VZCZCXYZ0000
RR RUEHWEB

DE RUEHRL #0166/01 0361641
ZNR UUUUU ZZH
R 051641Z FEB 10
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC 6499
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS BERLIN 000166 
 
SIPDIS 
 
DEPT FOR EEB/IFD/OIA 
DEPT ALSO FOR USTR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC GM
SUBJECT:  Germany - REVISED Investment Climate Statement 
2010 
 
REF: 09 STATE 124006 
 
¶1.  In response to reftel, the following is the 2010 
Investment Climate Statement for Germany.  This is the 
revised version of the statement.  A previous version was 
sent on January 15, 2010. 
 
¶2.  Begin Text: 
 
GERMANY: 2010 INVESTMENT CLIMATE STATEMENT 
------------------------------------------ 
 
Indices  2009 
 
Indices - 2009 
TI Corruption Perception Index (CPI)  - Rank 14 of 180, 
CPI 8,0 (7.9 in 2008) 
Heritage Economic Freedom Index - Rank 25 of 179, freedom 
score 70.5 (-0.1 from 2008) 
World Bank Doing Business Index - Rank 25 of 183 
MCC Govt Effectiveness - N/A 
MCC Rule of Law - N/A 
MCC Control of Corruption - N/A 
MCC Fiscal Policy - N/A 
MCC Trade Policy - N/A 
MCC Regulatory Quality - N/A 
MCC Business Start Up - N/A 
MCC Land Rights Access - N/A 
MCC Natural Resource Mgmt - N/A 
 
Openness to Foreign Investment 
------------------------------ 
 
The German government and industry actively encourage 
foreign investment in Germany, and German law provides 
foreign investors national treatment.  Under German law, 
with the exception of some limited provisions in the 
Foreign Economic Law (see below), foreign-owned companies 
registered in the Federal Republic of Germany as a GmbH 
(limited liability company) or an AG (joint stock company) 
are treated no differently from German-owned companies. 
Germany also treats foreigners equally in privatizations. 
There are no special nationality requirements on directors 
or shareholders, nor do investors need to register 
investment intent with any government entity except in the 
case of acquiring a significant stake in a firm in the 
defense or encryption industries.  The investment-related 
problems foreign companies do face are generally the same 
as for domestic firms, for example high marginal income 
tax rates and labor laws that impede hiring and 
dismissals. The German government has begun to address 
many of these problem areas through its reform programs. 
German courts have a good record in upholding the sanctity 
of contracts. 
 
The 1956 U.S.-FRG Treaty of Friendship, Commerce and 
Navigation affords U.S. investors national treatment and 
provides for the free movement of capital between the U.S. 
and Germany.  Germany subscribes to the OECD Committee on 
Investment and Multinational Enterprises' (CIME) National 
Treatment Instrument and the OECD Code on Capital 
Movements and Invisible Transactions (CMIT).  While 
Germany's foreign trade act contains a provision 
permitting restrictions on private direct investment flows 
for reasons of national security, no such restrictions 
have been imposed in practice.  In such general cases, the 
federal government would first consult with the Bundesbank 
and the governments of the federal states.  Specific 
legislation requiring government screening of foreign 
equity acquisitions of 25% or more of German armaments 
companies took effect in July 2004.  Under the 2004 law, 
foreign entities that wish to purchase more than 25% 
equity in German manufacturers of armaments or 
cryptographic equipment are required to notify the Federal 
Economics and Technology Ministry, which then has one 
month in which to veto the sale.  The transaction is 
regarded as approved if the Economics and Technology 
Ministry does not react in that time. The German 
government expanded the scope of the law in 2005 to 
include tank and tracked-vehicle engines. 
 
In 2009, the scope of the foreign trade act was further 
expanded when Germany's Cabinet approved an amendment that 
requires the German government to examine and potentially 
prohibit the acquisition of German companies by non-EU 
investors if they intend to buy more than 25% of the 
 
company's shares in cases where a threat to national 
security or public order is perceived. The Law entered 
into force in spring 2009. According to the Federation of 
German Industries (BDI) and the American Chamber of 
Commerce in Germany, no foreign companies have complained 
so far about difficulties under the amendment. 
 
Germany ranks 14th in the Transparency International 
Corruption Perception Index (CPI) that compares 180 
countries worldwide (rank 1 being the country with least 
corruption). 
 
Conversion and Transfer Policies 
 
As a result of European Economic and Monetary Union (EMU), 
the Deutsche Mark (DM) was phased out on January 1, 2002, 
and replaced by the euro, which is a freely traded 
currency with no restrictions on transfer or conversion 
and which is the unit of currency in Germany and more than 
20 other European countries.  There is no difficulty in 
obtaining foreign exchange.  There are also no 
restrictions on inflows and outflows of funds for 
remittances of profits or other purposes. 
 
Expropriation and Compensation 
 
German law provides that private property can be 
expropriated for public purposes only in a non- 
discriminatory manner and in accordance with established 
principles of constitutional and international law.  There 
is due process and transparency of purpose, and investors 
and lenders to expropriated entities receive prompt, 
adequate and effective compensation. 
 
Dispute Settlement 
 
Investment disputes concerning U.S. or other foreign 
investors and Germany are rare.  Germany is a member of 
the International Center for the Settlement of Investment 
Disputes (ICSID), as well as a member of the 1958 New York 
Convention on the Recognition and Enforcement of Foreign 
Arbitral Awards.  German courts are fully available for 
foreign investors in the event of investment disputes. 
The government does not interfere in the court system and 
accepts binding arbitration. 
 
