Agreements Regulating Trade between Hungary and the EU
Agreements Regulating Trade between Hungary and the EU
First the trade relations between Hungary and the European Community were regulated by a temporary agreement on trade and trade-related issues, taking effect on 1 March 1994. This was superseded by the Hungarian-EC European Agreement (EU Association Treaty) that came into force of 1 February 1994. Among others, the EU Treaty envisaged the establishment of free trade by bilaterally introducing mutual trade benefits. Concerning industrial products, the Treaty set forth the establishment of a free trade zone between Hungary and the Community by 31 December 2000. From that time on, goods will flow exempt of any customs duties and with no quantity limitations or similar measures even in sectors (such as the textile and the steel industries) whose trade was traditionally regulated by the Community via special systems. The establishment of the free trade zone was carried out asymmetrically, with the Community offering the concessions faster, while Hungary returned these later after a grace period required for preparations.
In relation to the industrial products constituting a major part of Hungarian exports, the quotas were suppressed as early as by 1 March 1992. This had an effect whereby this product group representing roughly 75-80% of trade became exempt from duties. The treaty regulated the trade of the remaining industrial products - in altogether 93 so-called “sensitive industrial product groups” - with quotas and ceilings. The June 1999 Copenhagen Session of the Council of Europe accelerated the schedule originally defined in the Treaty, making Hungarian exports in the above-mentioned 93 product groups subject to free trade treatment as of 1 January 1995. With respect to products subject to the stipulations of the agreement establishing the European Coal and Steel Community – forming a marginal part of Hungarian export – the quantitative limitations were eliminated as early as 1 March 1992, while duties were suppressed on 1 January 1996.
Concerning textile products and textile-based fabrics and clothing, it took somewhat longer to establish free trade. The quantitative limitations were lifted completely on 1 January 1998 but the quantitative framework was already expanding gradually in the meantime. Commissioned work was made exempt of duties in general on 1 March 1992, while the corresponding date for textile products was 1 January 1997. By eliminating the remaining quotas imposed on Hungarian textile products by 1 January 1998, the export of industrial products of Hungarian origin into the member states of the Union was completely deregulated in terms of quantities.
The Hungarian duties on industrial products (classified into three groups) imported from the European Union were suppressed in three steps. For approximately 15% (another 25%) of the products, the duties were annulled by 1 January 1995 (1 January 1998). In the remaining product group, the suppression of duties began on 1 January 1995, and the process will be completed by 31 December 2000. This means that with respect to the import of industrial products, full exemption from duties will thus be realized on 1 January 2001.
Based on the EU Treaty, discussions started with the EU in 1997 to establish the mutual recognition of the industrial product compliance certificates in order to further facilitate trade on both sides. The discussions related to the so-called Protocol of European Compliance Adequacy (PECA) were concluded at expert level in October 1999, and subsequent to the official approval procedures the Protocol is expected to be enacted on 1 January 2001, whereby Hungary and the EU will mutually proclaim that both parties recognize each other’s product compliance procedures and certificates. The sectors concerned include machines, low voltage electrical products, medical equipment, the production and laboratory procedures of pharmaceuticals, as well as gas-operated appliances and water heaters. By virtue of the agreement, it was possible to eliminate the majority of the technical obstacles still present in Hungarian-EU trade relations. The product group will be expanded as domestic legal harmonization progresses.
Concerning agricultural products, the contracting parties only offered mutual discounts and concessions because the agricultural policy of the Community requires full membership status for free trade. The benefits facilitating market entry originally included in the EU Association Treaty – relating to almost two-thirds of the items comprising Hungarian agricultural exports – were composed of various elements, depending on whether the entry to EC-markets of Hungarian export products was primarily obstructed by duties or frequently by prohibitive levies (amounting to 100% or even more, making exportation economically irrational).
In the first phase, in fulfillment of its contract obligation the Community granted Hungary all the moderate terms that were formerly offered unilaterally on an annual basis. In the second phase, the agrarian products previously not favored but playing a potentially important role in Hungarian exports (the vast majority of pork products, poultry and beef, cheese, wheat, most vegetables and fruits, live sheep and mutton, etc.) were granted EC duties and levies reductions. Benefits were given for quantities derived from the volume of traditional supplies.
In the case of Hungarian agricultural and food industry imports, essentially the quantitative system of imports was regulated, while the role of duties was only secondary. This was reflected in the market entry facilitating measures offered by Hungary asymmetrically to the EC, according to the terms of the agreement entering into force on 1 March 1992.
The system of benefits and concessions relating to the trade of agricultural and food products had to be updated a few years after the Association Treaty had come into force - first to incorporate the conclusions of the Uruguay GATT Session, and secondly due to the expansion of the Union (the accession of Austria, Finland, and Sweden on 1 January 1995). The most important element of the corresponding adjustment was that the benefit rate of Hungarian export defined for the product groups included in the agreement was raised from 60% to 80% in what concerns the applicable duties, thus offsetting the problems created by the conversion of levy subsidies into customs duties. Another important element of the agreement was that the parties undertook a guarantee to prolong the application of the (lower) duty rates in force prior to the entry into force of the Uruguay decisions to the quantities of traditional supplies surpassing the quotas, thus promoting the maintenance of traditional circulation levels. A comprehensive agreement on the further multilateral development of agricultural concessions was concluded in 2000, and actually entered into force on 1 July. As a result, 72% of Hungarian agricultural exports reaches the EU exempt of duties.
The Association Treaty does not cover the issues of wine trade. The wine trade agreement supplementing the EU Treaty was signed on 1 December 1993, while the agreement on the control of origin took effect on 1 April 1994. The latter set forth the protection of the brand name usage for the most important wine types of commercial circulation against fraud and abusive use, and that in the member states of - the brand name “Tokaji” will no longer be used. The wine trade agreement again provided asymmetric trade concessions. The new, long term agreement on the trade of wines and spirits can enter into force in 2001, therefore the parties prolonged the term of the original agreement for the year 2000.
