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tion, and the Berne Copyright Convention. As a member of the EU, the government intends to harmonize fully its laws with EU standards. Current Greek law extends equal protection for patents and trademarks to foreign and Greek nationals.
While intellectual property appears to be adequately protected in the field of patents and trademarks, the same is not true for copyrights. Piracy of copyrighted products is currently widespread in Greece. Industry estimates are that 30 to 50 percent of video cassette rental transactions involve pirated product. Over 100 unlicensed television stations frequently broadcast American movies and television programs without authorization or payment of royalties.
Greece took a step toward addressing this problem by enacting a new copyright law in February 1993. This law offers a high standard of protection for all copyrighted works. Its greatly increased penalties may eventually serve as a deterrent, if properly enforced. The new law relies heavily upon a new intellectual property office (OPI) to supervise implementation. The legal procedures for the establishment of this new office were completed in October 1994, but the office has not started operating yet. How effective the law is will depend directly upon how well OPI functions. Due to the piracy situation, Greece was placed on the USTR: “Priority Watch List" under the "Special 301" provision of the 1988 Trade Act, in November 1994. 8. Worker Rights
a. The Right of Association.—The right of association is set out in the constitution and in specific legislation passed in 1987 and amended in 1992. All Greek workers except the military and police may form or join unions of their choosing. In 1993, approximately 30 percent of Greek workers were organized in unions. Over 4,000 unions are grouped into regional and sectoral Federations and two umbrella con sederations, one for civil servants and one for private sector employees. Unions are highly politicized, and there are party-assiliated factions within the labor confederations, but they are not controlled by political parties or the government in their day to day operations. Greek unions maintain a variety of international asfiliations and are free to join international federations and consederations. Greek labor law prohibits firms from laying off more than two percent of total personnel per month. This restricts the flexibility of firms and the mobility of Greek labor. Labor law mandates skeleton staffs during strikes assecting public services such as electricity, transportation, communications and banking. The courts have the power to declare strikes illegal, although such decisions are seldom enforced. Employers do not have the right to lock out workers.
b. The Right to Organize and Bargain Collectively.—The right to organize and bargain collectively was guaranteed in legislation passed in 1955 and amended in February 1990 to provide for mediation and reconciliation services prior to compulsory arbitration. Antiunion discrimination is prohibited, and complaints of discrimination against union members or organizers may be referred to the Labor Inspectorate or to the courts. However, litigation is lengthy and expensive, and penalties are seldom severe. There are no restrictions on collective bargaining for private workers. Social security benefits are legislated by parliament and are not won through bargaining. Although civil servants have no formal system of collective bargaining, they negotiate their demands with the Ministry to the Prime Minister.
c. Prohibition of Forced or Compulsory Labor.-Foræed or compulsory labor is strictly prohibited by the Greek constitution and is not practiced. However, the gov. ernment may declare "civil mobilization" of workers in case of danger to national security or to social and economic life of the country.
d. Minimum Age of Employment of Children. The minimum age for work in industry is 15 with higher limits for certain activities.
e. Acceptable Conditions of Work.—Minimum standards of occupational health and safety are provided for by legislation. Although the Greek General Confederation of Labor (GSEE) has characterized health and safety legislation as satisfactory, it has also charged that enforcement of the legislation is inadequate, citing statistics indicating a relatively high number of job-related accidents in Greece. Inadequate inspection, outdated industrial plants and equipment, and poor safety training of employees contribute to the accident rate.
f. Rights in Sectors with U.S. Investment.-Although labor management relations and overall working conditions within foreign business enterprises may be among the more progressive in Greece, worker rights do not vary according to the nationality of the company or the sector of the economy.
Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993
(Millions of U.S. dollars)
Income, Production and Employment:
Real GDP (Index: 1985=100) 3
Government Health Education
Unemployment Rate (pct.)
Money Supply (M2)4
Key Economic Indicators!—Continued
(Millions of U.S. dollars unless otherwise noted)
Balance of Payments and Trade: 5
10,678.5 8,912.0 9,625.7 Exports to U.S.
294.6 375.9 350.0 Total Imports (CIF)
11,120.3 12,635.9 13,383.4 Imports from U.S.
392 Aid from U.S.
193 Aid from Other Countries
618.6 813.6 978.9 External Public Debt
21,438 24,560 26,556 Debt Sevice Payments (paid)*
4,653 4,806 5,232 Gold and Foreign Exch. Reserves
4,381 6,763 7,000 Trade Balance
441.8 -3,723.9 -3,757.7 Trade Balance with U.S.
16.9 -117.3 - 42.0 1 Source: Central Statistical Office, unless stated otherwise; provided in HUF and converted at the official exchange rates, indicated in this table. 2 Source: Ministry of Finance, except data on trade.
At factor cost. * Source: National Bank of Hungary.
