Cablegate: Germany - Revised Investment Climate Statement

Published: Fri 5 Feb 2010 04:41 PM
DE RUEHRL #0166/01 0361641
R 051641Z FEB 10
E.O. 12958: N/A
SUBJECT: Germany - REVISED Investment Climate Statement
REF: 09 STATE 124006
1. In response to reftel, the following is the 2010
Investment Climate Statement for Germany. This is the
revised version of the statement. A previous version was
sent on January 15, 2010.
2. Begin Text:
Indices 2009
Indices - 2009
TI Corruption Perception Index (CPI) - Rank 14 of 180,
CPI 8,0 (7.9 in 2008)
Heritage Economic Freedom Index - Rank 25 of 179, freedom
score 70.5 (-0.1 from 2008)
World Bank Doing Business Index - Rank 25 of 183
MCC Govt Effectiveness - N/A
MCC Rule of Law - N/A
MCC Control of Corruption - N/A
MCC Fiscal Policy - N/A
MCC Trade Policy - N/A
MCC Regulatory Quality - N/A
MCC Business Start Up - N/A
MCC Land Rights Access - N/A
MCC Natural Resource Mgmt - N/A
Openness to Foreign Investment
The German government and industry actively encourage
foreign investment in Germany, and German law provides
foreign investors national treatment. Under German law,
with the exception of some limited provisions in the
Foreign Economic Law (see below), foreign-owned companies
registered in the Federal Republic of Germany as a GmbH
(limited liability company) or an AG (joint stock company)
are treated no differently from German-owned companies.
Germany also treats foreigners equally in privatizations.
There are no special nationality requirements on directors
or shareholders, nor do investors need to register
investment intent with any government entity except in the
case of acquiring a significant stake in a firm in the
defense or encryption industries. The investment-related
problems foreign companies do face are generally the same
as for domestic firms, for example high marginal income
tax rates and labor laws that impede hiring and
dismissals. The German government has begun to address
many of these problem areas through its reform programs.
German courts have a good record in upholding the sanctity
of contracts.
The 1956 U.S.-FRG Treaty of Friendship, Commerce and
Navigation affords U.S. investors national treatment and
provides for the free movement of capital between the U.S.
and Germany. Germany subscribes to the OECD Committee on
Investment and Multinational Enterprises' (CIME) National
Treatment Instrument and the OECD Code on Capital
Movements and Invisible Transactions (CMIT). While
Germany's foreign trade act contains a provision
permitting restrictions on private direct investment flows
for reasons of national security, no such restrictions
have been imposed in practice. In such general cases, the
federal government would first consult with the Bundesbank
and the governments of the federal states. Specific
legislation requiring government screening of foreign
equity acquisitions of 25% or more of German armaments
companies took effect in July 2004. Under the 2004 law,
foreign entities that wish to purchase more than 25%
equity in German manufacturers of armaments or
cryptographic equipment are required to notify the Federal
Economics and Technology Ministry, which then has one
month in which to veto the sale. The transaction is
regarded as approved if the Economics and Technology
Ministry does not react in that time. The German
government expanded the scope of the law in 2005 to
include tank and tracked-vehicle engines.
In 2009, the scope of the foreign trade act was further
expanded when Germany's Cabinet approved an amendment that
requires the German government to examine and potentially
prohibit the acquisition of German companies by non-EU
investors if they intend to buy more than 25% of the
company's shares in cases where a threat to national
security or public order is perceived. The Law entered
into force in spring 2009. According to the Federation of
German Industries (BDI) and the American Chamber of
Commerce in Germany, no foreign companies have complained
so far about difficulties under the amendment.
Germany ranks 14th in the Transparency International
Corruption Perception Index (CPI) that compares 180
countries worldwide (rank 1 being the country with least
Conversion and Transfer Policies
As a result of European Economic and Monetary Union (EMU),
the Deutsche Mark (DM) was phased out on January 1, 2002,
and replaced by the euro, which is a freely traded
currency with no restrictions on transfer or conversion
and which is the unit of currency in Germany and more than
20 other European countries. There is no difficulty in
obtaining foreign exchange. There are also no
restrictions on inflows and outflows of funds for
remittances of profits or other purposes.
Expropriation and Compensation
German law provides that private property can be
expropriated for public purposes only in a non-
discriminatory manner and in accordance with established
principles of constitutional and international law. There
is due process and transparency of purpose, and investors
and lenders to expropriated entities receive prompt,
adequate and effective compensation.
Dispute Settlement
Investment disputes concerning U.S. or other foreign
investors and Germany are rare. Germany is a member of
the International Center for the Settlement of Investment
Disputes (ICSID), as well as a member of the 1958 New York
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards. German courts are fully available for
foreign investors in the event of investment disputes.
The government does not interfere in the court system and
accepts binding arbitration.
