Your Excellency, Mr. Ambassador, let me greet you in the name of the staff of the Russian-European Centre for Economic Policy (RECEP) and ask you a few questions.
Hungary, a State in Central Europe, joined the European Union in May last year amongst 10 new countries members from the region of Eastern Europe and Baltia. Economic and political integration of Hungary into the united Europe has been complemented by its membership in the NATO system of Euro-Atlantic security. Recently enough, Hungary used to be an ally of Russia (at that time, whole USSR) as a member of the military and political block of the Warsaw Treaty and actively participate in economic cooperation within the framework of the organization of the COMECON countries. As a matter of fact, in the last 15 years your country completely changed its priorities in foreign policy and foreign economic relations.
So, our audience would be very much interested in learning what the ‘Russian vector’ means for Hungary now and how the Hungarian side intends to develop its relations with Russia under new political conditions. We also would be grateful to you for your assessment of the possibilities of building up a Common European Economic Space (CEES).
1. Hungary as a full member of the EU
Since the end of the 1980-s, Hungary has purposefully implemented a ‘Back to Europe’ policy, first becoming associate member, then full member of the EU.
To what extent have the Hungarians’ expectations relative to adhesion to the EU come true considering economic and social aspects of the problem? Can pluses and minuses of full membership of your country in the European Union be identified right now?
Hungary joined the European Union one year ago. Basing on previous experience till now, adhesion to the EU has not led to any malfunction in economic and social life in Hungary. EU membership in itself is not any solution of existing problems, but gives Hungary a chance of competing with others as equal to equal, and besides that provides an opportunity to rise to the other countries’ level. The fact of EU membership has positively influenced the economy, which grows twice as quickly as the EU average indicator. EU membership gives an opportunity to overtake the other countries: influx of foreign capital has considerably grown, by 3.4 billion Euro, where the factor of EU membership has played an evident role. Foreign trade in 2004 was active with 24 countries of the EU. 2,000 students got training abroad in 2004 under «Erasmus» and «Socrates» programs. 3,900 people got jobs in England, 2,000 people in Ireland, and 180 people in Sweden. The goal of Hungary is to make countries still keeping some restrictions upon use of foreign labor revise their rules by the end of the first transition period and make free labor market.
In the field of application of structural bases of the European Union our country, if we compare the results of the first year for ten new members, has completed the year among the leaders. Basing on the number of submitted applications, Hungary was at the second position after Poland in the rating of the ten new EU members, while proportionally to their population, the participants of tender projects from Hungary were the most active. Hungary has been the second country as per the results with respect to assumed commitments, number and value of concluded contracts, and payments. The number of projects winners of various tenders reached 6,257 by late March. At the same time, 317.72 billion Forint was requested for financial support to the projects, which makes 47% of the quota of finances for three years. The projects winners have come from almost 900 human settlements in the country. The amount of finances paid to the participants of the tenders up to now has reached 10 billion Forint. Hungary has summed up the first year after it joined the EU with a positive balance of 76 billion Forint.
Within the framework of the balance of external and domestic payments for 2004-2006, Hungary has been given a guarantee of receiving finances amounting to net 1.4 billion Euro from the common budget of the European Union. That would make about 330 billion Forint at the current Euro rate. During the period from 2004 to 2006, the European Union has committed to pay 2.8 billion Euro from structural funds and united common fund in the form of financial support by the European Union. Those sources of financing may be used for investing, they would yield about 1.2% of expected average annual GDP of Hungary for the years 2004-2006. Those mandatory sources of financing would be supplemented with considerable domestic finances, so financial support by the European Union would play its role in implementation of development projects for an amount of 1500-1600 billion Forint. That would substantially speed up economic growth during upcoming years following to adhesion to the EU.
As a EU member country, Hungary would have more ease in implementing its interests on international political field. Being a EU member, Hungary directly takes part in decision making influencing development of Europe and the whole world. Adhesion to the European Union would enhance the quality of life, in particular thanks to more severe requirements for consumer protection, environment protection and safety of food. Membership in the European Union would also mean a more reliable market for Hungarian agricultural products.
