Czech Republic WT/TPR/S/12
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I. THE ECONOMIC ENVIRONMENT
1. TheCzech Republic became asovereign Stateon1January 1993asoneofthetwosuccessor
States totheCzech andSlovak Federal Republic (CSFR). Aprocess ofmarket-oriented reform, to
dismantle theformer central planning regime, hadbegun three years earlier andhasbeencontinued
bytheCzech Republic. Reform hasencompassed thedecontrol ofprices, theprivatization ofState
enterprises, theopening toforeign investment andtheliberalization ofinternational trade andforeign
exchange.
2. Ledbyacollapse inexport demand from countries oftheCouncil forMutual Economic
Assistance (CMEA), Czech realGDPdeclined bysome21percentbetween 1990and1993(Chart I.1).
Theeffect ofreforms became clearin1994when, underpinned byarebound indomestic demand and
somewhat aided byeconomic expansion inwestern Europe, realGDP expanded by2.6percent. The
restoration ofgrowth hascontinued into1995, withrealGDPupbyanestimated 5percent. In1994,
percapita GDP, calculated onthebasis oftheofficial exchange rate,wasabout US$3,500.1
(1) Major Features oftheCzech Economy
3. TheCzech Republic, located incentral Europe, covers anareaof79,000 square kilometres
andhasapopulation of10.3million. Approximately 85percentofthepopulation livesintowns of
over2,000 inhabitants andthecapital, Prague, has1.2million inhabitants. Thelabour force iswell
educated andhasasubstantial manufacturing tradition. Theimportance offoreign tradetotheeconomy
isindicated bythefactthatthevalue ofgoods andservices trade exceeds GDP (Table I.1).
1Estimates based onpurchasing power parity exchange rates ranged between US$7,800 and11,000 in1989.WT/TPR/S/12 Trade Policy Review
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Table I.1
Major features oftheCzech economy
Population, 1994 10.3million Annual population growth, 1986-94 0.1percent
Labour force, 1993 4.8million Annual labour force growth, 1985-93 -0.8percent
Lifeexpectancy atbirth, 1993 73years
GDP, 1990 (at1984 prices) Kc504billion Exchange rate,KcperUS$, 1990 17.95
GDP, 1994 (at1984 prices) Kc411billion Exchange rate,KcperUS$, 1994 28.78
GDP, 1990 US$31.6 billion GDP percapita, 1990 US$3,050
GDP, 1994 US$36.0 billion GDP percapita, 1994 US$3,490
Share inGDP, 1993 (percent) Share inemployment, 1993 (percent)
Agriculture andforestry 5.8 Agriculture andforestry 5.9
Industryaandconstruction 40.7 Industryaandconstruction 44.6
Services 53.5 Services 49.5
Trade andcatering 9.8 Trade andcatering 14.9
Transport, storage &communication 5.8 Transport, storage &communication 7.9
Banking &insurance 10.7 Banking &insurance 1.3
Public admin., education, health 11.4 Health care 5.4
Other services 15.8 Other services 20.0
Merchandise exportsb,f.o.b., 1994 US$14.3 billion Merchandise importsb,f.o.b., 1994 US$15.0 billion
Merchandise exports toGDP ratio, 1994 39percent Merchandise imports toGDP ratio, 1994 41percent
Commercial services: credits, 1994 US$4.5 billion Commercial services: debits, 1994 US$3.5 billion
a Including mining andquarrying, andelectricity, gasandwater.
b Customs basis; preliminary data.
Source: Dataprovided bytheCzech authorities.
4. Prague hastraditionally beenaEuropean cultural centre andapopular tourist destination.
TheCzech Republic isrichinsome natural resources, including coalandother non-metallic minerals,
suchasmagnesite andkaolin; however, thedomestic supply ofoilandgasisnotsignificant andferrous
andnon-ferrous oresarenotmined insubstantial quantities. TheRepublic 'srivervalleys arefertile,
butmuch ofthecountry 'sterritory ishillyandconditions arenotparticularly favourable foragriculture.
