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1March 1996
LIBERAL TRADE POLICIES FUNDAMENTAL
TOTHE CZECH ECONOMIC TRANSFORMATION
Theestablishmentofaliberalandtransparentinternationaltraderegimehasbeenakeyingredient
intheCzech Republic 'stransformation toamarket economy. Thistransformation, which hasalso
included suchmarket-oriented reforms aspriceliberalization andtheprivatization ofstateenterprises,
hasbeenfacilitated byprudent macroeconomic management. After asevere economic downturn during
which GDP declined bysome 21percentbetween 1990 and1993, theCzech Republic hasmanaged
tostabilize itseconomy, reduce inflation to9percentandmaintain lowunemployment. RealGDP
growth in1995, duemainly toincreased private consumption andinvestment, accelerated toanestimated
fivepercentfrom 2.6percentin1994.
Czech trade policies willbediscussed atameeting oftheWTO 'sTrade Policy Review Body
on6-7March. According totheWTO Secretariat report which willserve asthefocus ofthediscussion,
theCzech traderegime isatransparent one.Import policies arecharacterized bymost-favoured-nation
(m.f.n.) tariffs applied atmoderate ratesonanadvalorem basis. There arenospecific, composite
orother non-ad valorem tariffs, andnon-tariff measures areusedinfrequently. However, eventhough
the1995simple average m.f.n. tariff of8percentismoderate, average tariffs risefromfourpercent
forprimary products tosixpercentforsemi-processed goods andto10percentforfullyprocessed
goods. Agricultural products haveparticularly hightariffs onafewitems while foodproducts and
beverages havetariffs averaging 19percent.
Thereport states thatcountries withwhich theCzech Republic hasregional trade agreements
accountfor80percentoftotalmerchandisetrade.Suchagreementsencompassallmajortradingpartners
except Russia,1andagreements withother countries arebeing considered. Thecountries withwhich
theCzech Republic haspreferential agreements would alsolikely beitsmajor trading partners even
1Thesixagreements aretheCzech-Slovak Customs Union, theEUAssociation Agreement, the
Central European FreeTrade Agreement (CEFTA, which includes theCzech Republic, Hungary and
Poland) andfree-trade agreements withRomania, Slovenia, andthecountries oftheEuropean Free
Trade Area (EFTA).
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intheabsence ofsuchagreements. However, incombination withgenerally lowm.f.n. tariffs this
suggests, according tothereport, thattheCzech Republic 'snetwork oftradeagreements is,onbalance,
nettrade-creating. Simple average tariffs applied toimports frompreferential trading partners in1995
ranged fromanaverage of3.3percentforSlovenia to6percentforPoland. Tariffs onimports from
theEuropean Union, towhich theCzech Republic recently applied formembership, averaged 5.5
percent. TheCzech Republic counts imports made atpreferential tariff ratesagainst them.f.n tariff
quota levels established under theminimum market access provisions oftheUruguay Round Agreement
onAgriculture, apractice thatthereport notes reduces market access fornon-preferential suppliers.
Anoriginal member ofbothGATT andtheWTO, theCzech Republic hasbeensuccessful
inattracting foreign investment, receiving onefourth ofthetotalforeign direct investment made to
dateincentral andeastern Europe. Foreign investors maytransfer theirshare ofafter-tax profits to
theircountry oforigin andforeign-owned capital maybefullyrepatriated. Privatization hasproceeded
rapidly. Before starting witheconomic reforms, fourpercentofGDPwasprivately owned. By1995,
some 80percentoftheeconomy 'sassets were privately owned andwellover60percentofGDP
wasaccounted forbytheprivate sector.
TheCzech Republic hasnoanti-dumping, countervailing dutyorsafeguards legislation inforce
andhasnever applied suchmeasures; legislation isbeing prepared inthese areas andisexpected to
beimplemented laterthisyear. Thereport states thattheCzech Republic hasresorted tomonitoring
theexports ofsome products partly toavoid theimposition ofanti-dumping measures byimporting
countries. Itnotes thatcertain provisions could beincluded inthelegislation toreduce theriskof
established domestic firms abusing anti-dumping lawtostifle import competition. Forexample, the
newlegislation could include apublic interest clause requiring thatthepotentially harmful effects of
anti-dumping measures onconsumers anddownstream industries beconsidered inthedecision process.
Under theGeneral Agreement onTrade inServices (GATS) theCzech Republic hasmade
commitments toallow foreign firms toestablish acommercial presence inthecountry inorder toprovide
avarietyofservices.TheCzechRepublichastakenm.f.nexemptionsinfourservicesectors:audio-visual
services andpassenger andfreight transport services oninternal waterways, railtraffic, androad
transport. External services receipts range between 13and15percentofGDP. Recently, theCzech
Republic hashadexternal services trade surpluses equivalent totwotosixpercentofGDP.
TheCzech Republic isparty toallmajor multilateral agreements inthefieldofintellectual
property rights. Foreign right-holders receive thesame treatment asCzech legalornatural persons.
Intheareaofindustrial designs andpatents theCzech Republic grants national treatment onlyona
reciprocal basis; however, acceptance byother governments oftheWTO TRIPS (intellectual property)
Agreement isconsidered tosatisfy requirements ofreciprocity.
Theimportance offoreign trade totheCzech economy isindicated bythefactthatthevalue
ofgoods andservices trade exceeded GDP in1994. Thesignificance oftrade isonereason whythe
Czech Republic takes great interest inthetrade policies ofitspartner countries andhasbeenactive
inGATT andWTO efforts tostrengthen multilateral trade rules. Athome, theCzech Republic has
fullyrecognized theimportance oftrade inpromoting effective economic competition, which liesat
theheart ofthetransition toamarket economy. Thecountry 'sliberal trade regime, according tothe
report, hasapositive andimportant roleinthistransition.
