GERMANY Fiscal policy was highly stimulative in 1990 and early 1991 as transfers to eastern Germany were financed largely by government borrowing. The combined public sector deficit (not including the social security surplus) was 3.5 percent of GNP in 1990 and is expected to be 4.6 percent of GNP in 1991, up from 1.2 percent in 1989. Since the early part of 1991, fiscal policy has become less stimulative as a result of tax increases, but substantial deficits are expected for the next few years. The Bundesbank has maintained a tight monetary policy largely in response to inflationary pressures arising from unification. The Lombard rate is currently 9.25 percent and the discount rate is 7.5 percent. The Bundesbank is particularly concerned about the potential inflationary effects of strong wage increases in upcoming wage settlements. In recent years a number of changes have been implemented in money and capital markets in an attempt to enhance the attractiveness of Germany as an international financial center. Liberalization, including the elimination of the stock exchange turnover tax at the beginning of 1991, has contributed to the development of a German commercial paper market. However, Germany has yet to develop capital markets commensurate with its economic size and importance. The Deutsche mark is a freely convertible currency, and the government does not maintain exchange controls. Germany participates in the exchange rate mechanism of the European Monetary System. 3. Structural Policies The ramifications of German unity dominate the country's structural policies. Only recently have there been signs of a turnaround in the economy of the former German Democratic Republic (GDR). Attention is focused on the privatization of formerly state-owned firms. As of August 1991, 3,378 (of approximately 10,000) firms had been privatized. However, a number of obstacles remain in the way of privatization. Investors must be careful to check into possible liabilities associated with firms they are interested in purchasing, including old debts, warranty obligations, and liability for environmental damage. A major barrier to investment lies in the difficulty in determining the fair value of formerly state-owned enterprises, which had never been required to calculate balance sheets. Their value is set by comparing them to similar western German assets, a system acknowledged to be imperfect at best. Another problem is the general requirement that those purchasing an enterprise promise to preserve a certain number of the enterprise's jobs. This number is determined in negotiations with the privatizing agency (Treuhandanstalt). One problem largely resolved is that of claims by those GERMANY whose property was expropriated by the Communist regime. The German property law now shields purchasers from the claims of previous owners (under certain circumstances). Even so, caution is urged in cases in which claims are pending. The German Government is encouraging investment in eastern Germany in a number of ways, including investment and accelerated depreciation allowances, tax reductions, regional investment incentives and numerous loan programs. Other assistance is available through European Community programs. In addition, the Treuhandanstalt has generally been willing to absorb a substantial share of the environmental clean-up costs of a site. The exact share is determined on a case-by-case basis. These benefits are available to both German and foreign firms. To further encourage investment, the Government is investing heavily to improve the infrastructure in eastern Germany, especially transportation and communication services. As a result, the construction sector was one of the first to show signs of recovery. Total investment in eastern Germany in 1991 is expected to be about DM 70 billion. While this is nearly 40 percent of GNP, much more investment will be needed to complete industrial restructuring some estimate as much as DM 2-3 trillion. Significantly, a number of major investors, e.g., Daimler and Volkswagen, have opted for "greenfield" plants, which means that much of the investment in the former G.D.R. will be state-of-the-art and contribute to higher growth rates in the future. 4. Debt Management Policies From 1970 to 1990 Germany has enjoyed current account surpluses in all but three years. As a result, Germany is a major net creditor. Although trade with Germany is generally open, U.S. agricultural interests face barriers under the EC's Common Agricultural Policy (CAP). Import levies apply to most agricultural commodities, including cereals and rice, milk and milk products, beef and veal, sugar and olive oil. Services Barriers: It is difficult to generalize about the German market for services. Conditions of access vary considerably, however, there are few complaints. Progress appears to have been made in participation of foreign companies in banking and other financial services, but it is still difficult to break into the insurance market. Increasingly, telecommunications services are being deregulated; this is not always the case in transport services. Standards, Testing, Labeling, and Certification: Germany's regulations and bureaucratic procedures can prove a baffling maze, blunting the enthusiasm of U.S. exporters. Safety standards, not normally discriminatory but sometimes GERMANY zealously applied, complicate access to the market for many U.S. products. The new German packaging law which will be phased in by 1995 presents considerable requirements that will make exporting and production in Germany far more complicated not only for the U.S. but also for Germany's fellow EC members. The law will require all containers to be either reused or recycled. The law presents additional burdens for exporters whose goods are transported over long distances since containers built for long distances are more difficult to recycle and reuse. The U.S. government will continue to seek consultations on this with the German government and the EC. Government Procurement Practices: German government procurement is non-discriminatory and appears to comply with the General Agreement on Tariffs and Trade (GATT) on Government Procurement. It is, nonetheless, difficult to compete head-to-head with major German suppliers who have long-term ties to German government purchasing entities. Those areas which fall outside of the GATT Code's coverage, such as some military procurement, purchases by