2005 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA

UNCLAS SECTION 01 OF 13 VIENNA 000138

SIPDIS

STATE FOR EB/IFD/OIA, EUR/ERA AND EUR/AGS
USDOC ALSO FOR 4212/MAC/EUR/OWE/PDACHER

E.O. 12958: N/A
TAGS: EINV EFIN ELAB ETRD PGOV KTDB AU OPIC USTR
SUBJECT: 2005 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA

REF: 04 STATE 250356


1. Following is 2005 Investment Climate Statement for
Austria, keyed to reftel instructions:

Investment Climate Statement - Austria 2005
--------------

Introduction
--------------

With the European Union's (EU) enlargement in May 2004,
Austria's location became central in the EU. As an
investment location, Austria, and Vienna in particular,
faces growing competition from its Eastern neighbors, all
of which are now EU members. Budapest, Prague and
Bratislava are competing directly with Vienna for foreign
investors. Many have pointed out that direct
transportation links among Austria's Eastern neighbors
are in some places better then those running through
Austria. The Austrian Government has long-term plans to
address these infrastructure gaps. However, many view
the current state of transport links as a missed
opportunity. The government's 2005 corporate tax cut is
a major step towards remaining competitive vis--vis
Austria's new EU neighbors. Some 360 U.S. companies
have invested in Austria and most have expanded their
original investment over time.

Austria continues to offer some advantages, but also some
challenges to foreign investors. We have sought to
describe both below in candid terms for the benefit of
potential investors.


A.1. Openness to Foreign Investment
--------------

Government attitude toward foreign private investment:
-------------- --------------

The second Schuessel government -- a coalition between
the Austrian People's Party (OVP) and the Freedom Party
(FPO) in office since February 2003 -- has continued the
comprehensive economic reform program Schuessel had begun
in 2000. The government's aim is to streamline
government, create a more competitive business
environment, and further strengthen Austria's
attractiveness as a location for investment. According
to many observers, in comparison to other EU member
states, Austria has made a major policy shift in recent
years by pursuing a balanced budget, pension and health
care system reform; creating financial market supervision
and competition policy bodies; and implementing a
corporate tax cut in 2005. The policy shift addressed
long-standing imbalances and should improve the Austrian
economy's long-term growth potential. Structural
reforms, which the economy still needs, include
downsizing the public sector, simplifying and
streamlining the social welfare system, raising the labor
participation rate, and introducing more flexible work
hours. Budget consolidation will remain a goal in
accordance with the EMU's Stability and Growth Pact.
However, balancing the consolidated public sector budget
is now a medium-term goal over the economic cycle. The
government continues privatizations.

Austria has been virtually a strike-free country.
However, in 2003 Austria experienced two large strikes in
response to government pension and railroad reform
initiatives. Most observers characterized these strikes
as political actions against the government rather than
management-labor disputes, and noted that they had
limited and only transitory economic impact. Austria has
remained virtually strike-free since 2003, despite
continued implementation of the government's reform
agenda, including contentious issues such as
harmonization of different pension systems.

Liberalization and deregulation in the energy and telecom
sectors have lowered prices to business users. However,
continued barriers to entry and to competition have
resulted in only partial liberalization. Charges in some
areas, such as electrical network tariffs, have remained
above average, according to the International Energy
Agency.

Austria welcomes all foreign direct investment that does
not have a negative impact on the environment,
particularly those investments that create new jobs in
high technology, promote capital-intensive industries,
are linked with research activities, improve
productivity, replace imports, and increase exports.
Austria is a high-tax country, but is becoming
increasingly attractive for companies and headquarters.
Since 2002, special tax incentives for industrial
research are available to stimulate research-based
investment. A major tax cut, effective January 1, 2005,
reduces the corporate tax rate to 25% from 34%. Because
of tax base adjustments, experts estimated the effective
corporate tax burden at 22%. At the same time, a highly
favorable new provision for group taxation, unique in
Europe, allows offsetting profits and losses of group
operations (requiring direct or indirect participation of
more than 50%, but no other financial, economic or
organizational integration) in Austria and abroad. This
new group taxation system should offer interesting
opportunities for U.S. investors, in particular joint-
venture structures, M&A transactions, headquarter
companies and simple holding companies without active
business, which can also participate in the tax group.
The corporate tax cut and group taxation aim to keep
Austria competitive vis--vis the neighboring new EU
members with their low corporate tax rates.

The Austrian Government assesses the business profits of
non-corporations at half the income tax rate to which
they would be subject based on the income alone. Austria
has no wealth or net worth tax, and no trade tax
(Gewerbesteuer),unlike neighboring Germany. As a result
of the 2005 corporate and income tax cuts, Austria's
share of total tax and social payments should decline
from 44.1% of GDP in 2002 (sixth among OECD members in
total tax and social payments) to 41.6% in 2005. The
government's goal is to reduce the share of taxes in GDP
further to 40% by 2010, which will require substantial
additional cuts in budget expenditures.

