ECONOMICS AND SECURITY 204 ECEW 04 E Original: English NAT O   Pa rl i a me n t a ry  As s e mb l y SUB-COMMITTEE ON EAST-WEST ECONOMIC CO-OPERATION AND CONVERGENCE VISIT TO HUNGARY SECRETARIAT REPORT 16 & 17 SEPTEMBER 2004 International Secretariat 26 October 2004 * This  Secretariat  Report  is  presented  for  information  only  and  does  not  necessarily represent the official view of the Assembly. Assembly documents are available on its website, http://www.nato-pa.int

204 ECEW 04 E 1 I. REGIONAL ENVIRONMENT CENTER, SZENTENDRE Marta  Szigeti  Bonifert,  the  Executive  Director  of  the  Regional  Environmental  Center  (REC)  in Szentendre, Hungary, opened the meeting with a presentation on the work of the REC.  The REC approaches environmental challenges in a scientific and politically neutral manner. It engages not only national governments but also regional and municipal authorities as well as business and civil society  groups.    It  is  funded  by  a  range  of  donors  including  the  United States,  Hungary,  EU member  governments,  the  European  Commission  and  some  private  sector  firms.    It  makes  a conscious  effort  to  work  trans-nationally  precisely  because  environmental  challenges  cannot  be contained  within  national  borders.    Its  singular  success  in  advancing  environmental  transition  in Central and Eastern Europe has made it a model for other regional environmental organisations. The    REC    is    currently    focused    on    sustainable    development,    climate    change,    strategic environmental assessments, renewable energy, energy efficiency, environmental investments and advancing the Aarhus convention. The  REC  has  indeed  played  an  instrumental  role  in  environmental  transition,  acting  as  an environmental information-clearing house dedicated to instilling the region with greater sensitivity to   environmental   protection.   It   has   helped   local,   regional   and   national   authorities   develop capacities  to  deal  with  environmental  challenges  and  worked  closely  with  legislators  to  develop appropriate legislation consistent with the EU Acquis . The REC also played a key role in promoting the  Aarhus  convention,  which  ensures  access  to  information,  public  participation  and  justice  in environmental policy making in signatory countries. The REC has also provided vital support to EU candidate  countries  confronting  the  Union’s  highly  complex environmental regulations and it has fostered reconciliation efforts in the Sava and Tisza river basins where environmental issues have become inextricably linked to national rivalries.  It currently has field offices in Kosovo, Banja Luka and  Podgorica.    Its  staff  has  worked  with  Slovakian  officials  to  develop  a  national  strategy  for sustainable development, and has supported post-war clean up efforts in the former Yugoslavia. REC  experts  have  helped  build  capacities  that  allow  officials  in  transition  countries  to  survey systematically  the  health  effects  of  environmental  conditions  in  the  region  and  have  advised  on establishing priority investment programmes. The Regional Environmental Center has also done pioneering work on developing environmental curricula for school systems in Central and Eastern Europe. Its experts created a “Green Pack” for school systems, which contains a range of teaching materials. Poland has adopted much of this programme, as have a number of local and regional school systems.  These are models that can be of great use in the West and in the developing world as well. The REC model has been so successful that efforts are underway to recreate it in other regions of the world. The REC, for example, has launched a major initiative with Turkey to make use of this collective learning experience as it reinforces its institutional capacity and revamps its legislative and regulatory frameworks in the environmental arena.  Moving farther a field, there are also many lessons to be learned by countries in Eastern Europe, the Caucuses and Central Asia that, while not likely candidates for EU membership, nonetheless need to implement stronger environmental controls. II. THE AARHUS CONVENTION Magdolna  Toth  Nagy,  Head  of  the  Public  Participation  Programme  at  the  REC  discussed  the Aarhus Convention with the NATO PA delegation. She noted that the governments of Central and Eastern  Europe  as  well  as  the  European  Union  member  governments  have  all  signed  the  UN Convention  on  Access  to  Information,  Public  Participation  in  Decision-Making  and  Access  to Justice  in  Environmental  Matters.  This  was  adopted  on  25th  June  1998  in  the  Danish  city  of

