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Europaudvalget 2000-01
EUU Alm.del Bilag 238
Offentligt

FROM THE COMMISSION

HUNGARY’S

PROGRESS TOWARDS

ACCESSION

***********************

8 November 2000

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Table of contents

A. Introduction ..............................................................................5

a) Preface ............................................................................................................ 5

b) Relations between the European Union and Hungary ................................ 7

Recent developments under the Association Agreement (including bilateral trade) .. 7

Accession Partnership / National Programme for the Adoption of the Acquis........... 8

Community aid ............................................................................................................ 8

Twinning ................................................................................................................... 11

Negotiations / screening ............................................................................................ 12

B. Criteria for membership ........................................................13

1. Political criteria.................................................................................... 13

Introduction ............................................................................................................... 13

Recent developments................................................................................................. 13

1.1. Democracy and the rule of law .................................................................... 13

The Parliament .......................................................................................................... 13

The executive ............................................................................................................ 14

The judicial system.................................................................................................... 15

Anti-corruption measures .......................................................................................... 16

1.2. Human rights and the protection of minorities.......................................... 17

Civil and political rights ............................................................................................ 17

Economic, social and cultural rights ......................................................................... 18

Minority rights and the protection of minorities ....................................................... 19

1.3. General evaluation ........................................................................................ 20

2. Economic criteria................................................................................. 22

2.1. Introduction................................................................................................... 22

2.2. Economic developments ............................................................................... 22

2.3. Assessment in terms of the Copenhagen criteria ....................................... 24

The existence of a functioning market economy....................................................... 24

The capacity to cope with competitive pressure and market forces within the

Union ......................................................................................................................... 28

2.4. General evaluation ........................................................................................ 30

3. Ability to assume the obligations of membership............................. 32

Introduction ............................................................................................................... 32

3.1. The chapters of the

acquis............................................................................

Chapter 1: Free movement of goods ............................................................. 34

Overall assessment .................................................................................................... 35

Chapter 2: Free movement of persons .......................................................... 36

Overall assessment .................................................................................................... 37

Chapter 3: Freedom to provide services........................................................ 37

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Overall assessment .................................................................................................... 38

Chapter 4: Free movement of capital............................................................ 39

Overall assessment .................................................................................................... 39

Chapter 5: Company law ............................................................................... 39

Overall assessment .................................................................................................... 40

Chapter 6: Competition policy....................................................................... 41

Overall assessment .................................................................................................... 41

Chapter 7: Agriculture................................................................................... 42

Overall assessment .................................................................................................... 44

Chapter 8: Fisheries....................................................................................... 46

Overall assessment .................................................................................................... 46

Chapter 9: Transport policy........................................................................... 46

Overall assessment .................................................................................................... 48

Chapter 10: Taxation ..................................................................................... 49

Overall assessment .................................................................................................... 49

Chapter 11: Economic and monetary union................................................. 50

Overall assessment .................................................................................................... 50

Chapter 12: Statistics ..................................................................................... 50

Overall Assessment ................................................................................................... 51

Chapter 13: Social policy and employment................................................... 51

Overall assessment .................................................................................................... 53

Chapter 14: Energy........................................................................................ 54

Overall assessment .................................................................................................... 55

Chapter 15: Industrial policy......................................................................... 57

Overall assessment .................................................................................................... 57

Chapter 16: Small and medium-sized enterprises ....................................... 58

Overall assessment .................................................................................................... 58

Chapter 17: Science and research................................................................. 59

Overall assessment .................................................................................................... 59

Chapter 18: Education and training ............................................................. 59

Overall assessment .................................................................................................... 60

Chapter 19: Telecommunications and information technologies................ 60

Overall assessment .................................................................................................... 61

Chapter 20: Culture and audio-visual policy................................................ 61

Overall Assessment ................................................................................................... 61

Chapter 21: Regional policy and co-ordination of structural instruments . 62

Overall Assessment ................................................................................................... 63

Chapter 22: Environment .............................................................................. 64

Overall assessment .................................................................................................... 66

Chapter 23: Consumers and health protection............................................. 67

Overall Assessment ................................................................................................... 68

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Chapter 24: Co-operation in the field of justice and home affairs .............. 68

Overall assessment .................................................................................................... 71

Chapter 25: Customs union........................................................................... 73

Overall Assessment ................................................................................................... 74

Chapter 26: External relations ...................................................................... 74

Overall Assessment ................................................................................................... 74

Chapter 27: Common foreign and security policy........................................ 75

Overall Assessment ................................................................................................... 76

Chapter 28: Financial control....................................................................... 76

Overall assessment .................................................................................................... 77

Chapter 29: Financial and budgetary provisions ......................................... 77

Overall assessment .................................................................................................... 78

3.2. Translation of the

acquis

into the national language................................. 78

3.3. General evaluation ........................................................................................ 79

C. Conclusion ...............................................................................81

D. Accession Partnership and National Programme for the

Adoption of the

Acquis:

Global assessment .........................84

1. Accession Partnership ......................................................................... 84

Short-term priorities .................................................................................................. 84

Medium-term priorities ............................................................................................. 88

2. National Programme for the Adoption of the

Acquis

...................... 89

Annexes..........................................................................................91

Human Rights Conventions ratified by the Candidate Countries, September

2000 ......................................................................................................... 92

Statistical data ................................................................................................ 93

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A. Introduction

Preface

In Agenda 2000, the Commission said it would report regularly to the European Council

on progress made by each of the candidate countries of Central and Eastern Europe in

preparations for membership, and that it would submit its first report at the end of 1998.

The European Council in Luxembourg decided that

“From the end of 1998, the Commission will make regular reports to the Council,

together with any necessary recommendations for opening bilateral intergovernmental

conferences, reviewing the progress of each Central and Eastern European applicant State

towards accession in the light of the Copenhagen criteria, in particular the rate at which it

is adopting the Union

acquis”

… “The Commission’s reports will serve as the basis for

taking, in the Council context, the necessary decisions on the conduct of the accession

negotiations or their extension to other applicants. In that context, the Commission will

continue to follow the method adopted by Agenda 2000 in evaluating applicant States’

ability to meet the economic criteria and fulfil the obligations deriving from accession.”

On this basis, the Commission presented a first series of regular reports in October 1998,

with a view to the Vienna European Council; a second series was adopted in October

1999, with a view to the Helsinki European Council. The Helsinki European Council

noted that the next regular reports would be presented in good time before the European

Council in December 2000.

The structure followed by this regular report on Hungary is largely similar to that of the

Commission’s 1997 Opinion and of the subsequent regular reports; however, it differs

from that used in previous years on three minor points. Firstly, the part of the present

report assessing Hungary’s ability to assume the obligations of membership (Part

B.3.1.)

has been structured to follow the list of twenty-nine negotiating chapters covering the

acquis.

Secondly, this part has been broadened to cover also Hungary’s administrative

capacity to apply the

acquis

under each of the negotiating chapters (previously discussed

in a separate section of the report). Thirdly, the report includes, for the first time, a

section assessing the progress made by Hungary in translating the

acquis

into its official

language.

In line with previous regular reports, the present report:

describes the relations between Hungary and the Union, in particular in the

framework of the Association Agreement;

analyses the situation in respect of the political criteria set by the 1993 Copenhagen

European Council (democracy, rule of law, human rights, protection of minorities);

assesses Hungary’s situation and prospects in respect of the economic criteria defined

by the Copenhagen European Council (a functioning market economy and the

capacity to cope with competitive pressures and market forces within the Union);

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addresses the question of Hungary’s capacity to assume the obligations of

membership, that is, the

acquis

as expressed in the Treaties, the secondary legislation,

and the policies of the Union. This part gives special attention to nuclear safety, as

underlined by the Cologne and Helsinki European Councils. It encompasses not only

the alignment of legislation, but also the development of the judicial and

administrative capacity necessary to implement and enforce the

acquis,

as requested

by the Madrid and Feira European Councils in December 1995 and June 2000

respectively. At Madrid, the European Council underlined the necessity for the

candidate countries to adjust their administrative structures, so as to create the

conditions for the harmonious integration of those States. The Feira European

Council in June 2000 emphasised the vital importance of the candidate countries’

capacity to effectively implement and enforce the

acquis,

and added that this required

important efforts by the candidates in strengthening their administrative and judicial

structures. The Feira European Council invited the Commission to report to the

Council on its findings on the matter.

This report takes into consideration progress since the 1999 regular report. It covers the

period until 30 September 2000, in some particular cases, however, measures taken after

that date are mentioned. It looks at whether intended reforms referred to in the 1999

regular report have been carried out, and examines new initiatives. Furthermore,

complementing the assessment of new developments since the last regular report, this

report provides also an overall assessment of the global situation for each of the aspects

under consideration, setting out for each of them the main steps which remain to be taken

by Hungary in preparing for accession.

In accordance with this approach, the assessment of progress in meeting the political and

acquis

criteria (including Hungary’s administrative capacity to implement the

acquis)

focuses on what has been accomplished since the last regular report, complemented with

a view of the global situation for each of the aspects discussed. The economic

assessment, for its part, is based on a forward-looking evaluation of Hungary’s economic

performance.

The report contains also a separate section examining the extent to which Hungary has

addressed the short-term Accession Partnership priorities, and has started to address the

medium-term priorities set out in this framework.

As has been the case in previous reports, “progress” has been measured on the basis of

decisions actually taken, legislation actually adopted, international conventions actually

ratified (with due attention being given to implementation), and measures actually

implemented. As a matter of principle, legislation or measures which are in various

stages of either preparation or Parliamentary approval have not been taken into account.

This approach ensures equal treatment for all the candidate countries and permits an

objective assessment and comparison between countries in terms of their concrete

progress in preparing for accession.

The report draws on numerous sources of information. The candidate countries have been

invited to provide information on progress made in preparations for membership since

the publication of the last regular report. The National Programmes for the Adoption of

the

Acquis

of each of the candidate countries, as well as the information they have

provided in the framework of the Association Agreement and in the context of the

analytical examination of the

acquis

(screening) and the negotiations, have served as

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additional sources. Council deliberations and European Parliament reports and

resolutions

have been taken into account in the preparations. The Commission has also

drawn on assessments made by various international organisations, and in particular the

contributions of the Council of Europe, the OSCE and the International Financial

Institutions, as well as that of non-governmental organisations.

b) Relations between the European Union and Hungary

Recent developments under the Association Agreement (including bilateral

trade)

Hungary continued to implement the Europe Agreement correctly and contributed

actively to the smooth functioning of the various joint institutions.

The Association Council met in December 1999 and September 2000. An Association

Committee meeting was held in April 2000. The system of sub-committees continued to

function as a forum for technical discussions. The Joint Parliamentary Committee

comprising representatives of the Hungarian and European Parliaments met in November

1999 and April and October 2000.

Hungary’s trade with the EC continued to increase. Hungarian exports to the EC rose

from

€

14.7 billion in 1998 to

€

17.3 billion in 1999 and Hungarian imports from the EC

from

€

16.9 billion in 1998 to

€

18.6 billion in 1999. The most important EC exports to

Hungary were machinery and electrical, transport equipment, chemical products and base

metals and materials. The most important EC imports from Hungary were machinery and

electrical, transport equipment and textiles.

In February 2000, Hungary transmitted its programme for restructuring aid to the

Hungarian steel industry. As the plan did not fully meet the Commission’s criteria for

granting restructuring aid, the Commission requested the Hungarian authorities to amend

the plan accordingly.

In April 2000, a second Joint Assessment of the Hungarian authorities and the

Commission services on medium term economic policy priorities was signed.

Hungary was the first of the associated countries to pass to the second stage under the

Europe Agreement in June 2000. This led to further liberalisation as regards the

provisions on establishment.

In March 1999 the Council mandated the Commission to open negotiations with the

associated countries with a view to new reciprocal concessions for agricultural products.

The negotiations, which form a part of the overall accession process, have been carried

out on a reciprocal basis and with the aim of leading to a fair equilibrium between the

interests of the European Community, the EU Member States and those of Hungary. The

negotiations have been based on the principle of neutrality with respect to the functioning

of the CAP.

For the European Parliament, the

rapporteur

is Luis Queiro.

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The negotiations with Hungary were concluded between negotiators in May 2000. As a

consequence of the new agreement approximately two thirds of bilateral trade in

agricultural products will benefit from preferences. The regime entered into force on 1

July 2000 on an autonomous basis, pending the conclusion of an Additional Protocol to

the Europe Agreement. For processed agricultural products, negotiations are still

ongoing.

This development constituted a firm step forward in progressively liberalising access to

agricultural markets as a necessary step in the accession process, which will help

Hungary to prepare for the Single Market.

Also in July 2000, the Protocol to the Europe Agreement on European Conformity

Assessment (PECA) was initialled. The Protocol will facilitate trade by way of the "pre-

extension" of the rules for the internal market prior to accession. The required

Association Council decision is under preparation.

In the same month, the Road Transit Agreement was signed. This facilitates further road

transport services between Hungary and the Union.

Current discussions in the institutional framework of the Europe Agreement focus

particularly on the implementation of the Accession Partnership priorities and seek to

achieve progress in the areas like excise duties and competition/state aids. In the

competition/state aid context, the implementation of the Europe Agreement (article 62) is

still hampered by the fact that the Hungarian Constitutional Court declared that some

provisions of the Hungarian implementing rules for competition are unconstitutional. The

Hungarian authorities and the Commission continued to work on a solution to address

this issue. There is also a need to conclude quickly the negotiations in view of a global

wine and spirits agreement that would cover both tariffs and name-protection issues, as

the current agreement on wine trade concessions will expire at the end of this year.

Accession Partnership / National Programme for the Adoption of the Acquis

In December 1999 a revised Accession Partnership with Hungary was adopted by the

Council. On this basis a revised National Programme for the Adoption of the

Acquis

was

prepared and adopted by the Government in July 2000.

(see also chapter D: Accession

Partnership and National Programmes for the Adoption of the Acquis: Global

assessment)

Community aid

Since January 2000, there are three

pre-accession instruments

financed by the European

Community to assist the applicant countries of central Europe in their pre-accession

preparations: the

Phare

programme;

SAPARD,

which provides aid for agricultural and

rural development; and

ISPA,

which finances infrastructure projects in the fields of

environment and transport. These programmes concentrate their support on the

Accession Partnership priorities that help the candidate countries to fulfil the criteria for

membership.

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In the years 2000-2002 total financial assistance to Hungary will amount annually to

€

million from Phare,

€

38.7 million from SAPARD, and

€

87.7 million from ISPA.

The

Phare

programme has been providing support to the countries of Central Europe

since 1989, helping them through a period of massive economic restructuring and

political change. Its current “pre-accession” focus was put in place in 1997, in response to

the Luxembourg European Council’s launching of the present enlargement process.

Phare provides the applicant countries of Central Europe with support for institution

building, investment to strengthen the regulatory infrastructure needed to ensure

compliance with the

acquis

and investment in economic and social cohesion. This

support comprises co-financing for technical assistance, "twinning" and accompanying

investment support projects, to help them in their efforts to adopt the

acquis

and

strengthen or create institutions necessary for implementing and enforcing the

acquis.

This also helps the candidate countries develop the mechanisms and institutions that will

be needed to implement Structural Funds after accession and is supported by a limited

number of measures (investments or grant schemes) with a regional or thematic focus.

Around 30% of the Phare allocation is used for “institution building”, while the

remaining 70% is used for financing investments.

During the period 1990 – 1999, the Phare programme allocated

€

1.030 million to

Hungary. The

2000 Phare Programme

for Hungary consists of a national allocation of

€

65 million, supplemented by

€

9,8 million out of the 2000 reserve, concentrated on the

following priorities:

−

priority 1:

Political criteria;

−

priority 2:

Agriculture;

−

priority 3:

Environment;

−

priority 4:

Border Management;

−

priority 5:

Social Affairs;

−

priority 6:

Judicial Sector Institution Building;

−

priority 7:

Structural Policy and investment in Social and Economic Cohesion.

An additional

€

19 million was allocated for cross-border co-operation programmes

(CBC), namely:

€

10 million for a CBC programme with Austria;

€

5 million for co-

operation with Romania;

€

2 million for co-operation with Slovakia and

€

2 million for

co-operation with Slovenia.

Hungary also participates in and benefits from Phare funded multi-country and horizontal

programmes, such as TAIEX and the Small and Medium-sized Enterprises Facility.

Furthermore, Hungary participates in the following relevant Community Programmes:

Third multi-Annual programme for Small and Medium-sized Enterprises; Equal

Opportunities for men and women; 5

EC Framework Programme on R&D; 5

Euratom

Framework Programme on R&D; Save II; Combating Cancer; Drug Dependance;

Health Promotion and Prevention of Aids,Leonardo, Socrates, Youth.

Hungary has

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applied for participation in the

Culture 2000

programme and has taken steps in

preparation of this participation. Following the opening of negotiations regarding

Hungary’s participation in the European Environment Agency, an agreement has been

reached. Following ratification and entry into force of this agreement, scheduled for early

2001, Hungary will become member of the Agency.

Overall, the impact of Phare has been positive. Effective transfer of know-how,

equipment and financial resources took place in a number of important fields such as

industrial restructuring and privatisation, SME development, trade and investment

promotion, environment, energy, land registration and training. Phare support has

developed sector strategies and essential institutional structures.

In Hungary, the achievements of the Phare programme itself can be seen across a range of

sectors, for example:

•

In the field of

microcredit,

the Phare Microcredit Programme has assisted more than

10,000 small enterprises in the last seven years. The microcredit scheme thus

contributed to the development of a healthy business environment, and created jobs

where most needed. (€ 15 million)

With regard to

training courses,

about 250-300 professionals working in the field of

regional development received training in project management with a special focus

on EC requirements. This initiative provided a good basis for preparing the

administration to handle future structural funds. (€ 3 million)

•

A reform of the

Phare management system

took place in 1998 and 1999 to improve the

speed, efficiency, effectiveness and transparency of Phare’s activities. The recent Phare

Review Communication in 2000 continues to refine these basic management structures

so as to further bridge towards accession and the structural funds. First, management can

be fully decentralised from 2002 if the strict pre-conditions set down in the Co-ordination

Regulation 1266/99 are met. Second, Phare’s programming can be moved onto a multi-

annual basis if supporting strategies are in place. Third, the trends introduced in 1997 will

continue with an increased role for Delegations, further streamlining of procedures and,

lastly, increasing emphasis of management on raising the impact of Phare’s projects in

institution building, investment in compliance with the

acquis,

and economic and social

cohesion.

In relation to Hungary, good co-operation between authorities led to a backlog from

previous years finally being eliminated by the end of September 2000 and the

programmes are now on track in a way that will maximise their impact.

The Hungarian SAPARD plan was declared admissible on 24 March 2000 and got a

favourable opinion in the STAR Committee of 13 September 2000 The plan was

approved by the Commission in October 2000. The plan is based on two major priorities,

namely the improvement of the competitiveness of the agricultural sector and processing

industry focusing on environmental protection aspects and enhancing the adaptation

capabilities of rural areas (renovation and development of villages, diversification of

activities, development and improvement of rural infrastructure). The average annual

public expenditure will amount to

€

50.5 million (at 2000 prices) during the period 2000-

2006, of which

€

38.7 million forms the Community contribution.

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The setting up of the Sapard Agency and the preparation of its accreditation are

underway. Although it was originally envisaged that the Agriculture Intervention Centre

was to function as the Sapard Agency, this has now been made the responsibility of the

Ministry of Agriculture and Regional Development. This change in the organisational

structure has regrettably resulted in a number of delays in preparing for the

implementation of the Sapard programme.

As concerns the

ISPA

programme, starting in January 2000, implementation made good

progress. In February 2000 the main financial rules and procedures were approved by the

ISPA management committee. The total budget available to Hungary in 2000 amounts to

€

87.674 million and broad consensus exists between the Commission and the

Hungarian authorities about the priorities for investment. Work is already underway to

prepare in detail sufficient projects to ensure that the full budget available to Hungary in

the current year will be committed. ISPA is expected to assist with a number of major

investments which will require support over a number of years. An additional major aim

of ISPA will be to lay the foundations for the future structural funds by providing the

national authorities in Hungary with the experience of managing large-scale strategic

investments in partnership with the Commission. The European Investment Bank is also

likely to be involved in almost all the projects supported by ISPA. In the area of

transport, projects will be in the road and in the rail sectors, whilst environment projects

will focus on waste water and solid waste.

Implementation of the ISPA projects will follow the same institutional framework as for

the Phare programme, with the National Fund at the Ministry of Finance being in charge

of the overall financial management and a number of Implementing Agencies responsible

for the technical implementation. For the programme and financial management of

SAPARD, a different system will apply which reflects the EAGGF (European

Agricultural Guidance and Guarantee Fund) rules and is based on a fully decentralised

approach through an accredited paying and implementing agency.

Twinning

One of the main challenges the candidate countries continue to face is the need to

strengthen their administrative capacity to implement and enforce the

acquis.

As of 1998,

the European Commission proposed to mobilise significant human and financial

resources to help them in this respect, through the process of twinning of administrations

and agencies. The vast body of Member States’ expertise is now being made available to

the candidate countries through the long-term secondment of civil servants and

accompanying short-term expert missions. Thanks to the strong support and response

from EU Member States 107 twinning partnerships, funded by Phare 98 and involving all

candidate countries and almost all Member States are operational. Under Phare 99 a

further 107 projects are being implemented and the programming exercise for Phare 2000

includes a further 129 twinning projects. It is estimated that around 250 twinning projects

will be operational throughout the candidate countries at any one time.

To start with, twinning focused primarily on the priority sectors of agriculture,

environment, public finance, justice and home affairs and preparatory measures for the

Structural Funds. It now covers all sectors pursuant to the

acquis.

For

Hungary,

17 twinning projects under the 1997 and 1998 programmes are currently

being undertaken. Another 6 projects will shortly be commencing under the 1999

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programme, and a further 8 are planned under the 2000 programme. The projects

currently being implemented cover

inter alia:

the agricultural sector, (support to the

information system, planning capacity for structural and agri-environmental development

scheme); the public finance sector (adaptation of the Hungarian tax system, monitoring

system for State aid and foreign aid); and justice and home affairs (fight against crime,

asylum and refugees, border management and training of law enforcement bodies).

Furthermore, twinning assistance is being provided to prepare for operation of pre-

accession aid (ISPA and SAPARD) and in the framework of institution building for the

development of testing and certification bodies and of a market surveillance system.

Concerning the Phare twinning projects for the 1999 programme, the focus is on the

following issues: agricultural statistics; fair and careful treatment of asylum seekers and

refugees; chemical safety; harmonisation of the tax system; government accounting; and

social security for migrant workers.

Negotiations / screening

The analytical examination of the

acquis

(screening) for Hungary started in April 1998

and concluded in autumn 1999 with the examination of the agricultural chapter. The up-

date screening started in February 2000 to cover the new

acquis

up to 1

January 2000.

Since the opening of accession negotiations on 30 March 1998, Hungary has already

participated in four rounds of ministerial negotiations. As a result of these negotiations,

eleven chapters were provisionally closed (“Economic and monetary union”, “Small and

medium-sized undertakings”, “Science and research”, “Education and training”,

“Statistics”, “Fisheries”, “Consumers and health protection”, Telecommunications &

information technologies”, “Industrial policy, ‘CFSP’ and Financial Control) while

negotiations continue for the remaining chapters.

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B. Criteria for membership

1. Political criteria

Introduction

The political criteria for accession to be met by the candidate countries, as laid down by

the Copenhagen European Council in June 1993, stipulate that these countries must have

achieved “stability of institutions guaranteeing democracy, the rule of law, human rights

and respect for and protection of minorities.”

In its 1999 regular report on Hungary’s progress towards accession, the Commission

concluded that:

“Hungary fulfils the Copenhagen political criteria. Two areas still need attention. The

first is the situation of the Roma, where the government is beginning to implement its

medium-term Roma action plan and needs to make available adequate budgetary

resources. The second is the fight against corruption where recent efforts need to be

reinforced.”

The section below aims to provide an assessment of developments in Hungary since the

1999 regular report, as well as of the overall situation in the country, seen from the

perspective of the political Copenhagen criteria, including as regards the overall

functioning of the country’s executive and its judicial system. Developments in this

context are in many ways closely linked to developments regarding Hungary’s ability to

implement the

acquis,

in particular in the domain of justice and home affairs. Specific

information on the development of Hungary’s ability to implement the

acquis

in the field

of justice and home affairs can be found in the relevant section (Chapter

24 – Co-

operation in the field of justice and home affairs)

of part

B.3.1.

of this report.

Recent developments

In June 2000 Parliament elected a new President. No other significant new developments

are to be reported.

1.1.

Democracy and the rule of law

As mentioned in the previous regular reports, Hungary has achieved stability of

institutions guaranteeing democracy and the rule of law. This section focuses on the most

significant developments of the past year.

The Parliament

Parliamentary work continued in line with the Law Approximation Programme for 2000.

As regards parliamentary representation of minorities foreseen by the Constitution no

further progress could be noted. This issue remained on the agenda without concrete results.

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The executive

The structure of the administration has remained stable. Some limited reorganisation

took place in the Foreign Ministry, which from February 2000 took over trade policy from

the Ministry of Economic Affairs, including relations with OECD and WTO. The Ministry

of Economic Affairs continued to be responsible for market protection and licensing, but

shared with the Foreign Ministry the promotion of trade development and investments. In

June 2000, responsibility for the telecommunications sector was transferred from the former

Ministry of Transport, Telecommunications and Water Management to the Prime

Minister’s Office. In the Prime Minister’s Office, a Government Commissioner responsible

for information technology was appointed, recognising the need for government efforts

overall in this field.

A new Regional Development department within the Ministry of Economic Affairs was

set up at the beginning of 2000, to take charge of ensuring the link between internal

economic cohesion and regional development policy. At local government level, the

modernisation of public administration continued with the provision of training for civil

servants in EU matters. Government also allocated

€

2 million for helping small

municipalities integrate themselves into so-called micro-regions, composed of various

local municipalities. This should increase efficiency, and contribute to a clear

identification of needs and measures in the context of the regional development planning

process. However, in the 2000 budgetary law, the share of Personal Income Taxes which

is freely available to local governments was reduced from 13.5% to 5%. The cut was

offset by an increase in financial transfers from the central budget which however could

only be spent for specific purposes. Consequently the gap between the political autonomy

granted to the local governments and their financial autonomy increased further.

The Public Administration Development Programme adopted in May 1999 continued to

be implemented. The three main principles for developing the Hungarian public

administration are deregulation, de-concentration and decentralisation. Progress was in

particular achieved in the modernisation of the legal environment under which public

administration is operating. This concerned five major areas: the re-definition of the

functions and responsibilities within the ministries in order to improve the operation of

the central administration; widespread use of cost-benefit analysis in the daily work of

the public administration; rationalisation of public services; IT development with the aim

also of ensuring the proper link between the different territorial offices; and development

of regional and local administrations.

As regards salaries, the usual practice is to raise nominal wages above the inflation level

(real wage increase), partly as a result of joint pressure from several civil servants'

unions. In line with this practice an increase of 8.25%, slightly above the officially

targeted inflation rate of 6-7%, is also planned for 2000. The Hungarian Institute of

Public Administration is in charge of a Training Programme preparing Hungarian

Officials for EU accession, with stronger emphasis being put on sectoral knowledge and

language training (English, French and German). As an example, 2,000 law-enforcement

officials were trained in the area of Justice and Home Affairs. Further initiatives were

launched in September 2000 at local level, with the institutionalised training of notaries

public working in Self-Governments. The number of local government officials receiving

some EU training is estimated at about 17,000 in the period 1999-2002.

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Sustained efforts should be made to guarantee the efficiency and effectiveness of the

Hungarian public administration.

The judicial system

There are three levels of courts (local, county, supreme). The highest level of appeal is

the Supreme Court.

