This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 13 VIENNA 000138 
 
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 AU OPIC USTR
SUBJECT: 2005 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA 
 
REF:  04 STATE 250356 
 
¶1.  Following is 2005 Investment Climate Statement for 
Austria, keyed to reftel instructions: 
 
Investment Climate Statement - Austria 2005 
------------------------------------------- 
 
Introduction 
------------ 
 
With the European Union's (EU) enlargement in May 2004, 
Austria's location became central in the EU.  As an 
investment location, Austria, and Vienna in particular, 
faces growing competition from its Eastern neighbors, all 
of which are now EU members.  Budapest, Prague and 
Bratislava are competing directly with Vienna for foreign 
investors.  Many have pointed out that direct 
transportation links among Austria's Eastern neighbors 
are in some places better then those running through 
Austria.  The Austrian Government has long-term plans to 
address these infrastructure gaps.  However, many view 
the current state of transport links as a missed 
opportunity.  The government's 2005 corporate tax cut is 
a major step towards remaining competitive vis--vis 
Austria's new EU neighbors.   Some 360 U.S. companies 
have invested in Austria and most have expanded their 
original investment over time. 
 
Austria continues to offer some advantages, but also some 
challenges to foreign investors.  We have sought to 
describe both below in candid terms for the benefit of 
potential investors. 
 
 
A.1.  Openness to Foreign Investment 
------------------------------------ 
 
Government attitude toward foreign private investment: 
--------------------------------------------- --------- 
 
The second Schuessel government -- a coalition between 
the Austrian People's Party (OVP) and the Freedom Party 
(FPO) in office since February 2003 -- has continued the 
comprehensive economic reform program Schuessel had begun 
in 2000.  The government's aim is to streamline 
government, create a more competitive business 
environment, and further strengthen Austria's 
attractiveness as a location for investment.  According 
to many observers, in comparison to other EU member 
states, Austria has made a major policy shift in recent 
years by pursuing a balanced budget, pension and health 
care system reform; creating financial market supervision 
and competition policy bodies; and implementing a 
corporate tax cut in 2005.  The policy shift addressed 
long-standing imbalances and should improve the Austrian 
economy's long-term growth potential.  Structural 
reforms, which the economy still needs, include 
downsizing the public sector, simplifying and 
streamlining the social welfare system, raising the labor 
participation rate, and introducing more flexible work 
hours.  Budget consolidation will remain a goal in 
accordance with the EMU's Stability and Growth Pact. 
However, balancing the consolidated public sector budget 
is now a medium-term goal over the economic cycle.  The 
government continues privatizations. 
 
Austria has been virtually a strike-free country. 
However, in 2003 Austria experienced two large strikes in 
response to government pension and railroad reform 
initiatives.  Most observers characterized these strikes 
as political actions against the government rather than 
management-labor disputes, and noted that they had 
limited and only transitory economic impact.  Austria has 
remained virtually strike-free since 2003, despite 
continued implementation of the government's reform 
agenda, including contentious issues such as 
harmonization of different pension systems. 
 
Liberalization and deregulation in the energy and telecom 
sectors have lowered prices to business users.  However, 
continued barriers to entry and to competition have 
resulted in only partial liberalization.  Charges in some 
areas, such as electrical network tariffs, have remained 
above average, according to the International Energy 
Agency. 
 
Austria welcomes all foreign direct investment that does 
not have a negative impact on the environment, 
particularly those investments that create new jobs in 
high technology, promote capital-intensive industries, 
are linked with research activities, improve 
productivity, replace imports, and increase exports. 
Austria is a high-tax country, but is becoming 
increasingly attractive for companies and headquarters. 
Since 2002, special tax incentives for industrial 
research are available to stimulate research-based 
investment.  A major tax cut, effective January 1, 2005, 
reduces the corporate tax rate to 25% from 34%.  Because 
of tax base adjustments, experts estimated the effective 
corporate tax burden at 22%.  At the same time, a highly 
favorable new provision for group taxation, unique in 
Europe, allows offsetting profits and losses of group 
operations (requiring direct or indirect participation of 
more than 50%, but no other financial, economic or 
organizational integration) in Austria and abroad.  This 
new group taxation system should offer interesting 
opportunities for U.S. investors, in particular joint- 
venture structures, M&A transactions, headquarter 
companies and simple holding companies without active 
business, which can also participate in the tax group. 
The corporate tax cut and group taxation aim to keep 
Austria competitive vis--vis the neighboring new EU 
members with their low corporate tax rates. 
 
The Austrian Government assesses the business profits of 
non-corporations at half the income tax rate to which 
they would be subject based on the income alone.  Austria 
has no wealth or net worth tax, and no trade tax 
(Gewerbesteuer), unlike neighboring Germany.  As a result 
of the 2005 corporate and income tax cuts, Austria's 
share of total tax and social payments should decline 
from 44.1% of GDP in 2002 (sixth among OECD members in 
total tax and social payments) to 41.6% in 2005.  The 
government's goal is to reduce the share of taxes in GDP 
further to 40% by 2010, which will require substantial 
additional cuts in budget expenditures. 
 
