COMMISSION OF THE EUROPEAN COMMUNITIES  
Brussels, 8.11.2000  
COM(2000)705 final  
 
 
2000 REGULAR REPORT  
 
FROM THE COMMISSION  
 
ON 
 
HUNGARY’S  
 
PROGRESS TOWARDS ACC ESSION  
 
 
2 Table of contents  
A. Introduction  ................................ ................................ ..............  5 
a) Preface   ................................ ................................ ................................ ............  5 
b) Relations between the European Union and Hungary  ................................  7 
Recent developments under the Association Agreement (including bilateral trade)  .. 7 
Accession Partnershi p / National Programme for the Adoption of the Acquis  ...........  8 
Community aid  ................................ ................................ ................................ ............  8 
Twinning  ................................ ................................ ................................ ...................  11 
Negotiations / screening  ................................ ................................ ............................  12 
B. Criteria for membersh ip ................................ ........................  13 
1. Political criteria  ................................ ................................ ....................  13 
Introduction  ................................ ................................ ................................ ...............  13 
Recent developments  ................................ ................................ ................................ . 13 
1.1. Democracy and the rule of law  ................................ ................................ .... 13 
The Parliament  ................................ ................................ ................................ ..........  13 
The executive  ................................ ................................ ................................ ............  13 
The judicial system  ................................ ................................ ................................ .... 15 
Anti-corruption measures  ................................ ................................ ..........................  16 
1.2. Human rights and the protection of minoriti es ................................ ..........  17 
Civil and political rights  ................................ ................................ ............................  17 
Economic, social and cultural rights  ................................ ................................ .........  18 
Minority rights and the protection of minorities  ................................ .......................  19 
1.3. General evaluation  ................................ ................................ ........................  20 
2. Economic criteria  ................................ ................................ .................  22 
2.1. Introduction  ................................ ................................ ................................ ... 22 
2.2. Economic developments  ................................ ................................ ...............  22 
2.3. Assessment in terms of the Copenhagen  criteria  ................................ ....... 24 
The existence of a functioning market economy  ................................ .......................  24 
The capacity to cope with competitive pressure and market forces within the  
Union  ................................ ................................ ................................ .........................  28 
2.4. General evalu ation  ................................ ................................ ........................  30 
3. Ability to assume the obligations of membership  .............................  32 
Introduction  ................................ ................................ ................................ ...............  32 
3.1. The chapters of the acquis  ................................ ................................ ............  33 
Chapter 1: Free moveme nt of goods  ................................ .............................  34 
Overall assessment  ................................ ................................ ................................ .... 35 
Chapter 2: Free movement of persons  ................................ ..........................  36 
Overall assessment  ................................ ................................ ................................ .... 37 
Chapter 3: Freedom to provide services  ................................ ........................  37 
 3 Overall assessment  ................................ ................................ ................................ .... 38 
Chapter 4: Free movement of capital  ................................ ............................  39 
Overall assessment  ................................ ................................ ................................ .... 39 
Chapter 5: Company law  ................................ ................................ ...............  39 
Overall assessment  ................................ ................................ ................................ .... 40 
Chapter 6: Competition policy  ................................ ................................ ....... 41 
Overall assessment  ................................ ................................ ................................ .... 41 
Chapter 7: Agriculture  ................................ ................................ ...................  42 
Overall assessment  ................................ ................................ ................................ .... 44 
Chapter 8: Fisheries  ................................ ................................ .......................  46 
Overall assessment  ................................ ................................ ................................ .... 46 
Chapter 9: Transport policy  ................................ ................................ ...........  46 
Overall assessment  ................................ ................................ ................................ .... 48 
Chapter 10:  Taxation  ................................ ................................ .....................  49 
Overall assessment  ................................ ................................ ................................ .... 49 
Chapter 11: Economic and monetary union ................................ .................  50 
Overall assessment  ................................ ................................ ................................ .... 50 
Chapter 12: Statistics  ................................ ................................ .....................  50 
Overall Assessment  ................................ ................................ ................................ ... 51 
Chapter 13: Social policy and employment ................................ ...................  51 
Overall assessment  ................................ ................................ ................................ .... 53 
Chapter 14: Energy  ................................ ................................ ........................  54 
Overal l assessment  ................................ ................................ ................................ .... 55 
Chapter 15: Industrial policy  ................................ ................................ .........  57 
Overall assessment  ................................ ................................ ................................ .... 57 
Chapter 16:  Small and medium -sized enterprises  ................................ ....... 58 
Overall assess ment  ................................ ................................ ................................ .... 58 
Chapter 17: Science and research  ................................ ................................ . 59 
Overall assessment  ................................ ................................ ................................ .... 59 
Chapter 18: Education and training  ................................ .............................  59 
Overall assessment  ................................ ................................ ................................ .... 60 
Chapter 19: Telecommunications and information technologies  ................  60 
Overall assessment  ................................ ................................ ................................ .... 61 
Chapter 20: Culture and audio -visual policy  ................................ ................  61 
Overall Assess ment  ................................ ................................ ................................ ... 61 
Chapter 21: Regional policy and co -ordination of structural instruments  . 62 
Overall Assessment  ................................ ................................ ................................ ... 63 
Chapter 22: Environment  ................................ ................................ ..............  64 
Over all assessment  ................................ ................................ ................................ .... 66 
Chapter 23: Consumers and health protection  ................................ .............  67 
Overall Assessment  ................................ ................................ ................................ ... 67 
 4 Chapter 24: Co -operation in the field of justice and home affairs  ..............  68 
Overall assessment  ................................ ................................ ................................ .... 71 
Chapter 25: Customs union  ................................ ................................ ...........  72 
Overall Assessment  ................................ ................................ ................................ ... 73 
Chapter 26: External relations  ................................ ................................ ...... 74 
Overall A ssessment  ................................ ................................ ................................ ... 74 
Chapter 27: Common foreign and security policy  ................................ ........  75 
Overall Assessment  ................................ ................................ ................................ ... 76 
Chapter 28: Financial control  ................................ ................................ ....... 76 
Overall assessment  ................................ ................................ ................................ .... 76 
Chapter 29: Financial and budgetary provisions  ................................ .........  77 
Overall assessment  ................................ ................................ ................................ .... 77 
3.2. Translation of the acquis  into the national language  ................................ . 78 
3.3. General evaluation  ................................ ................................ ........................  79 
C. Conclusion  ................................ ................................ ...............  81 
D. Accession Partnership and National Programme for the 
Adoption of the Acquis : Global assessment  .........................  84 
1. Accession Partner ship ................................ ................................ .........  84 
Short -term priorities  ................................ ................................ ................................ .. 84 
Medium -term priorities  ................................ ................................ .............................  87 
2. National Programme for the Adoption of the Acquis  ......................  89 
Annexes  ................................ ................................ ..........................  91 
Human Rights Conventions ratified by the Candidate Countries,  September 
2000  ................................ ................................ ................................ .........  92 
Statistical data  ................................ ................................ ................................  93 
 
 5 A. Introduction  
a) Preface  
In Agenda 2000, the Commission said it would report regularly to the European Council 
on progress made by each of the candidate countries of Central and Eastern Europe in 
preparations for membership, and that it would submit its first report at the end of 1998.  
The European Council in Luxembourg decided tha t 
“From the end of 1998, the Commission will make regular reports to the Council, 
together with any necessary recommendations for opening bilateral intergovernmental 
conferences, reviewing the progress of each Central and Eastern European applicant State 
towards accession in the light of the Copenhagen criteria, in particular the rate at which it 
is adopting the Union acquis ” … “The Commission’s reports will serve as the basis for 
taking, in the Council context, the necessary decisions on the conduct of the  accession 
negotiations or their extension to other applicants. In that context, the Commission will 
continue to follow the method adopted by Agenda 2000 in evaluating applicant States’ 
ability to meet the economic criteria and fulfil the obligations deriv ing from accession.”  
On this basis, the Commission presented a first series of regular reports in October 1998, 
with a view to the Vienna European Council; a second series was adopted in October 
1999, with a view to the Helsinki European Council.  The Hels inki European Council 
noted that the next regular reports would be presented in good time before the European 
Council in December 2000.  
The structure followed by this regular report on Hungary is largely similar to that of the 
Commission’s 1997 Opinion and  of the subsequent regular reports; however, it differs 
from that used in previous years on three minor points.  Firstly, the part of the present 
report assessing Hungary’s ability to assume the obligations of membership ( Part B.3.1 .) 
has been structured t o follow the list of twenty -nine negotiating chapters covering the 
acquis .  Secondly, this part has been broadened to cover also Hungary’s administrative 
capacity to apply the acquis  under each of the negotiating chapters (previously discussed 
in a separat e section of the report).    Thirdly, the report includes, for the first time, a 
section assessing the progress made by Hungary in translating the acquis  into its official 
language.  
In line with previous regular reports, the present report:  
- describes the r elations between Hungary and the Union, in particular in the 
framework of the Association Agreement;  
- analyses the situation in respect of the political criteria set by the 1993 Copenhagen 
European Council (democracy, rule of law, human rights, protection of minorities);  
- assesses Hungary’s situation and prospects in respect of the economic criteria defined 
by the Copenhagen European Council (a functioning market economy and the 
capacity to cope with competitive pressures and market forces within the Union);  
 6 - addresses the question of Hungary’s capacity to assume the obligations of 
membership, that is, the acquis  as expressed in the Treaties, the secondary legislation, 
and the policies of the Union.  This part gives special attention to nuclear safety, as 
unde rlined by the Cologne and Helsinki European Councils. It encompasses not only 
the alignment of legislation, but also the development of the judicial and 
administrative capacity necessary to implement and enforce the acquis , as requested 
by the Madrid and F eira European Councils in December 1995 and June 2000 
respectively.  At Madrid, the European Council underlined the necessity for the 
candidate countries to adjust their administrative structures, so as to create the 
conditions for the harmonious integrati on of those States. The Feira European 
Council in June 2000 emphasised the vital importance of the candidate countries’ 
capacity to effectively implement and enforce the acquis , and added that this required 
important efforts by the candidates in strengthen ing their administrative and judicial 
structures.  The Feira European Council invited the Commission to report to the 
Council on its findings on the matter.  
This report takes into consideration progress since the 1999 regular report. It covers the 
period u ntil 30 September 2000, in some particular cases, however, measures taken after 
that date are mentioned. It looks at whether intended reforms referred to in the 1999 
regular report have been carried out, and examines new initiatives. Furthermore, 
complemen ting the assessment of new developments since the last regular report, this 
report provides also an overall assessment of the global situation for each of the aspects 
under consideration, setting out for each of them the main steps which remain to be taken  
by Hungary in preparing for accession.  
In accordance with this approach, the assessment of progress in meeting the political and 
acquis  criteria (including Hungary’s administrative capacity to implement the acquis ) 
focuses on what has been accomplished si nce the last regular report, complemented with 
a view of the global situation for each of the aspects discussed.  The economic 
assessment, for its part, is based on a forward -looking evaluation of Hungary’s economic 
performance.  
The report contains also a separate section examining the extent to which Hungary has 
addressed the short -term Accession Partnership priorities, and has started to address the 
medium -term priorities set out in this framework.  
As has been the case in previous reports, “progress” has been measured on the basis of 
decisions actually taken, legislation actually adopted, international conventions actually 
ratified (with due attention being given to implementation), and measures actually 
implemented.  As a matter of principle, legislation or measures which are in various 
stages of either preparation or Parliamentary approval have not been taken into account.   
This approach ensures equal treatment for all the candidate countries and permits an 
objective assessment and comparison between cou ntries in terms of their concrete 
progress in preparing for accession.  
The report draws on numerous sources of information. The candidate countries have been 
invited to provide information on progress made in preparations for membership since 
the publicati on of the last regular report.  The National Programmes for the Adoption of 
the Acquis of each of the candidate countries , as well as the information they have 
provided in the framework of the Association Agreement and in the context of the 
analytical exam ination of the acquis  (screening) and the negotiations, have served as 
additional sources. Council deliberations and European Parliament reports and 
 7 resolutions1 have been taken into account in the preparations.  The Commission has also 
drawn on assessment s made by various international organisations, and in particular the 
contributions of the Council of Europe, the OSCE and the International Financial 
Institutions, as well as that of non -governmental organisations.  
b) Relations between the European Union and Hungary  
Recent developments under the Association Agreement (including bilateral 
trade)  
Hungary continued to implement the Europe Agreement correctly and contributed 
actively to the smooth functioning of the various joint institutions.  
The Association Coun cil met in December 1999 and September 2000. An Association 
Committee meeting was held in April 2000. The system of sub -committees continued to 
function as a forum for technical discussions. The Joint Parliamentary Committee 
comprising representatives of t he Hungarian and European Parliaments met in November 
1999 and April and October 2000.  
Hungary’s trade with the EC continued to increase. Hungarian exports to the EC  rose 
from € 14.7 billion in 1998 to € 17.3 billion in 1999 and Hungarian imports from the EC 
from € 16.9 billion in 1998 to € 18.6 billion in 1999. The most important EC exports to 
Hungary were machinery and electrical, transport equipment, chemical produ cts and base 
metals and materials. The most important EC imports from Hungary were machinery and 
electrical, transport equipment and textiles.  
In February 2000, Hungary transmitted its programme for restructuring aid to the 
Hungarian steel industry. As the  plan did not fully meet the Commission’s criteria for 
granting restructuring aid, the Commission requested the Hungarian authorities to amend 
the plan accordingly.  
In April 2000, a second Joint Assessment of the Hungarian authorities and the 
Commission se rvices on medium term economic policy priorities was signed.  
Hungary was the first of the associated countries to pass to the second stage under the 
Europe Agreement in June 2000. This led to further liberalisation as regards the 
provisions on establishmen t. 
 
In March 1999 the Council mandated the Commission to open negotiations with the 
associated countries with a view to new reciprocal concessions for agricultural products. 
The negotiations, which form a part of the overall accession process, have been ca rried 
out on a reciprocal basis and with the aim of leading to a fair equilibrium between the 
interests of the European Community, the EU Member States and those of Hungary. The 
negotiations have been based on the principle of neutrality with respect to th e functioning 
of the CAP.  
 
The negotiations with Hungary were concluded between negotiators in May 2000. As a 
                                                 
