No. 39, 1996 - Hungary's Trade Policy and Trade Régime: from Neoprotectionism to Liberalism or Vica Versa?

Hungarian trade policy has a long and complicated history, determined by the accelerated Europe Agreement, the Uruguay Round the resulting new disciplines, and bilateral agreements. The latter cover primarily the USA, where protection of intellectual property rights is the major issue, as well as free trade agreements with the rest of EFTA and most recently with Turkey a similar deal with Israel is underway. To tell a long story (Csaba, 1996) short, the EA shapes decisively Hungarian trade regime, and CEFTA serves as a training ground for implementing the new WTO disciplines. The latter are subordinate, insofar as over 70 per cent of the country’s trade falls under preferential arrangements. In practical terms it means a strong dispreference for former CMEA partners that CIS, but also Bulgaria and Romania. This feature was criticised early on (Aghion, et al, 1992), still it reflects new realities and policy priorities fostering trade reorientation. Bilateralism is a pronounced feature of CMEA, where reciprocity is the guiding principle in granting actual concessions in terms of market access. This feature was reiterated by the recently promulgated guidelines for future enlargement of this group, where point 2 specifically highlights the need to strike bilateral deals with each and every member state separately on the particulars, should any new entrant wish to join. The overall trend of the 1989-96 period was liberalisation, which survived recurring, but futile, attempts by various protectionist lobbies and politicians. As Hungarian authorities accorded priority treatment to OECD membership of the country, which materialised in March 1996, they were willing to grant a number of concessions, which their predecessors rejected at the time of signing the WTO, especially in the field of financial services, but also in the forex law and in the law on public procurement. Several analysts consider this approach as a “rush” (Gács, 1994; Inotai, 1995), whereas others (Balázs, 1996, pp. 194-5) complain about the insufficient and belated tariffication of previous levels of effective protection.
As far as overall trade patterns are concerned, Hungary stands out for its relatively sustaining and intensive ties with the CIS. This has to do with the complementary of mutual supply, as well as with the unilateral dependence of Hungary on Russian oil and gas supplies. Actually, owning to the comparative advantage secured by the available system of pipelines, no alternative supplier can present lucrative offers. Meanwhile, the adjustment slump in 1990-92, and the relatively slow recovery, as well as the dying out of traditional material-intensive and energy-intensive branches as aluminium and petrochemicals, as well as steel, have significantly decreased the energy needs of the country. A reflection of this state of affairs is the over 800 mn trade deficit with CIS, over a third of the total in 1995. Given the supply constraints of Russian manufacturing sectors and their low competitiveness, the deficit seems structural rather than cyclical, but also giving no grounds for concern.

The paper is available here.