Austria, a member of the European Free Trade Association (EFTA) and the OECD, has a free market economy with a significant 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 previous Grand Coalition Government, which took office in early 1987, launched and fulfilled a great deal of its very ambitious program to reform the economy before leaving office in the fall of 1990. It implemented an impressive income/corporate tax reform and some deregulation, reduced the budget deficit, and applied for EC membership. State-owned industries seem on the way back to profitability following reorganization and stiff cost-cutting measures. Favorable economic conditions including a sizeable stimulus from the external sector resulted in strong economic growth in 1988/89. The new government is expected to follow policies similar to its predecessor. It is expected to continue the present policies of diminishing the state's economic role, increasing competition, and bringing Austrian laws and regulations in line with the EC's as part of the accession negotiation process. The Austrian government continued its fiscal austerity policies to reduce the federal budget deficit. The government succeeded in reducing the deficit from 5.1 percent of GDP in 1986 to 3.7 percent in 1989. In 1990, a deficit of 3.6 percent of GDP was budgeted but, according to Finance Ministry calculations based on the budget results of the first three quarters, a deficit equaling only 3.4 percent of GDP is more likely. The government, however, did not succeed in cutting key items on the expenditure side, such as outlays for social welfare, federal hospital financing, or the Federal Railroads. The country's Central Bank, the Austrian National Bank (ANB), maintains a policy of adjusting the money supply and interest rates to keep the Schilling stable vis-a-vis the German mark, known as the "hard schilling policy." The ANB reaffirmed this policy by matching the West German Central Bank's four increases of the rediscount and Lombard rates in 1989. The ANB proceeded further with its liberalization of foreign exchange controls in 1990 as part of its policy of eliminating foreign exchange controls before 1992. The market-oriented reforms now taking place in Eastern Europe will have important effects on Austria. But since "economic take-off" in these countries will take years, short term economic gains for Austria will be limited. To help Austrian firms position themselves in Eastern Europe, Austria has established the "East-West Fund" to guarantee private investment in these countries. The government also approved a supplementary budget measure for mid-1990, appropriating AS 758 million for activities supporting the changes in Eastern Europe. The measure provides funds for direct assistance such as management training programs, facilitating cross-border traffic, and adding customs officers. Austria is a member of the General Agreement on Tariffs and Trade (GATT) and thus accords most favored nation status to other members, including the United States. As an advance concession in the current multilateral trade negotiations of the GATT, Austria reduced customs tariffs on about 1,800 items, effective January 1, 1990. AUSTRIA The Austrian National Bank's "hard Schilling policy" pegging the Schilling to the Deutsche Mark is designed to avoid exchange rate fluctuations vis-a-vis the Federal Republic of Germany (FRG) - Austria's most important trading partner and to minimize imported inflation. By adjusting interest rates to maintain a slight differential vis-a-vis the FRG, Austria's National Bank discourages capital outflow. The Bank does not set money supply targets; the Bank's major policy levers are adjustments in the rediscount rate and open market transactions to control money supply. Austria continues to liberalize its remaining foreign exchange restrictions. The ANB implemented a major liberalization of cross-border capital transactions January 1, 1990, but despite this recent move, Austria will not be able to withdraw any of its remaining reservations to the OECD'S capital movements code. The most important restriction still in effect is the requirement that foreign securities sold on the domestic capital market must be approved by the Finance Ministry. Furthermore, provincial restrictions still exists on real estate purchases by foreigners. 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, subsidy programs, and the strong influence of the Chambers of Labor and Commerce. Federal government 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 made easier with the changes in the tobacco monopoly that were implemented in September 1990. Also, a variety of products are subject to price controls, including milk, milk products, and sugar. Other pricecontrolled products are heating oil, diesel oil, heavy heating oil, electricity, building materials, metal and foundry products, scrap metal, pharmaceuticals, tobacco and cigarettes. The Austrian government implemented personal income and corporate tax cuts at the beginning of 1989. In general, the reform has improved the Austrian business climate as companies benefit from lower tax rates. The 1989 income tax reform lowered the tax burden from 23.9 percent of GDP in 1988 to 23.1 percent in 1989. The 1989 reform, however, is considered only the first step. The second phase of the tax reform would likely: lower value added tax (VAT) rates including abolishing the 32 percent rate on luxury goods; raise consumption taxes; and introduce a tax on waste water and fossil energy. In any case, the tax burden as a share of GDP should remain stable. 39-308-91 - 7 AUSTRIA No government policies which discriminate specifically against U.S. exporters are known. The same rules and regulations on investments apply to both foreign and Austrians 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 has to 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. The Austrian government is aware of rigidities in the system and has been examining its economic effects. Expectations are that the new government will continue deregulating the economy, for example lifting some price controls, and extending shop hours. Austria's external debt management has little importance for U.S. trade. At the end of 1989, Austria's external federal debt amounted to AS 125.8 billion (17.5 percent of GDP). Forty percent of the foreign debt is denominated in Deutsche marks, 31.2 percent in Swiss francs, 22.9 percent in Japanese yen, and 0.4 percent in U.S. dollars. The external federal debt service amounted to AS 15.8 billion in 1989; this was equal to 0.9 percent of GDP, 2.9 percent of total federal budget expenditures, 3.7 percent of merchandise export earnings or 2.4 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 ninth best in the world. Republic of Austria bonds are rated AAA; the Austrian government and banks cooperate with other international creditors in rescheduling LDC debts. In general, there are no major political, cultural, tariff, nontariff, or other barriers that inhibit or restrict imports of 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. Importers of certain iron and steel products, blouses, and shirts must submit a so-called "Import-Declaration." The measure applies to shipments of iron and steel valued at over AS 10,000 and of blouses and shirts over AS 10,000. Discretionary licenses are also required for imports of some food products, including dairy products, red meats, poultry, grains (except rice), fruits, vegetables, and sugar. Antibiotics and medications containing antibiotics are subject to discretionary licensing. The government, however, eliminated annual quotas for antibiotics as of September, 1990. 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. A bank requires a license from the Finance Ministry which can deny it if the proposed banking activity is deemed to be "against national economic interests." A 1989 court decision 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, such as accountants, tax consultants, and property consultants, require specific proof of their qualifications from the management, such as university education, or number of years in practice. Other services companies also require a business license, one of the preconditions for which is legal residence. This means U.S. services companies often have to form a joint venture with an Austrian firm. Standards, Testing, Labeling, and Certification requirements on imports such as 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 the sometimes 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 warmly welcomes foreign direct investment, particularly foreign investment which creates new jobs in high technology sectors and in those areas which replace imports and/or increase exports. Furthermore, the government favors projects in economically depressed areas and in districts bordering Austria's Eastern European neighbors. Takeovers of healthy domestic enterprises are permitted. With nearly 40 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. To obtain 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 in Austria are governed by the Multilateral Trade Negotiations Agreement on Government Procurement which Austria has ratified and implemented. While provincial and municipal governments are not bound to comply with the rules, their purchasing activities tend to be small, especially in comparison to those of the federal government. Austria does not have a restrictive "buy-national" law, but |