In addition, the Constitutional Court is charged with reviewing the constitutionality of

laws and statutes brought before it. The number of judges at the Constitutional Court is

11 and it is now operating at full strength. No judge or member of the Supreme Court or

Constitutional Court may belong to a political party or engage in political activity.

Original jurisdiction in most matters is with local courts. Some 80%-90% of all cases are

dealt with by local courts within one year. Cases which begin at county level are referred

to the Supreme Court in the case of an appeal, involving considerable extra work for the

Supreme Court. Thus, there is still a large backlog of cases at the Supreme Court,

whereas the number of pending cases at local and county courts has started to decrease

over recent years. This situation at the Supreme Court has reduced the scope for fulfilling

its main function, namely the unification of court practice and the provision of judicial

guidance to the lower courts.

In order to remedy the situation, the government undertook a series of measures:

•

New procedural legislation came into effect in January 2000 which shortened the

duration of civil procedures.

The new law on legal assistants, which entered into force in September 2000, should

also result in the reduction of the administrative workload of judges.

Considerable investments were made in the field of the Court Information System

which provides direct support to judges in their work.

Also, the Parliamentary decision of 1998 on the introduction of a regional court will

finally be implemented in 2003. This regional court will hear cases from the entire

country. In future approximately half of the cases currently arriving at the Supreme

Court will fall within the competence of the regional court.

Finally, the overall number of judges was increased and during the first 9 months of

2000 about 94 additional judges were appointed, so that the total number of posts for

judges reached 2590 (compared to 2438 in 1999), out of which 2492 are filled. 109

judges work for the Supreme Court (1998: 87, 1999: 96). The appointment of

additional judges was made in particular in the area of administrative law where the

case backlog is the most significant (in particular at the Supreme Court). The number

of court clerks is also steadily increasing (11% in the last two years ) which shows

that more and more young jurists are interested in becoming a judge in Hungary.

•

However, the new Code on Misdemeanours, which introduced the possibility of legal

remedy for petty offences, has added new tasks for the judiciary over recent years which

have not been accompanied by the necessary financial means. On the contrary, the budget

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allocation of the National Council for the Judiciary was reduced by one third of the

original request.

On the other hand, training of Hungarian judges in EC laws and European Court of

Justice case law progressed. With the help of the Phare programme, around 700 judges

were trained in the area of the

acquis

in a systematic manner. In addition, 46 law-trainees

in EU matters completed their studies in this field. These lawyers will be responsible for

training Hungarian judges in the framework of a National Training Institute for Judges

due to be set up by 2001 according to a recent decision of the National Council of Justice

(the central body of the self-governing system of the Hungarian judiciary).

Overall, while the judiciary continues to function satisfactorily, the situation at the

Supreme Court is still a matter of concern. It remains to be seen whether the steps already

taken will be sufficient to address this issue.

Anti-corruption measures

The fight against corruption, which remains a problem, continued to be high on the

political agenda of Hungary's preparations for accession to the EU. The government - on

the initiative of the Justice Ministry as the main co-ordinator of a national strategy against

corruption - took the following action to address the situation:

•

A large-scale development programme was launched within the law-enforcement and

public safety services following a substantial increase in the number of cases. The

programme comprises a special psychological test, and new training and operational

methods which help police and border guards to recognise and avoid situations of

corruption. The administrative capacity of the forces of law and order was also

improved through additional staff (86) for the Security Service of the Forces of Law

and Order, the reinforcement of the Mobile Controlling Unit at the National Police

Command (these forces are to fight corruption internally within the police) and the

upgrading of audio-visual equipment. The internal security force monitors some

80,000 officials in the police, tax police, customs and finance guards, fire

departments and penal institutions. Since January 2000, policemen have also worn a

name tag so that citizens can more easily identify them. Citizens can call a free

telephone number if they suspect police corruption.

A discussion paper on the Code of Ethics was presented to the broader public with

the aim of basing the forthcoming Code of Ethics on broad social and professional

consensus. Under new conflict-of-interest legislation concerning local government

representatives, economic and other leadership positions considered to be

incompatible with the mandate of local government representatives have to be given

up. Such positions include the leading positions at budgetary institutions within the

Central State administration. In addition, elected local government representatives are

not allowed to be involved with companies which have contractual relationships with

local government, or to occupy leading positions at public foundations and/or

companies set up by local Self-Governments.

The Council of Europe Convention on Criminal Law was signed in April 1999, but is

not yet ratified.

•

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•

The Council of Europe Convention on Laundering, Search, Seizure and Confiscation

of the Proceeds from Crime was ratified by Parliament in December 1999.

The OECD Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions was promulgated by Parliament in May 2000.

1.2.

Human rights and the protection of minorities

As mentioned in the previous regular reports, Hungary has continued to respect human

rights and freedoms. The following section concentrates on major developments since the

previous regular report.

Hungary has already acceded to most of the major human rights instruments (see Annex).

Civil and political rights

According to the Ombudsman for Human and Citizen’s Rights, the basic institutions of

the rule of law are functioning satisfactorily, and constitutional rights are adequately

protected. Fewer complaints were lodged with the Office of the Ombudsman in 1999

than in 1998.

Following the lifting of the geographical reservation to the Geneva Convention and the

modification of the Asylum Law in 1998, the number of people seeking asylum in Hungary

has continued to grow in significant terms. In September 1999, new provisions on the

outright return of travellers from the airport were incorporated into the Asylum Law.

These related in particular to the introduction of suspensive effects to appeals lodged at

the airport against first instance decisions, and a time limit of 18 months of confinement

at border-guard community shelters. According to a report of the Ombudsman for Human

and Citizen’s Rights, the rights of asylum seekers detained at the airport have been

violated on a regular basis. Asylum seekers arriving at the airport without valid passports

or documents are transferred to a so-called transit zone which is considered to be

extraterritorial, i.e. Hungarian legislation is not in effect. In response to the recommendations

of the Ombudsman, the Border Guards began an investigation into the behaviour of

guards, and a new building for accommodating asylum seekers was also completed. A

recent UNHCR report is critical about the timing of deportation procedures. According to

the report, asylum seekers are kept in detention for too long in Hungary. In several cases

asylum-seekers have been returned to the borders despite ongoing appeal procedures.

The report also criticised the health care conditions at community shelters, which are

overcrowded and below standard. In order to protest against the conditions prevailing in

those centres and the slow asylum procedures, several illegal migrants went on hunger-

strike in a number of community shelters in autumn 1999. They also disagreed with the

rejection of visa applications. In response, some community shelters were closed down

for renovation. The detention of illegal migrants has continued to pose problems similar to

those experienced in previous years. Although setting a time limit for detention was a

positive step, the overall period of 18 months is still excessively long. A legal framework

which would facilitate the integration of recognized asylum seekers into society is still

lacking.

Hungary respects the

freedom of the press.

The market for news is highly competitive and

the major part of the print media and of radio and television stations are in private hands

providing a wide variety of high-quality, uncensored national and local information.

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There are three national public TV channels and approximately 26 commercial television

stations. Already in 1997 national television licenses were granted to two Western private

consortia. In addition, about 30 radio stations are operating throughout the country.

The public service TV and radio (representing around 10% of the market) are supervised

by Boards of Trustees in which approximately one third of the posts are open on equal

terms to representatives of the Government coalition and the opposition. Out of the three

Boards of Trustees, two are currently filled solely with Government coalition partners,

due to a lack of consensus on the distribution of posts between the opposition parties. In

order to avoid any risk of political influence on the public service Media this situation

should be remedied as soon as possible.

Hungarian and international human rights organisations continued to report on

ill-treatment

by the police. Roma and foreigners appear to be targeted most by such actions. The

number of complaints lodged with the Ombudsman for Human and Citizen’s Rights and the

number of his investigations are increasing. A recent study by the National Institute for

Criminology revealed that only a small proportion of complaints lodged by detainees on

the grounds of police mistreatment had resulted in final court rulings. According to data

from the Prosecutor’s Office, only one third of the complaints resulted in a court

proceeding. Consequently only a very limited number of policemen were found guilty of

mistreatment during a police investigation, and of forced interrogation. However, some

20% of non-Roma detainees and 80% of Roma detainees complained about police

mistreatment in the course of investigations. Some 30% complained about forced

interrogation, and some 15% reported that they were hindered by the police in contacting

their lawyers. The practice of keeping detainees in preliminary custody in police cells, often

for indefinite time and under sometimes difficult conditions, runs counter to Council of

Europe rules and practice in the Union. The new law on criminal proceedings, adopted in

1999 but entering into force in 2003, will limit the duration to 60 days.

Overcrowded

prisons

are a growing problem in Hungary. Currently the prison population

exceeds capacity by around 60% (compared to 40% in 1998/99). Most Hungarian prisons

were built in the second half of the 19th century, and prisoners are kept often under

conditions below international standards. Also the number of guards is very low

compared to the number of detainees. Following the adoption of the programme for

improvement of prison facilities, the government has continued to modernise existing

facilities or to construct new ones. A new remand prison was opened in Budapest in

September 2000 and another new prison in Veszprem is under construction (completion

foreseen for 2002). They should fully meet international standards.

Economic, social and cultural rights

Further progress was made in the area of

equal opportunities

with the new Law on

Labour Inspection of January 2000. The Law introduced the reversal of the burden of

proof in case of discrimination. This burden of proof now lies with the employer in legal

and labour inspection disputes. Related studies found that the proportion of working

women had dropped to 30% from 50% over the last 10 years. Women at work earn 10 to

40% less than their male counterparts in the same position, and most leading posts are

filled by men. According to equal opportunity experts, lay-offs usually affect women

first. The unconstitutional practice of questioning women candidates about their desire to

have children is also an example of typical problems.

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Following the adoption of the law on rights and equal opportunities for

people with

disabilities

in January 1999, the Council on Disability Matters was established. Its role is

to advise on the legal framework, to co-ordinate activities related to the target group, to

inform the government on a regular basis regarding the living conditions of people with

disabilities, and to establish the National Disability Programme and the Action Plan. The

2000 Action Plan, adopted in March, provided funding of

€

19 million for promoting

employment of people with disabilities. As a result of the programme, rehabilitation

working groups were created within the special employment facilities; a pilot programme

was launched and specially equipped housing was established. Another element of the

programme is to ensure that companies employing over 20 persons reserve 5% of the

posts for people with disabilities. The most difficult part of the programme is the

accessibility of public buildings. According to the latest report from the Ombudsman for

Human and Citizen’s Rights, only 18% of public buildings, 25% of health and child

institutions and 86% of institutions for the handicapped are accessible to people with

physical disabilities.

However, very recently Hungary earned international recognition for its efforts to

improve the situation. In May 2000, Hungary received the Franklin Delano Roosevelt

International Disability Award Prize. The Prize committee also praised the

implementation of the laws on social provisions and public education, and the job-

creation schemes with expanded opportunities for people with disabilities.

Hungary has numerous sector-based

trade unions,

most of which are affiliated to one of

the six representative confederations. Trade union membership accounts for

approximately 30% of the workforce. Collective agreements covered 1.2 million people

in 1999, representing over 45% of the labour force in businesses employing five or more

people. Most of these agreements are concluded at company level, pointing to a weakness

at the intermediate (branch/sub-branch) level.

Social dialogue was restructured in 1999, with the aim of distinguishing between labour

issues and issues of national economic and social policy and to widen consultation on

economic issues. The government also launched a three-year programme to strengthen

the capacity of the social partners and to prepare for participation in social dialogue at

European level. There are however some concerns about the results of the dialogue and

the government should make additional efforts to ensure that real dialogue is taking place

and is followed up in the appropriate manner.

Minority rights and the protection of minorities

In line with the short-term Accession Partnership priority and with the medium-term

Roma action programme adopted in April 1999, the Government has provided specific

support for addressing the difficult situation of the Roma minority. In particular,

measures were launched in the areas of education (scholarships and support for

educational institutions), culture (opening of Roma Community houses which play a very

important role in strengthening the local Communities and preserving Roma culture),

employment (public work programmes and public utility work programmes), housing,

health and anti-discrimination. Under the “Roma Policemen Programme” the number of

Roma police officers was increased and co-operation with Roma organisations was

reinforced. In 2000, specific budgetary resources totalling

€

19 million were made

available, representing an important step forward in the implementation of the medium-

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term action programme which was also recognised by the Parliamentary Ombudsman for

Ethnic and Minority rights.

However, concrete results from the action programme can only be expected in the

medium term. In the meantime, the situation of the Roma population continues to be

difficult. Due to poor health and living conditions, life expectancy for the Roma is on

average 10 years shorter than for the rest of the population. As regards education, less

than 46% completed their primary school education, and only 0.24% obtained a university

or college degree. Roma have continued to suffer prejudice and widespread

discrimination in society. The Ombudsman for Ethnic and Minority Rights noted that

discrimination was present in the judiciary, in the police, in employment and education.

According to data from the Legal Defence Bureau for National and Ethnic Minorities, a

majority of discrimination cases were lodged against the practices of local Self-

Governments - most of the cases involved “everyday racism”, e.g. the denial of entrance

to bars, or in relation to employment. Discrimination in housing and access to public

institutions also remained a serious problem.

In the meantime, the legal system has slowly responded to complaints of discrimination

and Hungarian courts have started to launch court proceedings in cases of labour

discrimination, of police ill-treatment and in cases of denial of entrance to bars.

As regards Roma children, the majority are placed in special schools. This proportion is

94% in certain parts of the country (North-Eastern Hungary) and is considered to be a

sign of institutional prejudice and the failure of the public education system. The

Ombudsman for Ethnic and Minority Rights repeatedly noted that the disproportionately

high number of Roma pupils in these schools is unjustified and a sign of discrimination.

There are altogether 132 special schools in Hungary.

As a positive step, the government appointed an Ombudsman for Educational Affairs

(under the Minister of Education), who will study the issue. In addition, a Hungarian

court made an appeal decision to uphold a ruling ordering a local government to pay

compensation to Roma pupils whose primary school had organised a separate school-

leaving ceremony for Roma students.

1.3.

General evaluation

Hungary continues to fulfil the Copenhagen political criteria.

Further progress in the modernisation of the public administration is apparent from the

continued implementation of the 1999 development programme.

Although the judiciary functions satisfactorily and the training of judges in the EC

acquis

has progressed, the large backlog of cases before the Supreme Court hampers the

unification of Court practice and the development of a consistent jurisprudence. Efforts

should be made to remedy this. Sustained training programmes for civil servants and

judges should continue, in line with the medium-term priority of the Accession

Partnership.

However, the government contests these claims by international and non-governmental organisations and states that these special

schools are designed for helping disadvantaged children.

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Despite a number of important measures taken to fight corruption, this remains a problem

and renewed efforts should be made to address this issue.

Hungary continues to respect human rights and freedoms. However, overcrowding of

prisons is a growing problem, which needs to be remedied.

In line with the short-term Accession Partnership priority, Hungary started to implement

the medium-term Roma action programme, supported by financial means at national and

local levels. This programme facilitates the integration of the Roma and their fight

against discrimination in the fields of education, culture, employment, housing, health

and social services. However, sustained implementation of this programme is needed in

order to obtain concrete results in the medium-term.

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2. Economic criteria

2.1.

Introduction

In its 1997 Opinion on Hungary's application for EU membership, the Commission

concluded:

“Hungary can be regarded as a functioning market economy”; "it should be well able to

cope with the competitive pressure and market forces within the Union in the medium

term".

This finding was confirmed in the 1998 and 1999 Regular Reports. In its 1999 Regular

Report, the Commission found that:

"Hungary is a functioning market economy and the legal and institutional structures

which underpin the market economy have been further strengthened. It should be able to

cope with the competitive pressures and market forces within the Union in the medium

term provided it continues to make further progress in structural reforms”.

In examining the economic developments in Hungary since the Opinion, the

Commission’s approach was guided by the conclusions of the European Council in

Copenhagen in June 1993 which stated that membership of the Union requires:

•

the existence of a functioning market economy;

•

the capacity to cope with the competitive pressures and market forces within the

Union.

In the analysis below, the Commission has followed the methodology applied in the

Opinion, as well as in the previous Regular Reports.

2.2.

Economic developments

The macroeconomic situation has improved since the last Regular Report.

The concerns

about the size of the current account and the fiscal deficits have subsided. Economic

growth has accelerated, while the current account deficit narrowed, notwithstanding

significant import growth. The employment losses associated with economic

transformation have been clearly offset as export-oriented sectors of the economy have

grown rapidly and hired new workers. The fiscal deficit narrowed during 1999, and fiscal

performance during the first half of 2000 was better than expected.

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Hungary

Real GDP growth rate

Inflation rate

- annual average

- December-on-December

Unemployment rate, end-year

- ILO definition

General government budget

balance

Current account balance

1996

per cent

1.3

1997

4.6

1998

4.9

1999

4.5

2000 latest

6.2 Jan-June

per cent

23.5

19.9

18.5

18.6

14.2

10.1

10.0

11.4

10.2 June

9.3 June

per cent

9.9

8.7

7.8

7.0

6.5 April-June

per cent of GDP

million

€

-3.2

-3.7

–1,319

-5.4

-2.1

-840

-4.8

-4.9

-2,059

-3.7

-4.3

-1,969

-676 Jan-Aug

Foreign debt

- debt export ratio

- gross foreign debt

Foreign direct investment in flow

- balance of payments data

per cent

million

€

155.9

21,561

116.3

21,350

106.5

22,595

106.3 E

25,398 E

per cent of GDP

million

€

5.1

1,803

4.8

1,928

4.3

1,815

4.1

1,849

1,346 Jan-Aug

E = Estimates

However, there are concerns that the Hungarian economy may be overheating.

Considerable speculative

capital inflows forced the central bank to cut interest rates, raising fears of a further expansion of

domestic demand. Over the last 18 months, progress towards lower inflation has been limited.

Reflecting the advanced stage of the reform process, the pace of structural reform has slowed.

Nonetheless, during 1999 and mid-2000 Hungary started a number of important reforms, in the areas of

healthcare, rail transportation and the consolidation of financial sector supervision. In addition, the

government sold some of its remaining shares in financial institutions. More generally, the privatisation

process is almost complete and the enterprise sector is principally in private ownership. Nonetheless, the

government continues to hold a significant number of residual minority stakes. The implementation of

the far-reaching pension reform continues, although the government has failed to raise the contribution

rate to the second pillar.

3 PROXY HICP since 1996 (see methodological notes).

4 Moving 12 month average rate of change.

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Main indicators of Economic Structure in 1999

Population (average)

GDP per head

thousand

PPS-

€

Per cent of EU

average

Share of agriculture

in:

- gross value added

- employment

Investment-to-GDP

ratio

Gross foreign debt/GDP

Exports of goods &

services/GDP

Stock of foreign direct

investment

(End of 1999 - National

source)

10,068

10,705

per cent

million

€

per head

5.5

7.1

23.9

55.9

52.6

19,111

1,898

2.3.

Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

As set out in Agenda 2000, the existence of a functioning market economy requires that

prices, as well as trade, are liberalised and that an enforceable legal system, including

property rights, is in place. Macroeconomic stability and consensus about economic

policy enhance the performance of a market economy. A well-developed financial sector

and the absence of any significant barriers to market entry and exit improve the efficiency

of the economy.

There is a broad political consensus on the key aspects of economic policy,

in particular,

on the importance of European Union accession, support for private sector enterprises,

and the need for foreign direct investment to finance industrial restructuring. In April

2000, Hungary and the European Commission services signed a Joint Assessment of

Economic Policy Priorities. This document outlines the medium-term structural reform

Figures have been calculated using the population figures from National Accounts, which may differ from those used in

demographic statistics.

Agriculture, hunting, forestry and fishing.

Data refer to Gross fixed capital formation as % of GDP.

The 1999 data for foreign debt are estimates.

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agenda, which commits the government to a number of significant initiatives in the areas

of healthcare, local government finance, railways, the labour market, and the financial

sector. Although the implementation of these reforms is at an early stage, Hungary has

shown a strong commitment to this new agenda.

In 1999, the Hungarian economy expanded by 4.5 percent.

While the rate of growth was

somewhat slower than in 1998, growth accelerated from the second half of the year,

boosted by the strong cyclical recovery in EU markets. GDP growth for the first half of

2000 was estimated to have been 6.2 percent, while the volume based industrial

production index surged by 21 percent. Exports have performed extremely well with

export volumes increasing by 17 percent year-on-year. New construction permits have

increased by 32 percent, indicating that housing investment will be strong in the second

half of 2000.

While external sector growth has taken the lead, domestic demand also increased

rapidly.

After slowing sharply during the first nine months of last year, consumption

picked up in the fourth quarter, with the year-on-year growth rate for the first quarter of

2000 reaching almost 6 percent. Reflecting the sharp decline in interest rates, the savings

rate fell from 10.5 percent at the end of 1998 to 6.6 percent in March 2000.

Unemployment has fallen significantly.

According to labour force survey data 6.5 percent

of the workforce were without work in June 2000, compared to 7.4 percent during the

same period last year. However, there are significant regional differences in

unemployment rates, with Western Transdanubia recording a rate just above 4 percent,

while Northern Hungary has a rate of almost 12 percent. Furthermore, certain high

growth sectors are reporting an increase in the number of hours worked, which provides

further evidence of a tightening labour market, highlighting the danger that as the

economic upswing continues, economy-wide wage pressures could emerge.

The current account began to narrow towards the end of last summer.

Preliminary data

for 1999 suggest that the deficit was about 4.3 percent of GDP, more than 0.5 percent of

GDP lower than in 1998. This favourable trend continued into the first five months of

2000. The deficit came in at

€

0.43 billion, compared to

€

0.76 billion for the same period

in 1999. Initially, the better than expected current account performance was due to the

pronounced deceleration in investment-related imports, particularly within the public

sector, and lower profit repatriation by foreign investors. More recently, the current

account consolidation has been due to the strong growth of exports, and higher service

revenues, particularly tourism receipts. Moreover, the current account was easily financed

by non-debt creating capital inflows, while overall external indebtedness and debt service

indicators fell.

A disappointing aspect of macroeconomic performance has been inflation.

Progress

towards price stability has been slow. After dropping into single figures during the first

half of 1999, the downward trend of inflation, which lasted for 4 years, was reversed. The

downward movement in inflation was resumed in January 2000. However the data in July

indicated that the trend to lower inflation was again reversed when the year-on-year rate

was 9.6 percent. Rising oil prices and food prices have made a considerable contribution

to the inflation rate. In an effort to limit inflationary pressures, the government has

capped regulated price increases in 2000 to 6 percent. Inflationary expectations have kept

the first quarter year-on-year nominal wage growth above 13 percent. The government

has conceded that it will not achieve its 6 to 7 percent inflation target for 2000.

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Nominal interest rates have declined steadily since the end of 1998.

The 3-month

interbank interest rate fell from 16.4 percent in December 1998 to 10.1 percent in April

2000. During the first two months of 2000, the central bank has been forced to reduce

interest rates rapidly in an effort to limit the large speculative capital inflows, which

forced the exchange rate towards the upper limit of the intervention band. In contrast to

previous capital surges, which have been dominated by FDI inflows, recent capital

inflows have been heavily dominated by interest sensitive portfolio investments.

A potential conflict between the exchange rate and inflation objectives has emerged.

While the crawling peg exchange rate system has functioned reasonably well, the central

bank has tried to put downward pressure on prices by tightening the monthly rate of crawl

by 0.1 percent in April 2000. For the short term, the central bank’s efforts have contained

the upward pressure on the exchange rate, as speculative inflows appear to have subsided.

Nonetheless, the sharp fall in interest rates threatens to give a further boost to aggregate

demand and give a further impetus to inflation.

The general government deficit in 1999 was 3.7 percent of GDP.

Fiscal performance

during the first half of the year was weakened by a shortfall in revenues, and some

slippage in current expenditure, particularly in the area of social security. The authorities

responded by making a number of unannounced expenditure cuts, the bulk of which fell

in the area of capital expenditure. Only three-quarters of the budgeted investments were

actually carried out during the fiscal year. Towards the closing months of the year, the

causes of the earlier fiscal problems went into reverse. Revenue performance improved as

economic growth accelerated and inflation picked up. Over the years, Hungary has taken

gradualist approach to fiscal consolidation.

Fiscal accounting practices have suffered a set back in 2000.

Government has entrusted

the Hungarian Development Bank with financing the motorway construction programme.

The bank is not included in the general government accounts, and there is a danger that

large off-budget government liabilities may emerge.

The deficit included revenues from social security fund assets sales.

The removal of these

sales will push the deficit to 4.5 percent of GDP in 1999. Part of this divestiture included

the transfer of assets directly to the state privatisation agency - an off-balance-sheet

budget. An accounting contradiction has now developed within the general government

accounting framework. Whereas the central budget regards privatisation receipts as

budgetary financing, the social security fund now treats such receipts as revenues. A

similar smaller divestiture of assets has been included in the 2000 budget.

The first quarter fiscal sector performance was better than expected, and the government

is likely to achieve its 3.5 percent general government deficit target for 2000.

Strong

GDP growth and higher than expected inflation has led to a surge in tax revenues,

particularly VAT, profits tax and personal income tax. Fiscal credibility was enhanced by

the government decision that it will not revise its June 1999 medium term budgetary

guidelines. Furthermore, the medium term fiscal framework will also be strengthened by

the decision to submit a budget which will cover the next two years. A number of

important fiscal challenges remain, notably the railway sector, healthcare and local

government. In the immediate future, the achievement of lower inflation will require a

tighter fiscal response to counter the recent fall in interest rates.

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While in recent years the government has made sizeable progress towards restructuring

the rail transportation sector, it continues to be a major drain on public sector resources.

By the end of this year, the state Railway Company plans to further reduce its public

obligations by 1200 km. The separation of freight and passenger transportation is

progressing and it should be completed by 2003. Plans to introduce a differentiated tariff

structure have been given less priority than the restructuring plans.

The healthcare system is the most urgent structural reform confronting Hungary.

Healthcare indicators compare unfavourably with other OECD countries, while the weak

financial structure places a heavy burden on public finances. The reform process is at an

early stage, and no political consensus has yet being reached. More generally, the

government needs to develop a coherent and systematic programme of reforms, which

will both improve healthcare outcomes and address the difficult financing issues.

Hungary has adopted a highly decentralised form of local government, which in certain

areas has led to the inefficient provision of services, and strains on local finances.

The

government has recognised the issue and the financial incentives to encourage the

pooling of facilities and activities through the creation of local government associations

have had some success. In the absence of a comprehensive restructuring of local

government responsibilities, the government will have to adopt a flexible and innovative

approach to both local government financing and the provision of services.

In 1997, Hungary introduced a comprehensive multi-pillar reform of the pension system.

Regrettably, the government has again deferred the planned increase in the contribution

rate to the second pillar of the reformed system. While this does not immediately

endanger the financial viability of the second pillar, the failure to increase contributions

calls into question the government's commitment to the pension reform.

The price mechanism functions effectively in most sectors of the Hungarian economy,

with most prices freely set.

However, government has been criticised by the way in which

it has intervened to fix gas prices and the prices of pharmaceutical products. Regulated

prices, which mainly comprise of certain energy related products, pharmaceuticals, local

government housing rents, public transport, and telephone tariffs, account for 18 percent

of the consumer price index.

The privatisation process is almost complete.

The private sector has grown rapidly and at

the end of 1999 the private sector accounted for over 80 percent of GDP. Recently, the

government has sold its remaining stakes in a number of financial institutions but no

progress has been made in selling minority stakes in privatised companies. The State

Privatisation Agency holds assets with a book value of

€3.4

billion, and continues to

maintain a majority ownership in 134 enterprises, compared to 1,859 enterprises in public

ownership in 1990. The State Privatisation Agency is proceeding with the privatisation of

the pharmaceuticals retailer, Hungaropharma, and the largest steel company, Dunaferr.

The growth of new enterprises is strong, particularly those related to foreign direct

investments.

