RESTRICTED

WORLD TRADE

20 September 1996

ORGANIZATION

(96-3713)

Original: English

*

1.

At its meetings on 5-6 November 1986 and 20 February 1990, respectively, the Council

established a Working Party to examine the application of the Government of Bulgaria to accede to

the General Agreement under Article XXXIII and to submit to the Council recommendations which

might include a draft Protocol of Accession. It was understood that in its examination, the Working

Party would consider the compatibility of Bulgaria's foreign trade regime with the General Agreement

with regard

, to the provisions concerning national treatment, non-discrimination, State-trading,

subsidies and safeguards. On 11 April 1995, the Government of Bulgaria advised that it had decided

to negotiate the terms of accession of the Republic of Bulgaria to the Agreement Establishing the World

Trade Organization (hereinafter referred to as the "WTO") under Article XII of the Agreement. In

pursuance of the decision adopted by the General Council on 31 January 1995, the Working Party

on the Accession of Bulgaria to the GATT 1947 was transformed into a WTO Accession Working

Party.

2.

The Working Party met on 15-16 July 1991, 12-13 July 1993, 4-5 November 1993,

28-29 March 1994, 7-8 July 1994, 5 and 7 July 1995, 10 and 29 July and 17 September 1996 under

the chairmanship of H.E. Mr. E.C. Selmer (Norway) . The terms of reference and the membership

of the Working Party are set out in document WT/L/58 .

3.

The Working Party had before it, to serve as a basis for its discussion, the Memoranda on

Bulgaria's Foreign Trade Regime ( L/6364 and Corr.1 and Add.1, L/6512 , L/6880 and Add.1-5, L/7244 )

and the questions submitted by members on the foreign trade regime of Bulgaria together with the replies

of the Bulgarian authorities thereto ( L/6867 , L/7309/Rev.1 , L/7309/Rev.1/Add.1 and WT/SPEC/12 ) .

In addition, the Government of the Republic of Bulgaria made available to the Working Party the

following material:

* Constitution of the Republic of Bulgaria, adopted in 1991

* Law on Commerce, adopted in 1991

* Law on the Ownership and the Use of Agricultural Lands, adopted 1991

* Law on Accountancy, adopted in 1991

* Law on Value Added Tax, adopted in 1993

* Law on the Excise Duties, adopted in 1994

* Law on the Protection of Competition, adopted in 1991

* Law on the Bulgarian National Bank, adopted in 1991

* Law on the Economic Activity of Foreign Persons and on the Protection of Foreign Investments,

adopted in 1992

* Law on Transformation and Privatization of State-owned and Municipal Enterprises, adopted in

1992

* Law on Banks and Credit Activity, adopted in 1992

* Patent Law, adopted in 1993

* Law on Copyright and neighbouring rights, adopted in 1993

*

This Report was adopted by the Working Party on an ad referendum basis.

Page 2

* Tax Administration Law, adopted in 1993

* Tax Procedure Law, adopted in 1993

* Act on the Settlement of Non-Performing Loans Contracting Prior to 31 December 1990, adopted

in 1993

* The Tobacco and the Tobacco Products Act, adopted in 1993

* Customs Tariff of the Republic of Bulgaria, in force from 1 July 1992

* The Bulgarian foreign trade regime under Ordinance 241 of December 1993 of the Council of

Ministers

* Regulations 180/1993 and 181/1993 on safeguard measures and on protection against dumped and

subsidized imports

* Bulgarian 1992 import statistics

* Information on progress of the privatization process of State and Municipal Enterprises by

28 February 1994.

* Information concerning companies offered for privatization

* Information concerning the consistency of the foreign trade regime with the WTO Multilateral Trade

Agreements

* Note on Trade Related Aspects of Intellectual Property Rights

* Note on services régime

4.

In his initial introductory statements to the Working Party, the representative of Bulgaria noted

that the accession to GATT 1947 was a priority for his Government and an important objective of the

reform programme currently under way in Bulgaria with the whole-hearted support of the new democratic

structures in place since 1991. Later on, prior to the conclusion of the Uruguay Round, he emphasized

Bulgaria's intent to become a full fledged member of the WTO preferably at the same time and on

the same bases as the original members. He stressed that the Bulgarian economy was in transition.

Since 1991 his Government had pursued decidedly the transformation to a market economy through

a far reaching process of structural adjustment and liberalization which needed the firm support of

the international community. Even though in 1992 GDP per capita was only US$983, Bulgaria had

chosen not to claim developing country status on the expectation that members could recognize this

position as a significant contribution on the part of Bulgaria towards full participation in the multilateral

trading system. He added that in 1993 due to the considerable liberalization of the Bulgarian foreign

trade regime and to the absence of trade policy instruments to deal with the importation of goods in

such increased quantities and under such conditions as to cause or threaten to cause serious injury to

domestic producers, the Government had had to introduce, as a temporary measure, a system of reference

import prices affecting some agricultural imports. This measure aimed at preventing distortions in the

domestic market in the meat, fresh fruit and vegetable sector resulting from the importation of heavily

subsidized agricultural production. Bulgaria would align these measures with the Agreement Establishing

the WTO's requirements upon Bulgarian accession. In the case of imports of beverages and tobacco

products the measure was aimed at avoiding under invoicing. Since the earlier meetings of the Working

Party, the description and the established levels of export taxes for some tariff lines had been changed;

the quota amount for ice cream had been increased by 50 per cent; two eight-digit tariff lines had been

introduced in the Bulgarian Customs Tariff. He also stated that Bulgaria was presently in a difficult

economic situation. This was partly due to the unresolved debt to the private banks and partly to the

severe repercussions in the Bulgarian economy of the trade and economic sanctions against Serbia and

Montenegro. In observing the UN Security Council embargo against Serbia and Montenegro, Bulgaria

had suffered huge direct and indirect losses. Bulgaria considered that the prompt conclusion of the

proceedings of accession to the Agreement Establishing the WTO would represent in a way an indirect

compensation for some of these losses. Noting that the Bulgarian economy and foreign trade were

undergoing profound transformations, he said that this process would continue with additional structural

Page 3

adjustment measures to avoid internal economic and social tensions. Bulgaria considered the accession

to the Agreement Establishing the WTO as a very important stage in the adjustment process of the

Bulgarian economy to the principles of the world economy and the multilateral trading system which

would further the participation of Bulgaria as a reliable trade and economic partner in the international

community and also contribute to the country's stability. Finally, he stressed that Bulgaria's incorporation

into the multilateral trading system should also be seen as a step towards consolidating the

democratization of the Bulgarian society.

5.

Noting that Bulgaria had been implementing far reaching reforms aimed at liberalizing the foreign

trade regime and bringing it into conformity with the multilateral trading system, members of the

Working Party welcomed the initial application of Bulgaria for accession to the General Agreement

1947 and later on to the Agreement Establishing the WTO. In expressing support and encouragement

for Bulgaria's efforts to continue to reform and liberalize its economy, members stated their firm

conviction that accession to the GATT 1947 and to the Agreement Establishing the WTO would facilitate

the country's transition to a market economy and would contribute to improving the standard of living

of the Bulgarian people by ensuring stability and attracting further investments which would be job

creating and lead to better competitive conditions for Bulgaria's exports in world markets. In this regard

they noted that the market access concessions negotiated in the context of the Uruguay Round which

were significant would be available to Bulgaria upon becoming a Member of the World Trade

Organization.

6.

The Working Party reviewed the foreign trade régime of Bulgaria and the possible terms of

a draft decision and Protocol of Accession to the World Trade Organization. The views expressed

by the members of the Working Party are summarized below in paragraphs 7 to 90.

7.

Prior to Bulgaria's formal application for accession to the WTO, some members of the Working

Party noted that with the formal adoption of the Final Act of the Uruguay Round at Marrakesh, GATT

accession deliberations must contemplate the expansion of the negotiations to encompass the expanded

scope of GATT institutions under the WTO. They sought confirmation of Bulgaria's intent to adhere

to the WTO and stated that a protocol package for Bulgaria that contemplates WTO membership would

have to include the schedules required for WTO membership, i.e., an agricultural schedule that includes

commitments in the areas of market access, domestic supports and export subsidies and commitments

on market access for goods and services; the initial submissions/notifications required by the WTO

Agreements on Import Licensing Procedures, Technical Barriers to Trade, Customs Valuation, and

TRIMs; a list of non-tariff barriers by tariff line that are subject to import or export quotas, automatic

or non-automatic licensing requirements, certifications, surcharges or taxes, or any restrictions that

require WTO justification in order to (1) comply with the requirements of the Agreement on Import

Licensing Procedures, and (2) negotiate, as necessary, their elimination or transformation towards

WTO conformity. In their view the preparation of the required WTO schedules and the list of the

non-tariff measures by HS line and their WTO justification would facilitate the negotiation of a protocol

for Bulgaria. In this connection some members requested information on Bulgaria's commitments

concerning intellectual property rights and its intentions concerning participation in the Agreement

on Trade Related Aspects of Intellectual Property Rights and in the General Agreement on Trade in

Services.

8.

A member suggested that in this case, with the consent of the Government of Bulgaria, accession

to GATT and the World Trade Organization might be addressed jointly. Therefore, he suggested that

Page 4

the Protocol of Accession of Bulgaria might include the following additional elements: (i) WTO

consistent application of taxes and charges applied to imports and non-tariff restrictions on imports

and exports; and (ii) an assurance that periodic updates will be provided covering the process of

privatization and trade by State-owned enterprises.

9.

In response the representative of Bulgaria said that as a country acceding to GATT 1947 Bulgaria

had been associated with the concluding phase of the Uruguay Round Multilateral Trade Negotiations

and had since that time envisaged commencing the process of accession to the Agreement Establishing

the WTO. His Government had been negotiating accession to the General Agreement 1947 with the

clear intention of becoming as well an original member of the World Trade Organization in accordance

with the provisions of Article XI thereof. Therefore, the market access negotiations undertaken between

a number of GATT contracting parties and Bulgaria had been expected to lead to the establishment

of a schedule of market access commitments which would be annexed to the Protocol of Accession

to the GATT 1947, as well as to the GATT 1994 following the approval of the Preparatory Committee

for the Establishment of the World Trade Organization as foreseen in the Ministerial Decision of

14 April 1994 on Acceptance of an Accession to the Agreement Establishing the World Trade

Organization. Due to the complexity of the negotiating process, for reasons independent of Bulgaria

this objective had not been attained. Therefore, on 11 April 1995, the Government of Bulgaria had

applied for accession to the WTO Agreement in pursuance of Article XII thereof and the Working

Party on Accession to GATT 1947 had been transformed into a WTO Accession Working Party. In

document WT/ACC/BGR/2 , Bulgaria had submitted to the Working Party, information on the consistency

of the foreign trade regime of Bulgaria with the WTO Agreement as well as Notes on TRIPS and

Services.

10.

