2000 regular Report from the Commission on Hungary's progress towards accession
Date: 2000-11-08
Institutions: Directorate-General for Enlargement, European Commission
Subjects: Hungary, accession to the European Union, economic situation, political situation, social situation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.11.2000 
COM(2000)705 final 

2000 REGULAR REPORT 

FROM THE COMMISSION  

ON 

HUNGARY’S 

PROGRESS TOWARDS ACCESSION 

 
 
 
 
 
 
 
 
 
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 Partnership / National Programme for the Adoption of the Acquis ........... 8 
Community aid ............................................................................................................ 8 
Twinning ................................................................................................................... 11 
Negotiations / screening ............................................................................................ 12 

B.  Criteria for membership ........................................................ 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 minorities .......................................... 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 evaluation ........................................................................................ 30 

3.  Ability to assume the obligations of membership ............................. 32 
Introduction ............................................................................................................... 32 
3.1.  The chapters of the acquis ............................................................................ 33 
Chapter 1: Free movement of goods ............................................................. 34 
Overall assessment .................................................................................................... 35 
Chapter 2: Free movement of persons .......................................................... 36 
Overall assessment .................................................................................................... 37 
Chapter 3: Freedom to provide services ........................................................ 37 
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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 
Overall assessment .................................................................................................... 55 
Chapter 15: Industrial policy ......................................................................... 57 
Overall assessment .................................................................................................... 57 
Chapter 16:  Small and medium-sized enterprises ....................................... 58 
Overall assessment .................................................................................................... 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 Assessment ................................................................................................... 61 
Chapter 21: Regional policy and co-ordination of structural instruments . 62 
Overall Assessment ................................................................................................... 63 
Chapter 22: Environment .............................................................................. 64 
Overall assessment .................................................................................................... 66 
Chapter 23: Consumers and health protection ............................................. 67 
Overall Assessment ................................................................................................... 67 

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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 Assessment ................................................................................................... 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 Partnership ......................................................................... 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 

4 

 
 
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 that 

“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 deriving 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  Helsinki  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  to  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  separate  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  relations  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); 

5 

 
- 

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 
underlined 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  Feira  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  integration  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 strengthening 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 until 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, 
complementing  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 since 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  countries  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 publication 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  examination  of  the  acquis  (screening)  and  the  negotiations,  have  served  as 
additional  sources.  Council  deliberations  and  European  Parliament  reports  and 
6 

 
resolutions1 have been taken into account in the preparations.  The Commission has also 
drawn on assessments 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  Council  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 the 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 products 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 services 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 establishment. 

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 carried 
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 the 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. 

7 

 
 
 
                                                 
consequence  of  the  new  agreement  approximately  two  thirds  of  bilateral  trade  in 
agricultural  products  will  benefit  from  preferences.  The  regime  entered  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 progressively 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) was 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 
achieve  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 global 
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 
Partnership  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.  

8 

 
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 1997, 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  needed  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  by  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 Cohesion. 

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  Community  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  Promotion  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 

9 

 
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  transfer  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  structures 
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 moved 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  adaptation 
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 period 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 function as the Sapard Agency, this has now been made the responsibility of the 
Ministry  of  Agriculture  and  Regional  Development.  This  change  in  the  organisational 

10 

 
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 in 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 available 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  different  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  candidate  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, through 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.  Thanks  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 and 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  priority  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  the 
information system, planning capacity for structural and agri-environmental development 
scheme);  the public finance sector (adaptation  of the Hungarian tax system, monitoring 

11 

 
system for State aid  and foreign aid); and justice and home affairs (fight against 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 the 
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 seekers 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 
training”, 
medium-sized  undertakings”,  “Science  and  research”,  “Education  and 
“Statistics”,  “Fisheries”,  “Consumers  and  health  protection”,  Telecommunications  & 
information  technologies”,  “Industrial  policy,  ‘CFSP’  and  Financial  Control)  while 
negotiations continue for the remaining chapters. 

12 

 
B.  Criteria for membership 

1.  Political criteria  

Introduction 

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 law, 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 
reinforced.” 