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Notes toEditors:
TheWTO Secretariat 'sreport, together withareport prepared bytheCzech Republic will
bediscussed bytheWTO Trade Policy Review Body (TPRB) on6and7March 1996. TheWTO 's
TPRB conducts acollective evaluation ofthefullrange oftrade policies andpractices ofeachWTO
member atregular periodic intervals andmonitors significant trends anddevelopments which mayhave
animpact ontheglobal trading system.
Tworeports, together withareport oftheTPRB 'sdiscussion andoftheChairman 'ssumming
up,willbepublished induecourse asthecomplete Trade Policy Review oftheCzech Republic and
willbeavailable from theWTO Secretariat, Centre William Rappard, 154ruedeLausanne, 1211
Geneva 21.
Thereports cover development ofallaspects oftheCzech Republic 'stradepolicies, including
domestic lawsandregulations, theinstitutional framework, trade policies bymeasure andbysector.
Since theWTO cameintoforce, the"newareas" ofservices tradeandtrade-related aspects ofintellectual
property rights arealsocovered. Attached arethesummary observations from theSecretariat and
government reports. Fullreports willbeavailable forjournalists fromtheWTO Secretariat onrequest.
Since December 1989, thefollowing reports havebeencompleted: Argentina (1992), Australia
(1989 &1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995),
Canada (1990, 1992&1994), Chile (1991), Colombia (1990), Costa Rica(1995), Côted'Ivoire (1995),
Dominican Republic (1996), Egypt (1992), theEuropean Communities (1991, 1993&1995), Finland
(1992), Ghana (1992), Hong Kong (1990 &1994), Hungary (1991), Iceland (1994), India (1993),
Indonesia (1991 and1994), Israel (1994), Japan (1990, 1992 and1995), Kenya (1993), Korea, Rep.
of(1992), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 &1996),
NewZealand (1990), Nigeria (1991), Norway (1991), Pakistan (1995), Peru(1994), thePhilippines
(1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992), Slovak Republic (1995),
South Africa (1993), SriLanka (1995), Sweden (1990 &1994), Switzerland (1991), Thailand (1991
&1995), Tunisia (1994), Turkey (1994), theUnited States (1989, 1992 &1994), Uganda (1995),
Uruguay (1992), Venezuela (1996) andZimbabwe (1994).
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TRADE POLICY REVIEW BODY
THE CZECH REPUBLIC
Report bytheSecretariat -Summary Observations
TheCzech Republic became asovereign State on1January 1993 following thedissolution
oftheCzech andSlovak Federal Republic (CSFR). Thedismantling oftheformer central planning
régime andmovement toward amarket economy werebegun under theCSFR in1990andhavebeen
continued bytheCzech Republic. Market-oriented reforms haveencompassed thedecontrol ofprices,
theprivatization ofStateenterprises, theopening oftheeconomy toforeign investment, theliberalization
oftheforeign exchange régime, andtherelaxation orelimination offoreign traderestrictions. Prudent
macroeconomic management during thereform period hasfacilitated theimplementation ofreforms.
Nevertheless, ledbythecollapse ofexport demand fromformer keytrading partners, andwithadecline
indomestic demand, theeconomy underwent asevere economic contraction during theearly 1990s.
TheCzech Republic hasliberal andtransparent international trade policies. Itstrade régime
ischaracterized bym.f.n. tariffs applied atmoderate ratesonanadvalorem basisandbytheinfrequent
useofnon-tariff barriers. Theresulting openness hascontributed totheeconomic growth andstability
thathavebeenexperienced tothispoint intheeconomic transformation. Themultilateral obligations
thattheCzech Republic hasaccepted inmany areas, suchasitscomprehensive tariff bindings, help
toensure thecontinuation ofthisopenness.
TheCzech Republic inWorld Trade
Ledbya17percentincrease infixed capital formation anda5percentincrease inprivate
consumption, Czech realGDPgrewby2.6percentin1994; inflation wasintheorder of10percent
andunemployment, at3percent, remained low. Percapita income increased totheequivalent of
US$3,490. Growth accelerated in1995 toanestimated 5percent, largely consequent upon further
increasesinprivateconsumptionandinvestment,includingstockbuilding.Inflationmoderatedtoaround
9percentandunemployment remained atabout 3percent.
Growth ininvestment exceeded thatofsavings bytheequivalent of2.2percentofGDP in
1994; thiswasreflected inashiftofthecurrent account from asurplus of2.2percentofGDP in
1993toapproximate balance in1994. Themerchandise tradedeficit widened from1percentin1993
to2.4percentofGDPin1994while theservices tradesurplus declined from3.2percentto2.1percent
ofGDP. Substantial capital inflows nevertheless ledtoabalance-of-payments surplus ofnearly
10percentofGDP; asaresult there wasanincrease inofficial reserves totheequivalent offour
months ofgoods andservices imports.
Continued substantial inflows offoreign capital during 1995 ledtoafurther sharp increase
inforeign exchange reserves, complicating monetary management. Concurrently, thecurrent account
deficit widened toabout 4percentofGDP, ledbyasharp deterioration ofthetrade account, which
recorded adeficit ofsome 8percentofGDP. Strong domestic demand, especially forinvestment
goods, andanappreciation ofthereal(inflation adjusted) effective exchange rateofthekoruna
contributed tothisopening ofthetrade deficit. These factors mayindicate theneedforatightening
offinancial policies toreduce inflationary pressures andforestall losses incompetitiveness. Such
policies would helpsafeguard thetransition process andactagainst anypossible build upofdemands
forprotection.
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Servicesaccountedforalmost53percentofGDPin1994,withindustry,includingconstruction,
responsible for41percent, andagriculture andforestry forsomewhat under 6percent. The
Czech Republic isanetimporter offuelsandrelated products, chemicals, andmachinery andtransport
equipment. Itisanetexporter ofother manufactured products.