In some regions, Austria also offers special facilities
and services ("cluster" packages) to foreign investors.
For example, these can include automotive producers or
manufacturers of chips, silicon, and high-tech products.
Observers do not expect Austria's basic policies toward
foreign direct investment to change in coming years. A
large number of foreign firms, including some 360 U.S.
companies, have invested in Austria and most have
expanded their original investment over time.

There are no formal sectoral or geographic restrictions
on foreign investment. Austria offers financial and tax
incentives within EU parameters to firms undertaking
projects in economically depressed areas and
underdeveloped districts on Austria's eastern and
southern borders. Until the end of 2006, some of these
areas are still eligible for subsidies under EU regional
and cross-border programs. Most of these subsidies have
already been allocated. The only instances of local
opposition to investment in the manufacturing sector have
arisen out of environmental concerns.

Potential U.S. investors need to factor Austria's strict
environmental laws into their decision-making process.
Austria has imposed marketing bans on some agricultural
biotechnology seeds despite existing EU approvals. The
European Commission has not yet taken steps to overturn
the bans, despite the fact that the EU's Scientific
Committee has found no justification for the bans and the
EU Moratorium on new approvals has ended. For future
varieties, new EU legislation on the deliberate release
of genetically modified organisms and on traceability and
labeling requires Austria to allow GMO seeds on the
fields and foods in the stores. However, strict
liability regulations for research, production, and
distribution of GMOs still apply. U.S. investors
considering production facilities emitting CO2 in Austria
will have to take into consideration Austria's commitment
to cut its CO2 emissions by 13% from the 1990 level
according to the Kyoto Protocol (1997). They will also
have to scrutinize Austria's national implementation of
the EU's regulatory framework on greenhouse gas emissions
and trading, which enters into force in 2005.

In investor surveys and international rankings, Austria
consistently earns high marks for personal security,
quality of life, rule of law, skill and motivation of
labor, health infrastructure, and mobile phone costs.
However, Austria receives low marks for the tax burden,
rigid labor practices, patent registration, relative lack
of risk capital financing, restrictive immigration laws,
the size of the public sector, and regulatory red tape.
With its 2005 corporate tax cut, the government has
addressed one major investment disincentive. Surveys
show that Austria faces stiffer competition from Central
and Eastern European (CEE) markets, as well as from the
ten new EU members, particularly the four that border
Austria. This competition is especially noticeable in
sectors where wage costs are decisive.
Acquisitions, mergers, takeovers, cartels:
--------------
The independent Federal Competition Authority (FCA) and a
federal public cartel prosecutor are responsible for
administering the anti-trust law. In past years, the FCA
has not been particularly pro-active, reportedly due to a
shortage of personnel.
International acquisitions and takeovers of domestic
enterprises are permitted in Austria. International
cartels are not prohibited, but are subject to oversight
by the cartel court to prevent the abuse of market power.
Cartel court consent requires that the applicant refrain
from market behavior that would limit or impede
competition. Selling below cost is considered one
possible abuse of a dominant market position. The cartel
court must be notified of mergers and acquisitions if
combined worldwide sales are in excess of Euro 300
million (USD 375 million at the current exchange rate of
USD 1.00 to Euro 0.80),if domestic sales exceed Euro 15
million (USD 18.8 million),or if two of the firms
involved each have worldwide sales exceeding Euro 2.0
million (USD 2.5 million). Anti-trust regulations do not
provide for the dissolution of previously completed and
approved mergers. An independent energy regulatory
authority separately examines antitrust concerns in the
energy sector. However, it did not raise objections to a
2002 alliance between the two largest Austrian
electricity providers, which captured two-thirds of the
market.

The 1999 takeover law applies to both friendly and
unsolicited takeovers of corporations headquartered in
Austria and listed on the Vienna Stock Exchange. It
protects investors against unfair practices, since any
shareholder obtaining a controlling stake in a
corporation (30% or more of all shares) must offer to buy
out smaller shareholders at a defined "fair market"
price. An independent takeover commission at the Vienna
Stock Exchange oversees compliance.

Screening mechanisms:
--------------

Only those foreign investments with Austrian government
financial assistance are subject to government overview.
Screening is intended only to ensure compliance with EU
regulations, which limit such assistance to disadvantaged
geographic areas.

Privatization:
--------------
In the ongoing privatization of public enterprises,
foreign and domestic investors receive equal treatment,
in principle. In line with its privatization initiative,
the previous government sold 100% of its shares in the
Postal Savings Bank, the Dorotheum Auction House and
Bank, and the Print Media printing concern. It also
divested its remaining 41.1% share of the Austrian
Tobacco Company, a 17.4% stake in the Vienna airport
company, and a majority of shares in Telekom Austria
(TA). In 2003, the second Schuessel government sold its
34.7% stake in Voest-Alpine (VA) steel, a leading
European steel producer, and its 25% shareholding in
Boehler Uddeholm, an important tool and specialty steel
manufacturer. In December 2004, the government sold
another 17% in TA to national and international
institutional investors. In January 2005, the government
sold a 14.7% share in VA Tech, a metallurgy, power
generation and infrastructure conglomerate, to Siemens.
Siemens already held a 16.5% share and has made a public
takeover bid. The government's further near-term
privatization plans include selling off the remaining
30.2% shareholding in TA and a minority share in the
Postal company.

