2007 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA

Código Fecha Clasificación Origen
07VIENNA269 6 February 2007 No clasificado Embassy Vienna

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VZCZCXYZ0001
PP RUEHWEB

DE RUEHVI #0269/01 0371237
ZNR UUUUU ZZH
P 061237Z FEB 07
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 6173
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS VIENNA 000269

SIPDIS

SIPDIS

STATE FOR EB/IFD/OIA, EUR/ERA AND EUR/AGS
USDOC ALSO FOR 4212/MAC/EUR/OWE/PDACHER

E.O. 12958: N/A
TAGS: EINV, EFIN, ELAB, ETRD, PGOV, KTDB, OPIC,
USTR, AU
SUBJECT: 2007 INVESTMENT CLIMATE STATEMENT FOR
AUSTRIA

REF: 06 STATE 178303

1. Following is the 2007 Investment Climate
Statement for Austria, keyed to reftel
instructions:

2007 INVESTMENT CLIMATE STATEMENT — AUSTRIA


Introduction


With the European Union’s (EU) enlargements in May
2004 and January 2007, Austria solidified its
central position in the EU. As an investment
location, Austria, and Vienna in particular, faces
growing competition from its Eastern neighbors,
all of which are 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. Many view the
current state of inadequate transport links as a
missed opportunity. The new Austrian Government’s
program includes plans to address these
infrastructure gaps. The 2005 corporate tax cut
was a major step towards remaining competitive
vis-Q-vis Austria’s Eastern EU neighbors. The tax
cut has also enticed firms to open regional
headquarters in Vienna. Some 350 U.S. companies
have invested in Austria and most have expanded
their original investment over time.

Austria continues to offer some advantages for
foreign investors, but it also presents some
challenges.

Openness to Foreign Investment


Government attitude towards foreign private
investment: Observers do not expect Austria’s
basic policies and openness towards foreign direct
investment to change under the new government, a
grand coalition between the Social Democratic
Party (SPO) and the People’s Party (OVP). The new
government took office on January 11, 2007 for a
four-year term. The coalition program includes a
promise to promote direct investment and to
further strengthen Austria’s attractiveness as a
location for investment and headquarters for
international firms. In general, the coalition
program is relatively broad, reflecting the hand
of both the SPO and the OVP. The need for
compromise between the big center-left and center-
right parties prevented the development of
visionary reforms. The government will not
reverse major structural and economic reforms
implemented in recent years. However, the SPO
will insist on a more "social face" for these
reforms, such as softening some features of the
past pension reforms. Reforms will continue,
although perhaps more slowly and with a different
focus, i.e., with more emphasis on social and
welfare reforms and less on deregulation,
liberalization and privatizations.

The new Austrian government intends to pursue
initiatives to raise economic growth as a means to
attain full employment by 2010. Other initiatives
include the following: expanding and improving the
road, rail, energy and telecom infrastructures;
introducing Public-Private Partnership (PPP)
models; improving education and training;
improving R&D policies and raising R&D
expenditures to 3% of GDP by 2010; continuing
efforts to balance the budget over the economic
cycle in line with the requirements of the EU’s
Stability and Growth Pact; implementing
administrative reforms and streamlining the
division of responsibilities among the various
levels of government; and lowering income and
corporate taxes by the end of the legislative
period. By mid-2007, the new government plans to
increase the petroleum tax on diesel and gasoline

and to increase truck tolls with a parallel
reduction of the tax on trucks. An increase in
social security contributions is also pending,
ruling out any cut in non-wage costs. The
government plans to introduce a basic social
allowance for "those in need," expand shop opening
hours and introduce more work hour flexibility,
promote renewable energy, and secure energy
supplies and diversification of energy resources.

The new government can build on the comprehensive
structural reforms the outgoing government
implemented during the 2000-2006 timeframe. These
reforms helped streamline government, create a
more competitive business environment, and
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 reform,
privatizations, strengthening financial market
supervision and competition policy bodies, and
implementing a corporate tax cut in 2005. The
reforms addressed long-standing imbalances and
have improved the Austrian economy’s long-term
growth potential.

Austria has been virtually strike-free since two
politically motivated strikes in spring 2003
against the government’s pension and railroad
reforms.