In some regions, Austria also 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. 
Observers do not expect Austria's basic policies toward 
foreign direct investment to change in coming years.  A 
large number of foreign firms, including some 360 U.S. 
companies, have invested in Austria and most have 
expanded their original investment over time. 
 
There are no formal sectoral or geographic restrictions 
on foreign investment.  Austria offers financial and tax 
incentives within EU parameters to firms undertaking 
projects in economically depressed areas and 
underdeveloped districts on Austria's eastern and 
southern borders.  Until the end of 2006, some of these 
areas are still eligible for subsidies under EU regional 
and cross-border programs.  Most of these subsidies have 
already been allocated.  The only instances of local 
opposition to investment in the manufacturing sector have 
arisen out of environmental concerns. 
 
Potential U.S. investors need to factor Austria's strict 
environmental laws into their decision-making process. 
Austria has imposed marketing bans on some agricultural 
biotechnology seeds despite existing EU approvals.  The 
European Commission has not yet taken steps to overturn 
the bans, despite the fact that the EU's Scientific 
Committee has found no justification for the bans and the 
EU Moratorium on new approvals has ended.  For future 
varieties, new EU legislation on the deliberate release 
of genetically modified organisms and on traceability and 
labeling requires Austria to allow GMO seeds on the 
fields and foods in the stores.  However, strict 
liability regulations for research, production, and 
distribution of GMOs still apply.  U.S. investors 
considering production facilities emitting CO2 in Austria 
will have to take into consideration Austria's commitment 
to cut its CO2 emissions by 13% from the 1990 level 
according to the Kyoto Protocol (1997).  They will also 
have to scrutinize Austria's national implementation of 
the EU's regulatory framework on greenhouse gas emissions 
and trading, which enters into force in 2005. 
 
In investor surveys and international rankings, Austria 
consistently earns high marks for personal security, 
quality of life, rule of law, skill and motivation of 
labor, health infrastructure, and mobile phone costs. 
However, Austria receives low marks for the tax burden, 
rigid labor practices, patent registration, relative lack 
of risk capital financing, restrictive immigration laws, 
the size of the public sector, and regulatory red tape. 
With its 2005 corporate tax cut, the government has 
addressed one major investment disincentive.  Surveys 
show that Austria faces stiffer competition from Central 
and Eastern European (CEE) markets, as well as from the 
ten new EU members, particularly the four that border 
Austria.  This competition is especially noticeable in 
sectors where wage costs are decisive. 
Acquisitions, mergers, takeovers, cartels: 
------------------------------------------ 
The independent Federal Competition Authority (FCA) and a 
federal public cartel prosecutor are responsible for 
administering the anti-trust law.  In past years, the FCA 
has not been particularly pro-active, reportedly due to a 
shortage of personnel. 
International acquisitions and takeovers of domestic 
enterprises are permitted in Austria. International 
cartels are not prohibited, but are subject to oversight 
by the cartel court to prevent the abuse of market power. 
Cartel court consent requires that the applicant refrain 
from market behavior that would limit or impede 
competition.  Selling below cost is considered one 
possible abuse of a dominant market position.  The cartel 
court must be notified of mergers and acquisitions if 
combined worldwide sales are in excess of Euro 300 
million (USD 375 million at the current exchange rate of 
USD 1.00 to Euro 0.80), if domestic sales exceed Euro 15 
million (USD 18.8 million), or if two of the firms 
involved each have worldwide sales exceeding Euro 2.0 
million (USD 2.5 million).  Anti-trust regulations do not 
provide for the dissolution of previously completed and 
approved mergers.  An independent energy regulatory 
authority separately examines antitrust concerns in the 
energy sector.  However, it did not raise objections to a 
2002 alliance between the two largest Austrian 
electricity providers, which captured two-thirds of the 
market. 
 
The 1999 takeover law applies to both friendly and 
unsolicited takeovers of corporations headquartered in 
Austria and listed on the Vienna Stock Exchange.  It 
protects investors against unfair practices, since any 
shareholder obtaining a controlling stake in a 
corporation (30% or more of all shares) must offer to buy 
out smaller shareholders at a defined "fair market" 
price.  An independent takeover commission at the Vienna 
Stock Exchange oversees compliance. 
 
Screening mechanisms: 
--------------------- 
 
Only those foreign investments with Austrian government 
financial assistance are subject to government overview. 
Screening is intended only to ensure compliance with EU 
regulations, which limit such assistance to disadvantaged 
geographic areas. 
 