1For the European Parliament, the rapporteur  is Luis Queiro.  
 8 consequence of the new agreement approximately two thirds of bilateral trade in 
agricultural products will benefit from preferences. The regime en tered into force on 1 
July 2000 on an autonomous basis, pending the conclusion of an Additional Protocol to 
the Europe Agreement. For processed agricultural products, negotiations are still 
ongoing.  
This development constituted a firm step forward in progr essively liberalising access to 
agricultural markets as a necessary step in the accession process, which will help 
Hungary to prepare for the Single Market.  
Also in July 2000, the Protocol to the Europe Agreement on European Conformity 
Assessment (PECA) wa s initialled. The Protocol will facilitate trade by way of the "pre -
extension" of the rules for the internal market prior to accession. The required 
Association Council decision is under preparation.  
In the same month, the Road Transit Agreement was signed . This facilitates further road 
transport services between Hungary and the Union.  
Current discussions in the institutional framework of the Europe Agreement focus 
particularly on the implementation of the Accession Partnership priorities and seek to 
achiev e progress in the areas like excise duties and competition/state aids. In the 
competition/state aid context, the implementation of the Europe Agreement (article 62) is 
still hampered by the fact that the Hungarian Constitutional Court declared that some 
provisions of the Hungarian implementing rules for competition are unconstitutional. The 
Hungarian authorities and the Commission continued to work on a solution to address 
this issue. There is also a need to conclude quickly the negotiations in view of a gl obal 
wine and spirits agreement that would cover both tariffs and name -protection issues, as 
the current agreement on wine trade concessions will expire at the end of this year.  
Accession Partnership / National Programme for the Adoption of the Acquis  
In December 1999 a revised Accession Partnership with Hungary was adopted by the 
Council. On this basis a revised National Programme for the Adoption of the Acquis  was 
prepared and adopted by the Government in July 2000. (see also chapter D: Accession 
Partner ship and National Programmes for the Adoption of the Acquis: Global 
assessment)  
Community aid  
Since January 2000, there are three  pre-accession instruments  financed by the European 
Community to assist the applicant countries of central Europe in their pre -accession 
preparations: the Phare  programme;  SAPARD , which provides aid for agricultural and 
rural development; and ISPA , which finances infrastructure projects in the fields of 
environment and transport.  These programmes concentrate their support on the  
Accession Partnership priorities that help the candidate countries to fulfil the criteria for 
membership.  
In the years 2000 -2002 total financial assistance to Hungary will amount annually to € 96 
million from Phare,  € 38.7 million from SAPARD, and € 87.7  million from ISPA.  
 9 The Phare  programme has been providing support to the countries of Central Europe 
since 1989, helping them through a period of massive economic restructuring and 
political change. Its current “pre -accession” focus was put in place in 1 997, in response to 
the Luxembourg European Council’s launching of the present enlargement process.  
Phare provides the applicant countries of Central Europe with support for institution 
building, investment to strengthen the regulatory infrastructure need ed to ensure 
compliance with the acquis  and investment in economic and social cohesion. This 
support comprises co -financing for technical assistance, "twinning" and accompanying 
investment support projects, to help them in their efforts to adopt the acquis  and 
strengthen or create institutions necessary for implementing and enforcing the acquis . 
This also helps the candidate countries develop the mechanisms and institutions that will 
be needed to implement Structural Funds after accession and is supported b y a limited 
number of measures (investments or grant schemes) with a regional or thematic focus.  
Around 30% of the Phare allocation is used for “institution building”, while the 
remaining 70% is used for financing investments.  
During the period 1990 – 1999 , the Phare programme allocated € 1.030 million to 
Hungary. The 2000 Phare Programme  for Hungary consists of a national allocation of € 
65 million, supplemented by € 9,8 million out of the 2000 reserve, concentrated on the 
following priorities:  
 priority 1:  Political criteria;  
 priority 2: Agriculture;   
 priority 3: Environment ; 
 priority 4: Border Management;  
 priority 5: Social Affairs;  
 priority 6: Judicial Sector Institution Building;  
 priority 7: Structural Policy and investment in Social and Economic Cohe sion. 
An additional € 19 million was allocated for cross -border co -operation programmes 
(CBC), namely: € 10 million for a CBC programme with Austria; € 5 million for co -
operation with Romania; € 2 million for co -operation with Slovakia and € 2 million  for 
co-operation with Slovenia.  
Hungary also participates in and benefits from Phare funded multi -country and horizontal 
programmes, such as TAIEX and the Small and Medium -sized Enterprises Facility. 
Furthermore, Hungary participates in the following relevant Commu nity Programmes: 
Third multi -Annual programme for  Small and Medium -sized Enterprises; Equal 
Opportunities for men and women; 5th EC Framework Programme on R&D; 5th Euratom 
Framework Programme on R&D; Save II; Combating Cancer; Drug Dependance; 
Health Promo tion and Prevention of Aids,Leonardo, Socrates, Youth. Hungary has 
applied for participation in the Culture 2000  programme and has taken steps in 
preparation of this participation. Following the opening of negotiations regarding 
Hungary’s participation in the European Environment Agency, an agreement has been 
 10 reached. Following ratification and entry into force of this agreement, scheduled for early 
2001, Hungary will become member of the Agency.  
Overall, the impact of Phare has been positive. Effective tra nsfer of know -how, 
equipment and financial resources took place in a number of important fields such as 
industrial restructuring and privatisation, SME development, trade and investment 
promotion, environment, energy, land registration and training . Phare support has 
developed sector strategies and essential institutional structures.  
In Hungary, the achievements of the Phare programme itself can be seen across a range of 
sectors, for example:  
 In the field of microcredit , the Phare Microcredit Programme has assisted more than 
10,000 small enterprises in the last seven years. The microcredit scheme thus 
contributed to the development of a healthy business environment, and created jobs 
where most needed. (€ 15 million)  
 With regard to training courses , about 250 -300 professionals working in the field of 
regional development received training in project management with a special focus 
on EC requirements. This initiative provided a good basis for preparing the 
administration to handle future structural funds. (€ 3 million)  
A reform of the Phare management system took place in 1998 and 1999 to improve the 
speed, efficiency, effectiveness and transparency of Phare’s activities. The recent Phare 
Review Communication in 2000 continues to refine these basic management st ructures 
so as to further bridge towards accession and the structural funds. First, management can 
be fully decentralised from 2002 if the strict pre -conditions set down in the Co -ordination 
Regulation 1266/99 are met. Second, Phare’s programming can be mo ved onto a multi -
annual basis if supporting strategies are in place. Third, the trends introduced in 1997 will 
continue with an increased role for Delegations, further streamlining of procedures and, 
lastly, increasing emphasis of management on raising the  impact of Phare’s projects in 
institution building, investment in compliance with the acquis,  and economic and social 
cohesion.  
In relation to Hungary, good co -operation between authorities led to a backlog from 
previous years finally being eliminated by the end of September 2000 and the 
programmes are now on track in a way that will maximise their impact.  
The Hungarian SAPARD plan was declared admissible on 24 March 2000 and got a 
favourable opinion in the STAR Committee of 13 September 2000 The plan was 
approved by the Commission in October 2000. The plan is based on two major priorities, 
namely the improvement of the competitiveness of the agricultural sector and processing 
industry focusing on environmental protection aspects and enhancing the adaptatio n 
capabilities of rural areas (renovation and development of villages, diversification of 
activities, development and improvement of rural infrastructure). The average annual 
public expenditure will amount to € 50.5 million (at 2000 prices) during the peri od 2000 -
2006, of which € 38.7 million forms the Community contribution.  
The setting up of the Sapard Agency and the preparation of its accreditation are 
underway. Although it was originally envisaged that the Agriculture Intervention Centre 
was to functio n as the Sapard Agency, this has now been made the responsibility of the 
Ministry of Agriculture and Regional Development. This change in the organisational 
 11 structure has regrettably resulted in a number of delays in preparing for the 
implementation of the  Sapard programme.  
As concerns the ISPA  programme, starting in January 2000, implementation made good 
progress. In February 2000 the main financial rules and procedures were approved by the 
ISPA management committee. The total budget available to Hungary i n 2000 amounts to 
€ 87.674  million and broad consensus exists between the Commission and the 
Hungarian authorities about the priorities for investment.  Work is already underway to 
prepare in detail sufficient projects to ensure that the full budget avail able to Hungary in 
the current year will be committed. ISPA is expected to assist with a number of major 
investments which will require support over a number of years. An additional major aim 
of ISPA will be to lay the foundations for the future structural  funds by providing the 
national authorities in Hungary with the experience of managing large -scale strategic 
investments in partnership with the Commission. The European Investment Bank is also 
likely to be involved in almost all the projects supported by  ISPA. In the area of 
transport, projects will be in the road and in the rail sectors, whilst environment projects 
will focus on waste water and solid waste.  
Implementation of the ISPA projects will follow the same institutional framework as for 
the Phare programme, with the National Fund at the Ministry of Finance being in charge 
of the overall financial management and a number of Implementing Agencies responsible 
for the technical implementation. For the programme and financial management of 
SAPARD, a dif ferent system will apply which reflects the EAGGF (European 
Agricultural Guidance and Guarantee Fund) rules and is based on a fully decentralised 
approach through an accredited paying and implementing agency.  
Twinning  
One of the main challenges the candida te countries continue to face is the need to 
strengthen their administrative capacity to implement and enforce the acquis . As of 1998, 
the European Commission proposed to mobilise significant human and financial 
resources to help them in this respect, thro ugh the process of twinning  of administrations 
and agencies. The vast body of Member States’ expertise is now being made available to 
the candidate countries through the long -term secondment of civil servants and 
accompanying short -term expert missions. Th anks to the strong support and response 
from EU Member States 107 twinning partnerships, funded by Phare 98 and involving all 
candidate countries and almost all Member States are operational.   Under Phare 99 a 
further 107 projects are being implemented an d the programming exercise for Phare 2000 
includes a further 129 twinning projects. It is estimated that around 250 twinning projects 
will be operational throughout the candidate countries at any one time.  
To start with, twinning focused primarily on the p riority sectors of agriculture, 
environment, public finance, justice and home affairs and preparatory measures for the 
Structural Funds. It now covers all sectors pursuant to the acquis . 
For Hungary, 17 twinning projects under the 1997 and 1998 programmes are currently 
being undertaken. Another 6 projects will shortly be commencing under the 1999 
programme, and a further 8 are planned under the 2000 programme. The projects 
currently being implemented cover inter alia: the agricultural sector, (support to th e 
information system, planning capacity for structural and agri -environmental development 
scheme); the public finance sector (adaptation of the Hungarian tax system, monitoring 
 12 system for State aid and foreign aid); and justice and home affairs (fight agai nst crime, 
asylum and refugees, border management and training of law enforcement bodies). 
Furthermore, twinning assistance is being provided to prepare for operation of pre -
accession aid (ISPA and SAPARD) and in the framework of institution building for t he 
development of testing and certification bodies and of a market surveillance system. 
Concerning the Phare twinning projects for the 1999 programme, the focus is on the 
following issues: agricultural statistics; fair and careful treatment of asylum seeke rs and 
refugees; chemical safety; harmonisation of the tax system; government accounting; and 
social security for migrant workers.  
Negotiations / screening  
The analytical examination of the acquis  (screening) for Hungary started in April 1998 
and concluded  in autumn 1999 with the examination of the agricultural chapter.  The up -
date screening started in February 2000 to cover the new acquis  up to 1st January 2000.  
Since the opening of accession negotiations on 30 March 1998, Hungary has already 
participated  in four rounds of ministerial negotiations.  As a result of these negotiations, 
eleven chapters were provisionally closed (“Economic and monetary union”, “Small and 
medium -sized undertakings”, “Science and research”, “Education and training”, 
“Statistics” , “Fisheries”, “Consumers and health protection”, Telecommunications & 
information technologies”, “Industrial policy, ‘CFSP’ and Financial Control) while 
negotiations continue for the remaining chapters.  
 13 B. Criteria for membership  
1. Political criteria  
Introduc tion 
The political criteria for accession to be met by the candidate countries, as laid down by 
the Copenhagen European Council in June 1993, stipulate that these countries must have 
achieved “stability of institutions guaranteeing democracy, the rule of l aw, human rights 
and respect for and protection of minorities.”  
In its 1999 regular report on Hungary’s progress towards accession, the Commission 
concluded that:  
“Hungary fulfils the Copenhagen political criteria.  Two areas still need attention.  The 
first is the situation of the Roma, where the government is beginning to implement its 
medium -term Roma action plan and needs to make available adequate budgetary 
resources.  The second is the fight against corruption where recent efforts need to be 
reinforce d.” 
The section below aims to provide an assessment of developments in Hungary since the 
1999 regular report, as well as of the overall situation in the country, seen from the 
perspective of the political Copenhagen criteria, including as regards the overa ll 
functioning of the country’s executive and its judicial system. Developments in this 
context are in many ways closely linked to developments regarding Hungary’s ability to 
implement the acquis , in particular in the domain of justice and home affairs. Sp ecific 
information on the development of Hungary’s ability to implement the acquis  in the field 
of justice and home affairs can be found in the relevant section ( Chapter 24 – Co-
operation in the field of justice and home affairs ) of part B.3.1 . of this rep ort. 
Recent developments  
In June 2000 Parliament elected a new President. No other significant new developments 
are to be reported.  
1.1. Democracy and the rule of law  
As mentioned in the previous regular reports, Hungary has achieved stability of 
institutions g uaranteeing democracy and the rule of law. This section focuses on the most 
significant developments of the past year.  
The Parliament  
Parliamentary work continued in line with the Law Approximation Programme for 2000. 
As regards parliamentary representati on of minorities foreseen by the Constitution no 
further progress could be noted. This issue remained on the agenda without concrete results.  
The executive  
 14 The structure of the administration has remained stable.  Some limited reorganisation 
took place in the Foreign Ministry, which from February 2000 took over trade policy from 
the Ministry of Economic Affairs, including relations with OECD and WTO.  The Ministry 
of Economic Affairs continued to be responsible for market protection and licensing, but 
share d with the Foreign Ministry the promotion of trade development and investments.  In 
June 2000, responsibility for the telecommunications sector was transferred from the former 
Ministry of Transport, Telecommunications and Water Management to the Prime 
Mini ster’s Office. In the Prime Minister’s Office, a Government Commissioner responsible 
for information technology was appointed, recognising the need for government efforts 
overall in this field.  
A new Regional Development department within the Ministry of E conomic Affairs was 
set up at the beginning of 2000, to take charge of ensuring the link between internal 
economic cohesion and regional development policy. At local government level, the 
modernisation of public administration continued with the provision of training for civil 
servants in EU matters. Gov ernment also allocated € 2 million for helping small 
municipalities integrate themselves into so -called micro -regions, composed of various 
local municipalities.  This should increase efficiency, and contribute to a clear 
identification of needs and measure s in the context of the regional development planning 
process. However, in the 2000 budgetary law, the share of Personal Income Taxes which 
is freely available to local governments was reduced from 13.5% to 5%. The cut was 
offset by an increase in financia l transfers from the central budget which however could 
only be spent for specific purposes. Consequently the gap between the political autonomy 
granted to the local governments and their financial autonomy increased further.  
The Public Administration Deve lopment Programme adopted in May 1999 continued to 
be implemented. The three main principles for developing the Hungarian public 
administration are deregulation, de -concentration and decentralisation. Progress was in 
particular achieved in the modernisatio n of the legal environment under which public 
administration is operating. This concerned five major areas: the re -definition of the 
functions and responsibilities within the ministries in order to improve the operation of 
the central administration; wides pread use of cost -benefit analysis in the daily work of 
the public administration; rationalisation of public services; IT development with the aim 
also of ensuring the proper link between the different territorial offices; and development 
of regional and l ocal administrations.  
As regards salaries, the usual practice is to raise nominal wages above the inflation level 
(real wage increase), partly as a result of joint pressure from several civil servants' 
unions. In line with this practice an increase of 8.25 %, slightly above the officially  
targeted inflation rate of 6 -7%, is also planned for 2000. The Hungarian Institute of 
Public Administration is in charge of a Training Programme preparing Hungarian 
Officials for EU accession, with stronger emphasis being put on sectoral knowledge and 
language training (English, French and German). As an example, 2,000 law -enforcement 
officials were trained in the area of Justice and Home Affairs. Further initiatives were 
launched in September 2000 at local level, with the institutionalised training of notaries 
public working in Self -Governments. The number of local government officials receiving 
some EU training is estimated at about 17,000 in the period 1999 -2002.  
Sustained efforts should be made to guarantee the efficienc y and effectiveness of the 
Hungarian public administration.  
 15 The judicial system  
There are three levels of courts (local, county, supreme). The highest level of appeal is 
the Supreme Court.  
In addition, the Constitutional Court is charged with reviewing the  constitutionality of 
laws and statutes brought before it. The number of judges at the Constitutional Court is 
11 and it is now operating at full strength. No judge or member of the Supreme Court or 
Constitutional Court may belong to a political party or e ngage in political activity.  
Original jurisdiction in most matters is with local courts. Some 80% -90% of all cases are 
dealt with by local courts within one year. Cases which begin at county level are referred 
to the Supreme Court in the case of an appeal,  involving considerable extra work for the 
Supreme Court. Thus, there is still a large backlog of cases at the Supreme Court, 
whereas the number of pending cases at local and county courts has started to decrease 
over recent years. This situation at the Su preme Court has reduced the scope for fulfilling 
its main function, namely the unification of court practice and the provision of judicial 
guidance to the lower courts.  
In order to remedy the situation, the government undertook a series of measures:  
 New pr ocedural legislation came into effect in January 2000 which shortened the 
duration of civil procedures.  
 The new law on legal assistants, which entered into force in September 2000, should 
also result in the reduction of the administrative workload of judge s. 
 Considerable investments were made in the field of the Court Information System 
which provides direct support to judges in their work.  
 Also, the Parliamentary decision of 1998 on the introduction of a regional court will 
finally be implemented in 2003. This regional court will hear cases from the entire 
country. In future approximately half of the cases currently arriving at the Supreme 
Court will fall within the competence of the regional court.  
 Finally, the overall number of judges was increased and du ring the first 9 months of 
2000 about 94 additional judges were appointed, so that the total number of posts for 
judges reached 2590  (compared to 2438 in 1999), out of which 2492 are filled. 109 
judges work for the Supreme Court (1998: 87, 1999: 96). The appointment of 
additional judges was made in particular in the area of administrative law where the 
case backlog is the most significant (in particular at the Supreme Court).  The number 
of court clerks is also steadily increasing (11% in the last two year s ) which shows 
that more and more young jurists are interested in becoming a judge in Hungary.  
However, the new Code on Misdemeanours, which introduced the possibility of legal 
remedy for petty offences, has added new tasks for the judiciary over recent y ears which 
have not been accompanied by the necessary financial means. On the contrary, the budget 
allocation of the National Council for the Judiciary was reduced by one third of the 
original request.  
On the other hand, training of Hungarian judges in EC laws and European Court of 
Justice case law progressed.  With the help of the Phare programme, around 700 judges 
 16 were trained in the area of the acquis  in a systematic manner.  In addition, 46 law -trainees 
in EU matters completed their studies in this fiel d. These lawyers will be responsible for 
training Hungarian judges in the framework of a National Training Institute for Judges 
due to be set up by 2001 according to a recent decision of the National Council of Justice 
(the central body of the self -governi ng system of the Hungarian judiciary).  
Overall, while the judiciary continues to function satisfactorily, the situation at the 
Supreme Court is still a matter of concern. It remains to be seen whether the steps already 
taken will be sufficient to address t his issue.  
Anti-corruption measures  
The fight against corruption, which remains a problem, continued to be high on the 
political agenda of Hungary's preparations for accession to the EU. The government - on 
the initiative of the Justice Ministry as the mai n co-ordinator of a national strategy against 
corruption - took the following action to address the situation:  
 A large -scale development programme was launched within the law -enforcement and 
public safety services following a substantial increase in the nu mber of cases. The 
programme comprises a special psychological test, and new training and operational 
methods which help police and border guards to recognise and avoid situations of 
corruption. The administrative capacity of the forces of law and order wa s also 
improved through additional staff (86) for the Security Service of the Forces of Law 
and Order, the reinforcement of the Mobile Controlling Unit at the National Police 
Command (these forces are to fight corruption internally within the police) and t he 
upgrading of audio -visual equipment.  The internal security force monitors some 
80,000 officials in the police, tax police, cu stoms and finance guards, fire 
departments and penal institutions. Since January 2000, policemen have also worn a 
name tag so t hat citizens can more easily identify them. Citizens can call a free 
telephone number if they suspect police corruption.  
 A discussion paper on the Code of Ethics was presented to the broader public with 
the aim of basing the forthcoming Code of Ethics on b road social and professional 
consensus. Under new conflict -of-interest legislation concerning local government 
representatives, economic and other leadership positions considered to be 
incompatible with the mandate of local government representatives have to be given 
up.  Such positions include the leading positions at budgetary institutions within the 
Central State administration. In addition, elected local government representatives are 
not allowed to be involved with companies which have contractual rela tionships with 
local government, or to occupy leading positions at public foundations and/or 
companies set up by local Self -Governments.  
 The Council of Europe Convention on Criminal Law was signed in April 1999, but is 
not yet ratified.  
 The Council of Euro pe Convention on Laundering, Search, Seizure and Confiscation 
of the Proceeds from Crime was ratified by Parliament in December 1999.  
 The OECD Convention on Combating Bribery of Foreign Public Officials in 
International Business Transactions was promulgate d by Parliament in May 2000.  
 17 1.2. Human rights and the protection of minorities  
As mentioned in the previous regular reports, Hungary has continued to respect human 
rights and freedoms. The following section concentrates on major developments since the 
previous  regular report.  
Hungary has already acceded to most of the major human rights instruments (see Annex).  
Civil and political rights  
According to the Ombudsman for Human and Citizen’s Rights, the basic institutions of 
the rule of law are functioning satisfac torily, and constitutional rights are adequately 
protected. Fewer complaints were lodged with the Office of the Ombudsman in 1999 
than in 1998.  
Following the lifting of the geographical reservation to the Geneva Convention and the 
modification of the A sylum Law in 1998, the number of people seeking asylum in Hungary 
has continued to grow in significant terms. In September 1999, new provisions on the 
outright return of travellers from the airport were incorporated into the Asylum Law. 
These related in partic ular to the introduction of suspensive effects to appeals lodged at 
the airport against first instance decisions, and a time limit of 18 months of confinement 
at border -guard community shelters. According to a report of the Ombudsman for Human 
and Citizen’ s Rights, the rights of asylum seekers detained at the airport have been 
violated on a regular basis. Asylum seekers arriving at the airport without valid passports 
or documents are transferred to a so -called transit zone which is considered to be 
extrater ritorial, i.e. Hungarian legislation is not in effect.   In response to the recommendations 
of the Ombudsman, the Border Guards began an investigation into the behaviour of 
guards, and a new building for accommodating asylum seekers was also completed. A 
recent UNHCR report is critical about the timing of deportation procedures.  According to 
the report, asylum seekers are kept in detention for too long in Hungary. In several cases 
asylum -seekers have been returned to the borders despite ongoing appeal proce dures.  
The report also criticised the health care conditions at community shelters, which are 
overcrowded and below standard.  In order to protest against the conditions prevailing in 
those centres and the slow asylum procedures , several illegal migrants went on hunger -
strike in a number of community shelters in autumn 1999. They also disagreed with the 
rejection of visa applications. In response, some community shelters were closed down 
for renovation. The detention of illegal migrants has continued to po se problems similar  to 
those experienced in previous years.  Although setting a time limit for detention was a 
positive step, the overall period of 18 months is still excessively long. A legal framework 
which would facilitate the integration of recognized  asylum seekers into society is still 
lacking.  
Hungary respects the freedom of the  press . The market for news is highly competitive  and 
the major part of the print media and of radio and television stations are in private hands 
providing a wide variety of  high-quality, uncensored national and local information.  
There are three national public TV channels and approximately 26 commercial television 
stations. Already in 1997 national television licenses were granted to two Western private 
consortia. In addit ion, about 30 radio stations are operating throughout the country.  
The public service TV and radio (representing around 10% of the market) are supervised 
by Boards of Trustees in which approximately one third of the posts are open on equal 
 18 terms to represe ntatives of the Government coalition and the opposition. Out of the three 
Boards of Trustees, two are currently filled solely with Government coalition partners, 
due to a lack of consensus on the distribution of posts between the opposition parties. In 
order to avoid any risk of political influence on the public service Media this situation 
should be remedied as soon as possible.  
Hungarian and international human rights organisations continued to report on ill-treatment 
by the police.  Roma and foreigners a ppear to be targeted most by such actions. The 
number of complaints lodged with the Ombudsman for Human and Citizen’s Rights and the 
number of his investigations are increasing. A recent study by the National Institute for 
Criminology revealed that only a small proportion of complaints lodged by detainees on 
the grounds of police mistreatment had resulted in final court rulings.  According to data 
from the Prosecutor’s Office, only one third of the complaints resulted in a court 
proceeding. Consequently onl y a very limited number of policemen were found guilty of 
mistreatment during a police investigation, and of forced interrogation.  However, some 
20% of non -Roma detainees and 80% of Roma detainees complained about police 
mistreatment in the course of inve stigations. Some 30% complained about forced 
interrogation, and some 15% reported that they were hindered by the police in contacting 
their lawyers. The practice of keeping detainees in preliminary custody in police cells, often 
for indefinite time and und er sometimes difficult conditions, runs counter to Council of 
Europe rules and practice in the Union. The new law on criminal proceedings, adopted in 
1999 but entering into force in 2003, will limit the duration to 60 days.  
Overcrowded prisons  are a growin g problem in Hungary. Currently the prison population 
exceeds capacity by around 60% (compared to 40% in 1998/99). Most Hungarian prisons 
were built in the second half of the 19th century, and prisoners are kept often under 
conditions below international s tandards. Also the number of guards is very low 
compared to the number of detainees. Following the adoption of the programme for 
improvement of prison facilities, the government has continued to modernise existing 
facilities or to construct new ones. A new  remand prison was opened in Budapest in 
September 2000 and another new prison in Veszprem is under construction (completion 
foreseen for 2002). They should fully meet international standards.  
Economic, social and cultural rights  
Further progress was made in the area of equal opportunities  with the new Law on 
Labour Inspection of January 2000.  The Law introduced the reversal of the burden of 
proof in case of discrimination. This burden of proof now lies with the employer in legal 
and labour inspection disp utes. Related studies found that the proportion of working 
women had dropped to 30% from 50% over the last 10 years. Women at work earn 10 to 
40% less than their male counterparts in the same position, and most leading posts are 
filled by men. According to  equal opportunity experts, lay -offs usually affect women 
first.  The unconstitutional practice of questioning women candidates about their desire to 
have children is also an example of typical problems.  
Following the adoption of the law on rights and equa l opportunities for people with 
disabilities in January 1999, the Council on Disability Matters was established. Its role is 
to advise on the legal framework, to co -ordinate activities related to the target group, to 
inform the government on a regular basi s regarding the living conditions of people with 
disabilities, and to establish the National Disability Programme and the Action Plan. The 
2000 Action Plan, adopted in March, provided funding of € 19 million for promoting 
 19 employment of people with disabili ties. As a result of the programme, rehabilitation 
working groups were created within the special employment facilities; a pilot programme 
was launched and specially equipped housing was established. Another element of the 
programme is to ensure that compa nies employing over 20 persons reserve 5% of the 
posts for people with disabilities.  The most difficult part of the programme is the 
accessibility of public  buildings.  According to the latest report from the Ombudsman for 
Human and Citizen’s Rights, only  18% of public buildings, 25% of health and child 
institutions and 86% of institutions for the handicapped are accessible to people with 
physical disabilities.  
However, very recently Hungary earned international recognition for its efforts to 
improve the s ituation. In May 2000, Hungary received the Franklin Delano Roosevelt 
International Disability Award Prize. The Prize committee also praised the 
implementation of the laws on social provisions and public education, and the job -
creation schemes with expande d opportunities for people with disabilities.  
Hungary has numerous sector -based trade unions , most of which are affiliated to one of 
the six representative confederations. Trade union membership accounts for 
approximately 30% of the workforce. Collective a greements covered 1.2 million people 
in 1999, representing over 45% of the labour force in businesses employing five or more 
people. Most of these agreements are concluded at company level, pointing to a weakness 
at the intermediate (branch/sub -branch) lev el. 
Social dialogue was restructured in 1999, with the aim of distinguishing between labour 
issues and issues of national economic and social policy and to widen consultation on 
economic issues. The government also launched a three -year programme to streng then 
the capacity of the social partners and to prepare for participation in social dialogue at 
European level. There are however some concerns about the results of the dialogue and 
the government should make additional efforts to ensure that real dialogue  is taking place 
and is followed up in the appropriate manner.  
Minority rights and the protection of minorities  
In line with the short -term Accession Partnership priority and with the medium -term 
Roma action programme adopted in April 1999, the Government has provided specific 
support for addressing the difficult situation of the Roma minority. In particular, 
measures were launched in the areas of education (scholarships and support for 
educational institutions), culture (opening of Roma Community houses wh ich play a very 
important role in strengthening the local Communities and preserving Roma culture), 
employment (public work programmes and public utility work programmes), housing, 
health and anti -discrimination. Under the “Roma Policemen Programme” the nu mber of 
Roma police officers was increased and co -operation with Roma organisations was 
reinforced.  In 2000, specific budgetary resources totalling € 19 million were made 
available, representing an important step forward in the implementation of the medium -
term action programme which was also recognised by the Parliamentary Ombudsman for 
Ethnic and Mino rity rights.  
However, concrete results from the action programme can only be expected in the 
medium term. In the meantime, the situation of the Roma population continues to be 
difficult. Due to poor health and living conditions, life expectancy for the Rom a is on 
average 10 years shorter than for the rest of the population. As regards education, less 
 20 than 46% completed their primary school education, and only 0.24% obtained a university 
or college degree. Roma have continued to suffer prejudice and widespre ad 
discrimination in society. The Ombudsman for Ethnic and Minority Rights noted that 
discrimination was present in the judiciary, in the police, in employment and education. 
According to data from the Legal Defence Bureau for National and Ethnic Minoritie s, a 
majority of discrimination cases were lodged against the practices of local Self -
Governments - most of the cases involved “everyday racism”, e.g. the denial of entrance 
to bars, or in relation to employment. Discrimination in housing and access to pub lic 
institutions also remained a serious problem.  
In the meantime, the legal system has slowly responded to complaints of discrimination 
and Hungarian courts have started to launch court proceedings in cases of labour 
discrimination, of police ill -treatmen t and in cases of denial of entrance to bars.  
As regards Roma children, the majority are placed in special schools. This proportion is 
94% in certain parts of the country (North -Eastern Hungary) and is considered to be a 
sign of institutional prejudice and  the failure of the public education system. The 
Ombudsman for Ethnic and Minority Rights repeatedly noted that the disproportionately 
high number of Roma pupils in these schools is unjustified and a sign of discrimination.2 
There are altogether 132 specia l schools in Hungary.  
As a positive step, the government appointed an Ombudsman for Educational Affairs 
(under the Minister of Education), who will study the issue. In addition, a Hungarian 
court made an appeal decision to uphold a ruling ordering a local government to pay 
compensation to Roma pupils whose primary school had organised a separate school -
leaving ceremony for Roma students.  
1.3. General evaluation  
Hungary continues to fulfil the Copenhagen political criteria.  
Further progress in the modernisation of the public administration is apparent from the 
continued implementation of the 1999 development programme.  
Although the judiciary functions satisfactorily and the training of judges in the EC acquis 
has progressed, the large backlog of cases before the Supreme Court hampers the 
unification of Court practice and the development of a consistent jurisprudence. Efforts 
should be made to remedy this. Sustained training programmes for civil servants and 
judges should continue, in line with the medium -term prio rity of the Accession 
Partnership.  
Despite a number of important measures taken to fight corruption, this remains a problem 
and renewed efforts should be made to address this issue.  
Hungary continues to respect human rights and freedoms. However, overcro wding of 
prisons is a growing problem, which needs to be remedied.  
In line with the short -term Accession Partnership priority, Hungary started to implement 
the medium -term Roma action programme, supported by financial means at national and 
local levels. T his programme facilitates the integration of the Roma and their fight 
                                                 
2 However, the government contests these claims by inte rnational and non -governmental organisations and states that these special 
schools are designed for helping disadvantaged children.  
 21 against discrimination in the fields of education, culture, employment, housing, health 
and social services. However, sustained implementation of this programme is needed in 
order to obt ain concrete results in the medium -term.  
 22  
2. Economic criteria  
2.1. Introduction  
In its 1997 Opinion on Hungary's application for EU membership, the Commission 
concluded:  
“Hungary can be regarded as a functioning market economy”; "it should be well able to 
cope  with the competitive pressure and market forces within the Union in the medium 
term".  
This finding was confirmed in the 1998 and 1999 Regular Reports. In its 1999 Regular 
Report, the Commission found that:  
"Hungary is a functioning market economy and the  legal and institutional structures 
which underpin the market economy have been further strengthened. It should be able to 
cope with the competitive pressures and market forces within the Union in the medium 
term provided it continues to make further progr ess in structural reforms”.  
In examining the economic developments in Hungary since the Opinion, the 
Commission’s approach was guided by the conclusions of the European Council in 
Copenhagen in June 1993 which stated that membership of the Union requires:  
 the existence of a functioning market economy;  
 the capacity to cope with the competitive pressures and market forces within the 
Union.  
In the analysis below, the Commission has followed the methodology applied in the 
Opinion, as well as in the previous Reg ular Reports.  
2.2. Economic developments  
The macroeconomic situation has improved since the last Regular Report. The concerns 
about the size of the current account and the fiscal deficits have subsided. Economic 
growth has accelerated, while the current accoun t deficit narrowed, notwithstanding 
significant import growth. The employment losses associated with economic 
transformation have been clearly offset as export -oriented sectors of the economy have 
grown rapidly and hired new workers. The fiscal deficit nar rowed during 1999, and fiscal 
performance during the first half of 2000 was better than expected.  
 
 
23  
Hungary   1996  1997  1998  1999  2000 latest  
Real GDP growth rate  per cent  1.3 4.6 4.9 4.5 6.2   Jan -June 
Inflation rate3 
-  annual average  
-  December -on-December   
per cent  
per cent   
23.5 
19.9  
18.5 
18.6  
14.2 
10.1  
10.0 
11.4  
10.2 4 June 
9.3     June  
Unemployment rate, end -year 
-  ILO definition   
per cent   
9.9  
8.7  
7.8  
7.0  
6.5   April -June 
General government budget 
balance  
per cent of GDP  -3.2 -5.4 -4.8 -3.7 : 
Current account balance  per cent of GDP  
million € -3.7 
–1,319  -2.1 
-840 -4.9 
-2,059  -4.3 
-1,969  : 
-676   Jan -Aug 
Foreign debt  
-  debt export ratio  
-  gross foreign debt   
per cent  
million €   
155.9  
21,561   
116.3  
21,350   
106.5  
22,595   
106.3 E  
25,398 E   
: 
: 
Foreign direct investment in flow  
-  balance of payments data   
per cent of GDP  
million €   
5.1 
1,803   
4.8 
1,928   
4.3 
1,815   
4.1 
1,849   
: 
1,346   Jan -Aug 
E = Estimates  
 
However, there are concerns that the Hungarian economy may be overheating . Considerable speculative 
capital inflows forced the central bank to cut interest rates, raising fears of a further expansion of 
domestic demand. Over the last 18 months, progress towards lower inflation has been limited.  
Reflecting the advanced stage of the reform process, the pace of structural reform has slowed.  
Nonetheless, during 1999 and mid -2000 Hungary started a number of important reforms, in the areas of 
healthcare, rail transportation and the consolidation of financial sector supervision. In addition, the 
government sold some of its remaining shares in fin ancial institutions. More generally, the privatisation 
process is almost complete and the enterprise sector is principally in private ownership. Nonetheless, the 
government continues to hold a significant number of residual minority stakes. The implementat ion of 
the far -reaching pension reform continues, although the government has failed to raise the contribution 
rate to the second pillar.  
                                                 
3 PROXY HICP since 1996 (see methodological notes).  
4 Moving 12 month average rate of  change.  
 
24  
Main indicators of Economic Structure in 1999  
Population (average)  thousand  10,068  
GDP per head 5 PPS-€ 10,705  
 Per cent of EU 
average  51 
Share of agriculture6 in: 
-  gross value added  
-  employment   
per cent  
per cent   
5.54  
7.1 
Investment -to-GDP 
ratio7 per cent  23.9 
Gross foreign debt/GDP8 per cent  55.9 
Exports of goods & 
services/GDP  per cent  52.6 
Stock of foreign direct 
investment  
(End of 1999 - National 
source)  million € 
€ per head  19,111  
1,898  
 
2.3. Assessment in terms of the Copenhagen criteria  
The existence of a functioning market economy  
As set out in Agenda 2000, the existence of a functioning m arket economy requires that 
prices, as well as trade, are liberalised and that an enforceable legal system, including 
property rights, is in place. Macroeconomic stability and consensus about economic 
policy enhance the performance of a market economy. A w ell-developed financial sector 
and the absence of any significant barriers to market entry and exit improve the efficiency 
of the economy.  
There is a broad political consensus on the key aspects of economic policy , in particular, 
on the importance of Europ ean Union accession, support for private sector enterprises, 
and the need for foreign direct investment to finance industrial restructuring. In April 
2000, Hungary and the European Commission services signed a Joint Assessment of 
Economic Policy Priorities . This document outlines the medium -term structural reform 
agenda, which commits the government to a number of significant initiatives in the areas 
                                                 
5 Figures have been calculate d using the population figures from National Accounts, which may differ from those used in 
demographic statistics.  
6 Agriculture, hunting, forestry and fishing.  
7 Data refer to Gross fixed capital formation as % of GDP.  
8 The 1999 data for foreign debt are  estimates.  
 