The net total of private enterprises increased by 3 percent in 1999. In most

sectors, there are no significant barriers to entry, although there appears to be some

problems with the implementation of bankruptcy procedures. However, many small and

medium enterprises face a higher tax burden relative to foreign firms, since many of the

tax incentives offered to foreign investors are not available to domestically owned firms.

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The legal system functions well, property rights are fully established, contract

enforcement is good, and in general, public procurement procedures are effective.

However, in an effort to speed up the motorway construction programme outlined in the

National Development Plan (the Széchenyi plan), the Hungarian authorities have not

applied the normal public procurement procedures required under national law. They

chose to negotiate with a short list of pre-qualified companies, suggesting a lack of

transparency and giving the impression of corruption. The Budapest stock market

provides for the efficient transfer of property rights.

Land markets are developing: a large part of the land used by the larger individual farms

and companies is leased, and some has been purchased.

Lease contracts are growing in

terms of duration and sophistication, improving tenure security for the farms and thereby

incentives for investment.

A strong and well-regulated financial sector is now in place. Many of the principal banks

and financial institutions were privatised through sales to strategic foreign investors with

considerable expertise in financial sector management.

Postabank is still state-owned but

plans are being made for its privatisation. Banking sector profitability has declined

dramatically in recent years, due the impact of the Russian crisis, and greater competition

among the banks. Lending activity is increasing, as competition is strong, although the

provision of financial services to small and medium enterprises is somewhat limited.

Credit to the corporate sector is only 27 percent of GDP. The financial sector is paying

greater attention to the banking requirements of the household sector. Household credit is

rising, albeit from a low base, while competition is increasing among alternative financial

intermediaries for household savings. Financial sector supervision is now consolidated

into a single institution, although there are still questions about the new institution's

discretionary powers, its financial independence and the implementation of consolidated

banking supervision. Concerns about the effective supervision of the pension funds have

also emerged.

Hungary is a functioning market economy. It has made considerable progress towards

consolidating macroeconomic stability, enhancing current account sustainability and

strengthening the institutional basis of the market economy. However, fiscal prudence

remains essential and there is a need to continue fiscal consolidation over the medium

term. To preserve present gains, the government should proceed with the implementation

of the new reform agenda, particularly in the areas of healthcare, transportation, and local

government finances. The slow progress towards price stability is a cause for concern and

the Hungarian authorities will need to pursue a prudent and flexible monetary and

exchange rate policy. Among remaining improvements, the intermediation role of the

financial sector needs to increase the delivery of services to domestic small and medium

enterprises.

The capacity to cope with competitive pressure and market forces within the

Union

As set out in Agenda 2000, Hungary's ability to fulfil this criterion depends on the

existence of a market economy and a stable macroeconomic framework, allowing

economic agents to make decisions in a climate of predictability. It also requires a

sufficient amount of human and physical capital, including infrastructure. State

enterprises need to be restructured and all enterprises need to invest to improve their

efficiency. Furthermore, the more access enterprises have to outside finance and the more

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successful they are at restructuring and innovating, the greater will be their capacity to

adapt. Overall, an economy will be better able to take on the obligations of membership

the higher the degree of economic integration it achieves with the Union prior to

accession. Both the volume and the range of products traded with EU Member States

provide evidence of this.

Hungary is a functioning market economy

with the necessary macroeconomic stability

and institutional infrastructure required for reaping the benefits of private sector

initiative, and providing the basis for a sustained growth of the economy.

Hungary has made good progress towards re-orientating its human capital base towards

meeting the requirements of the fast growing export sector.

However, labour market

reform continues to be an ongoing priority. Recently, new growth related problems have

emerged within the labour market. There are significant regional disparities, while many

firms are now reporting significant skill shortages. The Hungarian authorities have a

strong track record in labour market reforms, particularly in the areas of employment

legislation and wage setting arrangements. Such reforms have laid the basis of a flexible

labour market and have now started to bear results in terms of employment growth.

However, bottlenecks in housing and transportation need to be tackled to increase labour

mobility.

High levels of investment have led to considerable productivity gains. Investment as a

percent of GDP has steadily risen from 22.3 percent in 1995 to 26.6 percent in 1999.

Rapid productivity growth, particularly within the enterprise sector, coupled with wage

restraint, has been reflected in a significant depreciation in the unit labour cost based real

effective exchange rate.

Foreign direct investment has been the primary instrument of economic transformation.

In 1999, Hungary received net foreign direct investment inflows amounting to

€

1.8

billion, representing 4.1 percent of GDP. Between 1989 and 1999, Hungary has received

foreign direct investment inflows amounting to

€15.2

billion, increasingly in the area of

green-field investment. Foreign investors have been encouraged by the stable

macroeconomic framework and the strong commitment to the objective of European

Union accession.

In an effort to enhance the economy's infrastructure, the Hungarian authorities have

embarked upon a programme of public investments, called the Széchenyi plan.

The

primary objective of the plan is to open up the economically less developed eastern part

of the country. Public sector investment will focus upon motorway development, the

development of small and medium-sized enterprises, home construction, flood

prevention, tourism, research and development, information technology and employment

(see also chapters 15 and 16).

However, economic transformation has led to significant regional imbalances.

While the

central and north-western regions have benefited enormously from the large foreign

direct investments and re-orientation of economic activity towards EC related exports,

the eastern regions have fared less well. Furthermore, significant infrastructure

investments and an environment supportive of small and medium size enterprises are

clearly necessary in the depressed areas; this will raise difficult public expenditure

choices for the government. The government's main forms of agricultural support are

market price support subsidies, as well as credit subsidies and export subsidies.

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Recent export performance has been impressive, and emphasises the open and

competitive nature of the Hungarian economy.

The Hungarian economy is now deeply

integrated with the EU. In 1999, the EC accounted for 76.2 percent of Hungarian exports

and 64.4 percent of imports. In the manufacturing sector, the extent of trade integration is

even higher, with over 90 percent of exports going to the EC. The engine for this

remarkable export performance has been foreign owned firms. Hungary has made

considerable progress towards eliminating tariff protection. By the end of 2000, tariffs on

all EC industrial imports will be zero.

The export base of the economy has continued to expand and has become increasingly

diversified.

The composition of exports has shifted towards high value added products,

particularly in the areas of technology and human capital-intensive products. Production

by foreign invested companies in custom-free zones accounted for 43% of total exports

and 70% of exports in machinery. A significant proportion of exports consists of intra-

industry trade, in particular in manufacturing and, increasingly, the machinery industry.

The small and medium enterprise sector, in particular, has continued to exhibit dynamic

growth.

Last year, the number of firms employing 50 or less people increased by 10.5

percent. They now generate 45 percent of Hungary's GDP and employ 70 percent of the

workforce. Most of the SMEs operate in the non-tradable sectors such as services and

construction and their contribution to export growth has been more modest. They still

experience poor access to finances

(see also chapter 16 – Small and medium-sized

enterprises).

Hungary should be able to cope with competitive pressure and market forces within the

Union in the near term, provided that it stays with its present reform path. Considerable

progress has been made concerning the development of infrastructure, and in enterprise

restructuring, in a context of macroeconomic stability. Hungary’s export performance has

been particularly remarkable. Nonetheless, continued external competitiveness will

require that the government keep a well-balanced policy mix, and reduces its dependence

upon monetary policy instruments. Although unemployment has fallen, there are

significant regional differences and shortages of skilled labour in high growth sectors. As

the economy develops, measures need to be taken to reduce regional disparities and to

increase the flexibility and mobility of labour.

2.4.

General evaluation

Hungary is a functioning market economy and should be able to cope with competitive

pressure and market forces within the Union in the near term, provided that it stays with

its present reform path.

Considerable progress has been made towards consolidating macroeconomic stability,

enhancing current account sustainability and strengthening the institutional basis of the

market economy. Hungary has further developed its infrastructure, and proceeded with

enterprise restructuring. The creation of new enterprises, particularly those fostered by

foreign direct investment, is strong.

However, the slow progress towards price stability is a cause for concern and maintaining

external competitiveness will require an appropriate policy mix, including continued

fiscal consolidation, in particular in the areas of healthcare, transportation and local

government. Although unemployment has fallen, there are significant regional

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differences and shortages of skilled labour in high growth sectors. The intermediation

role of the financial sector needs to improve the delivery of services to domestic small

and medium enterprises.

The Hungarian authorities will need to maintain a well-balanced policy mix and pursue a

prudent and flexible monetary policy. Financial sector supervision needs to be further

improved, in particular for the pension funds. Measures need to be taken to reduce

regional disparities and to increase the flexibility and mobility of labour. The

implementation of the above-mentioned structural reforms must proceed in order to

address fiscal consolidation.

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3. Ability to assume the obligations of membership

Introduction

This section aims to update the Commission’s 1999 regular report on Hungary’s ability to

assume the obligations of membership - that is, the legal and institutional framework,

known as the

acquis

by means of which the Union implements its objectives. Alongside

an evaluation of relevant developments since the 1999 regular report, this section seeks to

provide an overall assessment of Hungary’s ability to assume the obligations of

membership, and of what remains to be done. This section has been structured to follow

the list of twenty-nine negotiating chapters, and incorporates also an assessment of

Hungary’s administrative capacity to implement the

acquis

in its various aspects (in

previous regular reports this had been covered in a separate section). Furthermore, for the

first time, a separate section has been included assessing progress made by Hungary in

translating the

acquis

into its official language.

The European Council in Madrid in December 1995 referred to the need to create the

conditions for the gradual, harmonious integration of the candidates, particularly through

the adjustment of their administrative structures. Taking up this theme, in Agenda 2000

the Commission underlined the importance of incorporating Community legislation into

national legislation effectively, and the even greater importance of implementing it

properly in the field, via the appropriate administrative and judicial structures. This is an

essential pre-condition for creating the mutual trust indispensable for future membership,

which has become a central issue in the negotiation process.

The European Council in Feira in June 2000 recalled the link between progress in the

negotiations and the candidate countries’ capacity to effectively implement and enforce

the

acquis,

and added that this called for important efforts by the candidate countries in

strengthening their administrative and judicial structures. The Feira European Council

invited the Commission to report to the Council on its findings on the matter. Building

on the assessment of Hungary’s administrative capacity provided in the 1999 regular

report, the present report seeks to add further depth and detail, focusing on the main

administrative structures which are required for implementing the

acquis

in its various

aspects.

In the 1999 regular report, the Commission concluded that :

“Hungary continues to make progress in aligning and implementing the

acquis

in most

sectors. In the internal market, progress has continued as regards laws on public

procurement and intellectual property (except as regards retroactive patent protection)

and efforts have been focused on ensuring their effective implementation. Notable

progress has been made in adopting legislation on self-employment which removes

restrictions on EU-individuals wanting to establish in Hungary. Although efforts need to

pick up in transposing EC standards and to ensure the functioning of market surveillance,

Hungary is well advanced in implementing the new approach in the standards and

certification areas. Hungary has adopted a law on state aids which should facilitate the

development of an effective system of state aid monitoring and control. Progress is quite

steady but slow in the agricultural, veterinary and phytosanitary fields and efforts need to

A description of the

acquis

for each chapter can be found in the Commission’s 1997 Opinion on Hungary’s application for EU

membership.

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be accelerated considerably if a sufficient level of alignment is to be achieved over the

medium term. Hungary is relatively well advanced in alignment in the transport sector

although the rail sector is lagging behind in terms of alignment and actual restructuring of

the railways. Hungary has continued to consolidate the policy framework for financial

control by defining the scope of audits and the distribution of tasks and responsibilities

between the various institutions involved.

Important progress was made in overall alignment in the VAT/excise area, but

discriminatory provisions in the excise area are still causing problems. Further alignment

is needed in the audio-visual areas as concerns European works and satellite broadcast

monitoring. Aside from the fight against organised crime, the pace of alignment has

been slow in the area of justice and home affairs, particularly with respect to border

management and asylum. Little progress has been made with regard to labour and health

and safety at work. There has been a noticable slow down in the adoption of

environment legislation and no progress has been made in customs. Given the size of the

transposition task which remains to be done in these sectors, significant efforts need to be

undertaken to ensure further progress. While strategic plans have been adopted in the

environment and energy sectors, it is essential that they be quickly implemented. In

some areas such as regional development, whilst the legislative framework has been in

place for some time, progress in implementation has been limited due to a lack of

budgetary and human resources.

Hungary has made steady progress in building up its administrative capacity to apply the

acquis.

Steps have been taken toward general public administration reform and continued

emphasis has been placed on the development of specific European policy and law

training courses throughout the administration and in the judiciary. Most of the key

institutions needed for implementation of the internal market are in place. Nonetheless

the administration still needs to be strengthened in specific areas such as state aid control,

market surveillance (implementation of product liability legislation) and veterinary and

plant health. Hungary needs to allocate sufficient budgetary and administrative resources

to regional development and environment and improve capacities to use, monitor and

control EC financial assistance. There is room for granting further independence to

authorities such as the Government Control Office and the Communications Authority.

Hungary has satisfactorily addressed most of its short term Accession Partnership

priorities with the exception of administrative strengthening in regional development,

steel sector restructuring and alignment in the environment sector. Hungary has also

made good progress in implementing the medium term priorities."

3.1.

The chapters of the

acquis

As indicated, the review of Hungary’s ability to assume the obligations of membership

that is provided below has been structured in accordance with the list of twenty-nine

negotiating chapters. Accordingly, this section opens with an assessment of progress

related to the so-called “four freedoms”, the cornerstones of the internal market, and

continues with a systematic review of progress on each of the chapters, to cover the

acquis

in all its various aspects: sectoral policies, economic and fiscal affairs, economic

and social cohesion, innovation, quality of life and environment, justice and home affairs,

external policies, and financial questions.

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Chapter 1: Free movement of goods

Further steady progress was made in the field of free movement of goods. In the area of

horizontal and procedural measures,

Hungary accelerated the adoption of European

standards as Hungarian national standards in line with the Accession Partnership

priorities. By September 2000, the Hungarian Standards Institution had implemented

7428 EN standards as national standards, including 1137 European standards harmonised

to the New Approach Directives. This represents 76.6% of all European standards and

79.7% of European standards harmonised to the New Approach Directives. In December

1999, the modules for the various phases of the conformity assessment procedures and

the rules on the use of the CE marking of conformity were transposed. The CE marking

will thus be used in Hungary, except in cases requiring third party certification where the

‘H’ mark will replace the CE marking until accession, except for the sectors covered by

the protocol to the Europe Agreement on Conformity Assessment and Acceptance of

Products, which was initialled in July 2000. This agreement covers machinery, electrical

safety, electromagnetic compatibility, hot water boilers, gas appliances, medical devices,

good laboratory practice for human medicines, and good manufacturing practice for

human medicines as regards inspection and batch certification. In 1999, the Hungarian

Accreditation Board became a full member of EA, the European Co-operation for

Accreditation. Furthermore, a Notification Information Centre was set up in the Ministry

of Economic Affairs in September 2000 that will prepare for Hungary’s

acquis

obligations in the field of notification and information regarding technical standards and

regulations.

Following good progress noted last year as regards

sector specific legislation,

Hungary

has continued its alignment in the following fields: good manufacturing practice for

human medicines, good laboratory practice of human medicines and pesticides,

wholesale distribution of human medicines, medical devices for human use, colorants for

medicines, residue limits of veterinary medicinal products in foodstuffs, novel foods and

ingredients, natural mineral waters, packaging and labelling of foodstuffs, and the

migration of plastics coming into contact with foodstuffs. Alignment was also pursued in

the areas of motor vehicles, quality of petrol and diesel fuels, tyre pressure gauges,

electromagnetic compatibility, electrical equipment used in potentially explosive

atmospheres in mines, calibration of the tanks of vessels, good laboratory practice for

chemicals, crystal glass, and recreational craft. Some pieces of legislation were adopted

in the field of legal metrology.

Further progress was made in institutional development. In nine sectors where alignment

is completed, market surveillance bodies have been designated. Hungary adopted

legislation in 1997 authorising each Ministry in its area of competence to designate

bodies for testing, inspecting and certifying the conformity of products in the context of

the New Approach Directives. This has already been done for industrial products falling

under the responsibility of the Ministry of Economic Affairs (machinery, toys, electrical

equipment, gas-burning appliances, certain construction products), as well for

telecommunications and information technology products, medical devices and personal

protective equipment. The technical capacity of a number of these bodies is being

upgraded, as requested in the short-term Accession Partnership priority.

With regard to

non-harmonised areas,

Hungary started an internal screening of its

domestic legislation in order to identify legislation that could prevent de jure or de facto

the free movement of goods.

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In the area of

public procurement,

no further legislative progress was made during the

reporting period. In line with the Accession Partnership priorities, provision was made to

allow tendering under the EC’s new structural pre-accession instruments ISPA and

SAPARD to respect EC requirements, in particular by excluding national preference. The

total number of public procurement procedures declined somewhat to 3,828 in 1999. In

value terms, public procurement grew slightly in real terms to an aggregate

€

1.7 billion ,

which corresponds to approximately 4-5% of GDP. About two-thirds were open tenders

as opposed to negotiated or restricted procedures, and in the first half of 2000 the share of

open procedures rose to 72%. Bidders from EU Member States won contracts in 5% of

the cases in the first semester of 2000, but in value terms they accounted for almost a

quarter of Hungary’s public procurement.

The Public Procurement Arbitration Committee received 283 complaints in the first half of

2000. Infringements were found in 180 cases and 150 contracts were annulled. Against this

background, an ad hoc Parliamentary committee was set up to supervise tenders.

Overall assessment

Hungary continued to make good progress concerning

horizontal and procedural

measures.

The general principles of the New and Global Approach were introduced and

the necessary infrastructure for regulation, standardisation, accreditation and certification

is being established. The Hungarian Institute for Standardisation is a full member of the

European Telecommunications Standards Institute and the International Standards

Organisation. The current effort to accelerate the adoption of European standards will

need to be sustained to meet the requirements to become a full member also of CEN and

CENELEC. The organisation and procedures of the Hungarian Institute for

Standardisation, the Hungarian Accreditation Board and the Hungarian National Office

of Measurements broadly appear to meet the needs of the

acquis.

As regards safety

checks on products, Hungary still needs to establish appropriate customs and market

surveillance infrastructure as well as effective administrative co-operation between

competent authorities. At present, no safety control takes place at the border. The

capacity of testing and certification bodies should be further enhanced and their

independence from the regulator should be ensured. The main market surveillance body,

the General Inspectorate for Consumer Protection, also houses the secretariat of the

Transitional Rapid Information System on Dangerous Products (TRAPEX), an

information exchange mechanism among ten candidate countries.

A large part of the

sector-specific

acquis

is also in place. The outstanding legislative

issues relate mainly to pharmaceutical products (including pricing rules and marketing

authorisations), cosmetics, chemical substances, metrology, construction sector products.

Where alignment is completed, the previous pre-market control should be clearly

abandoned in line with the Accession Partnership priorities. Also, sufficient

administrative capacity needs to be built up in the field of marketing authorisations for

medicines. As regards foodstuffs, Hungary needs to continue to introduce the relevant

structures for inspection and analysis.

In the

non-harmonised areas,

the internal screening by the Ministry of Economic

Affairs of measures hindering the movement of goods should be continued and should

lead to the elimination of incompatible provisions. The principle of mutual recognition

will have to become well established by accession. The State Secretariat for European

Integration in the Ministry of Foreign Affairs will be responsible for notifying national

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measures derogating from the principle of free movement. Further institution-building

and adoption of implementing regulations are necessary for the proper implementation of

the harmonised law of 1997 on the protection of cultural objects. The

acquis

on firearms

is not yet transposed.

The alignment of legislation on

public procurement

is well advanced, but further efforts

are necessary especially with regard to value thresholds, time limits, exemptions,

evaluation criteria, the treatment of utilities, the abolition of national preference. Some

rules are presently stricter than the

acquis

allows. In the area of enforcement and

remedies, the rules for initiating proceedings and for utilities need to be further aligned.

Hungary has already put in place the necessary bodies to implement this part of the

acquis.

Public procurement policy is developed by the 19-member Public Procurement

Council. It consists of interested central government bodies, contracting agencies and

bidders. The Council is legally independent from the Government and answers to

Parliament, to which it is required to report annually. The Council oversees the

application of public procurement rules and may initiate amendments to the relevant

legislation. It provides information and training, and publishes the notices for

procurement procedures. The monitoring and review of procurement procedures is

carried out by the Public Procurement Arbitration Committee. This law enforcement

body can be considered to be a semi-judicial body as required by the

acquis.

The present

number of 15 arbitration Commissioners is to be increased in the coming years to cope

with the growing workload. In 1999, the Committee received 367 complaints, i.e. in

about 10% of all procurement procedures. The Committee has the power to suspend the

conclusion of public contracts until a complaint is examined, which happened in 121

cases in 1999. The decisions of the Committee are challenged in court in only about a

quarter of the cases. Also, negotiated procedures must be notified to the Committee when

they are initiated, allowing the Committee to intervene when the negotiated procedure is

used unlawfully. Intervention takes place in about one-fifth of the cases. A sustained

effort is needed to ensure the respect of procurement rules in all sectors and at all levels

of government, including at the local level, but there is encouraging evidence that

remedial action is increasingly being taken. Further work is expected to provide both the

procurement agencies and the supervisory bodies with sufficient staff and modern

information systems.

Chapter 2: Free movement of persons

In the area of

mutual recognition of professional qualifications

some further progress

was registered with the entry into force of the law on public health in January 2000,

which aligned with provisions on mutual recognition of the health care professions.

No progress can be reported on

citizens’ rights.

Legislation on non-active persons and

student rights needs to be further aligned.

In the field of

free movement of workers

some progress has taken place such that work

permits can now be issued automatically to key personnel as defined under the Europe

Agreement. Also, some preparatory steps were taken to facilitate Hungary’s participation

in EURES (European Employment Services) with the development of the IT

infrastructure and the strengthening of staff in numbers and training.

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Hungary has continued to strengthen bilateral relations with a view to the future

co-

ordination of social security

matters. A bilateral agreement with Germany entered into

force in May 2000 and covers health insurance, pensions and family allowances. Another

bilateral agreement with Austria, covering health insurance, pensions, unemployment

benefits and family allowances is awaiting ratification by Austria. Such agreements will

facilitate Hungary’s compliance with the regulations from accession, as they rely on the

principles of the social security co-ordination regulations and familiarise the

administration with the procedures. In addition, the inter-ministerial social co-ordination

council was established in May 2000 to co-ordinate preparations for the application of

Community law nationally and to assist those institutions that will be responsible for the

social security of migrant workers.

Overall assessment

Some preparatory work has taken place and these efforts will need to be continued to

ensure that, by accession, there are no provisions in Hungarian legislation which

contradict Community rules, in particular with respect to nationality, residence or

language requirements. This is the case in the field of the

free movement of workers,

where legislation is only partially aligned and efforts are required to ensure that, by

accession, all such provisions are removed.

For the

acquis

in the area of

mutual recognition of professional qualifications,

legislation needs to be monitored to ensure that it distinguishes between academic and

professional recognition. Hungary was already largely aligned with the

acquis

in this

area. Outstanding issues relate to alignment with EC legislation on lawyers, the

preparation of simpler procedures to allow the provision of services and the assurance

needed that Hungarian legislation will provide for a clear distinction between academic

and professional recognition, notably taking into account the fact that the bodies

responsible for academic and mutual recognition merged recently. The appointment of a

national co-ordinator, responsible for co-ordinating the activities of the competent

authorities and the designation of the latter should take place without delay.

As regards future participation in EURES, efforts should be continued, especially with

regard to language training. With a view to the future

co-ordination of social security

systems,

further work to develop the necessary administrative structures is needed.

Chapter 3: Freedom to provide services

Some progress has been made since last year’s regular report, in particular in the field of

insurance and in the area of administrative capacity.

As regards the

freedom of establishment and freedom to provide services,

no new

developments have taken place.

In the field of

financial services,

a new Insurance Law was adopted in June 2000

providing substantial further harmonisation, with the exception of those parts of the

acquis

which can only be applied by Member States.

No particular development can be reported in the banking sector and investment services

and security markets.

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The three supervisory authorities for the banking, insurance and securities sectors were

merged as from April 2000 into the Hungarian Financial Supervisory Authority with a

view to providing more effective supervision of integrated financial operators and dealing

with new types of risks. This institution has its own separate budget and is legally

independent. It is guided by the Basle Core Principles for Banking Supervision. It has to

protect the interest of clients of financial institutions, to enhance transparency of the

markets and the to ensure maintenance of fair and regulated market competition through

the permanent surveillance of the prudent operation of organisations and entities engaged

in financial services in the largest sense. This includes not only the classical sectors of

banking, securities and insurance but also depositories, private pension funds and the

whole commodity market. However, it has no regulatory power itself, as the adoption of

prudential rules remains the prerogative of the Government and the Minister of Finance.

Regulatory power is expected to be transferred to the Supervisory Authority in the near

future. The Supervisory Authority is managed by a President who is appointed by

Parliament upon the Prime Minister’s proposal. The Authority has a staff of around 440.

The Supervisory Authority also houses the secretariat of the contact group for the

Regional Co-operation Network for Financial Supervision in Central and Eastern Europe,

grouping 17 countries of Central and Eastern Europe.

Banks in Hungary are subject to monthly and quarterly reporting requirements, and

together receive approximately 300 on-site inspections per year. In recent years, remedial

action has had to be taken in a substantial number of cases, including fines (91 in 1999),

suspensions (18) and other supervisory and exceptional measures (94). Also in 1999,

operating licenses were granted or withdrawn in 634 and 61 cases, respectively. Similar

supervisory activity, but on a smaller scale, has been undertaken in respect of insurance

companies and securities. Pension funds have received several hundred on-site

inspections in 1999.

The rules on the

movement and protection of personal data

were further aligned in

December 1999. No measures were taken in respect of

information society regulations.

Overall assessment

In most areas, Hungary has already achieved a substantial degree of alignment. Whereas

legal persons and self-employed persons from the EU were already granted in February

1999 the basic right of

establishment

based on national treatment, the

freedom to

provide cross-border services

does not yet exist. The respective rules to facilitate

effective access of non-nationals to industrial, trade, tourism and agricultural activities,

inter alia through the recognition of qualifications, still need to be aligned. Also, the rules

on self-employed commercial agents need to be further aligned. Restrictions on the

acquisition of real estate equally hamper effective access.

On the other hand, Hungary has already achieved a substantial degree of alignment in

financial services.

Outstanding issues relate mostly to capital requirements, contractual

netting, bank accounting and deposit and investor compensation schemes. Some

adjustments remain to be made as concerns motor insurance, solvency requirements and

investment rules for insurance companies. Hungary appears to have the necessary

supervisory institutions in place, but the newly merged authority will have to demonstrate

its effectiveness in the coming years.

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Further work is required to align with rules related to

information society services,

particular on the provision of information in the field of technical standards and

regulations and the legal protection of services on conditional access. The legislation on

the

protection and movement of personal data

requires fine-tuning. A fully

independent Ombudsman for Data Protection elected by Parliament for a term of six

years is responsible for the independent monitoring of the data protection regulations and

for investigating complaints.. He can order the destruction by other authorities of illegally

collected or processed data, but he is not himself endowed with investigative powers or

powers of intervention or litigation. In practice, however, his recommendations are

generally respected and in general the enforcement capacity of the administration is

already quite satisfactory.

Chapter 4: Free movement of capital

In the area of

capital movements and payments,

the gradual liberalisation was

continued by allowing credits and loans in foreign currency with a maturity of more than

one year to be granted by residents to non-residents in OECD countries as of January

2000. From July 2000, liberalisation was extended, under certain conditions, to collective

investment securities from OECD countries denominated in foreign currency.

No further progress is to be reported as regards

cross-border credit transfers

money

laundering.

In particular, no progress was made on the elimination of anonymous

accounts even though the Accession Partnership identified a ban on the opening of new

anonymous accounts as a short-term priority.

Overall assessment

Hungary is already very advanced in the liberalisation of medium and long term

capital

movements.

