2006 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA

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06VIENNA462 15 February 2006 No clasificado Embassy Vienna

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C O R R E C T E D C O P Y (Text in FDI tables)

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STATE FOR EB/IFD/OIA, EUR/ERA AND EUR/AGS
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TAGS: EINV, EFIN, ELAB, ETRD, PGOV, KTDB, OPIC, USTR, AU
SUBJECT: 2006 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA

REF: 05 STATE 202943

1. Following is 2006 Investment Climate Statement for
Austria, keyed to reftel instructions:

2006 INVESTMENT CLIMATE STATEMENT — AUSTRIA


Introduction


With the European Union’s (EU) enlargement in May 2004,
Austria’s location became central in the EU. As an
investment location, Austria, and Vienna in particular,
faces growing competition from its Eastern neighbors, all
of which are now EU members. Budapest, Prague and
Bratislava are competing directly with Vienna for foreign
investors. Many have pointed out that direct
transportation links among Austria’s Eastern neighbors
are in some places better than those running through
Austria. The Austrian Government has long-term plans to
address these infrastructure gaps, but progress seems
slow and many view the current state of transport links
as a missed opportunity. The government’s 2005 corporate
tax cut was a major step towards remaining competitive
vis—vis Austria’s Eastern EU neighbors and has already
attracted firms to open regional headquarters in Vienna.
Some 370 U.S. companies have invested in Austria and most
have expanded their original investment over time.

Austria continues to offer some advantages, but also some
challenges to foreign investors. We have sought to
describe both below in candid terms for the benefit of
potential investors.

Openness to Foreign Investment


Government attitude toward foreign private investment:
The second Schuessel government — a coalition between
the Austrian People’s Party (OVP) and the Freedom Party
(FPO) spin-off, "Alliance Future Austria" (BZO) — has
continued the comprehensive economic reform program
Chancellor Schuessel began in 2000. The government’s aim
is to streamline government, create a more competitive
business environment, and further strengthen Austria’s
attractiveness as a location for investment. According
to many observers, in comparison to other EU member
states, Austria has made a major policy shift in recent
years by pursuing a balanced budget; pension system
reform; privatization; creating financial market
supervision and competition policy bodies; and
implementing a corporate tax cut in 2005. The policy
shift addressed long-standing imbalances and should
improve the Austrian economy’s long-term growth
potential. Structural reforms, which the economy still
needs, include downsizing the public sector, streamlining
the social welfare system, reforming the health care
system, raising the labor participation rate, introducing
more flexible work hours, liberalizing services markets,
and pursuing policies to address the problems associated
with an ageing society. In accordance with the EMU’s
Stability and Growth Pact, balancing the consolidated
public sector budget remains a medium-term goal.

The government is not likely to implement further major
reforms before the end of the legislative period in fall
2006. Even though continuation of the current coalition
government after the fall elections to Parliament seems
unlikely, observers do not expect Austria’s basic
policies and openness toward foreign direct investment to
change in coming years under any new government,
regardless of its composition. However, a government of
the Social Democratic Party (SPO) or an SPO-Green
coalition would likely have a different stance on reform.
The SPO appears poised to reverse the group taxation
regulation of the 2005 corporate tax reform and to raise
health insurance contributions. An SPO government would
not likely cut non-wage costs or further streamline the
vast social entitlements system.

Austria has been virtually a strike-free country, except
for two politically motivated strikes in 2003 against the
government’s pension and railroad reforms.

Liberalization and deregulation in the energy and telecom
sectors have lowered prices for businesses. However,
continuing barriers to entry and to competition have
resulted in only partial liberalization. In some areas,
charges, such as electrical network tariffs, have
remained above average, according to the International
Energy Agency.

Austria welcomes foreign direct investment that does not
have a negative impact on the environment. Austria
particularly welcomes those investments that create new
jobs in high technology, promote capital-intensive
industries, and have links to R&D activities, for which
special tax incentives are available. Austria is a high-
tax country, but is becoming increasingly attractive for
companies and headquarters. A major tax cut in 2005
reduced the corporate tax rate to 25% from 34%. Because
of tax base adjustments, experts estimated the effective
corporate tax burden at 22%. A highly favorable new
provision for group taxation, unique in Europe, allows
offsetting profits and losses of group operations
(requiring direct or indirect participation of more than
50%, but no other financial, economic or organizational
integration) in Austria and abroad. This group taxation
system offers interesting opportunities for U.S.
investors, in particular joint-venture structures, M&A
transactions, headquarter companies and simple holding
companies without active business, which can also
participate in the tax group. The corporate tax cut and
group taxation aim to keep Austria competitive vis—vis
the neighboring new EU members with their low corporate
tax rates.

