Historical background of the agreement

Following the end of World War II, Hungary became a communist country and signed the Warsaw Pact. Hungary launched the reforms to dissolve the Warsaw Pact and steadily shifted toward multiparty democracy and a market-oriented economy at the end of 1980s. Following the collapse of the USSR in 1991, Hungary attempted to develop close economic ties to Western Europe. EFTA was one of its target partners to strengthen economic cooperation. Hungary today becomes a successful country towards market-oriented economy.

It is the EFTA objective to contribute to the reconstruction of the former command economies and support their transition towards a market based economy and democracy with the overall aim of consolidating prosperity and stability throughout the continent. As a result, EFTA established an extensive network of contractual relations in Central and Eastern Europe in 1990s. Hungary, a country undergoing economic transition, is one of the EFTA target countries to build up economic relations.

On the other hand, Hungary is an important trading partner for the EFTA states in Central and Eastern Europe and an important market for its exports, with significant growth potential. Great benefits are expected to gain for both parties by strengthening cooperation.

EFTA and Hungary signed declarations on cooperation in Gothenburg in 13 June 1990 and later launched the free trade negotiations. They reached consensus and signed the free trade pact on 10 December 1992.

Indeed, Hungary, accompanying with Poland, are the countries of transitional economies in Central and Eastern Europe signing free trade agreement with EFTA.

Objectives of the agreement

(a) To develop economic relations between EFTA countries and Hungary via the expansion of reciprocal trade, so as to pursue the improvement of macroeconomic performance such as living and employment conditions and financial stability;

(b) To provide fair conditions of competition for trade between two parties;

(c) To contribute to the development and extension of world trade through eliminating trade barriers

A brief description of the agreement

The agreement includes a total of 40 articles, 14 annexes, 4 protocols and 1 record of understandings.

The EFTA states and Hungary agreed to set up a free trade area during a transitional period ending at the latest on 30 June 2003, in accordance with the provisions of the agreement.

The agreement covers industrial products as well as fish and marine products. Trade in agricultural products is covered in 3 bilateral agricultural agreements negotiated between the respective EFTA states and Poland. Referred to the Article 14, both parties expressed willingness to strengthen development of trade in agricultural products and discuss the above issue periodically.

With respect to custom duties, Hungary was granted some favourable treatment. The EFTA states should eliminate all customs duties and quantitative restrictions on imports for products originating in Hungary as the agreement came into force, except for products specified in Annex III and Annex VIII. On the other hand, Hungary is allowed to remove custom duties charged on imports originating from EFTA countries at a slower pace. The duties on import from EFTA states are required to eliminate by 2001. Quantitative restrictions on imports into Hungary shall be removed not later than on the entry into force of the agreement, except as provided for in Protocol A, Annex II and Annex IX.

The rules of origin and methods of administrative co-operation can be found on protocol B of the pact.

Other than the abolishment of custom duties, the agreement covers a wide range of areas related to trade disciplines such as rules of competition, protection of intellectual property, public procurement, state monopolies, state aid, dumping and payments and transfers.

In regard to public procurement, both sides agreed to liberalise the public procurement markets. They should grant each other to have access to contract award procedures on its public procurement market. To ensure there is no discrimination between potential suppliers from EFTA states and Hungary and enhance transparency, they decided to expand their tasks governing participation in public procurement contracts.

EFTA states or Hungary may take safeguard measures on imports of products if the products induce or threaten to induce

(a) Serious injury to domestic producers of like or directly competitive products, or

(b) Serious disturbances in any sector of the economy or difficulties which could bring about serious deterioration in the economic situation of a region

A Joint Committee comprising the EFTA states and Hungary supervises the implementation of the agreement. The Joint Committee should keep under review the possibility of further removal of the trade barriers between the EFTA states and Hungary.

General exceptions

This agreement shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of

(a) Public morality, public policy or public security;

(b) The protection of health and life of humans, animals or plants and the environment;

(c) The protection of national treasures processing artistic, historic archaeological value;

(d) The protection of intellectual property;

(e) Rules relating to gold or silver

Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between EFTA countries and Hungary.

Economic relationship between EFTA countries and Hungary

Hungary plays an important role on the EFTA’s trade in Central and Eastern Europe. In particular, Hungary is the major export market for EFTA countries.

In 2001, the trade turnover between EFTA states and Hungary amounted to U.S.$ 926.4 million. (EFTA states’ exports to Hungary amounted to U.S.$ 440.3million, whereas Hungarian exports to the EFTA states represented U.S.$ 486.1 million).

EFTA states account for a low share in Hungarian foreign trade, slightly over 1% in recent years. Indeed, over 55% of Hungarian trades are conducted with EU countries, say Germany, Austria and Italy. Other major trading partners of Hungary are CIS and CEFTA countries.

Among the 4 EFTA countries, Switzerland plays the most important role on the trades with Hungary. In 1998, Switzerland ranked no.16 in the major trading partner of Hungary, accounting for nearly 90% of EFTA-Hungary trades. Other EFTA member countries---Norway, Iceland and Liechtenstein, however, hold an insignificant position in Hungarian foreign trade.

Agricultural industry is crucial for the economy of Hungary. Agricultural and food products are therefore the major Hungarian commodities exporting to the EFTA countries. Hungary has attained slight surpluses in the agricultural trades with EFTA states from 1992-1997.

Hungary has recorded trade deficits with EFTA states in recent years. In 2000 and 2001, Hungarian trade deficits with EFTA countries amounted to U.S.$ 82.7 million and U.S.$ 77.7 million respectively, whilst the deficits with EFTA states totaled U.S.$ 3202.1 million in that year.

Since Switzerland is the dominant trading partner of Hungary within the EFTA group, it shares the significant proportion of trade surpluses with Hungary. The surpluses totaled U.S.$ 167.6 million in 1998.