Performance Requirements and Incentives 
 
European Union, federal and state authorities offer a 
broad range of incentive programs for investors in 
Germany. Cash Grants under the Joint Agreement for the 
Improvement of Regional Economic Structures is one 
available instrument for improving the infrastructure of 
regional economies and the economy as a whole - a primary 
objective of the German federal and state governments. 
 
A comprehensive package of federal and state investment 
incentives, including cash, labor-related, and R&D 
incentives, interest-reduced loans, and public guarantees 
is available to domestic and foreign investors.  In some 
cases, there may be performance requirements tied to the 
incentive, such as employment creation and maintaining a 
certain level of employment for a prescribed length of 
time.  There are no requirements for local sourcing, 
export percentage, or local national ownership.  Offsets 
have been a part of procurements by some state and local 
governments and by the federal government for some defense 
procurement, but they are infrequently used at present. 
Germany is in compliance with its WTO TRIMS notification. 
 
The government has emphasized investment promotion in the 
states of the former East Germany and offers several 
programs only in these regions.  The major program is the 
Investment Allowance Act, which provides tax incentives 
for investments in the eastern states in the form of tax- 
free cash payments or tax credits.  With the beginning of 
the new budgetary period of the EU, which started in 
January 2007 (and runs through 2013), Germany is to 
receive a total of EUR 26.3 billion.  The accession of new 
EU member countries in 2004 reduced subsidy levels for 
Germany beginning in 2007.  The German states located in 
the former East Germany received the majority of the EU 
subsidies allocated to Germany, EUR 15.1 billion, for the 
budget period of 2007-2013. 
 
Foreign investors are generally subject to the same 
 
eligibility conditions as German investors for incentive 
programs. 
 
Programs in Germany: 
 
-- Investment grants:  Cash incentives in the form of non- 
repayable grants usually based on investment costs or 
assumed wage costs.  Incentives vary according to the 
economic development level of the region and the overall 
investment costs, with up to 30 percent of eligible 
expenditures channelled to large enterprises, 40 percent 
to medium-sized enterprises and 50 percent to small 
enterprises. 
 
-- Credit Programs: loans at below-market interest rates 
from the Bank for Reconstruction, the European Recovery 
Program, and other programs for small technology firms and 
environmental demonstration projects. 
 
-- Public guarantees:  Public guarantees for companies 
which do not have the collateral that private-sector banks 
ordinarily require. 
 
-- Labor incentives: Recruitment support from 800 local 
job centers, including free services, training support, 
wage subsidies, and on-the-job training. Firms from the 
United States and other countries may also participate in 
government-funded and/or subsidized research and 
development programs, provided that: 
 
-- The company is legally established in Germany; 
 
-- The activity is a long-term operation with significant 
R&D capacities; 
 
-- The firm can exploit intellectual property rights 
independently of a parent company; 
 
-- Preference is given to locating manufacturing 
facilities in Germany for any production resulting from 
the research; 
 
-- The sponsored research is performed entirely Germany. 
 
American business representatives generally report that 
these formal requirements and the administration of the 
programs by German authorities do not constitute barriers 
for access to R&D funding. 
 
Foreign investors can obtain more information on 
investment conditions and incentives from: 
 
Germany Trade and Invest 
 
The inward investment promotion agency of the Federal 
Republic of Germany 
 
Friedrichstrasse 60 
10117 Berlin, Germany 
Telephone: [49][30] 2000 99 0 
Telefax: [49][30] 2000 99 111 
www.gtai.com 
 
Germany Trade & Invest 
1776 I Street, N.W. 
Suite 1000 
Washington D.C. 20006 
Telephone: 202 629 5711 
Telefax: 202 347 7473 
www.gtai.com 
 
Germany Trade & Invest 
401 N. Michigan Ave, Suite 3330 
Chicago, IL 60611-4212 
Telephone: 312 377 6131 
Telefax: 312 377 6134 
www.gtai.com 
 
Germany Trade and Invest 
One Embarcadero Center, Suite 1000 
San Francisco, CA 94111 
Telephone: 415 248 1246 
Telefax: 415 627 9169 
www.gtai.com 
 
Germany Trade and Invest 
 
75 Broad Street, 21st Floor 
New York, NY 10004 
Telephone: 212 584 9715 
Telefax: 212 262 6449 
www.gtai.com 
 
Germany Trade and Invest is the foreign trade and 
investment agency of the Federal Republic of Germany, 
formed by the merger of Invest in Germany with the German 
Office for Foreign Trade in January 2009. 
 
American companies can, with effort, generally obtain the 
resident visas and spouse work permits they require to do 
business in Germany, but the relevant laws are quite broad 
and considerable administrative discretion is exercised in 
their application.  A number of U.S. states have not yet 
concluded reciprocal agreements with the German government 
to recognize one another's driver's licenses.  As a 
result, licenses from those states are not usable in 
Germany for longer than six months, whereas licenses from 
states that have signed agreements can be converted to 
German licenses after six months. 
 
Right to Private Ownership and Establishment 
 
Foreign and domestic entities have the right to establish 
and own business enterprises, engage in all forms of 
remunerative activity, and acquire and dispose of 
interests in business enterprises. 
 
