1. General Policy Framework

Austria, a member of the European Free Trade Association (EFTA) and the OECD, has a free market economy with a significant but declining state-owned sector. The state-owned sector consists of heavy industries, energy production, railroads, postal services, monopolies such as tobacco and gambling, and some banks. The Grand Coalition Government formed in December 1990 is continuing the ambitious reform program launched by the outgoing Government which pursued federal budget consolidation, deregulation, privatization, industrial restructuring and an impressive income/corporate tax reform. On July 31, 1991 almost two years after the Austrian Government applied for EC membership, the EC Commission issued its opinion (avis) stating Austria's economy would fit well with the Community and that the EC would benefit from Austria's accession. However, formal negotiations on Austria's application are not expected to start before 1993. Meanwhile, Austria will continue moving autonomously to harmonize its laws and regulations with the European Community's. Austria's participation in the European Economic Area (EEA), which the EC and EFTA have agreed to form in 1993 to eliminate economic barriers between the two groups, will give further impetus to this harmonization. Participation in the EEA will require the country to adopt about 60 percent of the existing EC directives and regulations and to amend over 1,200 existing Acts of Parliament. Given Austria's economic policies, the significant stimulus from a reunited Germany, growing exports, and strong investment levels, Austria's economy continued booming with 4.9 percent real growth in 1990.

Efforts to cut the federal budget deficit have slowed. While the government succeeded in reducing the deficit from 5.1 percent of GDP in 1986 to 3.5 percent in 1990, the Federal Government's deficit held at 3.5 percent of GDP in 1991. The budget deficit target is 3.0 percent of GDP in 1992, but defaults on loans to Eastern Europe or refinancing schemes will considerably burden the federal budget. Polish debt reduction alone will cost Austria AS 2.3 billion in 1992, the highest per capita cost among all of Poland's creditors.

With the economic transformation underway in Central and Eastern Europe, Austria has increased trade and investment activities in the region. Austria is also using its companies' long standing experience in Central and Eastern Europe and its geographical position to attract Western companies. Austria has become an important gateway for Western companies interested in that area's markets. In addition, the Austrian Government has launched several loan and guarantee programs to spur direct investments in these countries. One result is that Austria's Finance Guarantee Company (FGG) concluded a cooperation arrangement with its U.S. counterpart, the Overseas Private Investment Corporation (OPIC), to encourage U.S./Austrian joint ventures in Central and Eastern Europe.

As a member of the General Agreement on Tariffs and Trade (GATT), Austria affords most favored nation status to other members, including the United States. Austria is actively participating in the Uruguay Round and reduced custom tariffs on about 1,800 items, effective January 1, 1990, as an advance concession in the negotiations.

2. Exchange Rate Policies

The Austrian National Bank's "Hard Schilling Policy" which in effect pegs the schilling to the Deutsche mark, is designed to avoid exchange rate fluctuations vis-a-vis Germany--Austria's most important trading partner--and to minimize imported inflation. In contrast to the Bank's previous practice of maintaining interest rates slightly above the German ones to discourage financial outflows, the Bank raised the discount and lombard rates to new levels equaling those set by the German Bundesbank in August 1991 because Austria's economic indicators were stronger than Germany's. The linkage to the mark is not expected to change unless the reunited Germany produces a strong inflationary trend.

In the last of a series of moves begun in 1986 to free international financial flows, the National Bank announced liberalization of all cross-border capital transactions as of November 4, 1991. Austria will maintain only a few reservations to the OECD's Capital Movements and Invisible Transactions Codes, but the remaining reservations are not based on foreign exchange restrictions. Bonds issued by Austrian firms abroad and foreign bonds issued on the Austrian market remain subject to Finance Ministry approval. The requirement for such approval will be waived when the new Capital Market Law becomes effective, most likely on January 1, 1992.

3. Structural Policies

There are a number of Austrian regulations which create a somewhat rigid business climate and in some cases limit competition. Factors affecting market access and consequently competition include monopolies, business licenses, technical standards, worker safety standards, environmental protection regulations, the Cartel Law, the Price Law, the Law against Unfair Competition, and subsidy programs. The Social Partnership, the system whereby the leaders of Austria's labor, business, and agricultural institutions maintain an on-going dialog and give their concurrence to new economic legislation, means these organizations have a strong influence on the full range of economic policies. Federal purchases are made by the agency concerned on the basis of public tenders.

Government monopolies exist in a few areas. Austrian legislation establishing the salt, alcohol, and tobacco monopolies limits trade in these products. Cigarette imports from the United States were eased with the changes in the tobacco monopoly that were implemented in September 1990. The salt and alcohol monopolies are expected to change with the European Economic Area, although Austria won a three year transition period for these monopolies under EC rules. A variety of products are subject to price controls, including milk, and sugar. Other price-controlled products are some refined oil products, electricity, building materials, metal and foundry products, scrap metal, pharmaceuticals, tobacco and cigarettes.