Liberalisation should be extended to the system of restrictions on short-term

operations, transactions denominated in HUF and deposits abroad, as well as to capital

movements vis-à-vis third countries insofar as required by the

acquis.

Restrictions remain

on direct investment in sectors such as air transport, inland waterways and

telecommunications. The state maintains golden shares in a number of privatised

companies. In real estate, restrictions exist on the purchase of agricultural land and land in

nature conservation areas, as well as on residential property. Institutional investors in

Hungary still face restrictions on investment in foreign assets.

Partial harmonisation was already achieved in the area of

cross-border credit transfers.

The implementation of a real-time gross settlement system is an important

accomplishment. The complaints and redress procedure for the settlement of disputes still

needs to be introduced. Hungary's law on

money laundering

provides already a good

basis for alignment, but further efforts are necessary in particular regarding the phasing

out of anonymous accounts. A financial intelligence unit within the National Police is the

main enforcement body.

Chapter 5: Company law

In the area of company law, Hungary has made some further progress to align its

legislation with the

acquis.

A new law on accounting was adopted by Parliament in

September 2000 and will enter into force from 2001. This law provides for alignment

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with the

acquis

in this area. It also establishes the legal basis for the introduction of

national accounting standards.

Some progress was made in March 2000 in the area of

industrial and intellectual

property rights

with the entry into force of an amendment to the Penal Code which

introduced stronger penalties for the violation of copyrights. Also, the circumvention of

measures to restrict access to protected material and the copying of industrial property

were made punishable. Since the beginning of 2000, the Hungarian Patent Office is the

single government institution responsible for the protection of both intellectual and

industrial property rights. The Office is self-financing, and has over 250 staff. There are

six collective management organisations administering copyrights and related rights.

These are associations formed by a representative number of rightholders. The Budapest

Metropolitan Court has exclusive competence to hear most of the industrial property

cases, whereas intellectual property cases are handled also in county courts. There are

two further expert bodies administered by the Hungarian Patent Office providing expert

assistance to courts and other authorities upon request. Hungary has been invited to join

the European Patent Organisation as of July 2002.

In the field of trademarks, in March 2000 the Hungarian Patent Office concluded a

memorandum of understanding with the Office for Harmonisation in the Internal Market

(Trade Marks & Designs). One of its aims is to exchange information on trademark

filings so as to minimise as much as possible potential future conflicts between national

Hungarian and Community trademarks.

Overall assessment

In the field of

company law

a significant degree of alignment has been achieved so far.

The few outstanding issues are mainly of technical nature. Provisions on economic

interest groupings need also to be introduced.

The 19 county courts and the capital court of registration are responsible for the

registration of companies and partnerships. The deadlines for registration are now

respected, and the register has been computerised. The Hungarian Chamber of Auditors

established in 1997 is responsible for the accreditation of auditors. As of June 2000, 5237

auditors were registered. Hungary does not have an accounting standards body, and has

yet to begin introducing national accounting standards.

Hungary has filed for accession to the Lugano Convention, which is equivalent to the

Brussels Convention and open to third countries. So far, only seven countries have

ratified the Hungarian accession.

In the field of

industrial and intellectual property rights,

the Hungarian legislation is

largely in line with the

acquis.

Some further efforts are required, notably on the

protection of designs and the supplementary protection of patented pharmaceutical and

plant protection products. Alignment with the

acquis

on databases also needs to be

completed.

The Hungarian Patent Office and the collective management societies are acknowledged

to provide good administrative enforcement, but the specific training of bodies in charge

of enforcement

−police,

customs, prosecutors, judges− should be continued. Further

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efforts are also required to reduce the delays in court proceedings and to make border

control measures more efficient.

Chapter 6: Competition policy

Since last year’s report, Hungary has made some limited progress in this area and its

enforcement practice has continued to develop.

In the field of anti-trust no new developments took place. With 110 employees including

35 case-handlers, the Office of Economic Competition is well staffed but still about 40%

of the cases dealt with concern consumer protection issues. In 1999, 96 anti-trust

decisions were taken including a growing number of merger cases.

In the area of

state aid,

new limits were introduced in January 2000 on the intensity of

investment aids, and a methodology was adopted for measuring their grant equivalent.

Furthermore, following the scrutiny of existing state aid rules an overall work programme

for the alignment of substantive and procedural state aid rules was adopted by the

Government in February 2000.

An Inter-ministerial Consultative Committee was set up to assist the authorities in

aligning with the

acquis

and to support the State Aid Monitoring Office by providing

data, reports, and arguments on the necessity of measures within their ministry. The

scope of aids that must be notified in advance to the State Aid Monitoring Office was

broadened to include aids awarded to sensitive sectors and to large investment projects,

as well as some of the aids awarded by the State Privatisation Agency. However,

Hungary failed to meet the short-term Accession Partnership priorities to enhance the

Office’s role in controlling aids and to make the State aid inventory fully comprehensive.

Over the reference period, the State Aid Monitoring Office received 140 aid notifications,

of which 83 were found to constitute state aid. Of the 39 measures found to be

incompatible with the

acquis,

37 were adjusted, one was rejected by the Government and

one was accepted in its incompatible form.

Overall assessment

Hungary’s

anti-trust

legislation is already to a large extent aligned with the

acquis.

contains the main principles of the rules on restrictive agreements, abuse of dominant

position and merger control. A number of block exemptions regarding restrictive

agreements have been adopted, but further alignment is still necessary, especially in

view of developments in the

acquis

on vertical restraints. Investigations are conducted

by the legally and financially independent Office of Economic Competition, whereas

decisions are taken by the Competition Council, whose members are appointed by the

President of Hungary. . The main challenge is now to ensure that the application and

enforcement of the anti-trust rules is effective and that priority is given to such cases that

concern the most serious distortions of competition . In this context it is also important

that investigative powers are sufficient, that sanctions have a deterrent effect and that the

judiciary is adequately trained.

As regards

State aids,

the obligation of prior notification of new aid is still not yet fully

comprehensive (in particular, local authorities are not included). In relation to existing

aid schemes, the comprehensiveness and the timetable for alignment programme is not

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yet satisfactory, in particular as regards aid granted in form of tax benefits, as well as aid

granted in sensitive sectors. Furthermore, a regional aid map is to be prepared, in order to

ensure a differentiation of maximum aid intensities in assisted areas.

The State Aid Monitoring Office has to give an opinion on notified aid, which is

submitted to the Government for decision, but has no formal role in assessing existing aid

measures. The Office should be given sufficient powers and resources to ensure a full and

proper State aid control.

Chapter 7: Agriculture

The share of agriculture in the economy continues its declining trend, representing 5.5

of the GDP and employing 7.1%

of the working population. The crop output

declined by 7.3%

in 1999 and the livestock production increased by 0.7%. EC imports

of agricultural products originating in Hungary amounted to

€

1 093 million

in 1999

while EC exports to Hungary reached

€

481 million. The trade balance in favour of

Hungary amounted to

€

612 million compared to

€

521 million in 1998. The most

important product groups in terms of EC imports from Hungary were meat and edible

meat offal, vegetables, cereals and oil seeds. As far as EC exports to Hungary were

concerned, the most important sectors were animal fodder, alcoholic beverages and fruits

and nuts. In this context, the new reciprocal concessions on agricultural products

negotiated under the Europe Agreement at zero duty cover a substantial part of the

bilateral trade (see

section A.b. – Relations between the European Union and Hungary).

The structure of the agricultural sector has been changing in the past few years and recent

data shows that in 2000, the agricultural sector included nearly 960 000

private holdings

and more than 8 200 enterprises engaged in agricultural activities (in 1991, there were

2 600 enterprises and 1 396 small units).

The state agricultural budget amounted to

€

645 million in 2000. Out of the total budget,

€

553 million are for agricultural subsidies and

€

92 million for rural and regional

development measures. The agricultural support system was modified in 2000 to

introduce credit contracts and ‘farmers credit programmes’ providing for interest support.

The share of support for market access slightly decreased. Following the introduction of

registration of producers, a precondition for receiving agricultural subsidies, around 80%

of producers applied for registration.

As regards land reform, legislation on the register of title deeds, adopted in 1997, entered

into force in January 2000, providing the data on the rights attached to real estate,

including agricultural land. Also, the rules on the registration of land use by land offices,

separated from the register of title deeds, entered into force in January 2000.

The source for all agricultural statistics is EUROSTAT unless otherwise specified.

In order to improve consistency and comparability, the employment figures presented are now defined according to Labour Force

Survey definitions (LFS). Agricultural employment is defined in LFS terms as economically active persons who gain a significant

part of their income from agriculture. The agricultural census, which was previously a source of employment data in many

countries, takes into account all persons nominally active on a farm. There are therefore some significant differences between

previous and new figures. Further information can be found in the Eurostat publication “Central European Countries’ Employment

and Labour Market Review” available free of charge through the Eurostat Data Shops.

Source: FAO.

Source: Uruguay Round Agreement definition of agricultural products, figures taken from EUROSTAT COMEXT (see Agriculture

in the European Union statistical and economic information 1999 p.36 for definition of the products).

“Source: Preliminary data of the Hungarian Agricultural Census 2000”.

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Horizontal issues

As regards the implementation of measures related to the

European Agricultural

Guidance and Guarantee Fund (EAGGF),

the Agriculture Intervention Centre (AIC),

currently responsible for export refunds and licensing, is being restructured to execute

further functions in respect of EAGGF expenditure and the Integrated Administration and

Control System (IACS). However, the role and the additional functions to be performed

by the Agriculture Intervention Centre have not yet been defined. The number of staff,

currently 131, has doubled since last year.

The SAPARD programme was approved by the Commission in October 2000. It focuses

mainly on investments in farms and improvements in the processing and marketing of

agricultural and fishery products (see

section A.b – Relations between the European

Union and Hungary).

As regards preparations to establish the IACS in Hungary, progress has taken place

mainly in the registration of animals. Identification and registration of bovine animals are

compulsory since the entry into force of the law on individual registration and

identification in January 2000. The identification and registration of bovine animals was

completed. Progress in establishing the land register has been much more limited.

No significant progress was made in the field of quality policy. As for organic farming,

the National Agri-environmental programme will provide support for organic plant

growing and animal breeding.

Concerning preparations for Hungary’s participation in the

Farm Accountancy Data

Network,

the collection of data for an agricultural census was completed in April 2000.

Common Market Organisations

Since last year’s regular report, Hungary made little progress as regards the introduction

of a legal framework and administrative structure for the establishment of the Common

Market Organisations.

Concerning fruits and vegetables, a system of production aid for processed tomatoes,

partly in line with EC requirements, was introduced in 2000. The 1999 budget allocation

for producer organisations was assigned to other purposes. Only three producer

organisations received preliminary recognition. As regards tobacco, a quality premium

system was introduced in 2000.

In the field of specialised crops, the law on statistical survey of the area under vines and

fruit orchards was not adopted, as expected, in 2000 and consequently the establishment

of a vineyard register, identified as a short-term priority by the Accession Partnership, is

delayed. The legal conditions for keeping the cellar register (inwards and outwards

carcasses, introduced in 1998, became compulsory. A system of price bound support for

beef and milk was established under which measures may be taken to support producers

or processors depending on whether the market price has reached the lower or upper limit

of the bound price. The Ministry of Agriculture and Regional Development is responsible

for fixing the prices on a yearly basis.

Rural Development and Forestry

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A national Agri-Environmental Programme (2000-2006) was adopted in autumn 1999 to

support farmers who apply environment friendly agricultural production methods. The

programme, amounting to

€

26 million, is only being partially implemented due to

budgetary constraints.

No progress was made as regards forestry.

Veterinary and phytosanitary issues

Progress in the

veterinary sector

was also limited. The identification and registration of

bovine animals was completed and preparations for developing the pigs identification and

registration system were initiated. The identification and registration of bovine animals

has become compulsory from January 2000. The contingency plan for classical swine

fever has been drawn up.

No progress was made in the field of common measures, including animal waste

treatment and animal welfare.

As regards the administrative capacity in this field, the National Veterinary Information

System has been developed to complete the animal health, food hygiene and feedingstuffs

sub-systems by the end of 1999. The central database is placed in the National Veterinary

Institute and the Veterinary and Food Inspection Department of MARD, the county

veterinary and food inspection stations and 20 Border Inspection Posts are connected to

the network. Semi-on-line connection has been established to 8 Border Inspection Posts

and the 110 regional chief veterinary offices. An animal welfare service was established

within the State Veterinary Service. Progress in upgrading the Border Inspection Posts at

Letenye, Roszke, Zahony and at the airport has been limited to installing inspection

equipment and training of staff.

In the phytosanitary sector,

with the adoption of the Plant Protection Law in May 2000

Hungary will gradually introduce the EC requirements concerning plant health,

registration and marketing of plant protection products and fertilisers.

No progress has been registered as regards plant hygiene and animal nutrition.

Overall assessment

Overall, progress made so far by Hungary provides a good basis for implementing the

acquis

in the agricultural sector, however, the strengthening of the administrative

capacity over the last year has been hindered by slow decision making in regard to

Common Market Organisation mechanisms and structures relating to the European

Agricultural Guarantee and Guidance Fund.

In the field of

land reform,

the laws on land consolidation and on the national land fund

are still pending submission to the Parliament.

As regards

horizontal issues,

the existing databases and data networks should be

improved to establish the Integrated Administrative and Control System. Progress still

needs to be made to complete the land parcel identification system, especially as regards

digitalisation of land parcels according to EC requirements. The identification and

registration of animals, completed for bovine,, needs to be extended to pigs, sheep and

goats.

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The current Farm Accountancy Data Network, operated by the Ministry of Agriculture is

still to be harmonised with EC requirements. The results of the agricultural census,

carried out in 2000, will provide the basis for setting up the farm registry.

Concerning the implementation of

Common Market Organisations,

the tasks of the

Agriculture Intervention Centre as regards the management of the market organisations

need to be clarified. The key management mechanisms for cereals are yet to be

harmonised and the conditions for intervention established. The marketing standards for

fruits and vegetables, currently applied on exports to the EC, need to be extended to

imported and domestic products. Further support is essential to promote the

establishment of producers’ organisations. The law on statistical survey of the area under

vines and fruit orchards needs to be adopted in order to establish a national vineyard an

orchard register.

In the area of

Rural Development and Forestry,

the adoption of the National Agri-

Environmental Programme should be followed by the establishment of the institutional

structure and the budgetary allocations necessary to implement it.

Concerning the

veterinary field,

the existing framework legislation provides the legal

basis for transposing most of the veterinary

acquis

but further amendments are required

regarding the control system, compensation to farmers in the case of an outbreak of

disease and the reform of the statute of the veterinary professional activities. Work also

remains to be done in adopting the implementing legislation necessary to transpose the

veterinary public and animal health, animal welfare and zootechnical legislation.

As regards veterinary control in the internal market, the central database for identification

and registration of cattle meets all the requirements to record all cattle movements.

However, it is not used to record any veterinary information, either animal or public

health. The State Veterinary Service should have direct on-line access to the central

database, which should also be used for establishing an epidemiological surveillance

network system. Controls of the future external border of the EU are not yet in

compliance with the

acquis.

In the field of

control of animal diseases and animal health,

Hungary still needs to

introduce legal provisions for compensating farmers in the case of an outbreak of an

infectious disease.

Although the national survey of conditions and development possibilities of

slaughterhouses and meat processing establishments has been completed, the action plan

to comply with EC standards concerning hygiene, food safety, environment and animal

welfare is still to be approved.

Hungary has largely transposed the

acquis

in the field of animal welfare. Outstanding

issues relate to alignment with EC welfare rules on the slaughter of animals (setting up of

stunning parameters) and on keeping farm animals (minimum standards for laying hens),

the preparation of an action plan for the transport of live animals, the extension of the

animal welfare inspector network and the development of the animal welfare sub-system

of the national veterinary information system.

In the

phytosanitary sector,

the adoption of the Law on Plant Protection represents an

important step in transposing the phytosanitary

acquis,

however, the provisions of the law

and the required implementing decrees will enter into force gradually from August 2000

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until January 2003. The phytosanitary information system at the plant protection and soil

conservation stations and at the border inspection posts needs to be further developed.

The facilities for phytosanitary diagnostic, including establishment of a quarantine

greenhouse have to be upgraded as well as the analytical laboratories related to pesticides

registration and residue control.

Chapter 8: Fisheries

Over the reference period no progress was made in terms of alignment with the

acquis

as regards

market policy.

In the fields of

resources management, inspection and control,

one inspector was

employed in each of the 19 regional offices for agriculture. The staff in charge of

fisheries in the Ministry of Agriculture and Rural Development was also slightly

reinforced.

State aids

available for fish producers in 2000 were regulated in line with the EC

Guidelines for the Examination of State Aids in the fisheries and aquaculture sector. All

aid schemes were decided by the annual budget with the exception of support for

fisheries in natural waters which were financed from state revenues (fees of fishing

licences, fines)

Overall assessment

The basic framework legislation is in line with the Common Fisheries Policy.

Nevertheless further amendments are needed in order to implement marketing standards

and to establish the conditions for the control of live and fresh imported fish.

As regards the administrative structure, further efforts should be made to improve the

control of the implementation of common marketing standards, the collection and

transmission of data concerning the price reference regime, the application of the

recognition conditions for producer’s organisations and the implementation of the

structural policy for fisheries.

Chapter 9: Transport policy

During the reference period Hungary continued to align with the transport

acquis

although progress was limited.

Hungary has approved the final report on Transport Infrastructure Needs Assessment

(TINA) of October 1999 that should form the basis for extending the Trans-European

Networks to Hungary. Following the recent adoption of the Szechenyi Plan for economic

development, the motorway construction programme, which has not progressed for about

two years, will be speeded up, also with the help of the ISPA-programme. Hungary and

Slovakia continued preparations on the reconstruction of a bridge over the Danube at

Esztergom- Sturovo.

In the area of

road transport

some progress was achieved through alignment with

provisions on the use of vehicles hired without drivers for the carriage of goods. In April

2000, Hungary acceded to the European Agreement on the Work of personnel of

Vehicles Engaged in International Road Haulage (AETR). After several years of

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negotiations, a bilateral Road Goods Transit Agreement with the Community was signed

in July 2000.

Public bus-transport companies began to align the system of drivers' driving and rest

periods and increased the number of bus drivers with a view to aligning progressively

with the social requirements of the

acquis.

€

12,3 million and

€

8.4 million were made

available in 1999 and in 2000 for modernising the vehicle fleet for long-distance public

passenger transport by road. The law on vehicle taxes introduced tax reductions for utility

vehicles ("green lorries") with reduced environment pollution. The resulting tax levels are

lower than the required EC minimum levels. Furthermore, Hungary aligned its legislation

to some parts of the 1999

acquis

on transport of dangerous goods. It should nevertheless

be noted that Hungary does not comply with the

acquis

on weight limits of trucks yet, as

it provides for lower axle weight limits than those in the EC.

In December 1999, the reform programme of the Hungarian State

Railways

was adopted

providing also a basis for the further alignment with the

acquis,

notably the network

rationalisation and the establishment of separate railway commercial and track

companies in 2001, thus serving the improvement of the financial situation of railway

companies.

The General Transport Inspectorate (GTI) is responsible for road, rail, inland waterways

and maritime issues. The major part of its budget is funded through the fees, the levels of

which are set by the Ministry of Transport. Some 60-65% of fee revenues come from

vehicle inspection. In addition, the Government provides around

€

1 million (2% of

overall budget) for development and investment. Of this subsidy, 60% goes to IT

investment in the GTI, while the remainder is used to purchase equipment. The vehicles

GTI does not have access to it. There is therefore a need for reinforcement of the GTI

capacity and for a better administrative co-operation between the GTI and the police.

Some progress was achieved as regards the alignment with the

acquis

the air

transport

sector. The Government adopted in April 2000 a national strategy on aviation

which provided the basis for: the restructuring and privatisation of the national flag--

carrier (MALÉV); the development of Ferihegy airport towards a European hub and the

reorganisation of Air Traffic and Airport Management; the establishment of an

independent civil aviation authority; the establishment of an independent accidents

investigation body; the development of (regional) airports and personnel development. In

August the Government adopted a privatisation strategy for MALÉV, aiming at selling a

minority stake to an investor from the airline industry.

Progress in alignment was made in December 1999, in particular as regards

environmental protection, through legislation on the limitation of noise emissions for

subsonic and engine driven aircraft and the limitation of noise emissions in the vicinity of

airports. The provisions on common rules for the allocation of slots at airports and to a

certain extent on rules for the technical investigation of civil aviation accidents were

aligned in January 2000. In November 1999, a new automatic air traffic management

system was set up at Ferihegy airport and Hungary became member of the common air

traffic control system for Central Europe - CEATS-UACC. Hungary also participates

actively in the Safety Regulation Commission of Eurocontrol.

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The Civil Aviation Directorate, located at Ferihegy Airport, is the first level state

authority in the field of aviation. It supervises both the air traffic management and the

airport administration (which are currently together in one entity), licenses air operators,

provides certificates of airworthiness, and licenses air traffic management staff. State

control is secured at ministry level, as are regulatory policy-making and international

activities.

In the area of

inland navigation and maritime transport,

the main development was

the adoption in May 2000 of the Act on Water Transport (to enter into force in January

2001), creating the basis for enhanced alignment with the

acquis.

In January 2000,

Hungary joined the International Convention on Maritime Search and Rescue (SAR). The

Law on Water Transport also entrusts the General Transport Inspectorate with more

responsibilities and provides the framework for staff increase in the Shipping

Superintendence in the Inspectorate.

The modernisation of the national public ports continued in Gyor-Gönyu with the

connection to external infrastructure and in Baja with the construction of a Ro-Ro port.

Overall assessment

Hungarian policy in the field of transport infrastructure already takes into account the

objectives and priorities of the Community guidelines on the Trans-European Transport

Network (TEN-T) and the requirements on TEN financing. In the area of road transport,

there is, despite progress, a need to further align throughout the subsector with, among

others, particularly the provisions on market access, fiscal matters, social legislation and

technology, safety and environment (e.g. maximum weights and dimensions).

The new restructuring programme for the state

railways

should become a basis for

speeding up alignment in the sector. Any further delay should be avoided. The

administrative capacity of Hungarian railways should be further developed. Hungary

needs notably to set up an independent rail-path allocation body which would also be

responsible for dispute settlement, a separate commercial railway as well as an

independent regulator which would oversee capacity allocation and charging schemes.

Also accounting rules of railway undertakings need to be brought further in line with the

acquis.

In the area of

inland waterways

the port authorities and the General Transport

Inspectorate should be strengthened.

Further legislative alignment is necessary for the modalities on the transfer of ships from

one register to another and the safety system of certain fishing boats and of passenger

boats.

Further enhanced efforts to align with the

air transport

acquis

are needed, notably

concerning market access and air carrier liability. New institutions such as an

independent accident investigation authority, an independent slot co-ordination authority

and a body for licensing and safety need to be established.. Hungary should make further

efforts to ensure the progressive incorporation of the aviation

acquis

by joining the

European Common Aviation Area. Negotiations between the EC and Hungary on this

multilateral agreement have unfortunately not yet been completed.

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Chapter 10: Taxation

Hungary continued alignment.

In the area of

indirect taxation,

limited progress was achieved. The law on Special

Scheme for travel agents was further aligned with the

acquis

as far as rules for the tour

package are concerned. A system of classification of services in line with the

acquis

was

also introduced. Reduced VAT rates were abolished for a number of goods and services,

but reduced VAT rates of 12% are maintained for social reasons in the areas of heating

materials and district heating services, foodservices and transportation and storage of

goods.

The amendment of the law on Excise Duty eliminated a major structural difference

between the Hungarian legislation on

excise duty

and the

acquis.

As from 1 August 2000

an excise duty is levied on wine. Progress was also achieved in the area of excise duties

on sparkling intermediate alcoholic products, cigarettes and fine cut tobacco intended for

the rolling of cigarettes. Hungary however continued to levy different rates for fruit

brandies and other spirits, which is in contradiction with Community rules, which

stipulate a single excise duty for interchangeable products.

In the area of

direct taxation

no particular developments can be reported.

As regards the Hungarian Tax and Financial Control Administration, its effectiveness

was further improved by the introduction of new measures of tax control, such as the

integration of the social security system into the system of tax collection. At the same

time, rules for taxpayers were simplified. Also staff at the Hungarian Tax and Financial

Control Administration was increased to 13,575; 300 of whom worked in the Criminal

Directorate established in 1999. In total, some 700 people work at the central

administration, while county directorates employ staff of 400-1400 depending on their

size. A new training centre for the tax administration was inaugurated in May 2000 and a

new division in charge of education and training was created in order to improve the

qualifications of the staff of the tax administration.

The tax current account register was modernised by the introduction of a new Centralised

Tax and Contribution Current Account (CAJF) in autumn 1999 and an on-line access to

the data in the Court of Registration for the tax authorities was established.

Compared to 1998, the number of inspections increased by 5% in 1999 to 17,700 and the

number of audits by 6% to 323,200. Following the above 2,860 investigations were

initiated by the Directorate of Criminal Affairs in 1999, of which 717 cases were handed

over to the Prosecutor’s Office.

Overall assessment

The basic structures of the

acquis

related to VAT and excise duty are already in place.

Since January 1999, Hungary has applied a product identification system based on the

Combined Nomenclature also for VAT purposes. In the area of VAT the list of products

and services with reduced rates will have to be further limited and the zero-rate system

will have to be abolished. Excise duties will need to be adjusted concerning mineral oil

products, cigarettes, intermediate alcoholic products and fine cut tobacco. The rules on

obligatory tax exemptions will have to be brought in line with the

acquis.

In the area of

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direct taxation, Hungary has to finalise the review of its legislation in line with the Code

of Conduct for Business Taxation. Further progress is also needed concerning the Central

Liaison Office (CLO) where preparatory activities have only just started and concerning

cooperation and mutual assistance with tax administrations in Member States,

which needs to be improved.

Chapter 11: Economic and monetary union

A detailed assessment of

Hungary’s

economic policy in its various aspects has been

given above, in the chapter discussing the economic criteria (B-2). Therefore, the present

section is limited to a discussion of those aspects of the Economic and Monetary Union

acquis--as

defined by title VII of the EC treaty and the other relevant texts--which

candidate countries should implement by accession at the latest, i.e. the prohibition of

direct public sector financing by the central bank, the prohibition of privileged access of

the public sector to financial institutions, and independence of the national central bank.

As to the process of liberalisation of capital movements, upon the completion of which

compliance with the EMU

acquis

is conditional, this aspect has been covered above, in

the section on

Chapter 4 – Free movement of capital.

Hungary has made little additional progress in its preparation for participation in the

Economic and Monetary Union, although in January 2000, the Hungarian currency was

linked 100% to the Euro by modifying the currency exchange rate basket previously

consisting of 70% Euro and 30% US-Dollar.

No further progress can be reported in ensuring the full

independence of the National

Bank

which was a short-term Accession Partnership priority. There has been no other

legislative development.

Overall assessment

Hungary will participate in EMU upon accession with the status of a country with a

derogation as per Article 122 of the EC treaty. It will need to implement the necessary

changes to its institutional and legal framework by the date of accession.

Although Hungary’s legislation is already to a large extent in line with the

acquis,

further

alignment is still needed as regards the independence of the National Bank and in

particular the possibility for

direct public sector financing by the National Bank

should be removed together with the

privileged treatment of the Hungarian State

Securities.

Furthermore, the accounting and statistical services of the Central Bank will have to be

improved and the institutional framework for the preparation of the convergence

programme and excessive deficit procedure will have to be established.

Chapter 12: Statistics

Hungary continued its alignment with the

acquis.

The

statistical infrastructure

was consolidated with a new law in December 1999

modifying the Statistical Law of 1993 strengthening the independence and impartiality of

all official statistical bodies. The law redefined the Hungarian Central Office as a

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professionally independent public administrative institution with national competence.