Protection of Property Rights 
 
The German Government adheres to a policy of national 
treatment, which considers property owned by foreigners as 
fully protected under German law.  There is almost no 
discrimination against foreign investment and foreign 
acquisition, ownership, control or disposal of property or 
equity interests, with airline ownership being an 
exception based on EU regulations, which require an EU 
majority ownership of shares to obtain an operating permit 
as an EU airline.  In Germany, the concept of mortgages is 
subject to a recognized and reliable security.  Secured 
interests in property, both chattel and real, are 
recognized and enforced. 
 
Intellectual property is generally well protected by 
German laws.  Germany is a member of the World 
Intellectual Property Organization (WIPO).  Germany is 
also a party to the major international intellectual 
property protection agreements: the Bern Convention for 
the Protection of Literary and Artistic Works, the Paris 
Convention for the Protection of Industrial Property, the 
Universal Copyright Convention, the Geneva Phonograms 
Convention, the Patent Cooperation Treaty, the Brussels 
Satellite Convention, and the Treaty of Rome on 
Neighboring Rights. 
 
National treatment is also granted foreign copyright 
holders, including remuneration for private recordings. 
Under the TRIPS agreement, the federal government also 
grants legal protection for practicing U.S. artists 
against the commercial distribution of unauthorized live 
recordings in Germany.  Germany has signed the WIPO 
Internet treaties and ratified them in 2003.  Foreign and 
German rights holders, however, remain critical of 
provisions in the German Copyright Act that allow 
exceptions for private copies of copyrighted works.  Most 
rights holder organizations regard German authorities' 
enforcement of intellectual property protections as 
sufficient, although problems persist due to lenient court 
rulings in some cases and the difficulty of combating 
piracy of copyrighted works on the Internet. 
 
In 2008, Germany implemented the EU enforcement directive 
with a national bill, thereby strengthening the privileges 
of rights holders and allowing for improved enforcement 
action. 
 
Transparency of Regulatory System 
 
Germany has transparent and effective laws and policies to 
promote competition, including anti-trust laws. German 
authorities recently lifted many restrictions on store 
business hours, which had formerly restrained competition 
and business opportunities.  There are concerns in Germany 
and abroad about the level of regulation prevailing with 
 
regulatory authority dispersed over the federal, state, 
and local levels.  Many investors consider Germany's 
bureaucracy excessive, which has prompted most state 
governments to establish investment promotion offices and 
investment banks to expedite the process.  New rules have 
simplified bureaucratic requirements, but industry must 
sometimes contend with officials' relative inexperience 
with deregulation and lingering pro-regulation attitudes. 
 
In response to the problem, the federal government 
continues to reduce bureaucracy.  In 2006, the National 
Regulatory Control Council was established, tasked with 
evaluating policy and assessing the impact of lawmaking. 
Based on its findings, the council reports annually and 
recommends further measures.  The federal government also 
set the target of reducing the costs of law-induced 
bureaucracy by 25 percent by 2011.  The new Economics 
Minister Rainer Bruederle (pro-market FDP) seems to be 
very interested in reducing the bureaucratic burden and 
has moved the section within the Economics Ministry 
dealing with bureaucracy reform closer to his own office. 
Germany now uses the Standard Cost Model to quantify and 
identify bureaucratic costs in every new legislative 
proposal. This provides increased transparency about the 
amount of time and cost that companies and citizens have 
to spend because of bureaucratic requirements. The German 
National Regulatory Control Council estimates that 
applying the Standard Cost Model has reduced bureaucratic 
costs by 3 billion euros in the past two-and-a-half years, 
measured against the bureaucratic burden that was in 
effect before new, improved legislation. 
 
Laws and regulations in Germany are routinely published in 
draft, and public comments are solicited.  The legal, 
regulatory and accounting systems can be complex but are 
transparent and consistent with international norms. 
 
Efficient Capital Markets and Portfolio Investment 
 
Germany has a modern financial market sector but is often 
considered "over-banked," as evidenced by on-going 
consolidation and low profit margins.  The country's so- 
called "three-pillar" banking system, made up of private 
commercial banks, state-owned and cooperative banks, and 
savings banks, survived the global financial crisis, but 
pressures to consolidate are increasing.  To improve their 
international competitiveness, the large privately-owned 
banks in particular have launched massive cost-cutting 
programs.  Regional state-owned banks ("Landesbanken") 
were among the hardest hit by the crisis.  Their future 
seems unclear, as the EU Competition Commissioner has 
attached tough downsizing conditions in return for 
approving federal and state government bailout packages. 
The financial crisis also triggered the take-over of 
Dresdner Bank by Commerzbank and that of Post Bank by 
Deutsche Bank.  This has effectively reduced the number of 
top German banks to just two. 
 
In the midst of the financial crisis, the German 
government passed a bank rescue plan ("SOFFIN") worth 480 
billion euros.  The two most prominent recipients of 
rescue funds were Commerzbank (its take-over of Dresdner 
Bank brought it to the brink of bankruptcy) and Hypo Real 
Estate (HRE).  In the case of HRE, the government even 
departed from its long-standing tradition and nationalized 
the bank in order to prevent a breakdown of the German 
(and European) covered bond market - which is the backbone 
of German real estate financing. The law permitting the 
expropriation of HRE was designed for that institution 
only and expired in June 2009.  There are currently 
several court cases pending in which the government action 
of "squeezing out" HRE's old owners is being challenged. 
One such high-profile case is that of U.S. private equity 
firm, JC Flowers, which led a consortium of investors 
owning nearly 25 percent of the troubled bank prior to 
nationalization.  The government argued that without its 
actions, HRE would have been insolvent, and owners would 
have lost their assets anyway. At 1.30 euros per share, 
the German Government paid an estimated 10 cents more than 
the actual market value of HRE stock. 
 
