HUNGARY Report.pdf - Agra CEAS Consulting

Identification and analysisof trade barriers for processed foodin Mercosur and ChileCentral/Eastern Europeand RussiaCountry Report: HUNGARYPrepared forMarket Access Unit, DG TradeByBureau Européen de Recherches, Brussels(Promar CEAS International)March 2001

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARYTABLE OF CONTENTS1. HUNGARY...................................................................................................................11.1. General trade policy ..................................................................................................11.2. Tariff barriers ............................................................................................................31.3. Non-tariff barriers .....................................................................................................41.3.1. Registration, Documentation, Customs Procedures..........................................41.3.2. Indirect Taxation, Levies and Charges (other than Import Duties) ..................41.3.3. Import Licensing ...............................................................................................61.3.4. State Trading Enterprises ..................................................................................61.3.5. Import Cartels....................................................................................................61.3.6. Standards and other Technical Requirements ...................................................71.3.7. Trade Defence Instruments not in Conformity with the WTO .......................101.3.8. Export Restrictions..........................................................................................101.3.9. Subsidies .........................................................................................................111.4. Investment related measures ...................................................................................121.4.1. Direct Foreign Investment Limitations ...........................................................121.4.2. Profit Repatriation Limits ...............................................................................131.4.3. Foreign Exchange Measures ...........................................................................131.4.4. Tax Discrimination (Direct Taxation).............................................................13Bureau Européen de RecherchesHungary / i

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARY1. HUNGARY1.1. General trade policyRegional trade agreements and other preferential arrangementsHungary is a member of the GATT/WTO and of the Central European Free TradeAssociation (CEFTA 1 ), and has concluded an agreement with EFTA and a EuropeAgreement 2 with the EU. A separate agreement with the EU on the reciprocal establishmentof tariff quotas for certain wines was first signed in 1993 and renewed (with new mutualconcessions) in 2000. Hungary has a number of bilateral agreements with other countries,including the Baltics, Israel and Turkey. A new Wine and Spirits Agreement has beennegotiated; pending the procedure for the adoption and entry into force of an additionalProtocol to the EA, the outcome of the negotiations will be implemented as a transitionarrangement in the form of exchange of letters.In the context of the Europe Agreements, the EU and Hungary have concluded in April 2000negotiations for additional agricultural concessions, including under the so-called doublezerooption, which extends the concessions granted by Hungary on agri-food productsimported from the EU. The volumes of the tariff quotas will increase on a yearly basisleading after a certain period to full trade liberalisation. These new arrangements came intoforce retroactively from 1 January 2001. The products to which the double-zero concessionsapply are pigmeat (24,000 tonnes of duty free access for EU exports), poultrymeat (16,000tonnes) and cheese. Other EU products that receive substantial trade concessions are soya,sunflower and rapeseed oils (19,000 tonnes). For processed agricultural products,negotiations are still ongoing.Under the renewed wine agreement, with effect from 1 January 2001, Hungary opens anannual duty-free import quota of 140,000 hl of EU wine (of which 65,000 hl quality wineand champagne). In exchange, the EU has granted Hungary duty free import quotas for415,000 hl of quality sparkling wine (of which 300,000 hl bottled wine and sparklingwine). Both quotas are due to be increased by 15,000 hl from January 2002. The EU hasalso obtained improved market access for brandy exports to Hungary, whereby the12CEFTA consists of the Czech Republic, Slovakia, Poland, Hungary, Slovenia, Romania and Bulgaria.Signed on 16 December 1991 and entered into force on 1 February 1994 – this incorporates the tradeprovisions of the Interim Agreement of March 1992.Bureau Européen de Recherches Hungary / 1

