexchange rate of the Slovak koruna against the basket of currencies within the fluctuation band was
abolished and replaced by a floating regime.
The Government of the Slovak Republic, with the aim of establishing macro-economic
stabilization, stabilization of the Slovak currency exchange rate and creating conditions for
development of the micro-sphere, started to implement a set of measures focused especially onlowering the deficit of the trade balance of the current account of the balance of payments and
lowering the deficit of public funds.  The implementation of these measures brought in 1999 a
decrease in the deficit of foreign trade of goods and services to 34.8% of the 1998 level.  A similar
trend continued also in 2000.  This was followed by a significant reduction of the current account
deficit of the balance of payments.  This favorable development was caused mainly by a fast growthin exports of goods, which in 2000 reached close to 30%.
In the period from 1996 to 2000 the average annual export growth reached 16.8% and import
growth 21.4%.  This increase was influenced mainly by the application of the Association Agreement
with the EU and the CEFTA Agr eement. Nearly 80% of imports and over 90% of exports in 2000
were to these territories.  In this period, the share of Slovak exports to the EU market was increasing;in 2000 it represented 59.07%.
With the aim of improving the quality of the business environment and removing barriers for
investments in 2000, the Government adopted a document entitled “Improvement of the legal,
regulatory and tax framework for promotion of businesses and investments.”  The Government also
adopted other measures defining the statute of important foreign investor, tax benefits, contributions
to newly created jobs, incentives for newly establis hed entities and for building industrial zones and
parks.
One of the key reasons for the slow restructuring of the Slovak economy for many years has
been a very low influx of FDI, which lagged behind significantly the levels of neighboring countries.
This trend was turned around by adopting a Strategy for promoting entry of FDI to the Slovak
Republic, which resulted in FDI in 2000 exceeding the total volume of FDI for the period 1996 –
1999.  Increasing volumes of FDI influx play a v ital role in achieving the revitalization and
sustainable long-term development and growth of the Slovak economy.  Implementation of thePRESS/TPRB/178
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MOREstrategy for promoting entry of FDI into the Slovak  Republic is governed by the Slovak Agency for
Investments and Trade Promotion (SARIO, a.s.).
Promotion of foreign investment is closely linked with export promotion, which was done by
the Foreign Trade Promotion Fund established by Act No.379/1996 Coll.l.  This Fund fulfilled this
role until the end of 2000.  In 2001 it was transformed and the activities taken over by SARIO, with
its major shareholders being the Government Offi ce of the Slovak Republic, Ministry of Economy of
the Slovak Republic and Ministry of Finance of the Slovak Republic.
Influx of foreign capital, especially its significant increase in the recent period, has had a
positive impact on the Slovak economy and was capitalized through the foreign trade exchanges in a
significant way.  Links between companies with foreign participation and local industry have
contributed to increased export performance of the economy.
Regarding the structure of foreign capital influx  into the Slovak economy the continuing trend
can be positively viewed as the dominant position was taken over mainly by FDI (76.9%) instead offinancial credits, which prevailed in the period of 1996 – 1998 (80% of the total medium- and long-
term resources).
From the view of FDI influx, a significant role is played by entry of foreign investors into
large companies (Slovak Telecom, VSŽ Košice and Slovnaft).  The Slovak economy still lacks
strategic foreign investors in technologically more demanding sectors of the processing industrycontributing to transfer of new technology, increased productivity and expansion of sales networks.
Further development of Slovakia's SMEs is of crucial importance; the state programs for
promotion of investment in this field are implemented through the Slovak Guarantee and
Development Bank and National Agency for Development of Small and Medium Enterprises.  SMEs
recorded a positive development since creation of the Slovak Republic, where currently in someparameters it achieves comparable levels to those in the EU countries.  SMEs currently employ 56%
to 58% of employed population by regions, they create value added of more than 56% of that created
in the national economy and they contribute a significant portion of exports to countries with
advanced market economies.
With regard to restructuring of the corporate sphere, the solution of inter-company
indebtedness and improved payment discipline, and the amendment to the Act on Bankruptcy and
Compensation have had a great importance.  The amendment, which entered into force in August
2000, enhances the rights of creditors and improves their ability to enforce debts, creates conditions
for lowering tied up capacities in inefficient comp anies and their freeing up for competitive entities,
by which the efficiency of implementing the law would significantly increase.
Competition is a natural mechanism operating in the market economy as a regulator of
effective behavior of businesses, and at the same time it leads to optimum use of resources of the
economy, and effect on consumers.  The goal for legal protection in competition in Slovakia is the
protection and promotion of effective competition, as  well as creating conditions for its further
development.  Within economic competition, an important contribution is made by the National
Quality Program (until 2003) adopted by the Gove rnment and developed in compliance with the EU
concept.  The Government of the Slovak Republic, in order to achieve the goal of securing intensiveeconomic growth and continuous improvement of the living standards of the population, securing its
health, security and environmental requirements in cooperation with the institutions of public and
private sectors, pursues quality in the field of production, trade and consumption by increasing
general awareness and quality management, increasing the quality of SMEs, as well as in the servicesPRESS/TPRB/178
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sector, organization of prestigious quality contests, and by providing a system of protection of public
health.
In connection with Art. 64 of the Europe Agreement, the Ministry of Finance of the Slovak
Republic prepared in 1999 a draft law on state aid.  This draft was adopted on 24 August 1999 by the
National Council of the Slovak Republic as Act No. 231/1999 Coll.l. on State Aid, which entered into
force from January 1, 2000.  The main goal of this Act is to prohibit state aid that would prevent,disturb, limit or represent a threat of limiting, competition as a result of giving advantage to certain
businesses, production of certain types of products or provision of certain types of services.  Based on
this law, the Office for State Aid was established, as a body of state administration for review,
assessment and approval of state aid, control and record keeping of provided state aid.  The provider
of state aid – with the exception of minimum state aid according to §3 of Act on State Aid – is obliged
prior to provision of state aid, to apply to the Office for approval of state aid.  The establishment and
functioning of the Office for State Aid therefore allows for higher transparency in providing state aid,as all the forms of state aid are subject to approval by the Office.
An important element of economic transformation in the Slovak Republic was the transfer of
state property to private ownership.  This process had several forms and phases.  In the transformation
and privatization process, the decisive role was played by so-called small and large privatization.
However the transformation process also included restitutions and liquidation of state enterprises.Currently the continuation of the privatization process is one of the priorities of the Government. The
condition is transparency in all transformation steps, following the rules of competition and a
corresponding legislative environment.  Approval and assessment of privatization projects in the
process of privatization is governed from the methodology aspect by the Ministry for Administration
and Privatization of the National Property of the Slovak Republic
END