Liberalization and deregulation in the energy and
telecom sectors have lowered prices for
businesses. However, in practice continuing
barriers to entry and competition have resulted in
only partial liberalization. Network tariffs for
electricity, for example, 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 fields, promote capital-intensive
industries, and have links to R&D activities, for
which special tax incentives are available.
Austria remains a high-tax country, but has become
increasingly attractive as a headquarters location
due to the 2005 corporate tax cut from 34% to 25%.
Because of tax base adjustments, experts estimate
the effective corporate tax burden to be at 22%.
Austria also offers a highly favorable provision
for group taxation, unique in Europe, which 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 benefit
from the group taxation. The corporate tax cut
and group taxation aim to keep Austria competitive
vis-Q-vis the new EU neighbors.

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.

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 most of these

areas, eligibility for co-financing subsidies
under EU regional and cross-border programs will
decline under the EU’s 2007-2013 financial
framework (from Euro 2 billion to Euro 1.3
billion). The only opposition to investment in
the manufacturing sector has arisen because 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’s efforts to overturn these bans have
been unsuccessful, although the EU’s Scientific
Committee has found no justification for the bans
and a WTO panel ruled against the bans in 2006.
For new varieties, the EU’s legislation on the
deliberate release of genetically modified
organisms (GMOs) and on traceability and labeling
requires Austria to allow GMO seeds in fields and
in stores. However, strict liability regulations
for research, production, and distribution of GMOs
still apply. Under the Kyoto Protocol, Austria
has made a commitment to cut its CO2 emissions by
13% from the 1990 level. Austria is in the
process of implementing the EU’s regulatory
framework on greenhouse gas emissions 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,
productivity and quality, 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 investment disincentive. Surveys show that
Austria faces stiffer competition from Central and
Eastern European (CEE) markets, as well as from
the twelve new EU members, especially the four
that border Austria. This competition is
especially noticeable in sectors where wage costs
are decisive. In the International Institute for
Management Development’s (IMD) 2006 World
Competitiveness Scoreboard Austrian ranked
thirteenth, up from the seventeenth position in
2005. A "Centre for European Reform," designed to
evaluate how successful the EU member states have
been in boosting their overall competitiveness,
moved Austria up to third place in terms of
implementing the EU’s 2005 growth and employment
targets. A.T.Kearney’s 2006 Globalization Index,
which measures variables such as economic
integration, technological connectivity or
political engagement, ranks Austria number 9 (By
comparison, the U.S. was third, the UK twelfth,
and Germany eighteenth).

Acquisitions, mergers, takeovers, cartels: A new
Anti-Trust Act, in effect since January 1, 2006,
harmonizes Austrian anti-trust regulations with EU
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 $1.0 per
Euro 0.80), domestic sales exceed Euro 30 mllion
($37.5 million), or if two of the firms inolved
each have worldwide sales exceeding Euro 50
millin ($6.3 million). Special regulations aply
to M&As of media enterprises. The cartel cout 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 precedence over national
regulations in cases of trade between Austria and
other EU member states.

Austria’s 1999 Takeover Law applies to both
friendly and hostile 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
in direct or indirect control of a company’s
voting shares) must offer to buy out smaller
shareholders at a defined "fair market" price.
The law also includes regulations for shareholders
who passively obtain a controlling stake in a
company, i.e., not by buying additional shares,
but because another large shareholder has reduced
his/her shareholding. A 2006 amendment to the law
implemented the EU’s Takeover Directive prohibits
defensive action to frustrate bids. The law does
not implement the directive’s breakthrough
regulations, but allows individual companies to
address these in company bylaws. The Shareholder
Exclusion Act of 2006 allows a primary
shareholder, with at least 90% of capital stock,
to "squeeze out" minority shareholders. An
independent takeover commission at the Vienna
Stock Exchange oversees compliance with these
laws.

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

Privatizations: The largest party in the new
government coalition, the SPO, has announced it
has no plans for additional privatizations. In
past years, the government privatized many public
enterprises successfully. Foreign and domestic
investors received 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
more than 20%. 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. In 2006, the
government successfully privatized 49% of its
postal company through an IPO. In 2006, the U.S.
investment fund Cerberus Capital Management took
over more than 75% of the shares of BAWAG P.S.K.
(BAWAG) bank, Austria’s fourth largest banking
group, from its owner, the Austrian Trade Union
Federation.