The Austrian Government assesses the business profits of
non-corporations at half the income tax rate to which
they would be subject based on income alone. Austria has
no wealth or net worth tax, and no trade tax
(Gewerbesteuer), unlike neighboring Germany. The
government’s goal of reducing the share of taxes in GDP
further from around 41% in 2005/06 to 40% by 2010 will
require additional cuts in budget expenditures.

There are no formal sectoral or geographic restrictions
on foreign investment. In some regions, Austria offers
special facilities and services ("cluster packages") to
foreign investors. For example, these can include
automotive producers or manufacturers of chips, silicon,
and high-tech products. Austria offers financial and tax
incentives within EU parameters to firms undertaking
projects in economically depressed and underdeveloped
areas on Austria’s eastern and southern borders. For
some of these areas, eligibility for subsidies under EU
regional and cross-border programs will decline under the
EU’s 2007/13 financial framework. The only instances of
local opposition to investment in the manufacturing
sector have arisen out of environmental concerns.

Potential U.S. investors need to factor Austria’s strict
environmental laws into their decision-making process.
Austria has imposed marketing bans on some agricultural
biotechnology seeds despite existing EU approvals. The
European Commission has not yet taken steps to overturn
the bans, despite the fact that the EU’s Scientific
Committee has found no justification for the bans and the
EU Moratorium on new approvals has ended. For future
varieties, new EU legislation on the deliberate release
of genetically modified organisms and on traceability and
labeling requires Austria to allow GMO seeds in the
fields and in the stores. However, strict liability
regulations for research, production, and distribution of
GMOs still apply. U.S. investors considering production
facilities emitting CO2 in Austria should be aware that
Austria, under the Kyoto Protocol, has made a commitment
to cut its CO2 emissions by 13% from the 1990 level.
Austria also began implementation of the EU’s regulatory
framework on greenhouse gas emissions and trading, which
entered into force in 2005.

In investor surveys and international rankings, Austria
consistently earns high marks for political stability,
personal security, quality of life, rule of law, skill
and motivation of labor, health infrastructure, and
mobile phone costs. However, Austria receives low marks
for economic growth, tax burden, rigid labor practices
and work hours, lack of risk capital financing, low
innovation dynamics, restrictive immigration laws, size
of the public sector, and regulatory red tape. With the
2005 corporate tax cut, the government addressed one
major investmentdisincentive. Surveys show that Austria
faces siffer competition from Central and Eastern
Europan (CEE) markets, as well as from the ten new EU members,
especially the four that border Austria. This
competition is especially noticeable in sectors where
wage costs are decisive.

Acquisitions, mergers, takeovers, cartels: A new Anti-
Trust Act, in effect since January 1, 2006, harmonizes
Austrian anti-trust regulations with European competition
law. The independent Federal Competition Authority (FCA)
and the Federal Cartel Prosecutor (FCP) are responsible
for administering anti-trust laws. The FCA has not been
particularly pro-active, reportedly due to personnel
shortages.
The Austrian Anti-Trust Act prohibits cartels, any
competitive restrictions, and the misuse of a dominant
market position. Companies must inform the FCA about
mergers and acquisitions (M&A) concerning domestic
enterprises, if combined worldwide sales exceed Euro 300
million ($375 million at the current exchange rate of
$1.00 per Euro 0.80), domestic sales exceed Euro 30
million ($37.5 million), or if two of the firms involved
each have worldwide sales exceeding Euro 5.0 million
($6.3 million). Special regulations apply to M&As of
media enterprises. The cartel court is competent to
decide on any M&A notification from the FCA or the FCP.
For violations of anti-trust regulations, the cartel
court can impose fines of up to the equivalent of 10% of
a company’s annual worldwide sales. An independent
energy regulatory authority separately examines antitrust
concerns in the energy sector, but also has to submit any
cases to the cartel court.