Consequently, the president and vice-president of this institution are now appointed for 6

instead of 4 years, thus making the appointment independent from the election cycles.

The law also reinforced the protection of personal data transferred to international

institutions. The 2000 National Programme of Statistical Data Collection adopted in

October 1999 introduced the Classification of products according to activities (CPA).

Concerning

migration statistics

the scope of data collection has been extended with new

registers and data sources used providing information on foreigners staying in Hungary.

A population census law has been adopted to conduct the census in March 2001.

The

Quarterly Labour Force Survey

(LFS) is conducted in line with EC requirements

and data transmitted to Eurostat.

As regards the availability of statistics at

regional

level, more statistics, on services for

example, are available on a NUTS II (7 regions) and NUTS III (20 regions) level.

As concerns

macro-economic statistics,

input-output tables and commodity flows were

compiled according to the European System of Integrated Economic Accounts (ESA95)

methodological recommendations. Quarterly National Accounts on current prices is

available. The National Bank has compiled, but not yet published, financial accounts for

1997 and 1998.

In the field of

agricultural statistics,

a census was finalised in April 2000, covering

almost 2.2 million households. The census created the basis for the farm register and for

structural agricultural statistics and the processing of the data is being carried out.

Hungary has not yet set up a vineyard register.

Overall Assessment

Hungary already reached an overall high level of alignment in the field of statistics.

Statistical co-operation with international organisations runs smoothly. The Hungarian

Central Statistical Office is independent and well equipped and works professionally.

However, further efforts are still required in the areas of regional statistics, agricultural

statistics, macro-economic and industry statistics.

Chapter 13: Social policy and employment

Amendments to the

Labour Law

further aligning with the

acquis

on collective

redundancies, the contract of employment relationship, health and safety of temporary

workers, the organisation of working time, the protection of young people at work,

European Works Councils and posting of workers are before Parliament.

Since January 2000, following a reorganisation, the National labour inspectorate was

operating as the national enforcement authority, with the 20 county inspectorates again

operating under the supervision of its headquarters. It was already upgraded technically

in 1999 and staff underwent training, in particular in the area of languages.

The amendments to the Labour Law will also have implications for the further alignment

of the

acquis

in the area of

equality of treatment,

in particular with respect to burden of

proof and equal pay. Efforts were undertaken to promote mainstreaming, train the legal

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profession, raise awareness and to offer free legal advice. Hungary has also continued to

participate in the Community programme on equal opportunities.

Legislation on

health and safety

was further aligned with the

acquis

on exposure to

biological agents, display screen equipment and personal protective equipment.

Legislation also was further aligned with the

acquis

on chemical, physical and biological

agents and indicative limit values (with the adoption of the chemical safety law in April

2000), work equipment, signs, workplaces and mineral extracting sites. The remarks

under the labour law section on the National labour inspectorate also apply here. The

Mining Office has also participated in training organised by the labour inspectorate and is

being technically upgraded.

The reform of the

public health

care system was pursued during 1999-2000. The Health

Development Research Institute was established and the law on the privatisation of

general practitioners' practice, adopted at the beginning of 2000, provides the basis for

the privatisation of primary health care. A package of strategic papers in key areas on

the reform of the health sector was presented to government. Hungarian health indicators

continued to be below those in the EU and efforts are required to improve this situation.

The National public health and medical officers service, was, in common with the

National labour inspectorate, upgraded technically in 1999. Training, particularly with

regard to language skills also took place.

Restructuring of

Social dialogue

started in 1998 and continued in 1999, with the aim of

distinguishing between labour issues and issues of national economic and social policy

and to widen consultation on economic issues. In addition, whereas collective

agreements covered 1.2 million people in 1999, most of these agreements are concluded

at enterprise level, pointing to a weakness at the intermediary sectoral level. There are

also indications that collective agreements are increasingly not being signed and unions

not recognised at enterprise level. The government, in accordance with the accession

partnership, launched a project aimed at preparing the social partners for participation in

social dialogue at European level. At the same time however, this also requires the active

promotion of sound developments in social dialogue within the country. Lack of

effective consultations at national level could have negative effects on social dialogue,

not only at European level, but also at the decentralised level (sectors, regions and

enterprises). No concrete steps have been undertaken to strengthen autonomous social

dialogue at these levels. There are however some concerns about the results of the

dialogue and the Government should make additional efforts to ensure that real dialogue

is taking place and is followed up in the appropriate manner. In particular, the Economic

Council is merely used by government to transmit information to a wide range of

representatives of society, including the social partners, with no opportunity for dialogue.

Since 1997 employment growth has been around 1-2% a year and in 1999 the

employment rate was 55.7%. The employment rate for women (49%) is still

considerably lower than that for men (62.2%). The relatively low employment rate for

young people under 25 and older workers remains. The government has set the objective

of increasing the level of employment, decreasing the level of unemployment and

establishing a more flexible labour market. Active measures have been implemented in

order to combat the large informal sector. Passive labour market measures are being

substituted by a more active and preventive approach in line with the European

Employment guidelines. In accordance with the Accession Partnership the Joint

Employment Policy Review was launched last year and the Joint Assessment of

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Employment Policy Priorities has advanced. Further legislative progress was made with a

view to preparations for administering support received through the

European Social

Fund (ESF)

and training and organisational efforts have been increased. With the

intention of giving employment policy a strong macroeconomic dimension, general

responsibility for employment matters has been given to the Ministry of Economic

Affairs. This Ministry has therefore become the lead Ministry for ESF activities.

Hungary seeks to maintain a balance between

social protection

and economic

possibilities. Reforms in hand include invalidity and disability benefits, family support,

social assistance, care services and the review of pension reforms already implemented.

Improvements in the field of care for the elderly and support for child care have been

made through modifications to the law on social administration and social assistance and

the law relating to child support. A National programme for the disabled was adopted in

December 1999 with an implementing action plan adopted at the beginning of 2000

focusing on working conditions and access to public buildings. In the framework of the

programme rehabilitative working groups were created within the labour centres; a pilot-

program was launched and adequate dwellings were established. Another element of the

programme is to ensure that companies employing over 20 persons reserve 5% of posts

for disabled people. The programme also aims at improving the accessibility of public

buildings to physically handicapped people. Implementation of the programme is co-

ordinated by the Council on Disability Matters. Its further role is to advise on the legal

framework, to co-ordinate activities related to the target group and to inform the

government on a regular basis regarding the living conditions of the disabled.

Overall assessment

Progress was made in terms of legal transposition in all areas. However, implementation

of legislation is frequently scheduled to take place later on and in some cases not until the

time of accession. This will make it difficult to monitor implementation and

enforcement. Health indicators are poor compared to the EU. Attention will need to be

paid to the enforcement and implementation of, in particular, health and safety and labour

law directives. Indeed, while work on transposition has advanced well in 2000,

considerable work remains to be done with respect to the implementation of the

acquis

on health and safety. Most directives are to be implemented gradually, but before

accession. For example, the directive on personal protective equipment was transposed

in December 1999 but will be implemented gradually before accession. The directives on

carcinogens were transposed in September 2000 and are also to be implemented between

this date and accession. The real extent of this gradual implementation needs to be

closely monitored for these and for most of the remaining directives in the health and

safety field.

Further work is required to align Hungarian legislation with the directive on equality of

treatment.

Social dialogue is not accorded the requisite importance and this situation needs to be

addressed. The new structures need to be used in a way that permits effective social

dialogue. There is a need to actively promote sound developments in social dialogue

within the country. The lack of effective consultations at national level is harmful to

social dialogue, not only at European level, but also at the decentralised level (sectors,

regions and enterprises). Hungary needs to take steps to strengthen autonomous social

dialogue at these levels.

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Hungary has made progress in transforming the labour market and is adapting its

employment system so as to be able to implement the European Employment Strategy.

Nevertheless, Hungary still faces major challenges, in particular the need to review the

tax and benefit systems in order to increase incentives for people to participate in the

labour market, the need to enhance the low employment rate, in particular for women and

older workers and the need to reduce the size of the informal sector. Preparations for

future participation in ESF should continue.

Hungary recognises the need for sustainable, universal social protection and subscribes to

principles agreed by the Member States. The stated overall aim is to improve the level

and efficiency of social protection. Health care reforms, long discussed, have yet to show

progress.

Legislation transposing the EC Directive based on Art. 13 of the Treaty relative to

discrimination on the grounds of race or ethnic origin will have to be introduced and

implemented.

Chapter 14: Energy

Following the adoption of the Hungarian Energy Policy Principles and the Business

Model of the Energy Sector in August 1999 further progress was made concerning

preparations for the

internal energy market.

The Government had submitted, in early 2000, a draft law on electricity which had to

provide, as from January 2001, for a limited test market opening, within Hungary, of

about 15% of the total annual consumption. Parliament has not yet adopted the law and

the opening of the market will therefore be delayed.

As regards the

security of supply,

oil stocks had already well exceeded the level of at

least 90 days average daily internal consumption, but some technical adaptations are

necessary for full alignment with the

acquis.

No significant progress was made in the gas sector.

Electricity prices were increased in January 2000 by 6% and gas prices in July 2000 by 12

These increases contributed to progressively eliminating price distortions, which is

crucial in the internal energy market.

As regards solid fuels, the closing down of mines continued in 2000 in line with the

medium term strategy for coal-mining of 1999. While the role of solid fuels was

declining, the lignite industry needs to be further rehabilitated in order to conform with

environmental protection requirements.

In order to enhance energy efficiency which is still relatively low, the Government

adopted a new

€

6.2 million energy efficiency programme in September 1999. The

programme is implemented by the Energy Centre which was merged with the Energy

Information Agency in September 2000. In the Energy Centre 20 staff are responsible for

energy efficiency, environmental issues, statistics and project management. This new

Centre - co-owned by the Ministries of Economy and Environment as well as the

Hungarian Energy Office - strengthens institutional capacity in this area. In parallel the

energy efficiency labelling

acquis

for household appliances was further aligned. Hungary

also participated in the Save II Programme from 1999.

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As regards

nuclear energy,

further nuclear safety upgrading continued to be carried out

at Paks nuclear power plant, in particular with the installation of a new automated

information system and a complete overhaul of the reactor protection system and the

replacement of the batteries. The utility is closely watching the results of the in-core

behaviour tests of Western made VVER fuel, performed at the Finnish VVER 440 plant

IVO Loviisa. If the tests are successful this might offer, not earlier than 2002, a

possibility for VVER fuel supply diversification, which would fit into the EC's

diversification policy.

Low and interim level radioactive waste is deposited at the Radioactive Waste Treatment

and Disposal Facility at Puspokszilagy which has currently only limited capacity. A

strategic and technical plan is being elaborated to undertake the necessary upgrading

activities. In parallel, alternative sites are being examined for a low and interim level

waste repository. The Ministry of Health co-ordinates radiation protection activities

within the framework of the National Radiation Protection System. There is also a joint

database on radiation protection. The Ministry is also in charge of issuing licenses for the

operation of radioactive waste storage facilities and regularly checking their activities.

Spent fuel is stored at an Interim Storage Facility on site for which, as a first step,

capacity was increased by a further four modules by the end of 1999. Hungary is also

preparing for the final disposal of high-level, long-lasting radioactive waste in a deep

geological disposal facility, but further examinations will be necessary, in order to decide

on the suitability.

Overall assessment

Hungary had already adopted the main principles of the internal energy market and set

the framework for further alignment with the

acquis

with the long term energy strategy of

July 1999. It is however necessary to fully implement these principles as well as to take

account of

acquis

developments. Remaining issues concern the further liberalisation as a

preparation to the internal energy market (electricity and notably the gas directives).

Energy efficiency, still relatively low, and promotion of renewable energy sources need

continued attention. The law on the Security Stockpiling of Imported Crude Oil and

Petroleum Products will have to be further aligned with the

acquis,

although the 90 days

of stocks are already available.

On the institutional side the Ministry of Economic Affairs is responsible for energy

policy. The Ministry sets prices for electricity and natural gas with annual tariff schemes

adjusted in January and July respectively. The main regulatory agency is the Hungarian

Energy Office, (staff 83). It is responsible for, among other things, licensing,

price

matters and consumer protection. The independence of the 'Hungarian Energy Office

needs to be strengthened in view of its future tasks as a regulator as required in the

internal energy market.

As regards nuclear energy, Hungary has four VVER 440/213 nuclear reactors in

operation at Paks, which are considered to be up-gradable to international safety levels.

Nuclear power currently provides about 38% of the country’s electricity production. The

EU has repeatedly emphasised, most recently at the European Council in Helsinki, the

importance of a high level of nuclear safety in candidate countries in the context of the

Union’s enlargement. In this context, Hungary has been pursuing, since 1996, an

extensive upgrading programme and periodic safety reviews are conducted similar to

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Western practices to determine the upgrading measures to implement. The systematic

safety re-assessment is performed in ten-year intervals and includes the assessment of the

actual physical condition of the plant, equipment qualification, safety analysis, ageing and

residual lifetime assessment, safety performance and reliability indicators, use of

experiences from other nuclear power plant and research findings, human factors, plant

procedures, organisation and administration. Additional work is still needed to ensure

containment integrity following a severe accident. The safety of Paks Nuclear Power

Plant was also reviewed several times by international organisations.

Hungary is a party to all major international legal instruments and member of the

International Atomic Energy Agency (since 1957) and the OECD Nuclear Energy Agency

(1996

Longer term solutions for spent fuel and nuclear waste need to be developed.

The National Atomic Energy Committee is the government's main body in ensuring the

peaceful use of nuclear energy. Although it operates under the supervision of the

government, the Committee is an independent authority with a separate budget. The

Committee has a unified and efficient system for averting nuclear accidents. It supervises

the work of the Hungarian Atomic Energy Authority which became already in 1997 an

independent regulator. The Authority (staff 82) is responsible for licensing tasks and all

nuclear safety matters, civil structures in nuclear facilities, technical radiation protection

and emergency response plans of nuclear facilities. It thus has a profile comparable to

that of western European regulatory bodies. However, its assessment capabilities with

regard to regulatory issues need to be increased as well as its competence in the fields of

radiation safety and fire protection. Its operations are financed from the central budget

and from fees to be paid by the licensees for the regulatory and administrative activities.

There is however a need to ensure sufficiently attractive salaries in order to retain skilled

staff in the Atomic Energy Authority. Since the entering into force of the Law on

Emergencies in 2000, the Authority has gained a more prominent role in emergencies.

Within the Hungarian Atomic Energy Authority, the Nuclear Safety Directorate acts as

the authority of first instance in all nuclear safety regulatory issues of nuclear facilities. It

issues facility, system and equipment safety licenses and carries out independently an

extensive inspection programme.

The Central Nuclear Financial Fund set up in January 1998 and financed by parties using

nuclear energy meets, among others, the costs of decommissioning and of waste disposal.

Final disposal of the radioactive waste and temporary storage of the spent fuel, together

with the activities related to the tasks of decommissioning the nuclear facilities are

carried out by the Public Company for Radioactive Waste Management.

Hungary continued to prepare the implementation of Euratom safeguards. In this respect

the entering into force in April 2000 of the Additional Protocol to its IAEA Safeguards

Agreement is to be noted.

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Chapter 15: Industrial policy

Over the reference period Hungary further developed its industrial and enterprise policy.

The

industrial strategy

of Hungary continued to be based on the improvement of the

competitive economic environment and the maintenance of balanced growth. In line with

the Széchenyi Plan for National Development more emphasis was put on investment

(motorway construction programme), innovation, the development of small and medium-

sized enterprises, tourism development, environment protection, regional economic

development and IT development, as well as further development of the sub-contracting

programme that aims to remove the current dual structure of the Hungarian economy and

strengthen the supply linkages between domestic SMEs and multinational companies.

Privatisation

was practically completed (see

chapter 2 economic criteria).

The process of

industrial restructuring

continued. Several industrial sectors

(manufacturing of wood, paper and printing, manufacturing of furniture) increased

employment by 8% in 1999. Employment increased by 3-8% in engineering, chemical

industry, while it decreased by 3-8% in the textile industry, mining and quarrying, and

electricity production. Overall employment rose by 0.8% in industry and by 1.7% in

manufacturing.

The inflow of

foreign direct investment

(FDI) continued to be strong and was a major

influence contributing to further transfer of technology and management know-how, the

modernisation of production facilities and the intensification of other forms of cross-

border co-operation (see chapter 2 on

economic criteria).

Also the intensity of intra-

industry trade with the EC continued to increase.

No further substantial progress was made during the year in

restructuring the steel

industry

and Hungary did consequently not address the relevant short-term Accession

Partnership priority. A restructuring plan was submitted to the Commission in February

2000 in justification of a request for an extension of the ‘grace period’ for another 5 years

starting in 1997. However, the Commission could not accept this plan. (see also Chapter

6 –

Competition).

Overall assessment

Significant convergence could be noted between Hungarian industrial policy and the

principles and objectives of EC industrial policy. In the light of the elaboration of the

Széchenyi plan, in parallel to the Preliminary National Development Plan, a strong and

well-functioning co-ordination between the Ministries in charge of each plan will be

essential to foster a coherent approach, an efficient use of resources and avoid overlaps

between the strategies. In line with its obligations under the Europe Agreement Hungary

will need to proceed with the restructuring of the steel industry.

The central body responsible for the formulation and co-ordination of the country's

industrial policy is the Ministry of Economic Affairs (MEA). To implement the goals of

industrial policy, the government has a special financial institution, the Hungarian

Developments in industrial policy should be seen in relation to developments in the context of SME policy (see

Chapter 16 –

Small and medium sized enterprises).

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Development Bank. It is supported by the Hungarian investment and trade promotion

agency.

Chapter 16: Small and medium-sized enterprises

Policy was further developed in the reporting period with the preparation of the

Széchenyi Plan, a National Development Plan by the Ministry of Economic Affairs. The

Plan targets SME development as one of its strategic development objectives.

The specific SME programme outlined in the plan aims at developing the business

culture and skills and improved access to finance. The Plan further proposes certain

measures to improve and simplify administrative procedures. Of particular relevance to

SME development are also the separate programmes in the area of sub-contracting and

tourism development in the plan.

In November 1999 further progress was made concerning the

definition of micro, small

and medium sized enterprises

with the adoption of the Law on small and medium-sized

enterprises. The definition largely conforms with the EC definition regarding the number

of employees and the independence criteria but financial thresholds are calculated

differently. The SME Law further establishes the framework defining the eligible areas

of state support to SME programmes through a specific budget line. It further established

the responsibility for the co-ordination of SME policy and programmes (Ministry of

Economic Affairs) and the specific co-ordination tasks and procedures.

The Law also created the Enterprise Development Council, a body with representatives

from the ministries concerned, chambers as well as national organisations in charge of

promoting the interests of small enterprises. The Council participates in the elaboration

of policy and programmes for SME development, evaluates the efficiency of

implemented programmes, and gives its opinion on draft legislation affecting small

enterprises.

The Széchenyi Plan recognises that major deficiencies persist in

the business

environment

(legal and administrative) and proposes certain measures aimed at reducing

in particular administrative burdens. One of the main problems in the business

environment of SMEs is the tax structure of the corporate sector, which favours large

multinationals. While the average tax burden of the multinationals is about 8% (including

tax holidays) the average SME tax burden is around 17%. On the other hand the

reduction of the social security contribution from 42% to 39% had an especially positive

effect on SMEs.

Overall assessment

The SME policy of Hungary is overall in line with the principles and objectives of the EC

Enterprise policy. Market access of SMEs could still be improved and in this context the

efficiency of support through the various SME support schemes remains to be assessed.

A well-functioning co-ordination between measures under the Széchenyi Plan, previously

existing schemes and local economic development schemes launched in the framework of

Developments in policy towards small and medium sized enterprises should be seen in relation to developments in the context of

industrial policy (see

Chapter 15 – Industrial policy).

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preparing for structural funds (in line with the parallel Preliminary National Development

Plan) will be essential to the efficient use of resources in the SME development field.

Legal and administrative burdens to entrepreneurial activity and access to finance require

continued attention and efforts in the context of improving the competitiveness and

growth of Hungarian SMEs. The aims outlined in this area in the Széchenyi Plan are

therefore positive, provided that they are followed up with concrete implementing

measures. Positive note is also taken of the creation of the Enterprise Development

Council and the further involvement of the business community in the policy dialogue it

lays the ground for.

Economic growth is still hindered by the shortage of capital and micro credits available to

SMEs and the high capital intensity of research and development, especially within

manufacturing, is an effective barrier to the market access of SMEs. The SME Target

Fund tries to address this issue together with other funds in support of SMEs such as the

Economic Development Target Fund, the Tourist Target Fund and the Active

Employment Target Fund.

Chapter 17: Science and research

Hungary has made further progress in this area since the last Regular Report.

As from January 2000 the responsibility for the coordination of the

Framework

Programme

in the field of research and technological development (RTD), including the

operation of the system of National Contact Points, was transferred to the Ministry of

Education, following the integration of the former National Committee for Technological

Development into this ministry.

Financial support to the sector reached 0.68% of GDP in 1999 and will be increased

gradually to 1.5% of GDP in the medium-term.

Overall assessment

Since August 1999 Hungary has been associated with the 5

Framework Programme in

the field of research, technological Development and Demonstration (1999-2002) and

with the EURATOM Framework Programme. So far, Hungary’s involvement in these

programmes has been relatively successful.

Hungary is also a member of EUREKA and COST. The programmes provided further

opportunities for Hungarian scientists to play an active role in European research and

technological development. The institutional structure of science and research is well

established and operates with qualified staff.

Chapter 18: Education and training

During the reference period Hungary continued to progress in this area.

Hungary continued to participate in the

Community Programmes

(see

part A –

Introduction).

In addition, an Association Council decision was adopted to allow

participation in the second phase of the Socrates and Leonardo da Vinci programmes

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(2000-2006). Preparations have also been made for participation, as of 2000, in the new

Youth programme, which includes European Voluntary Service activities.

During 1999, there has been progress in the field of upgrading

education.

The

management of education was unified and the conditions for the co-operation between

the educational sector and the labour market improved. Furthermore, the budget for

education was increased by nearly 30 % in 1999. Progress was also made with the

adoption of a new law on adult education, providing the framework for life-long learning

based on EU experience. Under the law, continuous training and education and the use of

modern teaching methods will be enhanced.

Vocational training

was gradually aligned with EU practices and objectives. During

1999, it was put under the supervision of the Ministry of Education. A network of Public

Education Evaluation and Examination Centres was established which took part in

implementing a single quality assurance system, contributing to quality vocational

education, training and equal opportunities.

The National Institute for Vocational Education has stared a rolling programme to update

and modernise the National Vocational Qualification Register in line with the changing

needs of the economy. In addition in January 2000, 460 National Vocational

Qualifications transferred from the Ministry of Economic Affairs to the Ministry of

Education with the effect that the Ministry of Education is now responsible for 50% of all

National Vocational Qualifications.

Overall assessment

In general, Hungary is in line with the respective

acquis,

notably the

directive on

education of children of migrant workers.

A wide net of education facilities exists to

facilitate education. Training of teachers in schools with a high number of immigrant

pupils continues to be provided. In principle, there is no discrimination against EU

citizens in the field of education.

Participation in relevant Community programmes is successful and the implementing

institutions function smoothly.

Chapter 19: Telecommunications and information technologies

Hungary continued to progress in this area.

In this sector, as a further step in tariff re-balancing, call rates were reduced in February

2000 between 12% and 38% whereas rental charges were increased by 50%.

Adequate standards were adopted in the framework of Common Technical Regulations.

In the area of conformity assessment further alignment with the

acquis

was achieved in

August 2000 with the adoption of legislation on type approval of terminal equipment and

mutual recognition of the conformity. Radio equipment and telecommunications terminal

equipment have now to respect the technical specification of the

acquis

and the

provisions on the mutual recognition of their conformity.

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In the field of mobile telephony, further competition was introduced by licensing a third

network in September 1999.

As to institutional aspects of policy making and

regulation,

the responsibility for the

communication sector was transferred in June 2000 from the former Ministry of

Transport, Communications and Water Management to a Government Commissioner

within the Prime Minister’s Office.

The Commissioner is in charge of

telecommunications regulation, governmental informatics, the information society and

postal services and the Hungarian Communications Authority (HIF) reports to him.

No significant progress can be reported as regards the liberalisation of

postal market.

Hungarian Post is 100% state owned. Tariffs are set by the Government. In autumn 1999

postal services were further modernised with the establishment of telepost offices at local

level offering the possibility to use IT services in addition to the usual postal services.

The Government Commissioner in the Prime Minister’s Office is also responsible for the

regulation of post. He is assisted in his duties by the Postal Services Directorate (staff: 10

people). Its duties include monitoring/supervision of the postal sector, preparation for the

liberalisation of the market and postal regulation activities.

Overall assessment

In the

Telecommunications market

there is already a high level of alignment and the

markets are in principle open to competition except for exclusive rights for fixed network

long distance and international voice telephony and for certain local calls. The fixed

network operation MATAV is fully privatised (except for a golden share of the state).

Outstanding issues relate in particular to the alignment with the terms and conditions of

universal service.

The responsibilities of the

Postal

Service Directorate have to be further brought into line

with the

acquis,

notably by introducing the system of “universal service provider”

together with the definition of postal services including postal packages. The postal

service has still to improve its processing capacity and delivery system and supervision

and control of accounting needs to be further strengthened.

Chapter 20: Culture and audio-visual policy

Since the last Regular Report, limited progress in alignment with the

audio-visual

acquis

was achieved. In November 1999 a Government Decree was adopted for granting certain

telecommunications licences. This allows for the implementation of the Convention of

the Council of Europe on Transfrontier Television with regard to certain satellite

broadcasting services.

In October, Hungary ratified the Protocol to the Council of Europe Convention on

Transfrontier Television, to which it is already a party.

Overall Assessment

On the whole, Hungary has made limited progress in alignment with the Community

acquis.

Therefore additional efforts are still needed to align in this area. The adoption by

Parliament of the Media Law, which has been pending for over one year now, should be

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an important step in this direction, although further steps will probably be necessary.

Hungary has thus not met the 1999 Accession Partnership short-term priority, requiring

the completion of alignment to the audio-visual

acquis.

The National Radio and Television Board is the regulatory and monitoring body and is

entrusted with the necessary powers for the implementation of the broadcasting

legislation. The Board is independent from the executive, and its members are elected by

Parliament for four years on the joint proposal of the Prime Minister and the President of

the Republic. The operations of the Board are funded by the Central Budget. It is

adequately staffed and equipped.

Hungary has demonstrated effective administrative capacity for implementing the

acquis

in the area of

culture,

in particular through its participation in the Community

programmes.

Chapter 21: Regional policy and co-ordination of structural instruments

Since the 1999 regular report, some progress has been made in this area.

While no development can be reported concerning the

territorial organisation,

Hungary

has adapted its

legal framework

for the implementation of future Structural Funds. In

October 1999, the Law on Regional Development and Physical Planning was amended to

confirm the establishment of the seven Regional Development Councils at NUTS 2 level

and to define their role in programming and implementing regional development

programmes. The Regional Development Agencies, the implementing bodies of the

Councils, were further strengthened by additional staff and training.

Hungary has started various initiatives on

programming.

At the national level the so-

called Széchenyi Plan for economic development was prepared by the Minister of

Economy. The

Preliminary National Development Plan

(PNDP) was approved by the

Government in April 2000. The Plan was a first attempt towards the development of a

comprehensive and detailed National Development Plan in line with Structural Funds

principles. In a further step, linkages between assessments and proposals will need to be

strengthened. This exercise will also need to be better co-ordinated with the Széchenyi

Plan. The PNDP identified three target regions (similar to NUTS II level) which received

a contribution from the Phare programme as well as national and local funding to develop

the capacity to implement integrated regional development programmes and to prepare

Hungary’s participation in the Structural Funds. The three target regions are Northern

Hungary; the Northern Great Plain; and Southern Great Plain. In addition, other

programming documents were prepared by the Government for the ISPA infrastructure

developments in transport and environment and the SAPARD Plan on rural development

(see section A.b on Relations between the European Union and Hungary).

