RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/121
15 September 2003
(03-4681)
Trade Policy Review Body
TRADE POLICY REVIEW
BULGARIA
Report by the Secretariat
This report, prepared for the Trade Policy Review of Bulgaria, 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 Bulgaria on its trade
policies and practices.
Any technical questions arising from this report may be addressed to
Messrs. Allen Dennis (tel: 739 6844) and Jacques Degbelo (tel: 739 5583).
Document WT/TPR/G/121 contains the policy statement submitted by the
Government of Bulgaria.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on the Bulgaria.Bulgaria WT/TPR/S/121
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CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) T HE ECONOMIC ENVIRONMENT vii
(2) T RADE AND INVESTMENT POLICY  FRAMEWORK vii
(3) T RADE AND RELATED POLICY MEASURES ix
(4) S ECTORAL DEVELOPMENTS xi
(5) T RADE POLICY AND FOREIGN TRADING  PARTNERS xii
I. ECONOMIC ENVIRONMENT 1
(1) M AJOR FEATURES OF THE ECONOMY 1
(2) E CONOMIC BACKGROUND 2
(3) R ECENT ECONOMIC DEVELOPMENTS 3
(i) Monetary and Exchange Rate Policy 7(ii) Fiscal Policy 8
(4) T
RADE AND FOREIGN DIRECT INVESTMENT PERFORMANCE 9
(i) Trade patterns 9
(ii) Foreign direct investment 13
(5) OUTLOOK 16
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 18
(1) I NSTITUTIONAL FRAMEWORK 18
(2) P OLICY FORMULATION AND IMPLEMENTATION 19
(3) T RADE POLICY OBJECTIVES 22
(4) L AWS AND REGULATIONS RELATING TO TRADE AND INVESTMENT 22
(5) I NTERNATIONAL TRADING AGREEMENTS 26
(i) Multilateral agreements 26(ii) Regional Agreements 27(iii) Bilateral trade agreements and other agreements 33
(iv) Unilateral preferences 35
III. TRADE POLICIES AND PRACTICES BY MEASURE 36
(1) O
VERVIEW 36
(2) M EASURES DIRECTLY AFFECTING IMPORTS 36
(i) Registration, documentation and procedures 36(ii) Tariffs 38
(iii) Rules of origin 50
(iv) Other duties and taxes 52(v) Import surcharges 54(vi) Customs valuation and pre-shipment inspection 54(vii) Local-content and local-purchase requirements 54(viii) Import prohibitions, restrictions, and licensing 54
(ix) Anti-dumping and countervailing actions 56
(x) Safeguard actions 57(xi) Government procurement 58WT/TPR/S/121 Trade Policy Review
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(xii) Standards and other technical requirements 61
(3) M EASURES DIRECTLY AFFECTING EXPORTS 64
(i) Registration, documentation, and procedures 64(ii) Export taxes, charges and levies 64
(iii) Export prohibitions, licensing, and other restrictions 64
(iv) Export subsidies, and duty and tax concessions 66(v) Export promotion and assistance 66(vi) Free Zones 67
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 67
(i) Bankruptcy and competition policy 67
(ii) State aid 70
(iii) Protection of intellectual property rights 70(iv) State-owned enterprises and privatization 76
IV. TRADE POLICIES BY SECTOR 79
(1) I
NTRODUCTION 79
(2) A GRICULTURE 79
(i) Background 79
(ii) Policy objectives for the sector 81(iii) Main subsectors 87
(3) M
INING AND ENERGY 95
(i) Background 95
(4) M ANUFACTURING 99
(i) Background 99
(ii) Policy objectives for the sector 100(iii) Key sub-sectors 101
(5) S
ERVICES 105
(i) Background 105
(ii) Banking and insurance 106(iii) Telecommunications and postal services 110(iv) Transport 113
(v) Tourism 116
REFERENCES 119
APPENDIX TABLES 125Bulgaria WT/TPR/S/121
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Page
CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Trends in selected macroeconomic variables, 1989-02 5
I.2 Direction of trade, 1995 and 2002 11I.3 Structure of trade, 1995 and 2002 12
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Ministries and State Agencies responsible for trade in goods 21
II.2 Ministries and State Agencies responsible for trade in services 21
II.3 Bulgaria's regional and bilateral trade agreements, July 2003 28