European Community anti-trust regulations continue to
apply and take priority over national regulations in
cases of trade between Austria and other EU member
states.

The 1999 takeover law applies to both friendly and
unsolicited takeovers of corporations headquartered in

Austria and listed on the Vienna Stock Exchange. It
protects investors against unfair practices, since any
shareholder obtaining a controlling stake in a
corporation (30% or more of all shares) must offer to buy
out smaller shareholders at a defined "fair market"
price. An independent takeover commission at the Vienna
Stock Exchange oversees compliance.

Screening mechanisms: Only those foreign investments
with Austrian Government financial assistance are subject
to government overview. Screening is to ensure
compliance with EU regulations, which limit such
assistance to disadvantaged geographic areas.

Privatization: In the ongoing privatization of public
enterprises, foreign and domestic investors receive equal
treatment. Despite the government’s expressed preference
for an Austrian core shareholding, foreign investors have
been successful in obtaining shares in important Austrian
industry sectors, including the telecom sector; Austria’s
largest bank, Bank Austria; the Austrian Tobacco Company;
Voest-Alpine (VA), a major steel producer; and VA Tech, a
metallurgy, power generation and infrastructure
conglomerate. In 2005, the government sold its 34.7%
stake in VA, in which U.S. institutional investors now
hold a 19% share. In mid-2005, Siemens, which held a
16.5% share in VA Tech, made a successful public takeover
bid, as the government sold its 14.7% share in VA Tech to
Siemens. The government plans to privatize 49% of the
postal service through an IPO during the first half of
2006. The government postponed plans to sell off its
remaining 30.2% share in Telekom Austria (TA), but is
considering a separate privatization of TA’s 100%-owned
mobile phone subsidiary, Mobilkom. Provincial
governments and communities also plan to privatize
various entities.

Treatment of foreign investors: There is no
discrimination against foreign investors, but they are
required to follow a number of regulations. Although
there is no requirement for participation by Austrian
citizens in ownership or management, at least one manager
must meet residence and other legal requirements.
Non-residents must appoint a representative in Austria.
Expatriates are allowed to deduct certain expenses (costs
associated with moving, maintaining a double residence,
education of children) from Austrian-earned income. A
2003 amendment of the Austrian immigration law that
required permanent legal residents to take German
language and civics courses has been eased. A 2006
amendment of the Austrian immigration law exempts
applicants for residence permits who hold a college
degree from the German language course requirement.

Investment incentives: Starting in 2007, a smaller share
of Austria’s land area (41% at the moment) will be
eligible for support under various EU structural fund
programs. The Austrian federal, provincial, and local
governments also provide financial incentives within EU
guidelines to promote investments in Austria. Incentives
under these programs are equally available to domestic
and foreign investors, and range from tax incentives to
preferential loans, guarantees and grants. Most of these
incentives are available only if the planned investment
meets specified criteria (e.g., implementation of new
technology, reducing unemployment, etc.). Tax allowances
for advanced employee training and R&D expenditures are
available. The government has merged various
institutions providing financial incentives into a "one-
stop shop" at the Austria Wirtschaftsservice (further
information, in German language only, is available under
http://www.awsg.at and http://www.foerderportal.at).

Conversion and Transfer Policies


In Austria, there are no restriction on cross-border
capital transactions, including the repatriation of
profits and proceeds from the sale of an investment, for
non-residents and residents. The Euro, a freely
convertible currency and the only legal tender in Austria
and eleven other Euro-zone member countries, shields
investors from exchange rate risk in the entire Euro-
zone.

Expropriation and Compensation


Expropriation of private property in Austria is rare and
may proceed only on the basis of special legal
authorization. The government can initiate it only when
no other alternative for satisfying the public interest
exists; when the action is exclusively in the public
interest; and when the owner receives just compensation.
The expropriation process is fully transparent and non-
discriminatory towards foreign firms.

Dispute Settlement


The Austrian legal system provides an effective means for
protecting property and contractual rights of nationals
and foreigners. Additionally, Austria is a member of the
International Center for the Settlement of Investment
Disputes. The 1958 New York Convention also grants
enforcement of foreign arbitration awards in Austria.
There have been no recent reports of bilateral investment
disputes.