Credit is available at market-determined rates to both 
domestic and foreign investors, and a variety of credit 
instruments are available.  Legal, regulatory and 
accounting systems are generally transparent and 
consistent with international banking norms, but in light 
 
of the current global financial turmoil, Germany is 
pushing for even more transparency in international 
financial markets.  Germany has a universal banking system 
that is effectively regulated by federal authorities. 
There is currently some concern that the economic crisis 
in connection with tougher capital requirements for banks 
mandated in the G-20 may cause a shortage of credit in the 
German economy.  The German government has taken action to 
ease the situation through the offer of additional state 
financing options through its state lender KfW. 
 
Given the prevailing overall economic conditions, mergers 
and acquisitions (M&A) have decreased in recent years in 
line with global trends.  Prior to the global financial 
crisis, Germany had seen an upswing in M&A transactions 
due to improved economic conditions, the increased 
financial assets of the top 30 companies listed in the 
German stock exchange (DAX), and the high value of the 
euro.  "Cross shareholding" exists among some large German 
companies, in particular among banks that hold shares in 
large industrial customers.  However, Germany's major 
banks have been reducing their cross-shareholdings in 
recent years. 
 
In response to a 2004 EU directive, the government has 
implemented legislation that established new rules to 
ensure greater transparency for takeovers.  The new law 
went into effect in 2006. 
 
In recent years, Germany has implemented a series of laws 
to improve its securities trading system, including laws 
against insider-trading and the Fourth Financial Market 
Promotion Law in 2003.  In 2002, a corporate governance 
code was adopted, which, while voluntary, requires listed 
companies to "comply or explain" why the code or parts 
thereof have not been followed.  The code is intended to 
increase transparency and improve management response to 
shareholder concerns.  The Finance and Justice Ministries 
drew up a ten-point plan in 2003 to improve investor 
protection.  As a part of that plan, the government tabled 
a bill in November 2004 that would (a) increase the 
liability of boards of directors for false or misleading 
statements; and (b) improve oversight of auditing 
operations.  The EU's Financial Services Action Plan - an 
effort intended to create a more integrated European 
financial market by 2005 - has helped stimulate changes in 
the German regulatory framework, including adoption of 
International Accounting Standards for listed firms and 
use of company investment prospects on an EU-wide basis. 
In 2008, Germany passed legislation that makes private 
equity firms subject to greater transparency rules, 
including the publication of a business plan for the 
acquired company. 
 
Competition from State Owned Enterprises 
 
State-owned or partially state-owned enterprises still 
exist in several sectors. Most importantly in postal 
services, railroads, telecommunications and the banking 
sector. 
 
Privatization of state-owned utilities has promoted 
competition and led to falling prices in some sectors. 
Following deregulation of the telecommunications sector in 
1998, scores of foreign and domestic companies invested 
vast sums in that sector. Since then, former state 
monopolist Deutsche Telekom (DT) has lost more than 48% of 
the fixed-line market to competitors (while at the same 
time profiting from them, as they must lease the last mile 
from DT), and it still controls 47% of DSL broadband 
connections.  The 2003 introduction of call-by-call and 
pre-selection in the local loop allowed competitors to 
increase their share of the local call market to an 
estimated 49% by mid-2006.  In June 2004, a new 
telecommunications law to implement EU directives entered 
into force.  The law mandates less regulation in some 
areas while giving the regulator new powers to address 
abuse of market dominance and ensure competitors' access 
to services.  A second amendment to the telecommunications 
law became effective in early 2007.  Aimed at 
strengthening consumer rights, it also includes a 
controversial component entitling the incumbent to a 
regulatory holiday in return for a sizeable investment in 
a VDSL network, providing the investment creates a "new 
market."  The regulator determines the definition of "new 
markets" and can subsequently rule on the entitlement to a 
 
regulation-free timeframe.  However, in 2009 the European 
Court of Justice ruled that the regulatory holiday granted 
to DT infringes on European law.  The German government 
continues to hold a 32% share in DT, although it has 
expressed its desire to sell these shares eventually. 
 
Competition has come to the electricity market since 1998, 
especially since the German Government began to take 
serious measures to open the market.  The gas sector has 
proved particularly resistant to the 2000 EU Directive to 
liberalize the market, but it is opening now.  In July 
2005, the Regulatory Authority for Telecommunications and 
Post (RegTP) became the Federal Network Agency (FNA) and 
took over responsibility for gas and electricity network 
prices and access.  In summer 2006, it began issuing 
orders to incumbents in the electricity market to cut 
prices.  Action against gas suppliers started a year 
later.  The FNA is currently preparing new regulations to 
force pipelines to accept more gas from competitors and 
increase cross-border pipeline capacity. 
 
Rising energy prices and rising profits in the energy 
sector increased consumer and political pressure on the 
industry to contain prices.  Legislation to force 
utilities to accept new competing power stations into 
their nets went into force in 2007 and in 2008 legislation 
increased the authority of the Federal Cartel Office 
(Bundeskartellamt) in this area.  The Cartel Office has 
used this new authority to force approximately 30 gas 
suppliers to lower their prices and in many cases to repay 
customers. 
 