The Austrian Government has expressed a preference for
"Austrian solutions" in many sectors, promoting an
Austrian core shareholding through syndicates, including
banks, insurance companies, pension funds and industrial
enterprises. However, foreign investors have been
successful in obtaining shares in important Austrian
industry sectors, including the telecom sector, in
Austria's largest bank, Bank Austria, the Austrian
Tobacco Company, and VA Tech.

Treatment of foreign investors:
--------------

There is no discrimination against foreign investors, but
they are required to follow a number of regulations.
Although there is no requirement for participation by
Austrian citizens in ownership or management, at least
one manager must meet residence and other legal
requirements. Non-residents must appoint a
representative in Austria. Expatriates are allowed to
deduct certain expenses (costs associated with moving,
maintaining a double residence, education of children)
from Austrian-earned income. A 2003 amendment of the
Austrian immigration law requires permanent legal
residents to take German language and civics courses.
Foreign executives and their dependents (who are
technically in one of the affected visa categories) are
exempt.

Investment incentives:
--------------

Until 2006, 41% of Austria's land area is eligible for
support under various EU structural fund programs. The
Austrian federal, provincial, and local governments also
provide financial incentives within EU guidelines to
promote investments in Austria. Incentives under these
programs are equally available to domestic and foreign
investors, and range from tax incentives to preferential
loans, guarantees and grants. Most of these incentives
are available only if the planned investment meets
specified criteria (e.g., implementation of new
technology, reducing unemployment, etc.). Tax allowances
for advanced employee training and R&D expenditures are
available. The government has merged various
institutions providing financial incentives into a "one-
stop shop" named the Austria Wirtschaftsservice (further
information, in German language only, is available under
http://www.awsg.at and http://www.foerderportal.at).


A.2. Conversion and Transfer Policies
--------------

There are no restrictions on converting or transferring
funds associated with foreign investment. In Austria,
all cross-border capital transactions for non-residents
and residents, including the acquisition of Austrian
securities, debt service, and the repatriation of
profits, interest payments, dividends, and proceeds from
the sale of an investment are fully liberalized.

The Euro, a freely convertible currency, is the only
legal tender in Austria. Use of the Euro shields
investors from any exchange rate risk in the entire Euro-
area, where the Euro is legal tender. The eleven other
member countries of the European Monetary Union (EMU)
are: Belgium, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Netherlands, Portugal, and Spain.

The European Central Bank (ECB) is responsible for
setting monetary policy in the EMU area. The ECB's
primary goal in defining monetary policy is to maintain
price stability. The Austrian National Bank has one seat
and one vote on the ECB's Governing Council.


A.3. Expropriation and Compensation
--------------

Expropriation of private property in Austria is rare and
may proceed only on the basis of special legal
authorization. The government can instigate it only when
no other alternative for satisfying the public interest
exists; when the action is exclusively in the public
interest; and when the owner receives just compensation.
The expropriation process is fully transparent and non-
discriminatory towards foreign firms.


A.4. Dispute Settlement
--------------

The Austrian legal system provides an effective means for
protecting property and contractual rights of nationals
and foreigners. Additionally, Austria is a member of the
International Center for the Settlement of Investment
Disputes. The New York Convention of 1958 also grants
enforcement of foreign arbitration awards in Austria.
There have been no recent reports of bilateral investment
disputes.


A.5. Performance Requirements/Incentives
--------------

Austria is in compliance with the World Trade
Organization Trade Related Investment Measures (TRIMS)
agreement. There are virtually no restrictions on
foreign investment in Austria and foreign investors
receive national treatment in the main. However, some
requirements exist. For example, at least one manager
must meet residency and other legal qualifications. Non-
residents must appoint a representative in Austria.

The Austrian Government may impose performance
requirements when foreign investors seek financial or
other assistance from the government, although there are
no performance requirements to gain access to tax
incentives. There is no requirement that nationals hold
shares in foreign investments, that the share of foreign
equity is reduced over time, or that there be a
technology transfer.

The U.S. and Austria are signatories to a 1931 Treaty of
Friendship, Commerce, and Consular Rights. The Austrian
Immigration Law restricts the overall number of visas,
but a few non-immigrant business visa classifications,
including intra-company transferees/rotational workers
and employees on temporary duty, are eligible for visas
with no numerical limitations. Recruitment of long-term
overseas specialists or those with managerial duties is
under quota controls. The 2002 Amendment of the Austrian
Immigration Law more clearly defined employment-based
immigrants as multinational executives/managers or
similar professionals who are self-employed, and
streamlined procedures for obtaining visas and work
authorization. The 2002 integration policy requiring
immigrants to attain a certain minimum level of
competence in the German language will not affect
executives and their dependents. The 2002 Immigration
Amendment was intended to address problems reported by
U.S. and other investors with availability of visas and
temporary work permits for non-managerial staff for
training in Vienna, by creating a category of temporary
trainee visas in the case of joint ventures. Annual
immigration quotas for 2005 are to be cut from 8,050 to
7,500. These cuts are supposed to come largely at the
expense of executives or managers, a visa category that
is apparently undersubscribed.