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  overall 
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.  Specific 
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 report. 

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 guaranteeing 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  representation  of  minorities  foreseen  by  the  Constitution  no 
further progress could be noted. This issue remained on the agenda without concrete results. 

The executive 

13 

 
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 
shared 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 
Minister’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 Economic 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.  Government  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 measures 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 financial 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 Development 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  modernisation  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;  widespread  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 local 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  efficiency  and  effectiveness  of  the 
Hungarian public administration. 

14 

 
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 engage 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 Supreme 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  procedural  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 judges. 

  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 during 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 years ) 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 years 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 

15 

 
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 field. 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-governing 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 this 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 main 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  number  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  was  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  the 
upgrading  of  audio-visual  equipment.    The  internal  security  force  monitors  some 
80,000  officials  in  the  police,  tax  police,  customs  and  finance  guards,  fire 
departments and penal institutions. Since January 2000, policemen have also worn a 
name  tag  so  that  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  broad  social  and  professional 
consensus.  Under  new  conflict-of-interest  legislation  concerning  local  government 
representatives,  economic  and  other 
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 relationships with 
local  government,  or  to  occupy  leading  positions  at  public  foundations  and/or 
companies set up by local Self-Governments. 

leadership  positions  considered 

  The Council of Europe Convention on Criminal Law was signed in April 1999, but is 

not yet ratified. 

  The Council of Europe 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 promulgated by Parliament in May 2000. 

16 

 
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  satisfactorily,  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 Asylum 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 particular 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 
extraterritorial, 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  procedures.  
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 pose 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 addition, 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 

17 

 
terms to representatives 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  appear  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 only 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  investigations.  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  under  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 growing 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  standards.  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  disputes.  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  equal  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 basis 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 

18 

 
employment  of  people  with  disabilities.  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  companies  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  situation.  In  May  2000,  Hungary  received  the  Franklin  Delano  Roosevelt 
the 
International  Disability  Award  Prize.  The  Prize  committee  also  praised 
implementation  of  the  laws  on  social  provisions  and  public  education,  and  the  job-
creation schemes with expanded opportunities for people with disabilities. 

representative  confederations.  Trade  union  membership  accounts 

Hungary has numerous sector-based trade unions, most of which are affiliated to one of 
the  six 
for 
approximately 30% of the workforce. Collective agreements 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) level. 

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  strengthen 
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 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.  Under  the  “Roma  Policemen  Programme”  the  number  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 Minority 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  Roma  is  on 
average  10  years  shorter  than  for  the  rest  of  the  population.  As  regards  education,  less 

19 

 
than 46% completed their primary school education, and only 0.24% obtained a university 
to  suffer  prejudice  and  widespread 
or  college  degree.  Roma  have  continued 
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 Minorities, 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  public 
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-treatment 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 special 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  priority  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,  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 

2 However, the government contests these claims by international and non-governmental organisations and states that these special 

schools are designed for helping disadvantaged children. 

20 

 
                                                 
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 obtain concrete results in the medium-term.  

21 

 
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 progress 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 Regular 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  account  deficit  narrowed,  notwithstanding 
significant 
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 narrowed during 1999, and fiscal 
performance during the first half of 2000 was better than expected. 

import  growth.  The  employment 

22 

 
 
 
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 

Unemployment rate, end-year 
-  ILO definition 

General government budget 
balance 

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 

per cent 

9.9 

8.7 

7.8 

7.0 

6.5   April-June 

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 

Foreign direct investment in flow 
-  balance of payments data 

E = Estimates  

per cent 
million € 

155.9 
21,561 

116.3 
21,350 

106.5 
22,595 

106.3 E 
25,398 E 

: 
: 

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 

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 financial 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 implementation 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. 