The Minister of Economic Affairs was entrusted with the task of overall

co-ordination

of regional policy. A new Regional Development department within the Ministry was set

up at the beginning of 2000, to take charge of ensuring the link between internal

economic cohesion and regional development policy. The sectoral responsibilities for the

Structural/Cohesion Fund(s) are distributed between the various Ministries concerned.

The Ministry of Agriculture and Regional Development plays in this context an important

role as it prepares for the implementation of the ERDF.

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Inter-ministerial co-ordination

was reinforced with the establishment of an Inter-

ministerial Committee for Development Policy Coordination. The committee supervises

and co-ordinates the work in the context of elaboration of the Preliminary National

Development Plan.

At local government level, the modernisation of public administration continued with

training for civil servants in EU matters. Government also allocated around

€

2 million

for integrating small municipalities into so-called micro-regions. This should increase

efficiency, and contribute to a clear identification of needs and measures in the context of

the regional development planning process. The local and regional level, as well as the

economic and social partners, is involved in planning and implementation of programmes

through the National Regional Development Council and the seven Regional

Development Councils.

Concerning

funding aspects

of regional development, the State Budget Law of 2000

introduced two new financial instruments for regional (€ 44 million) and rural

development (€ 14 million). Financial support for the most disadvantaged areas (Borsod,

Nópàd, Szabolcs, Békés Somogy) comes from the Hungarian Central Budget. In 2000,

20 % of the sectoral targeted budget was allocated for this purpose. Government also

decided that those regions which had not been selected as target regions within the

Preliminary National Development Plan would receive adequate support from the Central

Budget as of 2001. This will be spent in line with the PNDP approach

(see also chapters

28: Financial Control and 29: Financial and Budgetary Provisions).

Overall Assessment

Overall, Hungary has made significant progress in developing the necessary structures for

the implementation of structural funds after accession. However, some issues remain to

be tackled. The implementing capacity of the Ministry of Agriculture and Regional

Development needs to be further developed, and procedures for inter-ministerial

coordination must be further reinforced. Also, the role of the regions, which correspond

to the NUTS level II, needs to be clarified. On the whole, the amended Law on Regional

Development and Physical Planning of Hungary has both positive and negative elements

in the context of the future implementation of Structural Funds. The changes have

increased the importance of the regions, which correspond to the NUTS level II, and

further clarified the role of the different institutions. However, the decision making

framework on the regional level raises important concerns in respect of its ability for

efficient decision making and respect for programming principles.

The Preliminary National Development Plan has to be further developed and brought in

line with the requirements of structural policy and initiatives taken by Hungary on

national/sectoral level. In this context, a strategic medium and long term view is required

on the future role of sectoral policies and regional operational programmes.

Working capacity both at national and regional level enabling the implementation of

Structural Funds and the Cohesion Fund needs further significant strengthening in the

framework of the strategic view mentioned above.

Also the financial control structures at regional level would have to be strengthened.

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As to regional statistics, data for the determination of eligibility are available for

Objective 1 and INTERREG criteria. More importantly, the provision of data necessary

to meet the ex-ante evaluation requirements has yet to be assured. For instance, at NUTS

2 level, very limited data exists concerning social indicators and structural business

statistics.

Chapter 22: Environment

Compared with the ambitious National Environment Protection Programme for 1998-

2002 and the 1999 NPAA, little progress in terms of legal alignment was made over the

last year.

In the framework of the revised NPAA, Hungary has however reassessed the remaining

tasks and has for all sectors and for almost all directives established a harmonisation

process accompanied in most of the cases with plans for financing investments indicating

the various funding sources on a yearly basis as foreseen by the relevant short-term

Accession Partnership priority, taking into consideration the costs of administrative

capacity building.

Due to its geographical location, Hungary is heavily dependent on efficient regional co-

operation on environmental matters. Despite a number of initiatives, concrete steps of co-

operation with neighbouring countries could not be formalised yet. Following a series of

industrial accidents in Romania, the Environmental Ministers of Hungary, Ukraine,

Romania and Slovakia signed in April 2000 a joint declaration on the need to co-operate

in averting ecological disasters in the region based on the “polluter pays” principle as

well as the identification of environmental “hot spots” (regional inventory). At the same

period the Environment Ministers of the four Visegrad countries signed a declaration on

continuous exchange of information about the economic effect of the approximation of

EC law in the area of environment as well as the most cost effective implementation of

the related regulations.

In the area of

horizontal legislation,

the Espoo Convention entered into force in October

1999. Trans-boundary environmental impact assessment procedures have now to be

applied in respect of the activities falling under the scope of the Convention. Legislation

has been further aligned with the Environmental Impact Directive concerning the scope

of activities, but further efforts will be necessary to fully transpose and properly enforce

the Directive as stipulated by the relevant short-term Accession Partnership priority.

Little progress was made in the field of

air quality

with the adoption of the legislation

aligning with community measures on quality of petrol and diesel fuels, whilst the

marketing of leaded petrol has been prohibited since April 1999.

An air quality database was established at the Institute for Environmental Management to

ensure the uniform data supply in the context of the different reporting requirements, but

is still lacking skilled staff (training is ongoing) and adequate equipment.

The adoption of an Act on

waste management

in June 2000 was an important step in

aligning with the relevant

acquis.

This is a framework law, which will allow the adoption

of secondary legislation on specific types of waste that are currently all missing. The law,

which represents one of the short-term Accession Partnership priorities for environment,

will enter into force only in January 2001. A computerised register of authorisations

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concerning waste management was set up under the municipal solid waste programme

and four modern regional landfills serving 51 municipalities were established. Out of the

2,700 waste storage facilities, only some 30% comply with domestic standards and the

number of illegal facilities is high constituting potential source of environmental damage.

In relation to the

water sector,

in spring 2000 the provisions of the Directive on the

protection of groundwater against pollution caused by dangerous substances have been

further aligned. Some progress was also achieved concerning the harmonisation of the

urban wastewater treatment Directive, whereas important implementation steps have

been taken in relation to the same Directive with the construction and upgrading of

wastewater collection and treatment plants at several major municipalities. In March

2000 three new automatic water quality-monitoring stations were installed along rivers,

in the framework of the implementation of the Directive on the quality of surface water

used for the abstraction of drinking water.

As to

nature protection

further progress was achieved in September 1999 concerning

the transposition of the Habitats and Birds Directive and a list of Specially Protected

Areas as required under the wild birds Directive is currently being compiled. Legislation

concerning the use of animals in laboratories for experimental purposes was aligned with

the

acquis

and the use of leghold traps was definitively banned as from April 2000,

although implementing measures should be taken in order to fully comply with the

relevant Community Regulation.

In the field of

chemicals, risk management and biotechnology,

a Law on chemical

safety was adopted in April 2000, providing the framework for harmonisation with the

main Community legislation on chemicals. The implementing legislation, which will

ensure compliance with the corresponding environmental

acquis

needs still to be drafted.

The Law on the Control and Organisation of Catastrophe Prevention and on the

Prevention on Major Accidents Involving Dangerous Substances was adopted in June

1999 and partially transposes the Seveso Directive, but implementing legislation for its

full transposition should be further established. In January 2000, the National General

Directorate for the Prevention of Disasters started operation under the Ministry of the

Interior and is responsible for authorisation of establishments in which dangerous

substances are produced, used, handled or stored. The new body integrates also the

National Command for Civic Defense and the National Command of the Fire Brigade.

Implementing measures have been taken in relation to Genetically Modified Organisms

with the adoption of a Law and the establishment of a Committee for Advising on Gene

Technology Procedures.

In the sector of

noise

some implementation measures started, namely the designation of

certifying bodies for the quality assurance as regards noise emissions, as well as the

establishment of an additional noise laboratory at the Institute for Environmental

Management.

As to

nuclear safety and radiation protection,

some progress was made with measures

taken in relation to the Directive on informing the public in case of a radiological

emergency and the adoption of a decree that harmonises the Directive on Basic Safety

Standards

(see also chapter14: Energy).

On the institutional side, the Ministry of Environmental Protection assumes the overall

responsibility in the field of environment. It is primarily in charge of policy-making and

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legislation. Its functions are carried out in collaboration with six other line ministries

which have partial responsibilities in the following areas: flood protection and water

quality, household waste management of municipalities, air and water quality, radiation

protection, soil, forestry and bio-diversity issues. Main responsibilities in the field of

nuclear safety belong to the National Atomic Energy Agency under the Ministry of

Economic Affairs. In addition, the Prime Minister’s Office assumes a certain role in co-

ordinating overall government interests. The work of the Environmental Minister is

supported inter alia by an independent advisory body called the National Environmental

Council.

Implementation and enforcement of environmental legislation is primarily carried out by

the 12 Regional Environmental Protection Inspectorates and the Nature Conservation

Authority and its 9 National Park Directorates under the supervision of the Ministry.

Currently, some 1,337 persons are employed at the inspectorates which number will be

complemented by an additional 59 in 2000. The number of staff employed at the

Authority and Directorates was be complemented by additional 39 in 2000.

The environmental inspectorates are responsible for: (i) imposing fines, granting licences,

(ii) on-the-spot checks and monitoring of implementation/enforcement; (iii) maintaining

laboratories and (iv) reporting. The result of their monitoring activity are fed into regional

registers which provide the basis for the National Environmental Protection Information

System. The Inspectorates also compile summary reports on the potential sources of

pollution, the major polluters and the number/quality of licenses issued. So far, only the

computerised data register on waste water is compatible with EC standards. Otherwise,

there exists in other areas no unified data register and an adequate system of data supply

is not operational yet, which makes the exchange of information on the international level

difficult.

Overall assessment

So far, only limited progress was achieved in this area.

Hungary did not address the short-term Accession Partnership priorities related to the

alignment with the Integrated Pollution Prevention Control Directive, the safety standards

for radiation protection and the enforcement of the Environmental Impact Assessment

Directive. However, a wide range of environmental laws are scheduled for the end of

2000.

Further efforts in aligning with the

acquis

are needed in particular in the following areas:

horizontal legislation in order to ensure access to environmental information,

implementing legislation for waste management, water quality standards for drinking and

bathing water as well as for the aquatic environment and for the treatment of waste water,

industrial pollution and prevention control, noise limitations for construction equipment

and household appliances. As regards noise, only the sources of noise are

registered/measured and methods/technology on measuring noise impact still need to be

introduced.

The administrative capacity also needs to be further strengthened. The position of the

Ministry of Environmental Protection continued to remain weak due to the wide

distribution of responsibilities related to environmental issues. The legal department of

the Ministry is particularly weak. Given the fact that Hungary should accelerate the pace

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of transposition the legal unit of the Ministry should be adequately strengthened by

additional qualified staff. At central level, coordination between ministries dealing with

environmental issues needs to be improved. The structure and responsibilities of

Regional Inspectorates should be reviewed and its staff trained in order to be able to

enforce the obligations imposed by the

acquis.

Hungary should also further develop its monitoring and data register system, notably in

the fields of air, soil and noise.

Hungary has been an active member of AC-IMPEL (Associated Countries for

Implementation of Environmental Legislation) since it was established in 1998. AC-

IMPEL is an informal network dealing with issues of implementation and enforcement of

Community environmental legislation in the candidate countries. This network closely

cooperates with EU-IMPEL. The next plenary meeting of AC-IMPEL will be held in

Hungary and will, inter alia, assess the countries’ implementation and enforcement

capacities in relation to the environmental

acquis,

making recommendations in relation to

an eventual restructuring of the administration in this field.

Chapter 23: Consumers and health protection

During the reference period no further progress was made in terms of legal alignment.

The Government’s programme for 2000 includes a separate chapter on consumer

protection policy to be implemented from 2000-2002. The programme also provides for

resources set aside in the budget for these matters, and foresees the establishment of an

efficient institutional structure, the modernisation of market surveillance, and a higher

degree of safety of goods and services for the protection of consumers.

The various structures created for implementing consumer protection policy are

functioning smoothly, and newly created bodies have started their operations, but their

staff need to be trained adequately. Overall, the institution in charge of consumer

protection is the Ministry of Economic Affairs assisted by other Ministries for the areas

of their competence (justice, health, agriculture and rural development, environment,

transport). The Office of Economic Co-operation is in charge of procedures against unfair

manipulation of consumer choice. The General Inspectorate for Consumer Protection is

responsible for enforcement of the consumer and health protection; its activity is financed

from the central budget. The Inspectorate also started to set up a transitional RAPEX

(Rapid Exchange Mechanism) system for co-operation with Central and Eastern

European countries.

In the area of

market surveillance,

a Central Information System was set up in 1999

providing information on inadequate and dangerous products.

In autumn 1999, Arbitration Boards were established in all counties, with the aim of

reaching a quick and efficient out-of-court settlement of any individual disputes arising

between consumers and supplies or service providers concerning the quality and safety of

goods and services, the application of product liability rules, and the conclusion or

fulfilment of consumer contracts. In 1999 the Boards handled 336 cases related to

package travel and holiday tours and to repair and maintenance services, of which 235

cases were concluded and 101 remained under consideration. The government supported

the establishment of the Boards with HUF 20 million.

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Overall Assessment

With the entry into force of the law on consumer protection in March 1998, Hungary has

a general consumer protection system which includes provisions on several important

pieces of the

acquis,

such as product

safety

and consumer credit.

Further efforts for alignment are needed in the following areas: misleading advertising,

product liability, consumer credit (with particular emphasis on repossession of goods),

indication of prices of foodstuff, and non-authorised medical products, which are not yet

fully in line with the product liability directive. Minor differences within distance selling

also still need to be addressed. Further alignment is also needed in the areas of

injunctions for the protection of consumer’s interests, liability for defective products,

distance contracts, package travel, holidays and tours, certain aspects of the sale of

consumer goods and associated guarantees, and general product safety.

Consumer and Producer awareness still needs to be enhanced as to respective rights and

responsibilities. Consumer Health Institutions need to be upgraded in terms of training

and equipment, and legal professions need to familiarise further with product liability

related cases. The role of consumer organisations should be further promoted by the

Government.

Chapter 24: Co-operation in the field of justice and home affairs

Since the 1999 Regular Report, progress was registered in Hungary in the fields of visas,

border management, migration and asylum. However, little progress is to be reported in

the field of judicial co-operation.

In view of guaranteeing effective personal

data protection

Hungary adopted in 1999

detailed rules for the implementation of the general law on personal data protection.

These rules concern the criminal procedure and the co-operation and information

exchange with the Law Enforcement Network of the European Union and INTERPOL.

In the area of

visas,

the Hungarian legislation was further aligned with the

acquis

introducing a free travel regime for citizens of New Zealand and Venezuela. A new

agreement with Brazil was signed. In August 1999, the obligation to have airport transit

visas was introduced for citizens of a number of countries.

In June 2000, an Interim Compulsory Visa Agreement between Hungary and Russia

entered into force for all kinds of income-generating activities, for the purpose of

pursuing studies and for a stay exceeding 30 days. For all other activities, Russian

citizens can enter Hungary without visa, provided that they have an invitation letter or

sufficient financial coverage. Hungary also concluded Compulsory Visa Agreements with

Azerbaijan, Tadjikistan, Armenia and Turkmenistan.

A new visa issuing system was created by the Ministry of Foreign Affairs with an on-line

information system supporting consular work. Simultaneously, training of professional

staff using the new system has started, and equipment for the recognition of counterfeit or

falsified documents was purchased.

In the area of

border management,

a border register system was introduced in

September 1999 at all of Hungary’s 56 border crossing points in order to improve the

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fight against organised crime and illegal immigration. Each person entering or leaving

the country is registered regardless of his/her nationality. In January 2000, a new type of

identification cards was introduced in order to impede forging.

On the institutional side the computerisation and the up-grading of the border guard

infrastructure continued. In 1999, the installation of document readers started facilitating

the operation of the border register system. At ‘green borders’ the equipment was further

upgraded in line with Schengen standards. Heat-seeking cameras were put into operation

along the entire stretch of the 174 km long border with Yugoslavia; 70 units of night

vision equipment, passport scanners and portable computers were installed and the car

park was modernised with the purchase of some 474 four-wheel vehicles. As a result of

strengthened border control some 814 suspects were arrested in 1999 representing an

impressive increase of 500% compared to 1998.

The Border Guards subordinated to the Ministry of Interior are responsible for border

control. Their investigation powers are quite large and include the fight against organised

crime, but they have no power to intervene in criminal matters and co-operation with the

police does not always function satisfactorily. They are also responsible for handling

alien’s affairs at first instance. Under the Constitution, the Border Guards are defined as a

military force during war. The Border Guard employs 10,364 officials. A parliamentary

decision to increase staff to 13,205 was not implemented due to re-allocation of financial

resources in favour of environmental damages. During 2000, some 2000 police and

border guard officials were trained including language training, but the training

programme appeared to be too academic and provided rather limited practical knowledge.

As far as

migration

is concerned, in the first half of 2000, approximately 76,000

foreigners were living legally in Hungary, out of which 60,000 had a permanent residence

permit issued by special police. In 1999, 6,734 clandestine immigrants were detected

(15% decrease compared to 1998). In 1999, 18,898 foreigners were deported from

Hungary (16% decrease compared to 1998). Arrested illegal migrants have to stay at

Community shelter houses, where living conditions are often quite difficult. (see

also

section B-1.2- Human rights and the protection of minorities).

Since January 2000,

migrants may stay and obtain a labour permission under certain conditions.

In September 1999, amendments were introduced to the Alien’s Law. These amendments

refer to the compulsory detention for alien policing purposes of those foreigners, who are

connected to organised crime, the restriction of the possibility to leave the Community

shelters, the termination of the compulsory residence at Community shelters after 18

months and the measures following termination, the fine of air transport companies for

carrying illegal immigrants and the obligation for foreigners to report any changes

regarding the purpose of residence. However, further harmonisation is needed to ensure

that foreigners leave the territory and apply from abroad for a new visa if they want to

change their purpose of residence.

Hungary promulgated in 1999 and 2000 readmission agreements with Germany, Italy,

Slovenia and Moldova. The readmission agreement with Bulgaria came into force in June

2000.

Hungary continued to be a target country for

asylum

seekers. In 1999, a total of 11,412

persons applied for asylum that represented a 55% increase over 1998. As in previous years,

most of them arrived from FRY. In the given period 313 persons were granted refugee

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status by the Office of Refugee and Migration Affairs and 1,776 persons received the status

of “authorised to stay” under the Asylum Law. Approximately half of the asylum-seekers

disappeared during the procedure.

In January 2000, the new Office for Immigration and Citizen’s Affairs (total staff 180-200

persons) came in charge of first instance refugee affairs, management of refugee

facilities, citizen’s affairs and second instance alien’s affairs. The Office has an

autonomous budget amounting to

€5

million in 2000. The setting up of this Office

improved coordination between the authorities concerned. The Office for Refugees and

Migration Affairs, as part of the Office for Immigration and Citizen’s Affairs, continued to

suffer from severe understaffing and budgetary problems. This led to lengthy and

sometimes inadequate legal procedures as well as to a huge backlog in the treatment of

asylum applications in 1999 which started to decline in 2000 (from 4,000 in July 1999 to

2,000 in May 2000) following the recruitment of additional support staff. At Budapest

Metropolitan Court, responsible for the review of asylum cases, the backlog of cases

pending remained huge despite the increase of number of judges. Hungary made efforts

to improve the standards of reception facilities for asylum seekers at Budapest airport,

Kiskunhalas and Szombathely.

Preparation for joining the Dublin Convention by accession have already started and a

relevant IT system has been developed.

Hungary continued to develop

police co-operation

with its neighbouring countries as

well as with EU Member states, leading to an increased exchange of liaison officers and

police attachés. Several Member states (Germany, Austria, Belgium, France, Italy,

Ireland, Netherlands, UK and Sweden) signed agreements with Hungary about mutual co-

operation providing in particular for new equipment and specialised training for fight

against organised crime.

In order to facilitate and co-ordinate international co-operation with Europol, an

International Law Enforcement Co-operation Centre was set up at the National Police

Headquarters in February 2000. Internal liaison officers are delegated to this Centre by

the Customs and Finance Guard, the Border Guard, the Tax and Finance Control Bureau

as well as by the Organised Crime Directorate of the National Police Headquarters. The

Centre aims at improving

fight against organised crime

through the exchange of data

and information with the law enforcement network of the EU and the strengthening of co-

operation with INTERPOL. Between 50-60 law-enforcement officials were trained to

co-ordinate co-operation in organised crime affairs with the EU. However, co-operation

with police forces in the EU Member states is still often carried out by local county police

and remains often unnoticed for central police organs in Budapest.

Co-operation between Hungarian law-enforcement agencies was improved through the

setting up of an elite 40-member group at the Budapest Police Headquarters to investigate

organised crime involvement in car thefts. The group is co-operating with the secret

service, customs guards, local governments and other authorities. As a first result of the

work of this unit, the number of car thefts has been significantly reduced.

Hungary made further efforts to strengthen its administrative capacity to combat

organised crime. In January 2000, the communications directorate of the National Police

Headquarters started to monitor information on the internet to screen out illegal web

pages or those abetting acts of crime. A Personal Protection Department within the

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National Police Headquarters provides protection for participants of penal procedures and

members of the proceeding authority. An integrated and comprehensive database

covering all criminal investigations initiated in Hungary since 1994 was installed at the

Chief Prosecutor’s Office in March 2000. The database contains records on 1.5 million

cases and 2.1 million people. Local prosecution offices now have off-line access to it.

In June 2000 a forensic laboratory was opened that can conduct DNA tests to high

standards at the National Police Criminal Research and Analysis Institute in Budapest.

In the area of

fight against fraud, corruption and money laundering

Hungary

promulgated in July 2000 the 1990 Council of Europe Convention on laundering, search,

seizure and confiscation of the proceeds from crime. In view of the smooth application of

this Convention, the Criminal Code was amended with the penalising of laundering of all

financial gains realised by committing any kind of criminal act. At the Hungarian

Customs and Finance Guard a Central Investigation Office with a staff of 130 was set up

empowered to carry out nation-wide investigations. In February 2000, the Ministry of

Justice signed up to a project of the UN Inter-regional Criminal and Judicial Research

Institute, providing access to a scholarly research into corruption.

In 1999, the number of registered

drug

abuses grew by 800 to 2,860 making Hungary a

new target country for drugs. The number of drug addicts receiving medical treatment

rose continuously to 12,454 in 1999.

In July 2000, the government approved the National Strategy to Combat the Drug

Problem putting special emphasis on preventive measures. The main objective of the

strategy is to introduce combined demand and supply reduction programmes.

In the field of

customs co-operation

Hungary started preparations to transpose the

provisions of the Customs Information System Convention (see

chapter 25-Customs

Union).

In the framework of the re-organisation of the Customs and Finance Guard a

decentralised risk analysis system was introduced.

Hungary also transposed the basic instruments of international

judicial co-operation.

The OECD Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions was promulgated in May 2000. For procedures

related to extradition, the co-operation functioned satisfactorily, but there is still room for

improvements, particularly as regards direct contacts between the competent judicial

authorities. The Ministry of Justice is the central authority to receive requests for

extradition, but the metropolitan court has the exclusive competence on the substance.

Overall assessment

The basic provisions of the

acquis

in the field of Justice and Home Affairs are already

implemented.

Hungary is party to the Council of Europe Convention for the protection of individuals

with regard to automatic processing of personal data (Strasbourg 1981).

In the area of personal

data protection

some legal fine-tuning is necessary in view of full

alignment with the relevant

acquis.

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Additional efforts are needed to align with the

visa

acquis,

in particular as concerns the

visa exemption for citizens of Belarus, Cuba, FRY, Moldova, Russia and Ukraine. The

agreements on simplified formalities for border crossing signed with Ukraine and FRY

will also need to be amended as they exempt citizens living permanently near the border

from the obligation to carry passports. The regulation on a uniform visa format and the

rules of the Common Consular Instructions also need to be further aligned. There is a

need to strengthen the Consular System and Hungary’s capacity to detect falsified

documents.

Despite further progress, continued efforts are needed to up-grade the Hungarian

border

control infrastructure,

especially concerning additional night vision devices,

enforcement of the mobility of mobile border guard patrols, expanding the IT system

including document-reading and plate-recognising equipment for the automatic border

registry. Also staff at the borders of Hungary should be increased, in particular at green

and river borders. The border management service needs to become more efficient and

organised and co-operation between the competent authorities needs to be strengthened

and appropriate training needs to be provided.

In the field of

migration

policy further alignment is needed, particularly concerning the

provisions on the admission of third country nationals for study, employment and self-

employed activities and for family reunification purposes. In parallel, the definition of the

term ‘family’ needs to be harmonised with the

acquis.

Also, procedures for the renewal

and withdrawal of provisional residence permits have to be further brought into line with

the

acquis.

Finally, the possibility of issuing temporary travel documents would facilitate

the readmission process considerably.

From a legal point of view the Hungarian

asylum

legislation is already largely in line

with the

acquis.

Outstanding issues relate particularly to the extensive definition of

unfounded requests. Additional efforts are required to ensure proper implementation of

existing legislation.

Further efforts are, however, needed to adopt the legal instruments in the

fight against

fraud

and creating an efficient anti-fraud service.

The same applies to the

drugs

acquis

and to participation in the European information

network on drugs and drug addiction (Reitox). Furthermore, even if not explicitly

mentioned in the

acquis,

a national focal point should be established. The respective co-

operation between the concerned Ministries should also be strengthened.

Hungary has already made major efforts to improve

customs co-operation,

in particular

through the strengthening of co-operation between the different services involved, staff

training and staff ethics.

In the area of

judicial co-operation

the procedures for mutual assistance need to be

clarified. Further training and additional human resources seem to be necessary, in

particular in the field of fight against

organised crime.

Hungary needs to align the definition of a criminal organisation with the Joint Action of

21 December 1998 on making it a criminal offence to participate in a criminal

organisation. Hungary should introduce the liability of legal persons, in accordance with

this Joint Action and within the Joint Action of 24 February 1997 concerning action to

combat trafficking in human beings and sexual exploitation of children.

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The judicial system will need to be connected with the European Judicial Network.

Chapter 25: Customs union

During the reporting period, Hungary made considerable progress in this area.

It notably fulfilled the short-term Accession Partnership priority with the adoption of an

amended Customs Law in May 2000, including its implementing legislation.

This law provided for further alignment of the provisions on customs procedures with

economic impact and the extension of the application of simplified procedures, reflecting

the

Community Customs Code

to a large extent. Furthermore, it created the legal

framework for the application of the binding tariff information (BTI) and binding origin

information (BOI) as of January 2001. As concerns customs procedures with economic

impact, the new law introduced the element of processing under customs control. Finally,

the Hungarian nomenclature was up-dated in accordance with the modifications to the

EC nomenclature. The Hungarian Customs Tariff was also further adjusted to that of the

Community.

Regarding the pan-European system of origin, Hungary has agreed to the amendments to

the system which will come into force in January 2001.

As to

administrative and operational capacity,

the necessary infrastructure in the areas

of computerisation, software and analytical instruments and devices were further

developed. The IT system (VÀMKER customs IT-system) was modernised in December

1999 and a pilot phase of an electronic data exchange initiative was launched. This

system currently works in an experimental phase as a part of a test customs office system

concerning tax return on excise duty and on aggregated declaration on goods in stock. A

risk analysis system was introduced in a pilot phase, aiming at improving the border

control efficiency and risk analysis expert units were set up in 2000 within the different

divisions of the Hungarian Customs and Financial Guard. In January 2000, the Hungarian

Customs and Finance Guard was restructured regionally. As a result, the number of

leading officials and administrative personnel was decreased while the number of

operational staff was increased. In total, 7,729 persons are employed by the Hungarian

Customs and Finance Guard. In parallel, in each regional headquarters an information

technology department was set up. Two new bodies, the Central Headquarters of

Investigators and the Central Headquarters of Controllers were set up with the objective

to extend investigative activity of the Customs Authority and strengthen the ex-post

control system of the Customs administration.