A.6. Right to Private Ownership and Establishment
-------------- --------------

Foreign and domestic private enterprises are free to
establish, acquire, and dispose of interests in business
enterprises, with the exception of railroad
infrastructure, some utilities, and a few state
monopolies, such as gambling. As the government
continues to pursue privatization, it is gradually
opening up some of these industries to private investment
as well. For example, the Austrian Government
implemented legal changes in 1997 and 2001 to allow
private radio and private terrestrial TV under a limited
number of licenses. The government dismantled the postal
monopoly for wire-transmitted voice telephony and
infrastructure in 1998. The Austrian electricity market
was partially liberalized in February 1999 for bulk
purchasers and in October 2001 for consumers. The
Austrian gas market was fully liberalized in October

2002. However, by law, federal and provincial
governments maintain at least 51% majority shares in all
electricity providers. In line with EU regulations, the
government is working to liberalize the postal letter
mail monopoly. The ambitious privatization program of
the Austrian Government foresees full or partial
privatization of many important Austrian companies. In
most business activities, the law permits 100% foreign
ownership. Foreign direct investment is restricted only
when competing with monopolies and utilities. License
requirements, such as in the banking and insurance
sectors, apply equally to domestic and foreign investors.
The latter, however, is dependent on reciprocity.
Specific regulations on requirements for joint ventures
do not exist.

A.7. Protection of Property Rights
--------------
The Austrian legal system protects secured interests in
property, both movable and real. Mortgages are
recognized, if they are registered in the land register
and the underlying contracts are valid. The law
recognizes mortgages, if they are registered in the land
register and the underlying contracts are valid. The
land register provides a reliable system for recording
interests in property. For any real estate agreement to
be effective, the agreement must be entered with the land
register. This requires approval of the land transfer
commission or the office of the provincial governor. Any
interested party has access to the land register.

Austria has effective laws to protect intellectual
property rights, including patent and trademark laws; a
law protecting industrial designs and models; and a
copyright law. Legislation also protects three-
dimensional semiconductor chip layout design. In line
with EU requirements, Austria has a law against product
piracy to prevent trade in counterfeits. Austria is one
of a number of EU member states that have yet to
implement the EU Directive on Legal Protection of Biotech
Inventions. The Austrian Government plans to transpose
the EU Directive into national law in 2005. The
Biotechnology Industry Organization (BIO) had requested
the United States Government place Austria on the Special
301 Watch List. Several U.S. pharmaceutical companies
have also reported problems obtaining timely remedy in
Austrian courts in defending process-based patents
against generic competitors.

Austria is a party to the World Intellectual Property
Organization (WIPO) and several international property
conventions, including the European Patent Convention,
the Patent Cooperation Treaty, the Madrid Trademark
Agreement, the Budapest Treaty on the International
Recognition of the Deposit of Microorganisms for the
Purpose of Patent Procedure, the Universal Copyright
Convention, the Brussels Convention Relating to the
Distribution of Program-Carrying Signals Transmitted by
Satellite, and the Geneva Treaty on the International
Registration of Audiovisual Works. In compliance with
the World Trade Organization Treaty on Intellectual
Property (TRIPS),Austria extended patent terms so that
patents on inventions are valid up to 20 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. In accordance with the Madrid Agreement,
Austria's protection period for trademarks is ten years,
with the option to extend for another ten years, if
registration is renewed before expiration.

Various regulations protect trade secrets. For example,
the right to privacy, the data protection law, and the
federal statistics law prevent publication of production
data, provided there are four producers or less.

Austrian copyright law grants the author the exclusive
right to publish, distribute, copy, adapt, translate, and
broadcast his work. Infringement proceedings, however,
can be time consuming and complicated. Austria's
copyright law is in conformity with the EU directives on
intellectual property rights. A 2003 amendment to the
Austrian Copyright Act implemented the EU Directive on
the Harmonization of Certain Aspects of Copyright and
Related Rights in the Information Society and regulates
copyrights of works on the Internet, protection of
computer programs, and related damage compensation.


A.8. Transparency of the Regulatory System
--------------

Austria's legal, regulatory, and accounting systems are
transparent and consistent with international norms.
Proposed new laws and regulations are usually published
in draft form for public comment.

The Austrian Government has made some progress in
streamlining its complex and cumbersome permit and
paperwork requirements for business licenses and permits.
However, a 2002 AmCham/U.S. Embassy survey of investor
confidence identified "unpredictable and inflexible
bureaucratic rules" as one of four major concerns. The
government maintains that the time for obtaining all
necessary permits has been reduced to about three months,
except for large projects requiring an environmental
impact assessment. With the 2002 reform of the Business
Code, the government implemented a "one-stop shop" for a
business permit, but not yet including plant and building
permits. The reform also sought to facilitate
establishment of new businesses by simplifying
requirements and reducing the number of business
categories to two (those requiring official approval and
those requiring none).

