RESTRICTED
WORLD TRADE WT/BOP/G/4
4July1997
ORGANIZATION(97-2797)
Original: English Committee onBalance-of-Payments Restrictions
1997 CONSULTATIONS WITH THE REPUBLIC OFBULGARIA
UNDER ARTICLE XIIOFTHE GATT 1994 AND
THE RELATED UNDERSTANDING
Basic Document Supplied bytheRepublic ofBulgaria
I. LEGAL AND ADMINISTRATIVE BASIS OFTHE IMPORT RESTRICTION
1. Acting inconformity withtherelevant provisions ofArticle XIIoftheGeneral Agreement
onTariffs andTrade 1994, theDeclaration onTrade Measures Taken forBalance-of-Payments Purposes
of1979 andtheUnderstanding ontheBalance-of-Payments Provisions oftheGATT 1994, the
Government oftheRepublic ofBulgaria hasintroduced atemporary import surcharge inJune1996
inorder toforestall animminent threat ofaserious decline inforeign exchange reserves and
balance-of-payments difficulties.
2. Theimport surcharge wasintroduced pursuant toRegulation oftheCouncil ofMinisters No.118
of30May1996 (State Gazette No.48 of1996), witheffect from 4June1996.
3. TheRepublic ofBulgaria submitted information ontheintroduction ofthetemporary surcharge
totheWorking Party ontheAccession ofBulgaria (contained inDocument WT/ACC/BGR/5 of
20September 1996). Following itsWTO accession, Bulgaria notified theintroduction ofthemeasure
under paragraph 9oftheUnderstanding ontheBalance-of-Payments Provisions oftheGATT 1994
inDocument WT/BOP/N/18 of27March 1997.
II. METHODS USED INRESTRICTING IMPORTS
4. TheGovernment oftheRepublic ofBulgaria isoftheopinion thatthemethod usedinrestricting
imports andtheadministration ofthemeasure isincompliance withtherelevant provisions ofthe
GATT 1994, theDeclaration onTrade Measures Taken forBalance-of-Payments Purposes of1979
andtheUnderstanding ontheBalance-of-Payments Provisions oftheGATT 1994.
5. Auniform surcharge of5percentislevied onimports intended forhome use.Itiscalculated
onthecustoms value oftheimported goods.
6. Theapplicationoftheimportsurchargedoesnotpreventtheimportationsofcommercialsamples
orprevent compliance withpatent, trade mark, copyright orsimilar procedures andisconsidered not
todamage thecommercial oreconomic interests ofanyother WTO Member.WT/BOP/G/4
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III. PLANFORTHEPROGRESSIVERELAXATIONANDELIMINATIONOFTHE
RESTRICTION
7. Thetimetable fortheprogressive reduction andelimination ofthesurcharge isasfollows:
- from 4June1996 till30June1997 -5percentage points
- from 1July1997 till30June1998 -4percentage points
- from 1July1998 till30June1999 -2percentage points
- from 1July1999 till30June2000 -1percentage points
- elimination from 1July2000.
IV. TREATMENTOFIMPORTSFROMDIFFERENTSOURCESINCLUDINGINFORMATION
ONTHE USEOFBILATERAL AGREEMENTS
8. Theimport surcharge isapplied inanon-discriminatory manner toimported goods irrespective
oftheirorigin. Itcovers imports from allcountries, including developing andleast-developed ones,
aswellasfrom trading partners commercial relations withwhich arebased ontheprovisions of
Article XXIV oftheGATT 1994.
V. COMMODITIES, ORGROUPS OFCOMMODITIES, AFFECTED BYTHE VARIOUS
FORMS OFIMPORTS RESTRICTIONS
9. Thesurcharge applies toallgoods imported withthefollowing exceptions:
- some essential products, specified inAnnex 1,meeting basic consumption needs or
contributing toBulgaria ’sefforts toimprove itsbalance-of-payments situation;
- capital goods asprovided forintheLawontheEconomic Activity ofForeign Persons
andontheProtection ofForeign Investments;
- cases provided forintheCustoms LawandtheRegulation fortheimplementation of
theCustoms Law, suchasgoods intransit andtemporarily imported goods; diplomatic
goods, commercial samples, domestic goods re-expedited from abroad, donation to
theRedCross, nuclear fuel,etc.