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. The Austrian immigration law
requires permanent legal residents to take German
language and civics courses. A 2005 amendment to
the Austrian immigration law exempts applicants
for residence permits from the German language
course requirement, if they hold a university
degree.

Investment incentives: Starting in 2007, Austria
will have less access to funds from various EU
structural and cohesion programs, primarily
regional competitiveness and employment programs.
The Austrian federal, state, 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 investment meets
specified criteria (e.g., implementation of new
technology, reducing unemployment, etc.). Tax

allowances for advanced employee training and R&D
expenditures are also available. The government
has merged various institutions providing
financial incentives into a "one-stop shop" at the
Austria Wirtschaftsservice. Further information,
in the German language only, is available under
http://www.awsg.at/portal/).

Conversion and Transfer Policies


In Austria, there are no restrictions 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 twelve 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. Austrian immigration law restricts the
overall number of visas, but a few non-immigrant
business visa classifications, including intra-
company transfers/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, limited
to a total of between 1,000 and 1,500 per year for
all non-EU countries. Austrian law defines
employment-based immigrants as multinational
executives/managers or similar professionals who
are self-employed. The 2005 Amendment to the
Austrian Immigration Law has eased the integration
policy requiring immigrants to attain a minimum
level of competence in the German language. Under
the amendment, previous education (university
degree) will automatically fulfill the integration
requirement. Austria cut annual immigration
quotas for 2006 from 7,500 to 7,000, largely at
the expense of key workers/managers. Since the
quota for key managers has proven to be
insufficient to match economic growth, the new
government is expected to approve soon a higher
quota for 2007. Until this approval, a special
provision allows for the 2006 quotas to remain in
place.

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. If the government
pursues privatizations, it may gradually open up
some of these industries to private investment as
well. For example, in recent 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,
liberalized the electricity and gas markets, and
in 2006, in line with EU regulations, partially
liberalized the postal monopoly and privatized 49%
of its postal company. However, by law, federal
and provincial governments maintain at least a 51%
share in all electricity providers. In most
business activities, the law permits 100% foreign
ownership. Foreign direct investment is
restricted only when competing with monopolies and
utilities. Licensing 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 if
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 state 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 trade in counterfeits.
In 2005 Austrian customs authorities confiscated
goods worth Euro 33 million ($41.2 million).
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 protection
under Austrian patent legislation as are Austrian
nationals. Amendents in 2005 and 2006 to the
Austrian Patent Actstrengthened protection of
patents from innovatie enterprises, particularly
through more efficien and transparent
implementation procedures. Onecan file
objections only after authorities have ranted the
patent, and the right to receive infomation from
authorities has been extended.

Autria’s copyright law is in conformity with EU
dirctives on intellectual property rights and
grant the author the exclusive rights to publih,
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 digital media (restrictions to private copies),
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 necessary to obtain permits to
about three months, except for large projects
requiring an environmental impact assessment. The
"one-stop shop" for a business permit, which the
government implemented in 2002, does not include
plant and building permits. These simplified
procedures should accelerate permit procedures,
but unpredictable and inflexible bureaucratic
rules can still be a problem.

The government applies tax and labor laws
uniformly, as well as health and safety standards.
The government thus does not influence the
allocation of investments amongst sectors. 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 and more liberal shop-opening hours.
However, shops will remain closed on Sundays.

Efficient Capital Markets and Portfolio Investment


-----
Austria has modern and sophisticated financial
markets. All financial instruments are available.
Foreign investors have access to the Austrian
market without restrictions. 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 twelve 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
approximately Euro 518 billion ($648 billion) in
2005, representing 71% of Austria’s total bank
assets.

The Vienna Stock Exchange (VSE) is connected to
Xetra, Frankfurt’s electronic trading system, so
traders worldwide have on-screen information and
direct access to all stocks listed in Vienna. In
March 2005, a consortium of Austrian and Hungarian
investors, led by VSE, acquired a majority share
in the Budapest Stock Exchange with the goal of
establishing a broader "Central European Stock
Exchange" alliance, including several other stock
exchanges in CEE/SEE. The VSE continues to pursue
a regional alliance and has signed a cooperation
agreement with the Zagreb Stock Exchange and MoUs
for closer cooperation with stock exchanges in
Banja Luka, Belgrade, Macedonia, Montenegro and
Sarajevo. Since February 2006, the VSE also
publishes a Southeast Europe Traded Index (SETX),
which contains 15 blue chip stocks listed on the
stock exchanges of Bucharest, Ljubljana, Sofia and
Zagreb.