204 ECEW 04 E 2 Aarhus  at  the  'Fourth  Ministerial  Conference  on  the  Environment  for  Europe'.  The  negotiation process itself was highly unique as it engaged civil society groups as well as governments. The Convention entered in force in October 2001. Virtually every European government has signed the agreement and 30 countries have ratified it.   The   Aarhus   Convention,   as   it   is   commonly   known,   represents   an   altogether   new   kind   of environmental  agreement,  linking  environmental  rights  to  human  rights.  It  acknowledges,  as  a starting  point,  that  the  present  generation  owes  an  obligation  to  future  generations.  It  links government  accountability  to  environmental  protection  and  delineates  the  obligations  of  public officials  to  their  publics  in  environmental  matters.  It  thus  focuses  on  the  democratic  interaction between the general public and government authorities and has established a new precedent for public    participation    in    the    negotiation    and    implementation    of    international    agreements. Governments  and  civil  societies  now  have  a  powerful  tool  to  advance  environmentalism  in  new and  creative  ways.  Yet,  Aarhus  only  establishes  minimum  standards  and  does  not  prevent signatories  from  creating  even  more  ambitious,  open  and  participatory  structures  to  under  gird environmental  policymaking.  As  a  result  of  the  convention  the  EU  has  drafted  new  directives governing public access to environmental legislation although how to frame a European approach to access to justice is still subject to tough debate in EU circles.   The convention sets up a time frame for information sharing and requires governments to respond to information requests from NGO’s, the media and the public within one month of the request.  If the government decides to deny the public information request it is obliged to state this in writing along  with  the  reasons  why.    Public  authorities  can  only  refuse  to  share  information  if  it  is determined  that  to  do  so  would  have  an  adverse  on  the  public  interest.      It  also  calls  for  strict pollution  inventories,  although  a  number  of  governments  allow  companies  to  conduct  these inventories. But governments, in turn, will need to audit closely these reports. The  convention’s  justice  provisions  thus  extend  to  citizens  the  right  to  challenge  government decisions  with environmental effects if their own rights to environmental protection are infringed.   The convention requires that citizens have access to an appeal system through which transparent, timely,  equitable,  inexpensive,  adequate  and  effective  remedies  are  available.    One  of  the bottlenecks  to  implementation  of  these  obligations  is  the  lack  of  properly  trained  legal  experts.   Efforts are now underway at the REC to inculcate lawyers and judges in the finer points of Aarhus and the precise implications for domestic law. The  ratification  of  the  convention  has  only  been  a  first  step;  governments  are  now  obliged  to establish procedures and legislation to make the system work along the lines agreed at Aarhus. This has not been easy and has required a degree of capacity building, public and administrative education and much trial and error. Doubtless the standard of transparency laid down in Aarhus will invariably conflict with the natural proclivities of certain ministries, and there have already been incidents in which Environment Ministries have been pitted against other government agencies in struggles over whether certain information should be made public. The  discussions  at  the  REC  also  touched  upon  the  problem  of  waste  management  as  well  as sustainable  development  in  general.  Efforts  are  needed  throughout  Central  and  East  Europe  to work with manufacturers to reduce packaging waste, which poses a great headache for municipal authorities responsible for dealing with discarded plastics etc. Another option is to find new uses for  industrial  waste,  for  example,  by  using  slag  in  cement  products.  The  total  cost  for  acceding state  compliance  with  the  waste  management  directive  is  estimated  to  be  €13  billion.    The Rotterdam   and   Stockholm   conventions   both   outline   guidelines   for   dealing   with   persistent pollutants.  A key challenge here involves translating international decisions to local policy choices while ensuring that local concerns are understood at the national level.  In other words, top down and bottom up approaches are needed.  

