I.   Commercial Overview

The bonanza that German unification brought to the country's
western producers came to an end in early 1992 as pent-up short-
term demand in the former German Democratic Republic was
satisfied and the global economic slowdown began to affect the
heavily export-oriented German economy.  In 1993 the bellwether
automobile industry, said to account for one German job in every
seven, hit its worst slump in years.  The slumping economy led to
the general realization that the integration of eastern Germany
will be a far costlier and lengthier process than had been
anticipated, and has added strain to the country's financial and
social insurance systems.  Tighter budgets have brought changes
and proposals that would have been unthinkable even a year ago as
it is accepted that there will be less largesse in the system.

Nevertheless, Germany remains the largest economy in Europe and
one which U.S. companies should not fail to address.
Reunification has made the united Germany all the more important
for U.S. exporters - what once was the eastern border of western
Europe is now a potential economic powerhouse in the center of a
democratic and market-oriented continent.  Despite the enormous
costs associated with the unification and, by German standards,
the extraordinarily high level of financial debt with which the
country has to cope, there are now clear signs that recovery is
on the horizon.  Although domestic demand is still weak,
structural changes and other adjustments forced by the recession
are beginning to show positive results.

Many of these changes were taken against the backdrop of
Germany's perennial "Standort" debate, a discussion which
addresses the question whether Germany is losing its
attractiveness as a location for production and investment.  The
proponents of the weakening "Standort" theory argue that there is
a danger that companies will shift production outside Germany's
borders to escape the country's high taxes, rising wages, the
world's shortest work year, and diminished productivity growth.
They add that the pace of technological change and global
competition has made it increasingly difficult for the
"Mittelstand," the medium-sized companies that are the backbone
of the German economy, to keep plant and equipment at state-of-
the-art levels.  However, the latest economic developments,
especially the moderate results of wage negotiations and
increased efforts to overcome structural difficulties and
dropping unit labor costs, tend to refute the perceptions of the
"Standort" theorists.  It is undeniable that Germany is able to
attract and hold investment, witnessed by the more than two
hundred U.S. companies now doing business in eastern Germany,
many of whom have invested in former East German production
facilities and the continued reinvestment of earnings by foreign
investors in Germany.  The volume of trade inquiries, the many
fair exhibitors and business visitors illustrate that the German
market has great appeal to U.S. businesses.

The German market is, in its own right, too big to ignore for
firms seriously engaged in doing business in Europe.  The
accident of geography also places Germany at the center of a new
market-oriented Europe.  While less is heard lately about Germany
as a launching-pad to Eastern Europe and the newly independent
states of the former Soviet Union, Germany's infrastructure,
stability and highly qualified work force can be attractive to
firms doing or planning to do business in those regions.

U.S. firms find Germany a good market for innovative, high
quality products in the medical/technical, computer-assisted
processes, analytical and scientific, chemical,
telecommunications, and fiber optic fields.  The country's
environmental consciousness and the crying need for remediation
of many sites in eastern Germany offer U.S. companies an array of
possibilities.  Recent economic difficulties took the spotlight
away from environmental issues.  With the improvement of the
overall economic performance, one can expect that these issues
will surface again to the very frontline of public concern.
Considered a government responsibility - at the federal, state
and in some cases even municipal level - the clean-up has to be
financed from public monies.

Public procurement totals billions of Deutschmarks, but the
inherent advantages of domestic suppliers mean that successful
American bidders must pick their projects carefully and custom-
tailor their offers.  The ongoing privatization of the
telecommunications sector and the discussion of other areas that
lend themselves to privatization, such as the construction and
operation of German motorways, will open up new business
opportunities.

Germany's reputation as an economic powerhouse that will not
remain down for long seems to be confirmed by the latest economic
studies; in the view of some observers, eastern Germany may well
be the fastest growing economy in Europe for the next twenty
years.  The western German market is a wealthy one, whose
population enjoys a very high standard of living. The market is
normally distinguished by high savings and low inflation rates,
and a remarkably strong and stable currency.  To develop the
market, U.S. exporters must take into account German perceptions
of American suppliers and the quality of U.S. products, as well
as features of the German market which may constitute hurdles to
doing business.

The emergence of new trading rules in the European Union will
have a huge, but usually benign, impact on how U.S. companies
operate in this country.  While Germans, quite naturally, focused
on events to the east during the past three years, the single
Europe evolution has been steadily underway and will be of vast
importance in this market.  The movement toward a Single European
Market ("der Binnenmarkt") has now grabbed the attention of
Germany's producers, particularly those that have survived in the
eastern states and can no longer depend on customers in eastern
Europe or the former Soviet Union.  The growth of the Single
Market will intensify the already strong competition from third-
country suppliers, especially from members of the European Union,
but also from the leading non-EU industrial suppliers such as
Japan, Taiwan, South Korea, Hong Kong and Singapore.

The strongest competition is, and will remain, from German
domestic enterprises or their eventual trans-European successors.
This is due not only to their geographic advantage and their role
as traditional suppliers to the market, but also to the average
citizen's conviction that German products are simply better made
than anyone else's.  German consumers regard U.S. products in
some cases as being of inferior quality, especially in those
product areas in which Germany itself is notably strong.
However, there is also a perception that U.S. quality is
improving and that prices of U.S. products are more competitive
than in the past.
The German perception of low American product quality does not
carry over into high-technology goods, in which the American
talent for innovation is regarded as unsurpassed.  U.S. products
are well thought of where the latest cutting-edge technology is
required:  computer software and peripherals, advanced materials,
electronic components, health care and medical devices,
synthetics, and aerospace technology.  Most such sales are for
intermediate stages of production.  Since the customer's own
product depends on the quality and reliability of the inputs to
the production process, the importance of price is somewhat
outweighed by product dependability and supplier reliability.

Intellectual property rights are a concern as a consequence of
the expanding personal computer market and the spread of
sophisticated software houses.  Software piracy has emerged as an
important question for German and U.S. software producers, the
German authorities, and the European Union.

It is difficult to generalize about the German market for
services, or even to define it.  Conditions of access vary
considerably.  Progress has been made in recent years to permit
increased participation of foreign companies in banking and other
financial services, although the insurance market is still a
tough one to crack.  Telecommunications services are increasingly
deregulated.

Franchising and direct marketing are growing businesses in
Germany and offer a good opportunity to establish a presence in
the market.