2010 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA

Código Fecha Clasificación Origen
10VIENNA87 26 January 2010 No clasificado Embassy Vienna

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P 260750Z JAN 10
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 4049
RUEATRS/DEPT OF TREASURY WASHDC
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RUCPCIM/CIMS NTDB WASHDC

UNCLAS VIENNA 000087

SIPDIS

STATE FOR EB/IFD/OIA, EUR/ERA AND EUR/CE
STATE PLEASE PASS TO USTR
USDOC ALSO FOR 4212/MAC/EUR/OWE/PDACHER

E.O. 12958: N/A
TAGS: EINV, EFIN, ELAB, ETRD, PGOV, KTDB, OPIC, USTR, AU
SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA

REF: 09 STATE 124006

1. Following is the 2010 Investment Climate Statement for Austria,
keyed to reftel instructions:

2010 INVESTMENT CLIMATE STATEMENT — AUSTRIA
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Introduction
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Major structural conditions and the decisive parameters for foreign
investors remain unchanged and favorable, despite the global
economic crisis. As a small, open and highly internationalized
economy, Austria is swayed by global developments, including the
world downturn in 2009, when GDP shrank 3.5%, which was less than
expected and less than the Eurozone dip, but still the first
full-year recession in Austria since 1981 and the deepest in more
than 50 years. As of January 2010, the Austrian economy is
projected to grow again in 2010 and 2011, but only by around 1.5%.
Economists predict that the recovery will be slow, bumpy, and beset
with downside risks.

With European Union (EU) enlargements in May 2004 and January 2007,
Austria solidified its central position in the EU. As an investment
location, however, Austria, and Vienna in particular, faces growing
competition from its Eastern neighbors, all of which are EU members.
Budapest, Prague and Bratislava compete directly with Vienna for
foreign investors. Over the longer term Austria must enhance
efforts to maintain its role as hub for business in Central, Eastern
and Southeastern Europe (CESEE). Austria must further improve
inadequate transport links to CESEE neighbors, ease regulatory red
tape for overseas managers and other specialist staff, and promote
language capabilities. The sale of national carrier Austrian
Airlines (AUA) to German Lufthansa in 2009 may signal a lesser role
for Vienna International Airport over the long term. Border
controls between Austria and the Czech Republic, Hungary, Slovakia,
and Slovenia were lifted when the EU’s Schengen area expanded to
those countries in December 2007. Some 340 U.S. companies have
invested in Austria; most have expanded their original investment
over time.

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

Openness to Foreign Investment
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Government attitude towards foreign private investment: Observers
do not expect Austria’s basic policies and openness to foreign
direct investment to change under the current coalition government
between the center-left Social Democratic Party (SPO) and the
center-right People’s Party (OVP) which took office in December 2008
for a five-year term. The coalition program includes commitments to
promote foreign investment and further strengthen Austria’s
attractiveness as a location for investment and headquarters for
international firms. Like the grand coalition itself, Austria’s
government program is broad-based and the government is unlikely to
reverse structural and economic reforms implemented after 1990.
Reforms will continue at a slow pace and with an emphasis on social
policy rather than deregulation, liberalization, or privatization.

The Austrian government profits from extensive structural reforms
implemented in recent years, which helped streamline government,
create a more competitive business environment, and strengthen
Austria’s attractiveness as a location for investment. Austria made
a major policy shift from 2000 to 2006 by pursuing liberal market
reforms, a largely balanced budget, pension reform, privatizations,
reorganizing financial market supervision and competition policy,
and implementing a corporate tax cut in 2005. The reforms improved
the Austrian economy’s long-term growth potential, but Austria
remains in transition from a highly regulated economy with a large
government sector to a flexible social market economy.