The EU has withdrawn plans to bring charges of price 
fixing and territorial demarcation against leading German 
energy utilities after two utilities agreed to sell their 
long-distance power or gas transmission lines, thereby 
submitting to the EU's unbundling demands.  Both buyers 
are foreign net operators, reflecting that after years of 
competitive stagnation, some new foreign competitors have 
entered the German power market. 
 
The government partially privatized Deutsche Post (DP) in 
November 2000 and is slowly divesting its remaining 
shares. It currently holds a 30.5% share in DP.  After 
successive rounds of liberalization, DP's monopoly on 
letter delivery expired on December 31, 2007, with the aim 
of full competition in the German postal sector.  A new 
minimum wage law in the postal sector was regarded by some 
competitors, however, as favoring Deutsche Post and as 
leading to the demise of several major competitors.  DP to 
date still enjoys VAT exemption (of 19%) for offering 
universal service. However, VAT exemption will likely be 
reduced to private individual's letters and light parcels 
in July 2010, following a ruling by the European Court of 
Justice in late 2009. According to draft legislation, 
competitors will also be entitled to VAT exemption if they 
offer universal service. Germany's Cartel Office, which 
enjoys an excellent international reputation, and 
Germany's other regulatory agencies address problems and 
settle complaints brought forward by foreign market 
entrants and bidders.  However, as noted above, German law 
and court decisions have limited these agencies' 
effectiveness in some areas. 
 
The planned sale to private investors of just under 25% of 
the 100% government-owned railway Deutsche Bahn (DB) did 
not take place.  The government scaled down the original 
privatization plan for just below 50% to just below 25%. 
The change was largely due to unresolved disputes within 
the former CDU/SPD coalition government over the retention 
of ownership of both rolling stock and the rail network. 
 
On January 1, 2006, the Federal Network Agency took over 
responsibility for access and prices issues regarding 
competitors' access to the railroad network.  A series of 
data privacy scandals forced the resignation of the DB CEO 
in 2009, when DB also started to have serious safety 
problems with high-speed, freight and Berlin light rail 
rolling stock, primarily due to lack of maintenance. 
Public and political outrage at the perceived attempt to 
cut costs to improve DB's attractiveness for 
privatization, but at the expense of safety, has led to 
the new coalition government putting the privatization on 
ice, officially because of poor market conditions in the 
financial crisis.  Three different types of banks exist in 
Germany: privately-owned banks, state-owned banks 
 
(Landesbanken) and cooperative banks. The Landesbanken 
used to have advantages over privately-owned banks in 
obtaining credit.  Under the pressure of Germany's 
privately-owned banks, the EU forced an end to these 
advantages in 2005. This means that the Landesbanken can 
no longer raise money cheaply with a AAA rating because of 
state guarantee.  At the moment, foreign banks do not have 
to fear any unfair competition from state-owned or 
cooperative banks. 
 
Corporate Social Responsibility 
 
The Federal Ministry of Labor and Social Affairs is the 
leading ministry for CSR within the German government, and 
it is currently developing a national CSR strategy. The 
Ministry of Labor has installed a CSR Forum in January 
2009 as a platform for dialogue with relevant 
stakeholders. The CSR Forum consists of around 40 
organizations from business, unions, civil society and 
politics. Its task is to develop recommendations for the 
Labor Ministry's national CSR Strategy and to participate 
in its implementation once the strategy has been adopted. 
Because of the restructuring of the Labor Ministry after 
the elections, the work of the CSR forum is currently 
stalled. 
 
On the business side, the American Chamber of Commerce in 
Germany (AmCham Germany) is active in upholding the 
standards of social responsibility within the realm of 
their members' corporate business. AmCham Germany issues 
regular publications on companies' CSR approaches and has 
established a committee on corporate social responsibility 
as a platform for the exchange of best practices, to 
identify trends and to discuss regulatory initiatives. 
 
Political Violence 
 
Political acts of violence against either foreign or 
domestic business enterprises are extremely rare. 
Isolated cases of violence directed at certain minorities 
and asylum seekers have not affected U.S. investments or 
investors. 
 
Corruption 
 
Among industrialized countries, Germany ranks in the 
middle, according to Transparency International's 
corruption indices.  The construction sector and public 
contracting, in conjunction with undue political party 
influence, represent particular areas of continued 
concern.  Nevertheless, U.S. firms have not identified 
corruption as an impediment to investment. 
 
The German government has sought to reduce domestic and 
foreign corruption.  Strict anti-corruption laws apply to 
domestic economic activity, and the laws are enforced. 
Germany ratified the 1998 OECD Anti-Bribery Convention in 
February 1999, thereby criminalizing bribery of foreign 
public officials by German citizens and firms abroad.  The 
necessary tax reform legislation ending the tax write-off 
of bribes in Germany and abroad became law in March 1999. 
Germany has signed the UN Anti-Corruption Convention but 
has not yet ratified it.  The country participates in the 
relevant EU anti-corruption measures.  Germany has 
increased penalties for bribery of German officials, for 
corrupt practices between companies, and for price-fixing 
by companies competing for public contracts.  It has also 
strengthened anti-corruption provisions that apply to 
support extended by the official export credit agency and 
has tightened the rules for public tenders.  Most state 
governments and local authorities have contact points for 
whistle-blowing and provisions for rotating personnel in 
areas prone to corruption.  Government officials are 
forbidden from accepting gifts linked to their jobs. 
 