Performance Requirements and Incentives
European Union, federal and state authorities offer a
broad range of incentive programs for investors in
Germany. Cash Grants under the Joint Agreement for the
Improvement of Regional Economic Structures is one
available instrument for improving the infrastructure of
regional economies and the economy as a whole - a primary
objective of the German federal and state governments.
A comprehensive package of federal and state investment
incentives, including cash, labor-related, and R
incentives, interest-reduced loans, and public guarantees
is available to domestic and foreign investors. In some
cases, there may be performance requirements tied to the
incentive, such as employment creation and maintaining a
certain level of employment for a prescribed length of
time. There are no requirements for local sourcing,
export percentage, or local national ownership. Offsets
have been a part of procurements by some state and local
governments and by the federal government for some defense
procurement, but they are infrequently used at present.
Germany is in compliance with its WTO TRIMS notification.
The government has emphasized investment promotion in the
states of the former East Germany and offers several
programs only in these regions. The major program is the
Investment Allowance Act, which provides tax incentives
for investments in the eastern states in the form of tax-
free cash payments or tax credits. With the beginning of
the new budgetary period of the EU, which started in
January 2007 (and runs through 2013), Germany is to
receive a total of EUR 26.3 billion. The accession of new
EU member countries in 2004 reduced subsidy levels for
Germany beginning in 2007. The German states located in
the former East Germany received the majority of the EU
subsidies allocated to Germany, EUR 15.1 billion, for the
budget period of 2007-2013.
Foreign investors are generally subject to the same
eligibility conditions as German investors for incentive
Programs in Germany:
-- Investment grants: Cash incentives in the form of non-
repayable grants usually based on investment costs or
assumed wage costs. Incentives vary according to the
economic development level of the region and the overall
investment costs, with up to 30 percent of eligible
expenditures channelled to large enterprises, 40 percent
to medium-sized enterprises and 50 percent to small
-- Credit Programs: loans at below-market interest rates
from the Bank for Reconstruction, the European Recovery
Program, and other programs for small technology firms and
environmental demonstration projects.
-- Public guarantees: Public guarantees for companies
which do not have the collateral that private-sector banks
ordinarily require.
-- Labor incentives: Recruitment support from 800 local
job centers, including free services, training support,
wage subsidies, and on-the-job training. Firms from the
United States and other countries may also participate in
government-funded and/or subsidized research and
development programs, provided that:
-- The company is legally established in Germany;
-- The activity is a long-term operation with significant
R capacities;
-- The firm can exploit intellectual property rights
independently of a parent company;
-- Preference is given to locating manufacturing
facilities in Germany for any production resulting from
the research;
-- The sponsored research is performed entirely Germany.
American business representatives generally report that
these formal requirements and the administration of the
programs by German authorities do not constitute barriers
for access to R funding.
Foreign investors can obtain more information on
investment conditions and incentives from:
Germany Trade and Invest
The inward investment promotion agency of the Federal
Republic of Germany
Friedrichstrasse 60
10117 Berlin, Germany
Telephone: [49][30] 2000 99 0
Telefax: [49][30] 2000 99 111
Germany Trade & Invest
1776 I Street, N.W.
Suite 1000
Washington D.C. 20006
Telephone: 202 629 5711
Telefax: 202 347 7473
Germany Trade & Invest
401 N. Michigan Ave, Suite 3330
Chicago, IL 60611-4212
Telephone: 312 377 6131
Telefax: 312 377 6134
Germany Trade and Invest
One Embarcadero Center, Suite 1000
San Francisco, CA 94111
Telephone: 415 248 1246
Telefax: 415 627 9169
Germany Trade and Invest
75 Broad Street, 21st Floor
New York, NY 10004
Telephone: 212 584 9715
Telefax: 212 262 6449
Germany Trade and Invest is the foreign trade and
investment agency of the Federal Republic of Germany,
formed by the merger of Invest in Germany with the German
Office for Foreign Trade in January 2009.
American companies can, with effort, generally obtain the
resident visas and spouse work permits they require to do
business in Germany, but the relevant laws are quite broad
and considerable administrative discretion is exercised in
their application. A number of U.S. states have not yet
concluded reciprocal agreements with the German government
to recognize one another's driver's licenses. As a
result, licenses from those states are not usable in
Germany for longer than six months, whereas licenses from
states that have signed agreements can be converted to
German licenses after six months.
Right to Private Ownership and Establishment
Foreign and domestic entities have the right to establish
and own business enterprises, engage in all forms of
remunerative activity, and acquire and dispose of
interests in business enterprises.
Protection of Property Rights
The German Government adheres to a policy of national
treatment, which considers property owned by foreigners as
fully protected under German law. There is almost no
discrimination against foreign investment and foreign
acquisition, ownership, control or disposal of property or
equity interests, with airline ownership being an
exception based on EU regulations, which require an EU
majority ownership of shares to obtain an operating permit
as an EU airline. In Germany, the concept of mortgages is
subject to a recognized and reliable security. Secured
interests in property, both chattel and real, are
recognized and enforced.