In 2007/2008, the reform agenda came to a standstill: with the
prospect of new elections in September 2008, parties engaged in a
spending spree by instituting a thirteenth monthly family allowance
and a higher nursing care allowance, abolishing university student
fees, extending the option of early retirement without cuts in
pension payments, and cutting the VAT on pharmaceuticals from 20% to
10%. These pre-crisis measures bolstered private consumption but
led to a higher budget deficit. Since the onset of the global
crisis, the current government has acted decisively to prevent a
credit crunch, stimulate economic activity, and avert mass
unemployment by implementing large stimulus measures including an
income tax cut, new infrastructure investments, an increase in
public consumption and subsidies, and a large-scale financial sector
rescue package. The most urgent policy challenge, once growth
returns, is to scale back Austria’s budget deficit and its
burgeoning public debt, which will reach 75-80% of GDP by 2011.
Economists concur that the economy will be too weak in 2010 to begin
consolidation, but urge the government to set out soon an austerity
roadmap concentrating on expenditures. Given the scale of Austria’s
deficit, experts say the government will probably also need to
pursue revenue increases. Other important issues the government
must address include: improving the school education system;
streamlining administration; reform of health-care delivery;
sustainability of the pension system; ensuring adequate, affordable
long-term care for Austria’s aging population; and improving R&D
policy. With economic growth rates of no more than 2% until at
least 2014 (according to forecasts), unemployment is likely to
persist at current levels and remain a major economic policy
challenge.

Austria has a low incidence of industrial unrest and has been
virtually strike-free since 2003.

Liberalization and deregulation in the energy and telecom sectors
have lowered business costs. However, remaining barriers to entry
such as over 50% government ownership of providers have resulted in
only limited competition. There are few incentives for customers to
switch from incumbent electricity and gas providers, and pricing is
not completely transparent.

Austria welcomes foreign direct investment that does not have a
negative impact on the environment. Austrian authorities
particularly welcome 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 overall with a heavy
personal income tax burden, but due to a 25% corporate tax rate, it
has become increasingly attractive as a headquarters location.
Because of tax base adjustments, experts estimate the effective
corporate tax burden at no more than 22%. Austria also offers a
highly favorable framework for group taxation, unique in Europe,
which allows business to offset 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 group taxation. Austria’s corporate tax rate and group
taxation rules make it competitive vis-a-vis its EU neighbors.
Austria has no wealth or net worth tax, no trade tax, and no
inheritance and gift taxes (only a reporting requirement).

There are no 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
integrated circuits, 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. In most of these
areas, eligibility for co-financing subsidies under EU regional and
cross-border programs has declined under the EU’s 2007-2013
financial framework from EUR 2 billion to EUR 1.3 billion.

Resistance to investment in the industrial sector may arise from
environmental concerns. Potential U.S. investors need to factor
Austria’s strict environmental laws into their decision-making
process. While import bans have been lifted, Austrian laws make it
impossible in practice to cultivate even EU-approved biotechnology
crops. For new varieties, EU legislation on the release of
genetically modified organisms (GMOs) and on traceability and
labeling requires Austria to allow approved seeds in fields and in
stores. However, strict liability regulations and co-existence
rules apply on research, production, and distribution of
biotechnology crops. Many industries also fall under the
greenhouse-gas Emissions Trading System, part of the EU’s
implementation of the Kyoto Protocol.

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, social factors and health infrastructure, business,
trade, investment and financial freedoms. Austria receives lower
marks for economic growth, tax burden, high cost of living, lack of
risk capital financing, low innovation dynamics, restrictive
immigration laws, size of the public sector, and regulatory red
tape, particularly for starting a business.

The International Institute for Management Development’s (IMD) 2009
World Competitiveness Scoreboard ranks Austria sixteenth, down from
the fourteenth position in 2008. The Swiss Economic Institute’s
(KOF) 2009 Globalization Index, which measures economic, social and
political globalization, ranks Austria number five (by comparison,
the U.S. was thirty-eighth, the UK twenty-seventh, and Germany
twenty-second) The 2009 Index of Economic Freedom of The Heritage
Foundation/Wall Street Journal ranks Austria number twenty-three
worldwide and eleven among the 43 European countries. The World
Bank’s Ease of Doing Business Index 2009 ranks Austria twenty-eighth
(by comparison, the U.S. was fourth). The World Economic Forum’s
(WEF) 2009 Global Competitiveness Index ranks Austria number
seventeen.

