In 1995, the United States trade deficit with Hungary was $252 million, $91
million greater than that in 1994. U.S. merchandise exports to Hungary in 1995
were $295 million, 4.5 percent less than those in 1994. Hungary was the United
States seventy-third largest export market in 1995. U.S. imports from Hungary
totaled $547 million in 1994, an increase of $77 million from those in 1994.
The stock of U.S. foreign direct investment in Hungary totaled more than $5
billion in 1995.
Hungary, the first of the former Communist Central and Eastern European
countries to experiment with economic reform, continues to push forward economic
restructuring and the establishment of a market economy. In 1995, GDP rose by
two percent, a slight drop from the 2.9 percent growth of 1994, but the second
year of growth after having declined dramatically in 1990-1993. Industrial
growth was up 5.8 percent, and unemployment near 10 percent in all four quarters
of 1995. Since 1989, Hungary has attracted more than half of all foreign
investment in the region, to a total stock of over $12 billion. An aggressive
economic stabilization program was launched in March of 1995. Hungary's current
account deficit declined from $3.9 billion in 1994 to about $2.5 billion in
1995. The consolidated budget deficit for 1995 equaled 6.5 percent of GDP,
versus an original trend of over 10 percent of GDP. A four percent deficit/GDP
ratio is projected for 1996.
Hungary's reserves at the end of 1995 swelled to over $12 billion, and 1995
privatization income of $3.5 billion was partly used to prepay debt principal,
further reducing the debt service burden of the government. The macroeconomic
picture began to show signs of improvement by late 1995, with the growth of
exports proportionally higher than that of imports. The impact of privatization
and direct foreign investment will have positive multiplier effects throughout
the economy. Continued growth in foreign investment will depend on the
government's ability to maintain current economic stability, reduce inflation
and successfully pursue its goal of privatizing 80 percent of GDP by the end of
1997. Privatization boosted the private sector from about 60 percent to 70
percent of GDP at the end of 1995.
Imports have been progressively liberalized in an effort to encourage
competition and to allow imports of materials necessary for restructuring. Over
93 percent of products can be imported without an import license. (Exclusions
include energy, fuels, precious metals, military goods, and certain
pharmaceutical products.) Hungary's state monopoly on foreign trade has been
Hungary's 1996 import quota on certain consumer and industrial goods will be
around $500 million, versus $520 million in 1995, and $750 million in 1994.
Hungary plans to eliminate quotas on cars, footwear and household detergent over
the next two years. Under an agreement with the WTO, Hungary will eliminate
quotas on textiles, clothing, and other industrial products by 2004. The quotas
have been filled each year, and some U.S. companies have complained that the
quotas restrict their access to the Hungarian market. Uncertainty about future
quota levels also concerns importers.
Hungary's average import duties have been cut from 50 to 13 percent over the
past three years. Under the terms of the Uruguay Round, Hungary will cut its
tariffs even further, to an average of eight percent. In March 1995, Hungary
introduced an eight percent surcharge for all imports, including agricultural
imports. This surcharge will likely be terminated in 1997. The Hungarian
government announced its new EU Harmonized Tariff Schedule for 1996 wherein
tariffs for imports from the EU and CEFTA were lowered, effectively making
exports from the U.S. less competitive.
The Hungarian government is expected to grant import licenses for 85,000 new
cars and 56,000 used cars in 1996, up seven percent from 1995, but well below
the 200,000 cars imported in 1991. Half of each category was reserved for
imports from the EU. The customs duty law of 1995 forbids the importation of
used cars over four years old. Specialized older vehicles may still be imported
after passing a special technical test. However, these regulations, combined
with standards for used cars which tend to exclude older U.S. models, will
effectively curb most U.S. imports in this category.
Customs fees for 1996 have dropped from the 1995 level of five percent to two
percent. This ad valorem fee now includes a one percent statistical fee and a
one percent customs clearance fee. These fees are scheduled to be eliminated by
January 1, 1997.
In January 1995, Hungary increased its border protection by raising many
agricultural tariffs to Uruguay Round ceiling bindings, and introduced numerous
tariff rate import quotas that are assigned to MFN or preferential suppliers.
The quotas could impede imports given the complex nature of their management.
As part of its Association Agreement with the EU, Hungary will phase out
import fees on EU products through 1997. In late 1994, the U.S. Trade
Representative launched a review of Hungary's reverse tariff preferences to the
EU. The review was part of a review of all GSP beneficiaries mandated by a
Statement of Administrative Action attached to the Uruguay Round Act.
Hungary maintained agricultural export subsidies in excess of its WTO
commitments during 1995 and is budgeted to exceed its commitments again in 1996.
Hungary has sought agreement to have its WTO commitments modified. Most
recently, Hungary proposed a revised schedule which would substantially increase
its ability to subsidize exports above current expenditure levels. G-8 countries
(New Zealand, Australia, Argentina, Japan, European Union, Canada, Thailand and
the United States), as well as Uruguay, have been conducting informal
consultations on the Hungarian export subsidies issue under the sponsorship of
the Chairman of the WTO Committee on Agriculture since the fall of 1995. Despite
encouragement from its trading partners to adjust policies, Hungary has insisted
on modifying its obligations. Extensive bilateral and multilateral consultations
have failed to resolve the problem.