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Tariff averages in HS chapters 01-24, 2003 42
III.2 Tariff averages in HS chapters 25-97, 2003 43
III.3 Composition of Bulgaria's tariff, 2003 44III.4 Tariff escalation by 2-digit ISIC industry, 2003 44
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Main economic and social indicators 1
I.2 Economic performance, 1996-2002 4
I.3 Evolution of Bulgaria's revealed comparative advantage during the transition period 15I.4 Foreign direct investment in Bulgaria, 1998-2002 16
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Governments that have concluded agreements with Bulgaria on mutual protection
and promotion of foreign investment and/or on avoidance of double taxation 24
II.3 Republic of Bulgaria's Preferential Trade Agreements, June 2003 34
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Bulgaria:  bound and applied tariffs, 2003 40
III.2 Structure of MFN tariffs in Bulgaria 40
III.3 Imports from RTA sources, 1998-02 45
III.4 MFN and preferential tariffs, simple average, by WTO product definitions, 2002 46III.5 Autonomous tariff quotas/temporary duty suspensions, 2000-03 49III.6 Excise duties in force as of 1 January 2003 53III.7 Goods requiring non-automatic licences 55III.8 Safeguard actions taken by Bulgaria 57
III.9 Government procurement by type of procedure 60
III.10 Government procurement by type of contracting authority 60III.11 Exports subject to non-automatic licensing 65WT/TPR/S/121 Trade Policy Review
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III.12 International intellectual property agreements to which Bulgaria is party 71
III.13 Recent legislation on Bulgaria's intellectual property protection 72III.14 Status of principal privatization transactions, May 2003 78
IV. TRADE POLICIES BY SECTOR
IV.1 Aggregate measure of support, current and bound (million ecu or euros) 84
IV.2 Summary of simulation of effects under policy scenarios 85
IV.3 Producer and consumer support estimates, 1986-2001 86
IV.4 Production of ores and minerals 95
APPENDIX TABLES
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
AII.1 Major trade and investment related legislation of the Republic of Bulgaria 125
AII.2 Status of notifications to the WTO, as at June 2003 127
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Tariff quotas for import with zero or reduced rate of duty for 2003 128
IV. TRADE POLICIES BY SECTOR
AIV.1 Summary of main sector-specific commitments under GATS 131Bulgaria WT/TPR/S/121
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SUMMARY OBSERVATIONS
(1) The Economic Environment
1. Bulgaria is currently on an economic
recovery path, with rapid economic growth
and low inflation. Fundamental
macroeconomic and structural reforms,including in trade policy, have been
undertaken;  however, the structural reform
process, though well advanced, remains to be
completed.
2. During the early transition period, the
economy suffered from a slow and erratic
approach to domestic eco nomic reform, with
widespread rent-seeking, unsound credit
policies, and rising budget deficits.
Simultaneously, unfavourable externaldevelopments included the collapse of the
Council for Mutual and Economic Assistance
(CMEA) and the Gulf and Yugoslav crises.
This combination of factors led to a severe
economic crisis by the end of 1996, with
hyperinflation, rapid depreciation of the lev,
and closure of a third of the banking sector.
3. In response, the Government
established a Currency Board Arrangement,
tightened fiscal policy, and accelerated the
pace of structural reforms. This resulted in a
significant improvement in the macroeconomicenvironment, with real GDP growth averaging
over 4% between 1998 and 2002, and annual
inflation and interest rates averaging 9% a
year and 4.6% respectively (and falling)
during the same period.