23 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Main indicators of Economic Structure in 1999 

Population (average) 

thousand 

GDP per head 5 

PPS-€ 

Per cent of EU 
average 

Share of agriculture6 in: 
-  gross value added 
-  employment 

Investment-to-GDP 
ratio7 

per cent 
per cent 

per cent 

Gross foreign debt/GDP8  per cent 

Exports of goods & 
services/GDP 

Stock of foreign direct 
investment  
(End of 1999 - National 
source) 

per cent 

million € 
€ per head 

10,068 

10,705 

51 

5.54  
7.1 

23.9 

55.9 

52.6 

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 market 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 well-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  European  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  calculated  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. 

24 

 
 
 
 
 
 
                                                 
 
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  extremely  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,  domestic  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 sharp decline in interest rates, the savings 
rate fell from 10.5 percent at the end of 1998 to 6.6 percent in March 2000.  

last  year.  However, 

Unemployment has fallen significantly. According to labour force survey data 6.5 percent 
of  the  workforce  were  without  work  in  June  2000,  compared  to  7.4  percent  during  the 
same  period 
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 could emerge.  

there  are  significant  regional  differences 

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  first  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,  particularly  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 been 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 regulated 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. 

25 

Nominal  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 area 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 as 
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 sales. 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 developed 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 included 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  to  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 framework 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  lower  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 public sector resources. 

26 

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,  which 
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 finances. 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  local 
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 contributions 
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 percent 
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 enterprises, 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  is  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 implementation 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 

27 

National  Development  Plan  (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. Lease 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 institutions 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 
dramatically 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 alternative 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 implementation 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,  enhancing  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 government 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  will  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 cope 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  decisions  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 more 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  degree  of  economic  integration  it  achieves  with  the  Union  prior  to 

28 

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  are  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.  Investment  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 labour 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 GDP. Between 1989 and 1999, Hungary has received 
foreign direct investment inflows amounting to €15.2 billion, increasingly in the area of 
green-field 
the  stable 
macroeconomic  framework  and  the  strong  commitment  to  the  objective  of  European 
Union accession. 

investors  have  been  encouraged  by 

investment.  Foreign 

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 open 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  investments  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  in  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  performance  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 

29 

and 64.4 percent of imports. In the 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 eliminating 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 products, 
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 consists  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  people  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  more  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 its 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,  continued  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 skilled 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 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  current  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  of  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  delivery  of services to  domestic small 
and medium enterprises.  

30 

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  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. 

31 

3.  Ability to assume 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 which 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  referred  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 incorporating 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  effectively 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  required  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  approach  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. 

32 

                                                 
medium  term.   Hungary is  relatively well advanced in  alignment in the transport sector 
although the rail sector is lagging 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  works  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 have 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 membership 
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  market,  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, justice and home affairs, 
external policies, and financial questions.  

33 

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 harmonised 
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 sectors 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-operation  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 standards 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  and  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 made 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, inspecting 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,  gas-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. 

34 

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 billion , 
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 contracts 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 general 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 
European  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,  Hungary  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  certification  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  pricing  rules  and  marketing 
authorisations), cosmetics, chemical substances, metrology, construction sector products. 
Where  alignment  is  completed,  the  previous  pre-market  control  should  be  clearly 
abandoned 
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. 

line  with 

in 

In  the  non-harmonised  areas,  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  established  by  accession.  The  State  Secretariat  for  European 
Integration  in  the  Ministry  of  Foreign  Affairs  will  be  responsible  for  notifying  national 

35 

measures  derogating  from  the  principle  of  free  movement.  Further  institution-building 
and adoption of implementing 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 further 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  enforcement  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  Public  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  oversees  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  in  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  evidence  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 mutual 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 training. 

36 

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 they rely on the 
principles  of 
the 
administration with the procedures.  In addition, the inter-ministerial social co-ordination 
council  was  established  in  May  2000  to  co-ordinate  preparations  for  the  application  of 
Community law nationally and to assist those institutions that will be responsible for the 
social security of migrant workers. 

the  social  security  co-ordination  regulations  and  familiarise 

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  legislation  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  distinguishes  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 banking sector and investment services 
and security markets. 

37 

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 effective 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  interest  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  financial  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 Europe, 
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 taken 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 activity, 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 granted 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  agricultural  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 access. 

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.  Some 
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 demonstrate 
its effectiveness in the coming years. 