The Working Party noted that in response to the invitation of Bulgaria, a number of members

had entered into market access negotiations with Bulgaria relating to its accession to the Agreement

Establishing the WTO. Some members of the Working Party said that in the bilateral tariff negotiations

they would seek the binding of the whole Bulgarian tariff as well as other tariff concessions at a rate

commensurate with Bulgaria's development level and participation in world trade. In response the

representative of Bulgaria said that his Government was ready to bind the country's tariff at a level

consistent with Bulgaria's financial, development and trade needs, on the understanding that the resulting

package of tariff and trade concessions would constitute the contribution of Bulgaria to the market access

negotiations for the purpose of membership in the WTO.

11.

In response to questions concerning recent economic developments in Bulgaria, in particular

the role of the State, its share in the productive capacity of the economy and the manner in which the

ownership responsibility over firms was exercised, the representative of Bulgaria said that the Bulgarian

economy was heavily dependent on foreign trade. In the past several years, Bulgarian foreign trade

had declined mainly due to the collapse of trade with its partners from Central and Eastern Europe

and due to the strict application of the embargoes towards Iraq, Serbia and Montenegro in accordance

with UN Security Council resolutions. Following the disruption of trade with the former CMEA

countries, trade flows with the OECD countries had gained momentum. He added that in parallel with

the elaboration of a new legislative framework, the Government of Bulgaria had embarked on a

comprehensive macroeconomic stabilization and structural reform programme with support from the

international financial institutions. The programme aimed at two main policy objectives. First, to achieve

progress towards a sustainable external position, including the revival of foreign trade, the diversification

of external markets and an improvement in Bulgaria's international reserves position, as well as progress

Page 5

towards resolving Bulgaria's external debt situation. Second, to move towards restoring macroeconomic

equilibrium through the appropriate mix of fiscal, monetary and incomes policies. A key step in this

regard was to reduce the size of the fiscal deficit, to tighten the monetary supply and credit expansion

and to limit the uncontrolled income growth.

The expectation being that progress towards

macroeconomic stability would create a favourable environment for the emerging private sector and

for non-inflationary growth. The following results had been achieved in implementing the above-

mentioned programme.

In 1991-1994 important reforms had been undertaken towards price

liberalization, the liberalization of the trade regime and the process of privatization, as well as in the

financial sector and in agriculture. The Government had freed virtually all prices in the economy.

Nevertheless, the 1991 three-digit inflation rate had been substantially reduced and remained under

control. Thus, the 1993 yearly inflation rate of 63.9 per cent had decreased in February 1994 to a

4.6 per cent monthly level. He recalled that in July 1992 Bulgaria had introduced a new customs tariff

based on the Harmonized Commodity Description and Coding System. Since then the customs tariff

had become the main trade policy instrument in the economy. All economy units, irrespective of their

ownership whether private or public had acquired the right to carry out foreign trade activities. The

licensing system applied in the past which had involved direct government regulation of almost all

foreign trade had been eliminated. In the financial sector, a two-tier banking system had been

established. The national currency, the leva (BGL), had attained internal convertibility for current

account transactions. The rate of the BGL quoted daily by the Bulgarian National Bank reflected the

average weighted rate of sales and purchases of foreign currencies on the inter bank market. The

exchange rate of the BGL quoted by the Bulgarian National Bank, served only as a reference to the

licensed commercial banks and exchange bureaux. Customers could freely negotiate the exchange

rate with commercial banks and the foreign exchange agents licensed for carrying out such operations.

12.

In his statements to the Working Party, the representative of Bulgaria also recalled that since

the establishment of parliamentary democracy in the early 1990s, fundamental political and economic

changes had taken place in Bulgaria. The country had embarked upon a radical economy reform

programme aimed at transformation to a market economy. The trade reform had opened the economy

to external competition and the Law on the Economic Activity of Foreign Persons and on the Protection

of Foreign Investments had also Bulgaria's economy opened to foreign investors. The main reforms

already in place were as follows: the elimination of the State monopoly of foreign trade in 1989, free

access to foreign exchange for current account transactions in 1991, the central role of the tariff and

the virtual removal of quantitative restrictions on imports, the rationalization of the taxation regime,

the decentralization of the State-owned sector and the transfer of productive property to the private

sector.

13.

In response to questions concerning current foreign exchange regulations, the conditions for

its acquisition and use, and whether there was any discrimination in the availability of or the exchange

rates for imports of capital equipment, intermediate goods, consumer goods or new materials, the

representative of Bulgaria said that following the establishment in 1991 of an inter bank market the

rate of the BGL against the US$ was quoted daily by the Bulgarian National Bank (i.e. the Central

Bank) and reflected the average weighted rate of sales and purchases of foreign currencies on the inter

bank market. The exchange rate of the BGL, quoted by the BNB, was applied for the purposes of

statistics, accounting and customs valuation. It was not obligatory for transactions and served only

as a reference to the licensed banks and exchange bureaux. Customers freely negotiated the exchange

rate with the commercial banks and the foreign exchange agents. They had the right to sell or purchase

foreign exchange without any restrictions. Companies could freely buy from the inter bank market

the foreign exchange needed for payments in connection with imports and other types of current account

transactions, as well as trade foreign currencies among themselves. There was no surrender requirement

for the foreign currency earned. Local persons and foreigners could freely trade foreign currencies

Page 6

on the interbank currency market for current account transactions. No restrictions existed for nationals

and foreign persons to open accounts in foreign currencies with commercial banks and to dispose of

the funds in their accounts.

14.

Some members noted that Bulgaria maintained bilateral payment agreements with a number

of countries, including Albania, Belarus, Cambodia, China, Ethiopia, Finland, Ghana, Greece,

Mozambique, Peru, Romania, the Russian Federation and Ukraine and asked whether trade payments

and/or foreign exchange provisions in these agreements differed from such arrangements/provisions

with other countries. In response the representative of Bulgaria said that the Republic of Bulgaria did

not maintain at present any operational bilateral payments agreements denominated in non-convertible

currencies. No intergovernmental barter, import/export balancing or payment in kind agreements and

clearing arrangements were in effect in Bulgaria at present. Trade with all countries was conducted

under normal commercial considerations in convertible currencies. Some members of the Working

Party noted that Bulgaria maintained barter agreements and import/export balancing arrangements.

The representative of Bulgaria informed the Working Party that no intergovernmental barter,

import/export or payment in kind agreements and clearing arrangements were in effect.

15.

Some members enquired whether the State Council Decree of February 1988 which authorises

the State to "prevent unlawful increases in prices" was in force and asked for a detailed description

of the price control mechanism. In response the representative of Bulgaria said that the 1991 Constitution

stipulates in its Article 19 paragraphs 1 and 2 that the Bulgarian economy is based on free

entrepreneurship and the Law creates and guarantees to all citizens and legal persons equal juridical

conditions for economic activity, preventing the abuse of monopolies and the unfair competition. The

application of State Decree 115/1988 was envisaged as long as some fixed prices as well as monitoring

existed. The price control mechanism which was irrespective of the ownership embodied fixed prices,

ceiling prices and prices under Government monitoring. Fixed prices had applied to the following

energy products: electricity; heating energy; coal for production purposes and for home heating,

briquettes (imported coal for production purposes was not subject to fixed prices) . These products

were estimated to account for less than 10 per cent of retail and wholesale turnover. The fixed prices

had been raised several times since the initial increase in 1991. The number of products under fixed-price

had been reduced and the restriction on petroleum prices lessened. Some members of the Working

Party asked that Bulgaria notify the Working Party of its timetable and plans for abolition of the price

controls. In 1995 the representative of Bulgaria informed the Working Party that prices of goods and

services in the Republic of Bulgaria had been liberalized. Prices were determined by the market.

Prices could only be regulated in order to avoid the establishment of monopolies, to prevent abuse

of a dominant market position, and to protect consumers. As of 1995, price regulation was of the

following types: fixed prices for electrical energy (HS 2716), heating energy (for the population);

domestic coal (for production purposes) (HS ex 2701m ex 2702), postal and basic telecommunication

services, tobacco products for internal sale (HS ex 2402, ex 2403) . These products can be sold only

at the prices fixed by the government; ceiling prices for gasoline (HS ex 2710), diesel oil (HS ex 2710),

gas oil (for production purposes) (HS ex 2710), fuel oil (HS ex 2710), gas propane-butane (HS ex 2711) .

The prices of these products cannot exceed the level determined by the Council of Ministers monthly

and on the basis of the international market prices and the changes in the US$/BGL exchange rate;

price monitoring (surveillance) for goods that are of vital importance to the living standards of the

population and the national economy. These are the following: food products (bread (HS ex 1905);

meat with bone in of bovine animals, swine, sheep, poultry (HS ex 0201, ex 0202, ex 0203, ex 0204,

ex 0207); cow's milk (HS ex 0401.10, ex 0401.20); cow's yoghurt (HS 0403.10); white cheese

in brine (HS ex 0406.90); refined sunflower oil (HS ex 1512.19); cow's butter (HS ex 0405.10);

eggs (HS ex 0407); pasta (HS ex 1902); refined sugar (HS ex 1701); beans (HS ex 0713.33); lentils

(HS ex 0713.40); rice (HS ex 1006.20); potatoes (HS 0701.90)) and mineral waters (HS ex 2201.10),

Page 7

non-food products (pharmaceuticals for human consumption (from Chapter 30); coal and briquettes

for the population (HS ex 2701.19, ex 2701.20)), the passenger (rail, urban and interurban) road transport

services. The regulation of the prices under monitoring is applied actually only on profit margins and

not on the prices themselves. The profit margins for different products cannot exceed: for producers:

12 per cent for food products, 20 per cent for pharmaceuticals and mineral waters, 7 per cent for heating

energy for production purposes, coal and briquettes, 12 per cent for transport services, 30 per cent

for drinking water and water for production purposes and 15 per cent for other non-food products;

for sellers: 14 per cent for food products and 25 per cent for non-food products. Bulgaria stated that

the price controls did not breach the WTO national treatment principle - domestic and imported products

were treated in a uniform manner that did not afford protection to domestic production, nor was there

differential treatment based on the origin of the products. The representative of Bulgaria said that

currently the goods and services with fixed prices account for 2.20 per cent of GDP, goods with ceiling

prices 1.13 per cent and goods and services under price monitoring 8.94 per cent. Thus the total equals

to 12.27 per cent of GDP. The representative of Bulgaria assured the Working Party that the price

policy pursued by the Republic of Bulgaria aimed at transparent rules and regulating mechanisms directed

to overcome market imperfections, imbalance of supply and demand and the need to maintain control

over prices of natural monopolies. The price control measures which Bulgaria maintained did not

discriminate against imports. The Working Party took note of these assurances.

16.

The representative of Bulgaria confirmed that price controls on products and services in Bulgaria

have been eliminated with the exception of those listed in paragraph 15. He added that, except in the

case of critical situations, monopolies, the protection of consumers, or abuse of dominant market position

by firms, prices for goods and services in every sector in Bulgaria were determined by market forces.