Tax and labor laws, as well as health and safety
standards, are applied uniformly and do not influence the
sectoral allocation of investments. The Austrian
investment climate has become more conducive for business
since Austria became a member of the EU. However,
inflexible shop-opening hours and working times remain a
major concern of many businesses. The government plans
to implement more flexible work time regulations,
including at the company level, and more liberal
regulations for shop opening hours. However, virtually
all shops will remain closed on Sundays.


A.9. Efficient Capital Markets and Portfolio Investment
-------------- --------------

A broad variety of credit and portfolio investment
instruments are traded in an open capital market.
Foreign firms have access to this local market without
restrictions and are free to use foreign credit markets
as well. The Vienna Stock Exchange, reorganized as a
stock corporation and privatized in 1999, connected its
cash market to Xetra, Frankfurt's electronic trading
system, so that traders worldwide have on-screen
information and direct access to all stocks listed in
Vienna. In May 2004, the Vienna Stock Exchange, together
with several Austrian banks, obtained a majority stake in
the Budapest Stock Exchange with the goal to develop more
efficient capital markets in both Hungary and Austria,
push market capitalization, and provide better services
to clients. Quotations on the Vienna Stock Exchange are
in the Euro and the fee system is transparent.

All listed companies must publish quarterly reports.
Criminal penalties for insider trading are in place. The
Austrian Financial Market Authority (FMA),similar to the
U.S. Securities and Exchange Commission, is responsible
for policing irregularities on the stock exchange. The
FMA, with support from the Austrian National Bank, is
also responsible for supervising banks, insurance
companies, securities markets, and pension funds.

Buy-back regulations implemented in 1999 have
considerably expanded the previously very limited
possibilities for issuers to acquire their own shares.
Austria's regulations comply with international standards
permitting buy-backs as an instrument to influence a
company's capital structure, to reduce excess liquidity,
or to prepare for listings on exchanges abroad.

The legal, regulatory, and accounting systems are
transparent and consistent with international norms.
Austrian regulations governing accounting standards will
provide U.S. investors with improved and internationally
standardized financial information. Austrian-based
companies, including subsidiaries of U.S. parent
companies, are required to present their consolidated
financial statements in accordance with International
Accounting Standards (IAS) or Generally Accepted
Accounting Principles (US-GAAP). Promotion of good
corporate governance is making progress. The Austrian
Code of Corporate Governance was introduced in October

2002. However, to date, few companies have signed on to
it.

Austria has a highly developed banking system with
worldwide correspondent relationships, as well as
representative offices and branches in the United States
and other major financial centers. Austrian banks also
have a huge network in many of the ten new EU members and
other Central and Eastern European countries and the
Balkan countries. Total assets of Austria's five largest
banks amounted to about Euro 394 billion (USD 493
billion) in 2003.

Austria's venture capital market is underdeveloped, but
has expanded significantly in recent years. The volume
of venture capital raised in Austria during 1999-2001 was
Euro 556 million (USD 695 million),170% more than during
1996-1998, according to a study by the Vienna-based
Austrian Private Equity and Venture Capital Organization.
Due to the weak economy and slow investments in 2003,
fund raising slowed to Euro 227 million (USD 284 million)
from 231 in 2002, venture capital disbursements fell from
Euro 146 to 113 million (USD 141 million).

A.10. Political Violence
--------------

There have been no incidents of politically motivated
damage to foreign businesses. Civil disturbances are
extremely rare.


A.11. Corruption
--------------

The Austrian penal code contains penalties for bribery,
which include a fine of up to Euro 500 (USD 625) per day
for up to 360 days or up to two years imprisonment for
the payer of a bribe and up to five years imprisonment
for the recipient of a bribe. Under the penal code, any
person who bribes a civil servant, a foreign official, or
a manager of an Austrian public enterprise is subject to
criminal penalties. Austria has ratified the OECD Anti-
Bribery Convention, which entered into force in July

1999. Corresponding penal code legislation has been in
place since summer 1998. The government has prepared
draft legislation to introduce criminal responsibility
for legal persons and some partnerships, and with fines
of up to 15% of annual sales. After parliamentary
approval, the new law should take effect later in 2005.

Prior to the implementation of the OECD Convention, tax
deductibility of bribes and any gray market payments
(regardless of their title as operating, income-related
or other expenses) was abolished. The non-deductibility
covers all payments and other material grants, the
granting or accepting of which is subject to legal
penalties.

The Federal Ministry of Justice has the primary
responsibility for prosecuting acts of corruption, but in
the case of public tenders, the Federal Chancellery may
also become involved. Corruption allegations, often
anonymous, have arisen regarding various government
procurements; but no case thus far has reached the public
prosecutor's evidentiary threshold for pursuing
prosecution.