Performance Requirements/Incentives


Austria is in compliance with the World Trade
Organization’s Trade Related Investment Measures (TRIMS)
agreement. There are virtually no restrictions on
foreign investment in Austria and foreign investors
receive national treatment in the main. However, some
requirements exist. For example, at least one manager
must meet residency and other legal qualifications. Non-
residents must appoint a representative in Austria.

The Austrian Government may impose performance
requirements when foreign investors seek financial or
other assistance from the government, although there are
no performance requirements to gain access to tax
incentives. There is no requirement that nationals hold
shares in foreign investments or that there be a
technology transfer.

The U.S. and Austria are signatories to the 1931 Treaty
of Friendship, Commerce, and Consular Rights. The
Austrian Immigration Law restricts the overall number of
visas, but a few non-immigrant business visa
classifications, including intra-company
transferees/rotational workers and employees on temporary
duty, are eligible for visas with no numerical
limitations. Recruitment of long-term overseas
specialists or those with managerial duties is under quota controls.
The 2002 Amendment of the Austrian
Immigration Law more clearly defined employment-based
immigrants as multinational executives/managers or
similar professionals who are self-employed, and
streamlined procedures for obtaining visas and work
authorization. The 2002 integration policy requiring
immigrants to attain a minimum level of competence in the
German language has been eased; previous education
(college degree) will automatically fulfill the
integration requirement. Austria will cut annual
immigration quotas for 2006 from 7,500 to 7,000. These
cuts will likely take place for executives or managers, a
visa category that is apparently undersubscribed.

Right to Private Ownership and Establishment


Foreign and domestic private enterprises are free to
establish, acquire, and dispose of interests in business
enterprises, with the exception of some infrastructure
and utilities, and a few state monopolies, such as
gambling. As the government continues to pursue
privatization, it is gradually opening up some of these
industries to private investment as well. For example,
in past years, the Austrian Government implemented legal
changes to allow private radio and private terrestrial
TV, dismantled the postal monopoly for wire-transmitted
voice telephony and infrastructure, and liberalized the
electricity and gas markets. However, by law, federal
and provincial governments maintain at least 51% majority
shares in all electricity providers. In line with EU
regulations, the government is working to liberalize the
postal monopoly and will partially privatize the postal
company in 2006. In most business activities, the law
permits 100% foreign ownership. Foreign direct
investment is restricted only when competing with
monopolies and utilities. License requirements, such as
those in the banking and insurance sectors, apply equally
to domestic and foreign investors.

Protection of Property Rights


The Austrian legal system protects secured interests in
property. The law recognizes mortgages, if recorded in
the land register and the underlying contracts are valid.
For any real estate agreement to be effective, owners
must register with the land registry, which requires
approval of the land transfer commission or the office of
the provincial governor. The land registry is a reliable
system for recording interests in property, and any
interested party has access to it.

Austria has effective laws to protect intellectual
property rights, including patent and trademark laws; a
law protecting industrial designs and models; and a
copyright law. Legislation also protects three-
dimensional semiconductor chip layout design. In line
with EU requirements, Austria has a law against product
piracy to prevent trade in counterfeits. Austria is a
party to the World Intellectual Property Organization
(WIPO) and several international property conventions,
including the European Patent Convention, the Patent
Cooperation Treaty, the Universal Copyright Convention,
and the Geneva Treaty on the International Registration
of Audiovisual Works. Since both the United States and
Austria are members of the "Paris Union" International
Convention for the Protection of Industrial Property,
American investors are entitled to the same kind of
protection under Austrian patent legislation as are
Austrian nationals. A 2005 amendment to the Austrian
Patent Act strengthened protection of patents from
innovative enterprises, particularly through more
efficient implementation procedures. One can file
objections only after authorities have granted the
patent.

Austria’s copyright law is in conformity with EU
directives on intellectual property rights and grants the
author the exclusive rights to publish, distribute, copy,
adapt, translate, and broadcast his/her work.
Infringement proceedings, however, can be time consuming
and complicated. The Austrian Copyright Act also
regulates copyrights of works on the Internet, protection
of computer programs, and related damage compensation.

Transparency of the Regulatory System
Austria’s legal, regulatory, and accounting systems are
transparent and consistent with international norms. The
government usually publishes proposals for new laws and
regulations in draft form for public comment.