TheCzech Republic 'sgeographic pattern oftradehaschanged fundamentally since1989, when
most trade waswiththeSoviet Union andother central andeastern European countries. Excluding
tradewithSlovakia, theshare ofCzech merchandise exports to(western) industrial countries increased
from 37percentin1989 to71percentin1994. Czech trade isconcentrated inEurope, withsome
88percentofbothmerchandise imports andexports exchanged withEuropean countries, including
Russia. Some 56percentofimports arefromtheEuropean Union (particularly Germany andAustria),
withother large import sources being Slovakia andRussia. Thelargest share ofexports, 54percent,
gototheEuropean Union (again, particularly Germany andAustria), followed bySlovakia, Russia
andPoland.
Trade Policy Framework
Czechoslovakia wasanoriginal member oftheGATT, andtheCzech Republic acceded to
theGATT in1993 withnolapse initsapplication oftheGeneral Agreement. TheCzech Republic
ratified theUruguay Round Agreements inDecember 1994 andisanoriginal member oftheWTO.
AllWTO members andGATT contracting parties receive atleastm.f.n. treatment, asdoseveral other
countries withwhich bilateral agreements containing m.f.n. treatment havebeencompleted andothers
towhich suchm.f.n. treatment hasbeengranted autonomously.
Regional trade agreements account for80percentoftheCzech Republic 'stotalmerchandise
tradeandencompass allmajor trading partners except Russia. Thesixagreements aretheCzech-Slovak
Customs Union, theEUAssociation Agreement, theCentral European FreeTrade Agreement (CEFTA,
which includes theCzech Republic, Hungary andPoland), andfree-trade agreements withRomania,
Slovenia, andthecountries oftheEuropean FreeTrade Area(EFTA). Agreements withothercountries
arebeing considered orareunder negotiation.
TheCzech-Slovak Customs Union tookeffect on1January 1993, uponthedissolution ofthe
CSFR. Thecountries share acommon external tariff, though goods fromthirdcountries donotcirculate
freely between them. Most other trade-related policies, suchasimport licensing andpreferences under
theGeneralized System ofPreferences (GSP), areharmonized. Upon thetermination ofmonetary
union between theCzech andSlovak Republics inFebruary 1993, abilateral clearance arrangement
went intoeffect formost commercial transactions between thecountries. Thisarrangement was
eliminated atend-September 1995, withtheCzech koruna fully convertible forcurrent account
transactions asof1October 1995.
TheCzech Republic isexpected toapply formembership intheEUinearly 1996. Much of
itstrade-related legislation hasalready been harmonized tothatoftheEU,andthisprocess of
harmonization continues. TheCzech-Slovak common external tariff, withasimple average of8per
cent, averages some 2percentage points lessthantheEUtariff.
Thecountries withwhich theCzech Republic haspreferential agreements would likely beits
major trading partners evenintheabsence ofsuchagreements. Together withrelatively lowm.f.n.
tariffs, thislimits tradediversion andsuggests thattheCzech Republic 'snetwork oftradeagreements
is,onbalance, nettrade-creating. Solongastariffs onimports from thirdcountries arenotraised,
these features increase thelikelihood thattheCzech Republic 'snetwork oftrade agreements is
economically beneficial from aglobal perspective.
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TheCzechRepublic'sliberaltraderulesarecomplementedbyitsgenerallyopendirectinvestment
régime.ForeigndirectinvestmentisencouragedandtheCzechRepublichasbeensuccessfulinattracting
investment, receiving onefourth oftheforeign direct investment inthecentral andeastern European
region. Under mostcircumstances investments arenotsubject toapproval. Following registration,
foreign firms andindividuals mayconduct business under thesame conditions andtothesame extent
asdomestic firms, withfewexceptions. Foreign investors maytransfer theirshare ofafter-tax profits
totheir country oforigin, andforeign-owned capital maybefully repatriated intheevent ofthe
dissolution ofanenterprise. Under theGeneral Agreement onTrade inServices (GATS), the
Czech Republic hasundertaken horizontal andspecific commitments thathelptoensure thatforeign
firms areabletoestablish acommercial presence inorder toprovide many types ofservices.
Privatization offormer Stateenterprises hasproceeded rapidly. Before thestartoftheeconomic
transformation, 4percentofGDPwasprivately produced; by1995some 80percentoftheeconomy 's
assets wereprivately owned andwellover60percentofGDPwasaccounted forbytheprivate sector.
Theprivatization ofsmall enterprises from1990to1992resulted inmore than20,000 enterprises being
soldatpublic auction. Large enterprises wereprivatized intwowaves beginning in1991 and1993
using amixture ofstandard methods, suchasdirect sales, andvoucher privatization. Some industrial
andpublic utility enterprises hadnotyetbeenprivatized asofOctober 1995. Privatization isexpected
tobecompleted withthefuture saleofthese enterprises. Voucher privatization, under which Czech
citizens could purchase vouchers atlowprices andusethemtobidonshares inenterprises undergoing
privatization, wassuccessful because ofitsrapid paceandthepublic support ithelped todevelop for
theprivatization process. However, voucher privatization wasimplemented without theprior
restructuring ofState-owned enterprises, perhaps delaying theprocess ofindustrial restructuring.
Trade policy features andtrends
Type andincidence ofpolicy instruments
Overall,theCzechimportrégimehasrelativelyfewnon-tariffimportbarriersorexportmeasures.
Non-automaticimportlicensingrequirementsareusedoccasionally,sometimesforenvironmentalreasons.
Automatic licensing requirements, apparently motivated byhealth andsafety considerations, existfor
theexporting orimporting ofmany products. Insome cases, suchasfortextiles andclothing, exports
arerestricted ormonitored inaccordance withbilateral tradeagreements. Export subsidies arelimited
totheagricultural sector.