2009 Scoreboard Rank

IMD World Competitiveness Scoreboard 16
KOF’s Globalization Index 5
Heritage Foundation Economic Freedom Index 23
World Bank’s Ease of Doing Business Index 28
WEF’s Global Competitiveness Index 17
WEF’S Availability of Latest Technologies Index 13
TI’s Corruption Perception Index 16

Acquisitions, mergers, takeovers, cartels: Austria’s Anti-Trust Act
is in line with European Community anti-trust regulations, which
also apply and take precedence over national regulations in cases
between Austria and other EU member states. 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 limited personnel.

The Austrian Anti-Trust Act prohibits cartels, any competitive
restrictions, and abuse of a dominant market position. Companies
must inform the FCA about mergers and acquisitions (M&A) concerning
domestic enterprises, if combined worldwide sales exceed EUR 300
million ($417 million at the 2009 average exchange rate of $1.00 /
EUR 0.72), domestic sales exceed EUR 30 million ($41.7 million), or
if two of the firms involved each have worldwide sales exceeding EUR
5.0 million ($6.9 million). Special M&A regulations apply to 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.

Austria’s Takeover Law applies to 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 provisions 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. The law prohibits defensive action to
frustrate bids; it has not implemented the EU’s Takeover Directive’s
breakthrough regulations, but allows individual companies to address
these in company bylaws. The Shareholder Exclusion Act 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: After many successful privatizations in previous
years, the government did not privatize any public enterprises in
2007, 2008 or 2009, except Austrian Airlines (AUA), of which it sold
42% to the German Lufthansa (LH) in December 2008. However, the AUA
sale was not a typical privatization, but rather a crisis sale to a
strategic partner for a symbolic price, in order to resolve AUA’s
cash crunch and avert a shutdown; in September 2009, LH took over
100% in AUA. The government program does not identify any public
enterprises for privatization, so no major privatizations are
expected in 2010 or 2011. The larger party in the new coalition
government, the Social Democratic Party, has announced its
opposition to further privatization, including of the federal
railroads and the postal service. Last year the recession and the
situation on stock and capital markets practically ruled out
privatizations, aside from the Austrians increasingly skeptical
attitude toward them. In past privatizations, foreign and domestic
investors received equal treatment. Despite Austrian authorities’
historical preference for having domestic shareholders keep a
blocking minority, foreign investors have successfully gained
control of enterprises in strategic sectors of the Austrian economy,
including telecoms, banking, steel production, power generation and
infrastructure. For example, in 2007, the U.S. investment fund
Cerberus Capital Management bought about 90% of BAWAG P.S.K. Bank,
Austria’s fourth largest banking group, from its previous owner, the
Austrian Trade Union Federation.

Treatment of foreign investors: There is no discrimination against
foreign investors, but they are required to follow numerous
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 those
applying for resident permits to take German courses, but does
exempt applicants for residence permits from the German language
course requirement, if they hold a university degree. The U.S.
Embassy is aware of a U.S. investor who faced unfair bureaucratic
delays and added costs when it attempted to introduce competition to
a market entirely dominated by a large local employer.

Investment incentives: Since 2007, Austria has had 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. Austria Wirtschaftsservice is the government’s
"one-stop shop" institution providing financial incentives. Further
information, in the German language only, is available from
http://www.awsg.at/portal/.

Conversion and Transfer Policies
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Austria has 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
fifteen other Euro-zone member countries, shields investors from
exchange rate risks within the Euro-zone.

Expropriation and Compensation
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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 in the absence of any other alternative to
satisfy the public interest; 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
toward foreign firms.

Dispute Settlement
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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.

Performance Requirements/Incentives
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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. 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 eased the integration policy requiring
immigrants to attain a minimum level of competence in the German
language. Under the amendment, previous education (university
degree) automatically fulfills the integration requirement. Over
the years, immigration quotas have remained static at approximately
8,000 per year. The annual quota for 2010 has been set at 8,145.