5. TheCzech economy ishighly diversified. Industry, including construction, accounts forsome
41percentofGDP andemploys more than44percentofthelabour force (Chart I.2). Themost
developed industrial sectors include engineering, automobiles, metallurgy, glass, shoes, textiles and
clothing, andbeer. Industrial output, measured atconstant prices, fellbysome 42percentfrom1989
through 1993 before levelling offin1994. Manufacturing output, which fellby26percentin1991,
contracted by44percentfrom 1989 through 1993 andexpanded slightly in1994. Inrecent years
theservices sector hasbecome theeconomy 'slargest, witha53percentshareofGDP. Thecontribution
ofagriculture (together withhunting, forestry andfishing) toGDP declined from8percentin1990
toabout7percentin1993,partlybecauserapidlyrisinginputpricesandstagnantoutputpricesfollowing
trade andprice liberalization ledtolower returns tolabour andcapital employed inthesector.
Agriculture accounts forabout 6percentofemployment, ashare thatisexpected tocontinue tofall
astheratioofoutput toinput prices inthesector remains low.Czech Republic WT/TPR/S/12
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(2) Recent Economic Performance
6. Before World WarIICzechoslovakia wasamong theworld 'smost industrialized countries.
Following achange inrégime in1948, nearly alleconomic factors ofproduction, including land, were
nationalized andcentral planning wasintroduced. Foreign tradebecame aStatemonopoly andahandful
ofspecialized State-owned foreign trade enterprises conducted allimporting andexporting.
7. Until theendof1989resource allocation wasbased oncentrally-determined economic plans,
withmarkets assigned virtually norôle. Theeconomy 'sstructure wasgeared inparttoitsrôleas
asupplier ofindustrial goods within theCMEA. Thesystem ofeconomic management changed
fundamentally afterthe"velvet revolution" ofNovember 1989, which ledtheCSFR toembark on
awide-ranging economic transformation. Central planning wasabolished in1990, presaging aseries
ofreform measures in1990 and1991 thatweredesigned torapidly laythebasis foramarket-driven
economy. These included price liberalization covering some 85percentofgoods andservices; the
startofprivatization; theintroduction ofatwo-tier banking system; theelimination oftheState's
monopoly offoreign trade andtheintroduction oftrade liberalization measures; andarelaxation of
foreign exchange controls. Concurrently, macroeconomic management wasprudent, andincluded
atightening ofmonetary andfiscal policy. During 1990 theauthorities alsosignificantly devaluedWT/TPR/S/12 Trade Policy Review
Page 4
thedomestic currency, thekoruna, providing animportant improvement inexport competitiveness
andacushion against thecosts ofeconomic transition. Balance-of-payments concerns ledtothe
introduction ofa20percentsurcharge onimports ofconsumer goods in1990, atatimewhen tariffs
averaged some 5percent.2
8. TheCzech economy began tocontract in1990. In1991thecontraction wasmostsevere with
realGDP down byover14percent. Thisdownturn wasledbythecollapse ofexports totheformer
USSR andother eastEuropean countries, withadecline indomestic demand playing acontributory
role. Under theimpact ofprice liberalization, inflation fortheyearwasintheorder of57percent
andunemployment reached 5percent. In1992, thedecline inrealGDPwasheldtoaround 6.5percent
asexports inconvertible currencies roserapidly. Inflation, withfinancial policies onatightleash,
declined to11percentandunemployment wasdown toaround 3percent(Table I.2).
9. Theimplementation ofreforms continued apace in1992, particularly withthefirstwave of
voucher privatization and,within theframework ofthesmall-scale privatization thathadbegun in1991,
therestitution ofproperty toformer owners. Bytheendof1992, theshare oftheprivate sector in
GDP hadrisentoalmost 28percent,compared tolessthan5percentatthestartofreform process.
Inaddition,thePragueStockExchangewasfounded,tobeginoperationsin1993,andseveralinstitutions
werecreated tohelpsmall- andmedium-scale enterprises andexporters. During theyear,preparations
werealsomadefortheintroductionofavalue-addedtax(VAT)inJanuary1993andtheimportsurcharge
wasreduced to10percentinmid-year andeliminated attheendof1992.
