SECTION VII. INVESTMENT CLIMATE A. Openness to Foreign Investment Austria meets the requirements of an open investment regime as outlined in this section. Government Attitude toward Foreign Private Investment: The Government of Austria generally welcomes all foreign direct investment, but particularly investment which creates new jobs in high technology and capital intensive industry, improves productivity, replaces imports and/or increases exports and does not have a negative impact on the environment. A large number of foreign firms, including some prominent U.S. companies, have invested in Austria. Most foreign companies have expanded their original investment over time. Some recent foreign investments in manufacturing facilities have encountered local opposition due to environmental concerns. Generally, there are no sectoral preferences. However, investment in sectors with excess capacity, such as steel, textiles and paper, is discouraged. Although there are no geographic restrictions on the location of new investments, preference, and higher incentives are accorded to projects in economically depressed areas, districts bordering on Austria's East European neighbors and specified areas adversely affected by the ailing steel industry or by bankruptcies. Austria's basic policies toward foreign direct investment and investment-related payment transactions are not expected to change in the foreseeable future. Acquisitions, Mergers, Takeovers, Cartels: Takeover of domestic enterprises is permitted and not covered by special legislation. There are no special regulations applicable to foreign investors, and they enjoy the same rights as Austrians. Cartels are generally not prohibited, but are subject to approval and to the control of the cartel court to prevent the abuse of market power. Austrian law applies to foreign cartels that have an impact on the domestic economy through their ability to control the market. The cartel court must be notified of mergers and acquisitions with combined world-wide sales in excess of Austrian Schillings (AS) 3.5 billion and of takeovers, mergers and acquisitions, transfer of production facilities or rights, the direct or indirect purchase of 25 percent or more of one firm by another and other relations between firms which together have an aggregate share of at least 5 percent of the domestic market. Since Austria participates in the European Economic Area, the regulations of the European Union's cartel law must also be observed, particularly by U.S. companies holding investments in several EEA member countries. Screening Mechanisms: In general, foreign investments are not subject to screening. Investments involving an application for government financial assistance are carefully scrutinized by the government and by provincial authorities. Although no special incentives exist for investments that replace imports or increase exports, the anticipated impact of an investment project on Austria's foreign trade balance is a major factor considered during the evaluation process. Similar criteria are employed in evaluating investments likely to contribute to a restructuring or upgrading of Austrian industry. Treatment of Foreign Investors: There have been no reports of discrimination against foreign investors or of any regulations that disadvantage foreign investors. Participation by Austrian citizens in management is not required, but one manager must meet residence and other legal qualifications. Non-residents must appoint a resident to represent them in Austria. B. Conversion and Transfer Policies There are no restrictions on converting or transferring funds associated with investment. The Austrian National Bank, responsible for controlling foreign exchange transactions and cross-border capital transfers, has fully liberalized all cross-border capital transactions for non-residents and residents. The ANB maintains a "hard schilling policy" by adjusting money supply and interest rates to peg the schilling/German mark exchange rate at AS 7 to DM 1. There are no restrictions on participation in Austrian business enterprises, the acquisition of Austrian securities, debt service, repatriation of profits, interest payments, dividends, proceeds from disinvestment or any other cross-border transactions. C. Expropriation and Compensation Nationalization has not been an issue in Austria. Expropriation of private property in Austria may proceed only on the basis of special legal authorization. It must be exclusively in the public interest, with no other way of satisfying this interest and with appropriate compensation. This process is transparent and non-discriminatory with respect to foreign firms. D. Dispute Settlement There are no bilateral investment disputes pending, nor have there been in recent years. Two investments by Chrysler and General Motors were the focus of a dispute between Austria and the EU. The EU claimed exports from the firms were unfairly subsidized by the government of Austria, and threatened to impose punitive tariffs. Austria agreed to reduce subsidies in both cases, and higher tariffs were not imposed. Further negotiations or legal action may take place. Austria has no special investment dispute policy, but the legal system provides for effective enforcement of property and contractual rights. Austria is a member of the International Center for the Settlement of Investment Disputes. E. Political Violence There have been no reports of politically motivated damage to projects. Civil disturbances are extremely rare. F. Performance Requirements/Incentives In general, there are no performance requirements imposed as a condition for establishing, maintaining, or expanding an investment to gain access to tax and