Right to Private Ownership and Establishment
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Foreign and domestic private enterprises are free to establish,
acquire, and dispose of interests in business enterprises, except
for in some infrastructure and utilities, and in a few state
monopolies, such as gambling. However, through privatizations, the
government 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; and liberalized
the electricity and gas markets. In 2006, in line with EU
regulations, the government privatized 49% of its postal company.
However, by law, federal and state 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.
Entrenched political interests may make it more difficult to
challenge quasi-monopolies in some sectors where they still exist.
However, U.S. investors have had success in this regard, especially
when they have used local partners and contacted the U.S. Embassy at
an early stage.

Protection of Property Rights
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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. 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. Recent amendments to the Austrian Patent Act
brought about more efficient and transparent implementation
possibilities, and, in 2010, swifter procedures for holders of
rights of registered brands against alleged breaches by newcomers.

The Austrian Copyright Act 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 law also regulates copyrights
of digital media (restrictions to private copies), works on the
Internet, protection of computer programs, and related damage
compensation. In line with EU requirements, Austria also has a law
against trade in counterfeits. The Austria film and music industry
lobby groups complain regularly about high rates of piracy in their
fields. In 2008, Austrian customs authorities confiscated pirated
goods worth EUR 83 million ($115.3 million), a six fold increase
compared to 2007, mainly due to confiscated jewelry, apparel and
pharmaceuticals.

Transparency of the Regulatory System
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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 government has made progress in streamlining its complex and
cumbersome permit and paperwork requirements for business licenses
and permits. It maintains to have reduced the time necessary to
obtain permits to less than three months, except for large projects
requiring an environmental impact assessment. The "one-stop shop"
for a business permit does not include plant and building permits;
simplified procedures should accelerate permit procedures, but
unpredictable and inflexible bureaucratic rules can still be a
problem. The government will continue plans to reduce the
administrative cost burden for companies by streamlining regulations
and data collection/ information requirements.

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.

Efficient Capital Markets and Portfolio Investment
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Austria has modern and sophisticated financial arkets. All
financial instruments are available Foreign investors have access
to the Austrian arket without restrictions. Austria has a highlydeveloped banking system with worldwide correspondnt banks, and
representative offices and branche in the United States an other
major financial enters. Large Austrian banks also have a huge
ntwork in ten of the twelve new EU members (except Mlta and
Cyprus) and nine other countries in Cental, Eastern, and
Southeastern Europe (CESEE) andthe former Soviet Union (FSU) and
operate 68 fuly consolidated subsidiaries in CESEE/FSU. Six out of
the seven largest Austrian banks hold sizeable investments in
CESEE/FSU; three of them are among the five largest banking groups
in the area. Austrian banks have a 15% share of the entire
CESEE/FSU banking market (21.9% excluding Russia). Of Austrian bank
assets in CESEE, 75% are in EU member states (countries unlikely to
default outright), very little of that portion is in the
crisis-stricken Baltics.

Total assets of Austria’s five largest banking groups (Bank Austria,
Erste Bank, Raiffeisen Zentralbank, BAWAG/Bank fuer Arbeit und
Wirtschaft und Oesterreichische Postsparkasse, and Oesterreichische
Volksbanken) amounted to about EUR 655 billion ($910 billion) in
2009, representing 62% of Austria’s total bank assets.

The subprime crisis has had limited impact on Austrian banks, but
they suffered indirectly from the worldwide financial crisis through
higher refinancing costs and credit scarcity, and later, due to
their strong CESEE/FSU focus, from huge loan losses and write-offs
in the area. The government’s EUR 100 billion ($139 billion)
financial sector rescue package of October 2008, comprising EUR 15
billion ($21 billion) for equity injections into banks and insurance
companies and EUR 85 billion ($118 billion) to guarantee interbank
lending, helped banks to recapitalize, to maintain interbank lending
and prevent a credit crunch. Most Austrian banks active in
CESEE/FSU will continue to suffer loan losses in the region — but
have performed better than expected in 2009 and continue to make
profits, have ramped up loan loss provisions, are taking advantage
of government state aid, and appear sufficiently capitalized.
Austrian banks view the situation in CESEE/FSU as difficult but
manageable and all have made a strong commitment to remain in those
growing markets. New stress test results for Austrian banks show
that major banks could withstand even the highly adverse scenario of
a "double-dip" recession; major banks’ capital ratios would stay
above the legal minimum, but in the medium-term they will need
additional capital. In any case, all Austrian banks active in
CESEE/FSU are "system-relevant" in Austria — "too big to fail" —
so the Austrian government will not willingly allow them to
collapse.