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARYexisting annual preferential quota of 1,600 hl will be increased to 6,000 hl, while in-quotatariffs will fall from 40% to 32% (normal tariff is 68%).On the other hand, CEFTA members were planning the introduction of full liberalisation inintra-CEFTA agri-food trade by January 1999 but, following the Russian crisis and tradeproblems in the region, these talks largely came to a standstill. Despite these problems, inOctober 2000 the Czech Republic, Slovakia and Hungary reached a deal for furtherliberalisation in agricultural trade between the 3 countries, due to come into effect in January2001. The deal will be based on bilateral agreements between the countries.Pan-European cumulation of origin:Since July 1997 new rules of origin based on the concept of pan-European cumulationhave been applied in a number of Free Trade Agreements within Europe. The model of thenew cumulation rules for Hungary is similar in structure and substantive provisions withthat of the other associated CEECs. The Origin Protocol in the EU-Hungary agreement hasbeen replaced by the pan-European cumulation provisions. In all other respects, theframework of the Europe Agreement has remained unchanged. Hungary has agreed toamendments to the pan-European cumulation of origin system, which are due to enter intoforce on 1 January 2001.The implementation of the new origin rules has two major consequences. Firstly, semifinishedproducts originating in any country of the system and which are further processedor assembled in any other partner country may always be considered as originatingproducts. Secondly, originating products can be traded between any of the countriesinvolved in the system. The introduction of European cumulation should be particularlybeneficial in the case of trading of originating products in the agri-food sector.The advantages of the new system of cumulation of origin for producers and traders, bothin and outside the pan-European cumulation area, are significant. Customs procedures aresimplified by the fact that once a product has been given “European origin” there is noneed for the origin to be verified again. For firms established in Europe, including foreignownedfirms, this means more freedom in using input material or deciding in whichcountry to invest their production facilities. With regard to third country materials, the newrules are generally more flexible due to the fact that they provide for a general tolerancerule as well as alternative processing rules allowing more input of third country materials.Bureau Européen de Recherches Hungary / 2

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARYFurther information on the matter has been notified by the different countries involvedboth to the WTO Committee on Rules of Origin and, in the context of the examination ofindividual agreements under GATT Article XXIV, to the WTO Committee on RegionalTrade Agreements.1.2. Tariff barriersHungary is a member of the GATT/WTO and all tariff rates are ad valorem. In 1999,Hungary applied tariffs which averaged 12.4% on all products, 33.5% on agricultural,15.0% on fishery and 7.4% on industrial products.As a result of the GATT Uruguay Round Agreements, the level of overall bound tariffsincreased from 83% to 95.7%. The increase in bindings was particularly marked foragricultural products. By the end of the implementation period the nominal MFN tariffaverage would fall below 7% in industry and to about 27% in agricultural/food products.There is certain tariff escalation in that raw materials generally carry lower tariffs thanprocessed products.Prior to the Uruguay Round, Hungary applied low tariffs on agricultural products, andquantitative restrictions served as the main protection against imports. In accordance withthe GATT Agreement on Agriculture, these measures were abolished as of 1 January1995, with a parallel increase in tariff protection. In line with WTO rules, Hungary alsoopened preferential tariff quotas for more than 100 products to provide market accessopportunities.Data on the uptake of agricultural and food preferential tariff quotas in 1998 and 1999,show a heavy underutilisation in most cases.Hungary has a number of customs free zones/customs warehouses which have beencriticised by the EU with regards to the preferential treatment (VAT/customs duty andcorporate tax exemptions) given to manufacturers established in these zones. The abolitionof these zones is envisaged.Bureau Européen de Recherches Hungary / 3

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARY1.3. Non-tariff barriers1.3.1. Registration, Documentation, Customs ProceduresThe Customs Act C of 1995 is the primary legislation governing customs matters – thishas initiated simplified procedures and introduced the EU Customs Code and the CNclassification system. A fully computerised customs-clearance system has been introducedin 1998 and fast track processing for authorised trade is also in operation. An amendedCustoms Act was adopted in May 2000, which provides for further alignment of theprovisions on customs procedures and the extension of the application of simplifiedprocedures, reflecting the Community Customs Code to a large extent.Importers must file a customs document with a product declaration and, upon importation,present Hungarian Commercial Quality Control Institute (KERMI) certifieddocumentation to clear customs. For certain products, this permit may be replaced by othernational certification and testing agency documents, although KERMI will be largelyresponsible for food and drink products (see below).The application of a simplified customs valuation procedure is possible for imports ofcertain products, including fruit and vegetables. An average world market price iscalculated by the customs authorities and the importer has the right to choose whether toaccept. Importers accepting the average price should not declare the transaction value.On 12 July 2000 the EU and Hungary signed an agreement which aims to establish cooperationon the transport of goods by road and promote of combined transport. Thecontracting parties undertake to set up a common system for regulating future roadtransport market access between them.Circulation of excisable goods: while Hungary introduced a tax warehouse system in1998, it has not as yet introduced fully EU-compatible legislation on the movement andholding of excisable goods (i.e. in line with Directive 92/12).1.3.2. Indirect Taxation, Levies and Charges (other than Import Duties)As of 1 January 1997, Hungary does not apply any border levies or charges to EUMembers and other WTO Members (a number of such charges were previously applied).Bureau Européen de Recherches Hungary / 4