25 of healthcare, local government finance, railways, the labour market, and the financial 
sector. Although the  implementation of these reforms is at an early stage, Hungary has 
shown a strong commitment to this new agenda.  
In 1999, the Hungarian economy expanded by 4.5 percent.  While the rate of growth was 
somewhat slower than in 1998, growth accelerated from the second half of the year, 
boosted by the strong cyclical recovery in EU markets. GDP growth for the first half of 
2000 was estimated to have been 6.2 percent, while the volume based industrial 
production index surged by 21 percent. Exports have performed ex tremely well with 
export volumes increasing by 17 percent year -on-year. New construction permits have 
increased by 32 percent, indicating that housing investment will be strong in the second 
half of 2000.  
While external sector growth has taken the lead, do mestic demand also increased 
rapidly.  After slowing sharply during the first nine months of last year, consumption 
picked up in the fourth quarter, with the year -on-year growth rate for the first quarter of 
2000 reaching almost 6 percent. Reflecting the sh arp decline in interest rates, the savings 
rate fell from 10.5 percent at the end of 1998 to 6.6 percent in March 2000.  
Unemployment has fallen significantly . According to labour force survey data 6.5 percent 
of the workforce were without work in June 200 0, compared to 7.4 percent during the 
same period last year. However, there are significant regional differences in 
unemployment rates, with Western Transdanubia recording a rate just above 4 percent, 
while Northern Hungary has a rate of almost 12 percent.  Furthermore, certain high 
growth sectors are reporting an increase in the number of hours worked, which provides 
further evidence of a tightening labour market, highlighting the danger that as the 
economic upswing continues, economy -wide wage pressures co uld emerge.  
The current account  began to narrow towards the end of last summer.  Preliminary data 
for 1999 suggest that the deficit was about 4.3 percent of GDP, more than 0.5 percent of 
GDP lower than in 1998. This favourable trend continued into the firs t five months of 
2000. The deficit came in at € 0.43 billion, compared to € 0.76 billion for the same period 
in 1999. Initially, the better than expected current account performance was due to the 
pronounced deceleration in investment -related imports, part icularly within the public 
sector, and lower profit repatriation by foreign investors. More recently, the current 
account consolidation  has been due to the strong growth of exports, and higher service 
revenues, particularly tourism receipts. Moreover, the current account was easily financed 
by non -debt creating capital inflows, while overall external indebtedness and debt service 
indicators fell.  
A disappointing aspect of macroeconomic performance has been inflation. Progress 
towards price stability has be en slow . After dropping into single figures during the first 
half of 1999, the downward trend of inflation, which lasted for 4 years, was reversed. The 
downward movement in inflation was resumed in January 2000. However the data in July 
indicated that the trend to lower inflation was again reversed when the year -on-year rate 
was 9.6 percent. Rising oil prices and food prices have made a considerable contribution 
to the inflation rate. In an effort to limit inflationary pressures, the government has 
capped r egulated price increases in 2000 to 6 percent. Inflationary expectations have kept 
the first quarter year -on-year nominal wage growth above 13 percent. The government 
has conceded that it will not achieve its 6 to 7 percent inflation target for 2000.  
26 Nomin al interest rates have declined steadily since the end of 1998.  The 3 -month 
interbank interest rate fell from 16.4 percent in December 1998 to 10.1 percent in April 
2000. During the first two months of 2000 , the central bank has been forced to reduce 
interest rates rapidly in an effort to limit the large speculative capital inflows, which 
forced the exchange rate towards the upper limit of the intervention band.  In contrast to 
previous capital surges, which have been dominated by FDI inflows, recent capital  
inflows have been heavily dominated by interest sensitive portfolio investments.  
A potential conflict between the exchange rate and inflation objectives has emerged.  
While the crawling peg exchange rate system has functioned reasonably well, the central 
bank has tried to put downward pressure on prices by tightening the monthly rate of crawl 
by 0.1 percent in April 2000. For the short term, the central bank’s efforts have contained 
the upward pressure on the exchange rate, as speculative inflows appear to  have subsided. 
Nonetheless, the sharp fall in interest rates threatens to give a further boost to aggregate 
demand and give a further impetus to inflation.  
The general government deficit in 1999 was 3.7 percent of GDP. Fiscal performance 
during the first  half of the year was weakened by a shortfall in revenues, and some 
slippage in current expenditure, particularly in the area of social security. The authorities 
responded by making a number of unannounced expenditure cuts, the bulk of which fell 
in the ar ea of capital expenditure. Only three -quarters of the budgeted investments were 
actually carried out during the fiscal year. Towards the closing months of the year, the 
causes of the earlier fiscal problems went into reverse. Revenue performance improved a s 
economic growth accelerated and inflation picked up. Over the years, Hungary has taken 
gradualist approach to fiscal consolidation.  
Fiscal accounting practices have suffered a set back in 2000. Government has entrusted 
the Hungarian Development Bank with  financing the motorway construction programme. 
The bank is not included in the general government accounts, and there is a danger that 
large off -budget government liabilities may emerge.  
The deficit included revenues from social security fund assets sale s. The removal of these 
sales will push the deficit to 4.5 percent of GDP in 1999. Part of this divestiture included 
the transfer of assets directly to the state privatisation agency - an off -balance -sheet 
budget. An accounting contradiction has now develo ped within the general government 
accounting framework. Whereas the central budget regards privatisation receipts as 
budgetary financing, the social security fund now treats such receipts as revenues. A 
similar smaller divestiture of assets has been includ ed in the 2000 budget.  
The first quarter fiscal sector performance was better than expected, and the government 
is likely to achieve its 3.5 percent general government deficit target for 2000 . Strong 
GDP growth and higher than expected inflation has led t o a surge in tax revenues, 
particularly VAT, profits tax and personal income tax. Fiscal credibility was enhanced by 
the government decision that it will not revise its June 1999 medium term budgetary 
guidelines. Furthermore, the medium term fiscal framewo rk will also be strengthened by 
the decision to submit a budget which will cover the next two years. A number of 
important fiscal challenges remain, notably the railway sector, healthcare and local 
government. In the immediate future, the achievement of lo wer inflation will require a 
tighter fiscal response to counter the recent fall in interest rates.  
While in recent years the government has made sizeable progress towards restructuring 
the rail transportation sector, it continues to be a major drain on pub lic sector resources.  
27 By the end of this year, the state Railway Company plans to further reduce its public 
obligations by 1200 km. The separation of freight and passenger transportation is 
progressing and it should be completed by 2003. Plans to introduce  a differentiated tariff 
structure have been given less priority than the restructuring plans.  
The healthcare system is the most urgent structural reform confronting Hungary.  
Healthcare indicators compare unfavourably with other OECD countries, while the weak 
financial structure places a heavy burden on public finances. The reform process is at an 
early stage, and no political consensus has yet being reached. More generally, the 
government needs to develop a coherent and systematic programme of reforms, wh ich 
will both improve healthcare outcomes and address the difficult financing issues.  
Hungary has adopted a highly decentralised form of local government, which in certain 
areas has led to the inefficient provision of services, and strains on local finance s. The 
government has recognised the issue and the financial incentives to encourage the 
pooling of facilities and activities through the creation of local government associations 
have had some success. In the absence of a comprehensive restructuring of lo cal 
government responsibilities, the government will have to adopt a flexible and innovative 
approach to both local government financing and the provision of services.  
In 1997, Hungary introduced a comprehensive multi -pillar reform of the pension system.  
Regrettably, the government has again deferred the planned increase in the contribution 
rate to the second pillar of the reformed system. While this does not immediately 
endanger the financial viability of the second pillar, the failure to increase contribu tions 
calls into question the government's commitment to the pension reform.  
The price mechanism functions effectively in most sectors of the Hungarian economy, 
with most prices freely set.  However, government has been criticised by the way in which 
it has  intervened to fix gas prices and the prices of pharmaceutical products. Regulated 
prices, which mainly comprise of certain energy related products, pharmaceuticals, local 
government housing rents, public transport, and telephone tariffs, account for 18 pe rcent 
of the consumer price index.  
The privatisation process is almost complete . The private sector has grown rapidly and at 
the end of 1999 the private sector accounted for over 80 percent of GDP. Recently, the 
government has sold its remaining stakes in  a number of financial institutions but no 
progress has been made in selling minority stakes in privatised companies. The State 
Privatisation Agency holds assets with a book value of €3.4 billion, and continues to 
maintain a majority ownership in 134 enter prises, compared to 1,859 enterprises in public 
ownership in 1990. The State Privatisation Agency is proceeding with the privatisation of 
the pharmaceuticals retailer, Hungaropharma, and the largest steel company, Dunaferr.  
The growth of new enterprises i s strong, particularly those related to foreign direct 
investments. The net total of private enterprises increased by 3 percent in 1999. In most 
sectors, there are no significant barriers to entry, although there appears to be some 
problems with the implem entation of bankruptcy procedures. However, many small and 
medium enterprises face a higher tax burden relative to foreign firms, since many of the 
tax incentives offered to foreign investors are not available to domestically owned firms.  
The legal system functions well, property rights are fully established , contract 
enforcement is good, and in general, public procurement procedures are effective . 
However, in an effort to speed up the motorway construction programme outlined in the 
28 National Development Pla n (the Széchenyi plan), the Hungarian authorities have not 
applied the normal public procurement procedures required under national law. They 
chose to negotiate with a short list of pre -qualified companies, suggesting a lack of 
transparency and giving the impression of corruption. The Budapest stock market 
provides for the efficient transfer of property rights.  
Land markets are developing: a large part of the land used by the larger individual farms 
and companies is leased, and some has been purchased . Lea se contracts are growing in 
terms of duration and sophistication, improving tenure security for the farms and thereby 
incentives for investment.  
A strong and well -regulated financial sector is now in place. Many of the principal banks 
and financial instit utions were privatised through sales to strategic foreign investors with 
considerable expertise in financial sector management . Postabank is still state -owned but 
plans are being made for its privatisation. Banking sector profitability has declined 
dramati cally in recent years, due the impact of the Russian crisis, and greater competition 
among the banks. Lending activity is increasing, as competition is strong, although the 
provision of financial services to small and medium enterprises is somewhat limited . 
Credit to the corporate sector is only 27 percent of GDP. The financial sector is paying 
greater attention to the banking requirements of the household sector. Household credit is 
rising, albeit from a low base, while competition is increasing among alte rnative financial 
intermediaries for household savings. Financial sector supervision is now consolidated 
into a single institution, although there are still questions about the new institution's 
discretionary powers, its financial independence and the impl ementation of consolidated 
banking supervision. Concerns about the effective supervision of the pension funds have 
also emerged.  
Hungary is a functioning market economy. It has made considerable progress towards 
consolidating macroeconomic stability, enhan cing current account sustainability and 
strengthening the institutional basis of the market economy. However, fiscal prudence 
remains essential and there is a need to continue fiscal consolidation over the medium 
term. To preserve present gains, the govern ment should proceed with the implementation 
of the new reform agenda, particularly in the areas of healthcare, transportation, and local 
government finances. The slow progress towards price stability is a cause for concern and 
the Hungarian authorities wil l need to pursue a prudent and flexible monetary and 
exchange rate policy. Among remaining improvements, the intermediation role of the 
financial sector needs to increase the delivery of services to domestic small and medium 
enterprises.  
The capacity to c ope with competitive pressure and market forces within the 
Union  
As set out in Agenda 2000, Hungary's ability to fulfil this criterion depends on the 
existence of a market economy and a stable macroeconomic framework, allowing 
economic agents to make decis ions in a climate of predictability. It also requires a 
sufficient amount of human and physical capital, including infrastructure. State 
enterprises need to be restructured and all enterprises need to invest to improve their 
efficiency. Furthermore, the mo re access enterprises have to outside finance and the more 
successful they are at restructuring and innovating, the greater will be their capacity to 
adapt. Overall, an economy will be better able to take on the obligations of membership 
the higher the deg ree of economic integration it achieves with the Union prior to 
29 accession. Both the volume and the range of products traded with EU Member States 
provide evidence of this.  
Hungary is a functioning market economy with the necessary macroeconomic stability 
and institutional infrastructure required for reaping the benefits of private sector 
initiative, and providing the basis for a sustained growth of the economy.  
Hungary has made good progress towards re -orientating its human capital base towards 
meeting the  requirements of the fast growing export sector . However, labour market 
reform continues to be an ongoing priority. Recently, new growth related problems have 
emerged within the labour market. There are significant regional disparities, while many 
firms ar e now reporting significant skill shortages. The Hungarian authorities have a 
strong track record in labour market reforms, particularly in the areas of employment 
legislation and wage setting arrangements. Such reforms have laid the basis of a flexible 
labour market and have now started to bear results in terms of employment growth. 
However, bottlenecks in housing and transportation need to be tackled to increase labour 
mobility.  
High levels of investment have led to considerable productivity gains. Invest ment as a 
percent of GDP has steadily risen from 22.3 percent in 1995 to 26.6 percent in 1999.  
Rapid productivity growth, particularly within the enterprise sector, coupled with wage 
restraint, has been reflected in a significant depreciation in the unit l abour cost based real 
effective exchange rate.  
Foreign direct investment has been the primary instrument of economic transformation . 
In 1999, Hungary received net foreign direct investment inflows amounting to € 1.8 
billion, representing 4.1 percent of GD P. Between 1989 and 1999, Hungary has received 
foreign direct investment inflows amounting to €15.2 billion, increasingly in the area of 
green -field investment. Foreign investors have been encouraged by the stable 
macroeconomic framework and the strong com mitment to the objective of European 
Union accession.  
In an effort to enhance the economy's infrastructure, the Hungarian authorities have 
embarked upon a programme of public investments, called the Széchenyi plan.  The 
primary objective of the plan is to o pen up the economically less developed eastern part 
of the country. Public sector investment will focus upon motorway development, the 
development of small and medium -sized enterprises, home construction, flood 
prevention, tourism, research and development , information technology and employment 
(see also chapters 15 and 16) . 
However, economic transformation has led to significant regional imbalances. While the 
central and north -western regions have benefited enormously from the large foreign 
direct investme nts and re -orientation of economic activity towards EC related exports, 
the eastern regions have fared less well. Furthermore, significant infrastructure 
investments and an environment supportive of small and medium size enterprises are 
clearly necessary i n the depressed areas; this will raise difficult public expenditure 
choices for the government. The government's main forms of agricultural support are 
market price support subsidies, as well as credit subsidies and export subsidies.  
Recent export performa nce has been impressive, and emphasises the open and 
competitive nature of the Hungarian economy.  The Hungarian economy is now deeply 
integrated with the EU. In 1999, the EC accounted for 76.2 percent of Hungarian exports 
30 and 64.4 percent of imports. In th e manufacturing sector, the extent of trade integration is 
even higher, with over 90 percent of exports going to the EC. The engine for this 
remarkable export performance has been foreign owned firms. Hungary has made 
considerable progress towards eliminat ing tariff protection. By the end of 2000, tariffs on 
all EC industrial imports will be zero.  
The export base of the economy has continued to expand and has become increasingly 
diversified.  The composition of exports has shifted towards high value added p roducts, 
particularly in the areas of technology and human capital -intensive products. Production 
by foreign invested companies in custom -free zones accounted for 43% of total exports 
and 70% of exports in machinery. A significant proportion of exports con sists of intra-
industry trade, in particular in manufacturing and, increasingly, the machinery industry.  
The small and medium enterprise sector, in particular, has continued to exhibit dynamic 
growth.  Last year, the number of firms employing 50 or less peo ple increased by 10.5 
percent. They now generate 45 percent of Hungary's GDP and employ 70 percent of the 
workforce. Most of the SMEs operate in the non -tradable sectors such as services and 
construction and their contribution to export growth has been mor e modest. They still 
experience poor access to finances (see also chapter 16 – Small and medium -sized 
enterprises).  
Hungary should be able to cope with competitive pressure and market forces within the 
Union in the near term, provided that it stays with it s present reform path. Considerable 
progress has been made concerning the development of infrastructure, and in enterprise 
restructuring, in a context of macroeconomic stability. Hungary’s export performance has 
been particularly remarkable. Nonetheless, c ontinued external competitiveness will 
require that the government keep a well -balanced policy mix, and reduces its dependence 
upon monetary policy instruments. Although unemployment has fallen, there are 
significant regional differences and shortages of s killed labour in high growth sectors. As 
the economy develops, measures need to be taken to reduce regional disparities and to 
increase the flexibility and mobility of labour.   
2.4. General evaluation  
Hungary is a functioning market economy and should be able t o cope with competitive 
pressure and market forces within the Union in the near term, provided that it stays with 
its present reform path.  
Considerable progress has been made towards consolidating macroeconomic stability, 
enhancing current account sustain ability and strengthening the institutional basis of the 
market economy. Hungary has further developed its infrastructure, and proceeded with 
enterprise restructuring. The creation of new enterprises, particularly those fostered by 
foreign direct investmen t, is strong.  
However, the slow progress towards price stability is a cause for concern and maintaining 
external competitiveness will require an appropriate policy mix, including continued 
fiscal consolidation, in particular in the areas of healthcare, tra nsportation and local 
government. Although unemployment has fallen, there are significant regional 
differences and shortages of skilled labour in high growth sectors. The intermediation 
role of the financial sector needs to improve the delivery of services  to domestic small 
and medium enterprises.  
31 The Hungarian authorities will need to maintain a well -balanced policy mix and pursue a 
prudent and flexible monetary policy. Financial sector supervision needs to be further 
improved, in particular for the pensi on funds. Measures need to be taken to reduce 
regional disparities and to increase the flexibility and mobility of labour. The 
implementation of the above -mentioned structural reforms must proceed in order to 
address fiscal consolidation.  
32 3. Ability to assum e the obligations of membership  
Introduction  
This section aims to update the Commission’s 1999 regular report on Hungary’s ability to 
assume the obligations of membership - that is, the legal and institutional framework, 
known as the acquis9, by means of w hich the Union implements its objectives. Alongside 
an evaluation of relevant developments since the 1999 regular report, this section seeks to 
provide an overall assessment of Hungary’s ability to assume the obligations of 
membership, and of what remains to be done.   This section has been structured to follow 
the list of twenty -nine negotiating chapters, and incorporates also an assessment of 
Hungary’s administrative capacity to implement the acquis  in its various aspects (in 
previous regular reports this  had been covered in a separate section). Furthermore, for the 
first time, a separate section has been included assessing progress made by Hungary in 
translating the acquis  into its official language.  
The European Council in Madrid in December 1995 referre d to the need to create the 
conditions for the gradual, harmonious integration of the candidates, particularly through 
the adjustment of their administrative structures. Taking up this theme, in Agenda 2000 
the Commission underlined the importance of incor porating Community legislation into 
national legislation effectively, and the even greater importance of implementing it 
properly in the field, via the appropriate administrative and judicial structures.  This is an 
essential pre -condition for creating the  mutual trust indispensable for future membership, 
which has become a central issue in the negotiation process.   
The European Council in Feira in June 2000 recalled the link between progress in the 
negotiations and the candidate countries’ capacity to eff ectively implement and enforce 
the acquis , and added that this called for important efforts by the candidate countries in 
strengthening their administrative and judicial structures. The Feira European Council 
invited the Commission to report to the Council  on its findings on the matter.  Building 
on the assessment of Hungary’s administrative capacity provided in the 1999 regular 
report, the present report seeks to add further depth and detail, focusing on the main 
administrative structures which are require d for implementing the acquis  in its various 
aspects.  
In the 1999 regular report, the Commission concluded that :  
“Hungary continues to make progress in aligning and implementing the acquis  in most 
sectors.  In the internal market, progress has continued as regards laws on public 
procurement and intellectual property (except as regards retroactive patent protection)  
and efforts have been focused on ensuring their effective implementation.  Notable 
progress has been made in adopting legislation on self -employment which removes 
restrictions on EU -individuals wanting to establish in Hungary. Although efforts need to 
pick up in transposing EC standards and to ensure the functioning of market surveillance, 
Hungary is well advanced in implementing the new approa ch in the standards and 
certification areas.    Hungary has adopted a law on state aids which should facilitate the 
development of an effective system of state aid monitoring and control.   Progress is quite 
steady but slow in the agricultural, veterinary and phytosanitary fields and efforts need to 
be accelerated considerably if a sufficient level of alignment is to be achieved over the 
                                                 
9 A description of the acquis  for each chapter can be found in the Commission’s 1997 Opinion on Hungary’s application for EU 
membership.  
33 medium term.  Hungary is relatively well advanced in alignment in the transport sector 
although the rail sector is laggin g behind in terms of alignment and actual restructuring of 
the railways.  Hungary has continued to consolidate the policy framework for financial 
control by defining the scope of audits and the distribution of tasks and responsibilities 
between the various  institutions involved.   
Important progress was made in overall alignment in the VAT/excise area, but 
discriminatory provisions in the excise area are still causing problems.  Further alignment 
is needed in the audio -visual areas as concerns European work s and satellite broadcast 
monitoring.   Aside from the fight against organised crime, the pace of alignment has 
been slow in the area of justice and home affairs, particularly with respect to border 
management and asylum. Little progress has been made with  regard to labour and health 
and safety at work.  There has been a noticable slow down in the adoption of 
environment legislation and no progress has been made in customs. Given the size of the 
transposition task which remains to be done in these sectors, significant efforts need to be 
undertaken to ensure further progress.  While strategic plans have been adopted in the 
environment and energy sectors, it is essential that they be quickly implemented.   In 
some areas such as regional development, whilst the  legislative framework has been in 
place for some time, progress in implementation has been limited due to a lack of 
budgetary and human resources.   
Hungary has made steady progress in building up its administrative capacity to apply the 
acquis . Steps hav e been taken toward general public administration reform and continued 
emphasis has been placed on the development of specific European policy and law 
training courses throughout the administration and in the judiciary.  Most of the key 
institutions needed  for implementation of the internal market are in place. Nonetheless 
the administration still needs to be strengthened in specific areas such as state aid control, 
market surveillance (implementation of product liability legislation) and veterinary and 
plant health.  Hungary needs to allocate sufficient budgetary and administrative resources 
to regional development and environment and improve capacities to use, monitor and 
control EC financial assistance.  There is room for granting further independence to 
authorities such as the Government Control Office and the Communications Authority.   
Hungary has satisfactorily addressed most of its short term Accession Partnership 
priorities with the exception of administrative strengthening in regional development, 
steel sector restructuring and alignment in the environment sector. Hungary has also 
made good progress in implementing the medium term priorities."  
3.1. The chapters of the acquis  
As indicated, the review of Hungary’s ability to assume the obligations of member ship 
that is provided below has been structured in accordance with the list of twenty -nine 
negotiating chapters. Accordingly, this section opens with an assessment of progress 
related to the so -called “four freedoms”, the cornerstones of the internal marke t, and 
continues with a systematic review of progress on each of the chapters, to cover the 
acquis  in all its various aspects: sectoral policies, economic and fiscal affairs, economic 
and social cohesion, innovation, quality of life and environment, justic e and home affairs, 
external policies, and financial questions.  
34 Chapter 1: Free movement of goods  
Further steady progress was made in the field of free movement of goods.  In the area of 
horizontal and procedural measures , Hungary accelerated the adoption  of European 
standards as Hungarian national standards in line with the Accession Partnership 
priorities. By September  2000, the Hungarian Standards Institution had implemented 
7428 EN standards as national standards, including 1137 European standards har monised 
to the New Approach Directives. This represents 76.6% of all European standards and 
79.7% of European standards harmonised to the New Approach Directives. In December 
1999, the modules for the various phases of the conformity assessment procedures and 
the rules on the use of the CE marking of conformity were transposed. The CE marking 
will thus be used in Hungary, except in cases requiring third party certification where the 
‘H’ mark will replace the CE marking until accession, except for the sector s covered by 
the protocol to the Europe Agreement on Conformity Assessment and Acceptance of 
Products, which was initialled in July 2000. This agreement covers machinery, electrical 
safety, electromagnetic compatibility, hot water boilers, gas appliances, medical devices, 
good laboratory practice for human medicines, and good manufacturing practice for 
human medicines as regards inspection and batch certification. In 1999, the Hungarian 
Accreditation Board became a full member of EA, the European Co -operati on for 
Accreditation. Furthermore, a Notification Information Centre was set up in the Ministry 
of Economic Affairs in September 2000 that will prepare for Hungary’s acquis  
obligations in the field of notification and information regarding technical standa rds and 
regulations.  
Following good progress noted last year as regards sector specific legislation,  Hungary 
has continued its alignment in the following fields: good manufacturing practice for 
human medicines, good laboratory practice of human medicines a nd pesticides,  
wholesale distribution of human medicines, medical devices for human use, colorants for 
medicines,  residue limits of veterinary medicinal products in foodstuffs, novel foods and 
ingredients, natural mineral waters, packaging and labelling of  foodstuffs, and the 
migration of plastics coming into contact with foodstuffs. Alignment was also pursued in 
the areas of motor vehicles, quality of petrol and diesel fuels, tyre pressure gauges, 
electromagnetic compatibility, electrical equipment used in  potentially explosive 
atmospheres in mines, calibration of the tanks of vessels, good laboratory practice for 
chemicals, crystal glass, and recreational craft. Some pieces of legislation were adopted 
in the field of legal metrology.  
Further progress was m ade in institutional development. In nine sectors where alignment 
is completed, market surveillance bodies have been designated. Hungary adopted 
legislation in 1997 authorising each Ministry in its area of competence to designate 
bodies for testing, inspec ting and certifying the conformity of products in the context of 
the New Approach Directives. This has already been done for industrial products falling 
under the responsibility of the Ministry of Economic Affairs (machinery, toys, electrical 
equipment, ga s-burning appliances, certain construction products), as well for 
telecommunications and information technology products, medical devices and personal 
protective equipment. The technical capacity of a number of these bodies is being 
upgraded, as requested in the short -term Accession Partnership priority.  
With regard to non-harmonised areas , Hungary started an internal screening of its 
domestic legislation in order to identify legislation that could prevent de jure or de facto 
the free movement of goods.  
35 In the area of public procurement , no further legislative progress was made during the 
reporting period. In line with the Accession Partnership priorities, provision was made to 
allow tendering under the EC’s new structural pre -accession instruments ISPA and 
SAPARD to respect EC requirements, in particular by excluding national preference. The 
total number of public procurement procedures declined somewhat to 3,828 in 1999. In 
value terms, public procurement grew slightly in real terms to an aggregate € 1.7 bi llion , 
which corresponds to approximately 4 -5% of GDP. About two -thirds were open tenders 
as opposed to negotiated or restricted procedures, and in the first half of 2000 the share of 
open procedures rose to 72%. Bidders from EU Member States won contract s in 5% of 
the cases in the first semester of 2000, but in value terms they accounted for almost a 
quarter of Hungary’s public procurement.  
The Public Procurement Arbitration Committee received 283 complaints in the first half of 
2000.  Infringements were found in 180 cases and 150 contracts were annulled. Against this 
background, an ad hoc Parliamentary committee was set up to supervise tenders.  
Overall assessment  
Hungary continued to make good progress concerning horizontal and procedural 
measures . The ge neral principles of the New and Global Approach were introduced and 
the necessary infrastructure for regulation, standardisation, accreditation and certification 
is being established. The Hungarian Institute for Standardisation is a full member of the 
Euro pean Telecommunications Standards Institute and the International Standards 
Organisation. The current effort to accelerate the adoption of European standards will 
need to be sustained to meet the requirements to become a full member also of CEN and 
CENELEC . The organisation and procedures of the Hungarian Institute for 
Standardisation, the Hungarian Accreditation Board and the Hungarian National Office 
of Measurements broadly appear to meet the needs of the acquis . As regards safety 
checks on products, Hung ary still needs to establish appropriate customs and market 
surveillance infrastructure as well as effective administrative co -operation between 
competent authorities. At present, no safety control takes place at the border. The 
capacity of testing and cer tification bodies should be further enhanced and their 
independence from the regulator should be ensured. The main market surveillance body, 
the General Inspectorate for Consumer Protection, also houses the secretariat of the 
Transitional Rapid Information  System on Dangerous Products (TRAPEX), an 
information exchange mechanism among ten candidate countries.  
A large part of the sector -specific acquis  is also in place. The outstanding legislative 
issues relate mainly to pharmaceutical products (including pri cing rules and marketing 
authorisations), cosmetics, chemical substances, metrology, construction sector products. 
Where alignment is completed, the previous pre -market control should be clearly 
abandoned in line with the Accession Partnership priorities. Also, sufficient 
administrative capacity needs to be built up in the field of marketing authorisations for 
medicines. As regards foodstuffs, Hungary needs to continue to introduce the relevant 
structures for inspection and analysis.  
In the non-harmonised a reas, the internal screening by the Ministry of Economic 
Affairs of measures hindering the movement of goods should be continued and should 
lead to the elimination of incompatible provisions. The principle of mutual recognition 
will have to become well est ablished by accession. The State Secretariat for European 
Integration in the Ministry of Foreign Affairs will be responsible for notifying national 
36 measures derogating from the principle of free movement. Further institution -building 
and adoption of implem enting regulations are necessary for the proper implementation of 
the harmonised law of 1997 on the protection of cultural objects. The acquis  on firearms 
is not yet transposed.  
The alignment of legislation on public procurement is well advanced, but furth er efforts 
are necessary especially with regard to value thresholds, time limits, exemptions, 
evaluation criteria, the treatment of utilities, the abolition of national preference. Some 
rules are presently stricter than the acquis  allows. In the area of en forcement and 
remedies, the rules for initiating proceedings and for utilities need to be further aligned.  
Hungary has already put in place the necessary bodies to implement this part of the 
acquis . Public procurement policy is developed by the 19 -member P ublic Procurement 
Council. It consists of interested central government bodies, contracting agencies and 
bidders. The Council is legally independent from the Government and answers to 
Parliament, to which it is required to report annually. The Council over sees the 
application of public procurement rules and may initiate amendments to the relevant 
legislation. It provides information and training, and publishes the notices for 
procurement procedures. The monitoring and review of procurement procedures is 
carried out by the Public Procurement Arbitration Committee. This law enforcement 
body can be considered to be a semi -judicial body as required by the acquis . The present 
number of 15 arbitration Commissioners is to be increased in the coming years to cope 
with the growing workload. In 1999, the Committee received 367 complaints, i.e. in 
about 10% of all procurement procedures. The Committee has the power to suspend the 
conclusion of public contracts until a complaint is examined, which happened in 121 
cases i n 1999. The decisions of the Committee are challenged in court in only about a 
quarter of the cases. Also, negotiated procedures must be notified to the Committee when 
they are initiated, allowing the Committee to intervene when the negotiated procedure is  
used unlawfully. Intervention takes place in about one -fifth of the cases. A sustained 
effort is needed to ensure the respect of procurement rules in all sectors and at all levels 
of government, including at the local level, but there is encouraging evide nce that 
remedial action is increasingly being taken. Further work is expected to provide both the 
procurement agencies and the supervisory bodies with sufficient staff and modern 
information systems.  
Chapter 2: Free movement of persons  
In the area of mutu al recognition of professional qualifications  some further progress 
was registered with the entry into force of the law on public health in January 2000, 
which aligned with provisions on mutual recognition of the health care professions.  
No progress can be  reported on citizens’ rights . Legislation on non -active persons and 
student rights needs to be further aligned.  
In the field of free movement of workers  some progress has taken place such that work 
permits can now be issued automatically to key personnel as defined under the Europe 
Agreement.  Also, some preparatory steps were taken to facilitate Hungary’s participation 
in EURES (European Employment Services) with the development of the IT 
infrastructure and the strengthening of staff in numbers and traini ng. 
37 Hungary has continued to strengthen bilateral relations with a view to the future co-
ordination of social security  matters.  A bilateral agreement with Germany entered into 
force in May 2000 and covers health insurance, pensions and family allowances. Another 
bilateral agreement with Austria, covering health insurance, pensions, unemployment 
benefits and family allowances is awaiting ratification by Austria . Such agreements will 
facilitate Hungary’s compliance with the regulations from accession, as the y rely on the 
principles of the social security co -ordination regulations and familiarise the 
administration with the procedures.  In addition, the inter -ministerial social co -ordination 
council was established in May 2000 to co -ordinate preparations for t he application of 
Community law nationally and to assist those institutions that will be responsible for the 
social security of migrant workers.  
Overall assessment  
Some preparatory work has taken place and these efforts will need to be continued to 
ensure that, by accession, there are no provisions in Hungarian legislation which 
contradict Community rules, in particular with respect to nationality, residence or 
language requirements. This is the case in the field of the free movement of workers , 
where legis lation is only partially aligned and efforts are required to ensure that, by 
accession, all such provisions are removed.  
For the acquis  in the area of mutual recognition of professional qualifications , 
legislation needs to be monitored to ensure that it di stinguishes between academic and 
professional recognition. Hungary was already largely aligned with the acquis  in this 
area. Outstanding issues relate to alignment with EC legislation on lawyers, the 
preparation of simpler procedures to allow the provision  of services and the assurance 
needed that Hungarian legislation will provide for a clear distinction between academic 
and professional recognition, notably taking into account the fact that the bodies 
responsible for academic and mutual recognition merged  recently.  The appointment of a 
national co -ordinator, responsible for co -ordinating the activities of the competent 
authorities and the designation of the latter should take place without delay.  
As regards future participation in EURES, efforts should be  continued, especially with 
regard to language training. With a view to the future co-ordination of  social security 
systems , further work to develop the necessary administrative structures is needed.  
Chapter 3: Freedom to provide services  
Some progress has  been made since last year’s regular report, in particular in the field of 
insurance and in the area of administrative capacity.  
As regards the freedom of establishment and freedom to provide services , no new 
developments have taken place.  
In the field of  financial services , a new Insurance Law was adopted in June 2000 
providing substantial further harmonisation, with the exception of those parts of the 
acquis  which can only be applied by Member States.  
No particular development can be reported in the banki ng sector and investment services 
and security markets.  
38 The three supervisory authorities for the banking, insurance and securities sectors were 
merged as from April 2000 into the Hungarian Financial Supervisory Authority with a 
view to providing more effe ctive supervision of integrated financial operators and dealing 
with new types of risks. This institution has its own separate budget and is legally 
independent. It is guided by the Basle Core Principles for Banking Supervision. It has to 
protect the inter est of clients of financial institutions, to enhance transparency of the 
markets and the to ensure maintenance of fair and regulated market competition through 
the permanent surveillance of the prudent operation of organisations and entities engaged 
in fin ancial services in the largest sense. This includes not only the classical sectors of 
banking, securities and insurance but also depositories, private pension funds and the 
whole commodity market. However, it has no regulatory power itself, as the adoption  of 
prudential rules remains the prerogative of the Government and the Minister of Finance. 
Regulatory power is expected to be transferred to the Supervisory Authority in the near 
future. The Supervisory Authority is managed by a President who is appointed  by 
Parliament upon the Prime Minister’s proposal.  The Authority has a staff of around 440. 
The Supervisory Authority also houses the secretariat of the contact group for the 
Regional Co -operation Network for Financial Supervision in Central and Eastern E urope, 
grouping 17 countries of Central and Eastern Europe.  
Banks in Hungary are subject to monthly and quarterly reporting requirements, and 
together receive approximately 300 on -site inspections per year. In recent years, remedial 
action has had to be ta ken in a substantial number of cases, including fines (91 in 1999), 
suspensions (18) and other supervisory and exceptional measures (94). Also in 1999, 
operating licenses were granted or withdrawn in 634 and 61 cases, respectively. Similar 
supervisory acti vity, but on a smaller scale, has been undertaken in respect of insurance 
companies and securities. Pension funds have received several hundred on -site 
inspections in 1999.  
The rules on the movement and protection of personal data  were further aligned in 
December 1999. No measures were taken in respect of information society regulations . 
Overall assessment  
In most areas, Hungary has already achieved a substantial degree of alignment. Whereas 
legal persons and self -employed persons from the EU were already g ranted in February 
1999 the basic right of establishment  based on national treatment, the freedom to 
provide cross -border services  does not yet exist. The respective rules to facilitate 
effective access of non -nationals to industrial, trade, tourism and ag ricultural activities, 
inter alia through the recognition of qualifications, still need to be aligned. Also, the rules 
on self -employed commercial agents need to be further aligned. Restrictions on the 
acquisition of real estate equally hamper effective ac cess.  
On the other hand, Hungary has already achieved a substantial degree of alignment in 
financial services . Outstanding issues relate mostly to capital requirements, contractual 
netting, bank accounting and deposit and investor compensation schemes. Som e 
adjustments remain to be made as concerns motor insurance, solvency requirements and 
investment rules for insurance companies. Hungary appears to have the necessary 
supervisory institutions in place, but the newly merged authority will have to demonstrat e 
its effectiveness in the coming years.  
39 Further work is required to align with rules related to information society services , in 
particular on the provision of information in the field of technical standards and 
regulations and the legal protection of ser vices on conditional access. The legislation on 
the protection and movement of personal data  requires fine -tuning. A fully 
independent Ombudsman for Data Protection elected by Parliament for a term of six 
years is responsible for the independent monitoring  of the data protection regulations and 
for investigating complaints.. He can order the destruction by other authorities of illegally 
collected or processed data, but he is not himself endowed with investigative powers or 
powers of intervention or litigati on. In practice, however, his recommendations are 
generally respected and in general the enforcement capacity of the administration is 
already quite satisfactory.  
Chapter 4: Free movement of capital  
In the area of capital movements and payments , the gradua l liberalisation was 
continued by allowing credits and loans in foreign currency with a maturity of more than 
one year to be granted by residents to non -residents in OECD countries as of January 
2000. From July 2000, liberalisation was extended, under cert ain conditions, to collective 
investment securities from OECD countries denominated in foreign currency.  
No further progress is to be reported as regards cross -border credit transfers  or money 
laundering . In particular, no progress was made on the eliminat ion of anonymous 
accounts even though the Accession Partnership identified a ban on the opening of new 
anonymous accounts as a short -term priority.  
Overall assessment  
Hungary is already very advanced in the liberalisation of medium and long term capital 
movements . Liberalisation should be extended to the system of restrictions on short -term 
operations, transactions denominated in HUF and deposits abroad, as well as to capital 
movements vis -à-vis third countries insofar as required by the acquis . Restriction s remain 
on direct investment in sectors such as air transport, inland waterways and 
telecommunications. The state maintains golden shares in a number of privatised 
companies. In real estate, restrictions exist on the purchase of agricultural land and land  in 
nature conservation areas, as well as on residential property. Institutional investors in 
Hungary still face restrictions on investment in foreign assets.  
Partial harmonisation was already achieved in the area of cross -border credit transfers . 
The impl ementation of a real -time gross settlement system is an important 
accomplishment. The complaints and redress procedure for the settlement of disputes still 
needs to be introduced. Hungary's law on money laundering  provides already a good 
basis for alignmen t, but further efforts are necessary in particular regarding the phasing 
out of anonymous accounts. A financial intelligence unit within the National Police is the 
main enforcement body.  
Chapter 5: Company law  
In the area of company law, Hungary has made s ome further progress to align its 
legislation with the acquis . A new law on accounting was adopted by Parliament in 
September 2000 and will enter into force from  2001. This law provides for alignment 
40 with the acquis  in this area. It also establishes the l egal basis for the introduction of 
national accounting standards.  
Some progress was made in March 2000 in the area of industrial and intellectual 
property rights  with the entry into force of an amendment to the Penal Code which 
introduced stronger penaltie s for the violation of copyrights. Also, the circumvention of 
measures to restrict access to protected material and the copying of industrial property 
were made punishable. Since the beginning of 2000, the Hungarian Patent Office is the 
single government i nstitution responsible for the protection of both intellectual and 
industrial property rights. The Office is self -financing, and has over 250 staff. There are 
six collective management organisations administering copyrights and related rights. 
These are as sociations formed by a representative number of rightholders. The Budapest 
Metropolitan Court has exclusive competence to hear most of the industrial property 
cases, whereas intellectual property cases are handled also in county courts. There are 
two furth er expert bodies administered by the Hungarian Patent Office providing expert 
assistance to courts and other authorities upon request. Hungary has been invited to join 
the European Patent Organisation as of July 2002.  
In the field of trademarks, in March 2 000 the Hungarian Patent Office concluded a 
memorandum of understanding with the Office for Harmonisation in the Internal Market 
(Trade Marks & Designs). One of its aims is to exchange information on trademark 
filings so as to minimise as much as possible  potential future conflicts between national 
Hungarian and Community trademarks.  
Overall assessment  
In the field of company law  a significant degree of alignment has been achieved so far. 
The few outstanding issues are mainly of technical nature. Provision s on economic 
interest groupings need also to be introduced.  
The 19 county courts and the capital court of registration are responsible for the 
registration of companies and partnerships. The deadlines for registration are now 
respected, and the register h as been computerised. The Hungarian Chamber of Auditors 
established in 1997 is responsible for the accreditation of auditors. As of June 2000, 5237 
auditors were registered. Hungary does not have an accounting standards body, and has 
yet to begin introduci ng national accounting standards.  
Hungary has filed for accession to the Lugano Convention, which is equivalent to the 
Brussels Convention and open to third countries. So far, only seven countries have 
ratified the Hungarian accession.  
In the field of indu strial and intellectual property rights , the Hungarian legislation is 
largely in line with the acquis . Some further efforts are required, notably on the 
protection of designs and the supplementary protection of patented pharmaceutical and 
plant protection products. Alignment with the acquis  on databases also needs to be 
completed.  
The Hungarian Patent Office and the collective management societies are acknowledged 
to provide good administrative enforcement, but the specific training of bodies in charge 
of enforcement police, customs, prosecutors, judges  should be continued. Further 
41 efforts are also required to reduce the delays in court proceedings and to make border 
control measures more efficient.  
Chapter 6: Competition policy  
Since last year’s report, H ungary has made some limited progress in this area and its 
enforcement practice has continued to develop.  
In the field of anti -trust no new developments took place. With 110 employees including 
35 case -handlers, the Office of Economic Competition is well s taffed but still about 40% 
of the cases dealt with concern consumer protection issues. In 1999, 96 anti -trust 
decisions were taken including a growing number of merger cases.  
In the area of state aid,  new limits were introduced in January 2000 on the inten sity of 
investment aids, and a methodology was adopted for measuring their grant equivalent. 
Furthermore, following the scrutiny of existing state aid rules an overall work programme 
for the alignment of substantive and procedural state aid rules was adopt ed by the 
Government in February 2000.  
An Inter -ministerial Consultative Committee  was set up to assist the authorities in 
aligning with the acquis  and to support the State Aid Monitoring Office by providing 
data, reports, and arguments on the necessity of  measures within their ministry. The 
scope of aids that must be notified in advance to the State Aid Monitoring Office was 
broadened to include aids awarded to sensitive sectors and to large investment projects, 
as well as some of the aids awarded by the S tate Privatisation Agency. However, 
Hungary failed to meet the short -term Accession Partnership priorities to enhance the 
Office’s role in controlling aids and to make the State aid inventory fully comprehensive . 
Over the reference period, the State Aid Mo nitoring Office received 140 aid notifications, 
of which 83 were found to constitute state aid. Of the 39 measures found to be 
incompatible with the acquis,  37 were adjusted, one was rejected by the Government and 
one was accepted in its incompatible form.  
Overall assessment  
Hungary’s anti-trust  legislation is already to a large extent aligned with the acquis. It 
contains the main principles of the rules on restrictive agreements, abuse of dominant 
position and merger control. A number of block exemptions r egarding restrictive 
agreements have been adopted, but further  alignment is still  necessary, especially in 
view of developments in the  acquis  on vertical restraints. Investigations are conducted 
by the legally and financially independent Office of Econo mic Competition, whereas 
decisions are taken by the Competition Council, whose  members are appointed by the 
President of Hungary. . The main challenge is now to ensure that the application and 
enforcement of the anti -trust rules is effective and that prio rity is given to such cases that 
concern the most serious distortions of competition . In this context it is also important 
that investigative powers are sufficient, that sanctions have a deterrent effect and that the 
judiciary is adequately trained.  
As re gards State aids , the obligation of prior notification of new aid is still not yet fully 
comprehensive (in particular, local authorities are not included). In relation to existing 
aid schemes, the comprehensiveness and the timetable for alignment programme  is not 
42 yet satisfactory, in particular as regards aid granted in form of tax benefits, as well as aid 
granted in sensitive sectors. Furthermore, a regional aid map is to be prepared, in order to 
ensure a differentiation of maximum aid intensities in assis ted areas.  
The State Aid Monitoring Office has to give an opinion on notified aid, which is 
submitted to the Government for decision, but has no formal role in assessing existing aid 
measures. The Office should be given sufficient powers and resources to e nsure a full and 
proper State aid control.  
Chapter 7: Agriculture  
The share of agriculture in the economy continues its declining trend, representing 5.5 
%10 of the GDP and employing 7.1%11 of the working population. The crop output 
declined by 7.3%12 in 1999  and the livestock production increased by 0.7%. EC imports 
of agricultural products originating in Hungary amounted to € 1  093 million13 in 1999 
while  EC exports to Hungary reached € 481 million. The trade balance in favour of 
Hungary amounted to € 612 million compared to € 521 million in 1998. The most 
important product groups in terms of EC imports from Hungary were meat and edible 
meat offal, vegetables, cereals and oil seeds. As far as EC exports to Hungary were 
concerned, the most important sectors were animal fodder, alcoholic beverages and fruits 
and nuts. In this context, the new reciprocal concessions on agricultural products 
negotiated under the Europe Agreement at zero duty cover a substantial part of the 
bilateral trade ( see section A.b. – Relations between the European Union and Hungary ). 
The s tructure of the agricultural sector has been changing in the past few years and recent 
data shows that in 2000, the agricultural sector included nearly 960  00014 private holdings 
and more than 8  200 enterprises engaged in agricultural activities (in 1991, t here were 
2 600 enterprises and 1  396 small units).  
The state agricultural budget amounted to € 645 million in 2000. Out of the total budget, 
€ 553 million are for agricultural subsidies and € 92 million for rural and regional 
development measures. The agr icultural support system was modified in 2000 to 
introduce credit contracts and ‘farmers credit programmes’ providing for interest support. 
The share of support for market access slightly decreased. Following the introduction of 
registration of producers, a precondition for receiving agricultural subsidies, around 80% 
of producers applied for registration.  
As regards land reform, legislation on the register of title deeds, adopted in 1997, entered 
into force in January 2000, providing the data on the rights  attached to real estate, 
including  agricultural land. Also, the rules on the registration of land use by land offices, 
separated from the register of title deeds, entered into force in January 2000.  
Horizontal issues  
                                                 