In past years, Austria has seen a number of financial sector
scandals, which peaked in the government’s nationalization of
Kommunalkredit bank in late 2008 and Hypo Alpe Adria banking group
in December 2009 to avoid their collapse. These failures may have
been triggered by the financial crisis, but primarily they reflect
gross mismanagement, including alleged criminal activities. These
demonstrate problems and inefficiencies in the Austrian bank
supervision system, and in particular a too intimate relationship
between the banking sector and politics. The effectiveness of the
reorganization of Austria’s bank supervision system in 2008 (by
instituting a strong dual-oversight system with bank supervisory
roles for both the Austrian National Bank and the FMA) cannot yet be
evaluated.

After a disastrous 2008 and a 61.5% drop in the Austrian Traded
Index (ATX — which represents blue chips with the largest market
capitalization and highest liquidity), the Vienna Stock Exchange
(VSE) rebounded in 2009 and outperformed many larger exchanges. At
year-end 2009, the ATX stood at 2,496 — 42.5% higher than a year
before; market capitalization of listed domestic shares was up
almost 50% from year-end 2008 at EUR 80 billion ($ 111 billion or
about 29% of GDP), but still well below the 2007 level.

The Vienna Stock Exchange (VSE) uses Xetra (Deutsche Boerse’s
electronic trading system) for trading securities, so traders
worldwide have on-screen information and direct access to all stocks
listed in Vienna. Listed companies must publish quarterly reports.
The VSE operates regulated markets (the Official Market and the
Second Regulated Market) and Multilateral Trading Systems (MTF)
pursuant to the EU’s Markets in Financial Instruments Directive
(MiFID), which differentiates between regulated markets and MTFs.
Companies and investors should be aware that the operation of MTFs
is not part of exchange trading. Therefore, the requirements of the
Stock Exchange Act regarding financial instruments admitted to
trading in a regulated market (especially obligations imposed on
issuers) do not apply to financial instruments traded on an MTF.
However, the VSE’s Third Market Rules and the provisions of the
Securities Supervision Act apply.

As of January 14, 2010, the stock exchanges of Budapest, Ljubljana,
Prague, and Vienna are subsidiaries under a CEESEG AG holding
company. Currently, CEESEG accounts for about half of total market
capitalization and some two-thirds of all equity trading volumes in
CESEE, making it the largest stock exchange group in the region; a
total of 264 companies are listed. The VSE has signed MoUs or
cooperation agreements with stock exchanges in Bosnia-Herzegovina,
Bulgaria, China, Croatia, Dubai, Japan, Kazakhstan, Macedonia,
Montenegro, Romania, Serbia, Slovakia, and Ukraine. The VSE
publishes a Southeast Europe Traded Index (SETX) and a number of
county-specific CEE/SEE indices, including for Russia.

Criminal penalties apply to insider trading, money laundering and
terrorist financing. 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
for supervising banks, insurance companies, securities markets, and
pension funds.

Austria’s venture capital market is small and remains
underdeveloped. After strong growth in 2005-2007, the market
weakened again in 2008. Market development considerably lags behind
that of the European venture capital market. The volume of private
equity and venture capital raised in Austria during 1997-2008 was
EUR 2.4 billion ($3.3 billion), according to the Austrian Private
Equity and Venture Capital Organization (AVCO). After a 30%
increase in 2006 and one of 58% in 2007, fund raising dropped 47% in
2008 to EUR 230 million ($320 million). The bulk of the money
invested is used for buy-outs (almost 70%) and expansion projects,
only a small portion (5%) for start-ups and seed financing.