10. TheCSFR wasdissolved andtheCzech Republic andSlovak Republic became sovereign States
on1January 1993. Thetwocountries established theCzech-Slovak Customs Union andinitially were
inmonetary union. Thelatter wasterminated inFebruary 1993, witheachcountry creating itsown
currency. During 1993, Czech realGDP remained broadly unchanged, asignificant improvement
overthedeclines ofprevious years. Exports totheSlovak Republic declined sharply butthiswasmore
thanoffset bythecontinued rapid growth ofexports inconvertible currencies. Thecurrent account
wasinsurplus, which together withrapidly rising capital inflows ledtoasharp increase ininternational
reserves. Inflation wasintheorder of21percent,butmuch ofthisreflected theintroduction ofthe
VAT. Unemployment remained lowataround 3.5percent. During theyear, fundamental changes
were made intheareaofsocial services, andtheshare oftheprivate sector inGDP rosetoaround
45percent.
11. Growth recovered in1994, witharebound indomestic demand themajor factor behind an
increase of2.6percentinrealGDP. Thegrowth ofexports slowed substantially while imports rose
sharply, inlinewiththerecovery ineconomic activity; thetrade deficit widened tosome 2percent
ofGDP, which withamoderate decline intheservices balance leftthecurrent account inapproximate
balance. Nevertheless, there wasafurther substantial increase inforeign exchange reserves, largely
duetothegrowing inflows offoreign capital. Although these latter flows tended tocomplicate
stabilization efforts, continued prudent financial management heldinflation toaround 10percent,and
unemployment remained lowat3percent.
2Thesurcharge wasreduced to18andlater 15percentduring 1991.Czech Republic WT/TPR/S/12
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Table I.2
Economic performance oftheCzech economy, 1991-95
Share of
1994 GDP
(percent)1992 1993 1994 1995a
Percentage change
RealGDP 100.0 -6.4 -0.9 2.6 5.0b
Private consumption 57.6 15.1 2.9 5.3 5.2
Government consumption 22.2 -3.1 -0.1 -2.3 -3.0
Gross capital formation 20.4 -17.6 -2.2 22.1 43.3
Fixed capital 26.7 8.9 -7.7 17.3 11.6
Netchange instocks (Kcbill.) -6.4c-18.2 -11.1 -8.1 38.9
Netexports ofgoods andservices (Kcbill.) -0.2c3.0 16.7 -2.7 -26.9
1991 1992 1993 1994 1995
Consumer prices (percentchange; period average) 56.6 11.1 20.8 10.0 9.0b
Unemployment (percent; endofyear) 4.1 2.6 3.5 3.2 2.8
Realeffective exchange rate(percentchange)d-20.7 15.5 17.1 10.5 ...
Nominal effective exchange rate(percentchange)d-39.4 -4.1 3.2 -1.4 -8.7
Money supply (M2; percentchange) ... 23.0 20.5 21.5 2.3
Interest rates(avgerage ofrates)
Oncredits 14.5 13.5 14.1 13.1 12.8
Ondeposits 8.2 7.2 7.0 6.1 5.8
Share ofprivate sector inGDP (percent) 17.3 27.7 45.1 56.3 62.0
1992 1993 1994 1995
PercentofGDP
General Government balancee... 1.4 0.5 -1.3f
Revenue ... 50.5 49.4 47.8f
Expenditure ... 50.0 50.7 50.2f
Current account balance -0.5 2.2 0.0 -4.2b
Merchandise trade balance -4.5 -1.0 -2.4 -8.4
Exports, f.o.b. 39.8 41.5 39.0 36.7
Imports, f.o.b. 44.3 42.5 41.5 45.1
Services balance 5.8 3.2 2.1 3.5
Receipts 12.9 15.1 13.3 13.7
Expenditures 7.1 11.9 11.2 10.2
Netfactor income andcurrent transfers -1.8 0.0 0.2 1.6
Capital account balance -0.1 7.7 11.6 14.3
Netdirect foreign investment 3.5 1.7 2.1 ...
