Hungary WT/TPR/S/40 
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II. INSTITUTIONAL ASPECTS OF HUNGARY'S TRADE POLICIES 
(1) OVERVIEW  
1. At the time of the previous review in 1991,  Hungary was already firmly engaged in its 
transition towards a market economy and had just a dopted new, democratic institutions.  Six years 
later, market structures have been established in mo st sectors.  Liberalization of trade and investment 
policies have been key features  in this process, co ntributing to the attracti on of 40% of all foreign 
direct investment received by central and eastern European countries during the period and 
developing new trading links with fo reign partners.  Priorities with re gard to European integration and 
trade liberalization are reflected in the strengthe ning of Hungary's decision-making procedures and 
institutional framework. 
2. Since the 1991 TPR, trade liberalization has proceeded through the implementation of 
regional and multilateral agreements.  As a result of the acceleration of liberalization schedules under 
Hungary's agreements with the EU, EFTA and CEFTA,  most trade with European partners is already 
duty and quota free.  Liberalization of non-tariff barri ers, in particular quantitative restrictions, has 
proceeded on an MFN basis.  The Uruguay Round,  in turn, extends significantly the scope and 
geographical coverage of Hungary's  liberalization commitments and mitigates the impact of regional 
preferences on MFN partners.  Nevertheless, the implementation of regional agreements may raise 
concerns in relation to potential trade diversion when reduction or elimination of tariffs is deeper than 
for third-country suppliers.   
3. Accession to the European Union is one of Hungary's highest political priorities.  The 
requirements for accession involve the adaptation of Hungary's legal and economic structures to EU 
standards.  Hungary has therefore engaged in the approximation of its legislation with that of the 
Community, with a major and wide-ranging impact on its trade-related rules.  Recently, new laws on 
customs, government procurement and competition have  been adopted.  The Government of Hungary 
is, at the same time, committed to ensuring that rele vant changes in legislation are compatible with 
WTO rules and principles. 
(2) THE INSTITUTIONAL FRAMEWORK  
(i) General framework 
4. In the process of political transformation, Hungary undertook a major reform of its 
institutions, establishing a multiparty parliament ary democracy based on free elections.  A new 
Constitution was adopted in December 1990, and genera l elections were held in 1990 and 1994.  The 
next general election will take place in May 1998. 
5. The main characteristics of Hungarian ins titutions, as described in the 1991 Trade Policy 
Review, remain unchanged.  Parlia ment, which consists of a single chamber (the National Assembly), 
is the supreme organ of State power.  Members are elected to four-year terms.  Parliament elects the President of the Republic, designates the Prime Mi nister, and appoints Members of the Constitutional 
Court.  It exercises legislative power, sharing the ri ght of initiative with the President of the Republic 
and the Government.  The President of the Republic, elected for a five-year term, represents the State 
and concludes main international treaties on its behalf;  he appoint s Ministers on the proposal of the 
Prime Minister and can, under certain conditions, di ssolve the Assembly.  The Prime Minister heads 
the Government, which is collectively responsible  to Parliament and exercises authority over the 
administration.  Each Minister is assisted by two Secretaries of State, one political and one administrative. WT/TPR/S/40 Trade Policies Review 
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6. The 1990 Constitution guarantees the essential ec onomic rights intrinsic to a free market 
economy, such as the right to private property (Article 13), the right to entrepreneurship and the freedom of economic competition (Article 9(2)).  Article 9(1) explicitly states that "Hungary is a 
market economy in which public and private prope rty are to receive equal consideration and 
protection under the law".  In 1993, the Constitutio n was amended to limit the scope for expropriation 
and provide adequate protection to property owners (section 4(i)(a)). 
(ii) Economic and trade policy formulation 
7. Final responsibility for economic and trade polic y formulation, initiation of legislation and 
administrative functions rests with the Government .  An Economic Cabinet, comprising Ministers 
with economic-related responsibilities, assists the Prim e Minister in preparing government decisions 
and actions in economic fields.
1 
8. The Ministry of International Economic Relati ons, which previously exercised responsibility 
over foreign trade policy, merged with the Ministry of Industry and Trade in 1994.  The new Ministry of Industry, Trade and Tourism (MITT) has taken ov er responsibility for international trade, foreign 
direct investment, industrial policy and some othe r trade-related activities.  MITT's main areas of 
competence are described in Box II.1.  In areas such as tariffs and customs, export finance and 
guarantees, tax incentives for investment, MITT cooperates with other Ministries (in particular the 
Ministry of Finance) or government agencies.  Issues  are discussed in the context of inter-ministerial 
committees.
2   Other important trade-related activities are performed by national specialized agencies 
linked to MITT, as for standardization (the Hungarian  Standards Institution), intellectual property (the 
Hungarian Patent Office and the Offices for Intelle ctual and Industrial Protection), technical safety 
(the Technical Safety Inspectorate), investment a nd trade promotion (the Hungarian Investment and 
Trade Development Agency).  Other tasks, such  as government procurement or competition policy, 
are the responsibility of independent agencies (Council on Government Procurement, Office for 
Economic Competition). 
9. Like other Cabinet Members, the Minister of I ndustry, Trade and Tourism is assisted by two 
State Secretaries, a Political Secretary and an Admi nistrative Secretary.  He supervises three Deputy  
                                                      
1 The Economic Cabinet is chaired by the Minister of Finance, and composed of the Ministers of 
Industry, Trade and Tourism, Agriculture, Transport and Communications and Water Management, 
Environmental Protection and Regional Development, a nd Labour, National Welfare and Privatization.  The 
Governor of the National Bank of Hungary, the Political State Secretary of the Ministry of Finance, the 
President of the Economic Competition Office, the Presid ent of the Central Statistical Office and the Deputy 
State Secretary for Economic Affairs in the Prime Mini ster's Office also attend meetings of the Economic 
Cabinet on a regular basis. 
 