Furthermore a specific training programme on the Community Customs code was

launched and complemented by foreign language courses. Further efforts are needed as to

the enforcement and supervision of copyright legislation.

As concerns border posts, two additional highway border crossing posts were opened at

Letenye (Croatia) and Röszke (Federal Republic of Yugoslavia). In addition, more than

€

4 million were made available for the modernisation of 7 other smaller border posts.

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Overall Assessment

Hungary made already good progress in aligning its legislation with the EC legislation.

However, further efforts are needed in particular concerning alignment in the area of the

free zone regime, temporary importation, customs warehouses, customs debts as well as

customs guarantees and the continuous up-grading of in particular smaller border posts.

Regarding the customs

acquis

outside the Customs Code, Hungary already applied a

quota management based on the first come, first served principle applied by the

Community. Moreover, Hungary applied the EC combined nomenclature since 1996.

As regards the administrative and operational capacity to implement the

acquis,

Hungary

should continue efforts related to equipment and staff training, notably as regards the

implementation of the obligations deriving from the BOI/BTI system. In this respect,

current staffing of the Customs Laboratory seems to be insufficient to ensure a full

implementation. Further progress is also needed in the area of computerisation, notably as

concerns computer-based risk analysis.

Chapter 26: External relations

In the area of

Common commercial policy,

Hungarian tariffs were further aligned with

those of the EC. Hungary applied in 1999 tariffs which average 12.4% on all products,

33.5% on agricultural, 15.0% on fishery and 7.4% on industrial products. By comparison,

the EC tariffs currently stand at 5.3% on all products, 9.4% on agricultural, 12.4% on

fishery and 4.2% on industrial products.

In February 2000, the competence for the external economic policy, including customs

policy, was transferred from the Ministry of Economics to the Ministry of Foreign

Affairs.

The two

Free Trade Agreements

with Latvia and Lithuania entered into force in January

and March 2000, respectively. Within CEFTA, the member states, including Hungary,

signed the Additional Protocol 8 on the up-dated version of the pan-European cumulation

of origin of goods (see

Chapter 25 – Customs Union).

In the area of

development,

Hungary did not have a specific policy or budget, but 96% of

all imports coming from developing countries received trade preferences. GSP schemes

exist for all products. The Ministry of Foreign Affairs had limited funds of

€

70,000

which were mainly used for

humanitarian

purposes, basically for third countries with a

Hungarian minority. The Foreign Minister shares with the Economic Ministry the

promotion of trade development and investments.

Overall Assessment

Hungary’s trade policy and its participation in international economic organisations were

already to a large extent in line with those of the Union.

The EU and Hungary have established a framework for co-operation regarding WTO

issues both at ministerial and at services level. Hungary has been supportive of EU

policies and positions within the WTO framework. As regards the new round, Hungary

concurs with the EU on the need to launch a comprehensive trade round as soon as

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possible and shares the view that the results of work under the build-in-agenda would be

less substantial in its absence.

In order to reach full alignment with GATT and WTO obligations, Hungary has still to

accede to the Agreements on Trade in Civil Aircraft and on Government Procurement

where Hungary has an observer status and to the Agreement on Trade in Information

Technology Products.

As regards the WTO Agreement on Trade in Textiles and Clothing (ATC), Hungary

needs to use the third stage of integration under the ATC to align its integration

programme on those of the EC, while notably avoiding integrating products not yet

integrated by the EC.

Further co-ordination and co-operation is necessary in order to consolidate the Hungarian

list of GATS commitments with the EC commitments and the Most Favoured Nations

(MFN) exemptions.

Hungary made good progress in aligning with the EC’s international trade obligations. It

is a member of CEFTA and has concluded Free Trade Agreements with Turkey, Israel,

Estonia, Latvia, Lithuania, Norway, Iceland and Switzerland. Hungary should continue to

keep the EU fully informed about existing trade agreements or negotiations aimed at the

conclusion of any new trade agreements with a third country.

Hungary’s dual use goods legislation is in line with the

acquis.

Hungary’s system for export credits is in line with the OECD consensus; however,

further alignment to the

acquis

is necessary concerning granting medium and long-term

export credits.

Chapter 27: Common foreign and security policy

The regular

political dialogue

established by the Europe Agreement proceeded smoothly

and Hungary continued to align its foreign policy strategy with the new Common

Strategies of the European Union adopted in the framework of the Common Foreign and

Security Policy (CFSP). It also participated actively in the framework of the CFSP,

including the meetings at the level of Political Directors, European Correspondents and

Working Groups.

Hungary has shown a keen interest in the development of the European Security and

Defence Policy (ESDP) as a part of CFSP and has actively participated in the exchanges

in this context with the EU, in EU + 15 format (i.e. non-EU European NATO members

and candidates for accession to the EU) and in EU + 6 format (i.e. non-EU European

Members of NATO):

As regards alignment with

EU statements and declarations,

Hungary has regularly

aligned its position with those of the Union and when invited to do so has associated

itself with the Union’s

joint actions and common positions.

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In June 1999, Government reviewed its contractual relationship with certain countries of

Asia, Africa and Latin-America and integrated provisions on the termination of obsolete

treaties or on the replacement of new agreements.

Hungary continued to develop good neighbourly relations with surrounding countries and

to promote regional co-operation. Bilateral relations with Romania, Slovakia, Ukraine

and Croatia were significantly strengthened.

In June 2000, Hungary assumed the rotating presidency of the Central European

Initiative. Hungary also continued to participate in the South East European Co-operative

Initiative (SECI) and the Visegrad dialogue. Hungary played a particularly active role in

the South-East European Stability Pact and launched in October 1999 the “Szeged

Process” which became a useful forum for discussion between member countries of the

Stability Pact and the Serbian opposition. As from January 2000 Hungary co-chaired

Working Table No.1. of the Stability Pact on democratisation and human rights. A

priority task of the working table was to provide effective support to the Serbian

opposition, particularly in the fields of municipal government and the independent media.

The working table also devoted special attention to the ethnic Hungarians in Vojvodina.

Within the Ministry of Foreign Affairs, the State Secretariat for European Integration

(SSI) assumes the responsibility for second pillar issues. In March 2000 an European

correspondence unit was established and inter-ministerial co-ordination in CFSP matters

was strengthened.

Overall Assessment

Hungary is making steady progress to align its foreign policy with the Union's Common

Foreign and Security Policy.

Hungary participates actively as an observer in the Western European Union.

Hungary’s efforts regarding western Balkans concentrated on the implementation of

sanctions against Belgrade, a financial contribution to the clearance of the Danube and its

participation in international peace-keeping missions as SFOR and KFOR.

The Ministry of Foreign Affairs is fully involved in CFSP-related activities, but its

structure should be further strengthened.

Chapter 28: Financial control

During the reference period limited progress was made in this area.

The 1999 Accession Partnership includes strengthening of internal and external financial

control as a short-term priority.

As regards

internal financial control,

the Government Control Office made steps to

develop and introduce a new IT monitoring system for the implementation of Community

assistance. In 2000, the Office reviewed the control capacities of the internal control

bodies in Ministries and Central Government organisations. In 2000, the role of the

Ministry of Finance as a coordinating authority in the field of financial control and as a

single contact point to the relevant EC bodies has been further strengthened. The

ex-ante

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control functions

are, however, not very well developed and no progress was made in

this respect by the Government Control Office, the central control body. In January 2000,

the Hungarian State Treasury was reorganised and its scope was extended to all public

expenditures and income.

In the area of external financial control, the State Audit Office, the supreme audit and

control institution, continued preparatory work for the modernisation of its IT system. Its

mandate is wide and covers both the state budget and local government. The Health

Insurance Fund and larger local authorities also appoint commercial auditors to audit

their financial statements. The Office has good access to all the records, persons and data

that it requires for the performance of its functions. It is, however, not clear whether this

institution can follow the use of all EC funds, assets and resources directly to all end

users without restriction. The State Audit Office adopted the basic general international

standards of the Lima Declaration and the INTOSAI Auditing Standards.

Overall assessment

Hungary has already set up the necessary internal and external control bodies. As far as

ex-ante financial control is concerned, this function will have to be strengthened by the

Treasury with the help of the Government Control Office. Appropriate procedures need to

be established for the further decentralisation of financial management and control of EC-

funds from the Commission to Hungary and towards regional implementation levels. As

to external control, priority should be given to further developing attestation and

performance audits of the State Audit Office. The Office should also be entrusted with

auditing EC funds and state-owned entities (including the National Bank).. The ex-ante

control function will have to be improved by the Treasury in the Ministry of Finance. The

Government Control Office will have to make recommendations on the further

development of ex-ante control. Adequate co-ordination between the ex-ante financial

control carried out by the relevant budgetary institutions and that operated by the

Hungarian Treasury needs to be ensured, in order to avoid possible duplications and to

achieve a rapid and efficient financial control. The basic control measures are in place in

regard to EC

own resources.

In view of the effective calculation and collection of

Community own resources the Ministry of Finance and the tax and financial Control

Office should be further reinforced. The control modules of the Joint Audit Initiative for

improving national administration systems still need to be taken into consideration. There

is also a need to develop effective instruments for the fight against fraud, notably in the

area of VAT and customs duties.

Also in the area of control and recovery of EC funds the basic system exists in Hungary,

ensuring the

protection of EC financial interests,

but more expedient procedures are

needed. In case of unlawfully or misused subsidies the head of the controlling body has to

care for repayment of the support and interests. In case of misuse of public funds or

serious irregularities in the financial management of an institution the Government

Control Office intervenes. Irregularities might lead to criminal procedures. These are

regulated by the Hungarian Criminal Code.

Hungary should also ensure that the necessary human resources are available.

Chapter 29: Financial and budgetary provisions

No major developments occurred in this area during the last year.

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With regard to the

national budget

the rules for budget preparation were harmonised and

control of budgetary procedures were strengthened in 2000. No particular developments

are to be reported with regard to

EC-cofinancing measures.

As regards

own resources and administrative structures,

the only new development to

be reported is the upgrading of the Budget Policy Department to a Budget and Financial

Policy Directorate.

Overall assessment

Hungary has an elaborate

budgetary system

which is largely in line with those in

operation in the Community. The main legal provisions are laid out in the Law on Public

Finances of 1992, as amended. Some further improvements are needed, in particular

concerning the national accounts statistics for the general government sector in

compliance with the ESA 95 norm and the medium-term budgetary planning procedures

in order to secure a fully consistent and sustainable budgetary policy.

Budgetary techniques to deal with

co-financing

measures focus mainly on the

functioning of extra-budgetary funds and on transfers to local governments.

Multi-

annual programming

was already introduced in 1997. Since then, the current budget

project has to contain plans for the following two budgets, using multi-year expenditure

estimates from the various ministries. Projections covering the major macro-economic

indicators are presented and an explicit annual target is set for the budget deficit.

The National Fund is administered by the Treasury for the management of the EC pre-

accession funds and is complemented by the Central Financing and Contracting Unit.

The National Fund arrangements are well designed, but have still to be fully

implemented.

Further efforts are needed to enable Hungary to meet Community requirements with

regard to co-financing and multiannual programming as well as to ensure that the own

resources are established, monitored and made available in line with Community

requirements.

The management of

own resources

is primarily under the control of the Ministry of

Finances and the Hungarian Central Statistical Office. The Office also performs GNP

measurements and estimates. Modelling and projections of GNP are carried out under the

Economic Analysis Department of the Ministry of Finance.

In view of the Commission's operations and instructions concerning payments to the EC

Budget (Own Resources), the necessary human and administrative resources will need to

be made available and already existing institutions such as the Hungarian State Treasury

will need to be supplemented by new institutions in order to implement the

acquis.

3.2.

Translation of the

acquis

into the national language

Applicant countries are to translate the various legal texts constituting the

acquis

into

their national languages by the time of their accession. The

acquis,

consisting of primary

and secondary binding legislation, represents at present a considerable volume of acts,

roughly estimated at 60,000-70,000 pages of the Official Journal. To help the candidate

countries in this process, assistance is being provided under the Phare programme. With

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the help of TAIEX, a centralised Translation Co-ordination Unit has been created in each

of the ten candidate countries of central Europe.

In Hungary, the Ministry of Justice ensures general supervision and co-ordination of the

translation activity. The Translation Co-ordination Unit has been established within this

Ministry and operates under the technical supervision of the European Community Law

Department. The Unit is centrally co-ordinating the translation of EC legislation within

the Hungarian public administration. A linguist-lawyer team is responsible for the legal

review. At present the team consists of six part-time and one full-time linguist-lawyers.

So far, 35,000 pages of the Official Journal were translated, of which more than 20,000

were fully revised.

Further efforts are required in this area.

3.3.

General evaluation

Hungary continued to make progress in aligning and implementing the

acquis

in most

sectors thereby reaching a good level of preparation for membership. This process was in

general accompanied by satisfactory institution building measures.

Over the reference period good progress could be noted concerning

internal market

legislation,

in particular as regards harmonised and “new approach” product legislation,

insurance and accounting law and the transparency and alignment of certain State aid

schemes. Continued efforts are still needed especially for developing adequate market

surveillance and for aligning state aid granted in the form of tax benefits. While the basic

structures of the

acquis

related to VAT and excise duty are already in place, further

efforts are required in the area of

taxation

with regard to reduced rates, exemptions and

direct taxation. The Central Liaison Office, and co-operation and mutual assistance with

tax administrations in Member states, will also need to be strengthened. Considerable

progress was made in the area of

customs,

and the new law on customs reflects the

Community Customs Code to a large extent. In the field of

telecommunications,

where

the market is in principle open to competition, Hungary needs to align further with the

terms and conditions of universal service.

In the area of

agriculture

the basic structures of the

acquis

are in place, but the

administrative structures required for the implementation of the CAP still need to be put

into place. Alignment will need to be speeded up especially in the veterinary and

phytosanitary sub-sectors.

In the area of

environment

only little progress in terms of alignment was made over the

last year, and the administrative capacity of the Ministry of Environment needs

improvement due to the lack of qualified staff and the wide distribution of

responsibilities related to environmental issues.

Alignment needs to be speeded up in the area of

transport,

in particular in the road and

air sub-sectors, and new institutions will have to be set up in order to enforce the

acquis

adequately. In the

energy

sector, the main principles of the internal energy market were

adopted, but will need to be implemented, and the Hungarian Energy Office will need to

be further strengthened in order to be able to discharge its tasks in the future internal

energy market.

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Hungary made significant progress in developing the necessary structures for the

implementation of

regional policy

after accession, although the structures in the regions

still appear rather weak to guarantee efficient programming and decision making. In the

area of

financial control,

the internal and external control bodies, which were already set

up some time ago, will need to be strengthened in order to provide the basis for sound

financial management and control of EC funds towards regional implementation levels.

As to

financial and budgetary provisions,

further efforts are needed in order to meet

Community requirements with regard to co-financing and multi-annual programming.

On the other hand, good progress was made in the area of

social policy and employment

in terms of legal transposition, although considerable work remains to be done with

respect to the implementation of the

acquis

on health and safety where implementation is

to occur gradually. There is also a need to exploit better the new structures for social

dialogue. In the area of

economic and monetary union

the main outstanding issue relates

to the further consolidation of the independence of the National Bank. As to

industrial

policy,

the situation in respect of the restructuring of the Hungarian steel industry is still

unsatisfactory and the steel restructuring plan adopted by Hungary will need to be further

revised. In the area of

Justice and Home Affairs,

progress was registered mainly in the

fields of visa policy, border management, migration and asylum.

Hungary continued to make steady progress in building up its administrative capacity to

apply the

acquis

in most areas. Further progress was made towards public administration

reform, and continued emphasis was placed on training in EU matters throughout the

administration and the judiciary. Most of the key institutions needed for participation in

the internal market are in place. Nonetheless, administrative and judicial capacity still

needs to be strengthened in specific areas such as state aid control, market surveillance,

transport, the environment, veterinary and plant health.

Hungary has satisfactorily addressed most of its short-term Accession Partnership

priorities with the exception of agriculture, environment, certain elements related to the

internal market, industry policy and economic and monetary union. Hungary has already

started to implement a number of medium-term priorities.

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C. Conclusion

Hungary continues to fulfil the Copenhagen political criteria.

Further progress in the modernisation of the public administration is apparent from the

continued implementation of the 1999 development programme.

Although the judiciary functions satisfactorily and the training of judges in the EC

acquis

has progressed, the large backlog of cases before the Supreme Court hampers the

unification of Court practice and the development of a consistent jurisprudence. Efforts

should be made to remedy this. Sustained training programmes for civil servants and

judges should continue, in line with the medium-term priority of the Accession

Partnership.

Despite a number of important measures taken to fight corruption, this remains a problem

and renewed efforts should be made to address this issue.

Hungary continues to respect human rights and freedoms. However, overcrowding of

prisons is a growing problem, which needs to be remedied.

In line with the short-term Accession Partnership priority, Hungary started to implement

the medium-term Roma action programme, supported by financial means at national and

local levels. This programme facilitates the integration of the Roma and their fight

against discrimination in the fields of education, culture, employment, housing, health

and social services. However, sustained implementation of this programme is needed in

order to obtain concrete results in the medium-term.

Hungary is a functioning market economy and should be able to cope with competitive

pressure and market forces within the Union in the near term, provided that it stays with

its present reform path.

Considerable progress has been made towards consolidating macroeconomic stability,

enhancing current account sustainability and strengthening the institutional basis of the

market economy. Hungary has further developed its infrastructure, and proceeded with

enterprise restructuring. The creation of new enterprises, particularly those fostered by

foreign direct investment, is strong.

However, the slow progress towards price stability is a cause for concern and maintaining

external competitiveness will require an appropriate policy mix, including continued

fiscal consolidation, in particular in the areas of healthcare, transportation and local

government. Although unemployment has fallen, there are significant regional

differences and shortages of skilled labour in high growth sectors. The intermediation

role of the financial sector needs to improve the delivery of services to domestic small

and medium enterprises.

The Hungarian authorities will need to maintain a well-balanced policy mix and pursue a

prudent and flexible monetary policy. Financial sector supervision needs to be further

improved, in particular for the pension funds. Measures need to be taken to reduce

regional disparities and to increase the flexibility and mobility of labour. The

implementation of the above-mentioned structural reforms must proceed in order to

address fiscal consolidation.

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Hungary continued to make progress in aligning and implementing the

acquis

in most

sectors thereby reaching a good level of preparation for membership. This process was in

general accompanied by satisfactory institution building measures.

Over the reference period good progress could be noted concerning

internal market

legislation,

in particular as regards harmonised and “new approach” product legislation,

insurance and accounting law and the transparency and alignment of certain State aid

schemes. Continued efforts are still needed especially for developing adequate market

surveillance and for aligning state aid granted in the form of tax benefits. While the basic

structures of the

acquis

related to VAT and excise duty are already in place, further

efforts are required in the area of

taxation

with regard to reduced rates, exemptions and

direct taxation. The Central Liaison Office, and co-operation and mutual assistance with

tax administrations in Member states, will also need to be strengthened. Considerable

progress was made in the area of

customs,

and the new law on customs reflects the

Community Customs Code to a large extent. In the field of

telecommunications,

where

the market is in principle open to competition, Hungary needs to align further with the

terms and conditions of universal service.

In the area of

agriculture

the basic structures of the

acquis

are in place, but the

administrative structures required for the implementation of the CAP still need to be put

into place. Alignment will need to be speeded up especially in the veterinary and

phytosanitary sub-sectors.

In the area of

environment

only little progress in terms of alignment was made over the

last year, and the administrative capacity of the Ministry of Environment needs

improvement due to the lack of qualified staff and the wide distribution of

responsibilities related to environmental issues.

Alignment needs to be speeded up in the area of

transport,

in particular in the road and

air sub-sectors, and new institutions will have to be set up in order to enforce the

acquis

adequately. In the

energy

sector, the main principles of the internal energy market were

adopted, but will need to be implemented, and the Hungarian Energy Office will need to

be further strengthened in order to be able to discharge its tasks in the future internal

energy market.

Hungary made significant progress in developing the necessary structures for the

implementation of

regional policy

after accession, although the structures in the regions

still appear rather weak to guarantee efficient programming and decision making. In the

area of

financial control,

the internal and external control bodies, which were already set

up some time ago, will need to be strengthened in order to provide the basis for sound

financial management and control of EC funds towards regional implementation levels.

As to

financial and budgetary provisions,

further efforts are needed in order to meet

Community requirements with regard to co-financing and multi-annual programming.

On the other hand, good progress was made in the area of

social policy and employment

in terms of legal transposition, although considerable work remains to be done with

respect to the implementation of the

acquis

on health and safety where implementation is

to occur gradually. There is also a need to exploit better the new structures for social

dialogue. In the area of

economic and monetary union

the main outstanding issue relates

to the further consolidation of the independence of the National Bank. As to

industrial

policy,

the situation in respect of the restructuring of the Hungarian steel industry is still

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unsatisfactory and the steel restructuring plan adopted by Hungary will need to be further

revised. In the area of

Justice and Home Affairs,

progress was registered mainly in the

fields of visa policy, border management, migration and asylum.

Hungary continued to make steady progress in building up its administrative capacity to

apply the

acquis

in most areas. Further progress was made towards public administration

reform, and continued emphasis was placed on training in EU matters throughout the

administration and the judiciary. Most of the key institutions needed for participation in

the internal market are in place. Nonetheless, administrative and judicial capacity still

needs to be strengthened in specific areas such as state aid control, market surveillance,

transport, the environment, veterinary and plant health.

Hungary has satisfactorily addressed most of its short-term Accession Partnership

priorities with the exception of agriculture, environment, certain elements related to the

internal market, industry policy and economic and monetary union. Hungary has already

started to implement a number of medium-term priorities.

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D. Accession Partnership and National Programme for the

Adoption of the

Acquis:

Global assessment

The purpose of the Accession Partnership is to set out in a single framework:

•

the priority areas for further work identified in the Commission’s regular report;

the financial means available to help candidate countries implement these priorities;

the conditions which will apply to this assistance.

Each candidate has been invited to adopt a National Programme for the Adoption of the

Acquis.

This sets out how the country in question envisages to deal with the Accession

Partnership, the timetable for implementing the Partnership’s priorities, and implications

in terms of human and financial resources. Both the Accession Partnerships and the

National Programmes for the Adoption of the

Acquis

are revised on a regular basis, to

take account of progress made, and to allow for new priorities to be set.

1. Accession Partnership

In the following assessments the main sub-headings are indicated in bold type and further

key concepts taken from the Accession Partnership highlighted in italics.

Short-term priorities

Political Criteria:

In line with the

medium-term Roma action programme

adopted in

April 1999, the Government had provided specific support for addressing the difficult

situation of the Roma minority. In particular, actions were launched in the areas of

education (scholarships and support to educational institutions), culture (opening of

Roma Community houses which play a very important role in strengthening the local

Communities and preserving Roma culture), employment (public work programmes and

public utility work programmes), housing, health and anti-discrimination actions. Under

the “Roma Policemen Programme” the number of

Roma police officers

was increased and co-

operation with Roma organisations was reinforced. In 2000 specific budgetary resources

totalling

€

19 million were made available, representing an important step forward in the

implementation of the medium-term action programme.

Therefore, this priority has

been met.

Economic Criteria:

The macro-economic situation improved thanks to a decrease in the

current account and fiscal deficits, growth acceleration, reduction of the unemployment

rate and the launching of important structural reforms (healthcare, rail transportation,

fiscal sector supervision). However, the reform of the

health care system

is still at an

early stage, while the weak financial structure continues to place heavy burden on public

finances. The Government has already initiated some reforms such as the reduction of

the number of hospital beds and the privatisation of outpatient services, but a coherent

and systematic programme of reforms has not yet been developed. Consequently, in

For the detailed text of the short and medium term priorities established in the 1999 Accession Partnership, please refer to

Council Decision 1999/850/EC, OJ L335 of 28/12/1999, p7.

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order to meet this Accession Partnership priority fully, both the quality of the healthcare

services and the budgetary situation need to be improved. A plan for the

restructuring of

the Hungarian steel sector

was submitted to the Commission in February 2000.

However, in order to meet EC requirements fully, over the reference period the plan

needs to be further elaborated. No progress was made towards

establishing a functioning

land market or finalising the land and property register.

Therefore this priority was

only partially met.

Internal Market:

•

Over the reference period Hungary accelerated the

adoption of European standards

Hungarian national standards. By May 2000, 6,884 out of the 11,456 European

standards had been introduced, reaching a harmonisation level of 60% overall and

more than 80% for standards relevant to the New Approach Directives. In the area of

CEN and CENELEC standards, the rate was 61% and 65% respectively in March

2000. In December 1999, the modules for the various phases of the

conformity

assessment

procedures and the rules on the use of the CE conformity mark were

transposed. No significant progress was made to

reinforce existing market surveillance

and conformity assessment structures.

•

No action was undertaken to prohibit the opening of

anonymous accounts

or to

eliminate existing ones. Hungary made efforts to increase transparency of

state aids

enlarging the scope of aids subject to prior notification to the

state aid monitoring

authority.

However, this scope still needs to be widened further, and the coverage of

the

state aid inventory

has not been completed. The monitoring authority is

increasingly involved in state aid decision-making, but has no power to block illegal

aids.

•

In the area of

telecommunications,

no progress was made to further strengthen the

Regulatory Authority’s independence

and powers (notably dispute settlement), but the

new Law on Communication prepared by the government is supposed to address this

issue. This Law is, however, not yet adopted by Parliament. Despite the efforts of the

government to progress in the area of the

audio-visual acquis,

the proposed law on

Radio and Television Broadcasting (the so-called Media Act) was not adopted by

Parliament as it needed a two-thirds majority. The proposal notably provided for rules

governing

monitoring activities

and effective control over media operators as well as

for the definition and promotion of European works, rules on advertising, sponsoring

and teleshopping, exclusive

broadcasting rights

and certain rules relating to copyright.

•

In the area of

Value Added Tax

further progress was made by abolishing

reduced rates

for a number of goods and services, but

reduced VAT

rates of 12% are maintained for

social reasons in the areas of heating materials and district heating services, food

services and transportation and storage of goods. The zero-rate system will also have

to be abandoned. The amendment of the law on Excise Duty eliminated in August

2000 the last major structural difference between the Hungarian legislation on excise

duty and the

acquis

in the area of wine. Hungary, however, continued to levy

different

excise duty rates

for fruit brandies and other spirits, in contradiction with Community

rules, which stipulate a single excise duty for interchangeable products. In the area of

direct taxation Hungary accepted the principles of the

Code of Conduct for Business

Taxation

which will provide the framework for further alignment with the

acquis.

New measures to be introduced will have to respect the above principles and there is a

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need to finalise the review of the legislation in line with the

Code of Conduct for

Business Taxation.

The adoption of an amended Customs Law in May 2000 provided

the basis for further alignment of the provisions on customs procedures with economic

impact and the extension of the application of simplified procedures, reflecting the

Community Customs Code.

Furthermore, it creates the legal framework for the

application of the

binding tariff information (BTI)

and

binding origin information

(BOI). As concerns customs procedures with economic impact the new law has

introduced the element of processing under customs control. The customs tariff was

further aligned as well. Finally, the Hungarian nomenclature was up-dated in

accordance with the modifications to the EC nomenclature.

Overall,

Hungary partially fulfilled this priority.

Economic and Monetary Union:

No action was taken to consolidate the

independence

of the National Bank in particular with regard to government borrowing.

Therefore, this

priority was not met.

Agriculture:

No further legislative alignment has taken place in the

veterinary

sector. In

the area of

phytosanitary

matters, progress was made by adopting the plant protection

law. The adoption of the necessary implementing legislation is still pending. No major

developments can be reported as regards upgrading the inspection arrangements at the

future

external borders.