The personal income/and corporate tax reform implemented in 1989, has improved the Austrian business climate as companies benefit from lower tax rates. The top corporate tax rate is now 30 percent. The 1989 tax reform lowered the tax burden from 23.9 percent of GDP in 1988 to 23.1 percent in 1989. A second tax reform planned to take place over next two years is likely to lower value added tax (VAT) rates and abolish the 32 percent VAT rate on luxury goods; raise consumption taxes; and introduce a new tax on waste water and fossil energy and on registration of cars.

No government policies which discriminate specifically against U.S. investors are known. The same rules and regulations on investments apply to both foreign and Austrian investors; foreign-owned firms receive national treatment. Important regulations which affect investment include those which cover real estate acquisition, the Business Code of 1973, the Limited Liability Company Act, the Cartel Act, and the Product Liability Act. In Austria one must obtain a business license for any type of business. License holders must have a specified type of education and work experience. If a foreigner applies for a license, the principle of reciprocity is applied.

Austria's participation in the European Economic Area will require a number of changes so that about 60 percent of Austrian laws and regulations will conform with EC norms. The Austrian Government is, therefore, preparing new laws that will lift price controls, abolish licensing restrictions, and amend the country's Cartel Law.

4. Debt Management Policies

Austria's external debt management has no implications for U.S. trade. At the end of 1990, Austria's external federal debt amounted to AS 135.4 billion (7.6 percent of GDP). Thirty-five percent of the foreign debt is denominated in Deutsche marks, 35.6 percent in Swiss francs, 24.5 percent in Japanese yen, and 0.1 percent in U.S. dollars. The external federal debt service amounted to AS 20.8 billion in 1990. This was equal to 1.2 percent of GDP, 3.7 percent of total federal budget expenditures, 4.7 percent of merchandise export earnings or 2.8 percent of all earning from exports of goods and services.

The Austrian Government enjoys an excellent relationship with domestic and foreign creditors. According to "Institutional Investor," Austria's creditworthiness is the eighth best in the world. Republic of Austria bonds are rated AAA; the Austrian Government and banks cooperate with other international creditors in rescheduling developing country and Eastern European debts.

5. Significant Barriers to U.S. Exports

In general, there are no major political, cultural, tariff, nontariff, or other barriers that inhibit or restrict trade in U.S. goods and services. There exist, however, a few Austrian regulations or requirements which may discourage or delay imports from abroad but do not represent legal barriers of a discriminatory nature.

Discretionary licenses are required for imports of some food products, including dairy products, red meats, poultry, grains (except rice), fruits, vegetables, and sugar. Imports of cement and its compounds were restricted to 200,000 tons annually as of September 1, 1991. The Austrian Government imposed the restriction because of charges that Czechoslovak producers were dumping cement in Austria.

Austria's service barriers are limited to certain restrictions existing primarily in banking, insurance, and legal services. Foreign services companies are required to obtain business licenses, as are Austrian firms. Banks must apply for a license from the Finance Ministry, which may deny the application if the proposed banking activity is "against national economic interests." A 1989 court decision, however, reduced the Ministry's authority to block the entry of foreign-owned banks. Insurance companies wishing to operate in Austria have to establish a branch office and must have at least two managers resident in Austria. Other financial services providers, such as accountants, tax consultants, and property consultants, must provide specific proof of their qualifications, such as university education or a number of years in practice. Other services companies also require a business license, one of the preconditions of which is legal residence. As a result, U.S. services companies often have to form a joint venture with an Austrian firm.

The imports of feedstuffs, plant pesticides, pharmaceutical specialities, or electrical equipment are permitted only if the products pass standards set by the Austrian Testing Institute or a government agency. Due to broad and diverse testing procedures, responses may take as long as three or four years. Textile products, clothing, steel, household chemicals, soaps, toiletries, and cosmetic preparations must be marked and labeled in German under the Austrian Consumer Protection Law and the Law against Unfair Competition.

The Austrian Government maintains no significant investment barriers and it has a special interest in any foreign investment which creates new jobs in high-technology sectors, improves productivity, or which restructures and strengthens traditional industries. Takeovers of healthy domestic enterprises are permitted. With 30 percent of Austria's private-sector industries owned by foreigners, there is some concern that foreign companies may have too large a presence in some sectors of the economy. Nevertheless, the Government continues strongly encouraging foreign investment in Austria even though foreign direct investment in the nationalized sector is restricted and a few restrictions, such as license requirements or reciprocity, apply to foreign investments in banking and insurance. Still, obtaining approval for new operations in Austria means investors have to deal with complicated administrative procedures. It is also rather complicated for foreigners to purchase real estate, due to the different provinces' environmental regulations and land utilization plans. Repatriation of earnings, interest payments, and dividends, as well as of proceeds from disinvestment, is not restricted.

Government procurement practices are subject to the Multilateral Trade Negotiations Agreement on Government Procurement which Austria ratified and implemented. Provincial and municipal governments are not required to comply with the rules. Austria does not have a restrictive "buy-national" law, but the Government does recommend buying Austrian products. The principle of the best bidder is usually valid. Bid times are sufficiently long to allow foreign firms to submit bids on time. Federal agencies publish public tender notices in English and German, although tender documents are only available in German. For certain products, such as medical equipment and computers, intensive service and maintenance requirements may demand the presence of a representative or subsidiary in Austria.