The Austrian Government has made some progress in
streamlining its complex and cumbersome permit and
paperwork requirements for business licenses and permits.
The government maintains that it has reduced the time
needed to obtain necessary permits to about three months,
except for large projects requiring an environmental
impact assessment. The 2002 reform of the Business Code
implemented a "one-stop shop" for a business permit.
However, this does not include plant and building
permits. Another reform in 2005 provides for further
accelerating permit procedures by expanding possibilities
for simplified procedures. However, "unpredictable and
inflexible bureaucratic rules" could still be a problem.

The government applies tax and labor laws uniformly, as
well as health and safety standards, and thus do not
influence the sectoral allocation of investments. The
Austrian investment climate has become more conducive for
business since Austria became a member of the EU.
However, inflexible shop-opening hours and working times
remain a major concern for many businesses. The
government plans to implement more flexible working time
regulations, including at the company level, and more
liberal regulations for shop-opening hours. However,
virtually all shops will remain closed on Sundays.

Efficient Capital Markets and Portfolio Investment


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Austria has modern and sophisticated financial markets.
All financial instruments are available. Foreign
investors have access to the local market without
restrictions and are free to use foreign credit markets
as well. Austria has a highly developed banking system
with worldwide correspondent banks, and representative
offices and branches in the United States and other major
financial centers. Large Austrian banks also have a huge
network in many of the ten new EU members and other
countries in Central and Eastern Europe (CEE) and in
Southeastern Europe (SEE). Austrian banking groups
dominate CEE/SEE banking markets. Six out of the seven
largest Austrian banks hold sizeable investments in
CEE/SEE; three of them are among the five largest banking
groups in the area. Total assets of Austria’s five
largest banking groups (Bank Austria Creditanstalt (BA-
CA), Erste Bank, Raiffeisen Zentralbank (RZB), Bank fuer
Arbeit und Wirtschaft und Oesterreichische Postsparkasse
(BAWAG PSK), and Oesterreichische Volksbanken) amounted
to about Euro 444 billion ($555 billion) in 2004,
representing 68% of Austria’s total bank assets

The Vienna Stock Exchange (VSE) is connected to Xetra,
Frankfurt’s electronic trading system, sotraders
worldwide have on-screen information anddirect access to
all stocks listed in Vienna. I March 2005, a consortium
of Austrian and Hungaran investors, led by VSE, acquired
a majority shae in the Budapest Stock Exchange (BSE)
with the oal of establishing a broader "Central European
tock Exchange" alliance, including several other stock
exchanges in CEE/SEE.

Austria’s venture capital market is underdeveloped.
After significant expansion in the late 1990s, it peaked
in 2000, but has been flat since then. The volume of
private equity and venture capital raised in Austria
during 1995-2004 was Euro 1.2 billion ($1.5 billion),
according to the Austrian Private Equity and Venture
Capital Organization (AVCO). In 2004, fund raising
slowed to Euro 122 million ($152 million).

Listed companies must publish quarterly reports.
Criminal penalties for insider trading are in place. The
Austrian Financial Market Authority (FMA), similar to the
U.S. Securities and Exchange Commission, is responsible
for policing irregularities on the stock exchange and,
with support from the Austrian National Bank, for
supervising banks, insurance companies, securities
markets, and pension funds.

The legal, regulatory, and accounting systems are
transparent and consistent with international norms.
Austrian regulations governing accounting standards will
provide U.S. investors with improved and internationally
standardized financial information. Listed companies
must use the International Financial Reporting Standards
(IFRS) set by the International Accounting Standards
Board (IASB) and approved by the European Commission.
All other firms can use IFRS or the regulations pursuant
to the Austrian Business Code. A new Code of Corporate
Governance came into effect on January 1, 2006. Listed
companies are required to comply or explain why they are
not following it.

Political Violence


There have been no incidents of politically motivated
damage to foreign businesses. Civil disturbances are
extremely rare.