Opinions differ, however, on the effectiveness of these 
steps, particularly in the area of foreign corruption. 
German industry - while generally in favor of creating a 
central, national-level register of corrupt companies that 
would be barred from bidding for public contracts - 
refrained from openly calling for its creation out of fear 
of an added regulatory burden.  Draft legislation to 
create such a register passed the lower chamber of the 
German Parliament but was blocked by opposition parties in 
the upper chamber in 2002.  The CDU-SPD Government, which 
took power in November 2005, did not include a similar 
 
initiative in its program.  Nevertheless, some individual 
states maintain their own registers.  Transparency 
Deutschland, the German Chapter of Transparency 
International, sees a national corruption register as one 
of its main goals in Germany and a speedy ratification of 
the UN Anti-Corruption Convention placing bribery of 
parliamentarians on the same level as bribery of public 
officials.  Federal freedom of information legislation 
entered into force in January 2006 but is seen by many as 
ineffective.  Several states have introduced their own 
freedom of information laws.  The German government has 
successfully prosecuted hundreds of domestic corruption 
cases over the years.  To date, only a small number of 
charges have been filed involving the bribery of foreign 
government officials since the 1999 changes in German law 
to comply with the OECD Anti-Bribery Convention were 
enacted.  However, the corruption scandal involving 
Siemens AG with its ongoing litigation and fines and the 
agreement with the Securities & Exchange Commission on an 
$800 million fine focused attention on foreign bribery for 
the first time. 
 
Bilateral Investment Agreements 
 
Germany has investment treaties in force with 127 
countries and territories. Of these, eight are with 
predecessor states and indicated with an asterisk 
(including Czechoslovak SFR, Soviet Union, Yugoslavia 
[SFRY]).  Treaties are in force with the following states: 
Afghanistan; Albania; Algeria; Angola; Antigua and 
Barbuda; Argentina; Armenia; Azerbaijan, Bangladesh; 
Barbados; Belarus; Benin; Bolivia; Bosnia and Herzegovina; 
Botswana; Burkina Faso; Brunei; Bulgaria; Burundi; 
Cambodia; Cameroon; Cape Verde; Central African Republic; 
Chad; Chile; China (People's Republic); Congo (People's 
Republic); Congo (Democratic Republic); Costa Rica; 
Croatia; Cuba; CSFR**; Czech Republic*; Dominica; Ecuador; 
Egypt; El Salvador; Estonia; Ethiopia; Gabon; Georgia; 
Ghana; Greece; Guatemala; Guinea; Guyana; Haiti; Honduras; 
Hong Kong; Hungary; India; Indonesia; Iran; Ivory Coast; 
Jamaica; Jordan; Kazakhstan; Kenya; Republic of Korea; 
Kuwait; Kyrgyzstan*; Laos; Latvia; Lebanon; Lesotho; 
Liberia; Lithuania; Macedonia; Madagascar; Malaysia; Mali; 
Malta; Mauritania; Mauritius; Mexico; Moldova*; Mongolia; 
Morocco; Mozambique; Namibia; Nepal; Nicaragua; Niger; 
Nigeria; Oman; Pakistan; Panama; Papua New Guinea; 
Paraguay; Peru; Philippines; Poland; Portugal; Qatar; 
Romania; Russia*; Rwanda; Saudi Arabia; Senegal; Sierra 
Leone; Singapore; Slovak Republic*; Slovenia; Somalia; 
South Africa; Soviet Union**; Sri Lanka; St. Lucia; St. 
Vincent and the Grenadines; Serbia; Sudan; Swaziland; 
Syria; Tajikistan*; Tanzania; Thailand; Togo; Tunisia; 
Turkey; Turkmenistan; Uganda; Ukraine; United Arab 
Emirates; Uruguay; Uzbekistan; Venezuela; Vietnam; Yemen 
(Arab. Rep.); Yugoslavia (SFRY)**; Zambia; and Zimbabwe. 
 
(Note: * denotes treaty in force with predecessor state; 
** denotes continued application of treaties with former 
entities, which has not been taken into account in regard 
to the total number of treaties.) 
 
Germany has ratified treaties, which are not yet in force, 
with the following countries: 
 
Country -- Signed -- Temporarily Applicable 
Bahrain -- 2/5/2007 -- 
Brazil -- 09/21/1995 -- No 
Guinea -- 11/08/2006 -- * 
Israel -- 06/24/1976 -- Yes 
Madagascar -- 08/1/2006 -- * 
Oman -- 05/30/2007 -- * 
Palestine -- 07/10/2000 -- No 
Timor-Leste -- 08/10/2005 -- No 
Trinidad & Tobago -- 09/08/2006 -- No 
 
(*) Previous treaties apply 
 
Germany has signed, but not yet ratified, treaties with 
the following country. 
 
Country -- Signed -- Temporarily Applicable 
Libya -- 10/15/2004 -- No 
 
Germany does not have a bilateral investment treaty with 
the United States, but an FCN treaty dating from 1956 
remains in force.  Taxation of U.S. firms within Germany 
 
is governed by the 1989 "Convention for the Avoidance of 
Double Taxation with Respect to Taxes on Income."  It has 
been in effect since 1989 (and since January 1, 1991, for 
the area that comprised the former German Democratic 
Republic).  With respect to income taxes, both countries 
agree to grant credit for their respective federal income 
taxes on taxes paid on profits by enterprises located in 
each other's territory.  The German system is more 
complex, but there are more similarities than differences 
between the German and U.S. business tax systems.  The 
U.S. and Germany ratified the Protocol of June 1, 2006, 
amending their 1989 income tax treaty and protocol.  The 
new protocol updates the existing treaty and includes 
several changes, including a zero-rate provision for 
subsidiary-parent dividends, a more restrictive 
limitation-on-benefits provision and a mandatory binding 
arbitration provision. 
 
