Proposal for a decision of the Council and of the Commission concerning the Community position within the Association Council on the transition to the second stage of the Association between the European Communities and their Member States, of the one part, and the Republic of Hungary, of the other part, pursuant article 6 of the Europe Agreement
Date: 1999-12-15
Institutions: European Commission
Subjects: Hungary, association agreement (EU), free movement of capital, free movement of workers, market economy

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 15.12.1999
COM(1999) 692 final

Proposal for a

DECISION OF THE COUNCIL AND OF THE COMMISSION

concerning the Community position within the Association Council on the
transition to the second stage of the Association between the European
Communities and their Member States, of the one part, and the Republic of
Hungary, of the other part, pursuant article 6 of the Europe Agreement

(presented by the Commission)

EXPLANATORY MEMORANDUM

The Europe Agreement (EA), establishing an Association between the European
Communities and their Member States, of the one part, and the Republic of Hungary,
of the other part, came into force on 1 February 1994.

Article 6 of the above-mentioned Agreement states that
the Europe Agreement
includes a transition period of a maximum duration of 10 years, divided into two
successive stages, each in principle lasting five years as from the date of entry into
force of the Agreement.

During the course of the 12 months preceding the expiration of the first stage, the
Association Council shall meet to decide the transition to the second stage as well as
on any possible changes to be brought about as regards measures concerning the
implementation of the provisions governing the second stage.

The question regarding the transition to the second stage has been addressed by the
Association Council on 10 November 1998. On that occasion,
the Association
Council invited the parties to exchange the necessary information to prepare the
decision on the transition to the second stage of the Association as soon as possible.
This exchange of information took place in the framework of the instances of the
Europe Agreement and led to the conclusion that the parties are ready to comply with
the obligations deriving from the transition to the second stage.

The transition to the second stage of the Association has the following implications
for the parties :

Free movement of workers

• Following Article 42 of the EA, during the second stage referred to in Article 6, or
earlier if so decided, the Association Council shall examine further ways of
improving the movement of workers, taking into account inter alia, the social and
economic situation in Hungary and the employment situation in the Community.
The Association Council should make recommendations to this end.

Establishment

• Following Article 44 of the Europe Agreement, Hungary shall :

1.

2.

as from the end of the first stage of the Association, grant
for the
establishment of Community companies and nationals a treatment no less
favourable than that accorded to its own companies and nationals, save for
the sectors referred to in Annexes XIIa and XIIb, where such treatment will
be granted at the latest by the end of the transitional period referred to in
Article 6 (1.02.2004).

as from the end of the first stage of the Association, amend laws and
regulations as necessary to ensure equal treatment of Community companies
and nationals established in Hungary.

2

3.

4.

as from the start of the second stage of the Association, apply national
treatment as described in paragraphs 1 and 3 of Article 44 of the EA, for EU
branches, agencies and nationals establishing as self-employed persons in
Hungary.

at the latest by the end of the first stage of the Association, grant to branches
and agencies of Community companies and Community nationals established
as self-employed persons in Hungary the right to acquire, use, rent and sell
real property, and as regards natural resources, agricultural land and forestry,
the right to lease, where these are directly necessary for the conduct of the
economic activities for which they are established. This right does not
include establishment for the purpose of dealing and agency in the area of
real state and natural resources.

Hungary ensures the implementation of the above-mentioned provisions through the
following legislation :

– Act I of 1994 on the Europe Agreement established between the European

Communities and their Member States and the Republic of Hungary;

– Act CXLIV of 1997 (a new "Company Act", entry into force on 1.1.1998), which

eliminated discrimination as regards EU companies establishing in Hungary;

– Act CCXXXII of 1997 on Hungarian Branch Offices and Commercial
Representative Offices of Foreign-Registered Companies (entry into force on
1.1.98) which has created proper framework for the establishment and operation of
EU branches and offices in Hungary;

– Act LXXII of 1998 on Self-employed (entry into force 1.2.99), which grants

Hungarian national treatment to the self-employed EU nationals in Hungary.

– Government Decree 157/1999 amending Government Decree 7/1996 on the
acquisition of real estate by foreigners which provides for the possibility of
granting licenses to foreigners establishing themselves as self employed persons in
the territory of Hungary.

• Following Article 44 of the EA, the EU shall, as from the start of the second stage
of the Association, apply national treatment as described in paragraphs 1 and 3 of
Article 44 of the EA, for Hungarian branches, agencies and nationals establishing
as self-employed persons in the EU.

• Following Article 50 of the Europe Agreement, Hungary, upon expiration of the
first stage referred to in Article 6, or for the sectors included in Annexes XIIa and
XIIb upon the expiration of the transitional period, will be able to introduce
measures derogating the provisions of Chapter II of the EA (Establishment) only
with the authorisation of the Association Council and under conditions determined
by the latter.

Free movement of capital

• Following Article 60 of the Europe Agreement, Hungary shall:

3

1.

2.

by the end of the first stage of the Association, ensure the free movement,
liquidation or repatriation for all investments linked to the establishment of
branches and agencies of Community companies and of Community
nationals establishing in Hungary as self employed persons pursuant
to
Chapter II of Title IV (Establishment)

as from the start of the second stage of the Association, Hungary shall not
introduce any new foreign exchange restrictions on the movement of capital
and current payments connected therewith between residents of
the
Community and Hungary and shall not make the existing arrangements more
restrictive.