2. Hungarian-Russian economic relationships at a new stage
Experts often assess current economic situation in our bilateral relationships as requirement of re-opening the markets of each other. After the financial crisis of 1998, the turnover of mutual trade dropped down to an extremely low level of less than $2 billion, the share of Russia in total Hungary’s export is just a bit higher than 1%, and about 6% in total import (according to the Ministry of Economy and Transport of the HR, 2003) The level of mutual investments is low, too: e.g., the share of Russia in direct foreign investments of Hungary is no greater than 1.7% (according to the National Bank of Hungary, 2002).
What are the prospects of intensification of bilateral commercial and economic relations between our countries? To what extent is the Hungarian side interested in the Russian market for its goods, services, new technologies and investments?
Mutual restoration of respective positions on the markets of each other has actually become a day-by-day reality since 2002. This process continues till now, and the government of Hungary would further contribute to its continuation by all means available.
The talks held by the Prime Minister of Hungary Ferenc Gyurcsany with the President Vladimir Putin and the Chairman of the Russian government Mikhail Fradkov in February 2005 in Moscow were first of all characterized by a manifest desire of both sides to further develop the relationships with even more dynamism.
In summer 2003, we denounced all bilateral agreements of commercial and economic nature from the date of adhesion of Hungary to the EU. After that, according to the system of requirements in force in the EU, we concluded new contracts and agreements with Russia, and many of them were the first to be signed by any EU member countries. I’m citing just the most important ones:
- new bilateral agreement on commercial and economic cooperation;
- agreement on cooperation in the field of information technologies and communications;
- Protocol of bilateral talks on Russia’s joining the WTO;
- Agreement on use of licenses for Russian-made military technical facilities (MTF), etc.
Thus, the dynamic development of Hungarian-Russian commercial and economic relations started in 2003 and going on now became and is becoming possible first of all thanks to settling of political relations, growing demand and purchasing capacity of population as a result of steady economic growth in Russia, thanks to activities of Hungarian authorities and organizations aiming at stimulation and organizational and legal support to presence of Hungarian producers on Russian market, and thanks to growing mutual interest from business communities of both countries.
Our adhesion to the European Union has not been followed by a drop in bilateral commercial and economic relations. And the dynamic of bilateral trade turnover is the best confirmation of that.
According to the Central Direction for Statistics of HR, for the first eight months of 2004 Russia is the sixth in volume commercial and economic partner of Hungary after Germany, Austria, Italy, France and Netherlands.
In export from Hungary to Russia, the share of Hungarian producers with foreign capital, as well as partially belonging to foreign owners or established with participation of international financing.
Our import essentially consists of energy sources and raw materials (which total 82.5%), and import growth was mainly due to their price growth. In parallel, it should be noted a growth of import of fabricated products (their share made 14.4%) due to big supplies of aluminum in early 2004.
As far as the volume of trade turnover with Russia, our country occupies the second position after Poland among the new members of the EU, while for the volume of export, still being behind Poland, it shares the second position with Czech Republic, since our volumes of export are the same (last year Czech export to Russia amounted to US$917 million, which is just a few million above the figure of export from Hungary).
I believe that all mentioned in the above provides sufficient arguments in favor of our unconditional interest in further extension and deepening commercial and economic relations with Russia.
3. On prioritary forms of economic cooperation
Recently Hungary was one of the pioneers of foundation of joint ventures on the territory of Russia and actively participated in big investment projects.
What forms of cooperation between Russia and Hungary would be most appropriate in your opinion under today’s conditions and why?
It has become obvious now for both sides that it would be quite difficult to reach bigger and growing presence on the markets of each other using traditional forms of cooperation. So, the demand is clear: in addition to the existing forms of cooperation, we have to find and trace new priorities accounting for mutual interests and unconditionally ensuring mutual profit and benefit. We can note with satisfaction that the Russian side takes this in the same way both at official authority level and business community level.
For the last 15 years we missed many opportunities of cooperation, partly due to lack of financing, partly because we tried to increase Hungarian export without going beyond traditional practices, while Hungarian economy intensively developed and actively integrated into international, first of all European, division of labor.