TheCzech Republic applies theEU'sCombined Nomenclature (CN) tariff classification, of
10,446 eight-digit tariff lines. Attheendof1994, only3percentoftariff linesintheCzech-Slovak
commonexternaltariffremainedunbound;allremainingunboundtariffswerebounduponthebeginning
oftheimplementation oftheUruguay Round, on1January 1995.
Alltariffs arecurrently applied attheirbound ratesandnospecific, composite orother non-ad
valorem tariffs areused, making theexternal tariff verytransparent. While thesimple average m.f.n.
tariffrateisrelatively moderate, Czech m.f.n. tariffs areescalatory: average tariffs risefrom4percent
onprimary products to6percentonsemi-processed products and10percentonfully processed
products. Thesimple average tariffapplied onimports frompreferential trading partners ranges from
3.3percentforSlovenia to6.0percentforPoland, andequals 5.5percentfortheEU.
TheCzech Republic isaparty toallmajor multilateral agreements inthefieldofintellectual
property. Foreign right-holders receive thesame treatment asCzech legalornatural persons, except
thatintheareas ofindustrial designs andpatents theCzech Republic grants national treatment only
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onareciprocal basis. Theauthorities statethatacceptance byother parties oftheTRIPS Agreement,
arequirement ofWTO membership, willbeconsidered tosatisfy thereciprocity requirement.
Temporary measures
TheCzech Republic hasnoanti-dumping (AD), countervailing duty(CVD) orsafeguards
legislation inforce andhasnever applied suchmeasures. Legislation isbeing prepared inthese areas
andisexpected tobeimplemented in1996. Likeother WTO members thatchoose toinclude such
provisions indomestic law,theCzech Republic faces theproblem ofdesigning rules insuchaway
astominimize thepossibility thatestablished domestic firms canabuse them tostifle economic
competition. Ithassometimes found itself ontheother endofsuchpractice andhasadopted export
monitoring (export licence requirements) partly toavoid ADorCVD actions being taken against Czech
exporters. Tohelpprotect effective economic competition, theCzech Republic could consider including
twoprovisions initslegislation. First, theuseofanti-dumping measures could berestricted tothose
occasions when foreign firms canbeshown toengage inpredatory pricing withtheintent ofestablishing
amonopoly position intheCzech market. Similar standards aresometimes usedindomestic competition
law. Second, thelegislation could include apublic interest clause requiring theeconomic effects of
potential ADandCVD measures onconsumers anddownstream industries tobeconsidered inthe
decision process.
Sectoral policy patterns
TheCzech Republic 'sm.f.n. tariffs arefairly uniform across economic sectors. Exceptions
areagriculture, which, following Uruguay Round tariffication, hasparticularly hightariffs onafew
items, andfoodproducts andbeverages, which havetariffs averaging 19percent, nearly triple the
levelelsewhere intheeconomy. Tariff escalation withthelevelofprocessing ismostnoticeable in
sectors suchasfoodprocessing, textiles andclothing. Thetariff structure provides import protection
tohigher-level processing activities inmanufacturing sectors.
Active industrial policy islimited totheagriculture sector. TheStateisinvolved through setting
intervention prices andgranting export subsidies forsome commodities andbyproviding concessionary
loans andcredit guarantees. Many measures, suchastariff quotas andseasonal tariffs, areapplied
toagricultural imports, asinmany other countries; some ofthese replaced variable import levies as
aresult oftheUruguay Round. Notably, theCzech Republic counts imports made atpreferential tariff
ratesagainst them.f.n. tariffquota levels established asaresult oftheUruguay Round minimum market
access provisions; thisreduces themarket access fornon-preferential suppliers.
TheCzech Republic generates external services receipts equivalent tosome 13to15percent
ofGDP, andinrecent years hashadservices trade surpluses of2to6percentofGDP. Astrong
advocate fortheintroduction ofmultilateral rules forservices trade intheUruguay Round, the
Czech Republic made acomparatively large number ofcommitments under theGeneral Agreement
onTrade inServices (GATS). These include ahorizontal commitment (with some sectors excepted)
nottolimittheability offoreign firms toestablish acommercial presence, thusproviding amoresecure
environment fortheestablishment offoreign-owned service providers. TheCzech Republic haslisted
fivemeasures inconsistent withm.f.n. treatment. These measures affect fourdifferent services sectors
and,under theGATS, should notbeapplied formore thantenyears. They aresubject tofuture
negotiations.
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Trade policies andtrading partners
International tradeisextremely important totheCzech Republic, withtheratioofmerchandise
andservices trade toGDP equal tosome 105percentin1994. Recognizing thisimportance, the
Czech Republic hasconstructed arelatively opentrading régime thatunderpins itstransition toafull
marketeconomy.Tradepromoteseffectiveeconomiccompetition,whichliesattheheartoftheeconomic
transition. Abletopurchase inputs fromabroad without, inmostcases, substantial taxesorrestrictions
being imposed, Czech firms havesofarproven abletomaintain export volumes despite theincreasing
realvalue oftheCzech koruna.
TheCzech Republic 'smoderate sizeandhighpropensity totrade suggest itskeeninterest in
thetrade policies ofpartner countries. During theUruguay Round, theCzech Republic sought more
transparent conditions fortheapplication ofnon-tariff measures inorder toprevent protectionist abuses
ofsuchmeasures. Itwashoped, forexample, thatrules could bedeveloped thatwould leadtoa
substantial reduction inthenumber ofanti-dumping actions. TheCzech Republic supported reductions
inproduction andexport subsidies foragricultural products, thedevelopment ofmultilateral rulesfor
services through theGATS, andthesafeguarding ofintellectual property rights under theTRIPS
Agreement, while strongly opposing thelinking oflabour standards totrade policy.