Privatization: 
-------------- 
In the ongoing privatization of public enterprises, 
foreign and domestic investors receive equal treatment, 
in principle.  In line with its privatization initiative, 
the previous government sold 100% of its shares in the 
Postal Savings Bank, the Dorotheum Auction House and 
Bank, and the Print Media printing concern.  It also 
divested its remaining 41.1% share of the Austrian 
Tobacco Company, a 17.4% stake in the Vienna airport 
company, and a majority of shares in Telekom Austria 
(TA).  In 2003, the second Schuessel government sold its 
34.7% stake in Voest-Alpine (VA) steel, a leading 
European steel producer, and its 25% shareholding in 
Boehler Uddeholm, an important tool and specialty steel 
manufacturer.  In December 2004, the government sold 
another 17% in TA to national and international 
institutional investors.  In January 2005, the government 
sold a 14.7% share in VA Tech, a metallurgy, power 
generation and infrastructure conglomerate, to Siemens. 
Siemens already held a 16.5% share and has made a public 
takeover bid.  The government's further near-term 
privatization plans include selling off the remaining 
30.2% shareholding in TA and a minority share in the 
Postal company. 
 
The Austrian Government has expressed a preference for 
"Austrian solutions" in many sectors, promoting an 
Austrian core shareholding through syndicates, including 
banks, insurance companies, pension funds and industrial 
enterprises.  However, foreign investors have been 
successful in obtaining shares in important Austrian 
industry sectors, including the telecom sector, in 
Austria's largest bank, Bank Austria, the Austrian 
Tobacco Company, and VA Tech. 
 
Treatment of foreign investors: 
------------------------------- 
 
There is no discrimination against foreign investors, but 
they are required to follow a number of regulations. 
Although there is no requirement for participation by 
Austrian citizens in ownership or management, at least 
one manager must meet residence and other legal 
requirements.  Non-residents must appoint a 
representative in Austria.  Expatriates are allowed to 
deduct certain expenses (costs associated with moving, 
maintaining a double residence, education of children) 
from Austrian-earned income.  A 2003 amendment of the 
Austrian immigration law requires permanent legal 
residents to take German language and civics courses. 
Foreign executives and their dependents (who are 
technically in one of the affected visa categories) are 
exempt. 
 
Investment incentives: 
---------------------- 
 
Until 2006, 41% of Austria's land area is eligible for 
support under various EU structural fund programs.  The 
Austrian federal, provincial, and local governments also 
provide financial incentives within EU guidelines to 
promote investments in Austria.  Incentives under these 
programs are equally available to domestic and foreign 
investors, and range from tax incentives to preferential 
loans, guarantees and grants.  Most of these incentives 
are available only if the planned investment meets 
specified criteria (e.g., implementation of new 
technology, reducing unemployment, etc.).  Tax allowances 
for advanced employee training and R&D expenditures are 
available.  The government has merged various 
institutions providing financial incentives into a "one- 
stop shop" named the Austria Wirtschaftsservice (further 
information, in German language only, is available under 
http://www.awsg.at and http://www.foerderportal.at). 
 
 
A.2.  Conversion and Transfer Policies 
-------------------------------------- 
 
There are no restrictions on converting or transferring 
funds associated with foreign investment.  In Austria, 
all cross-border capital transactions for non-residents 
and residents, including the acquisition of Austrian 
securities, debt service, and the repatriation of 
profits, interest payments, dividends, and proceeds from 
the sale of an investment are fully liberalized. 
 
The Euro, a freely convertible currency, is the only 
legal tender in Austria.  Use of the Euro shields 
investors from any exchange rate risk in the entire Euro- 
area, where the Euro is legal tender.  The eleven other 
member countries of the European Monetary Union (EMU) 
are:  Belgium, Finland, France, Germany, Greece, Ireland, 
Italy, Luxembourg, Netherlands, Portugal, and Spain. 
 
The European Central Bank (ECB) is responsible for 
setting monetary policy in the EMU area.  The ECB's 
primary goal in defining monetary policy is to maintain 
price stability.  The Austrian National Bank has one seat 
and one vote on the ECB's Governing Council. 
 
 
A.3.  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 instigate 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. 
 
 
A.4.  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 New York Convention of 1958 also grants 
enforcement of foreign arbitration awards in Austria. 
There have been no recent reports of bilateral investment 
disputes. 
 
 
A.5.  Performance Requirements/Incentives 
----------------------------------------- 
 
Austria is in compliance with the World Trade 
Organization 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, that the share of foreign 
equity is reduced over time, or that there be a 
technology transfer. 
 
The U.S. and Austria are signatories to a 1931 Treaty of 
Friendship, Commerce, and Consular Rights.  The Austrian 
Immigration Law restricts the overall number of visas, 
but a few non-immigrant business visa classifications, 
including intra-company transferees/rotational workers 
and employees on temporary duty, are eligible for visas 
with no numerical limitations.  Recruitment of long-term 
overseas specialists or those with managerial duties is 
under quota controls.  The 2002 Amendment of the Austrian 
Immigration Law more clearly defined employment-based 
immigrants as multinational executives/managers or 
similar professionals who are self-employed, and 
streamlined procedures for obtaining visas and work 
authorization.  The 2002 integration policy requiring 
immigrants to attain a certain minimum level of 
competence in the German language will not affect 
executives and their dependents.  The 2002 Immigration 
Amendment was intended to address problems reported by 
U.S. and other investors with availability of visas and 
temporary work permits for non-managerial staff for 
training in Vienna, by creating a category of temporary 
trainee visas in the case of joint ventures.  Annual 
immigration quotas for 2005 are to be cut from 8,050 to 
7,500.  These cuts are supposed to come largely at the 
expense of executives or managers, a visa category that 
is apparently undersubscribed. 
 
