PRESS/TPRB/30
8March 1996
TRADE POLICY REVIEW BODY
Review oftheCzech Republic
TPRB 'sEvaluation
TheTrade Policy Review Body oftheWorld Trade Organization (WTO) conducted itsfirst
review oftheCzech Republic 'strade policies on6and7March 1996. ThetextoftheChairman 's
concluding remarks isattached asasummary ofthesalient points which emerged during thetwo-day
discussion.
Thereview enables theTPRB toconduct acollective examination ofthefullrange oftrade
policies andpractices ofeachWTO member country atregular periodic intervals tomonitor significant
trends anddevelopments which mayhaveanimpact ontheglobal trading system.
Thereview isbased ontworeports which areprepared respectively bytheWTO Secretariat
andthegovernment under review andwhich cover allaspects ofthecountry 'stradepolicies, including:
itsdomestic lawsandregulations; theinstitutional framework; bilateral, regional andother preferential
agreements; thewider economic needs andtheexternal environment.
Arecord ofthediscussions andtheChairman 'ssumming-up, together withthese tworeports,
willbepublished induecourse asthecomplete trade policy review oftheCzech Republic andwill
beavailablefromtheWTOSecretariat,CentreWilliamRappard,154ruedeLausanne,1211Geneva21.
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), theCzech Republic (1996), Chile (1991), Colombia (1990), Costa Rica
(1995), Côted'Ivoire (1995), theDominican 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 &1995),
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),
Slovac 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
Trade Policy Review oftheCzech Republic
Concluding Remarks bytheChairperson
Thismeeting oftheTrade Policy Review Body hasnowcompleted thefirstreview ofthe
CzechRepublic'stradepoliciesandpractices.Theseremarks,whicharemadeonmyownresponsibility,
summarize themain points ofthediscussion. They arenotintended tosubstitute forthecollective
evaluationandappreciationoftheCzechRepublic'stradepoliciesandpractices.Detailsofthediscussion
willbereflected intheminutes ofthemeeting.
Thediscussion developed under three broad themes: theeconomic transition; international
trade policies, andspecific issues.
Theeconomic transition
Participants praised theCzech Republic foritsrapid progress toward amarket economy and
current strong economic performance. Growth in1995 hadaccelerated tosome 5percent, with
industrial output andlabour productivity growing strongly; inflation declining; andunemployment
low. Large inflows ofdirect investment andother capital, inafriendly climate, hadmeant real
appreciation ofthecurrency, rapid growth inimports, particularly ofinvestment goods, andaslowing
inexport growth.
Privatization wasrecognized asakeycomponent oftheeconomic transformation. Some
80percentofproductive assets were nowunder private control. More information wassought on
thecompletion ofprivatization, particularly in"strategic" sectors. Some participants expressed concern
overtheconcentration ofindustrial ownership inthehands ofInvestment Privatization Funds andother
financial institutions, apparent reluctance topermit bankruptcies andthesubstantial value ofnon-
performing loans heldbybanks.
Therepresentative oftheCzech Republic saidthatmacro-economic stability wasakeypart
oftransformation andthebestguarantee ofafavourable investment climate. Atightmonetary policy
wasinforce andfiscal policy aimed atabalanced budget, stable medium-term growth andreductions
inthetaxburden. While competitiveness hadbeenaffected bytherealappreciation ofthecrown,
measures, including thewidening oftheexchange rateband, werebeing taken todiscourage short-term
capital inflows andstabilize inflationary pressures. Some partofthe"grey" economy might beseen
infigures forstock building.
TheCzech representative gavedetails oftheoperation ofInvestment Privatization funds; links
ofthese funds withthebanks were notseenasnegative. Hemade clear thatprivatization wasnot
aimed atreducing concentration ofbusiness control butatensuring effective management. Newowners
wereresponsible forrestructuring, without government support. However, "strategic" companies in
metallurgy, coal, gas,electricity andpetrochemicals -where theState stillheldastake -would be
restructured before privatization orthereduction ofStateholdings casebycase. Bankruptcy proceedings
wereslow, because ofcourt overloads, thepreference forrestructuring ofindustry, andtheneedfor
complex negotiations withcreditors. However, many non-viable enterprises hadbeenwound up.
Substantial support could begiven forenvironmental rehabilitation, subject toastrict audit.
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Thetrade policy environment
Members noted thatregional agreements hadmade acentral contribution tothereorientation
ofCzech tradepolicies andflows. Suchagreements wereinforcewithallmajor trading partners except
Russia, andcovered some 80percentofCzech trade. Ofspecial importance wastheAssociation
Agreement with,andtheprospect ofmembership in,theEuropean Union. Some participants questioned
theconcentration onsuchregional arrangements andemphasized theneedtodiversify outside Europe.