204 ECEW 04 E 3 III. CLIMATE CHANGE AND KYOTO   Zsuzsa  Ivanyi  next  spoke  on  the  REC’s  climate  change  initiative.  She  noted  that  the  general objectives have been to assist Central Europe to meet the requirement of the Kyoto protocol, to spark a more concrete dialogue among stakeholders on these issues and to strengthen capacity in Central  Eastern  European  (CEE)  countries.  The  effort  extends  to  the  national,  regional  and international levels. The key areas in which work has been needed include general climate policy formation, concrete measures  to  mitigate  climate  change,  access  to  information,  capacity  needs  to  comply  with  the convention and particularly in the area of green house gas inventory keeping and the development of  policies  favouring  renewable  energies.    None  of  this  is  a  top  priority  for  candidate  countries where   there   is   also   lack   of   information   and   human   capacities   in   this   area   and   where responsibilities are not clearly assigned, and legal frameworks are sometimes inadequate. Most  of  the  countries  of  the  region  are  currently  below  Kyoto  targets  for  green  house  gas emissions  because  1990  is  the  baseline  year  and  de-industrialisation  has  simply  reduced  the absolute level of emissions since then. The problem is that this has reduced the incentive to take structural  initiatives  that  would  lower  green  gas  emissions  relative  to  output.    The  region  as  a whole  needs  to  channel  investment  to  more  sustainable  development  projects.    Central  and Eastern  Europe  rank  far  behind  Western  Europe  in  terms  of  tapping  into  renewable  energy sources. The new members must also prepare for the EU’s emissions trading schemes, which will go into effect even if Kyoto does not.    Finally, inventory taking will be a critical state responsibility that will require an important degree of capacity building. IV. ENVIRONMENT AND SECURITY Steven Stec discussed the security - environment link. He noted that the REC has been dealing with  a  range  of  security  issues  with  important  environmental  implications.    The  relationship  is particularly evident in the Balkans where war aggravated the region’s already grave environmental degradation.   Yet,   because   of   shared   trans-border   stakes   in   environmental   clean   up,   the environment can also provide the foundation to restore dialogue and cooperation. This has been the  case,  for  example,  in  the  Sava  River  Basin  initiative  in  which  several  countries  -  Slovenia, Croatia,  Serbia  and  Montenegro  and  Bosnia  Herzegovina  -  signed  a  framework  agreement  to begin to cooperate on river water management, flood control and navigation issues.  The REC has undertaken a similar effort with its Tisza River Basin Development Initiative, which is designed to improve trans-border cooperation along the Tisza as well as to preserve natural habitats along its shorts.  The initiative has conducted a diagnostic audit and experts are looking at legislation and the policy framework for deepening cooperation.   Speakers from REC pointed to the irony in the fact that while no armed conflict has occurred around the Tisza, it has proven more difficult to build cooperative links there than along the Sava where there has been a war. Environmental rehabilitation projects can thus bring together old rivals. This has been the case in the  Balkans,  where,  in  the  wake  of  the  terrible  wars  that  tore  apart  that  region,  environment represented one policy area on which agreements could be hammered out early on. In this sense, regional  environmental  initiatives  can  play  a  critical  role  in  fostering  regional  reconciliation.  In cases of post-conflict reconstruction, therefore, the international community should recognise this dynamic  and  include  environmental  rehabilitation  as  a  core  priority  area.  This  is  particularly  the case when the health of thousands may depend on proper water treatment facilities.