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. In line with pertinent EU
regulations, listed companies must prepare their consolidated
financial statements according to the IAS/IFRS (International
Financial Reporting Standards). Further, for firms with annual
sales exceeding EUR 400,000 ($556,000), the Austrian Enterprise Code
includes detailed accounting regulations. A Corporate Governance
Code, in effect since 2006, was amended and updated effective
January 1, 2010. Since June 2008, the Commercial Code stipulates a
legal requirement for listed companies to attach a corporate
governance report to their annual statement.

Competition from State Owned Enterprises
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Private enterprises in Austria are allowed to compete with public
enterprises under the same terms and conditions with respect to
access to markets, credit, and other business operations, such as
licenses and supplies. After many successful privatizations in
previous years, public enterprises are mainly active in the area of
state monopolies (e.g., gambling), utilities, hospitals, social
insurance, and related sectors. In many of these sectors (e.g.,
hospitals, utilities) private companies are competing successfully;
however, public enterprises sometimes use their influence and
political connections to prolong dispute resolutions and appeal
procedures and to delay implementation of remedies, which in some
markets can lead to significant uncertainties.

Since many public enterprises are outsourced and organized as
corporations, senior management usually does not report directly to
a minister but to a board. However, the government appoints
management and board members, who are usually
politically-affiliated.

Austria does not have a sovereign wealth fund.

Corporate Social Responsibility
- - - - - - - - - - - - - - - -
In past years, general awareness of corporate social
responsibility (CSR) among both producers and consumers has risen.
Major Austrian companies follow generally accepted CSR principles
and publish a CSR chapter in their annual reports, many also provide
information on their health, safety, security and environmental
activities. CSR Europe (the leading European business network for
CSR) has a local partner organization respACT (short for
"responsible action"), founded in 2005 to promote CSR and
sustainable development in Austria.

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

Corruption
- - - - -
Austria has ratified the United Nations Convention against
Corruption (UNCAC), the OECD Anti-Bribery Convention, the Council of
Europe’s Civil Law Convention on Corruption and signed, but not yet
ratified, the Criminal Law Convention on Corruption; it joined the
Group of States against Corruption (GRECO) within the Council of
Europe in 2006. In 2008, the Austrian government tightened the
Criminal Code’s corruption regulations and established a special
central public prosecution department with Austrian-wide authority
for corruption cases. In September 2009, the government amended and
defined more precisely its criminal regulations against corruption
(to alleviate some measures viewed as too strict), one reason why
Transparency International’s 2009 Corruption Perceptions Index
ranked Austria 16th in non-corruption, down from number 12 in 2008
(by comparison Germany was 14th and the U.S. 19th). Criminal Code
regulations cover managers of Austrian public enterprises, civil
servants and other officials (holding those with functions in
legislation, administration or justice on behalf of Austria, in a
foreign country or an international organization), and
representatives of companies. The term "corruption" includes
bribery and illicit intervention; abuse of office; and accepting an
advantage by public officials, senior executives of a public
enterprise and experts; it could also include a private manager’s
fraud, embezzlement, breach of trust, or accepting consideration.
Criminal penalties for all cases of corruption include imprisonment
of up to several years for all parties involved. Criminal Code
legislation prohibiting tax deductibility for bribes has been in
place since 1998. A separate law, the Law on Responsibility of
Associations, deals with 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 this law can
rise to as much as 180 daily rates, with one daily rate equal to
one-360th of yearly income, but not less than EUR 50 ($69.5) and not
more than EUR 10,000 ($13,900).

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, Namibia 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 and Zimbabwe,
but the agreements are still pending ratification by those countries
and have not yet entered into effect. An agreement with Tajikistan
has been initialed, and agreements with Bahrain and Turkmenistan are
ready for initialing. An agreement with North Korea was initialed
in 2001, but has not been signed. 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. In September 2009,
Austria enacted new procedures for handling foreign tax information
requests (limiting bank secrecy in those cases), but the new law is
not yet applicable to the U.S.-Austria tax agreements.