OPIC and Other Investment Insurance Programs 
 
OPIC programs were available for the new states of eastern 
Germany following reunification for several years during 
the early 1990s but were suspended following progress in 
the economic and political transition. 
 
Labor 
 
The German labor force is generally highly skilled, well 
educated, disciplined, and very productive.  The complex 
set of reforms of labor and social welfare-related 
institutions implemented under the former SPD/Greens 
Government contributed to overcoming structural weaknesses 
of the German welfare state and creating an institutional 
setup more conducive to strong employment growth and lower 
unemployment.  A series of changes in collective 
bargaining has supplemented government efforts in recent 
years. 
 
Chancellor Angela Merkel's Grand Coalition initiated more 
reform measures, such as a gradual increase in the 
mandatory retirement age from 65 to 67 - a move that would 
add 2.5 million to the workforce by 2030 - and an 
initiative aimed at reducing unemployment among older 
workers and discouraging early retirement.  The former 
grand coalition also encouraged female labor market 
participation by measures that would make it easier for 
mothers to work - for example, longer school hours and 
more day-care centers.  To address the problem of 
Germany's low birth rate, it also adopted a new "parents' 
allowance," which entitles parents who give up work or 
reduce their hours of work to care for their newborn 
children to a compensatory monthly payment for a period of 
one year. 
 
To address rising health care costs, Germany implemented 
numerous health care reforms, most recently in April 2007. 
The introduction of a Health Fund is the key pillar of 
reform: Beginning in 2009, insured persons' contributions 
to the statutory health insurance companies are 
standardized.  For each insured person, the health 
insurance companies receive a flat rate from the Health 
Fund.  At the same time, tax financing of health insurance 
services, such as contribution-exempt insuring of children 
of insured parents, commenced.  From 2009 onward, 
insurance has become compulsory for everyone, and private 
health insurance companies are obliged to accept insured 
persons at the base rate. 
 
Germany does not have a statutory minimum wage.  However, 
binding minimum wages have been established in 14 sectors 
(e.g., construction, electrical trades, painting, mail) 
covering an estimated 1.4 million workers. In August 2009, 
employers and union representatives agreed to introduce 
minimum wages for approximately 170,000 workers in waste 
management, large-scale laundries, and special mining 
services.  The new CDU/CSU-FDP coalition is opposed to the 
introduction of a national minimum wage but advocates a 
legal ban on "immoral" wages, i.e., wages which are one- 
third below average wages in a given sector. 
 
After several years of solid economic growth and declining 
unemployment, the global financial crisis finally hit 
Germany at the end of 2008.  Although the collapse in 
global demand had an especially damaging effect on 
Germany's export-driven economy, the labor market 
weathered the economic crisis exceptionally well, with 
 
employment levels down a mere 0.2 % to 40.4 million year- 
on-year in contrast to a GDP collapse of about 5 %.  The 
number of persons out of work averaged 3.423 million in 
2009, an increase of 155,000 as compared with 2008.  The 
average unemployment rate as a percentage of the total 
civilian labor force rose 0.4 percentage points to 8.2 % 
in 2009. 
 
Among the reasons behind the surprising resiliency of the 
labor market is the widespread use of government-funded 
short-time work programs. Many companies entered the 
recession with a better capital cushion than previously 
and deliberately decided to keep highly skilled labor in 
hopes of riding out the crisis.  In addition, large 
sections of the services sector (e.g., health and welfare, 
education and training) have not been hit by the recession 
and are continuing to create jobs.  But unemployment will 
certainly increase in 2010, since the labor market 
traditionally lags other macro-economic indicators, which 
in late 2009 showed first signs that the recession was 
easing.  Hence, the German government expects unemployment 
to average 3.6 to 3.7 million in 2010. 
 
In June 2009, the Institute of Economic and Social 
Research presented its interim report on Germany's 2009 
round of collective bargaining.  The study evaluates the 
collective agreements concluded in the first half of 2009, 
affecting about 25% of all employees covered by such 
agreements.  Calculated on an annual basis, the average 
increase in wages and salaries amounts to about 3% in 
2009, which is slightly above the average pay increase of 
2.9% in 2008. 
 
There is still a considerable gap in earnings between men 
and women in Germany.  Collective agreements concluded in 
the first half of 2009 did not include provisions to 
tackle wage discrimination and to promote equal 
opportunity. 
 
Since the late 1990s, Germany's system of wage 
determination through multi-company, industry-wide 
contracts has become considerably more decentralized. 
Although sector-wide labor agreements can set wages and 
working conditions at high levels in some industries, 
company-level agreements frequently deviate significantly 
from them.  Many industry-wide contracts have been revised 
in recent years, not only to include highly flexible 
working time arrangements but also to introduce escape 
clauses for ailing companies, and to lower entrance pay 
scales and performance-based annual bonuses.  Moreover, 
the coverage of collective agreements has been declining. 
Multi-company, industry-wide contracts cover about 43.4% 
of all firms; 5.3% are covered by a company-level 
agreement; and 51.3% are not covered at all.  Coverage in 
the eastern states is even lower than in the west.  In 
terms of workers covered by a collective agreement, 73.6% 
of workers are covered, while 26.4% are uncovered.  Again, 
the coverage is higher in the west than in the east. 
 