VI. EFFECTS OFTHE IMPORT RESTRICTION ONTRADE
10. After considering different options aiming atforestalling theimminent threat ofaserious decline
inBulgaria ’sforeign exchange reserves, theGovernment haschosen themeasure thatleastdistorts
trade. Inaccordance withtheUnderstanding ontheBalance-of-Payments Provisions oftheGATT 1994,
theimport surcharge asaprice-based measure isconsidered tohavelessdisruptive effect ontrade
thanalternative quantitative restrictions orother similar measures, since itwillnotinterfere withthe
policies aimed atgranting alltraders equal opportunity toengage ininternational commerce.
11. Themeasure isapplied onlytocontrol thegeneral levelofimports. Becauseofits
comprehensive trade coverage, thesurcharge isnotusedforthepurpose ofprotecting anyspecific
industry orsector oftheeconomy. However, inorder tominimize anyincidental protective effects,WT/BOP/G/4
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theimport surcharge isadministered inanon-discriminatory andtransparent manner, asrequired by
therelevant GATT 1994 provisions.
12. Therestrictive impact ontrade isconfined towhat isconsidered necessary formeeting the
stated objective ofthemeasure, asprovided forintheGATT 1994. Depending onthestrength of
Bulgaria ’sexternal position, theGovernment willstrive toaccelerate thephasing outofthesurcharge.
VII. GENERAL POLICY INTHEUSEOFRESTRICTIONS FORBALANCE-OF-PAYMENTS
REASONS
13. Theintention oftheGovernment oftheRepublic ofBulgaria istopursue reform programme
through economic measures which expand, rather thancontract international trade. Inthisrespect,
theGovernment iscommitted tophase-out theimport surcharge inaccordance withthetimetable
envisaged.
14. Theeconomic background against which theimport surcharge wasintroduced isdescribed
indocuments WT/ACC/BGR/5 andWT/BOP/N/18.
15. TheBulgarian economy suffered major setbacks during 1996characterised byasevere foreign
exchange andbanking crisis, asharp decline ineconomic activity andrealmoney demand, highpublic
indebtedness, andanunsustainable fiscal path. Thedepth ofthefinancial crisis wasreflected inthe
economic outcomes for1996: realGDPfellbyanestimated 9percentand,fromend-1995 toend-1996,
theBulgarian levdepreciated from71to487perUS$, and12-month inflation accelerated from33to
311percent.Thecurrent account hasposted asmall surplus (0.4percentofGDP) andthetradebalance
improved slightly, butexport andimport volumes declined sharply by12percent.Thedropinexports
isattributed toweak foreign demand, theagricultural drought, andthedisruption inbanking and
enterprise sectors asaresult ofthefinancial andeconomic crisis. Imports declined mainly duetothe
dropinrealGDP, therealdepreciation oftheexchange rateduring theyear, andfinancial difficulties
intheenergy sector.
16. Theeruption ofthebanking crisis inthespring of1996 dealtasevere blow totheBulgarian
economy. Fifteen banks, holding about 31percentofhousehold deposits outside theState Savings
Bank and23percentoftotalenterprise deposits, were placed under conservatorship intwowaves
andpetitions were filedfortheirbankruptcy. Atthebeginning of1997, twobanks were declared
bankrupt. Capital outflows andwithdrawals from thebanking system contributed toasharp decline
inofficial reserves (excluding gold) from US$1.2 billion toUS$0.5 billion, equivalent toabout one
month ofimports ofgoods andnon-factor services. Despite these adverse circumstances, Bulgaria
remained current onitsexternal debtservice andaprimary fiscal surplus (excluding BNB transfers)
ofover8percentofGDP wasachieved; however, thecollapse ofreallevmoney demand (by65per
centthrough theyear) andtheensuing higher inflation andnominal interest ratespushed theoverall
deficit upto11percentofGDP, from lessthan6percentofGDP in1995.