Corruption


The Austrian Criminal Code contains penalties for
bribery, including a fine of up to Euro 500 ($625) per
day for up to 360 days or up to two years imprisonment
for the payer of a bribe. The recipient of a bribe faces
up to five years imprisonment. Under the Criminal Code,
any person who bribes a civil servant, a foreign
official, or a manager of an Austrian public enterprise
is subject to criminal penalties. Austria has ratified
the OECD Anti-Bribery Convention, which entered into
force in July 1999. Corresponding criminal code
legislation has been in place since summer 1998, and
including prohibiting tax deductibility for bribes. A
new Law on Responsibility of Associations entered into
force January 1, 2006 and introduced criminal
responsibility for legal entities and partnerships. The
law covers all criminal offences punishable by court,
including corruption, money laundering, and serious tax
offences that are subject to the Tax Offences Act. Fines
pursuant to the new law can rise to as much as 180 daily
rates, with one daily rate equal to one-360th of yearly
proceeds, but not less than Euro 50 ($63) and not more
than Euro 10,000 ($12,500).

Bilateral Investment Agreements


Austria has bilateral investment agreements in force with
Albania, Algeria, Argentina, Armenia, Azerbaijan,
Bangladesh, Belarus, Belize, Bolivia, Bosnia-Herzegovina,
Bulgaria, Cape Verde, Chile, China, Croatia, Cuba, Egypt,
Estonia, Ethiopia, Georgia, Hong Kong, Hungary, India,
Iran, Jordan, Kuwait, Latvia, Lebanon, Libya, Lithuania,
Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia,
Morocco, Oman, Paraguay, Philippines, Poland, Romania,
Saudi Arabia, Slovenia, South Korea, South Africa,
Tunisia, Turkey, Ukraine, United Arab Emirates,
Uzbekistan, Vietnam, Yemen, and Serbia and Montenegro.

Austria has signed agreements with Cambodia, Namibia and
Zimbabwe, but the agreements have not yet entered into
effect. An agreement with North Korea is in initial
stages of discussion. Until new agreements take effect,
the existing agreements with the former Czechoslovakia
continue to apply to the Czech Republic and Slovakia, and
that with the former Soviet Union to Russia and
Tajikistan. Austria and Russia are negotiating a new
agreement. Under all these agreements, if parties cannot
amicably settle investment disputes, a claimant submits
the dispute to the International Center for Settlement of
Investment Disputes or an arbitration court according to
the UNCITRAL arbitration regulations.

The U.S. and Austria are parties to a bilateral double
taxation treaty covering income and corporate taxes,
which went into effect on February 1, 1998. Another
bilateral double taxation treaty covering estates,
inheritances, gifts and generation-skipping transfers has
been in effect since 1982.

OPIC and Other Investment Insurance Programs


OPIC programs are not available for Austria. Austria is
a member of the Multilateral Investment Guarantee Agency
(MIGA).
Labor


Austria has a highly educated and productive labor force
of about four million people, of which 3.5 million are
employees and 500,000 are self-employed or farmers.
Austria’s labor market is more rigid than that of the
U.S., but more flexible than markets in some other EU
members. Depending on labor demand, government policies
limit the number of foreign workers to between 8-10% of
the salaried workforce. In 2005, the number of guest
workers, predominantly from the former Yugoslavia and
Turkey, averaged 374,000. As part of the 2004 EU
enlargement, Austria adopted a 7-year transition period
vis—vis eight of the ten new EU members (except Cyprus
and Malta) before fully allowing free movement of labor.
On May 1, 2006, the Austrian Government will likely
extend the restrictions for another three years, after
which the EU Commission can approve a further extension
for two years.

Compared to other EU countries, Austria had a relatively
low unemployment rate of 5.2% in 2005. The 2006 forecast
is for an unemployment rate of 5.2-5.3%, assuming real
economic growth of 2.3-2.4%. Forecasts call for no
change in 2007, projecting economic growth of only 2.0-
2.2%. Analysts expect no potential labor market shortage
in the medium term. While demographic trends indicate
little growth in the labor force over the next few years,
other factors, such as expected moderate economic growth,
productivity gains, industrial restructuring, federal
employment incentives for women and older employees, the
gradual phase-out of early retirement, and government
efforts to reduce civil service employment will likely
offset the expected slow growth in the labor market.
Moreover, net gains from migration will easily outpace
the effect of low birth rates on the overall labor
supply. Long-term population estimates indicated an
increase in the working age population (15-60 years) to
5.26 million by 2014, up from 5.06 million in 2004.
After 2014, the working population should slowly decrease
to about 4.88 million by 2030. However, the government’s
measures to promote participation in the labor force
should help mitigate any potential shortage.