4. The invitation to Bulgaria in 2000 to
commence negotiations to accede to the
European Union (EU), has spurred further
reforms, including to its trade regime. EU
accession is Bulgaria's principal foreignpolicy priority: its objective is to accede to the
EU on 1 January 2007.
5. Foreign trade plays an important part
in Bulgaria’s economy. Trade in goods
increased from 68% of GDP in 1998 to 87% in
2002. Export growth, which averaged 12.5%
over 2000-02, was the main contributor togrowth in GDP in 2000 and 2001 and the
second largest contributor in 2002. Annual
import growth averaged 12.8% over the same
period. The current account deficit, at 4.8% in
2002, is largely financed by foreign direct
investment and other private inflows.Domestic consumption has picked up,
averaging 5.8% growth annually over 1998-
2002, and in 2002 was the principal
contributor to economic growth. Investment is
the most dynamic component of aggregatedemand. Gross fixed capital formation,
spurred by privatization, recorded average
growth of 17% over 1998-2002, indicating
renewed confidence in Bulgaria's economy
due to the improved business climate, andholding hope for future sustained growth.
6. Notwithstanding these improvements
to the economic environment, real GDP and
consumption were in 2002 still below their
pre-transition (1989)  levels by 17% and 13%
respectively. Employment in 2001 stood at
27% below its 1990 level. Furthermore, eventhough the situation has improved significantly
since 1997, compared with the pre-transition
period levels of poverty are still high; a World
Bank study using a monetary poverty line of
$4.30 per day estimates that a third of thepopulation were in poverty in 2001, and deep
wells of unemployment and poverty remain.
7. To address these concerns further
consolidation of reforms is required in areas
where administrative capacity to implementand enforce legislative changes is weak, as
well as acceleration of reform in areas where
the speed has been slower, such as the judicial
system and the energy sector.  Further
improvements to its trade regime by Bulgariaas well as by trading partners within the
multilateral trading system would assist
Bulgaria to achieve its economic goals.
(2) Trade and Investment Policy 
Framework
8. Bulgaria's overall trade policy
objective is geared to the liberalization of itstrade regime. This is being pursued at
multilateral, regional, and bilateral levels.WT/TPR/S/121 Trade Policy Review
Page viii
9. Bulgaria's multilateral trade policy is
focused on its commitments, and present
negotiations, in the WTO. Bulgaria acceded to
the WTO on 1 December 1996, and has
accepted all multilateral and plurilateral
agreements except the Agreement onGovernment Procurement, where it is an
observer and where consultations on its
membership are ongoing. It grants at least
most-favoured-nation treatment to all WTO
Members. On accession, it bound all its tariffsunder GATT 1994, and has since reduced its
bound rates in accordance with its Schedule of
Concession and Commitments; in some cases
it has undertaken autonomous liberalization
beyond that required under its Schedule.Bulgaria has sought to bring its trade-related
legislation into conformity with WTO
provisions, including legislative reforms on
anti-dumping and countervailing actions,
safeguard actions, TBT and SPS measures,
services, and TRIPS. It has also introduced
new bankruptcy and competition laws. It hastaken up further obligations on basic
telecommunications and financial services.
10. Liberalization of Bulgaria's trading
regime is by far the deepest and most
comprehensive at the regional level, inparticular with the EU. Under the
Bulgaria/EU Europe Agreement (EA), dating
from March 1993, all import duties and non-
tariff measures on industrial goods have been
eliminated on both sides. Liberalization oftrade in agricultural products under the EA,
although progressive, has been more selective
than for industrial goods. Current efforts to
accede to the EU by January 2007 are
spurring further reforms in almost all spheresof the Bulgarian economy, including that
affecting its trade-related legislation to ensure
conformity with the EU acquis
communautaire. Bulgaria also has preferential
regional trade agreements with CEFTA and
EFTA. In both agreements, trade in industrial
products is free, and again there is moreselective liberalization of trade in agricultural
products.