2 Customs policy, for example, is discussed in th e Customs Tariff Committee.   The Chairman of the 
Committee is a Deputy Secretary of St ate from the Ministry of Industry, Trade and Tourism, appointed by the 
Minister.  The permanent members are representatives of  the Ministry of Industry, Trade and Tourism, the 
Ministry of Finance, the Ministry of Agriculture, the Economic Competition Office and the National Committee 
for Technical Development.  The representatives of th e Customs Guard, the Hungar ian Chamber of Trade and 
Industry, the Hungarian Chamber of Agriculture and the Hungarian Chamber of Handicrafts participate in Committee meetings as invited persons.  Representatives of other government bodies may be convened 
whenever necessary.  There are other inter-ministerial co mmittees dealing with trade-related matters, such as the 
committee for military go ods, and the committee for export controls. 
 Hungary WT/TPR/S/40 
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State Secretaries, one of whom is directly in charge of foreign trade policy issues.3  The Minister is 
also assisted by an adviso ry body, composed of civil servants of the Ministry of Industry, Trade and 
Tourism and invited members such as academics and representatives of the business community. 
Box II.1:  Scope of authority of the Ministry of Industry, Trade and Tourism 
Following the merger of the Ministry of International Economic Relations and of the Ministry of Industry 
and Trade in 1994, a Government Decr ee was issued to establish the comp etences of the new Ministry.  The 
newly created entity, the Ministry of Industry and Trade, became in 1996 the Ministry of Industry, Trade 
and Tourism with the addition of sectoral responsibility  over tourism, but basic provisions of the Decree 
remained unchanged.  The text confers on the Minist ry wide-ranging responsibilities over sectoral policies, 
in particular in industry, trade, services, tourism, energy, technical development and waste management.  In 
addition, the Ministry defines and oversees consumer protection policy and is invested with responsibilities 
"in the development of economic and financial regulators, finance policies and its operations".  In relation 
to external trade, the Minist ry should, more specifically: 
(in cooperation with the Ministry of Foreign Affairs and other Ministries concerned) 
- act to implement foreign economic po licy approved by the Government;   
- develop the principles of international trading activity; 
- prepare external economic negotiations, direct the development of international agreements, organize 
their implementation and represent the Government in international economic, scientific and technical 
organizations; 
- take action to comply with the conditions of trading in certain internationally controlled products and 
technologies; 
- direct and coordinate the use of external aid; 
(in cooperation with the Ministries concerned) 
- develop customs policy and maintain the commercial customs tariff (in agreement with the Finance 
Ministry); 
- enforce export credit policy (together  with the Finance Ministry, the Ministry of Foreign Affairs and the 
Central Bank) and put forward proposal in respect of export trade promotion; 
- elaborate policies aimed at directing inwa rd and outward foreign direct investment; 
- determine the order of importation and exportation of goods, services and rights and titles; 
- perform work related to European integration (in cooperation with the other Ministries concerned and 
the Central Bank), i.e. the implementation of the Europe Agreement and necessary preparations for 
accession to the European Union. 
Source:  Government Decree No. 149/1994 (XI.17). 
10. While there is no official body or mechanism to regularly review trade policies, private 
interests are consulted on economic and trade issues of concern to them.  The National Council for the 
Reconciliation of Interests promotes dialogue betw een the representatives of employers, employees 
and the Government on various econom ic and social issues.  The Council, the Hungarian Chamber of 
Trade and Industry, the Hungarian Chamber of  Agriculture and the Hungarian Chamber of 
                                                      
3 Currently, they are:  the Deputy Secretary of State responsible for ec onomic and trade relations in the 
European context and for domestic tr ade;  and the Deputy Secretary of State responsible for relations with 
developed market economies and developing countries, economic and trade aspects of Hungary's integration 
into the European Union, relations with internationa l economic organizations and Hungary's customs policy. 
 WT/TPR/S/40 Trade Policies Review 
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Handicrafts are regularly consulted on draft le gislation.  Economic operators, grouped in the 
Federation of Hungarian Industrialists (GYOSZ), a number of chambers of industry and trade, 
agriculture and handicrafts, the National Associati on of Entrepreneurs (VOSZ) and other professional 
associations have developed several communications links with the Government and Parliament in 
order to coordinate conflicting interests in the formation of trade policy. 
(3) EXTERNAL POLICY MAKING  
(i) Trade policy objectives 
11. Hungary's overriding objective in recent years has been to complete the transition towards an 
open, market-driven economy, well integrated at the regional and multilatera l levels.  Hungary's 
efforts to integrate into the world economy are re flected in resolute continuation of trade and 
investment liberalization, and its accession, partic ipation in or adherence to various multilateral, 
regional and bilateral trade initiatives.   In this context, Hungary, which became a contracting party to 
the GATT in 1973, participated in the Uruguay Rou nd negotiations and, by adopting the Marrakesh 
Agreement, greatly extended the scope of its commitments under the multilateral system.  Accession 
of Hungary to the OECD in 1996 provided a furthe r stimulus to the development of economic and 
trade relations with industrialized countries. 
12. The orientation of Hungary's economic and trade policies is, like that of other central and 
eastern European countries, largely determined by the goal of accession to the European Union.4  
Integration with the EU was given a tremendous boost by the implementation of the 1992 Europe 
Agreement, which will bring about reciprocal free tr ade with the EU by the end of the century, and 
the accession strategy decided by the European Council.  This process contributed to the re-
orientation of Hungary's external trade towards ma rket-based, west European economies, and is likely 
to have increasingly significant effects on third parties as Hungary progresses towards the adoption of 
EU law (resulting from its obligation to adopt the "acquis communautaire"  i n  v i e w  o f  f u t u r e  
accession) and completes the phasing-out of all tariff  and non-tariff barriers to imports from the EU. 
13. Hungary sees multilateral and regional liberalization as complementary processes.  While 
regional liberalization has indeed proved to be a major element in Hungary's opening and 
transformation, the question arises as to whether f aster liberalization in the regional context may not 
contradict commitments to multilateralism.  Th e acceleration of tariff schedules under the Europe 
Agreements and CEFTA, as well as Hungary's particip ation in the new prefer ential, European-wide 
system of diagonal cumulation, provide two rece nt examples of improved preferential treatment 
granted to European suppliers.  As a result of th e combined and simultaneous implementation of the 
Europe Agreement, the Agreement with EFTA and the CEFTA, Hungary's trade with its European 
partners is already largely duty and quota free (w ith the notable exception of agriculture).  These 
partners currently account for more than 80% of Hungary's total trade.   
(ii) Multilateral agreements 
(a) WTO 
14. Hungary ratified the Marrakesh Agreement on 27 December 1994 (Parliament Decision 
No. 72/1994 (XII.27)) and became a founding Member of the WTO on 1 January 1995.  
                                                      