He further confirmed that in the application of such controls, and any that are introduced or re-introduced

in the future, Bulgaria will apply such measures in a WTO-consistent fashion, and take account of

the interests of exporting WTO members as provided for in Article III.9 of the GATT 1994. Bulgaria

will also publish the list of goods and services subject to State price controls in the State Gazette including

any changes from the list in paragraph 15. The Working Party took note of these commitments.

17.

The representative of Bulgaria stated that the system of import reference prices applied to

agriculture had been eliminated as of 1 January 1995, and that such measures will not be reintroduced

except in accordance with WTO Agreements. The Working Party took note of this commitment.

18.

Some members requested a comprehensive list of enterprises wholly or substantially owned

by the State and the products in which they traded as well as their trade volume and value and asked

for information on the role of the State in management and decision making, the bankruptcy and

liquidation of State-owned firms. Members also requested a description of the Privatization Law, and

the functions and operations of the Agency on Privatization as well as the current status and the future

prospects of the privatization process. In response, the representative of Bulgaria said that the number

of State enterprises was about 4,500. The Privatization Programme for 1993 had envisaged privatization

of 318 enterprises, including 150 differentiated assets. Privatization was one of the most essential

elements in the structural reform in Bulgaria. This process had started at the beginning of 1992 with

the restitution laws which affected mainly industrial and residential property, small shops and agricultural

land. The legal regulation of privatization in Bulgaria was contained in the Law on Transformation

and Privatization of State and Municipal Enterprises (published in State Gazette No. 38 of 1992) . The

State authorities engaged in the privatization process are as follows: (i) The Parliament: adopts legislative

acts, adopts the annual privatization programme submitted by the Council of Ministers, appoints six

members of the Supervisory Board of the Agency for Privatization, supervises the fulfilment of the

annual privatization programme, and in particular approves the report on its fulfilment given by the

Agency for Privatization. (ii) The Council of Ministers: adopts regulations on the implementation

Page 8

of legislative acts, authorises the relevant government bodies for small-scale privatization (less than

BGL 10 million balance sheet value of assets of the enterprise under privatization), approves the

privatization of enterprises with balance sheet value of the long-term assets exceeding BGL 200 million,

appoints five members of the Supervisory Board of the Agency for Privatization. (iii) The Agency

for Privatization is a government body authorized to organize and control the privatization of State-owned

enterprises as well as to carry out privatization in the cases provided by the law. It is a budget-financed

legal person; licences Bulgarian and foreign appraisers, drafts the annual privatization programme and

submits it to the Council of Ministers, organizes and controls privatization effected by other bodies,

privatises State-owned enterprises with a balance sheet value of long-term assets exceeding BGL 10

million (about 30 per cent of the total number of State-owned enterprises) . (iv) Government bodies,

authorised to carry out small scale privatization: The Council of Ministers has granted privatization

competence to some ministries and committees with respect to State-owned enterprises with a balance

sheet value of long-term assets up to 10 million BGL. Those government bodies take decisions for

privatization, carry out the privatization process and conclude the privatization transactions.

(v) Municipal Councils: the Municipal Councils are responsible for the privatization of municipal

enterprises, regardless of their balance sheet value of long-term assets. The Law regulates the basic

framework within which the process of privatization is effected. The competence for taking privatization

decisions is allocated to the State or to municipal bodies depending on the form of ownership and assets

to be privatized. The Law provides for equal treatment of all participants in privatization. The right

of preferential participation has been established only for workers and employees with a minimum

length of service at the enterprise undergoing privatization prior to the date of declaration of the

privatization decision. In cases of selling of shares and stock owned by the State and Municipalities,

the employees have the right to buy up to 20 per cent of the shares of the common stock of the capital

of the company at a 50 per cent discount on the fixed price. Only if 30 per cent of the employees

declare that they will participate in the auction or competition, they become owners of the assets with

a 30 per cent reduction of the price, declared as definitive. The original selling price of shares, the

initial price of the auctions and the tender price at holding competition or negotiations are determined

on the basis of a value appraisal of the enterprise. The Law regulates the following methods of

organizing the sale of shares and stock owned by the State and the Municipalities which may be applied

simultaneously: open sale (applied only for shares and after preliminary co-ordination with the

Privatization Agency), public auction, publicly announced competition and negotiations with potential

buyers. The sale of State and municipal enterprises or parts thereof is effected through auction or

competition. The ownership can be transferred by renting for a period up to 25 years with a clause

for buying out; management with clause for buying out or selling to third person; sale by paying by

instalments with retention of ownership; sale under deferment and discontinuation conditions such as

maintaining the previous activity of the enterprise, the work places, making investments, obtaining

certain results etc. The provisions of the Law on Transformation and Privatization of State and Municipal

Enterprises were applied also with respect to selling property of State and municipal enterprises that

have been closed down owing to insolvency or for other reasons, left after paying off all debts in

accordance with the rules of closing down in case of insolvency, as well as whole enterprises transformed

into commercial companies or differentiated parts which are fully owned by the State and the

Municipalities with a book value of the fixed assets below BGL 10 million. Privatization was possible

through restitution as well.

19.

The representative of Bulgaria said that in 1994 the Privatization Agency and the central

governmental bodies have undertaken a total number of 610 privatization procedures (489 for whole

State enterprises and 121 for parts of State enterprises), distributed per sectors as follows: industry -

198, trade - 127, agriculture - 115, tourism - 85, construction - 42, transport - 20, others - 23. The

total number of the privatization transactions concluded in 1994 is 171 (sales of whole enterprises - 90

(52.6 per cent), sales of parts of State enterprises - 81(47.4 per cent), distributed per sectors as follows:

trade - 55, construction - 15, transport - 10, tourism - 8, others - 2. During the first five months of

1995 the total number of initiated privatization procedures is 218, whereas the total number of the

Page 9

transactions concluded is 97. There is a clear tendency of acceleration in the privatization process

demonstrated by the index of the transactions concluded. At the end of May 1995 the total number

of initiated privatization procedures is 1228 and that of the concluded privatization transactions is 337.

The objectives, priorities and figures relevant to the privatization process for the current year are set

in the 1995 Privatization Programme (SG 54/1995) adopted by the National Assembly. The "exemption

list" of some sectors that are excluded from the scope of the privatization under this programme does

not constitute by itself a prohibition but a temporary exclusion of a limited number of sectors for the

current year. Privatization of basic telecommunications is not scheduled as imminent because of the

projects for their modernization financed with investment credits of the World Bank and other

international financial institutions that are State guaranteed. The machine building sector is not in "the

exemption list". Moreover, it is among the sectoral priorities under the 1995 privatization programme.

As of mid 1995 the land under private ownership or control accounts for 65 per cent of the land subject

to restitution.

20.

The representative of Bulgaria added that the status as of 30 June 1995 of the privatization

process was as follows:

Page 10

STEP UNDERTAKEN

Privatizat

Ministry of

Committee of

TOTAL

Agency

Industry

Agricult.

Construct.

Trade

Transport.

Culture

Tourism

Telecom.

Energy

Forestry

1

Decision to open procedure

280

199

170

76

277

109

14

91

1

8

3

1228

-onwholeenterprises

229

166

98

30

141

78

13

73

1

6

3

838

17

7

9

5

4

6

48

- on separated parts of

enterprises

51

33

72

46

136

31

1

18

2

390

25

15

21

15

59

8

6

149

2

Suspendedprocedures

14

4

11

12

5

2

2

50

3

Tenders for evaluation

announced

150

159

55

29

127

72

7

36

1

4

1

641

4

Evaluationsassigned

127

150

151

61

189

76

6

34

1

4

799

5

Evaluations accepted

116

113

104

55

122

48

3

29

2

592

-returned

5

1

14

20

6

Tenders, auctions, direct

negotiat.

23

37

45

39

18

2

3

167

- auctions

6

6

-tenders

3

3

22

4

2

34

- direct negotiations

20

34

17

39

14

3

127

8

7

39

6

60

7

Transactions concluded - total

63

34

73

38

90

17

2

18

1

1

337

a/.

onwholeenterprisesby:

34

33

33

15

24

7

2

11

1

1

161

- auctions

5

5

-tenders

4

7

11

10

15

2

49

-directnegotiations

30

26

17

3

9

7

2

9

1

1

105

6

2

2

3

1

6

20

b/.

on separated parts of

enterprises by

20

1

40

23

66

10

7

167

-auctions

7

2

19

28

-tenders

11

20

10

30

3

1

75

- direct negotiations

9

1

13

11

17

7

6

64

7

1

5

10

16

3

5

47

c/.

assets

9

9

8

Transactions suspended

2

1

1

2

6

9

Expenditures in thous.leva

37855

10913

6159

5712

7295

4837

405

2951

123

532

34

76816.1

10

Proceeds of sales - in

thous.leva

3399423

195571

136332

127904

224406

29331

5100

180915

2849

80

4301912.4

- paying in securities

4082956

114893

66357

42292

342551

77291

15001

35821

8606

2445

4787813.6

Page 11

Due to technical reasons Bulgaria was not in a position to provide exact data on the share of State-owned

companies in foreign trade. However, the share of the private sector in Gross Domestic Product

1

was

as follows:

(computed at current price)

(percentage shares)

1990

1991

1992

1993

1994

**

Economic activity

Private sector - total

9.5

11.9

18.3

25.0

27.2

Agriculture and Forestry

6.7

5.3

6.7

7.2

8.9

Industry

***

1.7

2.7

4.3

6.3

5.9

Services

****

1.1

7.3

7.3

11.5

12.4

21.

The representative of Bulgaria said that the total number of privatization transactions

scheduled for conclusion by the Privatization Agency under the 1995 Privatization Programme accounts

for a total of 170 transactions. Besides, there were 34 large State-owned enterprises which will be

subject to privatization by the Agency for Privatization upon approval by the Council of Ministers.

At the enterprise level the national statistics account for trade in general and not according to entities.

The total share of the private enterprises was 60 per cent.

22.

The representative of Bulgaria added that State intervention in the economic activity of all

companies has been abolished. Article 19 of the Constitution of Bulgaria states,

, that the

economy of Bulgaria is based on the principles of the free entrepreneurship and that the legislation

shall create and assure equal legal conditions for carrying out economic activities for all legal and natural

persons, thus establishing the principle of non-discrimination between State-owned and private enterprises.

Privileged protection of State property has been deleted in the Penal Code. Moreover, the Law on

the Protection of Competition of 1991 prevented enterprises from abusing their dominant position which

could lead to a restriction of competition. The 1991 Law on Commerce and all other legislation provide

for a legal status of State-owned enterprises entirely identical with that of private enterprises. Upon

the "corporatization", i.e. the transformation of State organizations into joint-stock or limited liability

companies, their autonomy from the Government is guaranteed so that their activity is based on

commercial considerations only. Thus the State's role in State-owned enterprises is restricted to that

of an ordinary shareholder. The State-owned enterprise is an independent legal person being a titular

of its property and acting on its own economic and legal responsibility. State-owned enterprises are

in a position to define independently their own market behaviour, to implement it through the respective

operational decisions and to conclude commercial transactions of any kind in accordance with the

customary business practice and the legislation in force. Neither economic nor legal privileges are

granted to them by the Government. The legal status, the position of the State as a regular shareholder

and the identical legal and economic treatment of State-owned and private enterprises are guarantees

that the State will not be involved in enterprise policy making. The members of the Management and

**

Computed at basis prices

***

Including construction

****

Including transport, communication, trade, housing, public utilities and household services,

science and technology, education, culture and art, health, social insurance, finance, credit and insurance.