11. At the bilateral level, Bulgaria has
concluded reciprocal trade agreements withseven countries, all of which have EAs with the
EU: Croatia, Estonia, Israel, Latvia,
Lithuania, Former Yugoslavian Republic of
Macedonia, and Turkey. Once again, trade in
industrial goods is free and agricultural trade
is selectively liberalized.
12. Bulgaria also seeks to liberalize its
investment regime. Current legislation
guarantees equal treatment of domestic and
foreign investors; no limitations on the amount
of foreign participation in a newly formed orexisting company; and unrestricted acquisition
and transfer of funds abroad. The regime,
however, restricts foreign investors (unless
incorporated in Bulgaria) from acquiring land
ownership title.
13. The above changes have had a
profound impact on Bulgaria’s trade
performance. Apart from  contributing to the
increasing openness of the economy (as shown
by the rise in trade shares), they have led to
seismic changes in the product composition
and direction of trade. Before the transition,over half of Bulgaria's foreign trade was with
members of the CMEA: between 1995 and
2002, imports from preferential partners
increased from 40% to 67% of the total, with
the increased re-orientation of trade towardsthe EU accounting for most of this trend. In
2002, the EU accounted for 53% of Bulgaria's
total trade up from 38.5% in 1995.  In the pre-
transition period Bulgaria was a major
exporter of capital goods and processed foodto the CMEA, it is currently a net importer of
these products and is proving competitive in
exports of footwear, textiles, and apparel.
Given the differing scope and pace of
liberalization pursued on the preferential andMFN fronts, it is not surprising that the bulk of
Bulgaria's trade is currently undertaken on
preferential terms.
14. Bulgaria’s planned accession to the
EU in 2007 would further alter its trade
regime, with further implications for its trade
performance, especially with respect toagricultural trade, as there already exists free-
trade in industrial goods. The process of EU
accession, and the accompanying reforms,Bulgaria WT/TPR/S/121
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have contributed to improving the
competitiveness of the economy and its
recovery, including increased trade. Increased
integration in future would further encourage
trade  between Bulgaria and its EU partners
(including the ten countries to accede in2004). Whether this process would be trade
creating or diverting remains an open
question, as the EU's CAP is still undergoing
reforms. However, if, at the time of Bulgaria's
accession to the EU,  agricultural priceswithin the EU remain higher than those on
world markets, this could well lead to trade
diversion in agricultural goods.
15. Irrespective of the present or future
consequences of Bulgaria's preferentialarrangements, concerns of trade diversion
would be minimized were Bulgaria to reduce
the gap between its MFN and preferential
rates. Not only would this increase the
chances of trade creation, it would also
further improve the competitiveness of the
Bulgarian economy and engender moreefficient allocation of resources and greater
gains from trade.
(3) Trade and Related Policy Measures
16. Bulgaria's trade liberalization is
confirmed by the fall in the average appliedMFN tariff rate for all products from 17.2% in
1996, on accession to WTO, to 11.6% in 2003.
Duties range from 0% to maxima of 40% in
industrial and 80% in agricultural products.
Industrial trade liberalization has progressedmore rapidly than that in agriculture: in 2003
the average applied MFN rate for agricultural
goods was 22.4% while that for industrial
products was 8.7%. All duties on industrial
products are ad valorem, while 16% of dutieson agricultural goods are either specific,
mixed,  compound or seasonal duties. Average
applied MFN tariff rates are well above
preferential rates; the average preferential
rates for all products range between 2.5% to
5.9% depending on the agreement.
17. Bulgaria bound all its tariffs at ceiling
rates on accession to WTO. In 2003, the
average MFN bound rate was 28.2%, with amaximum of 200%. The wide gap between
Bulgaria's applied and bound MFN rates
could give it considerable latitude to increase
tariff levels. A reduction in its bound rates
would enhance the predictability of its trade
regime.