Export from Hungary to Russia doubled in the two last years and continues growing at a good pace. Using extensive structure and opportunities for quick development, it would be appropriate for Hungarian economy to focus not only onto export of goods, but also service rendering, including construction, acting as contractor and investor.
We want to keep intensity of our economic relations, steady dynamics of our commercial turnover and compensate the traditionally high Russian asset in the trade turnover by further growth of our export. On the other hand, we are conscious that this cannot be done in traditional way, basing on regular sale contracts. That’s why we stimulate cooperation at the level of projects, investment of Hungarian capital abroad, maximum possible production cooperation, export of services and development of general contractor activities. Thanks to public institutions for development, we could obtain positive changes in the conditions of export financing and financial conditions of capital export, and the results of that are already visible. At the same time, we in Hungary count more on investors from Russia.
With respect to main direction of our cooperation we have reached mutual understanding with the Russian partners that efforts should be concentrated on projects which are potentially capable of making a breakthrough: high technologies, logistics, dwelling construction and construction of other facilities, supplies of medical equipment, as well as on new forms of cooperation such as investments, crediting and provision of guaranties for export, general contracting and organization of tenders. There are also serious reserves for cooperation with highly solvent and economically active Russian regions.
4. On Hungarian trade marks (brands) on Russian market
For many years of close cooperation between our countries, Russian consumer liked Hungarian goods for their excellent quality and became familiar with many trade marks: tinned vegetables and fruit “Globus”, wines from Tokai, sausage from Szeged, poultry from Babolna, etc. In Moscow, for exemple, there used to be specialized shops selling nothing but Hungarian goods. Many Muscovites used to like doing shopping in “Budapest” department store or in “Balaton” shop.
Why have Hungarian goods disappeared from our domestic market of consumer goods? Where have well known brands gone? Where can today’s children buy a “Rubik’s Cube” or taste wonderful Hungarian cakes?
As a matter of fact, during the years preceding “perestroika” and subsequent breakdown of the USSR with the total deficit and interruptions of supplies of consumer goods, “Balaton” department store was a bright colored dot with its rich choice and nomenclature of goods, like “Budapest” restaurant with its confectioner’s shop. Such a curious thing used also to be observed with the shop of electrical appliances from GDR « Leipzig» and other similar units.
Since then things have completely changed. Now in Moscow one can buy most various consumer goods, their choice is tremendous: for any purse, of any quality and in any quantity, so it is difficult to notice Hungarian goods among them. However they are available, although they could well be present in larger quantity and variety.
Recently, at talks on top level in Moscow, it was discussed, as a mutual desire, the possibility of construction of a Hungarian commercial center in Moscow, and a Center of Russian goods in Budapest. Experience shows that during the last two years Muscovites are more and more inquiring about where they can buy Hungarian goods, and such potential buyers become more and more numerous. The new Hungarian commercial center would be similar to the former «Balaton», but, obviously, of modernized profile, of up-to-date level and meeting most advanced requirements.
At the same time, there is in Hungary some demand for well-known and familiar Russian goods.
As far as the Russian children’s favorite puzzle Rubik’s cube and Hungarian cakes are concerned, I can say this:
On web sites www.rubikscube.com and www.rubiks.com in several languages you may find detailed information on cube fans movement, which celebrates this year its 25 th anniversary, and on November 4-5 this year, a world championship in Rubik’s cube will be held. There, those who are interested can get information on cube producers and sellers, which obviously would not reject any inquiry from Russia.
In Moscow, Maroseika street 7/8 you can find the Hungarian restaurant and coffee-house «Esterhazy». There, like in five more coffee-houses all over Moscow you can always buy or order in advance confectionery made upon Hungarian recipes. More detailed information can be found on web page http://www.esterhazy.ru
5. Energy dialog Hungary – Russia in the context of the European Union policy
As it is known, Hungary is a big importer of Russian natural gas and oil, furthermore, supplies from Russia are clearly predominant in covering import demand of your country. There are long-term agreements between Hungarian Republic and Russian Federation in this field. At the same time, following the EU policy, Hungary most probably would seek diversification of its energy import.
How would the energy dialog between Russia and Hungary develop under such circumstances? What kind of problems could emerge in this field?