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARYThe Hungarian Act C III of 1997 on Excise Taxes, which entered into force on 1 January1998 (as amended by Act LXIX of 1998 with regards to certain rates and furtheramendments in 2000 on wines – see below), is broadly in line with the requirements of theEU system. Excise taxes apply on selected alcoholic beverages (spirits, beer, sparklingwine, and intermediate alcohol products) with the exception until recently of wine fromgrapes. From 1 August 2000, following a decree by the Finance Ministry, wine is alsosubject to an excise duty, set at Ft 5/litre. This replaces the previously imposedconsumption tax of 11% (see below). As part of the new scheme, domestic wine producesproducing in excess of 1,000 litres annually must be registered with customs authoritiesand apply for tax warehouse licences.However, an important continuing discrepancy between the Hungarian excise system andCommunity requirements results in discrimination between fruit spirits and other spirits(thus, in effect, between national and imported spirits i ). In particular, different rates ofexcise duty continue to apply on fruit brandies and other spirits, in contrast to EU ruleswhich stipulate a single excise duty for interchangeable products (tax structures laid downin Directive 92/83). The rates tend to exaggerate price differentials between products andare open to challenge as being discriminatory against more expensive imports and infavour of local producers of brandy (palinka). In fact, Hungary applies the followingexcise tax rates:fruit and grape brandies: 1,250 ft per litre pure alcohol (lpa);other spirits and alcohol : 1,500 ft per lpa.The excise tax is combined with a high level of ad valorem import duty. The cumulativelevel of duties/taxes has been high, as of 1 January 2000 at 68 % duty plus 1,500 ft per lpafor most important spirits. Bulk imports of Cognac, Armagnac, other wine-based spirits,Calvados, rum/tafia and liqueurs (but not bulk whisky or gin) within tariff quota limitsenjoy lower rates of duty. Imports of bottled Brandy, Cognac, Armagnac, other winebasedspirits, Calvados, rum, tafia, liqueurs and all other spirits (bottled or bulk) are thusplaced at a disadvantage compared with certain bulk imports. The Commission has takenthe view that Hungary should harmonise the excise duties for locally produced andimported spirits and brandies at their lowest level (Commission Progress Report,November 2000 and 1999 Accession Partnership). In the framework of the accessionnegotiations, Hungary has committed itself to a gradual alignment.Bureau Européen de Recherches Hungary / 5

SEE ALSO BARRIER FICHE.DG Trade: Identification and analysis of trade barriers for processed foodHUNGARYA consumption tax is levied on certain goods considered to be luxury items, includingcoffee (12%) and wine from grapes (11%). A recently adopted Ministry of Finance Decreebrought wine under the excise tax regime in August 2000 thus eliminating the consuptiontax on this product.A revised VAT Act entered into force on 1 January 1995 replacing the 1988 Act and, since1997, Hungary has continued the approximation of its VAT legislation to that of the EU.Hungary applies a dual VAT rate system: a standard rate of 25% and a reduced rate of12%. The reduced rate applies to certain specified products and services includingfoodstuffs (oranges were in the past excluded from this rate whereas other fruit wereincluded but this problem was corrected from January 1998). The Hungarian applicationof the reduced rate is not entirely identical to what is permitted within the EU legislationbut approximation to the EU acquis in this area is continuing.The overall tax system is due for reform by 2002.1.3.3. Import LicensingAs of 1 January 1998, Hungary significantly reduced on an autonomous basis the scope ofgoods subject to import licensing under the global quota system, excluding all food productsother than fish. Outside the global quota, import licences are still required for food products,in order to monitor the supply situation in the Hungarian market.1.3.4. State Trading EnterprisesThere are no state trading enterprises in Hungary in the sense of Article XVII of theGATT and the relevant Understanding, since as a result of the economic transformationsuch activities had been fully discontinued. Also, no sectors or industries are à prioriexcluded from privatisation.1.3.5. Import CartelsNone.Bureau Européen de Recherches Hungary / 6

