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Text File | 1994-05-02 | 21KB | 405 lines

<text> <title> Austria: Economic Policy </title> <article> <hdr> Economic Policy and Trade Practices: Austria </hdr> <body> 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.