Hungary's domestic economic system reform, i.e. the founding of its new economic system was the basis of accession to GATT, so let's review the economic reform in Hungary first.

　　Begining in 1968, Hungary's economic reform was carried out under the condition of rapid development of world economy, cheap energy and raw materials and the prosperous international trade. It covered broad issues with the characteristic that the centralized administration was organically connected with the commodity relationship and the positive role of market. The main issues were as follows:

　　1. Improve the state ownership progressively. Theoretically, Hungary believed that state ownership was the principal part of national economy, but the form of implementation should be improved. Therefore, function of the owner and the management should be separated to guarantee the independent status of state-owned enterprises as commodity producers and hand over the managerial right to agriculture.

　　2. Reform planned system. Hungary believed, at that time, that planned economy manifested superiority of socialist system, but the essence of socialist system must be distinguished from the implementation form. So the key of the reform was phasing out mandatory plan and put directive planningsintospractice on condition of adhering to planning system.

　　3. Governing national economy through economic adjustment system. The main contents were as follows: 1) income adjustment system, the main principle was that on condition that the progressive growth of treasury revenue, the government controls the enterprises?gross income but the enterprises could keep partial profit as a stimulation for improving operations; 2) salary adjustment system, it meant the workers?salary and other income were directly depended on operational conditions of the enterprise and the performance of the workers, enlarging enterprises?right for salary determination; 3)credit adjustment system, the government promulgated annual credit policy to pilot enterprises?investment to guarantee the nation's administration on expanded reproduction; 4)price adjustment system. Hungary believed that state pricing should be eliminated to meet the need of developing commercial monetary system and emphasized that price should be formed by economic measures.

　　According to new-established economic system, the production and sale of Hungarian enterprises stepsintosthe market economy, and the central government was only responsible for the policies of macro-economic orientation and growth rate of economic development. Domestic enterprises enjoyed liberalization on sale and procurement of products or raw materials in domestic and international markets while the government encouraged competition and set guidance to business activities through market administration. The government representatives of Hungary stated in GATT negotiation that it was totally groundless for GATT's discriminatory treatment against planned economy countries, requiring planned economy countries to assume import obligations while market economy countries were only requested to eliminate administration of the national enterprises?import. They believed Hungarian enterprises enjoyed the equal right with private enterprises of market economy countries.

　　Generally, the conditions of Hungary's accession to the GATT were similar with those of Yugoslavia in a larger extent, but Hungary didn't implement such great economic policy reform as Yugoslavia. Hungary stated the changes in national economic system in GATT negotiation:

　　Firstly, Hungary had two columns of duty rates, one applied to MNF members and the other to non-MNF members. Some people believed that it was a counter for Hungary in negotiation. It undertook bilateral negotiations on obligations of tariff reduction with Switzerland, Brazil, E.E.C., Israel, Canada, Yugoslavia, Japan, and Finland. Whether Hungary's tariff policy conformed to GATT rules or whether the tariff reduction was really efficient depended on the relationship between government and the foreign trade business. The reason that GATT members hadn't accepted Poland's tariff policy was that the government owned its foreign trade entities and had strict restriction on their businesses. However, the economic reform of Hungary granted their entities great liberalizations in foreign trade. Although the nation was the real owner of production materials, it transferred them to enterprises. The enterprise made the decision on business activities to implement the government's plans. Above-mentioned enterprises were independent entities. Under new economic mode, government could provide funds to these enterprises, not for the purpose of maintaining the existence plan, but for the long-term trusteeship. And the higher bodies couldn't allocate funds to the enterprises unless they need completely rebuilt.

　　Secondly, the clear distinguish between the function of ownership and executive. According to Hungarian laws, enterprises own the rights to deal with funds, e.g. investment. The enterprises, as legal bodies, couldn't purchase shares of other enterprise, but they could form new allied enterprises. The profit of the enterprises would depend on their production and sale, or we can say enterprises could compete to the most extent insgroupsto attain the largest profit. Although national plan still played a guidance role, competition among enterprises in resources and products made them the backbone of national economy. Government guidance over the enterprises was implemented through funds allocation and taxation; therefore a liberalized enterprise system under planned economy had been formed. The system had many similarities with western countries, e.g. France. Under this system, the government plan wasn't mandatory but instructive. The establishment of tax system offered incentives to raise labor productivity and seek new markets. Although Hungarian enterprises were state-owned, they own financial liberalization.

　　Thirdly, import licensing system. At that time, Hungary had a import licensing system, enterprises should apply for foreign exchanges for import. The government emphasized that the above system didn't has discriminatory treatment to commodities imported from different countries. The purpose of the system was only to help the government to inspect enterprises?business. The Ministry of Foreign Trade didn't examine related transactions while granting the approval of foreign exchange, unless national security considerations required the control over trade flows and specified products. Hungary could carry out retaliatory measures of quantitative restrictions by resisting import license, but in most cases, government didn't require that the enterprise procure from certain suppliers.