other investment incentives. Some performance requirements may be imposed when foreign investors seek special financial assistance from the Austrian Government. There is no requirement that nationals own shares in foreign investments, that the share of foreign equity be reduced over time, or that technology be transferred. G. Right to Private Ownership With the exception of a few sectors, such as state monopolies, broadcasting, railroads, telephone and postal services and gas and electricity supply, foreign and domestic private entities generally are free to establish, acquire and dispose of interests in business enterprises. They compete on an equal footing with public enterprises with regard to market access, credit and other business conditions. In most business activities, 100 percent foreign ownership is permitted. Foreign direct investment is restricted only when competing with state-owned companies including monopolies, broadcasting, railroads, telephone and postal services, gas and electricity supply. A few restrictions, such as license requirements or reciprocity, apply to foreign investments in the banking and insurance sectors. Specific regulations concerning requirements for joint ventures do not exist. H. Protection of Property Rights Austria has a patent law, a trademark law, a law protecting industrial designs and models and a copyright law. Enforcement under Austrian copyright legislation can be complicated. Legislation protects three- dimensional semiconductor chip layout design. Austria is a party to the European Patent Convention, the Patent Cooperation Treaty, the World Intellectual Property Organization, and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purpose of Patent Procedure. Patents on inventions are valid up to 18 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. Austria is also a member of the Madrid Trademark Agreement, which ensures protection in Austria for international trademarks. The protection period for trademarks is 10 years and may be extended by another ten years if registration is renewed in time. Trade secrets are also protected by various regulations; for example the right to privacy, data protection regulations and the federal statistics law prevent publication of production data when there are only four or fewer producers. The copyright law grants the author the exclusive right to publish, distribute, copy, adapt, translate and broadcast his work. I. Regulatory System: Laws and Procedures By joining the EEA, most Austrian regulations have been made compatible to those of the EU, tending to make the Austrian business climate liberal. As Austria prepares to enter the EU in 1995, additional regulations to foster competition will be adopted. Although foreign investors still have to deal with an elaborate system of bureaucratic procedures, tax and labor laws, as well as health and safety standards, are applied uniformly and do not influence the sectoral allocation of investments. Adaption of EEA laws and regulations has led to discrimination against non-EEA firms. For example, the rate of tax on premiums is significantly lower on companies resident in the EEA than those which are not. Also, non-EEA banks will not be allowed to count headquarters capital in calculating limits for loans and foreign exchange positions. J. Bilateral Investment Agreements Austria has bilateral investment agreements in force with Cape Verde, China, Hungary, Malaysia, Poland, Romania, South Korea, Turkey. It has similar agreements with Albania, Argentina, Bulgaria, Morocco and Paraguay. The agreement with the former Czechoslovakia is applied provisionally to both the Czech Republic and Slovakia. The agreement with the former Soviet Union is applied provisionally to the Russian Federation. The agreement with the former Yugoslavia is applied provisionally to Croatia and Slovenia. However, these provisional agreements will have to be renegotiated with the other successor states of the former Soviet Union. Under the agreements, investment disputes that cannot be settled amicably are submitted to the International Centre for Settlement of Investment Disputes or an arbitration court, in accordance with UNCITRAL arbitration regulations. K. OPIC and other Investment Insurance Programs OPIC has a cooperation agreement with Austria's Finance Guarantee Company enabling U.S. firms to secure cover for investments in Central and Eastern Europe through Austrian partners. Austria is not a member of the Multilateral Investment Guarantee Agency and has no plans to join it. L. Labor Austria has a highly educated labor force of 3.7 million. Under a quota system, only 9 percent of those employed may be foreign workers. In 1993, there were 271,000 foreign workers, leaving 25,000 unfilled positions under the quota. While demographic trends indicate there will be little growth in the labor force in the 1990s, productivity gains, industrial restructuring and increasing female employment will ensure an adequate labor supply over the next few years. Moreover, immigrants and refugees from Eastern Europe will be integrated into the labor force. Nevertheless, shortages of highly specialized labor may occur. Most employment terms are covered by detailed laws and regulations. Issues regulated by law include working hours, minimum vacation time, maternity leave, juvenile work allowances, statutory separation notice, protection against dismissal (except for reasons stipulated by law) and the right to severance pay. Collective bargaining is concerned mainly with wage adjustments, fringe benefits and the reduction of the work week. Flexible working hours were introduced several years ago and enjoy great popularity. While the law still provides for a maximum of 