Furthermore, no progress was made as regards the modernisation

meat and dairy products plants to meet EC hygiene and public health standards

or the

establishment of a

vineyard register.

Hungary did thus not address this priority.

Employment and Social Affairs:

Hungary has successfully finalised the

Joint

employment

review and has prepared employment guidelines mirroring the

European

Employment Strategy.

This will facilitate its participation, following accession, in the

latter. Hungary also launched a three-year programme to improve the

capacity of the

social partners

to develop and implement the

acquis.

Therefore, this priority has been

met.

Environment:

No progress was made by Hungary to align with the

Integrated

Prevention Control Directive.

The adoption of the law on

waste management

in June

2000 was an important step in aligning with the relevant

acquis.

The law will allow the

adoption of secondary legislation on specific types of waste that is currently entirely

lacking. The law will enter into force only in January 2001. As to nuclear safety and

radiation protection,

some progress was made in July 2000 with the introduction of the

obligation to inform the general public about health protection measures in the event of a

radiological emergency, bringing the situation into line with the

acquis.

In the framework

of the revised NPAA, Hungary had prepared a

plan for financing investments

indicating

the various funding sources on a yearly basis. Legislation has been further aligned with

the

Environmental Impact Assessment Directive

concerning the scope of activities, but

further efforts will be necessary to enforce the Directive as stipulated by the short-term

Accession Partnership priority.

Therefore, this priority has not been met.

Justice and Home Affairs:

In relation to

border management,

considerable efforts were

made to up-grade border posts and “green

border control”,

including registering

everyone entering or leaving Hungary, introduction of new forgery-proof identity cards in

January 2000, and better technology (computerisation, night vision devices). However,

diversion of allocated resources due to natural disasters resulted in no new staff being

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employed, and less upgrading of equipment than needed. More generally, there is further

need to develop a modern, efficient and professional service, especially against a

background of low salaries. In relation to processing of

asylum requests,

the creation of a

new Office for Immigration and Citizens’ Affairs (OICA) in January 2000 has improved

coordination and provided an autonomous budget. Despite significant understaffing, lack

of finance, and lengthy legal procedures, the backlog of applications (in part due to a 55%

rise in asylum-seekers from 1998 to 1999) has been halved to 2,000 since July 1999. In

March 2000, Hungary did indeed ratify the 1990

Council of Europe Convention in

respect of proceeds of crime.

The OECD Convention on combating bribery of foreign

public officials in international business transactions was promulgated in May. More

generally in the

fight against organised crime,

the National Police Headquarters began

using the internet to track illegal web pages and criminals, and an on-line database in the

Chief Prosecutor’s Office was established to provide access to all criminal investigations

since 1994. Other developments include: the opening of an improved

forensic laboratory

(including DNA testing); the establishment of the International Law Enforcement Co-

operation Centre at police headquarters (to liaise with Interpol); improved police co-

operation with neighbouring countries and EU member states in general; and the setting-

up of an elite group to combat organised crime car thefts.

Therefore this priority has

been met.

Reinforcement of administrative and judicial capacity, including management and

control of EC Funds:

The Assistance Coordination Secretariat in the Office of the Prime

Minister became responsible for the overall coordination of pre-accession aid, i.e.

Phare,

ISPA and SAPARD.

The capacity of the administration to programme, implement and

monitor assistance has thus been improved. However, the preliminary

National

Development Plan

for 2000 was mixed in quality, and lacking coherence with other

similar plans used by Hungary, e.g. the Széchenyi Plan for national economic

development. Improvement is needed if these documents are to evolve into the planning

necessary for effective use of the Structural Funds. Hungary has already set up the

necessary

external and internal financial control bodies.

There is a need for further

strengthening the various bodies, in particular the State Audit Office for the adequate

follow-up of its audit findings. Hungary is party to the Espoo Convention on

Environmental Impact Assessment in a Transboundary Context and since 1993 has

applied a comprehensive system of environmental impact assessment. Provision was also

made to allow tendering under the EC’s new structural pre-accession instruments ISPA

and SAPARD to respect EC requirements, in particular by excluding national preference.

In relation to the

implementation of Phare

in Hungary, the situation has improved

considerably in the recent past. The backlogs and problems in relation to past

programmes were largely eliminated. The implementation of the 1999 programme is

proceeding on schedule. The 2000 programme was the first approved for any candidate

country, and planning for 2001 is already advancing positively. It is accurate to speak of a

new and much improved phase of Phare implementation being instituted. The Hungarian

Finance Intelligence Unit, called Anti

Money Laundering

Division (AMLD), was up-

graded in 1999 and now consists of seven investigators and two administrators. During

1999 and 2000 training courses were organised for staff of the financial institutions and

the AMLD. Finally, an Anti Money Laundering Co-ordination Body was set up with the

participation of governmental organisations and NGOs.

Consequently, this priority has

been met.

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Medium-term priorities

Only those medium-term priorities of the 1999 Accession Partnership where there was

some degree of progress are mentioned below.

Economic Criteria:

The Hungarian

SME policy

was further developed with the

preparation of the Széchenyi Plan, a National Development Plan. The Plan targets SME

development as one of its strategic development objectives. The specific SME

programme outlined in the plan aims at developing business culture and skills (training,

improved access to information), the development of SMEs' business relations (e.g.

development of entrepreneurial networks, clusters, co-operation in procurement and

international co-operation) and improved access to finance (e.g. schemes that address the

different needs of enterprises according to their life cycle phase , continuation of the

micro-credit programme, guarantee schemes). The Plan further proposes certain measures

to improve and simplify administrative procedures. Of particular relevance to SME

development are also the Plan's separate programmes in the area of sub-contracting (a

continuation and further development of the existing programme) and tourism

development.

Energy:

In order to enhance

energy efficiency,

which is still relatively low, the

government adopted a new

€

6.2 million energy efficiency programme in September

1999. The programme is implemented by the Energy Information Agency and the Energy

Center which merged in September 2000. In parallel the

acquis

on efficiency

requirements and on the labelling for household appliances was further aligned. Hungary

also participated in the Save II Programme. In 1999, further

nuclear safety

reviews were

carried out at Hungary’s Paks Nuclear Power Plant . In particular, in November 1999 a

new and more efficient safety system was introduced with an IT digital system able to

automatically operate the measurement equipment without any human interference.

Simultaneously, the plant underwent the most important upgrade with the complete

overhaul of the reactor protection system and the replacement of fuel cells and capacitors.

The safety upgrading programme was financed from the depreciation of the equipment.

Justice and Home Affairs:

Further efforts to

up-grade the law enforcement bodies

were

made, in particular in the area of border management and asylum. As regards the

fight

against organised crime,

Hungary made further efforts to strengthen its administrative

capacity, notably at the National Police Headquarters, the Chief Prosecutor’s Office and

the Hungarian Customs and Finance Guard. In the area of drugs, the government

approved in July 2000 the National Strategy to Combat the

Drug

Problem putting special

emphasis on preventive measures. The main objective of the strategy is to introduce

combined demand and supply reduction programmes. Co-operation between Hungarian

law-enforcement agencies was improved through the setting up of an elite 40-member

group at the Budapest Police Headquarters to investigate organised crime involvement in

car thefts. The group is co-operating with the secret service, customs guards, local

governments and other authorities. As a first result of the work of this unit, the number of

car thefts has been significantly reduced. Progressive

alignment of the Hungarian visa

legislation

was continued by introducing the free travel regime of the EU for citizens of

New Zealand and Venezuela and the signature of an agreement with Brazil to the same

ends. In August 1999, the obligation to have airport transit visas was introduced for

citizens of a number of countries. Compulsory Visa Agreements were concluded with

Azerbaijan, Tajikistan, Armenia and Turkmenistan and on an interim basis with Russia.

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Hungary also made efforts to improve the standards of reception

facilities for asylum

seekers

at Budapest airport, Kiskunhalas and Szombathely.

2. National Programme for the Adoption of the

Acquis

The revised version of the Hungarian National Programme for the Adoption of the

Acquis

(NPAA) was adopted by the Hungarian Government on 6 June 2000. It covers only

additional needs motivated by changes of the

acquis,

the change of the Hungarian

accession date and the accession negotiations. Planning covers the years 2000-2002.

The NPAA follows a structure similar to the Regular Report, but does not explicitly refer

to last year’s analysis. At the beginning of each chapter, an overview of the current

situation is given together with an outline of progress achieved in 1999. The remaining

tasks for 2000-2002 are then laid down in line with the Law Approximation Programme

that was up-dated and approved by the government simultaneously. Information is also

given on the necessary institution building measures together with a timetable. In the case

of resource requirements the programme contains financial plans for each chapter.

The Strategy for Catching up with Europe adopted by the Government in June 1999

constitutes the economic policy base of the NPAA. The Joint Assessment Document of

economic policy, which was updated and adopted by the European Commission and

Hungary in April 2000, is only partly relevant as the part on structural reforms in the

NPAA is rather general and often does not refer directly to the commitments made in the

framework of the Joint Assessment. Furthermore, the link between the NPAA and other

national programmes such as the Széchenyi Plan is not always clear. Finally, the NPAA

does not always play a co-ordinating role in planning the use of pre-accession assistance.

This is particularly relevant as regards the SAPARD programme where none of the

measures to be implemented by the SAPARD programme were taken into account. Even

some inconsistencies with the Hungarian negotiating position could be noted in the field

of agriculture, as some request for transitional arrangements were not reflected in the

NPAA.

The revised NPAA is in general coherent with the priorities of the Accession Partnership,

even if the relevant Accession Partnership priority is mostly not explicitly mentioned.

However, in the chapters on industry, agriculture and competition the relevant Accession

Partnership priority is not or only partly reflected. In some chapters, the prioritisation

between short- and medium-term priorities is not sufficiently clear.

The NPAA covers all chapters of the

acquis,

but the level of detail varies. Thus, in the

chapters on free movement of persons, research and the non-harmonised sectors,

important parts of the

acquis

are not covered. In the chapters on free movement of

capital, veterinary issues, agricultural policy and energy certain elements are also

missing. In general, the goals to be achieved and tasks to be undertaken are well

identified. However, sometimes the implementation measures are not concrete, too

general or requirements are spelt out inaccurately. This concerns particularly the sections

on state aids, industry, anti-fraud, phytosanitary issues, services and employment.

As regards the implementation timetables, they are quite often relatively vague. Further

fine-tuning and clearer commitments as to when the measures mentioned are scheduled

to be implemented would be desirable. In particular, the indication ‘by the date of

accession’ should be replaced by a more concrete commitment, as the date of accession

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has not been decided yet. Also time indications regarding the relevant and necessary

procedural steps are not very specific in most of the chapters. Finally, in some chapters

such as agriculture and regional policy where important investments are needed

projections going beyond the year 2002 would be useful.

In general, institution building aspects are adequately handled. There are indications of

the needs for the establishment of new bodies where appropriate. An overview is also

given on the restructuring of the organisations or the activities of the existing bodies in

order to improve their ability to perform control, supervisory and monitoring functions,

increases in staff, training provisions and technical modernisation needs. However, there

is often a lack of information about concrete actions to implement the described

measures. This is particularly the case for the chapters on transport, agriculture, SMEs

and regional policy.

As to the budget, estimates are broken down to indicate contributions from the central

budget, EC assistance and other sources. Tables outline cost implications, funding

requirements (with reference to Phare and other pre-accession related funds) and planned

disbursement of funds and staffing requirements. Budgetary implications of the different

actions are mostly given, except for healthcare reform. They could be more precise for

the chapters on industry and SMEs. In the case of agriculture, investment estimates have

been decreased compared to the 1999 NPAA. This leaves doubts as to whether enough

resources have been allocated for this sector.

The NPAA covers the key issues of the process of accession preparations. It mostly

provides for the necessary budget, institution building measures and level of detail.

However, more emphasis should be put on co-ordinating the different policy instruments

to ensure full coherence.

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Annexes

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Human Rights Conventions ratified by the Candidate Countries,

September 2000

Parties to following conventions

and protocols

ECHR

(European Convention

on Human Rights)

Protocol 1 (right of property et

al.)

Protocol 4 (freedom movement et

al.)

Protocol 6 (death penalty)

Protocol 7 (ne bis in idem)

European Convention for

the Prevention of Torture

European Social Charter

Revised European Social

Charter

Additional Protocol to the ESC

(system of collective complaints)

Framework Convention

for National Minorities

ICCPR

(International Covenant

on Civil and Political Rights)

Optional Protocol to the ICCPR

(right of individual

communication)

Second Optional Protocol to

ICCPR (abolition death penalty)

ICESCR

(International

Covenant on Economic, Social

and Cultural Rights)

CAT

(Convention against

Torture)

CERD

(Convention on the

Elimination of All Forms of

Racial Discrimination)

CEDAW

(Convention on the

Elimination of All Forms of

Discrimination against Women)

CRC

(Convention on the Right

of the Child)

X = Convention ratified

O = Convention NOT ratified

BG = Bulgaria; CY = Cyprus; CZ = Czech Republic; EE = Estonia; HU = Hungary; LV =

Latvia; LT = Lithuania; MT = Malta; PL = Poland; RO = Romania; SK = Slovakia; SV =

Slovenia; TK = Turkey

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Statistical data

1995

Basic data

Population (average)

Total area

National accounts

Gross domestic product at current prices

1996

10.193

93.030

1997

in 1000

10.155

in km²

93.030

1998

10.114

93.030

1999

10.068

93.030

10.229

93.030

1000 Mio Forint

5.614

34,1

3.300

1,5

8.119

6.894

35,6

3.500

1,3

8.590

8.541

40,4

ECU/euro

4.000

4,6

9.350

10.087

41,9

4.100

4,9

9.899

11.486

45,4

4.500

4,5

10.705

1000 Mio ECU/euro

Gross domestic product per capita

at current prices

% change over the previous year

Gross domestic product at constant prices (nat. currency)

in Purchasing Power Standard

Gross domestic product per capita

Structure of production

- Agriculture

- Industry (excluding construction)

- Construction

- Services

at current prices

% of Gross Value Added

6,8

26,3

4,6

62,3

6,6

26,3

4,3

62,8

5,9

28,1

4,6

61,4

5,5

28,2

4,6

61,7

Structure of expenditure

- Final consumption expenditure

- household and NPISH

- general government

- Gross fixed capital formation

- Stock variation

as % of Gross Domestic Product

77,3

53,7

23,6

20,0

4,0

36,9

38,2

73,9

51,9

22,0

21,4

5,7

38,9

39,9

72,2

50,3

21,9

22,2

5,6

45,5

72,5

50,8

21,7

23,6

6,0

50,6

52,7

73,7

51,8

21,9

23,9

4,8

52,6

55,0

- Exports of goods and services

- Imports of goods and services

Inflation rate

Consumer price index

% change over the previous year

28,3

23,5

18,5

14,2

10,0

Figures have been calculated using the population figures from National Accounts, which may differ from those used in

demographic statistics.

Figures have been calculated using the population figures from National Accounts, which may differ from those used in

demographic statistics.

Including FISIM.

The item "Services" includes statistical discrepancies.

These figures include changes in inventories, acquisitions less disposals of valuables and the statistical discrepancy between the

GDP and its expenditure components.

Changes in Methodology: PROXY HICP since 1996 (see methodological notes)

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Balance of payments

-Current account

-Trade balance

-1.814

-1.828

9.911

11.739

1.257

-1.396

152

3.675

In Mio ECU/euro

-1.319

-2.088

11.215

13.302

1.951

-1.139

-44

-12

1.803

-840

-1.726

17.386

19.112

2.025

-1.264

124

-4

1.928

-2.059

-2.110

18.505

20.615

1.592

-1.675

133

-41

1.815

-1.969

-2.059

20.533

22.592

1.317

-1.556

329

-8

1.849

Exports of goods

Imports of goods

-Net services

-Net income

-Net current transfers

-of

which:

government transfers

- FDI (net) inflows

Public finance

General government deficit/surplus

Financial indicators

Gross foreign debt of the whole economy

Monetary aggregates

- M1

- M2

Total credit

Average short-term interest rates

- Lending rate

- Deposit rate

ECU exchange rates

- Average of period

- End of period

- Effective exchange rate index

Reserve assets

in % of Gross Domestic Product

-6,6

-3,2

-5,4

-7,2

-3,7

% of Gross Domestic Product

65,3

176,7

5,7

12,8

25,2

32,4

24,8

164,5

183,3

100,0

9.139

9.106

60,6

155,9

6,0

13,8

24,0

28,2

20,6

193,7

206,9

85,7

7.773

7.743

52,9

116,3

6,8

15,7 :

24,8

23,0

17,6

211,7

224,7

1995=100

79,6

7.634

7.607

71,0

8.106

8.081

66,9

10.883

10.855

Mio ECU/euro

25,1

20,1

15,4

240,6

252,4

53,9

106,5

7,0

23,5

17,2

12,6

252,8

254,7

55.9 E

106.3 E

8,3

as % of exports

in 1000 Mio ECU

% per annum

(1ECU/euro=..Forint)

-Reserve assets (including gold)

-Reserve assets (excluding gold)

External trade

Trade balance

Exports

Imports

Terms of trade

Exports with EC-15

Imports with EC-15

Mio ECU/euro

-1.987

9.837

11.824

101,3

62,8

61,5

-1.922

12.368

14.289

97,7

69,7

62,3

-1.882

16.842

18.724

101,2

71,2

62,8

-2.409

20.520

22.929

101,3

72,9

64,1

-2.811

23.468

26.279

98,4

76,2

64,4

previous year=100

as % of total

1999 data refer to November 1999.

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Demography

Natural growth rate

Net migration rate (including corrections)

Infant mortality rate

Life expectancy :

Males:

Females:

Labour market (ILO methodology)

Economic activity rate

per 1000 of population

-3,3

10,7

65,3

74,5

-3,7

10,9

66,1

74,7

-3,8

9,9

at birth

66,4

75,1

66,1

75,2

66,3

75,1

-4,3

9,7

-4,8

8,9

per 1000 live-births

% of labour force

52,4

10,2

18,7

8,7

26,7

5,9

59,4

48,2

9,9

8,5

8,3

26,7

6,0

48,1

8,7

15,9

7,5

7,9

27,1

48,4

7,8

13,5

6,7

7,5

6,2

58,3

49,6

7,0

12,4

5,9

7,1

27,4

6,6

58,9

Unemployment rate, total

Unemployment rate of persons < 25 years

Unemployment rate of persons >= 25 years

Average employment by NACE branches

- Agriculture and forestry

- Industry (excluding construction)

- Construction

- Services

Infrastructure

Railway network

Length of motorways

Industry and agriculture

Industrial production volume indices

Gross agricultural production volume indices

Standard of living

Number of cars

Telephone subscribers

Number of Internet connections

E= estimates

in % of total

in km per 1000 km²

335

365

381

448

previous year=100

104,6

102,6

103,4

106,3

111,1

96,2

112,5

97,9

110,7

100,1

per 1000 inhabitants

220

208

222

261

226

303

220

335

8,2

224

358

13,6

Change in methodology (labour force 15-74 years, see methodological notes).

Source for 1998 figure: United Nations.

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Methodological Notes

Inflation

Consumer price inflation:

The EU Member States have designed a new consumer price index in

order to comply with the obligations of the EC Treaty, as part of the preparations for the common

currency. The aim was to produce CPIs comparable between Member States. The main task was to

harmonise methodologies and coverage. The result was the Harmonised Index of Consumer Prices

(HICP). A similar exercise has been started with Candidate Countries (CC). In respect to

enlargement, it is equally important that their economic performance is assessed on the basis of

comparable indices. Some progress has already been made towards adapting the new rules. Since

January 1999 CCs report monthly to Eurostat so-called proxy HICPs which are based on national

CPIs but adapted to the HICP coverage. Since 1996 the date in the table are these proxy HICPs.

Reliable and comparable HICPs are expected to be available in CCs from January 2001 onwards.

Finance

Note on sources:

General government deficit / surplus:

Candidate Countries are presently unable to provide reliable

data on a national accounts basis. Eurostat is working closely with these countries with the aim of

improving these statistics. Given the lack of reliable data, an approximation for general government

deficit / surplus is derived from the IMF’s Government Finance Statistics Yearbook (see explanation

below).

Gross foreign debt:

the OECD External Debt Statistics publication has been used as the source. Data

for 1999 are estimates.

Foreign official reserves, monetary aggregates, interest rates, and effective exchange rates:

where

possible, Eurostat’s reporting form for Candidate Countries is used. Failing this, the IMF’s

‘International Financial Statistics’ publication has been used as the source.

Exchange rates:

against the ECU (euro). European Commission data is used for ECU rates,

European Central Bank data for euro rates.

Note on methodology:

General government deficit / surplus:

an approximation of the national accounts definition, derived

from data based on the IMF’s GFS (government finance statistics) methodology. The general

government deficit / surplus is obtained by adding the consolidated central government deficit /

surplus (normally including certain extra-budgetary funds) to the local government deficit / surplus.

The total is adjusted for net lending / borrowing for specific policy purposes, which is a financing

item in the national accounts. GFS data are on a cash basis.

Gross foreign debt:

of the whole economy; includes both short- and long-term. According to the

convention, the stock of outstanding debt is converted from US dollars into ECU at end-year

exchange rates, whereas GDP is converted into ECU using annual average exchange rates. For the

ratio of gross foreign debt to exports, the national accounts definition of exports of goods and

services is used.

Monetary aggregates:

end-year stock data. M1 refers to notes and coins in circulation plus bank

sight deposits. M2 refers to M1 plus savings deposits plus other short-term claims on banks. Total

credit refers to domestic credit to the government (net of deposits, including non-financial public

enterprises), plus the private non-financial sector, plus other non-monetary financial institutions.

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Interest rates:

annual average rates. Lending rates consist of the average rate charged on loans

granted by reporting banks. Deposit rates refer to average demand and time deposit rates.

Exchange rates:

ECU exchange rates are those that were officially notified to the European

Commission until 1 January 1999, when the ECU was replaced by the euro. Euro exchange rates are

reference rates of the European Central Bank, where available. The effective exchange rate index

(nominal) is weighted by major trading partners, and calculated on a base period of 1995 (annual

average).

Reserve assets:

end-year stock data. They are defined as the sum of central bank holdings of gold,

foreign exchange, and other (gross) claims on non-residents. Gold is valued at end-year market price.

External trade

Imports and exports (current prices):

the data is based upon the special trade system, according to

which, external trade comprises goods crossing the customs border of the country. Trade data

excludes direct re-exports, trade in services as well as licences, know-how and patents. Since 1997,

trade data includes trade between industrial customs free zones and foreign markets. Since 1997

also, operative leasing and repair are excluded from external trade turnover. The data for 1996 were

recalculated according to the methodological changes in 1997. The data for periods up to 1996 are

published in the original content, therefore they are not comparable with the data of 1996 and 1997.

Value of external trade turnover includes the market value of the goods and the additional costs

(freight, insurance etc.).

Trade classification:

until the end of 1996, the trade in goods was recorded by using two types of

classification in parallel: the Hungarian External Trade Classification (KTJ) and the Harmonised

Commodity Description and Coding System (HS) nomenclature. The customs documentation is the

statistical data source of external trade turnover. Since 1996, the data are collected according to the

Combined Nomenclature (CN). The earlier data are updated on the basis of the later processing.

The term FOB means that all costs incurred in transport up to the customs frontier are charged to the

seller. The term CIF means that the purchaser pays the additional costs. Imports are recorded on CIF

basis on the date of custom clearance. Exports are recorded on FOB basis with the date on which the

commodities cross the state border.

Terms of trade:

“Unit value” index calculation is used for measuring price changes in external trade,

with the exception of heterogeneous commodity groups, where the sample method is applied for the

price observation. Since the I quarter of 1996 due to the modifications in the calculation of unit

value indices and the application of Fisher indices instead of Paasche indices, the quarterly volume

indices has been changed.

Imports and exports with EC-15:

data declared by the Republic of Hungary.

Demography

Net migration rate:

crude rate of net migration (recalculated by EUROSTAT) for year X, is:

population (X+1) - population (X) - Deaths (X) + Births (X). This assumes that any change in

population not attributable to births and deaths is attributable to migration. This indicator includes

therefore also administrative corrections (and projection errors if the total population is based on

estimates and the births and deaths on registers). Figures are in this case more consistent. Further,

most of the difference between the Crude rate of net migration provided by a country and the one

calculated by Eurostat is caused by an under reporting or delay in reporting of migration.

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Labour force

Economic activity rate (ILO Methodology):

according to the Labour Force Survey (LFS); it

represents the labour force as a percentage of population at working age (15 years and more), where:

- Labour force: employed and unemployed persons (according to the ILO definitions).

- The employed: all persons aged 15+, who during the reference period worked at least one hour for

wage or salary or other remuneration as employees, entrepreneurs, and members of co-operatives or

contributing family workers. Members of armed forces are considered as employed.

- The unemployed: all persons aged 15+, who concurrently meet all three conditions of the ILO

definition for being classified as the unemployed:

have no work,

are actively seeking a job and,

are ready to take up a job within a fortnight.

LFS monitors only person's aged 15-74.

Unemployment rate (by ILO methodology):

percentage of the unemployed in labour force.

These rates are derived from LFS (Labour Force Survey) observing the ILO definitions and

recommendations mentioned below.

Average employment by NACE branches (LFS). This indicator is derived from LFS (Labour Force

Survey) observing the ILO definitions and recommendations.

Infrastructure

Railway network:

all railways in a given area. This does not include stretches of road or water even

if rolling stock should be conveyed over such routes; e.g. by wagon-carrying trailers or ferries. Lines

solely used for tourist purposes during the season are excluded as are railways constructed solely to

serve mines; forests or other industrial or agricultural undertakings and which are not open to public

traffic. The data considers the construction length of railways.

Length of motorway:

road, specially designed and built for motor traffic, which does not serve

properties bordering on it, and which:

(a)

is provided, except at special points or temporarily, with separate carriageways for the two

directions of traffic, separated from each other, either by a dividing strip not intended for traffic, or

exceptionally by other means;

(b)

does not cross at level with any road, railway or tramway track, or footpath;

(c)

is specially sign-posted as a motorway and is reserved for specific categories of road motor

vehicles.

Entry and exit lanes of motorways are included irrespectively of the location of the signposts. Urban

motorways are also included.

Industry and agriculture

Industrial production volume indices:

industrial production covers mining and quarrying,

manufacturing and electricity, gas, steam and water supply (according to the NACE Rev.1

Classification Sections C,D,E).

Index of total industrial production includes the data of all industrial enterprises. The indices by

branches refer to enterprises with more than 10 employees.

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Gross agricultural production volume indices:

calculated using the fixed price basis applied for

national accounts. Until 1996 the prices of 1991,and from 1997 the prices of 1995 serve as fixed

price basis in the calculation.

Standard of living

Number of cars:

Passenger car: road motor vehicle, other than a motor cycle, intended for the

carriage of passengers and designed to seat no more than nine persons (including the driver).

The term "passenger car" therefore covers microcars (need no permit to be driven), taxis and hired

passenger cars, provided that they have less than ten seats. This category may also include pick-ups.

Telephone lines:

connected main line actually operating or temporarily suspended, main lines that

connect terminal equipment to a switching exchange. These include private and institutional main

lines, lines of public payphones and telecommunications service lines. Mobile phone lines are

excluded. Connected main lines can be classified as dwelling, business and public main lines.

Note: Since the passing of the Hungarian Telecommunication Law, the Hungarian Central Statistical

Office (like the countries of the EU ) has been collecting data on the main lines. Before 1993, the

new Telecommunication Law, statistics surveyed main stations.

Number of Internet connections:

data collection of Internet connections started in 1999.

Sources

Total area, infrastructure, industry and agriculture, external trade, labour market: National sources.

National accounts, inflation rate, balance of payment, public finance, finance, demography: Eurostat.