*Source: Ministry of Industry and Trade; all 1994 data are estimates. 1. General Policy Framework
Hungary is well along in its efforts to establish a full market economy. It has liberalized its trade regime extensively during the last five years. Ninety percent of imported products no longer require prior government approval. Foreign direct investment has flowed rapidly into Hungary since 1990, bringing with it a greater familiarity with foreign, including U.S., products. Since the May 1994 elections, the new coalition government has been formulating its economic policy. In response to the need to reduce government spending and the current account deficit some GATT-consistent measures are expected. Two of the key tenets of the program are promoting exports and investment. The government ratified the Uruguay Round Agreement at the end of 1994. As a result, quotas on agricultural products are being replaced by tariffs. Therefore, the only remaining vestige of protectionism after ratification of the GATT will be consumer goods quotas on manufacturing products.
The population of Hungary is saddled with the highest per capita foreign debt in Europe. Interest payments on the debt are expected to balloon in 1995 and 1996. In addition, Hungary has very large balance of payment and current account deficits, the former of which was caused primarily by spending on social programs and a rate of domestic consumption that surpassed domestic production by almost 10 percent. The government has financed the deficit primarily through issuing government bonds, both domestically and abroad. At the same time, a tight budget program is planned for 1995, projecting a $1.6 billion primary budget surplus.
The government, describing the economic situation as a crisis, is seeking to stabilize the economy by calling for zero growth in net debt, keeping a tight lid on inflation, and holding growth in real wages to four to five percent below the rate of inflation. The parliament is currently debating these measures, as is the Interest Reconciliation Council (a tripartite group on which government, employers, and employees are all represented). The final results of these discussions, intended to be a three-year Social Pact, will not be known until the end of the year at the earliest.
Promotion of foreign direct investment continues to be a government priority. The government has introduced regional development programs that will provide tax preference to investments in certain regions. Tax preference for investments will be normative and the threshold for equity will be decreased. Incentives are also provided for domestic private investment. Tax preferences are being proposed for enterprises that reinvest their income and a less burdensome tax process is being proposed for small entrepreneurs. In addition, Hungarian law provides for the establishment of companies in customs-free zones. The companies established there are exempt from customs and foreign-exchange requirements as well as from indirect taxation tied to the turnover of goods. With respect to direct taxes, these companies enjoy transitory preferences. Effective January 1994, the Corporate Tax Act allowed for a discretionary tax reduction for companies meeting the prerequisites. This provision, however, has come under some criticism and the new government is expected to legislate a number of investment incentives which will not discriminate between domestic and foreign investment. It has also stated that it will eliminate the minimum two percent turnover tax.
The National Bank of Hungary (known by its Hungarian acronym, MNB) is the primary monetary policy actor. In order to control the money supply, the MNB uses open market operations to a large extent. It controls the rate of interest on govern. ment T-bills as well as the rate applied to repurchase agreements. Under conditions identical with the repurchase rates, commercial banks can conclude foreign exchange swap transactions with the MNB. In addition to controlling the money supply through open market operations, the government also carried out a fairly active exchange rate policy in 1994. 2. Exchange Rate Policy
The Hungarian forint is almost fully convertible for current account transactions, but not for capital account movements. It should be noted, however, that while the government is currently reviewing its Foreign Exchange Law with an eye toward liberalizing both current and capital accounts in an effort to meet OECD membership requirements, significant changes in capital account restrictions are not expected for several years. Currently, the forint is pegged to a currency basket consisting of the U.S. dollar (30 percent) and the European Currency Unit (70 percent). Inflation-led appreciation of the forint has resulted in periodic devaluations. Exporters have been critical of the government's exchange rate policy, claiming that the overvaluation of the forint has priæd them out of the foreign markets. The worsening current account fueled anticipation that a sizeable devaluation would occur to correct the situation. In August 1994, the government devalued the forint by eight percent—the largest devaluation since 1991. That was followed by a 1.1 percent devaluation in early October.
Although the forint continues to be a managed currency, it is in essence fully convertible for business purposes. Foreigners may freely repatriate profits and dividends in hard currency. Foreign exchange controls have been liberalized steadily. Foreigners are now permitted to maintain forint accounts which can be used to purchase goods domestically. 3. Structural Policies
There are no centrally-determined prices for consumer products in Hungary. However, the prices for the state-owned gas, electricity, and water utilities (the first two of which may soon be partially privatized) are determined by the state. As privatization of these companies proceeds, prices will be brought more in line with market prices. The government offers a wholesale floor price for unprocessed agricultural products, but producers are not obliged to sell their products to state companies at this price. As a floor support price, this policy has no impact on U.S. agricultural exports to Hungary.
Hungary overhauled its tax system in the late 1980's, instituting a western-style system. It is now in the process of reforming the entire budget system, including some taxes. The most important taxes for a foreign investor are: company tax (36 percent of corporate profits); the general turnover tax (a value-added tax attached to the value of goods and services supplied domestically, imported, or exported; current rates are 7, 10, and 25 percent, but the new government proposes raising the 10 percent rate to 12 percent); and personal income tax (current rates range from 0 to 44 percent, but a proposal before the Parliament would add a 50 percent bracket for those whose annual earnings exceed one million forints, about $10,000). In addition to taxes, employers must also pay contributions to the Social Security and Solidarity (unemployment) funds (44 and 7 percent respectively.)