Intellectual property is generally well protected by
German laws. Germany is a member of the World
Intellectual Property Organization (WIPO). Germany is
also a party to the major international intellectual
property protection agreements: the Bern 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, the Brussels
Satellite Convention, and the Treaty of Rome on
Neighboring Rights.
National treatment is also granted foreign copyright
holders, including remuneration for private recordings.
Under the TRIPS agreement, the federal government also
grants legal protection for practicing U.S. artists
against the commercial distribution of unauthorized live
recordings in Germany. Germany has signed the WIPO
Internet treaties and ratified them in 2003. Foreign and
German rights holders, however, remain critical of
provisions in the German Copyright Act that allow
exceptions for private copies of copyrighted works. Most
rights holder organizations regard German authorities'
enforcement of intellectual property protections as
sufficient, although problems persist due to lenient court
rulings in some cases and the difficulty of combating
piracy of copyrighted works on the Internet.
In 2008, Germany implemented the EU enforcement directive
with a national bill, thereby strengthening the privileges
of rights holders and allowing for improved enforcement
Transparency of Regulatory System
Germany has transparent and effective laws and policies to
promote competition, including anti-trust laws. German
authorities recently lifted many restrictions on store
business hours, which had formerly restrained competition
and business opportunities. There are concerns in Germany
and abroad about the level of regulation prevailing with
regulatory authority dispersed over the federal, state,
and local levels. Many investors consider Germany's
bureaucracy excessive, which has prompted most state
governments to establish investment promotion offices and
investment banks to expedite the process. New rules have
simplified bureaucratic requirements, but industry must
sometimes contend with officials' relative inexperience
with deregulation and lingering pro-regulation attitudes.
In response to the problem, the federal government
continues to reduce bureaucracy. In 2006, the National
Regulatory Control Council was established, tasked with
evaluating policy and assessing the impact of lawmaking.
Based on its findings, the council reports annually and
recommends further measures. The federal government also
set the target of reducing the costs of law-induced
bureaucracy by 25 percent by 2011. The new Economics
Minister Rainer Bruederle (pro-market FDP) seems to be
very interested in reducing the bureaucratic burden and
has moved the section within the Economics Ministry
dealing with bureaucracy reform closer to his own office.
Germany now uses the Standard Cost Model to quantify and
identify bureaucratic costs in every new legislative
proposal. This provides increased transparency about the
amount of time and cost that companies and citizens have
to spend because of bureaucratic requirements. The German
National Regulatory Control Council estimates that
applying the Standard Cost Model has reduced bureaucratic
costs by 3 billion euros in the past two-and-a-half years,
measured against the bureaucratic burden that was in
effect before new, improved legislation.
Laws and regulations in Germany are routinely published in
draft, and public comments are solicited. The legal,
regulatory and accounting systems can be complex but are
transparent and consistent with international norms.
Efficient Capital Markets and Portfolio Investment
Germany has a modern financial market sector but is often
considered "over-banked," as evidenced by on-going
consolidation and low profit margins. The country's so-
called "three-pillar" banking system, made up of private
commercial banks, state-owned and cooperative banks, and
savings banks, survived the global financial crisis, but
pressures to consolidate are increasing. To improve their
international competitiveness, the large privately-owned
banks in particular have launched massive cost-cutting
programs. Regional state-owned banks ("Landesbanken")
were among the hardest hit by the crisis. Their future
seems unclear, as the EU Competition Commissioner has
attached tough downsizing conditions in return for
approving federal and state government bailout packages.
The financial crisis also triggered the take-over of
Dresdner Bank by Commerzbank and that of Post Bank by
Deutsche Bank. This has effectively reduced the number of
top German banks to just two.
In the midst of the financial crisis, the German
government passed a bank rescue plan ("SOFFIN") worth 480
billion euros. The two most prominent recipients of
rescue funds were Commerzbank (its take-over of Dresdner
Bank brought it to the brink of bankruptcy) and Hypo Real
Estate (HRE). In the case of HRE, the government even
departed from its long-standing tradition and nationalized
the bank in order to prevent a breakdown of the German
(and European) covered bond market - which is the backbone
of German real estate financing. The law permitting the
expropriation of HRE was designed for that institution
only and expired in June 2009. There are currently
several court cases pending in which the government action
of "squeezing out" HRE's old owners is being challenged.
One such high-profile case is that of U.S. private equity
firm, JC Flowers, which led a consortium of investors
owning nearly 25 percent of the troubled bank prior to
nationalization. The government argued that without its
actions, HRE would have been insolvent, and owners would
have lost their assets anyway. At 1.30 euros per share,
the German Government paid an estimated 10 cents more than
the actual market value of HRE stock.
Credit is available at market-determined rates to both
domestic and foreign investors, and a variety of credit
instruments are available. Legal, regulatory and
accounting systems are generally transparent and
consistent with international banking norms, but in light
of the current global financial turmoil, Germany is
pushing for even more transparency in international
financial markets. Germany has a universal banking system
that is effectively regulated by federal authorities.