the Transportation Ministry, or procurement of services, are the most susceptible to these problems. Investment Barriers: The German investment climate is very open, but some of the concerns mentioned above, such as access to services markets and standards and procurement questions also apply to investment. In addition, there is a lack of transparency in negotiating contracts for privatization of firms formerly belonging to the Communist regime of the GDR. 6. Export Subsidy Policy Germany views itself as an advocate of free trade, while simultaneously supporting inefficient industries. Of particular interest are the subsidies provided to agriculture and to the German aerospace industry. Germany can play a pivotal role in European Community (EC) attitudes toward agricultural subsidies in the final months of the Uruguay Round of GATT trade negotiations. Airbus subsidies are still a point of contention, particularly the exchange-rate guarantee scheme with which the German government persuaded Daimler Benz to purchase Messerschmidt-Boelkow-Bloehm. As a general matter, the need to devote funding to projects in eastern Germany during the coming year may do far more than anything else to force reductions in subsidies provided in western Germany. 7. Protection of U.S. Intellectual Property Germany is a member of the World Intellectual Property Organization and party to 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 Geneva Phonograms Convention, the Patent Cooperation Treaty, and the Brussels Satellite Convention. GERMANY Intellectual property is generally well protected in Germany. The German Patent Bureau, Verwertungsgesellschaft (which handles printed material), and GEMA (the German rough-equivalent to the American Society of Composers, Authors and Publishers) are the agencies responsible for intellectual property protection. U.S. citizens and firms are entitled to national treatment in Germany. Although the Germany passed a law to strengthen protection of intellectual property and to toughen penalties for product piracy on July 1, 1990, there remain some areas in which the United States seeks stronger German protection. One key area is copyright protection for computer software. While German law explicitly protects computer programs, judicial interpretations appear to have undermined the effective level of protection. Under several court decisions, only programs that demonstrate a level of originality beyond the skills of an ordinary programmer are protected. As a result, many business application programs are not eligible for protection under German law. Germany is on the Watch List under the "Special 301" IPR provisions of the Omnibus Trade and Competitiveness Act of 1988. The Ministry of Justice is currently working on draft legislation to transpose the EC Software Copyright Directive into national law, which will effectively lower the current German standard for originality. The Ministry plans to circulate a draft to industry and interested parties for comment, obtain Federal Cabinet approval, and then, within the first half of 1992, forward it to Parliament for consideration. Ministry officials believe that, once this process has been completed, U.S. concerns will have been addressed. Following the unification of Germany, the Ministry of Justice is working on draft legislation to allow mutual extension of patent rights existing in the former West and East German territories, with proposals for resolution of potential conflicts. That draft is currently being reviewed by the Parliament, and Ministry officials expect passage of the legislation in early 1992. 8. Workers Rights a. Right of Association The Constitution guarantees full freedom of association. The right to strike is guaranteed, except for civil servants, teachers, the armed forces and those in sensitive positions. In 1991 the ILO criticized the Government's broad definition of "essential services." b. Right to Organize and Bargain Collectively No The right to organize and bargain collectively is guaranteed by the Constitution and is widely practiced. Government mechanism to promote voluntary worker-employer negotiations is required because of a well-developed system of autonomous contract negotiations, now extended to the eastern states. There is a two-tiered bargaining system, whereby GERMANY basic wages and working conditions are established at the industry level and then adapted to the circumstances prevailing in particular enterprises through local negotiations. A distinguishing characteristic of German industrial relations is the legally mandated system of works councils which provide a permanent forum for continuing selective worker participation in the management of the enterprise. Workers are fully protected against antiunion discrimination. C. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is barred by the Constitution and is nonexistent in practice. d. Minimum Age for Employment of Children German legislation in general bars child labor under age 15. There are limited exemptions for children employed on family farms, delivering newspapers or magazines, or involved in theater or sporting events. While there is no minimum wage, 90 percent of all wage and salary earners are covered by legally enforceable collective bargaining agreements. The average workweek is regulated by contracts directly or indirectly affecting 80 percent of the working population. The average in the West is 37.6 hours and about 40 hours in the East. German labor and social legislation is comprehensive and, in general, imposes strict occupational safety and health standards. The resulting standards are widely considered to be very high. There is also a mandatory occupational accident and health insurance system for all employed persons. f. Rights in Sectors with U.S. Investment The enforcement of German labor and social legislation is strict, and applies to all firms and activities, including those in which U.S. capital is invested. Employers are required to contribute to the various mandatory social insurance programs. Disputes over worker rights can be referred to a complex system of labor and social courts at the local, state and federal level. The labor courts deal with labor-management issues, employer-employee disputes (such as dismissals) and all matters concerning the works constitution and codetermination laws. This system is supplemented by social courts that deal with the entire field of social legislation. |