There is no record of any burdensome administrative customs procedures or any special customs document requirements.

The import and marketing of all radio and television transmitting and receiving equipment, including cordless telephones, pagers, dialing and answering devices, modems, telecopiers, and value added telecommunications services, must be approved by the Austrian Post and Telegraph Administration (PTT). Compared with other countries, the Austrian approval policy for customer premises equipment is rather liberal. However, the approval requirement may prevent or delay imports of certain products, especially of highly sophisticated equipment.

6. Export Subsidies Policies

Austria adheres to the OECD Export Credit Arrangement and is a member of the GATT Subsidies Code. The Government subsidizes exports by providing export promotion loans and guarantees. With the liberalization in Eastern Europe and those countries' outstanding debts to Austria, the Kontrollbank, Austria's export financing agency, has revised its guarantee policy. The most important of the changes implemented in the middle of 1991 in Kontrollbank's export guarantee system is that the previously fixed rates for guarantees now vary according to country risk and the exporter's history of losses. As a result, export guarantees, particularly for shipments to non-OECD countries, are noticeably more expensive. The Austrian Government also decided to be more restrictive in extending soft loans. The Export Fund provides a similar export financing program for small and medium-sized companies with annual export sales of up to AS 100 million. In addition, there are subsidies for exports of grain, dairy products, breeder and dairy cattle, slaughter cattle, and beef.

7. Protection of U.S. Intellectual Property

Austria is a member of the World Intellectual Property Organization as well as of the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Patent Cooperation Treaty, the Geneva Phonograms Conventions, and the Brussels Satellite Conventions. In addition, it signed the Budapest Treaty on International Recognition of the Deposit of Micro Organisms for the Purpose of Patent Procedure.

The Austrian Government is not particularly active on intellectual property protection issues because Austrian products have not been frequent victims of counterfeiting, piracy, or patent infringements. As a result, there is no domestic industrial lobby pushing for stronger intellectual property rights.

Austria has a law against unfair competition, a patent law, a trademark law, a law protecting industrial designs and models, and since 1989, a law protecting the pattern design of semiconductors. Since both the United States and Austria are members of the "Paris Union" International Convention for the Protection of Industrial Property, U.S. investors are entitled to the same protection under Austrian patent legislation as Austrian nationals. Patents on inventions are valid up to 18 years after application. Austria is also a member of the Madrid Trademark Agreement which means an international trademark registration will also ensure trademark protection in Austria. Trademarks are protected for ten years and may be protected for another 10 years if the company renews the registration in time. Protection for industrial designs and models was extended up to 15 years under the new law effective January 1, 1991.

A levy on imports of home video cassettes and a compulsory license for cable transmission is required under Austrian copyright law. The resulting revenues are collected and distributed by marketing companies with 51 percent of the total collected going to a special fund used for social and cultural projects. United States producers cannot share in the revenues derived from the levy as the copyright law only protects those works of foreign authors covered by the relevant state treaties or whose countries offer reciprocal rights.

Austria is now working on amending the copyright law to make its laws fit with the EC's antipiracy act. There are no estimates of losses to U.S. firms caused by intellectual property infringements in Austria; any such losses are believed to be negligible.

8. Worker Rights

a. Right of Association

Workers in Austria have the constitutional right to associate freely and the de facto right to strike. Guarantees in the Austrian Constitution governing freedom of association cover the rights of workers to join unions and engage in union activities. Labor participates in the "social partnership," Austria's unofficial tripartite forum which has significant influence on economic policy. All workers except civil servants are members of the Austrian Chambers of Labor which do research, prepare legislative proposals, and provide legal services.

b. Right to Organize and Bargain Collectively

Austrian unions enjoy the right to organize and bargain collectively. The Austrian Trade Union Federation (ATUF) is exclusively responsible for collective bargaining. ATUF leadership is democratically elected. Workers are legally entitled to elect one-third of the board of major companies. Employers are legally obligated to prove that job dismissals are not motivated by antiunion discrimination.

c. Prohibition of Forced or Compulsory Labor

Forced or compulsory labor is prohibited by law.

d. Minimum Age for Employment of Children

The minimum legal working age is 15 and the law is effectively enforced by the Labor Inspectorate of the Ministry for Social Affairs.

e. Acceptable Conditions of Work

There is no legally-mandated minimum wage in Austria. Instead, minimum wage scales are set in annual collective bargaining agreements between employers and employee organizations. Any breach of the contract can be challenged before the Labor Court. In addition, there are social welfare benefits to help those whose incomes fall below the poverty line. Over 50 percent of the workforce works a maximum of either 38 or 38.5 hours per week, a result of collective bargaining agreements. Health and safety standards are high and strictly enforced.

f. Rights in Sectors with U.S. Investment

Since labor laws practices are uniform throughout Austria, working conditions in the sectors in which U.S. capital is invested do not differ from those in other sectors of the economy.

Source: National Trade Data Bank, Agency: U.S. Department of State