38 

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 services 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  litigation.  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  gradual  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 certain 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  elimination  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. Restrictions remain 
on  direct 
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. 

in  sectors  such  as  air 

investment 

transport, 

implementation  of  a  real-time  gross  settlement  system 

Partial harmonisation was already achieved in the area of cross-border credit transfers. 
The 
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 alignment,  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. 

is  an 

Chapter 5: Company law 

In  the  area  of  company  law,  Hungary  has  made  some  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 

39 

with  the  acquis  in  this  area.  It  also  establishes  the  legal  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 penalties 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  institution  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 associations 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 further 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  2000  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.  Provisions  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 has 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 introducing 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 industrial 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 

40 

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,  Hungary  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 staffed 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 intensity 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  adopted  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  State  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 Monitoring 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  regarding  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  Economic  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 priority 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 regards 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 

41 

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 assisted 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 ensure 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 structure 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,  there  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  agricultural  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 significant 
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  between 
previous and new figures. Further 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 agricultural 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”. 
42 

                                                 
As  regards  the  implementation  of  measures  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 expenditure 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 year.  

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 
Union 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  registration  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 agricultural 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  three  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 depending 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 

43 

A national Agri-Environmental 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 
registration  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  animal  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 central 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 has 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 
improved  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. 

44 

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 
the 
imported  and  domestic  products.  Further  support 
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. 

to  promote 

is  essential 

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  the  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 and 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 regards 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  public 
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  conditions  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  has  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 adoption 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 

45 

until January 2003. The phytosanitary 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 acquis 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  natural  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 marketing 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  collection  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  period  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 

46 

negotiations, a bilateral Road Goods Transit Agreement with the Community was signed 
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") with 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 Hungary 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 Inspectorate (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  addition,  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 Police. 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 development 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  particular  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 allocation 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 became 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  state 
authority  in  the  field  of  aviation.  It  supervises  both  the  air  traffic  management  and  the 

47 

airport administration (which are currently together in one entity), licenses air operators, 
provides  certificates  of  airworthiness,  and  licenses  air  traffic  management  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  Transport  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 infrastructure 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 
Network (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 legislation 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  capacity  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  which  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  transport  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 established.. 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. 

48 

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 excise 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 were 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  directorates  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 authorities 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 717 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 

49 

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  Member  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  prohibition  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  per  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  still  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, the 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  redefined  the  Hungarian  Central  Office  as  a 
professionally  independent  public  administrative  institution  with  national  competence. 

50 

Consequently, the president and vice-president of this institution are now appointed for 6 
instead  of  4  years,  thus  making  the  appointment  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 Classification 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) 
methodological  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,  covering 
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 

Hungary  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  collective 
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  January  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 

51 

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 indicative 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 government.  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  in  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 participation 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  social  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  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.  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 

52 

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  matters  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 access 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 companies 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 terms 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.  Health  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  monitored  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  situation  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  national  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. 

53 

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 reforms, 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 

Following  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 gas 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 requirements. 

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 
Hungarian  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. 

54 

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  supply  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 
strategic  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 their 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  radioactive  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 
preparation  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 and 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  independence  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 are 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 

55 

Western  practices  to  determine  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  lifetime  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 
containment  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 Agency (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.  Although  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 Energy 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  plans  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  safety  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 skilled 
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 the Additional Protocol to its IAEA Safeguards 
Agreement is to be noted. 

56 

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 small 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 economy and 
strengthen  the  supply  linkages  between  domestic  SMEs  and  multinational  companies. 
Privatisation was practically completed (see chapter 2 economic criteria). 

The  process  of 
industrial  sectors 
industrial  restructuring  continued.  Several 
(manufacturing  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  production.  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 for 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  each  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 industry. 

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  Hungarian 

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). 

57 

                                                 
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 Development 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  finance.  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  employees  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  concerned,  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,  and  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  administrative  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  average  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 objectives 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 Széchenyi 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 developments in the context of 

industrial policy (see Chapter 15 – Industrial policy). 