Portfolio investment &long-term capital 0.9 6.0 7.5 8.4g
Short-term capital -4.6 0.0 2.0 5.8
Balance ofpaymentsh-1.0 9.5 9.7 13.7
Change ingross reserves (-,increase) 0.3 -9.7 -6.6 -13.7
International reserves (US$ billion) 0.8 3.9 6.2 9.2
International reserves (months ofimports ofgoods
andservices) 0.7 2.7 4.0 4.6
Gross domestic investment 24.0 18.7 22.4 23.4
Gross national savings 23.6 20.9 22.4 19.2
... Notavailable.
a Firsthalfof1995 unless otherwise noted; preliminary data.
b Figure forthefullyear1995; preliminary data.
c Share of1994 GDP.
d Positive signindicates appreciations.
e Thedifference between revenue andexpenditure isnotequal tothebalance asthelatter includes privatization revenue.
f Estimate.
g Figure fornetdirect investment, portfolio investment andother long-term capital.
h Thebalance ofpayments asreported isnotequal tothesumofthecurrent andcapital account because oferrors andomissions.
Source: Dataprovided bytheCzech authorities; andInternational Monetary Fund.WT/TPR/S/12 Trade Policy Review
Page 6
12. Thepaceofeconomicrecoveryquickenedin1995.Stronggrowthinconsumptionandinvestment
underpinned anincrease inrealGDP estimated atsome 5percent. However, withexport growth
slower andimports upsharply, thetrade deficit widened toabout 8percentofGDP, leading a
deterioration ofthecurrent account toadeficit equivalent tosome 4percentofGDP. Nevertheless,
continued largeinflows offoreign funds resulted inafurther substantial increase inexchange reserves,
toacoverage ofwellover4months ofimports ofgoods andservices inmid-1995, compared toless
thanamonth in1992. Thecapital inflows haveadded tothedifficulty offinancial management, and
fiscal policy appears tohavebecome marginally expansionary. Inflation fortheyearwassome 9per
cent, andunemployment remained near3percent.
(i) Fiscal policy
13. Thebasicobjectives ofCzech fiscal policy sincethebeginning ofthereform process havebeen
toavoid crowding outprivate investment bymaintaining abalanced budget andtoreduce theState's
rôleintheeconomy. These efforts would appear tohavebeenlargely successful. There weresmall
budget deficits in1991 and1992 butsurpluses equivalent to1.4percentand0.5percentofGDP
in1993and1994.3Theratioofgovernment expenditure toGDPdecreased from56percentin1990
to50percentin1993 andcontinued atabout thislevel in1994 and1995. Abalanced budget for
1996 hasbeenapproved byParliament.
14. VAT wasintroduced atthestartof1993 withtworates: thebasic rateof23percent, and
areduced rateof5percent,which applies tofoodstuffs andsome other products. Thebasic ratewas
reduced to22percentin1995. Theglobal taxburden falling onenterprises hasalsobeendecreased,
asthebasic corporate income taxratewasreduced from 55percentin1992 to41percentin1995
and39percentin1996. Thesocial security contribution ratewasreduced from 50to36percent
in1993. Personal income taxratesvaryfrom 15to40percent, thetopratehaving recently been
reduced from 43percent.
(ii) Monetary policy
15. Since thestartofthereform process, Czech monetary policy hasbeen prudent, withits
development reflecting theprogress oftheeconomic transition. Inflation control hasbeenattheheart
ofpolicy. Monetary management hasmoved todecentralized control: in1992, direct instruments
ofmonetary policy werewithdrawn; interest rateceilings wereeliminated inApril andcredit ceilings
were abolished inOctober. Therefinancing system wasdeveloped anddiversified.
3Figures include revenue from privatization. Excluding thisrevenue, there wasasurplus equivalent to0.6
percentofGDP in1993 andadeficit equivalent to1.3percentofGDP in1994.Czech Republic WT/TPR/S/12
Page 7
16. In1994 andearly 1995 developments were influenced byastrong foreign resource inflow.
Tokeepmonetary aggregates within targeted ranges, themonetary authorities continued topartially
sterilize freereserves inthebanking sector. These monetary measures haveputupward pressure on
short-term rates. Significant interest ratespreads andinsufficient availability oflong-term credits from
domestic banks would appear tohavecontributed tothecapital inflows, withdomestic credits having
beenreplaced toalarge extent byforeign credits.
(iii) Exchange ratepolicy
17. TheCzech Republic undertook theobligations ofArticle VIIIoftheInternational Monetary
Fundon1October1995andremovedallremainingrestrictionsontheconvertibilityoftheCzechkoruna
forcurrent account purposes (Annex I.1).