17. Thelevfellfromjustunder 500perU.S.dollar atend-December 1996to3,000 perU.S.dollar
bymid-February1997beforereboundingatabout1,500perU.S.dollarinmid-March.Theconsequences
ofthedepreciation wereanacceleration ofinflation andacollapse ofliving standards: inflation jumped
to43.8percentinJanuary and243percentinFebruary -thehighest monthly ratesincethebeginning
ofBulgaria ’stransition. Pensions felltoUS$5-7permonth andwages inthebudget sector tobelow
US$10permonth.EvenwiththemeasurestakenbythecaretakerGovernment,socialconditionsremained
dire.WT/BOP/G/4
Page4
18. Against thisbackground, themacroeconomic framework for1997 ispremised onagradual
restoration ofconfidence inahighly uncertain environment. Following thesharp decline intradeduring
thefirstquarter of1997, theadoption ofstabilization measures andstructural reforms isexpected to
leadtomodest growth ofexports andimports fortheyearasawhole.
19. Acurrency board arrangement willbeestablished, effective July1,1997. AnewLawonthe
Bulgarian National Bank (BNB) hasbeenadopted byParliament. Intheperiod uptoJuly1,1997,
theBNB willoperate asadefacto currency board, keeping theexchange rateatthelevelofthepeg
through unsterilized intervention andwithout extending credit tothebanking system orthegovernment.
TheGerman Mark hasbeenchosen asthepegcurrency andtheBulgarian levispegged atarateof
1000levaper1DM.
20. ThesuccessfulimplementationofthemacroeconomicstabilizationprogrammeoftheGovernment,
supported bytheIMF, thehighlevelofforeign debt(99.1 percentofGDPfor1996) anddebtservice
payments (10.8 percentofGDP) callforthenecessity tocontinue in1997 themeasures forfurther
normal servicing ofdebtobligations. Foreign debtpayments fortheperiod uptoyear2000 remain
ataveryhighlevel. Interests paidin1996 amount to5.6percentofGDP.
21. Forthemedium term, thebasic strategy oftheGovernment isoneoffostering export and
investment ledgrowth byestablishing andsustaining financial stability, hardbudget constraints, and
supply sideadjustment. Aspartofthisstrategy, financial andincomes policies under thecurrency board
arrangement willbesetwithaviewtopreserving costcompetitiveness.WT/BOP/G/4
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ANNEX 1
Description ofgoods Tariff Item No.
Crude oils ex2709 00
Natural gas 2711 11000
2711 21000
Electrical energy 2716 00000
Coalandbriquettes 2701
Lignite 2702
Coke andsemi-coke ofcoalorlignite 2704 00
Nuclear fuel ex2844 20
Copper oresandconcentrates 2603 00000
Unwrought aluminium 7601
Chemical wood pulp 4703
4704
Polyvinyl chloride ex3904
Cotton 5201 00
Medicaments 3003
3004
Rawcanesugar ex1701
Wheat 1001
Maize forforage 1005 90001
Wheat flour ex1101 00000WT/BOP/G/4
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ANNEX 2
WT/BOP/G/4
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WT/BOP/G/4
Page8
WT/BOP/G/4
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Table 1
Bulgaria 'sForeign Trade byTrading Partners
IMPORTS
No Countries1995 1996 Jan-April 1997 Index
US$mill. US$mill. US$mill. 1996/1995
1EUcountries including 2097.8 1762.2 439.2 84.0%
Germany 697.0 567.3 131.7 81.4%
Italy 326.6 316.1 80.7 96.8%
Greece 248.7 195.4 54.0 78.6%
France 157.3 162.2 39.8 103.1%
Austria 156.9 121.6 30.1 77.5%