58 

                                                 
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  area  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 community 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  barrier  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: Science 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), including 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  play  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 continued 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 

59 

(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 
management  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 new 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  practices  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,  contributing  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  of  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 Vocational 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  teachers  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 
institutions 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 conformity. 

In the field of mobile telephony, further competition was introduced by licensing a third 
network in September 1999. 

60 

As  to  institutional  aspects  of  policy  making  and  regulation,  the  responsibility  for  the 
communication  sector  was  transferred  in  June  2000  from  the  former  Ministry  of 
Transport,  Communications  and  Water  Management  to  a  Government  Commissioner 
within 
in  charge  of 
telecommunications  regulation,  governmental  informatics,  the  information  society  and 
postal services and the Hungarian Communications Authority (HIF) reports to him. 

the  Prime  Minister’s  Office. 

  The  Commissioner 

is 

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 autumn 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 regulation 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  telephony  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 responsibilities 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 has 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  certain  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  alignment  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  steps  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. 

61 

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 President 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  its  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 organisation, 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 Councils 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 exercise 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  capacity  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 development 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 the 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  the  Preliminary  National 
Development Plan. 

62 

At  local  government  level,  the  modernisation  of  public  administration  continued  with 
training for civil servants in EU matters. Government also allocated around € 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  seven  Regional 
Development Councils. 

the  National  Regional  Development  Council  and 

Concerning  funding  aspects  of  regional  development,  the  State  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 the 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  for  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 positive 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 brought 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 structures 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. 

63 

Chapter 22: Environment 

Compared  with  the  ambitious  National  Environment  Protection  Programme  for  1998-
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  costs  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  information  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 October 
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 the 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 adoption 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 Management 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 for 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 established. 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 

64 

further  aligned.  Some  progress  was  also  achieved  concerning  the  harmonisation  of  the 
urban  wastewater  treatment  Directive,  whereas  important  implementation  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 installed 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  of  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  acquis  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 to 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 for 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  dangerous 
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  noise  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 
responsibility 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  Ministry  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 

65 

supported inter alia by an independent advisory body called the National Environmental 
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  supervision  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  2000. 

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 activity 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 licenses 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. 

in  order 

legislation 

Further efforts in aligning with the acquis are needed in particular in the following areas: 
horizontal 
information, 
to  ensure  access 
implementing legislation for waste management, water quality standards for drinking and 
bathing water as well as for 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 methods/technology on measuring noise impact still need to be 
introduced. 

to  environmental 

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  responsibilities  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. 

66 

Hungary  has  been  an  active  member  of  AC-IMPEL  (Associated  Countries  for 
Implementation  of  Environmental  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 policy 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 Office 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 and 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  following  areas:  misleading advertising, 
product  liability,  consumer  credit  (with  particular  emphasis  on  repossession  of  goods), 

67 

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  travel,  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  Institutions  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 Brazil 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  border  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 introduced 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 

68 

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% compared 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  language  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  migrants  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 certain 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  1999  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 “authorised to stay” under the Asylum Law. Approximately half of the asylum-seekers 
disappeared during the procedure. 

In January 2000, the new Office for Immigration and Citizen’s Affairs (total staff 180-200 
persons)  came  in  charge  of  first  instance  refugee  affairs,  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 

69 

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  asylum  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  joining  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  training  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  liaison  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 organised  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 affairs 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  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 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 directorate 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 participants 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 contains 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 Analysis 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, 

70 

seizure and confiscation of the proceeds from crime. In view of the 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 access to a scholarly research into corruption. 

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  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. 

In  the  field  of  customs  co-operation  Hungary  started  preparations  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  transposed  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-operation 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 metropolitan 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 of 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 with 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  Consular  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  mobility  of  mobile  border  guard  patrols,  expanding  the  IT  system 

71 

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.  The  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 considerably. 

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 implementation 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 information 
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 
economic impact and the extension of the application of simplified procedures, reflecting 

72 

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  Finance  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 are 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 million 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 in 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  already  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  ensure  a  full 

73 

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  limited  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  and  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 the 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  integration 
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. 