 
A.6.  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 railroad 
infrastructure, some utilities, and a few state 
monopolies, such as gambling.  As the government 
continues to pursue privatization, it is gradually 
opening up some of these industries to private investment 
as well.  For example, the Austrian Government 
implemented legal changes in 1997 and 2001 to allow 
private radio and private terrestrial TV under a limited 
number of licenses.  The government dismantled the postal 
monopoly for wire-transmitted voice telephony and 
infrastructure in 1998.  The Austrian electricity market 
was partially liberalized in February 1999 for bulk 
purchasers and in October 2001 for consumers.  The 
Austrian gas market was fully liberalized in October 
¶2002.  However, by law, federal and provincial 
governments maintain at least 51% majority shares in all 
electricity providers.  In line with EU regulations, the 
government is working to liberalize the postal letter 
mail monopoly.  The ambitious privatization program of 
the Austrian Government foresees full or partial 
privatization of many important Austrian companies.  In 
most business activities, the law permits 100% foreign 
ownership.  Foreign direct investment is restricted only 
when competing with monopolies and utilities.  License 
requirements, such as in the banking and insurance 
sectors, apply equally to domestic and foreign investors. 
The latter, however, is dependent on reciprocity. 
Specific regulations on requirements for joint ventures 
do not exist. 
 
A.7.  Protection of Property Rights 
----------------------------------- 
The Austrian legal system protects secured interests in 
property, both movable and real.  Mortgages are 
recognized, if they are registered in the land register 
and the underlying contracts are valid.  The law 
recognizes mortgages, if they are registered in the land 
register and the underlying contracts are valid.  The 
land register provides a reliable system for recording 
interests in property.  For any real estate agreement to 
be effective, the agreement must be entered with the land 
register.  This requires approval of the land transfer 
commission or the office of the provincial governor.  Any 
interested party has access to the land register. 
 
Austria has effective laws to protect intellectual 
property rights, including patent and trademark laws; a 
law protecting industrial designs and models; and a 
copyright law.  Legislation also protects three- 
dimensional semiconductor chip layout design.  In line 
with EU requirements, Austria has a law against product 
piracy to prevent trade in counterfeits.  Austria is one 
of a number of EU member states that have yet to 
implement the EU Directive on Legal Protection of Biotech 
Inventions.  The Austrian Government plans to transpose 
the EU Directive into national law in 2005.  The 
Biotechnology Industry Organization (BIO) had requested 
the United States Government place Austria on the Special 
301 Watch List.  Several U.S. pharmaceutical companies 
have also reported problems obtaining timely remedy in 
Austrian courts in defending process-based patents 
against generic competitors. 
 
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 Madrid Trademark 
Agreement, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms for the 
Purpose of Patent Procedure, the Universal Copyright 
Convention, the Brussels Convention Relating to the 
Distribution of Program-Carrying Signals Transmitted by 
Satellite, and the Geneva Treaty on the International 
Registration of Audiovisual Works.  In compliance with 
the World Trade Organization Treaty on Intellectual 
Property (TRIPS), Austria extended patent terms so that 
patents on inventions are valid up to 20 years after 
application.  Since both the United States and Austria 
are members of the "Paris Union" International Convention 
for the Protection of Industrial Property, American 
investors are entitled to the same kind of protection 
under Austrian patent legislation as are Austrian 
nationals.  In accordance with the Madrid Agreement, 
Austria's protection period for trademarks is ten years, 
with the option to extend for another ten years, if 
registration is renewed before expiration. 
 
Various regulations protect trade secrets.  For example, 
the right to privacy, the data protection law, and the 
federal statistics law prevent publication of production 
data, provided there are four producers or less. 
 
Austrian copyright law grants the author the exclusive 
right to publish, distribute, copy, adapt, translate, and 
broadcast his work.  Infringement proceedings, however, 
can be time consuming and complicated.  Austria's 
copyright law is in conformity with the EU directives on 
intellectual property rights.  A 2003 amendment to the 
Austrian Copyright Act implemented the EU Directive on 
the Harmonization of Certain Aspects of Copyright and 
Related Rights in the Information Society and regulates 
copyrights of works on the Internet, protection of 
computer programs, and related damage compensation. 
 
 
A.8.  Transparency of the Regulatory System 
------------------------------------------- 
 
Austria's legal, regulatory, and accounting systems are 
transparent and consistent with international norms. 
Proposed new laws and regulations are usually published 
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. 
However, a 2002 AmCham/U.S. Embassy survey of investor 
confidence identified "unpredictable and inflexible 
bureaucratic rules" as one of four major concerns.  The 
government maintains that the time for obtaining all 
necessary permits has been reduced to about three months, 
except for large projects requiring an environmental 
impact assessment.  With the 2002 reform of the Business 
Code, the government implemented a "one-stop shop" for a 
business permit, but not yet including plant and building 
permits.  The reform also sought to facilitate 
establishment of new businesses by simplifying 
requirements and reducing the number of business 
categories to two (those requiring official approval and 
those requiring none). 
 