204 ECEW 04 E 4 V. MINISTRY OF ENVIRONMENT The  Committee  had  an  opportunity  to  meet  with  the  Hungarian  Minister  of  the  Environment, Miklós  Persányi, who provided a broad overview of  the work of his Ministry and the complexity of introducing  the  EU’s  environmental  acquis  to  Hungary.    Much  of  the  country’s  legislation  and standards  now  comply  with  the  acquis.  The  Minister  noted  that  Hungary,  like  other  transition states,  has  inherited  quite  a  few  environmental  hazards  but  has  also  made  significant  progress addressing these problems. 40% of the wastewater flowing into the Danube from Budapest is untreated. The state, however, is currently building a huge water treatment facility that will address the problem, but the cost is high and  the  financial  outlays  are  occurring  at  a  time  of  serious  budgetary  tensions  in  that  country. Hungary’s   Environment   Minister   told   members   of   this   committee   that   water   treatment   and improving  water  quality  have  been  particularly  difficult  challenges  and  that  a  number  of  water treatment facilities will have to be built at great cost. Hungary has closed one third of the 1300 municipal dumpsites in the country. The goal is to keep only 42 open. This suggests that Hungary faces a large challenge and is essentially in the midst of creating  an  entirely  new  waste  management system, something that requires significant support from  the  EU.  Between  10  and  20%  of  this  undertaking  will  be  financed  by  municipalities. Restructuring   the   liquid   waste   treatment   system   is   equally   daunting   and   will  also  be  very expensive. Hungarian air quality has improved dramatically due to the decline of old industry and the fact that the car fleet is far less polluting, although it remains relatively old. New regulations, however, are making it more difficult to import highly polluting used cars into the country.  The goal is to meet all of the EU’s major emission standards by 2010. Hungary receives 95% of its water supplies from abroad and is thus dependent on water quality measures  taken  in  other  countries.  It  is  a  downstream  region  of  the  lower  Carpathian  basin. Hungary is working with its Romanian neighbours to create a framework for trans-boundary water issues.  The  government  is  currently  very  concerned  about  a  gold  mine  that  the  Romanians  are planning  which  could  increase  the  risk  of  water  pollution.    Hungarian  officials  however  also acknowledge that Hungary itself is a major polluter of the Danube. Indeed,  Hungary  recently  had  a  water  emergency  of  its  own  making  when  a  hazardous  waste plant leaked material from a reservoir tank which eventually reached the Danube and then struck the drinking water supply. Environmental authorities have fined the company. The incident has led authorities to re-examine a range of industrial safety issues. The parliament has also implemented a load fee system, which will assess emissions fees to polluting plants.    Flood control is another critical issue for the Hungarian people. The country has 4000 km of dikes as opposed to 700 in Netherlands. There are some transborder tensions here as well particularly with regard to a proposed Slovakian dam system. This is a fifteen-year-old argument, which has implications both for the energy and environmental sectors.   VI. MEETING IN PARLIAMENT The  delegation  then  met  with  parliamentary  leaders  to  discuss  a  range  of  environmental, economic  and  political  issues.  Gyorgy  Podolak  of  the  parliament’s  economic  committee suggested  that  that  the  economic  growth  has  moved  from  being  a  consumption  oriented

204 ECEW 04 E 5 phenomenon  to  one  driven  by  exports.    Exports  have  indeed  been  rising,  and  the  national leadership is focused on moving the country higher up the value chain.  Investment has grown by 20% this year and much of these increase are in manufacturing. He  suggested  that  although  Hungary  will  soon  have  a  new  Prime  Minister,  the  government’s economic policy is not slated to change.  The budget deficit poses the largest policy challenge at present. The government hopes to adopt the Euro by 2010, but it will need to make more progress on the deficit in order to meet the conditions for membership.  The Central Bank’s base interest rate is currently 11% and exceeds inflation by 4%.  High interest rates and a strong Forint, in turn, could undermine the country’s competitiveness. István  Józsa  spoke  about  the  challenges  facing  the  parliament’s  environment  committee.    He suggested  that  Hungary  has  made  great  progress  in  environmental  policy  making  over  the  last decade. He noted, for instance, that Hungary will be in a position to sell carbon emissions trading rights because it is well under its Kyoto quota. He noted, however, that Hungary is lagging behind in waste management, wastewater management and water quality issues. VII.    