10 The source for all agricultural statistics is EUROSTAT unless otherwise specified.  
11 In order to improve  consistency and comparability, the employment figures presented are now defined according to Labour Force 
Survey definitions (LFS). Agricultural employment is defined in LFS terms as economically active persons who gain a significa nt 
part of their income from agriculture. The agricultural census, which was previously a source of employment data in many 
countries, takes into account all persons nominally active on a farm. There are therefore some significant differences betwee n 
previous and new figures. Fur ther information can be found in the Eurostat publication “Central European Countries’ Employment 
and Labour Market Review” available free of charge through the Eurostat Data Shops.  
12  Source: FAO.  
13 Source: Uruguay Round Agreement definition of agricultur al products, figures taken from EUROSTAT COMEXT (see Agriculture 
in the European Union statistical and economic information 1999 p.36 for definition of the products).  
14 “Source: Preliminary data of the Hungarian Agricultural Census 2000”.  
43 As regards the implementation of meas ures related to the European Agricultural 
Guidance and Guarantee Fund (EAGGF), the Agriculture Intervention Centre (AIC), 
currently responsible for export refunds and licensing, is being restructured to execute 
further functions in respect of EAGGF expendi ture and the Integrated Administration and 
Control System (IACS). However, the role and the additional functions to be performed 
by the Agriculture Intervention Centre have not yet been defined. The number of staff, 
currently 131, has doubled since last ye ar.  
The SAPARD programme was approved by the Commission in October 2000. It focuses 
mainly on investments in farms and improvements in the processing and marketing of 
agricultural and fishery products ( see section A.b – Relations between the European 
Unio n and Hungary ). 
As regards preparations to establish the IACS in Hungary, progress has taken place 
mainly in the registration of animals. Identification and registration of bovine animals are 
compulsory since the entry into force of the law on individual r egistration and 
identification in January 2000.  The identification and registration of bovine animals was 
completed. Progress in establishing the land register has been much more limited.  
No significant progress was made in the field of quality policy. As  for organic farming, 
the National Agri -environmental programme will provide support for organic plant 
growing and animal breeding.  
Concerning preparations for Hungary’s participation in the Farm Accountancy Data 
Network , the collection of data for an agri cultural census was completed in April 2000.  
Common Market Organisations  
Since last year’s regular report, Hungary made little progress as regards the introduction 
of a legal framework and administrative structure for the establishment of the Common 
Market  Organisations.  
Concerning fruits and vegetables, a system of production aid for processed tomatoes, 
partly in line with EC requirements, was introduced in 2000. The 1999 budget allocation 
for producer organisations was assigned to other purposes. Only th ree producer 
organisations received preliminary recognition. As regards tobacco, a quality premium 
system was introduced in 2000.  
In the field of specialised crops, the law on statistical survey of the area under vines and 
fruit orchards was not adopted, as expected, in 2000 and consequently the establishment 
of a vineyard register, identified as a short -term priority by the Accession Partnership, is 
delayed. The legal conditions for keeping the cellar register (inwards and outwards 
register) were adopted.  As regards animal products, the classification system for bovine 
carcasses, introduced in 1998, became compulsory. A system of price bound support for 
beef and milk was established under which measures may be taken to support producers 
or processors depen ding on whether the market price has reached the lower or upper limit 
of the bound price. The Ministry of Agriculture and Regional Development is responsible 
for fixing the prices on a yearly basis.  
Rural Development and Forestry  
44 A national Agri -Environmen tal Programme (2000 -2006) was adopted in autumn 1999 to 
support farmers who apply environment friendly agricultural production methods. The 
programme, amounting to € 26 million, is only being partially implemented due to 
budgetary constraints.  
No progress was made as regards forestry.  
Veterinary and phytosanitary issues  
Progress in the veterinary sector was also limited. The identification and registration of 
bovine animals was completed and preparations for developing the pigs identification and 
registrati on system were initiated. The identification and registration of bovine animals 
has become compulsory from January 2000. The contingency plan for classical swine 
fever has been drawn up.  
No progress was made in the field of common measures, including anima l waste 
treatment and animal welfare.  
As regards the administrative capacity in this field, the National Veterinary Information 
System has been developed to complete the animal health, food hygiene and feedingstuffs 
sub-systems by the end of 1999. The cent ral database is placed in the National Veterinary 
Institute and the Veterinary and Food Inspection Department of MARD, the county 
veterinary and food inspection stations and 20 Border Inspection Posts are connected to 
the network. Semi -on-line connection h as been established to 8 Border Inspection Posts 
and the 110 regional chief veterinary offices.  An animal welfare service was established 
within the State Veterinary Service. Progress in upgrading the Border Inspection Posts at 
Letenye, Roszke, Zahony and  at the airport has been limited to installing inspection 
equipment and training of staff.  
In the phytosanitary sector, with the adoption of the Plant Protection Law in May 2000 
Hungary will gradually introduce the EC requirements concerning plant health, 
registration and marketing of plant protection products and fertilisers.  
No progress has been registered as regards plant hygiene and animal nutrition.  
Overall assessment  
Overall, progress made so far by Hungary provides a good basis for implementing the 
acquis  in the agricultural sector, however, the strengthening of the administrative 
capacity over the last year has been hindered by slow decision making in regard to 
Common Market Organisation mechanisms and structures relating to the European 
Agricultural  Guarantee and Guidance Fund.  
In the field of land reform , the laws on land consolidation and on the national land fund 
are still pending submission to the Parliament.  
As regards horizontal issues , the existing databases and data networks should be 
improve d to establish the Integrated Administrative and Control System. Progress still 
needs to be made to complete the land parcel identification system, especially as regards 
digitalisation of land parcels according to EC requirements.  The identification and 
registration of animals, completed for bovine,, needs to be extended to pigs, sheep and 
goats.  
45 The current Farm Accountancy Data Network, operated by the Ministry of Agriculture is 
still to be harmonised with EC requirements. The results of the agricultural  census, 
carried out in 2000, will provide the basis for setting up the farm registry.  
Concerning the implementation of Common Market Organisations , the tasks of the 
Agriculture Intervention Centre as regards the management of the market organisations 
need  to be clarified. The key management mechanisms for cereals are yet to be 
harmonised and the conditions for intervention established. The marketing standards for 
fruits and vegetables, currently applied on exports to the EC, need to be extended to 
imported  and domestic products. Further support is essential to promote the 
establishment of producers’ organisations. The law on statistical survey of the area under 
vines and fruit orchards needs to be adopted in order to establish a national vineyard an 
orchard  register.  
In the area of Rural Development and Forestry , the adoption of the National Agri -
Environmental Programme should be followed by the establishment of the institutional 
structure and the budgetary allocations necessary to implement it.  
Concerning t he veterinary field , the existing framework legislation provides the legal 
basis for transposing most of the veterinary acquis  but further amendments are required 
regarding the control system, compensation to farmers in the case of an outbreak of 
disease a nd the reform of the statute of the veterinary professional activities. Work also 
remains to be done in adopting the implementing legislation necessary to transpose the 
veterinary public and animal health, animal welfare and zootechnical legislation.  
As re gards veterinary control in the internal market, the central database for identification 
and registration of cattle meets all the requirements to record all cattle movements.  
However, it is not used to record any veterinary information, either animal or p ublic 
health.  The State Veterinary Service should have direct on -line access to the central 
database, which should also be used for establishing an epidemiological surveillance 
network system.  Controls of the future external border of the EU are not yet in 
compliance with the acquis . 
In the field of control of animal diseases and animal health , Hungary still needs to  
introduce legal provisions for compensating  farmers in the case of an outbreak of an 
infectious disease.  
Although the national survey of c onditions and development possibilities of 
slaughterhouses and meat processing establishments has been completed, the action plan 
to comply with EC standards concerning hygiene, food safety, environment and animal 
welfare is still to be approved.  
Hungary h as largely transposed the acquis  in the field of animal welfare. Outstanding 
issues relate to alignment with EC welfare rules on the slaughter of animals (setting up of 
stunning parameters) and on keeping farm animals (minimum standards for laying hens), 
the preparation of an action plan for the transport of live animals, the extension of the 
animal welfare inspector network and the development of the animal welfare sub -system 
of the national veterinary information system.  
In the phytosanitary sector , the a doption of the Law on Plant Protection represents an 
important step in transposing the phytosanitary acquis , however, the provisions of the law 
and the required implementing decrees will enter into force gradually from August 2000 
46 until January 2003. The p hytosanitary information system at the plant protection and soil 
conservation stations and at the border inspection posts needs to be further developed. 
The facilities for phytosanitary diagnostic, including establishment of a quarantine 
greenhouse have to  be upgraded as well as the analytical laboratories related to pesticides 
registration and residue control.  
Chapter 8: Fisheries  
Over the reference period no progress was made in terms of alignment with the acqui s or 
as regards market policy . 
In the fields  of resources management, inspection and control , one inspector was 
employed in each of the 19 regional offices for agriculture. The staff in charge of 
fisheries in the Ministry of Agriculture and Rural Development was also slightly 
reinforced.  
State aids  available for fish producers in 2000 were regulated in line with the EC 
Guidelines for the Examination of State Aids in the fisheries and aquaculture sector. All 
aid schemes were decided by the annual budget with the exception of support for 
fisheries in n atural waters which were financed from state revenues (fees of fishing 
licences, fines)  
Overall assessment  
The basic framework legislation is in line with the Common Fisheries Policy.  
Nevertheless further amendments are needed in order to implement market ing standards 
and to establish the conditions for the control of live and fresh imported fish.  
As regards the administrative structure, further efforts should be made to improve the 
control of the implementation of common marketing standards, the collectio n and 
transmission of data concerning the price reference regime, the application of the 
recognition conditions for producer’s organisations and the implementation of the 
structural policy for fisheries.  
 Chapter 9: Transport policy  
During the reference pe riod Hungary continued to align with the transport acquis 
although progress was limited.  
Hungary has approved the final report on Transport Infrastructure Needs Assessment 
(TINA) of October 1999 that should form the basis for extending the Trans -European 
Networks to Hungary. Following the recent adoption of the Szechenyi Plan for economic 
development, the motorway construction programme,  which has not progressed for about 
two years, will be speeded up, also with the help of the ISPA -programme. Hungary and 
Slovakia continued preparations on the reconstruction of a bridge over the Danube at 
Esztergom - Sturovo.  
In the area of road transport some progress was achieved through alignment with 
provisions on the use of vehicles hired without drivers for the carriage  of goods. In April 
2000, Hungary acceded to the European Agreement on the Work of personnel of 
Vehicles Engaged in International Road Haulage (AETR). After several years of 
47 negotiations, a bilateral Road Goods Transit Agreement with the Community was sign ed 
in July 2000.  
Public bus -transport companies began to align the system of drivers' driving and rest 
periods and increased the number of bus drivers with a view to aligning progressively 
with the social requirements of the acquis . € 12,3 million and € 8.4 million were made 
available in 1999 and in 2000 for modernising the vehicle fleet for long -distance public 
passenger transport by road. The law on vehicle taxes introduced tax reductions for utility 
vehicles ("green lorries") wit h reduced environment pollution. The resulting tax levels are 
lower than the required EC minimum levels. Furthermore, Hungary aligned its legislation 
to some parts of the 1999 acquis on transport of dangerous goods. It should nevertheless 
be noted that Hun gary does not comply with the acquis on weight limits of trucks yet, as 
it provides for lower axle weight limits than those in the EC. 
In December 1999, the reform programme of the Hungarian State Railways  was adopted 
providing also a basis for the further  alignment with the acquis, notably the network 
rationalisation and the establishment of separate railway commercial and  track 
companies in 2001, thus serving the improvement of the financial situation of railway 
companies.  
The General Transport Inspector ate (GTI) is responsible for road, rail, inland waterways 
and maritime issues. The major part of its budget is funded through the fees, the levels of 
which are set by the Ministry of Transport. Some 60 -65% of fee revenues come from 
vehicle inspection. In a ddition, the Government provides  around € 1 million (2% of 
overall budget) for development and investment. Of this subsidy, 60% goes to IT 
investment in the GTI, while the remainder is used to purchase equipment. The vehicles 
register is kept by the Polic e. Since the database of the Police includes criminal files, the 
GTI does not have access to it. There is therefore a need for reinforcement of the GTI 
capacity and for a better administrative co -operation between the GTI and the police.  
Some progress was achieved as regards the alignment with the acquis in the air 
transport sector. The Government adopted in April 2000 a national strategy on aviation 
which provided the basis for: the restructuring and privatisation of the national flag --
carrier (MALÉV); the  development of Ferihegy airport towards a European hub and the 
reorganisation of Air Traffic and Airport Management; the establishment of an 
independent civil aviation authority; the establishment of an independent accidents 
investigation body; the develo pment of (regional) airports and personnel development. In 
August the Government adopted a privatisation strategy for MALÉV, aiming at selling a 
minority stake to an investor from the airline industry.  
Progress in alignment was made in December 1999, in pa rticular as regards  
environmental protection, through legislation on the limitation of noise emissions for 
subsonic and engine driven aircraft and the limitation of noise emissions in the vicinity  of 
airports. The provisions on common rules for the allocat ion of slots at airports  and to a 
certain extent on rules for the technical investigation of civil aviation accidents were 
aligned in January 2000. In November 1999, a new automatic air traffic management 
system was set up at Ferihegy airport and Hungary b ecame member of the common air 
traffic control system for Central  Europe - CEATS -UACC. Hungary also participates 
actively in the Safety Regulation Commission of Eurocontrol.  
The Civil Aviation Directorate, located at Ferihegy Airport, is the first level st ate 
authority in the field of aviation. It supervises both the air traffic management and the 
48 airport administration (which are currently together in one entity), licenses air operators, 
provides certificates of airworthiness, and licenses air traffic mana gement staff. State 
control is secured at ministry level, as are regulatory policy -making and international 
activities.  
In the area of inland navigation and maritime transport, the main development was 
the adoption in May 2000 of the Act on Water Transport  (to enter into force in January 
2001), creating the basis for enhanced alignment with the acquis.  In January 2000, 
Hungary joined the International Convention on Maritime Search and Rescue (SAR). The 
Law on Water Transport also entrusts the General Transp ort Inspectorate with more 
responsibilities and provides the framework for staff increase in the Shipping 
Superintendence in the Inspectorate.  
The modernisation of the national public ports continued in Gyor -Gönyu with the 
connection to external infrastruc ture and in Baja with the construction of a Ro -Ro port.  
Overall assessment  
Hungarian policy in the field of transport infrastructure already takes into account the 
objectives and priorities of the Community guidelines on the Trans -European Transport 
Networ k (TEN -T) and the requirements on TEN financing. In the area of road transport, 
there is, despite progress, a need to further align throughout the subsector with, among 
others, particularly the provisions on market access, fiscal matters, social legislatio n and 
technology, safety and environment (e.g. maximum weights and dimensions).  
The new restructuring programme for the state railways should become a basis for 
speeding up alignment in the sector. Any further delay should be avoided. The 
administrative ca pacity of Hungarian railways should be further developed. Hungary 
needs notably to set up an independent rail -path allocation body which would also be 
responsible for dispute settlement, a separate commercial railway as well as an 
independent regulator whi ch would oversee capacity allocation and charging schemes. 
Also accounting rules of railway undertakings need to be brought further in line with the 
acquis . 
In the area of inland waterways the port authorities and the General Transport 
Inspectorate should be strengthened.  
Further legislative alignment is necessary for the modalities on the transfer of ships from 
one register to another and the safety system of certain fishing boats and of passenger 
boats.  
Further enhanced efforts to align with the air trans port acquis  are needed, notably 
concerning market access and air carrier liability. New institutions such as an 
independent accident investigation authority, an independent slot co -ordination authority 
and a body for licensing and safety need to be establi shed.. Hungary should  make further 
efforts to ensure the progressive incorporation of the aviation acquis  by joining the 
European Common Aviation Area. Negotiations between the EC and Hungary on this 
multilateral agreement have unfortunately not yet been completed.  
49 Chapter 10: Taxation  
Hungary continued alignment.  
In the area of indirect taxation,  limited progress was achieved. The law on Special 
Scheme for travel agents was further aligned with the acquis  as far as rules for the tour 
package are concerned . A system of classification of services in line with the acquis  was 
also introduced. Reduced VAT rates were abolished for a number of goods and services, 
but reduced VAT rates of 12% are maintained for social reasons in the areas of heating 
materials and district heating services, foodservices and transportation and storage of 
goods.  
The amendment of the law on Excise Duty eliminated a major structural difference 
between the Hungarian legislation on excise duty  and the acquis.  As from 1 August 2000 
an exci se duty is levied on wine.  Progress was also achieved in the area of excise duties 
on sparkling intermediate alcoholic products, cigarettes and fine cut tobacco intended for 
the rolling of cigarettes. Hungary however continued to levy different rates for fruit 
brandies and other spirits, which is in contradiction with Community rules, which 
stipulate a single excise duty for interchangeable products.  
In the area of direct taxation  no particular developments can be reported.  
As regards the Hungarian Tax and  Financial Control Administration, its effectiveness 
was further improved by the introduction of new measures of tax control, such as the 
integration of the social security system into the system of tax collection. At the same 
time, rules for taxpayers wer e simplified. Also staff at the Hungarian Tax and Financial 
Control Administration was increased to 13,575; 300 of whom worked in the Criminal 
Directorate established in 1999. In total, some 700 people work at the central 
administration, while county direc torates employ staff of 400 -1400 depending on their 
size. A new training centre for the tax administration was inaugurated in May 2000 and a 
new division in charge of education and training was created in order to improve the 
qualifications of the staff of  the tax administration.  
The tax current account register was modernised by the introduction of a new Centralised 
Tax and Contribution Current Account (CAJF) in autumn 1999 and an on -line access to 
the data in the Court of Registration for the tax authorit ies was established.  
Compared to 1998, the number of inspections increased by 5% in 1999 to 17,700 and the 
number of audits by 6% to 323,200. Following the above 2,860 investigations were 
initiated by the Directorate of Criminal Affairs in 1999, of which 7 17 cases were handed 
over to the Prosecutor’s Office.  
 Overall assessment  
The basic structures of the acquis  related to VAT and excise duty are already in place. 
Since January 1999, Hungary has applied a product identification system based on the 
Combined Nomenclature also for VAT purposes. In the area of VAT the list of products 
and services with reduced rates will have to be further limited and the zero -rate system 
will have to be abolished. Excise duties will need to be adjusted concerning mineral oil 
products, cigarettes, intermediate alcoholic products and fine cut tobacco. The rules on 
obligatory tax exemptions will have to be brought in line with the acquis.   In the area of 
direct taxation, Hungary has to finalise the review of its legislation in line  with the Code 
50 of Conduct for Business Taxation. Further progress is also needed concerning the Central 
Liaison Office (CLO) where preparatory activities have only just started and concerning 
cooperation and mutual assistance with tax administrations in Me mber States, 
which needs to be improved.  
Chapter 11: Economic and monetary union  
A detailed assessment of Hungary ’s economic policy in its various aspects has been 
given above, in the chapter discussing the economic criteria ( B-2).  Therefore, the present 
section is limited to a discussion of those aspects of the Economic and Monetary Union 
acquis --as defined by title VII of the EC treaty and the other relevant texts --which 
candidate countries should implement by accession at the latest, i.e. the prohibitio n of 
direct public sector financing by the central bank, the prohibition of privileged access of 
the public sector to financial institutions, and independence of the national central bank.  
As to the process of liberalisation of capital movements, upon the  completion of which 
compliance with the EMU acquis  is conditional, this aspect has been covered above, in 
the section on Chapter 4 – Free movement of capital . 
Hungary has made little additional progress in its preparation for participation in the 
Economic  and Monetary Union, although in January 2000, the Hungarian currency was 
linked 100% to the Euro by modifying the currency exchange rate basket previously 
consisting of 70% Euro and 30% US -Dollar.  
No further progress can be reported in ensuring the full independence of the National 
Bank  which was a short -term Accession Partnership priority. There has been no other 
legislative development.  
Overall assessment  
Hungary will participate in EMU upon accession with the status of a country with a 
derogation as pe r Article 122 of the EC treaty. It will need to implement the necessary 
changes to its institutional and legal framework by the date of accession.  
Although Hungary’s legislation is already to a large extent in line with the acquis,  further 
alignment is sti ll needed as regards the independence of the National Bank and in 
particular the possibility for direct public sector financing by the National Bank  
should be removed together with the privileged treatment of the Hungarian State 
Securities . 
Furthermore, th e accounting and statistical services of the Central Bank will have to be 
improved and the institutional framework for the preparation of the convergence 
programme and excessive deficit procedure will have to be established.  
Chapter 12: Statistics  
Hungary continued its alignment with the acquis . 
The statistical infrastructure was consolidated with a new law in December 1999 
modifying the Statistical Law of 1993 strengthening the independence and impartiality of 
all official statistical bodies.  The law rede fined the Hungarian Central Office as a 
professionally independent public administrative institution with national competence. 
51 Consequently, the president and vice -president of this institution are now appointed for 6 
instead of 4 years, thus making the ap pointment independent from the election cycles. 
The law also reinforced the protection of personal data transferred to international 
institutions. The 2000 National Programme of Statistical Data Collection adopted in 
October 1999 introduced the Classificat ion of products according to activities (CPA).  
Concerning migration statistics the scope of data collection has been extended with new 
registers and data sources used providing information on foreigners staying in Hungary. 
A population census law has been adopted to conduct the census in March 2001.  
The Quarterly Labour Force Survey  (LFS) is conducted in line with EC requirements 
and data transmitted to Eurostat.  
As regards the availability of statistics at regional  level, more statistics, on services for 
example, are available on a NUTS II (7 regions) and NUTS III (20 regions) level.  
As concerns macro -economic statistics , input -output tables and commodity flows were 
compiled according to the European System of Integrated Economic Accounts (ESA95) 
methodolog ical recommendations. Quarterly National Accounts on current prices is 
available. The National Bank has compiled, but not yet published, financial accounts for 
1997 and 1998.  
In the field of agricultural statistics , a census was finalised in April 2000, co vering 
almost 2.2 million households. The census created the basis for the farm register and for 
structural agricultural statistics and the processing of the data is being carried out. 
Hungary has not yet set up a vineyard register.  
Overall Assessment  
Hung ary already reached an overall high level of alignment in the field of statistics. 
Statistical co -operation with international organisations runs smoothly. The Hungarian 
Central Statistical Office is independent and well equipped and works professionally. 
However, further efforts are still required in the areas of regional statistics, agricultural 
statistics, macro -economic and industry statistics.  
Chapter 13: Social policy and employment  
Amendments to the Labour Law  further aligning with the acquis  on coll ective 
redundancies, the contract of employment relationship, health and safety of temporary 
workers, the organisation of working time, the protection of young people at work, 
European Works Councils and posting of workers are before Parliament.  
Since Janu ary 2000, following a reorganisation , the National labour inspectorate was 
operating as the national enforcement authority, with the 20 county inspectorates again 
operating under the supervision of its headquarters.  It was already upgraded technically 
in 1999 and staff underwent training, in particular in the area of languages.  
The amendments to the Labour Law will also have implications for the further alignment 
of the acquis  in the area of equality of treatment , in particular with respect to burden of 
proof and equal pay. Efforts were undertaken to promote mainstreaming, train the legal 
52 profession, raise awareness and to offer free legal advice.  Hungary has also continued to 
participate in the Community programme on equal opportunities.  
Legislation on health and safety  was further aligned with the acquis  on exposure to 
biological agents, display screen equipment and personal protective equipment.  
Legislation also was further aligned with the acquis on chemical, physical and biological 
agents and indicati ve limit values (with the adoption of the chemical safety law in April 
2000), work equipment, signs, workplaces and mineral extracting sites.  The remarks 
under the labour law section on the National labour inspectorate also apply here.  The 
Mining Office has also participated in training organised by the labour inspectorate and is 
being technically upgraded.  
The reform of the public health  care system was pursued during 1999 -2000. The Health 
Development Research Institute was established and the law on the  privatisation of 
general practitioners' practice, adopted at the beginning of 2000, provides the basis for 
the privatisation of primary health care.   A package of strategic papers in key areas on 
the reform of the health sector was presented to governmen t.  Hungarian health indicators 
continued to be below those in the EU and efforts are required to improve this situation.  
The National public health and medical officers service, was, in common with the 
National labour inspectorate, upgraded technically i n 1999.  Training, particularly with 
regard to language skills also took place.  
Restructuring of Social dialogue  started in 1998 and continued in 1999, with the aim of 
distinguishing between labour issues and issues of national economic and social policy 
and to widen consultation on economic issues.  In addition, whereas collective 
agreements covered 1.2 million people in 1999, most of these agreements are concluded 
at enterprise level, pointing to a weakness at the intermediary sectoral level.  There are 
also indications that collective agreements are increasingly not being signed and unions 
not recognised at enterprise level. The government, in accordance with the accession 
partnership, launched a project aimed at preparing the social partners for particip ation in 
social dialogue at European level.  At the same time however, this also requires the active 
promotion of sound developments in social dialogue within the country.  Lack of 
effective consultations at national level could have negative effects on so cial dialogue, 
not only at European level, but also at the decentralised level (sectors, regions and 
enterprises).  No concrete steps have been undertaken to strengthen autonomous social 
dialogue at these levels. There are however some concerns about the r esults of the 
dialogue and the Government should make additional efforts to ensure that real dialogue 
is taking place and is followed up in the appropriate manner.  In particular, the Economic 
Council is merely used by government to transmit information to  a wide range of 
representatives of society, including the social partners, with no opportunity for dialogue.  
Since 1997 employment growth has been around 1 -2% a year and in 1999 the 
employment rate was 55.7%.  The employment rate for women (49%) is still 
considerably lower than that for men (62.2%).  The relatively low employment rate for 
young people under 25 and older workers remains. The government has set the objective 
of increasing the level of employment, decreasing the level of unemployment and 
establishing a more flexible labour market.  Active measures have been implemented in 
order to combat the large informal sector.  Passive labour market measures are being 
substituted by a more active and preventive approach in line with the European 
Employment  guidelines. In accordance with the Accession Partnership the Joint 
Employment Policy Review was launched last year and the Joint Assessment of 
53 Employment Policy Priorities has advanced. Further legislative progress was made with a 
view to preparations for  administering support received through the European Social 
Fund (ESF)  and training and organisational efforts have been increased.  With the 
intention of giving employment policy a strong macroeconomic dimension, general 
responsibility for employment matt ers has been given to the Ministry of Economic 
Affairs.  This Ministry has therefore become the lead Ministry for ESF activities.  
Hungary seeks to maintain a balance between social protection  and economic 
possibilities.  Reforms in hand include invalidity and disability benefits, family support, 
social assistance, care services and the review of pension reforms already implemented. 
Improvements in the field of care for the elderly and support for child care have been 
made through modifications to the law on  social administration and social assistance and 
the law relating to child support. A National programme for the disabled was adopted in 
December 1999 with an implementing action plan adopted at the beginning of 2000 
focusing on working conditions and acce ss to public buildings. In the framework of the 
programme rehabilitative working groups were created within the labour centres; a pilot -
program was launched and adequate dwellings were established. Another element of the 
programme is to ensure that compani es employing over 20 persons reserve 5% of posts 
for disabled people.  The programme also aims at improving the accessibility of public 
buildings to physically handicapped people. Implementation of the programme is co -
ordinated by the Council on Disability  Matters. Its further role is to advise on the legal 
framework, to co -ordinate activities related to the target group and to inform the 
government on a regular basis regarding the living conditions of the disabled.  
Overall assessment  
Progress was made in t erms of legal transposition in all areas. However, implementation 
of legislation is frequently scheduled to take place later on and in some cases not until the 
time of accession.  This will make it difficult to monitor implementation and 
enforcement. Healt h indicators are poor compared to the EU. Attention will need to be 
paid to the enforcement and implementation of, in particular, health and safety and labour 
law directives.  Indeed, while work on transposition has advanced well in 2000, 
considerable work  remains to be done with respect to the implementation of the acquis 
on health and safety.  Most directives are to be implemented gradually, but before 
accession.  For example, the directive on personal protective equipment was transposed 
in December 1999 but will be implemented gradually before accession.  The directives on 
carcinogens were transposed in September 2000 and are also to be implemented between 
this date and accession.  The real extent of this gradual implementation needs to be 
closely monitor ed for these and for most of the remaining directives in the health and 
safety field.  
Further work is required to align Hungarian legislation with the directive on equality of 
treatment.  
Social dialogue is not accorded the requisite importance and this sit uation needs to be 
addressed.  The new structures need to be used in a way that permits effective social 
dialogue.  There is a need to actively promote sound developments in social dialogue 
within the country.  The lack of effective consultations at nation al level is harmful to 
social dialogue, not only at European level, but also at the decentralised level (sectors, 
regions and enterprises).  Hungary needs to take steps to strengthen autonomous social 
dialogue at these levels.  
54 Hungary has made progress in transforming the labour market and is adapting its 
employment system so as to be able to implement the European Employment Strategy.  
Nevertheless, Hungary still faces major challenges, in particular the need to review the 
tax and benefit systems in order to increase incentives for people to participate in the 
labour market, the need to enhance the low employment rate, in particular for women and 
older workers and the need to reduce the size of the informal sector.  Preparations for 
future participation in ESF should continue.  
Hungary recognises the need for sustainable, universal social protection and subscribes to 
principles agreed by the Member States.  The stated overall aim is to improve the level 
and efficiency of social protection.  Health care reform s, long discussed, have yet to show 
progress.  
Legislation transposing the EC Directive based on Art. 13 of the Treaty relative to 
discrimination on the grounds of race or ethnic origin will have to be introduced and 
implemented.  
Chapter 14: Energy  
Followi ng the adoption of the Hungarian Energy Policy Principles and the Business 
Model of the Energy Sector in August 1999 further progress was made concerning 
preparations for the internal energy market . 
The Government had submitted, in early 2000, a draft law on electricity which had to 
provide, as from January 2001, for a limited test market opening, within Hungary, of 
about 15% of the total annual consumption. Parliament has not yet adopted the law and 
the opening of the market will therefore be delayed.  
As regards the security of supply, oil stocks had already well exceeded the level of at 
least 90 days average daily internal consumption, but some technical adaptations are 
necessary for full alignment with the acquis . 
No significant progress was made in the g as sector.  
Electricity prices were increased in January 2000 by 6% and gas prices in July 2000 by 12 
% . These increases contributed to progressively eliminating price distortions, which is 
crucial in the internal energy market.  
As regards solid fuels, the  closing down of mines continued in 2000 in line with the 
medium term strategy for coal -mining of 1999. While the role of solid fuels was 
declining, the lignite industry needs to be further rehabilitated in order to conform with 
environmental protection re quirements.  
In order to enhance energy efficiency which is still relatively low, the Government 
adopted a new € 6.2 million energy efficiency programme in September 1999. The 
programme is implemented by the Energy Centre which was merged with the Energy 
Information Agency in September 2000. In the Energy Centre 20 staff are responsible for 
energy efficiency, environmental issues, statistics and project management. This new  
Centre - co-owned by the Ministries of Economy and Environment as well as the 
Hungari an Energy Office - strengthens institutional capacity in this area. In parallel the 
energy efficiency labelling acquis  for household appliances was further aligned. Hungary 
also participated in the Save II Programme from 1999.  
55 As regards nuclear energy , further nuclear safety upgrading continued to be carried out 
at  Paks nuclear power plant, in particular with the installation of a new automated 
information system and a complete overhaul of the reactor protection system and the 
replacement of the batteries . The utility is closely watching the results of the in -core 
behaviour tests of Western made VVER fuel, performed at the Finnish VVER 440 plant 
IVO Loviisa. If the tests are successful this might offer, not earlier than 2002, a 
possibility for VVER fuel su pply diversification, which would fit into the EC's 
diversification policy.  
Low and interim level radioactive waste is deposited at the Radioactive Waste Treatment 
and Disposal Facility at Puspokszilagy which has currently only limited capacity. A 
strategi c and technical plan is being elaborated to undertake the necessary upgrading 
activities. In parallel, alternative sites are being examined for a low and interim level 
waste repository. The Ministry of Health co -ordinates radiation protection activities 
within the framework of the National Radiation Protection System. There is also a joint 
database on radiation protection. The Ministry is also in charge of issuing licenses for the 
operation of radioactive waste storage facilities and regularly checking thei r activities.  
Spent fuel  is stored at an Interim Storage Facility on site for which, as a first step, 
capacity was increased by a further four modules by the end of 1999. Hungary is also 
preparing for the final disposal of high -level, long -lasting radioact ive waste in a deep 
geological disposal facility, but further examinations will be necessary, in order to decide 
on the suitability.  
Overall assessment  
Hungary had already adopted the main principles of the internal energy market and set 
the framework for further alignment with the acquis  with the long term energy strategy of 
July 1999. It is however necessary to fully implement these principles as well as to take 
account of acquis  developments. Remaining issues concern the further liberalisation as a 
prepa ration to the internal energy market (electricity and notably the gas directives). 
Energy efficiency, still relatively low, and promotion of renewable energy sources need 
continued attention. The law on the Security Stockpiling of Imported Crude Oil and 
Petroleum Products will have to be further aligned with the acquis , although the 90 days 
of stocks are already available.  
On the institutional side the Ministry of Economic Affairs is responsible for energy 
policy. The Ministry sets prices for electricity an d natural gas with annual tariff schemes 
adjusted in January and July respectively. The main regulatory agency is the Hungarian 
Energy Office, (staff 83). It is responsible for, among other things, licensing, price 
matters and consumer protection. The inde pendence of the 'Hungarian Energy Office 
needs to be strengthened in view of its future tasks as a regulator as required in the 
internal energy market.  
As regards nuclear energy, Hungary has four VVER 440/213 nuclear reactors in 
operation at Paks, which ar e considered to be up -gradable to international safety levels. 
Nuclear power currently provides about 38% of the country’s electricity production. The 
EU has repeatedly emphasised, most recently at the European Council in Helsinki, the 
importance of a high  level of nuclear safety in candidate countries in the context of the 
Union’s enlargement. In this context, Hungary has been pursuing, since 1996, an 
extensive upgrading programme and periodic safety reviews are conducted similar to 
56 Western practices to de termine the upgrading measures to implement. The systematic 
safety re -assessment is performed in ten -year intervals and includes the assessment of the 
actual physical condition of the plant, equipment qualification, safety analysis, ageing and 
residual lif etime assessment, safety performance and reliability indicators, use of 
experiences from other nuclear power plant and research findings, human factors, plant 
procedures, organisation and administration. Additional work is still needed to ensure 
containmen t integrity following a severe accident. The safety of Paks Nuclear Power 
Plant was also reviewed several times by international organisations.  
Hungary is a party to all major international legal instruments and member of the 
International Atomic Energy Ag ency (since 1957) and the OECD Nuclear Energy Agency 
(1996  
Longer term solutions for spent fuel and nuclear waste need to be developed.  
The National Atomic Energy Committee is the government's main body in ensuring the 
peaceful use of nuclear energy. Alth ough it operates under the supervision of the 
government, the Committee is an independent authority with a separate budget. The 
Committee has a unified and efficient system for averting nuclear accidents. It supervises 
the work of the Hungarian Atomic Ener gy Authority which became already in 1997 an 
independent regulator. The Authority (staff 82) is responsible for licensing tasks and all 
nuclear safety matters, civil  structures in nuclear facilities, technical radiation protection 
and emergency response pl ans of nuclear facilities. It thus has a profile comparable to 
that of western European regulatory bodies. However, its assessment capabilities with 
regard to regulatory issues need to be increased as well as its competence in the fields of 
radiation safet y and fire protection. Its operations are financed from the central budget 
and from fees to be paid by the licensees for the regulatory and  administrative activities. 
There is however a need to ensure sufficiently attractive salaries in order to retain sk illed 
staff in the Atomic Energy Authority. Since the entering into force of the Law on 
Emergencies in 2000, the Authority has gained a more prominent role in emergencies.  
Within the Hungarian Atomic Energy Authority, the Nuclear Safety Directorate acts as  
the authority of first instance in all nuclear safety regulatory issues of nuclear facilities. It 
issues facility, system and equipment safety licenses and carries out independently an 
extensive inspection programme.  
The Central Nuclear Financial Fund set  up in January 1998 and financed by parties using 
nuclear energy meets, among others, the costs of decommissioning and of waste disposal. 
Final disposal of the radioactive waste and temporary storage of the spent fuel, together 
with the activities related to the tasks of decommissioning the nuclear facilities are 
carried out by the Public Company for Radioactive Waste Management.  
Hungary continued to prepare the implementation of Euratom safeguards. In this respect 
the entering into force in April 2000 of t he Additional Protocol to its IAEA Safeguards 
Agreement is to be noted.  
57 Chapter 15: Industrial policy15 
Over the reference period Hungary further developed its industrial and enterprise policy.  
The industrial strategy  of Hungary continued to be based on the  improvement of the 
competitive economic environment and the maintenance of balanced growth. In line with 
the Széchenyi Plan for National Development more emphasis was put on investment 
(motorway construction programme), innovation, the development of smal l and medium -
sized enterprises, tourism development, environment protection, regional economic 
development and IT development, as well as further development of the sub -contracting 
programme that aims to remove the current dual structure of the Hungarian e conomy and 
strengthen the supply linkages between domestic SMEs and multinational companies. 
Privatisation  was practically completed (see chapter 2  economic criteria ). 
The process of industrial restructuring  continued. Several industrial sectors 
(manufactu ring of wood, paper and printing, manufacturing of furniture) increased 
employment by 8% in 1999. Employment increased by 3 -8% in engineering, chemical 
industry, while it decreased by 3 -8% in the textile industry, mining and quarrying, and 
electricity prod uction. Overall employment rose by 0.8% in industry and by 1.7% in 
manufacturing.  
The inflow of foreign direct investment  (FDI) continued to be strong and was a major 
influence contributing to further transfer of technology and management know -how, the 
modernisation of production facilities and the intensification of other forms of cross -
border co -operation (see chapter 2 on economic criteria ). Also the intensity of intra -
industry trade with the EC continued to increase.  
No further substantial progress was made during the year in restructuring the steel 
industry and Hungary did consequently not address the relevant short -term Accession 
Partnership priority. A restructuring plan was submitted to the Commission in February 
2000 in justification of a request fo r an extension of the ‘grace period’ for another 5 years 
starting in 1997. However, the Commission could not accept this plan. (see also Chapter 
6 – Competition ). 
Overall assessment  
Significant convergence could be noted between Hungarian industrial policy  and the 
principles and objectives of EC industrial policy. In the light of the elaboration of the 
Széchenyi plan, in parallel to the Preliminary National Development Plan, a strong and 
well-functioning co -ordination between the Ministries in charge of eac h plan will be 
essential to foster a coherent approach, an efficient use of resources and avoid overlaps 
between the strategies. In line with its obligations under the Europe Agreement Hungary 
will need to proceed with the restructuring of the steel indust ry. 
The central body responsible for the formulation and co -ordination of the country's 
industrial policy is the Ministry of Economic Affairs (MEA). To implement the goals of 
industrial policy, the government has a special financial institution, the Hungar ian 
                                                 