Tax and labor laws, as well as health and safety 
standards, are applied uniformly and do not influence the 
sectoral allocation of investments.  The Austrian 
investment climate has become more conducive for business 
since Austria became a member of the EU.  However, 
inflexible shop-opening hours and working times remain a 
major concern of many businesses.  The government plans 
to implement more flexible work time regulations, 
including at the company level, and more liberal 
regulations for shop opening hours.  However, virtually 
all shops will remain closed on Sundays. 
 
 
A.9.  Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----------- 
 
A broad variety of credit and portfolio investment 
instruments are traded in an open capital market. 
Foreign firms have access to this local market without 
restrictions and are free to use foreign credit markets 
as well.  The Vienna Stock Exchange, reorganized as a 
stock corporation and privatized in 1999, connected its 
cash market to Xetra, Frankfurt's electronic trading 
system, so that traders worldwide have on-screen 
information and direct access to all stocks listed in 
Vienna.  In May 2004, the Vienna Stock Exchange, together 
with several Austrian banks, obtained a majority stake in 
the Budapest Stock Exchange with the goal to develop more 
efficient capital markets in both Hungary and Austria, 
push market capitalization, and provide better services 
to clients.  Quotations on the Vienna Stock Exchange are 
in the Euro and the fee system is transparent. 
 
All listed companies must publish quarterly reports. 
Criminal penalties for insider trading are in place.  The 
Austrian Financial Market Authority (FMA), similar to the 
U.S. Securities and Exchange Commission, is responsible 
for policing irregularities on the stock exchange.  The 
FMA, with support from the Austrian National Bank, is 
also responsible for supervising banks, insurance 
companies, securities markets, and pension funds. 
 
Buy-back regulations implemented in 1999 have 
considerably expanded the previously very limited 
possibilities for issuers to acquire their own shares. 
Austria's regulations comply with international standards 
permitting buy-backs as an instrument to influence a 
company's capital structure, to reduce excess liquidity, 
or to prepare for listings on exchanges abroad. 
 
The legal, regulatory, and accounting systems are 
transparent and consistent with international norms. 
Austrian regulations governing accounting standards will 
provide U.S. investors with improved and internationally 
standardized financial information.  Austrian-based 
companies, including subsidiaries of U.S. parent 
companies, are required to present their consolidated 
financial statements in accordance with International 
Accounting Standards (IAS) or Generally Accepted 
Accounting Principles (US-GAAP).  Promotion of good 
corporate governance is making progress.  The Austrian 
Code of Corporate Governance was introduced in October 
¶2002.  However, to date, few companies have signed on to 
it. 
 
Austria has a highly developed banking system with 
worldwide correspondent relationships, as well as 
representative offices and branches in the United States 
and other major financial centers.  Austrian banks also 
have a huge network in many of the ten new EU members and 
other Central and Eastern European countries and the 
Balkan countries.  Total assets of Austria's five largest 
banks amounted to about Euro 394 billion (USD 493 
billion) in 2003. 
 
Austria's venture capital market is underdeveloped, but 
has expanded significantly in recent years.  The volume 
of venture capital raised in Austria during 1999-2001 was 
Euro 556 million (USD 695 million), 170% more than during 
1996-1998, according to a study by the Vienna-based 
Austrian Private Equity and Venture Capital Organization. 
Due to the weak economy and slow investments in 2003, 
fund raising slowed to Euro 227 million (USD 284 million) 
from 231 in 2002, venture capital disbursements fell from 
Euro 146 to 113 million (USD 141 million). 
 
A.10.  Political Violence 
------------------------- 
 
There have been no incidents of politically motivated 
damage to foreign businesses.  Civil disturbances are 
extremely rare. 
 
 
A.11.  Corruption 
----------------- 
 
The Austrian penal code contains penalties for bribery, 
which include a fine of up to Euro 500 (USD 625) per day 
for up to 360 days or up to two years imprisonment for 
the payer of a bribe and up to five years imprisonment 
for the recipient of a bribe.  Under the penal 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 penal code legislation has been in 
place since summer 1998.  The government has prepared 
draft legislation to introduce criminal responsibility 
for legal persons and some partnerships, and with fines 
of up to 15% of annual sales.  After parliamentary 
approval, the new law should take effect later in 2005. 
 
Prior to the implementation of the OECD Convention, tax 
deductibility of bribes and any gray market payments 
(regardless of their title as operating, income-related 
or other expenses) was abolished.  The non-deductibility 
covers all payments and other material grants, the 
granting or accepting of which is subject to legal 
penalties. 
 
The Federal Ministry of Justice has the primary 
responsibility for prosecuting acts of corruption, but in 
the case of public tenders, the Federal Chancellery may 
also become involved.  Corruption allegations, often 
anonymous, have arisen regarding various government 
procurements; but no case thus far has reached the public 
prosecutor's evidentiary threshold for pursuing 
prosecution. 
 