4 In a recent interview with the Financial Times (9  December 1997), the Prime Minister stated that 
"The next five years will be a period of decisive importance for the fate of the country.  Everything will be 
decided in the period - including NATO and EU entry.  Everything else will be built on this foundation." 
 Hungary WT/TPR/S/40 
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Implementation is undertaken on a case-by-case basis, through individual and sector-specific 
regulations, rather than with a single implementing Ac t.  In the context of this review, Hungary has 
reiterated its commitment to take the necessary steps to ensure full conformity of its legislation with 
WTO Agreements.  To this end, it has already amen ded its legislation in the areas of customs, import 
licensing, restrictions on agricultural, textiles a nd clothing products and pr otection of intellectual 
property rights (patents, trademar ks and geographical indications). 
15. As a result of the Uruguay Round, the share of Hungarian tariff lines that are bound increased 
from 89 to 95.7%.  Most bindings are at currently applied rates.  Full implementation of Uruguay Round commitments by Hungary is scheduled to reduce the simple import-weighted average MFN 
tariff on industrial products from a base rate of 9.6 to 6.9%.  H ungary also replaced discretionary 
import licensing on some agricultural products by bound ad valorem  tariffs.  Hungary is committed to 
reducing the value of export subsidies by 36% between the base period and 2000, and to cut its 
Aggregate Measure of Support (AMS) by 20% over the same period. 
16. In addition, Hungary made extensive commitm ents under the General Agreement on Trade in 
Services (GATS).
5  Sector-specific commitments allow liberal  market access and national treatment in 
areas such as professional services and other busin ess services, distribution services and transport 
services.  Horizontal commitments applying across a ll services sectors were also made (Tables AIV.1 
and AIV.2).  Hungary's initial GATS schedule was late r amended to reflect its participation in the 
second GATS Protocol on Financial Services, where Hungary made additional commitments, and the 
Agreement on Telecommunications Services, to which it is a signatory.6 
17. Hungary has fulfilled most of its WTO notifica tion obligations, but in April 1997 had yet to 
complete some in areas such as TRIMs or SPS (Table  II.1).  It has been involved in one dispute 
settlement case regarding the consistency of its agricultural export subsidies programme with WTO 
commitments, which was resolved by the Gene ral Council granting a waiver on 22 October 1997.7 
18. During the WTO Ministerial Conference in Singa pore, Hungary stressed the need to complete 
the Uruguay Round's unfinished business and conso lidate its achievements.  It supported the 
establishment of the Working Groups on the Re lationship between Trade and Investment, the 
Interaction between Trade and Competition Policy, an d Transparency in Government Procurement.  It 
reiterated its full commitment to adherence to core labour standards and its preparedness to "provide 
all support to the International Labour Organizati on to effectively tackle this problem area".8  
Hungary has not signed the Declaration on Trade in Information Technology Products (the "Information Technology Agreement"). 
                                                      
5 Document GATS/SC/40 of 15 April 1994.  
 
6 Additional commitments are contained in WTO documents GATS/SC/40/Suppl.1 of 28 July 1995, 
GATS/SC/40/Suppl.1/Corr.1 of 29 May 1996 (financial services), and GATS/SC/40/Suppl.2 of 11 April 1997 
(telecommunications services). 
 
7 Documents WT/DS35 and WT/L/238. 
 
8 Statement by H.E. Mr. Szabolcs Fazakas, Minister for Industry, Trade and Tourism of the Republic of 
Hungary at the WTO Ministeria l Conference in Singapore (WTO Document WT/MIN(96)/ST/37, 
10 December 1996). 
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Table II.1  
Selected notifications to  the WTO, December 1997 
WTO Agreement Document Main content 
General Agreement on Tariffs and 
Trade 1994 Schedule LXXI - Hungary Sche dule of tariff concession 
General Agreement on Trade in 
Services GATT doc.GATS/EL/40 and 
GATS/SC/40 of 15 April 1994 Schedule of specific commitments in 
services;  list of Article II (MFN) exemptions 
Agreement on Agriculture   
(Article 18.2) WTO doc.G/AG/N/HUN/1 of 
28 April 1995, G/AG/N/HUN/5 of 
7 August 1996, and G/AG/N/HUN/8 
of 28 May 1997 Administration of tariff quotas 
(Table MA:1) 
 WTO doc.G/AG/N/HUN/9 of 
12 June 1997 Imports under tariff quotas (Table MA:2) 
during calendar year 1996 
(Article 5.7) WTO doc.G/AG/N/HUN/7 of 
25 March 1997 Special safeguard provision (Table MA:5) 
 WTO doc.G/AG/N/HUN/6 of 
24 September 1996 Export prohibitions and restrictions 
Agreement on Text iles and Clothing   
(Article 3.1) WTO doc.G/TMB/N/73 of 
28 April 1995 and G/TMB/N/73/Add.1 of 16 February 
1996 Quantitative restrictions maintained by 
Hungary on 31 December 1994 and additional information 
(Article 3.2(b)) WTO doc.G/TMB/N/147 of 
5 March 1996 Notification of liberalization measures 
Agreement on Technical Barriers to 
Trade   
(Article 15.2) WTO doc.G/TBT/2/Add.41 of 
21 October 1997 Implementation and administration of the 
Agreement 
(Annex 3C) WTO doc.G/TBT/CS/N/10 of 
24 August 1995 Notification of measures under the WTO 
code of good practice 
Agreement on Trade-Related Aspects of Intellectual Property   
(Article 63.2) WTO doc.IP/N/1/HUN/1 of 
3 February 1997, complemented on 
6 March 1997, 17 March 1997, etc. TRIPS-related legislation 
Agreement on Anti-Dumping Practices   
(Article 18.5) WTO doc.G/ADP/N/1/HUN/1 of 
26 April 1995 Law relevant to the Agreement 
(Article 16.4) No notifi cation because no outstanding 
anti-dumping measures Semi-annual report of anti-dumping actions 
Agreement on Rules of Origin   
(Article 5.1 and Annex II) WTO doc.G/RO/N/2 of 22 June 1995 Preferential and non-preferential rules of 
origin 
Agreement on Subsidies and Countervailing Measures   
(Article 32.6) WTO doc.G/SCM/N/1/HUN/1 of 
26 April 1995 Law relevant to the Agreement 
(Article 25) WTO doc.G/SCM/N/3/HUN/Suppl.1 
of 14 June 1996 Notification of subsidies 
(Article 29.3) WTO doc.G/SCM/N/9/HUN of 
22 November 1995 Further notification of subsidies 
(Article 25.11) No notification because no measures 
taken under the Agreement Semi-annual report of countervailing duty 
actions Hungary WT/TPR/S/40 
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WTO Agreement Document Main content 
Agreement on Import Licensing   
(Articles 1.4(a) and 8.2(b) ) WTO doc.G/LIC/N/1/HUN/1 of 
22 October 1996 Laws and regulations concerning import 
licencing procedures 
(Article 7.3) WTO doc.G/LIC/N/3/HUN/3 of 
13 October 1996 Replies to the questionnaire on import 
licencing procedures 
Agreement on Preshipment Inspection   
(Article 5) WTO doc. G/PSI/N/1/Add.2 of 
26 July 1995 Notification that Hungary had no laws or 
regulations relating to preshiment 
inspection 
Agreement on Customs Valuation   
(Article 22.2) WTO doc.G/VAL/N/1/HUN/1 of 
28 August 1995 Hungarian laws and regulations.  
Implementation of the WTO Agreement 
Agreement on the Application of 
Sanitary and Phytosanitary Measures   
(Articles 7, Annex B) No notification of measures Notification of measures 
Agreement on Safeguard Measures   
(Article 12.6) WTO doc.G/SG/N/1/HUN/1 of 
26 April 1995 complemented by WTO docs.G/SG/N/1/HUN/2 of 
28 June 1995, 
G/SG/N/1/HUN/2/Add.1 and Suppl.1 Laws and regulations and administrative 
procedures relative to safeguard measures 
(Article 12.7) [No notification because no pre-
existing Article XIX measures] Notification of pre-existing Article XIX 
measures 
(Article II.2) [No notification because no grey-
area measure in force] Phasing-out of grey-area measures 
Plurilateral Trade Agreements  Hungary is not a party to the Agreements 
on Trade in Civil Aircraft, on Government 
Procurement and on Bovine Meat.  Hungary has signed the International Dairy 
Agreement but has not ratified it. 
Source: WTO Secretariat. 
19. Overall, while trade liberalization in Hungary h as been greatly stimulated over the period by 
its participation in regional initiatives and au tonomous measures, the Uruguay Round extended the 
geographical and sectoral scope of Hungary's  commitments, providing opportunities for the 
development of trading relations with MFN partners. 
(b) OECD 
20. Hungary became the 27th Member of the Organization for Economic Cooperation and 
Development (OECD) on 7 May 1996 following Parliament's ratification of accession on 
23 April 1996. As part of OECD membership, Hu ngary has undertaken various obligations in the 
fields of fiscal affairs, environment, capital move ments and invisible operations.  It has adopted the 
Code on Capital Movements and Invisible Operations.  Hungary is not a signato ry to the Arrangement 
for Export Credit Guarantee Guidelines but partic ipates in the activities of the working group on 
export credit and is willing to become a party to th e Arrangement when invited.  Following accession 
to the OECD, Hungary also joined the Nuclear En ergy Agency (NEA) and the International Energy 
Agency (IEA). WT/TPR/S/40 Trade Policies Review 
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(iii) Regional agreements and arrangements  
(a) Relations with the European Union 
21. Over the last decade, accession to the EU h as been a constant objective of Hungary's 
policies.9  Hungary presented its formal applica tion for membership on 31 March 1994 and was 
accepted as a candidate for full membership of the Union in March 1998.10  For the EU's part, 
Hungary's request is seen as being part of an "his toric process of ending the division of Europe and 
consolidating democracy over the continent".11  The process of economic integration with the EU has 
served as a basis for domestic transition towards a market economy.  Hungary's preparations for 
membership have accelerated in recent years, with  the implementation of the Europe Agreement, and 
of the 1995 Commission's White Paper on the Internal  Market, which formed two major elements of 
the "pre-accession strategy" designed at the Eur opean Council of Essen (December 1994).  Free trade 
for most products will be achieved by 2001.  
22. The necessary institutional mechan isms to coordinate Hungary's policy vis-à-vis the EU have 
been put in place.  Given the strategic importance of European issues, the main orientations are 
defined at the highest level of Government by the "Cabinet for European Integration", an informal 
body chaired by the Prime Minister and composed of the senior Ministers involved in negotiations with the EU (the Ministers of Foreign Affairs, th e Interior, Finance, Industry, Trade and Tourism, 
Agriculture, and the Head of the Economic Compet ition Office).  At the administrative level, inter-
Ministerial coordination is ensured by the Ministry  of Foreign Affairs.  A European Integration 
Directorate was established in each Ministry to co mplete work related to accession.  There are at 
present 27 inter - or intra - Ministerial working groups dealing with matters relating to EU accession.  In addition, an independent thin k-tank, the Strategic Task Force,  was created in 1996 to provide 
further advice and recommendations on strate gic issues for the Integration Cabinet. 
Trade-related provisions of the Europe Agreement 23. On 16 December 1991, Hungary and the EU signed  an Association Agreement (the Europe 
Agreement) providing, among other economic and political aspects, for the establishment of a complete bilateral free-trade area within  a period of ten years (by year 2001).
12  Pending ratification of 
the Agreement, its provisions concerning trade in goods entered into force on 1 March, 1992, under an 
Interim Agreement.13  On that date, duties and quantitative r estrictions applying to Hungary's exports 
                                                      