15  Developments in industrial policy should be seen in relation to developments in the context of SME policy ( see Chapter 16 – 
Small and medium sized enterprises ). 
58 Development Bank. It is supported by the Hungarian investment and trade promotion 
agency.  
Chapter 16:  Small and medium -sized enterprises16 
Policy was further developed in the reporting period with the preparation of the 
Széchenyi Plan, a National Devel opment Plan by the Ministry of Economic Affairs.  The 
Plan targets SME development as one of its strategic development objectives.  
The specific SME programme outlined in the plan aims at developing the business 
culture and skills and improved access to fin ance. The Plan further proposes certain 
measures to improve and simplify administrative procedures. Of particular relevance to 
SME development are also the separate programmes in the area of sub -contracting and 
tourism development in the plan.  
In November 1999 further progress was made concerning the definition of micro, small 
and medium sized enterprises  with the adoption of the Law on small and medium -sized 
enterprises.  The definition largely conforms with the EC definition regarding the number 
of employ ees and the independence criteria but financial thresholds are calculated 
differently.  The SME Law further establishes the framework defining the eligible areas 
of state support to SME programmes through a specific budget line. It further established 
the responsibility for the co -ordination of SME policy and programmes (Ministry of 
Economic Affairs) and the specific co -ordination tasks and procedures.  
The Law also created the Enterprise Development Council, a body with representatives 
from the ministries c oncerned, chambers as well as national organisations in charge of 
promoting the interests of small enterprises. The Council participates in the elaboration 
of policy and programmes for SME development, evaluates the efficiency of 
implemented programmes, an d gives its opinion on draft legislation affecting small 
enterprises.  
The Széchenyi Plan recognises that major deficiencies persist in the business 
environment  (legal and administrative) and proposes certain measures aimed at reducing 
in particular adminis trative burdens. One of the main problems in the business 
environment of SMEs is the tax structure of the corporate sector, which favours large 
multinationals. While the average tax burden of the multinationals is about 8% (including 
tax holidays) the aver age SME tax burden is around 17%. On the other hand the 
reduction of the social security contribution from 42% to 39% had an especially positive 
effect on SMEs.  
Overall assessment  
The SME policy of Hungary is overall in line with the principles and objecti ves of the EC 
Enterprise policy. Market access of SMEs could still be improved and in this context the 
efficiency of support through the various SME support schemes remains to be assessed. 
A well -functioning co -ordination between measures under the Széchen yi Plan, previously 
existing schemes and local economic development schemes launched in the framework of 
                                                 