 
¶B.  Bilateral Investment Agreements 
----------------------------------- 
 
Austria has bilateral investment agreements in force with 
Albania, Argentina, Armenia, Azerbaijan, Bangladesh, 
Belarus, Belize, Bolivia, Bosnia-Herzegovina, Bulgaria, 
Cape Verde, Chile, China, Croatia, Cuba, Egypt, Estonia, 
Georgia, Hong Kong, Hungary, India, Iran, Jordan, Kuwait, 
Latvia, Lebanon, Libya, Lithuania, Macedonia, Malaysia, 
Malta, Mexico, Moldova, Mongolia, Morocco, Oman, 
Paraguay, Philippines, Poland, Romania, Saudi Arabia, 
Slovenia, South Korea, South Africa, Tunisia, Turkey, 
Ukraine, United Arab Emirates, Uzbekistan, Vietnam, 
Yemen, and Serbia and Montenegro. 
 
Agreements with Algeria, Namibia and Zimbabwe have been 
signed, but are not yet in 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 has begun 
negotiations with Russia for a new agreement.  The 
government's goal is to achieve a total of 75-80 
bilateral investment agreements.  Under all these 
agreements, investment disputes that cannot be settled 
amicably may be submitted 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. 
 
 
¶C.  OPIC and Other Investment Insurance Programs 
--------------------------------------------- --- 
 
OPIC programs are not available for Austria.  Since May 
1997 Austria has been a member of the Multilateral 
Investment Guarantee Agency (MIGA). 
¶D.  Labor 
--------- 
 
Austria has a highly educated and productive labor force 
of about four million people, of which 3.5 million are 
salaried employees and 500,000 are self-employed or 
farmers.  Austria's labor market is more rigid than that 
of the U.S., but more flexible than that of some other EU 
members.  Depending on labor demand, government policies 
limit the number of foreign workers to between 8-10% of 
the salaried workforce.  In 2004, the number of guest 
workers, predominantly from the former Yugoslavia and 
Turkey, averaged 362,700.  Austria has adopted a 7-year 
gradual transition period vis--vis eight of the ten new 
EU members (except Cyprus and Malta) before fully 
allowing free movement of labor.  The government can also 
apply the transition period to certain business sectors. 
After two years, Austria can automatically extend the 
restrictions, and after another three years, the EU 
Commission can approve a further extension. 
 
Compared to other EU countries, Austria had a relatively 
low unemployment rate of 4.5% in 2004, according to EU 
statistics.  The outlook for 2005 suggests an 
unemployment rate of about 4.4%, assuming real economic 
growth of 2.2%, falling only slightly to 4.2-4.3%% in 
2006, assuming real growth of 2.3-2.4% that year. 
Despite the low unemployment rate, no potential labor 
market shortage is expected in the medium term.  While 
demographic trends indicate little growth in the labor 
force over the next few years, other factors, such as 
expected moderate economic growth, productivity gains, 
industrial restructuring, federal employment incentives 
for women and older employees, the gradual phase-out of 
early retirement, and government efforts to reduce civil 
service employment are intended to offset demographics. 
Moreover, net gains from migration will easily compensate 
the negative impact of low birth rates on the overall 
labor supply.  Latest long-term population forecasts 
expect the working age population (15-60 years) to 
increase to 5.13 million by 2013, up from 4.98 million in 
2001, but to decline again to below 5 million by 2021. 
However, the government's measures to activate available 
labor reserves should mitigate a potential shortage. 
 
In general, skilled labor is available in sufficient 
numbers.  However, regional shortages of highly 
specialized laborers in specific sectors such as systems 
administration, metalworking, health, and tourism 
services may occur.  The government's labor market policy 
is oriented towards the EU goals of raising the labor 
market participation rate to 70% (currently 69.2%) by 
2010, that of women to 60% (currently 61.7%), and that of 
workers aged 55-64 to 50% (currently 30.4%).  The 
government introduced new regulations requiring 
recipients of unemployment benefits to be more flexible 
regarding which jobs they would accept.  Companies hiring 
workers age 50 and above are eligible for financial 
bonuses, but face penalties for laying off workers within 
this age group.  The government still plans to introduce 
more flexible work hours and a monthly minimum wage of 
Euro 1,000. 
 