TRADE POLICY REVIEW BODY
THE CZECH REPUBLIC
Report bytheGovernment -Summary Extracts
Introduction
Since thepolitical changes informer Czechoslovakia inNovember 1989, theCzech Republic
hasundergone rapidanddeeptransformation anddemocratization resulting inanewsocial andeconomic
orientation ofthecountry. Overthepastfiveyears, decisive reform stepshavefocused onliberalization
offoreign tradeandprices, radical privatization, demonopolization, internal convertibility ofthenational
currency andrapid development oftheinstitutions necessary toensure anefficient fully-fledged market
economy.
Significant changes intheCzech economy resulted inthepolitical andeconomic stability.
Sound andconsistent macroeconomic policies havebeenimplemented, microeconomic transformation
hasprogressed andthesocial consensus oneconomic policy hasnotbeenendangered byexcessive
hardships oruneven distribution ofburdens. Anopenandliberal tradepolicy based oninternationally
agreed rulesandprinciples hasbeenpursued. Political andeconomic changes in1989andsubsequent
liberalization offoreign trade enabled theCzech Republic toengage ameaningful roleasacredible
GATT contracting party.
Experience ofthepastfiveyears indicates thattheCzech economy overcame theunfavourable
economic consequences ofthetransformation andthattheelimination oftheremaining negative factors,
including thenecessary adjustment ofproduction baseandcertain systemic measures, isandwillbe
outweighed bycurrent positive developments. Recent results prove thattheCzech Republic hasalready
entered intothepost-transformation stage since thebasic reform objectives have already been
accomplished andtherapid GDP growth guaranteed. Asaresult ofthese developments, theCzech
Republic became anOECD member inDecember 1995.
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Trade policy
After thechanges in1989, afundamental shiftintheevaluation offormer political andtrade
priorities, andintheoverall orientation oftheCzech Republic tookplace. Thecurrent trade policy
isbased ontheprinciples ofmarket economy, freecompetition andrespect forinternational rulesand
principles asembodied intheWTO Agreement andarrangements annexed thereto. TheCzech Republic
isastrong supporter oftheopenandliberal multilateral trading system.
Theprime objectives oftheCzech trade policy maybesummarized, asfollows:
A. Pursuanceofliberalandopentradepolicy,aimedatincreasingsecurityandpredictability
ofmarket access, enhancing economic competition, implementing binding international
tradeagreements andcompleting theframework fordomestic tradepolicy mechanism;
B. Active participation inthemultilateral trading system based onagreed rules and
principles andonimplementation ofallagreements concluded during theUruguay
Round;
C. Mutual reinforcement ofmultilateral, plurilateral andbilateral traderelations; gradual
integration intotheEuropean Union leading tofullmembership.
ThetradepolicysysteminheritedfromformerCzechoslovakiain1992hasbeenfurtherdeveloped
andliberalized bytheCzech Republic. Akeyroleisplayed bytariffs. Asubstantial reduction ofthe
previously excessive number ofquantitative restrictions andother barriers totrade hasbeenrealized.
Thelistofproducts subject toimport orexport licensing procedures hasdecreased significantly and
islimited tosome specific categories ofgoods. TheCzech Republic hasnotresorted tosafeguard,
anti-dumping orcountervailing actions.
Theaverage customs incidence oftheCzech tariffs islowanditdoesnotexceed thelevelof
5.9percent; onindustrial products (Chapters 25-97) 5.2percentandonagricultural products
(Chapters 1-24) 13percent.
Asaresult oftariff reduction commitments oftheUruguay Round, thenewweighted tariff
average willbe4.5percent.Theweighted average tariffonindustrial products andagricultural products
willdecline to4.1percentand9.3percent, respectively.
Most ratesofcustoms duties range from 0to5percentandfrom 5to10percent(intotal
70percentofallCNCodes). Fourteen percentofallCNCodes aredutyfree.Therestofduties,
particularly onagricultural products, isabove 10percent. TheCzech Republic applies advalorem
customs duties only.
Theshare ofGATT-bound MFN dutyrateshasincreased from97to100percentasaresult
ofthe1994 Uruguay Round commitments.
TheCzech Republic provides GSPtreatment todeveloping countries, themainpurpose ofwhich
istoserve asaninstrument fordevelopment oftraderelations withthose countries andtoprovide further
improved market opportunities foralarge number ofproducts.
ThenewGSPscheme hassecured continued application ofduty-free treatment forallgoods
originating intheleast-developed countries. Forother beneficiary countries, dutyreductions are
modulated andaredependent upon thesensitivity ofindividual products.
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Themain purpose ofthelicensing system oftheCzech Republic istomonitor imports and
exports ofcertain products, toprotect public health, safety andsecurity andtoadminister measures
suchasthose adopted pursuant totherelevant provisions oftheGATT 1994.
Ingeneral,noquantitativelimitationsareappliedtotheimportationofgoods.Theonlyexceptions
relate torestrictions onimports ofuranium orthorium ores, natural orenriched uranium andcoal.
Restrictions onthese products aremaintained forsecurity andenvironmental reasons.
Mostconsumersubsidies,aswellassubsidiesallocatedtoindustryandagriculturewereremoved
orrestructured. Subsidies werescaled down from16percentofGDP in1989 to3percentin1994.
Thetotalvalue ofsubsidies in1994 amounted toKc31.211 million ofwhich Kc8.273 million were
directedtoagriculture.Theagricultureprogrammestargetedattherestructuringofagricultureproduction,
support ofprivate farming, environment, othernon-production functions ofagriculture andatthemarket
regulation ofselected agricultural commodities.
State support wasgranted alsotoenergy saving measures, research anddevelopment,
restructuring ofmining industry andtotransport. Export promotion through insurance ofexport credits
against commercial andpolitical risks andcompensation fordifferences between domestic and
international interest rateswereprovided strictly incompliance withtheinternational standards (OECD
Consensus).