Page 12

Supervisory boards of the State-owned enterprises are appointed pursuant to Article 137, paragraph

1, subparagraph 5 and Article 221, paragraph 1 of the Law of Commerce. The selection process is

based on certain requirements with respect to education, qualification, business experience, etc. The

candidates for an appointment should meet the above mentioned criteria. Individual candidacies are

considered on a competitive basis. The selected candidates or candidate negotiate a Management Contract

with the respective governmental body. This contract regulates the relations between the Management

and Supervisory Boards and the relevant governmental body. As a rule the Management Contracts

are of three years duration and can be terminated on grounds strictly defined so that a stable management

of the State-owned enterprises is guaranteed in accordance with the general requirement of compliance

with the labour legislation in force. The Bankruptcy Law had been adopted in 1994, as SG 63/1994.

It formed Part IV of the Commercial Law and was entitled "Insolvency" In the law, there were no

privileges for State-owned firms or interference of the State in the bankruptcy procedures. Insolvent

companies can be offered for liquidation by the State or by the servicing banks. However there is

a difference in the procedure: the Council of Ministers or the appropriate Minister simply issues a

formal decision to such effect, whereas the banks and creditors have to start formal proceedings before

the court.

23.

Finally, the representative of Bulgaria said that in December 1993, the Parliament had adopted

the Law on the Settlement of Non-Performing Loans Contracted Prior to 31 December 1990. Loans

contracted by companies and banks with State-ownership over 50 per cent before 31 December 1990

and with arrears of more than 180 days would be replaced by long-term bonds denominated in BGL

and in US$. The bonds issued in pursuance of the provisions of this Law could be used both as securities

and in the process of privatization. Within three months from the transformation of the loans, the

managing bodies of the companies should develop programmes for restructuring aimed at stabilizing

the financial situation of the enterprises. The representative of Bulgaria confirmed that the Ministry

of Finance and the Bulgarian National Bank maintained a policy of not granting or guaranteeing loans

to State owned enterprises for operational purposes. He added that the break-up of most large State-

owned enterprises into smaller units had been virtually completed. These new enterprises were registered

under the 1991 Law on Commerce (the Company Act) as commercial companies (both joint-stock

companies and limited liability companies) with the State as a single shareholder, thus legally prepared

for privatization. In conclusion, the representative of Bulgaria expressed the view that the restitution

of many urban properties and privatization had created a dynamic private sector which already accounts

for a third of all economic activity in the country.

24.

A number of members of the Working Party expressed appreciation for the clarifications

concerning the status and prospects for Bulgaria's efforts to privatize State-owned enterprises and the

manner in which the State exercised its ownership in State-owned firms and the role of State-owned

enterprises in international trade. These members noted, however, that while Bulgaria was constructing

the legal framework for equality of treatment of private enterprises with State firms and the eventual

separation of former State firms from government association after privatization, the current rules for

the management of State-owned firms contemplated a State role in enterprise operations. For example,

Government ministries appointed the Management and Supervisory Boards that select the management

of State firms and that negotiate the terms of a Management Contract with the selected individuals.

These contracts regulated the relationship between management, labour, and the State, and there were

areas, such as the establishment of subsidiaries, where the management was required to consult with

the Government. Even though Bulgaria had stated that the Government was not liable for State

enterprises debt, the most recent regulations had transferred the ultimate responsibility for a great deal

of State enterprise debt from the banks to the Government, in order to allow the banks to reorganize

their role in Bulgaria's economy and free up resources for new loans. In 1994, a full separation of

the State from the still sizeable and economically critical State-owned sector was not possible. Moreover,

in their view, Bulgaria's privatization process was proceeding very slowly because of the approximately

4,500 State firms slated for transfer to private ownership under the Law on Transformation and

Privatization of State and Municipal Enterprises, Bulgaria was preparing some 400 State firms for sale

Page 13

and the reasons for cautious progress were clear. It would appear, therefore, that the setting up of

an economic basis independent of the Bulgarian State would be a long-term project. While respecting

Bulgaria's statements concerning its ultimate goals and intent to establish a market-driven economy

based on private ownership, these members believed that for accession to the Agreement Establishing

the WTO the relationship between the Bulgarian State and its trade and industry had to be clear. As

a minimum they expected transparency and dialogue as Bulgaria's economic transition progressed and

would intend to address these issues in the Protocol of Accession of Bulgaria. A member recalled

that Bulgaria had the commitment to keep the WTO informed of these developments. The representative

of Bulgaria affirmed his Government's intention to ensure the transparency of its national trade policies

and practices under the regular trade policy reviews in the WTO, including the wider background of

national and economic development. This was not to be regarded as a basis for the imposition of specific

obligations under the Agreements or as a basis for the adoption of new special policy commitments.

Bulgaria could not undertake commitments exceeding the regular membership obligations. The Republic

of Bulgaria was committed to fulfil the notification requirements ensuing from the existing procedures

in the WTO Agreements. The Working Party took note of this commitment.

25.

The representative of Bulgaria confirmed that the former State monopoly in foreign trade in

Bulgaria has been abolished and that no restrictions exist on the right of foreign and domestic individuals

and enterprises to import and export goods and services within Bulgaria's customs territory, except

as provided for in WTO Agreements. He further confirmed that individuals and firms were not restricted

in their ability to import or export based on their registered scope of business, and the criteria for

registration of companies in Bulgaria were generally applicable and published in the State Gazette.

The Working Party took note of these commitments.

26.

At the request of a member of the Working Party, the representative of Bulgaria agreed that

it was important to ensure full transparency and to keep WTO Members informed of its progress in

the reform of its transforming economic and trade régime. He stated that his Government would provide

every 18 months to WTO Members information on developments in its programme of privatization

along the lines of that provided to the Working Party, and on other issues related to its economic reforms

as relevant to its obligations under the WTO. The Working Party took note of this commitment.

27.

Some members of the Working Party noted that Bulgaria had relatively high and recently

increased average tariff levels which for some items had reached 40-55 per cent, particularly in the

agricultural sector. They requested that Bulgaria justify these rates and describe how the tariff structure

would develop over the next 5-10 years. In response the representative of Bulgaria said that as a result

of the price reform the removal of the import restrictions and the drastic changes in import licensing,

tariffs had become the main trade policy instrument. A new import tariff based on the Harmonised

Commodity Description and Coding System was in force in Bulgaria as of 1 July 1992. The new customs

tariff contained ninety-six chapters, 1,241 four-digit headings, 5,018 six-digit headings and 845 eight-digit

headings. The Tariff contains two columns. The first column specifies rates under Bulgaria's

Generalized System of Preferences scheme. The second column specifies most-favoured-nation rates

(m.f.n.) . Imports from least-developed countries were subject to zero tariff rates. The tariff for imports

from countries which do not apply m.f.n. treatment to Bulgaria were 200 per cent of the m.f.n. rate.

The average nominal m.f.n. tariff rate was 17.96 per cent. The trade weighted average for m.f.n.

imports was 13.72 per cent. For industrial products, the average nominal rate was 16.69 per cent

and the trade weighted average was 12.50 per cent. For agricultural products, the levels were 25.97

per cent and 30.91 per cent, respectively. Bulgaria's maximum tariff of 55 per cent applied to three

agricultural items. Bulgaria's tariff had five basic m.f.n. rates ranging from 5 to 40 per cent. The

most common rate was 25 per cent representing almost 31 per cent of all tariff lines. Only 8 per cent

Page 14

of tariff lines fell under the rate of 40 per cent accounting for less than 5 per cent of total 1992 imports.

The greatest share of imports (34 per cent) fell under the lowest rate of 5 per cent. The preferential

margin under Bulgaria's Generalized System of Preferences scheme varied from 20 to 40 per cent of

the most favoured nation (m.f.n.) rates. As a future member of the World Trade Organization, Bulgaria

would aim at further development of the process of liberalization under the conditions and in conformity

with the GATT 1994 and the Agreement Establishing the WTO rules and practices.

28.

Some members of the Working Party requested information on the 3 per cent import surcharge

introduced on 1 August 1993 as well as the calendar for its elimination. The representative of Bulgaria

said that as of 1 August 1993, a temporary import surcharge was introduced in order to forestall the

imminent threat of a serious decline in the foreign exchange reserves. The 1993 surcharge affected

equally all trade except some products essential for the economy (energy products and base raw materials)

and was applied on an

basis including the trading partners with whom Bulgaria's commercial

relations are based on free trade agreements. The representative of Bulgaria added that a schedule

of elimination was announced at the time of the introduction of the measure in 1993, and Bulgaria

had complied with this schedule strictly. Until the end of 1993, the import surcharge was 3 per cent.

It had been reduced to 2 per cent for the year 1994, and to 1 per cent for 1995. The representative

of Bulgaria stated that the import surcharge of 1 per cent ad valorem (introduced in 1993) had been

eliminated on 1 January 1996. However, in view of the very difficult balance of payments position,

the Government of the Republic of Bulgaria decided to introduce, effective 4 June 1996, a temporary

import surcharge of 5 per cent ad valorem. A description of the surcharge, the reasons for its imposition,

and the precise product coverage as reflected in WT/SPEC/41 , are annexed to this Report.

29.

The representative of Bulgaria stated that according to current regulations, the surcharge

introduced at 5 per cent ad valorem on 4 June 1996 was applied to all imports from all sources (including

preferential trading partners) with the exception of the list of products contained in WT/SPEC/41 annexed

to this Report. The surcharge would be reduced to 4 per cent on 1 July 1997, to 2 per cent on

1 July 1998, to 1 per cent on 1 July 1999, and finally eliminated on 30 June 2000. He confirmed

that the surcharge was to be based on the customs value of the goods and would be added to the applied

tariff rates and would not alter the commitments undertaken in the Schedule of Concessions on Goods

annexed to the Protocol. After accession, the Government of Bulgaria would immediately enter into

consultations with the WTO to review the measure within the framework of WTO provisions governing

the application of measures for Balance of Payments purposes contained in Article XII of the GATT 1994

and the WTO Understanding on the Application of Measures for Balance of Payments purposes, and

would review remaining measures on an annual basis. If it was determined in the course of any of

these consultations that Bulgaria was no longer justified in applying such measures for balance of

payments purposes, the Government of Bulgaria would advance the elimination of this surcharge.

He further confirmed that Bulgaria would not expand the list of exempted import categories without

consultations with the WTO to ensure that the surcharge was not being applied selectively, and that

any subsequent application of customs duties, charges and surcharges to imports by Bulgaria will be

in accordance with the provisions of WTO Agreements. The Working Party took note of these

commitments.