9 In his statement to the WTO Mi nisterial Conference in Singapore, H.E. Mr. Szabolcs Fazakas, 
Minister for Industry, Trade and Tourism declared that Hungary "endeavours to become very soon a full Member of the EU and rejoin the European family  of nations" (WTO Document WT/MIN(96)/ST/37, 10 
December 1996). 
 
10 Hungary was the first, among the ten Associated Central and Eastern European countries (Bulgaria, 
Czech Republic, Estonia, Hungary, Latv ia, Lithuania, Poland, Romania, Sl ovakia, and Slovenia), to apply for 
EU Membership. 
 
11 European Commission (1997). 
 
12 The trade provisions of the Euro pe Agreement are complemented by a range of measures designed to 
promote political dialogue, economic, monetary and industrial cooperation, education and training, and the harmonization of legislation. 
 
13 Notified in GATT document L/7377 of 7 February 1994. 
 Hungary WT/TPR/S/40 
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of most industrial products to the EU were abolished.14  Some remaining duties, notably on "sensitive" 
products other than textiles and clothing, were  abolished on 1 January 1995 as a result of the 
acceleration of the liberalization schedule ag reed at the Copenhagen European Council 
(December 1993).  Duties on textiles and clothing  products were removed by the EU on 1 January 
1997 and quantitative restrictions on textiles and clothing (16 fabric and ready-made garment 
categories and 10 outward-processing quotas) were abolis hed a year later.  As a result, all Hungarian 
industrial products enjoy duty-free and unrestrict ed access to the EU as of 1 January 1998. 
24. Hungary benefits from longer lead-times for the elimination of duties and quantitative 
restrictions on imports from the EU.  Under the Ag reement, its industrial imports are divided into 
three categories of products, accounting for roughly e qual shares of the total.  Hungary removed all 
tariffs on the first "tranche" on 1 January 1994 a nd on the second on 1 January 1997.  The remaining 
part concerns "sensitive" products, mostly chem icals, textiles and clothing products and steel 
products, which are listed in Annex V of the Europe  Agreement.  Duties on these products are being 
removed more gradually (they have been cut by 55%  already), and total elimination is scheduled for 
1 January 2001.  Quantitative restrictions on all te xtile and clothing imports, as well as 40% of other 
quantitative restrictions were eliminated on 31 December 1997 on an MFN basis.  The remaining 
restrictions will be removed by 1 January 2001.  The former system of licensing applicable to 
industrial exports was also abolished on 1 January 19 97.  It was replaced, for certain products such as 
iron and non-ferrous meta l wastes, logs and precious stones, by an export surveillance system.15  As 
part of its Europe Agreement commitments, Hungary  has also abolished vari ous trade-related fees 
such as the 1% licensing fee, the 2% administration f ee and the 3% statistical fee.  This measure was 
extended to WTO Members on an MFN basis. 
25. The Europe Agreement also provides for the gr adual liberalization of bilateral trade in 
agricultural and processed agricultural products, al beit with longer transition periods.  Further 
liberalization was introduced on 1 January 1997, on the basis of a new Protocol negotiated to take into 
account the enlargement of the Union and the entry in to force of the Uruguay Round.  With regard to 
the Uruguay Round, the EU has agreed to maintain  the preferential margin applied to Hungary's 
products;  tariff quotas affecting Hungary's products  will be increased by 25% in volume terms by 
year 2000, with a duty preference of 80%.   
26. Currently, more than 90% of Hungary's expor ts enter the EU free of duties and other 
restrictions and about 60% of EU exports ente r Hungary under the same conditions.  Between 1993 
and 1996, two-way trade between Hungary and the EU grew by an average of 22% per year, 
outperforming trade with other regions of the world.16  While the phasing-in of preferences with the 
EU has undoubtedly contributed to the rapid expansi on of bilateral trade, the dissolution of economic 
flinks with the former Soviet Union (FSU) and other countries in central and eastern Europe has also 
                                                      
14 The Agreement provided  for the immediate removal of EU tariffs on about 70% of Hungary's 
industrial exports to the EU and the lifting of quotas on 60% of Hungary's total exports. 
 