18. Under its WTO Agriculture Schedule,
Bulgaria applies MFN tariff quotas at zero or
reduced duty rates. In 2003 there were 45 such
quotas in place. In most cases, however,  the
applied rate of duty is lower than the boundrates at which the tariff quotas are opened. It
also applies autonomous MFN tariff quotas at
zero or reduced rates of duty; in 2003, 38 such
tariff quotas were applied. In a few cases,
tariff quotas are allocated between the EU andother suppliers; in all instances, quotas are
allocated on a first come, first served basis.
Except for a few products, most of these
quotas are substantially underutilized. Some
tariff quotas also apply under Bulgaria's free-
trade agreements.
19. Bulgaria applies a 20% value-added
tax on most goods and services, including
imports. Exports and supplies of goods in
custom warehouses and free zones do not
attract VAT. Excise duties are levied on a
limited number of products for mainly healthand environmental reasons. Exports are again
exempt from such duties.
20. Bulgaria has and is still undertaking
extensive trade-related  legislative reforms.
These have been motivated by the need tobring its legislation into conformity with that
of WTO requirements and, more significantly
in recent years, to harmonize its legislation
with that of the EU acquis..
21. The Customs Act, 1998 and its
implementing regulations provide the main
framework for Bulgaria's customs
administration. Customs legislation is
harmonized with that of the EU. Bulgaria is
actively working to strengthen the capacity of
its Customs Agency, with substantial external
expertise and assistance. The aim  is tofacilitate trade through reductions in
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revenue, and reduce problems of corruption
and smuggling.
22. Bulgaria applies both non-preferential
and preferential rules of origin. Preferential
rules of origin apply to free-trade agreements
and the GSP. Bulgaria is a participant in thePan-European Cumulation System, which
provides for a diagonal system of cumulation
of origin with all of its major preferential
trading partners.
23. Bulgaria's import licensing regime has
been liberalized. It currently does not apply
any automatic licences on imports. Remaining
non-automatic licences are maintained in
conformity with Bulgaria's commitments under
various international agreements related totrade in arms, and protection of human,
animal, and plant life.
24. During the process of its accession to
the WTO, Bulgaria introduced new anti-
dumping, countervailing and safeguard
legislation, in conformity with WTO
disciplines. Bulgaria has not introduced anycountervailing measure. It has so far initiated
one anti-dumping action, and six safeguard
investigations, two of which have resulted in
increased duties.
25. Bulgaria's government procurement
legislation has undergone substantial reform
since 1997 to open its market to foreign
suppliers and to align the system with WTO
and EU rules. There are preferences for small
and medium enterprises and companiesemploying disabled people. 
New draft
legislation currently in process will, inter alia,
reduce preference levels and harmonize
Bulgarian rules with EU rules in this area.
26. Bulgaria is harmonizing its national
standards with international and regional
standards, in particular those of the EU. Some
2% of standards in force are mandatory
technical regulations. Currently, 52% of
Bulgaria's standards are harmonized with
those of the EU and it intends to achieve 80%
harmonization by 2004.27. Bulgaria is also harmonizing its
sanitary and phytosanitary standards with
those of the EU. Veterinary certificates are
required for the importation of certain
animals, foodstuffs, and raw materials of
animal origin. Bulgaria maintains import banson live cattle, sheep, and goats, and certain
products from countries where BSE and foot
and mouth disease are known. Most imports of
live animals are subject to quarantine. Current
reforms in plant protection law also seek toharmonize Bulgaria's legislation with EU
directives and international rules. Under
current regulations, import bans can be
applied to plants and plant products with
listed pests. Similar harmonization reformsare occurring in the area of marks and
labelling; there is a move towards mutual
recognition between Bulgaria and the EU for
designated conformity assessment bodies.
28. Export procedures follow the Customs
Act and its implementing regulations. Bulgaria
no longer imposes duties, taxes or othercharges on exports. Export restrictions mainly
consist of a ban on the export of fire-burnt
unsawn timber (to discourage deliberate
burning of forests) and export licences are
required in accordance with internationaltreaties and conventions to which Bulgaria's is
a signatory.