30.

The representative of Bulgaria stated that, as of the date of accession, the only charges applied

to imports would be the import duty and the Customs Clearance Fee, and the import surcharge as

described in paragraph 29. Any other charges applied to imports after this time would be in accordance

with WTO provisions. Reflecting this situation, he confirmed that Bulgaria would not list any additional

charges in its goods market access schedule under Article II.1(b) of the GATT 1994. The Working

Party took note of these commitments.

Page 15

31.

In response to questions concerning import taxes, the representative of Bulgaria said that the

15 per cent import tax applied in 1991 in addition to the import duty had been abolished with the

introduction of the new import tariff. However, as of 1 July 1992 an import tax had been introduced

for a limited number of products. The list had been reduced in 1993 and import taxes were applied

to frozen beef, veal, pork and poultry meat, yoghurt, butter, fresh grapes (from 1 July to 31 October),

fresh apples (from 1 August to 31 December), fresh tomatoes, cucumbers, peppers, processed fruit,

fruit juices. The import tax was applied also on imports of some perfumery and cosmetics items.

The import tax had varied from 5 per cent (juices and perfumes) to 25 per cent (frozen pork, veal,

beef and poultry meat) . As of 1 July 1993, Bulgaria had either eliminated or, in the case of a few

agricultural items, incorporated the import taxes into the customs tariff. This change was

and affected trade under preferential agreements. The Working Party took note of this statement.

Finally, the representative of Bulgaria said that an import tax of 10 per cent of the customs value was

payable on second-hand motor vehicles which had been registered for not less than 10 years (a measure

which actually substituted a former ban on imports of used automobiles of not less than 10 years) .

The tax was applied for ecological reasons. A member of the Working Party questioned the conformity

of the 10 per cent tax on imports of used automobiles with Article III of the GATT 1994 as the tax

is not applied to autos of similar vintage when sold by a domestic owner.

32.

The representative of Bulgaria stated that the 10 per cent tax on imports of used automobiles

was applied for ecological reasons. By the date of accession, the tax would be revised to ensure that

used automobiles whether imported or sold within the Bulgarian customs territory would bear the same

tax upon sale, importation or resale of the automobile. The Working Party took note of this commitment.

33.

The representative of Bulgaria said that upon accession to the Agreement Establishing the WTO,

his Government would use the authority to apply taxes and surcharges on imports and exports in

conformity with the provisions of the GATT 1994, in particular Articles III, VI, VIII, XII, XVIII and

XIX thereof. The Working Party took note of this commitment.

34.

Some members requested information on duty exemptions for certain imports, as well as

information on how tariff rate quotas were allocated. The representative of Bulgaria said that some

goods were temporarily exempted from import duties for social and ecological considerations. The

list of exemptions was being gradually reduced. Exempted from duties were the imports of baby food,

raw materials and substances for the production of medicines, animal feed, farming equipment and

spares, plant protection chemicals and some fertilizers, ambulance cars, equipment for environmental

protection as well as measurement and control devices for environmental analysis, molasses, non-

processed timber, medical appliances and equipment. All tariff exemptions were implemented on a

basis without any differentiation as to the origin and/or conditions of importation. The

tariff rate quotas were allocated on a "first come, first served" basis. The list of products subject to

temporary duty suspension or under tariff quotas were determined by the annexes of the Regulation

of the Council of Ministers No. 307/1994.

35.

The representative of Bulgaria confirmed that the access to the duty-free and reduced-duty tariff

rate quotas (TRQs) applied on the products listed in paragraph 33 will be administered on a non-

discriminatory basis among all import suppliers. The Working Party took note of these commitments.

36.

Referring to the customs fee levied by Bulgaria, some members stated that this fee was not

consistent to the provisions of Article VIII of the GATT 1994. In their view, minimum and maximum

Page 16

fees should correspond to the approximate cost of the services rendered. In response, the representative

of Bulgaria said that as of 1995 the customs fee rate was set at 1 per cent of the customs value with

a maximum amount of US$700. This fee was applied to both exports and imports. The amount paid

pursuant to the fee were at the disposal of the General Customs Directorate to cover the respective

administrative costs. A member noted that this change, while addressing one aspect of the problem,

does not fully address all issues involved in the application of such a fee on an ad valorem basis. A

1 per cent fee on imports is relatively high, as is the maximum fee level per entry of US$700. To

meet Article VIII criteria, revenues from the application of the fee should approximate the cost of

providing the services, both in overall terms and in terms of individual shipments. In addition, the

revenues from the fee should only be used to process imports and exports, and not for other expenses.

If preferential trading partners or others are exempted from the fee, the revenues from the fee should

not be used to process trade with these countries. The fee should not be included in the customs and

tax valuation base of dutiable imports. The Working Party members sought Bulgaria's commitment

to revise its fee to bring it into full conformity with the provisions of Article VIII of the GATT 1994.

37.

The representative of Bulgaria confirmed that by 31 December 1997 Bulgaria would bring

its customs clearance fee into conformity with Article VIII of the GATT 1994. In this regard, from

that time revenues collected through the application of the Customs Clearance Fee would be used solely

for the operation of customs clearance of imports and exports to which the fee was applied, and total

annual revenues from collection of the fee would not exceed the cost of customs clearance operations

items subject to the fees. Information regarding the application and level of the fee, revenues collected

and their use would be provided to WTO Members upon request. The Working Party took note of

these commitments.

38.

In response to questions concerning the export taxes levied by Bulgaria and their rates, the

representative of Bulgaria said that as of November 1993 export taxes were levied on eleven groups

of product, notably raw materials such as sunflower seed and oil, hides and skins, timber, firewood,

wood in the rough, waste and scrap paper, wool, grain flour and other products. In reply to a question

asking why the export taxes were necessary, the representative of Bulgaria said that were specific taxes

applied to prevent or relieve critical shortages of foodstuffs and other essential products, consistent

with Article XI of the GATT 1994. This tax was temporary and would be dismantled when the domestic

supply situation improved. The Working Party took note of this statement.

39.

The representative of Bulgaria stated that his Government applied export taxes for the relief

of critical shortages of foodstuffs or in cases of critical short supply for the domestic industry, and

that after accession, any such taxes would be applied in accordance with the provisions of the WTO

Agreement. He noted that, at the current time, Bulgaria applied the export taxes only to the goods

and services listed in the Annex 2 to the Report. Bulgaria would, after accession, minimize its use

of such taxes and confirmed that any changes in the application of such measures, their level, scope,

or justification, would be published in the State Gazette. The Working Party took note of these

commitments.

40.

The representative of Bulgaria stated that, from the date of accession, all laws and other

normative acts related to trade will be published in the State Gazette promptly. As a rule, "promptly"

under the WTO Agreements would mean two weeks prior to implementation, unless a longer period

is specified under the relevant WTO Agreement. He stated further that they will be accessible to traders

prior to implementation, and that no law, rule, etc. related to international trade will become effective

prior to such publication. The Working Party took note of this commitment.

Page 17

41.

In response to some members who requested information concerning internal taxes and the

treatment of imports in Bulgaria's fiscal legislation, including the treatment of inputs and other

exemptions thereof, the representative of Bulgaria said that fiscal policy was playing a crucial role

in the stabilization and restructuring effort. Its principal objectives were to contain and reduce the

budget deficit in relation to GDP, to reduce the redistributive role of the State budget through a sharp

decrease of both revenues and expenditures in relation to GDP, and to contribute to keeping inflationary

processes under control. Important steps had been taken in the context of a comprehensive fiscal reform

in line with the principles of a market economy and Bulgaria had introduced a value-added tax. The

percentage of revenues from taxes and other duties in relation to GDP had fallen from 42.9 per cent

in 1990 to 29.8 per cent in 1992 and to 32.2 per cent for 1993.

42.

Pursuant to the Law on Excise Tax, effective on 1 April 1994, the following goods and services

are subject to excise tax at the rates listed below:

A.

GOODS:

1. Beer - ordinary 1.5 BGL/litre; 2. Beer - stabilized - 2 BGL/litre; 3. Wines - up to 15 per cent,

vol. with the exception of natural sparking wines - 6 BGL/litre; 4. Ordinary brandies from

fruits, ordinary brandies, desert and aromatized wines, natural sparking wines, natural fruit

liquors - 30 BGL/litre; 5. Alcoholic beverages including brandy and wine brandy - 40 BGL/litre;

6. Luxurious beverages with high content of alcohol including whisky and cognac (V.S.O.P.) -

160 BGL/litter; 7. Tobacco products: 7.1. Cigarettes - Luxurious - 1000 BGL/1000 pieces,

7.2. Cigarettes - representative - 600 BGL/1000 pieces, 7.3. Cigarettes - ordinary - 300

BGL/1000 pieces, 7.4. Cigarettes without filter - 100 BGL/1000 pieces, 7.5. Cigars - 400

BGL/100 pieces, 7.6. Tobacco for cigarettes, pipes, for chewing and snuff - 1000 BGL/1 kg.;

8. Coffee and tea (with the exception of the herb and fruit teas) - 30 per cent; 9. Leather and

fur clothing - 40 per cent; 10. Passenger cars with a cylinder capacity from 1800 to 2500 cm

3

-

10 per cent; 11. Passenger cars more than 2500 cm

3

- 40 per cent; 12. Articles of precious

metals, including jewellery - 20 per cent; 13. Perfumery and cosmetics in aerosol containers -

40 per cent; 14. Gasoline with an octane number up to 96 - 70 per cent, 14.1. Lead free

gasoline with an octane number up to 96 - 60 per cent; 15. Gasoline with an octane number

more than 96 - 110 per cent, 15.1. Lead free gasoline with an octane number more than 96 -

100 per cent; 16. Diesel fuel - 30 per cent; 17. Erotic and pornographic works - 70 per cent;

18. Audio - visual devices - 10 per cent;

B.

SERVICES:

19. Entry tickets for bars, music halls, erotic and other like performances - 50 per cent;

C.

WINES AND OTHER SPIRITS PRODUCED BY NATURAL PERSONS FROM THEIR OWN

PRIME MATERIALS FOR THEIR OWN CONSUMPTION:

20. Wines - 2 BGL per litre; 21. Brandies - 0.3 BGL per every alcoholic degree.

D.

HAZARDOUS GAMES:

22. Lotteries and raffles 50 per cent; 23. Bets on the results of competitions and other accidental

events -5 time the max. gain; 24. Coin and disk operated games, class B 15000 BGL each

three months; 25. Coin and disk operated games, class C in casino 30000 BGL each three

months; 26. Casino roulettes - 3000000 BGL each three months; 27. Other casino operated

games and tables 500000 BGL each three months; 28. Bingo 300000 BGL each three months.

43.