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARY1.3.6. Standards and other Technical RequirementsHungarian detailed rules on the general conditions of food production and sale, packagingand consumer information, and controls and measures that could be taken by theauthorities to ensure compliance with these provisions are laid down in Law XC on foodwhich has been in force since 1 January 1996.Since then, Hungary has been increasingly using the standards set by the FAO CodexAlimentarius Commission, and EU regulations in this field. Hungary has particularlycontinued its alignment in the following areas: residue limits of veterinary medicinalproducts in food, novel foods and ingredients, natural mineral waters, food packaging andlabelling, and the migration of plastics coming into contact with food. The governmentintends to complete the overall harmonisation process with EU standards by 2001. As partof the country’s Accession Partnership, a medium term objective is to implement thequality control systems (HACCP) in the sector and to reinforce food controladministration. In particular, Hungary needs to continue to introduce the relevantstructures for food inspection and analysis and, where alignment is completed, theprevious pre-market control should be clearly abandoned (Commission Progress Report,November 2000).On industrial goods, the EU and Hungary 3 concluded in July 2000 a Protocol to theEurope Agreement on mutual recognition of conformity assessment procedures (PECA),which should come into effect in early 2001. This will facilitate trade as it introduces theprinciple of mutual recognition of product or industrial process standards and productcertification procedures, by taking the acquis communautaire as a reference. In the foodindustry it can be relevant for some food processing equipment.LabellingStrict rules apply to food products labelling, whether imported or domestic. The primaryrequirement for food is that labelling information must be in Hungarian. The label mustgive the following information: net quantity, name/address of producer (or importer),consumption expiration date, recommended storage temperature, listing of ingredients/3Similar agreements have been concluded with the Czech Republic and Latvia, and are still in discussionwith Estonia, Lithuania, Slovenia and Slovakia.Bureau Européen de Recherches Hungary / 7

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARYadditives, energy content and approval symbols from the National Institute of FoodHygiene and Nutrition (OETI) and the Commercial Quality Testing Institute (KERMI).EU operators (CIAA ii and other branches of the food industry such as confectionery,spirits) have complained of these labelling requirements, which are not compatible withEU rules under Directive 79/112 or with FAO Codex Alimentarius standards. Inparticular, the requirements to have on the label: a) the Control Certificate (OETI)number; b) the number issued by the Institute of Commercial Quality Control (KERMI);and c) translation of the 'Name of Product' and 'Name of Importer and Manufacturer' inHungarian, appear to be excessive (source: industry survey). Under these rules, eachproduct is attributed a number by the National Institute of Food Hygiene and Nutrition(OETI) which should feature on each wrapper of that product, thus requiring productcertification to be obtained well in advance of any design of product packaging. For softdrinks, there is an additional requirement to indicate on the label the product’s CO2content. Finally, the Hungarian rules require labelling of exhaustive list of additives andcompulsory labelling of nutritional value.These problems should be resolved with further harmonisation of Hungarian legislation tothe EU acquis in the fields of labelling and food controls, which is currently in progress.Geographical indications of origin/trademarksNo problems are reported in this field.Protection for geographical indications and appellations of origin of food and drinkproducts is provided under the Act on the Prohibition of Unfair and Restrictive MarketActivity, No. LVII. of 1996 and the Act on the Protection of Trademarks andGeographical Indications (Trademark Act), No. XI. of 1997, in particular Part V, whichentered into force on 1 July 1997. These are implemented by the Decree on the DetailedRules Concerning the Protection of Geographical Indications of Agricultural Products andFoodstuffs, No. 87 of 1998. The recognition of a geographical indication requiresregistration under the Trademark Act.A special Decree (No. 128 of 1997) on the Border Measures Applicable Against Abuse ofIP Rights in the Customs Administration Procedure, which entered into force as from1 August 1997, establishes the special procedures applicable in case of abuse ofBureau Européen de Recherches Hungary / 8

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARYgeographical indications and trademarks. It contains provisions on suspension of release ofinfringing goods under the request of the right holder during the customs procedure.Hungary is a member of the Lisbon Agreement for the Protection of Appellations ofOrigin and their International Registration, which provides for the protection of theappellations of origin of foreign countries that are also members to the Agreement.Bilateral agreements in this area have also been concluded with Austria and Portugal.Wine: an Agreement on the reciprocal protection and control of wine names is in force,since 1994, between Hungary and the EU. The agreement provides protection for namesreserved exclusively to wines originating in the EU and Hungary and lists their names.The renewal of the EU-Hungary Wine Agreement in 2000 provides improved terms fordenominations. In particular, the old agreement gave Hungary exclusive use of the brandname Tokaj. Under the new agreement, in principle, other countries can use this name.Wines and spiritsEU exporters of alcoholic drinks are complaining that, in addition to high tariff and exciseduty rates (see above), imports of wines and spirits based on grapes are submitted to costlyand complex procedures (health and quality certificates delivered on the basis of,respectively, sanitary controls by the National Institute of Food Hygiene and Nutrition(OETI) and quality controls by the National Institute for Quality of Wines (OBI).Technical discussions on this issue took place in 1998 between the European Commissionand the Hungarian authorities, whereby the Hungarian Ministry for Agriculture putforward certain amendments to the relevant Wine Law.There have also been complaints that existing Hungarian legislation on the definition ofspirits (section 1-3-1576/89 of the Codex implemented by Ministerial Order on 1/1/1996)includes a derogation allowing products to be described as e.g. whisky, rum and Williamspear spirit, even though they do not conform to the relevant EU definition of theseproducts (Council Regulation 1576/89).These problems should be resolved with further harmonisation of Hungarian legislation tothe EU acquis in these fields, which is currently in progress.Bureau Européen de Recherches Hungary / 9