16  Developments in policy towards small and medium sized enterprises should be seen in relation to developme nts in the context of 
industrial policy ( see Chapter 15 – Industrial policy ). 
59 preparing for structural funds (in line with the parallel Preliminary National Development 
Plan) will be essential to the efficient use of resources in  the SME development field.  
Legal and administrative burdens to entrepreneurial activity and access to finance require 
continued attention and efforts in the context of improving the competitiveness and 
growth of Hungarian SMEs. The aims outlined in this a rea in the Széchenyi Plan are 
therefore positive, provided that they are followed up with concrete implementing 
measures. Positive note is also taken of the creation of the Enterprise Development 
Council and the further involvement of the business communit y in the policy dialogue it 
lays the ground for.  
Economic growth is still hindered by the shortage of capital and micro credits available to 
SMEs and the high capital intensity of research and development, especially within 
manufacturing, is an effective b arrier to the market access of SMEs.  The SME Target 
Fund tries to address this issue together with other funds in support of SMEs such as the 
Economic Development Target Fund, the Tourist Target Fund and the Active 
Employment Target Fund.  
Chapter 17: Scie nce and research  
Hungary has made further progress in this area since the last Regular Report.  
As from January 2000 the responsibility for the coordination of the 5th Framework 
Programme in the field of research and  technological development (RTD), includ ing the 
operation of the system of National Contact Points, was transferred to the Ministry of 
Education, following the integration of the former National Committee for Technological 
Development into this ministry.  
Financial support to the sector reached 0 .68% of GDP in 1999 and will be increased 
gradually to 1.5% of GDP in the medium -term.  
Overall assessment  
Since August 1999 Hungary has been associated with the 5th Framework Programme in 
the field of research, technological Development and Demonstration ( 1999 -2002) and 
with the EURATOM Framework Programme. So far, Hungary’s involvement in these 
programmes has been relatively successful.  
Hungary is also a member of EUREKA and COST.  The programmes provided further 
opportunities for Hungarian scientists to p lay an active role in European research and 
technological development. The institutional structure of science and research is well 
established and operates with qualified staff.  
Chapter 18: Education and training  
During the reference period Hungary continu ed to progress in this area.  
Hungary continued to participate in the Community Programmes  (see part A – 
Introduction ). In addition, an Association Council decision was adopted to allow 
participation in the second phase of the Socrates and Leonardo da Vinci  programmes 
60 (2000 -2006). Preparations have also been made for participation, as of 2000, in the new 
Youth programme, which includes European Voluntary Service activities.  
During 1999, there has been progress in the field of upgrading education . The 
managem ent of education was unified and the conditions for the co -operation between 
the educational sector and the labour market improved. Furthermore, the budget for 
education was increased by nearly 30 % in 1999.  Progress was also made with the 
adoption of a n ew law on adult education, providing the framework for life -long learning 
based on EU experience. Under the law, continuous training and education and the use of 
modern teaching methods will be enhanced.  
Vocational training  was gradually aligned with EU pr actices and objectives. During 
1999, it was put under the supervision of the Ministry of Education.  A network of Public 
Education Evaluation and Examination Centres was established which took part in 
implementing a single quality assurance system, contrib uting to quality vocational 
education, training and equal opportunities.  
The National Institute for Vocational Education has stared a rolling programme to update 
and modernise the National Vocational Qualification Register in line with the changing 
needs o f the economy. In addition in January 2000, 460 National Vocational 
Qualifications transferred from the Ministry of Economic Affairs to the Ministry of 
Education with the effect that the Ministry of Education is now responsible for 50% of all 
National Voca tional Qualifications.  
 Overall assessment  
In general, Hungary is in line with the respective acquis , notably the directive on 
education of children of migrant workers.   A wide net of education facilities exists to 
facilitate education.  Training of teache rs in schools with a high number of immigrant 
pupils continues to be provided.  In principle, there is no discrimination against EU 
citizens in the field of education.  
Participation in relevant Community programmes is successful and the implementing 
instit utions function smoothly.  
Chapter 19: Telecommunications and information technologies  
Hungary continued to progress in this area.  
In this sector, as a further step in tariff re -balancing, call rates were reduced in February 
2000 between 12% and 38% whereas  rental charges were increased by 50%.  
Adequate standards were adopted in the framework of Common Technical Regulations.  
In the area of conformity assessment further alignment with the acquis was achieved in 
August 2000 with the adoption of legislation on  type approval of terminal equipment and 
mutual recognition of the conformity. Radio equipment and telecommunications terminal 
equipment have now to respect the technical specification of the acquis  and the 
provisions on the mutual recognition of their con formity.  
In the field of mobile telephony, further competition was introduced by licensing a third 
network in September 1999.  
61 As to institutional aspects of policy making and regulation , the responsibility for the 
communication sector was transferred in Ju ne 2000 from the former Ministry of 
Transport, Communications and Water Management to a Government Commissioner 
within the Prime Minister’s Office.  The Commissioner is in charge of 
telecommunications regulation, governmental informatics, the information s ociety and 
postal services and the Hungarian Communications Authority (HIF) reports to him.  
No significant progress can be reported as regards the liberalisation of postal market.  
Hungarian Post is 100% state owned. Tariffs are set by the Government. In au tumn 1999 
postal services were further modernised with the establishment of telepost offices at local 
level offering the possibility to use IT services in addition to the usual postal services.  
The Government Commissioner in the Prime Minister’s Office is also responsible for the 
regulation of post. He is assisted in his duties by the Postal Services Directorate (staff: 10 
people). Its duties include monitoring/supervision of the postal sector, preparation for the 
liberalisation of the market and postal reg ulation activities.  
 Overall assessment  
In the  Telecommunications market there is already a high level of alignment and the 
markets are in principle open to competition  except for exclusive rights for fixed network 
long distance and international voice tel ephony and for certain local calls.  The fixed 
network operation MATAV is fully privatised (except for a golden share of the state). 
Outstanding issues relate in particular to the alignment with the terms and conditions of 
universal service.  
The responsibi lities of the Postal Service Directorate have to be further brought into line 
with the acquis , notably by introducing the system of “universal service provider” 
together with the definition of postal services including postal packages. The postal 
service h as still to improve its processing capacity and delivery system and supervision 
and control of accounting needs to be further strengthened.  
Chapter 20: Culture and audio -visual policy  
Since the last Regular Report, limited progress in alignment with the audio-visual  acquis  
was achieved. In November 1999 a Government Decree was adopted for granting certain 
telecommunications licences. This allows for the implementation of the Convention of 
the Council of Europe on Transfrontier Television with regard to cert ain satellite 
broadcasting services.  
In October, Hungary ratified the Protocol to the Council of Europe Convention on 
Transfrontier Television, to which it is already a party.  
 Overall Assessment  
On the whole, Hungary has made limited progress in alignmen t with the Community 
acquis.  Therefore additional efforts are still needed to align in this area. The adoption by 
Parliament of the Media Law, which has been pending for over one year now, should be 
an important step in this direction, although further ste ps will probably be necessary. 
Hungary has thus not met the 1999 Accession Partnership short -term priority, requiring 
the completion of alignment to the audio -visual acquis.  
62 The National Radio and Television Board is the regulatory and monitoring body and is 
entrusted with the necessary powers for the implementation of the broadcasting 
legislation. The Board is independent from the executive, and its members are elected by 
Parliament for four years on the joint proposal of the Prime Minister and the Preside nt of 
the Republic. The operations of the Board are funded by the Central Budget. It is 
adequately staffed and equipped.  
Hungary has demonstrated effective administrative capacity for implementing the acquis  
in the area of culture , in particular through it s participation in the Community 
programmes.  
Chapter 21: Regional policy and co -ordination of structural instruments  
Since the 1999 regular report, some progress has been made in this area.  
While no development can be reported concerning the territorial or ganisation, Hungary 
has adapted its legal framework  for the implementation of future Structural Funds.  In 
October 1999, the Law on Regional Development and Physical Planning was amended to 
confirm the establishment of the seven Regional Development Counci ls at NUTS 2 level 
and to define their role in programming and implementing regional development 
programmes. The Regional Development Agencies, the implementing bodies of the 
Councils, were further strengthened by additional staff and training.  
Hungary has  started various initiatives on programming . At the national level the so -
called Széchenyi Plan for economic development was prepared by the Minister of 
Economy.  The Preliminary National Development Plan (PNDP) was approved by the 
Government in April 2000 .  The Plan was a first attempt towards the development of a 
comprehensive and detailed National Development Plan in line with Structural Funds 
principles.  In a further step, linkages between assessments and proposals will need to be 
strengthened.  This e xercise will also need to be better co -ordinated with the Széchenyi 
Plan.  The PNDP identified three target regions (similar to NUTS II level) which received 
a contribution from the Phare programme as well as national and local funding to develop 
the capac ity to implement integrated regional development programmes and to prepare 
Hungary’s participation in the Structural Funds.  The three target regions are Northern 
Hungary; the Northern Great Plain; and Southern Great Plain.  In addition, other 
programming documents were prepared by the Government for the ISPA infrastructure 
developments in transport and environment and the SAPARD Plan on rural development 
(see section A.b on Relations between the European Union and Hungary) . 
The Minister of Economic Affairs  was entrusted with the task of overall co-ordination  
of regional policy.  A new Regional Development department within the Ministry was set 
up at the beginning of 2000, to take charge of ensuring the link between internal 
economic cohesion and regional de velopment policy. The sectoral responsibilities for the 
Structural/Cohesion Fund(s) are distributed between the various Ministries concerned. 
The Ministry of Agriculture and Regional Development plays in this context an important 
role as it prepares for th e implementation of the ERDF.  
Inter -ministerial co -ordination  was reinforced with the establishment of an Inter -
ministerial Committee for Development Policy Coordination. The committee supervises 
and co -ordinates the work in the context of elaboration of t he Preliminary National 
Development Plan.  
63 At local government level, the modernisation of public administration continued with 
training for civil servants in EU matters. Government also allocated aro und € 2 million 
for integrating small municipalities into so -called micro -regions.  This should increase 
efficiency, and contribute to a clear identification of needs and measures in the context of 
the regional development planning process.  The local and regional level, as well as the 
economic and social partners, is involved in planning and implementation of programmes 
through the National Regional Development Council and the seven Regional 
Development Councils.  
Concerning funding aspects  of regional deve lopment, the S tate Budget Law of 2000 
introduced two new financial instruments for regional (€ 44 million) and rural 
development (€ 14 million).  Financial support for the most disadvantaged areas (Borsod, 
Nópàd, Szabolcs, Békés Somogy) comes from the Hungarian Central Budget.  In 2000, 
20 % of the sectoral targeted budget was allocated for this purpose.  Government also 
decided that those regions which had not been selected as target regions within the 
Preliminary National Development Plan would receive adequate support  from the Central 
Budget as of 2001.  This will be spent in line with the PNDP approach (see also chapters 
28: Financial Control and 29: Financial and Budgetary Provisions).  
Overall Assessment  
Overall, Hungary has made significant progress in developing th e necessary structures for 
the implementation of structural funds after accession. However, some issues remain to 
be tackled. The implementing capacity of the Ministry of Agriculture and Regional 
Development needs to be further developed, and procedures fo r inter -ministerial 
coordination must be further reinforced. Also, the role of the regions, which correspond 
to the NUTS level II, needs to be clarified. On the whole, the amended Law on Regional 
Development and Physical Planning of Hungary has both positi ve and negative elements 
in the context of the future implementation of Structural Funds. The changes have 
increased the importance of the regions, which correspond to the NUTS level II, and 
further clarified the role of the different institutions. However , the decision making 
framework on the regional level raises important concerns in respect of its ability for 
efficient decision making and respect for programming principles.  
The Preliminary National Development Plan has to be further developed and brough t in 
line with the requirements of structural policy and initiatives taken by Hungary on 
national/sectoral level. In this context, a strategic medium and long term view is required 
on the future role of sectoral policies and regional operational programmes . 
Working capacity both at national and regional level enabling the implementation of 
Structural Funds and the Cohesion Fund needs further significant strengthening in the 
framework of the strategic view mentioned above.  
Also the financial control structu res at regional level would have to be strengthened.  
As to regional statistics, data for the determination of eligibility are available for 
Objective 1 and INTERREG criteria. More importantly, the provision of data necessary 
to meet the ex -ante evaluation requirements has yet to be assured. For instance, at NUTS 
2 level, very limited data exists concerning social indicators and structural business 
statistics.  
64 Chapter 22: Environment  
Compared with the ambitious National Environment Protection Programme for 1 998-
2002 and the 1999 NPAA, little progress in terms of legal alignment was made over the 
last year.  
In the framework of the revised NPAA, Hungary has however reassessed the remaining 
tasks and has for all sectors and for almost all directives established  a harmonisation 
process accompanied in most of the cases with plans for financing investments indicating 
the various funding sources on a yearly basis as foreseen by the relevant short -term 
Accession Partnership priority, taking into consideration the cos ts of administrative 
capacity building.  
Due to its geographical location, Hungary is heavily dependent on efficient regional co -
operation on environmental matters. Despite a number of initiatives, concrete steps of co -
operation with neighbouring countries could not be formalised yet. Following a series of 
industrial accidents in Romania, the Environmental Ministers of Hungary, Ukraine, 
Romania and Slovakia signed in April 2000 a joint declaration on the need to co -operate 
in averting ecological disasters in  the region based on the “polluter pays” principle as 
well as the identification of environmental “hot spots” (regional inventory). At the same 
period the Environment Ministers of the four Visegrad countries signed a declaration on 
continuous exchange of i nformation about the economic effect of the approximation of 
EC law in the area of environment as well as the most cost effective implementation of 
the related regulations.  
In the area of horizontal legislation,  the Espoo Convention entered into force in O ctober 
1999.  Trans -boundary environmental impact assessment procedures have now to be 
applied in respect of the activities falling under the scope of the Convention. Legislation 
has been further aligned with the Environmental Impact Directive concerning t he scope 
of activities, but further efforts will be necessary to fully transpose and properly enforce 
the Directive as stipulated by the relevant short -term Accession Partnership priority.   
Little progress was made in the field of air quality  with the ado ption of the legislation 
aligning with community measures on quality of petrol and diesel fuels, whilst the 
marketing of leaded petrol has been prohibited since April 1999.  
An air quality database was established at the Institute for Environmental Manageme nt to 
ensure the uniform data supply in the context of the different reporting requirements, but 
is still lacking skilled staff (training is ongoing) and adequate equipment.  
The adoption of an Act on waste management  in June 2000 was an important step in 
aligning with the relevant acquis . This is a framework law, which will allow the adoption 
of secondary legislation on specific types of waste that are currently all missing. The law, 
which represents one of the short -term Accession Partnership priorities f or environment, 
will enter into force only in January 2001. A computerised register of authorisations 
concerning waste management was set up under the municipal solid waste programme 
and four modern regional landfills serving 51 municipalities were establi shed. Out of the 
2,700 waste storage facilities, only some 30% comply with domestic standards and the 
number of illegal facilities is high constituting potential source of environmental damage.  
In relation to the water sector, in spring 2000 the provisions  of the Directive on the 
protection of groundwater  against pollution caused by dangerous substances have been 
65 further aligned. Some progress was also achieved concerning the harmonisation of the 
urban wastewater treatment Directive, whereas important imple mentation steps have 
been taken in relation to the same Directive with the construction and upgrading of 
wastewater collection and treatment plants at several major municipalities. In March 
2000 three new automatic water quality -monitoring stations were in stalled along rivers, 
in the framework of the implementation of the Directive on the quality of surface water 
used for the abstraction of drinking water.  
As to nature protection  further progress was achieved in September 1999 concerning 
the transposition o f the Habitats and Birds Directive and a list of Specially Protected 
Areas as required under the wild birds Directive is currently being compiled. Legislation 
concerning the use of animals in laboratories for experimental purposes was aligned with 
the acqu is and the use of leghold traps was definitively banned as from April 2000, 
although implementing measures should be taken in order to fully comply with the 
relevant Community Regulation.  
In the field of chemicals, risk management and biotechnology, a Law on chemical 
safety was  adopted in April 2000, providing the  framework for harmonisation with the 
main Community legislation on chemicals. The implementing legislation, which will 
ensure compliance with the corresponding environmental acquis  needs still t o be drafted.  
The Law on the Control and Organisation of Catastrophe Prevention and on the 
Prevention on Major Accidents Involving Dangerous Substances was adopted in June 
1999 and partially transposes the Seveso Directive, but implementing legislation fo r its 
full transposition should be further established. In January 2000, the National General 
Directorate for the Prevention of Disasters started operation under the Ministry of the 
Interior and is responsible for authorisation of establishments in which d angerous 
substances are produced, used, handled or stored. The new body integrates also the 
National Command for Civic Defense and the National Command of the Fire Brigade. 
Implementing measures have been taken in relation to Genetically Modified Organisms  
with the adoption of a Law and the establishment of  a Committee for Advising on Gene 
Technology Procedures.  
In the sector of noise some implementation measures started, namely the designation of 
certifying bodies for the quality assurance as regards nois e emissions, as well as the 
establishment of an additional noise laboratory at the Institute for Environmental 
Management.  
As to nuclear safety and radiation protection , some progress was made with measures 
taken in relation to the Directive on informing the public in case of a radiological 
emergency and the adoption of a decree that harmonises the Directive on Basic Safety 
Standards (see also chapter14: Energy).  
On the institutional side, the Ministry of Environmental Protection assumes the overall 
respon sibility in the field of environment. It is primarily in charge of policy -making and 
legislation. Its functions are carried out in collaboration with six other line ministries 
which have partial responsibilities in the following areas: flood protection and  water 
quality, household waste management of municipalities, air and water quality, radiation 
protection, soil, forestry and bio -diversity issues. Main responsibilities in the field of 
nuclear safety belong to the National Atomic Energy Agency under the M inistry of 
Economic Affairs. In addition, the Prime Minister’s Office assumes a certain role in co -
ordinating overall government interests. The work of the Environmental Minister is 
66 supported inter alia by an independent advisory body called the National E nvironmental 
Council.  
Implementation and enforcement of environmental legislation is primarily carried out by 
the 12 Regional Environmental Protection Inspectorates and the Nature Conservation 
Authority and its 9 National Park Directorates under the superv ision of the Ministry. 
Currently, some 1,337 persons are employed at the inspectorates which number will be 
complemented by an additional 59 in 2000. The number of staff employed at the 
Authority and Directorates was be complemented by additional 39 in  20 00. 
The environmental inspectorates are responsible for: (i) imposing fines, granting licences, 
(ii) on -the-spot checks and monitoring of  implementation/enforcement; (iii) maintaining 
laboratories and (iv) reporting. The result of their monitoring activit y are fed into regional 
registers which provide the basis for the National Environmental Protection Information 
System. The Inspectorates also compile summary reports on the potential sources of 
pollution, the major polluters and the number/quality of lice nses issued. So far, only the 
computerised data register on waste water is compatible with EC standards. Otherwise, 
there exists in other areas no unified data register and an adequate system of data supply 
is not operational yet, which makes the exchange of information on the international level 
difficult.  
 Overall assessment  
So far, only limited progress was achieved in this area.  
Hungary did not address the short -term Accession Partnership priorities related to the 
alignment with the Integrated Pollution  Prevention Control Directive, the safety standards 
for radiation protection and the enforcement of the Environmental Impact Assessment 
Directive. However, a wide range of environmental laws are scheduled for the end of 
2000.  
Further efforts in aligning wi th the acquis  are needed in particular in the following areas: 
horizontal legislation in order to ensure access to environmental information, 
implementing legislation for waste management, water quality standards for drinking and 
bathing water as well as f or the aquatic environment and for the treatment of waste water, 
industrial pollution and prevention control, noise limitations for construction equipment 
and household appliances. As regards noise, only the sources of noise are 
registered/measured and met hods/technology on measuring noise impact still need to be 
introduced.  
The administrative capacity also needs to be further strengthened. The position of the 
Ministry of Environmental Protection continued to remain weak due to the wide 
distribution of resp onsibilities related to environmental issues. The legal department of 
the Ministry is particularly weak. Given the fact that Hungary should accelerate the pace 
of transposition the legal unit of the Ministry should be adequately strengthened by 
additional qualified staff. At central level, coordination between ministries dealing with 
environmental issues needs to be improved. The structure and responsibilities of 
Regional Inspectorates should be reviewed and its staff trained in order to be able to 
enforce the obligations imposed by the acquis.  
Hungary should also further develop its monitoring and data register system, notably in 
the fields of air, soil and noise.  
67 Hungary has been an active member of AC -IMPEL (Associated Countries for 
Implementation of Envi ronmental Legislation) since it was established in 1998. AC -
IMPEL is an informal network dealing with issues of implementation and enforcement of 
Community  environmental legislation in the candidate countries. This network closely 
cooperates with EU -IMPEL . The next plenary meeting of AC -IMPEL will be held in 
Hungary and will, inter alia, assess the countries’ implementation and enforcement 
capacities in relation to the environmental acquis , making recommendations in relation to 
an eventual restructuring of  the administration in this field.  
Chapter 23: Consumers and health protection  
During the reference period no further progress was made in terms of legal alignment.  
The Government’s programme for 2000 includes a separate chapter on consumer 
protection poli cy to be implemented from 2000 -2002. The programme also provides for 
resources set aside in the budget for these matters, and foresees the establishment of an 
efficient institutional structure, the modernisation of market surveillance, and a higher 
degree of safety of goods and services for the protection of consumers.  
The various structures created for implementing consumer protection policy are 
functioning smoothly, and newly created bodies have started their operations, but their 
staff need to be trained  adequately. Overall, the institution in charge of consumer 
protection is the Ministry of Economic Affairs assisted by other Ministries for the areas 
of their competence (justice, health, agriculture and rural development, environment, 
transport). The Offi ce of Economic Co -operation is in charge of procedures against unfair 
manipulation of consumer choice. The General Inspectorate for Consumer Protection is 
responsible for enforcement of the consumer and health protection; its activity is financed 
from the central budget. The Inspectorate also started to set up a transitional RAPEX 
(Rapid Exchange Mechanism) system for co -operation with Central and Eastern 
European countries.  
In the area of market surveillance , a Central Information System was set up in 1999  
providing information on inadequate and dangerous products.  
In autumn 1999, Arbitration Boards were established in all counties, with the aim of 
reaching a quick and efficient out -of-court settlement of any individual disputes arising 
between consumers an d supplies or service providers concerning the quality and safety of 
goods and services, the application of product liability rules, and the conclusion or 
fulfilment of consumer contracts. In 1999 the Boards handled 336 cases related to 
package travel and holiday tours and to repair and maintenance services, of which 235 
cases were concluded and 101 remained under consideration.  The government supported 
the establishment of the Boards with HUF 20 million.  
Overall Assessment  
With the entry into force of the  law on consumer protection in March 1998, Hungary has 
a general consumer protection system which includes provisions on several important 
pieces of the acquis,  such as product safety  and consumer credit.  
Further efforts for alignment are needed in the fol lowing areas: misleading advertising, 
product liability, consumer credit (with particular emphasis on repossession of goods), 
68 indication of prices of foodstuff, and non -authorised medical products, which are not yet 
fully in line with the product liability  directive. Minor differences within distance selling 
also still need to be addressed. Further alignment is also needed in the areas of 
injunctions for the protection of consumer’s interests, liability for defective products, 
distance contracts, package tr avel, holidays and tours, certain aspects of the sale of 
consumer goods and associated guarantees, and general product safety.  
Consumer and Producer awareness still needs to be enhanced as to respective rights and 
responsibilities. Consumer Health Institu tions need to be upgraded in terms of training 
and equipment, and legal professions need to familiarise further with product liability 
related cases. The role of consumer organisations should be further promoted by the 
Government.  
Chapter 24: Co -operation in the field of justice and home affairs  
Since the 1999 Regular Report, progress was registered in Hungary in the fields of visas, 
border management, migration and asylum. However, little progress is to be reported in 
the field of judicial co -operation.  
In view of guaranteeing effective personal data protection  Hungary adopted in 1999 
detailed rules for the implementation of the general law on personal data protection. 
These rules concern the criminal procedure and the co -operation and information 
exchange with the Law Enforcement Network of the European Union and INTERPOL.  
In the area of visas, the Hungarian legislation was further aligned with the acquis  by 
introducing a free travel regime for citizens of New Zealand and Venezuela. A new 
agreement with Br azil was signed. In August 1999, the obligation to have airport transit 
visas was introduced for citizens of a number of countries.  
In June 2000, an Interim Compulsory Visa Agreement between Hungary and Russia 
entered into force for all kinds of income -generating activities, for the purpose of 
pursuing studies and for a stay exceeding 30 days. For all other activities, Russian 
citizens can enter Hungary without visa, provided that they have an invitation letter or 
sufficient financial coverage. Hungary also  concluded Compulsory Visa Agreements with 
Azerbaijan, Tadjikistan, Armenia and Turkmenistan.  
A new visa issuing system was created by the Ministry of Foreign Affairs with an on -line 
information system supporting consular work. Simultaneously, training of professional 
staff using the new system has started, and equipment for the recognition of counterfeit or 
falsified documents was purchased.  
In the area of border management,  a border register system was introduced in 
September 1999 at all of Hungary’s 56 b order crossing points in order to improve the 
fight against organised crime and illegal immigration.  Each person entering or leaving 
the country is registered regardless of his/her nationality. In January 2000, a new type of 
identification cards was intro duced in order to impede forging.  
On the institutional side the computerisation and the up -grading of the border guard 
infrastructure continued.  In 1999, the installation of document readers started facilitating 
the operation of the border register system . At ‘green borders’ the equipment was further 
upgraded in line with Schengen standards.  Heat -seeking cameras were put into operation 
along the entire stretch of the 174 km long border with Yugoslavia; 70 units of night 
69 vision equipment, passport scanners  and portable computers were installed and the car 
park was modernised with the purchase of some 474 four -wheel vehicles. As a result of 
strengthened border control some 814 suspects were arrested in 1999 representing an 
impressive increase of 500% compare d to 1998.  
The Border Guards subordinated to the Ministry of Interior are responsible for border 
control.  Their investigation powers are quite large and include the fight against organised 
crime, but they have no power to intervene in criminal matters and  co-operation with the 
police does not always function satisfactorily. They are also responsible for handling 
alien’s affairs at first instance. Under the Constitution, the Border Guards are defined as a 
military force during war. The Border Guard employs 10,364 officials. A parliamentary 
decision to increase staff to 13,205 was not implemented due to re -allocation of financial 
resources in favour of environmental damages. During 2000, some 2000 police and 
border guard officials were trained including langu age training, but the training 
programme appeared to be too academic and provided rather limited practical knowledge.  
As far as migration  is concerned, in the first half of 2000, approximately 76,000 
foreigners were living legally in Hungary, out of which 60,000 had a permanent residence 
permit issued by special police. In 1999, 6,734 clandestine immigrants were detected 
(15% decrease compared to 1998). In 1999, 18,898 foreigners were deported from 
Hungary (16% decrease compared to 1998). Arrested illegal m igrants have to stay at 
Community shelter houses, where living conditions are often quite difficult. ( see also 
section B -1.2- Human rights and the protection of minorities ).  Since January 2000, 
migrants may stay and obtain a labour permission under certai n conditions.  
In September 1999, amendments were introduced to the Alien’s Law. These amendments 
refer to the compulsory detention for alien policing purposes of those foreigners, who are 
connected to organised crime, the restriction of the possibility to leave the Community 
shelters, the termination of the compulsory residence at Community shelters after 18 
months and the measures following termination, the fine of air transport companies for 
carrying illegal immigrants and the obligation for foreigners to  report any changes 
regarding the purpose of residence. However, further harmonisation is needed to ensure 
that foreigners leave the territory and apply from abroad for a new visa if they want to 
change their purpose of residence.  
Hungary promulgated in 19 99 and 2000 readmission agreements with Germany, Italy, 
Slovenia and Moldova. The readmission agreement with Bulgaria came into force in June 
2000.  
Hungary continued to be a target country for asylum  seekers. In 1999, a total of 11,412 
persons applied for asylum that represented a 55% increase over 1998. As in previous years, 
most of them arrived from FRY. In the given period 313 persons were granted refugee 
status by the Office of Refugee and Migration Affairs and 1,776 persons received the status 
of “auth orised to stay” under the Asylum Law. Approximately half of the asylum -seekers 
disappeared during the procedure.  
In January 2000, t he new Office for Immigration and Citizen’s Affairs (total staff 180 -200 
persons) came in charge of first instance refugee af fairs, management of refugee 
facilities, citizen’s affairs and second instance alien’s affairs. The Office has an 
autonomous budget amounting to €5 million in 2000 . The setting up of this Office 
improved coordination between the authorities concerned. The Office for Refugees and 
Migration Affairs, as part of the Office for Immigration and Citizen’s Affairs , continued to 
70 suffer from severe understaffing and budgetary problems. This led to lengthy and 
sometimes inadequate legal procedures as well as to a huge  backlog in the treatment of 
asylum applications in 1999 which started to decline in 2000 ( from 4,000 in July 1999 to 
2,000 in May 2000) following the recruitment of additional support staff. At Budapest 
Metropolitan Court, responsible for the review of as ylum cases, the backlog of cases 
pending remained huge despite the increase of number of judges. Hungary made efforts 
to improve the standards of reception facilities for asylum seekers at Budapest airport, 
Kiskunhalas and Szombathely.  
Preparation for join ing the Dublin Convention by accession have already started and a 
relevant IT system has been developed.  
Hungary continued to develop police co -operation  with its neighbouring countries as 
well as with EU Member states, leading to an increased exchange of liaison officers and 
police attachés. Several Member states (Germany, Austria, Belgium, France, Italy, 
Ireland, Netherlands, UK and Sweden) signed agreements with Hungary about mutual co -
operation providing in particular for new equipment and specialised t raining for fight 
against organised crime.  
In order to facilitate and co -ordinate international co -operation with Europol, an 
International Law Enforcement Co -operation Centre was set up at the National Police 
Headquarters in February 2000. Internal liaiso n officers are delegated to this Centre by 
the Customs and Finance Guard, the Border Guard, the Tax and Finance Control Bureau 
as well as by the Organised Crime Directorate of the National Police Headquarters. The 
Centre aims at improving fight against org anised crime  through the exchange of data 
and information with the law enforcement network of the EU and the strengthening of co -
operation with INTERPOL.  Between 50 -60 law -enforcement officials were trained to 
co-ordinate co -operation in organised crime a ffairs with the EU.  However, co -operation 
with police forces in the EU Member states is still often carried out by local county police 
and remains often unnoticed for central police organs in Budapest.  
Co-operation between Hungarian law -enforcement agenci es was improved through the 
setting up of an elite 40 -member group at the Budapest Police Headquarters to investigate 
organised crime involvement in car thefts. The group is co -operating with the secret 
service, customs guards, local governments and other authorities. As a first result of the 
work of this unit, the number of car thefts has been significantly reduced.  
Hungary made further efforts to strengthen its administrative capacity to combat 
organised crime. In January 2000, the communications director ate of the National Police 
Headquarters started to monitor information on the internet to screen out illegal web 
pages or those abetting acts of crime. A Personal Protection Department within the 
National Police Headquarters provides protection for partici pants of penal procedures and 
members of the proceeding authority. An integrated and comprehensive database 
covering all criminal investigations initiated in Hungary since 1994 was installed at the 
Chief Prosecutor’s Office in March 2000. The database cont ains records on 1.5 million 
cases and 2.1 million people. Local prosecution offices now have off -line access to it.  
In June 2000 a forensic laboratory was opened that can conduct DNA tests to high 
standards at the National Police Criminal Research and Anal ysis Institute in Budapest.  
In the area of fight against fraud, corruption and money laundering  Hungary 
promulgated in July 2000 the 1990 Council of Europe Convention on laundering, search, 
71 seizure and confiscation of the proceeds from crime. In view of th e smooth application of 
this Convention, the Criminal Code was amended with the penalising of laundering of all 
financial gains realised by committing any kind of criminal act. At the Hungarian 
Customs and Finance Guard a Central Investigation Office with a staff of 130 was set up 
empowered to carry out nation -wide investigations. In February 2000, the Ministry of 
Justice signed up to a project of the UN Inter -regional Criminal and Judicial Research 
Institute, providing a ccess to a scholarly research into c orruption.  
In 1999, the number of registered drug  abuses grew by 800 to 2,860 making Hungary a 
new target country for drugs. The number of drug addicts receiving medical treatment 
rose continuously to 12,454 in 1999.  
In July 2000, the government approved t he National Strategy to Combat the Drug 
Problem putting special emphasis on preventive measures. The main objective of the 
strategy is to introduce combined demand and supply reduction programmes.  
In the field of customs  co-operation  Hungary started prepar ations to transpose the 
provisions of the Customs Information System Convention ( see chapter 25 -Customs 
Union ). In the framework of the re -organisation of the Customs and Finance Guard a 
decentralised risk analysis system was introduced.  
Hungary also trans posed the basic instruments of international judicial co -operation . 
The OECD Convention on Combating Bribery of Foreign Public Officials in 
International Business Transactions was promulgated in May 2000. For procedures 
related to extradition, the co -opera tion functioned satisfactorily, but there is still room for 
improvements, particularly as regards direct contacts between the competent judicial 
authorities. The Ministry of Justice is the central authority to receive requests for 
extradition, but the metr opolitan court has the exclusive competence on the substance.  
 Overall assessment  
The basic provisions of the acquis  in the field of Justice and Home Affairs are already 
implemented.  
Hungary is party to the Council of Europe Convention for the protection o f individuals 
with regard to automatic processing of personal data (Strasbourg 1981).  
In the area of personal  data protection  some legal fine -tuning is necessary in view of full 
alignment with the relevant acquis . 
Additional efforts are needed to align wit h the visa acquis , in particular as concerns the 
visa exemption for citizens of Belarus, Cuba, FRY, Moldova, Russia and Ukraine.  The 
agreements on simplified formalities for border crossing signed with Ukraine and FRY 
will also need to be amended as they exempt citizens living permanently near the border 
from the obligation to carry passports.  The regulation on a uniform visa format and the 
rules of the Common Consular Instructions also need to be further aligned.  There is a 
need to strengthen the Consul ar System and Hungary’s capacity to detect falsified 
documents.  
Despite further progress, continued efforts are needed to up -grade the Hungarian border 
control infrastructure , especially concerning additional night vision devices, 
enforcement of the mobil ity of mobile border guard patrols, expanding the IT system 
72 including document -reading and plate -recognising equipment for the automatic border 
registry. Also staff at the borders of Hungary should be increased, in particular at green 
and river borders. Th e border management service needs to become more efficient and 
organised and co -operation between the competent authorities needs to be strengthened 
and appropriate training needs to be provided.  
In the field of migration  policy further alignment is needed , particularly concerning the 
provisions on the admission of third country nationals for study, employment and self -
employed activities and for family reunification purposes. In parallel, the definition of the 
term ‘family’ needs to be harmonised with the acquis .  Also, procedures for the renewal 
and withdrawal of provisional residence permits have to be further brought into line with 
the acquis . Finally, the possibility of issuing temporary travel documents would facilitate 
the readmission process consider ably.  
From a legal point of view the Hungarian asylum legislation is already largely in line 
with the acquis . Outstanding issues relate particularly to the extensive definition of 
unfounded requests.  Additional efforts are required to ensure proper implem entation of 
existing legislation.  
Further efforts are, however, needed to adopt the legal instruments in the fight against 
fraud  and creating an efficient anti -fraud service.  
The same applies to the drugs  acquis and to participation in the European informa tion 
network on drugs and drug addiction (Reitox). Furthermore, even if not explicitly 
mentioned in the acquis,  a national focal point should be established. The respective co -
operation between the concerned Ministries should also be strengthened.  
Hungary has already made major efforts to improve customs co -operation , in particular 
through the strengthening of co -operation between the different services involved, staff 
training and staff ethics.  
In the area of judicial co -operation  the procedures for mutual  assistance need to be 
clarified.  Further training and additional human resources seem to be necessary, in 
particular in the field of fight against organised crime . 
Hungary needs to align the definition of a criminal organisation with the Joint Action of 
21 December 1998 on making it a criminal offence to participate in a criminal 
organisation. Hungary should introduce the liability of legal persons, in accordance with 
this Joint Action and within the Joint Action of 24 February 1997 concerning action to 
combat trafficking in human beings and sexual exploitation of children.  
The judicial system will need to be connected with the European Judicial Network.  
Chapter 25: Customs union  
During the reporting period, Hungary made considerable progress in this area.   
It notably fulfilled the short -term Accession Partnership priority with the adoption of an 
amended Customs Law in May 2000, including its implementing legislation.  
This law provided for further alignment of the provisions on customs procedures with 
econo mic impact and the extension of the application of simplified procedures, reflecting 
73 the Community Customs Code  to a large extent. Furthermore, it created the legal 
framework for the application of the binding tariff information (BTI) and binding origin 
information (BOI) as of January 2001. As concerns customs procedures with economic 
impact, the new law introduced the element of processing under customs control. Finally, 
the Hungarian nomenclature was up -dated in accordance with the modifications to the 
EC nomenclature. The Hungarian Customs Tariff was also further adjusted to that of the 
Community.  
Regarding the pan -European system of origin, Hungary has agreed to the amendments to 
the system which will come into force in January 2001.  
As to administrative  and operational capacity , the necessary infrastructure in the areas 
of computerisation, software and analytical instruments and devices were further 
developed.  The IT system (VÀMKER customs IT -system) was modernised in December 
1999 and a pilot phase of an electronic data exchange initiative was launched. This 
system currently works in an experimental phase as a part of a test customs office system 
concerning tax return on excise duty and on aggregated declaration on goods in stock. A 
risk analysis system  was introduced in a pilot phase, aiming at improving the border 
control efficiency and risk analysis expert units were set up in 2000 within the different 
divisions of the Hungarian Customs and Financial Guard. In January 2000, the Hungarian 
Customs and F inance Guard was restructured regionally. As a result, the number of 
leading officials and administrative personnel was decreased while the number of 
operational staff was increased. In total, 7,729 persons are employed by the Hungarian 
Customs and Finance  Guard. In parallel, in each regional headquarters an information 
technology department was set up. Two new bodies, the Central Headquarters of 
Investigators and the Central Headquarters of Controllers were set up with the objective 
to extend investigative  activity of the Customs Authority and strengthen the ex -post 
control system of the Customs administration.  
Furthermore a specific training programme on the Community Customs code was 
launched and complemented by foreign language courses. Further efforts a re needed as to 
the enforcement and supervision of copyright legislation.  
As concerns border posts, two additional highway border crossing posts were opened at 
Letenye (Croatia) and Röszke (Federal Republic of Yugoslavia). In addition, more than € 
4 millio n were made available for the modernisation of 7 other smaller border posts.  
Overall Assessment  
Hungary made already good progress in aligning its legislation with the EC legislation. 
However, further efforts are needed in particular concerning alignment i n the area of the 
free zone regime, temporary importation, customs warehouses, customs debts as well as 
customs guarantees and the continuous up -grading of in particular smaller border posts.  
Regarding the customs acquis  outside the Customs Code, Hungary a lready applied a 
quota management based on the first come, first served principle applied by the 
Community. Moreover, Hungary applied the EC combined nomenclature since 1996.  
As regards the administrative and operational capacity to implement the acquis,  Hungary 
should continue efforts related to equipment and staff training, notably as regards the 
implementation of the obligations deriving from the BOI/BTI system. In this respect, 
current staffing of the Customs Laboratory seems to be insufficient to ensur e a full 
74 implementation. Further progress is also needed in the area of computerisation, notably as 
concerns computer -based risk analysis.  
Chapter 26: External relations  
In the area of Common commercial policy , Hungarian tariffs were further aligned with 
those of the EC. Hungary applied in 1999 tariffs which average 12.4% on all products, 
33.5% on agricultural, 15.0% on fishery and 7.4% on industrial products. By comparison, 
the EC tariffs currently stand at 5.3% on all products, 9.4% on agricultural, 12.4%  on 
fishery and 4.2% on industrial products.  
In February 2000, the competence for the external economic policy, including customs 
policy, was transferred from the Ministry of Economics to the Ministry of Foreign 
Affairs.  
The two Free Trade Agreements  with Latvia and Lithuania entered into force in January 
and March 2000, respectively. Within CEFTA, the member states, including Hungary, 
signed the Additional Protocol 8 on the up -dated version of the pan -European cumulation 
of origin of goods ( see Chapter 25 – Customs Union ). 
In the area of development , Hungary did not have a specific policy or budget, but 96% of 
all imports coming from developing countries received trade preferences. GSP schemes 
exist for all products.  The Ministry of Foreign Affairs had lim ited funds of € 70,000 
which were mainly used for humanitarian  purposes, basically for third countries with a 
Hungarian minority. The Foreign Minister shares with the Economic Ministry the 
promotion of trade development and investments.  
Overall Assessment  
Hungary’s trade policy and its participation in international economic organisations were 
already to a large extent in line with those of the Union.  
The EU and Hungary have established a framework for co -operation regarding WTO 
issues both at ministerial a nd at services level. Hungary has been supportive of EU 
policies and positions within the WTO framework. As regards the new round, Hungary 
concurs with the EU on the need to launch a comprehensive trade round as soon as 
possible and shares the view that th e results of work under the build -in-agenda would be 
less substantial in its absence.  
In order to reach full alignment with GATT and WTO obligations, Hungary has still to 
accede to the Agreements on Trade in Civil Aircraft and on Government Procurement 
where Hungary has an observer status and to the Agreement on Trade in Information 
Technology Products.  
As regards the WTO Agreement on Trade in Textiles and Clothing (ATC), Hungary 
needs to use the third stage of integration under the ATC to align its integra tion 
programme on those of the EC, while notably avoiding integrating products not yet 
integrated by the EC.  
Further co -ordination and co -operation is necessary in order to consolidate the Hungarian 
list of GATS commitments with the EC commitments and the Most Favoured Nations 
(MFN) exemptions.  
75 Hungary made good progress in aligning with the EC’s international trade obligations. It 
is a member of CEFTA and has concluded Free Trade Agreements with Turkey, Israel, 
Estonia, Latvia, Lithuania, Norway, Iceland a nd Switzerland. Hungary should continue to 
keep the EU fully informed about existing trade agreements or negotiations aimed at the 
conclusion of any new trade agreements with a third country.  
Hungary’s dual use goods legislation is in line with the acquis . 
Hungary’s system for export credits is in line with the OECD consensus; however, 
further alignment to the acquis  is necessary concerning granting medium and long -term 
export credits.  
 