B. Bilateral Investment Agreements
--------------

Austria has bilateral investment agreements in force with
Albania, Argentina, Armenia, Azerbaijan, Bangladesh,
Belarus, Belize, Bolivia, Bosnia-Herzegovina, Bulgaria,
Cape Verde, Chile, China, Croatia, Cuba, Egypt, Estonia,
Georgia, Hong Kong, Hungary, India, Iran, Jordan, Kuwait,
Latvia, Lebanon, Libya, Lithuania, Macedonia, Malaysia,
Malta, Mexico, Moldova, Mongolia, Morocco, Oman,
Paraguay, Philippines, Poland, Romania, Saudi Arabia,
Slovenia, South Korea, South Africa, Tunisia, Turkey,
Ukraine, United Arab Emirates, Uzbekistan, Vietnam,
Yemen, and Serbia and Montenegro.

Agreements with Algeria, Namibia and Zimbabwe have been
signed, but are not yet in effect. An agreement with
North Korea is in initial stages of discussion. Until
new agreements take effect, the existing agreements with
the former Czechoslovakia continue to apply to the Czech
Republic and Slovakia, and that with the former Soviet
Union to Russia and Tajikistan. Austria has begun
negotiations with Russia for a new agreement. The
government's goal is to achieve a total of 75-80
bilateral investment agreements. Under all these
agreements, investment disputes that cannot be settled
amicably may be submitted to the International Center for
Settlement of Investment Disputes or an arbitration court
according to the UNCITRAL arbitration regulations.

The U.S. and Austria are parties to a bilateral double
taxation treaty covering income and corporate taxes,
which went into effect on February 1, 1998. Another
bilateral double taxation treaty covering estates,
inheritances, gifts and generation-skipping transfers has
been in effect since 1982.



C. OPIC and Other Investment Insurance Programs
-------------- ---

OPIC programs are not available for Austria. Since May
1997 Austria has been a member of the Multilateral
Investment Guarantee Agency (MIGA).

D. Labor
--------------

Austria has a highly educated and productive labor force
of about four million people, of which 3.5 million are
salaried employees and 500,000 are self-employed or
farmers. Austria's labor market is more rigid than that
of the U.S., but more flexible than that of some other EU
members. Depending on labor demand, government policies
limit the number of foreign workers to between 8-10% of
the salaried workforce. In 2004, the number of guest
workers, predominantly from the former Yugoslavia and
Turkey, averaged 362,700. Austria has adopted a 7-year
gradual transition period vis--vis eight of the ten new
EU members (except Cyprus and Malta) before fully
allowing free movement of labor. The government can also
apply the transition period to certain business sectors.
After two years, Austria can automatically extend the
restrictions, and after another three years, the EU
Commission can approve a further extension.

Compared to other EU countries, Austria had a relatively
low unemployment rate of 4.5% in 2004, according to EU
statistics. The outlook for 2005 suggests an
unemployment rate of about 4.4%, assuming real economic
growth of 2.2%, falling only slightly to 4.2-4.3%% in
2006, assuming real growth of 2.3-2.4% that year.
Despite the low unemployment rate, no potential labor
market shortage is expected in the medium term. While
demographic trends indicate little growth in the labor
force over the next few years, other factors, such as
expected moderate economic growth, productivity gains,
industrial restructuring, federal employment incentives
for women and older employees, the gradual phase-out of
early retirement, and government efforts to reduce civil
service employment are intended to offset demographics.
Moreover, net gains from migration will easily compensate
the negative impact of low birth rates on the overall
labor supply. Latest long-term population forecasts
expect the working age population (15-60 years) to
increase to 5.13 million by 2013, up from 4.98 million in
2001, but to decline again to below 5 million by 2021.
However, the government's measures to activate available
labor reserves should mitigate a potential shortage.

In general, skilled labor is available in sufficient
numbers. However, regional shortages of highly
specialized laborers in specific sectors such as systems
administration, metalworking, health, and tourism
services may occur. The government's labor market policy
is oriented towards the EU goals of raising the labor
market participation rate to 70% (currently 69.2%) by
2010, that of women to 60% (currently 61.7%),and that of
workers aged 55-64 to 50% (currently 30.4%). The
government introduced new regulations requiring
recipients of unemployment benefits to be more flexible
regarding which jobs they would accept. Companies hiring
workers age 50 and above are eligible for financial
bonuses, but face penalties for laying off workers within
this age group. The government still plans to introduce
more flexible work hours and a monthly minimum wage of
Euro 1,000.

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
and are shared by employers and employees. Although EU
requirements facilitated greater job flexibility, terms
of employment are closely regulated by law in Austria and
include working hours, minimum vacation time (5 weeks),
holidays, maternity leave, statutory separation notice,
and protection against dismissal. The new severance pay
system implemented in 2002 is designed to enhance worker
flexibility further. Employers contribute 1.53% of their
monthly pay to severance pay funds and employees have the
right to carry their accrued entitlement with them when
changing the employer. A new regulation since July 1,
2004 allows parents with children under the age of seven
who have worked for at least three years to choose part-
time work until the children reach age seven. The new
regulation only applies to parents working for companies
with at least 20 employees.
Labor-management relations have generally been harmonious
in post-WWII Austria, as reflected in extremely low
strike figures in past decades. The two major strikes in
May/June 2003, in response to the government's pension
reforms, were a political action against the government
and did not reflect management-labor disputes. Since
then, no major work stoppages have occurred. About 40%
of the work force belongs to a union. At least one-third
of the members of a corporation's board of directors must
come from the firm's staff, and the company management on
various issues must regularly consult shop stewards.
These co-determination rights of employees are
comprehensive and regulated by law.