Others asked whether theprocess ofentry intotheEUwould leadtoanincrease inCzech tariffs, and
sought assurances thatmultilateral rules would befollowed inthisregard. Itwasnoted thatsome
regional agreements didnotcover substantially alltrade, particularly inagricultural products. Czech
exports totheEUcontinued tofacerestraints, which werenotlimited toagriculture. Itwasasserted
thattheCzech-Slovak Customs Union deviated insome ways from theprinciple ofacustoms union,
andinformationwassoughtonthefutureofthearrangement.Concernwasalsoexpressedaboutcomplex
rules oforigin inpreferential agreements.
Members welcomed theCzech Republic 'sreliance onadvalorem tariffs astheprimary means
ofimport protection, withmoderate rateswhich would decline under Uruguay Round commitments.
However, itwasnoted thattariff escalation onprocessed products provided effective protection of
manufacturing activities, particularly insectors suchasfood, beverages, andtextiles andclothing.
Members welcomed theinformation given bytheCzech Republic onnotifications under WTO
procedures, butasked when theservices aspects oftheEUAssociation Agreement would benotified
totheCouncil onTrade inServices. Itwasrecognized thattheCzech Republic hadmade arelatively
large number ofcommitments under theGATS, withfewm.f.n. exemptions; some members asked
whether there wereplans tophase outthese exemptions inthenearfuture. Clarification wassought
onCzech policy toward service industries, withparticular questions addressing areassuchasinsurance,
banking, andhealth, auditing andlegalservices.
Therepresentative oftheCzech Republic saidthatitsaccession totheEUwould depend largely
ontheoutcome oftheIntergovernmental Conference; intheprocess, theCzech Republic would honour
allitsWTO commitments. Nosubstantial changes totheexisting Europe Agreement inagriculture
were expected. Quotas onsteelexports totheEUhadbeen abolished from 1January 1996 and
restrictions ontextiles would endon1January 1998; sheepmeat quotas, hefelt,werenotaneffective
obstacle totrade. Therepresentative alsooutlined conditions oftheCEFTA andother agreements;
hebelieved thattheFTAs inforce would havenoadverse effects ontrade withthirdcountries. All
suchagreements would benotified. Allfree-trade agreements, apart from thatwithEFTA, covered
tradeinagricultural products; hisviewwasthatArticle XXIV wasfulfilled. Thespecial circumstances
oftheCzech-Slovak customs union hadbeenrecognized byGATT; thesuspension oftariffs oncars
bySlovakia wasseenasanecessary temporary measure. Rules oforigin werenecessary within the
Customs Union because freemovement ofgoods wasnotapartoftheagreement.
Therepresentative made clearthat,through theUruguay Round, theCzech Republic hadsought
todevelop anddiversify itsexport andimport tradewithallWTO Members. Thisprocess wasstrongly
supported bythebusiness community. Nofurther reductions werecurrently envisaged inthecommon
external tariff, except under multilateral negotiations. Henoted thatagricultural tariffs, reflecting
tariffication under theUruguay Round, weregenerally significantly lower thaninmany WTO member
countries andwould bereduced by40percentovertheperiod ofimplementation. Theescalation
oftariffs, given thelowaverage level, wasnotseenbytheCzech Republic asamajor barrier totrade.
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TherepresentativeoftheCzechRepublicgavedetailsofpossiblefutureliberalizationoffinancial
services. Heemphasised thatlicensing requirements forforeign anddomestic insurance companies
were identical. Access forforeign banks wasjudged according tofinancial, technical, professional
criteria andeconomic expediency. Hegavedetails ofconditions foraccess tohealth, professional,
auditing, legal, engineering andretail services sectors andconfirmed thattheservices aspect ofthe
Europe Agreement withtheEUwould benotified under Article VoftheGATS. M.f.n. exemptions
would bedealtwithunder future negotiations.
Selected trade policy andrelated issues
Theimportance ofincluding theprivate sector intrade policy formulation wasnoted; more
information wassought astohowthiswasdoneintheCzech Republic.
Participants noted thatsubstantial Stateintervention remained inagriculture. Questions were
raised regarding export subsidization forparticular products; theuseofm.f.n. andpreferential tariff
quotas; theextent towhich quota administration restricted market access fornon-preferential suppliers;
internal support measures; andtherestrictive levels ofsome sanitary andphytosanitary restrictions.
Concernwasexpressedabouttheremaininguseofnon-automaticimportlicensingandparticipants
alsosought information onlegal requirements forobtaining automatic import licensing. The
Czech Republic wasalsoasked toassess therestrictiveness ofexport licensing under itsexport restraint
agreements.
Members noted thatlegislation onanti-dumping andcountervailing measures wasinpreparation
andwelcomed theCzech Republic 'sinvolvement inUruguay Round efforts toreduce thescope for
protectionist abuse ofsuchmeasures. Some stressed thatthese rulesshould bedesigned tominimize
suchrisk,introduce competition considerations inanti-dumping lawandthussafeguard economic
competition inimport-competing industries.