To cope with the impact of plant closures and 
redundancies, several unions negotiated a new type of 
collective agreement (Sozialtarifvertraege) to regulate 
plant closures or relocations of sites.  These agreements 
usually provide for the transfer of employees to "job 
creation" agencies, training, and redundancy payments. 
 
Germany's education system for skilled labor, combining 
on-the-job and in-school training for apprentices, 
produces many of the skills employers need.  There are 
rigidities in the training system, however, such as 
restrictions on night work for apprentices, to which some 
employers object.  Another criticism is that the system is 
inflexible with regard to occupational categories and 
training standards.  Labor unions complain employers do 
not establish enough training slots and do not hire enough 
of the trainees after their training is completed. 
Regulatory obstacles to workers' mobility remain high in 
Germany (and throughout the EU) and have also contributed 
to serious labor shortages in many high-skilled fields, 
above all for engineering, technical professions and 
manufacturing trades.  An important element of German 
labor market policy is public support for training.  The 
country's response to the crisis has included an expansion 
of existing measures as well as the introduction of new 
schemes, with total additional spending estimated at euro 
1.97 billion, or 36% of the labor market part of the 
 
government's stimulus program.  A 2009 case study found 
that the publicly funded training is helping to address 
skills shortages present before the advent of the crisis. 
 
While trade union membership has continued to decline 
since the beginning of the 1990s, there has been a notable 
slowdown of this development in recent years.  About 21% 
of the workforce is organized into unions.  The 
overwhelming majority are in eight unions largely grouped 
by industry or service sector.  These unions are 
affiliates of the German Trade Union Federation (DGB). 
Several smaller unions exist outside the DGB, principally 
in white-collar professions.  Since peaking at more than 
13 million members shortly after German re-unification, 
total union membership has steadily declined to 6.3 
million at the end of 2008. 
 
Unions' right to strike and the employers' right to lock 
out are protected in the German constitution.  Court 
rulings over the years have limited management recourse to 
lockouts, however.  Institute of Economic and Social 
Research data published in April 2009 reveal that 
industrial action in Germany in 2008 involved 1.6 million 
striking workers - about one million more than in 2007. 
However, the estimate of 542,000 days not worked was about 
25% less than in 2007.  On the other hand, the official 
records of the Federal Employment Agency counted just 
154,052 strikers, amounting to 131,679 days not worked; 
incomplete reporting may explain this disparity. 
 
At the company level, works councils represent the 
interests of workers vis-a-vis their employers.  A works 
council may be elected in all private companies employing 
at least five people.  The rights of the works council 
include the right to be informed, to be consulted, and to 
participate in company decisions.  Works councils often 
help labor and management to settle problems before they 
become disputes and disrupt work. 
 
"Codetermination" laws give the workforce in medium-sized 
or large companies (stock corporations, limited liability 
companies, partnerships limited by shares, co-operatives, 
and mutual insurance companies) significant voting 
representation on the firms' supervisory boards. This 
codetermination in the supervisory board extends to all 
company activities. 
 
Foreign-Trade Zones / Free Ports 
 
There are seven free ports in Germany established and 
operated under EU Community law: Bremerhaven, Cuxhaven, 
Deggendorf, Duisburg, Emden, Hamburg and Kiel.  These 
duty-free zones within the ports also permit value-added 
processing and manufacturing for EU-external markets, 
albeit under certain requirements. All of them are open to 
both domestic and foreign entities.  Falling tariffs and 
the progressive enlargement of the EU have in recent years 
gradually eroded much of the utility and attractiveness of 
duty-free zones, but there are currently no plans to 
eliminate them. 
 
Foreign Direct Investment Statistics 
 
According to the U.S. Department of Commerce's Bureau of 
Economic Analysis, in 2008 German direct investment in the 
United States was worth $211 billion, while U.S. direct 
investment in Germany was worth $110 billion.  Foreign 
investment has been particularly strong in eastern 
Germany, where about 1 trillion euros have been invested 
since 1991, of which an estimated 84% came from private, 
non-government sources.  Some 2,000 foreign companies, 
including 300 U.S. firms, have invested in eastern Germany 
since reunification. 
 
Top 10 U.S. Companies in Germany by 2008 Sales 
 
Company -- Est. Sales in 2008 (in mio euro) 
Ford-Werke GmbH -- 19,762 
ExxonMobil Central Europe Holding GmbH -- 15,200 
Adam Opel *) -- 13,000 
ConocoPhillips Germany *) -- 13,000 
IBM Gruppe Deutschland *) -- 9,300 
GE Deutschland *) -- 9,200 
Philip Morris GmbH -- 6,268 
Hewlett-Packard GmbH -- 5,000 
Dow Group Germany *) -- 4,835 
 
Procter & Gamble *) -- 4,600 
 (Source: American Chamber of Commerce in Germany 
"Commerce Germany" September 2009) 
 
Foreign Direct Investments in Germany by key sectors (2007 
- millions of euros) 
 
Holding companies -- 81,137 
Retail -- 54,462 
Credit and banking -- 47,936 
Data processing -- 40,977 
Chemical industry -- 32,205 
Machine tools -- 16,784 
Insurance -- 16,211 
Services -- 15,372 
Real estate -- 15,214 
Medical, measuring equipment, optics -- 9,369 
Automobiles and parts -- 8,560 
(Source: Deutsche Bundesbank, Bestandserhebung ueber 
Direktinvestitionen) 
 
MURPHY