29. The Bulgarian Trade Promotion
Agency gives exporters information on
international markets, foreign trade andinvestment regimes, and runs training courses
and seminars. The Bulgarian Export
Insurance Agency covers short-term
commercial and non-commercial risks related
to Bulgarian investments abroad.  Six freezones provide facilities for storage,
warehousing and inward processing on a
duty- and VAT-free basis.
30. In recent years, Bulgaria has
strengthened its bankruptcy and insolvency
laws, which are being harmonized with those
of the EU. The changes have resulted in asteady increase in recorded insolvency or
liquidation procedures. Similar reforms have
taken place for competition policy. TheBulgaria WT/TPR/S/121
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legislation provides detailed rules on
monopolies, misuse of dominant positions,
unfair competition, and other actions that may
result in the prevention, restriction or breach
of competition. Since 1998, the number of
decisions made by the Commission on theProtection of Competition has been on the
increase.
31. During its WTO accession process,
Bulgaria committed itself to bringing the rest
of its domestic legislation into compliancewith the TRIPS Agreement. It  has undertaken
extensive reforms to its national laws with this
aim, and to harmonize them with EU
legislation. As a result its intellectual property
legislation is considered to be amongst themost modern in Central and Eastern Europe.
Bulgaria was removed from the USTR
"Special 301 Watch List" in 1999.
32. The above measures and reforms have
contributed significantly to improving the
regulatory environment affecting trade.
Nonetheless, there remain implementation andenforcement challenges.
(4) Sectoral Developments
33. The thrust of Bulgaria's agricultural
trade policy, particularly since 1997, has been
towards liberalization. Since 1997, licensingrequirements for the import and export of
agricultural products have been removed and
by 1999, price controls had been lifted on  all
agricultural output prices, except tobacco.
Currently the only import protection foragricultural products is through tariffs. In
2003, the average applied MFN rate for
agricultural goods was 22.5%. However, there
is wide dispersion of tariffs amongst
agricultural products as the maximum appliedrate is 80% and the maximum bound rate is
200%.
34. Bulgaria's total aggregate measure of
support (AMS) has been increasing since 1997
and amounted to €26.03 million in 2003.
However, this is well below its total bound
AMS level. Overall, domestic support foragriculture remains low. The main domesticsupport instruments include input subsidies,
subsidies for interest rates, provision of
guarantees and collateral to financial
institutions, premium and buying-up
provisions for tobacco, and bonuses on prices.
In 2003, there were market interventions fortobacco (through minimum farm-gate prices)
and wheat (through a system of warehouse
receipts for grains).
35. One significant negative factor
affecting Bulgaria's agriculture has been theprocess of land restitution. Though now
completed, its implementation was disruptive
and resulted in fragmented ownership, with
many farmers lacking capital and the
necessary investment to boost production.Efforts are currently under way to achieve
land consolidation and stimulate a land
market.
36. With agriculture contributing over a
quarter of employment and with most of the
rural poor engaged in this activity,
improvements in this sector could enableBulgaria to address some of the deep concerns
of growth and poverty. Ongoing efforts to
liberalize agricultural trade with the EU could
help in this respect, via improved market
access. An accelerated multilateral processcould have even greater impact. Nonetheless,
further domestic reforms, particularly by way
of accelerating consolidation of agricultural
lands and developing of a viable land market,
are needed. Opening of the land market toforeign ownership may help in this respect and
could serve to attract the investment needed to
revitalize the sector.
37. Bulgaria's industrial landscape has
also undergone significant transformation.Prior to the transition, Bulgaria was
specialized in the production and supply of
capital and machinery as well as processed
food products for the CMEA market. The
collapse of the CMEA, and trade liberalization
and privatization reforms introduced in
subsequent years, have led to significantchanges in resource allocation, and
consequent effects on the dynamics of trade
specialization. Currently Bulgaria's majorWT/TPR/S/121 Trade Policy Review
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industrial exports include textiles and apparel,
non-ferrous metals, iron and steel, and
footwear. In most industries, small and
medium enterprises (SMEs) dominate;
although few are involved in trade.