The representative of Bulgaria added that the Law on Value Added Tax (VAT) had entered

into force on 1 April 1994. The Law had established a uniform 18 per cent rate for goods and services

with a short list of temporary exceptions including a schedule for their elimination. Bulgaria had

Page 18

submitted detailed information on the Law on VAT. In response to a question, the representative of

Bulgaria stated that the VAT and excise tax laws made no differentiation between imported and

domestically produced goods. Some members said that in the area of certain distilled spirits significant

volume importations tended to be more heavily taxed than domestic products. The representative of

Bulgaria replied that the products subject to excise taxation were described by their physical commercial

characteristics and not in terms of origin. Bulgaria's excise tax regime complied with the m.f.n. and

national treatment. Domestic and imported goods were subject to equal excise tax rates. The excise

tax is levied and collected as follows:

(a)

For domestic production: levied and collected from the producer of goods or the supplier of

services as a percentage (or an absolute amount) of the selling price without excise, on the

date of invoicing;

(b)

For imported goods: levied and collected by the customs authorities from the importer as a

percentage (or an absolute amount) of the customs value plus duties and fees on the date the

customs control is effected.

The excise tax is payable only once (i.e. one-stage tax), and it is not collected at subsequent transactions.

Concerning VAT, he said that no exemptions were provided for domestic agricultural products sold

by producers. There was a temporary list of some food products namely, bread, milk, cheese which

were not subject to VAT until the VAT law had been in place for three years. This temporary exemption

applied to both domestic and imported products.

44.

In conclusion some members of the Working Party said that, in their view, Bulgaria levied

some border charges which, if not consistent with the provisions of the GATT 1994, should be either

modified, or eliminated as a result of Bulgaria's commitments in the Protocol of Accession. Those

members acknowledged, nonetheless, that the new Value Added Tax Law had greatly improved the

transparency and equity of Bulgaria's tax system vis-a-vis imports.

45.

The representative of Bulgaria stated that as of 31 December 1997, Bulgaria would apply its

excise tax rates on beer, wine, distilled spirits and tobacco products in strict compliance with Article III

of the GATT 1994, in a non-discriminatory manner to imported and domestically produced goods.

During this period, Bulgaria will not increase the difference in the amount of tax between imported

and domestically produced goods. As of 31 December 1997, Bulgaria will implement a new system

of excise taxes on beer, wine, spirits and cigarettes, which is currently being developed, that envisages

the following methods of determination of the excise tax levels: (a) for distilled spirits, specific duties

based on percentage alcohol content; and (b) for beer, wine and cigarettes, an identical tax on imported

and domestically produced articles, or on the basis of specific, measurable characteristics of the product

or the component parts of the product, which criteria will be consistent with Article III of the

GATT 1994, published and readily available to importers, exporters and domestic producers. The

Working Party took note of these commitments.

46.

Some members of the Working Party requested that Bulgaria provide a list of non-tariff measures

by tariff lines including licensing, quotas and any other restrictions and explain their justification.

In their view a number of the quotas and licensing requirements on products such as tobacco, citrus,

etc. appeared to be substantively and/or procedurally not in conformity with WTO obligations. In

response the representative of Bulgaria submitted a list of non-tariff measures by tariff lines, including

the list of products subject to automatic and non-automatic import licensing. With regard to licensing,

he said that the Council of Ministers was the body authorized to determine the range of goods subject

Page 19

to licensing. Licensing was applied in a fair and equitable manner. The information that is strictly

necessary for a licensing regime in accordance with Article 1.5 of the Agreement on Import Licensing

Procedures was required to be submitted in support of an application for a licence, for instance

commercial and tax registration certificates, and documents necessary to certify the date in the import

licensing application form. Automatic licences were applied for monitoring purposes and were issued

within one day. Non-automatic licences were granted within five working days from the date of

application. No fees were charged for the issuing of licences. Licences were issued by the Ministry

of Trade. The import licensing regime in force has been established by Government Ordinance No.

72/1993 (published in State Gazette No. 30/1993) and its respective amendments. Imports into Bulgaria

were liberalized and were not subject to import licensing, unless explicitly stated. Exceptions were

stipulated for (a) goods subject to control regime under international commitments undertaken by

Bulgaria; (b) goods under quantitative restrictions if import quotas were established. Automatic licensing

was applied for monitoring purposes on imports of the following items: coal, crude oil and liquid fuels,

alcoholic beverages, meat, dairy products, ferrous and non-ferrous metals. Imports of alcoholic

beverages (HS 22030000, ex2204, 2205, 2207, 2208) were subject to automatic licensing for monitoring

purposes. There had been import quota of 12,000 tons for tobacco (HS 2401, 24039100) . This quota

had been eliminated by the end of 1993. Exports of tobacco and products thereof (Chapter 24 of the

HS) were subject to automatic licensing. Imports of nuclear materials, dangerous waste, plant protection

chemicals, asbestos, and manufactured tobacco, tobacco products, natural gas, etc. were subject to

non-automatic licensing. Imports of essential oils were not subject to licensing. The restrictions on

tobacco and products thereof had been introduced on the ground that certain imports, by the quantity

and conditions under which they were performed, caused or threatened to cause a serious injury to

domestic producers of like or directly competitive products. The non-automatic licensing of imports

of pharmaceutical products, raw materials and substances for their production was aimed at protecting

human and animal health. The measure was applied for monitoring purposes and did not constitute

a disguised restriction on trade. The sole requirement for granting the licences was the registration

of the product with the Ministry of Health. He added that at present there was no product prohibited

for import in Bulgaria. However, imports of materials and waste dangerous to the environment were

subject to non-automatic licensing, and to approval in writing from the Ministry of Environment. The

importation of plant protection chemicals had to be approved by the Ministry of Agriculture. The

approval was subject to the chemicals being registered in Bulgaria. Import licences were granted by

the Ministry of Trade within 5 days from the application.

47.

Some members enquired about the consistency of certain quotas with the GATT 1994. In

response the representative of Bulgaria said that pursuant to the Law on Establishment of Single-person

State-owned Enterprises (State Gazette 55/1991), the Bulgarian Government could establish quantitative

restrictions on imports and exports. As of 1 January 1994 Bulgaria applied an import quota on the

following product only: HS 21050000, ice cream ready for consumption, 1,500 tons. The import quota

on ice cream had been introduced by the Government on a temporary basis to support an infant industry

in an economy in transition. The import ceiling was administered through an import licensing system.

Due to a deterioration in the economic conditions for domestic production of tobacco in recent years,

and with the view to avoiding serious social tension in some underdeveloped regions of the country,

the Government had replaced the import quota on tobacco with import licensing. The Government

had established temporary quantitative restrictions on certain exports, to ensure adequate supplies in

the domestic market and prevent or relieve critical shortages. Presently Bulgaria applied export quotas

on the following items: ex 0104000 Female livestock for breeding, bovine live animals of more than

12 months: 4,800; ex 01042000 ex 0102 Ovine and caprine live animals, of more than 18 months:

750. Certain quota amounts under VERs were defined in the respective agreements: with the European

Communities on textiles and clothing, ferrous metals, live sheep and goat and meat thereof; with the

United States on textiles and clothing; with Canada on textiles and clothing. A list of cereals essential

for the nutrition of the population as well as a few tariff lines covering basic fodder had been temporarily

Page 20

prohibited for export. With the exception of maize, the export ban on certain grains had been replaced

by automatic licensing. An export ban for ferrous and non-ferrous scrap and copper ingots and billets

was in place except for stainless steel scrap with the view to solving transitional problems in the

economy. Export restrictions were applied to Christmas trees, and rough hewn timber because they

were exhaustible natural resources; and to sunflower seeds because they were an essential foodstuff

in critical shortage. The agricultural export restrictions currently in effect were temporarily applied

to prevent or relieve critical shortages on the domestic market and would be dismantled in response

to an improved domestic market situation.

48.

Some members of the Working Party proposed and the representative of Bulgaria accepted

that the quantitative restrictions maintained by WTO Members on imports of textiles and clothing products

originating in Bulgaria that are in force on the date prior to the date of the accession of Bulgaria to

the WTO shall be notified to the Textiles Monitoring Body (TMB) as being the base levels for the

purpose of application of Articles 2 and 3 of the WTO Agreement on Textiles and Clothing. Thus,

for the purpose of Bulgaria's accession to the WTO, the phrase "day prior to the date of entry into

force of the WTO Agreement" contained in Article 2.1 of the Agreement on Textiles and Clothing

shall be deemed to refer to the day prior to the date of accession of Bulgaria to the WTO. To these

base levels the increase in growth rates provided for in Articles 2.13 and 2.14 of the Agreement on

Textiles and Clothing shall be applied, as appropriate, from the date of accession of Bulgaria to the

WTO.

49.

In conclusion the representative of Bulgaria confirmed that, in the context of its accession to

the Agreement Establishing the WTO, the Bulgarian Government would use its authority to suspend

or prohibit imports and exports or otherwise restrict their quantities in conformity with the provisions

of the GATT 1994 in particular Articles XI, XII, XIII, XIX, XX and XXI. The Working Party took

note of this commitment.

50.

The representative of Bulgaria confirmed that, from the date of accession, Bulgaria will eliminate

and shall not introduce, re-introduce or apply quantitative restrictions on imports or other non-tariff

measures such as licensing, quotas, bans and other restrictions having equivalent effect that cannot

be justified under the provisions of the WTO Agreement. In this regard, Bulgaria will eliminate, as

of the date of accession, its discretionary licensing régime and any other WTO inconsistent measures

on tobacco imports and on other products covered by the WTO Agreement on Agriculture. The Working

Party took note of these commitments.

51.

In response to questions concerning Bulgaria's regulations on safeguards and unfair trade

practices, the representative of Bulgaria said that the Regulation of the Council of Ministers No. 181

dated 15 September 1993 which had established the general legal framework attempted to incorporate

the basic elements of the relevant GATT 1994 provisions including in particular the Agreement on

the Implementation of Article VI of the GATT 1994 and the Agreement on Subsidies and Countervailing

Measures. The Regulation contains definitions of dumping, subsidy, serious injury, the extent of the

offsetting measures (duty) and the procedures to be followed in order to apply the offsetting measures.

Under the provisions of the Regulation, an anti-dumping duty may be imposed on any product whose

importation in Bulgaria through the effects of dumping causes or threatens to cause serious injury to

a Bulgarian industry. A product is considered as being dumped if its export price to Bulgaria is less

than the normal value of the like product in the ordinary course of trade in the country of origin or

export. A countervailing duty may be imposed for the purpose of offsetting the effect of a subsidy

bestowed in the country of origin or export whose importation in Bulgaria causes serious injury to

a Bulgarian industry. The Regulation stipulates that the determination of serious injury shall be made

only if the dumped or subsidized imports through the effects of dumping or subsidization are causing

Page 21

injury. Injuries caused by other factors which individually or in combination also adversely affect the

Bulgarian industry under consideration must not be attributed to the dumped or subsidized imports.

52.