74 

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 and 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 dialogue 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 (ESDP) 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 surrounding 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 also 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 became 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  working  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. 

75 

 
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 strengthened. 

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 financial 
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  control  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 bodies 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 and 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 basic 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 

76 

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 control. 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 control 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 duties. 

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 controlling 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  procedures.  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 regard 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  those  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. 

77 

Budgetary  techniques  to  deal  with  co-financing  measures  focus  mainly  on  the 
functioning  of  extra-budgetary  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  ministries.  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  complemented 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  multiannual  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  Hungarian  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 instructions 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, consisting 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 Phare 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 
translation 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.  

78 

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 process 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 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.  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  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  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 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 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 
respect 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 relates 
to  the  further  consolidation  of  the  independence  of  the  National  Bank. As to  industrial 

79 

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 
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 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.  

80 

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 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  priority  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,  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  discrimination  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  current  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  of  healthcare,  transportation  and  local 
there  are  significant  regional 
government.  Although  unemployment  has  fallen, 
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.  

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  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. 

81 

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  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 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.  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  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  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 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 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 
respect 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 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 

82 

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 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.  

83 

D.  Accession  Partnership  and  National  Programme  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 with 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 Partnership 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  particular,  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  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.  Therefore,  this  priority  has 
been met.  

Economic Criteria: The macro-economic 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).  However,  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  hospital  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 28/12/1999, p7. 

84 

                                                 
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 further 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 the 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 significant 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 transparency 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  authority  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 settlement), 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  proposed  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 well 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 also 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 different 
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  Conduct  for 
Business Taxation. The adoption of an amended Customs Law in May 2000 provided 

85 

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.  

Economic 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  inspection  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 not 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  accession,  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  currently  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 measures 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. Legislation 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, this 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 forgery-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 needed. 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 

86 

new Office for Immigration and Citizens’ Affairs (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 to 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 established 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  headquarters  (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  SAPARD.  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  Hungary,  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  financial  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  Transboundary  Context  and  since  1993  has 
applied a comprehensive system of environmental impact assessment. Provision was also 
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.  
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 being 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.  

87 

Economic  Criteria:  The  Hungarian  SME  policy  was  further  developed  with  the 
preparation of the Széchenyi Plan, a National Development Plan. The Plan 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  ,  continuation  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  September 
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 
governments 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 citizens 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.  

88 

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  change  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  simultaneously.  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  the  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  structural  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 clear. 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 into 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 priorities 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  reflected.  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  be  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, services 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  indication  ‘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 chapters. Finally, in some chapters 
such  as  agriculture  and  regional  policy  where  important  investments  are  needed 
projections going beyond the year 2002 would be useful. 

89 

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 functions, 
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,  agriculture,  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 case 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  mostly 
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.  

90 

Annexes 

91 

 
 
Human Rights Conventions ratified by the Candidate Countries,  
September 2000 

Parties to following conventions 
and protocols 

ECHR (European Convention 
on Human Rights) 
Protocol 1 (right of property et 
al.) 

Protocol 4 (freedom movement et 
al.) 
Protocol 6 (death penalty) 

Protocol 7 (ne bis in idem) 

European Convention for 
the Prevention of Torture 
European Social Charter 

Revised European Social 
Charter 
Additional Protocol to the ESC 
(system of collective complaints) 
Framework Convention 
for National Minorities 
ICCPR (International Covenant 
on Civil and Political Rights) 
Optional Protocol to the ICCPR 
(right of individual 
communication) 
Second Optional Protocol to 
ICCPR (abolition death penalty) 
ICESCR (International 
Covenant on Economic, Social 
and Cultural Rights) 
CAT (Convention against 
Torture) 
CERD (Convention on the 
Elimination of All Forms of 
Racial Discrimination) 
CEDAW (Convention on the 
Elimination of All Forms of 
Discrimination against Women) 
CRC (Convention on the Right 
of the Child) 

BG  CY 

CZ 

EE  HU 

LV 

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PL 

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X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