There is currently some concern that the economic crisis
in connection with tougher capital requirements for banks
mandated in the G-20 may cause a shortage of credit in the
German economy. The German government has taken action to
ease the situation through the offer of additional state
financing options through its state lender KfW.
Given the prevailing overall economic conditions, mergers
and acquisitions (M) have decreased in recent years in
line with global trends. Prior to the global financial
crisis, Germany had seen an upswing in M transactions
due to improved economic conditions, the increased
financial assets of the top 30 companies listed in the
German stock exchange (DAX), and the high value of the
euro. "Cross shareholding" exists among some large German
companies, in particular among banks that hold shares in
large industrial customers. However, Germany's major
banks have been reducing their cross-shareholdings in
recent years.
In response to a 2004 EU directive, the government has
implemented legislation that established new rules to
ensure greater transparency for takeovers. The new law
went into effect in 2006.
In recent years, Germany has implemented a series of laws
to improve its securities trading system, including laws
against insider-trading and the Fourth Financial Market
Promotion Law in 2003. In 2002, a corporate governance
code was adopted, which, while voluntary, requires listed
companies to "comply or explain" why the code or parts
thereof have not been followed. The code is intended to
increase transparency and improve management response to
shareholder concerns. The Finance and Justice Ministries
drew up a ten-point plan in 2003 to improve investor
protection. As a part of that plan, the government tabled
a bill in November 2004 that would (a) increase the
liability of boards of directors for false or misleading
statements; and (b) improve oversight of auditing
operations. The EU's Financial Services Action Plan - an
effort intended to create a more integrated European
financial market by 2005 - has helped stimulate changes in
the German regulatory framework, including adoption of
International Accounting Standards for listed firms and
use of company investment prospects on an EU-wide basis.
In 2008, Germany passed legislation that makes private
equity firms subject to greater transparency rules,
including the publication of a business plan for the
acquired company.
Competition from State Owned Enterprises
State-owned or partially state-owned enterprises still
exist in several sectors. Most importantly in postal
services, railroads, telecommunications and the banking
Privatization of state-owned utilities has promoted
competition and led to falling prices in some sectors.
Following deregulation of the telecommunications sector in
1998, scores of foreign and domestic companies invested
vast sums in that sector. Since then, former state
monopolist Deutsche Telekom (DT) has lost more than 48% of
the fixed-line market to competitors (while at the same
time profiting from them, as they must lease the last mile
from DT), and it still controls 47% of DSL broadband
connections. The 2003 introduction of call-by-call and
pre-selection in the local loop allowed competitors to
increase their share of the local call market to an
estimated 49% by mid-2006. In June 2004, a new
telecommunications law to implement EU directives entered
into force. The law mandates less regulation in some
areas while giving the regulator new powers to address
abuse of market dominance and ensure competitors' access
to services. A second amendment to the telecommunications
law became effective in early 2007. Aimed at
strengthening consumer rights, it also includes a
controversial component entitling the incumbent to a
regulatory holiday in return for a sizeable investment in
a VDSL network, providing the investment creates a "new
market." The regulator determines the definition of "new
markets" and can subsequently rule on the entitlement to a
regulation-free timeframe. However, in 2009 the European
Court of Justice ruled that the regulatory holiday granted
to DT infringes on European law. The German government
continues to hold a 32% share in DT, although it has
expressed its desire to sell these shares eventually.
Competition has come to the electricity market since 1998,
especially since the German Government began to take
serious measures to open the market. The gas sector has
proved particularly resistant to the 2000 EU Directive to
liberalize the market, but it is opening now. In July
2005, the Regulatory Authority for Telecommunications and
Post (RegTP) became the Federal Network Agency (FNA) and
took over responsibility for gas and electricity network
prices and access. In summer 2006, it began issuing
orders to incumbents in the electricity market to cut
prices. Action against gas suppliers started a year
later. The FNA is currently preparing new regulations to
force pipelines to accept more gas from competitors and
increase cross-border pipeline capacity.
Rising energy prices and rising profits in the energy
sector increased consumer and political pressure on the
industry to contain prices. Legislation to force
utilities to accept new competing power stations into
their nets went into force in 2007 and in 2008 legislation
increased the authority of the Federal Cartel Office
(Bundeskartellamt) in this area. The Cartel Office has
used this new authority to force approximately 30 gas
suppliers to lower their prices and in many cases to repay
The EU has withdrawn plans to bring charges of price
fixing and territorial demarcation against leading German
energy utilities after two utilities agreed to sell their
long-distance power or gas transmission lines, thereby
submitting to the EU's unbundling demands. Both buyers
are foreign net operators, reflecting that after years of
competitive stagnation, some new foreign competitors have
entered the German power market.