15 According to the Government, the surveillance system is aimed only at providing statistical 
information about export flows.  The applications submitted are automatically licensed and no additional barrier 
to trade was established. 
 
16 During the period, Hungary's exports of merchand ise to the EU have incr eased on average by 26% 
per year.  Hungary's imports from the EU grew at the same time by an average of 18%.   
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played a significant role.17  Hungary's exports to the EU consist mainly of machinery and electrical 
equipment, agricultural and processed products, base metals and textiles.  On the import side, the 
main products are also ma chinery and electrical equipment, transport equipment, chemical products, 
textiles and metals. 
27. The integration of Hungary's economy with  the EU, as well as with EFTA and CEFTA 
countries, is likely to be further enhanced by its participation in the new European-wide system of 
diagonal cumulation of origin since 1 January 1997.18  The establishment of the new system required 
the harmonization of the rules of origin among 29 participating countries (Chapter III(2)(ii)(f)).  The 
new system may encourage further inflows of FD I and the development of outward-processing and 
assembly operations within the enlarged region, in pa rticular in the textiles and clothing industries and 
automobiles industries, two crucia l activities for Hungary.  In tex tiles and clothing, the harmonization 
of the rules of origin coincides with the aboliti on of duties and quantitative restrictions on bilateral 
trade with the EU.   
Prospects for accession and the approximation of legislation 28. The Europe Agreement provides the basis for th e approximation of Hungary's legislation with 
that of the EU.
19  It defines the priority areas for harmonization of laws, namely: customs, company 
law, banking, company accounts and taxes, intellect ual property, protection of workers, financial 
services, rules on competition, protection of health, animals and plants, food legislation, consumer 
protection, indirect taxation, standards and technical  rules, transport and environment (Article 68 of 
the Agreement).  Further recommendations were contained in the Commission's 1995 White Paper on 
the "Preparation of the Associated Countries of Cent ral and Eastern Europe for Integration into the 
Internal Market of the Union", to which Hungary broadly adheres.20  Consequently, an Action Plan 
was put in place by the Hungarian Government to implement the requirements of the Europe 
                                                      
17 The Government of Hungary acknowledges that tariff reductions in the Europe Agreement context 
have played an important role in the transfer of EU firms'  processing operations to Hungary, although its distinct 
effect is difficult to separate from the impact of other investment incentives (statement made in the context of 
this review). The elimination of duties, at the entry into force of the Agreement, on clothing products covered by outward-processing contracts, was certainly a major incentive for the development of the clothing industry in 
Hungary. 
 
18 WTO (1997). 
 
19 As stipulated in Article 67 of the Europe Agreement, the "major precondition for Hungary's 
economic integration into the Community is the approxima tion of that country's existing and future legislation 
to that of the Community.  Hungary shall act that future legislation is compatible with Community legislation as far as possible".   
 
20 While central and eastern European countries are free to determine their priorities in the process of 
alignment with the internal market, the paper, by identif ying the main measures in each sector and suggesting a 
sequence in which the approximation of legislation should be conducted, constitutes the reference for current 
work. 
 Hungary WT/TPR/S/40 
 Page 25 
 
 
Agreement, followed by a National Programme, afte r the publication of the White Paper.  The two 
programmes were unified in 1997.21   
29. Numerous pieces of Hungarian legislation have been  amended or replaced in this context.  In 
the past two years only, changes in the area of goods included new or revised  laws on standardization 
and the national accreditation system, conformity of  industrial products, food safety, veterinary 
hygiene and animal feeding, dangero us substances and environmental protection.  Particular efforts 
were made with regard to the harmonization of standards.  To date, more than 2,000 European 
standards have been adopted in Hungary, in many  cases replacing former technical regulations and 
national standards.  Further harmonization of insu rance services legislation was provided by the 1995 
Act XCVI.  Work was also completed in respect of  laws and regulations on railways and aviation.  
Great importance was attached to the establishmen t of adequate structures and processes for the 
implementation and enforcement of laws. 
30. Of particular importance is the introduction of new "horizontal" laws on customs, public 
procurement, product liability, and anti-comp etitive practices which ar e aimed at meeting 
international and/or EU standards.  The 199 5 Customs Law provides for the harmonization of 
Hungarian customs procedures with the uniform Cu stoms Code of the EU and modernizes existing 
regulations.  By abolishing duty-free treatment fo r in-kind contributions for joint ventures, the 
Customs Law aims also at re-establishing neutral conditions of competition for investment between 
foreign-owned and Hungarian-owned firms.  Th e 1995 Law on Government Procurement introduces 
increased transparency and competition requirements.   It provides for national treatment, although it 
allows for a 10% price preference to companie s employing more than 50% Hungarian nationals 
(Chapter III(4)(iv)).  The 1990 Act LXXXVI on the Prohibition of Unfair Practices was also amended 
in 1996 (Act LVII) to extend the provisions of the competition law on cartels, abuse of dominant 
positions and control of company mergers and extend the application of the law to any legal entity 
whose behaviour may affect the Hungarian market (Chapter III(4)(vii)). 
31. In accordance with Article O of the Treaty on the European Union and at the Council's 
request, the European Commission prepared and pub lished in July 1997 an Opinion on Hungary's 
request for membership.22  The Opinion concluded that Hungary fulfils the necessary conditions and 
recommended that negotiations for accession be started.  The Commission considered especially that Hungary should be regarded as "a functioning ma rket economy, well able to cope with competitive 
pressures and market forces within the Union in the medium term provided that macroeconomic 
conditions for strong investment gr owth remain in place", and that  "many Hungarian enterprises are 
already competitive in EU markets." The Commission al so stated that "for the whole field related to 
the single market, and in particular competition, public procurement, intellectual property, company 
                                                      
21 Hungary receives technical and financial assist ance from the Community, mainly through PHARE, 
for the approximation of legislation.  Pre-accession work is also carried out at the technical level, in each 
relevant area, in the Association Committee and sub-Committ ees.  At the political level, the EU and Ministers of 
the Associated countries, including Hu ngary, meet twice a year in the frame work of the Association Councils 
and discuss, on the basis of the Commission's evaluation, the needs and constraints related to the adoption of the 
acquis communautaire .  For more details, see WTO (1997).    
 