40 hours per week, collective bargaining agreements provide for a work week of 38 or 38.5 hours per week for more than half of all employees. As a result of the pressure of cheap labor from Eastern Europe, the trend to reduce the work week further to 35 hours seems to have come to a halt and is no longer a priority for organized labor. The unions' current request for a minimum wage of AS 10,000 per month clearly has higher priority. Austria's labor force is organized to a high degree; about 60 percent of all employees are members of unions. Shop stewards must be consulted on various issues. Co-determination rights of employees are regulated by law; one third of the members of a company's supervisory board must come from the firm's staff. Labor-management relations are generally harmonious and strikes are rare. In 1993, time lost per capita by strikes was only 2 minutes and 4 seconds. Austria generally adheres to the International Labor Organization conventions protecting workers rights. 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 up to a maximum amount (AS 36,000 in 1994), which is adjusted annually. The contributions are shared by employers and employees. M. Foreign-Trade Zones/Free Ports Austria has four foreign trade zones, in Vienna, Linz, Graz and Solbad Hall, where products of foreign origin may be stored, displayed, sampled, mixed, sorted, repacked or reexported without the obligation to pay duty. Their impact has been limited and foreign investors have shown little interest. N. Capital Outflow Policy Effective November 4, 1991 the Austrian National Bank removed all remaining restrictions on cross-border capital movements, inflows as well as outflows. Austrian firms investing abroad are eligible for financing and guarantee programs. Under its export financing program, the Austrian Kontrollbank also refinances commercial bank loans for Austrian firms to acquire and participate in firms abroad. Depending on the project, up to 100 percent of the contract price is eligible for refinancing at a mix of fixed and variable rates. The variable rate is adjusted quarterly. Also available from the Austrian Kontrollbank are start-up loans for financing Austrian investment and joint ventures in developing countries that serve to promote Austrian exports. Loans are available for up to 100 percent at favorable terms (currently 4.3 percent annually plus a guarantee fee). A similar program, with slightly less favorable terms (5.13 percent plus guarantee fee) and for a maximum of only 8 years, is available for projects in industrialized countries for marketing, maintenance and assembly of goods made in Austria, or promoting the sale of Austrian services. Government guarantees to cover economic and political risks must be obtained for these programs and are available from Kontrollbank starting at 0.5 percent annually of the amount covered. Guarantees to cover the economic risks of foreign investments in all countries are available under a separate program from the Finance Guarantee Company, which operates the East-West Fund. The Fund provides risk sharing guarantees for direct investments abroad and insolvency risk guarantees at 1.0 percent of the project costs plus an 0.5 percent handling fee. O. Major Foreign Investors Close to 300 U.S. firms hold investments in Austria, which range from simple sales offices to major production facilities. Some of the U.S. firms holding important investments in Austria are: American Express Bank Ltd. Chrysler International Corp. Cincinnati Milacron, Inc. Citibank Overseas Investment Corp. Coca Cola Export Corp. Control Data Corp. CPC International Inc. Eastman Kodak Company The Emcom Group, Inc. Exxon Corporation General Electric Capital Corporation General Motors Corp. Harman International Industries Inc. Hercules Inc. Honeywell Inc. IBM World Trade Europe/Middle East/Africa Corp. ITT Corp. Johnson and Johnson Mannesmann Tally Corp. Mars Inc. Merrill Lynch and Co., Inc. Mobil Oil Corporation Nalco Chemical Company Otis International Elevator Pioneer Overseas Corp. PQ International Inc. Reynolds International Inc. TRW Inc. WEA International Inc. Wm. Wrigley Jr. Company Among firms from other countries holding substantial investments in Austria are: AEG AG, Germany Allianz AG, Germany ASEA Brown Boveri, Switzerland and Sweden Assicurazioni Generali, Italy Axel Springer Verlag, Germany Bahlsen, Switzerland Bancario San Paolo di Torino, Italy BASF, Germany Bayer AG, Germany Bayerische Motorenwerke (BMW), Germany Bayerische Vereinsbank AG, Germany Berliner Handelsgesellschaft Frankfurter Bank, Germany Bombardier, Canada Robert Bosch AG, Germany Colonia Versicherungs AG, Germany Continental Gummiwerke AG, Germany Deutsche Bank, Germany Hafslund Nycomed, Norway Head-Tyrolia-Mares, Japan and U.S. Henkel, Germany Hipp, Germany Hoechst AG, Germany Hungarian National Bank, Hungary Interhoerbiger, Switzerland Jacobs Suchard, Switzerland Karl Kaessbohrer Fahrzeugwerke, Germany Kone Oy, Finland Liebherr, Germany MAN, Germany Mannesmann AG, Germany Mazda Corp., Japan Milupa, Germany Nestle S.A., Switzerland NV Koninklijke KNP Paper Company, Netherlands Papierwerke Waldhof Aschaffenburg, Germany Philips Gloeilampenfabrieken, Netherlands Piaggio, Italy Pilkington Overseas, U.K. (through Flachglas AG, Germany) Rhone-Poulenc, France Riunione Adriatica di Sicurta (RAS), Italy Rothenberger, Germany Russian Central Bank, CIS Sandoz AG, Switzerland Schickedanz (Quelle), Germany Shell Petroleum N.V., Netherlands Siemens, Germany Solvay et Cie, Belgium Sony, Japan Svenska Cellulosa AB, Sweden Thyll Management AG, Switzerland Tsuzuki Spinning Co., Japan Unilever N.V., Netherlands Voith, Germany Westdeutsche Allgemeine Zeitung (WAZ), Germany