Great Britain 147.4 102.9 33.6 69.8%
Holland 111.0 90.6 20.6 81.6%
2EFTA countries 104.8 85.3 21.3 81.4%
3Others OECD countries including 311.6 272.2 77.3 87.4%
USA 119.1 110.4 33.6 92.8%
Turkey 99.8 95.6 30.4 95.8%
4Balkan countries 244.7 162.9 26.1 66.6%
5CEFTA countries 178.1 158.9 47.8 89.2%
6Former USSR countries including 1869.2 1694.2 388.8 951.5%
Russia 1583.9 1526.2 344.8 96.4%
Ukraine 188.1 118.7 31.7 63.1%
7Other countries 832.3 905.2 185.4 108.8%
Total Imports /CIF/ 5638.5 5040.9 1186.7 89.4%
EXPORTS
No Countries1995 1996 Jan-April 1997 Index
US$mill. US$mill. US$mill. 1996/1995
1EUcountries including 2012.0 1909.2 694.8 94.9%
Italy 436.0 491.7 204.7 112.8%
Germany 457.8 441.0 151.9 96.3%
Greece 367.7 347.2 128.4 94.4%
Great Britain 167.2 140.7 32.9 84.2%
France 152.9 127.3 39.0 83.3%
Spain 133.8 111.3 39.9 83.2%
Holland 102.5 79.6 20.6 77.6%
2EFTA countries 82.6 49.4 12.3 59.8%
3Others OECD countries including 592.3 552.2 208.8 93.2%
Turkey 385.1 383.1 132.7 99.5%
USA 162.3 112.4 34.1 69.3%
4Balkan countries including 692.8 512.9 92.0 74.0%
Yugoslavia 85.5 231.0 31.7 270.3%
FYR ofMacedonia 436.2 148.1 26.1 34.0%
Romania 95.6 75.3 17.5 78.8%
5CEFTA countries 97.3 94.7 35.1 97.3%
6Former USSR countries including 922.8 948.2 277.2 102.8%
Russia 536.1 479.2 121.2 89.4%
Ukraine 190.7 166.1 48.7 87.1%
Moldova 43.1 90.6 24.1 210.3%
Georgia 0.0 78.6 44.6 0.0%
7Other countries including 945.7 814.8 237.3 86.2%
Syrian Arab Republic 69.9 74.0 n.a. 105.8%
TOTAL EXPORTS /FOB/ 5345.4 4881.4 1557.5 91.3%
Source: For1995 -NSI, finaldata.
For1996 and1997- Ministry ofFinance, preliminary dataWT/BOP/G/4
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Table 2
Bulgaria -Imports bymain categories, 1995-1996
Commodity groups 1995
(%)1996
(%)
Consumer goods 12.6 9.9
Rawmaterials 39.0 35.1
Investment goods 19.7 17.5
Mineral fuels, oilsandelectricity 28.8 36.3
Total 100 100
Source: For1995 -NSI, finaldata
For1996 -Ministry ofFinance, preliminary data
Table 3
Bulgaria -Trade composition, 1995-1996
EXPORTS
Commodity groups 1995
(%)1996
(%)
1.Chemical products, plastics andrubber 18.4 20.0
2.Animal andvegetable products, food, drinks andtobacco products 21.9 18.7
3.Basemetals andarticles ofbasemetals 19.6 17.7
4.Textile andleather materials, clothing, footwear, furniture andother industrial
consumer goods12.8 14.7
5.Machines, transport facilities, appliances andtools 14.1 15.2
6.Mineral products andfuels 8.3 9.1
7.Wood, paper, earthenware andglass products 4.8 4.6
Total 100 100
IMPORTS
Commodity groups 1995
(%)1996
(%)
1.Mineral products andfuels 31.5 39.2
2.Machines, transport facilities, appliances andtools 22.3 19.5
3.Chemical products, plastics andrubber 14.2 12.5
4.Textile andleather materials, clothing, footwear, furniture andother industrial
consumer goods11.4 11.7
5.Animal andvegetable products, food, drinks andtobacco products 8.1 7.3
6.Basemetals andarticles ofbasemetals 7.0 5.3
7.Wood, paper, earthenware andglass products 5.4 4.4
Total 100 100
Source: For1995 -NSI, finaldata
For1996 -Ministry ofFinance, preliminary dataWT/BOP/G/4
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ANNEX 3
Table 1
Bulgaria -Balance ofPayments, 1996 -1997
1996 1997
IQ IIQ IIIQ IVQ Total IQ