18. TheCzech Republic hasmaintained apegged exchange rateforthekoruna since 1991. The
rateisbased onacurrency basket thatpresently consists oftheGerman mark (65percent) andthe
U.S.dollar (35percent). Theexchange rateissetdailybytheCzech National Bank(CNB), thecentral
bank, andisusedfortrading between theCNB andcommercial banks. Itslevelmayfluctuate within
arange of±0.5percentdepending ontheinterbank market forforeign exchange. Commercial banks
mayusefortheirtrading either theexchange ratesetbytheCNB ortheirownexchange rates.
19. Exchange ratepolicy hasplayed acentral rôleinthetransformation process, withtheexternal
value ofthekoruna functioning asanominal anchor. Devaluations in1990helped toimprove export
competitiveness andcushion thetransition. While thenominal rateagainst thecurrency basket has
remained steady, inrealeffective terms thekoruna hasappreciated substantially (Chart I.3),cutting
intothegains incompetitiveness from theinitial depreciation ofthekoruna.
20. From February 1993 untilOctober 1995 settlement forcommercial transactions between the
Czech andSlovak Republic, excluding transactions relating tore-exports andpayments fromforeign
exchange accounts, waseffected through aclearing account maintained bythecentral banks ofthe
twocountries. Transactions wereconverted from thecurrency ofthecontract intoclearing ECUs at
aratesetbythecentral banks thatwasallowed todiffer byasmuch as5percentfrom themarket
cross rate. During most ofthecourse ofthearrangement theSlovak currency wasdevalued versus
theCzech currency. Thisdifference wasnarrowed during 1994and1995andeliminated soonbefore
thearrangement wasdissolved on1October 1995, when thecurrencies ofbothRepublics became
convertible forallcurrent account transactions.WT/TPR/S/12 Trade Policy Review
Page 8
(iv) Privatization
21. Privatization hasbeenamajor element oftheCzech economic transition.4Under small-scale
privatization, started in1991, small business suchasretail stores, restaurants andservice facilities
werereturned totheirprevious owners orsoldtoprivate individuals, primarily through public auctions.
Thetotalsalesvalue ofassets fromsmall-scale privatization reached US$1.1 billion byitscompletion
inmid-1993.
22. Theprivatization oflarge-scale industrial enterprises hasincluded standard methods, suchas
direct sales, andthevoucher privatization programme, which redistributed Stateassets toCzech citizens
byenabling them tobidforshares ofState-owned enterprises through asystem ofvoucher points.
Thevoucher privatization wasimplemented intwowaves thatcovered 2,200 enterprises withabook
value equivalent toabout US$14 billion; itincluded about 30percentofthetotalvalue ofassets to
beprivatized inthecountry. Thesecond wave ofvoucher privatization wascompleted atthebeginning
of1995.
23. Theshare oftheprivate sector inCzech GDP grew rapidly, from some 17percentin1991
towellover60percentin1995: private activity accounts foralmost halfofindustrial output and
forupto90percentofservices andagricultural productions. Privatization wasquickly implemented,
mainly duetothevoucher programme, andhasenjoyed large popular support.
4Prior to1989, theshare oftheprivate sector intheCzech economy wasloweven incomparison toother
centrally planned economies; atthatpoint theprivate sector produced about 4percentofGDP andowned some
2percentofassets.Czech Republic WT/TPR/S/12
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(v) Enterprise restructuring
24. Aparticular feature ofCzech privatization hasbeenthatthechange inenterprise ownership
hasnotbeenprecededbyindustrialrestructuring,whichtheGovernmenthasleftinsteadtobeundertaken
bythenewowners. Thechange ofownership toprivate individuals andgroups, suchasInvestment
Privatization Funds, maynotyethaveresulted inanappropriate deconcentration ofenterprise control.
Incombination withrather passive bankruptcy practices andcorporate reporting requirements, this
maybedelaying theindustrial restructuring thatisacritical partoftheeconomic transition. Because
control hasnotbeeneffectively dissipated, arelatively small group ofindividuals andenterprises
exercises effective control inmany economic sectors. Troubled enterprises, which might havebeen
declared bankrupt under more aggressive bankruptcy rules andpractices, continue inbusiness, with
losses covered bycontrolling enterprises inother sectors, particularly banking.