Hungary ensures the implementation of the above-mentioned provisions through the
following legislation :

– Act I of 1994 on the Europe Agreement established between the European

Communities and their Member States and the Republic of Hungary;

– Act XCV of 1995 on Foreign Exchange (entry into force on 1.1.96), which
liberalises current payments, establishes the convertibility of the Forint and allows,
on certain conditions, direct Hungarian investments abroad;

– Act CCXXXII of 1997 on Hungarian Branch Offices and Commercial
Representative Offices of Foreign-Registered Companies (entry into force on
1.1.98) which has created proper framework for the establishment and operation of
EU branches and offices in Hungary.

– Government Decree 157/1999 amending Government Decree 7/1996 on the
acquisition of real estate by foreigners which provides for the possibility of
granting licenses to foreigners establishing themselves as self employed persons in
the territory of Hungary.

• Article 61 of the EA states that during the first stage, the parties shall take
measures permitting the gradual application of Community rules on the free
movement of capital. During the second stage,
the Association Council will
examine ways on enabling to apply Community rules on the movement of capital
to be applied in full.

In order to make the transition to the second stage possible, the Council is invited to
adopt the annexed proposal for decision concerning the Community position within
the Association Council with Hungary on the transition to the second stage.

4

Proposal for a

DECISION OF THE COUNCIL AND OF THE COMMISSION

concerning the Community position within the Association Council on the
transition to the second stage of the Association between the European
Communities and their Member States, of the one part, and the Republic of
Hungary, of the other part, pursuant article 6 of the Europe Agreement

THE COUNCIL OF THE EUROPEAN UNION,

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Coal and Steel Community,

Having regard to the Treaty establishing the European Community, and in particular
Article 310 in conjunction with Article 300 (2), first subparagraph thereof,

Having regard to the Treaty establishing the European Atomic Energy Community,
and in particular the second paragraph of Article 101 thereof,

Having regard to the proposal from the Commission,

(1) Whereas the Europe Agreement between the European Communities and their
Member States, of the one part; and the Republic of Hungary, of the other part,
signed in Brussels on 16 December 1991, entered into force on 1 February
1994,

(2) Whereas Article 6 of the Europe Agreement provides for a transition period of
a maximum of ten years divided into two successive stages, each in principle
lasting five years,

(3) Whereas the first stage began on 1st February 1994, date of entry into force of
the Europe Agreement and terminates, in principle, on 31st January 1999,

(4) Whereas the Association Council, in accordance with Article 6 (2) of the
Europe Agreement, has regularly examined the application of the Europe
Agreement and Hungary's accomplishments in the process leading to a market
economy system,

(5) Whereas the parties are determined to comply with the obligations deriving

from the transition to the second stage of the Association,

(6) Whereas the Association Council shall decide the transition to the second
stage as well as on any possible changes to be brought about as regards

5

measures concerning the implementation of the provisions governing the
second stage,

(7) Whereas the Republic of Hungary has taken the measures necessary to ensure
compliance with all obligations resulting from the transition to the second
stage.

HAVE ADOPTED THIS DECISION:

Single Article

The decision to be taken by the Community within the Association Council
established by the Europe Agreement between the European Communities and their
Member States, of the one part, and Hungary, of the other part, concerning the
transition to the second stage of the Association, is the attached draft decision of the
Association Council.

Done at Brussels,

For the Council
The President

For the Commission
The President

6

ANNEX

DRAFT DECISION NO. …/99 OF THE ASSOCIATION COUNCIL,

ASSOCIATION BETWEEN THE EUROPEAN COMMUNITIES AND THEIR MEMBER
STATES, OF THE ONE PART, AND THE REPUBLIC OF HUNGARY, OF THE OTHER PART

OF … 1999

ON THE TRANSITION TO THE SECOND STAGE OF THE ASSOCIATION BETWEEN THE
EUROPEAN COMMUNITIES AND THEIR MEMBER STATES, OF THE ONE PART, AND
THE REPUBLIC OF HUNGARY, OF THE OTHER PART, PURSUANT ARTICLE 6 OF THE
EUROPE AGREE TEN YEARS TRANSITION PERIOD OF THE EUROPE AGREEMENT

The Association Council,

Having regard to the Europe Agreement between the European Communities and
their Member States, of the one part; and the Republic of Hungary, of the other part,
and in particular its Article 6, paragraph 3, thereof,

Whereas Article 6 paragraph 1 of the Europe Agreement provides for a transition
period of a maximum of ten years divided into two successive stages, each in
principle lasting five years,

Whereas the first stage began on 1st February 1994, date of entry into force of the
Europe Agreement, and terminates, in principle, on 31st January 1999,

Whereas the Association Council, in accordance with Article 6 (2) of the Europe
Agreement, has regularly examined the application of the Europe Agreement and
Hungary's accomplishments in the process leading to a market economy system,

Whereas the parties are determined to comply with the obligations deriving from the
transition to the second stage of the Association,

Whereas the Association Council shall decide the transition to the second stage as
well as on any possible changes to be brought about as regards measures concerning
the implementation of the provisions governing the second stage,

HAS DECIDED AS FOLLOWS :

Article 1

The transition to the second stage referred to in Article 6 (3) of the Europe Agreement
between the European Communities and their Member States, of the one part, and the
Republic of Hungary, of the other part, hereby takes effect.

7

Article 2

This decision shall enter into force on the day of its adoption by the Association
Council.

Done at Brussels, …. 1999.

For the Association Council

The President

8