I.     COMMERCIAL OVERVIEW


A.     Overview of Import Market

Hungary has liberalized its trade regime extensively during the last 5
years.  Ninety percent of imported products no longer require any type
of prior government approval.  The last vestige of protection is the
consumer goods quota (see Sections III and VI).

In 1998, the government undermined the monopoly position of the
government-sanctioned foreign trade companies (IMPEXs) by conceding
that foreign trade activity is an inherent right and can be engaged in by
any commercial entity or individual.

Hungary's market is highly competitive with imports supplying an
increasing share of domestic consumption.  Consequently, Hungary's
total imports have increased during the last 5 consecutive years.
European products account for a significant share of those imported
products.


B.     Commercial Environment

Following the political changes in early 1990, Hungary was positioned to
push ahead with economic reform.  During the 1980s, Hungary
implemented key laws which provided a framework in which to initiate
the subsequent economic transformation.  Hungary quickly assumed the
lead in creating an environment which promoted free enterprise.

As a result, Hungary has attracted nearly 50 percent of the capital
invested in the region.  The United States is the leading investor in
Hungary with $3.5 billion -- 40 percent of total foreign direct investment
in Hungary.  U.S. investment is in a variety of sectors: processed foods
and beverages, telecom, automotive components and finished vehicles,
household consumer products, apparel, services (financial, restaurant,
consulting), etc.

Moreover, U.S. exports have increased steadily to Hungary.  In 1993, U.S.
exports Hungary jumped more than 50 percent.


C.     Business Attitude Towards the United States

The United States and American companies are favorably perceived in
Hungary.  American products and technology are renowned.  But
American companies do not have an extensive history of commercial
activity in Hungary.  Whereas Hungarian companies have close ties with
European companies (especially Austrian and German) which were
cultivated during the 1970s and 80s.


D.     Major Business Opportunities

The opening of Hungary's economy has created a wide range of
opportunities for Western businesses.  The government is encouraging
foreign investment in nearly all sectors and urges foreign companies to
acquire interests in Hungary through the privatization process.
Existing capital equipment in enterprises is often obsolete and requires
replacement or upgrade.  Emphasis has been placed on the installing of
new and the upgrading of existing infrastructure -- both telecom and
transport.  In the consumer segments of the market, there is pent-up
demand for many items which were previously not available.


E.     Major Roadblocks to Doing Business

American companies do not encounter overt market access barriers.  On
the contrary, Hungary has liberalized its market extensively during the
last 5 years both in terms of investment and trade.

Daily business is often cumbersome.  Foreign businesses complain about
excessive bureaucracy which is multi-layered and time-consuming.
Infrastructure in general affects the ability of companies to conduct
business.  The telecommunications infrastructure is substandard as is
the banking system which is not considered "user-friendly".


F.     Nature of Local and Third-Country Competition

The severity of the economic transition has resulted in a large drop in
Hungary's manufacturing output.  Production costs remain high while
output is of low-quality.  Hungarian companies are increasingly unable
to compete with foreign companies in the domestic market.

Hungary is literally in the backyard of the European Union (EU);
historically and culturally, Hungary is linked to Western Europe.  There
is no question that Hungary's future lay with the EU.  Already, Hungary
is shifting closer to the EU with the signing of the Association Agreement
(see Section VI) -- a first step towards eventual full membership in the
Union.  Hungary has also signed agreements with the European Free
Trade Association (EFTA) countries.

American companies face stiff competition from West European companies
in Hungary.  These companies already have extensive commercial
relations in Hungary.  Their proximity to the Hungarian market allows
them frequent visits to consult with product representatives on
business strategy and promotions, or to provide prompt equipment
servicing for buyers.

Trade among former CMEA countries collapsed in January 1991 when
trade became denominated on a hard currency basis.  Since then,
Hungary has participated in attempts to galvanize trade with its
neighboring countries.  The Central European Free Trade Agreement
(see Section VI) has succeeded in reducing some trade barriers and
stimulating trade to a limited degree.  While former CMEA countries or
their companies do not pose a major challenge to American companies in
Hungary, regional trade is likely to assume greater importance in the
future as these economies revive.  Finally, Hungary is also endeavoring
to rekindle trade relationships with the former Soviet Union.