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AS PREPARED FOR DELIVERY
CONTACT OFFICE OF PUBLIC AFFAIRS
Friday, June 29, 2007
Deputy Secretary of Commerce David A. Sampson
American Chamber of Commerce in Hungary
Thank you, Ambassador Foley, for that introduction and for the opportunity to speak on the important subjects of transparency and competitiveness. Your dedication to building a stronger relationship between the U.S. and Hungary, and your commitment to developing the link between transparency and competitiveness has made a real difference, so I’d like to thank you for your leadership. I would also like to acknowledge Minister Koka for starting the Transparency Initiative, the Competition Office, State Audit Office, Ministries of Finance and Economy, and the Prime Minister's State Reform Committee for their leadership and partnership with us in this important effort.
I’d also like to thank the American Chamber of Commerce in Hungary for their sponsorship of today’s event and for being at the forefront of enhancing ties between our two countries.
President Bush set the tone for today’s conference at this very time last year when he said on Gellert Hill that “Hungary sits at the heart of Europe. . . and America is proud to call Hungary a friend.” I come to you today in that spirit of friendship and in the hope that as Hungary’s economy develops our relationship will continue to grow.
Transparency is critical to creating a competitive, dynamic and growing business environment. Countries moving away from a legacy of communism are particularly aware of this challenge because under the old system there were no incentives to be transparent or open.
Indeed there were significant disincentives for doing so.
This mindset is still a challenge in Hungary today, and there is perhaps no more critical—and no more difficult—issue than sustaining an ethic that encourages and rewards transparency and predictability.
We Americans looked on with pride and admiration when Hungary took the lead as the first communist nation of Europe to make the transition to democracy in 1989. Since then the economy has benefited from the early introduction of progressive economic reforms with significant foreign investment and rapid economic growth. This has resulted in many positive trends, including a surge in GDP growth since the beginning of the decade, and nearly a tripling of foreign direct investment since 2003.
During this time Hungary has made not just hard choices but the right choices, and you have reaped rewards for doing so. Among those hard choices was meeting the criteria for EU membership. And today you are again making difficult reforms that will allow Hungary to join the euro zone.
At the same time, the bonds of friendship between Hungary and the U.S. have grown even stronger based on shared values of democracy and free market principles. Hungary is a staunch ally in the war on terror. And Hungary has become a part of the global economic system, including membership in the WTO and the OECD. Our bi-lateral commercial relationship has also grown, with more than $9 billion invested by American companies in Hungary’s future since 1989, including significant recent investments. And U.S.-Hungarian trade is growing, with nearly $4 billion in bilateral trade last year.
In spite of all this good news there are challenges. While our bilateral trade has increased, the pace of growth has slowed recently. For example, trade between the U.S. and Hungary grew at about half the rate of trade between the U.S. and the EU last year. And both GDP growth and the pace of foreign direct investment have slowed recently.
Hungary is not unique in facing such challenges. Indeed, Hungary’s neighbors in Central Europe as well as other countries are rapidly developing their economies. So even with all of the good choices and difficult reforms Hungary has undertaken, the competition has made significant improvements to their economies as well. That means every country needs to continually seek out ways to improve their business climate to remain competitive.
So what does Hungary need to do to maintain its competitive edge? And what factors do companies consider before they decide to do business in Hungary?
One of the biggest challenges facing a country finalizing its transition to a market economy is transparency. The U.S. and other advanced economies have greatly benefited from openness, competition and adherence to the rule of law. We believe that companies and economies benefit from the accountability provided by a vibrant media and independent courts.
Transparency and predictability in regulations and laws governing business and investment send positive signals to potential partners. Capital follows secure, predictable markets, and investors watch with concern where uncertainty exists.
Hungary has overcome enormous obstacles, yet corruption and the lack of transparent decision making could undermine all that has been accomplished. This is not just true for Hungary: it applies to all economies, including the U.S. Constant vigilance is required to enforce good laws, to maintain the right processes, and to keep leaders engaged. We know that corruption is a cancer that will infect and destroy even the most promising economy with the most talented and dynamic people.
In the U.S., we passed the Foreign Corrupt Practices Act. In the OECD there is the Anti-Bribery Convention. The EU has also taken a strong stand with their Anti-Bribery laws.
While Hungary has taken important steps by placing many good laws on the books, those laws now need to be enforced—a step critical for transparency anywhere in the world. Laws that are not openly and impartially enforced can lessen the faith of people in the law.
Freedom House noted in its most recent Nations in Transit report a lack of transparency pervades throughout Hungary’s procurement system. This reduces Hungary’s competitiveness. As for licensing and regulatory transparency, the World Bank’s Ease of Doing Business Report ranks Hungary as one of the most difficult places to deal with licenses in the world. And the World Economic Forum Global Competitiveness Report identifies the “Business Cost of Corruption” in Hungary as one of the highest in the EU.
The report shows a clear correlation between economic competitiveness, transparency and low levels of corruption. Countries like Estonia and Ireland are ranked favorably, while countries lagging in competitiveness tend to also have higher levels of corruption.
In the U.S. we have found that by taking firm, fair and open actions, with real penalties, our system is strengthened. By doing so we fulfilled an obligation not only to our partners in international agreements and our international investors, but to our people and to the laws they expect us to uphold.
These same standards I would think would apply here in Hungary too.
A lack of transparency simply raises the cost of business and adds an additional layer of risk. It makes it harder to ask people to make sacrifices as part of an austerity plan, for example. It also raises uncertainty regarding protection of intellectual property, stifling both technology transfer and domestic innovators. These are features of a competitive economy that Hungary cannot afford to be without.
Hungary has had no shortage of difficult choices to make in recent years. As a determined and fiercely independent people, Hungarians have never shirked from the challenge of creating a strong and vibrant nation. Changing attitudes toward transparency will not be easy either.
The Transparency Initiative, of which this conference is a part, will provide a forum for our cooperation with Hungary. Minster Koka has been a leader and a partner in this effort, having launched the initiative on May 8th. This effort, in partnership with the government of Hungary, brings together Ambassadors of nine countries that account for 85 percent of the foreign direct investment here.
I also understand that two weeks ago staff from these nine embassies came together with representatives from five different Hungarian Government agencies to form a working group. This is part of our commitment to begin a dialogue that will result in concrete solutions and recommendations that will help improve Hungary’s overall competitiveness.
Maintaining transparency in free market democracies is a constant struggle. It is a struggle that those here in Hungary and around the world who advocate for good government are in together. Your success in this effort benefits not only Hungary but also its friends and neighbors. By enhancing transparency you become a better partner and a better place to do business. That makes Hungary more attractive—and competitive—in a world that is increasingly interconnected and interdependent.