Austrian social insurance is compulsory and comprises 
health insurance, old-age pension insurance, unemployment 
insurance, and accident insurance.  Social insurance 
contributions are a percentage of total monthly earnings 
and are shared by employers and employees.  Although EU 
requirements facilitated greater job flexibility, terms 
of employment are closely regulated by law in Austria and 
include working hours, minimum vacation time (5 weeks), 
holidays, maternity leave, statutory separation notice, 
and protection against dismissal.  The new severance pay 
system implemented in 2002 is designed to enhance worker 
flexibility further.  Employers contribute 1.53% of their 
monthly pay to severance pay funds and employees have the 
right to carry their accrued entitlement with them when 
changing the employer.  A new regulation since July 1, 
2004 allows parents with children under the age of seven 
who have worked for at least three years to choose part- 
time work until the children reach age seven.  The new 
regulation only applies to parents working for companies 
with at least 20 employees. 
Labor-management relations have generally been harmonious 
in post-WWII Austria, as reflected in extremely low 
strike figures in past decades.  The two major strikes in 
May/June 2003, in response to the government's pension 
reforms, were a political action against the government 
and did not reflect management-labor disputes.  Since 
then, no major work stoppages have occurred.  About 40% 
of the work force belongs to a union.  At least one-third 
of the members of a corporation's board of directors must 
come from the firm's staff, and the company management on 
various issues must regularly consult shop stewards. 
These co-determination rights of employees are 
comprehensive and regulated by law. 
 
Collective bargaining revolves mainly around wage 
adjustments and fringe benefits.   While existing legal 
provisions stipulate a maximum workweek of 40 hours, 
collective bargaining agreements provide for a workweek 
of 38 or 38.5 hours per week for more than half of all 
employees.  Labor's long-standing demand for a further 
reduction of the workweek has recently been countered by 
some calls from industry to extend the 40-hour workweek 
without pay compensation.  While the government plans to 
expand existing regulations for flexible work hours, it 
has no plans to raise the work week again to 40 hours or 
more, as is under discussion in Germany. 
 
¶E.  Foreign-trade Zones/Free Ports 
---------------------------------- 
 
Austria has no foreign trade zones anymore.  It only has 
two customs warehouses in Vienna and Tyrol province, 
where investors may store products of foreign origin 
without the obligation to pay duty.  Their impact has 
been limited, and foreign investors have shown little 
interest. 
 
 
¶F.  Foreign Direct Investment Statistics 
---------------------------------------- 
 
Following record inflows in 2000 and 2001 and a 
significant drop in 2002, new foreign direct investment 
(FDI) rebounded in 2003 to Euro 6.5 billion (USD 8.1 
billion), equal to 2.9% of GDP, the third highest ever. 
New FDI in the first half of 2004 amounted to Euro 1.7 
billion (USD 2.1 billion).  This raised the value of FDI 
stock in Austria to Euro 47.9 billion (USD 59.9 billion), 
equal to 21.2% of GDP, at the end of 2003 and to Euro 
49.6 billion (USD 62.0 billion) by mid-2004.  Of the year- 
end 2003 amount, U.S. firms invested an estimated Euro 
5.0 billion (USD 6.2 billion) or about 10% of the total. 
 
New Austrian direct investment abroad reached Euro 6.2 
billion (USD 7.7 billion) in 2002 and another Euro 6.2 
billion (USD 7.7 billion) in 2003, equal to 2.7% of GDP. 
In the first half of 2004, the amount was Euro 2.5 
billion (USD 3.1 billion).  This raised the value of 
Austrian direct investment stock abroad to Euro 46.7 
billion (USD 58.4 billion), equal to 20.7% of GDP, at the 
end of 2003 and to Euro 49.2 billion (USD 61.5 billion) 
by mid-2004. 
 
Note:  Figures converted at the 2004 annual average 
exchange rate of USD 1.00 for Euro 0.80. 
 
Source:  Austrian National Bank statistics on Austrian 
outward and inward direct investment at the end of 2002, 
published in June 2004.  Available 2003 and 2004 data are 
from the Austrian National Bank's current account 
statistics. 
 
 
Table 1: 
Foreign direct investment in Austria 1998-2004 
 
 
        Number of firms        Nominal   Total 
        with direct            capital   equity (1) 
Year    foreign participation  ---(Euro billion)--- 
--------------------------------------------- ------- 
1998      2,525                  7.2       20.1 
1999      2,542                  7.2       23.4 
2000      2,588                 11.1       32.7 
2001      2,607                  9.8       39.0 
2002      2,633                 10.1       41.5 
2003 (2)    n/a                  n/a       47.9 
2004 (3)    n/a                  n/a       49.6 
 
Footnotes: 
(1) total equity comprises nominal capital, statutory and 
voluntary reserves, profits/losses carried forward, and 
net credit position; 
(2) preliminary figures; 
(3) first half year, preliminary figures. 
Table 2: 
 
Foreign direct investment in Austria by country of origin 
1998-2002 (in percent of total equity) 
 
Year  U.S. Switzerland, Germany  U.K.  Nether- Others 
           Liechtenstein               lands 
--------------------------------------------- --------- 
1998    8       12         41      8      8      23 
1999    8       13         41      6      7      25 
2000    6       10         47      6      6      25 
2001    6        8         44     11      8      23 
2002   11        7         39     11      7      25 
 
Table 3: 
 
Foreign direct investment in Austria by industry sectors 
in 2002 (latest available figures) 
 
Sector                      Total equity     Employees 
                           (Euro million)     in 1,000 
--------------------------------------------- ----------- 
Mining and energy:                  365             1 
 
Industry: 
 