MINISTRY OF FOREIGN AFFAIRS State Secretary András Bársony spoke with the Committee about Hungary’s international policies. He suggested that Hungary is at a political crossroads.  It’s fundamental policy goal for the past 15 years has been to be a full-fledged member of the EU and other western organisations. Now it has achieved this, but the integration process is never ending.    Iraq has been a particularly trying issue for Hungary, which has found that its Atlanticism and its European  identity  are  not  always  easy  to  square.  This  is  partly  a  reflection  of  how  complex  the post-Cold War world has become. Hungary now has to think globally. This is why it is supporting coalition  missions  beyond  Europe  and  accepts  the  idea  that  NATO  has  potentially  global  set responsibilities.  NATO  however  needs  to  develop  its  partnerships  with  other  key  international players including the UN.   Hungary  supported  the  US  mission  to  Iraq  from  the  beginning. There were legal disputes about whether this was a unilateral decision, but the Hungarian position was close to that of the US and UK. Mr. Bársony rejected the idea that there were new divisions in Europe. He indicated that the international community was eventually going to have to do something about Iraq.  Taking action now has meant that the problem is not being left to the next group of international leaders. Hungary strongly advocates deeper and more structured cooperation between the EU and NATO. The  philosophy  and  aims  of  the  two  organisations  are  generally  complementary,  but  there  have been  too  many  barriers  to  strong  cooperation.  The  two  bodies,  for  example,  need  to  have  a common  strategy  and  cooperation  with  countries  like  Russia  and  Ukraine,  which  lie  beyond member borders. The governments also need to find a way to reform the alliance in a way that the consensual mechanism should serve the unity of the Alliance. VIII.   MINISTRY OF ECONOMICS The Committee also met with the Minister of Economic Affairs and Transport, István Csillag who spoke   on   a   range   of   issues   related   to   Hungary’s   recent   accession   to   the   EU   and   its competitiveness in the global economy. He suggested that the key for the Hungarian economy is to move up into higher levels of technological capacity and increase technology’s share of exports.   Currently  more  than  20  %  of  Hungarian  exports  are  in  high  technology  products.  This  is  a  high

204 ECEW 04 E 6 figure  suggesting  that  there  has  been  a  major  structural  change  in  the economy. This is largely due to the influx of direct foreign investment.   Previously investors were looking for cheap labour and this attracted investors.  Some foreign firms have left the country in search of cheaper labour. But Hungary does not consider its comparative advantage lying in cheap labour but rather in highly skilled  labour.      Hungarian  officials  want  to  create  new  jobs  with  higher  technology  and  higher added  value.  Hungarian  officials  are  working  to  encourage  continued  inward  investment  but Hungary is also increasingly exporting capital.  Last year Hungary imported € 3.4 billion of capital while exporting € 1.3 billion. Officials see this as a positive trend. Hungary’s GDP growth rate in the first half of this year was 4.1% and industrial exports grew by 16%.  Officials  expect  a  long-term  boom  in  that  sector.  They  also  foresee  a  downward  trend  in inflation that has already started in the last few months.   Hungary boasts a relatively low rate of unemployment at 5.8% in comparison to an EU average of 8%.  Nevertheless  there  are  major  structural  problems  here  as  well.    Many  older  workers  simply cannot be retrained for the global economy.  Hungary’s company sector is in debt as is the state sector. The government has sought to exercise greater control over consumption to cope with the problem but this obviously threatens its popularity. Hungary  has  a  number  of  critical  infrastructure  projects  it  needs  to  finance.  Rail  and  road investments  are  particularly  important  because  of  the  country’s  position  at  the  crossroads  of South-Eastern  and  Central  Europe.    The  government  has  sought  to  use  EU  cohesion  funds  to support  infrastructure  investment.  Hungary  also  has  a  rail  development  strategy  focused  on improving  long  distance  and  suburban  connections.  The  government  wants  secondary  lines developed  by  regional  companies.      Financing  these  expenditures  will  invariably  create  fiscal tensions, and this is why there must be a central role for private capital. The M5 and M6 highways are being developed through such public private partnerships.  In the rail area, track maintenance is considered a public service while freight is considered as a business or a profit making activity.    These  distinctions  however  have  triggered  fierce  fights  over  rail  contracts.    On  that  contract the state tends to finance certain activities and not the whole company as such.