ThePublic Procurement Actentered intoforce on1January 1995. Procedures under theAct
arebased ontheWTO Agreement onGovernment Procurement andareverysimilar tothem. The
Actprovides formandatory procedures tobefollowed inprocurement bypublic contracting authorities,
open competition oftenders inconnection withpublic contracts andforitssupervision. TheCzech
Republic isexploring thepossibility ofacceding totheWTO Agreement onGovernment Procurement.
TheCzech Republic isafounding Member oftheWTO asithasmetallrequirements ofthe
WTO Agreement intimetobeeligible tobecome anoriginal Member. TheCzech Republic ratified
theFinal Acton15December 1994anddeposited itsinstrument ofratification on23December 1994.
TheCzech Republic acceded totheGeneral Agreement onTariffs andTrade, pursuant to
Article XXXIII, on15April 1993, following thesplit-up oftheformer Czech andSlovak Federal
Republic (CSFR) on1January 1993.
Accession procedures reflected theexceptional circumstances stemming fromthedissolution
oftheStateanddetermination ofbothsuccessor States -theCzech Republic andtheSlovak Republic
-tofulfilthehighlevelofcommitments incumbent upontheCSFR andtoaccede totheGATT under
thesame terms asthose applied bytheCSFR. Transitional arrangements providing fortheinterim
period untilthenecessary procedures hadbeenfulfilled andtheentry intoforce oftherights and
obligations oftheCzech Republic asfrom 1January 1993 enabled theCzech Republic tomaintain
itsGATT relations without anyinterruption.
Czechoslovakia wasoneofthe23founding contracting parties totheGATT 1947. TheCzech
Republic participated actively intheUruguay Round ofmultilateral trade negotiations andpresented
comprehensive andvaluable offers bothongoods andservices. Theoffers consolidated theprevious
autonomous liberalization initiatives which werefurther improved tocomply withtheagreed parameters
fortradeliberalization under theUruguay Round. These offers weremade regardless ofthedifficulties
caused bythesplit-up ofCzechoslovakia.
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Asof1January 1995, theCzech Republic started toimplement theUruguay Round results.
Themostimmediate phase wastheimplementation ofmarket access commitments, including wide-range
tariff reductions ofMFN tariffs.
On1January 1995, theCzech Republic effected -inaccordance withtheterms ofitsUruguay
Round Schedule -thefirstpartofthetotalreduction oftariffs onindustrial products. Tariff cutscovered
alsopharmaceutical andchemical goods which hadbeencommitted under respective sectoral initiatives.
Asaresult oftariff commitments inindustrial products, theCzech Republic 'sMFN tariffs
products arefullybound. Anaverage customs incidence isverylowatthelevelof5.2percentwhich
willfurther decline to4.1percentin2000.
Under theAgreement onAgriculture, theCzech Republic hascommitted totariffcutsofnearly
40percentonsimple average (weighted average from13percentto9.3percent)andtomaintenance
orincrease ofcurrent market access opportunities during theimplementation period 1995-2000.
TheCzech Republic abolished allvariable levies applied onanumber ofproducts andconverted
themintoordinary customs duties which remain theonlyborder measure protecting domestic producers.
Since 1January 1995, thefirstinstalment amounting toonesixthofthetotalreduction inallagricultural
tariffs wasimplemented. Market access opportunities havebeenexpanded inequal proportion andtariff
quotas opened, allowing imports under improved tariff conditions.
Intextiles andclothing, theCzech Republic hasstarted integrating intoGATT 1994 thefirst
partofproducts accounting fornotlessthan16percentofthetotalvolume oftheCzech Republic 's
imports in1993.
Servicesobligationshavebeenappliedfullyinaccordancewithagreedterms.TheCzechRepublic
hasplayed anactive roleinnegotiation onfinancial services andjoined aninterim agreement inthis
area, thuscontributing toreach acritical mass ofparticipating countries. Inthecontext ofthese
negotiations, theCzech Republic hasdecided toimprove substantially itsschedule infinancial services
andtowithdraw relevant MFN exemptions. TheCzech Republic hasparticipated innegotiations on
movement ofnatural persons, basic telecommunications, maritime transport andonGATS rules.
TheCzech Republic hasundertaken asubstantial review ofthenational legislation toensure
itsconformity withobligations resulting from theAgreements annexed totheWTO Agreement. A
number ofregulations andadministrative procedures wasmodified, inparticular intheareas ofmarket
access andsubsidies. Adecision topromulgate anewlegislation onanti-dumping, countervailing and
safeguards wastaken andrespective legislative process hasbeenstarted. Itisexpected tobecompleted
in1996.
Regional agreements
TheEurope Agreement onAssociation between theEuropean Communities andtheirmember
States andtheCzech Republic wassigned on4October 1993andentered intoforceon1February 1995.
Theobjective oftheEurope Agreement istoprovide appropriate framework forthepolitical
dialogue andtheCzech Republic sgradual integration intotheCommunities andtoprovide basis for
theCommunities 'financial andtechnical assistance totheCzech Republic. TheAgreement recognizes
thattheassociation willassist totheCzech Republic 'sultimate objective which istheaccession tothe
Communities.
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Themostimmediate objective oftheEurope Agreement afteritsentryintoforcewastoestablish
afreetrade areawithin atransitional period oftenyears through agradual elimination ofduties and
other barriers inmutual trade based onmultilaterally agreed rules andprinciples.
TheAgreement establishing theCustoms Union between theCzech Republic andtheSlovak
Republic wassigned on29October 1992 asanimportant complementary partofapolitical decision
todissolve theformer CSFR andwiththeaimtopreserve, totheextent possible, thecontinuity of
abroad range ofpastlinksfromthesingle economic space. Conclusion oftheAgreement which entered
intoforceon1January 1993wasalsomotivated bythenecessity tosecure thecontinued implementation
ofinternational obligations oftheformer CSFR under other international agreements, especially the
GATT, andofcommitments inregard tothirdcountries.