Chapter 27: Common foreign and security policy  
The regular political di alogue  established by the Europe Agreement proceeded smoothly 
and Hungary continued to align its foreign policy strategy with the new Common 
Strategies of the European Union adopted in the framework of the Common Foreign and 
Security Policy (CFSP). It also  participated actively in the framework of the CFSP, 
including the meetings at the level of Political Directors, European Correspondents and 
Working Groups.  
Hungary has shown a keen interest in the development of the European Security and 
Defence Policy (E SDP) as a part of CFSP and has actively participated in the exchanges 
in this context with the EU, in EU + 15 format (i.e. non -EU European NATO members 
and candidates for accession to the EU) and in EU + 6 format (i.e. non -EU European 
Members of NATO):  
As regards alignment with EU statements and declarations , Hungary has regularly 
aligned its position with those of the Union and when invited to do so has associated 
itself with the Union’s joint actions and common positions . 
In June 1999, Government reviewed  its contractual relationship with certain countries of 
Asia, Africa and Latin -America and integrated provisions on the termination of obsolete 
treaties or on the replacement of new agreements.  
Hungary continued to develop good neighbourly relations with s urrounding countries and 
to promote regional co -operation.  Bilateral relations with Romania, Slovakia, Ukraine 
and Croatia were significantly strengthened.  
In June 2000, Hungary assumed the rotating presidency of the Central European 
Initiative. Hungary a lso continued to participate in the South East European Co -operative 
Initiative (SECI) and the Visegrad dialogue. Hungary played a particularly active role in 
the South -East European Stability Pact and launched in October 1999 the “Szeged 
Process” which be came a useful forum for discussion between member countries of the 
Stability Pact and the Serbian opposition. As from January 2000 Hungary co -chaired 
Working Table No.1. of the Stability Pact on democratisation and human rights.  A 
priority task of the wor king table was to provide effective support to the Serbian 
opposition, particularly in the fields of municipal government and the independent media. 
The working table also devoted special attention to the ethnic Hungarians in Vojvodina.  
76 Within the Ministry  of Foreign Affairs, the State Secretariat for European Integration 
(SSI) assumes the responsibility for second pillar issues. In March 2000 an European 
correspondence unit was established and inter -ministerial co -ordination in CFSP matters 
was strengthene d. 
Overall Assessment  
Hungary is making steady progress to align its foreign policy with the Union's Common 
Foreign and Security Policy.  
Hungary participates actively as an observer in the Western European Union.  
Hungary’s efforts regarding western Balkans  concentrated on the implementation of 
sanctions against Belgrade, a financial contribution to the clearance of the Danube and its 
participation in international peace -keeping missions as SFOR and KFOR.  
The Ministry of Foreign Affairs is fully involved in CFSP -related activities, but its 
structure should be further strengthened.  
Chapter 28: Financial control  
During the reference period limited progress was made in this area.  
The 1999 Accession Partnership includes strengthening of internal and external fina ncial 
control as a short -term priority.  
As regards internal financial control,  the Government Control Office made steps to 
develop and introduce a new IT monitoring system for the implementation of Community 
assistance. In 2000, the Office reviewed the con trol capacities of the internal control 
bodies in Ministries and Central Government organisations. In 2000, the role of the 
Ministry of Finance as a coordinating authority in the field of financial control and as a 
single contact point to the relevant EC b odies has been further strengthened.   The ex-ante 
control functions  are, however, not very well developed and no progress was made in 
this respect by the Government Control Office, the central control body. In January 2000, 
the Hungarian State Treasury was  reorganised and its scope was extended to all public 
expenditures and income.  
In the area of external financial control, the State Audit Office, the supreme audit and 
control institution, continued preparatory work for the modernisation of its IT system. Its 
mandate is wide and covers both the state budget and local government. The Health 
Insurance Fund and larger local authorities also appoint commercial auditors to audit 
their financial statements. The Office has good access to all the records, persons a nd data 
that it requires for the performance of its functions. It is, however, not clear whether this 
institution can follow the use of all EC funds, assets and resources directly to all end 
users without restriction. The State Audit Office adopted the bas ic general international 
standards of the Lima Declaration and the INTOSAI Auditing Standards.  
Overall assessment  
Hungary has already set up the necessary internal and external control bodies. As far as 
ex-ante financial control is concerned, this function  will have to be strengthened by the 
77 Treasury with the help of the Government Control Office. Appropriate procedures need to 
be established for the further decentralisation of financial management and control of EC -
funds from the Commission to Hungary and towards regional implementation levels. As 
to external control, priority should be given to further developing attestation and 
performance audits of the State Audit Office. The Office should also be entrusted with 
auditing EC funds and state -owned entities  (including the National Bank).. The ex -ante 
control function will have to be improved by the Treasury in the Ministry of Finance. The 
Government Control Office will have to make recommendations on the further 
development of ex -ante control.  Adequate co -ordination between the ex -ante financial 
control carried out by the relevant budgetary institutions and that operated by the 
Hungarian Treasury needs to be ensured, in order to avoid possible duplications and to 
achieve a rapid and efficient financial contr ol. The basic control measures are in place in 
regard to EC own resources . In view of the effective calculation and collection of 
Community own resources the Ministry of Finance and the tax and financial Control 
Office should be further reinforced. The con trol modules of the Joint Audit Initiative for 
improving national administration systems still need to be taken into consideration. There 
is also a need to develop effective instruments for the fight against fraud, notably in the 
area of VAT and customs du ties. 
Also in the area of control and recovery of EC funds the basic system exists in Hungary, 
ensuring the protection of EC financial interests, but more expedient procedures are 
needed. In case of unlawfully or misused subsidies the head of the controlli ng body has to 
care for repayment of the support and interests. In case of misuse of public funds or 
serious irregularities in the financial management of an institution the Government 
Control Office intervenes. Irregularities might lead to criminal proced ures. These are 
regulated by the Hungarian Criminal Code.  
Hungary should also ensure that the necessary human resources are available.  
Chapter 29: Financial and budgetary provisions  
No major developments occurred  in this area during the last year.  
With re gard to the national budget  the rules for budget preparation were harmonised and 
control of budgetary procedures were strengthened in 2000.  No particular developments 
are to be reported with regard to EC-cofinancing measures.  
As regards own resources and administrative structures , the only new development to 
be reported is the upgrading of the Budget Policy Department to a Budget and Financial 
Policy Directorate.  
Overall assessment  
Hungary has an elaborate budgetary system  which is largely in line with tho se in 
operation in the Community. The main legal provisions are laid out in the Law on Public 
Finances of 1992, as amended. Some further improvements are needed, in particular 
concerning the national accounts statistics for the general government sector in  
compliance with the ESA 95 norm and the medium -term budgetary planning procedures 
in order to secure a fully consistent and sustainable budgetary policy.  
78 Budgetary techniques to deal with co-financing  measures focus mainly on the 
functioning of extra -budg etary funds and on transfers to local governments. Multi -
annual programming  was already introduced in 1997. Since then, the current budget 
project has to contain plans for the following two budgets, using multi -year expenditure 
estimates from the various m inistries. Projections covering the major macro -economic 
indicators are presented and an explicit annual target is set for the budget deficit.  
The National Fund is administered by  the Treasury for the management of the EC pre -
accession  funds  and is comp lemented by the Central Financing and Contracting Unit. 
The National Fund arrangements are well designed, but have still to be fully 
implemented.  
Further efforts are needed to enable Hungary to meet Community requirements with 
regard to co -financing and mu ltiannual programming as well as to ensure that the own 
resources are established, monitored and made available in line with Community 
requirements.  
The management of own resources  is primarily under the control of the Ministry of 
Finances and the Hungaria n Central Statistical Office. The Office also performs GNP 
measurements and estimates. Modelling and projections of GNP are carried out under the 
Economic Analysis Department of the Ministry of Finance.  
In view of the Commission's operations and instructio ns concerning payments to the EC 
Budget (Own Resources), the necessary human and administrative resources will need to 
be made available and already existing institutions such as the Hungarian State Treasury 
will need to be supplemented by new institutions  in order to implement the acquis . 
3.2. Translation of the acquis  into the national language  
Applicant countries are to translate the various legal texts constituting the acquis into 
their national languages by the time of their accession. The acquis , consistin g of primary 
and secondary binding legislation, represents at present a considerable volume of acts, 
roughly estimated at 60,000 -70,000 pages of the Official Journal. To help the candidate 
countries in this process, assistance is being provided under the P hare programme. With 
the help of TAIEX, a centralised Translation Co -ordination Unit has been created in each 
of the ten candidate countries of central Europe.  
In Hungary, the Ministry of Justice ensures general supervision and co -ordination of the 
transla tion activity. The Translation Co -ordination Unit has been established within this 
Ministry and operates under the technical supervision of the European Community Law 
Department. The Unit is centrally co -ordinating the translation of EC legislation within 
the Hungarian public administration. A linguist -lawyer team is responsible for the legal 
review. At present the team consists of six part -time and one full -time linguist -lawyers.   
So far, 35,000 pages of the Official Journal were translated, of which more  than 20,000 
were fully revised.  
Further efforts are required in this area.  
79 3.3. General evaluation  
Hungary continued to make progress in aligning and implementing the acquis  in most 
sectors thereby reaching a good level of preparation for membership. This pr ocess was in 
general accompanied by satisfactory institution building measures.  
Over the reference period good progress could be noted concerning internal market 
legislation , in particular as regards harmonised and “new approach” product legislation, 
insurance and accounting law and the transparency and alignment of certain State aid 
schemes. Continued efforts are still needed especially for developing adequate market 
surveillance and for aligning state aid granted in the form of tax benefits. While the ba sic 
structures of the acquis  related to VAT and excise duty are already in place, further 
efforts are required in the area of taxation  with regard to reduced rates, exemptions and 
direct taxation. The Central Liaison Office, and co -operation and mutual ass istance with 
tax administrations in Member states, will also need to be strengthened. Considerable 
progress was made in the area of customs, and the new law on customs reflects the 
Community Customs Code to a large extent. In the field of telecommunication s, where 
the market is in principle open to competition, Hungary needs to align further with the 
terms and conditions of universal service.  
In the area of agriculture  the basic structures of the acquis  are in place , but the 
administrative structures requir ed for the implementation of the CAP still need to be put 
into place. Alignment will need to be speeded up especially in the veterinary and 
phytosanitary sub -sectors.  
In the area of environment  only little progress in terms of alignment was made over the 
last year, and the administrative capacity of the Ministry of Environment needs 
improvement due to the lack of qualified staff and the wide distribution of 
responsibilities related to environmental issues.  
Alignment needs to be speeded up in the area of transport,  in particular in the road and 
air sub -sectors, and new institutions will have to be set up in order to enforce the acquis 
adequately. In the energy sector, the main principles of the internal energy  market were 
adopted, but will need to be impleme nted, and the Hungarian Energy Office will need to 
be further strengthened in order to be able to discharge its tasks in the future internal 
energy market.  
Hungary made significant progress in developing the necessary structures for the 
implementation of regional policy  after accession, although the structures in the regions 
still appear rather weak  to guarantee efficient programming and decision making. In the 
area of financial control,  the internal and external control bodies, which were already set 
up some time ago, will need to be strengthened in order to provide the basis for sound 
financial management and control of EC funds towards regional implementation levels. 
As to financial and budgetary provisions , further efforts are needed in order to meet 
Community requirements with regard to co -financing and multi -annual programming.  
On the other hand, good progress was made in the area of social policy and employment  
in terms of legal transposition, although considerable work remains to be done with 
respe ct to the implementation of the acquis  on health and safety where implementation is 
to occur gradually. There is also a need to exploit better the new structures for social 
dialogue. In the area of economic and monetary union  the main outstanding issue rel ates 
to the further consolidation of the independence of the National Bank. As to industrial 
80 policy , the situation in respect of the restructuring of the Hungarian steel industry is still 
unsatisfactory and the steel restructuring plan adopted by Hungary w ill need to be further 
revised. In the area of Justice and Home Affairs , progress was registered mainly in the 
fields of visa policy, border management, migration and asylum.  
Hungary continued to make steady progress in building up its administrative capa city to 
apply the acquis in most areas . Further progress was made towards public administration 
reform, and continued emphasis was placed on training in EU matters throughout the 
administration and the judiciary. Most of the key institutions needed for par ticipation in 
the internal market are in place. Nonetheless, administrative and judicial capacity still 
needs to be strengthened in specific areas such as state aid control, market surveillance, 
transport, the environment, veterinary and plant health.  
Hungary has satisfactorily addressed most of its short -term Accession Partnership 
priorities with the exception of agriculture, environment, certain elements related to the 
internal market, industry policy and economic and monetary union. Hungary has already 
started to implement a number of medium -term priorities.  
81 C. Conclusion  
Hungary continues to fulfil the Copenhagen political criteria.  
Further progress in the modernisation of the public administration is apparent from the 
continued implementation of the 199 9 development programme.  
Although the judiciary functions satisfactorily and the training of judges in the EC acquis 
has progressed, the large backlog of cases before the Supreme Court hampers the 
unification of Court practice and the development of a cons istent jurisprudence. Efforts 
should be made to remedy this. Sustained training programmes for civil servants and 
judges should continue, in line with the medium -term priority of the Accession 
Partnership.  
Despite a number of important measures taken to f ight corruption, this remains a problem 
and renewed efforts should be made to address this issue.  
Hungary continues to respect human rights and freedoms. However, overcrowding of 
prisons is a growing problem, which needs to be remedied.  
In line with the short -term Accession Partnership priority, Hungary started to implement 
the medium -term Roma action programme, supported by financial means at national and 
local levels. This programme facilitates the integration of the Roma and their fight 
against discrim ination in the fields of education, culture, employment, housing, health 
and social services. However, sustained implementation of this programme is needed in 
order to obtain concrete results in the medium -term.  
Hungary is a functioning market economy and  should be able to cope with competitive 
pressure and market forces within the Union in the near term, provided that it stays with 
its present reform path.  
Considerable progress has been made towards consolidating macroeconomic stability, 
enhancing curren t account sustainability and strengthening the institutional basis of the 
market economy. Hungary has further developed its infrastructure, and proceeded with 
enterprise restructuring. The creation of new enterprises, particularly those fostered by 
foreign  direct investment, is strong.  
However, the slow progress towards price stability is a cause for concern and maintaining 
external competitiveness will require an appropriate policy mix, including continued 
fiscal consolidation, in particular in the areas o f healthcare, transportation and local 
government. Although unemployment has fallen, there are significant regional 
differences and shortages of skilled labour in high growth sectors. The intermediation 
role of the financial sector needs to improve the del ivery of services to domestic small 
and medium enterprises.  
The Hungarian authorities will need to maintain a well -balanced policy mix and pursue a 
prudent and flexible monetary policy. Financial sector supervision needs to be further 
improved, in particu lar for the pension funds. Measures need to be taken to reduce 
regional disparities and to increase the flexibility and mobility of labour. The 
implementation of the above -mentioned structural reforms must proceed in order to 
address fiscal consolidation.  
82 Hungary continued to make progress in aligning and implementing the acquis  in most 
sectors thereby reaching a good level of preparation for membership. This process was in 
general accompanied by satisfactory institution building measures.  
Over the referen ce period good progress could be noted concerning internal market 
legislation , in particular as regards harmonised and “new approach” product legislation, 
insurance and accounting law and the transparency and alignment of certain State aid 
schemes. Continu ed efforts are still needed especially for developing adequate market 
surveillance and for aligning state aid granted in the form of tax benefits. While the basic 
structures of the acquis  related to VAT and excise duty are already in place, further 
efforts  are required in the area of taxation  with regard to reduced rates, exemptions and 
direct taxation. The Central Liaison Office, and co -operation and mutual assistance with 
tax administrations in Member states, will also need to be strengthened. Considerabl e 
progress was made in the area of customs, and the new law on customs reflects the 
Community Customs Code to a large extent. In the field of telecommunications , where 
the market is in principle open to competition, Hungary needs to align further with the 
terms and conditions of universal service.  
In the area of agriculture  the basic structures of the acquis  are in place , but the 
administrative structures required for the implementation of the CAP still need to be put 
into place. Alignment will need to be s peeded up especially in the veterinary and 
phytosanitary sub -sectors.  
In the area of environment  only little progress in terms of alignment was made over the 
last year, and the administrative capacity of the Ministry of Environment needs 
improvement due to  the lack of qualified staff and the wide distribution of 
responsibilities related to environmental issues.  
Alignment needs to be speeded up in the area of transport,  in particular in the road and 
air sub -sectors, and new institutions will have to be set up in order to enforce the acquis 
adequately. In the energy sector, the main principles of the internal energy  market were 
adopted, but will need to be implemented, and the Hungarian Energy Office will need to 
be further strengthened in order to be able to  discharge its tasks in the future internal 
energy market.  
Hungary made significant progress in developing the necessary structures for the 
implementation of regional policy  after accession, although the structures in the regions 
still appear rather weak  to guarantee efficient programming and decision making. In the 
area of financial control,  the internal and external control bodies, which were already set 
up some time ago, will need to be strengthened in order to provide the basis for sound 
financial man agement and control of EC funds towards regional implementation levels. 
As to financial and budgetary provisions , further efforts are needed in order to meet 
Community requirements with regard to co -financing and multi -annual programming.  
On the other han d, good progress was made in the area of social policy and employment  
in terms of legal transposition, although considerable work remains to be done with 
respect to the implementation of the acquis  on health and safety where implementation is 
to occur grad ually. There is also a need to exploit better the new structures for social 
dialogue. In the area of economic and monetary union  the main outstanding issue relates 
to the further consolidation of the independence of the National Bank. As to industrial 
policy, the situation in respect of the restructuring of the Hungarian steel industry is still 
unsatisfactory and the steel restructuring plan adopted by Hungary will need to be further 
83 revised. In the area of Justice and Home Affairs , progress was registered mainly in the 
fields of visa policy, border management, migration and asylum.  
Hungary continued to make steady progress in building up its administrative capacity to 
apply the acquis in most areas . Further progress was made towards public administration 
reform, and continued emphasis was placed on training in EU matters throughout the 
administration and the judiciary. Most of the key institutions needed for participation in 
the internal market are in place. Nonetheless, administrative and judicial capacity  still 
needs to be strengthened in specific areas such as state aid control, market surveillance, 
transport, the environment, veterinary and plant health.  
Hungary has satisfactorily addressed most of its short -term Accession Partnership 
priorities with th e exception of agriculture, environment, certain elements related to the 
internal market, industry policy and economic and monetary union. Hungary has already 
started to implement a number of medium -term priorities.  
84 D. Accession Partnership and National Prog ramme for the 
Adoption of the Acquis : Global assessment  
The purpose of the Accession Partnership is to set out in a single framework:  
 the priority areas for further work identified in the Commission’s regular report;  
 the financial means available to help  candidate countries implement these priorities;  
 the conditions which will apply to this assistance.  
Each candidate has been invited to adopt a National Programme for the Adoption of the 
Acquis . This sets out how the country in question envisages to deal w ith the Accession 
Partnership, the timetable for implementing the Partnership’s priorities, and implications 
in terms of human and financial resources.  Both the Accession Partnerships and the 
National Programmes for the Adoption of the Acquis  are revised on a regular basis, to 
take account of progress made, and to allow for new priorities to be set.  
1. Accession Partnership  
In the following assessments the main sub -headings are indicated in bold type and further 
key concepts taken from the Accession Partners hip highlighted in italics. 17 
Short -term priorities  
Political Criteria: In line with the medium -term Roma action programme  adopted in 
April 1999, the Government had provided specific support for addressing the difficult 
situation of the Roma minority. In p articular, actions were launched in the areas of 
education (scholarships and support to educational institutions), culture (opening of 
Roma Community houses which play a very important role in strengthening the local 
Communities and preserving Roma culture ), employment (public work programmes and 
public utility work programmes), housing, health and anti -discrimination actions. Under 
the “Roma Policemen Programme” the number of Roma police officers  was increased and co -
operation with Roma organisations was r einforced.  In 2000 specific budgetary resources 
totalling € 19 million  were made available, representing an important step forward in the 
implementation of the medium -term action programme. Therefore, this priority has 
been met.  
Economic Criteria: The macro -econom ic situation improved thanks to a decrease in the 
current account and fiscal deficits, growth acceleration, reduction of the unemployment 
rate and the launching of important structural reforms (healthcare, rail transportation, 
fiscal sector supervision). H owever, the reform of the health care system  is still at an 
early stage, while the weak financial structure continues to place heavy burden on public 
finances.  The Government has already initiated some reforms such as the reduction of 
the number of hospit al beds and the privatisation of outpatient services, but a coherent 
and systematic programme of reforms has not yet been developed.  Consequently, in 
order to meet this Accession Partnership priority fully, both the quality of the healthcare 
services and the budgetary situation need to be improved.  A plan for the restructuring of 
                                                 