Itwasnoted thattheCzech Republic hadnottaken theoption available totransition economies
todelay theimplementation ofpartsoftheTRIPS Agreement. Questions wereraised onwhether the
CzechRepublicwasenforcingtheAgreementeffectively,inparticularagainstsoftwareandvideopiracy.
Clarification orfurther information wassought oncompulsory licensing andcriteria forcancelling
atrademark registration forfailure ofuse.Details offorthcoming changes inthetrademark lawwere
requested, including therelationship ofsuchchanges totheTRIPS Agreement andtheEuropean Patents
Convention.
Thesimplicity andtransparency oftheCzech Republic 'sliberal GSPregime wereappreciated
byparticipants. Itwasnoted, however, thatfewpreferences were offered onagriculture, foodand
beverages.
Inreply, therepresentative oftheCzech Republic stressed thatexport subsidies inagriculture
weremarginal anddeclining, applied onlytodairy products in1995. Tariff quota allocations reflected
commitments undertaken under FTAs signed before theUruguay Round; allincreases inm.f.n. tariff
quotas would beavailable toallcountries. Preferential imports werecounted against quota limits under
agreed minimum access commitment criteria. M.f.n. tariffquotas wereadministered onafirst-come,
first-served basis. In-quota tariffs would remain unchanged during theimplementation period, while
out-of-quota rateswould fall. Strict SPSrequirements forchicken were seenasnecessary toavoid
thespread ofsalmonella, given theconcentration ofdomestic poultry production. Nogoods werenow
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subject toState trading monopolies; theState Fund forMarket Regulation intervened toguarantee
certain prices butimports were liberalized.
Onimport licensing, therepresentative noted thatsinceJanuary 1996, coalwastheonlyproduct
under quantitative restriction, justified under Article XXofGATT 1994. Automatic licensing for
monitoring reasons hadnoeffect ontrade. Export licensing wasapplied totextile andclothing items
covered bybilateral agreements. TheCzech representative made clear thattheprivate sector was
consulted regularly onthepreparation oftrade policy, though business associations.
Newanti-dumping, countervailing andsafeguard lawswere expected tobepromulgated in
1996, oratlatest 1997. Theauthorities wereseriously concerned thatsuchlegislation should notbe
usedasprotective measures. Noactions hadbeentaken todate. FTAs involving theCzech Republic
referred specifically toGATT legalinstruments inthese areas.
Therepresentative indicated thatanewTrademark Lawhadentered intoforceinOctober 1995;
amendments totheCopyright Actshould come intoforce inthesecond halfof1996. These acts,made
inlightoftheTRIPS Agreement, should fulfil allrelevant requirements, including enforcement in
areassuchassoftware andrecorded media. National treatment wasprovided andnocompulsory licences
hadbeengranted todate. Under theTrademark Law, trademarks could becancelled when nouse
hadbeenmade forfiveyears without justifiable reason bytheowner oralicensed third person.
Public interest could beenforced, subject toappeal, when articles offended against morality, religion
orother similar concerns.
Therepresentative alsomade clearthattheGSPsystem hadbeensubstantially extended from
1995. Margins ofpreference related tosensitivity ofthegoods; however, noquotas orceilings were
applied. Imports fromleast-developed countries andtropical products entered dutyfree,andconcessions
were alsoextended onmany agricultural andsome textile andclothing products.
____________________
Overall, Iwould single outtwoissues forfinalcomment. Firstly, thetransformation ofthe
Czech economy overthepastfiveyears orso.Thescale andpaceofchange havebeenremarkable
byanystandards. Thechallenge nowistoensure thelongtermsustainability ofwhathasbeenachieved.
Inparticular, thefollow through ontheprivatization process willrequire careful monitoring; aswas
repeatedly pointed outbydelegates here,enterprise restructuring isthelogical corollary ofprivatization
andmust takeplace under thenewownership.
Secondly, while thetrade picture wasfelttobegenerally healthy, there isnoroom for
complacency. Itisindeed truethatsignificant import demand tends tobeassociated withtheearly
stages ofmodernization andtransformation; however, trade deficits overanysustained period would
bebound togiverisetoconcern. Thehugeinflows ofcapital -while presently financing thetrade
deficit -willalsocontinue torequire closeattention; suchinflows areundoubtedly asignofconfidence
intheCzech economy, butvigilance willhavetocontinue tobeexercised inrelation toanypotentially
destabilizing effects. Also, while itisquitenatural thatthetradeoftheCzech Republic should beoriented
towards European neighbours, awider spread ofmarkets -including those outside theshelter of
preferential agreements -willbeimportant tothelonger-term development ofafullycompetitive and
resilient economy.
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Finally, Iwould saythatallWTO members recognize thattheCzech Republic hascome a
verylongwayinaveryshort time. Ifwemaygiveadvice, thiswould betostaythecourse, toguard
against theemergence ofprotectionist orinflationary pressures andtoensure thattheexisting strong
commitment toWTO andmultilateralism remains intact.
END