25. Anindication ofthisproblem maybethelargespread, ofuptosixorseven percentage points,
between financial institutions 'deposit andlending rates. Partly asaresult ofthissomeCzech enterprises
areinduced toborrow abroad. Theresulting capital inflows mayhavecontributed toarealeffective
appreciation oftheCzech koruna, perhaps undermining thecompetitiveness ofexports.
(vi) Unemployment
26. TheCzech unemployment rateremained low,atunder 3percentinmid-1995, particularly
ascompared tootherEuropean economies intransition.5Thelowrateofunemployment maybepartially
explained bythemany departures fromthelabour force, which declined bysome 9percentfrom1990
to1993. However, inthesame period measured production fellmore than20percent,which partly
reflects thegrowth inthegreyeconomy.6TheGovernment notes thatthelowunemployment rateis
alsoduetoanactive employment policy, increased opportunities inservices, andstrict eligibility
requirements forunemployment benefits. Another important factor appears tobetheslowpaceof
enterprise restructuring; asthispicks uptheunemployment ratemayrise,although itwould seem
thattheservices sector hasbeenefficient inabsorbing labour.
(3) Trade Performance
27. TheCzech economy wasinsulated fromtheworld economy during thecentral planning period
andworld market prices hadlittleornodirect influence ondomestic prices andeconomic decisions.
TradewithCMEAcountrieswasconductedonthebasisofbilateralagreementswhichincludedobligatory
delivery quotas andfixed prices. Atitspeak, trade withCMEA countries accounted forabout
80percentofCzechoslovakia'strade,withtheSovietUnionasthelargesttradingpartner.Manufactured
products comprised alarge share ofexports toCMEA markets butamuch smaller share ofCzech
exports tomarket economies, asthelatter consisted mostly ofprimary andintermediate goods.7Since
thecollapse ofCMEA trade in1990 and1991 boththegeographic andtheproduct composition of
Czech trade havechanged dramatically.
5IntheCIScountries andtheBaltic republics therateofunemployment wassimilarly low,varying between
0.3and6.0percentattheendof1994 (Economic Commission forEurope, 1995, pp.110-121).
6According toestimates byPlanEcon, economic activity inthegreyeconomy isequivalent to12percent
ofthatintheofficial economy. PlanEcon alsoestimates thatinflation estimates thatneglect thegreyeconomy
overstate theprice levelbysome 8percentandthatactual economic growth in1994 wasequivalent to5.2rather
thanthe2.6percent(PlanEcon, 1995).
7Almost 60percentofexports toCMEA countries consisted ofmachinery andtransport equipment.WT/TPR/S/12 Trade Policy Review
Page 10
(i) Commodity pattern oftrade
28. Themainshiftinthecomposition ofCzech exports hasbeenawayfrommachinery andtransport
equipment toward other manufactured products (Chart I.4). Between 1989 and1994, theshare of
machinery andtransport equipment inthecountry 'sexports declined from 40to26percent, while
theproportion ofmanufactured goods classified chiefly bymaterial hasincreased from21to31percent,
largely reflecting theredirection ofexports fromtheCMEA todeveloped market economies. Changes
inthecomposition ofimports have, withrespect tomachinery andtransport equipment, mirrored this
change: these products accounted for28percentofimports in1989 but35percentin1994. The
shares ofother manufactures andchemicals havealsoincreased. Imports ofrawmaterials andfuels
asashare oftotalimports nearly halved during thisperiod, falling to15percent.
(ii) Regional pattern oftrade
29. In1989 trade withcentrally-planned economies amounted tomore thanhalfoftheCzech
Republic 'sexports andimports, withtheSoviet Union asthelargest trading partner. Since then, the
geographic distribution oftradehaschanged toward developed market economy countries, particularly
those inwestern Europe, which in1994represented more than60percentoftotalCzech trade, nearly
halfofwhich waswithGermany. Trade withformer CMEA partners (other thaneastern Germany)
dropped tosome 15percentofthetotal(Chart I.5)
30. Averylargeshare ofitstradeiswithcountries withwhich theCzech Republic haspreferential
trade agreements. These include European Union (EU) members (45percentin1994); Slovakia
(15percent, down from 19percentduring thefirstyearofseparation); Austria, partofEFTA in
1994butanEUmember beginning in1995(8percent); Hungary (2percent); andPoland (4percent)
(Tables I.3andI.4).