 
Metals, machinery                 1,820            27 
Vehicles                            487            11 
Electrical engineering, 
    Electronics                   2,415            26 
Petroleum, chemicals              3,621            15 
Paper, wood                       1,133             7 
Textiles, clothing, leather         243             9 
Food, drink, tobacco                916             7 
Building and allied trades          602             8 
Miscellaneous                        60             1 
                                --------        ------ 
Subtotal industry                11,297           111 
 
Non-industry: 
Trade                             8,695            71 
Transport, communication          1,039            11 
Tourism                             240             6 
Banking, insurance, finance       6,057            21 
Real estate, business 
    related services             13,703            22 
Other services                       94             2 
                                --------        ------ 
Subtotal non-industry            29,828           133 
 
Total                            41,488           245 
 
Note:  differences due to rounding. 
 
Table 4: 
 
Austrian direct investment abroad 1998-2004 
 
       Number of firms      Nominal   Total 
       with Austrian        capital   assets (1) 
Year   direct investment    ---(Euro billion)--- 
--------------------------------------------- ----- 
1998      2,006               7.9       14.9 
1999      2,095               9.3       19.0 
2000      2,227              10.7       26.7 
2001      2,319              14.3       32.4 
2002      2,442              16.4       40.5 
2003 (2)    n/a               n/a       46.7 
2004 (3)    n/a               n/a       49.2 
 
Footnotes: 
(1) total assets comprises nominal capital, other equity 
including exchange rate adjustments, and net credit 
position; 
(2) preliminary figures; 
(3) first half year, preliminary figures. 
 
Table 5: 
 
Austrian direct investment abroad by country of 
destination 1998-2002 (in percent of total equity) 
 
Year   U.S.  Germany U.K. Slovak Hungary   Czech Others 
                          Republic         Rep. 
--------------------------------------------- ----------- 
1998     8     16     10     3      10       8     45 
1999     8     14      9     3       9       7     50 
2000     8     19      6     5       7       8     47 
2001     7     18      6     6       8       8     47 
2002     6     18      5     4       9      10     48 
 
Footnotes 
(1) preliminary figures. 
 
Table 6: 
 
Austrian direct investment abroad by industry sectors in 
2002 (latest available figures) 
 
 
Sector                      Total equity     Employees 
                           (Euro million)     in 1,000 
--------------------------------------------- ---------- 
Mining and energy:                1,538             8 
 
Industry: 
Metals, machinery                 1,337            23 
Vehicles                            242             6 
Electrical engineering, 
    Electronics                     924            27 
Petroleum, chemicals              1,816            26 
Paper, wood                         816            12 
Textiles, clothing, leather          98             7 
Food, drink, tobacco                501             9 
Building and allied trades        2,666            31 
Miscellaneous                        74             6 
                                --------       ------- 
Subtotal industry                 8,474           145 
 
Non-industry: 
Trade                             4,405            50 
Transport, communication            312             5 
Tourism                              76             2 
Banking, insurance, finance      10,819            62 
Real estate, business 
    related services             14,260            25 
Other services                      627             2 
                                --------       ------- 
Subtotal non-industry            30,500           147 
 
Total                            40,512           299 
 
Note:  differences due to rounding. 
 
 
List of Major Foreign Investors: 
-------------------------------- 
 
Some 360 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. 
Andlinger & Company, Inc. 
Baxter International Inc. 
Capital Research and Management Company 
Cisco Systems, Inc. 
Citibank Overseas Investment Corp. 
The Coca-Cola Company 
CSC Computer Sciences Corporation 
Deloitte & Touche LLP 
Delphi Automotive Systems 
Eastman Kodak Company 
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 
Western Wireless International 
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 
Bank for Foreign Trade, Russia 
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 
Electricite de France, France 
Electrolux, Sweden 
Epcos AG, Germany 
Ericsson, Sweden 
Flextronics International, Singapore 
Gallaher, U.K. 
Heineken, Netherlands 
Hipp, Germany 
HypoVereinsbank AG (HVB Gruop), Germany 
Infineon, Netherlands 
Kone Corp., Finland 
Koramic, Belgium 
Liebherr, Switzerland 
Magna, Canada 
MAN, Germany 
Mazda Corp., Japan 
Mondi Europe, Luxembourg and UK 
Nestle S.A., Switzerland 
NKT Cables, Denmark 
Novartis, Switzerland 
Nycomed Holding, Denmark 
Philips, Netherlands 
Rewe, Germany 
Rothenberger, Germany 
RWE, Germany 
Sappi Ltd, South Africa 
Shell Petroleum N.V., Netherlands 
Siemens, Germany 
Smurfit Group, Ireland 
Solvay Et Cie, Belgium 
Sony, Japan 
Sueddeutscher Verlag, Germany 
Svenska Cellulosa Ab (SCA), Sweden 
Unilever N.V., Netherlands 
Voith, Germany 
Westdeutsche Allgemeine Zeitung (WAZ), Germany 
Westdeutsche Landesbank, Germany 
 
BROWN