Some members of the Working Party expressed concern that the provisions of the Regulation

were imprecise and did not reflect the precise requirements of the Agreement on Subsidies and

Countervailing Measures and the Antidumping Agreement in matters such as conversion of currencies,

sales below cost, price averaging, domestic judicial review, time limits, etc. The representative of

Bulgaria said that when certain provisions did not specify particular procedures, administrative practice

would ensure compliance with the requirements of the Agreement on Implementation of Article VI

of the GATT 1994 (Antidumping Agreement) . Subsequent amendments to the Regulation to make

it compatible with the WTO Agreement on Subsidies and Countervailing Measures and the Antidumping

Agreement were currently under consideration. Finally, the representative of Bulgaria said that pursuant

to Article V, paragraph 4 of the Constitution duly ratified and published international treaties became

part of domestic law, and had priority over the rules of domestic law in the event of a contradiction.

Thus, compatibility with WTO obligations would be guaranteed in a general way through the ratification

of the accession of Bulgaria to the WTO by the National Assembly.

53.

A member of the Working Party stated that his Government had reviewed the draft Regulation

on Anti-Dumping and Countervailing Measures provided by the Bulgarian delegation, and that, with

a few exceptions, the draft regulation appeared to track the language of the Agreements on Anti-Dumping

and Subsidies and Countervailing Measures as they relate to the investigation and disposition of unfairly

traded imports. There were a number of areas, however, where amendments to the draft regulation

could strengthen its consistency with the Agreement and prevent future conflicts based on the supremacy

of international agreements ratified by Bulgaria over domestic law. These included the following:

The Regulation should provide explicitly for judicial review of the administrative decisions made on

Anti-Dumping and Countervailing Measures cases, as is required by both Agreements. If such provisions

exist in other Bulgarian laws that address this, they should be referenced in the law; The Regulation

should provide for "sunset review" of existing actions, as required by the Agreements; The Regulation

should contain language addressing adjustment to cost for "start up operations" as provided for in

footnote 6 of the Agreement; The Regulation should provide that normal value may be determined

only by the cost of production in the country of origin plus a reasonable amount for administrative

and selling costs and for profits. The reference to "any other costs" which does not have a counterpart

in the relevant text of the WTO Agreement, should be dropped; The Regulation should be amended

to ensure that constructed export price can be used as opposed to export price, only when there is a

compensatory relationship. The reference to "or for other reasons the price actually ... is unreliable"

should be dropped since it does not have a counterpart in the relevant text of the WTO Agreement

(Article 2.3); The Regulation should be amended to incorporate the justification for comparing that

normal value established on a weighted average basis with that determined on a transaction by transaction

basis; The Regulation does not incorporate the concept that to limit the examination either to a reasonable

number of interested parties or products by using samples should only occur if the samples taken are

statistically valid. It should be expanded to incorporate these concepts; The Regulation allows an

affirmative determination based on threat of material injury "where a particular market situation is

likely to develop into actual injury". In contrast, the standard in the Anti-dumping Agreement is "injury

must be clearly foreseen and imminent". Bulgaria should alter the law or make specific assurances

to the Working Party that the formulation in the Agreement will take precedence; The Regulation

should ensure that its language defining the number of producers that constitute an "industry" for the

purposes of making a complaint is consistent with the provisions of the Agreement (Article 5.4) requiring

that industry support be based on total production, defined as domestic industry representing 50 per cent

of the total production of the like product produced by that portion of the domestic industry expressing

either support for or opposition to the application, and that no investigation shall be initiated when

domestic producers expressly supporting the application account for less than 25 per cent of total

production of the like product produced by the domestic industry; Article 23.2 of the Agreement should

make it clear that the 30 day period for responding to a questionnaire "shall be counted from the date

Page 22

of receipt of the questionnaire" as provided for in Article 6.1.1 Footnote 15 of the Anti-Dumping

Agreement; Article 30.1(c) of the draft legislation should indicate that a provisional measure applied

cannot be more than estimated amount of the anti-dumping duty or level of subsidization.

54.

This Working Party member went on to state that Bulgaria should be prepared to confirm in

the Protocol that, notwithstanding the possibility that Bulgaria's future legislation in the area of anti-

dumping and countervailing measures, which is currently in draft and under consideration, may contain

provisions not totally in conformity with the WTO Agreements on Anti-Dumping and Subsidies and

Countervailing Measures, Bulgaria would enforce the provisions of these Agreements in the conduct

of any investigations in these areas.

55.

The representative of Bulgaria confirmed that it was Bulgaria's intent that its legislation conform

to the provisions of the WTO Agreements on Anti-Dumping and Subsidies and Countervailing Measures,

and that draft legislation was under consideration to accomplish that goal. He further confirmed that,

from the date of accession, and notwithstanding any provision of domestic law to the contrary, Bulgaria

would administer all proceedings and measures taken for anti-dumping or countervailing duty purposes

in full conformity with the provisions of these WTO Agreements, and that no action would be taken

by the Government of Bulgaria that departed from the provisions of these agreements. The Working

Party took note of this commitment.

56.

In response to questions by members of the Working Party, the representative of Bulgaria said

that as a result of the price liberalization, subsidies had been drastically curtailed - from 16-17 per

cent of GDP in 1990 to less than 2 per cent of GDP in 1992 and 1.69 per cent in 1993. Since 1991,

no export subsidies were being applied in Bulgaria. Some members requested clarification of this

statement. The representative of Bulgaria stated that no subsidies contingent on export performance,

Government export credits at more favourable than ordinary rates, tax exemption schemes related to

the production and distribution of exported products were made available. The statement did not envisage

explicitly the provisions of Article 3 of the Subsidies and Countervailing Measures Agreement. Bulgaria

would apply Article 29 and the respective provisions of Articles 3, and 6.1 of the Subsidies and

Countervailing Measures Agreement. As a country in the process of transformation from centrally

planned into a market and free enterprise economy, Bulgaria would like to benefit from the special

treatment provided in Article 29 of the Subsidies and Countervailing Measures Agreement, upon

appropriate notification. The representative of Bulgaria noted that production subsidies were applied

primarily for: (i) compensating higher production costs in some vital sectors (energy and transportation)

with considerable social implications; (ii) social considerations (including support for producers in

mountainous regions and for disadvantaged regions of the country) . The Bulgarian Government would

continue its policy of further scaling down subsidies. He added that as a result of the unprecedented

scale of economic reform and exclusively to alleviate social problems the following sectors of the

economy received financial assistance from the State: (i) Energy production: The 1995 State budget

allocated 3564 million BGL for the production of energy. Self-financing of energy production was

envisaged in the future. (ii) Agriculture.

57.

The representative of Bulgaria confirmed that his Government does not maintain subsidies which

meet the definition of a prohibited subsidy, within the meaning of Article 3 of the Agreement on

Subsidies and Countervailing Measures, and would therefore not invoke provisions in the Agreement

that provide for the progressive elimination of such measures within a fixed period of time. The Working

Party took note of this commitment.

58.

In documents Spec(95)4 and addenda and WT/SPEC/12 , the representative of Bulgaria submitted

the Agriculture Country Schedule of Bulgaria. In response to some members, he explained the meaning

of the terms applied administered prices, external reference price and product specific bonus used in

Page 35

Draft Decision

Having regard to the results of the negotiations directed towards the accession of the Republic

of Bulgaria to the Marrakesh Agreement Establishing the World Trade Organization and having prepared

a Protocol for the Accession of Bulgaria.

Decide, in accordance with Article XII of the Marrakesh Agreement Establishing the World

Trade Organisation, that the Republic of Bulgaria may accede to the Marrakesh Agreement Establishing

the World Trade Organization on the terms set out in the said Protocol.

Page 36

The World Trade Organization (hereinafter referred to as the "WTO"), pursuant to the approval

of the General Council of the WTO accorded under Article XII of the Marrakesh Agreement Establishing

the World Trade Organization (hereinafter referred to as the "WTO Agreement"), and the Republic

of Bulgaria, (hereinafter referred to as "Bulgaria"),

Taking note of the Report of the Working Party on the Accession of Bulgaria WTO Agreement

in document WT/ACC/BGR/5 and Addenda 1 and 2 (hereinafter referred to as the "Working Party

Report"),

Having regard to the results of the negotiations on the Accession of Bulgaria WTO,

Agree as follows:

1.

Upon entry into force of this Protocol, Bulgaria accedes to the WTO Agreement pursuant to

Article XII of that Agreement and thereby becomes a Member of the WTO.

2.

The WTO Agreement to which Bulgaria accedes shall be the WTO Agreement as rectified,

amended or otherwise modified by such legal instruments as may have entered into force before the

date of entry into force of this Protocol. This Protocol, including the commitments referred to in

paragraph 92 of the Working Party Report which are hereby incorporated into this Protocol, shall be

an integral part of the WTO Agreement.

3.

Except as otherwise provided for in the paragraphs referred to in paragraph 92 of the Working

Party Report, those obligations in the Multilateral Trade Agreements annexed to the WTO Agreement

that are to be implemented over a period of time starting with the entry into force of that Agreement

shall be implemented by Bulgaria as if it had accepted that Agreement on the date of its entry into

force.

4.

Bulgaria may maintain a measure inconsistent with paragraph 1 of Article II of the GATS

provided that such a measure is recorded in the List of Article II Exemptions annexed to this Protocol

and meets the conditions of the Annex to the GATS on Article II Exemptions.

5.

The Schedules annexed to this Protocol shall become the Schedule of Concessions and

Commitments annexed to the General Agreement on Tariffs and Trade 1994 (hereinafter referred to

as the "GATT 1994") and the Schedule of Specific Commitments annexed to the General Agreement

on Trade in Services (hereinafter referred to as "GATS") relating to Bulgaria. The staging of the

concessions and commitments listed in the Schedules shall be implemented as specified in the relevant

parts of the respective Schedules.

Page 37

6.

For the purpose of the reference in paragraph 6(a) of Article II of the GATT 1994 to the date

of that Agreement, the applicable date in respect of the Schedules of Concessions and Commitments

annexed to this Protocol shall be the date of entry into force of this Protocol.

7.

This Protocol shall be open for acceptance, by signature or otherwise, by Bulgaria until

30 April 1997.

8.

This Protocol shall enter into force on the thirtieth day following the day of its acceptance.

9.

This Protocol shall be deposited with the Director-General of the WTO. The Director-General

of the WTO shall promptly furnish a certified copy of this Protocol and a notification of acceptance

by Bulgaria thereto pursuant to paragraph 7 to each Member of the WTO and to Bulgaria.

10.

This Protocol shall be registered in accordance with the provisions of Article 102 of the Charter

of the United Nations.

Done at Geneva this .... day of .... one thousand nine hundred and ninety ......, in a single

copy in the English, French and Spanish languages, each text being authentic.

Page 38

Part I - Goods

Circulated in document WT/ACC/BGR/5/Add.1

Part II - Services

Circulated in document WT/ACC/BGR/5/Add.2

Page 39

Pursuant to Regulation of the Council of Ministers No. 118 of 30 May 1996 (published in State

Gazette No. 48 of 1996) the Government of the Republic of Bulgaria has introduced a 5% temporary

surcharge on imports of goods into the Republic of Bulgaria (except a limited list of products essential

for the economy - see Annex), with effect from 4 June 1996 in order to forestall an imminent threat

of serious decline in Bulgaria's foreign exchange reserves. The Government decided to respond by

introducing the least disruptive measures.