LACK OF INTELLECTUAL PROPERTY PROTECTION
Protection of U.S. intellectual property in Hungary was strengthened
following the conclusion of a comprehensive bilateral intellectual property
agreement in July 1993. Under the IPR agreement, the Republic
of Hungary agreed to provide product patent protection; under prior law,
patents were limited to industrial processes. Because of this change, Hungary
was removed from the "Special 301" "priority watch list" in 1994. Legislation to
provide the protection called for in the IPR Agreement was passed by the
Hungarian Parliament and entered into force on July 1, 1994.
The IPR agreement also provides transitional protection for U.S.
pharmaceutical products otherwise ineligible for new product patents in Hungary;
provides that patents are available and patent rights are enjoyable regardless
of whether products are imported or locally produced; and provides limitations
on the use of compulsory licenses.
Hungary has copyright laws which largely conform to international standards.
The 1993 U.S.-Hungary IPR Agreement should strengthen copyright protection in
Hungary. The Agreement requires an exclusive right to authorize the public
communication of work, including to perform, project, exhibit, broadcast,
transmit, retransmit or display; it also requires that protected rights be
freely and separately exploitable and conferrable (contract rights), and
requires an exclusive right to authorize the first public distribution including
importation for protected works.
In previous years, some U.S. companies complained about widespread video
piracy in Hungary. In May 1993, Hungary added stiff penalties for copyright
infringement to its Criminal Code. Despite numerous enforcement actions taken
against film and video pirates since that time, limited law enforcement
resources and a thriving underground economy ensure that piracy continues. U.S.
firms estimate their losses at approximately $25 million annually. A media law
passed in late 1995 links broadcast transmission licenses to respect for
intellectual property rights.
The 1993 IPR Agreement also requires Hungary to protect all types of computer
programs as literary works under the meaning of the Berne Convention; protect
collections or compilations of data where the selection and arrangement of the
contents constitute copyrightable authorship; and grant an exclusive right to
authorize or prohibit the commercial rental of a computer program.
Protection is also provided for sound recordings, trademarks, semiconductor
layout designs, and trade secrets. U.S. industry continues to report problems
with sales of counterfeited U.S. trademarked products in Hungary, such as blue
jeans imported from third countries. Counterfeited computer software is reported
to be widely used in Hungary.
A liberalized currency convertibility law took effect on January 1, 1996.
Hungary prohibits bank branching and maintains screening of investments in
financial institutions and in insurance, although a large number of bank
subsidiaries and insurance companies with foreign ownership operate in Hungary.
Screening of most investments will be eliminated under Hungary's Uruguay Round
services schedule. The Parliament is expected to pass in 1996 a revised law on
financial institutions that should address some of these concerns. The Hungarian
government has promised to allow bank branching by the end of 1997.
While there are currently no film quotas for private television, private
national and regional television must fill 15 to 20 percent of their air time
with Hungarian-made productions, excluding films, advertising, news, sports, and
game and quiz shows.
Hungarian film quotas in the 15 to 20 percent range apply to public
television. Excluding advertising, news, sports, game, and quiz shows, after
1997, public television will also be required to fill 70 percent of its air time
with European production, 51 percent of which must be Hungarian. If one were to
assume that 30 to 40 percent of all broadcast time is spent on the excluded
categories, then the maximum amount of time available for non-European, non-film
programming on public television is in the 20 percent range. Although these
quotas are not currently seen as cutting actual U.S. market share, they could
hamper future U.S. market share growth in the public sector. Nonetheless,
further privatization of the television industry should boost the overall U.S.
The Hungarian Government passed a new privatization law in May 1995, that
reduces to 25 percent from 50 percent the average amount of permanent ownership
the government would retain in the 163 companies it has identified as requiring
permanent state participation. This opened a significant number of companies to
foreign investment. Small portions of other privatized firms are being reserved
for Hungarian citizens, for employee stock ownership programs (ESPOS) and/or
management buyouts. Potential investors have complained that some regulations
surrounding privatization are non-transparent subject to abrupt change. U.S. and
U.K. companies involved in power station tenders in late 1995 complained of
being allowed limited time to prepare their bids, although continental European
firms did not complain about the same time limits. Privatization advanced
substantially in late 1995, most notably in the energy, telecommunication and
banking sectors. A law on simplified privatization facilitates the process for
acquiring companies with less than 500 employees, and valued at less than $4
Hungary terminated its blanket tax incentives on foreign investment as of
January 1, 1994, and replaced them with incentives open to all large investors,
based on export promotion, reinvestment of profits, and job creation in areas of
high unemployment. The new customs law passed in late 1995 eliminates duty free
importation of capital goods by foreign-owned companies, although companies were
allowed to register previously planned investments and extend duty free status
to these items. The new law was intended to level the playing field for domestic
investors, but it eliminated an incentive to investment in Hungary.
Foreign access to government-funded construction and service or supply
contracts is regulated by the new Act on Public Procurement that took effect in
November 1995. Tenders must be invited for the purchase of goods worth over HUF
10 million. However, bids with more than 50 percent Hungarian content will be
considered equal to bids up to 10 percent lower in price. Purchases deemed to be
of state secrecy, as well as purchases of gas, oil, and electricity, remain
exempt from these new regulations.
Import animal and plant health (APH) regulations of Hungary: Some import
regulations limit or delay imports of breeding animals, semen, and planting
seeds. Relevant authorities (Institute for Agricultural qualification and
Ministry of Agriculture) set minimum breeding value limits to import sires and
semen, and require repeated tests before distribution of the import shipment.
These measures may restrict the import, increase costs, and expand the duration
of the import process. The process of registration and testing of new plant
varieties imported is time-consuming and costly as well.