Themainobjective oftheAgreement istoensure thefreemovement ofgoods (Chapters 1-97)
andservices, thepursuance ofconforming commercial andcustoms policies andtheprovision of
favourable conditions fordevelopment oftrade withthirdcountries.
TheFreeTrade Agreement between theEFTA States andtheformer CSFR wassigned in1992.
Following thesplitoftheCSFR on1January 1993, theAgreement wasapplied onaninterim basis.
Thecontinued application oftheAgreement wasdefinitively settled on19April 1993 when
theCzech Republic andtheEFTA States signed theProtocol onthesuccession bytheCzech Republic
totheAgreement between theEFTA States andtheCSFR. Theseparate, butidentical, Protocol was
signed between theSlovak Republic andtheEFTA States.
Theobjective oftheAgreement istoestablish gradually afreetradeareaduring atransitional
period ending by30June2002. TheAgreement covers tradeinindustrial products, including fishand
other marine products, andprocessed agricultural products.
With theaimtorecover mutual trade andtofurther explore thepotential ofcloser regional
co-operation, theCzech Republic hasconcluded plurilateral freetrade agreement withHungary and
Poland andbilateral freetrade agreements withSlovenia andRomania.
Central European FreeTrade Agreement (CEFTA) concluded bytheCzech Republic, Hungary,
Poland andSlovakia entered intoforceinMarch 1993. Agreements withSlovenia andRomania entered
intoforce inJanuary 1994 andinJanuary 1995, respectively.
These agreements provide forestablishment offreetrade areas during different transitional
periods ending notlaterthanonJanuary 2001fortheCEFTA Agreement, January 1996andJanuary
1998 forSlovenia andRomania, respectively.
TheCzech Republic hasconcluded bilateral agreements withalargenumber ofcountries, both
developed anddeveloping andtheCISmember States.
Fiscal andmonetary policy
Thebasic objective ofthemacroeconomic policy oftheCzech Republic hasbeentoattain and
strengthen macroeconomic stability through atightfiscal andmonetary policy.
Fiscal policy hasbeenpursued inorder toreach andmaintain abalanced budget. Astringent
budgetary policy wasintroduced, supplemented bysubstantial reform ofpublic finance, bothonthe
revenue andexpenditures sides, andbyacomplete change oftaxstructures.
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Since 1January 1993, anewtaxation system, based onvalue-added tax(VAT), consumer tax,
income taxes andtaxes onproperty, hasbeenimplemented withthepurpose ofcreating aframework
conforming withmarket economy conditions.
Themonetary policy hasbeenconcentrating onreducing inflation since theinitial complex
liberalization ofprices andconsiderable devaluation ofthenational currency brought about animportant
surge inprices. Thecurrency exchange ratehasbeenfixed foralongtimeatthesame levelinrespect
offreeconvertible currencies.
Theultimate goalofafullyconvertible Czech crown hasbeenreached inOctober 1995. Since
1991, thenominal exchange rateoftheCzech crown fixed against abasket offivecurrencies andlater
onagainst two(USD andDEM) hasremained stable andhasbeenconsidered asanominal anchor
ofthereform process.
Privatization
Theprivatization scheme followed three important goals, namely speed, equity/fairness, and
theenforcement ofowners control overfirms. Toallow theprivate sector todevelop rapidly, small-scale
andlarge-scale privatisation schemes wereadopted. They werefurther complemented byarestitution
programme.
Under thesmall-scale privatization scheme, launched inJanuary 1991, small businesses such
asretail stores, restaurants andservice facilities were soldtoprivate individuals primarily through
public auctions. These businesses usually hadanaverage book value ofUS$35,000. Thetotalsales
volume ofassets fromsmall-scale privatization reached US$1.1 billion bymid-1993 when small-scale
privatization terminated.
Large-scale privatization wasdesigned primarily toprivatize largeindustrial enterprises. These
enterprises have either been solddirectly topre-approved buyers ortransformed intojoint-stock
companies whose shares were soldeither directly toinvestors orthrough voucher privatization.
Enterprises havebeensoldbothtodomestic andtoforeign investors. Inlarge-scale privatization, 4,227
privatization projects representing property worth approximately US$30 billion wereforwarded tothe
National Property Fund (NPF).
Trade statistics
Thetrade balance ended inadeficit fortheyearasawhole. Thisdeficit wasalmost offset
byasurplus intradeinservices andasurplus ofthebalance ofunrequited transfers. Theoverall position
ofthecurrent account operations wasprincipally theresult oftransactions inconvertible currencies.
Current Account inConvertible Currencies (US$ inMillion)
1992 1993 1994
Balance oftrade -1,901.6 -609.2 -849.6
Balance ofservices 1,485.9 1,040.7 1,035.6
Balance ofincomes 5.6 -128.4 -20.5
Unrequited transfers 105.0 130.0 124.3
Total -305.1 433.1 289.8
(Czech National Bank Annual Report, 1994)
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Thecurrent account surplus inconvertible currencies washighest inthefirsthalfof1994.
Thegrowing trade deficit gradually ledtoareduction ofthecurrent account surplus toalevel of
US$290 million bytheendoftheyear. Thefavourable outcome intheservices account covering the
balances oftradeandofincomes wasthereason forthecurrent account surplus. In1994incomes from
tourism amounted toKc56.6 billion (US$2.0 billion) andexpenditures toKc30.9 billion
(US$1.1 billion).