In general, skilled labor is available in sufficient
numbers. However, regional shortages of highly
specialized laborers in specific sectors, such as systems
administration, metalworking, health, and tourism
services may occur. In line with EU goals, the
government’s labor market policy aims to raise the labor
market participation rate to 70% (currently 69.2%) by
2010, that of women to 60% (currently 61.7%), and that of
workers aged 55-64 to 50% (currently 30.4%). The
government introduced new regulations requiring
recipients of unemployment benefits to be more flexible
regarding which jobs they would accept. Companies hiring
workers age 50 and above are eligible for financial
bonuses, but face penalties for laying off workers within
this age group. The government will not likely realize
its plans to introduce more flexible working hours before
the end of this legislation period in fall 2006.

Austrian social insurance is compulsory and comprises
health insurance, old-age pension insurance, unemployment
insurance, and accident insurance. Social insurance
contributions are a percentage of total monthly earnings
and are shared by employers and employees. Although EU
requirements facilitated greater job flexibility, various
Austrian laws closely regulate terms of employment,
including working hours, minimum vacation time (5 weeks),
holidays, maternity leave, statutory separation notice,
protection against dismissal, and the option for parents
with children under the age of seven to choose part-time
work for several years. The new regulation only applies
to parents working for companies with at least 20
employees. The severance pay system, implemented in
2002, aims to enhance worker flexibility by providing
employees the right to carry their accrued entitlements
with them.

Since World War II, labor-management relations have
generally been harmonious in Austria, as reflected in
extremely low strike figures in past decades. Two major
strikes in May/June 2003 were politically motivated
strikes against the government’s pension reform and did
not reflect management-labor disputes. No major work
stoppages occurred in 2004/0505. About 40% of the work
force belongs to a union.

Collective bargaining revolves mainly around wage
adjustments and fringe benefits. While existing legal
provisions stipulate a maximum workweek of 40 hours,
collective agreements provide for a workweek of 38 or
38.5 hours per week for more than half of all employees.

Foreign Trade Zones/Free Ports


Austria has no foreign trade zones.

Foreign Direct Investment Statistics


The inflow of new foreign direct investment (FDI) in 2004
reached Euro 3.2 billion ($4.0 billion), less than the
Euro 6.3 billion ($7.9 billion) in 2003, which was the
third highest inflow ever. New FDI in the first half of
2005 amounted to Euro 3.1 billion ($3.9 billion). The
value of FDI stock in Austria was Euro 45.8 billion
($57.3 billion) at the end of 2004 and about Euro 49
billion ($68.8 billion) by mid-2005. In 2004, U.S. firms
invested about 10% of the total.

At Euro 5.9 billion ($7.4 billion), flows of Austrian
direct investment abroad in 2004 just missed the record
level of Euro 6.3 billion ($7.9 billion) in 2003. In the
first half of 2005, FDI abroad was Euro 2.8 billion ($3.5
billion). This raised the value of Austrian direct
investment stock abroad to Euro 50.2 billion ($62.7
billion) at the end of 2004 and to Euro 53 billion ($66.2
billion) by mid-2005.

Note: Figures converted at the 2005 annual average
exchange rate of $1.00 for Euro 0.80.
Source: Austrian National Bank.

Austria’s International Investment Position (EUR billion)

Year 2003 2004 (1) 2005 (2)


--------
FDI in Austria 44.3 50.2 53.0
Austrian FDI Abroad 42.6 45.8 48.9

Footnotes:
(1) preliminary figures;
(2) first half year, preliminary figures.

FDI in Austria - Source Country Breakdown 2003
(share of total in percent)


-
U.S. 10.3
Germany 39.9
U.K. 11.2
Switzerland/Liechtenstein 8.0
Netherlands 7.3
Spain 2.5
Japan 2.3
All other countries 18.5

FDI in Austria - Industry Breakdown 2003 (Euro million)


----------
Mining and energy 466
Metals, machinery 1,622
Vehicles 434
Electrical engineering, electronics 2,226
Petroleum, chemicals 2,903
Paper, wood 1,173
Building and allied trades 678
Trade 10,296
Transport, communication 801
Banking, insurance, finance 5,824
Real estate, business, related services 15,377
Other industries 835
------
Total 42,635

