Although Hungary has no intention to ask for derogation concerning customs-free zones during the accession negotiations, a transitional period may still be necessary. After the accession, the 101 companies operating in customs-free zones in Hungary will need Brussels' permission to engage in customs-free production. Such an application, however, can be submitted only at the moment of the accession, and the procedure lasts for months. This is a serious problem, because customs-free zones are the engines of Hungarian industry and foreign trade. The 101 companies operating in industrial customs-free zones at the end of last year produced 43% of total Hungarian exports last year. These companies have developed spectacularly in recent years: in 1996, the first year in which data on the foreign trade performance of the customs-free zones appeared separately in Hungarian statistics, they generated only 18.1% of Hungary's exports. However, this figure jumped 77% in 1997, 64% in 1998 and 30% last year (although development slowed down last year, the pace of increase was still four times greater than the 8.7% increase in total Hungarian exports). At the end of 1999 they accounted for 30.6% of total Hungarian imports, which increased to 32% last year, compared to a total national increase of 9%.

These zones have played an important role in the modernization of the structure of Hungarian foreign trade. It is mainly attributable to them that the ratio of machine industry goods was 57.2% at the end of last year, which is an outstanding achievement even by international standards. Machines and equipment make up 92.4% of the exports of companies operating in the industrial customs-free zones. Within this, office machines, data processors, electric machines and instruments, telecommunications and sound recording equipment as well as the manufacturing and assembly of public transport vehicles. Hungary's top ten exporters operate in eight industrial customs-free zones. These 10 companies produce 35% of Hungary's total exports. (In the "Book of Lists 2000", published by the Budapest Business Journal, numbers one through four on the list of companies ranked by export sales are Audi Hungaria Motor Kft. in Gyor, IBM Storage Products in Szekesfehervar, Philips Magyarorszag Kft. in Budapest and Opel Magyarorszag Jarmugyarto Kft. in Szentgotthard.)

The European Union criticized the large number of the customs-free zones and the fact that the conditions under which they operate do not coincide with those of the EU, Mr. Varkonyi said. At the end of last year, 101 industrial customs-free zones were registered in Hungary, while there are only 25 such zones in the 15 member states of the Union. But whereas in Hungary one company usually constitutes one customs-free zone, in the European Union, several companies operate in the same zone. He mentioned a customs-free zone in Ireland as an example, in which 100 companies operate. In the European Union it is up to national governments to grant customs-free zone status, but the consent of Brussels is needed for a company to settle and produce there. According to a survey conducted by Ernst&Young commissioned by Am-Cham for the Investors' Council, investors also agree that the Hungarian regulations cannot be upheld, but they would like the Hungarian government to preserve the customs-free zone status of those who already have such a status and to let applicants for such a status set up only in certain locations.
The economic authorities in the government have continuously consulted with investors, among others with the Investors' Council, said Marianne Csakvari Pongor. Investors take this opportunity seriously, as reflected by the survey, which was discussed several times at the sessions of the Council.

In addition to the customs-free zone status, the documents list four other areas in which a solution must be found because of the EU accession. These coincide with those, in which the economic government thinks that certain measures are inevitable, said Laszlo Varkonyi. He pointed out, that the conditions for customs clearance of capital goods imported customs free and bookkeeping in foreign currency are the most important questions to be solved. Investors are aware that the exemption from duty of the means imported for production in the customs-free zones will be terminated after the accession. "In order to maintain competitiveness, we have to bring about that neither customs duty, nor VAT should be paid on the imported capital goods", reads the document prepared by the investors' side of the Investors' Council. This can also be solved through a unilaterally determined quota. VAT is a more serious problem, Laszlo Varkonyi admitted. He is of the view that it would be unfair to make the companies concerned pay the VAT on the imported capital goods. But the question is still open, he added. The exemption from customs duties and VAT of the material and parts used for the production in customs-free zones is only partially guaranteed even today, the document of the investors points out. After the accession the EU regulations will apply for the payment of customs duties. After the accession both capital goods and the materials and parts used for the production will be subject to the payment of customs duties and VAT, if they are imported from a country outside the EU. Investors think that a kind of quota system should be set up.

Fifty-eight percent of the industrial customs-free zones are located in the western part of Hungary, 17% in Budapest and greater Budapest. If we examine the structure of foreign trade turnover, the role of Transdanubia (south and west of the Danube) is outstanding: customs-free zone companies operating in Transdanubia produce 86.1% of the total customs-free zone exports. Within this, 64% of such exports are concentrated in Gyor-Moson-Sopron and Fejer counties.
The change of productivity in the whole of the sub-sectors examined and in the companies of the customs-free zones Sub-sector of the national economy.