22 European Commission (1997).  The Opinion is based on the eligibility criteria defined at the 
Copenhagen European Council for all Central and Eastern European candidates, which include:  the stability of 
institutions guaranteeing democracy, the rule of law, huma n rights and respect for and protection of minorities;  
the existence of a functioning market economy, as well as the ability to cope with competitive pressures and 
market forces within the Union;  and the ability to take  on the obligations of membership, including adherence 
to the aims of political, economic and monetary union (the acquis communautaire ). 
 WT/TPR/S/40 Trade Policies Review 
Page 26 
 
 
and company law, product liability, financial services,  the legislative foundation is almost completely 
in place. ...  Despite the efforts undertaken, the prog ress made in transposing legislation needs to be 
accompanied by concrete measures of implementation as well as establishment of an effective administrative underpinning.  Hungary has some inst ruments which operate correctly (for instance in 
the field of public procurement, appeal procedures set out in the directives are applied and court cases 
have been started) but substantial efforts ar e still needed in a number of sectors notably 
standardization.  As for the other parts of the acquis , Hungary should not have difficulty applying it in 
the medium term.  By contrast, substantial efforts w ill be needed for Hungary to be able to apply the 
acquis  in consumer protection and customs control".    
32. As an acknowledgement of Hungary's efforts to  speed up its European integration the EU 
Luxembourg Summit in December 1997 decided to star t accession negotiations with Hungary in the 
Spring of 1998. 
(b) Relations with EFTA countries 
33. On 29 March 1993 Hungary signed a free-trade ag reement with countries of the European 
Free Trade Association (EFTA), broadly modeled on th e structure, content and timetable of Europe 
Agreements.  As in the case of the CEFTA, the ai m was to establish identical or similar horizontal 
rules across free-trade agreements in Europe, albeit with some differences in services, which are only 
included in the Europe Agreement, and in agriculture.
23  For Hungary, liberalization schedules for 
industrial products in the Europe Agreement and in the EFTA are identical.  As a result, most duties 
and quantitative restrictions applying to Hungarian  industrial goods were eliminated on 1 January 
1997, while all duties and quantitative restricti ons affecting EFTA exports to Hungary will be 
removed by 1 January 2001.  A Joint Committee en sures the implementation and enforcement of 
directives established under the Agreement.  The work of the Committee is assisted by a Customs 
Tariff sub-Committee.  Hungarian representation in the Joint Committee and other EFTA bodies, 
including the Secretariat in Geneva, is provided by  the Ministry of Industry, Trade and Tourism.. 
(c) Relations with CEFTA countries 
34. Hungary also participates in the Central European Free Trade Agreement (CEFTA) along 
with the Czech Republic, Poland and the Republic of Slovakia in 1994 as the founding Members, 
Slovenia since 1 January 1996, and Romania since 1 Ju ly 1997 (except for agricultural products).  The 
Agreement was signed by the original members on 21 December, 1992 and entered into force on 1 
July 1994.  It has been applied provisionally since 1 March 1993.  Again, the Agreement is modeled on the structure and content of Europe Agreemen ts.  Trade barriers on mutual trade are to be 
eliminated over a maximum period of eight years, by 1 January 2001, as in the Europe Agreements 
and the EFTA.  However, a larger proportion of products were affected by the first stage of 
liberalization.  An additional Protocol to the Agreement signed on 13 September 1996, accelerated the 
CEFTA liberalization schedule, and resulted in the re moval by Hungary and its partners of almost all 
duties on industrial goods, effective 1 January 1997.  Remaining industrial tariffs will be removed by 
year 2001 (certain textiles, cars and steel products).   At present, 91% of Hungary's industrial imports 
and 89% of total imports from the CEFTA countries are free from duties, compared to less than 50% 
in 1993. 
35. Liberalization of agricultural and food trade is also well advanced.  Since 1 January 1996, 
concessions apply to about 80% of total intra-zone  trade in such products.  Agricultural and food 
                                                      
23 Only the Europe Agreement provides for the approximation of legislation. 
 Hungary WT/TPR/S/40 
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products are classified in three categories with vary ing degrees of preferences.  The first category, 
accounting for about 14% of total mutual trade in agriculture, comprises animals for breeding, fish 
and shrimps, certain vegetables, certain types of fruit and cereals, seeds and plant propagation 
materials;  these benefit from duty-free and quota-free treatment.  The second category (most livestock including beef and pork, powdered milk, so me vegetables) is also quota free but subject to 
tariffs, although all CEFTA countries must apply the sa me uniform tariffs set at a level "lower than 
the duties applied in any of the individual countri es" (the current tariff average on those products is 
about 13.5%).  For the third category, comprising the most sensitive products (butter, honey, processed eggs), concessions are granted on a bila teral basis and may be subject to quotas. 
(d) Free-trade agreements with Bulgaria and the Baltic countries 
36. To complement its network of European free-trade agreements, Hungary has initiated 
negotiations with Bulgaria (1997) and the three Balti c States (Estonia in 1996, Lithuania and Latvia in 
1997).  According to the Government, the negotia tions have reached an advanced stage.  
(e) Free-trade agreements with Turkey and Israel 
37. On 25 January 1997, Hungary and Turkey signed  a free-trade agreement, which was ratified 
by the Hungarian Parliament on 25 March 1997 and en tered into force on 1 April 1998.  Its provisions 
are similar to the trade provisions of the Europe Agreement.  The same applies to the free-trade 
agreement concluded in 1997 by Hungary and Israel , which entered into force on 1 February 1998.  
Both agreements provide for the immediate phasing -out of industrial tariffs accounting for 90% of 
bilateral trade, and the elimination of remaining duties by year 2001.  Trade in agricultural goods is 
subject to various tariff concessions. 
(f) Relations with Former Soviet Union (FSU) countries 
38. Following the dissolution of the COMECON, b ilateral trade with Russia and the former 
Soviet Union countries fell significantly. Between 1990 and 1996, the share of FSU countries in Hungary's imports and exports drop ped from 19.1 to 14.8% and from 20.2 to 9.4%, respectively.  At 
present, there are no preferential trading arrangements with these countries in force and no negotiations are envisaged;  Hungary applies MFN treatment to FSU countries.  There is a double 
taxation agreement between Hungary  and the Russian Federation. 
(g) Relations with the United States 
39. Bilateral relations between Hungary and the Un ited States have expanded in recent years both 
politically and economically.  The United States has become the second biggest individual foreign investor in Hungary, but still represent a small shar e of Hungary's trade (3.5% of both imports and 
exports).  While U.S. exports enter Hungary on an MFN basis, Hungary is e ligible for GSP treatment 
in the United States.  In 1993, the two countries concluded an agreement on the protection of 
intellectual property. 
(iv) Generalized System of Preferences (GSP) 
40. Hungary has been operating a Generalized System  of Preferences on imports from developing 
countries since 1 January 1972.  The system is app lied on a permanent basis, i.e. it does not involve 
time limits or renewal requirements.  There ar e no quantitative ceilings nor any special safeguard 
mechanism for the products concerned.   Basic eligibility criteria require that the beneficiary countries 
are located in Africa, Asia or Latin America;  do not discriminate against Hungarian products and WT/TPR/S/40 Trade Policies Review 
Page 28 
 
