The Change of Directions of Hungarian Foreign Trade Development of Trade with The New Generation FTA Partners Of The Eu

Abstract

In the last 30 years, the Hungarian foreign trade has undergone major changes in terms of both product structure and partners. From the 90’s – mainly due to the significant amount of inward Foreign Direct Investments (FDI) – Hungarian trade ties with the European Union have become stronger and – by the country’s accession – the integration process of the Hungarian trade into the EU has been realised in fact. Since the Hungarian accession, the EU Member States are the main destination of the Hungarian foreign trade and the increasing trend is continuing. However, the Hungarian extra-EU export increased to a greater extent than the intra-EU export. In this study we analysed the correlation between the Free Trade Agreements (FTAs) of the EU and the remarkable increase of the Hungarian extra-EU export. Four new-generation EU FTAs were analysed: the agreements with Ukraine, Canada, Korea and Japan. The analyses – unlike many other studies -does not only cover trade in goods with these FTA partners but trade in services and FDI flows as well. The result shows that the FTAs had a trade creation effect with Ukraine, Canada and Korea – especially for the Hungarian export. The only exception is Japan, but in that case short time has passed since the FTA became applicable. In case of Ukraine, the Hungarian export has doubled, to Canada it grew by 60% and to Korea grew by 50% in the first 5 years but since then it stagnated. It is important to underline the growing importance of trade in services where Hungary has a massive surplus with each partner and in case of Japan and Korea, this surplus helps to rebalance the substantial deficit of trade in goods. Although the FDI data are less reliable, they explain the reasons for the important merchandise trade deficit vis-a-vis Korea and Japan to some extent. As there is a massive FDI stock in Hungary originating from these countries, the manufacturing plants need input from these countries to be able to produce and export finished products mainly to the European internal market. On the other hand, the massive Hungarian merchandise trade surplus vis-à-vis Canada can be explained by the Canadian firms established in Hungary re-exporting part of their production to Canada.