(4) Outlook
31. TheGovernment considers thattheCzech economy hasfulfilled thebasictransformation tasks
andthattheCzech Republic hasentered theearly post-transformation stage. Itsgoals forthefuture
include thecompletion oftheeconomic liberalization andderegulation process. TheGovernment does
notintend tointroduce industrial policies orsimilar interventions.8
32. TheGovernment aimstodecrease inflation toannual ratesof3to4percentattheturnof
thecentury while therateofunemployment isexpected togrowtosome 5or6percent. Theauthorities
intend thatthefixed exchange ratewillcontinue tobethenominal anchor oftheeconomy. The
Government takestheviewthatmerchandise tradedeficits willbecompensated byasurplus inservices
andthatthebalance ofpayments willremain stable.
33. Theauthorities expect robust growth intothemedium term. Thiswillrequire effective
restructuringoftheprivatizedenterprisesandcontinuedprudentfinancialpolicies,particularlytoforestall
anyweakening ofthecompetitiveness ofdomestic enterprises, which inturncould bring demands for
protection.
8V.Klaus (1995), p.5.Czech Republic WT/TPR/S/12
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WT/TPR/S/12 Trade Policy Review
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Czech Republic WT/TPR/S/12
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Table I.3
Direction ofexports, 1989-94
(US$ million andpercent)
1989 1990 1991 1992 1993 1994
US$million
Total exports f.o.b. 10,770 9,052 7,985 8,892 13,203 14,253
Percent
AMERICA
United States2.6
0.72.8
0.82.6
1.03.4
1.73.1
1.83.5
2.2
EUROPE 85.7 83.4 87.9 86.0 87.1 88.4
EC12
Belgium-Luxembourg
France
Germany
Italy
Netherlands
Spain
United Kingdom26.3
0.8
1.6
16.0
2.2
1.4
0.4
2.531.4
1.0
2.1
18.2
3.0
2.0
0.6
2.843.3
1.5
2.4
27.4
4.2
3.0
0.7
2.252.9
1.8
2.5
32.9
6.2
3.2
1.2
2.342.3
1.3
1.9
26.1
5.0
2.4
1.2
3.045.7
1.5
2.5
29.4
4.4
2.6
0.9
2.8
EFTA
Austria
Switzerland8.5
4.0
2.69.7
5.0
2.29.0
5.8
1.210.6
7.2
1.38.5
6.1
1.110.1
7.1
1.4
Eastern Europe
Poland
Slovakia
Former USSR
ofwhich: Russia
Hungary46.9
7.9
n.a.
30.7
n.a.
3.537.9
6.1
n.a.
25.1
n.a.
3.729.5
7.0
n.a.
17.5
n.a.
3.318.2
4.8
n.a.
8.9
7.3
3.133.3
2.7
21.5
6.3
4.5
2.330.0
3.8
16.4
6.1
3.9
2.7
Other Europe
Turkey
Former Yugoslavia
ofwhich: Slovenia4.0
1.0
3.0
n.a.4.4
1.3
3.1
n.a.6.1
0.7
5.3
n.a.4.3
1.3
2.9
0.63.0
1.0
1.4
0.92.6
0.6
2.1
1.1
MIDDLE EAST 2.4 2.5 3.2 2.7 1.9 1.8
ASIA
EastAsia
China
Japan7.1
5.3
3.0
0.78.0
5.3
2.2
0.94.6
3.6
1.0
0.85.5
4.5
1.0
1.06.0
5.3
1.9
0.54.6
4.0
0.6
0.6
OCEANIA 0.0 0.0 0.1 0.0 0.0 0.0
AFRICA
Egypt2.2
0.72.2
0.91.6
0.62.1
0.51.9
1.11.6
0.9
Other countries, not
identified 0.0 1.1 0.0 0.2 0.0 0.1
n.a. Notapplicable.