 
maintain, according to the Government, "normal tr ade relations" with Hungary;  and have lower per 
capita incomes than that of Hungary.  Additional c onditions include that goods must be imported and 
transported directly from an officially registered company in the beneficiary country, and that they 
comply with the relevant rules of origin.  Ther e are no preset criteria for the preferential margin. 
41. Hungary's GSP-related rules of origin are based on UNCTAD recommendations.  The 
products concerned are deemed to be originating in a beneficiary developing country if wholly 
obtained in that country or if the share of non-s ourcing material or component (or that of unknown 
origin) does not exceed 50%.  Hungary allows fu ll cumulation of origin within the group of 
beneficiary countries.24   
42. Over time, Hungary has widened the product cove rage of its GSP scheme.  At the outset, it 
embraced about 600 agricultural and industrial products.  At present, preferential tariffs apply to about 
6,400 tariff lines, 40% of which are of zero-rated and the rest is by 20 to 90% lower than the MFN 
rate.  The number of beneficiary countries has increased from 57 in 1972 to 109 at present.  The Hungarian GSP regime currently c overs about 92 to 97% of total im ports from developing countries.  
The 46 least developed countries (LDCs) qualify for duty-free treatment without quantitative limitations on any of their exports. 
(4) 
INVESTMENT POLICIES  
(i) Domestic regime and incentives 
43. Since the start of the transition process, Hungary has attracted more foreign direct investment 
(FDI) than any other central and eastern Europ ean country (about US$15 billion between 1989 and 
1996, with a record of US$4.5 billion in 1995 alone).  At the end of 1996, nearly 30,000 joint ventures 
involving foreign participa tion operated in Hungary.25  More than half of Hungary's 200 major 
companies are controlled by foreign interests.  The main sectors concerned are telecommunications, 
energy production and distribution, commerce and financial services.  Foreign presence is also 
important in certain manufacturing industries, such as automobiles and electronics.26  Germany is the 
largest single investor in Hungary, closely followe d by the United States, each country accounting for 
about a third of the total stock of FDI in Hungary.  Austria and France are also major investors.  Other 
investors include the Netherlands, Sweden, the United Kingdom, Italy, Switzerland, Japan and 
Canada. 
44. As a corollary to the progressive liberalization of import policies, Hungary's investment 
policies aim to create a favourable environment for foreign direct investment.  Considering that 
foreign direct investment is a key factor in H ungary's economic transformation, the Government has 
been encouraging participation of foreign investor s in nearly all aspect of the economy.  In turn, 
                                                      
24 Details on the rules of origin provisions are set out in the 1995 Act C on Customs, Customs 
Procedures and Administration, and Government Decree No. 45/1996 (III.25.) enforcing the Act. 
 
25 More than 4,000 companies with foreign participation were established in 1996.  In that year, half of 
all newly established companies ha d no Hungarian participation. 
 
26 However, the manufacturing sector accounts only for a minor part of foreign direct investment (20% 
of total flows in 1996).  Services represent by far th e largest part, with certain sectors now dominated by 
foreign-owned firms. In the financial services sector, 10 of the country's 15 largest banks and 11 of the 14 
largest insurance companies are majority owned by foreign interests. 
 Hungary WT/TPR/S/40 
 Page 29 
 
 
foreign-owned companies have played an incr eased role in Hungary's economy, employing about 
22% of the labour force and accounting for 18% of GDP. 
(a) Basic framework 
45. The main rules and principles regulating the est ablishment, operation, rights and benefits of 
companies with foreign participation are contai ned in Act XXIV of 1988 on the Investments of 
Foreigners in Hungary (the Investment Act).  The essence of the Act is liberal, with no general 
restrictions or sectoral prohibitions.  The Act guarant ees national treatment for foreign investment.  In 
contrast to the past, non-Hungarian companies are al lowed to own equity up to 100% (with exceptions 
such as agricultural land, real estate, air transpor t and waterways), without Government approval.  
The last remaining prior approval requirements, appl ying to financial institu tions, were removed in 
July 1996.  
46. Foreign investors may establish in the typ es of company listed in the 1988 Act VI on 
Business Organization, essentially:  limited-liability companies (prime share capital Ft 1 million), the 
most common vehicle for foreign investment in Hungary;  companies limited by shares (minimum 
share capital Ft 10 million);  limited partnerships (minimum prime capital is not prescribed);  or joint companies.  Foreign investment, regardless of its legal form or percentage of ownership, must 
generally be registered at the Court of Registra tion in the locality where the company will operate.
27  
Branch offices of a foreign-owned company must register separately if operating in a different 
location from that of the parent-company.  Once es tablished, foreign-owned companies, like domestic 
private entities, are free to engage in any form of re munerative activity authorized by the law.  As of 
1 anuary 1998, establishments in the fo rm of branches are also allowed. 
47. There are no performance tests or requirements in  respect of the establishment, maintenance 
or expansion of foreign direct investment, such as minimum or maximum times for equity holdings, 
minimum shareholding for nationals or speci fic conditions for technology transfers. 
48. Apart from agricultural land, there are no restrictions on the purchase of real estate by a 
foreign-owned company established under Hungarian  law, provided that such an acquisition is 
"required for its economic activity".  However, the 1994 Act LV on Land prohibits ownership of 
arable land by companies and limits purchases of non-agricultural land by foreigners to 6,000 square 
metres.  It allows for leases of up to 300 hectares for a maximum period of ten years.  The Government sees current restrictions on foreign owne rship of land as only temporary, at least "until 
real estate markets reflect accurate land values".   A new Land Bill was recently introduced in 
Parliament.  The issue of foreign ownership of land is due to be raised in the course of the debate. 
49. The revised Law XXXIX of 1995 on Privatization provides for the acceleration of the process 
of privatization and introduces greater transparency in  procedures than previously (Chapter III(4)(v)).  
Foreign investors may obtain equity in a state enterprise through privatization (so far, this has 
represented a third of total foreign direct investme nt). The State Privatization and Holding Company 
(ÁPV Rt) has sole responsibility for the privatizati on and management of all state-owned enterprises.  
                                                      