O 

X 

O 

X 

X 

X 

X 

X 

X 

X 

X 

X 

O 

O 

O 

X 

X 

O 

O 

O 

O 

O 

O 

O 

X 

O 

X 

X 

X 

   X  X 

X 

  X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X  =  Convention ratified  
O =  Convention 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 

92 

 
 
 
 
 
 
 
 
Statistical data 

Basic data 

Population (average) 

Total area 

National accounts 

1995 

1996 

1997 

1998 

1999 

in 1000  

10.229 

10.193 

10.155 

10.114 

10.068 

in km² 

93.030 

93.030 

93.030 

93.030 

93.030 

1000 Mio Forint 

Gross domestic product at current prices 

5.614 

6.894 

8.541 

10.087 

11.486 

Gross domestic product at current prices 

34,1 

35,6 

40,4 

41,9 

45,4 

1000 Mio 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 prices (nat. currency) 

1,5 

1,3 

4,6 

4,9 

4,5 

Gross domestic product per capita19 at current prices 

8.119 

8.590 

9.350 

9.899 

10.705 

in Purchasing Power Standard 

ECU/euro 

Structure of production 

   - Agriculture 

   - Industry (excluding construction) 

   - Construction 

   - Services21 

Structure of expenditure 

   - Final consumption expenditure 

             - household and NPISH 

             - general government 

   - Gross fixed capital formation 

   - Stock variation22 

   - Exports of goods and services 

   - Imports of goods and services 

Inflation rate  

Consumer price index23 

% of Gross Value Added20 

6,8 

26,3 

4,6 

62,3 

6,6 

26,3 

4,3 

62,8 

5,9 

28,1 

4,6 

61,4 

5,5 

28,2 

4,6 

61,7 

: 

: 

: 

: 

as % of Gross Domestic Product 

77,3 

53,7 

23,6 

20,0 

4,0 

36,9 

38,2 

73,9 

51,9 

22,0 

21,4 

5,7 

38,9 

39,9 

72,2 

50,3 

21,9 

22,2 

5,6 

45,5 

45,5 

72,5 

50,8 

21,7 

23,6 

6,0 

50,6 

52,7 

73,7 

51,8 

21,9 

23,9 

4,8 

52,6 

55,0 

% change over the previous year 

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  from  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 between the 

GDP and its expenditure components. 

23 Changes in Methodology: PROXY HICP since 1996 (see methodological notes) 

93 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Balance of payments 

   -Current account 

   -Trade balance  

      Exports of goods 

      Imports of goods 

   -Net services 

   -Net income  

   -Net current transfers  

      -of which: government transfers 

   - FDI (net) inflows 

In Mio ECU/euro 

-1.814 

-1.319 

-840 

-2.059 

-1.969 

-1.828 

-2.088 

-1.726 

-2.110 

-2.059 

9.911 

11.215 

17.386 

18.505 

20.533 

11.739 

13.302 

19.112 

20.615 

22.592 

1.257 

1.951 

2.025 

1.592 

1.317 

-1.396 

-1.139 

-1.264 

-1.675 

-1.556 

152 

4 

-44 

-12 

124 

-4 

133 

-41 

329 

-8 

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 

Gross foreign debt of the whole economy 

176,7 

155,9 

116,3 

106,5 

106.3 E 

as % of exports 

Monetary aggregates 

   - M1 

   - M2 

Total credit 

Average short-term interest rates 

   - Lending rate 

   - Deposit rate  

ECU exchange rates   

   - Average of period 

   - End of period 

5,7 

12,8 

25,2 

32,4 

24,8 

in 1000 Mio ECU 

6,0 

13,8 

24,0 

6,8 

15,7 : 

24,8 

7,0 

8,3 

: 

25,1 

23,5 

% per annum 

28,2 

20,6 

23,0 

17,6 

20,1 

15,4 

17,2 

12,6 

(1ECU/euro=..Forint) 

164,5 

183,3 

193,7 

206,9 

211,7 

224,7 

240,6 

252,4 

252,8 

254,7 

1995=100 

   - Effective exchange rate index 

100,0 

85,7 

79,6 

71,0 

66,9 

Reserve assets24 

   -Reserve assets (including gold) 

   -Reserve assets (excluding gold) 

External trade 

Trade balance 

Exports 

Imports 

Terms of trade 

Exports with EC-15  

Imports with EC-15   

Demography 

24 1999 data refer to November 1999. 