Source: Czech National Bank; Central Statistical Office; Ministry ofIndustry andTrade.WT/TPR/S/12 Trade Policy Review
Page 14
Table I.4
Origin ofimports, 1989-94
(US$ million andpercent)
1989 1990 1991 1992 1993 1994
US$million
Total imports f.o.b. 10,776 9,815 7,145 10,273 12,858 14,971
Percent
AMERICA
United States4.0
1.13.8
1.45.3
2.37.4
5.14.8
3.05.0
3.4
EUROPE 86.1 84.8 86.9 85.9 88.9 87.9
EC12
Belgium-Luxembourg
France
Germany
Italy
Netherlands
Spain
United Kingdom26.4
0.6
1.8
18.5
1.6
1.0
0.4
1.831.9
0.8
1.9
22.3
2.2
1.4
0.3
2.139.7
1.2
2.8
24.9
3.7
2.6
0.5
2.547.7
1.7
6.3
26.8
4.8
3.2
0.5
2.742.6
1.6
3.1
25.4
4.7
2.8
0.8
2.745.1
2.0
3.7
25.5
5.1
2.2
1.1
3.0
EFTA
Austria
Finland
Switzerland
Sweden7.9
3.9
0.6
2.4
0.812.3
6.9
0.5
3.5
1.213.3
8.2
0.6
2.9
1.213.7
9.1
0.7
2.2
1.412.2
7.8
0.7
2.2
1.113.2
8.1
1.1
2.2
1.4
Eastern Europe
Poland
Slovakia
Former USSR
ofwhich: Russia
Hungary47.8
6.8
n.a.
32.8
n.a.
4.336.9
7.5
n.a.
24.3
n.a.
3.030.8
5.2
n.a.
23.4
n.a.
1.422.9
3.4
n.a.
17.9
16.1
1.132.4
2.5
17.5
11.2
9.8
1.428.5
2.8
14.2
9.9
8.5
1.1
Other Europe
Former Yugoslavia
ofwhich: Slovenia3.9
3.5
n.a.3.7
3.3
n.a3.0
2.1
n.a.1.6
1.0
0.51.6
0.6
0.41.1
0.7
0.5
MIDDLE EAST 1.3 1.3 1.3 0.3 0.3 0.3
ASIA
EastAsia
China
Chinese Taipei
Japan7.5
5.4
2.6
0.2
0.78.1
6.1
3.2
0.1
0.94.7
4.0
0.9
0.3
1.45.8
5.4
0.5
0.9
2.25.5
5.2
0.6
1.0
1.76.3
5.8
0.7
1.0
2.0
OCEANIA 0.0 0.0 0.0 0.0 0.0 0.0
AFRICA 1.1 1.0 1.8 0.6 0.4 0.5
Other countries, not
identified 0.0 1.0 0.0 0.0 0.1 0.0
n.a. Notapplicable.
Source: Czech National Bank; Central Statistical Office; Ministry ofIndustry andTrade.Czech Republic WT/TPR/S/12
Page 15
Annex I.1
TheForeign Exchange Control System oftheCzech Republic
34. Upon dissolution oftheCzech andSlovak Federal Republic (CSFR) on1January 1993, the
Czech Republic entered acurrency union withSlovakia, withbothcountries retaining theuseofthe
CSFR currency, theCzechoslovak koruna. Thecurrency union ended on8February 1993 andthe
Czech koruna (Kc)wasintroduced astheCzech Republic 'scurrency. TheCzech National Bank(CNB),
thecentral bank, hastheprimary responsibility formonetary policy andshares responsibility forthe
control offoreign exchange withtheMinistry ofFinance. TheGovernor, thetwoVice-Governors
andthefourother members ofthegoverning Council oftheCNB areappointed bythePresident.
While independent oftheGovernment withrespect toitsmain task,thatofassuring thestability of
theCzech currency, theCNBadvises theGovernment onmonetary andbanking issues andtheGovernor
oftheCNB isauthorized toparticipate inmeetings oftheGovernment.
35. Theelimination ofthebilateral payments system withtheSlovak Republic (Chapter I(2)(iii))
cleared thewayfortheintroduction offullcurrent account convertibility ofthekoruna andtheentry
intoforce ofanewForeign Exchange Lawon1October 1995. Onthatdate,theCzech Republic also
accepted theobligations ofArticle VIIIoftheInternational Monetary Fund.
36. Some restrictions remain ontheuseofforeign exchange forcapital account transactions, such
asrestrictions onforeign exchange accounts heldabroad byCzech residents andonoutflows ofportfolio
investment.