Themultiple devaluation ofthecrown in1990 (on1and8January, 15October and
28December), created a"cushion" fordomestic exporters interms ofprice competitiveness. Since
January 1991, thenominal exchange rateofthecrown hasremained stable, while therealeffective
exchange rateofthecrown hasincreased duetoafaster growth indomestic price levelcompared to
thatoftheCzechRepublic'stradepartners(insomecasesalsobecauseofdevaluationoftheircurrencies).
Theeffects ofthedevaluation aregradually fading. Consequently, theexchange rateisbeginning to
putincreased pressure onexporters, inparticular those whose costsandquality ofproduction stillhave
much toimprove, when compared tothecompetition.
Theadvantagesofanundervaluedexchangerateweregraduallyreducedandoffsetbyanincrease
intheprices ofexported production.
Agradual strengthening ofcapital inflows andincreasing foreign exchange reserves arethe
mainfeatures ofthebalance-of-payments development since 1992. Thefactors ofthegrowing capital
inflow canbefound onboththedemand andsupply sides. Thegrowing demand forforeign capital
wasparticularlyduetotheneedforlong-termcapitalresourcesbroughtaboutbytheprivatizationprocess
andbythesubsequent restructuring ofenterprises, andthelower prices ofsuchresources compared
tothedomestic level.
Onthesupply side,thecontinuing interest offoreign investors mainly reflected thecomparative
advantages oftheCzech economy (particularly lower wage costs) theinterest ratedifferential, the
macroeconomic stability, and,connected tothis,thestability oftheforeign exchange rate,thesubstantial
scope forportfolio investment andtheexpanding room fordirect investments.
Thefactors onthedemand sideweredeterminant forthecapital inflow. Thebulkofnetcapital
inflow in1994, totalling US$2.3 billion wasdirected towards largeenterprises andjointventures. To
asignificantextent,themake-upofportfolioinvestmentmirroreddirectinvestmentinthemostimportant
domestic enterprises.
While capital inflow from official foreign sources dominated during thefirsttwoyears of
transformation (from theIMF, European Union, World BankandG24governments), theprivate capital
component intheforeign resources inflow became important insubsequent years. In1994 thecapital
inflow fromofficial sources wasminimal (only US$8 million wasdrawn fromtheEuropean Investment
Bank). Thegrowing foreign exchange reserves ledtoadecision torepay ahead ofschedule US$1.110
million lenttotheCNBbytheInternational Monetary Fund, thussubstantially reducing theindebtedness
towards international financial institutions. In1994, areduction ofthenetcapital inflow, expressed
byatotalcapital account surplus ofKc97.0billion (US$3.371 million), including Slovakia, hasbeen
reported.
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Thedevelopmentofthecapitalaccountinconvertiblecurrencies(Slovakiaexcluded)isillustrated
inthefollowing table.
Kcinbillion
1992 1993 1994
Direct investments 27.8 15.1 24.2
Portfolio investments -0.7 30.9 23.6
Other long-term capital 9.1 15.4 24.7
Short-term capital -36.1 15.6 -2.1
Total 0.1 77.0 70.4
(Czech National Bank Annual Report, 1994)
Theforeign capital inflow ledtoasurplus intheoverall balance ofpayments. Gradually growing
capital flows (particularly foreign financial credits toenterprises, direct andportfolio investments) were
mainly initiated byinternal changes intheCzech economy, especially bythecompletion ofprivatization,
bytherestructuring process andbythestartofaneconomic recovery.
In1994, theforeign exchange reserves reached theirhighest levelsince thebeginning ofthe
transformation period. Inthecourse ofthisyear, thevalue oftheforeign exchange reserves ofthe
Czech National Bank increased byadditional US$2,372 million toUS$6,243 million. Theforeign
exchange reserves, accordingly, represented fivemonths ‘imports ofgoods andservices inconvertible
currencies. Theincrease oftheforeign exchange reserves oftheentire banking system washigher,
amounting toUS$2,648 million, thereby, theforeign exchange reserves ofthebanking system increased
toUS$8,872 million.
Services
Theservice sector hasalsobeensubject toprofound changes since 1989. Theprocess of
autonomous liberalization, deregulation andprivatization hasledtotheestablishment ofbasicregulatory
framework respecting market rulesandprinciples haveledtoitsmajor expansion. Foreign ownership
isthissector hasincreased significantly.
Changesinthedomesticregulatoryframeworkandgrowingroleofservicessectorinthenational
economy enabled theCzech Republic tobecome anactive participant intheUruguay Round negotiations
ontradeinservices. TheCzech Republic supported thecreation ofnewmultilateral rulesanddisciplines
andliberalization oftrade inservices.
TheCzech Republic tookcommitments which consolidated previous liberalization measures
andmade alargenumber oftheminternationally binding. Thecommitments arecontained intheCzech
Republic 'sSchedule annexed totheGATS. They cover almost allservices sectors, withtheexception
ofthose inwhich noconsensus wasreached orwhich aresubject totheongoing negotiations.
Themarket access commitments areoffered under thenational treatment principle, withasmall
number ofexceptions asspecified inthenational Schedule.
Intellectual property
TheCzechRepublicpursuesanactivepolicyintheareaofintellectualpropertyaimedatensuring
meaningful protection ofintellectual property rights initsterritory andpreventing distortions and
impediments bothtodomestic andinternational trade. TheCzech Republic ispresently intheprocess
ofpreparation oftherelevant amendments toitsIPRlegislation ensuring theimplementation ofthe
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Agreement onTrade-Related Aspects ofIntellectual Property Rights concluded within theframework
oftheUruguay Round.
Inthebilateral andplurilateral relations theCzech Republic hasincluded initsagreements
withother countries (EU, EFTA, CEFTA) provisions ontheprotection ofintellectual property with
theaimtoimprove theprotection ofIPRwhich contributes tothepromotion oftrade andtransfer of
technology. Itmaybestated thattheCzech legalprotection ofintellectual property isatpresent already
harmonized withthecorresponding legislation oftheWest European countries.
END