94 

Mio ECU/euro 

9.139 

9.106 

7.773 

7.743 

7.634 

7.607 

8.106 

10.883 

8.081 

10.855 

Mio ECU/euro 

-1.987 

-1.922 

-1.882 

-2.409 

-2.811 

9.837 

12.368 

16.842 

20.520 

23.468 

11.824 

14.289 

18.724 

22.929 

26.279 

previous year=100 

101,3 

97,7 

101,2 

101,3 

98,4 

as % of total 

62,8 

61,5 

69,7 

62,3 

71,2 

62,8 

72,9 

64,1 

76,2 

64,4 

per 1000 of population 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Natural growth rate  

Net migration rate (including corrections) 

Infant mortality rate 

Life expectancy : 

                          Males: 

                          Females: 

Labour market (ILO methodology) 

Economic activity rate25 

Unemployment rate, total 

Unemployment rate of persons < 25 years 

Unemployment rate of persons >= 25 years 

Average employment by NACE branches 

   - Agriculture and forestry  

   - Industry (excluding construction) 

   - Construction  

   - Services  

Infrastructure 

Railway network  

-3,3 

0 

-3,7 

0 

-3,8 

0 

-4,3 

0 

-4,8 

0 

per 1000 live-births 

10,7 

10,9 

9,9 

9,7 

8,9 

at birth 

65,3 

74,5 

66,1 

74,7 

66,4 

75,1 

66,1 

75,2 

66,3 

75,1 

52,4 

10,2 

18,7 

8,7 

8 

26,7 

5,9 

59,4 

% of labour force 

48,2 

9,9 

18 

8,5 

48,1 

8,7 

15,9 

7,5 

in % of total 

8,3 

26,7 

6,0 

59 

7,9 

27,1 

6 

59 

48,4 

7,8 

13,5 

6,7 

7,5 

28 

6,2 

58,3 

49,6 

7,0 

12,4 

5,9 

7,1 

27,4 

6,6 

58,9 

in km per 1000 km² 

83 

83 

83 

83 

83 

km  

Length of motorways 

335 

365 

381 

448 

448 

Industry and agriculture 

Industrial production volume indices 

Gross agricultural production volume indices 

previous year=100  

104,6 

102,6 

103,4 

106,3 

111,1 

112,5 

96,2 

97,9 

110,7 

100,1 

Standard of living  

Number of cars  

Telephone subscribers  

Number of Internet connections26 

E= estimates 

per 1000 inhabitants 

220 

208 

222 

261 

226 

303 

.. 

.. 

.. 

220 

335 

8,2 

224 

358 

13,6 

25 Change in methodology (labour force 15-74 years, see methodological notes). 
26 Source for 1998 figure: United Nations. 

95 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
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  towards  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 expected 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  Countries  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  the  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  and  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.  

96 

 
 
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 deposit 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  available.  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 exchange, 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 leasing 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 
classification  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  administrative  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 provided by a country and the one 
calculated by Eurostat is caused by an under reporting or delay in reporting of migration. 

97 

 
 
Labour force 

Economic  activity  rate  (ILO  Methodology):  according  to  the  Labour  Force  Survey  (LFS);  it 
represents the labour force as a percentage 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 unemployed 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 the 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. Lines 
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 length 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 as 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 industrial  enterprises. The indices  by 
branches refer to enterprises with more than 10 employees.  

98 

 
 
Gross  agricultural  production  volume  indices:  calculated  using  the  fixed  price  basis  applied  for 
national  accounts.  Until  1996  the  prices  of  1991,and  from  1997  the  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 (including 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  actually  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 
excluded. 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 the 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 trade, labour market: National sources. 

National accounts, inflation rate, balance of payment, public finance, finance, demography: Eurostat. 

99