The government partially privatized Deutsche Post (DP) in
November 2000 and is slowly divesting its remaining
shares. It currently holds a 30.5% share in DP. After
successive rounds of liberalization, DP's monopoly on
letter delivery expired on December 31, 2007, with the aim
of full competition in the German postal sector. A new
minimum wage law in the postal sector was regarded by some
competitors, however, as favoring Deutsche Post and as
leading to the demise of several major competitors. DP to
date still enjoys VAT exemption (of 19%) for offering
universal service. However, VAT exemption will likely be
reduced to private individual's letters and light parcels
in July 2010, following a ruling by the European Court of
Justice in late 2009. According to draft legislation,
competitors will also be entitled to VAT exemption if they
offer universal service. Germany's Cartel Office, which
enjoys an excellent international reputation, and
Germany's other regulatory agencies address problems and
settle complaints brought forward by foreign market
entrants and bidders. However, as noted above, German law
and court decisions have limited these agencies'
effectiveness in some areas.
The planned sale to private investors of just under 25% of
the 100% government-owned railway Deutsche Bahn (DB) did
not take place. The government scaled down the original
privatization plan for just below 50% to just below 25%.
The change was largely due to unresolved disputes within
the former CDU/SPD coalition government over the retention
of ownership of both rolling stock and the rail network.
On January 1, 2006, the Federal Network Agency took over
responsibility for access and prices issues regarding
competitors' access to the railroad network. A series of
data privacy scandals forced the resignation of the DB CEO
in 2009, when DB also started to have serious safety
problems with high-speed, freight and Berlin light rail
rolling stock, primarily due to lack of maintenance.
Public and political outrage at the perceived attempt to
cut costs to improve DB's attractiveness for
privatization, but at the expense of safety, has led to
the new coalition government putting the privatization on
ice, officially because of poor market conditions in the
financial crisis. Three different types of banks exist in
Germany: privately-owned banks, state-owned banks
(Landesbanken) and cooperative banks. The Landesbanken
used to have advantages over privately-owned banks in
obtaining credit. Under the pressure of Germany's
privately-owned banks, the EU forced an end to these
advantages in 2005. This means that the Landesbanken can
no longer raise money cheaply with a AAA rating because of
state guarantee. At the moment, foreign banks do not have
to fear any unfair competition from state-owned or
cooperative banks.
Corporate Social Responsibility
The Federal Ministry of Labor and Social Affairs is the
leading ministry for CSR within the German government, and
it is currently developing a national CSR strategy. The
Ministry of Labor has installed a CSR Forum in January
2009 as a platform for dialogue with relevant
stakeholders. The CSR Forum consists of around 40
organizations from business, unions, civil society and
politics. Its task is to develop recommendations for the
Labor Ministry's national CSR Strategy and to participate
in its implementation once the strategy has been adopted.
Because of the restructuring of the Labor Ministry after
the elections, the work of the CSR forum is currently
On the business side, the American Chamber of Commerce in
Germany (AmCham Germany) is active in upholding the
standards of social responsibility within the realm of
their members' corporate business. AmCham Germany issues
regular publications on companies' CSR approaches and has
established a committee on corporate social responsibility
as a platform for the exchange of best practices, to
identify trends and to discuss regulatory initiatives.
Political Violence
Political acts of violence against either foreign or
domestic business enterprises are extremely rare.
Isolated cases of violence directed at certain minorities
and asylum seekers have not affected U.S. investments or
Among industrialized countries, Germany ranks in the
middle, according to Transparency International's
corruption indices. The construction sector and public
contracting, in conjunction with undue political party
influence, represent particular areas of continued
concern. Nevertheless, U.S. firms have not identified
corruption as an impediment to investment.
The German government has sought to reduce domestic and
foreign corruption. Strict anti-corruption laws apply to
domestic economic activity, and the laws are enforced.
Germany ratified the 1998 OECD Anti-Bribery Convention in
February 1999, thereby criminalizing bribery of foreign
public officials by German citizens and firms abroad. The
necessary tax reform legislation ending the tax write-off
of bribes in Germany and abroad became law in March 1999.
Germany has signed the UN Anti-Corruption Convention but
has not yet ratified it. The country participates in the
relevant EU anti-corruption measures. Germany has
increased penalties for bribery of German officials, for
corrupt practices between companies, and for price-fixing
by companies competing for public contracts. It has also
strengthened anti-corruption provisions that apply to
support extended by the official export credit agency and
has tightened the rules for public tenders. Most state
governments and local authorities have contact points for
whistle-blowing and provisions for rotating personnel in
areas prone to corruption. Government officials are
forbidden from accepting gifts linked to their jobs.
Opinions differ, however, on the effectiveness of these
steps, particularly in the area of foreign corruption.