Collective bargaining revolves mainly around wage
adjustments and fringe benefits. While existing legal
provisions stipulate a maximum workweek of 40 hours,
collective bargaining agreements provide for a workweek
of 38 or 38.5 hours per week for more than half of all
employees. Labor's long-standing demand for a further
reduction of the workweek has recently been countered by
some calls from industry to extend the 40-hour workweek
without pay compensation. While the government plans to
expand existing regulations for flexible work hours, it
has no plans to raise the work week again to 40 hours or
more, as is under discussion in Germany.


E. Foreign-trade Zones/Free Ports
--------------

Austria has no foreign trade zones anymore. It only has
two customs warehouses in Vienna and Tyrol province,
where investors may store products of foreign origin
without the obligation to pay duty. Their impact has
been limited, and foreign investors have shown little
interest.



F. Foreign Direct Investment Statistics
--------------

Following record inflows in 2000 and 2001 and a
significant drop in 2002, new foreign direct investment
(FDI) rebounded in 2003 to Euro 6.5 billion (USD 8.1
billion),equal to 2.9% of GDP, the third highest ever.
New FDI in the first half of 2004 amounted to Euro 1.7
billion (USD 2.1 billion). This raised the value of FDI
stock in Austria to Euro 47.9 billion (USD 59.9 billion),
equal to 21.2% of GDP, at the end of 2003 and to Euro
49.6 billion (USD 62.0 billion) by mid-2004. Of the year-
end 2003 amount, U.S. firms invested an estimated Euro
5.0 billion (USD 6.2 billion) or about 10% of the total.

New Austrian direct investment abroad reached Euro 6.2
billion (USD 7.7 billion) in 2002 and another Euro 6.2
billion (USD 7.7 billion) in 2003, equal to 2.7% of GDP.
In the first half of 2004, the amount was Euro 2.5
billion (USD 3.1 billion). This raised the value of
Austrian direct investment stock abroad to Euro 46.7
billion (USD 58.4 billion),equal to 20.7% of GDP, at the
end of 2003 and to Euro 49.2 billion (USD 61.5 billion)
by mid-2004.

Note: Figures converted at the 2004 annual average
exchange rate of USD 1.00 for Euro 0.80.

Source: Austrian National Bank statistics on Austrian
outward and inward direct investment at the end of 2002,
published in June 2004. Available 2003 and 2004 data are
from the Austrian National Bank's current account
statistics.


Table 1:
Foreign direct investment in Austria 1998-2004


Number of firms Nominal Total
with direct capital equity (1)
Year foreign participation ---(Euro billion)---
-------------- --------------
1998 2,525 7.2 20.1
1999 2,542 7.2 23.4
2000 2,588 11.1 32.7
2001 2,607 9.8 39.0
2002 2,633 10.1 41.5
2003 (2) n/a n/a 47.9
2004 (3) n/a n/a 49.6

Footnotes:
(1) total equity comprises nominal capital, statutory and
voluntary reserves, profits/losses carried forward, and
net credit position;
(2) preliminary figures;
(3) first half year, preliminary figures.
Table 2:

Foreign direct investment in Austria by country of origin
1998-2002 (in percent of total equity)

Year U.S. Switzerland, Germany U.K. Nether- Others
Liechtenstein lands
-------------- --------------
1998 8 12 41 8 8 23
1999 8 13 41 6 7 25
2000 6 10 47 6 6 25
2001 6 8 44 11 8 23
2002 11 7 39 11 7 25

Table 3:

Foreign direct investment in Austria by industry sectors
in 2002 (latest available figures)

Sector Total equity Employees
(Euro million) in 1,000
-------------- --------------
Mining and energy: 365 1

Industry:


Metals, machinery 1,820 27
Vehicles 487 11
Electrical engineering,
Electronics 2,415 26
Petroleum, chemicals 3,621 15
Paper, wood 1,133 7
Textiles, clothing, leather 243 9
Food, drink, tobacco 916 7
Building and allied trades 602 8
Miscellaneous 60 1
-------------- --------------
Subtotal industry 11,297 111

Non-industry:
Trade 8,695 71
Transport, communication 1,039 11
Tourism 240 6
Banking, insurance, finance 6,057 21
Real estate, business
related services 13,703 22
Other services 94 2
-------------- --------------
Subtotal non-industry 29,828 133

Total 41,488 245

Note: differences due to rounding.

Table 4:

Austrian direct investment abroad 1998-2004

Number of firms Nominal Total
with Austrian capital assets (1)
Year direct investment ---(Euro billion)---
-------------- --------------
1998 2,006 7.9 14.9
1999 2,095 9.3 19.0
2000 2,227 10.7 26.7
2001 2,319 14.3 32.4
2002 2,442 16.4 40.5
2003 (2) n/a n/a 46.7
2004 (3) n/a n/a 49.2

Footnotes:
(1) total assets comprises nominal capital, other equity
including exchange rate adjustments, and net credit
position;
(2) preliminary figures;
(3) first half year, preliminary figures.

