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Country Commercial Guides
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CHAPTER VI. TRADE REGULATIONS AND STANDARDS
A. Trade Policies and Barriers
Although a founding member of the World Trade Organization (WTO), Hungary has not always had the best reputation for free and unencumbered trade policies. However, the country's record has improved significantly during the past 5 years. Hungary's average most-favored-nation (MFN) duty rates have been gradually decreased, from 13.6 percent in 1991 to about 8 percent in 1998. An 8 percent duty surcharge that was introduced in March 1995 was eliminated on July 1, 1997. Furthermore, under WTO rules, Hungary will eliminate quotas on textiles, clothing, and other industrial products by 2004. From January 1, 1998, import licenses are no longer required for imports originating in WTO member states in the following product areas: new vehicles with an engine capacity greater than 1500 cc, apparel, medicine, used clothes, string and thread, carpets, and those types of radio receivers not produced in Hungary.
Hungary's Trade Association Agreement with the EU, which became effective in February of 1994, provided for an asymmetrical liberalization of trade over the next 5 years. Tariffs for industrial products imported from the EU and Central European Free Trade Association (EFTA) countries are being gradually eliminated by the end of 2001. At the Copenhagen summit conference in 1994, further EU concessions were announced which exempted over 90 industrial products from customs duties and quotas beginning January 1, 1995 (2 years before it would have been officially required by the Association Agreement).
U.S. companies, particularly exporters, have recently raised concerns about the competitive impact of potential trade disparities between EU-origin and U.S.-origin goods. The U.S. Embassy and the Office of the USTR are currently reviewing the situation with respect to possible reverse preferences for EU products. One of the most important developments influencing trade between the EU and Hungary has been the so-called Pan-European Cumulation System (PECS), comprising a set of EU bilateral agreements, which aims to harmonize standards and rules-of-origin laws between the EU, European Free Trade Area (EFTA), CEFTA, and other countries on the periphery such as the Baltic States (a total of 29 countries). The Government of Hungary joined the PECS on December 28, 1996, with an effective date of July 1, 1997. Under the PECS, companies that import inputs from outside the cumulation area must pay duty in order to take advantage of free-trade preferences when exporting their finished goods to PECS countries. If, on the other hand, the importer opts to receive a so-called duty drawback (credit for duty paid when the input is imported), eligibility for preferences is lost and the finished product must be exported on the standard MFN basis.
Hungary's trade agreements with the EU, EFTA, and CEFTA member states traditionally set the rate of local content requirement at 50 percent for industrial products to qualify for preferential treatment. However, under the new regulations on certificates of origin (the so-called "diagonal rule-of-origin cumulation"), if raw materials and/or components originating in any of these countries are processed in Hungary and then re-exported to EU territory, the value of raw materials and components will be considered local content.
Hungary maintains a global quota on imports of consumer goods. Some U.S. firms have complained that they have been unable to obtain sufficient quotas to properly supply the market in certain product categories. Many such cases have been handled successfully on a case-by-case basis.
The Customs Law, passed in late 1995, eliminated duty-free importation of capital goods by foreign-owned companies. The law was intended to place domestic investors on an equal footing with non-Hungarian investors, but likely eliminated a prior incentive to invest in Hungary.
Non-tariff barriers in Hungary include lack of transparency with respect to the creation and application of laws and regulations. Furthermore, the absence of a prior notice or review period often leaves companies with little opportunity to influence the outcome or plan ahead. Several government procurements have resulted in unsuccessful tenders, been challenged in court for technical violations, or prompted complaints that they were politicized.
B. Customs Valuation
Customs Valuation is on an ad valorem basis. However, U.S. firms have complained that the value of imported products is not always accurately assessed. The Customs Law declares the principle of the prompt payment of the "customs debt." Customs debt comprises the customs duty assessed, the general turnover tax (VAT) - usually 25 percent of value, the consumption tax, any statistical fees and the customs clearance fee (1 percent on goods originating from GATT member countries), and any miscellaneous fees such as road fund contributions and/or environmental protection fees. The customs debt is due and payable within 5 business days following notification thereof.
A. Import Licenses
An estimated 90 percent of imported products no longer require an import license; however licenses are still required for some consumer goods (those subject to quota), including automobiles, and textiles. Products which are typically controlled in the United States and other western countries such as arms/ammunition, military equipment, hazardous materials, materials for biological weapons, psychotropic products, nuclear products and uranium ore are similarly controlled in Hungary.
Beginning with January 1, 1998, Hungary implemented large-scale liberalization with respect to the importation of certain industrial products pursuant to the Europe Agreement concluded with the EU. Hungary's obligations were met by reducing tariffs on new automobiles with an engine size larger than 1,500cc, transmitter and reception devices, baby food, human nutritional additives and non-woven coated textile products not manufactured in Hungary.
D. Export Controls
Most high-tech western technology can flow to Hungary without export licenses. However, some equipment (e.g., dual-use technology and defense products) still requires export licenses from the Bureau of Export Administration (U.S. Department of Commerce), Department of State and/or Department of Defense.
E. Import/Export Documentation Requirements
All importers and exporters must file a VAM 91 document, which can be obtained from Hungarian Customs. Essentially, this document serves as a declaration for the type and number of goods being imported or exported. This document must contain the Product Code Number, which identifies the classification of the goods. The Product Code Number can be obtained from the Central Statistical Office.
For consumer distribution, the importer must have a certification document from the Commercial Quality Control Institute (KERMI); goods cannot be custom-cleared without the KERMI permits. Other products destined for industrial production, such as raw materials, will need a waiver of certification. With reference to certain consumer products, KERMI may permit documentation from other testing and certification agencies such as the National Institute for Drugs and the Quality Control Office of the Building Industry.