German industry - while generally in favor of creating a
central, national-level register of corrupt companies that
would be barred from bidding for public contracts -
refrained from openly calling for its creation out of fear
of an added regulatory burden. Draft legislation to
create such a register passed the lower chamber of the
German Parliament but was blocked by opposition parties in
the upper chamber in 2002. The CDU-SPD Government, which
took power in November 2005, did not include a similar
initiative in its program. Nevertheless, some individual
states maintain their own registers. Transparency
Deutschland, the German Chapter of Transparency
International, sees a national corruption register as one
of its main goals in Germany and a speedy ratification of
the UN Anti-Corruption Convention placing bribery of
parliamentarians on the same level as bribery of public
officials. Federal freedom of information legislation
entered into force in January 2006 but is seen by many as
ineffective. Several states have introduced their own
freedom of information laws. The German government has
successfully prosecuted hundreds of domestic corruption
cases over the years. To date, only a small number of
charges have been filed involving the bribery of foreign
government officials since the 1999 changes in German law
to comply with the OECD Anti-Bribery Convention were
enacted. However, the corruption scandal involving
Siemens AG with its ongoing litigation and fines and the
agreement with the Securities & Exchange Commission on an
$800 million fine focused attention on foreign bribery for
the first time.
Bilateral Investment Agreements
Germany has investment treaties in force with 127
countries and territories. Of these, eight are with
predecessor states and indicated with an asterisk
(including Czechoslovak SFR, Soviet Union, Yugoslavia
[SFRY]). Treaties are in force with the following states:
Afghanistan; Albania; Algeria; Angola; Antigua and
Barbuda; Argentina; Armenia; Azerbaijan, Bangladesh;
Barbados; Belarus; Benin; Bolivia; Bosnia and Herzegovina;
Botswana; Burkina Faso; Brunei; Bulgaria; Burundi;
Cambodia; Cameroon; Cape Verde; Central African Republic;
Chad; Chile; China (People's Republic); Congo (People's
Republic); Congo (Democratic Republic); Costa Rica;
Croatia; Cuba; CSFR**; Czech Republic*; Dominica; Ecuador;
Egypt; El Salvador; Estonia; Ethiopia; Gabon; Georgia;
Ghana; Greece; Guatemala; Guinea; Guyana; Haiti; Honduras;
Hong Kong; Hungary; India; Indonesia; Iran; Ivory Coast;
Jamaica; Jordan; Kazakhstan; Kenya; Republic of Korea;
Kuwait; Kyrgyzstan*; Laos; Latvia; Lebanon; Lesotho;
Liberia; Lithuania; Macedonia; Madagascar; Malaysia; Mali;
Malta; Mauritania; Mauritius; Mexico; Moldova*; Mongolia;
Morocco; Mozambique; Namibia; Nepal; Nicaragua; Niger;
Nigeria; Oman; Pakistan; Panama; Papua New Guinea;
Paraguay; Peru; Philippines; Poland; Portugal; Qatar;
Romania; Russia*; Rwanda; Saudi Arabia; Senegal; Sierra
Leone; Singapore; Slovak Republic*; Slovenia; Somalia;
South Africa; Soviet Union**; Sri Lanka; St. Lucia; St.
Vincent and the Grenadines; Serbia; Sudan; Swaziland;
Syria; Tajikistan*; Tanzania; Thailand; Togo; Tunisia;
Turkey; Turkmenistan; Uganda; Ukraine; United Arab
Emirates; Uruguay; Uzbekistan; Venezuela; Vietnam; Yemen
(Arab. Rep.); Yugoslavia (SFRY)**; Zambia; and Zimbabwe.
(Note: * denotes treaty in force with predecessor state;
** denotes continued application of treaties with former
entities, which has not been taken into account in regard
to the total number of treaties.)
Germany has ratified treaties, which are not yet in force,
with the following countries:
Country -- Signed -- Temporarily Applicable
Bahrain -- 2/5/2007 --
Brazil -- 09/21/1995 -- No
Guinea -- 11/08/2006 -- *
Israel -- 06/24/1976 -- Yes
Madagascar -- 08/1/2006 -- *
Oman -- 05/30/2007 -- *
Palestine -- 07/10/2000 -- No
Timor-Leste -- 08/10/2005 -- No
Trinidad & Tobago -- 09/08/2006 -- No
(*) Previous treaties apply
Germany has signed, but not yet ratified, treaties with
the following country.
Country -- Signed -- Temporarily Applicable
Libya -- 10/15/2004 -- No
Germany does not have a bilateral investment treaty with
the United States, but an FCN treaty dating from 1956
remains in force. Taxation of U.S. firms within Germany
is governed by the 1989 "Convention for the Avoidance of
Double Taxation with Respect to Taxes on Income." It has
been in effect since 1989 (and since January 1, 1991, for
the area that comprised the former German Democratic
Republic). With respect to income taxes, both countries
agree to grant credit for their respective federal income
taxes on taxes paid on profits by enterprises located in
each other's territory. The German system is more
complex, but there are more similarities than differences
between the German and U.S. business tax systems. The
U.S. and Germany ratified the Protocol of June 1, 2006,
amending their 1989 income tax treaty and protocol. The
new protocol updates the existing treaty and includes
several changes, including a zero-rate provision for
subsidiary-parent dividends, a more restrictive
limitation-on-benefits provision and a mandatory binding
arbitration provision.