Encouragement of SMEs is vital to Bulgaria'seconomic and trade development. Reduction of
tax and administrative burdens will make an
important contribution in this area.
38. The main trade policy instrument
influencing the industrial sector is the importtariff. As noted, the average MFN tariff on
non-agricultural goods in 2003 was 8.7%,
with a maximum of 40%: however, under
Bulgaria's preferential trade agreements,
which account for the greatest part of trade inindustrial goods, all industrial products enter
duty free. Most Bulgarian manufacturers do
not consider tariffs to be significant barriers.
39. Sales of state-owned enterprises in the
manufacturing sector have been finalized.
Privatization of state entities in the energy
sector has not proceeded with the same speed,though there are ongoing restructuring and
privatization efforts. Acceleration of such
reforms would contribute towards improving
the competitiveness of the Bulgarian economy
via a more efficient and reliable supply ofenergy to industry.
40. The financial sector has been one of
the main beneficiaries of privatization reforms
in services.  Overall, however, a considerable
amount of services provision remains undergovernment control, but in most cases plans
are in being to privatize these enterprises,
including in telecommunications and
transport. Further opening of these sectors to
private investment as well as increasedcomplementary government infrastructural
investment would improve the competitiveness
of Bulgaria's business environment. One
sector with great potential, and most likely to
benefit from such reforms is tourism; its
importance in the economy has revived in
recent years but it still accounts for a smallproportion of GDP. Among the factors that
constrain the sector are lack of investmentneeded for modernization and insufficient
international advertising.
(5) Trade Policy and Foreign Trading 
Partners
41. Bulgaria has been an active
participant in the WTO since its accession in1996. During this period it has progressively
liberalized its MFN trading regime. However,
its main trade liberalization efforts have been
pursued through a network of regional and
bilateral agreements, the most important ofwhich is with the EU. The goal of acceding to
the EU by 2007 is the principal political and
economic priority of the Government and  in
recent years has been the main driving force
of Bulgaria's reform agenda including that oftrade and trade-related policies.
42. By and large, these policies have
improved market access opportunities for
Bulgarian products in Europe, particularly for
industrial goods, and have supported the
transition of Bulgaria's economy from a
centrally planned to a market-orientedeconomy.  The process of accession has also
anchored Bulgaria's reform efforts, thus
creating confidence in the continuity of policy.
43. Nonetheless, Bulgaria still faces some
challenges related to its trading regime. Oneis the wide disparity between its applied MFN
and preferential tariff rates, which in effect
accounts for the  increasing share of trade
carried out on a preferential basis, thus
raising worries of trade diversion. Reductionsin preferential margins would diminish the
possibility of trade diversion and would be
beneficial to Bulgarian producers and
consumers, who would be able to access
imported inputs and final goods at morecompetitive prices. It would also help the
gradual transition of Bulgaria's tariff regime
to that of the EU's Common External Tariff, as
Bulgaria's tariffs are generally higher than the
CET. In addition, Bulgaria could improve its
trade environment by reducing the gap
between its applied and bound rates, in orderto improve the predictability of its trade
regime.Bulgaria WT/TPR/S/121
Page xiii
44. To implement and enforce the
widespread legislative reforms undertaken as
part of Bulgaria's accession to the WTO and
the EU, further strengthening of Bulgaria's
administrative capacity is required. This
would enable Bulgaria to reap the widestbenefits from the reform process: Bulgaria
may benefit from further technical assistance
in this respect.45. Bulgaria is a small, open economy
that  has undertaken significant liberalization
and reform of its trade policies.  The benefits
of these reforms would be significantly
reinforced by improved market access
provided by Bulgaria's MFN trading partners.