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARY1.3.7. Trade Defence Instruments not in Conformity with the WTONo special safeguard provisions have been invoked by Hungary in the agricultural andfood sectors in 1997 or 1998.On 31 May 1999, a price-based safeguard was introduced on imports of raw sugar (HS1701.11 and 1701.12), which was activated at the trigger price of Ft 105/kg.1.3.8. Export RestrictionsHungary does not levy export duties or charges, nor does it maintain any minimum exportprices. Export restrictions (on the basis on export licensing) exist essentially forenvironmental reasons and to prevent domestic shortages.Occasional export restrictions or prohibitions on agricultural products have been reported,which moreover appear to have come into force without prior notification according to theprovisions of Article 12 of the Agreement on Agriculture regarding such measures andconsideration of their effects on the importing country’s food security.Hungary's export restrictions in the sector were introduced in recent years to addressserious shortages. The measures were in conformity with Article XI(2)a of GATT 1994and Article 12.1 of the Agreement on Agriculture. The restrictions introduced in 1996were maintained until recently only for maize. Export licences are no longer required forbarley (abolished in 1998), wheat and meslin flour, other cereal flours, cereal groats, mealand pellets, cereals grains otherwise worked and cereal preparations used for animal feed(abolished in 1997).In the maize sector, the dispute over Hungary’s imposition on 10 November 2000 of a banon maize exports was resolved at the end of the year. That export prohibition seriouslyaffected the EU processing industry because Hungarian maize, which is GMO-free, is akey source of raw material for the EU. In November 2000, Hungary introduced an exportban on maize. The Commission is holding consultations with the Hungarian authorities inorder to resolve this issue.Finally, to respond to concerns on the feeding method of geese in Hungary, thegovernment introduced non-discriminatory export licensing as part of its general policy toBureau Européen de Recherches Hungary / 10

DG Trade: Identification and analysis of trade barriers for processed foodHUNGARYthat its base-period calculations underestimated actual export subsidies in terms of valueand specific product coverage. The waiver is subject to strict adherence to terms andconditions laid down therein and contained in the Hungarian Schedule. When it expires,only 16 products will be eligible to receive export subsidies and at much reduced rates. Asa consequence of the recently concluded with the EU double-zero agreement, Hungarywill have to restrict the application of export subsidies, particularly in the pigmeat andpoultry sectors (exports of which have traditionally been heavily subsidised). Otherproducts that have received export subsidies are mainly maize and red pepper meal.There are a number of subsidies and tax incentives to support the manufacturing industry,some of which are used for sectors in difficulty (e.g. loan scheme for the declining fruitand vegetable canning industry). However, tax concessions to promote export-orientedproduct development and to promote investments in the production of exportable goodswere abolished on 1 January 1997.1.4. Investment related measuresThe general atmosphere for FDI in Hungary remains highly favourable so that the countryattracts more FDI per head than any other CEEC. In total investment terms only Polandcomes first, but with a market size four times bigger. Almost 40% of the FDI inflowstarget the manufacturing industry, of which the food and drinks sector is an importantrecipient.In 1988, the Law on Non-Resident Investment was adopted, which together with otherlaws and regulations that govern business activities provides the legal framework for theoperations of foreign investors in Hungary. It allows foreigners to create or expand awholly owned enterprise, subsidiary, representative office or branch or to acquire full orpartial ownership of an existing enterprise. It also provides for the repatriation of bothcapital and profits and prompt compensation for investment at real market value in case ofexpropriation. Once established, enterprises with foreign participation are entitled tooperate on the same conditions as those that are owned solely by Hungarian nationals.None.1.4.1. Direct Foreign Investment LimitationsBureau Européen de Recherches Hungary / 12

1.4.2. Profit Repatriation LimitsDG Trade: Identification and analysis of trade barriers for processed foodHUNGARYNone. Right of profit remittance as well as of capital repatriation guaranteed by the 1998Act on Foreign Investment.1.4.3. Foreign Exchange MeasuresThe Act on Foreign Exchange (Act XCV of 1995), as amended by Act CXLVII of 1997,establishes a full convertible forint and rules that comply with the IMF and the OECD.None.1.4.4. Tax Discrimination (Direct Taxation)On the positive side, Hungary has a number of tax incentives for new investors and hasgenerally been fairly open to negotiate new tax allowances and other investment support.Bureau Européen de Recherches Hungary / 13