OPIC and Other Investment Insurance Programs
OPIC programs were available for the new states of eastern
Germany following reunification for several years during
the early 1990s but were suspended following progress in
the economic and political transition.
The German labor force is generally highly skilled, well
educated, disciplined, and very productive. The complex
set of reforms of labor and social welfare-related
institutions implemented under the former SPD/Greens
Government contributed to overcoming structural weaknesses
of the German welfare state and creating an institutional
setup more conducive to strong employment growth and lower
unemployment. A series of changes in collective
bargaining has supplemented government efforts in recent
Chancellor Angela Merkel's Grand Coalition initiated more
reform measures, such as a gradual increase in the
mandatory retirement age from 65 to 67 - a move that would
add 2.5 million to the workforce by 2030 - and an
initiative aimed at reducing unemployment among older
workers and discouraging early retirement. The former
grand coalition also encouraged female labor market
participation by measures that would make it easier for
mothers to work - for example, longer school hours and
more day-care centers. To address the problem of
Germany's low birth rate, it also adopted a new "parents'
allowance," which entitles parents who give up work or
reduce their hours of work to care for their newborn
children to a compensatory monthly payment for a period of
one year.
To address rising health care costs, Germany implemented
numerous health care reforms, most recently in April 2007.
The introduction of a Health Fund is the key pillar of
reform: Beginning in 2009, insured persons' contributions
to the statutory health insurance companies are
standardized. For each insured person, the health
insurance companies receive a flat rate from the Health
Fund. At the same time, tax financing of health insurance
services, such as contribution-exempt insuring of children
of insured parents, commenced. From 2009 onward,
insurance has become compulsory for everyone, and private
health insurance companies are obliged to accept insured
persons at the base rate.
Germany does not have a statutory minimum wage. However,
binding minimum wages have been established in 14 sectors
(e.g., construction, electrical trades, painting, mail)
covering an estimated 1.4 million workers. In August 2009,
employers and union representatives agreed to introduce
minimum wages for approximately 170,000 workers in waste
management, large-scale laundries, and special mining
services. The new CDU/CSU-FDP coalition is opposed to the
introduction of a national minimum wage but advocates a
legal ban on "immoral" wages, i.e., wages which are one-
third below average wages in a given sector.
After several years of solid economic growth and declining
unemployment, the global financial crisis finally hit
Germany at the end of 2008. Although the collapse in
global demand had an especially damaging effect on
Germany's export-driven economy, the labor market
weathered the economic crisis exceptionally well, with
employment levels down a mere 0.2 % to 40.4 million year-
on-year in contrast to a GDP collapse of about 5 %. The
number of persons out of work averaged 3.423 million in
2009, an increase of 155,000 as compared with 2008. The
average unemployment rate as a percentage of the total
civilian labor force rose 0.4 percentage points to 8.2 %
in 2009.
Among the reasons behind the surprising resiliency of the
labor market is the widespread use of government-funded
short-time work programs. Many companies entered the
recession with a better capital cushion than previously
and deliberately decided to keep highly skilled labor in
hopes of riding out the crisis. In addition, large
sections of the services sector (e.g., health and welfare,
education and training) have not been hit by the recession
and are continuing to create jobs. But unemployment will
certainly increase in 2010, since the labor market
traditionally lags other macro-economic indicators, which
in late 2009 showed first signs that the recession was
easing. Hence, the German government expects unemployment
to average 3.6 to 3.7 million in 2010.
In June 2009, the Institute of Economic and Social
Research presented its interim report on Germany's 2009
round of collective bargaining. The study evaluates the
collective agreements concluded in the first half of 2009,
affecting about 25% of all employees covered by such
agreements. Calculated on an annual basis, the average
increase in wages and salaries amounts to about 3% in
2009, which is slightly above the average pay increase of
2.9% in 2008.
There is still a considerable gap in earnings between men
and women in Germany. Collective agreements concluded in
the first half of 2009 did not include provisions to
tackle wage discrimination and to promote equal
Since the late 1990s, Germany's system of wage
determination through multi-company, industry-wide
contracts has become considerably more decentralized.
Although sector-wide labor agreements can set wages and
working conditions at high levels in some industries,
company-level agreements frequently deviate significantly
from them. Many industry-wide contracts have been revised
in recent years, not only to include highly flexible
working time arrangements but also to introduce escape
clauses for ailing companies, and to lower entrance pay
scales and performance-based annual bonuses. Moreover,
the coverage of collective agreements has been declining.
Multi-company, industry-wide contracts cover about 43.4%
of all firms; 5.3% are covered by a company-level
agreement; and 51.3% are not covered at all. Coverage in
the eastern states is even lower than in the west. In
terms of workers covered by a collective agreement, 73.6%
of workers are covered, while 26.4% are uncovered. Again,
the coverage is higher in the west than in the east.