Austria’s venture capital market is
underdeveloped. The market has been flat since it
peaked in 2000, but it started to recover in 2005.
The volume of private equity and venture capital
raised in Austria during 1996-2005 was Euro 1.5
billion ($1.8 billion), according to the Austrian
Private Equity and Venture Capital Organization
(AVCO). In 2005, fund raising almost doubled,
compared to 2004, to Euro 216 million ($270
million).

Listed companies must publish quarterly reports.
Criminal penalties for insider trading exist. 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
provide U.S. investors with improved and
internationally standardized financial
information. Listed companies must prepare their
consolidated financial statements according to the
IAS/IFRS (International Financial Reporting
Standards), and the European Commission must
improve the statements. For firms with annual
sales exceeding Euro 400,000 ($500,000), the new
Austrian Enterprise Code, in effect since January
1, 2007 in place of the Austrian Business Code,
includes detailed accounting regulations. The new
Code of Corporate Governance, in effect since
January 1, 2006, requires listed companies 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, in place since summer
1998, also prohibits tax deductibility for bribes.
The OECD’s 2006 report on corruption recommended
that Austria strengthen the tax authorities’
limited capacity to detect illicit payments and to
broaden the income tax guidelines’ restrictive
interpretation of the foreign bribery offense.
The Law on Responsibility of Associations, in
force since January 1, 2006, introduced criminal
responsibility for legal entities and
partnerships. The law covers all criminal
offences, 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). Transparency
International’s 2006 Corruption Perceptions Index
ranks Austria number 11 (By comparison Germany is
16th, and the U.S. 20th).

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, Montenegro, Morocco, Oman, Paraguay,
Philippines, Poland, Romania, Saudi Arabia,
Serbia, Slovenia, South Korea, South Africa,
Tunisia, Turkey, Ukraine, United Arab Emirates,
Uzbekistan, Vietnam, and Yemen.

Austria has signed agreements with Cambodia,
Guatemala, 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 approximately 4.2 million people, of
which 3.6 million are employees and 550,000 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 member
states. Depending on labor demand, government
policies limit the number of foreign workers to
between 8-10% of the salaried workforce. In 2006,
the number of guest workers, predominantly from
the former Yugoslavia and Turkey, averaged
390,000. As part of the 2004 EU enlargement,

Austria adopted a 7-year transition period vis-Q-
vis eight of the ten new EU members (except Cyprus
and Malta) before fully allowing free movement of
labor. In May 2006, the Austrian Government
extended the restrictions for another three years,
after which the EU Commission can approve a
further extension for two years. For new EU
members Bulgaria and Romania, which joined the EU
on January 1, 2007, Austria adopted the same 7-
year transition period. Exemptions for the
recruitment of specialists or managers from all
twelve new EU members apply.

Compared to other EU countries, Austria had a
relatively low unemployment rate of 4.9% in 2006.
The 2007 forecast is for an unemployment rate of
4.5-4.6%, assuming real economic growth of 2.6-
2.7%. Forecasts call for no change in the
unemployment rate in 2008, projecting economic
growth of only 2.3-2.4%. Analysts expect no
potential labor market shortages in the medium
term. While demographic trends indicate little
growth in the labor force over the next few years,
other factors will help guarantee sufficient labor
supply. These factors include industrial
restructuring, productivity gains, increased
participation of women and older employees in the
workforce, gradual phase-out of early retirement,
efforts to reduce civil service employment and
economic growth rates of around 2.5%. Moreover,
immigration, including from EU member states, will
outpace the impact of low birth rates on the
overall labor supply. Long-term population
estimates indicate an increase in the working age
population (15-60 years) to 5.27 million by 2015,
up from 5.11 million in 2005. The working
population should then remain stable until 2020,
before decreasing slowly to about 5.02 million by
2025. However, measures to promote participation
in the labor force should help mitigate any
potential shortages.

In general, skilled labor is available in
sufficient numbers. However, regional shortages
of highly specialized laborers in specific
sectors, such as systems administration,
metalworking, healthcare, 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
68.6%) by 2010, that of women to 60% (currently
exceeded at 62.0%), and that of workers aged 55-64
to 50% (currently 31.8%). 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 new
government has plans to introduce more flexible
working hours, including the possibility to
increase daily work hours, but with no fixed
timeline for implementation.