27 In some sectors or for certain activities, firms must obtain operational licences from specialized 
agencies or government bodies.  This is the case for banking activity (State Banking Supervision Authority), 
insurance activity (State Insurance Supervision Author ity), securities trading (State Securities and Stock 
Exchange Supervision Authority), customs-free zone (Hungarian Customs and Finance Guard Directorate-General of the Ministry of Finance), off-shore firms (Ministry of Finance) and some import-export activities 
subject to international regulations, which need special pe rmits (Licensing Division of the Ministry of Industry, 
Trade and Tourism). 
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The 1995 Privatization law (as amended by Act LXXVI  of 1997) lists the companies to remain in 
long-term state ownership, implying in most cases an equity share of 50% plus one vote, but in exceptional cases a share of 25% plus one vote or a golden share (a share guaranteeing voting priority). 
50. The 1991 Concession Act allows the State to grant concessions involving partial or full 
monopoly rights in exchange for investment in in frastructure such as the construction of roads, 
railways and airports, power generation and transmission or mining.  Concessions are subject to 
tenders, and time and renewal limits .  Foreign-owned firms incorporated in Hungary are considered to 
be Hungarian companies and thus benefit from national treatment.  
51. The 1988 Investment Act guarantees the free and full  repatriation, without delay, of invested 
capital, dividends, royalties, fees, after-tax profits or any other income resulting from the operation or 
sale of an investment.  The Act also guarantees th e rights of foreign workers employed in a foreign-
owned firm to transfer their after-tax incomes.  Protection against expropriation is provided by the 
Constitution, which stipulates in its Article 13 (2) that "property may be expropriated only 
exceptionally when it is a matter of public interest, and only in the cases and in the manner regulated 
by law, under terms of full, uncon ditional and immediate indemnifica tion".  The Investment Act adds 
that foreign investors will be promptly indemnifie d should their property be damaged by any measure. 
(b) Incentives 
52. As part of its efforts to attract foreign dir ect investment, Hungary introduced in the early 
1990s a number of incentive programmes for foreign-owne d firms in the form of tax-relief, repayable 
or non-repayable grants, loans or interest s ubsidies, regional and industry-specific incentive 
programmes.  However, the proliferation of such programmes has given rise to discrimination against 
Hungarian-owned firms and led the Government to review some of these preferences. As a result, 
several tax holidays for new investments were suppr essed in 1993, although not retroactively.  Duty-
free treatment for in-kind contribution of joint ventures was removed in December 1995.
28 At present, 
according to the Government, there is no discrimin ation between domestic and foreign investors, 
except in the case of those previous measures fo r which "grandfathering" has been allowed.  
53. Two main categories of incentives are currently available to all investors in Hungary:  tax 
incentives programmes, aimed at encouraging inv estment in selected activities or areas (R&D, 
disadvantaged regions), and regulated by the 1991 Act LXXXVI on Corporate Taxation;  and direct 
financial support, regulated by Decree 4/1996 (II.16 ) and channelled through the "Targeted Allocation 
for the Development of the Economy", a fund managed by the Ministry of Industry, Trade and 
                                                      
28 Mr. Szabolcs Fazakas, at that time State Secretary at the Ministry of Industr y and Trade, justified the 
decision to eliminate the duty-free import of in-kind ca pital contributions and certain preferences enjoyed by 
foreign firms, on the grounds that: "when the upswing of  foreign capital began in the early 1980's, Hungary's 
social, political, economic system was different from West ern patterns and meant higher risks in the eyes of 
foreign investors.  This had to be offset by economi cally attractive preferences.  Since then, market economy 
has gained strength and bilateral agreements on investme nt protection and the avoidance of double taxation have 
been concluded. Different treatment has become inconsistent with market economy principles such as neutral competition. Such discrimination results in disadvantages to Hungarian companies and in certain cases to the 
growing number of joint ventures and foreign companies that have moved to Hungary". In particular, "when a 
foreign company or joint venture decided an investment to be financed from its capital as in-kind contribution, under the present conditions it is cheaper to purchase equipment from imports than from Hungarian suppliers 
including partly or entirely foreign-owned companies registered in Hungary". (Interview in the Hungarian 
Economy, 21 December 1995).  
 Hungary WT/TPR/S/40 
 Page 31 
 
 
Tourism.  Hungarian and foreign-owned companies in corporated in Hungary have equal access to the 
fund (Box II.2).   
(ii) International initiatives and agreements 
54. To date, Hungary has signed 44 bilateral invest ment guarantee agreements involving most of 
its main trading partners.29   There are no such agreements in fo rce with other countries in central and 
eastern Europe or with FSU countries.  Hungary is also currently participa ting actively in the OECD 
negotiations towards a Multilateral Ag reement on Investment (MAI).  
55. As one of the main recipients of foreign direct investment in central and eastern Europe, 
Hungary welcomed the WTO Agreement on Trade-Re lated Investment Measur es (TRIMs).  In the 
context of the preparation of the WTO Ministerial Conference in Singapore, Hungary also supported the adoption of a work programme on investment in the WTO. 
                                                      
29 These partners include Australia, Austria, Belgium and Luxembourg, Canada, China, Cyprus, 
Denmark, Finland, France, Germany, Greece, Israel, It aly, the Republic of Korea,  Kuwait, the Netherlands, 
Norway, Spain, Sweden, Sw itzerland, Thailand, the United Kingdom, the United States, and Uruguay.   
 
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Page 32 
 
 
Box II.2:  Main incentives available to foreign investors in Hungary 
I. Tax incentives 
According to the 1991 Ac t on Corporate Taxation, amended in December 1995, foreign investors may 
benefit mainly from: 
- investment tax allowances of 50% for five years, for investments over Ft 1 billion in the 
manufacturing sector if the investment yields a 25% (or at least Ft 600 million) increase in the 
company's export income; 
- investment tax allowances of 50% for five years, for investments over Ft 1 billion in the commercial 
accommodation sector, if the invest ment yield a 25% (or at least Ft 600 million) increase in the 
company's sales; 
- investment tax allowances of 100% for five years, if the investment is carried out in a priority region 
(in particular where the unemployment rate is above 15%) or entrepreneurial zone; 
- a reduction of the tax-base equivalent to 20% of direct R&D costs; - preferences related to depreciation and write-o ff, in particular of entrepreneurial areas. 
In addition, the 23% supplementary corporate tax was abolished on 1 January 1997, resulting in a 
substantial reduction of the Corporate Profit Tax from the uniform 36% rate to 15% at present.  Re-invested dividends are not taxable. 
II. Direct financial assistance 
The Government provides financial assistance to support development projects that are considered 
important for the economy through the "Targeted Allocation for the Development of the Economy".  The 
scope of eligible projects is relatively wide, but support is generally aimed at encouraging capital 
investment, infrastructure develo pment, and trade promotion.  Recent projects financed by the 
Government include the establishment of infrastructure surrounding investment projects, the emergence of 
new Hungarian products on foreign markets, the promotion of capital investment in particular by large-
scale foreign investors, the dynamization of manufacture of up-to-date products, and the integration of industry suppliers into the production of major foreign investors.  Funds available in 1996 totalled Ft 15 
billion, as against Ft 5.3 billion in the previous year. 
Individual subsidies shall not exceed Ft 200 million (except for invest ment in production facilities, for 
which the limit is Ft 1 billion) or 33% of combined costs.  They may take several forms, such as non-
repayable grants, equity participation by the State a nd interest subsidies. According to the Government, 
subsidies are available both to foreigners and Hungarians under equal conditions through open tenders. Repayable subsidies are also available for investment in  infrastructure and the establishment of industrial 
parks.   
Source: WTO Secretariat based on information provided by the Government of Hungary. 
 