Finally, those products whose trade is still controlled by the government (see above) require the appropriate license from the Ministry of Economics.
F. Temporary Entry
Products may be brought into Hungary on a temporary basis for exhibition in trade fairs or as samples. U.S. exporters can obtain a carnet from their local Chamber of Commerce (the carnet is good for 1 year). The carnet lists the products and provides duty-free entry. An alternative method is to post a bond with Hungarian Customs equivalent to the duties to be paid on the product. The amount is then refunded once the product has been validated as having left the country. Goods -- typically materials or parts/accessories -- which are brought into Hungary for re-export after additional processing may enter duty-free. The Hungarian company must demonstrate that it has a contract with a foreign company that commissions the work. Customs will issue a temporary import permit. In some cases, Hungarian Customs may request a deposit for customs duties. There are procedures for duty refunds on re-exports but these can be complicated.
G. Labeling, Marking Requirements
Strict rules apply to labeling and marking of food, cosmetic and household products. The rules apply to both domestic and imported products. The primary requirement for food is that labeling information must be in Hungarian. The label must give the following information: net quantity, name/address of producer (or importer), consumption expiration date, recommended storage temperature, listing of ingredients/ additives, energy content and approval symbols from the National Institute of Food Hygiene and Nutrition (OETI) and, or the Commercial Quality Testing Institute (KERMI).
Cosmetics, which are regulated by OETI, should indicate: product denomination, function, handling (precautionary) instructions, production date, utilization expiration date, quantity of product, producer/importer information. There are specific marking and labeling requirements for human and animal pharmaceuticals.
Some American firms have complained about high fees and slow processing to obtain approvals from OETI and KERMI.
H. Prohibited Imports
According to section 186/a 1994 of the Hungarian Gazette, Hungary does not prohibit the importation of any product. However, special permits are required for the importation of such items as endangered species, plants, environmentally hazardous products, and certain drugs.
I. Standards
There are currently two types of standards: national and sectoral. National standards are issued by the HSO and conform to international norms. Hungary is a signatory to the GATT Agreement on Technical Barriers to Trade (Standards Code) and of course, it successor, the WTO. Hungary is also a participant in the International Standardization Organization (ISO) and the International Electro-technical Commission (IEC). Sectoral standards are issued by individual ministries and other central government agencies. As noted above, goods for consumer distribution are subject to an approval process by the Commercial Quality Control Institute (KERMI) and/or the Hungarian Electro-technical Control Institute (MEEI) which is responsible for electronic/technical goods. In order to import or market such electronic consumer products, samples must be submitted to these control institutes for testing and certification. Without appropriate certification, imported products will not be custom-cleared.
J. Free Trade Zones/Warehouses
Since 1989, Hungary's rules for establishing free trade zones (FTZ) have been relatively liberal. Consequently, many large exporters conduct trade through FTZs (otherwise known as "puncto franco" using the Italian designation) that are located near manufacturing or assembly facilities. However, under pressure from the EU, the FTZ regime has recently been tightened up. One of the largest FTZ concentrations is located at Székesfehérvár, where subsidiaries of Ford Motor Co., Philips Electronics, IBM, Loranger, and Alcoa are located.
K. Membership in Free Trade Arrangements
In December 1991, Hungary signed an Association Agreement with the European Union, which became effective in February 1994. The agreement was meant to phase out tariffs over an extended period of time. The agreement immediately removed EU duties on 70 percent of Hungary's industrial exports to the EU and lifted quotas on 60 percent of its total exports. Trade in textiles, steel, coal and farm products will be eased over several years. In June 1993, the EU agreed to accelerate the agreement's provisions and reaffirmed its commitment to Hungary's full membership. Although there is no real opposition, either internally or externally, for Hungary's membership in the EU, timing is uncertain. Membership is not expected before at least 2002. On February 15, 1991, the leaders of Czechoslovakia, Hungary, and Poland signed a declaration at a summit in Visegrád, Hungary, pledging cooperation on matters of common concern, particularly with respect to regional trade issues. In December 1992, Czechoslovakia, Hungary and Poland negotiated a Central European Free Trade Agreement (CEFTA). Following the dissolution of Czechoslovakia and the formation of the Czech and Slovak Republics, both countries automatically acceded to the Agreement. Modeled after the structure of the EU association accords, CEFTA reduces trade barriers over an 8-year period; duties on 15-30 percent of mutual trade were eliminated immediately upon implementation of the Agreement in March 1993. A supplementary agreement, signed on June 18, 1994, accelerates the agreement's provisions. Since then, Slovenia and Romania have acceded to CEFTA. About 90 percent of all industrial products are currently traded free of duty between members under the Agreement.
Hungary concluded a free trade agreement with the European Free Trade Association (EFTA) countries in July 1993. Again, this agreement was modeled after the EU accords and eliminated trade barriers for Hungarian goods that entered the EFTA countries by 1997 and will eliminate barriers for EFTA imports by 2001. EFTA accounts for nearly 15 percent of Hungary's total trade. Hungary is negotiating with the EU to ensure that Hungary does not lose any benefits as a result of EFTA countries joining the EU.
In July 1997, Hungary acceded to the Pan-European Cumulation System. Comprised of 29 countries, mostly EU-, CEFTA- and EFTA-member countries plus the Baltic states and Bulgaria, the system imposes certificate-of-origin rules on member countries governing qualification for preferential trading status. Companies that import inputs from outside the cumulation region must pay duty in order to take advantage of free-trade preferences when exporting the finished good to countries within the region. If, on the other hand, the importer opts to receive a so-called duty drawback (credit for the duty paid when the input is imported), eligibility for preferences is lost and the finished product is exported on most-favored-nation basis. Maximum duty rates and exemptions have been allowed during a transition period to mitigate the effects of the new regime.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
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