17 For the detailed text of the short and medium term priorities established in the 1999 Accession Partnership, please refer to    
Council Decision 1999/850/EC, OJ L335 of 28/12/1 999, p7.  
85 the Hungarian steel sector  was submitted to the Commission in February 2000.  
However, in order to meet EC requirements fully, over the reference period the plan 
needs to be furt her elaborated. No progress was made towards establishing a functioning 
land market or finalising the land and property register. Therefore this priority was 
only partially met.   
Internal Market:  
 Over the reference period Hungary accelerated the adoption  of European standards  as 
Hungarian national standards. By May 2000, 6,884 out of the 11,456 European 
standards had been introduced, reaching a harmonisation level of 60% overall and 
more than 80% for standards relevant to the New Approach Directives. In t he area of 
CEN and CENELEC standards, the rate was 61% and 65% respectively in March 
2000. In December 1999, the modules for the various phases of the conformity 
assessment  procedures and the rules on the use of the CE conformity mark were 
transposed. No s ignificant progress was made to reinforce  existing market surveillance 
and conformity assessment structures .  
 No action was undertaken to prohibit the opening of anonymous accounts  or to 
eliminate existing ones. Hungary made efforts to increase transparenc y of state aids  by 
enlarging the scope of aids subject to prior notification to the state aid monitoring 
authority . However, this scope still needs to be widened further, and the coverage of 
the state aid inventory  has not been completed. The monitoring au thority is 
increasingly involved in state aid decision -making, but has no power to block illegal 
aids.  
 In the area of telecommunications , no progress was made to further strengthen the 
Regulatory Authority’s  independence and powers (notably dispute settle ment), but the 
new Law on Communication prepared by the government is supposed to address this 
issue. This Law is, however, not yet adopted by Parliament. Despite the efforts of the 
government to progress in the area of the audio -visual  acquis , the propose d law on 
Radio and Television Broadcasting (the so -called Media Act) was not adopted by 
Parliament as it needed a two -thirds majority.  The proposal notably provided for rules 
governing monitoring activities  and effective control over media operators as we ll as 
for the definition and promotion of European works, rules on advertising, sponsoring 
and teleshopping, exclusive broadcasting rights  and certain rules relating to copyright.  
 In the area of Value Added Tax  further progress was made by abolishing reduced rates  
for a number of goods and services, but reduced VAT  rates of 12% are maintained for 
social reasons in the areas of heating materials and district heating services, food 
services and transportation and storage of goods. The zero -rate system will a lso have 
to be abandoned. The amendment of the law on Excise Duty eliminated in August 
2000 the last major structural difference between the Hungarian legislation on excise 
duty and the acquis  in the area of wine. Hungary, however, continued to levy differ ent 
excise duty rates  for fruit brandies and other spirits, in contradiction with Community 
rules, which stipulate a single excise duty for interchangeable products. In the area of 
direct taxation Hungary accepted the principles of the Code of Conduct for Business 
Taxation  which will provide the framework for further alignment with the acquis .  
New measures to be introduced will have to respect the above principles and there is a 
need to finalise the review of the legislation in line with the Code of Conduc t for 
Business Taxation . The adoption of an amended Customs Law in May 2000 provided 
86 the basis for further alignment of the provisions on customs procedures with economic 
impact and the extension of the application of simplified procedures, reflecting the 
Community Customs Code . Furthermore, it creates the legal framework for the 
application of the binding tariff information (BTI)  and binding origin information  
(BOI). As concerns customs procedures with economic impact the new law has 
introduced the element  of processing under customs control. The customs tariff was 
further aligned as well. Finally, the Hungarian nomenclature was up -dated in 
accordance with the modifications to the EC nomenclature.  
Overall, Hungary partially fulfilled this priority.  
Econom ic and Monetary Union: No action was taken  to consolidate the independence 
of the National Bank in particular with regard to government borrowing. Therefore, this 
priority was not met.  
Agriculture: No further legislative alignment has taken place in the veterinary sector. In 
the area of phytosanitary  matters, progress was made by adopting the plant protection 
law. The adoption of the necessary implementing legislation is still pending. No major 
developments can be reported as regards upgrading the inspect ion arrangements at the 
future external borders . Furthermore, no progress was made as regards the modernisation 
of meat and dairy products plants to meet EC hygiene and public health standards or the 
establishment of a vineyard register . Hungary did thus n ot address this priority.  
Employment and Social Affairs: Hungary has successfully finalised the Joint  
employment  review and has prepared employment guidelines mirroring the European 
Employment Strategy .  This will facilitate its participation, following a ccession, in the 
latter. Hungary also launched a three -year programme to improve the capacity of the 
social partners  to develop and implement the acquis . Therefore, this priority has been 
met.  
Environment: No progress was made by Hungary to align with the  Integrated 
Prevention Control Directive. The adoption of the law on waste management  in June 
2000 was an important step in aligning with the relevant acquis .  The law will allow the 
adoption of secondary legislation on specific types of waste that is curr ently entirely 
lacking. The law will enter into force only in January 2001. As to nuclear safety and 
radiation protection, some progress was made in July 2000 with the introduction of the 
obligation to inform the general public about health protection meas ures in the event of a 
radiological emergency, bringing the situation into line with the acquis. In the framework 
of the revised NPAA, Hungary had prepared a plan for financing investments  indicating 
the various funding sources on a yearly basis. Legislati on has been further aligned with 
the Environmental Impact Assessment Directive  concerning the scope of activities, but 
further efforts will be necessary to enforce the Directive as stipulated by the short -term 
Accession Partnership priority. Therefore, thi s priority has not been met.   
Justice and Home Affairs: In relation to border management , considerable efforts were 
made to up -grade border posts and “ green border control ”, including registering 
everyone entering or leaving Hungary, introduction of new f orgery -proof identity cards in 
January 2000, and better technology (computerisation, night vision devices). However, 
diversion of allocated resources due to natural disasters resulted in no new staff being 
employed, and less upgrading of equipment than nee ded. More generally, there is further 
need to develop a modern, efficient and professional service, especially against a 
background of low salaries. In relation to processing of asylum requests , the creation of a 
87 new Office for Immigration and Citizens’ Af fairs (OICA) in January 2000 has improved 
coordination and provided an autonomous budget. Despite significant understaffing, lack 
of finance, and lengthy legal procedures, the backlog of applications (in part due to a 55% 
rise in asylum -seekers from 1998 t o 1999) has been halved to 2,000 since July 1999. In 
March 2000, Hungary did indeed ratify the 1990 Council of Europe Convention in 
respect of proceeds of crime. The OECD Convention on combating bribery of foreign 
public officials in international business  transactions was promulgated in May. More 
generally in the fight against organised crime , the National Police Headquarters began 
using the internet to track illegal web pages and criminals, and an on -line database in the 
Chief Prosecutor’s Office was esta blished to provide access to all criminal investigations 
since 1994. Other developments include: the opening of an improved forensic laboratory 
(including DNA testing); the establishment of the International Law Enforcement Co -
operation Centre at police he adquarters (to liaise with Interpol); improved police co -
operation with neighbouring countries and EU member states in general; and the setting -
up of an elite group to combat organised crime car thefts. Therefore this priority has 
been met.  
Reinforcement of administrative and judicial capacity, including  management and 
control of EC Funds:  The Assistance Coordination Secretariat in the Office of the Prime 
Minister became responsible for the overall coordination of pre -accession aid, i.e. Phare, 
ISPA and S APARD . The capacity of the administration to programme, implement and 
monitor assistance has thus been improved. However, the preliminary National 
Development Plan  for 2000 was mixed in quality, and lacking coherence with other 
similar plans used by Hungar y, e.g. the Széchenyi Plan for national economic 
development. Improvement is needed if these documents are to evolve into the planning 
necessary for effective use of the Structural Funds. Hungary has already set up the 
necessary external and internal finan cial control bodies .  There is a need for further 
strengthening the various bodies, in particular the State Audit Office for the adequate 
follow -up of its audit findings. Hungary is party to the Espoo Convention on 
Environmental Impact Assessment in a Tran sboundary Context and since 1993 has 
applied a comprehensive system of environmental impact assessment. P rovision was also 
made to allow tendering under the EC’s new structural pre -accession instruments ISPA 
and SAPARD to respect EC requirements, in partic ular by excluding national preference.  
In relation to the implementation of Phare  in Hungary, the situation has improved 
considerably in the recent past. The backlogs and problems in relation to past 
programmes were largely eliminated. The implementation of the 1999 programme is 
proceeding on schedule.  The 2000 programme was the first approved for any candidate 
country, and planning for 2001 is already advancing positively. It is accurate to speak of a 
new and much improved phase of Phare implementation b eing instituted. The Hungarian 
Finance Intelligence Unit, called Anti Money Laundering  Division (AMLD), was up -
graded in 1999 and now consists of seven investigators and two administrators. During 
1999 and 2000 training courses were organised for staff of the financial institutions and 
the AMLD. Finally, an Anti Money Laundering Co -ordination Body was set up with the 
participation of governmental organisations and NGOs. Consequently, this priority has 
been met.    
Medium -term priorities  
Only those medium -term priorities of the 1999 Accession Partnership where there was 
some degree of progress are mentioned below.  
88 Economic Criteria: The Hungarian SME policy  was further developed with the 
preparation of the Széchenyi Plan, a National Development Plan. The Pla n targets SME 
development as one of its strategic development objectives. The specific SME 
programme outlined in the plan aims at developing business culture and skills (training, 
improved access to information), the development of SMEs' business relations   (e.g. 
development of entrepreneurial networks, clusters, co -operation in procurement and 
international co -operation) and improved access to finance (e.g. schemes that address the 
different needs of enterprises according to their life cycle phase , contin uation of the 
micro -credit programme, guarantee schemes). The Plan further proposes certain measures 
to improve and simplify administrative procedures. Of particular relevance to SME 
development are also the Plan's separate programmes in the area of sub -contracting (a 
continuation and further development of the existing programme) and tourism 
development.  
Energy: In order to enhance energy efficiency,  which is still relatively low, the 
government adopted a new € 6.2 million energy efficiency programme in Se ptember 
1999. The programme is implemented by the Energy Information Agency and the Energy 
Center which merged in September 2000. In parallel the acquis on efficiency 
requirements and on the labelling for household appliances was further aligned. Hungary 
also participated in the Save II Programme. In 1999, further nuclear safety  reviews were 
carried out at Hungary’s Paks Nuclear Power Plant . In particular, in November 1999 a 
new and more efficient safety system was introduced with an IT digital system able  to 
automatically operate the measurement equipment without any human interference. 
Simultaneously, the plant underwent the most important upgrade with the complete 
overhaul of the reactor protection system and the replacement of fuel cells and capacitors.  
The safety upgrading programme was financed from the depreciation of the equipment.  
Justice and Home Affairs: Further efforts to up-grade the law enforcement bodies  were 
made, in particular in the area of border management and asylum. As regards the fight 
against organised crime , Hungary made further efforts to strengthen its administrative 
capacity, notably at the National Police Headquarters, the Chief Prosecutor’s Office and 
the Hungarian Customs and Finance Guard. In the area of drugs, the government 
approved in July 2000 the National Strategy to Combat the Drug  Problem putting special 
emphasis on preventive measures. The main objective of the strategy is to introduce 
combined demand and supply reduction programmes. Co -operation between Hungarian 
law-enforcement agencies was improved through the setting up of an elite 40 -member 
group at the Budapest Police Headquarters to investigate organised crime involvement in 
car thefts. The group is co -operating with the secret service, customs guards, local 
gover nments and other authorities. As a first result of the work of this unit, the number of 
car thefts has been significantly reduced. Progressive alignment of the Hungarian visa 
legislation  was continued by introducing  the free travel regime of the EU for cit izens of 
New Zealand and Venezuela and the signature of an agreement with Brazil to the same 
ends. In August 1999, the obligation to have airport transit visas was introduced for 
citizens of a number of countries. Compulsory Visa Agreements were concluded with 
Azerbaijan, Tajikistan, Armenia and Turkmenistan and on an interim basis with Russia.  
Hungary also made efforts to improve the standards of reception facilities for asylum 
seekers  at Budapest airport, Kiskunhalas and Szombathely.  
89 2. National Programme for the Adoption of the Acquis   
The revised version of the Hungarian National Programme for the Adoption of the Acquis  
(NPAA) was adopted by the Hungarian Government on 6 June 2000. It covers only 
additional needs motivated by changes of the acquis , the ch ange of the Hungarian 
accession date and the accession negotiations. Planning covers the years 2000 -2002.  
The NPAA follows a structure similar to the Regular Report, but does not explicitly refer 
to last year’s analysis. At the beginning of each chapter, an overview of the current 
situation is given together with an outline of progress achieved in 1999. The remaining 
tasks for 2000 -2002 are then laid down in line with the Law Approximation Programme 
that was up -dated and approved by the government simultan eously. Information is also 
given on the necessary institution building measures together with a timetable. In the case 
of resource requirements the programme contains financial plans for each chapter.  
The Strategy for Catching up with Europe adopted by th e Government in June 1999 
constitutes the economic policy base of the NPAA. The Joint Assessment Document of 
economic policy, which was updated and adopted by the European Commission and 
Hungary in April 2000, is only partly relevant as the part on structu ral reforms in the 
NPAA is rather general and often does not refer directly to the commitments made in the 
framework of the Joint Assessment. Furthermore, the link between the NPAA and other 
national programmes such as the Széchenyi Plan is not always clea r. Finally, the NPAA 
does not always play a co -ordinating role in planning the use of pre -accession assistance. 
This is particularly relevant as regards the SAPARD programme where none of the 
measures to be implemented by the SAPARD programme were taken in to account. Even 
some inconsistencies with the Hungarian negotiating position could be noted in the field 
of agriculture, as some request for transitional arrangements were not reflected in the 
NPAA.  
The revised NPAA is in general coherent with the priori ties of the Accession Partnership, 
even if the relevant Accession Partnership priority is mostly not explicitly mentioned. 
However, in the chapters on industry, agriculture and competition the relevant Accession 
Partnership priority is not or only partly r eflected. In some chapters, the prioritisation 
between short - and medium -term priorities is not sufficiently clear.  
The NPAA covers all chapters of the acquis , but the level of detail varies. Thus, in the 
chapters on free movement of persons, research and the non -harmonised sectors, 
important parts of the acquis  are not covered. In the chapters on free movement of 
capital, veterinary issues, agricultural policy and energy certain elements are also 
missing. In general, the goals to be achieved and tasks to b e undertaken are well 
identified. However, sometimes the implementation measures are not concrete, too 
general or requirements are spelt out inaccurately. This concerns particularly the sections 
on state aids, industry, anti -fraud, phytosanitary issues, se rvices and employment.  
As regards the implementation timetables, they are quite often relatively vague. Further 
fine-tuning and clearer commitments as to when the measures mentioned are scheduled 
to be implemented would be desirable. In particular, the in dication ‘by the date of 
accession’ should be replaced by a more concrete commitment, as the date of accession 
has not been decided yet. Also time indications regarding the relevant and necessary 
procedural steps are not very specific in most of the chapte rs. Finally, in some chapters 
such as agriculture and regional policy where important investments are needed 
projections going beyond the year 2002 would be useful.  
90 In general, institution building aspects are adequately handled. There are indications of 
the needs for the establishment of new bodies where appropriate. An overview is also 
given on the restructuring of the organisations or the activities of the existing bodies in 
order to improve their ability to perform control, supervisory and monitoring fu nctions, 
increases in staff, training provisions and technical modernisation needs. However, there 
is often a lack of information about concrete actions to implement the described 
measures. This is particularly the case for the chapters on transport, agric ulture, SMEs 
and regional policy.  
As to the budget, estimates are broken down to indicate contributions from the central 
budget, EC assistance and other sources. Tables outline cost implications, funding 
requirements (with reference to Phare and other pre -accession related funds) and planned 
disbursement of funds and staffing requirements. Budgetary implications of the different 
actions are mostly given, except for healthcare reform. They could be more precise for 
the chapters on industry and SMEs. In the c ase of agriculture, investment estimates have 
been decreased compared to the 1999 NPAA. This leaves doubts as to whether enough 
resources have been allocated for this sector.  
The NPAA covers the key issues of the process of accession preparations. It mostl y 
provides for the necessary budget, institution building measures and level of detail. 
However, more emphasis should be put on co -ordinating the different policy instruments 
to ensure full coherence.  
 91 Annexes  
 
 92 Human Rights Conventions ratified by the Ca ndidate Countries,  
September 2000  
 
Parties to following conventions 
and protocols  
 BG CY CZ EE HU LV LT MT PL RO SK SV TK 
ECHR  (European Convention 
on Human Rights)  X X X X X X X X X X X X X 
Protocol 1 (right of property et 
al.) X 
 X X X X X X X X X X X X 
Protocol 4 (freedom movement et 
al.) O X X X X X X O X X X X O 
Protocol 6 (death penalty)  
 X X X X X X X X O X X X O 
Protocol 7 (ne bis in idem)  
 O X X X X X X O O X X X O 
European Convention for 
the Prevention of Torture  X X X X X X X X X X X X X 
European Social Charter  
 O X X O X O O X X O X O X 
Revised European Social 
Charter  X X O X O O O O O X O X O 
Additional Protocol to the ESC 
(system of collective complaints)  O X O O O O O O O O O O O 
Framework Convention 
for National Minorities  X X X X X O X X O X X X O 
ICCPR  (International Covenant 
on Civil and Political Rights)  X X X X X X X X X X X X O 
Optional Protocol to the ICCPR 
(right of individual 
communication)  X X X X X X X X X X X X O 
Second Optional Protocol to 
ICCPR (abolition death pena lty) X X O O X O O X O X X X O 
ICESCR  (International 
Covenant on Economic, Social 
and Cultural Rights)  X X X X X X X X X X X X O 
CAT  (Convention against 
Torture)  X X X X X X X X X X X X X 
CERD  (Convention on the 
Elimination of All Forms of 
Racial Discri mination)  X X X X X X X X X X X X O 
CEDAW  (Convention on the 
Elimination of All Forms of 
Discrimination against Women)  X X X    X X X   X X X X X X X 
CRC  (Convention on the Right 
of the Child)  X X X X X X X X X X X X X 
X  =  Convention ratified  
O =  Co nvention NOT ratified  
 
BG = Bulgaria; CY = Cyprus; CZ = Czech Republic; EE = Estonia; HU = Hungary; LV = 
Latvia; LT = Lithuania; MT = Malta; PL = Poland; RO = Romania; SK = Slovakia; SV = 
Slovenia; TK = Turkey  
 93 Statistical data       
 1995  1996  1997  1998  1999  
Basic data  in 1000  
Population (average)  10.229  10.193  10.155  10.114  10.068  
 in km²  
Total area  93.030  93.030  93.030  93.030  93.030  
      
National accounts  1000 Mio Forint  
Gross domestic product at current prices  5.614  6.894  8.541  10.087  11.486  
 1000 Mio ECU/euro  
Gross domestic product at current prices  34,1 35,6 40,4 41,9 45,4 
 ECU/euro  
Gross domestic product per capita18 at current prices  3.300  3.500  4.000  4.100  4.500  
 % change over the previous year  
Gross domestic product at constant price s (nat. currency)  1,5 1,3 4,6 4,9 4,5 
 in Purchasing Power Standard  
Gross domestic product per capita19 at current prices  8.119  8.590  9.350  9.899  10.705  
      
Structure of production  % of Gross Value Added20 
   - Agriculture  6,8 6,6 5,9 5,5 : 
   - Industry (excluding construction)  26,3 26,3 28,1 28,2 : 
   - Construction  4,6 4,3 4,6 4,6 : 
   - Services21 62,3 62,8 61,4 61,7 : 
      
Structure of expenditure  as % of Gross Domestic Product  
   - Final consumption expenditure  77,3 73,9 72,2 72,5 73,7 
             - household and NPISH  53,7 51,9 50,3 50,8 51,8 
             - general government  23,6 22,0 21,9 21,7 21,9 
   - Gross fixed capital formation  20,0 21,4 22,2 23,6 23,9 
   - Stock variation22 4,0 5,7 5,6 6,0 4,8 
   - Exports of goods and services  36,9 38,9 45,5 50,6 52,6 
   - Imports of goods and services  38,2 39,9 45,5 52,7 55,0 
      
Inflation rate  % change over the previous year  
Consumer price index23 28,3 23,5 18,5 14,2 10,0 
                                                 
18 Figures have been calculated using the population figures from National Accounts, which may differ from those used in 
demographic statistics.  
19 Figures have been calculated using the population figures from National Accounts, which may differ fr om those used in 
demographic statistics.  
20 Including FISIM.  
21 The item "Services" includes statistical discrepancies.  
22 These figures include changes in inventories, acquisitions less disposals of valuables and the statistical discrepancy betwee n the 
GDP a nd its expenditure components.  
23 Changes in Methodology: PROXY HICP since 1996 (see methodological notes)  
 94  
Balance of payments  In Mio ECU/euro  
   -Current account  -1.814 -1.319  -840 -2.059  -1.969  
   -Trade balance  -1.828  -2.088  -1.726  -2.110  -2.059  
      Exports of goods  9.911  11.215  17.386  18.505  20.533  
      Imports of goods  11.739  13.302  19.112  20.615  22.592  
   -Net services  1.257  1.951  2.025  1.592  1.317  
   -Net income  -1.396  -1.139  -1.264  -1.675  -1.556  
   -Net current transfers  152 -44 124 133 329 
      -of which : government transfers  4 -12 -4 -41 -8 
   - FDI (net) inflows  3.675  1.803  1.928  1.815  1.849  
      
Public finance  in % of Gross Domestic Product  
General government deficit/surplus  -6,6 -3,2 -5,4 -7,2 -3,7 
      
Financial indicators  % of Gross Domestic Product  
Gross foreign debt of the whole economy  65,3 60,6 52,9 53,9 55.9 E  
 as % of exports  
Gross foreign debt of the whole economy  176,7  155,9  116,3  106,5  106.3 E  
Monetary aggregates  in 1000 Mio ECU  
   - M1 5,7 6,0 6,8 7,0 8,3 
   - M2 12,8 13,8 15,7 : : 
Total credit  25,2 24,0 24,8 25,1 23,5 
Average short -term interest rates  % per annum  
   - Lending rate  32,4 28,2 23,0 20,1 17,2 
   - Deposi t rate  24,8 20,6 17,6 15,4 12,6 
ECU exchange rates   (1ECU/euro=..Forint)  
   - Average of period  164,5  193,7  211,7  240,6  252,8  
   - End of period  183,3  206,9  224,7  252,4  254,7  
 1995=100  
   - Effective exchange rate index  100,0  85,7 79,6 71,0 66,9 
Reserve assets24 Mio ECU/euro  
   -Reserve assets (including gold)  9.139  7.773  7.634  8.106  10.883  
   -Reserve assets (excluding gold)  9.106  7.743  7.607  8.081  10.855  
      
External trade  Mio ECU/euro  
Trade balance  -1.987  -1.922  -1.882  -2.409  -2.811  
Export s 9.837  12.368  16.842  20.520  23.468  
Imports  11.824  14.289  18.724  22.929  26.279  
 previous year=100  
Terms of trade  101,3  97,7 101,2  101,3  98,4 
 as % of total  
Exports with EC -15  62,8 69,7 71,2 72,9 76,2 
Imports with EC -15   61,5 62,3 62,8 64,1 64,4 
      
Demography  per 1000 of population  
                                                 
24 1999 data refer to November 1999.  
 95 Natural growth rate  -3,3 -3,7 -3,8 -4,3 -4,8 
Net migration rate (including corrections)  0 0 0 0 0 
 per 1000 live -births  
Infant mortality rate  10,7 10,9 9,9 9,7 8,9 
Life expectancy :  at birth  
                          Males:  65,3 66,1 66,4 66,1 66,3 
                          Females:  74,5 74,7 75,1 75,2 75,1 
      
Labour market (ILO methodology)  % of labour force  
Economic activity rate25 52,4 48,2 48,1 48,4 49,6 
Unemployment rate, total  10,2 9,9 8,7 7,8 7,0 
Unemployment rate of persons < 25 years  18,7 18 15,9 13,5 12,4 
Unemployment rate of persons >= 25 years  8,7 8,5 7,5 6,7 5,9 
Average employment by NACE branches  in % of total  
   - Agriculture and forestry  8 8,3 7,9 7,5 7,1 
   - Industry (excluding cons truction)  26,7 26,7 27,1 28 27,4 
   - Construction  5,9 6,0 6 6,2 6,6 
   - Services  59,4 59 59 58,3 58,9 
      
Infrastructure  in km per 1000 km²  
Railway network  83 83 83 83 83 
 km  
Length of motorways  335 365 381 448 448 
      
Industry and agric ulture  previous year=100  
Industrial production volume indices  104,6  103,4  111,1  112,5  110,7  
Gross agricultural production volume indices  102,6  106,3  96,2 97,9 100,1  
      
Standard of living  per 1000 inhabitants  
Number of cars  220 222 226 220 224 
Telephone subscribers  208 261 303 335 358 
Number of Internet connections26 .. .. .. 8,2 13,6 
E= estimates       
                                                 
25 Change in methodology (labour force 15 -74 years, see methodological notes).  
26 Source for 1998 figure: United Nat ions. 
 
 96 Methodological Notes  
Inflation  
Consumer price inflation:  The EU Member States have designed a new consumer price index in 
order to comply with  the obligations of the EC Treaty, as part of the preparations for the common 
currency. The aim was to produce CPIs comparable between Member States. The main task was to 
harmonise methodologies and coverage. The result was the Harmonised Index of Consumer  Prices 
(HICP). A similar exercise has been started with Candidate Countries (CC). In respect to 
enlargement, it is equally important that their economic performance is assessed on the basis of 
comparable indices. Some progress has already been made toward s adapting the new rules. Since 
January 1999 CCs report monthly to Eurostat so -called proxy HICPs which are based on national 
CPIs but adapted to the HICP coverage. Since 1996 the date in the table are these proxy HICPs. 
Reliable and comparable HICPs are e xpected to be available in CCs from January 2001 onwards.  
Finance  
Note on sources:  
General government deficit / surplus:  Candidate Countries are presently unable to provide reliable 
data on a national accounts basis. Eurostat is working closely with these countries with the aim of 
improving these statistics. Given the lack of reliable data, an approximation for general government 
deficit / surplus is derived from the IMF’s Government Finance Statistics Yearbook (see explanation 
below).  
Gross foreign debt:  the OECD External Debt Statistics publication has been used as the source. Data 
for 1999 are estimates.  
Foreign official reserves, monetary aggregates, interest rates, and effective exchange rates:  where 
possible, Eurostat’s reporting form for Candidate Cou ntries is used. Failing this, the IMF’s 
‘International Financial Statistics’ publication has been used as the source.  
Exchange rates:  against the ECU (euro). European Commission data is used for ECU rates, 
European Central Bank data for euro rates.  
Note on  methodology:  
General government deficit / surplus:  an approximation of the national accounts definition, derived 
from data based on the IMF’s GFS (government finance statistics) methodology. The general 
government deficit / surplus is obtained by adding t he consolidated central government deficit / 
surplus (normally including certain extra -budgetary funds) to the local government deficit / surplus. 
The total is adjusted for net lending / borrowing for specific policy purposes, which is a financing 
item in the national accounts. GFS data are on a cash basis.  
Gross foreign debt:  of the whole economy; includes both short - and long -term. According to the 
convention, the stock of outstanding debt is converted from US dollars into ECU at end -year 
exchange rates, whereas GDP is converted into ECU using annual average exchange rates. For the 
ratio of gross foreign debt to exports, the national accounts definition of exports of goods and 
services is used.  
Monetary aggregates:  end-year stock data. M1 refers to notes a nd coins in circulation plus bank 
sight deposits. M2 refers to M1 plus savings deposits plus other short -term claims on banks. Total 
credit refers to domestic credit to the government (net of deposits, including non -financial public 
enterprises), plus the private non -financial sector, plus other non -monetary financial institutions.  
 
 97 Interest rates:  annual average rates. Lending rates consist of the average rate charged on loans 
granted by reporting banks. Deposit rates refer to average demand and time depos it rates.  
Exchange rates:  ECU exchange rates are those that were officially notified to the European 
Commission until 1 January 1999, when the ECU was replaced by the euro. Euro exchange rates are 
reference rates of the European Central Bank, where availab le. The effective exchange rate index 
(nominal) is weighted by major trading partners, and calculated on a base period of 1995 (annual 
average).  
Reserve assets:  end-year stock data. They are defined as the sum of central bank holdings of gold, 
foreign exch ange, and other (gross) claims on non -residents. Gold is valued at end -year market price.  
External trade  
Imports and exports (current prices):  the data is based upon the special trade system, according to 
which, external trade comprises goods crossing the customs border of the country. Trade data 
excludes direct re -exports, trade in services as well as licences, know -how and patents. Since 1997, 
trade data includes trade between industrial customs free zones and foreign markets. Since 1997 
also, operative l easing and repair are excluded from external trade turnover. The data for 1996 were 
recalculated according to the methodological changes in 1997. The data for periods up to 1996 are 
published in the original content, therefore they are not comparable with the data of 1996 and 1997. 
Value of external trade turnover includes the market value of the goods and the additional costs 
(freight, insurance etc.).  
Trade classification:  until the end of 1996, the trade in goods was recorded by using two types of 
class ification in parallel: the Hungarian External Trade Classification (KTJ) and the Harmonised 
Commodity Description and Coding System (HS) nomenclature. The customs documentation is the 
statistical data source of external trade turnover. Since 1996, the data  are collected according to the 
Combined Nomenclature (CN). The earlier data are updated on the basis of the later processing.  
The term FOB means that all costs incurred in transport up to the customs frontier are charged to the 
seller. The term CIF means that the purchaser pays the additional costs. Imports are recorded on CIF 
basis on the date of custom clearance. Exports are recorded on FOB basis with the date on which the 
commodities cross the state border.  
Terms of trade:  “Unit value” index calculation  is used for measuring price changes in external trade, 
with the exception of heterogeneous commodity groups, where the sample method is applied for the 
price observation. Since the I quarter of 1996 due to the modifications in the calculation of unit 
value indices and the application of Fisher indices instead of Paasche indices, the quarterly volume 
indices has been changed.  
Imports and exports with EC -15: data declared by the Republic of Hungary.  
Demography  
Net migration rate:  crude rate of net migration (recalculated by EUROSTAT) for year X, is: 
population (X+1) - population (X) - Deaths (X) + Births (X). This assumes that any change in 
population not attributable to births and deaths is attributable to migration. This indicator includes 
therefore also ad ministrative corrections (and projection errors if the total population is based on 
estimates and the births and deaths on registers). Figures are in this case more consistent. Further, 
most of the difference between the Crude rate of net migration provide d by a country and the one 
calculated by Eurostat is caused by an under reporting or delay in reporting of migration.  
 
 98 Labour force  
Economic activity rate (ILO Methodology):  according to the Labour Force Survey (LFS); it 
represents the labour force as a per centage of population at working age (15 years and more), where:  
- Labour force: employed and unemployed persons (according to the ILO definitions).  
- The employed: all persons aged 15+, who during the reference period worked at least one hour for 
wage or salary or other remuneration as employees, entrepreneurs, and members of co -operatives or 
contributing family workers. Members of armed forces are considered as employed.  
- The unemployed: all persons aged 15+, who concurrently meet all three conditions of  the ILO 
definition for being classified as the unemployed:  
have no work,  
are actively seeking a job and,  
are ready to take up a job within a fortnight.  
LFS monitors only person's aged 15 -74. 
Unemployment rate (by ILO methodology):  percentage of the unempl oyed in labour force.  
These rates are derived from LFS (Labour Force Survey) observing the ILO definitions and 
recommendations mentioned below.  
Average employment by NACE branches (LFS). This indicator is derived from LFS (Labour Force 
Survey) observing th e ILO definitions and recommendations.  
Infrastructure  
Railway network:  all railways in a given area. This does not include stretches of road or water even 
if rolling stock should be conveyed over such routes; e.g. by wagon -carrying trailers or ferries. Li nes 
solely used for tourist purposes during the season are excluded as are railways constructed solely to 
serve mines; forests or other industrial or agricultural undertakings and which are not open to public 
traffic. The data considers the construction le ngth of railways.  
Length of motorway:  road, specially designed and built for motor traffic, which does not serve 
properties bordering on it, and which:  
 (a)     is provided, except at special points or temporarily, with separate carriageways for the two 
directions of traffic, separated from each other, either by a dividing strip not intended for traffic, or 
exceptionally by other means;  
 (b)     does not cross at level with any road, railway or tramway track, or footpath;  
 (c)     is specially sign -posted a s a motorway and is reserved for specific categories of road motor 
vehicles.  
Entry and exit lanes of motorways are included irrespectively of the location of the signposts. Urban 
motorways are also included.  
Industry and agriculture  
Industrial production volume indices : industrial production covers mining and quarrying, 
manufacturing and electricity, gas, steam and water supply (according to the NACE Rev.1 
Classification Sections C,D,E).  
Index of total industrial production  includes the data of all indus trial enterprises. The indices  by 
branches refer to enterprises with more than 10 employees.  
 
 99 Gross agricultural production volume indices:  calculated using the fixed price basis applied for 
national accounts. Until 1996 the prices of 1991,and from 1997 t he prices of 1995 serve as fixed 
price basis in the calculation.  
Standard of living  
Number of cars:  Passenger car: road motor vehicle, other than a motor cycle, intended for the 
carriage of passengers and designed to seat no more than nine persons (includ ing the driver).  
The term "passenger car" therefore covers microcars (need no permit to be driven), taxis and hired 
passenger cars, provided that they have less than ten seats. This category may also include pick -ups. 
Telephone lines:  connected main line a ctually operating or temporarily suspended, main lines that 
connect terminal equipment to a switching exchange. These include private and institutional main 
lines, lines of public payphones and telecommunications service lines. Mobile phone lines are 
exclu ded. Connected main lines can be classified as dwelling, business and public main lines.  
Note: Since the passing of the Hungarian Telecommunication Law, the Hungarian Central Statistical 
Office (like the countries of the EU ) has been collecting data on th e main lines. Before 1993, the 
new Telecommunication Law, statistics surveyed main stations.  
Number of Internet connections:  data collection of Internet connections started in 1999.  
Sources  
Total area, infrastructure, industry and agriculture, external tr ade, labour market: National sources.  
National accounts, inflation rate, balance of payment, public finance, finance, demography: Eurostat.