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 4.3 million, of whom 3.7 million are employees and
600,000 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 8-10% of the
salaried workforce. In 2009, the number of guest workers,
predominantly from the former Yugoslavia and Turkey, averaged
430,000. As part of the 2004 EU enlargement, Austria adopted a
7-year transition period vis-a-vis eight of the ten new EU members
(except Cyprus and Malta) before fully allowing free movement of
labor. In May 2009, the EU Commission approved the Austrian
government’s plans to extend the restrictions for a final two years,
i.e., until May 2011. For Bulgaria and Romania, which joined the EU
on January 1, 2007, Austria adopted the same 7-year transition
period, which the government plans to maintain until 2014 despite
appeals by Austrian employers.

Compared to other EU countries, Austria had a relatively low
unemployment rate of 5.0% in 2009. After record employment in 2008
and an unemployment rate of 3.8%, the recession in 2009 had a severe
impact on the labor market. The 2010/11 forecasts call for an
unemployment rate of about 5.5, the projected economic growth of
only around 1.5% in both years will be insufficient to prevent
unemployment rising. As long as the economy does not grow again by
around 2% or more, labor demand will not increase. For this reason,
analysts expect no labor market shortages in the medium term. Also,
while demographic trends indicate little growth in the labor force
over the next few years, factors such as industrial restructuring,
productivity gains, increased participation of women and older
employees in the workforce and efforts to reduce civil service
employment will help guarantee sufficient labor supply. Over the
longer term, additional immigration, including from EU member
states, will be necessary to balance the impact of low birth rates
on the overall labor supply. Long-term population estimates
indicate a slight increase in the working age population (15-60
years) to 5.27 million by 2015, up from 5.18 million in 2007, but
then a decline to 5.20 in 2020 and further to 4.93 million in 2030,
indicating a need for additional immigration.

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, may occur. An issue to watch is the
growing number of low-qualified school leavers — 10% of those
leaving school have only lower secondary education, 20% of the
15-year olds show low reading literacy performance. Figures for
2008 show that Austria has exceeded the EU goals for 2010 of a labor
market participation rate of 70% (now 72.1%) and for women of 60%
(now 65.8%). Austria, however, has not yet reached the 50% goal for
workers aged 55-64 (41.0%). Companies hiring workers age 50 and
above are eligible for financial bonuses, and face penalties for
laying off workers within this age group.

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 an option for parents with children under the age of
seven to choose part-time work for several years. The latter
regulation only applies to parents working for companies with at
least 20 employees. The severance pay system aims to enhance worker
flexibility by providing employees the right to carry their accrued
entitlements with them to subsequent jobs. Ongoing issues, which
could seriously affect the social insurance system, are an
increasing deficit of the health insurance system, the immense
shortage of nursing personnel to care for the fast growing number of
elderly, and the lack of funding for available nursing personnel,
which could eventually lead to a rise in social insurance
contributions.
Since World War II, labor-management relations have generally been
harmonious in Austria, as reflected in extremely low strike figures
in past decades. No major work stoppages have occurred since 2005.
About 35% of the work force belongs to a union. The difficult
economic period ahead is likely to raise again the unions’
importance and help sharpen their profile, while it will probably
temper short-term wage and benefit demands.

Collective bargaining revolves mainly around wage adjustments and
fringe benefits. About 80% of the labor force worked under a
collective bargaining agreement. All collective bargaining
agreements meanwhile provide for a minimum wage of EUR 1,000 per
month. Existing legal provisions stipulate a maximum workweek of 40
hours, but collective agreements also provide for a workweek of 38
or 38.5 hours per week for more than half of all employees.
Flexible work hour regulations, in place since 2008, allow firms to
increase the maximum regular time hours from 40 to 50 per week. In
special cases and including overtime, work hours can be raised up to
60 hours per week for a maximum of 24 weeks annually. However,
these 24 weeks can only be in 8-week segments, with at least two
weeks break between each 8-week slot. Responsibility for agreements
on flextime or 4-day work weeks lies on the company level. Part
time employment is high in Austria: 39% of female workers and 4% of
male workers have part time jobs. On average, Austrian employees
are absent 12 days annually for sickness.

Foreign Trade Zones/Free Ports
- - - - - - - - - - - - - - -
Austria has no foreign trade zones.