Austrian FDI Abroad - Destination Country Breakdown 2003
(share of total in percent)


-----------
U.S. 4.4
Germany 16.1
Czech Republic 8.0
Hungary 7.8
Netherlands 6.2
Switzerland/Liechtenstein 5.1
U.K. 4.8
Poland 4.4
Slovakia 3.4
Croatia 2.7
Slovenia 2.3
All other countries 34.8

Austrian FDI Abroad - Industry Breakdown 2003 (Euro
million)


------
Mining and energy 1,959
Metals, machinery 1,392
Electrical engineering, electronics 856
Petroleum, chemicals 2,167
Paper, wood 759
Food, drink, tobacco 462
Building and allied trades 2,105
Trade 4,932
Transport, communication 984
Banking, insurance, finance 13,749
Real estate, business, related services 14,147
Other industries 797
-------
Total 44,309

List of Major Foreign Investors:


Some 370 U.S. firms hold investments in Austria, which
range from simple sales offices to major production
facilities. The following is a short list of U.S. firms
holding major investments in Austria.

American Express Bank Ltd.
Baxter International Inc.
Capital Research and Management Company
Cisco Systems, Inc.
Citibank Overseas Investment Corp.
The Coca-Cola Company
CSC Computer Sciences Corporation
Deloitte & Touche LLP
Electronic Data Systems Corp.
Exxon Corporation
General Electric Capital Corporation
General Electric Company
General Motors Corp.
Harman International Industries Inc.
Hewlett-Packard Company
Honeywell Inc.
IBM World Trade Corp.
ITT Fluid Technology Corp.
Johnson & Johnson Int.
Johnson Controls Inc.
Kraft Foods International, Inc.
Lear Corporation
Lem Dyn Amp
McDonald’s Corporation
Marriott International, Inc.
Mars Inc.
MeadWestvaco Corp.
Merck & Co., Inc.
Modine USA
Otis Elevator Co.
Pioneer Hi-Bred International Inc.
PricewaterhouseCoopers LLP
PQ International Inc.
Quintiles Transnational Corp.
Schindler Elevator Corp.
Starwood Hotels and Resorts Worldwide, Inc.
Toys"R"Us, Inc.
United Global Com, Inc.
Unysis Corporation
Verizon Information Services Inc.
Western Union
Worthington Cylinder Corp.
York International
Xerox Corporation

The following is a brief list of firms headquartered in
countries other than the U.S., holding major investments
in Austria.

Alcatel Holding, Netherlands
Allianz AG, Germany
Amer, Finland
Asea Brown Boveri, Switzerland
Assicurazioni Generali, Italy
Aventis, Germany
Axel Springer Verlag, Germany
BASF, Germany
Bayer AG, Germany
Bayerische Motorenwerke (BMW), Germany
Bombardier, Canada
Bosch Robert AG, Germany
Borealis, Denmark
BP Amoco, UK
DaimlerChrysler, Germany
Detergenta Investment, Germany
Deutsche Telekom, Germany
DM Drogerie Markt, Germany
Electricite de France, France
Electrolux, Sweden
Epcos AG, Germany
Ericsson, Sweden
Flextronics International, Singapore
Gallaher, U.K.
Heineken, Netherlands
H&M, Netherlands
Infineon, Netherlands
Kone Corp., Finland
Koramic, Belgium
Liebherr, Switzerland
Magna, Canada
MAN, Germany
Metro, Germany
Mondi Europe, Luxembourg and UK
Nestle S.A., Switzerland
NKT Cables, Denmark
Novartis, Switzerland
Nycomed Holding, Denmark
Philips, Netherlands
Plus Warenhandel, Germany
REWE, Germany
RWE, Germany
Sappi Ltd, South Africa
Schlecker, Germany
Shell Petroleum N.V., Netherlands
Siemens, Germany
Smurfit Group, Ireland
Solvay Et Cie, Belgium
Sony, Japan
Sueddeutscher Verlag, Germany
Svenska Cellulosa Ab (SCA), Sweden
UniCredit Group, Italy
Unilever N.V., Netherlands
Voith, Germany
Westdeutsche Allgemeine Zeitung (WAZ), Germany
Westdeutsche Landesbank, Germany

MCCAW