To cope with the impact of plant closures and
redundancies, several unions negotiated a new type of
collective agreement (Sozialtarifvertraege) to regulate
plant closures or relocations of sites. These agreements
usually provide for the transfer of employees to "job
creation" agencies, training, and redundancy payments.
Germany's education system for skilled labor, combining
on-the-job and in-school training for apprentices,
produces many of the skills employers need. There are
rigidities in the training system, however, such as
restrictions on night work for apprentices, to which some
employers object. Another criticism is that the system is
inflexible with regard to occupational categories and
training standards. Labor unions complain employers do
not establish enough training slots and do not hire enough
of the trainees after their training is completed.
Regulatory obstacles to workers' mobility remain high in
Germany (and throughout the EU) and have also contributed
to serious labor shortages in many high-skilled fields,
above all for engineering, technical professions and
manufacturing trades. An important element of German
labor market policy is public support for training. The
country's response to the crisis has included an expansion
of existing measures as well as the introduction of new
schemes, with total additional spending estimated at euro
1.97 billion, or 36% of the labor market part of the
government's stimulus program. A 2009 case study found
that the publicly funded training is helping to address
skills shortages present before the advent of the crisis.
While trade union membership has continued to decline
since the beginning of the 1990s, there has been a notable
slowdown of this development in recent years. About 21%
of the workforce is organized into unions. The
overwhelming majority are in eight unions largely grouped
by industry or service sector. These unions are
affiliates of the German Trade Union Federation (DGB).
Several smaller unions exist outside the DGB, principally
in white-collar professions. Since peaking at more than
13 million members shortly after German re-unification,
total union membership has steadily declined to 6.3
million at the end of 2008.
Unions' right to strike and the employers' right to lock
out are protected in the German constitution. Court
rulings over the years have limited management recourse to
lockouts, however. Institute of Economic and Social
Research data published in April 2009 reveal that
industrial action in Germany in 2008 involved 1.6 million
striking workers - about one million more than in 2007.
However, the estimate of 542,000 days not worked was about
25% less than in 2007. On the other hand, the official
records of the Federal Employment Agency counted just
154,052 strikers, amounting to 131,679 days not worked;
incomplete reporting may explain this disparity.
At the company level, works councils represent the
interests of workers vis-a-vis their employers. A works
council may be elected in all private companies employing
at least five people. The rights of the works council
include the right to be informed, to be consulted, and to
participate in company decisions. Works councils often
help labor and management to settle problems before they
become disputes and disrupt work.
"Codetermination" laws give the workforce in medium-sized
or large companies (stock corporations, limited liability
companies, partnerships limited by shares, co-operatives,
and mutual insurance companies) significant voting
representation on the firms' supervisory boards. This
codetermination in the supervisory board extends to all
company activities.
Foreign-Trade Zones / Free Ports
There are seven free ports in Germany established and
operated under EU Community law: Bremerhaven, Cuxhaven,
Deggendorf, Duisburg, Emden, Hamburg and Kiel. These
duty-free zones within the ports also permit value-added
processing and manufacturing for EU-external markets,
albeit under certain requirements. All of them are open to
both domestic and foreign entities. Falling tariffs and
the progressive enlargement of the EU have in recent years
gradually eroded much of the utility and attractiveness of
duty-free zones, but there are currently no plans to
eliminate them.
Foreign Direct Investment Statistics
According to the U.S. Department of Commerce's Bureau of
Economic Analysis, in 2008 German direct investment in the
United States was worth $211 billion, while U.S. direct
investment in Germany was worth $110 billion. Foreign
investment has been particularly strong in eastern
Germany, where about 1 trillion euros have been invested
since 1991, of which an estimated 84% came from private,
non-government sources. Some 2,000 foreign companies,
including 300 U.S. firms, have invested in eastern Germany
since reunification.
Top 10 U.S. Companies in Germany by 2008 Sales
Company -- Est. Sales in 2008 (in mio euro)
Ford-Werke GmbH -- 19,762
ExxonMobil Central Europe Holding GmbH -- 15,200
Adam Opel *) -- 13,000
ConocoPhillips Germany *) -- 13,000
IBM Gruppe Deutschland *) -- 9,300
GE Deutschland *) -- 9,200
Philip Morris GmbH -- 6,268
Hewlett-Packard GmbH -- 5,000
Dow Group Germany *) -- 4,835
Procter & Gamble *) -- 4,600
(Source: American Chamber of Commerce in Germany
"Commerce Germany" September 2009)
Foreign Direct Investments in Germany by key sectors (2007
- millions of euros)
Holding companies -- 81,137
Retail -- 54,462
Credit and banking -- 47,936
Data processing -- 40,977
Chemical industry -- 32,205
Machine tools -- 16,784
Insurance -- 16,211
Services -- 15,372
Real estate -- 15,214
Medical, measuring equipment, optics -- 9,369
Automobiles and parts -- 8,560
(Source: Deutsche Bundesbank, Bestandserhebung ueber
View as: DESKTOP | MOBILE © Scoop Media