Successful cooperation between Hungary and Russia in the field of energy, counting many years in the past, is looking forward to future and preparing a renewal, as part of the energy dialog between the EU and Russia taking more and more specific shape.
Modernization of Hungary’s energy policy adopted in 1993 is an urgent task due to changes occurred in the internal and external conditions since then.
The European Union performs serious work basing on the project of energy policy concept, and publication of the “Green Book” is expected by early 2006. The EU budget for 2007-2013 currently under development would determine, among other things, what financial sources are to be allocated for implementation of energy priorities.
Liberalization of the EU energy market is under way, as well as guarantees of highest level for assurance of energy independence, in which topic Russia has an important role.
Foundation of the EU and Balkan countries Energy Union is undergoing preparatory stage.
After Hungary joined the EU, Hungarian – Russian cooperation in the field of energy did not decline, on the contrary, it rather strengthened, since in 2005, for example, a long-term agreement on oil supply was signed between the Hungarian company MOL Rt and Lukoil. Lukoil purchased a filling station network in Hungary. Although with some bugs and difficulties, investment of MOL Rt’s capitals into Hungarian – Russian oil-producing joint venture still continues. In addition, MOL Rt envisages investments into other Russian oil fields. Contractual relationships between our companies are good.
In near future, we expect decision of the Government of Hungary on prolongation of lifetime of Paks NPP. We expect that Russian companies would take part in the tender of projects of modernization of the plant and increase of its capacity up to 150 MW.
Russia would further keep its leading role in power supply to Hungary. For Hungary, uninterrupted supply of Russian energy sources would be of major importance in future. Our major interest is to prevent supply of oil products from the joint venture with MOL Rt from being interrupted due to change of ownership on the Russian side, like that happened during 2004 and early 2005.
At the same time, we believe it important to include Hungarian companies in development and modernization of Russian energy sector, like, for example, the project of construction of a thermal power plant of 125 MW in Astrakhan for an amount of US$110 million on parity conditions (50% to 50%) by the local Hungarian – Russian company «Transel-Urban» covered by an export credit in preparation by Eximbank.
6. Hungary’s position with respect to the concept of the CEES — Common European Economic Space
Last May, Russia and the European Union signed road maps on four “common spaces” being created.
What is Hungary’s assessment of the concept of the Common European Economic Space, and what is the meaning the Hungarian side puts in this concept? What are, in your opinion, the advantages of such form of interaction between Russia and extended European Union compared to the existing Convention of Partnership and Cooperation?
Practical implementation of the concept of common European economic space between the EU and Russia could hardly be qualified as easy and quick, in fact the matter is of creation of «four freedoms» (free circulation of goods, capitals and services, as well as free circulation of persons), as well as of contributing to progressive rapprochement of the Russian side to the EU’s legal system within the legal space. Common economic space means open and integrated market between the European Union and Russia. Both for Brussels and for Moscow, the unconditional priority is given to creation of a common economic space. The common economic space would provide a reliable and predictable legal field to investors from Russia and EU countries, help improving investment climate in the relations between the EU and Russia. The extended European Union continues being the biggest commercial partner of Russia, more than half its commercial turnover falls on 25 EU member countries. Russia is the fifth in volume commercial partner of the EU supplying more than 30% of oil and natural gas consumed by the EU for its needs.
The Convention of Partnership and Cooperation has partly gone out of date, or rather continues going further out of date, since it was signed in June 1994 - 11 years have elapsed since then – and entered into force preliminarily for 10 years. On December 1’ 2007 the Convention of Partnership and Cooperation is going to be terminated, unless an agreement on its prolongation or replacement by another convention is reached. The least desirable would be an automatic prolongation of the Convention, since that would mean automatic prolongation of out-of-date standards for 10 years more. Since Russia envisages joining the WTO in 2007, and now almost one third of the Convention of Partnership and Cooperation treats of issues regarding the WTO, so after Moscow joins the WTO, those clauses would automatically go out of date. However, preparation of a completely new agreement would require time, and one cannot guarantee that that can be completed by the end of 2007 – preparation of the Convention of Partnership and Cooperation had taken three years. Other options (adaptation, extension, verification and studying) should be negotiated.