Foreign Direct Investment Statistics
- - - - - - - - - - - - - - - - - -
The net inflow of new foreign direct investment (FDI) in 2008
reached EUR 9.5 billion ($13.2 billion). This was only about half
of the EUR 22.8 billion ($31.6 billion) in 2007, a figure which was,
however, inflated by the takeover of Bank Austria, Austria’s largest
bank, by the Italian UniCredit from its former owner Bayerische
Hypovereinsbank (HVB), which likewise also inflated the 2008 FDI
outflow figure. New FDI in the first three quarters of 2009
amounted to EUR 5.4 billion ($7.4 billion). The value of FDI stock
in Austria was about EUR 117.6 billion ($163.4 billion) at the end
of 2008 and an estimated EUR 122.9 billion ($170.9 billion) by
end-September 2009.

In 2008, U.S. investment accounted for about 7% of total FDI in
Austria. This represented a decline from 9.1% of total FDI in
Austria in 2007. The decline in U.S. FDI from 2007 was primarily
due to the takeover of GE Money Bank by the Spanish Bank Santander.

At EUR 20.0 billion ($27.8 billion), the flow of Austrian direct
investment abroad in 2008 was about 30% below the 2007 record (in
part due to the sale of Bank Austria, see above). More than half of
the amount was invested in CESEE countries. In the first three
quarters 2009, FDI abroad was only EUR 2.8 billion ($3.9 billion).
This raised the value of Austrian direct investment stock abroad to
about EUR 122.6 billion ($170.4 billion) at the end of 2008 and an
estimated EUR 125.4 billion ($174.3 billion) by end-September 2009.

Note: Figures converted at the 2009 annual average exchange rate of
$1.00 for EUR 0.72.
Source: Austrian National Bank.

Austria’s International Investment Position (EUR billion)

Year 2007 2008 (1) 2009 (2)
- - - - - - - - - - - - - - - - - - - - - - - - - -
FDI in Austria 108.1 117.6 122.9
Austrian FDI Abroad 102.6 122.6 125.4

Footnotes:
(1) preliminary figures;
(2) first three quarters, preliminary figures.

FDI in Austria - Source Country Breakdown 2008
(share of total in percent)
- - - - - - - - - - - - - - - - - - - - - - -
U.S. 7.0
Germany 25.8
Italy 23.0
Netherlands 7.2
U.K. 5.4
Switzerland/Liechtenstein 5.2
Gulf States 4.2
Japan 4.1
All other countries 18.1

Austrian FDI Abroad - Destination Country
Breakdown 2008(share of total in percent)
- - - - - - - - - - - - - - - - - - - - -
U.S. 2.8
Germany 13.9
Hungary 7.3
Czech Republic 7.1
Croatia 6.2
Romania 5.5
Ukraine 4.8
Switzerland/Liechtenstein 4.6
Russia 4.2
Netherlands 4.1
U.K. 3.7
Slovakia 3.6
Poland 3.0
Italy 3.0
Bulgaria 3.0
All other countries 23.2

List of Major Foreign Investors:
- - - - - - - - - - - - - - - -
More than 340 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
Eaton Corp.
Electronic Data Systems Corp.
ExxonMobil 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
One Equity Partners
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.
UGI Corporation
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
Axel Springer Verlag, Germany
Banco Santander, Spain
BASF, Germany
Bayer AG, Germany
Bayerische Motorenwerke (BMW), Germany
Bombardier, Canada
Bosch Robert AG, Germany
Borealis, Denmark
BP Amoco, UK
Criteria CaixaCorp., Spain
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
Fomento de Construcctiones & Contratas, Spain
Heineken, Netherlands
H&M, Netherlands
Infineon, Netherlands
Japan Tobacco, Japan
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
RENO, Germany
REWE, Germany
RWE, Germany
Sanfoi-Aventis, France
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
Unibail-Rodamco, France-Netherlands
UniCredit Group, Italy
Unilever N.V., Netherlands
Voith, Germany
Westdeutsche Allgemeine Zeitung (WAZ), Germany
Xi’an Aircraft Industry (Group) Company Ltd., China

EACHO