Table 5:

Austrian direct investment abroad by country of
destination 1998-2002 (in percent of total equity)

Year U.S. Germany U.K. Slovak Hungary Czech Others
Republic Rep.
-------------- --------------
1998 8 16 10 3 10 8 45
1999 8 14 9 3 9 7 50
2000 8 19 6 5 7 8 47
2001 7 18 6 6 8 8 47
2002 6 18 5 4 9 10 48

Footnotes
(1) preliminary figures.

Table 6:

Austrian direct investment abroad by industry sectors in
2002 (latest available figures)


Sector Total equity Employees
(Euro million) in 1,000
-------------- --------------
Mining and energy: 1,538 8

Industry:
Metals, machinery 1,337 23
Vehicles 242 6
Electrical engineering,
Electronics 924 27
Petroleum, chemicals 1,816 26
Paper, wood 816 12
Textiles, clothing, leather 98 7
Food, drink, tobacco 501 9
Building and allied trades 2,666 31
Miscellaneous 74 6
-------------- --------------
Subtotal industry 8,474 145

Non-industry:
Trade 4,405 50
Transport, communication 312 5
Tourism 76 2
Banking, insurance, finance 10,819 62
Real estate, business
related services 14,260 25
Other services 627 2
-------------- --------------
Subtotal non-industry 30,500 147

Total 40,512 299

Note: differences due to rounding.


List of Major Foreign Investors:
--------------

Some 360 U.S. firms hold investments in Austria, which
range from simple sales offices to major production
facilities. The following is a short list of U.S. firms
holding major investments in Austria.

American Express Bank Ltd.
Andlinger & Company, Inc.
Baxter International Inc.
Capital Research and Management Company
Cisco Systems, Inc.
Citibank Overseas Investment Corp.
The Coca-Cola Company
CSC Computer Sciences Corporation
Deloitte & Touche LLP
Delphi Automotive Systems
Eastman Kodak Company
Electronic Data Systems Corp.
Exxon Corporation
General Electric Capital Corporation
General Electric Company
General Motors Corp.
Harman International Industries Inc.
Hewlett-Packard Company
Honeywell Inc.
IBM World Trade Corp.
ITT Fluid Technology Corp.
Johnson & Johnson Int.
Johnson Controls Inc.
Kraft Foods International, Inc.
Lear Corporation
Lem Dyn Amp
McDonald's Corporation
Marriott International, Inc.
Mars Inc.
MeadWestvaco Corp.
Merck & Co., Inc.
Modine USA
Otis Elevator Co.
Pioneer Hi-Bred International Inc.
PricewaterhouseCoopers LLP
PQ International Inc.
Quintiles Transnational Corp.
Schindler Elevator Corp.
Starwood Hotels and Resorts Worldwide, Inc.
Toys"R"Us, Inc.
United Global Com, Inc.
Unysis Corporation
Verizon Information Services Inc.
Western Union
Western Wireless International
Worthington Cylinder Corp.
York International
Xerox Corporation

The following is a brief list of firms headquartered in
countries other than the U.S., holding major investments
in Austria.

Alcatel Holding, Netherlands
Allianz AG, Germany
Amer, Finland
Asea Brown Boveri, Switzerland
Assicurazioni Generali, Italy
Aventis, Germany
Axel Springer Verlag, Germany
Bank for Foreign Trade, Russia
BASF, Germany
Bayer AG, Germany
Bayerische Motorenwerke (BMW),Germany
Bombardier, Canada
Bosch Robert AG, Germany
Borealis, Denmark
BP Amoco, UK
DaimlerChrysler, Germany
Detergenta Investment, Germany
Deutsche Telekom, Germany
Electricite de France, France
Electrolux, Sweden
Epcos AG, Germany
Ericsson, Sweden
Flextronics International, Singapore
Gallaher, U.K.
Heineken, Netherlands
Hipp, Germany
HypoVereinsbank AG (HVB Gruop),Germany
Infineon, Netherlands
Kone Corp., Finland
Koramic, Belgium
Liebherr, Switzerland
Magna, Canada
MAN, Germany
Mazda Corp., Japan
Mondi Europe, Luxembourg and UK
Nestle S.A., Switzerland
NKT Cables, Denmark
Novartis, Switzerland
Nycomed Holding, Denmark
Philips, Netherlands
Rewe, Germany
Rothenberger, Germany
RWE, Germany
Sappi Ltd, South Africa
Shell Petroleum N.V., Netherlands
Siemens, Germany
Smurfit Group, Ireland
Solvay Et Cie, Belgium
Sony, Japan
Sueddeutscher Verlag, Germany
Svenska Cellulosa Ab (SCA),Sweden
Unilever N.V., Netherlands
Voith, Germany
Westdeutsche Allgemeine Zeitung (WAZ),Germany
Westdeutsche Landesbank, Germany

BROWN