Current Account 1/ -175.3 54.4 152.5 9.3 40.8 224.2
Goods, net2/13/ -32.8 74.8 137.4 28.6 208.0 355.2
credit 1191.6 1222.2 1221.4 1246.2 4881.4 1180.8
debit -1224.4 -1147.4 -1084.0 -1217.6 -4673.4 -825.6
Services, net3/ -23.5 -23.7 163.6 7.1 123.5 -29.8
credit 268.1 276.6 471.5 349.2 1365.5 237.6
debit -291.6 -300.3 -307.9 -342.1 -1241.9 -267.4
Income, net4/ -166.2 -27.6 -165.0 -36.3 -395.1 -137.4
credit 54.6 26.9 58.9 40.5 181.0 66.0
debit -220.8 -54.6 -223.9 -76.9 -576.1 -203.4
Current transfers, net 47.1 30.8 16.5 9.9 104.4 36.2
credit 73.2 56.5 53.8 48.2 231.8 54.7
debit 5/ -26.1 -25.7 -37.3 -38.4 -127.4 -18.5
Capital andfinancial account 1/6/ 217.1 -119.5 39.4 -43.5 93.6 -92.2
Capital account 0.0 0.0 65.9 0.0 65.9 0.0
Capital transfers, net 0.0 0.0 65.9 0.0 65.9 0.0
Financial account 217.1 -119.5 -26.5 -43.5 27.6 -92.2
Direct investment 76.4 12.4 10.2 40.8 139.8 40.4
Abroad 21.7 -0.9 -0.5 -0.3 19.9 0.0
Inreporting country 7/ 54.8 13.3 10.7 41.1 119.9 40.5
Portfolio investment -37.2 -21.6 -121.2 11.4 -168.6 20.5
Assets -12.4 -31.7 -23.0 20.8 -46.3 -4.7
Liabilities -24.8 10.1 -98.2 -9.4 -122.3 25.2
Other investment -414.1 -179.9 -17.7 -83.0 -694.8 -118.0
Assets -325.5 -166.0 -94.5 -65.7 -651.7 -64.9
Trade credits, net -0.1 -0.9 -1.0 -0.1
Loans 8/ 89.3 78.6 90.9 80.4 339.2 90.5
Currency anddeposits 9/ 18.9 135.1 -62.6 18.1 109.5 -96.0
Other assets 10/ -433.7 -379.7 -122.8 -163.2 -1099.4 -59.3
Liabilities -88.6 -14.0 76.8 -17.3 -43.1 -53.1
Trade credits, net 0.6 -0.3 0.2 0.9
Loans -129.5 -109.3 42.4 -1.2 -197.5 -68.6
Currency anddeposits 10.5 21.1 12.3 4.9 48.8 -2.9
Other liabilities 11/12/ 30.4 74.3 21.5 -20.7 105.4 17.5
Reserves (increase: -) 592.0 69.6 102.3 -12.7 751.2 -35.1
Monetary gold 0.0 0.0 0.0 0.0 0.0 0.0
Special drawing rights 24.3 -8.3 4.7 -2.9 17.8 1.8
Reserve position intheFund 0.0 0.0 0.0 0.0 0.0 0.0
Foreign exchange 567.7 77.9 97.6 -9.8 733.4 -36.9
NetErrors andOmissions -41.7 65.1 -191.9 34.2 -134.4 -132.0
Table 1(cont'd)WT/BOP/G/4
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*Inaccordance withIMF5thedition oftheBalance ofPayments Manual.
1/Thedatafor1996 arepreliminary.
2/Customs dataprovided bytheComputing Center oftheMinistry ofFinance.
3/Includes transport, travel andother services.
4/Tourist dataareprovided bytheNSIandestimated byBNB. Actual receipts ofinterests, since 1996 -duereceipts. Interest payments
areonaduebasis Since thirdquarter of1996 including compensation ofemployees.
5/Including dataprovided bytheAgency forForeign AidandBulgarian RedCross.
6/Forassets, a(-)denotes anincrease inholdings andapositive figure represents adecrease.
7/Dataondirect investment inBulgaria areprovided bytheMinistry ofFinance andtheAgency forPrivatization.
8/Includes gasdeliveries under theJamburg agreement.
9/Includes DMBs deposits heldinnonresident banks.
10/Includes change inthedeposits ofresident households andprivate companies andother short-term assets.
11/Includes clearing account repayments toformer CMEA countries.
12/Including rescheduled payments andarrears.
13/Settlement datareceived from commercial banks:
Goods, net -172.2 -0.1 104.8 155.3 87.9 151.7
Credit 1433.6 1301.1 1039.6 978.5 4752.7 866.1
Debit -1605.8 -1301.2 -934.8 -823.1 -4664.9 -714.5
Source: BNB.