The import surcharge shall be calculated on the customs value of the imported goods. The

import surcharge shall be invoiced, paid and charged together with the amounts of assessed customs

duty.

The surcharge will be gradually phased in accordance with the following schedule:

from 4 June 1996 till 30 June 1997 - 5%

from 1 July 1997 till 30 June 1998 - 4%

from 1 July 1998 till 30 June 1999 - 2%

from 1 July 1999 till 30 June 2000 - 1%.

The import surcharge will be eliminated from 1 July 2000.

Marked progress in stabilization was achieved in 1995: inflation fell sharply, economic growth

increased, and the balance-of-payments strengthened. However, these stabilization gains were short-lived

because of deeply entrenched problems of financial undiscipline in the enterprise sector and insolvency

of the banking system. Years of delay have laden the budget with debt, undermined monetary control,

and now threaten fiscal sustainability. Since the latter half of 1995 a depletion of the exchange reserves,

a renewed pressure on the exchange rate and real interest rates were observed.

Significant changes in the macroeconomic environment, including a weakening of economic

growth and revenues, higher than expected inflation and nominal interest rates, a much sharper than

expected depreciation of the Bulgarian lev, widespread withdrawal of deposits (particularly of foreign

exchange) from the banking sector and the loss of greater part of the country's foreign exchange reserves

followed in 1996.

There is a considerable uncertainty about balance-of-payments prospects for 1996. Although

the overall balance-of-payments for the year 1995 was positive, the negative trend became obvious

in the last quarter of 1995. The deficit for the first quarter of 1996 of the overall balance-of-payments

was US$ 583.5 million.

Both external and internal factors are likely to reduce export volume in 1996. Export volume

is expected to fall slightly because of weak foreign demand in some important trade partners for Bulgaria,

lower international prices for metals (an important export commodity for Bulgaria), weak crops, higher

domestic energy prices, enterprise restructuring and the attended slow down in domestic production.

Page 40

The capital account of the balance-of-payments is expected to deteriorate markedly in 1996

(from US$ 150 million in 1995 to 647 million in 1996) due to large amortization payments and large

capital outflows in the first half of 1996 which are not expected to be fully reversed in the second half

of the year.

Official reserves (including gold) have fallen to a precariously low level (less than US$ 1 billion)

and are estimated to have declined by around US$ 650 million in the first half of 1996.

In this economic situation, the high external indebtedness is a substantial factor in devising

the appropriate economic policies and measures.

The foreign debt payments will reach their peak of US$ 1186 million in 1996, and in 1997

and 1998 will remain at substantially the same high level - US$ 1117.3 million and US$ 1012.6 million

respectively. In the years 1999 and 2000 the payments will become lower, but will still remain at

a very high level - US$ 848 million and US$ 725.5 million respectively.

The Republic of Bulgaria is fully determined to restore the confidence in its national currency

and in its ability to sustain the regular servicing of its external debt. For this purpose, the Government

has undertaken a number of measures to increase budget revenues and to improve its balance-of-payment

position. On the basis of these measures, it expects to conclude a Stand-by Agreement with the IMF,

and a Structural Adjustment Loan with the World Bank. One of the requirements to reduce the financing

gap is to ensure a surplus of the trade balance in spite of the averse effects on exports in the present

economic situation.

The measures of the Government are targeted to increase the official reserves to US$ 1.3 billion

by end-1996 and US$ 1.7 billion by end-1997 (well below three and a half months of imports of goods

and non-factor services), to improve the overall balance-of-payments by reducing its deficit to

US$ 244 million by the end of 1996.

A programme, supported by the IMF and the WB is being launched. An agreement was reached

in principle with the IMF on a comprehensive programme of economic and structural reform designed

to deal decisively with the problems presently confronting Bulgaria which comprises policies to be

supported by a Fund arrangement. The programme includes the closure or isolation from the banking

system of most loss-making state-owned enterprises and the liquidation of some of the major insolvent

banks (both state-owned and private) . Some 40 000 people will lose their jobs (i.e. 0.1 - 1.5% of

the labour force) . The Bulgarian National Bank (the Central Bank) petitioned the Court to initiate

bankruptcy proceedings for a number of insolvent trade banks.

After considering different options aiming at forestalling the imminent threat of a serious decline

in Bulgaria foreign exchange reserves, the Government has chosen the measure that least distorts trade.

In accordance with the Understanding on the Balance-of-Payments Provisions of the GATT 1994, the

import surcharge as a price-based measure is considered to have less disruptive effect on trade than

alternative quantitative restrictions or other similar measures, since it will not interfere with the policies

aimed at granting all traders equal opportunity to engage in international commerce.

Because of its comprehensive trade coverage, the surcharge is not used for the purpose of

protecting any specific industry or sector of the economy.

The impose surcharge will only be applied to control the general level of imports and will not

exceed what is necessary to address the balance-of-payments situation.

Page 41

In taking this action Bulgaria recognizes that no viable alternative options are available under

the present circumstances, for the following reasons:

1.

the high level of existing external debt calls for restraint in seeking new credit facilities which

could be used to support the balance of payments;

2.

a severe depletion of foreign exchange reserves has to be avoided in order to maintain the

debt-servicing schedule and safeguard the internal convertibility of the national currency which

is crucial for the continuing liberalization of external trade;

3.

in carrying out its domestic economic policies, the Bulgarian government has already employed

a range of generally recognized instruments aimed at securing the balance-of-payments

equilibrium by alternative means. Bulgaria has made considerable effort to obtain progress

in the transitions to a market-based system. Trade policies and exchange system reforms have

been geared towards reducing distortions to trade, encouraging market forces, and integrating

Bulgaria into the world economy. The temporary import surcharge is introduced to protect

the implementation of the liberalization measures and to assure their continuity. While taking

such measures, the Government of Bulgaria wishes to maintain also its policy of open access

to convertible currency resources for all business agents, so as to encourage their activities

and promote the spirit of free enterprise.

The surcharge will be administered consistently with the procedures established under the

respective Articles of the GATT 1994 and according to the provisions of the 1979 Declaration on Trade

Measures Taken for Balance-of-Payments Purposes and the Understanding on Balance-of-Payments

Provisions of the GATT 1994.

Bulgaria's view that the surcharge described above is in conformity with the essential standard

of consistency with the relevant GATT/WTO provisions and practices is based, inter alia, on the

following features of this measure:

1.

the reasons that lead to the necessity of introducing the import surcharge fall under the "special

factor" qualification (e.g. in Article XII:2 of the GATT 1994);

2.

the restrictive impact on trade will be confined to what is considered necessary for meeting

the stated objective of the measure, as provided for in the GATT 1994;

3.

the import surcharge is price based, uniform and non-discriminatory, administered with regard

to imports covered by the measure from all sources of imports, as required by Article XIII:1

of the GATT 1994. This affects equally all trade, including the trading partners with whom

Bulgaria's commercial relations are based on Article XXIV of the GATT 1994;

4.

the intention of the Bulgarian government is to pursue its reform programme through economic

measures which expand, rather than contract, international trade. In this respect, and in

conformity with GATT/WTO requirements, the surcharge will be progressively relaxed and

eliminated according to the schedule indicated above;

5.

the measure is considered by the Bulgarian government as being potentially less trade disruptive

than quantitative restrictions on imports or other similar measures.

As regards foreign exchange policy, Bulgaria intends to maintain, protect and expand the present

system of virtually unrestricted internal convertibility. In fact, the convertibility for current account

operations has been one of the key instruments in our efforts to develop market economy. The selection

Page 42

of foreign exchange controls, rather than the surcharge, would have meant and unacceptable reversal

of this policy.

Page 43

Crude oil

ex 2709 00

Natural gas

2711 11 00 0

2711 21 00 0

Electrical energy

2716 00 00 0

Coal and briquettes

2701

Lignite

2702

Coke and semi-coke of coal of lignite

2704

Nuclear fuel

ex 2844 20

Copper ores and concentrates

2603 00 00

Unwrought aluminium

7601

Chemical wood pulp

4703

4704

Polyvinyl chloride

ex 3904

Cotton

5201

Medicaments

3003

3004

Raw cane sugar

1701

Wheat

1001

Maize for forage

1005 90 00 1

Wheat flour

ex 1101 00 00 0

Page 44

1. Live animals:

-

horses

0101 11

0101 19

) 150 USD/PCE

)

-

bovine animals

0102

500 USD/TNE

-

sheep and goats

0104

30 USD/TNE

2. Sea snails

ex 0307 91

260 USD/TNE

3. Hides and skins:

-

raw hides and skins of bovine animals

4101

700 USD/TNE

-

raw hides and skins of sheep and goats

4102

4103 10

)

3.5 USD/PCE

)

-

raw pigskins

ex 4103 90

450 USD/TNE

4. Wood:

-

fuel wood

ex 4401

15 USD/MTQ

-

wood in the rough, coniferous and non-coniferous

ex 4403

-

with the diameter of the slender edge exceeding 4

to 20cm, excl. cerise, acacia, lime-tree

25 USD/MTQ

-

with the diameter of the slender edge exceeding

20cm:

-

poplar (Populus)

25 USD/MTQ

-

walnut

250 USD/MTQ

-

others, excl. cerise, acacia and lime-tree

35 USD/MTQ

-

wood chipped lengthwise:

ex 4407

-

planks and details of all kinds of wood, excl.

walnut, cerise, acacia and lime-tree

25 USD/MTQ

-

walnut wood, sliced lengthwise

200 USD/MTQ

-

beams:

-

of all kinds of wood, excl. walnut, cerise,

acacia and lime-tree

30 USD/MTQ

-

of walnut

200 USD/MTQ

-

details of walnut, any size

200 USD/MTQ

5. Waste of paper and paperboard

4707

100 USD/TNE

6. Wool:

-

greasy wool, fleece-washed

5101 11

5101 19

) 200 USD/TNE

)

-

degreased wool, not carbonised

5101 21

5101 29

)

)

-

noils of wool or of fine animal hair

5103 10 )

Page 45

-

wool tops

5105 10

5105 21

5105 29

)

)

)

7. Waste and scrap:

-

of stainless steel

7204 21

ex 7204 50 10

) 100 USD/TNE

) plus 30USD/TNE

for each additional

% nickel above

10%

-

of cast iron

7204 10

40 USD/TNE

-

of other alloy steel

7204 29

150 USD/TNE

-

of tinned iron or steel

7204 30

30 USD/TNE

-

lightweight scrap

7204 41

30 USD/TNE

-

heavy scrap

7204 49

ex 7204 50 10

) 50 USD/TNE

)

-

of aluminium

7602 00 11

7602 00 19

7602 00 90

110 USD/TNE

200 USD/TNE

200 USD/TNE

-

of zinc

7902

80 USD/TNE

8. Copper products

7419 91

7419 99

) 150 USD/TNE

)