Austrian social insurance is compulsory and
comprises health insurance, old-age pension
insurance, unemployment insurance, and accident
insurance. Employers and employees contribute a
percentage of total monthly earnings to a
compulsory social insurance fund. Although EU
requirements encourage greater job flexibility,
various Austrian laws closely regulate terms of
employment. These include working hours, minimum
vacation time (five 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 2002 severance pay
system aims to enhance worker flexibility by
providing employees the right to carry their
accrued entitlements with them to subsequent jobs.
A current issue, which could affect the social
insurance system, and thus also social insurance
contributions, is the immense shortage of nursing

personnel for the fast rising number of elderly
people.

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 2005 or 2006. About 40% of
the work force belongs to a union. The Austrian
Trade Union Federation is trying to recover from
an internal crisis, and will therefore probably
temper short-term wage and benefit demands.

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. Part time employment
is also high in Austria: 41% of female workers and
7% of male workers have part time jobs.

Foreign Trade Zones/Free Ports


Austria has no foreign trade zones.

Foreign Direct Investment Statistics


The inflow of new foreign direct investment (FDI)
in 2005 reached Euro 7.3 billion ($9.1 billion),
the highest since 2000 and much higher than the
Euro 3.1 billion ($3.9 billion) that existed in
2004. New FDI in the first half of 2006 amounted
to Euro 1.4 billion ($1.7 billion). The value of
FDI stock in Austria was Euro 53.0 billion ($66.3
billion) at the end of 2005 and about Euro 54.5
billion ($68.0 billion) by mid-2006. In 2005,
U.S. firms invested about 10% of the total.

At Euro 8.1 billion ($10.1 billion), flows of
Austrian direct investment abroad in 2005 hit an
all-time high, following the impressive level of
Euro 6.7 billion ($8.3 billion) in 2004. In the
first half of 2006, FDI abroad was Euro 1.2
billion ($1.5 billion). This raised the value of
Austrian direct investment stock abroad to Euro
57.8 billion ($72.3 billion) at the end of 2005
and to Euro 59.0 billion ($73.7 billion) by mid-
2006.

Note: Figures converted at the 2006 annual
average exchange rate of $1.00 for Euro 0.80.
Source: Austrian National Bank.

Austria’s International Investment Position (EUR
billion)

Year 2004 2005 (1) 2006
(2)


-----
FDI in Austria 45.8 53.0 54.5
Austrian FDI Abroad 49.8 57.8 59.0

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

FDI in Austria - Source Country Breakdown 2004
(share of total in percent)


-
U.S. 11.3
Germany 37.8
U.K. 11.1
Switzerland/Liechtenstein 7.5
Netherlands 7.3
France 3.2
Denmark 2.4
Italy 2.3
Japan 2.3

All other countries 14.8

FDI in Austria - Industry Breakdown 2004 (Euro
billion)


-----
Mining and energy 508
Metals, machinery 1,660
Vehicles 426
Electrical engineering, electronics 2,143
Petroleum, chemicals 3,661
Paper, wood 1,244
Building and allied trades 580
Trade 9,019
Transport, communication 685
Banking, insurance, finance 5,696
Real estate, business related services 19,399
Other industries 744
------
Total 45,765

Austrian FDI Abroad - Destination Country
Breakdown 2004
(share of total in percent)


-----
U.S. 3.9
Germany 15.0
Czech Republic 8.4
Hungary 7.6
Switzerland/Liechtenstein 7.3
Netherlands 6.4
U.K. 4.8
Poland 4.6
Slovakia 3.7
Romania 3.2
Croatia 2.8
Italy 2.0
Slovenia 1.7
All other countries 28.6

Austrian FDI Abroad - Industry Breakdown 2004
(Euro billion)


-----
Mining and energy 2,312
Metals, machinery 1,543
Electrical engineering, electronics 1,100
Petroleum, chemicals 3,816
Paper, wood 1,201
Food, drink, tobacco 580
Building and allied trades 2,163
Trade 6,597
Transport, communication 602
Banking, insurance, finance 15,737
Real estate, business related services 13,102
Other industries 1,012
-------
Total 49,765

List of Major Foreign Investors:


More than 350 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
Cerberus Capital Management
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

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