As mentioned above, the new government is now debating its economic policy for 1995 and subsequent years. Tax laws are likely to change as a result of these discussions. The government has indicated that promoting investment is one of its pri. mary goals. According to tax proposals before Parliament, tax on profits will be 18 percent if they are reinvested and 36 percent if they are remitted as dividends to shareholders. In 1992, the Act on Separate State Funds established an Investment Promotion Fund to encourage foreign investment in infrastructure, new technology, and public utilities. To qualify for subsidies from this fund, a company must have at least 30 percent foreign participation, a minimum of $500,000 in capital, and the foreign contribution must be in convertible currency and not less than 50 percent of the foreign partner's share. Companies that meet the first two of these requirements and invest in manufacturing that generates more than half of their gross rev. enues may qualify for a 60 percent tax exemption for the first five years and a 40 percent exemption for the next five. If they invest in one of 15 designated sectors, they could receive a 100 percent tax exemption for the first 5 years and a 60 percent exemption for the second five.
Act LXXXVI of 1990 on the Prohibition of Unfair Market Practices (the “Competition Act”) is actually a comprehensive law intended to foster the establishment and maintenance of a competitive market. The Competition Act addresses consumer fraud, the restriction of competition, abuse of a dominant market position, and unfair competition. The Competition Act created the Economic Competition Office. This office is responsible for investigating and stopping any unfair market practices. 4. Debt Management.
As mentioned earlier, Hungary has the highest per capita foreign debt in Europe. Despite this, it has never sought debt forgiveness or debt rescheduling. As a result, Hungary has a generally good relationship with commercial creditors, the IMF, and the World Bank. It sell far short of IMF target figures for debt as a percentage of GDP and for the budget deficit in 1993. Currently, the Government of Hungary and the IMF are negotiating a new agreement to replace the 18 month agreement that expired in December 1994 (an agreement that has been dormant for much of its term). Although the government is seeking a three-year agreement to facilitate economic restructuring, it is more likely that it will reach agreement on a one-year credit in the short run, with prospects for a longer-term agreement linked to an acceptable three-year economic program. Hungary's foreign debt totals approximately $27 billion, with interest payments on the debt ballooning in 1995 and 1996. The government is counting on an improving current account balance and increased foreign investment to lessen this burden. 5. Significant Barriers to U.S. Exports.
Hungary has liberalized its market substantially in recent years. While Hungary's average tariff rates are decreasing, peak rates are exceptionally high (on coffee, for example). Hungary imposes a $750 million global quota on imports of consumer goods. American companies have complained about an insufficient quota to properly supply the market. Additionally, by the terms of the Association Agreement, Hun. gary has reserved quota allotments for imports from the European Union. As a result of the Uruguay Round, quotas on agricultural products and processed foods will be replaced by tariffs. On November 1, prior to ratification of the GATT Agreement,
he government increased tariffs on agricultural products that are not bound by GATT; during the first half of 1995, a further increase will take place in accordance with the Uruguay Round Agreement's requirement that non-tariff barriers be replaced by tariffs.
Foreign companies complain that the implementation of new regulations with no advance notice disrupts trade. For example, in October 1993 the Government passed new regulations mandating that quality control certificates were required for consumer goods imports to be customs-cleared. There was no advance notice of the implementation of the new regulations. Consequently, neither the importers nor the testing/certification agencies were prepared for the regulatory change. Similarly, the government gave only a 5 day advance notice of tariff increases on agricultural imports (mentioned above).
While the investment market in Hungary is substantially liberalized, there are still some potential barriers. Act XVI of 1991 on Concessions authorizes the state to provide investors with concessions in return for their investment in infrastructure and certain other sectors. In general, though, 100 percent foreign ownership is permitted in sectors open to private investment. Exceptions include restrictions on foreign investment in defense-related industries, in the media, and on foreigners' acquisition of land. While screening of foreign investments does not normally occur, Hungary does screen investments in financial institutions and insurance. However, a number of foreign banks and financial institutions currently operate in Hungary despite this screening process; the Embassy has received no reports of established U.S. banks or other financial institutions being denied permission to operate in Hungary.
Foreign investors are nearly always accorded national treatment under law. Nevertheless, a few instances of discrimination do exist. For example, foreign investors may only exercise shareholder rights if they have purchased registered shares (although if they buy unregistered shares, they may petition to have those shares converted to registered shares). The Investment Act guarantees foreigners the right to repatriate "in the currency of the investment" any dividends, after-tax profits, royalties, fees, or other income deriving from the operation or sale of the investment. The Act also grants foreign employees of foreign investors the right to transfer abroad fifty percent of their after-tax salaries. Foreign investors are also allowed to keep any cash contributions made in a convertible currency in a foreign exchange account. All companies registered in Hungary, including those with foreign participa. tion, are required to sell foreign exchange receipts from exports to the National